Chinese Economics Thread

[A.Man]

Lenovo mobile sales drive profit growth

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BEIJING (AP) — Lenovo Group says it is evolving quickly into a supplier of wireless computing, driven by booming sales of smartphones and tablets as consumers shift away from desktop computers.

Sales of wireless devices rose 105 percent in the three months ended June 30, driving a 23 percent rise in profit to $174 million, Lenovo announced Thursday. Total revenue rose 10 percent to $8.8 billion.

Lenovo was declared the No. 1 personal computer maker in the latest quarter by research firms Gartner and IDC. But that came as global PC shipments fell for a fifth straight quarter, highlighting the rapid consumer shift to mobile.

"We actually sold more smartphones and tablets than PCs in this quarter for the first time ever," said CFO Wong Wai Ming in a conference call with reporters.

PC shipments were flat and their share of total revenue fell to 28 percent. Laptop sales, which account for 52 percent of revenue, rose 4.7 percent. Mobile devices supplied 14 percent of revenue.

"We are impressed by Lenovo's strong execution," said Barclay's analysts in a report. "It is the only Asia PC company that is able to deliver market expectation results, facing strong headwinds from concerns about global PC and smartphone demand, as well as a slowdown of China's economy."

Lenovo, with headquarters in Beijing and in Research Triangle Park, North Carolina, broke into the wireless market with the 2010 launch of its first smartphone.

It has since released more phones and Web-linked tablets to compete with Apple Inc., South Korea's Samsung Electronics Corp. and Taiwan's HTC Corp.

An update of its Thinkpad laptop released last year was designed to appeal to tablet users with features that mimic the quick startup and response times of mobile devices.

Other traditional technology leaders are also scrambling to shift emphasis to mobile products and to diversify into services as well as hardware.

Sales in China rose 5.6 percent to $3.7 billion, providing 42 percent of revenue. In the United States and the rest of the Americas, sales grew 29 percent to $1.9 billion.

Worldwide PC shipments declined 11 percent in the April-June period, according to Gartner and IDC.

In smartphones, Lenovo said it became the world's fourth-largest vendor during the quarter. Global sales rose 132 percent.

This year's sales target is 50 million smartphones and 10 million tablets, said chairman Yang Yuanqing. He said Lenovo is "very confident" it can meet that after the latest quarter.

"We are transforming our company into a 'PC Plus company' at full speed," said Yang on the conference call.



China Mobile Q2 net profit up 2 pct, buoyed by 3G subscriber gains

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HONG KONG | Thu Aug 15, 2013 12:23am EDT

Aug 15 (Reuters) - China Mobile Ltd, the world's biggest mobile carrier by subscribers, posted a 2 percent rise in second-quarter net profit, roughly in line with market expectations, buoyed by an increase in 3G subscribers.


China Mobile's net profit for the April-June quarter came in at 35.2 billion yuan ($5.7 billion), up from 34.4 billion yuan a year earlier, according to Reuters calculations based on the company's data.

That was roughly in line with the consensus of 34.1 billion yuan in profit, according to a Reuters poll of eight analysts.

China Mobile, the only Chinese carrier that does not have a contract with Apple Inc to sell iPhones, made a first-half net profit of 63.1 billion yuan, up 1.5 percent from a year earlier, it said in a statement on the Hong Kong stock exchange. For a copy of the statement, please click here (Reporting by Lee Chyen Yee in SINGAPORE and Twinnie Siu in HONG KONG; Editing by Chris Gallagher)

 

[A.Man]

With Chinese economic data better than expected, Peter Stephens feels optimistic about Diageo plc's (LON: DGE) prospects.

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The media loves bad news. Turn on the television, open a newspaper or look on a website and it's all the same: bad news.

Indeed, I watched the BBC evening news for the first time in months recently and was amazed at how negative all of the news stories were.

The news focused on how a housing bubble was being created, meaning first-time buyers were going to find it even more difficult to get on the housing ladder. Then there was discussion of a 4%-plus increase in rail fares as well as various other downbeat news items.

Of course, the above viewpoint can also be applied to the financial media, which seems to enjoy nothing more than talking down various economies across the world. Now that Europe and the USA are seemingly on the up, the financial press seems to be focusing on the difficulties China is having in trying to maintain growth of over 7% per annum, simply because it wants to report bad news.

