RedMercury
Junior Member
Laugh, he (and others) wish that were true. The reality on the ground is 500+ million rural citizens waiting to move to cities, and the associated growth that will generate for the next 50 years.
Chinese Economics Thread
- Thread starter Norfolk
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escobar
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China is planning to lift bans against private companies in certain state-run industries, our Chinese-language sister newspaper Commercial Times reported on March 19.
"We will encourage private-owned firms to invest in railways, finance, urban development, energy, telecommunication, education and medicine," said Zhang Ping, chairman of China's National Development and Reform Commission, which sets the country's macroeconomic policy.
The chairman made his remarks at a seminar held in Beijing on March 18.
"We are confident and we are capable of continuing our development while maintaining economic growth," he said. Zhang also said that making people richer is also part of the government's priority because doing so will stimulate the nation's economy.
A growing wealth gap and recognition of official corruption have posed challenges for Beijing, which is hoping to maintain fast economic growth while establishing a sound economic foundation.
escobar
Brigadier
The number of billionaires in China has declined for the first time since the country's economic reforms, due to a sluggish domestic stock market and government restrictions on real estate, according to a list released by Forbes on March 8.
The Forbes Billionaires List — which lists 1,226 billionaires from all over the world — included 115 wealthy Chinese individuals last year. This year, the number has dropped to 95. A total of 40 former billionaires, mainly engaged in the pharmaceutical, property and manufacturing sectors, fell off of the list between 2011 and 2012, official media in China reported.
Hong Kong tycoon Li Ka-shing, who was ranked 9th on the list, was China's richest man, with personal wealth of US$25.5 billion. The richest person from the mainland was Li Yanhong, chairman of search engine company Baidu, with personal assets of US$10.2 billion. Li is followed by Liang Wengen, chairman of Sany Heavy Industry, and Zong Qinghou of beverage giant Wahaha Group, with personal wealth of US$8.1 billion and US$6.5 billion, respectively.
Meanwhile, 22 Chinese businesspeople made their debuts on the Forbes list. "Among these new billionaires, some of them gathered fortunes from initial public offerings and others did their businesses relatively well," said Russell Flannery, the Shanghai bureau chief of Forbes.
Flannery told the state-run Global Times that "the weak performance of Chinese billionaires this year is largely due to the sluggish stock market last year, which had squeezed their fortunes."
"The property sector has been significantly affected by policy curbs, so the wealth of property developers has shrunk quickly," Feng Pengcheng, a professor at University of International Business and Economics, said.
Since the Chinese government will continue implementing strict real estate policies, experts estimate that it is likely that the number of billionaires will continue to fall.
escobar
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A report released by the National Audit Office on Monday showed more evidence of fraud, waste, mismanagement and irregular procurement totaling billions of yuan connected to the Beijing-Shanghai High-Speed Railway.
The report marked the end of a three-year audit aiming to regulate the major railway project's management and use of funds.
Most of the problems pinpointed have been corrected, said a senior audit official, adding that the railway sector will remain its focus in the future.
The third audit report into the rail link that opened in June last year found that irregularities started from the bidding process on the project as early as December 2007, five months before construction began.
Auditors found the Ministry of Railways shortened the period for bidders to get preliminary review application documents to 13 hours from the standard five days, and cut the period for bidders to submit applications to less than 24 hours from the standard seven days.
Purchases that were not made through standard bidding involved 849 million yuan ($134 million). In one case, the project's chief constructor, Beijing-Shanghai High-Speed Railway Co, was found to have bought at least 77.86 million yuan worth of materials from non-bidding suppliers since October 2009, part of which were bought at higher prices than those quoted by winning bidders.
The company also purchased 698 million yuan worth of materials in August 2009 from as many as 10 bidding suppliers, instead of following bidding principles to find the most economic combination of suppliers.
"The Ministry of Railways noted that it will strictly follow rules in future bidding for construction and material purchase, and it has issued two regulations to perfect its bidding system," the audit report said.
By the end of June, at least 196.3 billion yuan - compared with an estimated budget of 163.8 billion yuan - has been spent on land expropriation and construction for the mammoth 1,318-km rail project, the report said.
The total investment for the railway was earlier estimated at 217.6 billion yuan, which also included an estimated 53.8 billion yuan for the purchase of trains and loan interest during construction.
The auditors found that 413 million yuan spent on train windshields was wasted after the line's operation speed was lowered and design specifications were changed, the report said.
The ministry has responded to the auditors by saying that the windshields would be used in other railway projects.
