Status of Chinese People

About China and Chinese people's living condition

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    1. A China More Just, Gao Zhisheng
    2.Officially Sanctioned Crime in China, He Qinglian
    3.
    Will the Boat Sink the Water? Chen Guidi, Wu Chuntao
    4.
    Losing the New China, Ethan Gutmann
    5.
    Nine Commentaries on The Communist Party, the Epochtimes
  • Did you know

    Reporters Without Borders said in it’s 2005 special report titled “Xinhua: the world’s biggest propaganda agency”, that “Xinhua remains the voice of the sole party”, “particularly during the SARS epidemic, Xinhua has for last few months been putting out news reports embarrassing to the government, but they are designed to fool the international community, since they are not published in Chinese.”
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Archive for the ‘GDP’ Category

China’s economic data draw sharp scrutiny from experts analyzing global trends

Posted by Author on February 10, 2013


BEIJING — When China announced better-than-expected trade numbers last month, the statistics were met with outright suspicion from international powerhouses such as Goldman Sachs, Swiss financial firm UBS and Australian bank ANZ. The disbelieving scoffing only mounted days later, when the government unveiled numbers showing yet another positive trend — a narrowing income gap between China’s rich and poor.

Numbers in China have long faced suspicion, from optimistic recordings of visibly hazy air to the age of its Olympic gymnasts. But the credibility of its economic data is now coming under particular scrutiny, at a time when China’s growing global role weighs on investors, analysts and governments worldwide, even as the country’s economy is slowing after years of unbridled growth. Read the rest of this entry »

Posted in China, Economy, GDP, Social, World | Comments Off on China’s economic data draw sharp scrutiny from experts analyzing global trends

Chinese vice premier Called Data ‘Man-Made’ – Wikileaks

Posted by Author on December 6, 2010


By ANDREW BATSON, The Wall Street Journal, Dec. 6, 2010 –

BEIJING—A senior Chinese official said in 2007 that much of the country’s local economic data are unreliable, according to a leaked diplomatic cable published by the WikiLeaks website.

The official, Li Keqiang, was at the time Communist Party secretary of the northeastern province of Liaoning, and has since been promoted to vice premier. Since landing that position, he has overseen many of the central government’s efforts to improve the quality of its economic statistics, which continue to face many questions over their accuracy and consistency. Read the rest of this entry »

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China’s Rich Have $1.1 Trillion in Hidden Income, Study Finds

Posted by Author on August 16, 2010


By Bloomberg News – Aug 11, 2010 –

China’s households hide as much as 9.3 trillion yuan ($1.4 trillion) of income that is not reported in official figures, with 80 percent accrued by the wealthiest people, a study showed.

The money, much of it likely “illegal or quasi-illegal,” equates to about 30 percent of China’s gross domestic product, the study, conducted for Credit Suisse AG and published last week by the China Reform Foundation, found. The average urban disposable household income in China is 32,154 yuan, or 90 percent more than official figures, according to the report.

Most of that extra cash is going to the wealthiest families. The top 10 percent of China’s households take in 139,000 yuan a year, more than triple the official figures, according to the Credit Suisse report. In contrast, the bottom 10 percent earns 5,350 yuan, or 13 percent more. The top 20 percent of households account for 81.3 percent of total hidden income, according to the study, written by Wang Xiaolu of the Beijing-based foundation.

The findings indicate China’s wealth gap between rich and poor, already one of the world’s highest, is even wider than official figures show. Reducing income disparities is a top goal of President Hu Jintao and Premier Wen Jiabao, who want to stave off riots, strikes and other social unrest that might threaten the six-decade rule of the Communist Party.

The “grey income” comes from many sources, including gifts to officials at weddings, profits from land transfers, kickbacks from construction projects, and payoffs from state monopolies such as the tobacco industry, the study said.

‘Crony Capitalism’

“Once government power is united with capital, the free competition of the market economy begins to be replaced by a monopoly of crony capitalism, leading to disparity in income and property distribution, lower economic efficiency and acute social conflicts,” Wang wrote in his report’s conclusion.

The study, compiled in 2009, is based on interviews with families in more than 4,000 urban households in 64 cities and 19 provinces, and uses 2008 data. …...(more details from The Bloomberg)

Posted in China, corruption, Economy, GDP, income, Law, Life, News, Official, People, Social, World | Comments Off on China’s Rich Have $1.1 Trillion in Hidden Income, Study Finds

China’s stimulus spending created infrastructure projects– that may not be needed

Posted by Author on June 23, 2010


By Keith B. Richburg, Washington Post Staff Writer, Friday, June 18, 2010 –

BEIJING
— In late 2008, with the financial crisis rippling through the global economy, China’s leaders embarked on a two-year, $586 billion spending program to try to stave off a recession and keep the Chinese economy growing.

Unlike in the United States — where President Obama’s large stimulus plan became the subject of protracted congressional wrangling and was shaped to include tax cuts and aid to states — Chinese leaders followed a simple mandate: Spend and build.

Forget the tax cuts; in China, it was infrastructure, infrastructure and more infrastructure.

China was already awash in big-ticket construction projects. The stimulus allowed China to speed up some projects, begin digging on others and extend the building boom to less-developed areas in the country’s west and north. The result, 18 months after the stimulus was introduced, is an astonishing frenzy of building — highways, subways, airports, bridges, high-speed rail lines and even new cities constructed, literally, in the middle of nowhere.

China is building tens of thousands of miles of expressways at a pace unseen since the U.S. interstate boom in the 1950s, and it is on track to pass the United States in total highways in the next decade. Among other infrastructure projects — which now amount to 15 percent of China’s gross domestic product — are nearly 100 new airports, some serving isolated cities few outsiders have heard of, and dozens of subways.

“They basically got started about three months earlier than we did, and it was bigger,” said Nicholas R. Lardy, an expert on the Chinese economy with the Peterson Institute for International Economics.

