Chinese Economics Thread

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China's financial revenue saw two records in 2011: financial revenue of 10.37 trillion yuan (US$1.64 trillion) and overcollection of one trillion yuan (US$158.4 billion).

However, value-added and business income taxes have dropped rapidly since the last fourth quarter, which could possibly lead to a disappointing revenue for the Chinese government this year.

The huge sums from 2011 have challenged the government's budgeting methods. Liu Huan, a member of the State Council, said that reforms to the budget system will become a hot topic at the meetings of the country's top legislatures — the National People's Congress and the Chinese People's Political Consultative Conference. The huge amount of overcollected revenue was not suppose to happen, said Liu.

The government's revenue for 2011 increased 24.8% from a year earlier, according to the Ministry of Finance. The growth in business income tax was the largest, reaching 1.676 trillion yuan (US$265.7 billion), up 30.5% compared to the previous year. Individual income tax came to 605.4 billion yuan (US$95.6 billion), up 25.2% from a year earlier.

A great 2010 for Chinese companies brought the huge amounts of business income tax in 2011. However, the growth of tax revenue in 2012 will be affected by the declining profits of industrial companies since the fourth quarter of last year, according to the ministry.

The overcollection of tax has become an issue in China over the past few years. The amount of 1 trillion yuan (US$158.4 billion) reflects the country's booming economy but also reveals the huge gap between the actual financial revenue and the country's annual budget plan, said Liu.

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Containers being loaded at a dock in Haikou, capital city of Hainan province

The International Monetary Fund (IMF) has cut its forecast for China's 2012 economic growth to 8.25 percent from the 9 percent projected in September, and it warned that exports would be a significant drag on expansion in the coming two years.

The IMF has downgraded the prospects for global economic growth in 2012 to 3.25 percent from 4 percent, largely because the eurozone economy is expected to go into a recession this year.

"The risks to China from Europe are large and tangible," said Murtaza Syed, resident representative of the IMF's Beijing office, at a seminar on Monday.

China's economic growth, which came in at 9.2 percent last year, could fall by as much as 4 percentage points if the euro area experiences the IMF's downside scenario, which would see global growth falling by 1.75 percentage points.

But even in this worst-case scenario, China has room for a countervailing fiscal response, he said.

Given the uncertain global outlook, some modest fiscal support to the economy is warranted, he said. In particular, a general government deficit of about 2 percent of GDP should be targeted.

The IMF urged policymakers to provide fresh stimulus through the budget rather than the banking system, since the large credit stimulus in 2009 and 2010 has increased risks in the banking system.

"China needs some time to digest the side effects of the surge of credit unleashed in the wake of the global crisis," he said.

However, China is not heading for a hard landing and will remain a bright spot for global growth in the coming years. The IMF projects China's economy will grow 8.75 percent in 2013.

Both investment and consumption have been strong despite weakening external demand. Also, the government's efforts to calm the property market have been effective, and underlying investment remains healthy due to government efforts to expand the supply of subsidized housing.

Inflation is coming down to more comfortable levels, which should allow the authorities to fine-tune monetary conditions and supply the economy with modest additional credit, Syed said.

Upward pressure on the Chinese currency has diminished recently and the pace of reserve accumulation has fallen, partly due to a smaller trade surplus and valuation effects associated with a stronger US dollar.

Last week, after talks with German Chancellor Angela Merkel, Premier Wen Jiabao said China was investigating and evaluating ways to become more involved in solving Europe's debt problem.

Il Houng Lee, senior resident representative of the IMF's Beijing office, didn't give a timeframe for the discussion, saying that the earlier, the better it would be to establish a strong bailout fund to counter possible risks.

The European Union has long been the biggest trading partner for China and a major market for China's exports.

The EU's ambassador to China said on Monday that China could become Europe's biggest export market this year, overtaking the United States.

"There are indications that in 2012, China may become Europe's biggest export market," Markus Ederer told reporters in Beijing.

This year the EU-China interdependence will grow, he said, adding that European exports were increasing at a faster pace than European imports from China.

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China is suffering from an increasing number of environmental accidents, mainly triggered by the rapid growth of the chemical industry in the wake of urbanization, a senior environmental official said.

Last year, 542 environmental accidents were handled across the country, statistics from the Ministry of Environmental Protection showed.

"At present, nearly 60 percent of such accidents were triggered by traffic accidents and safety accidents in the process of production," Ling Jiang, deputy director of the department of pollution prevention and control under the Ministry of Environmental Protection, told China Daily on Monday.

In a recent case in January, cadmium pollution in the upper Longjiang River posed a potential threat to the water supply in the downstream city of Liuzhou, which has 3.7 million residents.

Cadmium is a highly toxic heavy metal used in batteries, electroplating and industrial paints. Exposure can lead to fatal liver and kidney damage.

Meanwhile, the number of accidents caused by illegal discharge of waste and other pollutants is quite limited as government authorities have launched strict monitoring measures, Ling said, without giving specific statistics.

Officials said serious water shortages and pollution are now major bottlenecks to the sustainable development of the country. More than 200 million rural residents do not have access to safe drinking water, official figures showed.

To ensure water safety, 178,000 kilometers of key rivers and lakes, as well as 43,000 square meters of reservoirs, had their functions clarified - such as for drinking water and water supplies for agriculture and industry - according to the latest national plan approved by the State Council in December.

Standards on pollution discharges differ according to the water's function.

"Water pollution is very serious in China now. Only about 46 percent of the 178,000 kilometers of key rivers and lakes monitored by the ministry are up to standard on quality," Chen Mingzhong, an official in the Ministry of Water Resources, said on Monday.

Nearly 80 percent of the key rivers and reservoirs with specific usage functions are targeted to reach the standard by 2020, and all will meet the standard by 2030, according to the plan. "Government authorities at all levels are accountable for the task, and they will surely receive strict punishment for areas that exceed their standards on pollution discharge," he said.

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China is suffering from an increasing number of environmental accidents, mainly triggered by the rapid growth of the chemical industry in the wake of urbanization, a senior environmental official said.

Last year, 542 environmental accidents were handled across the country, statistics from the Ministry of Environmental Protection showed.

"At present, nearly 60 percent of such accidents were triggered by traffic accidents and safety accidents in the process of production," Ling Jiang, deputy director of the department of pollution prevention and control under the Ministry of Environmental Protection, told China Daily on Monday.

In a recent case in January, cadmium pollution in the upper Longjiang River posed a potential threat to the water supply in the downstream city of Liuzhou, which has 3.7 million residents.

Cadmium is a highly toxic heavy metal used in batteries, electroplating and industrial paints. Exposure can lead to fatal liver and kidney damage.

Meanwhile, the number of accidents caused by illegal discharge of waste and other pollutants is quite limited as government authorities have launched strict monitoring measures, Ling said, without giving specific statistics.

Officials said serious water shortages and pollution are now major bottlenecks to the sustainable development of the country. More than 200 million rural residents do not have access to safe drinking water, official figures showed.

To ensure water safety, 178,000 kilometers of key rivers and lakes, as well as 43,000 square meters of reservoirs, had their functions clarified - such as for drinking water and water supplies for agriculture and industry - according to the latest national plan approved by the State Council in December.

Standards on pollution discharges differ according to the water's function.

"Water pollution is very serious in China now. Only about 46 percent of the 178,000 kilometers of key rivers and lakes monitored by the ministry are up to standard on quality," Chen Mingzhong, an official in the Ministry of Water Resources, said on Monday.

Nearly 80 percent of the key rivers and reservoirs with specific usage functions are targeted to reach the standard by 2020, and all will meet the standard by 2030, according to the plan. "Government authorities at all levels are accountable for the task, and they will surely receive strict punishment for areas that exceed their standards on pollution discharge," he said.

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China's ambitious $80-billion project to divert waters of southern rivers to the arid north is nearing completion and will begin supplying water next year, officials have said.

The project's eastern and central routes, which will bring waters from the Yangtze river to the Yellow river, will be fully constructed in the next two years, planners told a review of the project conducted over the weekend in eastern Shandong province.

Reports of the meeting were silent about long-pending proposals for a controversial western route, which has so far been stalled over environmental and technical concerns. The western route includes a plan to divert the Brahmaputra's waters to northern China.