The auditors had also found evidence of wrongdoing by local governments.
Jiangning Economic Development Zone in Nanjing was found to have applied for land compensation worth 140 million yuan from the railway using false documents, receiving 40 million yuan in payments by the end of June.
Beichen district government in Tianjin had 340 million yuan in its own accounts instead of using it to promptly pay compensation for land expropriated for the railway.
The report said local governments are investigating the cases.
The Beijing-Shanghai High-Speed Railway has also struggled to pay suppliers and contractors. By the end of May, the railway had 8.25 billion yuan in debts owed to 656 suppliers and 1,471 contractors.
Previous reports were published in 2010 and 2011 by the top auditor.
Xu Aisheng, chief of the fixed assets investment audit department at the National Audit Office, said that all three auditing reports have found problems including mismanagement, fraud and irregular procurement.
"Thanks to effective measures taken by the Ministry of Railways and local governments, the problems found in the past three years have mostly been settled," he said.
"As railway projects involve huge amounts of investment, the National Audit Office will continue its focus on the railway sector," he said.
The report has again raised concerns in cyberspace, as netizens urged punishment for those found responsible.
"It's no use to just point out the problems," said a netizen named "Qian'anshi" on a micro blog.
Li Chengyan, a professor in the School of Government at Peking University, said that auditing is the first step for anti-corruption moves.
"When problems in cash flow or management are uncovered, discipline departments will step in to conduct further investigations," he said.
With the rollout of the country's high-speed rail network, the crackdown on corruption in the sector led to investigations of more than 10 railway officials last year.
The list includes Liu Zhijun, former railway minister, who was removed from his post in early 2011 for "serious disciplinary violations".
escobar
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The People's Bank of China (PBOC), the country's central bank, announced Wednesday that it has signed supplementary currency swap agreements with the Bank of Mongolia, doubling the scale of a 2011 bilateral swap deal.
The supplementary currency swap agreement allows the two central banks to swap 10 billion yuan/2 trillion togrog (about 1.6 billion U.S. dollars), compared to 5 billion yuan/1 trillion togrog agreed in 2011, the PBOC said in a statement on its website.
Both sides believe the extension will help maintain regional financial stability and facilitate bilateral trade and investment between China and Mongolia, according to the PBOC statement.
Since the onset of the global financial crisis in late 2008, China has signed currency swap agreements totaling 1.3 trillion yuan with 16 countries and regions, including the Republic of Korea, Hong Kong, Belarus and Argentina, to reduce the use of the U.S. dollar in bilateral trade settlement and investment.
escobar
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GaveKal-Dragonomics, an independent research and advisory firm specializing in China's economy, explains China's growth this way: "As it has modernized its economy, China has experienced a virtual 'tsunami' of labor. Much of this has consisted of young Chinese women between 18 and 22, with not much bargaining power. As a result, China, for a long time could run its economy at double digit rates of growth, with little pressure on wage and price inflation or the exchange rate."
This was not surprising given that after reform and opening-up a seemingly endless supply of unskilled migrants from rural areas flocked to the big cities and the new industrial zones in search of a factory job that promised a better future than farming.
However, China's demographic dividend is coming to an end and the tightening labor market means the authorities will in all likelihood have to consider a higher exchange rate or higher inflation, as China shifts from its reliance on export-led development to consumption-led growth.
With this in mind should we be concerned about China's slowing economy?
The recent data from Beijing may have given the markets some jitters but there are long-term trends that explain some of the slowdown in China.
First, the stimulus that did so much to boost China's economy at the onset of the global financial crisis has now lost its impetus. These were the famous "bamboo shoots" that China provided to the region, which assisted other Asian economies and key suppliers of resources to China, namely Australia and Brazil, but also to some extent Canada and South Africa.
Second, the eurozone crisis has had an adverse impact on China's fortunes. In terms of manufacturing in key areas of Chinese comparative advantage like textiles, clothing and footwear, Europe has surpassed the United States as China's main export market so when they are feeling the pinch in Athens, Milan and Paris it affects companies in Beijing, Guangzhou and Shenzhen.
Third, even without the "eurosclerosis" we are experienced this year, China's trade patterns were not going to continue at the same cracking pace. The subprime meltdown in the United States and Lehman Brothers collapse were a big external shock to China's economy, which had been enjoying an annual average export growth rate of 27 percent after joining the World Trade Organization.
