China’s Economy From 1979-2011 With Economic Predictions
Post link: http://chinaseconomy.tk
US-China Trade Relations: Competitors In Need Of Each Other
U.S. – China trade relation has developed substantially over last three decades. The relation got a new dimension with signing of bilateral trade agreement in July 1979 to provide mutual most-favored-nation (MFN) treatment from 1980. The two-way trade between the two countries, which grossed an amount less than U.S. $1 billion in 1978, has touched $387 billion in 2007. China is now the largest source of U.S. imports and 2nd largest U.S. trading partner. China is also third largest export market for U.S. [which is a] total of about U. S. $50 billion of paid up capital has been invested till date in more than 40 thousand projects in China. – More here.
Wallstats’ chart data source: the U.S. Census Bureau, the P.R.C. Ministry of Commerce and the CIA World Factbook.
China’s Hunger: The Consequences of a Rising Demand for Food and Energy
by Thomas M. Kane and Lawrence W. Serewicz
The People’s Republic of China (PRC) has begun to assert itself in international affairs, and in ways that the established powers find not to their liking. China has fired missiles over the Taiwan Strait, opposed humanitarian intervention in Kosovo, seized islands in the South China Sea, and promiscuously exported ballistic missile technology to states inclined to challenge the international status quo. Chinese words have been even more inflammatory than Chinese deeds. Within China certain authors, with the apparent approval of the Beijing regime, have suggested that China should engage the West in so-called “dirty wars.” These would involve using nuclear, chemical, and biological strikes, or engaging in economic warfare to undermine the Western economies.  Chinese military officers have discussed the advantages their country might accrue by conquering territory as far from its current borders as the Marshall Islands. 
Scholars, pundits, and strategists responding to these events have begun to discuss possible reactions to China’s debut. A common theme in their discussions is the idea that by selecting the right mix of toughness and blandishments, Western countries might persuade China to moderate its conduct.  One should not, however, be sanguine about the prospects for such international behavior modification. Moreover, one should not assume that China’s ambitions are limited to Asia. The factors that place the PRC at odds with the established world community are global, material, and integral to China’s existence as an independent polity. Chief among these factors is China’s reliance on imported food and energy.
This article explores the possible consequences of China’s requirements as follows. First, it addresses why China’s economic aspirations virtually ensure that the PRC will need to find new sources of food and energy. Next it explores ways in which the PRC might attempt to satisfy its needs, and the political problems China’s methods may raise. Then it discusses what may happen if the PRC fails to obtain the food and energy it requires, and finally it sums up the more general consequences of China’s resource demands. 
Fueling Development: China’s Demand for Food and Energy
China is famous for its potential to be an important global actor. Under the communist government, China has begun to realize that potential. Despite fiascoes such as the Great Leap Forward and the Great Proletarian Cultural Revolution, Mao Zedong left his country with nuclear weapons, strategically valuable new territory, and a space program.  His successors, seeking to consolidate those gains, have concentrated on fostering the PRC’s industrial and commercial capabilities. Although some regions and enterprises have made more gains than others, China’s Gross Domestic Product has grown at nearly ten percent annually in recent decades, and many of its industries, notably electronics, telecommunications, and automobile production, have expanded spectacularly. 
Economic growth is important to the PRC regime, not only for its own sake, but also as a foundation for future military power.  The PRC’s program for building modem armed forces depends upon building a modem economy to pay for them. Deng Xiaoping explained this concept in his so-called Sixteen Character Slogan, which runs, “Combine the military and the civil, combine peace and war, give priority to military products, let the civil support the military.”  Contemporary Chinese leaders frequently cite this slogan as their guiding principle. *  China’s leaders must also have considered the possibility that their current entente with Russia may not last forever, although they may find it impolitic to say so. For these reasons and others, the Chinese cannot afford to let their economy falter. Yet this economic growth, upon which so much depends, is fragile because of two structural problems: the need for imported food and the increasing reliance on imported energy.
PRC leaders consider a strong military to be vital to their country’s future independence. Chinese writers openly depict India, Japan, and America as possible enemies.
As China’s economy grows, its need for petroleum grows in direct proportion. Recently the problem has become acute. China became an oil importer in 1993, and its annual demand is rising approximately seven percent faster than its production.  Worse, approximately 80 percent of China’s oil production comes from aging wells, many of which may soon run dry.  The demand for foreign oil makes China dependent not only on petroleum, but on the hard currency needed to buy it.
Meanwhile, despite China’s attempts to limit its population, its food requirements are also becoming increasingly burdensome. The Organization for Economic Cooperation and Development (OECD) predicts that China’s demand for imported grain will rise from three million metric tons at the start of the 1990s to 43 million by 2010, but more pessimistic observers say that the figure could rise to 216 million tons early in the 21st century.  China’s nutritional problems are compounded by the fact that water, like arable land, is scarce in China.  Chinese agriculture is unusually dependent upon irrigation. China’s industrial and domestic demand for water is increasing as well, meaning that the water shortage has consequences in many areas of Chinese life. – More here.
*Bolded by me.
When developers and residents fail to reach a compensation agreement, regulations permit developers to apply for permission from the demolition and eviction department to proceed with qiangzhi chaiqian, or forced eviction.13 This term, widely used in Chinese regulations, is defined nowhere, and methods of “forced eviction” vary. Some regulations specify that demolition and eviction companies should go through special training and be informed about relevant laws.14 Others say that developers may call in the police to evict residents.15 Some developers have reportedly tried other approaches, such as, in one case, arson; in another, local officials allegedly aided a developer by shouting “Earthquake!” outside a building in the middle of the night in order to make residents flee.16
There are many reports of unidentified men evicting residents in the middle of the night. Zhang, a Chinese immigrant in the United States whose friends were forcibly evicted from their home in a Beijing compound in 2003, spoke with them often by telephone during the period leading up to and after their eviction. Zhang described what his friends said happened to them:
It started in August. My friends lived on the ground floor of the building. You know in China, ordinary people can’t own land. They got a circular saying that in one month, they had to move out. They felt [the compensation offer] was extremely unfair. There were plans to build a big shopping mall, even though the local zoning laws shouldn’t permit such a big construction.
My friends just wanted appropriate compensation. In the beginning, [developers] tried to sway their hearts. They said, “if you move, you will get good compensation.” Then after the meetings did not get anywhere, they turned to stronger methods. In the middle of the night, while they were sleeping, people came in and broke up the courtyard wall. There were lots of people living there together in this building, they had a shop, it was really dangerous, there were still people living there.
[My friends] called the emergency number the moment it happened, and the police came to investigate. But the police said, “Well, this kind of thing…”—they wouldn’t deal with it. Then the water was cut off. Eventually [my friends] moved out, they moved in with their friends. It was cold, they could have frozen to death. They were suffering, their parents were elderly, and the parents were getting ill.
The residents didn’t believe at first that something like this could happen. I tried to warn them, when I spoke to them on the phone, but they said, “no problem, no problem”—they didn’t believe me. Now they believe me! But no one cares, the government doesn’t care.17
Zhang reported that after the jailing of Shanghai lawyer Zheng Enchong, his friends feared that their international phone calls were being monitored by the government, and asked him to stop calling them.
Others in Beijing, Nanjing city, and Suzhou province have told the Chinese media that developers hired heavy equipment, usually bulldozers, to destroy homes in the middle of the night while residents were asleep inside.18 A Beijing resident reported that his home was bulldozed with possessions still inside, even while he was still arguing in the courts about the size of the house as the basis for compensation.19
There are a number of reports of threats and assaults by employees of demolition companies against residents who refuse to move. In Tianjin, residents alleged on an Internet bulletin board that they were forcibly evicted by employees of the Tianjin city Beautiful East Residential Property Development Company, who rampaged through the half-deserted building, stealing and using property of residents who were in the process of moving out.20 Others have reported that they were verbally threatened or physically attacked.21 There have been unconfirmed media reports of residents being crushed to death by bulldozers during forced demolition and eviction.22 The Tianjin evictee alleged that after residents were beaten by employees of the demolition and eviction company, police refused to investigate.23
Some residents report that these violent evictions occur without warning. More often, the final, violent confrontation between demolition crews and residents occur after prolonged, months-long disputes among residents, developers, and the city’s demolition and eviction management department over how plans are made and what the amount of compensation will be; and after arbitration and legal remedies have failed to satisfy residents. – Source
9.1% Surge Epitomizes Sound Growth of Chinese Economy
by the Xinhua News Agency
Li Deshui, head of the Chinese National Bureau of Statistics (NBS), said in Beijing Tuesday that China had overcome the impact of the Asian financial crisis thanks to the substantial measures it had taken to fight both inflation and deflation over the past decade.
China’s economic growth reached a seven-year high at 9.1 percent in 2003, a rate the top Chinese top statistician referred to as a milestone since the growth rate. This is much higher than estimated by many international analysts at the end of last year.
In fact, the surge of industrial output turned out to be the major driving force behind the rapid economic growth. NBS figures showed the value turned out by the industrial sector last year accounted for 71.6 percent of the gross domestic product (GDP), contributing 6.5 percentage points to the 9.1 percent overall economic growth.
NBS spokesman Yao Jingyuan acknowledged that heavy industry had taken the lead in industrial growth, signifying the start of a comprehensive upgrading of the economy. This meant the Chinese economy was on a new stage of development.
On the demand side, a 26.7 percent surge in capital investment constituted one of the main factors for the record economic growth. As retail demand remained stable and export growth reached a new high of 37 percent, the economy registered a strong performance last year.
Li said the economy had entered a new era of growth as the per capita GDP topped US$1,090 in 2003. The rise of consumer demand would greatly spur the expansion of such industries as high-tech manufacturing and electronics, automobiles, housing and services.
Official statistics show China’s car output amounted to over 2.07 million cars last year, up 80.7 percent over the previous year. A total of 112 million people subscribed to new telephone lines, equal to the populations of Britain and France combined. China had 532 million telephone subscribers by the end of 2003, more than the population in any other country worldwide except India.