Moreover, the data coming out of China does not paint such a negative picture. For instance, exports rose 5.1% year on year in July, recovering from a 3.1% drop in June. Furthermore, imports increased by 10.9% year on year; up from 0.7% in June.

Both figures were ahead of forecasts and the jump in imports is especially pleasing due to it being a reasonable barometer of the state of the Chinese economy. It is also great news for Diageo (LSE: DGE) (NYSE: DEO.US), which is seeking to grow its presence in China.

Indeed, China is a key market for Diageo, with the company increasing both the size and scope of operations there. This is of little surprise, since Diageo's growth in China in the past year has been around 8%.

In addition to offering exposure and potential growth in China, Diageo still looks like a decent investment. Although it trades on a price to earnings (P/E) ratio of 20, earnings per share are set to grow at around 10% per annum over the next two years.

Furthermore, a beverage sector P/E of 21.4 makes Diageo's shares seem relatively good value.

Of course, you may already own Diageo or be looking for additional growth-focused ideas. In this case I would recommend you take a look at an exclusive report entitled The Motley Fool's Top Growth Share of 2013.

It is completely free to view the report and it could be the boost your portfolio needs! Click here to take a look.

> Peter does not own shares in Diageo.

 

[A.Man]

The 1 Title We Will Happily Cede to China

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By Tyler Crowe | More Articles
August 17, 2013 | Comments (1)


Just about every day we hear a story of how China has passed the U.S. in some metric, or how China is slowly catching up to us. For the most part, these stories look to tap a xenophobic nerve as we slowly lose our position as the sole global superpower. Yet for all of those milestones that China passes or approaches, there are a few we will happily give to them. Soon, we will be able to relinquish the crown as top net oil importer.

anImage

Source: US Energy Information Administration.

According to the projections at the US EIA, China is expected to pass the U.S. in net oil imports sometime this October. While there may not be any parades through Washington, D.C., to celebrate the moment, it is a pretty monumental event, considering it's a title we've held for more than 30 years. There are a lot of moving factors that have converged to make this happen, so let's look at the three key drivers behind this transition and what it means.

What got us here
Production from America's Oil Trinity has increased: While several new oil and gas sources have emerged in the past couple of years, three distinct regions have been the workhorse of shale oil production: the Bakken, the Eagle Ford, and the Permian Basin. Combined, these regions have boosted American oil production by 1.5 million barrels per day between our peak imports in 2005 and today. What's even more remarkable about this movement is that the smaller, independent producers have been the drivers rather than the big integrated majors. One notable company that's been the poster child for this growth is Continental Resources (NYSE: CLR ) . In a mere three years, the company has tripled its oil production thanks to a strong drilling program in the Bakken.

America's going further on a gallon of gas: It's becoming more apparent that the new CAFE standards are decreasing fuel consumption. Between 2007 and 2012, total gasoline consumed per year dropped by 12%. While it's true that a slower economy does have something to do with it, we can't discount the efforts of the automakers. Ford (NYSE: F ) , for example, has increased its total fleet MPG by 14% over that time span, and its most recent offerings could reduce that amount even further.

China can't quench its own oil thirst: Although China still consumes a considerable amount less oil than the U.S., its oil reserves and production are even more paltry compared with its demand. Much of this new-found demand is being driven (no pun intended) by demand for vehicles. Ford just announced that its year-over-year sales for China were 71% higher than last year, and overall demand is still expected to soar. Estimates show that the Chinese automotive industry will grow another 50% by the end of the decade. Simply put, it would take a Hurculean effort for China's oil industry to keep pace with this sort of demand growth.

How America can benefit
Aside from the plethora of "We're No. 2!" billboards that will be plastered across the U.S. following this change, there are some very tangible ways the U.S. can take advantage of this situation. Not only will China struggle to keep pace with its oil production, but its refinery capacity will also fight to keep up with demand. Since the United States is now at a point where our refining capacity is greater than our petroleum product demand, we could be in a strong position to supply China with gasoline and diesel products. It may not all be domestic oil used in our refineries for quite some time -- or ever, for that matter. But the value added from refining the product here and shipping it there could be a boost to refiners' margins and could bring down our trade deficit with China.

