Chinese Economics Thread
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Domestic consumption will be the main driver of China's economic growth this year, said a Ministry of Commerce think tank.
It is set to surpass government investment for the first time in a decade, said the Chinese Academy of International Trade and Economic Cooperation on Wednesday.
"The increasingly burgeoning income for Chinese individuals and their growing willingness to spend are major reasons behind the consumption growth," said Zhang Ping, deputy director of the Department of Consumption Economics at the academy and head of the team drafting the report.
The 2012 China Consumption Market Development report suggested that the Chinese government should maintain policies to continue expanding domestic consumption.
That includes lowering taxes on consumer and luxury goods, deepening income distribution reform, and continuing tax rebate policies.
Government investment has long held a leading role in stimulating the nation's economy, along with domestic consumption and exports.
However, the outlook for government investment this year is not positive, Zhang said.
Economic crises in other countries have also battered exports.
In 2012, China's domestic consumption will grow by 15 percent, the report predicted.
Such rising domestic demand will create opportunities for China's trading partners, according to Stephen Green, minister of state for trade and investment of the United Kingdom.
"In China, everyone recognizes that the growth in the past years has been led too much by exports and investments, not enough by consumption and domestic demand," the UK trade minister said.
More domestic demand will lead to more balanced trade, and UK exporters will have more chances to sell to China as Chinese middle-class consumers want the same branded goods as everywhere else, from motorcars to Burberry and scotch whisky, said Green.
The Chinese economy is expected to grow by 7.5 percent this year.
Consumption key
Urban residents will remain the major consumer group in China, despite the faster growth of per capita incomes for rural residents, said the report.
Consumption of furniture, construction and house decorating materials will grow nearly 30 percent in 2012 as a large number of affordable houses come into operation, it said.
Vice-Premier Li Keqiang said last weekend that expanding domestic consumption is a strategic point for economic development, especially this year, as there is slack in international markets.
Due to the European debt crisis, China's exports were grim during the first two months of this year, and February also saw the largest trade deficit in the past two decades.
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Counter measures suggested for coping with Sino-US solar duties
Chinese trade experts are warning of increasing trade frictions between China and the United States, saying that US trade protection measures are unlikely to ease in the short term.
Their warnings came after the US said on Tuesday in a preliminary ruling that it would impose duties of 2.9 to 4.7 percent on Chinese solar cells and panels.
The decision followed an investigation into whether the Chinese producers received unfair financial support.
Chinese experts called for countermeasures, including an appeal to the World Trade Organization and anti-subsidy investigations into US exports.
As the US presidential election approaches, trade protection measures from the US "will be very frequent in the short term", Zhang Yongjun, deputy research director at the China Center for International Economic Exchanges, a government think tank, said on Wednesday.
"The situation may get better next year when the election is over and the US economy further recovers and unemployment further declines."
Wang Haifeng, director of international economics at the Institute for International Economic Research, a think tank under the National Development and Reform Commission, agreed that "US trade protection measures targeting China will not decline because of the sluggish US economy and China's huge trade surplus with the US".
The administration of President Barack Obama set up an independent unit, the Interagency Trade Enforcement Center, last month to probe alleged unfair trade practices of its main partners, including China.
US lawmakers also passed a bill imposing anti-subsidy duties on non-market economy goods on March 13.
Zhou Shijian, a senior trade expert from the Center for US-China Relations at the Beijing-based Tsinghua University, said "the slow recovery of the economy and high unemployment in the US are mainly responsible for the recent surge of trade protection measures against China".
Zhou said: "Amid sluggish economic conditions caused by the financial crisis, the US maintained an unemployment rate above 7 percent (from December 2008 to February 2012). Also, it's easy to target China during a presidential election year."
Zhang added that China's trade surplus with the US, about $150 billion or one-fifth of the US trade deficit, is "often linked with the US high unemployment rate to win support at home".
