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Archive for the ‘Investment’ Category

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 There have been repeated failures to keep unsafe coal mines and outdated steel plants closed, and their output is often ignored because they should have been shut down.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

Posted in air, China, Climate, Economy, Environment, GDP, Investment, News, Opinion, USA | Comments Off on 10 China Myths for the New Decade- Myth #9: greenhouse gas emissions

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

Posted in China, Economy, GDP, Investment, News, Opinion, Trade, USA, World | Comments Off on 10 China Myths for the New Decade- Myth #8: domestic consumption

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

Posted in China, Economy, GDP, Investment, News, Politics, Trade, World | Comments Off on 10 China Myths for the New Decade- Myth #7: economy reform

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

Posted in China, Economy, GDP, Investment, News, Trade, USA, World | Comments Off on 10 China Myths for the New Decade- Myth #5: U.S. and China

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

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

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

Posted in Asia, China, Economy, GDP, Investment, Japan, News, Opinion, Trade | Comments Off on 10 China Myths for the New Decade- Myth #3: China’s economy

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

Posted in China, Economy, GDP, Investment, News, Opinion, Trade, USA, World | Comments Off on 10 China Myths for the New Decade- Myth #2: China could surpass the U.S. ?

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

Posted in China, Economy, Energy, GDP, Investment, News, Opinion, Trade, World | Comments Off on 10 China Myths for the New Decade- Myth #1: growth

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

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

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

Posted in China, Economy, GDP, Investment, News, Politics, Social | 1 Comment »

Google rebels against China’s Internet censors: Reporters Without Borders

Posted by Author on January 13, 2010


Reporters Without Borders hails US Internet giant Google’s announcement yesterday that it will stop censoring the Chinese version of its search engine, Google.cn – a move that could lead to Google.cn’s closure and Google’s withdrawal from the Chinese market. The company said it took the decision following sophisticated cyber-attacks on Gmail accounts coming from China.

“We can only welcome the courage shown by Google’s executives,” Reporters Without Borders said. “A foreign IT company has finally accepted its responsibilities towards Chinese users and is standing up to the Chinese authorities, who keep clamping down more and more on the Internet.

“In the face of repeated and increasingly sophisticated cyber-attacks and humiliating treatment by the Chinese authorities, who accuse them of not doing enough to block sensitive information, Google has decided to take a tougher line and is setting its own conditions for continuing to operate in China.

“We call on other IT companies to form a common front and we urge the Chinese authorities to reconsider their position. Google seems to have opened a breach – the cooperation of western companies in the control of news and information is no longer systematic.”

Reporters Without Borders also welcomed the transparency displayed by Google. “By making these cyber-attacks public, Google is clearly showing that its priority is to protect the personal data of its clients, including the most vulnerable ones. It is refusing to be an accomplice of the Chinese authorities in their pursuit of dissidents online.”

Google’s U-turn follows attacks launched from China on the Gmail accounts of several dozen human rights activists. Reporters Without Borders has itself been the target of cyber-attacks from China. A score of companies in the media, technology, finance and chemical sectors were also reportedly affected by these hacker attacks and by the theft of intellectual property……. (more details from Reporters Without Borders)

Posted in Business, censorship, China, Company, Freedom of Information, Google, Human Rights, Internet, Investment, News, Politics, search engine, Technology, World | Comments Off on Google rebels against China’s Internet censors: Reporters Without Borders

China’s ‘lesson’ for Australia Company Fortescue Metals Goup

Posted by Author on January 6, 2010


Susannah Moran, The Australian –

A SENIOR Chinese government official wanted majority ownership of Fortescue Metals Goup’s $1.85 billion Pilbara iron ore project, claiming it was Chinese “national policy” to “obtain control”, and later vowed to “teach (Fortescue) a lesson”.

That lesson, or “alternative way of co-operation”, turned out to be providing information to a newspaper — whose subsequent negative article about FMG’s planned project sparked the corporate regulator’s investigation and subsequent highly costly court case, which was last week comprehensively dismissed by Federal Court judge John Gilmour.

The machinations of the behind-the-scenes dealings are revealed in the 204-page judgment.

The Australian Securities and Investments Commission alleged Fortescue and its chief executive, Andrew Forrest, breached the Corporations Act and that Mr Forrest was deliberately dishonest and misled the market in relation to 2004 market releases that outlined “binding contracts” made with several Chinese companies about the planned Pilbara project.

The court heard that by early 2005, the Chinese were demanding an 80 per cent majority stake in the Pilbara project, a move Fortescue was resisting.