Perhaps the largest obstacle in making this happen is logistics. Both Valero (NYSE: VLO ) and Phillips 66 (NYSE: PSX ) , the two largest exporters of the independent refiners in the U.S., have nearly all of their excess refining capacity in the Gulf Coast region, which has the problem of being on the wrong side of the continent. So far, a majority of refined product exports have gone to European and South American markets, but the projected expansion of the Panama Canal in 2015 could change that dynamic very quickly.

What a Fool believes
Sometimes it's hard to grasp the fundamental changes that we've seen in the American energy industry. It's been less than a decade since we were in a position similar to China, where our depenence on oil imports was at alarming levels. Since then, we've stumbled upon a globally transformative amount of oil, and our efforts to curb overall demand are starting to bear fruit. It's hard to say whether China will be able to manage a similar type of turnaround with its own energy policies, but either way it will still take the nation years to reverse the trend.

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[pissybits]

this was bound to happen sooner or later, the reason it's happening now is because the u.s. has realized that the mideast is undependable for cheap oil in the long term and recently developed the technology to extract oil efficiently from their shale formations. (fracking)

this article doesn't mention that china in fact has the largest recoverable shale oil deposits in the world; (u.s. is #4) obama recently said that he would share american fracking technology with china, but i don't know if they would indeed be willing to show china the ropes just because they would potentially lose out on a huge export market for their oil.

also, fracking is hugely water intensive and has a large impact on the environment. china already faces an alarming water shortage and the environment is already very stressed. it will be interesting to see how they will cope with this energy demand that still has so much room to grow.

 

[Hendrik_2000]

this was bound to happen sooner or later, the reason it's happening now is because the u.s. has realized that the mideast is undependable for cheap oil in the long term and recently developed the technology to extract oil efficiently from their shale formations. (fracking)

this article doesn't mention that china in fact has the largest recoverable shale oil deposits in the world; (u.s. is #4) obama recently said that he would share american fracking technology with china, but i don't know if they would indeed be willing to show china the ropes just because they would potentially lose out on a huge export market for their oil.

also, fracking is hugely water intensive and has a large impact on the environment. china already faces an alarming water shortage and the environment is already very stressed. it will be interesting to see how they will cope with this energy demand that still has so much room to grow.

Simple go offshore, you are right Fracking is not an ideal solution for China due to lack of water But China barely scratch the surface of Offshore drilling because lack of technology and tremendous capital requirement. But last year China built Deep sea drilling platform . More is needed though production platform. FPSO, Mooring etc. Chinese oil company CNOOC or Sinopec barely explored the Chinese coast which hold promise of bonanza . That is the reason why China should not yield the pressure from Japan or the West.

Most of US new oil find is not due to Fracking but they keep finding new oil field in Gulf of Mexico.
It is a very challenging and technically demanding piece of engineering Think of drilling 3 km under the sea with tolerance of 50 centimeter

Anyway here is a piece of excellent article from Economist which debunk the pessimist opinion of Krugman, Pettis and their ilk

A bubble in pessimism
China’s economy is inefficient, but it is not unstable
Aug 17th 2013 | HONG KONG |From the print edition

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“JUST the other day we were afraid of the Chinese,” Paul Krugman recently wrote in the New York Times. “Now we’re afraid for them.” He is among a number of prominent commentators contemplating calamity in the world’s second-biggest economy. Three measures seem to encapsulate their fears. Economic growth has slowed to 7.5%, from its earlier double-digit pace. The investment rate remains unsustainably high, at over 48% of GDP. Meanwhile, the debt ratio—ie, what China’s firms, households and government owe—has risen alarmingly, to 200% of GDP, by some estimates.
In this section


Concerns about the first number were assuaged a little this month, when China reported strong figures for trade and industrial production (which rose by 9.7% in the year to July; see chart). Yet beneath the cyclical ups and downs, China has undoubtedly seen its momentum slowing.

It is the combined productive capacity of China’s workers, capital and know-how that sets a maximum speed for the economy, determining how fast it can grow without inflation. It also decides how fast it must grow to avoid spare capacity and a rise in the numbers without work. The latest figures suggest that the sustainable rate of growth is closer to China’s current pace of 7.5% than to the 10% rate the economy was sizzling along at.