In fact, even without the global financial crisis or the Greek sovereign debt crisis, China's trade patterns reflect the re-balancing of the global economy. Even before Lehman Brothers collapsed the world knew that the US had too many shoppers and not enough shippers, while China had too many shippers and not enough shoppers.
As a result the US has had to readjust its consumption, become more competitive and reduce its over-reliance on debt; and China has had to reduce its over-reliance on export-led growth and increase domestic consumption and the efficiency of its investment. The center of global economic gravity is shifting from the rich G8 nations to the emerging world and China is fundamental to this historic structural change. You can see it not only in terms of China's domestic shift away from export-led development but also globally as China is increasingly becoming involved in outward foreign direct investment.
But what does China's slowing mean for Asia?
First of all, Tokyo is trying to move key parts of the Asian global supply chain out of Japan, and China along with the ASEAN economies are playing a key role in the re-globalizing of Japanese industry. A slow but stable China will allow this process to continue. Second, China's slowing will take some of the US pressure off the renminbi's exchange rate and allow the global re-alignment to take place more systematically. Third, even with a slower rate of growth in China, countries like Australia and other resources suppliers such as Brazil and even Canada and South Africa will continue to benefit by meeting the construction needs of the second and third tier cities that are blossoming in China's western and inner regions.
Even more importantly, agricultural techniques, agribusiness services and management practices from Australia, Brazil and other trading partners, will be important service exports to China as the local population lifts capacity and technological change in its own farm sector.
On my most recent trip to China I visited a factory in Shenzhen as part of the University of New South Wales' Australian Graduate School of Management international business strategy course. At the site, the owner complained that he couldn't keep workers at the factory, because they kept leaving for comfortable office jobs offering the same wages. As a result the owner had to offer piece rates, where the more goods (in this case watch bands) they assembled, the bigger the bonus they received. This demand for labor has created something of a mini workers' paradise in the region.
China's economy and its labor market are changing and the economic slowdown reflects this.
escobar
Brigadier
An official from the Ministry of Commerce said there is little chance that China will join the
World Trade Organization's government procurement agreement this year.
China will probably not take part in an international agreement on government procurement this year because of increased standards set by developed nations, said an official from the Ministry of Finance.
Meanwhile, China needs to rectify some of its domestic regulations before it can join the agreement, which is meant to ensure that countries allow foreign businesses to compete for government purchase deals, said Suo Bicheng, director of the Department of World Trade Organization Affairs with the ministry.
Developed nations always raise the standards that participants in the WTO's government procurement agreement are to meet, he said.
"A lot of problems need to be resolved before China can join the pact," Suo added. "We see little chance of there being success in the short term, or even say this year."
His remarks came at a time when the European Union is expected to introduce a new version of its government procurement agreement on Wednesday. According to reports, the proposed version would bar companies in certain countries, including China, from taking part in the EU's pact while urging them to further allow European companies to compete for government business.
China joined the WTO in 2001, but the country didn't immediately take part in the organization's government procurement agreement. Its first attempt at doing so came in 2007 and was rejected by some of the agreement participants.
In July 2010, China submitted a new offer. Various developed countries and regions, led by the United States and the EU, praised the country's revamped proposal, yet said China could not join without making further concessions.
The US and the EU have called on China many times to allow more foreign companies to compete for its government business.
A spokesperson for the European Commission, the EU's executive body, has been quoted as saying the EU's new offer would let the commission take retaliatory action against countries that are found to have discriminated against European companies that are bidding for government contracts. If they are found to be in violation, they could be prevented from doing business in various European markets.
"The EU's new pact, when adopted, won't have an immediate effect on Chinese companies bidding for EU contracts and won't scare China into making concessions over the government procurement agreement proposal, as they expect," Suo said.
EU statistics show that non-European companies can bid on only 352 billion euros ($464.2 billion) worth of the region's government-procurement contracts.
"It's not a big number" compared with what China could provide, Suo said.
What's more, "Chinese companies always find it hard to bid for the deals, since the standards are much too high," Suo said.
The European Chamber of Commerce in China estimates the Chinese government's procurement budget calls for spending about $1 trillion.
Last December, the WTO finished making a landmark reform to its global government procurement agreement. The new version is expected to pertain to $100 billion worth of procurement contracts from the organization's 42 member countries.
Many believe it will pave the way for China and other countries to take part in the agreement.
But Suo is not optimistic.
"We have already made more concessions in our newest offer to join the government procurement agreement, but still can't meet the demands of some developed nations," said Suo.
He said China needs to "rectify laws and regulations that are related to the new pact to meet the international standard, which will take up a lot of time."