The south-to-north water diversion plan is one of the most ambitious construction projects embarked on by Chinese engineers, estimated to cost more than 500 billion yuan (around $80 billion). It envisages diverting 44.8 billion cubic metres of water every year from Yangtze by 2050. The water-deprived and drought-affected north, home to 35 per cent of the population, has only seven per cent of the country's water resources.

Time frame

The project will be partially completed this year and “will start supplying water in 2013”, water conservancy officials at Saturday's meeting were quoted as saying by the State-run Xinhua news agency.

Sun Yifu, deputy water resources chief in Shandong, through which much of the eastern route runs, said the entire route would become operational in the first half of 2013, with 18 water supply units coming online next year and 23 others before 2015.

Construction of the eastern route began in 2002, when the whole project was given approval after decades of planning. The project was first proposed in the 1950s and backed by Mao Zedong. The central route began to be built the following year. It will be completed in 2014. Officials said last year more than 440,000 people would be relocated for the eastern and central routes, bringing criticism of project's costs. Around 100,000 people will be displaced every year until 2014. The project has also been delayed by a number of environmental problems.

Construction has not yet begun on the western route, which plans to divert water from the upper reaches of the Yangtze as well as a number of rivers on the Qinghai-Tibet plateau, including the Brahmaputra and Mekong.

This plan has triggered concern among many of China's neighbours, including India, which lie downstream of these rivers and depend on their waters. Of the western route, the Xinhua report of Saturday's meeting only said construction had not begun. It, however, remains unclear whether the central government has given the green light to any of the proposed diversions, amid environmental concerns of the project's impact on the ecologically sensitive Tibetan plateau.

Chinese officials have recently ruled out diverting the Brahmaputra, or Yarlung Tsangpo as it is known in Tibet. In October, Jiao Yong, Vice Minister of Water Resources, said China had no plans to divert the river considering “technical difficulties, environmental impacts and state relations”.

The central government has, however, come under increasing pressure from hydropower lobby groups to allow the construction of run-of-the-river power generation projects on the middle and upper reaches, with proposals from hydropower companies for as many as 27 dams, including a massive 38-gigawatt plant on the river's “Great Bend”, where it begins its course towards India."

 

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The approach of spring hasn't brought good tidings for Chinese shipyards, which continue to struggle as a sluggish world economy, a glut of vessels and surging fuel prices hurt shipping demand.

Some small Chinese shipyards, short of new orders, are on the brink of bankruptcy.

"We haven't received any orders since last year," said Liu Min, a senior director at Zhejiang Jingang Shipbuilding Co Ltd, which is based in the East China city of Taizhou.

The company started operations in 2006 with a capacity of 500,000 deadweight tons. But under pressure from difficult market conditions, it produced only 150,000 tons last year.

"Our orders in hand will be finished in July. Then we have no work to do," said Liu.

Yang Zhonghua, executive deputy general manager of another shipyard in Zhejiang province, had a similar story to tell.

Rising costs for materials and labor, amid dull market conditions, have worsened the situation for small shipping companies and shipyards, Yang said.

Some Zhejiang-based shipping companies have suspended business and dismissed their employees, he added.

Facing bankruptcy, "we have considered investing in other businesses. But that means all the money we put into equipment and facilities will be wasted," said Liu.

Industry losses are widespread. According to the China Association of the National Shipbuilding Industry (CANSI), the volume of new orders in 2011 fell 52 percent.

More than 30 percent of the country's small shipyards are likely to go bankrupt this year, industry insiders said.

Freight rates are also depressed. The Baltic Dry Index, a measure of commodity shipping costs, dropped to 651 on Feb 2, the lowest reading since Aug 27, 1986, according to the Baltic Exchange. The last time the industry saw such a dip was during the 2008 global downturn.

But these developments don't mean the shipbuilding industry will founder as a whole, thanks to a high level of rationalization, analysts said.

Small shipyards, though many in number, accounted for no more than 20 percent of the country's vessel production, said Zhang Guangqin, head of CANSI.

"This year will be very difficult for the industry. But the large shipbuilders are unlikely to be affected to the point of going bankrupt," he said.

The large State-owned companies have had some difficulty in attracting new orders. "We have seen a considerable decline in new orders since last year," said Wang Liang, director of the production and management department at China Shipbuilding Industry Corp, a major shipbuilding conglomerate.

But according to Wang, the declining new orders were those for basic, mainstream vessels. "Demand for more sophisticated ships remains buoyant," he said.

With technological advantages, "we have confidence in competing for orders (of more sophisticated vessels) in the international market", Wang added.

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Chinese enterprises from a variety of industries complained about a difficult business environment last year, but the GDP figures released by the country's National Bureau of Statistic showed that growth was still strong, reports the Shanghai-based First Financial Daily.

Figures released by the bureau showed that the profits of enterprises around the nation increased 24.5% compared with 2010. Despite the growth rate of state-run companies slipping to 15%, private companies, the ones who wer most vocal in their complaints, presented an outstanding 46% increase in profits.

The report said that the economic situation in 2011 was bleaker than previous years owing to low external demand, internal demand adjustment, increasing costs and tightened credit, as well as increasing debt levels. Most of enterprises went through a huge profit bounceback between 2009 and 2010 after the global financial crisis in 2008.

In 2011, under the influence of the eurozone debt crisis and domestic strategy changes, profits did not show significant growth as in 2010, but the result was not bad as it appeared.

In respect to capital, small companies went through a harder time than their larger counterparts. The situation for foreign-invested firms was more miserable than for their domestic counterparts. In respect to costs, it was also much harder for private companies than for state-run enterprises.

According to the official figures, 37 of 39 industries analyzed saw profit growth in 2011. The black metal mineral sector saw a growth rate of 53%, while oil and natural gas grew by 44.8%. The profit performance for oil refineries, nuclear fuel refineries and coke slipped 92.8%, while electricity and thermal power also declined 11% compared with 2010.

The bureau said private companies accounted for the greatest part of profit growth last year, making up for the poor performance of state-run companies.

The report analyzed that Chinese companies are not lacking capital; however, the authorities should look for good outlets to increase revenues.

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According to Brookings Institute's list of the world's 200 largest metropolitan economies released last month, four metropolises in China rank in the top 10 fastest-growing economies. Shanghai took the No. 1 spot, with Hangzhou, Shenzhen and Shenyang also making the top 10.

"What's happening in Shanghai, Beijing and Chongqing is more and more important for the global economy," said Alan Berube, senior fellow at the Washington thinktank, who co-wrote the study based on data from Oxford Economics, Moody's Analytics and the Census Bureau, according to the Los Angeles Times.

According to the list, which collectively comprises almost half the world's economic activity, 90% of the world's fastest-growing economies were outside North America and Western Europe.

The basis for Shanghai's No. 1 ranking was employment growth of 5.8% and a 9.8% economic expansion of 9.8% from 2010 to 2011. Overall, China accounted for eight of the top 20 cities in the rankings.

 

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The blueprint for development in China's petrochemical industry has becomes clearer for the period until 2015 with significant expansion of upstream refining capacity, accelerated growth of the high-end materials and products, and consolidated operations of companies. Analysts believe there will be tremendous investment opportunities in the years ahead, according to specialists interviewed by the Economic Information, a newspaper run by state-owned Xinhua News Agency.

The combined production value of the nation's petrochemical and chemical industries is projected to maintain a steady annual growth rate of 13% during the current five-year plan period, which ends in 2015, according to the Ministry of Industry and Information Technology. The figure will be almost double the value of 7.64 trillion yuan (US$1.21 trillion) at the end of the preceding five-year plan.

Data released by the ministry shows that China has already become a leading supplier of major petrochemical and chemical products, but there is still room for expansion as domestic production does not meet demand. The new plan calls for raising refiners' average annual processing capacity of crude oil to 600 million metric tons by 2015, compared with 450 million tons last year. The production capacity for processing plant will be increased to 700,000 metric tons per year from 540,000 tons.

The concentration of the manufacturing of key products like nitrogen fertilizers, agricultural chemicals, chloro-alkaline, sodium carbonate, calcium carbide, and vehicle tires will be further lifted. There will be at least 10 large enterprises in the fields generating annual sales revenue goals exceeding 100 billion yuan (US$15.86 billion), up from six companies.

