Chinese Economics Thread

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"By Malcolm Moore in Shanghai
Last Updated: 4:58PM BST 14 Oct 2008

Zhou Tianyong, 50, is the most senior figure within the Communist Party charged with thinking about democracy and a key adviser for the country's senior leaders. The deadline of 2020 that he gave for China's transition to a version of democracy in his interview with the Daily Telegraph already has great significance. President Hu Jintao has promised "more extensive democratic rights" by 2020, without being more specific, and this is also the year when China's booming economcy should deliver per capita GNP of $3,000, ushering in "moderate prosperity for all". "


I don't believe China GNP will be $3,000 in 2020. GNP $3,000 will be achieved in 2009. In 2020, China GNP will be most likely around US$7,000 and with Yuan appreciation I wouldn't be surprised it will achive US$10,000 mark

 

[Hendrik_2000]

The latest data support Crobato claim that China export will hold well during recession because their segment is low price consumer good
By Langi Chiang

BEIJING, Oct 18 (Reuters) - China is preparing steps to boost domestic demand, including more spending on railways, to help cushion the impact of the global credit crisis, a senior official said on Saturday.

The package of measures will be finalised at next month's Central Economic Work Conference, at which top policy makers will chart policy for 2009, Zheng Xinli, vice-head of the ruling Communist Party's Policy Research Office, said.

"China will roll out some very important measures to boost domestic demand next year," Zheng told reporters on the sidelines of an economic forum.

He said China still had potential to increase consumption further, but rapid growth in household spending in recent years meant the scope was limited.

Policy makers were concentrating instead on stepping up investment in industrial projects and infrastructure, particularly railways, and at relaxing curbs on the property sector.

Zheng said the National Development and Reform Commission, the main planning agency, was working on detailed proposals for rail reform.

Beijing has budgeted 1.2 trillion yuan ($175.7 billion) in rail investment for 2006-2010, more than four times the sum in the previous five years, to make up for past underinvestment that has resulted in serious cargo and passenger bottlenecks.

Much of current rail capacity is devoted to the transport of coal, the main source of power, forcing a lot of freight to be moved by road even though it is less efficient. Passenger trains are very overcrowded, especially at holiday periods.



NEW DEAL FOR RAIL

Zheng drew a parallel between the policy response now being drafted and the road-building programme that China launched to pump up the economy after the 1997/98 Asian financial crisis.

"Last time when we tried to boost domestic demand we built our highway system. This time we will probably build up our railway network," he said.

Zheng said the government, unlike a decade ago, was unlikely to have to resort to massive bond financing to pay for the investment binge because tax revenues were strong.

Beijing issued 360 billion yuan in long-term infrastructure bonds between 1998 and 2000.

"It's not necessary right now, but we will issue such bonds if we have to," Zheng said.

China's economy is slowing after five years of double-digit growth. Commerce Minister Chen Deming told Reuters in Paris that figures on Monday were likely to show annual gross domestic product growth fell in the third quarter to "a little bit above 9 percent" from 10.1 percent in the second quarter [ID:n LH231247].

Still, Zheng said the government had been pleasantly surprised so far that exports had not taken a bigger hit from the global crisis. Annual export growth picked up to 21.5 percent in September from 21.1 percent in August.

"It seems our original estimate was a little pessimistic. The result turned out to be much better than we expected," he said.

Zheng surmised that demand was holding up well because China mainly shipped everyday consumer goods that were keenly priced, not higher-end discretionary items.

As part of the policy focus on domestic demand, China is counting on rural land reforms -- approved by Communist Party leaders a week ago, but not yet made public -- to boost agricultural productivity and incomes.

Cao Yuanzheng, an economist at Bank of China International, told the forum that China needed to look to rural reforms to drive growth over the next 30 years, in much the same way as market reforms and opening up to the outside world have powered growth over the past 30 years. (Reporting by Langi Chiang; Editing by Alan Wheatley, Swaha Pattanaik)

 

[crobato]

BEIJING, Oct 17 (AFP) Oct 17, 2008

A Chinese toy maker that sold to US giants Mattel and Disney has gone bust due to the global economic crisis, leaving up to 7,000 people jobless, the company and local officials said Friday.

Hong Kong-listed Smart Union closed its factory doors in southern China's export hub of Dongguan this week, leaving its unpaid workers stranded outside the plants and leading to government concerns about protests.