The government had done well in 2003, in terms of the international recognized policy goals, namely economic growth, inflation, employment and external balance.
China’s consumer price index was 1.2 percent for the year. Newly created jobs in urban areas totaled 8.5 million, exceeding the envisioned annual target of 8 million. Meanwhile, the country managed to retain a slight trade surplus and increased its foreign exchange reserves to US$403.3 billion. – More here.
The Three Gorges Dam Project[:] Environmental Impacts
by Laura O’Hara
circa January 2006
The environmental impacts associated with large scale dams often have significant negative impacts on the environment. The Three Gorges Dam is no different. The creation of the dam and associated reservoir has impacts both upstream from the dam and downstream. It affects species in the area, some endangered, water quality, and may increase the likelihood of earthquakes and mudslides in the area.
A number of species will be adversely affected by the construction of the dam. There are 300 species of fish in the Yangtze River. The dam will create a barrier in the river that these species will not be able to cross. Fish will not be able to travel upstream to spawn, so the populations of the species will decrease. Other affected species include the Chinese River Dolphin, Chinese Sturgeon, Chinese Tiger, Chinese Alligator, Siberian Crane, and the Giant Panda. There are a total of forty-seven rare or endangered species in the Three Gorges Dam area that are protected by Chinese national law. The only natural habitat of the Chinese River Dolphin is the Yangtze River, and there are less than one-hundred of these endangered dolphins in the river. The reservoir created from the construction of the dam covers a significant amount of the dolphins’ natural habitat. The government plans to sustain the River Dolphin and other endangered species by creating natural reserves and artificial spawning programs. It should be noted that past attempts to relocate the Yangtze River Dolphin have failed.
Overhead view of Three Gorges Dam.
Note the flooding of land on left side of the photo.
Courtesy of European Space Agency.
Other consequences of the Three Gorges Dam are lower temperature and dissolved oxygen content in water down-gradient from the dam. Dissolved oxygen is necessary for healthy aerobic activity in aquatic ecosystems. Fish and plants depend on oxygen to survive. The presence of the dam will disrupt the natural processes of aeration (the movement of water) and diffusion, ways oxygen dissolves into water. Water will move more slowly downstream, thus making it more difficult for available oxygen to be present in the water. This could have a negative impact on the aquatic ecosystem downstream.
Some positive results of the Three Gorges Dam include the use of water, a natural and renewable resource, as an energy supply. Hydroelectricity is clean since no greenhouse gases are emitted from producing this type of energy. The Three Gorges Dam will replace up to 50 million tons of raw coal in China’s energy use, prevent more acid rain, and improve health standards, since the air will be cleaner. – Complete article here.
China’s trade surplus tripled in 2005
by David Barboza
SHANGHAI — China said Wednesday that its trade surplus with the rest of the world tripled in 2005, to a record $102 billion, a figure that could reignite global trade friction and also increase pressure on the country to allow its currency to appreciate further.
The United States and the European Union have been putting pressure on China for much of the past year to allow the yuan to rise to restrain a flood of Chinese exports and to rebalance China’s own economy to allow for more imports.
In the report issued Wednesday, there was evidence that imports into China had begun to rise and export growth to the rest of the world had slowed slightly in the latter part of 2005, easing concern among some economists.Still, the blockbuster trade figures were further evidence of China’s unparalleled rise as a global economic power.
The government said exports in 2005 were a record $762 billion, up 28 percent, while imports climbed to $660 billion, up nearly 18 percent.
Total foreign trade topped $1.4 trillion, making China the world’s third-largest foreign trader, after the United States and Germany.
Just a decade ago, the value of China’s foreign trade was $289 billion, according to its own records.
The new customs figures showed that the bulk of China’s trade surplus in 2005 came from exports to the world’s wealthiest regions, particularly the United States and Europe.
China’s trade surplus with the United States reached a record $114.7 billion, up from $80 billion a year earlier and $28 billion in 2001. Excluding the United States, China actually had a trade deficit with the rest of the world of about $12 billion in 2005, largely with Japan and oil-exporting countries.
According to U.S. government data, however, China’s trade surplus this year was much larger than the Chinese figures showed. Through October 2005, China already had a trade surplus of over $166 billion with the United States, the U.S. Census Bureau said.
Europe fared only slightly better last year, according to the Chinese government. China said its trade 2005 surplus with the European Union was $70 billion.
The Chinese economy is likely to have become the fourth- or fifth-largest in the world, surpassing France, Italy and possibly Britain. The government readjusted its gross domestic product figures for 2004 by $280 billion last month to account for previously unreported activity.
Government figures showed that the roaring economy was growing at a torrid pace of about 10 percent in 2003 and 2004. And China may soon have more foreign currency reserves than any other country in the world, giving it more power to influence global interest rates.
As of November, China reported having about $794 billion in foreign currency reserves, just behind Japan, which had about $828 billion at the end of last year.
But Hong Liang, an economist at Goldman Sachs, said China’s figures did not account for a $7 billion currency swap and other factors.
Before long, she said, China will overtake Japan, despite having a much smaller economy, and symbolically at least, become an even more powerful player in the world. – More here.
Expert: China’s Changing Demographics Could See House Prices Decline After 2015
from the Xinhua News Agency
China’s housing prices are likely to dip somewhat after 2015 when the country’s population will be made up of fewer middle-aged people, according to a renowned Chinese economist.
China’s soaring house prices are related to the current population structure, said Ha Jiming, leading economist with China International Capital Corporation.
The country witnessed a baby boom in the 1950s and 1960s and while the boomers of the 50’s reached middle-age in the 1990’s the later set of baby boomers will reach their middle years in 2015. The rising number of adult baby boomers and their children have created a high demand for housing, he said.
The high demand for housing will reach a turning point after 2015, as the number of middle-aged people seeking to buy housing for themselves and their children will decline, said Ha, adding that this is the result of the country’s family planning policy.
Formulated in the early 1970s, China’s family planning policy encourages late marriages and late childbearing, and limits most urban couples to one child and most rural couples to two children.
It’s estimated that without the policy the country’s population would be 400 million higher than the current 1.3 billion people.
Official statistics showed that the average price of newly-built commercial residential houses in 70 large- and medium-sized Chinese cities gained 6.1 percent year on year in Jan., with the southern metropolis of Shenzhen recording the highest rate of growth at 10.2 percent. – Source
17% of export surplus is falsely created
4/22/2007/9:15 BJT (0115 GMT)
Beijing – It is estimated that from August to December, last year, export activities that were worth 17.5 billion US dollars were not real export and they accounted for 17% of the total trade surplus during this period, according to a recent report issued by the State Development and Reform Commission’s Macroeconomic Research Institute.
The report says that since last August, Renminbi appreciation has risen more quickly than before, which has largely contributed to the fast increase of false export. The report reminds that China should reconsider its current Renminbi appreciation policy, the Beijing Business Times reported.
Last April, China’s trade surplus reached 16.88 billion US dollars, doubling that of last March. In the report, titled “Macroeconomic Control: the Key Task Lies in Controlling the Surplus Liquidity”, it is said that the fast increase of the recent Chinese export was attributed to three factors: the low exchange rate; the high amount of export refund and local government’s overly enthusiasm in attracting foreign investment.
Since the latter half of last year, the growth of export goods delivery value did not coincide with the growth of export volume, which indicated that false export activities did exist, the report claims.
By false export, it means that some companies that did not have any export goods wrongly claimed that they had goods to deliver outside. Some companies claimed a higher number of goods than they actually had to the China Customs. In doing so, these companies were trying to get the export refund issued by the state, thereby to minimize the tax amount they had to pay. Other companies, through the transfer price mode, tried to attract more hot money from overseas in order to make gains through Renminbi appreciation process.
In light of this, the report suggests that China make changes to its trade and foreign investment policy so as to curb the soaring export volume. – Source
by Michael Sheridan
Even the scribes of the Chinese state media were moved to a chorus of wistful regret last week at the news that the home of Beijing Opera is to be razed as the city’s redevelopment for the 2008 Olympics reaches a climax.
The demolition of the Guanghe theatre, where opera has been performed since the last years of the Ming emperors four centuries ago, is the latest assault on the ancient fabric of the city.
The theatre stands in the Qian-men district, once a fabulous warren of temples, apothecaries and aristocratic courtyard mansions huddled in the shadow of the Forbidden City.
There is no place for such untidiness in mayor Wang Qis-han’s £19 billion plan to fulfill the slogan “New Beijing, Great Olympics”. The Games have sealed the fate of an old Beijing that had survived the wars and revolutions of modern Chinese history.
The bulldozers and developers have already wrecked swathes of the imperial capital, evicting half a million Beijing citizens over the past decade and consigning them to tower blocks along the city’s outer ring roads.
“I urge the completion of these projects as our most urgent task for next year,” the mayor told city officials recently.
There is something shocking about the demolition of the Guanghe theatre that has struck a chord among lovers of China’s traditional culture and architectural heritage.
It was here that boys dressed as women sang and danced for mandarins and rich merchants in the Ming and Qing dynasties. Here too that Mei Lanfang, the Beijing Opera’s greatest maestro, launched a tortured artistic career immortalised in the film Farewell My Concubine.
It was Mei’s legacy that caught the attention of Xinhua, the state news agency, whose dispatch last week reported the decision to tear down the building and replace it with something suitable for “shows like those on Broadway”.
More than a century has passed since Mei, a mere boy of 10, took to the boards as the girl weaver in a classic opera with the evocative title of Palace of Everlasting Youth: Secret Betrothal at the Magpie Bridge.
Xinhua lamented that the theatre would be “crushed under the onslaught of Beijing’s remorseless bulldozers” and concluded that “yet another of the country’s cultural heirlooms is doomed”.