For many economists, this structural slowdown is inevitable and welcome. It marks an evolution in China’s growth model, as it narrows the technological gap with leading economies and shifts more of its resources into services. For Mr Krugman, by contrast, the slowdown threatens China’s growth model with extinction.

China, he argues, has run out of “surplus peasants”. Chinese flooding from the countryside into the factories and cities have in the past kept wages low and returns on investment high. The flood has slowed and, in some cases, reversed. So China can no longer grow simply by allocating capital to the new labour arriving from the fields. “Capital widening” must now give way to “capital deepening” (adding more capital to each individual worker). As it does so, investment will suffer “sharply diminishing returns” and “drop drastically”. And since investment is such a big source of demand—accounting for almost half of it—such a drop will be impossible to offset. China will, in effect, hit a “Great Wall”. (The metaphor is so obvious you can see it from space.)

The question is whether Mr Krugman’s concerns are justified. He is right about China running out of “surplus” labour. China’s countryside is no longer so overmanned that people can leave without being missed. Now when they go, the job market tightens and wages rise in the places they leave behind. To tempt them away, wages must rise in the places to which they go.

Yet Cai Fang of China’s Academy of Social Sciences believes that China ran out of surplus countryside labour as far back as 2003. If the economy were going to run into a wall, it would have done so a decade ago. In fact, the economy has since enjoyed spectacular growth. For some time, the movement of workers from agriculture into industry and services has not been the chief source of China’s success. From 1995 to 2012 this movement added only 1.4 percentage points to China’s annual growth, says Louis Kuijs of the Royal Bank of Scotland. Instead, most recent growth has come from raising the productivity of workers within industry, not moving new ones in. Mr Krugman fears the extinction of a model China is already doing without.

He and other respected commentators, notably Michael Pettis of Peking University, are certainly right to criticise China’s high investment rate, for it is a source of great inefficiency. Investment should expand an economy’s capacity to meet the needs of its consumers or its export markets. But in China, Mr Krugman argues, much investment spending is Sisyphean: it is simply adding to the economy’s capacity to expand its capacity.

Yet over-investment is not yet a source of instability, thanks to a system that depends on captive savers. Because the government sets an interest-rate ceiling on deposits, the banks underpay depositors and undercharge corporate borrowers—in effect, a tax on household savers and a subsidy for state business. According to a 2012 paper by Il Houng Lee of the IMF and co-authors, this transfer from households to big borrowers averaged an annual 4% of GDP in 2001-11. The subsidy allows big firms to invest in projects that would otherwise be unviable. The authors reckon China’s investment rate should be closer to 40% than 48%. But the distortion can be sustained while depositors continue to finance it—and, given also China’s controls on capital outflows, they have little choice.

It is clear that China should lower its investment rate. But Mr Krugman and others say that a lower investment rate could precipitate a crash. Their concern echoes a 70-year-old model of growth devised by Roy Harrod and Evsey Domar, in which the economy is balanced on a knife-edge between boom and bust.

The model recognises that investment plays a dual role in an economy. It is, as Martin Wolf of the Financial Times puts it, both “a source of extra capacity” and a “source of demand”. Sometimes these two roles work at cross purposes. If growth slows, then the economy will not need to add as much capacity. That implies less investment. But because investment spending is a source of demand, less of it also implies less demand, lowering growth still further. In avoiding excess capacity, the economy ends up creating more of it.

But how well does this model fit China? The country has both one of the world’s highest investment rates and one of its most stable growth rates. That is presumably because investment is partly orchestrated by the government, which encourages more capital spending when other sources of demand are weak, and vice versa. China’s state-owned enterprises and local-government investment vehicles may not allocate capital to the right things. But at least they mobilise it at the right moments.

Indeed, the inefficiency of Chinese investment may be one reason why it will not create great instability. Mr Lee and co-authors point out that China now requires ever higher investment to generate the same rate of growth (its incremental capital-output ratio, as economists call it, is rising). But a corollary is that the same rate of investment is consistent with China’s slowing rate of growth.

Pessimists worry that slower growth will require less investment in capacity, which will, in turn, depress demand. But if the reason for slower growth is a reduction in the efficiency of investment, then slower growth will require just as much of it, precisely because it delivers less bang for the buck.

