Quickie
Colonel
IMO, there's not much difference in the efficient use of energy. The higher product value (per unit of energy) has more to do with value-add trading than purely from the saving from more efficient energy use.
Chinese Economics Thread
- Thread starter Norfolk
- Start date
IMO, there's not much difference in the efficient use of energy. The higher product value (per unit of energy) has more to do with value-add trading than purely from the saving from more efficient energy use.
Equation
Lieutenant General
You could use virtual pylons, but the cost of maintenance will be more due to weather, remember steel expand in heat and contracts during cold weather. Cement has a better compression ratio than steel, when added re-bar steel even better. Steel is good for both compression (think pressing) and shear (think stretching) tension, therefore good for bracing columns and girders.
escobar
Brigadier
Yuan Gangming, a researcher at the Chinese Academy of Social Sciences, said on Feb. 6 that China may offer a fund of US$132 billion to help European countries encountering sovereign debt problems. "The fund will be used for buying bonds issued by the European Financial Stability Facility," Yuan said.
The reseracher added however that his remarks do not reflect government policy. The Chinese Academy of Social Sciences is a state-owned thinktank which offers proposals to the government but does not take part in the policymaking process.
Yuan's statement echoed remarks by China's premier, Wen Jiabao, on Feb. 2, when he met the German chancellor, Angela Merkel. Wen told Merkel that China would increase its economic aid to the EU to help the eurozone overcome its debt crisis.
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The director of the Institute of Social Development at China's National Development and Reform Commission, Yang Yiyong, says the global economy in 2012 may be unpromising due to a growing labor force, re-employment of the previously unemployed and surplus agricultural labor among other factors, which will cause structural and imbalanced employment pressure, according to the Economic Information Daily, a newspaper sponsored by the state-owned news agency Xinhua.
Statistics from China's Ministry of Human Resources and Social Security show that the amount of workers needed in urban areas in 2012 has reached 25 million, one million more than the average number between 2006-10, the period of the government's eleventh five-year development plan. A researcher at the Developmental Research Center of the State Council said that small and medium enterprises have provided over 80% of the country's job opportunities, but the inadequacy of both market demand and numbers of orders is expected to produce problems in the companys' cash flow and will lead many of them to close.
Even though demand for labor appears to be rising, the talent demand of enterprises has decreased. Statistics from the website of the China Human Resources Market indicates that the talent demand of enterprises in the fourth quarter in 2011 dropped by 12.4% compared with the third quarter.
Experts suggested the government should prepare for a possible deterioration in the employment situation by implementing subsidy policies and other policies for improving and securing jobs.
Yang Yiyong pointed out that changes in economic development and the development of the country's industrial structure and the autonomy of private enterprises have meant that the quality of the labor force has failed to keep pace with adjustments to the economic structure and advances in technology and in the market. This has led to both a structural shortage of labor and a surplus at the same time.
Yang believes establishing a complete system of labor training is necessary and also proposes that private individuals starting a business of their own is one of the solutions to the problem.
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Chinese Premier Wen Jiabao pledged to adopt further measures to encourage private investment in monopoly industries to address problems with China's economic structure.
In response to economic turmoil, Wen said the government this year will further support the real economy, small-and medium-sized enterprises (SMEs) in particular, and push forward reform of monopoly industries.
The government should also better handle issues related to living standards, tackle unfair income distribution and corruption, and address public concerns about inflation and the affordability of housing, Wen said.
The premier made the remarks in meetings held last week to solicit opinions from representatives of different sectors of society on the draft of the government work report, which is to be delivered at the annual session of the National People's Congress, China's top legislative body, next month.
Wen said private capital should be encouraged to flow to fields such as finance, energy, transport and social services, "which can not only alleviate the difficulties of economic development but also accelerate the development of these causes," he said.
Details of policies supporting private investments must be drawn up within the first half of this year, Wen said.
Zhou Tienong, vice-chairman of China's top legislative body, said reform of monopoly industries has lagged far behind and resulted in unfair competition.
Although there are already policies in place allowing the involvement of private capital in financial markets, those applying to do so were often rejected because of the high requirements, said Zhou Dewen, chairman of the Wenzhou Small-and Medium-sized Enterprises Development Association.
The establishment of private sector financial institutions will play an active role in solving the financing difficulties of SMEs and promote the healthy development of the private sector, he said.
Wen said the government is paying close attention to the economic situation in January and the first quarter of this year.
"We have to make a proper judgment as early as possible when things happen and take quick action," Wen said, adding that fine-tuning of macro policies should begin in the first quarter. China's inflation rate rebounded to a higher-than-expected 4.5 percent in January, fueling speculation that policymakers may be showing more caution when considering further easing measures, according to figures compiled by Wang Tao, chief China economist with UBS AG.
In addition, it is still difficult to determine the actual strength of the real economy at the current stage. Therefore, the market should not expect the central bank to cut the bank reserve ratio in the next few weeks, Wang said.
But in the long term, the downward trend of inflation has not changed, so the credit supply target and overall policy stance will not be affected, Wang said.
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Three years after China launched its most ambitious experiment yet to give its currency more global clout, some market watchers are writing its epitaph, saying Beijing is not loosening its grip on the yuan fast enough to attract sustained interest.
But others say incremental changes in Chinese regulations are creating more channels for investors to move yuan between domestic and offshore markets, pointing to a growing market in Hong Kong that Beijing is using as a testbed for far-reaching reforms which could one day see the yuan become a global reserve currency.
"The landscape has changed for the better," said Tee Choon-Hong, regional head of capital markets, North Asia at Standard Chartered Bank, referring to the recent introduction of new guidelines allowing companies to invest yuan in China.
While many of the earlier deals in the offshore yuan market (CNH) were driven by speculation that China would allow faster appreciation of the yuan, Tee and others said that is no longer the single driving factor behind the market's growth.
Multinationals such as heavy equipment maker Caterpillar (CAT.N) are eager to plough more money into the country to fund expansions. While capital controls still make it tough to get offshore yuan back into the China, their gesture of selling yuan-denominated bonds is unlikely to go unnoticed by Beijing.
"A market that has previously blown hot and cold due to shifts in yuan gain expectations has made the transition to a more sustainable growth trajectory," said Tee, who shepherded McDonald's (MCD.N) first yuan bond in Hong Kong in July 2010.
For the offshore yuan market, that marks a sea change. It is now the more developed, liberal counterpart to China's still tightly controlled domestic market, and recent reforms show authorities are more confident about its prospects.
Indeed, some economists argue that the rapid expansion and development of the offshore yuan market could give Beijing enough confidence to speed up broader reforms domestically, by giving sophisticated investors more access to relatively underdeveloped mainland markets, though full convertibility of the yuan may still be a long way off.
Conversely, unruly expansion of the offshore market could alarm Chinese policymakers into thinking they were losing control of the currency, and prompt them to take steps to stamp out volatility.
TRADE FLOWS FLOURISHING
London, New York and other major global financial centers are eager for a piece of the fast growing market in yuan-denominated assets, but Hong Kong's status as a special region of China is likely to ensure it will be the biggest beneficiary of further moves by Beijing to internationalize the currency.
Offshore yuan deposits in Hong Kong banks have already expanded by a factor of 10 in two years, though they are still equivalent to less than one percent of China's total yuan bank deposits.
December monthly figures for trade settlement and offshore yuan deposits are a case in point for the market's potential.
Even as a more than 6 percent monthly drop in CNH deposits in December to 588 billion yuan ($93 billion) grabbed headlines, monthly trade volume settled in yuan jumped to its highest level since the market began in June 2010, indicating two-way trade flows between the mainland and Hong Kong are flourishing.
That is a big change. Growth of the offshore yuan market previously leaned on a larger number of mainland importers settling more of their bills in yuan because of the cheapness of the dollar abroad and relying on yuan-hungry investors to buy yuan debt, or so-called "dim sum" bonds, sold in Hong Kong.