Smart Union announced on its website Friday it had gone into liquidation, giving no word about the fate of its employees.

"Between 6,000 and 7,000 workers from two Smart Union factories are involved," said a local government official in Zhangmutou, an area of Dongguan where the factories are located.

The woman, who declined to be named, said government officials were locked in talks with factory and workers' representatives to resolve the issue, adding local authorities would try to pay the workers next week.

Smart Union owed the workers at least six weeks worth of wages each, Hong Kong's South China Morning Post newspaper reported, citing a company employee.

The workers crowded around the gates earlier this week looking for answers about their jobs and unpaid salaries, prompting the Zhangmutou government to warn them against escalating their action.

"At this time, we hope you will believe in the local government, respect the law and not do anything that would hurt or cause concern to your parents and family," it said in a statement on its website on Thursday.

The reference to the workers' parents reflected the fact that many migrants employed in China's coastal areas are very young.

The local official told AFP the crowds had dispersed by Friday.

Telephone calls to Smart Union's offices in Hong Kong went unanswered on Friday but China's state-run press quoted a company official blaming a drop in sales to the United States amid the global economic turmoil.

"The main reason for the closure is we are too dependent on the US market, which has become sluggish," Xu Xiaofang, a Smart Union human resource worker, told the China Daily newspaper.

Rising labour costs, expensive raw materials and the appreciation of the Chinese currency, the yuan, contributed to the problems, Xu said.

Smart Union had already announced to the exchange a loss of 201 million Hong Kong dollars (25.9 million US dollars) in the first half of the year, according to the firm's accounts posted on its website.

Its shares on the Hong Kong stock exchange were suspended from trading on Wednesday.

The group had sold many of its products to US toy giants Mattel and Disney, the China Daily said.

"After losing money for the first half of the year, its cash flow finally dried up," the paper said.

"The workers... have become the latest victims of the worldwide financial tsunami."

Chinese state press had already reported this week that more than half of the nation's toy exporters had gone broke in 2008, hit by rising production costs, the stronger yuan and tightened safety standards for their products.

A total of 3,631 enterprises that made toys for export, or 52.7 percent of all such companies, had gone out of business in the first seven months of the year, Xinhua news agency reported.

The businesses were mainly smaller producers with an export value of less than 100,000 dollars, it said, citing a report by the General Administration of Customs.

China is the world's largest toy producer and exporter, sending about 17 billion of them to overseas markets in 2007, according to Chinese customs data.

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[RedMercury]

So the 50% figure is hype. By value of export, it is far less than that.

 

[crobato]

China confident in storm
By John Ng

HONG KONG - The continued growth of China's foreign exchange reserves, which reached a record of more than US$1.9 trillion at the end of September, is boosting the country's confidence that it can maintain stability as the international financial crisis widens and deepens.

China's not fully convertible currency, its huge foreign reserves and relatively fast economic growth have formed a great barrier against the financial troubles elsewhere, Justin Yifu Lin, the World Bank's chief economist and senior vice president, said recently.

Chinese Premier Wen Jiabao said, "We have full confidence in China's economic development and financial stability," stressing that the most important thing is "to do our own business well", maintain the stability of the economy and the financial and capital markets. "It is the biggest contribution to the world when a big country with a population of 1.3 billion is able to maintain a lasting, smooth and fast economic development."

Wang Qishan, the vice premier overseeing the country's finance, said on Thursday the country is fully confident and capable of overcoming current economic difficulties, vowing to work closely with other countries to safeguard stability of the global financial market.

China's foreign exchange reserves, the world's largest, surged 33% to $1.906 trillion last month compared with a year earlier, according to the People's Bank of China (PBoC) website.

The expansion of foreign reserves has slowed to a 35.7% rise in the first half of this year from 47.7% in the whole of 2007, as the country's trade surplus has shrunk slightly, falling 2.7% to $180.9 billion in the first three quarters of this year compared with 12 months earlier, according to the General Administration of Customs.

Even so, the trade surplus in monthly terms has expanded in the past two months, growing 22.2% year-on-year in September to $29.4 billion, after a 14% jump in August, following an increase of only 3.8% in July.

The surplus jumped ... "as commodities prices and shipping rates slumped," Li Jian, a Ministry of Commerce analyst, was quoted by Xinhua News Agency as saying.

Li also attributed the higher monthly surplus to the slower advance in the yuan against the US dollar. The Chinese currency has remained almost steady within a narrow band against the US dollar since July.

