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Written by Diana Thebaud Nicholson // October 22, 2015 // China, Economy // 1 Comment
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China’s Economy at the Fifth Plenum
By Andrew Sheng and Xiao Geng
(Project Syndicate) China is set to take some more world-shaping decisions at this month’s Fifth Plenary Session of the 18th Communist Party of China Central Committee.
This year, the Party must agree on the direction of China’s 13th Five-Year Plan, which is to be launched in 2016 and is supposed to enable the country to graduate from middle-income status by 2020. The question is how to balance the need for continued growth with the imperative for reforms that disrupt traditional pro-growth incentives.
China certainly faces serious challenges. Economic growth has slowed to below 7%, at a time when the rest of the world is facing the threat of secular stagnation (very low growth and near-zero inflation). Internal debts are rising; the renminbi is facing continued depreciation pressure; and investors are still digesting the implications of the recent stock-market intervention. Add to that the bureaucracy’s increasing reluctance to take bold action – an unintended consequence of President Xi Jinping’s aggressive anti-corruption campaign – and the scale of the task China is facing becomes clear.
But there is also some good news. On Xi’s recent state visit to the United States, he and US President Barack Obama reaffirmed their countries’ bilateral trade and economic relations. Moreover, China is moving forward with its “one belt, one road” initiative, aimed at deepening China’s economic ties with countries throughout Central and Southeast Asia, the Indian Ocean, the Middle East, and eventually Europe. Such efforts will complement those of the US-led Trans-Pacific Partnership trade agreement, which does not currently include China, in shaping the global trade and investment environment.
In fact, despite worrying short-term signals, China seems to be in the midst of a major transformation into a “lean, clean, and green” consumption-driven economy. Of course, the process will be far from easy, owing not just to the complexity of China’s economy, but also to its globally integrated nature, which makes it vulnerable to external shocks. But, despite the difficulty of coordinating China’s huge bureaucracy, the government has made considerable headway in addressing four serious challenges: corruption, environmental degradation, excessive local-government debt, and overcapacity.
Stephen S. Roach: China’s Complexity Problem
(Project Syndicate) Services are in many respects the infrastructure of a consumer society – in China’s case, providing the basic utilities, communications, retail outlets, health care, and finance that its emerging middle class is increasingly demanding. They are also labor-intensive: in China, services require about 30% more jobs per unit of output than do capital-intensive manufacturing and construction.
Services are also the ingredient that makes China’s urbanization strategy so effective. Today, approximately 55% of China’s population lives in cities, compared to less than 20% in 1978. And the share should rise to 65-70% over the next 15 years. New and expanding cities sustain growth through services-based employment, which in turn boosts consumer purchasing power by trebling per capita income relative to that earned in the countryside.
Alas, there is an important catch. While progress on economic rebalancing is encouraging, China has put far more on its plate: simultaneous plans to modernize the financial system, reform the currency, and address excesses in equity, debt, and property markets. Meanwhile, the authorities are also pursuing an aggressive anti-corruption campaign, a more muscular foreign policy, and a nationalistic revival couched in terms of the “China Dream.”
The interplay among these multiple objectives may prove especially daunting. For example, the confluence of deleveraging and the bursting of the equity bubble could create a self-reinforcing downward spiral in the old manufacturing economy that shakes consumer confidence and offsets the emerging dynamism of the new services economy. Similarly, military adventures in the South China Sea could damage China’s links to the rest of the world long before it is able to count on domestic demand for economic growth
China cuts rates, reserve ratio after stocks plummet again
(Reuters) China, one of the main engines of the world economy, has overtaken Greece at the top of the worry list of global investors, who fret its economy is growing at a much slower pace than the official 7 percent target for 2015. A majority of analysts, however, predict a continued deceleration – rather than a crash – for China’s economy, and dismiss comparisons with the 2008 Global Financial Crisis or the 1997/98 crisis in Asia.
China Steers Course Between Prestige and Profit
(Spiegel) China, the world’s second-largest economy and largest trading nation, produces steel and cement, manufactures garlic presses and soccer jerseys and assembles smartphones, tablets and computers. But if the government planners in Beijing have their way, China will also develop and build pacemakers, high-performance cameras and industrial robots in the future. And eventually it will also build a large jet with engines that are not produced by General Electric, like those on the ARJ21.
Exactly how strong is China’s economy? Will the country remain the “workbench of the world,” dependent on ideas and orders from the West? Or will it manage to complete the jump to an innovative economy, one that can compete in high-tech fields? And will this make the country, which is mainly a buyer of high-quality German products at this point, a threat to German industry?
China’s ambitions as an industrialized nation are especially apparent in the three major areas of the transportation sector: the automobile, railroad and aviation industries. This is where it becomes evident how Beijing’s planners are proceeding, what they have so far achieved and what setbacks they have already endured.
Commentary from Bank Credit Analyst Global Investment Strategy
• China’s decision to weaken the RMB has raised concerns that the global economy is heading for a full-scale currency war.
• Having let the currency slide, there is no turning back. To prevent further capital flight, Chinese policymakers may need to allow the RMB to weaken by another 5% to 8% in order to flush out expectations of a further depreciation.
• A larger depreciation is of course possible, but this would require that the economy suffer a hard landing. We doubt this will happen.
• Politically, China is also likely to resist a very large depreciation, especially in light of President Xi’s planned visit to Washington next month.
• That said, even a modest drop in the RMB from current levels will make life more difficult for commodity exporters and some of China’s regional neighbors.
• On balance, a weaker RMB is likely to boost the dollar and put further downward pressure on global bond yields.
Is China losing it?
(The Economist) China shocked markets this week by allowing a substantial devaluation of the renminbi’s central parity rate against the US dollar. Following hot on the heels of the stockmarket turmoil that also spurred surprise intervention, it would be reasonable to wonder if China’s government is losing control of the economy. But, as with all headlines that end in a question mark, the answer to mine is “no”. China is undergoing an economic transition on an incredible scale: a continent-sized economy is moving rapidly to higher income status, from investment to consumption, and coming down from 10% levels of growth, while simultaneously opening its financial markets.
… the renminbi has appreciated markedly against almost every currency over the last 18 months. … The story is really one of US dollar strength: the renminbi just could not keep appreciating against most currencies as the economy was weakening. Second, this volatility fits in with the broader trend of liberalisation with some bumps. It is in line with market forces and is something that we should expect to see more of as China liberalises its exchange-rate regime. With the recent interventions in the stock market, I wasn’t expecting now to be the moment to add more “market forces” to the currency, but it is a good reminder that there are a range of voices in Chinese policy circles.