The judgment reveals detailed conversations that Xin Lou-Lin, later to become a Fortescue consultant, had with the deputy director-general of China’s National Development Reform Commission (NDRC), He Lianzhong.

Mr Xin, who was a former schoolfriend of Mr He, gave damning evidence in the case, recalling a conversation in February, the month before the article in The Australian Financial Review appeared. “The Chinese companies wanted control of FMG and as FMG was resisting, we would teach them a lesson,” Mr Xin recalled Mr He saying.

Justice Gilmour said in his judgment that Mr He caused information to be provided to an AFR reporter to the effect that the agreements with the Chinese contractors to build infrastructure were not binding. The report “caused considerable public commercial distress” to Fortescue, which the judge said “was Mr He’s intention”. Read the rest of this entry »

Posted in Asia, Australia, Business, China, Company, Economy, Investment, News, Politics, World | Comments Off on China’s ‘lesson’ for Australia Company Fortescue Metals Goup

China’s Economy: ‘Noah’s Ark’ or the ‘Titanic’ (4)

Posted by Author on January 6, 2010


By noted Chinese economist He Qinglian,   Via The Epochtimes, Jan 4, 2010 – (Cont’d)

<< Previous

Imbalance in China’s Economic Structure

A low residential consumption rate and a high investment rate are the main reasons behind China’s economic structural imbalances of the past 30 years.

The Chinese economy is a “Three-Horse Chariot,” and investment is one of the horses (the other two are export and consumption). From 1978 to 2005, the annual investment rate averaged 21.1 percent globally and 27.8 percent in Asian countries. But the figure climbed to 38.9 percent in China—much higher than that of other developed countries or developing nations. After China joined the WTO, the imbalance of the Chinese economy was invariably affected and eventuated in the structural imbalance of the global economy.

The most obvious manifestation of this imbalance is the economic relationship between China and the U.S. On one hand, American consumption is the highest in the world and depends on its high individual debt and the role it plays in supporting its own economic growth and nourishing the global economy. On the other hand, Beijing is buying U.S. bonds to sustain Chinese exports in order to maintain the credit and consumption of the U.S., making the U.S. China’s biggest trading partner.

However, since the financial crisis, American consumption has shrunk, influencing exports from Germany, China, and Japan, whose economies are heavily dependent on exports. This is also the case for many other countries. Many global experts are appealing for a new model of global economic growth—one without a high dependence on the individual debts and trade deficits of the United States Read the rest of this entry »

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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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The China Bubble (2)

Posted by Author on December 28, 2009


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

<< previous

The U.S. government’s $7.2 trillion in debt at the end of June represented 50% of gross domestic product. The Chinese government’s officially disclosed $840 billion in public debt represents less than 20% of GDP. But the People’s Bank of China and the treasury are also on the hook for potentially $1.5 trillion in off-balance-sheet debt owed by cities and provinces and entities they control. They’re also implicitly obliged to backstop $1 trillion, both in loans that “policy banks” were directed to issue, even when they made no economic sense, and nonperforming loans that the government removed from the books of state-owned commercial banks over the past decade.

Add it up and the national government is responsible for debt equal to over 70% of 2009 GDP. That doesn’t count any loans generated this year that might go sour amid a 30% increase in debt balances nationwide. (The U.S. government, in addition to its direct debt equal to 50% of GDP, is responsible for cosigning of mortgage borrowers’ obligations equal to another 18% of GDP.)

Like the U.S. housing industry a few years ago, China’s big developers are highly leveraged and dependent on low interest rates and rising prices. Municipal governments are knee-deep in this asset swamp. They use land sales as a means of funding themselves.

As fast as China is growing and urbanizing, its cities are churning out more office towers and luxury malls than can be leased for years to come. Tianjin, a gritty metropolis not far from Beijing, will soon have more prime office space than will be filled in a quarter-century at the current absorption rate. Shunyi County, in the capital’s suburbs, sold a residential plot last month for $400 per square foot, a new national record. The bidders were mostly state-owned companies and the winner none other than a developer owned by Shunyi County. Where the developer came up with the money for the purchase is unclear, but the county will nevertheless book $740 million as revenue from the sale……. (to be cont’d)

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The China Bubble (1)

Posted by Author on December 28, 2009


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

China’s economy is humming along in high gear, thanks to a fast-growing pile of dicey debt. Such booms tend to end badly.

China’s economy is the envy of the world. As developed nations struggle to eke out a bit of growth and to get unemployment rates out of double digits, Chinese output gallops ahead at an 8% annual rate. This $4.7 trillion economy, it seems, is the world’s dynamo and the prototype for the future.