Rising demand

There will be rising demand for chemical engineering products and basic materials because they are not just pillar industries but the products are also needed in all aspects of people's daily living, Wang Li, a chemical engineering professor from California Institute of Technology, told the Economic Information.

Special attention will be placed on developing organic materials, resins, synthetic fibers and monomers. There are four subordinate development plans covering the industries of olefins, chemical fertilizers, agricultural chemicals and dangerous chemicals. Industry analysts say these will also be among the sectors that will lure increasing investments. There is a general oversupply of low-end petrochemical products and a shortage of the more sophisticated and higher-valued items in China, said Hu Qianlin, deputy secretary general of the China Petroleum and Chemical Industry Association.

The new five-year plan will help increase the output of new materials, specialty chemicals, and synthetic materials that still rely on imports, he said.

Wang from Caltech said the sharply increasing costs of crude oil and the uneven supply and demand have forced nations like Britain, German, Japan and the US to boost investments to upgrade their petrochemical industries. The plan outlined by the ministry will help improve production efficiency and the profit rate while attracting more investments, he said.

Investment strategies

The ministry has set new and more restrictive standards concerning the consumption of water and energy, carbon emissions, polluting chemical exhaust and the volume of industrial waste created during petrochemical production processes. Energy consumption at oil refineries will also be lowered. Analysts say the tighter restrictions will have impact on enterprises with less efficient manufacturing processes.

The ministry's plan already offers effective investment strategies of "focusing on high technologies but shunning high energy consumption" when selecting the segments of investments, they said. Zhang Chao, a manager at Columbia Capital consulting, said the new development plan will gradually weed out companies and industries of low production efficiency and high energy consumption but will encourage investments in sectors with high-added values.

Jin Li said investments in high-end chemical products will guarantee higher investment return. But there are also higher risks involved and companies should still carefully select products that have already shown promising R&D results with clear market demand and growing trend, he suggested.

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The People's Bank of China (PBOC), the country's central bank, said Wednesday that it has signed currency swap agreements with Bank Negara Malaysia, more than doubling the scale of a 2009 bilateral swap deal that has since expired.

The new currency swap agreement allows the two central banks to swap 180 billion yuan/90 billion ringgit (about 28.56 billion U.S. dollars) over the course of three years with an option to continue the agreement with the approval of both sides, the PBOC said in a statement on its website.

The expired 2009 agreement set the currency swap quota at 80 billion yuan/40 billion ringgit.

Both sides believe the extension will help maintain regional financial stability and facilitate bilateral trade and investment between China and Malaysia, according to the PBOC statement.

Since the onset of the global financial crisis in late 2008, China has signed currency swap agreements totaling 1.3 trillion yuan with 15 countries and regions, including the Republic of Korea, Hong Kong, Belarus and Argentina, to reduce the use of the U.S. dollar in bilateral trade settlement and investment.

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Sales of passenger vehicles in China registered their largest year-on-year decline in at least 10 years in January.

The retreat came as two holidays in a single month accelerated the slowdown of the world's largest automobile market.

Combined sales of cars, sport-utility vehicles, multi-purpose vehicles and minivans nosedived 16.5 percent from a year earlier to 1.17 million units in January, said the China Passenger Car Association on Tuesday.

It's also the first time in recent years that all those vehicle segments have seen negative monthly rates of growth.

"It's in accordance with our previous expectations of between 15 percent and 20 percent negative growth. The three-day New Year holiday and week-long Spring Festival not only cut production days by almost 50 percent, but also led to a void in the vehicle showrooms," said Rao Da, secretary-general of the association.

However, Rao said that the fact that the Spring Festival fell in January this year will provide a year-on-year sales increase of around 30 percent in February. Compared with the same month in 2011, the month will see working days increase by an additional 31 percent.

General Motors Co, which regained the global top spot for vehicle sales from its Japanese rival Toyota Motor Co in 2011 - partly as a result of its success in the Chinese market - said that its sales in the country were down 8 percent on an annual basis in January. The company's sales in the United States also dropped 6 percent year-on-year over the month.

China's biggest automaker, Shanghai Automotive Industry Corp (SAIC), whose three major joint ventures claimed the top three spots in domestic passenger vehicle sales, also reported a decline in January.

The Shanghai-listed company said in a statement that January sales of 380,350 units equated to a decline of 8.48 percent compared with 2011. Its self-developed brands registered a huge decline of 45.34 percent year-on-year.

The rate of growth of China's automobile market has slowed since the cessation of the government's stimulus measures - including trade-ins and subsidies - that had run for the previous two years.

The cancellation of the stimulus policies ended skyrocketing annual growth rates of 46 percent in 2009 and 34 percent in 2010. The industry saw year-on-year growth of a mere 2.45 percent in 2011, the lowest since 1999.

However, analysts said that the slowdown indicated that the industry is back to single-digit yearly growth, which signals a healthy development.

Shi Jianhua, deputy secretary of the China Association of Automobile Manufacturers, predicted that total domestic vehicle sales in 2012 will be about 20 million units, with year-on-year growth of 8 percent.Shi also forecast that exports will be between 1.05 million and 1.1 million units this year, a rise of between 25 and 30 percent from 2011

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Exports will remain a major force in helping China maintain economic growth by creating jobs and stimulating domestic consumption, despite decelerating growth in overseas shipments and a gloomy outlook, said the Ministry of Commerce.

Zhang Ji, director-general of the ministry's Department of Mechanical, Electronic and High-tech Industry, told China Daily on Tuesday that the nation would aim for "continuity and stability" in its policies for the processing trades, which remain a significant part of China's foreign trade.

Processing trade involves taking imported parts, components and packaging materials, assembling them and re-exporting the finished product.

Though export growth declined in the second half of 2011 and prospects for the coming months are not positive, the "significance of China's foreign trade (in advancing the economy) will be prominent, probably in the next two to three decades or even longer," said Zhang.

The International Monetary Fund said in a report on Monday that China's economic expansion could slow to 8.25 percent this year, from the previously projected 9 percent, should Europe's debt crisis worsen.

Exports would be a significant drag on growth in the coming two years, the fund said.

The IMF also estimated that exports in January might have fallen 1.4 percent year-on-year. Official trade figures are scheduled for release on Friday.

But Zhang said that exports could still "indirectly" make a significant contribution to the nation's economic growth, even if export shipments actually contracted in the short term.

"We all know that investment, exports and domestic consumption are the three pillars of China's economic expansion, but what if we merely depend on investment and domestic consumption?

"Do you think we could still bet on another round of large-scale investment after the 4-trillion-yuan ($634 billion) stimulus package was wrapped up?" Zhang said.

"Foreign trade could for a long time still guarantee jobs and growing individual disposable income, which would translate into domestic consumption."

China's 12th Five-Year Plan (2011-15) noted that the nation remained committed to expanding domestic consumption as it sought to transform its economic development mode.

"We have to enhance the competitiveness of foreign trade companies to make sure more jobs can be created," said Jin Baisong, an expert at the Chinese Academy of International Trade and Economic Cooperation, a think tank of the ministry.

The processing trade is a significant part of China's foreign trade.

According to the General Administration of Customs, China's processing trade grew 12.7 percent last year to $1.3 trillion, accounting for 35.8 percent of the nation's foreign trade.

During a visit last week to Guangdong province, the nation's export powerhouse, Premier Wen Jiabao said China would pursue basically "stable" foreign trade policies.

He added that any adjustments should be more "encouraging than restrictive", as the global debt crisis was still spreading.

Zhang noted that the nation was encouraging processing trade companies in coastal regions to move up the industrial chain and shift their focus to high-end manufacturing, strategic emerging sectors and service activities such as research and development. "We will facilitate the transfer of some industries to the central and western regions from the eastern part," he said.

In 2010, China designated the cities of Suzhou in Jiangsu province and Dongguan in Guangdong province as pilot cities for upgrading of the processing trade.

The two provinces have numerous processing trade companies.

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The annual average growth of China's minimum wages should be at least 13 percent in the five years to 2015, according to a government job market plan for the period published on Wednesday.