But as hopes of hefty appreciation in the yuan melted after a global market selloff in the second half of 2011, giving a heavy jolt to the nascent CNH market, Beijing realized that it was equally important to allow the yuan to flow back into the mainland to keep the yuan trade settlement alive.
Recently, the pace of these reforms has only accelerated.
In less than two months, Beijing has taken the covers off a long-awaited cross border investment scheme (RQFII), streamlined a yuan-denominated inward foreign direct investment scheme, signed swap lines with more countries and eased regulations and trading limits on yuan transactions for banks in Hong Kong.
Daryl Ho, head of market development at the Hong Kong Monetary Authority, the territory's central bank, said at a FinanceAsia conference last week he wasn't worried about December's drop in deposits.
"There are more bilateral flows now in yuan and that is a increasingly healthy sign," Ho said.
REFORMS: CHINESE STYLE
The percentage of trade settled in yuan to total China trade has grown to nearly 7 percent in 2011 compared to less than 1 percent in the June quarter of 2010.
But as Beijing signs more trade deals and extends yuan swap lines with other countries, companies and investors are demanding more access to renminbi assets to give them an incentive to switch their trade settlements to yuan from U.S. dollars.
Last Wednesday, China more than doubled its swap line with Malaysia to 180 billion yuan, taking the total amount of swap lines signed with its trading partners to nearly 1.5 trillion yuan, representing a quarter of its global trade.
Some of those demands have also come from countries seeking to diversify their currency reserves. Japan wants more access to Chinese markets to boost trade and help its moribund economy, while Nigeria has hopes to hold as much as 10 percent of its reserves in yuan.
And China is heeding those calls. A long-awaited plan to allow Hong Kong-based financial institutions to invest their CNH proceeds in the mainland finally took off in December with authorities granting quotas amounting to 20 billion yuan.
Chordio Chan, head of investments at Bank of China Hong Kong (2388.HK), the territory's only clearing bank for yuan transactions, said Beijing will sign more yuan swap lines and award more yuan investment quotas this year to boost the offshore market.
USEFUL SIGNALS
In developing Hong Kong as an offshore trading hub for its currency, while maintaining a tight grip on the yuan at home, China has turned a longstanding, evolutionary model of offshore foreign exchange markets upside down.
Countries such as the United States and Germany developed their domestic markets long before the use of their currencies flourished overseas.
Under Beijing's plan, Chinese banks and companies can learn to handle their currency and interest rate exposure without the risk of causing lasting damage to mainland markets, Sebastian Mallaby and Oli Wethington said in an essay published in Foreign Affairs.
"The system can be tweaked and tested before it is rolled out on the mainland, and in the meantime, it may generate price signals useful to China's government."
escobar
Brigadier
Chinese investment in Europe doubled in 2011, with total capital of US$6.7 billion, making the country the third-largest investor in the continent, behind the United States and Japan.
La Tribune, a left-leaning French newspaper, said that Chinese companies have recently stepped up their purchases of European firms in sectors ranging from energy to luxury yachts.
During the recent visit to China by the German chancellor, Angela Merkel, the Chinese premier, Wen Jiabao, said that China does not intend or even have the capacity to "buy Europe," a fear expressed by many on the continent.
That fear is also called into question by the fact that China, with its US$3.2 trillion in foreign exchange reserves — the most of any country in the world — seems willing to provide Europe with help throughout its ongoing financial crisis. Wen told Merkel that Beijing is prepared to increase its investment in the European Financial Stability Facility and the European Stability Mechanism, which is set to be launched later this year.
While meeting Merkel on Feb. 11, Premier Wen said that China's interests lie in a stable Europe, Agence France-Presse reported. Wen said that Europe is China's first export target and its principal source of technology. Therefore, he said, helping Europe helps China.
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In 2011, China's financial income broke the 10 trillion yuan (US$1.59 trillion) mark, reaching 10.374 trillion yuan (US$ 1.65 trillion), up 24.8%, much higher than projected growth of 8% and the GDP growth of 9.2%.
Li Heng, professor at the Central University of Finance and Economics, remarks that financial-income growth has far exceeded GDP growth for years, even double the latter rate, which is a worrisome phenomenon.
During 2006-2010, China's financial income increased by 21.3% annually on average, compared with GDP growth of 11.2%.
Similar phenomenon also occurs for municipal financial incomes. Shanghai, for instance, saw its financial income in 2011 expand 19.4%, compared with GDP growth of 8.2%, while Beijing's financial income jumped 27.7%, compared with GDP growth of 8%.
The discrepancy was achieved despite the slowdown in economic growth, the macro-control policy for the realty market,and a litany of structural tax cuts. The country's Ministry of Finance attributes the high growth rate to economic growth, price hikes, good corporate profits and government policies.
A Shanghai official explains that expansion in the service industry and cutting-edge manufacturing industry has contributed to the rapid growth of municipal financial income.
Yang Zhiyuan, a research fellow as the Chinese Academy of Social Sciences, points out that in addition to inflation, the high financial-income growth derives from the effort of municipal governments to pursue high financial income. Other factors include the launch of new taxes and broad taxation base, relatively high tax rates, and effort for tax levy.
Dai Bohua, spokesman for the finance ministry, has said that the discrepancy between GDP growth and financial-income growth is a result of their different calculation bases, the former on constant prices and the latter on current prices. In addition, financial income, especially taxation income, derives from the secondary and tertiary industries, whose growth rates are usually higher than GDP growth.
Chen Zhiwu, a professor at Yale University in the United States, notes that from 1995 through 2007, after excluding inflation, the Chinese government's financial income expanded 5.7 times, while the per capita disposable income of urban residents only increased 1.4 times and the average pure income of farmers advanced 1.2 times.
The high financial-income growth over the past years has constrained the growth of people's income, dampening consumption and domestic demand. The share of laborers' compensation in GDP has been in decline for 22 straight years, accounting for only 39.74% of GDP, compared with over 50% in industrially developed nations.
"The steady growth of a nation's economy must bed based on solid domestic demand. Apparently, the financial income growth exceeding GDP growth has affected expansion of domestic demand, blocking the change in the method for economic development," says Li Weiguang, professor of Tianjin University of Finance and Economics.
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Chinese will have to spend nearly one in every five dollars of its gross domestic product (GDP) on logistics costs to achieve the 9.2 percent economic growth of last year, according to an official report released Tuesday.
China's logistics costs increased 18.5 percent year-on-year to reach 8.4 trillion yuan (1.33 trillion US dollars) in 2011, said a report issued by the National Development and Reform Commission, the National Bureau of Statistics and the China Federation of Logistics and Purchasing.
The logistics costs for the economy were quite high, said the report.
With the growth accelerating 1.8 percentage points from the same period of a year earlier, total logistics costs accounted for 17.8 percent of the nation's 47.16-trillion-yuan GDP last year, compared with 18 percent in previous year.
Chinese spent 4.4 trillion yuan in transporting goods, an increase of 15.9 percent year-on-year. Storage costs rose 22.6 percent year-on-year to 2.9 trillion yuan while management fees amounted to 1 trillion yuan, up 18.7 percent, said the report.
Since last October, the State Council, or China's cabinet, has campaigned to boost the country's logistics capabilities and better link producers and consumers to cut intermediary costs.
The country moved 158.4 trillion yuan worth of goods last year, up 12.3 percent in terms of inflation-adjusted prices, according to the report.
The logistics sector reported an output of 3.2 trillion yuan last year, up 13.9 percent year-on-year in terms of inflation-adjusted prices.
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The growth of China's machinery exports will slow this year because of the weakening global economy and increasing protectionism in developed countries, Cai Weici, deputy-president of the China Machinery Industry Federation, said on Monday.
The federation said this year's growth in machinery imports and exports would be about 15 percent each, less than in 2011.
According to the General Administration of Customs, machinery exports rose 24.5 percent last year to $321.8 billion, while imports rose 21.2 percent to $309.4 billion.
Cai said that the growth rate of machinery exports would continue to fall in the coming years.
