Chinese Economics Thread

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China's exports recovered a bit last month but imports posted the first loss since January, reflecting weak demand at home and abroad.

Exports expanded 2.7 percent from a year earlier to US$177.9 billion in August, the General Administration of Customs said this morning. The pace picked up from the minor increase of 1 percent in July.

Imports, however, fell 2.6 percent to US$151.3 billion, down sharply from a growth of 4.7 percent in July and 6.3 percent in June. They left a trade surplus of US$26.6 billion last month, compared with July's US$25.1 billion and June's US$37.1 billion.

"The sudden deceleration in imports is hardly expected," said Xue Jun, an analyst at CITIC Securities Co. "It points to a sagging domestic demand as no monetary easing measures have been introduced since July."

Lu Zhengwei, chief economist for China at Industrial Bank, said "although exports staged a rebound, it was much weaker than expected and exports may fluctuate because there has been no fundamental improvement in the European debt crisis."

Lu estimated previously that exports might jump 5.5 percent from a year earlier in August, which proved to be too optimistic.

Zhou Hao, an economist at Australia and New Zealand Banking Group Ltd, urged the government to roll out new supportive policies to stabilize economic growth. He said one more cut in the bank reserve requirement ratio is necessary to boost liquidity in the banking system and to cushion the economic slowdown.

However, a rebound in inflation may refrain the government from further easing its monetary policy.

The Consumer Price Index, a main gauge of inflation, ended a four-month streak of declines in August by expanding 2 percent, up from July's increase of 1.8 percent, the National Bureau of Statistics said yesterday.

But other data are disappointing. China's factory production hit a three-year low and fixed-asset investment continued to shrink, dimming hopes for a robust recovery in the world's second-largest economy. It has become increasingly difficult for China to fulfill its goal of attaining a 10-percent trade growth this year.

In the first eight months, China's trade rose 6.2 percent year on year to US$2.49 trillion, the Customs data showed. Trade surplus has grown to US$120.6 billion in August.

Bank of Communications estimated in its report last month that China will have a total trade surplus of around US$150 billion this year, a bit less than last year's US$155.1 billion.

 

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The software industry garnered more than 1.3 trillion yuan (205 billion U.S. dollars) in revenues in the first seven months of this year, up 25.4 percent year on year, government data showed Monday.

The fast revenue growth came as the software businesses flourished in the nation's western regions such as Chongqing, Sichuan and Shaanxi during the period, the Ministry of Industry and Information Technology announced.

Data released by the ministry also showed that the surge in revenues was accompanied by a 12.5-percent rise in exports value of the sector in the same period, which reached 19.1 billion U.S. dollars, up 12.5 percent year on year.

Data showed that the sector's exports have been recovering since May this year, with growth rates in May, June, and July up 1.3, 0.2, and 0.8 percentage points, respectively, on a monthly basis.

 

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Chinese auto regulators find themselves in a tight spot: Their 30-year quest to build an industry dominated by Chinese car brands has backfired, leaving them mostly with a collection of lethargic old lions.

The problem: Joint ventures with foreign carmakers that have proven just a tad too comfortable. Opium poppies. How comfortable? Enough for He Guangyan, a former machinery industry minister, to describe the joint-venture set up in an interview last week as being “like opium.”

“Once you’ve had it, you will get addicted forever,” he said.

It’s a loaded thing for a Chinese government official, even a retired one, to evoke opium in the context of commerce with foreigners. But given the state of China’s auto industry, the metaphor is apt.

Since the 1980s China has made no secret of its ambition to build an auto industry championed by its own brands. Early on in the country’s embrace of the market, Beijing officials directed massive state-owned enterprises (SOEs) like Shanghai Auto and First Auto Works to form joint ventures with foreign carmakers to absorb the technology and eventually build cars on their own.

That strategy is in tatters today because managers at the SOEs were, very quickly, co-opted by global car companies.