Raising pay is key to the jobs blueprint, part of Beijing's 12th five-year economic plan, which aims to boost employment in the world's No.2 economy.

Minimum wages in China range from 1,500 yuan ($240) per month in Shenzhen to 870 yuan in Chongqing. The government wants minimum wages to be 40 percent of average local salaries by 2015, according to the plan posted on its website (

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).

Labour shortages are a problem in China's main export manufacturing bases, requiring millions of migrant laborers to fill the gaps. But the government said it expected pressure from an overall labor oversupply to increase in coming years.

"Every year there are 25 million urban residents needing jobs and there are still significant amounts of excess rural labor needing to find jobs," the plan said.

The Chinese government has always been sensitive to employment due to concerns about social unrest, and Beijing, which did not recognize the existence of unemployment until the late 1990s, does not publish a national jobless rate.

The only official jobless rate complied by the labor ministry covers permanent urban residents and the quarterly indicator is widely regarded by investment bank economists as irrelevant.

"All levels of governments making fiscal, financial and industrial policies must consider the impacts on employment and pay close attention to unemployment risks," the plan said.

Demographic data from China's statistics agency shows that the Chinese population is ageing quickly and the rural labor pool shrinking, which many economists cite as the fundamental reason for the sharp wage rises in recent years.

The average monthly wage of China's 158 million migrant workers in 2011 surged 21.2 percent from 2010 to 2,049 yuan.

In the five-year period from 2006 to 2010, the average minimum wage in China increased 12.5 percent per year, official data showed.

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China is scouring the world for alternative oil supplies to replace a fall in its imports from Iran, as it seeks to negotiate lower prices from Tehran, and has been drawing heavily on Saudi Arabia.

Industry sources told Reuters that Beijing had bought the bulk of an increase in crude oil supplies from top oil exporter Saudi Arabia in the last few months.

The world's second-largest oil consumer is also importing more cargoes from West Africa, Russia and Australia to replace reduced supplies from Iran.

China is the top buyer of Iranian oil, taking around 20 percent of its total exports, but since January it has cut purchases by around 285,000 barrels per day (bpd), or just over half of the total daily amount it imported in 2011.

Saudi Arabian output reached 9.76 million barrels per day (bpd) in December, up 360,000 bpd from October, OPEC data show, and has remained near that level in January, according to a Reuters survey. Several sources in the oil industry said China has bought a good part of the extra oil.

"On average, Saudi exports went up by 200,000 barrels per day and this went to the East, overwhelmingly to China," said one of the sources, a senior executive with the trading arm of a U.S. oil company.

A source familiar with the matter, who declined to be identified by name, also said the kingdom had been supplying about an extra 200,000 bpd to China since November.

Oil traders believe Unipec, the trading arm of China's top refiner Sinopec Corp. (0386.HK), has been using a flexibility clause in deals, known as tolerance, to buy more oil under term contracts, especially as Saudi official selling prices in the past two months have been attractive.

"Under the current circumstances, it is necessary to use the tolerance to adjust lifting volumes," a Chinese oil trader said.

Unipec declined to comment.

Official Chinese data also show an increase in crude oil imports from Saudi Arabia in the last few months, but on a smaller scale than the rise given by the industry sources.

China imported 1.12 million bpd of crude from Saudi Arabia in December, customs data show, down from 1.17 million bpd in November. That is still up from October's 1.07 million bpd.

"GAMBLING'

Industry sources were unsure if the trend towards higher supplies from Saudi and others would continue, once China finishes negotiations with Iran over term purchasing contracts.

Some traders suspect China's increased buying of alternatives may be a ploy to bolster its bargaining position in the supply talks with Tehran. Iran is keen to secure customers as new EU sanctions banning its oil, designed to discourage the country's nuclear program, add to U.S. measures.

Officials from the two countries were expected to hold talks as early as this week in Beijing.

"Unipec is gambling now," said a Beijing-based oil trader. "If the Iranian side can compromise and reach a term deal, Unipec will get a large volume of crude at favorable prices, offsetting the premiums it paid to buy alternative oil over the past months."

Those alternatives include Unipec's purchase of five Russian ESPO cargoes, or 3.65 million barrels, for March loading at a premium of around $6.00 a barrel to Dubai quotes, traders said. Unipec also bought a cargo of Russian Urals crude, which will arrive in China around March.

"ESPO are all spot cargoes and are close to China. Buying ESPO is practical and easy to handle," a trader said.

As well as crude, Unipec has bought four shipments of Australian North West Shelf (NWS) condensate and Bayu Undan condensate from the Timor Sea for March to fill in for lower Iranian supplies.

A Reuters survey of oil flows from West Africa on Monday suggested Asia's imports of crude from the region are at a record high.

Even so, China still needs Iranian oil and even Saudi Arabia and the rest of the Organization of the Petroleum Exporting Countries do not have the capacity to replace it.

With production believed to be around 9.75 million bpd in January, Saudi Arabia holds about 2.75 million bpd of idle production capacity to meet any sudden shortages - less than Iran's output of 3.5 million bpd. Saudi holds the world's only significant unused capacity.

"Iranian crude is important," said an official at a Chinese state oil firm, who declined to be identified. "It is not very easy to replace all Iranian crude."

 

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108 Giant Chinese Infrastructure Projects That Are Reshaping The World

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China's consumer price index (CPI), a main gauge of inflation, rose 4.5 percent year-on-year in January, the National Bureau of Statistics (NBS) said Thursday.

The growth rate was the highest in three months, accelerating from 4.1 percent in December and 4.2 percent in November.

Although the unexpected rebound severed a months-long decline from a 37-month high of 6.5 percent in July, it will not change the CPI's downward trend for the whole year, analysts said.

The CPI increase, which was mainly boosted by food price surges in January amid the traditional Chinese Lunar New Year holiday, will see a remarkable pull-back in February, said Lian Ping, chief economist at the Bank of Communications.

Li Huiyong, chief analyst of Shenyin & Wanguo Securities, expected the country's CPI annual increase to ease to 3 to 3.5 percent in February.

Food prices, which account for nearly one-third of the basket of goods in the nation's CPI calculation, climbed 10.5 percent in January from a year earlier and contributed to 3.29 percentage points in January's CPI rise. The increase accelerated sharply from December's 9.1-percent rise.

Prices of pork, China's staple meat, soared 25 percent year-on-year in January, while grain prices jumped 6.1 percent from one year earlier.

On a monthly basis, the country's CPI increased 1.5 percent in January, the NBS said.

Despite the CPI rebound, the country's producer price index (PPI) only increased 0.7 percent in January year-on-year, down from 1.7 percent in December and was the lowest since December 2009. PPI is a main gauge of inflation at the wholesale level.

However, even if January's rebound was an aberration, the fact that it was well above the market expectations may caution policy makers to hold off policy loosening, said Peng Wensheng, chief economist of the China International Capital Corporation, the country's largest investment bank.

"There is less possibility that the central bank will cut the reserve requirement ratio in February," Peng said.

For more than a year, China has been squeezing its banking system in efforts to rein in high inflation. However, the country's central bank in December cut the amount of cash that lenders have to set aside as reserves for the first time in three years..

"Inflation is a decreasing risk for the economy and policy is likely to emphasize growth in the medium term," Alaistair Chan, an economist at Moody's Analytics said in a statement.

The country's policy makers vowed to maintain the prudent monetary policy and proactive fiscal policy in 2012, but fine-tune these policies as conditions change.

China's economic growth had slowed over the length of last year. Its GDP growth decreased to 8.9 percent in the fourth quarter of 2011 from 9.7 percent in the first quarter.

The country's GDP growth will further dip to 8.5 percent in the first quarter of this year, the State Information Center, a government think tank, projected in a statement released Thursday.

On Monday, the International Monetary Fund cut its forecast for China's GDP growth this year to 8.25 percent from the 9 percent projected in September 2011. It said China's projected growth could be cut by nearly half if the eurozone, its biggest trade partner, suffers a sharp downturn due to the debt problems.

 

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China power giants flex muscles abroad

China's cash-flush state-owned power companies are going on a buying spree abroad, scooping up bargains with virtually no political opposition as Europe looks to reduce its debts.