In November, China made its most recent attempt to enter the agreement and stopped short again of meeting the current participants' expectations.
They complained that China agreed to let the agreement apply to far less of its government spending than expected, only to the spending in five of its 31 provinces and regions and not to that of State-owned enterprises.
The US has urged China to speed up its adoption of the agreement and has said that the country has not promised to do enough to make that happen.
Minister of Commerce Chen Deming said China was willing to join the agreement and was trying to concede more.
escobar
Brigadier
The Chinese government has begun making it much easier for foreign investors to put money into China’s stock market and other financial investments, in a slight relaxing of more than a decade of tight capital controls.
The move, not publicly announced but disclosed by some private money managers, indicates that Chinese officials are eager to counter a rising flight of capital from the country, a worsening slump in real estate prices, a weak stock market and at least a temporary trade deficit caused by a steep bill for oil imports.
Those concerns have evidently started to offset fears of the potentially inflationary effects of big inflows of foreign cash.
Chinese securities officials made a series of phone calls to top fund managers outside China late last week telling them of the relaxation of the capital restrictions, according to several money managers.
But if the fund managers wanted to increase their requested allotments for investing in China, they were told they would have to answer almost immediately — a sign of the government’s haste to come up with a plan to reassure financial markets.
“It literally was phone calls coming in at 4 and you had to give an answer by 5:30,” said the chairman of a financial company heavily invested in China. He insisted on anonymity to avoid offending regulators.
Easing the path of foreign money into China could help offset a nascent exodus of investment money there and stem the recent weakness of China’s currency, the renminbi. The renminbi’s weakness is making Chinese manufacturers even more competitive in foreign markets.
Investment executives say officials at the China Securities Regulatory Commission, in coordination with foreign-exchange officials, informed them in the phone calls last week that the government would approve all of their past requests to increase certain types of foreign investments and would even let them double their total invested.
The range of financial institutions with so-called Qualified Foreign Institutional Investor rights in China include big banks like Goldman Sachs and endowment funds like Yale University’s.
Regulators indicated that they would roughly double the overall cap on all foreign investments to about $60 billion, one money manager said; the cap has been $30 billion for several years. Until now, Chinese regulators have dribbled out each increase in authorized foreign investment, a few hundred million dollars at a time.
While still a tiny amount, compared with the combined value of the Shanghai and Shenzhen stock markets or relative to the volume of China’s international trade, raising the foreign investment cap is the latest signal that Beijing is worried about a potentially prolonged weakness in the renminbi.
The issue is politically volatile in Washington, where Democrats and Republicans alike have been calling for a stronger Chinese currency as a way to limit China’s large bilateral trade surplus with the United States.
The American Treasury secretary, Timothy F. Geithner, complained at a Congressional hearing on Tuesday that China still had “some ways to go” in allowing its currency to appreciate against the currencies of China’s main trading partners.
Allowing more foreign money into China could help stabilize its stock market and real estate markets when the country’s political environment is unsettled over the dismissal last week of Bo Xilai as the Communist Party secretary of Chongqing and over the approach next autumn of a once-in-a-decade change in the country’s top leadership.
The Shanghai stock market dropped 1.4 percent on Tuesday and is down 22.2 percent from its high in mid-April last year, although up slightly from its lows in early January.
The government has deliberately engineered a fall in real estate prices to address widespread concerns about housing affordability, and has used mostly administrative tools to do so, like banning most purchases of second or third homes. But real estate developers and investors say the plunge in prices has taken on its own momentum.
China’s securities regulators and a separate government agency, the State Administration of Foreign Exchange, had long been leery of the inflationary effects of being swamped with foreign cash. But that view has reversed in the last several weeks, as the renminbi’s value has slipped in currency markets on very heavy selling in Asian financial centers like Hong Kong.
The renminbi was down 0.5 percent against the dollar from the start of January through the middle of last week. The weakness was initially attributed to weakening performance of the Chinese economy, but investors increasingly see it as a sign of capital flight as well.
The renminbi has recovered in the last few days of trading and is now virtually unchanged against the dollar this year — evidently as word has circulated among top fund managers that more foreign money could soon begin washing ashore in China.
The China Securities Regulatory Commission and State Administration of Foreign Exchange were closed on Tuesday evening and its officials could not be reached for comment.
A raising of the foreign investment cap may not necessarily produce an immediate flow of cash into the Chinese market, bankers cautioned; each fund’s increase in investment rights will require separate paperwork from the foreign exchange agency.