In fact it is worse than mere cultural vandalism. It is a perfect illustration of the political methods that have flattened three-quarters of Beijing’s hutongs, bustling lanes of historic homes and communities, to replace them with symbols of state power and shopping malls. – Source
China’s Suicide Rate Among World’s Highest
by Xie Chuanjiao
China has one of the highest suicide rates in the world, particularly among rural women, an expert on suicide prevention said Monday.
Yang Fude, vice-president of Beijing Hui Long Guan Hospital, said China is the only country where suicides among women outnumber men.
“It is also one of the few countries where rural suicides outnumber urban suicides,” he said on World Suicide Prevention Day.
Recent statistics show more than 287,000 people end their own lives every year on the Chinese mainland.
Stress and depression cause 70 to 80 percent of suicides in urban areas, where many of those afflicted jump off buildings, according to data released by the Beijing Suicide Research and Prevention Center.
Half of the suicides on the mainland are of women in rural areas, who commonly drink pesticide to end their lives. They may do so because of family disputes, low-educational levels and restricted social communication.
More than 58 percent of suicides by females and 27 percent of attempts in rural areas used pesticides.
Though suicide ranks fifth after cerebrovascular diseases (such as a stroke), bronchitis, chronic emphysema, liver cancer and pneumonia, it is the leading cause of death for people aged between 15 and 34.
A two-year survey by researchers at Peking University found over 20 percent of 140,000 high-school students interviewed said they had considered committing suicide. And 6.5 percent of the students surveyed said they had made plans to kill themselves. – More here.
Water Brief 3[:] Three Gorges Dam Project, Yangtze River, China
by Peter H. Gleick
The Three Gorges Dam (TGD) and associated infrastructure is the largest integrated water project built in the history of the world. It has also been one of the most controversial due to its massive environmental, economic, and social impacts. The very first volume of the The World’s Water, published more than a decade ago, reviewed the plans underway at that time to built the Three Gorges Dam, along with many of the expected benefits and costs (Gleick 1998). … [some] officials in China have have begun to be increasingly outspoken about unresolved challenges associated with the project. Weng Lida, secretary general of the Yangtze River Forum was quoted as saying, “the problems are all moer serious than we expected” (Oster 2007). In September 2007, Chinese officials “admitted the Three Gorges Dam project has caused an array of ecological ills, including more frequent landslides and pollution, and if preventative measure are not taken, there could be an environmental ‘catastrophe'” (Xinhua 2007c).
Economic and Financial Costs
The total cost of the Three Gorges Dam and associated projects will be enormous, but it is no longer possible to produce any definitive quantitative estimate. Even the financial costs of the infrastructure alone cannot be known because of the magnitude of the expenditures, the related development projects in the region, and expenditures made unoficially. Estimate of the construction costs made during the mid-1990’s for the major parts of the project ranged from a low of $25 billion to a high of $60… (Dai 1994, China 1996, JPN 1996, McCully 1996, Reuters 1997). The most recent estimates have fluctuated around the upper end of these figures. The TGD is being funded by a complex mix of both internal and external sources. China has identified four internal sources of funds: the State Three Gorges Construction Funds, power revenues from existing hydropower facilities, power revenues from the Three Gorges Project itself, and loans and credits from the Chinese State Development Bank (SDB), now renamed the Chinese Development Bank (CDB). External sources of funding have been critical for the project. International organizations have tried to maintain a list of international financiers and companies supplying equipment and services to the project through the China Three Gorges Project Development Corporation, a state-owned entity set up to finance and build the project (see, especially, Probe International 2008). Canada’s Export Development Corporation, Germany’s export-import bank, and other international export credit agencies provided early loan guarantees for the project totaling hundreds of millions of dollars (Financial Times 1997). Commercial banks and investment firms have offered financing assistance. The SDB of China signed a loan package with Germany’s Kreditanstalt Fur Wiederaufbau, Dresdner Bank, and DG Bank in 1997 for the purchase of turbines and generators. Hundreds of millions of dollars in SDB bonds were underwritten at the beginning of the project by a virtual who’s who of the international financial community, including Lehman Brothers, Credit Suisse First Boston, Smith Barney Inc, J.P. Morgan & Co, Morgan Stanley & Co Incorporated and BancAmerica Securities Inc. In 1997 and 1999, SDB issued more than a billion dollars of new bonds underwritten and managed by Merrill Lynch & Co. and Chase Manhattan Bank, with contributions from Chase Securities, J.P. Morgan, Morgan Stanley Dean Witter, Credit Suisse First Boston and Goldman Sachs. Morgan Stanley continued to participate through a joint venture with the China International Capital Corporation (CICC), which is the lead advisor on raising overseas capital. In 2004, the CDB and the Chinese Export Import Bank (CEIB) hired Goldman Sachs, UBS, HSBC, Citigroup, and others to help raise another €[500,000,000] from bonds. – More here.
The Real China and the Olympics
by Hu Jia and Teng Biao
This week, a Beijing court sentenced human rights activist Hu Jia to 3 1/2 years in prison for subverting state authority and to one additional year’s loss of his “political rights.” He was arrested in part for co-authoring, with Teng Biao, an open letter on human rights.
On July 13, 2001, when Beijing won the right to host the 2008 Olympic Games, the Chinese government promised the world it would improve China’s human rights record. In June 2004, Beijing announced its Olympic Games slogan, “One World, One Dream.” From their inception in 1896, the modern Olympic Games have always had as their mission the promotion of human dignity and world peace. China and the world expected to see the Olympic Games bring political progress to the country. Is Beijing keeping its promises? Is China improving its human rights record?
When you come to the Olympic Games in Beijing, you will see skyscrapers, spacious streets, modern stadiums and enthusiastic people. You will see the truth, but not the whole truth, just as you see only the tip of an iceberg. You may not know that the flowers, smiles, harmony and prosperity are built on a base of grievances, tears, imprisonment, torture and blood.
We are going to tell you the truth about China. We believe that for anyone who wishes to avoid a disgraceful Olympics, knowing the truth is the first step. Fang Zheng, an excellent athlete who holds two national records for the discus throw at China’s Special Sport Games, has been deprived of the opportunity to participate in the 2008 Paralympics because he has become a living testimony to the June 4, 1989[,] massacre. That morning, in Tiananmen Square, his legs were crushed by a tank while he was rescuing a fellow student. In April 2007, the Ministry of Public Security issued an internal document secretly strengthening a political investigation which resulted in forbidding Olympics participation by 43 types of people from 11 different categories, including dissidents, human rights defenders, media workers, and religious participants. The Chinese police never made the document known to either the Chinese public or the international community. – More here.
Number of homeless centers to double in China
by Guan Xiaofeng
The number of child protection centers in China will be doubled to 300 by 2010, an official with the Ministry of Civil Affairs has said. Gao Yueling, head of the ministry’s social affairs department, said 152 centers have been built since a 1.12 billion yuan ($164 million) program was launched in 2006. By 2010, there will be 300 of them serving 150,000 homeless children a year in prefecture-level cities and large counties across the country. Many of the centers will be built in the east of the country, as it attracts the most migrants from the country’s poor regions, Gao said last week. “The centers are designed to get homeless children off the streets,” she said. They will ensure the youngsters (aged up to 18) have a place to sleep and are regularly fed, she said. “The children are welcome to stay until they are reunited with their parents.” While at the protection centers, children will also receive free education and vocational training to prepare them for adult life, Gao said. Some centers will also employ “parents” to take care of the children, while other youngsters are found temporary homes with local families, she said. Women with children who have been abused by their husbands can also stay at the centers, she said.
Gao said [that] a national relief system aimed at helping vagrants, both adults and children, was set up in August 2003, following a scandal in which Sun Zhigang, a native of Hubei province and a worker at a garment company in Guangdong province, was beaten to death by eight patients at a penitentiary hospital just hours after being arrested as a vagrant for not carrying his ID. Under the system, adult vagrants can apply for free board and lodging for up to 10 days at relief stations, she said. In that time, local civil affairs bureaus, which oversee the stations, will help people to make contact with their families and will also pay for their bus or train ticket home.
Before the system was set up, homeless people were subject to the old system of “compulsory custody and repatriation”, under which police had to jail vagrants and beggars, and send them back to their hometowns, Gao said. “The establishment of the new relief system is a major step forward for human rights protection in China.” As of March of this year, the system had helped 588,500 street children nationwide, she said. “Most of them left home because of poverty, improper parenting, or because they were trafficked,” she said. – Source.
Three Gorges Dam Project
by Jeffrey Hays
… Three Gorges Dam is five times wider than Hoover dam and is as tall as a 60 story building. Large ships will by bypass the dam via two five-stage locks that will raise or lower the ships 500 feet. Smaller vessels will be moved up and down on a ship elevator.
About 60,000 workers were employed by the Three Gorges Dam project, with about 25,000 working on the dam itself. They used 32-ton dump trucks and giant drills that cut through granite. One dump truck driver told National Geographic that her earned 25 cents a truckload, about two dollars a day. He lived with his coworkers in a hillside shed without water or toilet facilities.
History of the Three Gorges Dam Project
The idea for huge dam project on the Yangtze was first proposed in 1916 by Sun Yat-sen and later pushed by Mao Zedong, who wrote a poem about it: “Walls of stone will stand upstream to the west, to hold back Wushan’s clouds and rain, until a smooth lake rises in the narrow gorges.” .
Japanese engineers did some survey work around the dam site when they occupied China. This work was continued U.S. Bureau of Reclamation under the Kuomintang and by the Soviets in the early years under the Communists. The first step of the Three Gorges project was the completion of the 176-foot-high Gezhou Dam, which opened in 1989 after 20 years of construction.