Now a year and a half into the spending spree, and with the stimulus set to end in just six months, many economists and others here are asking pointed questions: Does China really need all this infrastructure? And what’s going to happen when the bills come due?

“In China, we have an old saying: ‘If it’s medicine, it will have some poison inside,’ ” said Guo Tianyong, director of research for the Central University of Finance and Economics. “So the stimulus must have some bad effects.”

“You see little counties building airports — how many people will fly there?” Guo said. “Small cities — why do they need a subway? Maybe there’s no market for all this infrastructure.”

Several economists said it was difficult to determine the worth of all the spending because there is no official, centralized list of projects — making it difficult to untangle whether projects are funded from stimulus loans, from local governments floating bonds or from some combination of the two.

“It’s a black box financed by black laws,” said Xu Xiaonian, an economics professor with the China Europe International Business School. “There’s not enough information to make any sensible judgment.”

But enough is known for economists to point to a crucial difference between the Chinese and American stimulus plans.

In the United States, the $787 billion stimulus was financed by the federal government running large deficits. In China — where the size of the stimulus as a percentage of the economy is several times that of the U.S. package — most of the spending came from the country’s state-run banks making loans to local government entities. The provincial and municipal governments are largely restricted from borrowing money, so most set up quasi-independent “investment companies” that took out huge loans to build subways, airports and office towers…….(more details from The Washington Post)

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Foxconn symbolizes China economy’s wider structural problems and industrial unrest (2)

Posted by Author on June 2, 2010


By Craig Stephen, The Market Watch, May 31, 2010 –

<< Previous

(China’s wider problems)

While Shenzhen was set up as China’s first Special Economic Zone thirty years ago, media reports describe Foxconn’s operations there as operating something like an independent kingdom with officialdom rarely regulating it. Given that the company reportedly provides more than 10 billion yuan ($1.46 billion) in taxes annually to the city’s coffers, it’s understandable if there is a hands-off approach.

Arguably Foxconn symbolizes wider structural problems in China’s economy: It’s unbalanced and overly focused on exports and investment spending, and lacks domestic-led consumption.

At the root of weak consumption is low wages. According to a survey released by the All China Federation of Trade Unionists (ACFTU) last week, almost one-quarter of Chinese employees had not seen a salary rise in the past five years. The workers at Foxconn got a base monthly salary of 950 yuan, which is in line with the minimum wage set by Guangdong government — although a 20% pay rise was announced on Friday.

The low level of wages is also borne out by looking at the make-up of China’s gross domestic product, where the share of company profits is rising and wages shrinking.

According to the ACFTU the proportion of China’s GDP that goes towards wages and salaries has continued to shrink since 1983, having dropped from 65.5% in 1983 to 36.7% in 2005. Meanwhile the proportion of returns on capital in GDP had risen by 20% in the 27 years through 2005.

This may be good news for equity investors in the short run, but it hardly looks like a sustainable model of development.

The Foxconn controversy also came in a week when workers in Honda’s (HMC 30.40, +0.36, +1.21%) (JP:7267 2,764, -6.00, -0.22%) four mainland factories were shut after parts makers went on strike seeking a pay rise, paralyzing the Japanese auto maker’s production.

The risk is that Foxconn is just the tip of the iceberg, and China could be entering a new phase of industrial unrest. Other imbalances in China’s economy, such as feel-bad rising prices of food and housing, are exacerbating tensions.

We should acknowledge not all factories are bad stories. Huawei, China’s largest telecom equipment vendor, is also based in Shenzhen, and is held up as model operator with its impressive, campus-like facilities. Making modern telecom equipment is more sophisticated than assembling mobile phones, of course.

The mainland authorities, manufacturing companies and international brands face a difficult challenge to quell labor unrest and better share the spoils of China’s growth.

Dealing with the cause — better pay and conditions — looks to be a better start than simply asking workers not to jump. (END)

The Market Watch

Related:
Foxconn symbolizes China economy’s wider structural problems and industrial unrest (1)

Posted in Business, China, Commentary, Company, Economy, GDP, Investment, News, Opinion, Politics, products, Social, Trade, World | 1 Comment »

Foxconn symbolizes China economy’s wider structural problems and industrial unrest (1)

Posted by Author on June 2, 2010


By Craig Stephen, The Market Watch, May 31, 2010 –

HONG KONG (MarketWatch)When employees are asked to sign a pledge not to kill themselves (later retracted) and safety nets outside dormitories are erected to prevent suicide jumpers, something is badly wrong.

And this is not a Second World War concentration camp we’re talking about — rather, it’s a factory making some of the coolest brand-name gadgets in the twenty-first century.

The spate of suicides at Foxconn’s  (HK:2038 5.77, -0.08, -1.37%) mammoth industrial complex in Shenzhen, China has everyone looking to attribute blame, from the Taiwanese owner Hon Hai Precision Industry (HNHPF 8.39, -0.11, -1.26%) to the global brands such as Dell (DELL 13.11, +0.02, +0.15%) , Apple (AAPL 261.80, +0.97, +0.37%) and Nokia (NOK 10.10, +0.08, +0.80%) , which outsource their assembly there.

There is plenty of shame to go round. All have gone along with China’s economic model proscribed by the one-party state and the apparent productivity miracle. Economists generally like to describe the unbalanced growth or structural imbalances in China’s economy. Could it be much worse, and is the world’s factory workshop rotten at its core?

When I first visited Shenzhen a good sixteen years ago it was grey and drab with a few cars on the streets. Begging children clamped themselves to my legs to stop me walking.

Today, its population has soared to 17 million and its downtown roads are packed with cars and sport utility vehicles, while its hotels and shopping malls can match anything in Hong Kong.

But if you are a migrant factory worker living in a cramped dormitory, you are likely to have missed this progress. Migrants are locked out from enjoying health, education and housing benefits available to Shenzhen residents.

Foxconn stands out as the largest factory complex, with over 300,000 living and working in a city within a city. I doubt Mercer ranked this destination on its global quality of life index.

