Chinese Economics Thread
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China's e-commerce continues its rapidly expansion as online sales turnover in 2011 surpassed 780 billion yuan (124 billion U.S. dollars), a year-on-year increase of 66 percent, according to a report released Thursday.
The report shows that e-business has supported the country's social development through reducing production costs, increasing employment opportunities and accelerating industrial transformation.
The report was jointly published by the International Data Corporation (IDC), a global provider of business intelligence for the consumer technology market, and Hangzhou-based Chinese e-commerce giant Alibaba Group.
Taobao, China's largest online trade platform, created more than 2.7 million jobs in 2011, the report illustrated.
Online turnover now accounts for 3 percent of the country's total retail sales. It is estimated that the ratio will increased to 7 percent in 2015 as China's e-commerce continues to develop, according to the report.
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A guideline to accelerate the transformation of the country's foreign trade growth pattern was jointly issued on Thursday by 10 Chinese government agencies.
The country aims to balance its foreign trade by increasing imports and optimizing the mix of its import tariffs, according to the publication on the Ministry of Commerce website.
The guideline said favorable tariff policies will be implemented to boost imports of advanced technology, equipment and components, energy and raw materials as well as people's daily necessities.
The government will encourage domestic firms to "go overseas" and secure stable supplies of energy and resources abroad, it said. The country is also keen to assume greater pricing power in the global commodities market and better its reserve system of strategic resources.
The guideline urged more efforts to increase the share of developing countries in China's foreign trade and push forward the strategy of introducing free-trade areas.
It said the government will help export firms to improve quality, build their own brands and move up the technology and value-added scale so that they can foster global competitiveness.
Under the guideline, China will further reform the yuan's exchange rate formation mechanism to make the currency more flexible. It also vows to promote the use of the yuan in cross-border trade settlement and investment.
China's foreign trade slumped in January from a year earlier as a week-long holiday distorted figures and the slower economy sapped demand. Its exports dropped 0.5 percent year-on-year in January, the first decline in more than two years.
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China will be alert to threats posed by the trade task force in the United States to investigate and crack down on what it claims are unfair practices by Washington's trading partners, officials from the Ministry of Commerce warned on Wednesday.
US President Barack Obama signed an Executive Order on Tuesday establishing the Interagency Trade Enforcement Center to see whether trade partners, including China, "play by the rules".
"China is not the only target but we cannot ignore the negative impact it will exert on China and Chinese exports in the long term," an official from the ministry's bureau of fair trade for imports and exports, who requested anonymity, told China Daily.
"We have to closely watch what cases the agency might launch and prepare for possible countermeasures."
Trade relations must benefit both parties, a Foreign Ministry spokesman said.
"The essence of China-US trade should be mutually beneficial," said Hong Lei, Foreign Ministry spokesman, in response to the US move.
Both parties should be able to discuss and resolve the causes of any friction, he said.
Obama announced the creation of the center in his State of the Union address in January. The Executive Order marks its official launch.
The center will "bring the full resources of the federal government to bear to investigate and counter unfair trade practices around the world, including by countries like China", Obama said.
Although China is not the only nation that will be investigated by the center, experts believe it will probably be the main focus.
"I am sure that China will be the major target," Zhou Shijian, a senior trade expert from Tsinghua University, said.
There are growing fears that anti-China rhetoric will increase as the presidential election campaign heats up.
Republican presidential hopeful Mitt Romney has criticized Obama for what he described as being soft on China.
"The election campaign will lead to growing trade friction between China and the US," Zhou said, but dismissed the likelihood of a full-blown trade war.
The center will be up and running in a few months.
"In a matter of just 90 days, we will hire leadership and core staff ... and we will put them to work on the toughest cases," US Commerce Secretary John Bryson said.
Zhang Yansheng, secretary-general of Academy Commission of the National Development and Reform Commission, said that the "goal of the move is obviously connected to the US election and targets China. The US fears China will challenge its global position."
The establishment of the center was welcomed in the US.
"President Obama took a significant step forward in ensuring America's continued economic growth and security by establishing it," said US Trade Representative Ron Kirk.
This center will "ensure that America's trading partners play by the rules. It will help American workers and businesses compete and win on a fair global playing field", Kirk said.
Zhou said China should be "fully prepared" for trade disputes.
"We must be hard in fighting back," he said.
In November the US Department of Commerce launched an anti-dumping and anti-subsidy investigation against Chinese solar panel producers and a month later, the US International Trade Commission issued a preliminary determination saying that Chinese imports are harming American industry.