But until now, investment opportunities for foreign capital in China have been so scarce that some investment companies have paid to rent other companies’ rights to invest in China.
The going rate on these investment rents until recently was about 0.6 percent of the value of the Qualified Foreign Institutional Investor rights. So an international company or mutual fund that wanted to hold $100 million worth of stocks on the Shanghai stock exchange would have to pay about $600,000 a year to rent the necessary investor rights.
But the value of those rents has begun to decline as international worries about the Chinese economy have increased in recent weeks. The new doubling of financial investment rights is likely to depress the rents further.
The doubling of rights could help offset a slowdown in foreign investment into factories and other fixed assets in China, as well as a deterioration in China’s trade balance. Slowing foreign direct investment and weaker exports, together with some capital flight from China, has upset the balance of foreign exchange inflows and outflows in China, weakening the Chinese currency.
With more than $3 trillion in foreign exchange reserves, China has more than enough financial firepower to defend its currency against serious attacks on its value by speculators in financial markets. China also controls the spot market for renminbi within China through heavy regulations.
But so many renminbi are now circulating offshore that spot and forward trading have expanded rapidly in Hong Kong and Singapore, posing a challenge for Chinese regulators.
The financial company chairman said that as recently as early last year, it could take him a couple of days to move $500 million into forward renminbi contracts without causing the price to change.
Now this can be done in just 15 minutes, he said, indicating it was a sign of how liquid the market has become and hard it now is for the Chinese government to control it.
escobar
Brigadier
Dubai is set to become the Middle East's yuan clearing and settlement center by 2015, a United Arab Emirates government economist said on Tuesday.
Starting this year, major UAE banks will offer yuan bank accounts for corporate clients. This will be another step to boost the yuan's role in the region, following a currency-swap agreement intended to promote bilateral trade, Nasser Saidi, chief economist of the Dubai International Financial Center, said on Tuesday.
The economist said the yuan will become the third-largest international currency by 2015, and he forecast that it will account for 20 percent of the currency basket for special drawing rights.
SDRs are supplementary foreign exchange reserve assets defined and maintained by the International Monetary Fund. They represent a claim to currency held by IMF members, for which they may be exchanged.
At present, SDRs can only be exchanged for US dollars, euros, sterling and the yen.
"China is now the world's biggest exporter and second-largest economy. We need to have increased use of the yuan, not only in trade but also in finance.
"It is not just China that wants to internationalize its currency. The rest of the world needs the yuan to have a balanced economic structure," he said.
China and the UAE signed a 35-billion yuan ($5.5 billion) currency swap agreement during Premier Wen Jiabao's visit to the country in January, a sign of China's growing political and economic ties with the Gulf region.
To promote the yuan's internationalization, the government-owned Dubai International Financial Center has set up a payment system that allows clearing and settlements using the Chinese currency.
Dubai's latest step has been to encourage its domestic banks to offer yuan accounts. Mashreq Bank PSC, National Bank of Abu Dhabi PJSC and Emirates National Bank of Dubai PJSC have taken steps in that direction, and according to Saidi, they will establish branches in Shanghai by early next year.
According to government figures, China-UAE bilateral trade has grown 35 percent annually over the past decade, reaching $35 billion in 2011. It is expected to reach $100 billion in 2015.
Yuan trading "now only accounts for 4 percent of our overall trade. Given the vast volume of bilateral trade, there is every reason for the scope to expand rapidly", he said.
He said there are good prospects for expanded use of the yuan in financial transactions. China has developed the offshore yuan-denominated bond market (using so-called dim sum bonds), but Saidi said it's necessary for the nation to nurture the domestic markets before fully opening up and allowing free capital movement.
"The 12th Five-Year Plan (2011-15) calls for flexibility of the yuan, but the most important thing is the sequence of the reform.
"I expect that by 2015, the debt markets in China should be equivalent to about 30 percent of GDP to hit around 31 trillion yuan," he said.
As financially resourceful investors, the Gulf countries are seeking alternative high-yield investments beyond the European and North American markets. To that end, Saidi called for more Chinese companies to list in Dubai to diversify their investments into high-growth countries.
UAE companies, especially in the energy and real estate sectors, have shown an interest in listing in China once the international board in Shanghai opens, he added.
The internationalization of the yuan should proceed at its own pace and avoid rapid appreciation of the currency, according to Tse Yung-hoi, deputy chief executive officer of Bank of China International Holdings Ltd.
Tse said it's critical to establish a good currency backflow mechanism and a well-rounded offshore center.