However, Zhang ruled out a bilateral trade war because both countries "are clear that trade between the two highly-complementary markets benefit both greatly and no one can afford a trade war".
Zhang suggested the government further restructure its economy and narrow the trade surplus with the US.
Zhou urged the Chinese government to go further.
"The establishment of the ITEC runs against world trade rules and China should bring the case to the WTO," Zhou said.
The China Chamber of Commerce for Import and Export of Machinery and Electronic Products said on Wednesday that the solar duty ruling is "unfair and will impede the US solar industry".
The duty rate is lower than analysts had forecast and shows that "Chinese exporters did not receive heavy subsidies from the government".
"Instead, the US government gave huge subsidies, about 20 to 40 percent, to its producers of polysilicon, the raw material sold to Chinese solar panel manufacturers," according to Zhou.
"But the anti-dumping duties against Chinese solar producers, which will be announced on May 16, could be very high and kill the Chinese solar industry if domestic producers do not diversify their overseas markets or explore the huge domestic market," he said.
Wang said that Chinese solar producers could take countermeasures in addition to appealing the preliminary rulings.
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When it comes to income, the average Chinese person has a lot to complain about. "I've been working for 25 years since graduating in 1987, but I'm only earning 1,200 yuan ($190) a month," said an anonymous netizen posting on People's Daily Online. The media outlet conducted a survey soliciting public opinion before the annual sessions of the National People's Congress (NPC) and the National Committee of the Chinese People's Political Consultative Conference (CPPCC).
The People's Daily Online survey showed that "income distribution" ranked second in a list of the nation's top 10 concerns. Xinhua News Agency's web portal conducted a similar survey, with "narrowing income disparities" ranking first.
On March 5, when delivering the government work report, Chinese Premier Wen Jiabao said more efforts should be made to deepen income distribution reform in 2012. Wen's words aroused heated discussion among participants of the NPC and CPPCC sessions.
"Income distribution is a key issue that everyone pays attention to," said Sun Xiaoyu, former Vice President of the Development Research Center of the State Council (DRC) and head of a research team on income distribution reform at the economic affairs committee of the CPPCC National Committee. "Reform of the income distribution is an urgent task for China."
Confronting the gap
Government departments and enterprises occupy the lion's share of the national income and the proportion of individual income to national income has fallen year on year.
The continuous decrease of individual income proportion is an inevitable outcome of China's economic development and industrialization, said Zhang Xiaoji, a member of the CPPCC National Committee and Director of Research Department of Foreign Economic Relations of the DRC.
However, the government's large proportion should be given back to residents through the transfer payment system. Last year, China raised the monthly tax exemption threshold to transfer part of the government income back to the people, said Zhang.
The enterprises' proportion is also too large, said Liu Kegu, a member of the National Committee of the CPPCC and former Vice President of China Development Bank. There are abnormal causes for this result, such as windfall profits of monopolized sectors, excessive income of resource sectors and a low proportion of profits contributed to the government by state-owned enterprises (SOEs).
Liu suggests the Central Government should levy more taxes on companies with higher profit margins. It should also enhance the level of the minimum profit that SOEs must hand over to the government. If necessary, part of the operating income of state-owned capital should be earmarked for the nation's social security.
The income gap exists between the rich and the poor, between urban and rural areas, and between different industries or regions.
"The difference between wages in western and eastern regions is way too big," said the anonymous netizen, whose IP address is from southwest China's Sichuan Province. "I earn far less than my peers in the east." Statistics show per-capita disposable income of urban residents in Sichuan was 17,899 yuan ($2,828) in 2011. In striking contrast, per-capita disposable income of urban residents in Jiangsu Province at the east coast reached 26,341 yuan ($4,162) in 2011.
Regional income disparities have become a common concern among most Chinese, said Shang Xunwu, a member of the CPPCC National Committee and former Deputy Director of the Agriculture and Animal Husbandry Department of northwest China's Gansu Province.