The current dam was a pet project of Li Peng, known best for his role in the Tiananmen Square massacre. He was trained as an engineer in the great Soviet tradition of grand public works projects. In 1992, after a four year debate, the Chinese government approved a plan. …
Benefits of the Three Gorges Dam
Among the benefits of the Three Gorges Dam will be the creation of loads of electricity, protection for millions of people from floods, and the provision of waters for millions of acres of irrigated land. The Three Gorges Dam will control floods that have killed 300,000 people in this century alone; provide the annual energy produced by the burning of 50 million tons of coal a year; and create the world’s largest water storage reservoir. In the forst half of 2007, it generated 23.7 billion kilowatt hours of electricity.
The dams and reservoirs will improve the navigability of the Yangtze River creating a 660-kilometer-long reservoir of calm, deep water; widen shipping lanes; and eliminate strong currents and obstacles such as rocks and sandbars. The Three Gorges Dam will have three passage locks and the dam. The dam at has have just one.
Beijing argues that Three Gorges Dam is desperately needed to bring jobs and an improved quality of life for tens of millions of people living the interior of China, which lags way behind the coastal areas in terms of economic development and prosperity. Many local people support the project because of the flood control and economic benefits it brings.
When it is completed 10,000 ton freighters will be able to come up the river, providing industry with access to cheap labor in central China and major river and sea trade routes. The reservoir is so large that it raises temperatures and affects humidity, wind patterns and agriculture in the area. This may help farmers by bringing more rainfall.
Problems with the Three Gorges Dam
Problems with the Three Gorges Dam include the flooding of some of the world’s most scenic areas; the drowning of farmland, cities and towns, and relocation of 1.3 million people to higher ground. Critics also claim the river won’t flow fast enough to keep the turbines turning and dam itself will become inoperable after a few years as a result of silting.
Some environmentalists contend that the project could cost as much as $75 billion before it is finished and argue that Yangtze region would be served with a series of small dams on the tributaries that feed into the Yangtze River. They say as much energy could be supplied by the Yangtze region’s ample natural gas supplies. Others claim the dam benefits outsiders more than locals. More than 40 percent of the electricity generated by the dam will go to Shanghai and coastal areas.
The dam is built on an earthquake zone. Were it to break waters would flood one of the world’s most populated areas. There have already been alarming reports of cracks in the dam and the use of substandard concrete and building ,materials to make it.
Some have blamed the dam for causing jellyfish population surges in some maritime areas by depriving seas of silt-carried silicon which cause a decrease in the number of diatoms in the water which in turn fail to consume phosphorous and nitrogen, providing conditions for jellyfish blooms.
Cities, Villages and Farms Submerged by the Three Gorges Dam
By estimates fertile land used to grow 40 percent of China’s grain and 70 percent if its rice will affected by the Three Gorges project. Beijing says that about 74,000 acres of farmland, including fertile land near the river, will be lost to the reservoir while 37,000 acres of new land will put under cultivation. Environmentalists say that 240,000 acres will be lost.
Thirteen major cities, 140 smaller cities and towns and 1,352 villages, 1,600 factories, and 700 schools will be submerged by the Three Gorges project. Wanxian is the largest victim. Two thirds of the city, including 8.5 square miles and 900 factories, will be submerged. In compensation, the new city of Wanxian will have a new railroad, a new highway linking it to Shanghai and a new mountain-top airport that can handle jumbo jets
Low-lying Yunyang has also been hit hard. More than 160,000 people from the town have had to move and countless numbers of buildings have been submerged already. Before the waters in reservoir began to rise areas that were submerged were stripped of anything that could be sold. Some places look like they had been bombed.
Thirteen replacement cities are currently being built along 370 miles of water ways affected by the dam. Many like New Yunyang are named after a city was submerged, New Zigui was built on a scenic promontory selected with tourism in mind. The Jiangdu Temple was moved there.
People Relocated by the Three Gorges Dam
About 1.4 million people were relocated to make room for reservoir created by the Three Gorges project. They have been relocated all over China. Some have been sent to the Shanghai area. Others have been shipped off to Guangzhou. Yet others have been sent to Tibet and other remote places. Many have been resettled in new communities near their old home towns. Some remained in what was left of the old towns.
In may ways relocating so many people has proven to be a more daunting task than building the dam itself. The government allocated $10 billion for relocation, about 40 percent of the cost of the Three Gorges dam project. People were often moved in blocks. Sometimes entire hamlets were loaded onto a boat and sent downstream, where the government provided the villagers with new plots of land. As of 2003, about 600,000 people had been relocated.
Many relocated people are happy about the move. They have left behind mud walled, dirt-floor hut with an outdoor privy and no windows for new apartments with water, gas, electricity, toilets and $1.80-a-month rent. Some people earned enough in compensation to buy a couple of houses and rent them out for income.
The last town, Gaoyang in Hubei Province, was evacuated in July 2008, allowing the reservoir to reach it final height of 175 meters above sea level. The 1,000 or so households in the town were relocated.
Problems Faced by People Relocated by the Three Gorges Dam
Many others are not happy about the move. Relocated people have complained about inadequate compensations, a shortage of jobs and corruption that robbed them of money they were entitled to. One woman who was going to lose her house to reservoir told National Geographic, “I don’t know when we’ll have to move. Or even where we’ll be moved. You have to take what the state gives you. There is no bargaining.” The government position I summed up by the slogan: “Forsake the small home. Support the big home.”
Some families are forced to abandon homes that ancestor have occupied for hundreds of years. In addition to moving their belongings, many displaced people also want to move the graves of the deceased loved ones. After they leave, their houses are torn down to discourage people from moving back.
Some people who were promised $4,000 a head only received $1,000 after money was deducted for moving, down payments on the new homes, and variety of other fees. Other people received no compensation or explanation of what happened to their money. One victim told the Boston Globe: “It’s absurd, and we’ve gone from one official to the next, but no one is interested in helping us….Once my land is underwater I‘ve no idea what I’ll do to survive.” Some of this who took their cases to authorities or the media were beaten up by thugs.
The people who had the hardest time were the ones with no connections to work units, which are the main channel in Communist China for distributing social benefits and exerting social control. Those without work units were unable to get compensation, new housing or other benefits. Migrants without residency permits for the area also had similar problems.
Flood Control, Landslides and the Three Gorges Dam
Dam during normal times Critics claim that the dam won’t do enough to control flooding. The flood retention capacity of the dam is 22 billion gallons. During the great flood of 1954, 300 billion cubic meters of water flowed in the area upriver the dam and an additional 359 billion cubic meters of water flowed into the area down river from it.
The Three Gorges Dam passed its first flood control test in July and August 2007, when heavy rains caused water levels in the Yangtze river to rise above flood levels. While other rivers overflowed their banks, killing hundreds and causing billions of dollars of damage, Yangtze barges navigated up and down the river and water flowed into irrigation canals as usual even though run off water poured into the reservoir at 51,000 cubic meters per second. …
Pollution and Silt and the Three Gorges Dam
Environmentalists estimate that a 250 billion gallons of raw sewage and industrial contaminants such as arsenic, cyanide and methyl mercury will be trapped behind the dam instead of being naturally flushed out to the sea. At least 19 new sewage treatment plants are planned, mainly in large cities, but as of 2003 only a few had been completed. After water began backing up in the reservoir, E coli levels in the water jumped, potentially making the water undrinkable.
The Three Gorges Dam collects dangerous levels of pollution from Chongqing. Already massive amounts of fertilizer and pesticides run-off, industrial pollution and waste from Chongqing is accumulating in the backed-up reservoir. Changes in the flow of the rive have caused seawater to move inland in the Yangtze Delta
The water behind Three Gorges dam is still quite polluted even though $2.55 billion has been spent on clean up projects. The quality has not improved significantly on the Yangtze River and has deteriorated in some branches that feed the reservoir behind the dam. Improvements that have been made have been overshadowed by increased pollution from fast development and the fact the river has been slowed and no longer flushes itself out.
The Three Gorges Dam will affect the rare Chinese river dolphin, already suffering from collisions with boats; paddle fish, which weigh up to 1,000 pounds (about only 3,000 remain); the endangered 10-foot-long Chinese sturgeon; the finless porpoise, the giant panda and the Siberian white crane. …
- Submerged Archeology and the Three Gorges Dam
Another problem with the Three Gorges Dam project is that it has submerged nearly 8,000 years of Chinese history. Some 1,208 archeological sites that have been submerged have been identified so far, including 30 Stone Age sites between 30,000 to 50,000 year old. Serious work on the majority of the sites did not begin in earnest until 1999. Archeologist only managed to excavate around 80 sites.
Beijing has been reluctant to spend very much money on salvaging relics from the doomed archeological sites but allocated $125 million for the effort. …
Archeologists have organized the largest ever archeological expedition in China. …
Tens of thousands of relics have been saved, including gold-plated tables and chairs, jade swords and bronze spear points and daggers. Often looters have gotten away with the best stuff. Armed with metal detector they a found a 2,000-year-old bronze candelabra called the “Spirit Tree” that sold for $2.5 million at a New York auction in 1998.
- Corruption, Protests and Three Gorges Dam
Corrupt officials have pocketed resettlement money and invested it in other projects. One woman told National Geographic, “We’re supposed to get 5,000 yuan ($600) a head for resettlement. The central government gives the money to our provincial officials. They give it to the county, and the county gives it to the city businesses. But as it goes down the line, each official takes his cut. Who knows what will be left by the time it gets to us?”
The billions of dollars was allocated for resettlement payments has been like cookies in a jar for embezzlers and corrupt officials. By some estimates corruption has consumed about 12 percent of the resettlement budget. A single official is believed to skimmed off $120 million and deposited the money overseas.
Corruption was partly to blame for shoddy construction. Twenty new bridges built developed cracks. At least five had to be destroyed and built over.
Unhappy villagers resettled by the Three Gorges dam project have been harassed by officials to prevent them from petitioning the central government over pollution. Journalist Dai Qing, author of the book Yangtze! Yangtze!, spent 10 months in jail for criticizing the dam project. In recent years the government has become more tolerant of criticism of the project.