Take a close look, however, and you may come away thinking China resembles nothing so much as Japan shortly before its stock and property markets melted down two decades ago. A speculative frenzy of borrowing and bidding up is at work. If and when prices crash, there will be hell to pay.

Signs of the times: government bureaucracies funding themselves by foisting debt on state-owned business enterprises; local governments raising capital by selling land at sky-high prices to corporations they own; and a People’s Bank of China lavishing liquidity on the entire system in a way that makes Federal Reserve Chairman Ben Bernanke look downright stingy.

“It’s a Ponzi scheme whose head is the central bank, and it can print money,” says Victor Shih, a China expert at Northwestern University……. (to be cont’d)

– From The Forbes

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Intel to close China Shanghai plant amid global crisis: statement

Posted by Author on February 19, 2009


SHANGHAI (AFP) — The world’s largest chip maker Intel Corp said Thursday it would shut down an assembly and test factory in Shanghai and move it to a city in China’s far west due to the global economic crisis.

The move will affect about 2,000 employees, who will be offered jobs in the western city of Chengdu or other Chinese locations where Intel operates, the US-based company said in a statement.

The consolidation, which will take place over the next 12 months, came “as a result of current economic conditions”, the statement said.

“The economic downturn has had an enormous impact on the semiconductor sector, forcing companies to take measures to cut costs,” said Liu Liang, an analyst with Industrial Securities, according to state-run Xinhua news agency.

“Moving operations from Shanghai, a high-cost city, to a cheaper place like Sichuan might be an effective way to cope with the financial crisis,” he said.

Intel plans to keep a research and development centre in Shanghai, which will also remain the China headquarters for the company.

It said it was still going ahead with the construction of a plant in the northeast Chinese city of Dalian. The cost of this plant was previously given as 2.5 billion dollars.

Intel last month announced plans to close facilities in Malaysia, the Philippines and the United States. Those moves were expected to affect between 5,000 and 6,000 employees worldwide, the company said.

AFP, Feb. 5, 2009

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Billions pulled out of China banking system in a few days

Posted by Author on January 9, 2009


Duncan Mavin, Financial Post, Thursday, January 08, 2009 –

HONG KONG — Royal Bank of Scotland has warned it may become the fourth big investor in just a few days to pull billions of dollars out of the Chinese banking system, fuelling fears that China’s faltering economy could be hit by massive capital outflows in coming months.

Reports indicate the British bank, now controlled by the U.K. government, has been in talks with Chinese regulators for the past few days to sell down its 4.3% stake in Bank of China worth $3.7-billion.

If RBS does pull out, it will follow sharply in the footsteps of Switzerland’s UBS, which last week sold its 1.3% stake in Bank of China for US$800-million, and Bank of America, which cut its holdings in China Construction Bank to 16.6% from more than 19% on Wednesday in a placement that raised US$2.8-billion.

Also, a foundation established by Hong Kong’s richest man, Li Ka-Shing, is widely reported to be selling two billlion shares in Bank of China in a transaction that will raise up to US$524-million.

The sudden foreign divestments have come at the most difficult time for the Chinese economy. Exports, which grew by more than 20% a year over the past few years, have collapsed in recent months as Western demand for cheap Chinese goods dries up. Millions of factory workers have lost their jobs and gross domestic product growth has fallen to its lowest level in years.

The head of China’s foreign exchange regulator also warned this week the country is facing a threat of “abnormal” cross-border capital flows. Hu Xiaolian said the risk of capital exiting China amid global financial tumult presents dangers including “the risk of liquidity strain,” according to a report from Chinese state media.

If the Chinese currency is allowed to fall to prop up exports, it will add to the risk that capital will flee China, said RBS China analyst Ben Simpfendorfer. That could “threaten financial stability,” he said.

The banking withdrawals have little to do with the state of the Chinese banking sector. RBS, Bank of America and UBS have all been hit hard by the financial crisis and selling down their investments in Chinese banks is a way to boost their own lean balance sheets.

The moves by RBS and others to pull money out of the Chinese banking system reverse a globalization of the financial sector that had seen as much as US$25-billion in foreign funds poured into China’s banks in the past three years alone. Even if other foreign banks exit China, as some speculate will happen, the trend is not a reflection of the health of the Chinese banking industry, said Standard & Poor’s analyst Qiang Liao. “Chinese banks are not immune from the global financial crisis that continues to scorch their Western peers,” Mr. Liao said in a report. But the major Chinese banks are “financially positioned to absorb the shocks that are likely to mark 2009,” he said.