"The income gap between developed regions and less developed ones is so large that talented people tend to flow to high-income regions. It's quite hard for remote areas to attract or keep high-caliber talent," said Shang.
Rubbing salt into the wounds is the income gap between rural and urban areas. Urban residents' disposal income against farmers' net income was 3.13:1 in 2011, according to the National Bureau of Statistics, with per-capita farmers' net income around 6,977 yuan ($1,107).
"Not enough public finance is earmarked for rural areas. If we take into consideration the public services that residents are entitled to, the income of urban residents is six times that of rural people. Public services include transportation, water supply, electricity supply, education, and medical and health care services," said Shang.
For instance, a lot has been allocated from public finance to facilitate highway construction in cities while the road condition in rural areas is so poor that some of them don't even have access to postal services. In education, facilities in urban schools are far better than those in rural ones and teachers' wage is also higher.
"Chinese farmers do not have the means to maintain high enough levels of productivity to make money. Because they only have limited land resources, most farmers only work one month a year. If we increase the amount of land they can work on and let them realize scale operations, the income of farmers will be largely increased," said Shang.
On a positive note, the growth speed of rural residents' income has surpassed that of urban residents since 2010. If this trend continues, the gap could be narrowed, said Shang.
Addressing the problem
"We will take further steps to adjust taxes for high-income groups, strictly standardize supervision of pay and bonuses for senior management in SOEs and financial institutions, expand the proportion of middle-income groups, raise the incomes of low-income groups and promote equal opportunity," Wen said when delivering the government work report.
In Shang's opinion, the minimum wage standard should be raised to enhance low-income residents' salaries. Also, the government should pay attention to low-income groups in cities, such as families where one of the parents has been laid off or where both are without work.
For poverty-stricken groups, Sun suggests the government should improve social security, expand its coverage and enhance its level. "The government has done a lot in this area with tremendous achievements," he said.
Another measure is the wage negotiation mechanism concerning companies and workers' representatives such as the labor union, said Sun. This can ensure the normal mechanisms of wage hike as it gives workers more say and changes the former situation that employers are the only determining factor for wages.
But the income distribution reform will inevitably be hampered by people with vested interests, said Shang.
"There is a long way to go," he said. When conducting wage reform, the government can do it step by step. It can raise the wage of high-income people to a small extent and low-income people to a large extent. Little by little, this can gradually narrow the gap.
Some CPPCC National Committee members disagree with the Central Government's resolution to strictly standardize supervision of pay for senior management in SOEs and financial institutions.
"Compared with their foreign peers, China's top managers in SOEs and financial institutions make much less. It's inappropriate to say their pay and bonuses must be strictly supervised," said Zhang Yichen, CEO of CITIC Capital Holdings Ltd.
Zhang Xiaoji shared that same view. "If the incentive mechanism doesn't exist, how can Chinese SOEs keep talented entrepreneurs?" said Zhang. "If top managers are not well paid, they will definitely go to work for foreign companies."
"We also can't advocate equalitarianism because it will take away steam from the buoyant Chinese economy. The key is establishing a healthy concept in society, said Zhang Xiaoji. For instance, some people in certain Western countries have a healthier mindset. Even if out-earned by surrounding people, they won't feel jealous because they know they will have the same achievements in the future as long as they have equal opportunities. "This is the right approach to this problem," he said.
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China, the world's largest consumer and importer of soybeans, is expected to step up purchases of the grain from the US to supply the domestic livestock industry as it expands to feed the growing urban population.
China replaced Canada as the largest importer of US agricultural products in 2011. In 2010, 60 percent of all US soybean exports were destined for China, amounting to 25 percent of the US soybean crop.
In February, a Chinese trade delegation consisting of major State-owned food companies such as China National Cereals, Oil and Foodstuffs Corp and China Grain Reserves Corporation (also known as Sinograin), agreed to a record purchase: 13.4 million tons of soybeans valued at $6.7 billion.