"Europe is an important market for China's machinery industry, so its economic gloom has led to a shrinking market and lower exports," said Cai. "Further, increasing trade frictions will worsen the difficulties for exports." He said that the increase in China's machinery exports in recent years had made some foreign companies feel "threatened" in their domestic markets.
Those concerns had led to trade actions against China, such as recent US anti-subsidy and anti-dumping probes against Chinese wind power equipment producers.
"Chinese companies should be prepared for more trade disputes and learn from them," said Cai. "The central government also needs to work harder on protecting domestic industries when it confronts trade barriers."
"Although we had (an industry) trade surplus of $12.4 billion, it mainly came from the downstream production of the industrial chain," Cai said.
He said Chinese machinery companies should invest more to develop high-end products, which are the "growth sector" but also the segment where global competition will intensify.
According to the National Bureau of Statistics, the machinery industry accounts for about 19 percent of China's industrial output.
Because of rising costs and an unstable export market, among other factors, the industry's annual profit growth in 2011 sank to 21.1 percent from 55.6 percent a year earlier.
The federation has forecast that profits would only grow about 12 percent this year.
Cai said the number of orders declined throughout 2011. As of the end of last year, the growth rate in orders had fallen to an annual 6 percent, compared with 30 percent in 2010.
The federation has forecast that the industry's output and sales would each grow 18 percent this year, compared with about 25 percent last year and 34 percent in 2010.
Excess domestic supplies will persist this year, according to the federation, adding to companies' difficulties in making a profit.
escobar
Brigadier
A major Chinese aviation group said Monday it will expand its aircraft fleet and boost revenues to become a global carrier by 2015 as the country's aviation industry grows.China National Aviation Holding Co. (CNAH) will increase its number of planes to 700 by 2015, CNAH General Manager Wang Changshun said Monday.
Wang said the company wishes to be positioned among the world's top five aviation groups in terms of asset value, profitability and sales revenues by 2015.
The group had more than 430 planes as of the end of 2011, with total assets exceeding 180 billion yuan (28.6 billion U.S. dollars), company data showed.
Air China, the country's flagship airline and a CNAH subsidiary, had 393 planes as of the end of 2010, most of which were purchased from Boeing and Airbus.
Currently, CNAH ranks 10th among its global peers. Its profits exceeded 15 billion yuan in 2010, more than any other Chinese aviation firm, according to company data.
Supported by steady growth in passenger volume, China's aviation industry has continued to expand despite rising fuel costs and grim global market conditions.
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China’s ambitions to unlock the natural gas trapped in shale rocks are likely to take longer than planned, boosting the nation’s reliance on overseas suppliers from Exxon Mobil Corp. to Royal Dutch Shell Plc.
Shale gas output will rise to 23 billion cubic meters in 2020, or 29 percent of the government’s 80 billion target, under the average estimate of seven analysts surveyed by Bloomberg. The shortfall, stemming in part from tougher geology, should boost liquefied natural gas imports from about $5.8 billion in 2011 while curbing speculation that the nation can duplicate the U.S. shale boom that has upended global energy markets.
Drillers in China, the world’s biggest holder of shale reserves, have yet to produce shale gas commercially, with Shell helping China National Petroleum Corp. (CNPZ) to sink the nation’s first horizontal well. Explorers such as Cnooc Ltd. (883) and China Petrochemical Corp., which have invested more than $5.7 billion in so-called unconventional oil and gas assets overseas, have found their technology lacking at home.
“There are resources in China but the geology is different and more challenging than in the U.S.,” Liu Zhenwu, a vice president at state-run CNPC’s advisory center, said in a Feb. 7 interview in Bangkok. “Technical issues need to be solved first. It may take a few years, maybe a decade, maybe more, before large quantities of shale gas are produced in China.”
Until then, China will need to boost purchases of LNG from providers such as Exxon, Chevron Corp. and Woodside Petroleum Ltd. to meet demand. The nation imported 12.2 million metric tons of LNG in 2011, worth $5.8 billion at last year’s average price, customs data show. Paris-based *** Suez SA estimated shipments may almost quadruple to 44 million tons in 2020.
Shale Versus Imports
“China may well emerge as a new shale-gas frontier, but production isn’t likely to be in very significant volumes compared with conventional gas supply for a decade at least,” said Thomas Grieder, a Geneva-based Asia Pacific energy analyst at industry consultant IHS Energy. “The country will continue to rely on LNG imports.”
The global LNG market last year was valued at about $123 billion, based on an average price of $10 for a million British thermal units and 336 billion cubic meters of shipments.
Grieder forecasts China will produce 20 billion cubic meters of shale gas in 2020. “The government’s target is ambitious,” he said. “It reflects their confidence about the resource base and about strong domestic and foreign investor interest in the sector.”
Gas Prices
The U.S. produced 96 billion cubic meters in 2009, overtaking Russia as the world’s biggest natural gas provider. Output surged to 142 billion cubic meters in 2010, causing prices to slump. Cheniere Energy Inc. and Freeport LNG Development LP are among companies that plan to liquefy and export U.S. gas.
Natural gas prices in New York were close to $10 per million British thermal units end of 2000 and rose a record of $15.38 per million British thermal units in December 2005, spurring drilling investments. Prices on the New York Mercantile Exchange have dropped 18 percent this year. The March contract rose 1.2 percent to $2.46 per million British thermal units at 7:52 a.m. New York time.
Chinese shale may hold 1,275 trillion cubic feet (36 trillion cubic meters) of technically recoverable gas, 12 times the country’s conventional gas deposits, an April report by the U.S. Energy Information Administration said.
That’s almost triple the 482 trillion cubic feet in the U.S., according to a Jan. 23 estimate by the EIA. It didn’t give a revised estimate for China. U.S. engineers pioneered techniques to extract gas from shale about 17 years ago.
‘Not Gotten Started’
“The U.S. shale gas industry is booming, and we’ve not gotten started yet,” said Zhang Jinchuan, a professor of geology at the China University of Geosciences in Beijing and an adviser in shale gas to China’s Ministry of Land and Resources. “If the industry develops quickly, then China could possibly catch up with the U.S. in 15 or 20 years.”
A survey by the Chinese government last year showed 25 trillion cubic meters of reserves could be explored in the country, Zhang Dawei, deputy head strategic research at the land ministry, said in a Jan. 9 newsletter. China aims to produce 80 billion cubic meters annually by 2020, Zhang said in October, citing the draft of a national plan.
The country may hold about 31 trillion cubic meters of the resource, or about 14 percent less than the U.S. EIA estimate, Xinhua News Agency reported. It cited Wang Min, vice minister of land, at a Feb. 12 national geological survey conference in Beijing.
Wang was more optimistic about shale-gas output, saying it may exceed 100 billion cubic meters in 2020, Xinhua reported. China hasn’t published an official estimate of the resource.
Complex Geology
“On average the shale deposits in China are deeper than in the U.S. and more difficult to get to,” Neil Beveridge, an energy analyst at Sanford C. Bernstein & Co. in Hong Kong, said Feb. 10. “The minerology of the shale rocks in China is also primarily what is called non-marine, which means their productivity could be lower. The U.S. has marine shales which have much lower clay content and are more easily fractured.”
Teams that unlock gas with hydraulic fracturing, or fracking, in the U.S. found success mostly from 2 kilometers (1.2 miles) to 4 kilometers deep, while in China some key deposits are found 6 kilometers down, according to Beveridge.
Chinese shales are also structurally more complex and pose greater challenges to design wells. Overcoming these issues adds to costs, he said. Delays in auctioning shale acreage and framing rules and incentives to encourage exploration may also slow development.
Chinese Auctions
China first auctioned exploration blocks in June and has delayed a second sale twice because the land ministry plans to double the number of areas to be offered and is drafting a national plan to develop the resource. The government plans to hold the tender by the end of this month or in early March, the land ministry’s Zhang said Feb. 13 by telephone.
Foreign explorers are barred from participating directly in the auctions and must partner with Chinese companies.