After the solar panel case, the US launched an anti-dumping and anti-subsidy investigation against wind towers imported from China and Vietnam, arguing that the imports hurt the US wind tower industry.
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China will intensify its efforts to explore for shale gas to help restructure the country's energy supplies and fuel its economic growth, the Ministry of Land and Resources said Thursday.
China has 25.08 trillion cubic meters of explorable shale gas reserves (excluding Qinghai and Tibet), Yu Haifeng, deputy director of the ministry's geological exploration department, said at a briefing, citing the ministry's latest survey.
Shale gas resources are widely dispersed over the country. The Sichuan Basin, the Ordos Basin, the Tarim Basin, the western Hubei-Eastern Chongqing area, and the provinces of Guizhou and Hunan boast huge stores of the substance, the survey showed.
"China is facing tight gas supply on booming demand. If the country's shale gas output exceeds 100 billion cubic meters by 2020, the fuel will become an important source of China's energy supply," Yu said.
The official called for breakthroughs and innovations in exploration technologies to catch up with developed countries.
Shale gas, a clean and high-efficiency energy resource, is produced from shale through a complicated process called hydraulic fracturing, or "fracking."
The government has strengthened the survey and appraisal of shale gas in recent months to speed up the development of the industry.
Last year, the State Council, or the Cabinet, approved the listing of shale gas as an independent mineral resource, taking the number of mineral resources discovered in China to 172.
More than 420 researchers from oil companies, colleges and geological exploration agencies and research institutions participated in the survey.
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Monopolized sectors may see more competition as China encourages private investment, amid expectations by experts that breakthrough policies are to be released soon.
Earlier this month, Premier Wen Jiabao reiterated that stimulating private investment and advancing reform in monopoly industries were the major tasks of this year's economic agenda.
Wen pledged that the government will make policy improvements to encourage private investments in monopolized fields, such as railways, finance, energy, telecommunications, education and healthcare.
The statement was made when the government was soliciting opinions on its work report, which is to be delivered at the upcoming annual session of the National People's Congress.
Wen also urged the government to draw up details of these supporting policies, known as the "New 36 Clauses" for private investments, within the first half of this year.
The "New 36 Clauses" refer to policies published in May 2010 to encourage and guide private investment.
The terms were a further refinement based on policies published in 2005, with more feasibility and details of implementation, according to the National Development and Reform Commission, which drafted them.
However, there are only a few regions, including Beijing, Guangdong, Zhejiang and Jiangsu, that have formulated detailed regulations accordingly to localize the policy. No major changes were made in monopolized industries, such as railway, energy and finance.
"Obstacles blocking private capital from entering monopolized industries have existed for many years," Zhou Dewen, chairman of the Wenzhou Small- and Medium-sized Enterprises Development Association, said.
Zhou's organization has been trying for a decade to start up a private bank in Wenzhou, the hub of China's private economy, using capital brought by overseas Chinese. But their submitted plans have been rejected repeatedly.
With monopoly remaining strong, 2011 has been a year of marked contrast for State-owned giants and private small- and medium-sized enterprises.
Struggling against a weakening global demand because of the debt crisis in Europe and the weak recovery of the United States, many private businesses have found themselves cornered by the stringent financial situation, resulting in many business owners fleeing or even committing suicide.
In contrast, many State-owned companies have been enjoying revenues which were "so high that we feel embarrassed to announce them", according to Hong Qi, president of China Minsheng Banking Corporation.
In fact, China's private economy has been contributing a major part to the Chinese economy, as the growth rate of private investment continued to accelerate.According to data from the National Bureau of Statistics, private investment saw a year-on-year increase of 34.6 percent in the first 11 months of 2011, 2.2 percentage points faster than the same period last year.
The growth rate was 10.1 percentage points higher than the average of all types of investment, and has gradually become a main driver for investment growth.
However, little progress was made in monopolized industries for private investment.
"The barriers of monopolized sectors are sometimes capital strength, but more often pure administrative restrictions," said Yuan Gangming, a researcher with the Chinese Academy of Social Sciences.
Once the thresholds are removed, it will provide more opportunities for more competitive companies, which will help boost the development of theses pivotal industries, Yuan said.
"And private enterprises will be very enthusiastic to enter these sectors because these monopolized areas are usually ones with high profits," he said.