There was some organized resistance. This was allowed because some members of the government opposed the project and opposition to it was viewed as a way to release general feeling of political discontent. – Complete article here.
China and the Global Financial Crisis
by Albert Keidel
Despite China’s strong current financial and economic position, a focus on China must highlight China’s secondary role in the current global turmoil and necessary actions to manage it. The current global crisis is best understood as another historical opportunity for progress in the evolution of the world’s advanced governance systems. So argues Albert Keidel in a new essay, which demonstrates that China appears poised to perform well going ahead, largely unharmed by the crisis. China has a financial system that, while immature, is commensurate with its level of development, and it is equipped both to withstand domestic contagion from the international crisis and to inject stimulus spending in strategic sectors and locations. Its capital account, while not closed per se, is adequate for handling the vagaries of speculative inflows and capital flight. Furthermore, China’s economic growth is principally the result of domestic demand, not exports. Blaming it for the current crisis, although fashionable in some quarters, ignores a basic fact: while the American housing bubble began in 2000, China’s oft-criticized trade surpluses did not become significant until the end of 2004. In reality, the crisis has its roots in four developments: (1) growing income inequality in the United States, (2) lobbying influence that prevents American politicians from imposing adequate regulatory oversight in the financial sector, (3) proliferation of complex but poorly regulated financial instruments in recent decades, and (4) imprudently sustained monetary policy injecting excessive liquidity into the U.S. and hence global economies after 2001. – More here.
China slowdown: after years of boom, powerhouse sends world a warning
• Growth dips below 10% for first time in three years
• Beijing tries to encourage homegrown consumers
by Graeme Wearden and David Stanway
[Beijing] – China has fuelled fears over a global recession by warning that the financial crisis is damaging its economic growth.
Data released yesterday showed that China’s gross domestic product expanded by 9% in the third quarter of 2008, down from 10.1% for the second quarter. Although this is still extremely healthy compared with other major economies, it is less than the figure expected by experts – and the first time the country’s GDP growth has dipped below 10% in almost three years.
China’s government blamed lower growth on the world economic slowdown, which means less demand for Chinese exports. “The growth rate of the world economy has slowed down noticeably. There are more uncertain and volatile factors in the international economic climate,” said Li Xiaochao of China’s National Bureau of Statistics. “All these factors have started to release their negative impact on China’s economy.”
After years of boom, China’s GDP growth has now slowed for the last five consecutive quarters. The country is a huge consumer of raw materials, and last week the global mining giant Rio Tinto caused share prices in the sector to slump by warning that demand from China was slowing. Analysts believe that GDP growth will slow further in the fourth quarter, as the impact of the financial crisis bites.
Huainan Zhao, a banking expert at the Cass Business School, in London, said: “The problem is that China’s economic growth is slowing down when it is most needed. But I am afraid that the world will have to live with a slowing Chinese economy. The IMF forecasted that the Chinese GDP will decline from 12% last year to about 9.6% this year.” One of the most worrying aspects for the Chinese leadership is that net exports contributed only 1.2 percentage points to the country’s total GDP growth over the last nine months, down from 2.4 percentage points over the same period of 2007.
China’s toymaking industry is under particular pressure, following a series of safety scares relating to manufacturing processes last year. Last week more than 6,000 employees lost their jobs when Smart Union, a major toy manufacturer in Dongguan, closed. It blamed a fall in demand from the US.
Since President Hu Jintao took charge in 2004 with a mission to correct the imbalances that have accumulated throughout China’s economy since the market reform process began in 1978, senior leaders have talked about boosting domestic consumption by raising incomes and improving social services, but growth has remained thoroughly export-led.
Already forced to yield to international pressure to revalue its currency and make its goods more expensive overseas, China is now facing a significant slump in demand as the recession hits its markets in Europe and America. A back-up plan has become more urgent than ever.
Last week, China’s senior Communist party leaders approved plans to strengthen the rural economy and improve the incomes of farmers, hoping that making citizens better off will create a new market for the millions of computers and household appliances now being shipped abroad. For now, the measures appear to be too little, too late.
Stock markets across Asia recorded gains overnight – after a week of volatility – as traders welcomed a $130bn (£74bn) bail-out of South Korea’s banking sector. – More here.
Chart of the Day
2/11/2009/11:49 A.M. PST
by Kevin Drum
Chart from Brad Setser
Chinese exports are down 17.5%, but imports are down a stunning 43%. What worries me the most? The possibility that the sharp y/y fall in imports doesn’t just reflect a fall in imported components or a fall in commodity prices, but rather a major deceleration in China’s domestic economy….At a time when the world is short demand, China seems to be subtracting from global demand not adding to it. The best solution: an absolutely enormous domestic stimulus in China. – More here.
Is China Is Facing A Demographic Time Bomb?
by Martin McCauley
China has the largest population in the world, which is now totalling about 1.35 billion, although its growth rate has fallen, due to the government’s one child policy.
China’s economic growth has been traditionally fuelled by a large market of rural labourers, willing to move to cities to seek employment. This migrant labour force is now thought to number about 150 million. It is not included in official statistics and those involved do not qualify for social benefits or state housing.
However, the era of the plentiful supply of labour is coming to an end. China’s population is ageing. There are now about 169 million, or 12.8 per cent of the population, who are over 60 years of age. China joined the ranks of ageing societies in 1999 when it recorded 10 per cent of people as pensioners. The increase in the ‘golden oldies’ over the last ten years has been about 50 million.
People are living longer – a testimony to economic prosperity – and if the present trend continues, by 2050, there will be only three people of working age to every pensioner instead of the present nine to one. This is an alarming prospect for a country in which state social spending has been low in order to channel as much as possible into investment for economic growth. One minister claimed recently that China still has about 250 million who can be classified as poor, almost all living in rural areas.
China may hit its target of 8 per cent growth this year. This is regarded as the level necessary to create about 25-30 million jobs a year in order to maintain social stability. The working age population is now thought to be about 930 million, or just over 70 per cent of the population. This may peak in 2016 when just under a billion will be of working age. Afterwards it will decline. – More here.
The dollar is dead – long live the renminbi
9/25/2009/7:42 P.M. BST
by Jeremy Warner
Whatever happens at the G20, the days of Western dominance are at an end, says Jeremy Warner.
The key question for G20 leaders as they meet in Pittsburgh is not bankers’ bonuses, financial regulation and other issues of peripheral importance, but whether this correction in trade might be used as the basis for a permanently more balanced world economy.
In direct contradiction of US objectives, Angela Merkel, the German Chancellor, accuses Britain and America of using the issue of trade imbalances to backtrack on financial reform and bankers’ bonuses. “We should not start looking for ersatz [substitute] issues and forget the topic of financial market regulation,” she said before boarding the plane to Pittsburgh.
To the big export nations, the primary cause of the crisis was Anglo Saxon financiers, whose wicked and avaricious ways created a catastrophe in the financial system, which led to a collapse in world trade. Once bankers are tamed, this one-off shock can be put behind us and the world will return to business as usual.
Blaming bankers is politically popular – Ms Merkel has an election to fight on Sunday – but the idea that the world economy will return to the way it was once this supposed cancer is removed is fanciful.
A seminal shift in behaviour is being forced on the deficit nations where, despite massive fiscal, monetary and financial system support, there is a continuing scarcity of credit and a growing propensity to save. Neither of these two constraints on demand will reverse any time soon.
This, in turn, is forcing change on surplus countries, whether they like it or not. Export-orientated nations can no longer rely on once profligate neighbours to buy their goods. Against all instinct, they are having to stimulate their own domestic demand.
The most startling results are evident in China, where retail sales grew an astonishing 15.4 per cent in August. Fiscal action has succeeded in boosting consumption in Germany, too, despite mistrust of what one German politician has dubbed “crass Keynesianism”.
Unfortunately for him, Germany will have to persist with its Keynesian medicine for some time yet if it is to avoid a collapse back into recession. Tax cuts and perhaps the removal of fiscal incentives to save are essential to the process of supporting domestic demand.
The challenge for a developing nation such as China is a rather different one. In China, the propensity to export and save is driven by an absence of any meaningful social security net, in combination with the legacy of its oppressive one child policy, which has deprived great swathes of the population of children to fall back on for support in old age.
What’s more, most Chinese don’t earn enough to buy the products they are producing, so in what has become the customary path for developing nations, they export the surplus and save the proceeds.
Yet even in China the establishment of a newly affluent, free-spending middle class may now have gained an unstoppable momentum. In any case, the country can no longer rely on American consumers to provide jobs and growth. It needs a new growth model, which means ultimately adopting the Henry Ford principle that if you want a sustainable market for your products, you have to pay your workers enough to buy them. – Complete story here.
Three Gorges Dam, another 17 billion euros needed
Costs of projected completed in 2006 continue to rise. These funds are needed for the local population, suffering its worst drought in 60 years.
Beijing[…] – The construction of the huge Three Gorges Dam, which interrupts the flow of water into the basin of the Yangtze River, has carried with it an avalanche of problems for the local population, requiring an additional 17 billion euros for their solution. The figure is in addition to the huge controversy – environmental and social – that have accompanied the entire project. So reports Chinese state media today.
According to the Government People’s Daily, a draft prepared by the central government plans to invest most money to support the population – largely farmers – who have been displaced by the dam’s construction. In fact, 1.3 million people lost their homes in this undertaking. If approved by Beijing, the investment will add to around 26 billion already invested in the dam, which provides a sort of lift for river boats as well as 26 electrical generators.
The governments of Chongqing and Hubei Province argue that not enough has been done to address the needs of the local area. According to Weng Lida, who works in the office for the environmental protection of the river Yangtze, 17 billion had been already budgeted just for the people: “It was supposed to help migrants find sustainable employment”. Li Feng, who worked on the construction plan, confirms the existence of these estimates, but they were ignored.