Why China’s stock market bubble was always bound to burst
The sudden collapse of the nation’s share boom left tens of millions of investors in shock. But a massive government intervention to prop up the market has laid bare the contradictions of a capitalist China
(The Guardian) The fact that Chinese stocks were climbing ever higher while the Chinese economy was cooling should have been an unmistakable warning of a bubble, but it caused surprisingly little concern. (Another reason to worry might have been the disparity in prices between so-called “A-shares”, which can only be purchased by investors inside China to keep the domestic market shielded from outside foreign manipulation, and stakes in the same companies available to foreign investors through the Hong Kong exchange, known as “H-Shares”.
… it was all too easy for small investors to assume that the bull market was implicitly backed by a kind of unwritten government guarantee – that the good times were only beginning to roll, and the state would step in to take care of things before the bottom fell out. In fact, the government itself had become bedazzled by the seemingly invincible rise in stock prices. Instead of dedicating its energy to regulating the markets, the Chinese Communist party began to see an unprecedented opportunity in further inflating the bubble – a chance to sell equity stakes in dangerously debt-burdened state enterprises and help clean up some very messy balance sheets.
China surprises economists with GDP rise of 7%
Many had predicted a lower rate of growth and some have raised doubts over reliability of official numbers
The fact that the figure was exactly in line with the Communist party’s 2015 full-year growth target “raises suspicions,” said [Dali Yang, the director of the University of Chicago Center in Beijing]. “There is the issue of credibility, certainly.”
Encouraged by the State, Chinese Put Everything at Risk With Margin Trading
(Epoch Times) China’s stock bubble is bursting, and millions of ordinary Chinese are about to lose their shirts. Aside from the obvious pain that losing one’s life savings would incur, what makes this market crash unique is that the Chinese Communist Party created and encouraged it.
Heading into the New Year, China was facing one of the worst economies in recent times. Repeated downgrades in growth and market instability in the last year have shocked global markets used to meteoric China growth, and struck fear into the regime, which relies on that growth to maintain social order.
The Party thought that a rising stock market would be a good way to raise confidence in its economy. It could alleviate companies’ financing crunch, enrich investors, serve as a distraction for the unemployed, and allow local governments and banks to refill their coffers.
Greece ‘A Sideshow To China Meltdown,’ Ex-BMO Chief Economist Says, And Canada Will Feel Impact
(HuffPost) … in the space of three weeks, China’s Shanghai Composite stock index has lost nearly 30 per cent of its value, wiping out some $2.3 trillion U.S. in wealth. As Bloomberg News put it, that’s a loss of $1 billion for every minute of trading. Regulators have halted trading in more than 700 listed companies, and at least two dozen IPOs have been cancelled.
China could well be setting the stage for another financial time bomb to match its local government debt and real estate bubbles,” said Sherry Cooper, the former chief economist at the Bank of Montreal, in a note issued Tuesday.
… “China has more than 120 times the population of Greece and is the second largest economy in the world, dominating demand for natural resources,” writes Cooper, who is now chief economist at Dominion Lending Centres.
It’s that demand for natural resources that makes China very important to Canada’s economy, even if the two countries’ trade relationship isn’t that large. By largely determining demand for natural resources, China effectively sets the prices Canada gets for its resources on global markets.
Many observers of China’s economy have been alarmed, or at least taken by surprise, by the central government’s aggressive response to the stock price crash. China’s securities regulator is throwing 120 billion yuan ($24.5 billion Cdn) into the stock market through a network of brokerages, in order to shore up stock prices. And in a very unusual move, the Chinese government has actually set a target number for the Shanghai Composite Index: It wants to see it rise to 4,500, from current trading levels below 4,000.
“They are trying to stop the plunge, but this is clearly the wrong way to do it,” Teng Bingsheng, associate dean at Beijing’s Cheung Kong Graduate School of Business, told Bloomberg. “The Chinese stock market is already the most manipulated in the world. It’s an overheated market and you can’t stop people from selling.”
Unlike the U.S.’s Troubled Asset Relief Program (TARP) during the 2008-09 crisis, China isn’t trying to rescue companies, it’s trying to rescue stock prices.
To save its stock markets, China is putting its whole financial system at risk
China’s intervention is far bigger than TARP
(Quartz) First some perspective on this weekend’s activities. The most important of the salmagundi of actions is the security regulator’s promise of an initial 120 billion yuan ($19.3 billion) via 21 brokerages to stabilize the market, alongside the People’s Bank of China’s agreement to provide liquidity support for the margin-trading clearinghouse —what David Cui, strategist at Bank of America/Merrill Lynch, says might be its first step toward becoming the ailing market’s buyer of last resort.
The party is gambling away its credibility
The downside of that wager is profound indeed. The government’s creation of the Chinese bull market has disproportionately benefitted state-owned companies—and therefore the Communist Party—by replacing government-guaranteed debt with equity. That equity, of course, has been funded by the little guy—the second, and much bigger, part of the problem. When the state press and government officials began pumping stocks about a year ago, they essentially made a promise to protect the savings of tens of millions of households.
China’s Pursuit of a New Economic Order
(Project Syndicate) Economists are increasingly divided over China’s economic future. Optimists emphasize its capacity for learning and rapid accumulation of human capital. Pessimists focus on the rapid decline of its demographic dividend, its high debt-to-GDP ratio, the contraction of its export markets, and its industrial overcapacity. But both groups neglect a more fundamental determinant of China’s economic prospects: the world order.
The question is simple: Can China sustain rapid GDP growth within the confines of the current global order, including its trade rules, or must the current US-dominated order change drastically to accommodate China’s continued economic rise? The answer, however, remains unclear.
One way that China is attempting to find out is by pushing to have the renminbi added to the basket of currencies that determine the value of the International Monetary Fund’s reserve asset, the Special Drawing Right (SDR). As it stands, that basket comprises the euro, the Japanese yen, the British pound, and the US dollar.
Limited use of the SDR implies that adding the renminbi would be a largely symbolic move; but it would be a powerful symbol to the extent that it served as a kind of endorsement of the currency for global use. Such an outcome would not only advance the renminbi’s internationalization; it would also provide insight into just how much room there is for China within the existing global economic order.
Clearly, China has faced major challenges within the existing global system as it tries to carve out a role befitting its economic might. That may explain why, with its “one belt, one road” initiative and its establishment of the Asian Infrastructure Investment Bank (AIIB), China’s government is increasingly attempting to recast the world order – in particular, the monetary and trading systems – on its own terms.
The “one belt, one road” initiative aims to re-create the ancient overland and maritime Silk Roads that carried goods and ideas from Asia to Europe. Given that the project will entail significant Chinese investment affecting some 50 countries, its appeal in the developing world is not difficult to fathom.
The AIIB, too, has proved appealing – and not just to developing countries. In fact, 57 countries – including major powers like France, Germany, and the United Kingdom – have signed up as founding members, which may reflect a growing awareness of the US-dominated order’s diminishing returns.
New film on China’s pollution sparks debate, seen as milestone
(Planet Ark) Could “Under the Dome”, Chinese journalist Chai Jing’s new documentary about pollution, become China’s “Silent Spring”, the 1962 book that spurred the development of the U.S. environmental movement?