Critics of China’s high investment worry not just about the redundant capacity it creates, but also about the debts it leaves behind. China as a whole is thrifty: its saving rate is even higher than its investment rate. But savers and investors are not usually the same. Standing between them is China’s financial system, which transfers vast resources from the first to the second. The debts of China’s firms amounted to 142% of GDP last year, according to Goldman Sachs, and investment vehicles sponsored by local governments had debts worth another 22.5% (see chart). Though impossible to calculate accurately, bad debts might amount to the equivalent of a quarter of the country’s GDP.

The fat pipes of the financial system

A similar credit boom preceded America’s crisis in 2008, and Japan’s in the early 1990s. It is therefore natural to fear that China will suffer a similar fate. But a closer examination of their experience suggests that China is unlikely to repeat it.

Economists sometimes divide America’s woes into two phases: first the housing bust and then the Lehman shock. America’s house prices began falling as early as 2006, damaging household wealth. Housebuilding slowed sharply, weighing on growth, and many construction jobs disappeared. But for two years America’s central bank, the Federal Reserve, was able to offset much of the harm to growth, while unemployment rose only modestly.

All that changed in September 2008 when Lehman Brothers went bust, triggering acute financial panic. Nobody knew how big the losses from mortgage defaults might be, nor who might end up having to bear them. Creditors, shareholders, marketmakers and traders all rushed to make sure it was not them, by pulling credit lines, demanding collateral and dumping their securities.

In many ways, their dash for the exits proved to be more damaging for the economy as a whole than the danger from which they were seeking to escape. After the Lehman shock, a manageable number of mortgage insolvencies became a catastrophic liquidity problem. The lending mistakes of the past crippled the supply of finance in the present.

China may suffer something like the first phase of America’s slowdown, but it should escape the second.It will not allow any of its big financial intermediaries to go bust. Investors may stop buying the wealth-management products (WMPs) that help to finance China’s so-called shadow banking system. But shadow banking is a smaller source of finance in China than it was in America. And if investors stop buying WMPs, they are likely to shift back into traditional bank deposits instead. The banks should thus be able to resist a credit crunch of the kind that crippled America’s economy. And even then the government has plenty more scope, if need be, for monetary and fiscal stimulus.

Some economists argue that efforts to sustain demand will prove misguided. An unsustainable boom will leave workers stranded in the wrong jobs, making a painful bust necessary to reallocate them. Yet restructuring is not unique to a recession. Even in a steadily growing economy, plenty of upheaval is going on under the surface, as people are hired and fired, and as they hop between jobs of their own volition. Just as busts push workers out of declining industries and into unemployment, so booms pull them out of sunset industries into sunrise ones.

China is no stranger to economic restructuring. Over the past decade, the share of workers in agriculture fell from half to about a third. Exports have fallen from 38% of GDP in 2007 to 26% last year, while services now contribute as much to the economy as industry. And this enormous shake-up of employment and production took place in an economy that was growing by about 10% a year. China’s economy can, it seems, evolve and expand at the same time.

From the print edition: China

 

[pissybits]

Most of US new oil find is not due to Fracking but they keep finding new oil field in Gulf of Mexico.
It is a very challenging and technically demanding piece of engineering Think of drilling 3 km under the sea with tolerance of 50 centimeter

Yes, but it's mainly fracking that has added massive new volume to U.S. oil supply in the last few years. On the other hand, China will certainly not back down from its claims on underwater deposits. That's one of the biggest reasons it's expanding its naval power and ruffling feathers in ASEAN these days.

Yet over-investment is not yet a source of instability, thanks to a system that depends on captive savers. Because the government sets an interest-rate ceiling on deposits, the banks underpay depositors and undercharge corporate borrowers—in effect, a tax on household savers and a subsidy for state business. According to a 2012 paper by Il Houng Lee of the IMF and co-authors, this transfer from households to big borrowers averaged an annual 4% of GDP in 2001-11. The subsidy allows big firms to invest in projects that would otherwise be unviable. The authors reckon China’s investment rate should be closer to 40% than 48%. But the distortion can be sustained while depositors continue to finance it—and, given also China’s controls on capital outflows, they have little choice.