China may need to ease price controls to allow domestic fuel suppliers to earn a profit. Gas importers are losing money as they typically buy at overseas rates that are higher than the fixed domestic prices they are allowed to charge customers.
“A key difference between China and the U.S. is the way people do business,” Zhang, the geology professor, said Feb. 10. “In the U.S. everybody can apply for exploration rights and run it as a business. China needs to encourage companies to invest in the hope of earning a reasonable return. We have so many rules that prevent entry into the sector.”
escobar
Brigadier
Germany is the biggest beneficiary of European exports to China with €53 billion (US$70.24 billion) in income from January to October 2011. Germany is also the country with the smallest trade deficit with China among EU countries.
According to La Tribune, a left-leaning French newspaper, Germany accounts for more than 50% European exports to China, followed by France with €11 billion (US$14.58 billion), United Kingdom and Italy, both at €8 billion (US$10.6 billion).Germany is also the biggest importing country of Chinese goods with €54 billion (US$71.57 billion), representing 22% of all the EU's imports from the country. The country's trade deficit with China amounted to €500 million (US$662.7 million) as of the end of October 2011.
Compared to Germany, other European countries suffer a bigger trade deficit. Holland registered a €36 billion (US$47.71) deficit, while the UK reached €23.6 billion (US$31.28 billion). Italy's trade deficit is €17 billion (US$22.53 billion) and France comes in at €9.8 billion (US$12.99 billion).
Debt-ridden Greece only exported 214 million euro (US$283.64 million) to China, and imported for more than 2 billion euro (US$2.65 billion) in goods and services.
According to statistics by Eurostat, an agency of the European Commission that provides statistical information, bilateral commercial exchanges between China and Europe that represented €23 billion (US$30.48 billion) in 2000 soared to €113 billion (US$150 billion) in 2010.
Imports from China were valued at €75 billion (US$99.4 billion) in 2000, while 2010 witnessed at surge to €283 billion (US$375 billion).
Numbers compiled by Eurostat said that the bilateral exchanges in the first 10 months of 2011 kept increasing, with European exports meeting a 21% growth while imports rose 5% amid a deficit of €132 billion (US$174.95 billion).
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In the hope of collecting more accurate economic data, the National Bureau of Statistics plans to begin obtaining information directly from industrial, service and real estate companies, it said in a statement on its website on Tuesday.
The bureau said that about 700,000 companies, which together contribute about 80 percent of the nation's GDP, must begin on Saturday to upload production, income and spending statements and other information directly to the National Data Center or various provincial data centers.
Ma Jiantang, chief of the statistics bureau, said in the statement that the system is meant to make statistical reporting easier for companies and data collection more efficient.
This database is also meant to help prevent local authorities from inflating statistical information, Ma said.
"It can improve the data's authenticity and provide more accurate indications about economic conditions."
Under the current system of data reporting, companies are asked to submit information about economic indicators to local statistical institutions. That system has made it easy for those who want to paint a rosy picture about a place's economy to intercept and manipulate the information before sending it to the statistics bureau's headquarters in Beijing.
In 2011, the combined GDP reported separately by the 31 provinces and municipalities was 51.8 trillion yuan ($8.2 trillion), a figure that was about 10 percent higher than the national GDP figure released by the statistics bureau, a report from Economic Daily said. Analysts said the provincial data were likely exaggerated, as numbers tied to economic growth are often used as a means of judging local officials' performance.
The statistics bureau began testing the unified data reporting system at the beginning of 2010.
Chengdu Yaguang Electronics Co Ltd, a supplier of microwave semiconductor devices, is among a group of companies that have used it. The company began uploading data to the statistics bureau in January 2010.
"So far the system is running well," said Wang Hongling, the chief statistician in the company.
"It has shortened the time that we take to collect data, and now we have only one unified table to fill in. This has been a great relief from drudgery."
The statistics bureau chief called on companies to provide "true and accurate" information, saying those that falsify data will be punished. The statistics bureau said the new system is to be used in calculating economic indices for the first quarter of the year.
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The Chinese government is building new cities in the country's underdeveloped interior, hoping to convert millions of farmers into city dwellers and maintain China's burgeoning economic success in the following decades.
Along the mud-clogged Yellow River, a local government has widened crooked country lanes into highways, turned farmlands into housing estates and invited Nike and Adidas to open stores in a nearby shopping mall.
In Changyuan, a county with 840,000 inhabitants in central China's Henan province, ambitious officials, keen business people and restless farmers are working together to urbanize the sleepy rural region.
From the balcony of his daughter's new apartment, a cluster of newly finished buildings unfurl in front of 65-year-old Wen Xianhua. Those were patches of wheat when he came last time.
It's been six years since Wen last visited the county seat, during which time dozens of villages have been turned into urban areas.
A report released in January by the National Bureau of Statistics stated that 51.27 percent of China's total population was located in urban areas as of the end of 2011, meaning that over the past three decades, more than 500 million people have been added to China's cities, especially large ones in prosperous coastal areas.According to the estimation of business counselor McKinsey, there will be one billion people living in China's cities by 2030. This means more than 300 million new urban residents - almost as big as the current population of the United States.
However, a blue book on international urban development published last Thursday warns that the fast growing population has overwhelmed the insufficient infrastructure of China's big cities. The blue book done by China's top think tank, the Chinese Academy of Social Sciences, says problems like traffic jam and pollution might become even worse in the coming years.
Zhuang Jian, a senior economist from the Asian Development Bank, said the next phase of China's urbanization will feature a focus on medium- and small-sized cities, with less attention paid to the country's metropolitan areas.
The government is working to urbanize rural areas, generating demand for road construction, telecommunications services and other infrastructures essential to cities.
Wen Xianhua's eldest daughter, Wen Yuling, moved to Changyuan's county seat over the winter. Despite having lived in the countryside for the last 35 years, Wen Yuling has her apartment decorated much as a typical urban resident would, with hardwood floors, a glass coffee table and new air conditioners.
Supplying elevators, washing machines and supermarkets for new communities will create a massive new market, with large numbers of migrants expected to move to newly urbanized regions.
Wen Yuling's brother, Wen Qiang, is also planning to follow her suit. With an annual income of 80,000 yuan (about 12,700 U.S. dollars), he has been looking for an affordable apartment and has visited four housing estates during the Spring Festival holiday at the end of January.
"My eldest son will get married within the next few years. Many young women would like to find a husband who has an apartment in the city," he said.
Like most migrant workers in China, Wen Qiang works thousands of miles from his hometown, earning ten times more than he would on the farm. But the high costs of city life, as well as problems with China's household registry system, have prevented his family from joining him in the city.
His wife stays on the farm and takes care of their two sons. But they don't want their sons to stay in the village for the rest of their life.
"People used to build big houses in the village when they earned enough money working outside," Wen Qiang said, "but things are different now. Villagers from my generation want to buy apartments in cities. There are better schools, bigger hospitals and shopping malls.... It's more convenient."
According to Wang Yantao, deputy director of Changyuan's publicity department, one fourth of Changyuan's 840,000 residents work outside the county, while local private companies and factories have attracted 165,000 surplus agricultural laborers. The local government wants to encourage them to move to the county's urban areas.
Entrepreneurs see limitless opportunities in this process. Encouraged by the local government, keen business people have brought city life to local farmers, constructing high-rise buildings with heating systems, shopping malls, theaters, advanced hospitals and schools that provide kindergarten to high school education.
"These are the reasons I've moved here," said Zhang Shengchang, a 29-year-old resident of Changyuan's county seat. Having lived there for six years, Zhang drives out of town to work in the countryside, while his wife stays home to take care of their two children who attend a public primary school.
"There are 2,000 families in my community. More than half of them came from villages," Zhang said, adding that all his three sisters have moved to the county seat over the last three years.
Every year, about 4,000 rural residents move to the county seat, while another 6,000 move to another 10 towns of the county. These newly urbanized families tend to spend more money in their city homes than they do in the village.
In 2011, retail sales of consumer goods in Changyuan reached 3.85 billion yuan, up 18.7 percent year-on-year.