Since it was released online on Saturday, the film has been viewed more than 150 million times and has sparked a national debate on environmental problems.
“Under the Dome”, which explains air pollution in personal, straight-forward terms, was well-timed: this week China’s National People’s Congress, the country’s parliament, holds its annual meeting.
China to Be Superpower That Wasn’t, Sage of Japan Slide Says
Goldman Partner Who Called Japan’s Demise Sees Similarities With China
(Bloomberg) — Forecasts for China to surpass the U.S. as the world’s main economic power are misplaced. So says an observer who foresaw Japan’s eventual demise a year before its land-price bubble began to burst.
“The vulnerabilities in China today are very similar to the vulnerabilities in Japan,” said Roy Smith, 76, who was a Goldman Sachs Group Inc. partner when he wrote a column saying Japan’s rise as a financial hegemon was done. “Nobody agrees with me. But they didn’t agree with me in 1990, so at least I have one right.”
Among the risks: bad loans, overpriced stocks and a frothy property market are flashing danger for China’s economy and putting pressure on a fragile financial system — similar to conditions that triggered Japan’s fall, said Smith, a finance professor at New York University’s Stern School of Business. A further parallel is the burden of an aging population, with mounting pension and health-care costs, he says.
The China (Shanghai) Pilot Free Trade Zone: Backgrounds, Developments and Preliminary Assessment of Initial Impacts
(CIGI) The China (Shanghai) Pilot Free Trade Zone (SPFTZ) founded in September 2013, is a trial for China’s new round of “reform and opening up.” The SPFTZ has promised liberalization on capital account and trade facilitation as its main objectives. This paper discusses reasons why China needs such a pilot zone after three decades of economic development, examines the differences between the SPFTZ and other free trade zones and highlights the developments of the SPFTZ since its inception. The SPFTZ’s initial impressions are assessed, especially its impact on the opening of China’s capital account and financial liberalization. The hope is that the success of the SPFTZ, and more pilot policies replicated in China, will give rise to a more balanced Chinese economy in the following decade.
The Chinese Century (Vanity Fair January 2015)
Without fanfare—indeed, with some misgivings about its new status—China has just overtaken the United States as the world’s largest economy. This is, and should be, a wake-up call—but not the kind most Americans might imagine.
by Joseph E. Stiglitz
When the history of 2014 is written, it will take note of a large fact that has received little attention: 2014 was the last year in which the United States could claim to be the world’s largest economic power. China enters 2015 in the top position, where it will likely remain for a very long time, if not forever. In doing so, it returns to the position it held through most of human history.
China’s replica of Wall Street is full of half-built, deserted skyscrapers and floods regularly
The skyline of Yujiapu in the Chinese city of Tianjin looks more like an expensive, abandoned movie set than it does “China’s new Manhattan,” as the financial district was once billed. A patina of dust covers the glass doors of the 47 office buildings and hotels that still sit empty, and in come cases unfinished.
This Manhattan-style ghost city on some of the best real estate in Tianjin, a port city just south of Beijing, is a victim of China’s investment boom—and, as is increasingly apparent, its bust. Tianjin has led the debt bonanza of the last five years, loaning out money faster than anywhere else in China since the financial crisis hit in 2009.
Much of the construction ceased back in 2010, and the deserted avenues left behind reflect the reckless borrowing of local-government financing vehicles (LGFVs)—companies created by city and provincial governments to borrow cheaply from state-owned banks to fund prestige-boosting infrastructure projects. Built by one of Tianjin’s most powerful local-government financing vehicles (LGFVs), Yujiapu promised to become “the world’s largest financial district,” with at least 200 billion yuan ($32 billion) invested to create a new center of Chinese “financial innovation.”
China’s looming debt bomb: Shadow banking and the threat to growth
(Globe & Mail) Caofeidian was to be home to a million-person eco-city, a massive steel factory, a power plant, an oil refinery and a panoply of apartments, bus makers, warehouses, lumber plants, a Sino-Japanese business park, even an “exhibition centre of strategic new industries.” A decade of spending poured $100-billion into the soil here, the equivalent of the annual budgets of British Columbia, Alberta, Manitoba and Saskatchewan combined.
But the loans that allowed all that spending have just 50 per cent odds of being paid back, says an independent research group that has spent years studying Caofeidian. The stakes are enormous. Caofeidian was a project of national importance for China, a “flagship,” according to Jon Chan Kung, chief researcher at Anbound, a Beijing think tank.
“If this project fails, it proves that the major model driving China’s development has also failed,” he says.
Debt now stands to undo at least some of what China’s spending has accomplished. Some of the country’s major projects have done little more than strand vast amounts of invested capital. Debt is just one of the ticking time bombs in China today. China must also cope with the fallout from slowing spending in a place where social stability has been largely defined by one thing: the non-stop accumulation of wealth.
“China’s Warren Buffett” Has Just Sold Off His China Assets
(Forbes) On the 8th of this month, Pacific Century Premium Developments and PCCW announced they had signed an agreement to sell Pacific Century Place. The disposal of a landmark project in the center of Beijing—two office buildings, two blocks of serviced apartments, and a mall—confirmed that Li Ka-shing and son Richard have turned bearish on Chinese real estate.
Now that Li is out of major China developments, others will probably take the hint. “Why would you buy anything when Li Ka-shing is selling?” asks Euromoney. The magazine posed the question in connection with Li dumping assets in his home base, Hong Kong. There, he has gone on another “de-risking” binge … It would be nice to think that Li, an octogenarian, is dumping assets at the end of an illustrious career so that his China sales say more about him than the state of the Mainland property market. Yet Li is busy redeploying assets to Europe, indicating he is not exactly contemplating retirement.
Adrienne Arsenault reports from China on that country’s slower economic growth during this time of leadership change. (originally aired on November 14, 2012)
McKinsey Quarterly (January 2013): China’s economy is starting its historic shift to a more consumption- and service-driven model that should help sustain the country’s growth, albeit at a slower rate, over the next decade and beyond. As November’s 18th congress of the Chinese Communist Party showed, new government policies are helping to move the economy in this direction, even though investment—the historical motor of China’s growth—will still command the lion’s share of the economy in the near term.
15 Facts About China That Will Blow Your Mind
(Business Insider) Despite all the wild stories you have already heard about China, expect the nation to keep blowing your mind. That’s because not only is China enormous and highly diverse, but most importantly, it’s rapidly changing. Thus China’s future already looks far different today than even five years ago.
(RCI) World Bank wants China to rethink economic blueprint The World Bank and Chinese researchers said Monday. China needs a new economic strategy after three decades of rapid growth and must reduce the dominance of state companies and promote free markets to achieve its goal of becoming a high-income society … The report highlights the fact that after three decades of reforms allowed Chinese entrepreneurs to become world leaders in export-driven manufacturing, state companies still control domestic industries from steel to airlines to oil to telecommunications. Government companies are supported by low-cost credit from state banks. Business groups complain regulators shield them from foreign and private competitors despite Beijing’s open-market pledges.
