Chinese Economics Thread

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China’s Premier Wen Jiabao sent a shockwave through the global economy this week when he lowered the country’s GDP growth target for 2012, to 7.5% from 8%. In doing so, Wen was not only recognizing the tremendous headwinds China is facing from an uncertain global economy. He was also acknowledging that China needs to alter its growth model if the country’s economic miracle is to continue.
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US and Chinese experts have completed the first joint evaluation of a shale gas basin onshore China as part of a shale gas cooperation pact between both countries, state firm PetroChina said Tuesday on its website.

PetroChina, a subsidiary of China National Petroleum Corp., and China's National Energy Administration worked with the United States Geological Survey on the study of the Liaohe basin in northeastern Liaoning province.

They mapped and assessed about 1,380 square km of the Shanxi and Taiyuan formations in the eastern uplift area of the basin.

A report of the study published by the USGS estimates an average 448 Bcf of potential, technically recoverable unconventional natural gas and 2 million barrels of natural gas liquids in the formations.

The study started in 2010 following a memorandum of understanding on shale cooperation between Washington and Beijing the previous year.

The Liaohe basin is considered the third most prolific in China, with previous estimates of reserves at 15 billion barrels of oil, said the USGS.

Similar structures with tight sandstone reservoirs in the neighbouring Ordos basin have produced gas from giant fields. The USGS added that much of the geological information used in the evaluation was obtained through a proprietary data agreement with PetroChina.

Shale development in China has mostly been in central Sichuan basin. PetroChina has drilled in Weiyuan county while its partner Royal Dutch Shell has spudded at least five wells at the Fushun-Yongchuan block in the same basin under a joint study agreement. US major Chevron also plans to drill at a block in Longli county in southern Guizhou province in cooperation with state firm Sinopec.

 

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China plans to import more uranium this year than last year and to buy uranium mines abroad, looking particularly toward Canada for that purpose, said Qian Zhiming, deputy director of the National Energy Administration.

Qian also said China might resume undertaking nuclear projects this year, in the first half of the year at the earliest. He said the Chinese government has finished drafting the nuclear safety guidelines that it began working on after a devastating earthquake and tsunami struck Japan a year ago, crippling the country's Fukushima Daiichi nuclear plant.

Even though that disaster prompted the country to halt any work being undertaken on new nuclear projects, China imported 16,126 tons of uranium in 2011, not much less than the 17,135 tons it had imported in 2010, according to the General Administration of Customs.

Qian said the import amount will remain the same as last year, or even be increased, in 2012.

The soonest that resumption of nuclear projects will happen, Qian said, is in the first half of the year.

Wang Binghua, chairman of State Nuclear Power Technology Corp, said last Saturday at a news briefing that China will resume approving and building new nuclear projects in 2012. The government also has completed a safety inspection that revealed 14 nuclear safety issues that should be remedied.

Following the nuclear leak that struck Japan last year, the Chinese government announced it would temporarily cease approving nuclear power stations. Around the same time, it began to conduct safety checks at both existing nuclear plants and those that were under construction.

Because of those decisions, no new nuclear project was either approved or started in China last year.

Premier Wen Jiabao, in an annual government work report delivered on March 5, said China will "develop nuclear power in a safe and efficient way" this year, saying the country will "prohibit blind expansion in the new-energy industries of solar and wind power".

In December, new nuclear safety guidelines for China were submitted to the State Council. Officials are still drafting guidelines for developing nuclear power in the mid- and long-term.

China began operating its first commercial nuclear plant in 1994. The country, which has 15 nuclear reactors, is now building at least 25 reactors and has 50 more planned, according to the China Nuclear Energy Association.

Uranium imports

The prospect that nuclear projects will be started again this year is not the only reason behind China's prediction that it will import more uranium in 2012.

Another is the likelihood that "a few overseas mines will start production this year," according to Xiao Xinjian, industry expert at the Energy Research Institute, which is affiliated with the National Development and Reform Commission.

Of all the countries that supply uranium to China, the top four exporters are Kazakhstan, Uzbekistan, Namibia and Australia. They contributed more than 95 percent of China's imports of that element last year.

During Canadian Prime Minster Stephen Harper's recent official visit to China, China and Canada agreed to cooperate more on the trade of uranium.

China Guangdong Nuclear Power Group Co has offered to buy 261.9 million shares from Kalahari Minerals Plc, a global resource company owning uranium and gold reserves. The deal, which concerns 98 percent of the ownership of Kalahari Minerals, was approved in February.