Zhuang Jian said urban residents tend to consume three times as much as rural residents, a fact that will lead to great expansion in domestic demand. The government is looking to domestic demand to stimulate the country's economy in light of weak export prospects and the financial crisis in Europe and the United States.
---------- Post added at 12:04 PM ---------- Previous post was at 12:02 PM ----------
China has joined the world's top five wine markets while becoming the 6th largest wine-producer, according to a new survey for VINEXPO Asia-Pacific.
The VINEXPO/ IWSR (International Wine and Spirit Research) study now places China ahead of the UK as the 5th largest wine consumer, with the United States on top ahead of Italy and France.
The study found China’s wine consumption, including Hong Kong, grew by 33.4 percent in just one year from 2009 and 2010. It forecasts 54.25 percent growth between 2011 and 2015 – the equivalent of a billion more bottles.
The annual IWSR survey covers 28 producing countries and 114 consumption markets.
Among notable trends identified in China, red wine accounts for 91 percent of total consumption, but a 19 percent increase in white wine consumption in 2011 from 2010 indicates that Chinese drinkers are growing fonder of whites.
In the meantime, imported wines accounted for 15 percent in 2010, with France the leading supplier, accounting for 42.74 percent of total imports, ahead of Australia. In value terms, non-Chinese wines represented 37.4 percent of total sales.
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China, the world’s biggest soybean importer and consumer, signed agreements in Iowa to purchase 8.62 million metric tons of the oilseed from U.S. suppliers in a deal valued at $4.3 billion.
Soybeans will be supplied by companies including Cargill Inc., Archer Daniels Midland Co. (ADM), Bunge Ltd. (BG) and CHS Inc., Iowa Soybeans Association Chief Executive Office Kirk Leeds said today in Des Moines, Iowa, during a U.S.-China trade cooperation conference. Iowa Governor Terry Branstad is hosting a two-day visit by Chinese Vice President Xi Jinping, 58, who is slated to become president in March 2013. Iowa is the biggest U.S. producer of corn, soybeans, hogs and eggs.
“It is phenomenally important to have Vice President Xi here because it says that Iowa is an important place to do business,” Leeds said yesterday in an interview. “These agreements are the direct result of activities by U.S. soybean groups in China since 1981 to promote soybean-meal demand in livestock, chicken and aquaculture feed.”
China became the largest buyer of U.S. farm products in 2010, and last year boosted purchases to $22.17 billion, U.S. Department of Agriculture data show. The nation purchased 20.6 million metric tons of soybeans from the U.S. last year, or 60 percent of the total shipped overseas. China probably will increase purchases from all suppliers by 62 percent in the next decade to 90 million tons from a projected 55.5 million this year, the USDA said Feb. 13.
Feed Fish
“It would take half of the Iowa soybean crop just to feed China’s fish,” said Leeds, who will be traveling to China next month on a sales-promotion trip for the producer-funded organization. “Soybean profitability depends on international demand, especially from China.”
Additional sales agreements may be announced in Los Angeles on Feb. 17, bringing the total for this week above the 11.5 million tons reached during a similar trade visit in Chicago last year, Leeds said. The 2011 deals involved 21 purchase agreements valued at $6.7 billion.
Iowa farm exports to China in 2010 were 13 times larger than in 2000, data from Iowa Department of Agriculture show. Agriculture and related industries contributed 27 percent to the state economy in 2010 and 17 percent of Iowa workforce is employed in producing food.
Prices Gain
Soybeans have jumped 5.1 percent this year on the Chicago Board of Trade, partly as hot, dry weather damaged crops in Brazil and Argentina, the two biggest exporters after the U.S. last year. Today, the price reached $12.765 a bushel, the highest since Sept. 27, on speculation that China may increase purchases from the U.S. to rebuild inventories and cushion against any additional adverse global weather later this year.
Earlier today, the government reported U.S. exporters sold China 116,000 tons of soybeans for delivery before Aug. 31.
Chinese and U.S. officials will attend a symposium tomorrow in Des Moines sponsored by the USDA. Chinese companies intend to invest more on advanced agricultural technology and sustainable farming from U.S., Xinhua News Agency reported, citing an interview with Minister of Agriculture Han Changfu, who is accompanying Xi this week on his trip to Iowa.
“The conference will help to improve relationships to achieve mutually beneficial development in the future,” Bill Northey, Iowa’s secretary of agriculture, said in a telephone interview on Feb. 13. “At the end of the day, it’s all about getting business done company to company rather than government to government.”
---------- Post added at 11:34 PM ---------- Previous post was at 11:30 PM ----------
China, the largest foreign lender to the U.S., reduced its holdings of Treasuries in December to the least since June 2010 amid efforts to assist Europe in addressing its debt crisis.
The world’s second-largest economy decreased its U.S. debt securities by $31.9 billion from November, or 2.8 percent, to $1.11 trillion, according to Treasury Department data released yesterday. Its position in longer-term notes and bonds also fell $32.5 billion, or 2.8 percent, to $1.1 trillion, the least since June 2010. Japan, the second biggest buyer, increased its holding by $3.5 billion to $1.04 trillion.
“We continue to see Chinese Treasury holdings trending lower as they are acting on their desire for diversification and as they may get more involved in the situation in Europe,” said Ian Lyngen, a government bond strategist at CRT Capital Group LLC in Stamford, Connecticut.
China’s policy makers have advocated diversification of the nation’s foreign exchange reserves away from U.S. assets. China may support Europe through channels such as the International Monetary Fund, the European Financial Stability Facility and the European Stability Mechanism, said People’s Bank of China Governor Zhou Xiaochuan.
European Assets
“China will always adhere to the principle of holding assets of EU sovereign debt,” Zhou said in Beijing yesterday. “We would participate in resolving the euro debt crisis,” he said.
Chinese Officials, including central bank adviser Li Daokui, have urged diversification of the nation’s foreign exchange reserves. The Asian nation will “seek diversification in the management of reserve assets, strengthen risk management, and minimize the negative impacts of the fluctuations in the international financial market on the Chinese economy,” Zhou said in August.
Foreign investors held 47.6 percent of outstanding public Treasury debt as of December, the smallest proportion since October 2006, Treasury data show.
Net buying of long-term equities, notes and bonds totaled $17.9 billion during the month compared with net purchases of $61.3 billion the previous month, the Treasury Department said. Including short-term securities such as stock swaps, foreigners bought a net $87.1 billion in December compared with net buying of $42.9 billion the previous month.
China increased its position in shorter-term bills by $600 million to $2.9 billion.
“Overall flows were weak for the U.S. and the Chinese tactical selling reflected that as Treasuries were giving back very little,” said Aaron Kohli, an interest-rate strategist BNP Paribas SA in New York, one of 21 primary dealers that trade directly with the Federal Reserve. “As yields rise, look for China to buy Treasuries again.”
Treasuries have lost 0.1 percent this year after returning 9.8 percent last year, according to a Bank of America Merrill Lynch index.
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Chinese Vice Premier Li Keqiang has called for more efforts to expand domestic demand so as to speed up economic restructuring.
Li made the remarks in an article to be published Thursday in the new issue of Qiushi, or "Seeking Truth," the flagship magazine of the Communist Party of China.
The government should continue to properly handle relations between speed, structure and prices, creating a favorable environment for boosting domestic demand, Li said.
According to Li, the country faces important strategic opportunities, and its huge market potential will be an enduring drive to economic development.
The greatest potential of domestic demand lies in urbanization, the process of which will boost both investment and consumption, he said.
But farmers' wills and interests should be respected and arable land should be protected when pushing forward urbanization, he added.
The service sector has the most potential among other industries, acting like a container that absorbs workforce and as a critical force that promotes technological innovation, he said.Therefore, the government should accelerate the development of the service sector, especially the modern service industry, and rely on innovation to invigorate the economy, Li said.
Meanwhile, the government should prioritize projects that concern people's livelihoods, as investing in the sector is an act of restructuring the economy and an effective measure to boost demand, Li said.