China vows ‘decisive’ role for markets, results by 2020
(Reuters) – China’s leaders pledged to let markets play a “decisive” role in the economy as they unveiled a reform agenda for the next decade on Tuesday, looking to secure new drivers of future growth.
China aims to achieve “decisive results” in its reform push by 2020, with economic changes in focus, the ruling Communist Party said in a communiqué released by state media at the end of a four-day conclave of its 205-member Central Committee.
The self-imposed deadline for progress – rare for Beijing to lay out in such clear terms – together with the creation of a top-level working group and an emphasis on “top-level design”, suggest a more decisive reform push by the administration of President Xi Jinping and Premier Li Keqiang than under the previous leadership.
China economy showing clear signs of stabilization: statistics bureau
(Reuters) – China’s economy is showing clear signs of stabilization, helped by policy support and some improvement in global demand, and is on track to meet the government’s 2013 growth target of 7.5 percent, the state statistics bureau said on Monday. … local government debt also remained under control, the National Bureau of Statistics said.
Adrienne Arsenault: Ghost city shows cracks in China’s urban planning
Canada’s growth rate will surely suffer if China’s does. So how to mitigate the damage? Is it possible that more actively embracing Chinese state-owned enterprises can offset it a potentially slowing Chinese economy? Maybe … maybe not. But saying no might have consequences. China’s chill could strike twice.
Tonight on The National , Adrienne Arsenault takes a closer look at a Chinese city without people, meets an economist who resorts to sneaking into ports and factories to understand the truth of the economics of China, and speaks with Chinese executives about what Canada needs to know — and do — to ride whatever wave is coming.
China faces its worst economic crisis: water
(Market Watch) China has a serious problem, bigger than the slowdown in manufacturing growth or the housing-price bubble. It’s water, and it’s a catastrophe that could affect the rest of Asia and the larger world.
In testimony to the U.S. Senate last week, the Council on Foreign Relations’ Asia director Elizabeth Economy said China is facing a water crisis with “profound implications” if the government doesn’t get a grip on it over the next few years.
According to China’s own water-resources officials, more than 400 Chinese cities lacked enough water last year, with 110 of those facing “serious scarcity.”
The key culprit is industry, which Economy said uses 4 to 10 times more water per unit of GDP than similar economies and is polluting the nation’s existing water resources at an alarming rate.
Gendercide: In China, marriage now costs ten years’ income
Thanks to a gaping gender imbalance caused by decades of sex-selective abortion, getting married in modern China may cost men in some cities ten years’ income or more. In effect, the one child policy has locked all but the economic elite out of marriage.
According to a recent survey, more than two-thirds of Chinese men do not make enough money for women to consider marrying them. Those who do will be paying the bill for years.
China Economy Still Soft, Sentiment Souring
(Forbes) China’s economy continues to move sideways and that has some banks revising downward their forecast for year-ending GDP.
Slow in China, of course, is a bullet train in Europe and the United States.
‘It’s like walking into a forest of skyscrapers, but they’re all empty:’ See China’s ghost cities for yourself
(Financial Post) China’s notorious ghost cities are a disaster waiting to happen, according to a new report from 60 Minutes.
Take it from the CEO of Vanke, the country’s largest residential real estate developer, who tells 60 Minutes that developers are deep in debt, projects are being abandoned, and things could get ugly fast. The nightmare scenario could be like America’s housing crash but worse.
“It’s like walking into a forest of skyscrapers, but they’re all empty,” financial analyst Gillem Tulloch said of another ghost city, Chenggong.
As China Changes, Infamous Foxconn Goes Robotic
(Forbes) Foxconn is as famous as it is infamous.
Their iPhone assembly made headline news for years, and in every story, from Wired to The New York Times, Foxconn was made to look like a dollar-a-day sweat shop. It was bad press, mostly all of it justified. Nearly 20 workers have jumped to their deaths at Foxconn factories because of poor working conditions.
As a result of the negativity, progress is now being made. Working conditions are changing. And one way it is changing is Foxconn is becoming less of a sweat shop for the Intel‘s and Apple’s of the U.S., and becoming more like the U.S. Foxconn is scaling back on hiring people; but it is shifting instead to increasing productivity through automation.
Demographic drop-off could spur one-child rethink
China is expected to revisit its one-child policy after its National Bureau of Statistics recently reported a decrease of 3.45 million in the country’s working-age population. Any policy change would not be seen for 15 years, raising questions about the effect on China’s economy. The Economist (tiered subscription model) (1/26)
Reuven Brenner: China faces a neurotic future
An entertaining and highly instructive commentary on the possible consequences of China’s one child policy, based on a still-valid article written ten years ago.
(Asia Times) … let there be no doubt. A country filled with 1 million variations on Freud, combined with 100,000 variations on Woody Allen and Marx, and 700 million falling between the cracks during the transition from paternalist China to a variation on 18th/19th century lacking-safety-nets-type society, brings about a very neurotic prosperity.
When millions people, who have nothing to loose, bet on crazy ideas, expect much volatility. It may be interesting to watch, and – no doubt – some will make fortunes from this volatility. Just remember the Chinese curse: “You should live during interesting times.”
One thing the US could do in order not to contribute to this volatility, is let the Chinese keep their currency stable, and pegged to the US dollar. Monetary mismanagement combined with hundreds of millions of people who would have nothing to loose, and a few neurotic millions can be a lethal combination.
China’s atypical labour challenge
(Economist Intelligence Unit) Few forces shape an economy quite as much as demographics, so the approach of a major milestone on China’s demographic trajectory is significant. By our estimates, China’s working-age population will peak this year. However, my team of China analysts and I note that the challenges this creates will be quite different from those typically encountered in rich countries. This is because China’s urban working-age population will continue to grow, and because educated workers will become more numerous. China’s much-documented labour shortages may thus give way to an oversupply of higher-qualified young people competing for jobs—a situation policymakers must plan for now to avoid social tensions in the future.
China’s most famous economist warns against state control
(Emerging Markets) China’s decision makers should avoid expanding the state’s control because it would create “crony capitalism,” professor Wu Jinglian said
The reforms started in the early 1980s to free up China’s economy and give more room to the private sector to grow have helped unleash resources, moving 200 million rural workers to the cities, and have improved technologies and management as Chinese companies learned new skills from foreign investors, Wu said.
But reform “has not been fully implemented” as “the current system retains barriers from the old system”; “state companies still occupy the ‘commanding heights’ of the national economy,” the government retains the power to allocate land and other resources and the rule of law is not strong, he added during a presentation on China’s economy at London-based Chatham House.