While the country's foreign exchange reserves remain strong, there are indications that outflows of funds are increasing. Foreign direct investment totaled $6.64 billion in September, according to the Ministry of Commerce. The combination of FDI and trade surplus gives the country $36.04 billion in foreign currency income in September.

The central bank said $377.3 billion were added to the foreign reserves in the first three quarters, with a $21.4 billion increase in September.

That means there was a difference of $14.64 billion between the sum of trade surplus plus foreign investment and the growth of the foreign reserves, indicating that a similar amount foreign funds flowed out of the country.

Sheng Songcheng, an official with PBoC's Shenyang Branch, said there were signs that some foreign funds, including speculative "hot" money, had began to flow out of the country. Foreign businesses have since July speeded up remitting their profits and making advance payments, while overseas capital inflows have begun to slow, Sheng said

Despite this, Tan Yaling, an economist with China International Economic Relations Society, said the growth in foreign reserves indicated a growing interest in yuan assets as in investment haven amid the global financial turmoil.

"Under the current financial crisis that originated in the United States and with the euro also softening, China's yuan-denominated assets appear relatively safe, creating an influx of foreign investment, which also contributed to the growth in the third quarter," Xinhua reported Tan saying.

Zhang Bin, a Chinese Academy of Social Sciences researcher, said the US financial crisis had a limited impact on the country's huge foreign reserves, as the country's foreign currency supervisor had diversified holdings so as to avert some risks.

The central bank report also said the country's financial system remained stable.

Outstanding local currency loans expanded 14.48 % in September from a year earlier to 29.65 trillion yuan, rising 0.19 percentage points on the previous month. The pace of increase in outstanding loans in foreign currencies, which jumped 37.84% in August from a year earlier, slowed in September to a 30.86% growth to $269.2 billion.

The PBoC said local-currency deposits were up 18.79% in September from a year earlier to 45.49 trillion yuan, while foreign-currency deposits grew 9.37% to $174.2 billion.

John Ng is a journalist based in Hong Kong.

(Copyright 2008 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)

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[crobato]

16.10.2008

China will be the biggest winner of the current financial crisis, US billionaire and philanthropist George Soros said. The financier gave an interview to Germany’s Die Welt, in which he told of the roots of the crisis and said that the mortgage bubble only triggered the process, which entailed the economic collapse. The businessman also explained the reason why the Bush’s administration proved to be unable to cope with the crisis.

America pays for 25 years of sin, China becomes new financial empire, Soros says

The crisis, which is obviously the most serious crisis since the 1930s, was formed inside the financial system, George Soros believes. The current events are not the consequences of the external shock, which broke the balance. “As experience shows, financial markets destabilize themselves,” Soros explained.

He believes that markets tend to go out of balance from time to time. Soros’ theory differs from the general opinion with two issues. First of all, financial markets do not reflect basic economic indexes; market members constantly distort them. Secondly, the distortion on the financial markets may affect the basic indexes, as it happens in case with the bubble or a collapse, the billionaire believes.

Soros explained how it all happened. The prices on real estate and dot.com markets skyrocketed as a result of euphoria. The panic may shatter banks. “This dual connection, when you affect something that you expect, I call reflexivity,” Soros said.

Soros’ market management reflexivity theory says that the market depends on investors’ expectations and their confidence in the banking system. These are purely psychological aspects. Consequently, they can be affected from the outside – with the help of informational provocations and wars.

“Financial markets function so indeed. Their instability affects the real economy, not vice versa. It does not go about the mortgage bubble alone. It only triggered the collapse of another system. It is a super bubble filled with growing credits and debts, as well as with the assurance of the fact that the markets will correct themselves. The bubble was growing for 25 years and now it burst,” the investor said.

Soros believes that governments should realize that markets do not correct themselves. The Bush’s administration has not been able to cope with the crisis because the authorities relied on the market fundamentalism ideology, the economist thinks. “They thought that the markets will improve the situation themselves. Treasury Secretary Henry Paulson thought that the market recovered six months after the bankruptcy of Bear-Stearns. They did not realize the nature of the problem, they did not see a need for the state to interfere,” he said.

No one was working on a plan. When the consequences of Lehman’s bankruptcy became obvious, Paulson had to do something urgently to save AIG. The turmoil occurred on the securities market the next day, and Paulson had to think of something new again. He announced the 700-billion-dollar bailout plan. However, he wanted to purchase long-term assets from the shattered banks,” Soros said.