The epic of the Three Gorges Dam – a challenge to nature, strongly desired by the then premier Li Peng – began in the early 90s, when the government ordered the residents of the Yangtze basin to abandon homes and villages to allow work begin. According to the then Vice Premier Zou Jiahui, the project would cost no more than 6 billion euros. Despite the government’s alleged “humanitarian” motivations – that the dam was the only way to stop the flooding of the river – people began to protest violently against the decision.
Government orders to suppress the protests, culminated in the forced removal of farmers from the area. The project was completed in 2006[.] – Source
The China Bubble
12/10/2009/6:00 P.M. EST
by Gady Epstein
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.
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.) – More here.
What might happen in China this year?
Despite inflation, bankruptcies, and other problems, industrial enterprises should remain highly profitable.
by Gordon Orr
Inflation in food prices will take longer than expected to control. The drivers of inflation are much more structural than cyclical. Indeed, the entire system is now so highly stressed that one snowstorm brings large spikes in food and energy prices as coal runs short. When ice shuts down the roads, as it does today in much of southwestern China, agricultural products simply cannot get to market.
Chinese consumption patterns are shifting as people become wealthier—more meat eating requires more cereals to feed the animals. The food supply chain, running at the limit, is close to breaking, and the pressures this problem creates will lead to further food quality crises. What’s more, price caps won’t be effective in creating a better balance between supply and demand. Rising food prices are a pan-Asian issue: inflation has recently surged in Indonesia (chilies), India (onions), and South Korea (cabbage and now beef as a result of foot-and-mouth disease). China, given its large absolute demand for so many agricultural products, will shape food prices across Asia.
A major second- or third-tier Chinese city will see demonstrations over food price rises, unemployment, or both, on a much larger scale than anything that has occurred in recent years. The demonstrators will probably be satisfied quickly by local action to increase financial support for them and to replace local-government leaders. Yet concerns over copycat actions elsewhere will lead to a nationwide preemptive program to support the urban unemployed.
Middle-class bankruptcies will expand dramatically. Buyers have aggressively bought multiple properties with every penny of free cash flow. All that is needed for a wave of bankruptcies is further interest rate rises (targeting inflation) that result in a blip down in house prices just as mortgage payments rise. We have seen this before across major cities in Asia. The government will probably decide that it cannot bail such people out, as that would be seen as rewarding recklessness among the haves at the expense of the have-nots. There is already significant noise on the Internet to the effect that government leaders are completely out of touch with the true cost of urban housing. These leaders must take material action to show that they are aligned with the hopes of people just getting on the real-estate ladder. – More here
Contrarian Investor Sees Economic Crash in China
by David Barboza
SHANGHAI — James S. Chanos built one of the largest fortunes on Wall Street by foreseeing the collapse of Enron and other highflying companies whose stories were too good to be true.
Now Mr. Chanos, a wealthy hedge fund investor, is working to bust the myth of the biggest conglomerate of all: China Inc.
As most of the world bets on China to help lift the global economy out of recession, Mr. Chanos is warning that China’s hyperstimulated economy is headed for a crash, rather than the sustained boom that most economists predict. Its surging real estate sector, buoyed by a flood of speculative capital, looks like “Dubai times 1,000 — or worse,” he frets. He even suspects that Beijing is cooking its books, faking, among other things, its eye-popping growth rates of more than 8 percent.
“Bubbles are best identified by credit excesses, not valuation excesses,” he said in a recent appearance on CNBC. “And there’s no bigger credit excess than in China.” He is planning a speech later this month at the University of Oxford to drive home his point.
As America’s pre-eminent short-seller — he bets big money that companies’ strategies will fail — Mr. Chanos’s narrative runs counter to the prevailing wisdom on China. Most economists and governments expect Chinese growth momentum to continue this year, buoyed by what remains of a $586 billion government stimulus program that began last year, meant to lift exports and consumption among Chinese consumers.
Still, betting against China will not be easy. Because foreigners are restricted from investing in stocks listed inside China, Mr. Chanos has said he is searching for other ways to make his bets, including focusing on construction- and infrastructure-related companies that sell cement, coal, steel and iron ore.
Mr. Chanos, 51, whose hedge fund, Kynikos Associates, based in New York, has $6 billion under management, is hardly the only skeptic on China. But he is certainly the most prominent and vocal.
For all his record of prescience — in addition to predicting Enron’s demise, he also spotted the looming problems of Tyco International, the Boston Market restaurant chain and, more recently, home builders and some of the world’s biggest banks — his detractors say that he knows little or nothing about China or its economy and that his bearish calls should be ignored.
“I find it interesting that people who couldn’t spell China 10 years ago are now experts on China,” said Jim Rogers, who co-founded the Quantum Fund with George Soros and now lives in Singapore. “China is not in a bubble.”
Colleagues acknowledge that Mr. Chanos began studying China’s economy in earnest only last summer and sent out e-mail messages seeking expert opinion.
But he is tagging along with the bears, who see mounting evidence that China’s stimulus package and aggressive bank lending are creating artificial demand, raising the risk of a wave of nonperforming loans.
“In China, he seems to see the excesses, to the third and fourth power, that he’s been tilting against all these decades,” said Jim Grant, a longtime friend and the editor of Grant’s Interest Rate Observer, who is also bearish on China. “He homes in on the excesses of the markets and profits from them. That’s been his stock and trade.”
Mr. Chanos declined to be interviewed, citing his continuing research on China. But he has already been spreading the view that the China miracle is blinding investors to the risk that the country is producing far too much.
“The Chinese,” he warned in an interview in November with Politico.com, “are in danger of producing huge quantities of goods and products that they will be unable to sell.”
In December, he appeared on CNBC to discuss how he had already begun taking short positions, hoping to profit from a China collapse.
In recent months, a growing number of analysts, and some Chinese officials, have also warned that asset bubbles might emerge in China.
The nation’s huge stimulus program and record bank lending, estimated to have doubled last year from 2008, pumped billions of dollars into the economy, reigniting growth.
But many analysts now say that money, along with huge foreign inflows of “speculative capital,” has been funneled into the stock and real estate markets.
A result, they say, has been soaring prices and a resumption of the building boom that was under way in early 2008 — one that Mr. Chanos and others have called wasteful and overdone.
“It’s going to be a bust,” said Gordon G. Chang, whose book, “The Coming Collapse of China” (Random House), warned in 2001 of such a crash. – More here.
The coming economic crisis in China
Investors and analysts worry about a financial meltdown like the one that slammed the US and other developed nations. But Chinese leaders have other, more pressing problems.
1/14/2010/6:30 P.M. ET
by Jim Jubak
I think investors are worried about the wrong kind of crisis in China.
Worry seems to focus on the possibility of an asset bubble and the chance that it will burst sometime in the next two to three months.
I’m more concerned about a slide into a crisis that will be an extension of the Great Recession. That slide could begin, I estimate, sometime in the next 12 to 18 months.
I understand the worry about the possibility of an asset bubble in China. After all, we’ve just been through two horrible asset bubbles — and busts — in the U.S. and global financial markets. And a Chinese bubble is a distinct possibility, one that should certainly figure into your investing strategy.
But China’s economy and political system are so different from ours in the U.S. and those in the rest of the developed world — and its relationship to the global financial market so unique — that I don’t think we’re headed toward any kind of replay of March 2000 or October 2007.
A bigger worry is a long-term slide into a lower-growth or no-growth world in which nations strive to beggar their neighbors and all portfolios slump. As crises go, it’s very different but ultimately just as painful for investors as the asset bubbles that draw all our attention now.
To paraphrase Leo Tolstoy in “Anna Karenina”: Happy bull markets are all alike; every unhappy bear market is unhappy in its own way.
Toil and trouble
Most analyses of China’s economic troubles begin, rightly, with the river of money flowing into the nation’s economy.
How deep is that river?
Start with the $585 billion in official stimulus spending. Add in bank lending that more than doubled, to $1.4 trillion, in the first 11 months of 2009 from $615 billion in all of 2008. And factor in continued runaway lending of $88 billion in the first week of January. If that rate were to continue, China’s banks would wind up lending 50% more in January 2010 than they did in the first month of 2009.
All this has led to an explosion in the country’s money supply. Money supply as measured by M1 was up 35% in December from 12 months earlier.
All that money has to go somewhere. Some of it has gone into productive loans or government-financed capital projects. But, clearly, huge amounts have been siphoned off — in ways that China’s politically connected capitalists know how to do so well — into speculation in real estate and the stock market.
This has led to the enormous price increases for those assets that have stoked fears of a 2007-style financial-asset bust. – More here.
China’s worthless economic statistics
by Hari Sud
Toronto, ON, Canada, — China is trying hard to project itself as one of the world’s greatest economic power with worthless economic statistics is what China’s National Bureau of Statistics headed by Ma Jiantang said on January 28.
Ma was complaining during the national statistics works conference that provincial officials routinely fudge and inflate numbers to make them look good. The rigged statistics become gospel and economists and analysts all over the world use it to polish China’s image. Chinese leaders smilingly acknowledge the attention despite knowing that the statistics are fudged.
The margin of error in China’s gross domestic product statistics over the past 20 years is at least 15 to 20 percent. It could have been higher, but the NBS corrected some errors though not all.
As per the U.S. Central Intelligence Agency’s World Factbook, China’s 2009 GDP at purchasing power parity is US$8.8 trillion. If the figure is overstated by 20 percent, then the true value should be US$7 trillion. But that still puts China much behind the United States and the European Union but well ahead of Japan. India is behind with US$3.6 trillion. One should however note that China exports 62 percent of its output while India consumes 62 percent of its output internally.
Chinese leaders are unmindful of all the faulty statistics. They have acquired airs of greatness around them and anybody that questions them is no longer their friend. The statistics are prepared to support the Communist Party’s agenda that includes 10 percent growth in a recession year. Therefore, provincial leaders fudge the numbers to make them look good.