Li also stressed the importance of related mechanisms, saying that the government should combine development and reform, strengthen top-level design and coordination, and respect public initiatives so as to make breakthroughs in reform and opening up.
Li said it is imperative to properly handle the relation between social undertakings and industries, protecting social welfare while pushing forward marketization of some industries.
---------- Post added at 03:38 AM ---------- Previous post was at 03:29 AM ----------
China's reliance on foreign trade dropped to 50.1 percent in 2011, indicating that the economy is transferring to a more inner-led growth mode, the General Administration of Customs (GAC) said Wednesday.
The reliance on foreign trade, which measures an economy's dependance on international markets, is the ratio of the total trade value in the country's GDP, according to the GAC.
China's reliance on foreign trade stood at 38.5 percent in 2001, and reached 51.9 percent in 2003 before peaked at 67 percent in 2006, GAC data showed.
The country's reliance on foreign trade has been above 50 percent for years, indicating that the country has widely participated in global markets, and foreign trades have played an important role in the economy, the GAC said.
But the country's figure is higher than around 30 percent in other nations such as the United States and India, showing that the economy still have great room to cut the reliance by boosting domestic demand, the GAC said.
China's foreign trade totaled 23.63 trillion yuan (3.75 trillion U.S. dollars) in 2011, while its GDP stood at 47.16 trillion yuan during the period, official data showed.
---------- Post added at 03:47 AM ---------- Previous post was at 03:38 AM ----------
China's State Council, or the Cabinet, on Wednesday pledged to push for deeper reforms to address the country's economic problems.
The government will use reform to solve deeply rooted structural problems that are hampering the country's development, according to a statement released after a State Council executive meeting presided over by Premier Wen Jiabao.
The government promised policy improvements in the non-public sector to encourage private capital to enter fields that were previously monopolized by the state, including railways, municipal administration, finance, energy, telecommunications, education and health care, according to the statement.
China will expand a pilot program for value-added tax adjustments and advance resource tax reforms, the statement said.
To make financial services more accessible, the statement said China will actively cultivate small-scale financial institutes to target small- and micro-sized businesses, adding that the government will work to properly guide private financing.
Electricity, refined oil and water pricing mechanisms will also be reformed, the statement said.
Reforms in rural areas will include regulations on the expropriation of collectively-owned land.
Other reforms discussed during the meeting included policy adjustments in the areas of social service, administration and foreign investment, according to the statement.
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Daily Briefing
China's FDI Continues to Contract
Foreign direct investment in China fell 0.3% year on year to just under $10 billion in January, marking the third month of decline in a row as Europe's debt crisis cut corporate spending, figures from the Ministry of Commerce show.
China's Software Revenue Up 32% in 2011
Revenue from China's software industry grew 32.4% to ¥1.84 trillion in 2011, the Ministry of Industry and Information Technology said. China exported $30.4 billion worth of software last year, up 18.5% from 2010. The top 100 software developers posted ¥342.3 billion in revenues in 2011, up 15% from a year earlier.
China Took $32b of Outsourced Contracts in 2011
China received $32.39 billion of service contracts outsourced by other countries in 2011, up 63.6% from the year before, the Ministry of Commerce said. The value of contracts from the US, EU and Japan combined represented 68.9% of the total.
China Axes Railway Projects
China will kick off just nine railway projects with a total investment of ¥4 billion this year, well below the 70 projects in 2011, a well-informed source said. There will be 249 railway projects costing a combined ¥389 billion underway throughout 2012, according to the source.
China Trims US Govt Debts
China, the largest US Treasury bond buyer, cut its holdings in December to the lowest level since June 2010 as the nation tries to increase its role in addressing Europe's debt crisis. China reduced its US debt securities 2.8% from November to $1.11 trillion as of the end of December, according to Treasury Department data. Its position in longer-term notes and bonds also fell 2.8% to $1.1 trillion, the lowest since June 2010.
---------- Post added at 11:23 AM ---------- Previous post was at 11:11 AM ----------
China has the motive, the opportunity and the money to spend $560 billion on overseas investments in the next five years, a sum dwarfed by the near-term financing needs of it two biggest trading partners that should leave Beijing spoiled for choice.
A raging euro zone sovereign debt crisis needs hundreds of billions of euros worth of asset and bond sales to solve it, European banks will probably offload 3-5 trillion euros ($3.9-$6.5 trillion) of assets to meet tight new capital rules, and the United States has a $1 trillion fiscal deficit to close.
But the reluctance of foreign governments to accept the acquisition of stakes in strategic assets by entities ultimately controlled by the Communist Party of China and a patchy track record in dealmaking is likely to lead to frustration all round.
"There are clear and powerful obstacles to investments of the scale necessary to reach and hold over $100 billion in outward investment in the short term," said Derek Scissors, a research fellow with the Washington-based Heritage Foundation, who tracks China's global investment hits and misses.
"One obstacle is still the maturing capacity of Chinese firms to conclude sophisticated transactions," Scissors said. "A bigger obstacle is unease with a rush of Chinese money which co-exists with the desire for Chinese financing."
That seems particularly true in the European Union, where the need for funds is the most urgent, the political barriers among the most complicated, and China's shopping list selective.
A two-day EU-China Summit in Beijing this week seemed to deliver nothing substantive to boost investment beyond a bland pledge from European Commission President Jose Manuel Barroso to develop a bilateral investment agreement.
However, Australia may have shown a way forward in navigating deals with Chinese buyers after outlining its preferences for foreign investment in big companies in 2009, pointing to the types of deals which would succeed and which wouldn't.
Australia Resources Minister Martin Ferguson said last year that Chinese dealmakers now understood how to navigate mergers and acquisitions in Australia after years of frustration.
Transactions have indeed soared since and the Heritage Foundation says Australia is the single biggest recipient of inward investment from China.
Europe could certainly use all the help it can get. China's foreign direct investment into the EU was just $4.3 billion in 2011, according to Ministry of Commerce data. And that was a 94 percent increase over 2010.
UNION RESISTANCE, POLITICAL OPPOSITION
When it comes to barriers, take Italy, which some analysts say could be forced to sell as much as 400 billion euros of the 1.8 trillion euros of state assets it owns to tackle a crushing public debt burden.
European government debt expert Nicholas Spiro, managing director of Spiro Sovereign Strategy in London, says Italy's most valuable assets are those that it would be most politically difficult to sell -- such as oil and gas companies, the railways and the postal service.
"Union resistance to sell-offs is likely to intensify," Spiro said. "Political opposition is also a factor," he added, pointing to 2008's blocked sale of Alitalia to Air France-KLM -- an internal euro zone deal -- as one sign of the size of the struggle ahead to make asset sales work.
China is picky about what it wants, as any investor would be when parting with billions of dollars and dealing with owners reluctant to sell top quality goods to close a funding gap they hope will close itself given enough time.
"We may be poor, but we aren't stupid," China central bank adviser, Xia Bin, told reporters on the sideline of an economics forum on Monday, ahead of the start of the EU-China summit.
"We must follow commercial principles in making such investments. That means we want returns."
China also wants technology, resources and strategic assets, which worries Western politicians and their electorates.
"The U.S. has seen the most transactions of more than $100 million since 2005, but trails Australia in total investment and Brazil in growth because Chinese firms perceive, correctly, that very large investments in the U.S. will meet political opposition," said Scissors.
Deals ran into trouble everywhere from Iceland to Myanmar in 2011, including a $5.4 billion PetroChina (601857.SS) deal in Canada, a $7 billion CNOOC (0883.HK) transaction in Argentina and Bright Food Group's $2.5 billion bid to buy French yoghurt maker Yoplait.
China's failed foreign forays totaled $32.8 billion in 2011, Heritage Foundation data shows.
That's more than half the value of all the overseas deals Chinese entities did manage to sign last year, which the Ministry of Commerce puts at $60.1 billion.
BALANCING CAPITAL FLOWS
Balancing the capital flows is a tough job, given that Ministry of Commerce figures show China attracted almost twice as much foreign investment as it made in 2011.
