PRC Economy - New Reflections : Dec 15 2011

[kish]

Violent clashes

On Saturday, police dispersed more than 1,000 protesters in Ningbo.

Witnesses described scuffles and said a few people were arrested.

China protesters force halt to Zhejiang factory plan

[Christopher Sidor]

http://www.khaleejtimes.com/biz/inside. ... ber146.xml

China’s economy to rebound


(Bloomberg) / 28 October 2012

China’s economy will probably rebound in the fourth quarter, Jia Kang, a Ministry of Finance researcher, said at a conference reviewing China’s economic performance in Beijing on Saturday.

Yes there are signs that Chinese economy is starting to grow again. That is good. It is good for world economy and that is good for India. I hope that it continues to grow. I said hope, because of what is happening on the other side of demand-supply equation. IF China is the supply than North Atlantic region is the Demand. On the Demand side a de-leveraging of massive proportions is going to be carried out over a period of 4-7 years. If we add up the figures, I dont recall any comparable debt reduction which will come close.

American households or consumers have not had any real, i.e. inflation adjusted, wage growth in the 1st decade of this century. Yet China saw massive growth in this first decade because of what americans did with their real-estate protfolio. Taking not one but multiple home-equity loans on their homes. This decade too the wage growth will remain muted. But this decade Americans will not have the real-estate to increase their spending spree.

And all is not well on the supply side too. 3-5 years from now from now China's working age population would have peaked. Then it would start declining at a rapid, some say scary, clip. Add to this the pressure from other low cost manufacturing regions, like Vietnam, Bangladesh, etc. Yes China built its advantage on cost differential. Just as Indian IT built on its wage-differential compared to American/Canadian/European/etc wages.

Why is this important? Because the optimism that China will somewhere after 2025 overtake US is based on it maintaining its double digit growth rate. That does not seem likely. What this effectively does is push back even further the date when China overtakes US if it can be actually achieved. And in case Chinese did not get it, they became the number 2 economy of this planet because the number 3 economy is stuck in a rut lasting more than 10 years and still counting. It was Japanese inability to come out of their deep morass that allowed China to take the 2nd position. Please note that I am not belittling the progress of China. Chinese due to their sheer hard work and single minded focus on economic progress have achieved what they have achieved and they should be proud of what they have achieved.

[VikramS]

http://www.cnbc.com/id/49635055

Talking about how professional Chinese feel insecure in the CCP ruled world.

[Ameet]

Rich Chinese want to buy happiness -- by emigrating

Wealthy Chinese look to the U.S., Australia and Canada in search of less stress, cleaner air, better schools and a more stable political climate.

http://www.latimes.com/news/nationworld ... k=lat-pick

At 49, Wang Zeqiang has achieved the Chinese equivalent of the American dream. Raised in the cornfields of eastern China's Shandong province, he founded an auto parts business that today has several dozen employees. He has two houses, two cars and, because he's rich enough to pay the fines for defying the country's family planning policy, two children.

Now, all that is missing — what he covets most — is a foreign passport.

A recent poll of Chinese with a net worth of more than 10 million yuan ($1.6 million) found that 16% had obtained foreign residency and that an additional 44% were planning to emigrate. Many cite a polluted atmosphere, and not just in the air they breathe: endemic corruption, a shaky political system, tainted products and poor medical care, among other problems.

The exodus of the middle and upper classes is an embarrassment to the government, with possibly serious economic implications because the emigres are taking with them money and skills. In an attempt to prevent capital flight, Chinese laws limit people from taking more than $50,000 a year out of the country, but it is easy enough to get around the restrictions.

[Don]

Rich Chinese want to buy happiness -- by emigrating

Wealthy Chinese look to the U.S., Australia and Canada in search of less stress, cleaner air, better schools and a more stable political climate.

http://www.latimes.com/news/nationworld ... k=lat-pick

.

How is that any different from Indians though ? Look at UK or Surrey in BC Canada, US etc its filling up with them.

At least in China people are now having second thoughts :

http://www.scmp.com/news/china/article/ ... -passports

For many wealthy mainland Chinese who immigrated to the US, an American passport is a genie that cannot be put back in the bottle.

More and more of them are thinking about renouncing their US citizenship, something that would have been almost unimaginable a decade ago, when getting a US passport was the ultimate status symbol in China.

Wu, a 31-year-old housewife who asked to be identified only by her family name, said she started toying with the idea about a year ago. "I regret it to death, all of my friends regret it to death," said Wu about taking out US citizenship. "I'm never going back."