China can produce 850 tons of uranium a year, an amount expected to increase to 2,500 tons in the future, according to Ux Consulting, a researcher that looks mainly at uranium.

 

[Norfolk]

This long-ish article ties in with a comment I made a few days ago on this thread about Japan possibly leading an economic downturn in Asia that could drag China down with it. Amongst other things, it contains part of the text of a person e-mail from Michael Pettis of China Financial Markets to Michael "Mish" Shedlock:

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, by Michael Shedlock, Global Economic Trend Analysis, 12 March, 2012; From the quoted e-mail part - scroll way, way down:

Yikes! This could turn out to be a huge problem for China and the world. Why? Because raising consumption taxes and reducing wages will push up the Japanese savings rate substantially. Either action pushes the growth rate of disposable income down relative to GDP growth, and lower disposable income usually means lower consumption – which is the same as higher savings.

Much more at the link.

 

[Equation]

This long-ish article ties in with a comment I made a few days ago on this thread about Japan possibly leading an economic downturn in Asia that could drag China down with it. Amongst other things, it contains part of the text of a person e-mail from Michael Pettis of China Financial Markets to Michael "Mish" Shedlock:

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, by Michael Shedlock, Global Economic Trend Analysis, 12 March, 2012; From the quoted e-mail part - scroll way, way down:



Much more at the link.

Thanks for the article. IMO the real possible reason that might lead to this Japan downturn are:

1) It's debt to GDP ratio is like way too high (about 900%), yes they have almost the same amount of US Treasury bonds as China, but they need to really cut some spending out.

2) Low birthrate and with high elderly people to take care of will be costly for the current and next generation of Japanese. To resolve this low demographic problem, that need to have more immigrants into their country. A younger work force will had new tax revenues to it's already high debt.

 

[Blitzo]

US, Japan, and EU are filing case against china at WTO over rare earth exports.

I'm not going to discuss whether the act itself is justified, but I feel like this is a case china will probably lose (WTO dominated by rich countries anyhow). The question is, what will happen afterwards? China will probably appeal, but will they abide, as it's not a trivial matter for china either. The mining of these metals do indeed cause significant environmental damage. If china decides to sod it and keep in the current policy, what sanctions may the other countries put in place and how may china retaliate?
Are we seeing the first inklings of a serious trade war?

 

[bladerunner]

US, Japan, and EU are filing case against china at WTO over rare earth exports.

I'm not going to discuss whether the act itself is justified, but I feel like this is a case china will probably lose (WTO dominated by rich countries anyhow).

Shes won her share of disputes even a fair amount of what i would deem 50/50 cases

The question is, what will happen afterwards? China will probably appeal, but will they abide, as it's not a trivial matter for china either. The mining of these metals do indeed cause significant environmental damage. If china decides to sod it and keep in the current policy, what sanctions may the other countries put in place and how may china retaliate?

China have been very good at abiding to WTO rulings that go against them should it be the case. I would like to think she continues to do so with the proviso that all producers and users of these minerals are prepared to get together and thrash it out, instead of indulging in tit for tat actions.

 

[RedMercury]

US, Japan, and EU are filing case against china at WTO over rare earth exports.

I'm not going to discuss whether the act itself is justified, but I feel like this is a case china will probably lose (WTO dominated by rich countries anyhow). The question is, what will happen afterwards? China will probably appeal, but will they abide, as it's not a trivial matter for china either. The mining of these metals do indeed cause significant environmental damage. If china decides to sod it and keep in the current policy, what sanctions may the other countries put in place and how may china retaliate?
Are we seeing the first inklings of a serious trade war?

Just a day or so ago we read that the Chinese government is going to consolidate all the companies that mine and process rare earths. Basically, it will be a government controlled cartel. It can price to customers however it wants. No more need for government export restrictions- the companies will decide who to sell to. This is, now in hindsight, a preemption of this WTO attack vector.

 

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China is preparing to defend itself should the United States and other countries take their complaint about China's rare earth export restrictions to the World Trade Organization (WTO), Minister of Industry and Information Technology Miao Wei said Tuesday.

"We would feel sorry for their decision to complain to the WTO," Miao told Xinhua, responding to reports that the United States, along with the European Union and Japan, plans to file a trade complaint with the WTO.

"In the meantime, we are actively preparing to defend ourselves and will explain the case if they bring the complaint against us," the minister said.