Indebted Dragon — The Risky Strategy Behind China’s Construction Economy
Lynette H. Ong
(Foreign Affairs) Financing the Middle Kingdom’s recent building boom has been expensive: Estimates put local government debt alone at between $800 billion and $2 trillion, or around 13 to 36 percent of GDP. If the real estate bubble pops, financial and social crises will follow.
As China Weighs Shifting Economic Policy, a Rivalry for Its Stewardship
(NYT) Advocates for far-reaching economic policy changes in China have long pinned their hopes on Wang Qishan, a cagey former banker with a reputation for forcing difficult decisions through recalcitrant bureaucracies. … But a number of Communist Party insiders say that … Mr. Wang’s chances of being named to a top job with broad authority over the economy appear to be dwindling by the day. … The leading candidate to become executive vice prime minister now appears to be Zhang Gaoli, the party secretary of Tianjin, a party insider said. He is an economist by training but has a reputation as a cautious official more preoccupied with maintaining political stability than with undertaking economic policy experiments.
To Renminbi Or Not to Renminbi?
Why China’s currency isn’t taking over the world.
(Foreign Policy) As China moves up the economic pecking order, it has been trying to promote its currency, the renminbi (RMB), as an alternative to the U.S. dollar. The Chinese government has ambitious plans for establishing offshore centers where companies can raise RMB funds, internationalizing its currency, and possibly enabling the RMB to supplant the dollar as the global reserve currency. The U.S. dollar isn’t the only global reserve currency — countries also keep some of their foreign exchange reserves in euros and yen — but it has been the dominant one since the 1944 Bretton Woods conference.
There are three degrees of RMB internationalization. First, China and its major trading partners transact in RMB; this has been happening since 2009. The next step is widespread third-party usage of the RMB in financial and trade transactions. In other words, only when parties undertaking transactions unrelated to China regularly use the RMB will it truly be an international currency. For the RMB to take the final step and become a global reserve currency, central banks around the world would have to maintain sizable holdings of RMB to insure against their own financial risks. In other words, the RMB would become a so-called safe-haven currency the way that the dollar and the yen are today.
China’s limited financial system and its lackluster global reputation — not U.S. fears of China’s rise — are preventing the RMB from becoming a global reserve currency.
China’s Economy Seen Facing Critical Points
(WSJ) China’s economy is approaching several key turning points, but economists and bankers say these junctures may present an opportunity for further financial reforms and more sustainable growth levels.
Economists and investors globally have been monitoring Chinese economic data closely this year for signs of what is known as a hard landing, where China’s growth rate decreases sharply from its 9.3% growth seen in 2011. China’s gross domestic product grew at a rate of 7.6% on the year in the second quarter; its third-quarter growth rate will be released on Thursday.
The world’s second-largest economy after the U.S. will face further challenges as labor costs rise, its growth eases and demographics shift, economists, bankers and investors said while speaking at the Chinese Finance Association’s annual conference in New York on Sunday.
Riot Disrupts Foxconn Plant—An Example of Labor Unrest Roiling Beneath The Surface in China
(Slate) Foxconn Technologies, best known as one of Apple’s leading component makers but a supplier to many other electronics firms as well, has had to shut a plant down in China after scuffles between workers and security guards turned into a full-blown riot.
… The rapid pace of Chinese industrialization means the average wage in a Chinese factories has managed to lag behind the average productivity of a Chinese factory worker (roughly speaking because it’s dragged down by the absymal wages and productivity of Chinese agriculture) which creates a dynamic ripe for windfall profits but also for labor activism. … Very rapid growth via continuous urbanization and industrialization and wage repression works—and the Chinese have in many ways proved it works better than anyone ever thought—but it’s still a necessarily self-limited process.
The End of China’s Easy Growth
The more we learn about China’s vast stimulus plans, the more far-fetched they seem.
In a joint report with Beijing’s Development Research Centre, the World Bank … said the export-led growth model launched by Deng Xiaoping over thirty years ago is obsolete. China risks a drift into the “middle income trap” unless it abandons its top-down strategies and grasps the nettle of free-market reform.
Caixin magazine reports – with disbelief – that the wish-list for industrial parks and mega-projects unveiled by all echelons of the Chinese system has reached 15 trillion yuan by some estimates.
This is over $2.3 trillion or nearly four times the blitz of extra spending after the Lehman crisis in 2008, a policy that pushed investment to a world record 49pc of GDP and is now deemed to have been a mistake. The central government’s tax revenues have grown 8pc, but spending has risen 37pc. “The good days of overflowing government coffers are over,” it said.
A Mongol miracle
Over the past decade, thanks largely to the rush for resources, Inner Mongolia has recorded the fastest GDP growth of any Chinese province (17% annually on average between 2001 and 2011). In 2009 Inner Mongolia became China’s largest producer of coal. It is also the biggest source of rare earths in the world.
China economic growth slows to 7.6% in second quarter
(BBC) Data released by the Chinese government on Friday indicates that the country’s economy is growing at its slowest pace in three years, a reflection of slackening global demand and China’s own efforts to temper growth. China’s GDP growth slowed to 7.6 percent in the second quarter of 2012, down from 8.1 percent in the previous three months.
Why China Can’t Adjust
(Project Syndicate) China’s current economic slowdown has no shortage of causes: Europe’s financial turmoil, sputtering recovery in the United States, and weak domestic investment growth, to name the most commonly cited factors. Since exports and investment account, respectively, for 30% and 40% of China’s GDP growth, its economy is particularly vulnerable to weakening external demand and accumulation of non-performing loans caused by excessive and wasteful spending on fixed assets. … export dependence partly reflects the high degree of difficulty of doing business in China. Official corruption, insecure property rights, stifling regulatory restraints, weak payment discipline, poor logistics and distribution, widespread counterfeiting, and vulnerability to other forms of intellectual-property theft: all of these obstacles increase transaction costs and make it difficult for entrepreneurs to thrive in domestic markets.
China sacrifices growth to satiate inflation dragon
(Reuters) – If inflation is a dragon that must be slain, China’s Premier Wen Jiabao has shown he is willing to sacrifice a part of the country’s most vital asset to do so — growth.
Cutting China’s 2012 economic growth target to 7.5 percent at the start of the annual meeting of parliament last week says clearly that too rapid an expansion makes inflation too tough to contain, given the reforms needed to create widespread wealth.
China ditches double-digit growth
(FT) Wen emphasises government’s ambition to refocus towards domestic consumption and away from investment and exports
World Bank: China’s growth could face stagnation
Without significant changes to state enterprises, as well as taxation and welfare systems, the growth propelling China to the heights of development could stagnate, causing the country to fail to evolve from middle-income to a high-income, warns the World Bank in a report. “There is broad consensus that China’s growth is likely to slow, but when and at what pace is uncertain, and there is no saying whether this slowdown will be smooth or not,” said the report, “China 2030.” The Wall Street Journal/China Real Time Report blog (2/27), The Guardian (London) (2/27)
World Bank’s Bitter Pill for China
(WSJ) The sugar coating is deep, but anyone reading ten pages into the World Bank’s report on China 2030 finds that the core message on the sustainability of China’s current growth model is surprisingly bitter.