This is exactly what I've been saying. This is a model that has to change because it depresses domestic consumption and continues to allocate money to unsustainable sectors.

But how well does this model fit China? The country has both one of the world’s highest investment rates and one of its most stable growth rates. That is presumably because investment is partly orchestrated by the government, which encourages more capital spending when other sources of demand are weak, and vice versa. China’s state-owned enterprises and local-government investment vehicles may not allocate capital to the right things. But at least they mobilise it at the right moments.

True, but economic restructuring entails exactly this: allocating capital to the right things. Else there would not be a need for restructuring.

Indeed, the inefficiency of Chinese investment may be one reason why it will not create great instability. Mr Lee and co-authors point out that China now requires ever higher investment to generate the same rate of growth (its incremental capital-output ratio, as economists call it, is rising). But a corollary is that the same rate of investment is consistent with China’s slowing rate of growth.

Pessimists worry that slower growth will require less investment in capacity, which will, in turn, depress demand. But if the reason for slower growth is a reduction in the efficiency of investment, then slower growth will require just as much of it, precisely because it delivers less bang for the buck.

There's a bad argument here from both the author and the theories he attacks. The problem is not: "China depends too much on investment," It's where the investment is coming from and what it's for.

China's particular brand of investment/export led growth entails an economy that ultimately relies on a trade surplus which is based on monopolized banking tactics that transfer wealth from savers to connected investors, thereby suppressing individual wealth growth and making single sector development easy. This model lends itself to domestic infrastructure and real-estate investment, which has become its own dynamo of wealth generation. (for some people)

However now there is a "reduction in the efficiency of investment" because the markets subject to this investment so far have become saturated. Investing MORE money into it certainly won't do the situation any good and would be incredibly idiotic. What China needs to do is to invest in other things beyond real-estate.

Critics of China’s high investment worry not just about the redundant capacity it creates, but also about the debts it leaves behind. China as a whole is thrifty: its saving rate is even higher than its investment rate. But savers and investors are not usually the same. Standing between them is China’s financial system, which transfers vast resources from the first to the second.

This reiterates the point made in quote #2, and again this is something I've been saying. All this means is that China may not experience the same kinds of foreclosures that the U.S. experienced if the Chinese real-estate bubble ever bursts. However it certainly does not excuse us from taking the overcapacity lightly; because if money is not moved to the right places and the bubble indeed bursts, the people will still have to foot the bill and that will present big problems to the goal of building private wealth/domestic consumerism that China is trying to achieve.

In many ways, their dash for the exits proved to be more damaging for the economy as a whole than the danger from which they were seeking to escape. After the Lehman shock, a manageable number of mortgage insolvencies became a catastrophic liquidity problem. The lending mistakes of the past crippled the supply of finance in the present.

Obviously, that's what happens when a bubble "bursts." The trick is to catch it before it gets too bad and find sustainable sectors in which to reinvest. (which luckily China has, unlike the U.S. in 2008)

China may suffer something like the first phase of America’s slowdown, but it should escape the second.It will not allow any of its big financial intermediaries to go bust. Investors may stop buying the wealth-management products (WMPs) that help to finance China’s so-called shadow banking system. But shadow banking is a smaller source of finance in China than it was in America. And if investors stop buying WMPs, they are likely to shift back into traditional bank deposits instead. The banks should thus be able to resist a credit crunch of the kind that crippled America’s economy. And even then the government has plenty more scope, if need be, for monetary and fiscal stimulus.

Some parts of this statement is correct, but there are some untenable assumptions. How can you expect Chinese to move from getting credit from shadow banking to traditional banks if the traditional banks remain the domain of insiders where credit is near impossible to obtain? They will continue to buy WMPs from the shadow banking sector as long as the government continues to imposes measures designed to benefit the export/investment model like credit limits and deposit rate limits on those traditional banks. To put it in simple terms: regular people can get cash out of the shadow banking system even though it might be a scam sometimes, but they can't get cash from the traditional banking system which they KNOW is a scam.

Granted, the Chinese government is aware of and trying to remedy this situation, and the recent liberalization of interest rates is a major step; but there is much more fiscal reform to do and we don't know how successfully it will be implemented (whether standards can be imposed and supervised) because of China's rather unaccountable judicial system.