A quarter of Portugal's power grid operator, REN, will be sold to China's State Grid Corp for 387 million euros ($507.82 million), part of a wave of privatizations Lisbon has to carry out under the terms of its 78-billion-euro European Union/International Monetary Fund bailout loan.

On Wednesday, the State Grid News, the Chinese company's official publication, said the need by struggling economies to sell off state-owned assets "created entry opportunities" for China, and the deal would provide a springboard into other markets.

The State Grid isn't the first to take advantage of Europe's troubles, and is not expected to be the last.

The China Three Gorges Project Corp, operator of the world's largest hydropower project, also agreed last December to pay 2.7 billion euros ($3.54 billion) for a 21 percent stake in the Energias de Portugal (EDP) utility.

"This is in line with the government's 'internationalization strategy' for state-owned enterprises to 'venture out'," a senior power industry executive told Reuters, requesting anonymity to avoid repercussions.

"In the past, there were no such opportunities. Chinese power companies used to merely build power plants abroad. Now, we are investing, supplying equipment and helping to operate them. The timing is good," the executive said.

An official with State Grid said it was still too early to say whether Europe's debt crisis could lead to more deals.

"The economic situation differs from month to month and it depends if there are good opportunities," the official told Reuters.

However, Ken Su, a partner with PricewaterhouseCoopers in Beijing, said the crisis could help Chinese power companies in their attempts to acquire foreign assets, and more were likely in the next two years.

"In 2006-07, we started to see more activity in the power sector. Many of the deals haven't been completed and in general they take a long time to negotiate -- a few of them have come through and it may be due to the prevailing economic conditions, which may be helping deals get done," he said.

China's foray into the overseas power sector began in 2009 when the Philippines sold a 25-year license to a consortium led by China State Grid to run its power network. At $3.95 billion, it was the Southeast Asian nation's biggest privatization deal.The State Grid, China's biggest electrical utility, has already bought seven grid operators in Brazil for $1.7 billion.

Three Gorges chairman Cao Guangjing has said his company hopes to cooperate with EDP in eastern Europe and South America. Three Gorges has a dozen subsidiaries, including listed unit China Yangtze Power Co Ltd (600900.SS).

'PROFIT-ORIENTED' DEALS

The promise of financing has helped smooth the path for cash-rich Chinese firms. China Three Gorges pledged to bring up to 8 billion euros for banks and other firms in Portugal.

"They have the financial ability and they tend to have strong balance sheets themselves or have access to Chinese lenders, and this could help the projects expand and develop. Many transactions could feature a financing element," said PwC's Su.

Resource-hungry China has invested heavily in mining and oil assets from Latin America to Australia in recent years, but it was not always smooth sailing.

A high-profile bid by offshore oil firm CNOOC for California rival Unocal was withdrawn in 2005 in the face of political opposition, and metals giant Chinalco was also spurned by Rio Tinto (RIO.AX) in 2009.

But there has been little opposition to Chinese power companies taking over foreign counterparts.

"When it is managed well, the local governments and local people can be very welcoming to a Chinese investor," said Su.

"I don't think there is one single overarching global sentiment despite the constant media attention about how active China is and how China is buying everything up."

The power industry executive shrugged off speculation of any ulterior motive, saying the takeovers were "purely profit-oriented."

"Our domestic market is limited," he said. "The (foreign) companies are profitable. There is no need to raise electricity prices. We cannot monopolise power generation and transmission because local regulators have the final say over price rises."

For China, snapping up physical assets outweighs buying European or U.S. debt.

"We are better off buying (physical) assets instead of European of U.S. bonds," a source with ties to China's leadership said, also requesting anonymity.

The State Grid's forays abroad could also provide respite from controversies at home. The sprawling state-owned firm has been fiercely criticized for running roughshod over regulators and earning huge profits at the expense of China's utilities. It has even been blamed for last year's power shortages.

The State Grid, which runs power transmission and distribution networks in 26 of China's 31 provinces, aims to achieve 62 billion yuan ($9.84 billion) in gross profit in 2012, up 16 percent, according to the China Securities Journal.

It plans to boost investments in China's power grids to 2.55 trillion yuan ($390.63 billion) in the coming five-year plan, up 68 percent from the preceding period, according to the China Securities Journal.

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Chinese Policy Banks Looking to Make Yuan Loans in Latin America

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Chinese policy banks are seeking to expand lending to commodities-rich countries in Latin America using the Chinese yuan instead of the dollar, part of a broader government effort to promote international use of the yuan, according to people familiar with the matter.

Since early last year, the Export-Import Bank of China has been in discussions with the Inter-American Development Bank about setting up a fund to provide up to $1 billion worth of yuan funding for infrastructure projects in Latin America and the Caribbean, a key supplier of mineral wealth and crops to China, the people said. The fund could be launched this year, they said.

The two banks signed an agreement in September under which China Exim bank committed to offer as much as $200 million to finance trade between China and the region. At least part of that funding would be provided in yuan.

China Development Bank, meanwhile, has been raising yuan funds in Hong Kong's burgeoning yuan debt market partly to finance a portion of its 70 billion yuan (US$11.10 billion) loan to Venezuela, as part of a long-term loans-for-oil deal signed in 2010. Since mid-2010, the bank has sold about $2 billion worth of yuan debt in Hong Kong, according to data provider Dealogic. The cost of funds there is cheaper than on the mainland.

China is pushing to give the yuan a wider role in trade and investment. As the world's second-largest economy, it aspires to be a global power with a global currency. In time, it hopes that an internationally accepted yuan could emerge as a store of value on par with the dollar, euro and yen.

However, because Beijing still tightly controls the value of the yuan and capital flows, China's state-banking executives have found few takers for their yuan-denominated loans overseas, especially in developed markets such as the U.S. and Europe. "We want to make more yuan loans, but we often end up still lending in dollars," a person familiar with the policy banks said.

Chinese policy banks are focusing their yuan-loan efforts on Latin America, as China sees opportunity to raise the yuan's profile in a region that is counting on Chinese demand to help bolster its economy in the face of a likely recession in Europe and a tepid economic recovery in the U.S.

By targeting the Americas with its yuan push, China hopes to raise the currency's profile in energy and commodities trade, analysts say.

"A weak dollar has raised the cost of the commodities imported by China, so getting the yuan to play a role in pricing commodities could help stabilize commodities prices and lessen the inflationary pressure," said Ye Xiang, a former official at the People's Bank of China who now serves as a managing director at VisionGain Capital, an investment firm in Hong Kong.

China's interest in Latin America has grown exponentially in the past decade, encompassing purchases of oil, copper, soybeans and other commodities as well as helping develop infrastructure in the hemisphere to produce and deliver those products.

Trade between China and Latin America and the Caribbean surged to more than $188 billion last year from just $12 billion in 2000, according to the Inter-American Development Bank, a 48-member body that provides financing for 26 countries in the region including Argentina, Brazil, Chile, and Venezuela. China in 2008 became a member of the Washington-based bank that historically has been under the sway of the U.S.

As the yuan becomes more available in foreign markets through lending by Chinese banks, many analysts expect it to account for a bigger share of international trade settlement. Beijing started to allow cross-border trade to be invoiced and paid for in its currency more than two years ago, and since then, yuan-settled trade has grown to about 10% of China's total trade. Analysts at Deutsche Bank AG predict yuan-settled trade this year will come to 3.7 trillion yuan, or 15% of China's total trade.

Beijing's yuan-loan push also comes at an opportune time: many European banks that traditionally have dominated the Latin American market likely will be retreating amid the debt crisis plaguing the euro zone, analysts say, providing opportunities for the Chinese lenders to swoop in.

When announcing the joint agreement between China Exim bank and the Inter-American Development Bank last March to set up the yuan-denominated infrastructure fund, Luis Alberto Moreno, president of the Inter-American Development Bank, said the deal would help expand "the pool of financing available to support the regional economic development."

 

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Yancheng airport in eastern China's Jiangsu province

China's enthusiasm for building new airports has not waned despite the combined loss of 1.68 billion yuan (US$266 million) recorded by 135 of its 180 airports in 2011, says its civil aviation chief.