The dispute concerns Chinese policies that effectively limit the rest of the world's access to rare earth from China. In order to control environmental damage and protect resources, China has suspended the issuance of new licenses for rare earth prospecting and mining, imposed production caps and export quotas, and announced tougher environmental standards for rare earth production.

Miao said some rare earth metals would last only 20 years if China does not stop excessive mining.

He stressed that China's rare earth export restriction is not against any specific country, nor is it a kind of trade protectionism.

Instead, the policy was drawn up out of concern for the environment and the sustainable use and development of resources, Miao said.

China has abundant reserves of rare earth metals, a group of 17 elements that are vital for manufacturing an array of high-tech products, including cell phones, wind turbines, electric car batteries and missiles.

China has supplied more than 90 percent of rare earth products on the global market, but its reserves only account for about one-third of the world's total. Disorderly mining of rare earths has been blamed for environmental damage in rare-earth-rich regions across China.

Miao said his ministry would, in accordance with requirements from the State Council, or China's Cabinet, work to control the rare earth industry so as to ensure its sustainable development.

 

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China is expected to see its worst labor shortages in the Pearl River Delta in the next three months largely because there has been a steady increase in the demand for workers in the manufacturing and services industries, a report has shown.

Chinese employers are expected to accelerate their pace of employee recruitment in the second quarter of the year, according to a Manpower Employment Outlook Survey. That study was released on Monday by ManpowerGroup China, which operates in the employment services industry.

The survey interviewed more than 65,000 employers around the world, including 4,304 employers on the Chinese mainland, in an attempt to measure their intentions to increase or decrease the size of their workforces in January.

Among the surveyed, 21 percent said they expect to have larger staffs in the next three months, 2 percent forecast a decrease, 50 percent predicted no change, and 27 percent were unsure.

"Although employers in many countries around the globe continue to be impacted by an uncertain business climate, Chinese mainland employers are buoyed by central government policies intended to boost business growth and expand domestic demand," said Danny Yuan, managing director for ManpowerGroup China. "Chinese employers remain optimistic and anticipate an active hiring pace this quarter."

Along with those hiring intentions, Yuan said, employers remain concerned about the current shortage of skilled workers. Many are having trouble finding the employees they need to perform certain tasks.

Of employers in various industries, those in the service industry said they intend to hire the most workers, leading manufacturing, wholesalers and retailers in that regard. Companies in the mining and construction industries, meanwhile, expected to make recruitments at the slowest pace, the survey found.

Companies in southern China, meanwhile, continue to have the strongest hiring intentions, especially those in the manufacturing and service industries.

In Shenzhen, the hunt for talent has been intense. Employers are scrambling to find suitable workers, the report said.

"As recently enacted minimum wage standards spread across the country, the income gap between the coastal regions and interior areas has been gradually narrowed," Yuan said. "This is having a tremendous influence on workers' decisions to relocate to work.

"We are beginning to see signs that workers in the Pearl River Delta area - primarily from the manufacturing and services sectors - may find the shrinking pay disparity a good reason to return to their original inland communities. If the talent drain away from major coastal cities continues, employers may need to explore new strategies that keep their organizations competitive in the search for the best talent."

Hu Lantian, founder of the toymaker Shenzhen PP Bear Industry Investment Co Ltd, said a labor shortage has affected the regional manufacturing industry in recent years, pushing many companies to move their factories inland.

"More and more factories are being built in labor-exporting provinces such as Henan and Jiangxi," Hu said. "Workers don't bother with leaving home to get a job anymore."

Like many manufacturers, Hu's company has put its manufacturing operation in Henan province, while continuing to do research, development and marketing at its headquarters in Shenzhen.

The competition for employees has caused labor costs to increase by about 20 to 30 percent in the past two years, she said. As long as the labor shortage persists, companies should try to put more effort into innovation rather than manufacturing, she said.

Wang Mei, a researcher with the think tank China Development Institute in Shenzhen, said the shortage is structural.

"It's true that the manufacturing and service industries have a great demand for skilled labor," she said. "Many factories have begun using mechanisms to replace labor."

Jin Bo, general manager of Arrow Ceramic's Nanxiong branch, said companies that want to hold on to staff should hire local workers. The company, which makes bathroom furnishings and related products, moved one of its factories from Shunde, Guangdong province, to the north of the province and employed 410 local workers. It lost nearly no employees following this year's Spring Festival, which ended in February.

"The workers are close to home," Jin said. "We pay good salaries. Why would they leave?"