China’s wider problems

The dozen worker suicides this year have become a public relations nightmare not just for Foxconn and its clients, but also for the mainland government which sets the rules. Beijing would much rather see the spectacle of its glitzy Shanghai expo in the headlines instead of the international media focusing on the ugly underbelly of its economy.

When former Paramount leader Deng Xiaoping opened up socialist China to capitalism, he tried to juggle the contradictions with a new path, famously saying, “Poverty is not socialism. To be rich is glorious.” He also added: “Let some people get rich first.”

Eighteen years after Deng’s famous South China inspection tour, if he were alive today, he would surely recognize something has gone wrong. (to be cont’d)

Marketwatch.com

Posted in Business, China, Commentary, Company, Economy, GDP, Investment, News, Opinion, Politics, products, Trade, World | 1 Comment »

China “is a bubble waiting to burst”, Rickards Says

Posted by Author on March 18, 2010


By Bei Hu, Bloomberg via Business Week, Mar. 17, 2010-

March 17 (Bloomberg) — China is in the midst of “the greatest bubble in history,” said James Rickards, former general counsel of hedge fund Long-Term Capital Management LP.

The Chinese central bank’s balance sheet resembles that of a hedge fund buying dollars and short-selling the yuan, said Rickards, now the senior managing director for market intelligence at McLean, Virginia-based consulting firm Omnis Inc.

“As I see it, it is the greatest bubble in history with the most massive misallocation of wealth,” Rickards said at the Asset Allocation Summit Asia 2010 organized by Terrapinn Pte in Hong Kong yesterday. China “is a bubble waiting to burst.”

Rickards joins hedge fund manager Jim Chanos, Gloom, Boom & Doom publisher Marc Faber and Harvard University professor Kenneth Rogoff in warning of a potential crash in China’s economy. The government has raised banks’ reserve requirements twice this year after economic growth accelerated and property prices rallied.

China has pegged the yuan to the dollar since July 2008 to help exporters weather the global recession. The central bank buys dollars and sells its own currency to prevent the yuan strengthening, driving foreign-exchange reserves to a world- record $2.4 trillion as of December.

The Shanghai Composite Index of stocks jumped 80 percent last year and property prices rose at the fastest pace in almost two years in February, helped by a record 9.59 trillion yuan ($1.4 trillion) of new loans in 2009.

‘Massive Stimulus’

The World Bank indicated today that China should raise interest rates to help contain the risk of a property bubble and allow a stronger yuan to help damp inflation expectations. The nation’s “massive monetary stimulus” risks triggering large asset-price increases, a housing bubble, and bad debts from the financing of local-government projects, Washington-based World Bank said in a quarterly report on China released in Beijing……. (more from BusinessWeek)

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China’s economic will plunge following a collapse within 10 years, says Harvard Professor Kenneth Rogoff

Posted by Author on February 25, 2010


Feb. 24 (Bloomberg) — China’s economic growth will plunge to as low as 2 percent following the collapse of a “debt- fueled bubble” within 10 years, sparking a regional recession, according to Harvard University Professor Kenneth Rogoff.

“You’re not going to go a decade without having a bump in the business cycle,” Rogoff, former chief economist at the International Monetary Fund, said in an interview in Tokyo yesterday. “We would learn just how important China is when that happens. It would cause a recession everywhere surrounding” the country, including Japan and South Korea, and be “horrible” for Latin American commodity exporters, he said.

China, set to surpass Japan as the second-largest economy this year, has helped pull the world out of its deepest postwar slump. Record lending, soaring property values and accelerating economic growth prompted the government to begin retracting stimulus measures implemented during the global recession.

“Their response to the latest financial crisis clearly raised the risk that they have a debt-fueled bubble in the economy,” said Rogoff, who in 2008 predicted the failure of big American banks.

In 2008, China cut interest rates, started rolling out a 4 trillion yuan ($586 billion) spending package and scrapped quotas limiting lending by banks to counter slumping exports.

‘Best Bet’

While Rogoff said he isn’t sure what will cause China’s bubble to pop, he said land is “the best bet” as it is “the most common source” of crises. Real estate values in Shanghai and Beijing have “taken a departure from reality,” said the economist, co-author of “This Time is Different,” a 2009 book that charts the history of financial calamities in 66 countries.

A collapse would depress output gains to 2 to 3 percent, a “very painful” period which would persist for about a year and a half, Rogoff said. The slowdown won’t lead to a Japan- like “lost decade,” he added. In a speech earlier yesterday, he said China will do “very well this century.” …… (more detals from Bloomberg)

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10 China Myths for the New Decade- Myth #10: Conclusion

Posted by Author on February 10, 2010


Derek Scissors, Ph.D., Research Fellow in Asia Economic Policy in the Asian Studies Center at The Heritage Foundation, via http://www.heritage.org, January 28, 2010 –

<< Previous

What the U.S. Should Do

* The foundation of the American economy is more conducive to sustained growth than is the foundation of the Chinese economy. To maintain U.S. international leadership, policy must focus on fundamental human, natural, and technological advantages, not supposed benefits of government intervention.[23]
* The Obama Administration has dramatically failed to adopt clear, comprehensive, and open bilateral and multilateral trade policies. These are the best way to help the U.S. economy and secure American influence, especially influence over China.
* Negotiations for market-oriented reform will be extremely difficult with present Chinese leadership. Such negotiations should not focus principally on the exchange rate, which is a secondary concern. The most pressing matter at the moment is cutting into growing Chinese overcapacity.
* Chinese bond purchases are forced by Beijing’s own system and now almost irrelevant to U.S. interest rates. The level of bond purchases should not restrict American policy choices in the slightest.
* Without enforced limits on Chinese emissions, costly American action to limit greenhouse-gas emission will accomplish nothing. To the extent that a policy response to climate change is desirable, Chinese emissions are by a large margin the first priority.

