Chinese Economics Thread

[pla101prc]

Moving inland is 1 option.

The other option is to relocate to another country that has even lower wages. India also has a tremendous labour pool that also happens to be largely english speaking. But due to infrastructure issues, manufacturing in India has not quite taken off. Bangladesh has a minimum monthly wage os US$25, which is ~10% of wages in China. But, due to lack of infrastructure and other issues, few companies have set up shop there.

Vietnam is also emerging as a manufacturing hub due to its lower wages as compared to China. Vietnam's advantage is that China is just next door. With China-ASEAN FTA in force now, having a factory in Vietnam is comparable to having a factory in Yunnan.

indonesia i think is another big competitor...but there are more than one factor. what the Chinese have to do is to expand their own domestic market, get ahead in infrastructure and help domestic companies to get tougher.

but either way the age of Chinese cheap labour is coming to an end...though it hasnt really ended yet. so the Chinese still have that buffer time to transform...if they dont, they are screwed

 

[Hendrik_2000]

indonesia i think is another big competitor...but there are more than one factor. what the Chinese have to do is to expand their own domestic market, get ahead in infrastructure and help domestic companies to get tougher.

but either way the age of Chinese cheap labour is coming to an end...though it hasnt really ended yet. so the Chinese still have that buffer time to transform...if they dont, they are screwed

Well last time I heard Foreign investor is not actually queing to invest in Indonesia. Recently they auction large number of Oil lease. Not single company bid on the lease. That should speak volume of problem in Indonesia.

Wages is not the only consideration in deciding where to invest . Regulation streamlining, worker productivity, Supplier ecosystem, red tape, infrastructure, labor law, rule of law, independent judicial system. efficient custom and port facility.

On each of these category Indonesia track record is questionable

I can give you example Shoe industry at one time Indonesia has thriving shoe industry but because she has to import the sole. The end result is expensive shoe compare to import

Foreign direct investment in China in fact is growing here is the article

Mainland’s FDI rises 11.3pc, current account surplus falls 48pc
Agence France-Presse, Reuters in Beijing
1:17pm, May 14, 2010

Mainland’s current account surplus fell 48 per cent in the first quarter and drew US$30.8 billion in foreign direct investment (FDI) in the first four months of the year.
The FDI is 11.3 per cent more than in the same period of last year, the China Business News reported on Friday, citing a commerce ministry official.



In April alone, mainland attracted US$7.37 billion in FDI, up 25 per cent from April last year, the paper said.

The figure was up 7.7 per cent in the first quarter from the same period last year, to US$23.4 billion.

The data includes investment by overseas companies in industries such as manufacturing, real estate and agriculture but excludes money put into banks and other financial institutions.

The current account surplus fell 48 per cent in the first quarter of this year from the same period last year, official data showed on Friday.

The current account surplus – the broadest measure of trade with the world – reached US$40.9 billion in the first three months of the year, the State Administration of Foreign Exchange said in a statement on its website.

It is the first time the country has published quarterly balance of payments data, the statement said. The data was previously reported twice a year.

Last year, mainland’s current account surplus dropped for the first time in eight years – by 35 per cent on-year to US$284.1 billion – as the global crisis hit exports.

Net inflow of direct investment into mainland totalled US$17.5 billion in the first quarter, the statement said.

The big inflow of foreign capital in the period was caused by low US interest rates and put strong pressure on the central bank, an unnamed Safe official said, according to Dow Jones Newswires.

Beijing is under growing international pressure to allow an appreciation of the yuan, which has been effectively pegged at about 6.8 to the US dollar since mid-2008.

Critics say the policy gives mainland exporters an unfair advantage by making their products relatively cheaper.

Speculation has been growing in recent weeks that Beijing may soon let the yuan rise, with a number of central bank officials hinting that a change in the exchange rate policy could be in the offing.

 

[lcloo]

The available supply of labor in South China is now shrinking and have siginificant effect on wage rates. The minimum wage rates in mostly coastal regions have been revised again this year.