US consumers will not be able to play the role of the engine of the world economy if world recession occurs. The US administration must stimulate the demand.

“Since there is global warming and energy dependence threatening the USA, the next administration will need to direct all development programs on the energy saving, the development of alternative energy and the construction of green infrastructure,” Soros said.

The United States and a part of Europe will have nationalized banks and huge debts. China will become the new global financial empire.

“The USA’s influence has already begun to decline. For the past 25 years, we have been running a constant current account deficit. The Chinese and the oil-producing countries have been running a surplus. We have consumed more than we produced. While we have run up debt, they have acquired wealth with their savings. Increasingly, the Chinese will own a lot more of the world because they will be converting their dollar reserves and US government bonds into real assets. The power shift towards Asia will occur as a result of the sins which America committed during the recent 25 years," Soros said.

 

[crobato]

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London (dpa) - The current turmoil on world markets indicates a "significant shift of power and influence" from the US to emerging economic giants such as China and India, international financier George Soros said Wednesday.

Soros, in a BBC interview at the World Economic Forum meeting in Davos, Switzerland, said it would be "very difficult to avoid recessions" in the US and in Britain.

However, backing the major US Federal Reserve interest rate cut, Soros said: "You have to rescue markets otherwise you would go into a depression, as you did in the 1930s."

I'm not looking for a worldwide recession. I'm looking for a significant shift of power and influence away from the US in particular and a shift in favour of the developing world, particularly China."

Soros, who made 1 billion US dollars betting on the devaluation of the British pound in 1992, said he expected a recession on both sides of the Atlantic.

"I think credit expansion can't go any further than it has done, when you could effectively borrow 100 per cent with no money down on a house whose value has been inflated by the willingness of the banks to lend so much credit," he said.

Since the 1980s, instead of of imposing regulations and restrictions, markets had been left to their own devices, Soros said.

"The authorities came to rely on the markets to right themselves. They ought to have known better, because they have in the past come to the rescue, so they ought to have known that the markets don't necessarily right themselves."

 

[crobato]

China's most popular politician Wen Jiabao, the prime minister, has become a target for Communist party hardliners and could be forced from office, according to an influential magazine in Hong Kong.

Its report is a rare insight into the struggle over the future of China between political reformers and guardians of the police state.

The prime minister’s popularity rose this year as he comforted the victims of the earthquake in Sichuan province, visited people caught up in disastrous snowstorms and defended China’s unyielding policy on Tibet. A 66-year-old known as “grandpa”, he has his own page on Facebook, the social networking website seen by millions.

Rivalries inside the party have broken out behind the facade of unity erected for the Olympic Games, said Kaifang (Open), the monthly magazine that is known for its political sources inside China and its publication of information banned in the media.

It said hardliners in the party’s propaganda department and at the People’s Daily newspaper had orchestrated a campaign of abuse directed at Wen’s supposed support for universal values such as democracy and human rights. “China’s ship of reform is on the rocks and risks sinking,” Kaifang said in its analysis. “The party needs to find a scapegoat.”

Last week important land reforms were put on hold. Wen has also been passed over for the job of heading a prestigious committee, the magazine said.

It listed several press attacks which, as is often the case in Chinese politics, did not identify their victim but left no doubt among those in the know as to who it was.

The most prominent critic was Chen Kuiyuan, vice-chairman of the Chinese People’s Political Consultative Conference, a rubber-stamp body whose title sums up everything it is not. “Some in China want to dance to the West’s tune,” wrote Chen.

The People’s Daily of September 10 printed a column headlined “How to see through the theory of so-called universal values”.

Today the prime minister is seen by many ordinary Chinese as a friendly face at the apex of power. He has been compared to the veteran revolutionary Zhou Enlai, who is claimed to have moderated the worst crimes of Maoism.

Suspicions about Wen’s authoritarian credentials date back to 1989 when he went into Tiananmen Square to meet demonstrators at the side of his boss Zhao Ziyang, the reformist general secretary of the Communist party.

Within days of that encounter – captured in a photograph still recognised all over China – the tanks rolled in, Zhao was purged and the young Wen vanished into temporary obscurity.