Chinese executives understand that they can generate jobs, profits and secure their own promotions simply by making and selling foreign cars through the joint ventures. At the same time, executives have found comfort in the fact that — thanks to auto industry ownership rules — the Chinese side keeps half ownership of the joint venture and a corresponding share of profits.

Who cares about building one’s own brand, when one can make billions in profits by selling foreign cars? Chinese managers enjoy enough clout within the joint ventures to give them a sense of purpose and accomplishment. Why risk all that in an effort to build a brand new Chinese car?

Result: The six leading SOEs anointed by Beijing to lead in cars today account for a pitifully low 2% of China’s car market, when not counting sales by their foreign joint venture subsidiaries.

This embarrassing result has been masked in recent years by the unexpected rise of independent Chinese carmakers like Geely, Chery, Great Wall and BYD.

Never part of Beijing policy makers official plans for the industry, these smaller companies surfaced one after the other over the past twelve years, incarnations of grit and initiative by bold entrepreneurs working in concert with provincial governments. By the end of 2011, Chery, BYD, Great Wall and Geely had become China’s top car brands, dwarfing the output at the SOEs.

Officials in Beijing have grudgingly tolerated the independents because they put pressure on the larger state enterprises to get a little more serious about building Chinese brand cars.

But now China’s top independent car companies find themselves in serious trouble, overwhelmed by competition and paralyzed by their own mistakes.

In the first six months of 2012 Chinese independents have surrendered 3% of market share to joint ventures like Shanghai GM, Beijing Hyundai and Dongfeng Nissan. Foreign joint ventures now capture three out of every four new car sales, the highest level in six years, according to figures from LMC Automotive, a forecasting company.

Once high-flying BYD saw profits drop 94% in the first half to a meager $2.6 million. Demand for Geely cars is flat at home. Its Swedish subsidiary, Volvo, saw profits dive in the first half of 2012. Great Wall and Chery were busted last month for asbestos in the engine gaskets of their cars shipped to Australia.

It is the independents that produce China’s most competitive cars. Should the BYDs and Geelys go out of business, China would essentially be forfeiting the market to foreign brands and their Chinese abettors.

That result has never been politically acceptable.

So what will Beijing do? Look for China car brands to get some form of life support: more targeted tax breaks, special loans or even government purchase mandates. Export subsidies are already in play – Chinese car shipments to overseas markets are up 28% in the first six months of 2012, according to the state-run Xinhua News Agency.

All of these measures –- tools to buy time — could prove expensive. But for policymakers in Beijing haunted by the unsuccessful joint venture strategy, letting the independent Chinese carmakers go looks even less palatable than the hefty costs of keeping them alive.

If auto industry officials could wipe the slate clean and start all over again, they would think twice about relying on joint ventures as a path to Chinese automotive bliss. To borrow a Chinese adage, Beijing has caught a fly in the mouth and it does know whether to swallow it or spit it out.

 

[Player 0]

[video=youtube;oNIzx_LPgQ8]http://www.youtube.com/watch?v=oNIzx_LPgQ8&feature=plcp[/video]

Another RT discussion on China.

 

[Equation]

[video=youtube;oNIzx_LPgQ8]http://www.youtube.com/watch?v=oNIzx_LPgQ8&feature=plcp[/video]

Another RT discussion on China.

David Pilling, William Powell, and Jim Rogers sure do know what they're talking about. This definitely clears up what the world economy is about and good way to measure the Chinese economy at this state. Thanks for the video, great discussion. Is RT News only available in cable channel?

 

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heh, huawei and ZTE got a hearing in the USA. By the sound of the congress people, the 2 companies are already at fault.

 

[AssassinsMace]

The discussion in the video is very pragmatic and simple common sense. Any distortion is all politically motivated. What's something so simple will be covered-up with elongated spin doctoring attempting to confuse nonsense as intellectual discussion so it's beyond you if you don't understand it.