At the same time that foreign investors repatriate their Chinese investments, authorities in Beijing are tightening the flow of Chinese money elsewhere. China’s Ministry of Commerce said this week it may soon force Chinese companies to get its approval before investing US$100-million or more overseas.

The move comes after several Chinese firms have taken big writedowns on their own overseas investments in recent months. Among the big losers was China’s sovereign wealth fund, China Investment Corp., which incurred billions of dollars in losses last year on investments in Morgan Stanley and private-equity firm Blackstone Group. CIC’s chairman, Luo Jiwei, conceded last month the group has no appetite for investing in foreign financial institutions at present.

Financial Post

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New Zealand Fonterra losts all $200 million investment in China joint venture

Posted by Author on November 27, 2008


3 News, New Zealand, Wed, 26 Nov 2008 –

The Fonterra board openly concedes that it has had a difficult time and that San-Lu will going to go down in history as a bad investment for them.

When Fonterra’s top brass fronted before the country’s dairy farmers there was not a lot of good news to deliver.

Firstly, Fonterra is now admitting it has lost all of the $200 million of investment in the San-Lu joint venture.

“For this reason it is increasingly likely that we will have to write off the remaining $62 million of value in our San-Lu investment,” stated Fonterra’s Chairman Henry Van Der Heyden.

Fonterra had a 40 percent stake in San-Lu, which collapsed due to the contaminated milk-powered controversy.

Fonterra’s management says it is reviewing what went so badly wrong and concedes it had limited control.

Not only has that investment been written off, but there are warnings about the global recession. Farmers should not expect big milk payouts in the future.

“In an environment when a global recession will impact on our payout to [farmers] into the future we will continue to aggressively reduce costs,” explains Van Der Heyden.

It is a worrying signal as Fonterra is New Zealand’s biggest company and our biggest exporter.

Consequently, where Fonterra goes, so too does the New Zealand economy.

The company says it has a three year business plan and is confident of an eventual rebound.

Fonterra’s Chief Executive expects his income of just under $4 million a year will reduce and the chairman and directors have decided to turn down a proposal to increase their fees.

3 News

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China becomes US’ largest foreign creditor than Japan

Posted by Author on November 20, 2008


By Anthony Faiola and Zachary A. Goldfarb, Washington Post Staff Writers, USA, Wednesday, November 19, 2008-

China passed Japan to become the U.S. government’s largest foreign creditor in September, the Treasury Department announced yesterday, reflecting the dramatic expansion of Beijing’s economic influence over the American economy.

China’s new status — it now owns nearly $1 out of every $10 in U.S. public debt — means Washington will be increasingly forced to rely on Beijing as it seeks to raise money to cover the cost of a $700 billion bailout. China, in fact, may be the government’s largest creditor, period. The Treasury does not keep records on domestic bond holders. But analysts said China’s holdings are so vast that the existence of a larger stakeholder in the United States now seems unlikely.

The growing dependence on Chinese cash is granting Beijing extraordinary sway over the U.S. economy. Analysts say a decision by China to move out of U.S. government bonds, for economic or political reasons, could lead a herd of other investors to follow suit. That would drive up the cost of U.S. borrowing, jeopardizing Washington’s ability to fund, among other things, a stimulus package to jump-start the economy. If China were to stop buying or, worse, start selling U.S. debt, it would also quickly raise interest rates on a variety of loans in the United States, analysts say.

Additionally, the more China invests in U.S. debt, the harder it becomes for U.S. companies to sell their products overseas. That’s because China’s purchase of U.S. bonds makes the dollar stronger, particularly against the Chinese yuan, which has been kept artificially weak to boost Chinese exports. The relatively weak yuan remains one of the biggest obstacles to U.S. companies tapping the market in China, particularly lucrative now as Beijing embarks on $586 billion in infrastructure and other stimulus spending to keep its economy humming amid the global crisis.

In the United States, Chinese influence is reflected in terms as basic as home mortgage rates. Since the U.S. government seized Fannie Mae and Freddie Mac in September, China, which maintains the world’s largest cash reserves of roughly $1.9 trillion, has shed about $50 billion in the companies’ debt and mortgage bonds, according to people who track the data. With China shying away from buying more, Fannie Mae and Freddie Mac have had to pay more to borrow and have gotten less for mortgage bonds, pushing up rates for people seeking home loans just as the U.S. government is trying to bring them down.

“This is a sign of the growing interdependence between the Chinese and U.S. economies, but also a sign of a relationship that is not healthy in the long term,” said Eswar Prasad, an economics professor at Cornell University and a senior fellow at the Brookings Institution in Washington. “There are inconsistent policies on both sides of the Pacific that are working against a more flexible Chinese exchange rate and the reduction of China’s large trade surplus. This is a problem for the United States.”