The Ministry's calculations show inbound foreign direct investment (FDI) rose 9.7 percent last year. Outbound non-financial FDI grew just 1.8 percent. Officials want that to average 17 percent in the five years to the end of 2015, amassing $560 billion of investments in the process.
Most of that $560 billion could reasonably be expected to find its way into real assets in the economies where China has a steady income from trade which could be used to fund purchases.
That would achieve twin goals of balancing capital flows and reducing exposure to the paper assets from the U.S. and Europe which analysts believe China's top policymakers have tired of.
Beijing has watched for two years as Europe's crisis has choked growth and demand in China's biggest export market and stoked default risks on the near $800 billion of euro zone government bonds it is estimated to own as part of its $3.2 trillion of foreign exchange reserves.
Chinese leaders on Wednesday offered words of support and faith in Europe's ability to solve its crisis -- as they did in the autumn when Klaus Regling, the head of the 440 billion euro European Financial Stability Facility, came to town to persuade China to buy more of the bonds he needs to sell.
But record low yields on U.S. Treasuries and a depreciating dollar has seen the value of China's dollar holdings fall by a third in the last 10 years, adding weight to Beijing's view that the time is ripe to change investment tack.
If China can engineer a rise in cross-border corporate merger and acquisition activity, it could take some of the political sting out of the rebalancing flows. But not all.
Suspicion and union problems were sparked when Sany Heavy Industry (600031.SS), China's largest maker of construction machinery, bought German firm Putzmeister for 360 million euros, chief executive Xiang Wenbo told a business forum on the sidelines of the China-EU Summit.
The deal was one of the biggest Chinese acquisitions in Europe, despite being tiny both in terms of global M&A transactions and the amount of money Europe needs to attract.
But things are worse in the U.S., Xiang said.
"The problem is not that we do not want to buy things in the United States, but the lack of good mutual political trust. The Americans always worry that if advanced technology is sold to China, China will manufacture advanced aircraft, tanks, artillery and then go fight the Americans, which is a barrier."
China's FDI Continues to Contract
Foreign direct investment in China fell 0.3% year on year to just under $10 billion in January, marking the third month of decline in a row as Europe's debt crisis cut corporate spending, figures from the Ministry of Commerce show.
China's Software Revenue Up 32% in 2011
Revenue from China's software industry grew 32.4% to ¥1.84 trillion in 2011, the Ministry of Industry and Information Technology said. China exported $30.4 billion worth of software last year, up 18.5% from 2010. The top 100 software developers posted ¥342.3 billion in revenues in 2011, up 15% from a year earlier.
China Took $32b of Outsourced Contracts in 2011
China received $32.39 billion of service contracts outsourced by other countries in 2011, up 63.6% from the year before, the Ministry of Commerce said. The value of contracts from the US, EU and Japan combined represented 68.9% of the total.
China Axes Railway Projects
China will kick off just nine railway projects with a total investment of ¥4 billion this year, well below the 70 projects in 2011, a well-informed source said. There will be 249 railway projects costing a combined ¥389 billion underway throughout 2012, according to the source.
China Trims US Govt Debts
China, the largest US Treasury bond buyer, cut its holdings in December to the lowest level since June 2010 as the nation tries to increase its role in addressing Europe's debt crisis. China reduced its US debt securities 2.8% from November to $1.11 trillion as of the end of December, according to Treasury Department data. Its position in longer-term notes and bonds also fell 2.8% to $1.1 trillion, the lowest since June 2010.
---------- Post added at 11:23 AM ---------- Previous post was at 11:11 AM ----------
China has the motive, the opportunity and the money to spend $560 billion on overseas investments in the next five years, a sum dwarfed by the near-term financing needs of it two biggest trading partners that should leave Beijing spoiled for choice.
A raging euro zone sovereign debt crisis needs hundreds of billions of euros worth of asset and bond sales to solve it, European banks will probably offload 3-5 trillion euros ($3.9-$6.5 trillion) of assets to meet tight new capital rules, and the United States has a $1 trillion fiscal deficit to close.
But the reluctance of foreign governments to accept the acquisition of stakes in strategic assets by entities ultimately controlled by the Communist Party of China and a patchy track record in dealmaking is likely to lead to frustration all round.
"There are clear and powerful obstacles to investments of the scale necessary to reach and hold over $100 billion in outward investment in the short term," said Derek Scissors, a research fellow with the Washington-based Heritage Foundation, who tracks China's global investment hits and misses.
"One obstacle is still the maturing capacity of Chinese firms to conclude sophisticated transactions," Scissors said. "A bigger obstacle is unease with a rush of Chinese money which co-exists with the desire for Chinese financing."
That seems particularly true in the European Union, where the need for funds is the most urgent, the political barriers among the most complicated, and China's shopping list selective.
A two-day EU-China Summit in Beijing this week seemed to deliver nothing substantive to boost investment beyond a bland pledge from European Commission President Jose Manuel Barroso to develop a bilateral investment agreement.
However, Australia may have shown a way forward in navigating deals with Chinese buyers after outlining its preferences for foreign investment in big companies in 2009, pointing to the types of deals which would succeed and which wouldn't.
Australia Resources Minister Martin Ferguson said last year that Chinese dealmakers now understood how to navigate mergers and acquisitions in Australia after years of frustration.
Transactions have indeed soared since and the Heritage Foundation says Australia is the single biggest recipient of inward investment from China.
Europe could certainly use all the help it can get. China's foreign direct investment into the EU was just $4.3 billion in 2011, according to Ministry of Commerce data. And that was a 94 percent increase over 2010.
UNION RESISTANCE, POLITICAL OPPOSITION
When it comes to barriers, take Italy, which some analysts say could be forced to sell as much as 400 billion euros of the 1.8 trillion euros of state assets it owns to tackle a crushing public debt burden.
European government debt expert Nicholas Spiro, managing director of Spiro Sovereign Strategy in London, says Italy's most valuable assets are those that it would be most politically difficult to sell -- such as oil and gas companies, the railways and the postal service.
"Union resistance to sell-offs is likely to intensify," Spiro said. "Political opposition is also a factor," he added, pointing to 2008's blocked sale of Alitalia to Air France-KLM -- an internal euro zone deal -- as one sign of the size of the struggle ahead to make asset sales work.
China is picky about what it wants, as any investor would be when parting with billions of dollars and dealing with owners reluctant to sell top quality goods to close a funding gap they hope will close itself given enough time.
"We may be poor, but we aren't stupid," China central bank adviser, Xia Bin, told reporters on the sideline of an economics forum on Monday, ahead of the start of the EU-China summit.
"We must follow commercial principles in making such investments. That means we want returns."
China also wants technology, resources and strategic assets, which worries Western politicians and their electorates.
"The U.S. has seen the most transactions of more than $100 million since 2005, but trails Australia in total investment and Brazil in growth because Chinese firms perceive, correctly, that very large investments in the U.S. will meet political opposition," said Scissors.
Deals ran into trouble everywhere from Iceland to Myanmar in 2011, including a $5.4 billion PetroChina (601857.SS) deal in Canada, a $7 billion CNOOC (0883.HK) transaction in Argentina and Bright Food Group's $2.5 billion bid to buy French yoghurt maker Yoplait.
China's failed foreign forays totaled $32.8 billion in 2011, Heritage Foundation data shows.
That's more than half the value of all the overseas deals Chinese entities did manage to sign last year, which the Ministry of Commerce puts at $60.1 billion.
BALANCING CAPITAL FLOWS
Balancing the capital flows is a tough job, given that Ministry of Commerce figures show China attracted almost twice as much foreign investment as it made in 2011.
The Ministry's calculations show inbound foreign direct investment (FDI) rose 9.7 percent last year. Outbound non-financial FDI grew just 1.8 percent. Officials want that to average 17 percent in the five years to the end of 2015, amassing $560 billion of investments in the process.
Most of that $560 billion could reasonably be expected to find its way into real assets in the economies where China has a steady income from trade which could be used to fund purchases.