Hainan has revised upward more than 30% its minimum wage, Shenzhen, Guangzhou and other areas have increased by around 20%.

Manufacturing sector will have to change to higher use of machine automation, with greater increase in out-put efficiency, the automation can offset the wage increase as less workers needed to be employed.

Factories that employed low costs labors and operating on razor thin profits will be most affected. They will have no choice but to relocate to inner region of China where the wage rates are lower, or move to other low labor cost countries like India, Thailand, Vietnam etc.

I expect that the US imports will be shifted gradually to buying more cheap items from India and other South East Asian countries as more factories are moving there. In a way it is good for China because this takes away a little bit of heat caused by current account issue.

The National Land authority in China is now drawing up plans to control supply of lands for home construction, aim to lower the prices of house. The implementation of new rules may be in any time 3rd quarter of this year. This is a delima faced by Premier Wen because real estate sector is the major force behind China's fast growth, and controlling housing growth mean many other economic sectors will be affected, but then he may have no choice as the housing bubble was getting too big.

 

[Spartan95]

I'd rather not comment on Indonesia.

Anyway, back to the topic:

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CHANGSHA, July 4 (Xinhua) -- Chinese Premier Wen Jiabao has warned that China's macro economic control policy is facing mounting difficulties with the severity of the international financial crisis and the unpredictable nature of the global economic recovery.

"China's current economy remains good, but the domestic and international environment is extremely complicated," Wen said while addressing a symposium held Saturday in Changsha, capital of central China's Hunan Province.

The symposium, which was presided over by Premier Wen, was thrown to feature economic situation in three provinces of Hubei, Hunan and Guangdong.

At the symposium, Wen reiterated the government's stance in maintaining the continuity and stability of macro economic policies, and making these macro policies more flexible and targeted.

Wen said the government would "work to promote stable and relatively fast domestic economic growth, restructure the economy and manage inflation expectations to ensure the government's goals for 2010 are met."

The government would endeavor to resolve long-term structural problems while targeting urgent issues, Wen said.

Before the symposium, Wen also inspected flood prevention and control efforts in parts of Hunan Thursday, and moved on to Changsha, the provincial capital, to visit a number of other venues including companies ranging from machinery, outsourcing to animation companies Friday.

While inspecting the companies, Wen enquired about their business, employment and social security, and encouraged them to step up innovation.

"An internationally competitive enterprise needs products of the best quality, world-leading patent technologies and generations of excellent staff," Wen said when talking with employees in Sany Group, a Changsha-based leading Chinese engineering machinery manufacturer.

Wen talked with employers and job hunters at a job market in Changsha. He told a female university student named Yan Youping that the priority for university students was to study hard and grasp skills at school, and students should be clear about personnel demands and be prepared.

It is interesting to note that Premier Wen is now talking about structural problems when visiting workers and job hunters. Goes to show that China's leadership isn't letting their economic growth go to their head.

The original report that is in Chinese is on the Chinese version of the same website.

 

[Hendrik_2000]

I'd rather not comment on Indonesia.

Anyway, back to the topic:

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It is interesting to note that Premier Wen is now talking about structural problems when visiting workers and job hunters. Goes to show that China's leadership isn't letting their economic growth go to their head.

The original report that is in Chinese is on the Chinese version of the same website.

@spartan I am busy yesterday I haven't get the chance to reply to your posting. Anyway what are you trying to say ? Premier Wen constantly worry about the state of Chinese economy?. If he does then I take it as a good sign.

Ever heard the expression" Only the paranoid survive"?

When premier Wen worry,he is more than likely to adjust Macro economic policy to alleviate whatever problem facing China.

That is the difference between China and India. Author Aiyar Palavi said it best

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So ultimately, despite political representation for the poor in India and the absence of political participation in China, the latter trumped India when it came to the delivery of basic public goods like roads, electricity, drains, water supplies and schools where teachers actually show up. This counterintuitive state of affairs was linked to the fact that while in China the CCP derived its legitimacy from delivering growth, in India a government derived its legitimacy simply from its having been voted in. Delivering on its promises was thus less important than the fact of having been elected.