Ye Tan, a noted financial columnist, said it is also essential for monopolized sectors to receive private investment, since many of them face funding shortages.
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China is planning to put a brake on the frenzied construction of highways amid concerns over high debt rates resulting from highway projects, an official with the country's top economic planner confirmed yesterday.
"The country is adjusting its policy for highway construction and will suspend or postpone construction of highways on some routes where existing roads can meet the current transportation demand," Guo Wenlong, an official with the Institute of Comprehensive Transportation of the National Development and Reform Commission (NDRC), told the Global Times.
"The major concern is huge debts accumulated from highway projects. Road construction funds account for the majority of local government loans from banks, posing great financial risks to banks," he said.
The average debt-to-assets ratio for the country's highway projects exceeds 70 percent, and they have greater financial risks than the country's high-speed railway projects, according to a report by the NDRC released late last year.
In central and western China, highway toll fees are sometimes not even enough to pay back the interest on loans.
Yunnan Road Development & Investment Company issued a risk notice to its creditors last April, saying that with a total of 101.5 billion yuan ($16.13 billion) in debt, the company would only be able to repay the interest on its loans.
China has experienced a boom in highway construction over the last few years as the government encouraged spending on infrastructure projects to buoy economic growth.
By 2011, the country had 85,000 kilometers of highways across the country, and is expected to surpass the US as having the biggest highway network in the world this year.
Many local governments have planned to invest more this year in highway projects. In its government work report to be delivered at the annual two sessions meetings next week, Fujian Province will propose investing up to 51 billion yuan in highway projects, and Hunan Province aims for 1,000 kilometers of highway this year.
The risk for bad loans is greater because highway developers' affiliation with local governments makes it easier for them to get bank loans.
"Some local governments rely on infrastructure construction to boost their GDP figure and make a good impression," Zhao Jian, a professor of economics at Beijing Jiaotong University, told the Global Times.
"Debts will pile up if there is not enough traffic to generate toll fee revenues to recoup the investment," he said.
Pretty much sums up the impending sh1t storm coming to the PRC very soon.
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English.news.cn 2012-03-02 19:02:21
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BEIJING, March 2 (Xinhua) -- China's central bank said Friday that all companies qualified for foreign trade activities can conduct cross-border export settlement in yuan.
The People's Bank of China said in a statement on its website that China expanded cross-border trade settlement in yuan to cover all goods exporters in order to "meet market demand and make foreign trade more free and convenient."
"Till now, all companies engaging in goods and service trade or other activities under the current account can choose to settle in yuan," the statement said.
To boost the internationalization of the yuan and facilitate trade, China launched a pilot program to allow 365 companies to conduct cross-border trade settlement in yuan in July 2009.
China expanded the pilot program to 20 provincial regions in June 2010, and to all parts of the country in August 2011. However, only those companies enlisted in the program had the right to settle cross-border trade in yuan.
The extension was a crucial step in boosting the cross-border use of yuan, a goal stated in the country's 12th Five-year Plan (2011-2015).
China's cross-border trade settlement in yuan under the current account hit 2.58 trillion yuan (409.65 billion U.S. dollars) by the end of 2011, according to data from the central bank.
By the end of 2011, China had signed currency swap contracts worth 1.3 trillion yuan with 14 countries and regions, the PBOC said.
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The Ministry of Commerce and other authorities are drafting new policies to spur domestic consumption with the expiration of a previous stimulus package, former Assistant Minister of Commerce Huang Hai said Friday.
Huang didn't reveal any detailed policies, but ruled out the possibility of renewing the previous stimulus package designed to boost the overall consumption of home appliances and automobiles.
"We won't renew those policies, but incentives are possible for energy-efficient and environment protection-related products," said Huang, a member of the 11th National Committee of the Chinese People's Political Consultative Conference (CPPCC), China's top political advisory body.
The CPPCC's annual session is scheduled to open in Beijing on Saturday.
Huang said the public is "very concerned" about tariff cuts and consumption taxes for imported goods.
"All relevant departments should work to retain purchasing power within China. More importantly, China must break the distribution monopoly created by suppliers to prevent the prices of foreign high-end consumables from remaining high after tariff cuts," Huang said.
The government may draft a package of policies to encourage large companies to engage in direct talks with the owners of foreign brands to benefit the public, Huang said.
Figures from the National Bureau of Statistics showed that China's retail sales for consumer goods rose 17.1 percent year-on-year to 18.39 trillion yuan in 2011, slower than the 18.3 percent seen in 2010.