[Suraj]

Don, a note of caution: dragging India into the discussion is discouraged, and has earned others a warning or ban recently. This is a thread about China. Please stop responding to criticism about China by bringing India up.

[g.sarkar]

http://www.sfgate.com/opinion/brinkley/ ... 004258.php
China's in big trouble - should U.S. worry?
Joel Brinkley
Sales of Swiss watches to China have fallen by almost 30 percent in recent months, and jewelry sales are plummeting, too. So there can be little doubt the country is in deep trouble.
As the American presidential campaign grinds toward its inglorious end, President Obama and Mitt Romney are both trying to show how tough they will be on China, infuriating Beijing. At the same time, Obama is "pivoting" the military toward Asia, away from the Middle East, obviously worried about China.
But when you look at what's actually happening there, you have to begin wondering: Should the United States really be so concerned? China's situation is grave.The growth of China's gross domestic product has continued to slow every quarter since late 2010, and that's just one of many problems. In fact, when Xi Jinping is chosen to be China's new president this month, he will inherit a state of affairs far worse than Obama's when he became president almost four years ago. And how Xi handles that will have a significant impact on the United States. For example, Cummins, a major American engine manufacturer, says it must lay off up to 1,500 people by year's end because of soft demand from China, whose problems areicocheting through the American economy. But China's troubles at home are even more daunting - economic, political, social. And as the government transition approaches, all of it seems to be coming to a head. Some salient examples: Money is flowing out of the state at an alarming rate. Wealthy Chinese have no faith in their state.
Of course, China does not make public any figures. But reliable estimates from journalists and economists published in October place the amount leaving the country at between $225 billion and $300 billion over the last year - 3 to 4 percent of China's economic output for the period. That is so even though moving significant amounts out of the country is strictly illegal. The outflow is growing larger every year, just as the GDP continues to fall - not a coincidence.
At the same time, the Chinese people are in open revolt over corruption, poor product quality, land seizures, environmental abuse and so much more - nearly 500 public demonstrations are staged every day.Judging from what they're saying on Weibo, China's social-media site, Chinese seem most angry about rampant corruption. So last week, when the New York Times reported that Premier Wen Jiabao's extended family - school teachers and pig farmers, primarily - was inexplicably worth $2.7 billion, government censors immediately blocked Web access to the Times. The government also has been trying to censor discussion of the story on Weibo.
The situation is growing so bad that Strategy and Reform, one of China's own think tanks, warned publicly that "China is confronting a perilous jump, one it can neither hide from nor avoid, no matter what. There's a potential crisis in China's model of economic growth."
Jinglian, a prominent economist writing in Caijing, a business magazine, said: "China's economic and social contradictions seem to be nearing a threshold.".......
Gautam

[peter]

http://www.sfgate.com/opinion/brinkley/ ... 004258.php
China's in big trouble - should U.S. worry?
Joel Brinkley
Sales of Swiss watches to China have fallen by almost 30 percent in recent months, and jewelry sales are plummeting, too. [..]

This is interesting because luxury goods are usually immune to economy. But if then economy has started affecting the enthu of the upper 1% then the economy is in trouble for sure.

Would be awesome if the new president in the US tightens the screws and brings the chinese to a reasonable level. All he has to do is cancel some large imports and move their manufacturing into NAFTA umbrella across the border in Mexico.

[ArmenT]

This is interesting because luxury goods are usually immune to economy. But if then economy has started affecting the enthu of the upper 1% then the economy is in trouble for sure.

If you read further down the article linked by g. sarkar above, it isn't the top-end luxury goods that are seeing falling sales. It is the lower-end luxury stuff that is seeing the reduced sales. From later down the article:

In fact, right now the mega-wealthy, including many government officials, are still doing quite well. Yacht and big-diamond sales are soaring, but sales of less-expensive luxury goods are not. The Burberry coat and Hennessy cognac companies have issued profit warnings because of plummeting sales in China.

Top 1% folks are doing just fine. It is the middle and upper middle class that is showing less enthusiasm for luxury goods.

[Singha]

problem for india and china in retaining their best 5% people is for next few decades, for average case, the US/EU will still be able to offer better (easier) career prospects or some niche to profitably make a lot of money from...easier than slogging it out in the homeland.

the best 5% have a outsize impact in any field.