“There is broad consensus that China’s growth is likely to slow, but when and at what pace is uncertain, and there is no saying whether this slowdown will be smooth or not” the doyennes of development say.
As if that weren’t bad enough, the report warns: “Any sudden slowdown could unmask inefficiencies and contingent liabilities in banks, enterprises, and different levels of government—heretofore hidden under the veil of rapid growth—and could precipitate a fiscal and financial crisis.”
It gets worse: “The implications for social stability would be hard to predict in such a scenario.”
China’s economic growth slows further
(The Guardian) China’s economy grew at its slowest pace in more than two years, slowing to a rate of 8.9% at the end of last year
China factories eye cheaper labour overseas
(FT) Labour costs in China have risen 15-20 per cent annually over the past couple of years, squeezing margins and creating increasingly testing times for Guangdong, the engine room of Chinese manufacturing.
For Foreign Makers, China’s Low-Cost Image Fades
(WSJ) Rapidly rising wages in China have reached the point at which foreign manufacturers need to give up on the notion of the country as a low-cost production base, a senior Hyundai Motor Co. executive said Thursday.
Jae-Man Noh, head of Hyundai’s joint-venture operations in China, said average manufacturing-worker wages in China—about 27,000 yuan ($4,200) a year per worker in 2009—are likely to double by 2015 from current levels.
China inflation rises to 6.5% in July
(FT) China inflation continued to rise in July – hitting 6.5% – but there are indications that it may have peaked after months of monetary tightening
Asia’s BRICs hit the wall
Despite their recent success, China and India may soon face some economic difficulties.
Inflation and rising interest rates are among the many issues that may soon prove fatal to the Indian and Chinese economies
(Al Jazeera) China’s local governments have been accumulating mountains of debt to fund their construction binges, raising serious concerns about potential defaults. Premier Wen Jiabao himself recognises the urgent need to address the country’s inequitable growth, calling for means to be found to “share prosperity evenly,” and thus to reduce the widening gaps between “rich and poor, cities and countryside”.
The economist Nouriel Roubini has predicted that China’s economy will most likely slow sometime between 2013 and 2015, the point at which its fixed-asset investments of nearly 50 per cent of GDP will demand social and monetary returns. Until now, says Roubini, China’s export-led growth has depended on “making things that the rest of the world wants, at a price that no other country can match”, a consequence of cheap labour and economies of scale. This cost advantage is diminishing fast.
Chinese officials blame design flaws for deadly crash
(FP Morning Brief) A high-speed train crash that resulted in the deaths of 39 people in eastern China was the result of a faulty signaling device, according to Chinese railway officials. The device reportedly failed to turn from green to red after earlier being struck by lightning.
The explanation for the July 23 crash, which was reported by the news agency Xinhua, was China’s first official account of what caused the accident. The crash, which has spurred further questions about the safety of China’s high-speed rail system, has turned into an embarrassment for Chinese officials.
Crash threatens China’s high-speed ambitions
(FT) A train crash that killed at least 35 people has raised fresh questions about China’s rapid railway spending drive
Inflation-hit Chinese go abroad to shop
(Reuters) The inflation reading for June hit a three-year high of 6.4 percent year on year, and Goldman Sachs said we may see further highs in July or even August. During his recent trip to Britain, Chinese Premier Wen Jiabao, … claimed the inflation problem had been solved. He may need to think twice after seeing the angry public reaction in China on the rapid rise in consumer prices, especially food.
… China’s central banker governor Zhou Xiaochuan said about inflation: he asked the media and public not to “overreact” to the June figure and apparently tried to prove he was doing a good job.
The central bank had many things to deal with, not only inflation, for example international payments, he said at a recent meeting. … to ordinary Chinese such as my parents in Shanghai, your comments on inflation simply make them feel almost hopeless about the outlook for their purchasing power.
Perhaps the Chinese Communist Party, which is celebrating its 90th anniversary, wants to send this message — it’s not that bad to be Chinese. Go abroad and buy whatever you want and you will be proud of holding yuan and being Chinese.
China acts after inflation rises
(FT) China has imposed strict price controls on basic consumer items and is expected to allow faster appreciation of its currency in the coming months after annual inflation in the country reached its highest level in nearly three years in March.
The economy grew a faster-than-expected 9.7 per cent from a year earlier in the first quarter, only fractionally slower than 9.8 per cent in the fourth quarter of 2010, suggesting that six months of government efforts to cool growth have been largely ineffective. Since October, Beijing has raised benchmark interest rates four times and increased the ratio of deposits that banks must hold in reserve six times, to 20 per cent for China’s largest lenders.
China Goes American, Registers First Trade Deficit Since ‘04
(Forbes) A growing middle class and a stronger local currency has more Chinese businesses buying abroad. Higher priced commodities — especially soy from the Americas and iron ore from Brazil — didn’t help the trade figures either.
Which countries match the GDP, population and exports of China’s provinces?
China is now the world’s second-biggest economy, but some of its provinces by themselves would rank fairly high in the global league.
Our map shows the nearest equivalent country. For example, Guangdong’s GDP (at market exchange rates) is almost as big as Indonesia’s; the output of both Jiangsu and Shandong exceeds Switzerland’s. Some provinces may exaggerate their output: the sum of their reported GDPs is 10% higher than the national total. But over time the latter has consistently been revised up, suggesting that any overstatement is modest.
China’s Innovation Wall
(Foreign Affairs) In a bid to end its dependence on foreign intellectual property and become a global power in science and technology, China is attempting to foster indigenous innovation. Are the U.S. government and business community right to be worried about threats to free trade and intellectual property rights?
China: Rumors of the Central Bank Chief’s Defection
(STRATFOR) Rumors have circulated in China that People’s Bank of China (PBC) Gov. Zhou Xiaochuan may have left the country. The rumors appear to have started following reports on Aug. 28 which cited Ming Pao, a Hong Kong-based news agency, saying that because of an approximately $430 billion loss on U.S. Treasury bonds, the Chinese government may punish some individuals within the PBC, including Zhou. Although Ming Pao on Aug. 30 published a report on its website indicating that the prior report was fabricated by a mainland news site that had attributed the false information to Ming Pao, rumors of Zhou’s defection have spread around China intensively, and Zhou’s name has been blocked from Internet search engines in China.
China’s Brain Drain
As China’s economy steams toward superpower status, the country has rolled out splashy programs to lure elites back from overseas. One problem: many don’t seem to want to return. In 2009 Beijing launched the Thousand Talents program, dangling generous perks for top-level researchers and entrepreneurs willing to go back home. It reeled in some big names, including Princeton biologist Yigong Shi and Northwestern professor Yi Rao. But more than a year and a half on, the numbers have stalled at about 600.