Huang attributed the slower expansion to the expiration of the previous stimulus package, which was launched following the 2008 financial crisis and largely applied to home appliances and automobiles.
Erik Townsend: Expect a US Price Shock as Black Swans Come Home to Roost
"We live in interesting times"
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Erik Townsend: Expect a US Price Shock as Black Swans Come Home to Roost
"We live in interesting times"
"We live in interesting times"
---------- Post added at 10:08 AM ---------- Previous post was at 10:06 AM ----------
Erik Townsend: Expect a US Price Shock as Black Swans Come Home to Roost
"We live in interesting times"
escobar
Brigadier
China is working on the speedy commuter railway service to ease travels between metropolitans and and their satellite towns, a senior railway expert said Saturday.
China's major State-owned train manufacturers, China South Locomotive and Rolling Stock Industry (Group) Corporation and China North Locomotive and Rolling Stock Industry (Group) Corporation, are both busy developing new trains suitable for such service, said Li Heping, a researcher at the China Academy of Railway Sciences.
A prototype of the speedy commuter train, designed to travel at a speed of 200 km to 250 km, is expected to roll off the assembly line by the end of this year, said Li, also a member of the National Committee of the Chinese People's Political Consultative Conference (CPPCC), on the sidelines of the top advisory body's annual session.
Over the decades, the country has seen fast development of cities and city groups, especially in industrialized Beijing-Tianjin-Hebei region, and the Yangtze River and Pearl River deltas, he said.
"Many people have to commute between satellite towns and the city center. If we introduce the commuter railway of higher speed, it will make people's life easier," he said.
Although the new commuter train travels at a lower speed than high-speed train, researchers have to crack a number of technological problems, he said.
For example, since the commuter railway service runs in a short distance, trains have to speed up and slow down in a much shorter time, which needs accurate control system, he said.
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escobar
Brigadier
China's careful, incremental steps in opening its capital markets and making the yuan a more global currency have been the subject of debate for some time.
Some analysts say the nation is moving too slowly. Others urge caution so that risks inherent in a fully convertible currency are kept to a minimum.
The process began in 2007, when China launched the first yuan-denominated bonds in Hong Kong. After that, settlement of certain cross-border trading was allowed in yuan, and the yuan was allowed to appreciate. Step by step, the door opens a little wider.
The following opinion pieces, gleaned from translations of talks delivered at the February 18 Shanghai Financial Forum and from economists' research reports, reflect an array of approaches China could follow as it tries to tune its capital account to the nation's burgeoning economic clout and global market presence.
China needs an aggressive approach
Ma Jun
Chief economist at Deutsche Bank
I think the biggest bottleneck for internationalization is the closed capital market, which forbids foreigners from holding yuan and yuan-denominated assets through channels other than trade.
With expectations for yuan-appreciation decreasing, the trade surplus narrowing and outbound investment rising, the next few years would be a prime time for opening capital accounts, rather than after 2017, as many have expected.
China may export only 2 trillion yuan (US$317 billion) or 3 trillion yuan through investment and trade in the next five years, and that amount of liquidity is merely a drop in the ocean compared with the global market. If China wants its yuan to become a truly international currency, there should be several tens of trillions of yuan held in hands of non-residents.
China's overseas direct investment is approaching US$100 billion, among the largest in the world. Nearly 10 percent of trade volume is settled in yuan, and the proportion of local currency settlement is also high compared with other countries.
However, only 1 percent of the market value of yuan-denominated A-shares is held by non-residents, lower than the average 2.6 percent for major emerging countries.
The openness of China's bond market is also around 1 percent, compared with the emerging countries' average of 13 percent. The openness of China's capital markets is mismatched with the nation's economic power and market size.
I have always been supportive of accelerating the opening of capital markets. Nominal controls cannot really control capital flows. Even if capital projects are ostensibly closed to foreigners, multinational companies can still make deals within the network of the numerous branches they have across the globe. Interbank transactions also have enabled cross-border capital flows.
The development of the offshore yuan market may force reforms in the onshore market. Compared with other developing countries in terms of similar stages of economic maturity, China ranks lowest in the flexibility of its foreign exchange and highest in the tightness of its capital controls.
In one or two years, the yuan market should be open to foreign companies to raise funds. Panda bonds, or yuan-denominated debt issued in China by foreign governments or companies, have been in hibernation for many years.