Professor Thomas Rawski, a Harvard educated Sinologist, has been following Chinese statistics for the past 30 years. In 2003, he pointed out that China’s GDP grew at about half the level of what it was officially stated. Florence Chan, a Hong Kong based journalist holds a similar view. Both have studied the five-layered Chinese statistics preparation process and both have pointed out errors in the statistics.
The U.S. based bi-monthly magazine Foreign Policy said in their September 2009 issue, “Western media outlets often portray Chinese book-cooking as part and parcel of a monolithic central government and omnipotent Beijing bureaucrats. But the problem is manifold, a product of centralized government as well as decentralized officials.”
However, the lower levels of government cannot be exclusively blamed for cooking up the books, as the pressure comes from the Central Government to meet targets. That explains why the fudging of data is standard process.
Not to be misled by faulty statistics, China is still a very large economy. It is one of the largest exporters of consumer goods and deposits US$300 billion to US$400 billion every year in U.S. and European banks. It is the largest holder of foreign exchange deposits at US$2.2 trillion. Although its status is envied by nations, it could deflate if all the statistical faults are cleaned up and their books are open to public scrutiny.
The issue of China’s faulty statistics has become more interesting especially in light of Ma’s complaint. He has not been fired yet, which means there is some support to his complaint. He backed his complaint by providing some insight in the provincial data submitted for consolidation.
According to Ma, data submitted by the provinces in the first half of 2009 exceeded the national GDP figure calculated by NSB by 1.4 trillion yuan (US$204 billion), which is 10 percent of total GDP. The error was 19 percent in 2004.
It is a systemic problem and is encouraged by some members of the Communist Party that were former provincial lords and fudged numbers themselves. So, they do not question the people in-charge now at the province level. However, for other politburo members, this is not a laughing matter. They are hard stuck by the disclosures.
There is also a strong argument for inefficiency in the economic management of the country. Nobody knows what is behind their US$583 billion stimulus package of 2008-09 or the US$1.5 trillion in loans they advanced last year.
If 62 percent of China’s total products and services were exported and if markets have shrunk, then how can they claim some 10 percent growth in their economy for 2009? There is only one way it can happen – stockpile the output. In such cases, when the stockpile is released together with continued output, goods flood the markets. That has dire consequences in the market place and the forgoing is a very difficult subject for Chinese leaders to discuss. So, they hide behind a virtual wall of national secrets.
The danger of inaccurate data is so great internally and externally that it could lead to a collapse. Investors are weary of inaccuracies. They tend to pull their money out once the lies are discovered and when foreign investors sell short, it creates havoc in the financial markets.
What is behind all the lies? The Chinese leadership urgently desires to look and behave like a developed nation. So, they built brand new infrastructure to showcase their progress. Whether they need it or not is a secondary matter, as long as it gives them a brand new look.
China is presently classified as a developing country and in 10 years they desire to be classed on par with developed countries like the United States, Europe and Japan. For that to happen they need 10 to 12 percent growth every year. This is the big reason behind all the lies and the Chinese leadership does not mind the dangers in fudging data.
The Western media is coy about China’s cookbook factory of statistics. It is still dubbed the land of mysteries, dictatorship and strange ways of doing things. But they like China and their money deposited in U.S. banks and do not hesitate to boost the egos of Chinese leaders by heaping praise on them. The result is an overconfident, obtuse and arrogant China.
Every leader in the Western world knows that something is wrong in China’s statistics. But none have the guts to tell them. Had it been India, Indonesia or Russia, they would have made it a subject for jokes and laughter.
There is only one possibility that the statistics could result in a major economic disaster. The plan by Chinese leaders of creating a future based on fudged statistics may find no takers at a later time.
For example, China misunderstood their prosperity and spent some US$50 billion on the 2008 Beijing Olympic games for prestige only. Presently, they are building an ultra modern infrastructure that could hand them little return in the future.
They have a bigger problem on hand with the U.S. asking them to revise their currency value. Any currency adjustments can put a lot of marginal manufacturing in China out of work and they will have to invest more money in high value, high margin exports.
There is a strong case for changing China’s process of preparing economic statistics. But the West is not pressing China strong enough to change its behavior. The Chinese do not see the need, as inflated statistics bring them accolades of praise. – More here (note Sara’s comment on the bottom of the article).
China has become the world’s second largest economy, with Japan surrendering its 42-year-old ranking after its economy shrank in the final months of 2010.
Japan data confirms China as world’s second largest economy.
by Malcolm Moore
2/14/2011/5:26 P.M. GMT
[Shanghai –] China has claimed since as early as 2008 that it either was, or was imminently poised to become, the world’s second-largest economy.
Until now, Japanese economists have patriotically refuted the Chinese figures. However, weak consumer spending and a strong yen saw Japan’s gross domestic product (GDP) fall by an annualised rate of 1.1pc in the final quarter.
That allowed China to pull ahead with a GDP total of $5.88 trillion (£3.68 trillion) for 2010, on a non-adjusted nominal dollar basis, compared to $5.47 trillion for Japan.
By comparison, the United States recorded GDP of $14 trillion in 2009, but experts have predicted that after sweeping past Germany, France, the UK and now Japan, China will catch up with the US by as early as 2030.
Similar predictions were made for Japan’s prospects during the 1980s. However, after more than a decade, being overtaken by China reflects Japan’s declining political and economic power.
Once China’s greatest enemy, and rival, Japan’s prospects are now dependent on ties with its bigger neighbour, the government admitted. – More here
China Passes Japan as Second-Largest Economy
by David Barboza
SHANGHAI — After three decades of spectacular growth, China passed Japan in the second quarter to become the world’s second-largest economy behind the United States, according to government figures released early Monday.
The milestone, though anticipated for some time, is the most striking evidence yet that China’s ascendance is for real and that the rest of the world will have to reckon with a new economic superpower.
The recognition came early Monday, when Tokyo said that Japan’s economy was valued at about $1.28 trillion in the second quarter, slightly below China’s $1.33 trillion. Japan’s economy grew 0.4 percent in the quarter, Tokyo said, substantially less than forecast. That weakness suggests that China’s economy will race past Japan’s for the full year.
Experts say unseating Japan — and in recent years passing Germany, France and Great Britain — underscores China’s growing clout and bolsters forecasts that China will pass the United States as the world’s biggest economy as early as 2030. America’s gross domestic product was about $14 trillion in 2009.
“This has enormous significance,” said Nicholas R. Lardy, an economist at the Peterson Institute for International Economics. “It reconfirms what’s been happening for the better part of a decade: China has been eclipsing Japan economically. For everyone in China’s region, they’re now the biggest trading partner rather than the U.S. or Japan.”
For Japan, whose economy has been stagnating for more than a decade, the figures reflect a decline in economic and political power. Japan has had the world’s second-largest economy for much of the last four decades, according to the World Bank. And during the 1980s, there was even talk about Japan’s economy some day overtaking that of the United States.
But while Japan’s economy is mature and its population quickly aging, China is in the throes of urbanization and is far from developed, analysts say, meaning it has a much lower standard of living, as well as a lot more room to grow. Just five years ago, China’s gross domestic product was about $2.3 trillion, about half of Japan’s.
This country has roughly the same land mass as the United States, but it is burdened with a fifth of the world’s population and insufficient resources. [Wow, what an evil liberal to call China’s people “a burden”. Does that include the unborn babies?] – More here
Why China’s Housing Bubble Will End Badly
by Charles Hugh Smith
Imagine that your local city and county controlled all land rights, and the only ownership a private builder or developer could secure was a long-term lease. Now imagine that 40% of the city and county’s revenues come from the lease fees paid by developers. Next, imagine a giant real estate bubble has priced most residents out of the market, and that the local governments are reaping huge gains as the development rights and leases they sell are skyrocketing.
Can you say [“]conflict of interest[“]?
That’s the Chinese real estate dynamic in a nutshell. Local governments have every incentive to push lease prices higher, further fueling China’s real estate bubble, and zero incentive to build low-cost housing for the average citizen.
Minxin Pei, professor of government at Claremont McKenna College and a senior associate at the Carnegie Endowment for International Peace, recently described who benefits from what he termed China’s “irrationally exuberant” property market: Local government and its officials, and state-owned enterprises (SEOs), which have exploited their ties to government-controlled banks to enter the speculative real estate market with a vengeance.
“With access to almost unlimited no-cost credit from the state-controlled banking system,” he wrote, “these behemoths have abused their financial clout and plunged headlong into the real estate market, snapping up high-priced land and investing in high-end residential housing units that now sit empty across the country.”
Once you understand this dynamic, it’s not difficult to see why China’s housing bubble will end badly. Local governments are so heavily dependent on development fees and taxes for their revenues that any fallback in new development will spell catastrophe for city and regional government budgets.
Who Pays for the Bailout
Who will lose when the bubble inevitably deflates?
Residents will suffer because government services will have to be slashed as revenues from development fees collapse.
The Chinese investors who overpaid for grossly inflated luxury condos will suffer massive losses, developers dependent on a fast-rising bubble market will go bust, and somebody will end up covering the losses as bankrupt developers renege on their loans.
Since most of the loans came from government-owned banks, then that “somebody” will be the Chinese taxpayer. – More here
China, Russia quit dollar
by Su Qiang and Li Xiaokun
St. Petersburg, Russia – China and Russia have decided to renounce the US dollar and resort to using their own currencies for bilateral trade, Premier Wen Jiabao and his Russian counterpart Vladimir Putin announced late on Tuesday.
Chinese experts said the move reflected closer relations between Beijing and Moscow and is not aimed at challenging the dollar, but to protect their domestic economies.
“About trade settlement, we have decided to use our own currencies,” Putin said at a joint news conference with Wen in St. Petersburg.
The two countries were accustomed to using other currencies, especially the dollar, for bilateral trade. Since the financial crisis, however, high-ranking officials on both sides began to explore other possibilities.