Li Jiaxiang, head of the Civil Aviation Administration, said at a conference earlier this month that the leaders of 26 provinces and municipalities had asked for more air routes linking their districts despite the heavy losses suffered by most airports in these districts, because of the potential benefits of air routes.

Citing Yancheng in Jiangsu province as an example, Li said the city built an airport and operated it with a subsidy of 34 million yuan (US$5.4 million) a year. The airport helped Yancheng attract Hyundai Motor from South Korea to build a factory there.

The subsidy was eclipsed by more than 3.4 billion yuan (US$538 million) paid by the Hyundai factory and its supporting companies in taxes to Yancheng every year, Li said.

Airports with fewer than 500,000 inbound and outbound passengers a year cannot earn substantial profits, according to Li.

Li said China plans to build 60 more airports by 2015, as the value of airports cannot be measured merely in economic terms. They also serve social purposes such as helping with rescue operations in the wake of flooding and earthquakes, said Li.

As the second largest aviation market in the world, China has 2,800 commercial airplanes and 180 airports, and has great potential for growth. The US, the largest aviation country in the world, boasts 320,000 airplanes and 17,000 airports.

According to the Chinese authorities' estimates, the commercial aviation industry will carry 320 million passengers and 5.78 million tons of freight in 2012, representing growth of 10.3% and 4.7%, respectively, over 2011.

Meanwhile, the industry's combined flying time will reach 500,000 hours in 2012, representing growth of 10% year-on-year.

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China's consumption of fossil fuels declined slightly in 2011, but the world's largest energy consumer still faces great challenges in optimizing its energy structure, said analysts.

Non-fossil fuels accounted for 9.4 percent of China's overall primary energy consumption in 2011, compared with 8.7 percent in 2010, said Li Junfeng, deputy director of the Energy Research Institute of the National Development and Reform Commission.

The figure means the country needs to increase the proportion of non-fossil fuels in the mix by 0.5 percent annually in the coming four years to realize a government target of 11.4 percent by 2015, he said.

"The country is facing great pressure to reach the target because the efforts to build the nation's nuclear capacity have slowed," said Li.

The 21st Century Business Herald, a Chinese publication, reported recently that the proportion of China's non-fossil fuel in the overall energy mix declined to about 8 percent in 2011. However, Li said these data were inaccurate.

But he admitted that the pace of energy use restructuring has been sluggish,as the use of coal-dominated fossil fuels continues to increase.

The newly added capacity for coal output reached 95 million tons in 2011, and the country plans to add another 200 million tons in 2012, according to the National Energy Conference in January.

The country is caught between the urgent need to save energy and reduce greenhouse gas emissions and the desire to increase energy generation to sustain economic development.

Reducing dependency on coal by promoting the use of cleaner energy sources, including wind, solar and biomass, is one of the most feasible ways of solving the problems faced by the country, according to experts.

China plans to add 20 gigawatts of installed hydropower capacity in 2012, while prioritizing ecological protection and the relocation of residents in areas designated for major hydropower projects.

China's hydroelectric energy generation decreased by 3.5 percent year-on-year in 2011, which resulted in a great increase in the use of coal, said the China Electricity Council on Friday.

Nuclear power output increased by 16.9 percent and wind power increased by 48.2 percent year-on-year. Meanwhile thermal power production increased by 14.1 percent over the same year, it said.

Ren Dongming, deputy director of the Center for Renewable Energy Development at the National Development and Reform Commission, said the country will adopt more policies aimed at stimulating the development of renewable energy.

The government is also expected to launch the Renewable Portfolio Standard, a scheme that will require electricity suppliers to provide a minimum level of electricity generated from renewable sources.

The mechanism, which is still at the design stage but is expected to be unveiled soon, will focus on energy generated from sources such as wind, solar and biomass, said Ren.

China aims to cut the amount of energy consumed for every unit of GDP by 16 percent between 2011 and the end of 2015.

However, the country may have missed the target of a 3.3-percent reduction in energy consumption per unit of GDP in 2011, said Xie Zhenhua, deputy minister of the National Development and Reform Commission last week, although the data have yet to be released

China's energy consumption totaled 3.25 billion tons of coal equivalent in 2011.

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China's foreign trade slumped in January from a year earlier while trade surplus jumped as a week-long holiday distorted figures and the slower economy sapped demand.

China's exports dropped 0.5 percent year-on-year to 149.94 billion U.S. dollars in January, the first decline in more than two years, the General Administration of Customs (GAC) said in a statement Friday.Imports plunged 15.3 percent year-on-year to 122.66 billion U.S. dollars in January, while foreign trade fell 7.8 percent year-on-year to 272.6 billion U.S. dollars, it said.

Authorities and analysts attributed the declines to holiday disruptions and a moderating Chinese economy, while projecting a grim export outlook but stronger import growth.

The figures were affected by an earlier Chinese Lunar New Year holiday, which fell in January this year and cut four workdays off the month compared with January of 2011, the GAC said.

After seasonal adjustments, exports rose 10.3 percent year-on-year in January, it said.

It was a faster growth compared with 2.4 percent in February 2011, when last year's New Year holiday week arrived, but slower than 13.4 percent in December.

"Lackluster foreign demand will pose severe challenges for China's exports in the first half of this year," said Zhao Jinping, deputy head of the foreign economic research department under the Development Research Center of the State Council.

Meanwhile, the government is under pressure to rein in inflation and property prices, hence unlikely to unleash massive stimulus to cushion companies from external shocks, Zhao said.

However, imports will accelerate and may outpace exports in the next few months as China's domestic demand is more robust than foreign demand, he said, noting that imports are usually weak at the start of a year.

Imports climbed 1.5 percent year-on-year in January after seasonal adjustments, much slower than 19.7 percent in February last year, GAC figures show.

Weak imports fueled a surge in trade surplus, which reached 27.28 billion U.S. dollars in January, up from 16.52 billion U.S. dollars in December 2011 and 6.46 billion U.S. dollars in January 2011.

China's slower growth and year-on-year decreases of global commodity prices resulted in the import slowdown, said Zhang Yansheng, director of the Institute for International Economics Research under the National Development and Reform Commission, China's top economic planner.

He also expected imports to outperform exports in the coming period, saying "the data of one month can not demonstrate the long-term trend."

Trade surpluses will decrease continuously in the coming period as external demand falls, domestic demand rises and higher labor costs affect China's exports of labor-intensive products, he noted.

"The import and export situation will be very tough this year," Zhang said, predicting more commodity price fluctuations and spats over trade and exchange rate issues this year as foreign politicians may resort to trade protectionism and geopolitical conflicts to garner voters' attention ahead of elections.

China's Minister of Commerce Chen Deming said Thursday China will keep the overall stability of export and import policies, including export rebates.

"Export in January this year cannot make us optimistic... Chinese trading companies, particularly small and micro businesses, have come under growing pressure," he said in a statement released by the Ministry of Commerce, which quoted his written interview with Bloomberg.

Chen vowed to ease tax burdens on trading companies, give them more financial support and energetically expand imports to balance foreign trade.He said the overall stability of the RMB exchange rate will be maintained.
The Chinese currency, RMB, rose to a new high against the U.S. dollar on Friday, with its central parity rate strengthening by 72 basis points to 6.2937 against the U.S. dollar.

Falling external demand and property market curbs dragged down China's economic growth to 8.9 percent in the fourth quarter of 2011 from 9.7 percent in the first quarter.

In January, China's foreign trade rose 6.2 percent year-on-year after seasonal adjustments, GAC data shows.

Trade with the European Union, the country's top trade partner, dipped 7.1 percent year-on-year to 42.68 billion U.S. dollars in January.
Trade with the United States, the country's No. 2 trade partner, shrank 3.9 percent year-on-year to 35.46 billion U.S. dollars.
China's trade with emerging economies bucked the downward trend in January, with its trade with Russia and Brazil rising by 26.8 percent and 5.7 percent year-on-year respectively.

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China will finish building the second phase of its strategic oil reserve project this year, providing a total storage capacity of 170 million barrels, China National Petroleum Corp (CNPC), the nation's biggest oil producer, said on Thursday.

The second phase will have eight storage bases, the CNPC Economics & Technology Research Institute said in a report released on Thursday.