Conclusion

Myths concerning China encourage bad U.S. policy. Exaggerating Chinese prowess and focusing on secondary issues leads to mistakes in general American economic and foreign policy and an incoherent strategy with respect to the PRC. A better-informed view is only the first step in meeting the real challenges, but it is a necessary first step. (END)

Original from The Heritage Foundation

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10 China Myths for the New Decade- Myth #10: carbon emissions

Posted by Author on February 8, 2010


Derek Scissors, Ph.D., Research Fellow in Asia Economic Policy in the Asian Studies Center at The Heritage Foundation, via http://www.heritage.org, January 28, 2010 –

<< Previous

Myth #10: China has an official program to substantially cut its carbon emissions.

Truth: The goal is to cut carbon emissions intensity. Actual emissions will soar in the next decade.

China has not vowed to cut emissions but rather emissions intensity, in this case measured in emissions per unit of GDP. That is, the commitment is to reduce emissions only relative to the size of the economy; if China’s economy continues to grow, so will total emissions. And GDP comes in multiple flavors, with different kinds of inflation adjustments plus adjustments for the currency being used. This leaves a great deal of room to maneuver.

China’s 2005 carbon dioxide emissions, for instance, were approximately 5.43 billion tons, or approximately 2.95 tons of carbon dioxide for every 10,000 yuan of GDP.[22] The pledge is to cut carbon emissions intensity by 40 percent to 45 percent from the 2005 level, which would put emissions intensity near 1.75 tons carbon dioxide per 10,000 yuan of GDP.

From 2000 to 2009, simple GDP in yuan increased about 3.7 times. If that rate of nominal growth continues for the next decade, simple GDP will approach 135 trillion yuan in 2019. Using the target emissions intensity, carbon emissions in 2019 would more than quadruple over 2005, past 23 billion tons.

This is a numerical worst case and it is far more likely that China’s pledge refers to some adjusted version, not simple GDP. But which adjustment?

The difference between the arithmetic change of GDP from year to year and real GDP growth is called the deflator. It is all but impossible to make sense of China’s GDP deflator over time. With 10 years to play with, the Communist Party can announce whatever adjusted GDP it wants. Carbon dioxide emissions are unlikely to quadruple, but they very possibly will double, and Beijing will still be able to claim success in its intensity program.

Amid all the uncertainty, the best bet for the next decade is that the PRC rejects international estimates of its emissions the way it rejects international monitoring now. Beijing will substitute its own measurements, which will have some familiar magical properties. (to be cont’d)

Original from The Heritage Foundation

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10 China Myths for the New Decade- Myth #9: greenhouse gas emissions

Posted by Author on February 7, 2010


Derek Scissors, Ph.D., Research Fellow in Asia Economic Policy in the Asian Studies Center at The Heritage Foundation, via http://www.heritage.org, January 28, 2010 –

<< Previous

Myth #9: China’s greenhouse gas emissions are about the same as America’s.

Truth: China’s emissions are as much as 25 percent larger, and the gap is widening every day.

The effort to limit greenhouse-gas emissions is not usually thought of as a topic when discussing the Chinese economy, but it should be. By itself, the PRC is set to generate the majority of the world’s carbon emissions over the next decade.[20] In contrast, China’s population will fall below 20 percent of the world total. The emissions story is about China’s development model, not size.

In 2006, most monitoring agencies put American and Chinese emissions at roughly equal levels. Three years, however, is a great deal in Chinese industry time. A very conservative estimate puts Chinese emissions growing by 10 percent more than America’s in 2007 and the first half of 2008, before the financial shock hit.

In the nearly 18 months since, the PRC’s extremely aggressive stimulus and orientation toward heavy industry almost surely mean its emissions growthhas remained rapid. Coal production is still expanding between 12 percent and 13 percent annually. The industries most cited by the central government as overinvested and expanding too fast– steel, cement, and aluminum–are major greenhouse-gas emitters.[21] As a result, it is entirely possible that 2009 Chinese emissions were 25 percent larger than U.S. emissions.

All the unanswered questions about Chinese economic data apply to the environment as well. Chinese GDP is likely underestimated; so is energy use and pollution. Government monitoring is skewed by limited funding and political motives. There have been repeated failures to keep unsafe coal mines and outdated steel plants closed, and their output is often ignored because they should have been shut down. The true quantity of Chinese greenhouse emissions is uncertain. (to be cont’d)

Original from The Heritage Foundation

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10 China Myths for the New Decade- Myth #8: domestic consumption

Posted by Author on February 6, 2010


Derek Scissors, Ph.D., Research Fellow in Asia Economic Policy in the Asian Studies Center at The Heritage Foundation, via http://www.heritage.org, January 28, 2010 –

<< Previous

Myth #8: China is rebalancing toward more domestic consumption.

Truth: The dominance of investment over consumption in driving China’s economy is intensifying.

The PRC’s official trade surplus fell by $100 billion in 2009. The U.S. reports the bilateral trade deficit will also decline for 2009, though by a smaller proportion.[17] This will be hailed, correctly, as a welcome event and, incorrectly, as a sign that the Chinese economy is changing.

The trade surplus shrank because Chinese exports fell faster than imports. In other words, Chinese demand for foreign goods weakened, but global demand for Chinese goods weakened more. The major change occurred outside the PRC, as global demand faltered. In fact, Chinese market share is rising and China has passed or will soon pass Germany as the world’s top exporter.[18]

Inside the PRC, strong Chinese consumption has received much praise. Some is deserved: Chinese consumption has held up better than the rest of the world’s. Still, there are multiple reasons to dismiss this as a meaningful change.

Chinese consumption before the global crisisalso looked robust. But from 2003 to 2007–when the expansion induced under General SecretaryHu Jintao took place– consumption fell as a proportion of GDP every year. This is because investment was much larger and grew far faster in those easy times.