That would achieve twin goals of balancing capital flows and reducing exposure to the paper assets from the U.S. and Europe which analysts believe China's top policymakers have tired of.
Beijing has watched for two years as Europe's crisis has choked growth and demand in China's biggest export market and stoked default risks on the near $800 billion of euro zone government bonds it is estimated to own as part of its $3.2 trillion of foreign exchange reserves.
Chinese leaders on Wednesday offered words of support and faith in Europe's ability to solve its crisis -- as they did in the autumn when Klaus Regling, the head of the 440 billion euro European Financial Stability Facility, came to town to persuade China to buy more of the bonds he needs to sell.
But record low yields on U.S. Treasuries and a depreciating dollar has seen the value of China's dollar holdings fall by a third in the last 10 years, adding weight to Beijing's view that the time is ripe to change investment tack.
If China can engineer a rise in cross-border corporate merger and acquisition activity, it could take some of the political sting out of the rebalancing flows. But not all.
Suspicion and union problems were sparked when Sany Heavy Industry (600031.SS), China's largest maker of construction machinery, bought German firm Putzmeister for 360 million euros, chief executive Xiang Wenbo told a business forum on the sidelines of the China-EU Summit.
The deal was one of the biggest Chinese acquisitions in Europe, despite being tiny both in terms of global M&A transactions and the amount of money Europe needs to attract.
But things are worse in the U.S., Xiang said.
"The problem is not that we do not want to buy things in the United States, but the lack of good mutual political trust. The Americans always worry that if advanced technology is sold to China, China will manufacture advanced aircraft, tanks, artillery and then go fight the Americans, which is a barrier."
escobar
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With China's economic growth slowing down, scholars have said the next five to 10 years will be the Chinese government's last opportunity to carry out reforms in the areas of politics, the economy and society, reports Chinese-language magazine Time Weekly.
An editorial written by economist Zhang Shuguang together with Zhang Xu, a professor at China University of Political Science and Law in Beijing, indicated that China's GDP growth gradually declined over the four successive quarters of last year, a trend showing that the potential for economic growth shrank under the government's macroeconomic adjustments.
The article said that the outlook for the global economy looks dim as a number of international institutions including the International Monetary Fund have lowered their forecasts on global economic growth in 2012. Low growth, high unemployment rates, tight credit and increasing risks are expected to be seen in many countries, especially developed nations.
Facing a domestic economic cooldown and global financial crisis, the next five to 10 years will be a critical time of uncertainty and the last opportunity for the Chinese government and Communist Party to enact reforms, the authors said.
The scholars said China's problems are a result of a strong government, a powerless society and distorted markets. The government holds huge resources as well as directs and intervenes in economic and social issues. Under the strong hand of the Communist Party, the structure of society has been underdeveloped, while the market has been distorted by government restrictions.
The article called for reforms aiming at reining in the power of the government, strengthening civil society and returning to market mechanisms. The government should allow people the rights to freedom of speech and assembly that they are given by the country's constitution. At the same time, the power of government should be limited by supervision and balances.
As for the economy, Beijing should abolish state-run monopolies and launch market-oriented reforms on interest rates and the exchange rate of its currency.
The scholars said reforms would either be launched by the government on its own initiative, or that its hand would be forced due to increasing social conflict. They concluded that the latter is more likely.
---------- Post added at 11:26 AM ---------- Previous post was at 11:21 AM ----------
China's overseas direct investment (ODI) in non-financial sectors reached 4.4 billion U.S. dollars in January, up 59.9 percent year-on-year, the Ministry of Commerce (MOC) announced Thursday.
The amount of investment calculated involved 355 overseas companies based in 87 countries and regions, said MOC spokesman Shen Danyang.
Business volume in overseas-contracted projects in January hit 5.87 billion U.S. dollars, up 38.4 percent year-on-year. Meanwhile, the value of new contracts signed fell 10.2 percent to 9.33 billion U.S. dollars, Shen said at a press conference held in Beijing.
As of the end of January, 811,000 Chinese were working in these investment projects abroad. The number was down 30,000 from the same period last year.
---------- Post added at 12:50 PM ---------- Previous post was at 11:26 AM ----------
China's coastal regions, which are responsible for the lion's share of nationwide manufacturing output are struggling on higher raw material and labor costs, a recent phenomenon which has benefited the poorer, resource-rich provinces in the hinterland.
Some 37,500 designated industrial firms (each posting at least ¥20 million in annual revenues) in Guangdong, China's largest provincial economy, saw their gross profits edge up just 2.4% to ¥461 billion in 2011, with the average profit margin dropping 0.9 percentage points to 4.8%, statistics show.
Firms engaged in the manufacture of telecommunications products, computers and electronics - an economic pillar in Guangdong - reported ¥69 billion in gross profits last year, down 13.8% from 2010.
The designated industrial firms in Zhejiang province, which has the most dynamic private sector in the country, posted ¥308 billion in gross profits in 2011, up 9.9% from a year earlier; the rate was 15.5 percentage points slower than the national average.
In contrast, Inner Mongolia, Shanxi and Shaanxi provinces, which have traditionally been underdeveloped regions, registered 40%-plus growth in industrial earnings thanks to their local natural bounty.
Between January and November 2011, Shaanxi's industrial profits were up 44.8% to ¥159 billion, Inner Mongolia's were up 41.4% to ¥150 billion and Shanxi's were up 40.4% to ¥120 billion, according to data from the provincial statistics bureaus.
China's industrial earnings rose 25.4% from a year earlier to ¥5.45 trillion in 2011, where growth in earnings from the oil and gas industry were up 44.8% and growth in earnings from nonferrous metal mining were up 53%, figures from the National Bureau of Statistics show.
Upstream resource companies are monopolistic government-run companies that are price setters for resources, while downstream manufacturers have failed to pass on rising expenses amid sagging export orders and fierce competition, Xiamen University professor Ding Changfa argued.
"Energy prices will continue to rise in China," Ding noted. "So the government should keep the manufacturing industry afloat by rolling out more policies, such as reducing funding costs and offering tax breaks."
Spiraling resource prices will exert pressure on manufacturing, and a weaker manufacturing sector will undermine the national economy as a whole and even social stability, Ding cautioned.
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IMF takes too euro-centric view of China
The International Monetary Fund misunderstands China. The latest China Economic Outlook estimates the effect of a severe euro zone crisis on the world’s second-largest economy – 2012 GDP growth would be 4 percentage points lower than the IMF’s base case of 8.2 percent. That’s not likely. And the fund’s analysis has other problems.
Maybe the IMF has been too distracted by its European responsibilities to notice that China is much less exposed to trade linkages than before the 2008 crisis. In 2011, net exports subtracted 0.5 percentage points from GDP growth, down significantly from a 2.5 percent contribution in 2007. Industrial sales for exports accounted for 12 percent of GDP in 2011, down from 17 percent in 2008. Domestic demand has picked up the slack. Consumption’s share of GDP rose above 50 percent in 2011.
Even if the global financial system turned out to be just as ill prepared for crisis as it was four years ago, China should be protected by its closed capital accounts. Foreign banks’ claims on Chinese banks are less than 1 percent of Chinese bank liabilities, while foreign assets, including sovereign debt, represent just 2 percent of Chinese banks’ total assets.
While exaggerating the risk from Europe, the IMF pays too little attention to the risks inside Middle Kingdom. There is the record $300 billion of local government debt, 4 percent of GDP, to be repaid in 2012. That will take a toll on local government finances, which are already struggling with lower revenues from land sales. Also, a property market slump will hurt investment, the biggest engine of China’s growth. Finally, inflation is still too high.
And if there were a slowdown, Beijing would not take the IMF’s advice for a fiscal package that equals 3 percent of GDP. Unlike the Europeans, the Chinese government would not be comfortable with a fiscal deficit of 5 percent of GDP, especially as central government debt, including contingent liabilities, already equals 80 percent of GDP, by the IMF’s own count.
The IMF is right to be cautious about the Chinese economy, but for the wrong reasons.