Some economists argue that efforts to sustain demand will prove misguided. An unsustainable boom will leave workers stranded in the wrong jobs, making a painful bust necessary to reallocate them. Yet restructuring is not unique to a recession. Even in a steadily growing economy, plenty of upheaval is going on under the surface, as people are hired and fired, and as they hop between jobs of their own volition. Just as busts push workers out of declining industries and into unemployment, so booms pull them out of sunset industries into sunrise ones.

China is no stranger to economic restructuring. Over the past decade, the share of workers in agriculture fell from half to about a third. Exports have fallen from 38% of GDP in 2007 to 26% last year, while services now contribute as much to the economy as industry. And this enormous shake-up of employment and production took place in an economy that was growing by about 10% a year. China’s economy can, it seems, evolve and expand at the same time.

China's last wave of economic restructuring was by no means a cakewalk, (江泽民挥挥手，下岗工人遍地流) this time it will be an even bigger challenge because there are the interests of many more Party big-shots (江泽民‘s export/investment 'mafia') that have to be curtailed in order to restructure (stimulate domestic sector/consumerism) effectively.

All in all this article is good at disproving the theories it counters, but it doesn't show that China can indeed restructure efficiently. It does show that the writer did his homework on China though, and has identified the biggest problems better than most western media observers.

 

[Franklin]

I'm actually on your side of the argument and agree with most of what you are saying here.

However...

China's last wave of economic restructuring was by no means a cakewalk, (江泽民挥挥手，下岗工人遍地流) this time it will be an even bigger challenge because there are the interests of many more Party big-shots (江泽民‘s export/investment 'mafia') that have to be curtailed in order to restructure (stimulate domestic sector/consumerism) effectively.

The Chinese government has a secret weapon against that, its called monetary policy if the government tighten monetary policies and credit dry up like now then there is nothing that these export/investment mafia's can do they either have to play ball or they can go bankrupt. Its all depend on how strong the will and the nerve is in Beijing to allow the economy to slow now in order to creat longer term stability.

 

[pissybits]

I'm actually on your side of the argument and agree with most of what you are saying here.

However...



The Chinese government has a secret weapon against that, its called monetary policy if the government tighten monetary policies and credit dry up like now then there is nothing that these export/investment mafia's can do they either have to play ball or they can go bankrupt. Its all depend on how strong the will and the nerve is in Beijing to allow the economy to slow now in order to creat longer term stability.

i think you've misunderstood the dynamics of monetary policy in china. china needs to "loosen" not "tighten" monetary controls in order to make lending more available to private individuals rather than connected groups. (export/investment interest groups) right now lending is TOO available for the export/investment interest groups but not nearly available enough for private individuals. if the government were to "tighten" monetary policy now, it would mean that lending would be made even LESS available. (not what china needs) they COULD (theoretically) cut off lending even to SOEs and the investment/export interest groups, and this could ward off further expansion of overcapacity, but this could also very likely arouse fears and chaos in the real estate market (burst) and cause many people to divest.

what they need to do is loosen monetary policy and do it responsibly. the big question is if they are even able to truly do so, because the export/investment interest groups have high ranking members and have supporters in the politburo itself. if you want to liberalize the financial sector in a way that stimulates equitable lending/domestic spending, this "mafia" will have to give up their golden goose so to speak. at this moment it is very much up to the internal power politics of the ccp that will decide whether china can remain prosperous in the foreseeable future or not. we can only hope that the good guys win, but it's hard to say just who they are atm. (lol can rule out 江泽民) we will have to judge by the things they do.

 

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Hopefully this means that China isn't submitting the worst aspects of infant industry protectionism.

 

[Hendrik_2000]

This is forward looking and bold initiative that China make to foster more economic development. I definitely applauded this move. Excellent. Instead of talking they do something . Internet commerce is the upcoming growth area .It grew by leap and bound, think of hardware maker, infrastructure maker, communication, software technology, internet commerce .Not to mention education . entertainment, removing the isolation of remote places. Endless possibilities

Broadband Blueprint Could Give China an Edge Print E-mail
Written by Our Correspondent
Friday, 30 August 2013

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China goes broadband

China will pour billions into a country-wide fiber-optic network. What is the US doing?