The energy major said earlier that two bases of the second phase opened in 2011, while the other six were still under construction.

The first phase was completed in 2009, with a capacity of 103 million barrels at four facilities in coastal areas.
The third phase is scheduled for completion by 2020, which will take the total reserve capacity to 500 million barrels.
The reserves are intended to reduce the risks that arise from volatile crude oil prices and a growing reliance on imports.
Net oil imports by China, the world's second-biggest oil user, rose 7.7 percent last year to 264 million metric tons. The import-dependency rate reached a new high of 56.3 percent, according to Dai Jiaquan, deputy head of the institute.

CNPC projected that domestic oil demand would grow 5 percent to 493 million tons in 2012, with net crude oil imports up 6.4 percent to 266 million tons.

China's leading oil companies, including CNPC, China Petrochemical Corp and China National Offshore Oil Corp, or CNOOC, are expanding their reach overseas to tap more oil resources.

Wu Mouyuan, an engineer with the Overseas Investment Environment Research Department of the CNPC research institute, said that Chinese companies' overseas output based on equity totaled 85 million tons of oil equivalent in 2011, up more than 10 percent year-on-year.

CNPC alone achieved equity output of 51.7 million tons of oil equivalent abroad last year.

Wu said that China's investment in oil overseas covered more than 40 countries and ranged from the upstream sector, which involves exploration and production, to the downstream, where oil is refined into products such as gasoline, diesel and jet fuel.

Entering 2012, CNPC saw uncertainties in the global crude oil situation, given the escalating tensions between Iran and the US and Europe.

Chen Rui, a CNPC oil researcher, projected that the price of West Texas Intermediate crude would average $100 a barrel in 2012, compared with $95 last year. Chen said the rise would mostly be driven by an improving US economic situation.

Brent crude, produced in the North Sea, would slide to about $95 a barrel this year from $111.23 last year, as the ongoing eurozone debt crisis would hit the region's economy.

Chen added that the West might impose long-term sanctions on Iran, which could force more countries to find ways to cut dependence on oil and lead to a gradual slide in global demand.

In addition, CNPC said that China's natural gas consumption would surpass 150 billion cubic meters (cu m) in 2012, exceeding Iran as the world's third-biggest market.

Domestic demand would reach 110 billion cu m, while imports would be 45 billion cu m, it said.

To reduce dependence on imported oil and gas and ease energy security risks, analysts suggested that China accelerate its efforts to explore for unconventional natural gas, in particular shale gas.

 

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China’s Vice-President Xi Jinping is heading to Washington on Monday and U.S. multinationals are hoping his visit serves to ease the anti-China narrative coming from President Barack Obama and the Republican presidential candidates.
The visit is mainly seen as a continued discussion in what some have called a ‘trust deficit’ that exists between DC and Beijing even as trade between the two countries continues to grow. China trade to the U.S. has grown three fold over the last several years. No other country comes close.

China’s demand for products Made in America is good news for the economy. But imports from China are also increasing, adding to the record breaking trade deficit between the two super powers. That has many politicians, and many people on Main Street, feeling they can partially blame China for stealing American jobs.

Some states, however, don’t see it that way. And that can be a problem for politicians spewing anti-China rhetoric. In Washington state, Democratic Governor Christine Gregoire welcomes China. The country’s become the largest export market for Washington-based businesses. But Gregoire faces problems from policy makers who restrict in which industries China can invest in the U.S., potentially harming other China opportunities for the state.

In Iowa, which Xi Jinping will visit next week, Republican Governor Terry Branstad is just as pragmatic. Barnstad will meet with Xi to talk trade next week, and not just soybeans. Iowa exports to China have risen by almost 1,300% from 2000 to 2010. Branstad was in China in September to drum up more business for the locals.

“Working together, the United States and China have a tremendous opportunity to build stronger economies and improve the lives of people around the world,” said Muhtar Kent, Chairman and CEO of The Coca-Cola Company and Chair of the US-China Business Council, a lobby for U.S. multinationals doing business in China.

Doing business in China for the big U.S. firms has also changed. Companies like Nike are no longer simply focused on mass producing sneakers in China because it makes them more affordable in the U.S. They are increasingly interested in making sneakers in China so they can sell them to the Chinese. A new consumer society is in the works in China, and everyone in business knows it will be as important a target as the American consumer is today. In fact, some multinationals are selling more to the Chinese than they are in the U.S.

“The (bilateral) relationship has grown significantly over the past three decades thanks to the collaborative work of the governments, business communities, and other stakeholders in both countries,” said USCBC President John Frisbie in a statement. “However, more work needs to be done to develop commercial ties and tackle unresolved issues.”

The U.S. China Business Council sent out their list of priorities to Vice President Joe Biden, Capitol Hill and members of Congress on Friday, hoping as lobbyists do to influence some of the debate as China becomes one of the most important foreign policy matters for Washington.

“China imports are going to increase and the U.S. wants to be part of that demand,” said Victoria Lai, a senior editor at The Economist Intelligence Unit, which published an extensive report on China-bound foreign direct investment last month (See: The Rise of the Chinese Consumer).

Trade policies that impact China business could result in economic blowback for certain companies. There is nothing stopping China from making life difficult for U.S. exporters, or U.S. multinationals conducting business in China. In late 2011, for example, China slapped tariffs upwards of 22% over the price on U.S. cars. The U.S. has done the same with low-cost tires and is currently protecting the U.S. solar power industry, which faces stiff competition from China, the world’s largest producer of solar panels.

The trade battle continues.
Many companies see these disputes being just as harmful to U.S.-based business. If Detroit auto makers face too many obstacles in exporting to China, it could opt to produce those vehicles elsewhere at a risk to U.S. jobs. China recently replaced the U.S. as the world’s leading automotive market.

From the U.S. China Business Council’s Statement of Priorities:

Ensure fair and open investment environments that create jobs. The U.S and Chinese governments should jointly affirm the principle that foreign direct investment is good for economic development, employment, innovation, competition, consumers, and public welfare.

Reduce investment ownership restrictions in China and encourage Chinese investment in the United States. China has far too many ownership restrictions on U.S. and foreign investors seeking market access. More investment by Chinese companies in the US means more jobs for Americans.

Remove unnecessary visa barriers. Both the U.S. and Chinese government should agree to offer reciprocal five-year, multiple-entry visas for business travelers.

Continue to use WTO cases to settle trade disputes. Both countries have effectively used this channel to resolve trade disputes in a non-politicized manner and should continue to do so.

Further improve rule-making transparency. China’s central government has significantly improved rule-making transparency over the past several years, but further improvements are needed. China should fully implement its commitment to publish all draft trade and economic-related laws, administrative regulations and departmental rules for a full 30-day period.

Increase financing support for US exports to China. Despite substantial growth in U.S. exports to China over the past decade, the U.S. share of Chinese imports has fallen to 7% from 10% in 2000. A worthy goal of the Obama administration’s National Export Initiative should be to reclaim a 10 percent share of China’s imports by 2014. Reauthorize the Export-Import Bank of the United States and have it prioritize lending support of U.S. exports to China.

Eliminate duplicative and inconsistent payroll taxes. The U.S. and China should quickly move to ensure its respective companies and employees are not required to pay payroll taxes (social insurance taxes in China) in both countries.

Adopt a stronger deterrent against counterfeiting. China should adopt the WTO-consistent deterrent of criminal penalties in cases of commercial-scale infringement, and broaden the use of higher penalties and stronger deterrents against all types of IPR infringement, including patent, copyright, trademark, and trade secrets violations.

Adhere to non-discriminatory, mutually-beneficial innovation policies. China should continue to implement its pledge to delink its innovation and government procurement policies. This issue impacts the level playing field for American companies in the China market, but also impedes China’s goal of becoming a more innovative economy.

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Due to tighter monetary policy at home, and uncertainties surrounding many of the key markets around the world, China’s stock markets were among the poorest performing in the world in 2011. The Shanghai Stock Exchange Index (SSEI) declined by 23 percent to 2,166, its lowest point in nearly three years.