The country also imports soybeans from South American growers such as Brazil and Argentina.
"We believe the growth (of US soybean exports to China) will continue in the next few years," said Kirk Leeds, chief executive officer of the Iowa Soybean Association.
Driven by urbanization, China's demand will continue to grow and US soybeans will take "a significant portion of a much larger market", Leeds said on Monday during a visit to Beijing.
China-US agricultural trade could be used as an example for other sectors and a way to enhance bilateral relations, Leeds added.
"Our organization is seeing if we can create politically acceptable opportunities for China to invest in infrastructure in the US," he said.
In the central farm state of Iowa, China's demand has played an important role in expanding the value of the state's exports by 10 percent in recent years.
These exports account for one-fifth of the jobs in agriculture, food processing and advanced manufacturing, said Iowa Lieutenant Governor Kim Reynolds.
Reynolds added that Chinese companies are seeking investment opportunities and avenues for cooperation with companies in Iowa in sectors such as biotechnology and equipment manufacturing.
However, China's increasing food imports have prompted concern about excessive reliance on global markets.
"China should continue diversifying its sources of food imports to avoid over-reliance" on any country, said Ma Wenfeng, a senior analyst at Beijing Orient Agribusiness Consultant Ltd.
The government should encourage Chinese food companies to invest overseas to secure food supplies, he added.
Chinese policymakers have long contended that for the sake of food security, 90 percent of the grain used by the nation should be produced domestically.
In 2011, China imported 10.7 percent of its grain, according to the Ministry of Agriculture.
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Premium Incomes Climb 19% in Feb
China's premium incomes rose 18.9% year on year to ¥327.89 billion in February, including ¥246.06 billion from life insurance policies and ¥81.83 billion from property insurance policies, which were up 3.8% and 14.9% year on year respectively.
Manufacturing Tipped to Continue Contraction
China's manufacturing may contract for a fifth month in March as a preliminary gauge by HSBC reads 48.1 compared to a final reading of 49.6 in the previous month. This will make the case for taking bold actions to maintain growth. A result below 50 indicates a contraction.
Lending at Major Banks Remains Sluggish
China's top four state-owned banks made ¥64 billion in Renminbi-denominated loans and saw their combined deposits decrease ¥110 billion in the first half of March, an employee of one of the banks told the 21st Century Business Herald.
China's Economy to Grow 8.4%, Inflation Capped at 3%: JPMorgan
China's gross domestic product will grow 8.4% and the government will be able to keep inflation under 3%, predicted Zhu Haibin, chief economist at JPMorgan Chase & Co China.
Logistics Costs Up 12.3% Through Feb
China's logistics costs grew 12.3% year on year to ¥1.3 trillion in the first two months of 2012, according to the China Federation of Logistics and Purchasing.
Online Gaming Revenue Nears ¥43b
Revenue from China's online gaming market totaled ¥42.85 billion in 2011, where ¥27.15 billion were generated from homegrown games, according to figures from GPC and IDC.
China, Australia Signs ¥200b Currency Pact
China and Australia have sealed a ¥200 billion currency swap deal for the next three years to solidify cooperation in finance and trade, the central bank said.
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That 1.5 million farmers-turned-workers in Beijing will enjoy the same healthcare coverage as their urban counterparts starting April 1, is a significant step forward for efforts to realize the integration of this particular group of laborers into cities.
According to the policy proposal released by the Beijing municipal bureau of human resources and social security on Monday, migrant workers with valid employment contracts in the city will receive their own social security cards, which are required for medical treatment, and their healthcare insurance will be extended to cover non-critical conditions.
Meanwhile, employers' contributions to their workers' healthcare insurance will increase from 1 percent to 10 percent of the base amount of their income. That means, taking last year's average monthly wage in the city as an example, employers' healthcare contributions will increase from 25.2 yuan ($4) to 168 yuan.