This is still the case in the tough times of 2008 and 2009: The role of consumption keeps diminishing compared to investment. Over the course of the last decade, nominal fixed investment expanded by a factor of 12. By 2009, fixed investment was close to twice as large as retail sales by volume, and still growing almost twice as fast.[19] By itself, fixed investment stood at no less than 67 percent of GDP last year and is still rising.

The view ahead is no more encouraging. It is widely hoped that internal Chinese demand will eventually drive imports higher. But demand has been as strong as could be reasonably hoped for throughout the crisis, and imports have dropped noticeably. Imports are tied tightly to exports via the PRC’s role as an assembly center in global manufacturing.

Worse, the extreme growth of investment during the financial crisis has added to the problem of oversupply. As total global demand has weakened, Chinese production capacity, driven by investment, has (perversely) expanded. That excess capacity will create even greater pressure to export in 2010 and beyond. (to be con’t)

Original from The Heritage Foundation

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10 China Myths for the New Decade- Myth #7: economy reform

Posted by Author on February 5, 2010


Derek Scissors, Ph.D., Research Fellow in Asia Economic Policy in the Asian Studies Center at The Heritage Foundation, via http://www.heritage.org, January 28, 2010 –

<< Previous

Myth #7: China continues to reform its economy, with perhaps an understandable pause due to the financial crisis.

Truth: China’s market reform slowed sharply in 2002 and effectively stopped in 2005.

The 1980s saw path-breaking market reform in the PRC. The 1990s saw a mix of reform and, after the Asian financial crisis, greater state intervention. The 2000s saw early implementation of World Trade Organization concessions pushed aside by a dominant state. In prices, privatization, and even foreign investment, China was heading away from the market long before Lehman Brothers collapsed.[14]

Privatization of the corporate sector was first stalled, and then explicitly reversed by the Chinese government. All national corporations in sectors that make up the core of the economy are required by law to be state-controlled.[15] Their executives are routinely shuttled back and forth by the Communist Party to government positions.

The state exercises control over most of the rest of the economy through the financial system. It owns all large financial institutions, which lend according to state priorities, topped by favoritism for large state enterprises.

The People’s Bank sets very narrow ranges for the price of both domestic money (the interest rate) and foreign money (the exchange rate). Liberalization of the price of goods has been stalled by constant state intervention in the areas of food, health care, and energy.

The end result is that competition has been warped into a largely political battle among sibling state firms. For oil and petrochemicals, gas, coal, power, telecom, and tobacco industries combined, there are a total of 17 firms operating nationally, all state-owned. Consolidation is being pushed by the state from aviation to retail, reducing competition and further concentrating assets in the hands of the state.[16]

Inward foreign investment has seen increasing restriction. For example, the anti-monopoly law explicitly excludes the state giants and appears to apply only to foreign companies, while being touted as “reform.” Against that, domestic investment on non-market terms is pushed by the state ever higher.(to be cont’d)

Original from The Heritage Foundation

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10 China Myths for the New Decade- Myth #6: controlled exchange rate

Posted by Author on February 4, 2010


Derek Scissors, Ph.D., Research Fellow in Asia Economic Policy in the Asian Studies Center at The Heritage Foundation, via http://www.heritage.org, January 28, 2010 –

<< Previous

Myth #6: China’s controlled exchange rate is a central factor in the global economy.

Truth: The controlled exchange rate is merely one symptom of a larger problem.

Exchange rates matter. They are the price of one currency in terms of another and, like the price of anything, when exchange rates change, supply and demand changes. In this case, the supply and demand are exports and imports.

There are many times, however, when exchange rates do not matter that much. An example is the yuan and the dollar. From July 2005 to June 2008, the yuan rose 20 percent in value against the dollar. Yet China’s annualized trade surplus with the U.S. still increased in size by nearly 50 percent.[12] This is because the effect of the exchange rate appreciation was overwhelmed by other factors on both the American and Chinese side.

On the American side, the federal government, including the Federal Reserve, effectively boosted U.S. demand for Chinese goods. The historically low interest rates and unjustifiable budget deficits involved were far more harmful to the American economy than the undervalued yuan.

The forces at work on the Chinese side affect all their trade partners, not just the U.S. The impact of the artificially undervalued yuan is easily outweighed by other, pervasive state intervention in the economy. On behalf of state firms, China blocks competition through regulation, gives away land, offers effectively free capital in the form of bank loans, and subsidizes energy prices.[13] State firms lag in exports as compared to non-state firms but their exports might disappear entirely without government assistance.

More pointedly, state firms are made exceptionally competitive against foreign imports because so many of their costs are channeled away by central and local governments. This protection on behalf of state enterprises utterly dwarfs the recent unfortunate duties imposed by the U.S. on Chinese steel and other products.

In general, the transfer of resources to state firms via various subsidies suppresses Chinese consumption, in particular Chinese consumption of foreign goods. A more valuable yuan would be entirely outmatched by this phenomenon.(to be cont’d)

Original from The Heritage Foundation

Posted in China, Economy, GDP, Investment, News, Opinion, Trade, World | 1 Comment »

10 China Myths for the New Decade- Myth #5: U.S. and China

Posted by Author on February 3, 2010


Derek Scissors, Ph.D., Research Fellow in Asia Economic Policy in the Asian Studies Center at The Heritage Foundation, via http://www.heritage.org, January 28, 2010 –

<< Previous

Myth #5: The U.S. and China are intensely interdependent–“Chimerica” has emerged.

Truth: China depends far more heavily on the U.S. than the U.S. depends on China.

China’s reliance on the U.S. is real, but takes a somewhat different form than commonly believed. It is true that China exports a great deal to the U.S. In 2008, American demand accounted for 7.4 percent of Chinese GDP.[10]

That number has been falling, however, and will fall again for 2009. In terms of GDP, the PRC has substituted domestic investment for exports since 1998 and more substantially since global demand peaked in 2006.