He quietly conformed and made his way back through the ranks to become prime minister in 2003. Last March he was reappointed for a second five-year term under President Hu Jintao. The duo have guided China to the left in economics, with policies to strengthen workers’ rights and to preserve a dominant role for the state in the market economy.

Wen appears to have laid himself open to criticism by talking in general terms about the values of democracy and human rights in interviews with the foreign media.

There is no evidence, however, that he deviates from the official line that China cannot afford democracy now because it would bring chaos.

Nonetheless, Kaifang said that the president would be happy to jettison his prime minister because it would alter the balance of power between factions and fortify his own position.

Political analysts say Li Keqiang, the colourless vice-premier, would step up if Wen was forced out

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[crobato]

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China finds new mineral resources nationwide

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2008-10-23 16:54:44 Print

BEIJING, Oct. 23 (Xinhua) -- Chinese geologists have discovered 1,202 mineral fields, which could greatly reduce the country's dependence on imported minerals, nationwide since the start of 2006, the Ministry of Land and Resources announced on Thursday.

"Reserves of badly needed minerals have been largely expanded, including iron, copper and bauxite, among others," said a ministry statement.

More than 100 million tons of iron ore was discovered in Gongchangling iron mine, in the northeastern Liaoning province. With a reserve of 62.3 million tons, it has become the largest quality iron mine in China.

Provinces, such as Anhui and Shandong, as well as other places in Liaoning, also reported discoveries of iron ore.

In Tibet Autonomous Regions, a huge reserve of more than 10 million tons of copper had been found in Qulong, while primary research in Duolong showed a deposit of more than 5 million tons.

Bauxite, used for making aluminum, was found in southwest and mid China, with a potential reserve in Yunnan exceeding 100 million tons.

Meanwhile, a large potash deposit was discovered in Xinjiang Uygur Autonomous Region, where a production base under construction would have an annual output of more than 1.2 million tons from 2009.

The ministry also recorded deposits of lead, zinc and gold nationwide.

The progress was in line with the government’s aim to reduce reliance on mineral imports by raising domestic productivity.

In its strategic report on mining resources released on Wednesday, the ministry said it aimed to keep imports of iron, copper and aluminum to within 50 to 70 percent of total domestic consumption. No specific timetable was given.

The government would also encourage state-owned companies to invest in foreign mining companies to secure mineral resources.

"With greater domestic production of major minerals in recent years, China has begun to rely less on overseas producers," the statement said.

The report showed imported iron ore accounted for 51.7 percent of total domestic demand in 2007, down 5 percentage points from 2005. The downward trend was expected to continue this year.

While 90 percent of potash was imported in 2001, the figure dropped below 70 percent last year.

China imported 30 percent of its total lead and zinc demand in 2006, but domestic production had caught up with industrial demand.

The ministry predicted a long-term increase in demand for mineral products.

"Overall mineral production and consumption must more than double to help realize the national goal of economic development," the report said.

GDP was expected to triple to 4 trillion U.S. dollars by 2020 as part of the national development plan for the first 20 years of the 21st Century. The figure quadrupled in the previous two decades with mining production and consumption doubled then.
Editor: Bi Mingxin

 

[crobato]

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China reviews food safety draft law following tainted dairy products scandal

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2008-10-23 16:52:28 Print

BEIJING, Oct. 23 (Xinhua) -- China's top legislature on Thursday started to review a draft law on food safety, which sets stricter food quality standards and demands greater government responsibility.

The draft, which was revised after the recent contaminated dairy products scandal, would ban all chemicals and materials other than authorized additives in food production.

Health authorities are responsible for assessing and approving food additives and setting their usage. "Only those proved to be safe and necessary in food production are allowed to be listed as food additives," the draft says.

Food producers must strictly stick to the food additives and their usage approved by authorities, according to the draft

In the tainted dairy products scandal, melamine, often used in the manufacturing of plastics, was added to sub-standard or diluted milk to make protein levels appear higher. At least three infants died and more than 50,000 were sickened after drinking the contaminated milk.

The draft also prohibits food safety supervision authorities from issuing inspection exemptions to food producers.

China began exempting companies producing globally-competitive products from quality inspections in 2000 to help them avoid repeated examinations and reduce their burden.

The practice encountered severe criticism when it was discovered that many of the companies producing and selling melamine-tainted dairy products had national inspection exemption qualifications.

The draft was tabled to lawmakers at a bimonthly session of the Standing Committee of China's National People's Congress (NPC).