[peter]

This is interesting because luxury goods are usually immune to economy. But if then economy has started affecting the enthu of the upper 1% then the economy is in trouble for sure.

If you read further down the article linked by g. sarkar above, it isn't the top-end luxury goods that are seeing falling sales. It is the lower-end luxury stuff that is seeing the reduced sales. From later down the article:

In fact, right now the mega-wealthy, including many government officials, are still doing quite well. Yacht and big-diamond sales are soaring, but sales of less-expensive luxury goods are not. The Burberry coat and Hennessy cognac companies have issued profit warnings because of plummeting sales in China.

Top 1% folks are doing just fine. It is the middle and upper middle class that is showing less enthusiasm for luxury goods.

Thanks! Would you say it is even more worrying?

[wig]

China's economic destiny in doubt after leadership shock
The forces of reaction and economic folly threaten to prevail in China. The long political arm of Jiang Zemin has reached out from the shadows to thwart reform, with huge implications for Asia and the world.
excerpts

The South China Morning Post says the new line-up of the Politburo's Standing Committee is "packed with conservatives". The succession deal agreed over the summer has been scuppered.

The 86-year Mr Jiang -- who rose to supreme leader on the bones of Muxidi and Tiananmen in 1989 -- has placed his accolytes in charge of the economy, propaganda, as well as the Shanghai party machine.

The hardliners seem poised to snatch control of the seven-man Committee, tying the hands of incoming president Xi Xinping and premier Li Keqiang. If confirmed, long-term investors may have to rethink their core assumption about the future course of China

and on the economic rebound

These were the two rising stars annointed by outgoing President Hu Jintao to carry through the great economic reform, averting the "middle income trap" that lies in wait for any catch-up nation that relies too long on cheap exports, imported technology, and indiscriminate state credit.

Their defeat looks like a triumph for status quo hardliners who claim that tight party control of banks and key industries shielded China from the global capitalist heart attack of 2008-2009. Whether they really believe this -- or merely aim to safeguard vested interests -- it is arrant nonsense.

China rebounded in 2009 because it blitzed the system with fiscal stimulus worth 16pc of GDP, and because credit growth running near 30pc each year had not yet run out of momentum. It was a short-term cyclical effect.

some statistics point to a outcome which won't be pretty

The contours of China's excess are by now well-known. Investment reached a world record 49pc of GDP last year, a level unseen in other Pacific tigers during their growth spurts. Consumption has fallen to 37pc of GDP, from an already very low 48pc a decade ago.

Negative real interest rates and restrictions on investing abroad forced savings into a housing bubble, pushing home to income ratios to 16 to 18 or even higher in Beijing, Shanghai, Tianjin, and Shenzhen.

As premier Wen Jiabao likes to put it, China's economy is "unstable, unbalanced, uncoordinated and ultimately unsustainable." It is why his allies in China's Development Research Centre (DRC) joined forces earlier this year with the World Bank to warn that the export-led growth model launched thirty years ago by Deng Xiaoping's is now obsolete.

The low-hanging fruit of state-driven industrialisation has been picked. Stagnation lies in wait if the country clings to the dirigiste model. "China has reached another turning point in its development path when a second strategic, and no less fundamental, shift is called for," they said,

"The forces supporting China’s continued rapid progress are gradually fading. The government’s dominance in key sectors, while earlier an advantage, is in the future likely to act as a constraint on creativity."

Their report said the country risks hitting the sort of "invisible ceiling" that blighted Latin America in the 1960s and 1970s. Remarkably few states have managed to break out of the middle income trap and jump -- as Japan, Korea, and now Chile have done -- to the vastly higher per capita income levels of the OECD bloc.

China has used up its catch-up cards, reaching the Lewis Point where the flood of cheap labour from the countryside dries up. It faces a "wrenching demographic change" as the old-aged dependency ratio doubles to North European levels within 20 years.

Manufacturing wages have been rising by 16pc a year for a decade, outstripping productivity. The gains from now on must come the hard way -- from inventive dynamism. That is nigh impossible in a top-down system where free thinking is suspect, and party bosses channel credit to pet projects.

"The role of the private sector is critical because innovation at the technology frontier is quite different in nature from catching up technologically. It is not something that can be achieved through government planning."

The picture is not black and white, of course. China is a mosaic of different systems. The party allows local trial and error under its strategy of "crossing the river by feeling the stones", but the state's grip remains suffocating. The report said a quarter of China’s state companies are losing money. They have a productivity growth rate two-thirds lower than private firms, yet they gobble up most of the available credit.