The fundamental Chinese dependence is on the American-built and American-led international economic system. Because it invests so much, China produces far more than it consumes across a wide range of sectors. It has done so since the Asian financial crisis of 1997.[11]

Without an export outlet, constant oversupply would generate crushing deflation and cripple genuine Chinese growth. Open global trade fomented by the U.S. enables China’s investment-led model to work, while serious American protectionism would ultimately make that model unviable.

The same is true in finance. Without the U.S. dollar as the world’s reserve currency and the American bond market as safe haven, China’s exchange rate and balance of payments regime could not function. The PRC gains considerably from the American consumer, but relies utterly on the American-led system.

On the American side, China is the cheapest supplier of many consumer goods, but other low-cost suppliers–such as Vietnam–could emerge to replace it and would be happy to do so. Without China, consumer prices in the U.S. would be higher, but not much.

The notion that the U.S. needs China to finance its budget deficit is flawed in a number of ways. One is logical: The deficit is much too large, so Chinese financing merely makes it easier for the U.S. to perpetuate bad policy. The other is factual: Chinese bond purchases do not seem to be affecting American interest rates.

This leaves China effectively relying on the U.S. to keep its very development model viable, and the U.S. collaborating with China as a matter of convenience.(to be cont’d)

Original from The Heritage Foundation

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10 China Myths for the New Decade- Myth #4: China’s financial influence

Posted by Author on February 2, 2010


Derek Scissors, Ph.D., Research Fellow in Asia Economic Policy in the Asian Studies Center at The Heritage Foundation, via http://www.heritage.org, January 28, 2010 –

<< Previous

Myth #4: China is America’s banker.

Truth: If there was ever any Chinese financial influence, it is not there now.

The U.S. federal government is running, and is expected to continue running, a gigantic budget deficit, which will hurt the economy for the next decade. China buys some of the bonds to finance that deficit and has about $800 billion in official holdings of U.S. treasuries, plus perhaps that much in other types of holdings.

Even so, the conventional wisdom–that America needs Chinese financing to continue its wild spending–turns out to be wrong. Partly because of the damaging jump in the size of the deficit, Chinese bond purchases have become irrelevant.

Official Chinese purchases of U.S. Treasury bonds are on pace to fall well below $100 billion for 2009 (the full-year total is published in February), while the federal government deficit soared to $1.4 trillion. Yet U.S. commercial interest rates are lower than at the end of 2008, when official Chinese purchases were equivalent in size to nearly half the federal deficit.[7] Official Chinese holdings of treasuries equal less than 7 percent of U.S. government debt.[8] Chinese bond purchases no longer seem to matter, if they ever did.

In addition, when Chinese purchases were large, it was because Beijing had no choice but to buy American bonds. The PRC can take in a great deal of money from the world through its trade surplus and other activities. The same rules that keep the Chinese currency undervalued keep Beijing from spending the world’s money at home. Most foreign money disbursed in China ends up right back with the central government, by law.[9]

That can leave the PRC sitting on a huge pile of dollars and the U.S. economy as the only place big and solid enough to absorb it back. China has not been lending; they have been investing the only way they can.

Finally, the bulk of China’s pile of foreign money can be traced back to the Sino-American trade gap. On exactly the same lines, the PRC ties its currency to the dollar. Linking itself closely to the American economy that way is also the PRC’s best choice. In contrast, any American financial dependence on China has almost vanished.(to be cont’d)

Original from The Heritage Foundation

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10 China Myths for the New Decade- Myth #3: China’s economy

Posted by Author on February 1, 2010


Derek Scissors, Ph.D., Research Fellow in Asia Economic Policy in the Asian Studies Center at The Heritage Foundation, via http://www.heritage.org, January 28, 2010 –

<< Previous

Myth #3: China will surpass Japan as the world’s second-largest economy in 2010.

Truth: China probably surpassed Japan several years ago.

As soon as February, the media could report that China has finally surpassed Japan. If not in February, then certainly over the course of 2010.

Every discussion of the Chinese economy, including this one, should be taken with a truck’s worth of salt. The officially stated unemployment rate is acknowledged to have little to do with true unemployment, announced sales volumes include millions of items never sold, and much announced foreign direct investment (FDI) is not foreign. The central government does not agree with the provinces and the provinces do not agree with their counties concerning GDP, FDI, and many other indicators.[5]

Evidence for many economic statements is weak; but what there is suggests the PRC surpassed Japan several years ago.

In 2004, China conducted a nationwide census and discovered its economy was almost 17 percent larger than previously stated. The service sector was found to be larger than previously thought, as was also the case in the 1993 census. In fact, the 2004 census discovered an even larger gap than found in 1993. At the end of 2009, China revised its 2008 GDP upward by 4.5 percent, again citing a larger service sector, and indicated GDP growth from earlier in 2009 would also be revised upward.[6]

There is little reason to believe the PRC has its numbers right now. More likely, it is still undercounting–services are especially hard to measure due to pervasive state activity that elevates some economic exchange and drives some into the shadows. A proper census would show that China’s economy has been larger than announced at the time for every single year in the reform period. That suggests the PRC passed Japan no later than 2007.

Finally, using a concept known as purchasing power parity, which tries to even out price differences in different economies, China passed Japan inthe 1990s. As media headlines reflect, China has been number two for a while.(to be cont’d)

Original from The Heritage Foundation

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10 China Myths for the New Decade- Myth #2: China could surpass the U.S. ?

Posted by Author on January 31, 2010


Derek Scissors, Ph.D., Research Fellow in Asia Economic Policy in the Asian Studies Center at The Heritage Foundation, via http://www.heritage.org, January 28, 2010 –

<< Previous

Myth #2: China could surpass the U.S. as the largest economy in 10 years.

Truth: There is a reasonable chance that China will never surpass the U.S.

One element in this forecast is the last 30 years of reported Chinese growth, the second is the last three years of American growth. The second element is far more important: If American growth remains at the 2007-2009 level, GDP rankings will hardly matter. The U.S. must focus first, second, and third on fixing its own policies–deeply cutting the budget deficit, steadying interest rates, expanding trade, and reducing government regulation, especially taxes.