 

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Given the difficult world shipping market and weak growth in global demand, it is hardly surprising that Chinese shipyards find themselves at their lowest ebb since the last order boom of 2007.

According to industry analysts, a considerable number of the country's small shipyards are teetering on the verge of bankruptcy - in fact, many now believe that just the largest 300 out of the country's current total of more than 3,400 shipyards are likely to survive the current downturn, which could still last another three years.

The latest industry data illustrates just what a dilemma is being faced by many in the sector.

According to the China Association of the National Shipbuilding Industry, during the first seven months of this year, finished capacity at Chinese shipyards dropped by 7.7 percent from last year to 35.49 million deadweight tons.

Total new orders stood at 11.64 million deadweight tons, a dramatic 50.7 percent drop compared with the same period last year.

And the current order book amounted to 123.5 million deadweight tons, a 29.9 percent decline from last year, according to the association.

But this is not just a problem for China's shipbuilding industry. Clarksons Plc, the global shipping services provider, has estimated that by the end of August, the global shipbuilding order book had dropped to 96.36 million compensated gross tons, the lowest reading since May 2005.

It said that shipowners remain reluctant to place new orders, especially with South Korean shipyards - recognized around the world for their levels of advanced technology and sophisticated systems - declining to this year's lowest point in August.

"Last year there was still demand for more sophisticated vessels. This year, market demand is weak for all kinds of vessels," said Sun Bo, a senior executive with China Shipbuilding Industry Corp, one of the country's major shipbuilding conglomerates.

In the meantime, new building prices have also plummeted to the lowest level since March 2004, and are now a third of what they were at the peak reached in August 2008, according to Clarksons.

Pressured by the low prices, a growing number of Chinese shipbuilders are now refusing to take orders and have suspended production, while some smaller shipyards have gone bankrupt.

"The market will be even more difficult at the beginning of next year," added Sun. "A recovery is unlikely to happen within the next three years, and only big shipyards with strong order books are likely to survive."

The bigger players such as China Shipbuilding have been trying to manage the risk by tapping into the manufacturing of marine engineering equipment, and analysts suggest the boom in offshore drilling activities represents the most lucrative sector for the industry.

"To survive this difficult market, Chinese shipbuilders, faced with falling demand, should focus on adjusting their product structure," said Wang Jinlian, secretary-general of China Association of the National Shipbuilding Industry.

However, as the industry's woes deepen, shipyards are also facing the added pressure of tougher loan conditions being imposed on them by banks, with many finding it increasingly difficult to secure much-needed funding.

Zhang Guangqin, chairman of the association, has called on the banking sector to support the country's major shipbuilders, particularly with finance to secure orders from foreign ship operators and owners.

"The industry's overcapacity is not as serious as many in the market think," Zhang said.

"Although quite a number of our small shipyards have stopped taking orders since 2009, many of our big shipyards are very competitive, especially in the international market."

 

[bladerunner]

China Financial Reform Urged to Offset Risks


"China needs more reforms to liberalize interest rates and boost bond selling as the country's financial sector faces risks from piling corporate debt and an economic downswing, officials and economists proposed on Wednesday.

China's company debt remains high and is even increasing in some places, building risks for Chinese banks, a major source of company financing, said Dai Xianglong, chairman of the National Council for Social Security Fund, during the ongoing 2012 Summer Davos Forum in north China's Tianjin.................."

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[A.Man]

China Financial Reform Urged to Offset Risks


"China needs more reforms to liberalize interest rates and boost bond selling as the country's financial sector faces risks from piling corporate debt and an economic downswing, officials and economists proposed on Wednesday.

China's company debt remains high and is even increasing in some places, building risks for Chinese banks, a major source of company financing, said Dai Xianglong, chairman of the National Council for Social Security Fund, during the ongoing 2012 Summer Davos Forum in north China's Tianjin.................."

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China is teaching you folks the new theory of economics. I believe, China know John Adams and The Wealth of Nation better than you. The Great Wall will stand after the Wall Street is Falling!