The yuan has now started trading against the Russian rouble in the Chinese interbank market, while the renminbi will soon be allowed to trade against the rouble in Russia, Putin said.
“That has forged an important step in bilateral trade and it is a result of the consolidated financial systems of world countries,” he said.
Putin made his remarks after a meeting with Wen. They also officiated at a signing ceremony for 12 documents, including energy cooperation.
The documents covered cooperation on aviation, railroad construction, customs, protecting intellectual property, culture and a joint communiqu. Details of the documents have yet to be released.
Putin said one of the pacts between the two countries is about the purchase of two nuclear reactors from Russia by China’s Tianwan nuclear power plant, the most advanced nuclear power complex in China.
Putin has called for boosting sales of natural resources – Russia’s main export – to China, but price has proven to be a sticking point.
Russian Deputy Prime Minister Igor Sechin, who holds sway over Russia’s energy sector, said following a meeting with Chinese representatives that Moscow and Beijing are unlikely to agree on the price of Russian gas supplies to China before the middle of next year.
Russia is looking for China to pay prices similar to those Russian gas giant Gazprom charges its European customers, but Beijing wants a discount. The two sides were about $100 per 1,000 cubic meters apart, according to Chinese officials last week.
Wen’s trip follows Russian President Dmitry Medvedev’s three-day visit to China in September, during which he and President Hu Jintao launched a cross-border pipeline linking the world’s biggest energy producer with the largest energy consumer.
Wen said at the press conference that the partnership between Beijing and Moscow has “reached an unprecedented level” and pledged the two countries will “never become each other’s enemy”.
Over the past year, “our strategic cooperative partnership endured strenuous tests and reached an unprecedented level,” Wen said, adding the two nations are now more confident and determined to defend their mutual interests.
“China will firmly follow the path of peaceful development and support the renaissance of Russia as a great power,” he said.
“The modernization of China will not affect other countries’ interests, while a solid and strong Sino-Russian relationship is in line with the fundamental interests of both countries.”
Wen said Beijing is willing to boost cooperation with Moscow in Northeast Asia, Central Asia and the Asia-Pacific region, as well as in major international organizations and on mechanisms in pursuit of a “fair and reasonable new order” in international politics and the economy.
Sun Zhuangzhi, a senior researcher in Central Asian studies at the Chinese Academy of Social Sciences, said the new mode of trade settlement between China and Russia follows a global trend after the financial crisis exposed the faults of a dollar-dominated world financial system.
Pang Zhongying, who specializes in international politics at Renmin University of China, said the proposal is not challenging the dollar, but aimed at avoiding the risks the dollar represents.
Wen arrived in the northern Russian city on Monday evening for a regular meeting between Chinese and Russian heads of government.
He left St. Petersburg for Moscow late on Tuesday and is set to meet with Russian President Dmitry Medvedev on Wednesday. – Source
China May Surpass U.S. by 2020 in `Super Cycle,’ Standard Chartered Says
by Shamim Adam
11/14/2010/8:49 P.M. PT
China will overtake the U.S. to become the world’s largest economy by 2020, helped by faster expansion and an appreciation of its currency, according to Standard Chartered Plc.
“We believe that the world is in a ‘super-cycle’ of sustained high growth,” economists led by Gerard Lyons said in a report published today. “The scale of change over the next 20 years will be enormous.”
China’s economy will be twice as large as the U.S.’s by 2030 and account for 24 percent of global output, up from 9 percent today, Lyons said in the 152-page Super-Cycle Report. India will surpass Japan to be the third-biggest economy in the next decade, according to the report. Goldman Sachs Group Inc. estimates China will overtake the U.S. by 2027.
The world may be experiencing its third “super-cycle,” which is defined as “a period of historically high global growth, lasting a generation or more, driven by increasing trade, high rates of investment, urbanization and technological innovation, characterized by the emergence of large, new economies, first seen in high catch-up growth rates across the emerging world,” Standard Chartered said.
Output in China, the largest maker of mobile phones, computers and vehicles, surpassed Japan for the second straight quarter in the three months through September, Japan’s government said today. The Chinese economy overtook the U.K. as the fourth largest in 2005 and tipped Germany from third place in 2007.
China has expanded by an average 10.3 percent a year over the past decade compared with an average 1.8 percent for the U.S. Standard Chartered estimates growth will slow to an annual 8 percent pace by the middle of the decade, easing to 5 percent from 2027 to 2030.
The U.S. economy, by contrast, still faces another year or two of “sluggish growth,” forecast at 1.9 percent in 2011, before returning to its long-term trend rate of expansion of 2.5 percent in three to four years, Nicholas Kwan, Hong Kong-based regional head of Asia research at Standard Chartered, said in a telephone interview.
China’s comparatively faster expansion, together with an expected 25 percent appreciation of the yuan, should be enough for its nominal gross domestic product to exceed that of the U.S. by the end of the decade, Kwan said. – More here
Chart of the Day: Is This the Chinese Housing Bubble?
by Derek Thompson
3/16/2011/5:05 P.M. ET 1
Residential housing investment as a share of China’s GDP has tripled from 2% in 2000 to 6% in 2011 — the same mark U.S. housing hit before imploding.
China is trying to tap the breaks on runaway housing, as home prices in Beijing and Shenzhen are up about 140% in the last five years. But this carries its own risks. Efforts to control home prices while raising interest rates could result in a wave of middle-class bankruptcies, McKinsey Quarterly predicted. – Source
‘China could surpass US economy by 2030’
from Business Times
HONG KONG: China could overtake the US as the world’s largest economy if it maintains annual growth of 8 per cent over the next 20 years, the World Bank’s chief economist said yesterday.
China, which last year overtook Japan as the number two economy, has already set a growth target of 8 per cent for 2011, and is aiming for 7 per cent a year from 2011 to 2015.
“China may become the largest economy in the world by 2030,” Justin Lin told an economic forum on China development in Hong Kong, saying its economic size may then be twice as large as the US, measured by purchasing power parity.
He said China has been the world’s fastest growing nation over the past two decades and grew at a “miracle” annual growth rate of 10.4 per cent between 1990-2010, a sharp contrast to the performance of other transitional economies.
The economist, however, warned expansion may be hampered by a weak global recovery from the financial crisis and urged the country to deal with domestic challenges such as addressing its increasing income inequality.
He also said global warming may pose a “real challenge” to China’s long-term sustainability, but urged China – the world’s biggest polluter – to seize the opportunity and instead turn itself into a new leader in green technology.
“It’s necessary for China to continue its growth. These are challenges for China but they are also opportunities for China,” said Lin, who assumed the World Bank post since 2008. – Source
China Vows to Punish Those Responsible for Leaking Economy, Inflation Data
by Bloomberg News
4/15/2011/2:53 A.M. PT
China’s statistics bureau said it “condemns” leaks of economic data and those responsible will be punished, after the office released economic indicators that matched rumors circulating in the market and online yesterday.
“We believe any illegal behavior will be punished by law,” Sheng Laiyun, a spokesman for the department, told a briefing in Beijing today. “Those spreading state secrets on the Internet or other public information networks should be held accountable.” [And what about government officials who disobey God by oppressing and murdering its citizens? Should you believe that God will punish them, or let them go free and unharmed?] – More here
From the Wall Street Journal’s “China Real Time Economy” News:
Economists React: China’s Inflation, Growth
by Aaron Back
4/15/2011/2:30 P.M. Hong Kong Time
China’s economic growth slowed slightly in the first quarter, but inflation accelerated to a nearly three-year high in March. The country’s gross domestic product rose 9.7% from a year earlier in the first quarter, data released Friday by the National Bureau of Statistics show, down marginally from the 9.8% expansion in the fourth quarter of 2010. Meanwhile, the consumer price index rose 5.4% from a year earlier in March, up from 4.9% in February and the fastest since July 2008. Economists react:
The Chinese economy is not slowing as planned, or desired, with GDP expanding 9.7% year-on-year in the first quarter to 9.63 trillion yuan. The strong economic performance through Q1, despite the myriad tightening measures put in place over the past six months, should give policymakers confidence to more aggressively attack inflation and its root causes. Indeed, with CPI jumping to a 32-month high, it is not hard to argue for further tightening. —Alistair Thornton and Xianfang Ren,
Inflation in China accelerated to a nearly three-year high in March, and growth remains strong despite the country’s efforts to cool the economy. WSJ’s Jake Lee and Alex Frangos discuss what’s next for China.
Both 1Q11 GDP growth and March CPI inflation were above street consensus… Our overall assessment is that economic growth is stable and robust, but inflation pressure is elevated (though definitely not out of control). The next peak of inflation will likely be in June at 5.5%-6%. The government raised tone on inflation-fighting, but also issued warning on over-tightening. Regarding market impact, most major data were leaked in the past two days, so informed investors should expect no shocks. Overall, we think investors should remain cautious as the Chinese government itself sees many uncertainties… CPI dropped 0.2% MoM in March due to seasonality. Usually it should drop more in the post-(Lunar New Year) holiday time from February to March, and that’s why policymakers are a bit nervous about inflation pressures and they raised tone on inflation fighting this week. —Lu Ting, Bank of America-Merrill Lynch
Not much of a surprise in the data, though the activity numbers are perhaps a little stronger than expected, with little evidence to date that rate hikes, a stronger currency, and higher oil prices are having much of an impact on growth. Inflation of course, is the main issue in the short term—we think price pressures will ease in the second half of the year, but there is still more upside in the next few months, and the risk is that high oil prices will keep headline inflation stronger for longer. This also suggests that policy rates still need to move higher in the months ahead, with Beijing also likely to favor further currency appreciation to help get inflation lower. —Brian Jackson, Royal Bank of Canada
China’s inflation has been running at a high level for more than a year due to the post-financial crisis expansion of money supply, the rise in agricultural prices… – More here