If the U.S. takes these actions, China may not pass the U.S. at all, much less in the next 10 or 15 years. It is a fundamental mistake to graft the previous 30-year trend onto the next 30. The China of 1949 to 1978 looked nothing like the China of 1979 to 2009, and there are powerful reasons to believe that 2010 to 2040 will be very different again.

The most important and most certain aspect is an aging Chinese population. The last 30 years were characterized by demographic expansion very favorable to growth in the PRC. The next 30 will be generally characterized by demographics unfavorable to growth. The transition from growth-conducive to growth-hostile demographics will begin about the middle of this decade and continue indefinitely.

In 1985, 15-year-olds to 29-year-olds made up 47 percent of the working-age population in China. In 2030, they will make up only 26 percent. By 2035, a daunting 280 million people are projected to be 65 or older. Far fewer people will be working to support far more retirees.

The previous economic challenger to the U.S., Japan, has faced the same problem. Over the past 15 years, the Japanese economy has not grown at all. Over the next 15 years and beyond, China’s population structure will become more and more similar to Japan’s today.

Before Japan’s economic ascent, the Soviet Union was thought to challenge American economic supremacy. An unsustainable emphasis on heavy industry contributed greatly to the Soviet collapse. Among other things, it led to horrific pollution and a decline in life expectancy, where life expectancy is strongly correlated with wealth.

China has the same emphasis on heavy industry and grave pollution problems. The PRC suppresses research into the effect of pollution on life expectancy, but reported birth defects have been rising for at least the past 10 years, including in wealthy provinces. (to be cont’d)

Original from The Heritage Foundation

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10 China Myths for the New Decade- Myth #1: growth

Posted by Author on January 30, 2010


Derek Scissors, Ph.D., Research Fellow in Asia Economic Policy in the Asian Studies Center at The Heritage Foundation, via http://www.heritage.org, January 28, 2010 –

<< Previous

Myth #1: China is now the leading engine for global growth.

Truth: China detracts from the rest of the world’s growth in gross domestic product (GDP).

The standard procedure employed by those convinced of Chinese economic leadershipis to take every country’s GDP growth, add it all up, and check which economy contributed most to the global pile.[1] But that is not the way GDP works.

If a country successfully dictates trade terms and extracts a great deal of wealth from its partners, its GDP would grow very quickly while that of its partners would shrink or grow much more slowly. It would then seem this country is leading global growth higher while it is actually enriching itself at the rest of the world’s expense.

Behind this confusion is that GDP includes trade. A trade surplus adds to GDP and a trade deficit takes away from it. China runs the largest trade surplus in the world, which means the rest of the world runs a large trade deficit with the PRC.

From this perspective, China is not adding anything to global GDP growth. Using trade, China adds the most to its own GDP and takes away the most from the rest of the globe’s.

The distinction is between performance and welfare. China is outperforming the world but it is not contributing to global GDP. Just the opposite: Some of its gains are mirrored in offsetting GDP losses in the rest of the world.

China has contributed a great deal to the world economy. Competition is the life-blood of long-term growth, and competition from Chinese goods has arguably been the largest contributor to competition in the global economy over the past decade. In terms of policy, Chinese production kept consumer prices down worldwide, helping to keep inflation low despite high levels of government stimulus around the world.

The financial crisis has changed this. Previously, Chinese supply was helping to meet strong global demand. Now, Chinese supply is threatening to overwhelm weak global demand. Rather than leading, China is using the world to boost itself higher.

It need not be so. The PRC could encourage the development of its domestic economy for the sake of its own people. This would increase demand for goods produced in the rest of the world. Then, and only then, China might be an engine for the global economy.(to be cont’d)

Original from The Heritage Foundation

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10 China Myths for the New Decade – Abstract

Posted by Author on January 30, 2010


Derek Scissors, Ph.D., Research Fellow in Asia Economic Policy in the Asian Studies Center at The Heritage Foundation, via http://www.heritage.org, January 28, 2010 –

Abstract: China’s economic growth has been accompanied by growing misinformation about its economy. Contrary to conventional wisdom, China is not leading the world out of a recession, is no longer moving toward a market economy, is not America’s banker, and may never surpass the U.S. Heritage Foundation Asia expert Derek Scissors debunks 10 leading myths about the Chinese economy and replaces them with the accurate picture necessary to guide American policy.

The Chinese economy may still be growing rapidly despite the financial crisis. One thing that has been growing even faster is misinformation about the Chinese economy.

This is partly a function of unreliable economic numbers put out by China’s government, but it is also partly a function of mistaken American and other perceptions. Hidden within the sweeping pronouncements of “China’s decade” and “China’s century” are important, specific points–some of which turn out to be demonstrably wrong.

The foundation of good policy is good information. If the U.S. is to respond wisely to the rise of the People’s Republic of China (PRC), the actual speed and nature of that rise must be correctly understood. Exaggerating Chinese prowess and emphasizing the wrong issues leads to general mistakes in U.S. economic and foreign policy, and to an incoherent China strategy.

It turns out that China is not leading the world out of recession, is not nipping at America’s economic heels, is not America’s banker, is not becoming more consumption-driven, and is not controlling its carbon emissions. Instead, Chinese growth for the moment comes at the expense of global growth, the U.S. has stronger long-term economic fundamentals than China, Chinese bond purchases appear unimportant, China is more investment-dependent than ever, and is by far the world’s largest greenhouse emitter.

The American position is thus considerably stronger relative to China than commonly believed. However, it is also the case that the policy challenges, such as inducing genuine economic reform in the PRC, are more daunting. It will be more difficult for the U.S. to avoid the pitfalls of superficial changes, such as in exchange rates and carbon intensities, to make progress toward a Chinese economy that genuinely does boost world growth.(to be cont’d)

Original from The Heritage Foundation

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China’s Economy: Something Is Not Right in Beijing (1)

Posted by Author on January 25, 2010


by Derek Scissors, Ph.D., The Heritage Foundation, Jan 25, 2010-

Consider two countries. The first country reported:

  • Annual GDP growth of 9.6 percent, then 8.7 percent;
  • Consumption expanding at better than a 16 percent inflation-adjusted rate over those two years; and
  • Unemployment stable at a very low level.