We should encourage companies to convert the proceeds from panda bond issuance into other currencies in Hong Kong. I hope that China in the next three to five years will evolve openness in its capital markets comparable with what now exists in Malaysia.
Relaxation with Chinese characteristics
Eswar Prasad
Senior fellow of the Brookings Institute and former head of the International Monetary Fund's China division
The fact that China doesn't have an open capital account will not hinder the currency's internationalization, but may prevent the yuan from becoming a reserve currency. Many people, including me, have said that China should follow the traditional path, which we refer to as "capital account liberalization with Chinese characteristics."
The government's medium-term objective, which we believe will be achieved in the next five years, is an open capital account but with numerous "soft" controls. This will allow the currency to play an increasingly significant role in global trade and finance but in a manner that allows the government to retain some control over capital flows.
When a country opens its capital account, its control over these matters is loosened. That will bring many risks to China. We have witnessed other countries that have experienced many difficulties when liberalizing bank accounts, but as Chinese policies makers are doing it carefully, China will have fewer problems.
Every country has some restrictions on capital accounts, and China has made great progress in opening up. Cross-border capital flows through trade, financial institutions and other settlement channels are becoming wider and more convenient.
Although China's rapid growth will help promote the international use of its currency, its low level of financial market development is a major constraint on the likelihood of the yuan attaining reserve currency status.
However, I don't think that China intends to challenge the status of the US dollar. The accumulating debt of the US government is harmful to the US and to the global financial stability, but if you are seeking safe capital, the US is still the market with most liquidity.
That said, more still should be done, such as making Shanghai an international financial center. Hong Kong is a great place for experimentation, but we have to develop an onshore market here. We must open up the market further and also sustain economic development. New measures also are needed to expand China's bond market, in terms of both government and corporate debt, to give foreign traders more safe and high-liquidity options.
Putting yuan internationalization aside, I think the opening up of the capital market is essential to balance China's domestic economic development. China is now allowing more freedom in the inflow of capital in order to better regulate its financial markets, including the stock market. My home country India has taken similar steps.
China has its own way of doing things. I believe that China is taking a correct approach to balancing domestic needs against the goal of internationalization.
A two-prong way to rev up financial overhaul
Cao Yuanzheng
Chief economist at Bank of China
It is possible that China will have an open capital market but not a fully convertible currency. The development of the offshore yuan market reveals the prospect of this dichotomy.
First, China has allowed yuan-denominated foreign direct investment via Hong Kong. Second, though the country doesn't allow Chinese residents to hold foreign-currency debt, Chinese companies have issued more than 70 billion yuan in bond overseas. Third, China's capital market can be opened to the local currency because yuan funds raised offshore have been allowed to be invested in China's bond and stock markets. But the markets can be kept relatively closed to foreign currencies.
We note that along with the globalization of financial markets, capital projects in developing countries must open up. But these countries face the problem that by allowing their currencies to become convertible, they become vulnerable to short-term speculative flows of money. After the Asian financial crisis in 1998, many countries said they were considering controls on foreign exchange.
Therefore, by separating the capital market from the currency issue, we can accelerate the pace of financial reform and reduce its risks.
Corporate expansion overseas as a crucial step
Pan Yingli
Professor at the Antai College of Economics and Management, Shanghai Jiao Tong University
To nurture and enhance the overseas presence of Chinese companies is an important premise of the internationalization of the yuan.
Chinese companies and financial institutions must gain a decisive position in cross-border commercial and financial deals. Without such presence, the yuan will not contribute to the real economic development globally, and the huge amount of yuan accumulated overseas will be easily used by hedge funds to attack China's domestic market.
To realize the goal, we should encourage domestic companies to expand overseas, accelerate our economic reforms and urge reform of international exchange rates. With control on capital accounts still in position, the Chinese central government should encourage private companies to go abroad by easing controls over the foreign exchange that they require for overseas investment.
No rush for full convertibility
Qiao Yide
Secretary-general of the Shanghai Development Research Foundation
We should gradually nurture overseas demand for the yuan before completely opening the domestic financial market.
Besides increasing channels for offshore yuan to flow back, we also need to take measures to encourage its flow offshore. We have seen Hong Kong and London engaged in talks to participate in the trading of yuan-denominated debt.
I don't agree that the yuan should be full convertible. Rather, I think it should be managed against a basket of currencies and its link to the US dollar should be severed. This could avoid trade friction with the US and encourage private capital to go abroad. We should encourage Chinese companies to acquire or invest in corporate assets instead of buying property.