The legitimacy of democracy in many ways absolved Indian governments from the necessity of performing. The CCP could afford no such luxury. As a result the Chinese government was more responsive to the socio-economic problems confronting it than it was often given credit for, bringing us back to another of the questions frequently posed to me: where was China headed in the new century

For those of you who day dreaming India as counter weight to China read this profound article

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[Hendrik_2000]

@spartan

Here is the growth rate for Indonesia

Indonesia year-on-year GDP grows 5.7 percent in first quarter
JAKARTA -- Indonesia said Monday that gross domestic product (GDP) grew 5.7 percent year on year in the first quarter of 2010 due to strong domestic demand and low inflation. Southeast Asia's biggest economy accelerated in the January-March period at its fastest pace since the third quarter of 2008, but was only just better than the 5.4 percent in the fourth quarter of last year, the Central Statistics Agency said.
Non-seasonally adjusted quarterly growth was 1.9 percent, a reversal of the previous quarter's 2.4-percent contraction.

Here is the growth rate for Thailand. You live in Singapore I don't have to tell you

Thai economy notches up double-digit growth in Q1
BANGKOK -- Thailand's economy grew 12 percent year-on-year in the first quarter, but prospects for all of 2010 have been dampened by political turmoil in April and May, a government think tank said Monday.
“The economy grew 12 percent in the first quarter, the highest rate of growth in the past 15 years,” National Economic and Social Development Board Secretary General Amporn Kittiamporn said.

That growth rate lagged in Asia only behind that of Singapore and Taiwan, he said.

Like Singapore and Taiwan, the Thai economy is driven primarily by exports, which grew an estimated 32 percent in the first three months of 2010 from the same period a year earlier to 44.3 billion dollars. Exports account for more than 65 percent of Thailand's gross domestic product (GDP).

Private-sector investments also rose 22.8 percent during the quarter.

While the year started out strongly for Thailand, prospects for the full year have been dampened by political instability and violence in Bangkok in April and May, brought about by an anti-government demonstration, in which protestors seized the heart of the capital's commercial district.

On Wednesday, the government dispersed them from their protest site, which they had occupied since April 3. The crackdown sparked rioting, and 36 building were set alight.

Amporn said the Thai economy could have grown 6 to 7 percent this year without the political chaos in Bangkok, but now his board has lowered its forecast to 3.5- to 4.5-per-cent GDP growth in 2010.

Growth rate for Malaysia
Malaysian economy to expand 5.2% in 2010 on broad recovery: MIER
KUALA LUMPUR -- Malaysia's economy could grow as fast as 5.2 percent in 2010 in a broad-based recovery, a leading forecaster said Thursday, but warned of the need to reverse falling investment quickly. The Malaysian Institute of Economic Research (MIER) said it expected domestic product (GDP) to expand more rapidly than its earlier forecast of 3.7 percent.

Growth rate for Taiwan
Think tank raises Taiwan GDP growth forecast from 4.65 percent to 6.82 percent
TAIPEI, Taiwan -- The Polaris Research Institute said yesterday it has upgraded its forecast for Taiwan's gross domestic product (GDP) growth this year from 4.65 percent to 6.82 percent largely based on strong exports and a recovery in domestic consumption and investment.
The higher estimate also reflected a low comparison base in 2009 after Taiwan suffered the worst first quarter economic contraction in its history last year, at 9.06 percent.

Liang Kuo-yuan, president of the institute, said the island posted “better than expected” GDP growth of 13.27 percent in the past quarter on the back of strong global demand.

.

 

[kyanges]

@spartan I am busy yesterday I haven't get the chance to reply to your posting. Anyway what are you trying to say ? Premier Wen constantly worry about the state of Chinese economy?. If he does then I take it as a good sign.

No, he said exactly what he meant, which is that China's leaders aren't becoming complacent with their 30 years of growth. He's saying they're not being arrogant and just assuming that the growth will continue without their vigilant management of the economy. That's what he meant with his second sentence, "Not letting it get to their head".