We don't know the the real state of official finances. The DRC said state enterprises have built up "large contingent liabilities" that have yet to be accounted for. It revealed two weeks ago that local government debt is out of control in a number of regions, with debt service costs exceeding 100pc of the total budget in 78 cities.

It said that 42pc of local debts come due by the end of 2012. Presumably they will be rescued by state banks in one way or another, but that merely perpetuates a broken model.

The World Bank and the DRC say there is nothing inevitable about China's economic fate. Whether it succeeds or fails is entirely a political choice, and one that is being made before our eyes.

http://www.telegraph.co.uk/finance/comm ... shock.html

[gunjur]

China leads the scramble for Greenlands Resources

With global warming thawing its Arctic sea lanes, and global industry eyeing minerals under this barren island a quarter the size of the United States, the 57,000 Greenlanders are wrestling with opportunities that offer rich rewards but risk harming a pristine environment

In capital Nuuk (formerly known by its Danish name Godthab), home to 16,000 people on the southwestern coast, 1,000 sea miles north of Newfoundland, there are just two traffic lights. But new construction is everywhere: gleaming office buildings that house foreign companies and even a new mall

Greenland's Bureau of Minerals and Petroleum has now awarded overall some 150 licenses for mineral exploration compared with only a handful in existence a decade ago, with around $100 million spent by companies last year alone. Oil companies have spent more than $1 billion in exploring offshore.

One deposit alone, in southern Greenland, being explored by Australia's Greenland Minerals and Energy, could contain more than 10 percent of the world's deposits of rare earths.

[Vayutuvan]

On economic issues, Hu Jintao warned of the challenge of "unbalanced, uncoordinated and unsustainable development" and stressed the need to "speed up the creation of a new growth model and ensure that development is based on improved quality and performance".

With a continuing slowdown in China's export-led economy on account of the troubles in the West, Hu said China would push forward reforms to spur domestic demand as a driver of growth. He said China should target doubling its 2010 Gross Domestic Product and per capita incomes for urban and rural residents by 2020 - a target which suggested China would look to maintain an annual growth rate of 7.5 per cent in the next decade.

Comment: Hu's remarks about the economy echo themes set in Party economics meetings in January 2012. Principal among these is a new economic model that moves away from an export-focused modern sector towards a growing internal, middle-class consumer economy. Hu indicates that progress towards greater self-sufficiency has been slow but the goal is to accelerate it.

This is a monumental undertaking that no modern countries have accomplished. For one thing, there are only about six countries the size of continents, which is essential for shifting an economy from export oriented to serving a growing domestic demand to sustain national growth. China's internal market is continental, but insufficiently developed to sustain the growth rates China requires to stay ahead of workforce and population growth.

Chinese communist leaders have preached frugality, equality and material detachment for more than 60 years and now want the population to become middle class consumers in eight years.

China's inward turn appears to go against the broad trend towards greater global economic integration. In that trend China's role is largely that of an exporter of cheap merchandise to the world -- the world's supply house of cheap manufactured goods. The new model would alter the direction of demand flows, though the Chinese would try to maintain both exports and domestic consumption to keep everyone working and to meet growth targets.

However, there is another issue. Hu insisted that state-owned businesses remain the vanguard of the economy. This is in part because in China everyone has a constitutional right to work. Chinese leaders interpret that to mean everyone who can work must be given a job, by the state or private enterprise. Hu's speech reinforced that precept of communism, despite the inefficiencies of state-owned enterprises. The idea of the state sector leading the country is quintessentially retro-communism -- i.e., Marxist-Leninism.

FWIW

[RamaY]

Hu Jintao warned of the challenge of "unbalanced, uncoordinated and unsustainable development"

I want to know what emperor Hu is smoking!

He is calling the economic model of communism as (1) unbalanced (2) uncoordinated and (3) unsustainable development. What the **** he was doing past 10 years?

[Christopher Sidor]

A series of articles are being run in Bloomberg about the Chinese economy
China’s Urban Champion Li Gets Task of Reviving Reform -- Bloomberg Dated 14-Nov-2012

Now just like India's talk about 2nd generation reforms, China is also going forward and doing some big bang reforms. And just like India, China is going to come up against some very heavy entrenched interests, who prefer the status quo.