China appears about to give the United States -- if not the rest of the western world -- another thing to worry about.

On Aug. 17, the state-owned news agency Xinhua announced an extensive "Broadband China" strategy to expand broadband coverage to at least half of the country by 2015 and to almost all the rest by 2020, reaching speeds of 20 megabytes per second (mbps) in urban areas and 4 mbps in rural areas. The plan is designed to foster business development and provide an important aid to households.

China's fastest broadband speeds are designed to reach 100 mbps, according to the Xinhua release, in marked contrast to China today, in which average broadband speeds reach 1.8 mbps, far below international standards. The country has the fastest-growing number of Internet users on the planet, now numbering 591 million according to official figures and expected to hit 718 million by the end of the year.

Broadband in the US today reaches an average of 7.4 mbps, according to a survey by Forbes Magazine. That puts the US behind nine other countries, including, for instance, the Czech Republic, the Netherlands, Latvia and Hong Kong. South Korea boasts the fastest broadband in the world today, at 14.2 mbps.

In the US, average prices, run through commercial communications companies like ATT, cost US$25-40 per month. It is unclear what China will charge.To a Hong Kong resident visiting the US, service is frustratingly uneven, with dead spots and regular delays in transmission.

The decision to provide public broadband to the entire country is yet another indication of China's willingness to use its considerable public funds to pay for dramatic modernization of its infrastructure, in contrast especially to the US, where a hostile Congress in thrall to extreme conservatives has demonstrated the intent to cut investment to the bone, raising concerns that the US will fall out of competition with its biggest rivals -- and of course the biggest of those is China.

A 2013 survey by Ernst & Young of global business found that the US ranks a lowly 17th in quality of infrastructure, just ahead of Turkey, Switzerland, Singapore, Finland and Hong Kong rank at the top.

For all the money China has spent -- RMB4 trillion in its 2008-2009 stimulus package to combat the effects of the global financial crisis, it still ranks only 23rd, just ahead of Italy and India. It still has a lot of catching up to do.

"Concerned about maintaining its economic growth, China is pouring money into an already unprecedented infrastructure building spree? constructing high-speed rail and urban mass transit systems throughout the country," the Ernst & Young report said. "The high-speed rail program, which faced serious safety and corruption issues in 2012, appears to be getting back on track. These investments have supported dramatic economic expansion, but are adding to the country's large debt burdens and creating long-term liabilities for operating subsidies and ongoing maintenance."

China has built a vast system of high speed rail while the US has dithered. "Due to fiscal constraints at the federal level and fractured jurisdiction over rail and other key infrastructure assets, the United States lacks a national infrastructure investment plan," the Ernst & Young report says. "State, regional, and local agencies are filling the void, addressing mounting issues to stretch underfunded budgets for fix-it-first initiatives and find ways to build big-ticket projects like new roads, light-rail lines, transport terminals, and levees. Increasingly, public leaders at all levels are embracing PPPs while advocating various tax and user fee hikes."

This doesn't seem to bother the Chinese. In its Aug. 17 release, the government outlined targets and timetables for broadband development in order to boost information consumption and facilitate economic restructuring. China's state-owned telecoms companies are expected to spend US$11.2 billion in 2014 on 4G telephony as well.

To give an idea of the magnitude of the project, fewer than 14 percent of the population has access to broadband today, meaning thousands of miles of fiber-optic cable must be laid to service the country.

"The development of information technology and infrastructure not only improves broadband speed, but also means more economic opportunities," said Yu Xiaohui, senior engineer with the Ministry of Industry and Information Technology (MIIT), who led the drafting of the strategy.

Internet-based consumption should grow by at least 30 percent annually to 2.4 trillion yuan (US392 million), according to the guidelines, increasing the value of industries supported by information consumption by 1.2 trillion yuan by the end of 2015.

Small and medium-sized enterprises (SMEs) will benefit from the strategy, according to Xinhua, due to increased online business as the government will support third-party e-commerce platforms to facilitate SMEs in online sales, purchasing and other operations, said MIIT Minister Miao Wei.

"The blueprint will change people's consumption habits and stimulate innovation in information products and services, thus facilitating China's economic restructuring," Yu said.