 

[Spartan95]

@spartan I am busy yesterday I haven't get the chance to reply to your posting. Anyway what are you trying to say ?

My point was stated in the post with the news article, which is:

It is interesting to note that Premier Wen is now talking about structural problems when visiting workers and job hunters. Goes to show that China's leadership isn't letting their economic growth go to their head.

Premier Wen constantly worry about the state of Chinese economy?. If he does then I take it as a good sign.

Ever heard the expression" Only the paranoid survive"?

When premier Wen worry,he is more than likely to adjust Macro economic policy to alleviate whatever problem facing China.

That is the difference between China and India. Author Aiyar Palavi said it best

Please, Log in or Register to view URLs content!

So ultimately, despite political representation for the poor in India and the absence of political participation in China, the latter trumped India when it came to the delivery of basic public goods like roads, electricity, drains, water supplies and schools where teachers actually show up. This counterintuitive state of affairs was linked to the fact that while in China the CCP derived its legitimacy from delivering growth, in India a government derived its legitimacy simply from its having been voted in. Delivering on its promises was thus less important than the fact of having been elected.

The legitimacy of democracy in many ways absolved Indian governments from the necessity of performing. The CCP could afford no such luxury. As a result the Chinese government was more responsive to the socio-economic problems confronting it than it was often given credit for, bringing us back to another of the questions frequently posed to me: where was China headed in the new century

For those of you who day dreaming India as counter weight to China read this profound article

Please, Log in or Register to view URLs content!

Please, Log in or Register to view URLs content!

That is certainly an interesting take on the comparison between China and India.

However, CCP has committed themselves to 8% or more economic growth per year, but India doesn't have a set target for economic growth. Thus, whilst the CCP works hard to maintain economic growth at 8% or more, India does what it think it needs without a specific target to measure against. I would consider this a significant factor when comparing the 2 economies.

Also, China is ruled by 1 party without a need for horse-trading between different political parties, or the need to pander to certain demographics. The same cannot be said for India.

China also does not have the distraction of expensive elections every couple of years, or the need to worry about a political challenge by an opposition (since there is none). Thus, they can devote more attention to ensuring economic growth. This was clearly seen when Chinese leaders were calling on their counterparts in many countries whilst US was having their presidential elections.

-- EDIT --- (in reply to ASEAN's economic growth)

With regards to ASEAN's economic growth, my original post was to point out that ASEAN was affected by the global financial crisis in 2009.

Or are you of the view that ASEAN was not affected at all by the global financial crisis of 2009?

I am aware that ASEAN's growth is back on track. However, bear in mind that export growth numbers are lag indicators. The rebound in ASEAN's growth was in-line with:
(1) the coming into force of the China-ASEAN FTA on 1 Jan 2010; and
(2) the upsurge in exports to EU, US and China (which was also reflected in China's upsurge in exports from Jan-Apr).

Also, those exports was at a time when the outlook was quite rosy and before the impact of the PIIGS in EU were felt. The outlook now is different, with widespread concerns of a double-dip recession. Thus, whether ASEAN's exports can hold up for the rest of the year is now in question.

 

[Krabat1976]

You do realise that the EU is China's single largest trade partner? And that the US is China's 2nd largest trade partner?

What do you think will happen to China's export oriented economy when the 2 largest buyers of China's goods goes into recession?

China will be hurt for sure. It already happened last year: a anemic nominal GDP growth even with a massive economic stimulus in range of 30% of GDP. But that year export/GDP ratio in China collapsed (from 35-40% to 25% of GDP), so now China is less dependent on export. In any case i think that the ability of China to grow quickly even with export stalling is the big economic question of the future.
I think they succeed, but with a clear slowdow in growth rate, also because i think that western crisis will be more similar to japanese style: a very long stagnation without much contraction, so China export will stagnate instead of collapsing. Obviously those are only my speculation.

Time will tell.

 

[Maggern]

Well most economists I read were sure the Chinese economy would be in great jeopardy when the US and EU were down. What really happened was an average reduction in growth rate.