Not surprisingly, the number and dollar value of initial public offerings (IPOs) on the Shanghai and Shenzhen stock markets declined last year. In 2011, 282 companies went public in China and raised $45.3 billion in new equity funds. By way of comparison, 347 companies raised a total of $76.3 billion in 2010.

Nonetheless, IPO volume in 2011 was substantially higher than it was as recently as 2009, when the SSEI increased by 75 percent. In that year, only 99 companies had an opportunity to go public and raise $29.6 billion, less than two-thirds of the amount raised in 2011, a year in which the overall market experienced a significant decline. In good times and bad, China’s stock markets have become an important source of funding for Chinese companies.

At the same time, private equity (PE) is emerging as a key provider of growth capital for China’s small and medium-sized enterprises. The number of PE deals exceeding $10 million increased by 18 percent to 437 in 2011, the highest number ever. Private equity fundraising also reached a record high in 2011, totaling $44.1 billion for investment in China. Yuan-denominated funds accounted for 60 percent of the total, continuing the trend of the previous two years.

Even China’s beleaguered real estate developers, who have seen their traditional sources of capital dry up as the Chinese government wages its war against speculation in the property markets, are learning how to tap into the large pool of capital in China made possible by the country’s high savings rate. A total of 29 property funds raised $4.1 billion in 2011, a significant increase from the $2.9 billion that was raised by 28 vehicles in 2010. Moreover, industry analysts expect that more than $6 billion will be raised in 2012, and that the property fund market will expand at an annual rate of 40 to 50 percent over the next few years.

Who is investing in property funds? The funds target wealthy entrepreneurs with an investment threshold of 10 million yuan ($1.6 million) and above. China now ranks fourth in the world, after the United States, Japan and Germany, in the number of high net worth individuals with investible assets of $1 million or more. In China, there are now 477,500 individuals in this category, more than there are in the United Kingdom, France, Canada and Switzerland.

In terms of its capital markets, China is now where the U.S. was in the late 1970s. During the decade of the 1970s, it was virtually impossible for all but the largest companies to raise capital. The Dow Jones Industrial Average (DJIA) barely budged during the decade, so initial public offerings were scarce and small and medium-sized companies only had access to loans from commercial banks and a handful of insurance companies.

The 1980s changed all of that. The DJIA tripled during the decade. IPOs and common stock offerings flourished, as did venture capital and angel investing. So-called “junk bonds” were used to provide much needed debt capital to medium-sized companies, and also enabled leveraged buy-out firms like KKR and Blackstone, which have since developed into today’s large international PE firms, to finance leveraged buyouts of even the largest companies in the United States.

China is now going through a similar transition. As it does, China will once again re-write the rules for competing in the global economy.

---------- Post added at 01:54 PM ---------- Previous post was at 01:04 PM ----------

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The yuan rose to an 18-year-high on Friday, climbing as Vice-President Xi Jinping prepares to step onto a plane for his trip to the United States next week.The People's Bank of China set the yuan's central parity rate against the US dollar at 6.2937 after the rate rose for two consecutive trading days, according to the China Foreign Exchange Trading System.

"The exchange rate will see more fluctuations, although the positive outlook for the Chinese economy has sparked expectations of a strengthening of the currency," said Zhuang Jian, senior economist with the Asian Development Bank.

Zhuang predicted the yuan may rise about 3 percent this year. However, that is slower than the 6 percent against the dollar in real terms last year.Deputy Foreign Minister Cui Tiankai said on Thursday that Xi's visit is an important opportunity to enhance mutual trust between China and the US.

Cui also expected the visit would help remove hurdles from Sino-US trade, including restrictions on US exports of certain high-tech products and obstacles to Chinese investment in the US.

Xi is scheduled to visit the US next week, where he will meet President Barack Obama and other high-level leaders.

"The rise largely reflects market supply and demand," said Zhang Jianping, senior economist with the Institute for International Economics Research under the National Development and Reform Commission.

He said the market expects the Chinese currency to rise because the economy remains positive and the government has adopted a rather tight monetary policy.

Il Houng Lee, senior resident representative at the Beijing office of the International Monetary Fund, said the currency will go forward over the medium term but in the short term it will see more ups and downs.

A report released by the IMF's Beijing office on Monday said upward pressures on the currency have diminished recently.

However, as the current account still has a sizable surplus of US dollars, and foreign direct investment remains strong, China is supposed to resume the strong pace of accumulation of foreign-exchange reserves, according to the report.

The country's foreign-exchange reserves increased by $11.7 billion between October and December, regardless of changes in the exchange rate and asset prices, the State Administration of Foreign Exchange said on Friday.

China's capital and financial account suffered a deficit of $47.4 billion in the fourth quarter of 2011, from a surplus of $66.2 billion in the third, indicating net capital outflows. Analysts said the exchange-rate fluctuations are closely connected with the crisis-affected economic scenario overseas and with speculative activities.

 

[escobar]

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Today China is the news.

The country's rise as an economic power has been one of the hottest topics in the world. Catching the trend The Economist published a special section on China in its Jan 28 issue, the first time in six decades that it has devoted a separate section to a single country. The last time it did so was in 1942 when it covered the United States. "China's emergence as a global power justified giving it a section of its own," says the magazine's Editor-in-Chief John Micklethwait.

I have often heard odes to China's progress in recent years.

An Oxford postgraduate once told me that during her one year of study at the university, rarely had her classes been concluded without the professor mentioning China. A Siemens executive told me matter-of-factly that he needed a new map of Beijing every several months to avoid getting lost in the city's fast-changing landscape. During my visit to the International Herald Tribune's Paris office in December, its publisher, Stephen Dunbar-Johnson, recalled his recent visit to Shanghai and how impressed he was by the construction boom in the town - "I could smell cement in the air."

Such words sound pleasant to Chinese citizens, who have been desperate for the restoration of the country's glory, lost only in modern history. But it would be naive to get carried away with the idea that China will reign supreme in the 21st century, as some people believe.

For decades, the West has viewed China's rise with mixed feelings of curiosity, doubt, disbelief and awe. Pessimists have long forecast an abrupt end to the country's ascendancy, drawing on what they see as evidence ranging from ideological impediment to public discontent, in addition to economic woes in the State and private sectors. Such views were epitomized in The Coming Collapse of China by Gordon Chang published more than 10 years ago, which predicted the country had only several years to go before its collapse.

Nothing could be farther from the truth.

A decade has passed, and China, instead of collapsing, is booming. As the country emerges as the world's second largest economy and largest exporter, more optimistic views have started to dominate.

Yet China is too large, too ancient and too complex a country to make any arbitrary judgment on it. It is a paradox of affluence and scarcity, a combination of modernity and backwardness, a commonwealth of first and third worlds.

While the country held the world's most extravagant Olympic opening ceremony, has sent men into space, and has the fastest high-speed trains, it still struggles to provide enough food and clothing for 30 million people who live in abject poverty, and to provide adequate social security aid for 60 million disabled people.

It guzzles more than 40 percent of the world's total production of coal, one-third of the total steel production and nearly half of the cement, yet it lags far behind in efficient use of energy, which means it has to consume two times more resources than the developed world, and eight times more than Japan, to turn out the same amount of industrial output, casting a shadow on the sustainability of its development.

Everything seems to be made in China, yet the country has profited little from its position in the global supply chain, to the detriment of its labor force and environment.

This is best illustrated by a recent report in The New York Times, which attempted to capture how value moves in global networks by using Apple's iPad and iPhone as examples. It points out that while these products are made in China, the country makes very little money from these popular products and the primary benefits go to the United States. "Only about $10 or less in direct labor wages is paid to Chinese workers" - often subjected to poor treatment - for each unit sold in the US at a price of around $600. "China's role in the world supply chain", the report concludes, "is much smaller than the casual observer would think".

Nothing has really changed in this respect. More than 10 years ago the Los Angeles Times carried a story about the Barbie doll, which pointed out that China gained only 35 cents in service fees for a doll with an export price of $2 and which was sold at retail price of $9.99 in the US market.

For China to become a real superpower, there is still a long way to go.

 

[delft]

"nearly half of the cement, yet it lags far behind in efficient use of energy"
There is a connection. Nearly everything made from concrete is cheap, but making concrete costs a lot of energy. Is it then better to use virtual pylons to carry a railway track?