The stark contrast between the discrimination the country's 252 million farmers-turned-workers face in the cities where they live and work and the contributions they have made to economic growth is all too obvious.
The policy barriers preventing them from sending their children to the same schools as the children of their urban counterparts, from applying for low-rent and other types of social welfare homes, and from enjoying the other social benefits enjoyed by urban hukou holders, are not only unfair, they are against the principle of an inclusive society and should be removed as early as possible.
Improving the quality of life for these migrant workers, by granting them the same status as urban residents, will increase their capability and willingness to consume - something China needs if it is to sustain its economic growth in the future.
The central government is well aware that this is one of the major defects of China's urbanization and that it must be addressed.
In Premier Wen Jiabao's government work report early this month, gradually integrating farmers-turned-workers into urban societies was listed as one of the key tasks for the government. Beijing's move is an initial step toward accomplishing that task and sets a good example for the rest of the country.
But if anything, instead of piecemeal moves, a clear policy roadmap is needed to better facilitate this task.
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Delegates from China, Japan and the Republic of Korea (ROK) have concluded negotiations over an investment treaty, and the three countries promised to go through domestic process as soon as possible, China's Ministry of Commerce (MOC) said Thursday.
After three days of talks in Beijing, the three countries reached a "substantial consensus" on issues concerning the treaty and signed a protocol based on the negotiations, the MOC said in a statement posted on its website.
Negotiations over the trilateral investment treaty began in 2007. It was regarded as the foundation for the building of a free trade area between the three countries.
The MOC previously said that it hopes to start negotiations on the free trade area at the fifth trilateral leaders' meeting in May.
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A coal storage base in Jiujiang, Jiangxi province.
Companies encouraged to explore overseas markets for energy supply
China's coal production will stay below 3.9 billion metric tons by the end of 2015 if it can keep its annual economic growth rate at 7 percent on average through that year.
At the same time, the government plans to encourage companies to explore resources abroad to ensure the country has a sound energy supply during the 12th Five-Year-Plan period (2011-15), senior officials said on Thursday.
China's coal industry is expected to be capable of producing 4.1 billion tons of coal by the end of 2015. Plans, though, call for keeping the output within 3.9 billion tons to control energy use and reduce carbon emissions, said Wu Yin, deputy director of the National Energy Administration.
He said China will form 10 large coal companies that are capable of producing 100 million tons of coal a year and another 10 companies that are capable of producing 50 million tons a year. These 20 companies will be responsible for 60 percent of the country's output of coal.
"China will continue to promote mergers and acquisitions in the coal industry," Wu said. "We will work to develop large coal companies and shut down small coal mines to eliminate outdated operations.
"In fact, the growth in the demand for coal is beginning to slow down," said Dai Bing, senior analyst at coal.com.cn, a coal-trading website. "Some industries, such as the steel and cement industries, are shrinking, which will lead to a slower growth rate for coal demand."
And more coal substitutes will be produced, which will add more renewable energy to the country's energy sources. Dai said the government is likely to meet its goal of controlling coal output during the current Five-Year-Plan period.
He also said it is possible the country will be able to produce more than 4.1 billion tons of coal by the end of 2015.
"The main reason is that the mergers and acquisitions in the industry will help form larger coal producers that own bigger production operations," he said. "The increasing capacity to produce coal will help the country establish an emergency storage system for coal, a goal also listed in the plan."
Fang Junshi, director general of the energy administration's coal industry department, said China will move quickly to establish such a storage system in places near rivers and the sea.
He said the first part of the system will include a reserve containing 5 million tons of coal and the second will be developed in Southwest China.
The government is meanwhile encouraging domestic companies to go overseas to invest in and explore resources.
"We imported 10 million tons of coal from Russia in 2011 and we have coal trading and mining in Australia, Mongolia, Indonesia and other countries," Wu said. "Meanwhile, the companies will work during production on improving local economies and protecting local environments."