China Fortifies State Businesses to Fuel Growth
BEIJING — During its decades of rapid growth, China thrived by allowing once-suppressed private entrepreneurs to prosper, often at the expense of the old, inefficient state sector of the economy.
Now, whether in the coal-rich regions of Shanxi Province, the steel mills of the northern industrial heartland, or the airlines flying overhead, it is often China’s state-run companies that are on the march.
Johann Hari: And the Most Inspiring Good News Story of the Year Is…
(HuffPost) An epic rebellion has now begun in China against this abuse — and it is beginning to succeed. Across 126,000 Chinese factories, workers have refused to live like this any more. Wildcat unions have sprung up, organized by text message, demanding higher wages, a humane work environment, and the right to organize freely. Millions of young workers across the country are blockading their factories and chanting “there are no human rights here!” and “we want freedom!” The suicides were a rebellion of despair; this is a rebellion of hope.
Last year, the Chinese dictatorship was so panicked by the widespread uprisings that they prepared an extraordinary step forward. They drafted a new labor law that would allow workers to form and elect their own trade unions. It would plant seeds of democracy across China’s workplaces. Western corporations lobbied very hard against it, saying it would create a “negative investment environment” – by which they mean smaller profits. Western governments obediently backed the corporations and opposed freedom and democracy for Chinese workers. So the law was whittled down and democracy stripped out.
It wasn’t enough. This year Chinese workers have risen even harder to demand a fair share of the prosperity they create. Now company after company is making massive concessions: pay rises of over 60 percent are being conceded. Even more crucially, officials in Guandong province, the manufacturing heartland of the country, have announced they are seriously considering allowing workers to elect their own representatives to carry out collective bargaining after all.
Two complementary pieces from The Economist
The next China
As the supply of migrant labour dwindles, the workshop of the world is embarking on a migration of its own
The next China may instead lie closer to home: within China’s borders, but away from its coasts. Three inland provinces are wooing Foxconn, the Taiwanese electronics company which raised pay in its coastal plant after a string of suicides by workers. Another, Anhui, is only a few hundred kilometres up the Yangzi river from Shanghai, but its income per person belongs to another realm. Foreigners invested $3.8 billion in the province last year, pursuing cheaper land and labour.
The rising power of the Chinese worker
In China’s factories, pay and protest are on the rise. That is good for China, and for the world economy
CHEAP labour has built China’s economic miracle. Its manufacturing workers toil for a small fraction of the cost of their American or German competitors. At the bottom of the heap, a “floating population” of about 130m migrants work in China’s boomtowns. … As China’s economy has bounced back, wages have followed suit. On the coasts, where its exporting factories are clustered, bosses are short of workers, and workers short of patience. A spate of strikes has thrown a spanner into the workshop of the world. … China’s economy relies too much on investment and too little on consumer spending. That is mostly because workers get such a small slice of the national cake: 53% in 2007, down from 61% in 1990 (and compared with about two-thirds in America). Letting wages rise at the expense of profits would allow workers to enjoy more of the fruits of their labour. Higher Chinese wages would also be good for the West.
Chinese banks face state loans turmoil
China’s banks are facing serious default risks on more than one-fifth of the Rmb7,700bn they have lent to local governments across the country, senior Chinese officials say
Forget Greece, China’s “Red Flags” Are a Bigger Problem
Rising inflation and a brewing real estate bubble: Chinese real estate rose 12.8% in the past year, the highest since 2005.
Government efforts to quell said bubble: Money supply has been shrinking in China, which Damien Hoffman says is a sign the government “concerned growth is overheated.”
Falling exports and rising imports: Amid a slowdown in industrial manufacturing, China reported a trade deficit in March for the first time since 2004.
When the party’s over
(Emerging Markets) China’s spectacular lending binge has brought into sharp relief the need among lenders to shore up their eroded capital base. But more worrying is a likely surge in non-performing loans that could stretch state finances to the limit
China’s economy grows at 11.9%
China’s economic growth accelerated to 11.9 per cent in the first quarter, underlining the rapid recovery from the global economic crisis but raising new questions about the risks of overheating
China ‘bake-off’ lures bankers for largest IPO
Agricultural Bank of China invites 21 international and Chinese banks to submit underwriting proposals for an initial public offering that could raise as much as $29.3bn
Maybe the Chinese yuan isn’t as undervalued as everyone thinks
But is the Chinese renminbi (or yuan) really as undervalued as generally thought? Goldman Sachs for one has for some months now taken the view that it very possibly isn’t. You can see this as GS trying to curry favour with the Chinese leadership if you like, but the view gets some support from a new note by Barclays Capital this week. It may be a temporary phenomenon brought on by the Chinese fiscal stimulus, but in fact China’s trade surplus has been narrowing for some time now thanks to a surge in imports.
China complains to WTO over rules that overwhelmingly benefit China
Experts believe that China is leveraging economic discrepancies against the U.S. and other countries by maintaining an artificially low value for its currency and fighting protectionist tariffs by its partners. Despite maintaining a $198 billion trade surplus with the rest of the world last year, China levied more complaints about trade practices with the World Trade Organization than any other country. Chinese Premier Wen Jiabao attacked critics who argue that the country must allow its currency to appreciate. The New York Times (3/14) , The Washington Post (3/15)
Paul Krugman: Taking On China
It’s time for America to confront China about the undervaluation of its currency, which is adding to the world’s economic problems at a time when those problems are already severe.
Today, China is adding more than $30 billion a month to its $2.4 trillion hoard of reserves. The International Monetary Fund expects China to have a 2010 current surplus of more than $450 billion — 10 times the 2003 figure. This is the most distortionary exchange rate policy any major nation has ever followed.
The End of the Beijing Consensus
Can China’s Model of Authoritarian Growth Survive?
By YANG YAO, Deputy Dean of the National School of Development and the Director of the China Center for Economic Research at Peking University.
Beijing’s ongoing efforts to promote growth are infringing on people’s economic and political rights. In order to survive, the Chinese government will have to start allowing ordinary citizens to take part in the political process.
China curbs companies’ capital raising
Chinese regulators have imposed a partial ban on listed companies raising capital from equity markets to repay bank loans or replenish working capital, amid a general tightening of liquidity and official curbs on soaring bank debt in the country.
China raises bank reserve requirements
China increased the required amount of deposits banks must keep as reserves in the clearest signal yet that the central bank is trying to tighten monetary conditions amid mounting concerns over inflation
Chinese scientists dismissed after 70 suspect papers
China’s latest scientific fraud case is, like others, caused by inappropriate university bonus schemes, says a veteran campaigner.
China has said that it wants to be a research superpower by 2020.
Tom Friedman: Is China the Next Enron?