The second country reported:

  • Job losses of at least 20 million over just a few months;
  • A stimulus equivalent to 13 percent of GDP, led by local governments despite severe local debt problems; and
  • Deflation comparable to the worst of Japanese deflation.

Both of these countries, of course, are China in 2009.

Consider two more countries, where this time their identities are trickier to discern: The first country reported strong real GDP growth of 9.6 percent yet responded the following year by expanding lending in a state-directed banking system by a wild 32 percent. The second reported solid real GDP growth of 7.6 percent and responded the following year by expanding lending in a state-directed banking system by a subdued 6 percent.

The first country is China in 2008-2009; the second is China in 1999-2000.

China’s State Statistical Bureau (SSB) claims that everything from GDP to consumption to employment is humming along. If its economic statistics are accurate, Chinese policy is then incomprehensible–even by the PRC’s own standards of less than a decade ago. Because there are so many flaws in the numbers, it is certainly plausible that they have been falsified while Beijing’s policy choices have been largely correct.

The other possibility, though, is that the economy really has been doing fairly well. In this case, however, hyper-stimulative policy is a travesty. The State Council has demanded frantic bank lending that has generated far too much liquidity, a stunning increase in commercial property sales, and an even more unbalanced economy. The American version of this policy ended badly and the Chinese version will as well, whatever official data say……. (to be cont’d)

The Heritage Foundation

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The China Bubble (4)

Posted by Author on December 28, 2009


Gady Epstein, Forbes Magazine, dated December 28, 2009-

Assuming China’s reckoning does arrive some day, it’s impossible to say whether it might presage Japan-style deflation, Russian-style hyperinflation or American-style stagnation. For now, private, semiprivate and state-owned enterprises are getting creative to keep the boom alive. Some cash-starved local governments are believed to be asking companies to prepay 2010 corporate taxes to meet this year’s budgets. It’s the kind of monkeyshines you might expect in New Jersey or California, not in supposedly cash-rich China.

Related-party transactions are another popular funding source. Hainan Expressway Co. in southern China is a government-owned outfit deep in hock. In the last year it has lent some $40 million to its founding shareholder, the Hainan Department of Transportation, and booked the loan due as an asset on its balance sheet. This classification provides the Hainan Expressway with additional collateral to borrow even more in new construction loans from state-owned financial institutions and increases the risk that it will eventually default, according to Northwestern’s Shih.

Western and Hong Kong investors are in on the frenzy, too. Evergrande Real Estate Group, a Guangzhou developer, recently staved off a default on short-term debt by raising $800 million in a Hong Kong initial offering, which bestowed it with a $14 billion market cap. But whom is it kidding? Sixty percent of its “profit” this year is expected to come from increasing the reported value of its properties, a ploy that is a common source of earnings for Chinese real estate developers.

As is typical in the later stages of property booms, many investors in China appear to have discarded rental yields as a measure of how much a building is worth in favor of greater-fool pricing. In downtown Beijing office towers sold this year for $400 per square foot, despite the fact that many were unleased and many more are under construction. The leading buyers: state-owned enterprises, including banks and insurers.

Warning Signs

Asset flipping can go on only so long. At some point you need paying tenants.

–Developers highly leveraged, dependent on easy credit.

–Government funding via debt and land sales to state-owned corporations, prepayment of corporate taxes.

–Total outstanding debt approaching Japan’s precrash level.

from The Forbes

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The China Bubble (3)

Posted by Author on December 28, 2009


Gady Epstein, Forbes Magazine, dated December 28, 2009- (cont’d)

<<previous

China’s mercantilist trade policy is another contributor to its asset bubble. By artificially depressing the value of its currency and making it difficult for locals to invest abroad, China has forced an artificially large amount of capital to chase after domestic investments, inflating property and stock prices. It’s the same scenario China pursued in late 2007, before its stock market lost two-thirds of its value, but that era was characterized by monetary restraint compared with today.

“It’s a pure debt game,” says Andy Xie, an economist who advises private investors and sees the current bubble as “much worse than previous ones.”

In late November China’s ruling Politburo declared that the nation’s monetary and fiscal promiscuity will continue into 2010. The markets, predictably, were overjoyed. Economists who see parallels to the Russian and Brazilian financial crises a dozen years ago are less sanguine.

“The more debt that’s on the balance sheets, whether you see it or not, the more vulnerable borrowing entities become to shocks,” warns Michael Pettis, a finance professor at Peking University and expert on China’s economy and sovereign debt.

China naysayers have been wrong before. Gordon Chang, author of the 2001 book The Coming Collapse of China, has warned–wrongly, so far–that doom lies around the corner. Cushioning China’s economy is its high growth rate, an estimated $260 billion (but declining) annual current account surplus and, at $2.3 trillion, the world’s biggest foreign exchange reserve.

Bubbles, it bears noting, tend to surprise many observers with their longevity. (A FORBES cover story warned six years too early that the U.S. housing bubble threatened to tank the economy.) But when bubbles do eventually blow, it’s usually with a bang.

In the first nine years of this decade China added an average of $1.50 in new credit to the economy to produce each incremental dollar of output. With so much money chasing domestic investments, that ratio has jumped to $7 of fresh credit for each additional dollar of GDP this year, estimates Pivot Capital Management, a Monaco hedge fund.

All told, China’s ratio of outstanding credit (government and private) to annual GDP stands at 160% and could approach 200% by 2011, which would be similar to the 1991 level in Japan, just as that nation began tottering off the economic precipice. (U.S. ratio: 240%.) “All this points to [the idea] that credit in China is not going to be able to grow much longer without risking a crisis,” Pivot concludes……. (to be cont’d)

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