In good times, U.S. companies tapped China as a bargain-basement manufacturing hub, helping lift hundreds of millions of Chinese out of poverty. But China’s torrid growth has also caused severe environmental damage from a rapid rise in pollution and industrial waste, even as it improved American lifestyles by putting cheaper televisions and microwave ovens within easier reach for consumers. In recent years, Chinese cash also became part of a massive surge in foreign capital to the United States that brought down interest rates and eased the credit terms that American financial institutions charged.

Now, in bad times, China is effectively co-financing the $1 trillion annual U.S. deficit and massive government bailout of the financial system. It is doing so in part with money earned from exports to the United States, which last year imported five times as much as it exported to China.

The surge in Chinese buying is part of a rush by panicked investors into U.S. Treasurys, an indication that lending to the U.S. government is still seen as among the safest investments in uncertain times.

“It is occurring in an environment where global investment prospects are less enticing,” said Lawrence Goodman, head of emerging market strategy at Bank of America. “There is a movement for foreigners to seek safer haven investments like Treasurys versus more risk-oriented foreign investments.”

China’s investment in U.S. Treasury bonds surged by $43.6 billion to $585 billion in September, pulling ahead of the Japan, which now holds $573.2 billion worth. Overall, analysts say China’s holdings may be $800 billion or more. China is thought to be purchasing U.S. debt through third countries, purchases that are not immediately recorded by the Treasury as being held by China, analysts say.

In contrast to Japan, one of the United States’ closest allies, China is seen as less benevolent to U.S. interests.

Many economists are concerned about U.S. reliance on China for funding. By buying Treasury bonds, which are denominated in dollars, China is able to keep the dollar strong compared with the yuan. As a result, Chinese exports are cheaper relative to U.S. exports.

That is a friction point at a time when the United States needs manufacturing companies to be competitive in the global marketplace to combat the economic downturn. U.S. labor unions are already pushing the incoming Obama administration to urge the Chinese to take steps to strengthen the yuan, which could involve a broad sell-off by China of U.S. Treasury bonds.

“This is an unhealthy relationship,” said Brad W. Setser, geoeconomics fellow at the Council on Foreign Relations. “The U.S. relies too heavily on subsidized financing from a non-democratic government. And China is still a poor country that has in turn invested too much of its national savings in the United States. There remains an underlying financial vulnerability if China were to scale back its purchases. It could deliver a shock to the United States.”

The Washington Post

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Villagers block a major China international container port

Posted by Author on November 3, 2008


Radio Free Asia, 2008-10-31-

HONG KONG—Hundreds of residents of island villages in the eastern Chinese province of Zhejiang are staging a sit-in at the construction site of a planned U.S. $160 million international container terminal in a bid to win compensation for lost access to the shore.

The protesters, who say they make a living from the beach by collecting shellfish and launching their fishing boats there, are from Zhuangyuanao village, Dongtou island, near the eastern coastal city of Wenzhou.

“We have been here since Oct. 20,” a resident at the protest scene surnamed Zhuang said.

“They have surrounded us on all sides, and now we have no way to make a living. We are staying here until we get some compensation from them. Right now there are 500 to 600 people here,” he said.

The Dongtou islanders, who were displaying placards showing how long the sit-in had gone on, vowed to remain at the site until the government sends representatives to talk to them.

Another protester said: “We will stay here until the government sorts this problem out. But they haven’t responded to us yet, nor have they sent anyone to talk to us.”

The protesters are sitting in on land intended for use in the construction of the planned 1.096 billion yuan (U.S. $160 million) Zhuangyuanao Deepwater Port.

Phases I, II, and III of the project were planned in 2004 on a total area of 4,570 mu (761 hectares) of land and shoreline adjacent to Zhuangyuanao and other villages.

The villagers say they first began to demand compensation from the government in 2006, but the authorities said that shoreline is public land, and that no compensation was required.

Source of income

But the villagers said their homes are right on the beach, which is an important source of income for them and a space where they can work.

Calls to deputy Communist Party secretary Dong of Dongtou county were cut off Wednesday when the person who answered hung up.

The village Party branch secretary said: “I don’t know.” Pressed further, he hung up.

Work began in 2005 on the Zhuangyuanao Deepwater Port, which local officials hope will transform Wenzhou from a river port to a fully competitive seaport.

The Phase I project alone has a planned annual capacity of 200,000 containers and 700,000 tonnes of bulk cargo.

Radio Free Asia

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