After visiting Hong Kong and Taiwan this past week and talking to many people who work and invest their own money in China, I’d offer Mr. Chanos two notes of caution.
First, a simple rule of investing that has always served me well: Never short a country with $2 trillion in foreign currency reserves.
Second … I am reluctant to sell China short, not because I think it has no problems or corruption or bubbles, but because I think it has all those problems in spades — and some will blow up along the way (the most dangerous being pollution). But it also has a political class focused on addressing its real problems, as well as a mountain of savings with which to do so (unlike us).
As China Rises, Fears Grow on Whether Boom Can Endure
(NYT) As much of the world struggles to clamber out of a serious recession, a gradual flow of economic power from West to East has turned into a flood.
China’s decisive government intervention in the economy, combined with the defiant optimism of its companies and consumers, has propelled an economy that until recently had seemed tethered to the health of its major export markets, including the United States. Yet China confronts a number of challenges about its recent surge, including whether its formula for growth is sustainable, and how it will manage its increasingly strained economic relations with the outside world.
Dollar has hit bottom, China says
(Globe & Mail/Reuters) Sovereign wealth fund strategist also argues gold is too expensive and says China may raise interest rates before U.S. does
An investment strategist at China’s $300-billion (U.S.) wealth fund said the world’s third-largest economy now had a say in the exchange rate of the U.S. dollar, which it expects to rise while the yen should fall further.
Google may exit China
(Reuters) Google is considering shutting down its China operations and website after hackers there coordinated a “highly sophisticated” cyber-attack on the Internet search giant and targeted at least a score of other major corporations, it says. Full Article
(NYT Editorial) China’s economic strategy over the past two decades has been remarkably successful. By opening its doors to foreign investment and manipulating currency markets to keep the renminbi from rising against the dollar, it hitched itself to consumers in the industrial world and achieved spectacular growth. While the strategy is still working for China, it is exacerbating economic weakness around the globe. If China keeps it up, other countries are likely to use their last available weapon — protectionism — to stop the onslaught of artificially cheap Chinese goods. A trade war is easy to start and hard to contain. It could hit everybody’s exports, disrupting growth everywhere.
Corruption undermines China’s state-owned companies
(Monsters & Critics) China’s state-owned companies are being shaken by a series of financial scandals, as authorities find their hands tied by top managers’ connections. Former and current executives of some of China’s leading telecoms, nuclear and oil companies are under investigation for fraud or corruption China Finds Huge Fraud by Officials Chinese officials misused or embezzled about $35 billion in government money in the first 11 months of the year, according to a national audit released this week. NYT 12/30
Contrarian Investor Predicts Economic Crash in China
James Chanos, who predicted Enron’s collapse, insists that the economic boom in China is headed for a fall.
China’s currency: A yuan-sided argument
Why China resists foreign demands to revalue its currency
(The Economist) Foreigners argue that a stronger yuan would not only help reduce global imbalances, such as America’s trade deficit, but would also benefit China. It would help China regain control of its monetary policy. By pegging to the dollar, it is, in effect, importing America’s monetary policy, which is too loose for China’s fast growing economy. A stronger yuan would also help rebalance China’s economy, making it less dependent on exports, putting future growth on a more sustainable path. Some Chinese economists warn that the benefits to America from yuan revaluation are much exaggerated. In particular, a stronger yuan would not significantly reduce America’s trade deficit. There is little overlap between American and Chinese production, so American goods cannot replace Chinese imports. Instead, consumers would simply end up paying more for imports either from China or other producers, such as Vietnam. This would be like imposing a tax on American consumers.
Poorly Made in China – Book review
(UPI Asia)The premise of the analytical side of Poorly Made in China is that the so-called Chinese manufacturing miracle is based to a very large extent on Chinese firms cheating their American customers and business partners, either through bait and switch tactics, “quality fade” (a process of cutting corners and substituting cheaper components once the original order is won), siphoning margin from joint ventures, etc.
Honest Talk About Chinese Currency Manipulation
(RealClearPolitics) Last week, the Obama administration declined to cite China for currency manipulation despite the fact that most experts — including Treasury Secretary Timothy Geithner during his confirmation testimony — do not deny the obvious currency-rate fixing by China. Almost certainly, this decision reflected merely a tactical judgment not to offend China, given China’s vital role in the international economic recovery effort.
Geithner on China’s Currency Manipulation
(Portfolio.com) Tim Geithner’s testimony about China’s currency manipulation is the top story in the world today, judging by the NYT’s front page. And he did indeed say three times in his written responses to the Senate Finance Committee that “President Obama – backed by the conclusions of a broad range of economists – believes that China is manipulating its currency.”
The 2008 Olympics’ Impact on China
(China Business Review) From new construction projects to attracting the spotlight, the Olympics will have a lasting effect on China
China’s Economic Fluctuations: Implications for its Rural Economy – Book review
(Carnegie Endowment) Keidel updates his previous analysis to show that China’s recent inflation surge is the product of domestic rural structural problems, not excessive monetary growth linked to trade surpluses or foreign reserves. The fundamental response to China’s inflation risk should be to raise bank deposit and lending rates to match inflation; failure to do so in the past has caused damaging swings in inflation, output growth, and social unrest.
Labor Shortage in China May Lead to Trade Shift
Persistent labor shortages at hundreds of Chinese factories have led experts to conclude that the economy is undergoing a profound change that will ripple through the global market for manufactured goods.
The shortage of workers is pushing up wages and swelling the ranks of the country’s middle class, and it could make Chinese-made products less of a bargain worldwide. International manufacturers are already talking about moving factories to lower-cost countries like Vietnam.
In a Tidal Wave, China’s Masses Pour From Farm to City
For now, the government is encouraging migration to promote its immediate goal of providing cheap factory and construction labor and its long-term goal of urbanization. Every wealthy modern nation has had to shift from a rural-based economy to an urban one in order to prosper. China is trying to make this transition – which involves a fifth of the world’s population – in record time. How well, or poorly, the government handles this migration will determine whether these workers help create a middle-class society or just form a permanent underclass in a country that has already become sharply divided between rich and poor.
Amid China’s Boom, No Helping Hand for Young Qingming
His dying debt was $80. Had he been among China’s urban elite, Zheng Qingming would have spent more on a trendy cellphone. But he was one of the hundreds of millions of peasants far removed from the country’s new wealth. His public high school tuition alone consumed most of his family’s income for a year.
One Comment on "China: Economy"
The fundamental issue is that Chinese economic growth is no longer perceived to be part of the pareto-optimal global economic equilibrium. Instead, China’s economic growth is increasingly viewed by its neighbors and by the U.S. as a zero-sum game. The tensions in East Asia are not about fishing rights, natural resources, temporary bouts of nationalism, or territory. They are fundamentally about China’s rise as a great power, and the concerns held by its neighbors about a Beijing-dominated Asia; as well as America’s refusal to accept that it should share its sphere of influence in the region. (JM)