From the article

• Of 101 middle-income economies in 1960, only 13 became high-income societies by 2008, the World Bank estimates.
• Steering China away from the so-called middle-income trap, where growth slows because of a failure by developing countries to implement reforms to financial, legal and government institutions needed to create a wealthy middle class.
• A litany of [Chinese]economic shortcomings: an unsustainable rate of investment; an over dependence on exports; weak domestic consumption; and an underdeveloped services sector.
• Signs that China may step up efforts to shift the economy toward services and greater consumption include a plan for income distribution to be announced by the end of the year, according to a Nov. 1 report by Xinhua. The plan will include opening up government-controlled industries to private investors, improving earnings for low- income groups and increasing taxes for state enterprises, Xinhua reported, citing officials close to the plan.
• China’s new leaders are about to set off a “Big Bang” in financial markets that will “revolutionize the country’s financial system,” HSBC Holdings Plc wrote in a Nov. 6 report.

[disha]

......
[*]Signs that China may step up efforts to shift the economy toward services and greater consumption include a plan for income distribution to be announced by the end of the year, according to a Nov. 1 report by Xinhua. The plan will include opening up government-controlled industries to private investors, improving earnings for low- income groups and increasing taxes for state enterprises, Xinhua reported, citing officials close to the plan.
....
....
[*]China’s new leaders are about to set off a “Big Bang” in financial markets that will “revolutionize the country’s financial system,” HSBC Holdings Plc wrote in a Nov. 6 report.[/list]

One cannot have "Big Bang" reforms in financial markets when the entire underpinning of it is shaky, that is the underlying statistical un-realities and distortions in China are so huge that any "big bang" reforms will result in a fission of the markets. In a closed system, one can hide away ponzi schemes and only so long.

Opening up a state controlled industry in China will lead to a situation akin to one in Russia, a bunch of oligarchs only bigger and fatter will rule the roost. That will create interesting centrifugal forces.

One does not look any further than the very closed way in which a new leader is elected in China. It is indeed scary that the decision making process of the second largest economy on earth happens behind iron curtains.

[vishvak]

If wise Chinese people want to learn from India, better not read with western glass. Chinese may have to deal with many issues faced by Indians over time & hopefully Chinese would celebrate diversity in spirit and not just make it a law in word.

[ArmenT]

Corporate China's Black Hole of Debt

[peter]

Corporate China's Black Hole of Debt

Interesting but what is the surprise? Policy lending in China is nothing new and all the bad loans in chinese banks are caused by these govt run enterprises. So long the 3.5 trillion USD they are sitting on does not shrink drastically this stuff is nothing but chump change.

[Suraj]

Foreign exchange reserves can be used to pay down external obligations or purchase things outside China. They're not someone one can use to address domestic yuan-denominated corporate insolvency, unless they can somehow 'assign' forex to companies to use make purchases abroad and generate new revenue streams to address their debt. That would be a rather expensive way to try and solve the problem, without any guarantee of success either.

[krishnan]

http://in.news.yahoo.com/chinas-xi-warn ... 54528.html

BEIJING (Reuters) - If corruption is allowed to run wild in China then the ruling Communist Party risks major unrest and the collapse of its rule, state media on Monday quoted Communist Party chief Xi Jinping as saying at one of his first major meetings since taking the role.

In unusually blunt language, Vice President Xi, who assumes Hu Jintao's job as head of state in March, said that graft was like "worms breeding in decaying matter" -- an old Chinese phrase meaning "ruin befalls those who are weak".

"In recent years, some countries have stored up problems over time leading to seething public anger, civil unrest and government collapse -- corruption has been an important factor in all this," state newspapers quoted Xi as telling a study session for the Politburo, the party's second-highest decision-making body.

"A great deal of facts tell us that the worse corruption becomes the only outcome will be the end of the party and the end of the state! We must be vigilant!" Xi added.

"Recently, our party has had serious discipline and legal cases of a despicable nature which has had a bad political effect and shocked people," he said, without naming any of these incidents.

The run up to this month's party congress, at which a new generation of leaders was unveiled, was overshadowed by a scandal involving former political heavyweight Bo Xilai, once a contender for top leadership in the world's second-largest economy.

Bo was expelled from the party this year and faces possible charges of corruption and abuse of power, while his wife was jailed for murdering a British businessman.

Xi said that party members, especially those at senior levels, should not abuse their positions for personal gain, and that they were not above the law.

Officials "must also strengthen their management and control over their relations and those who work with them", Xi added.

The New York Times said last month that the family of Premier Wen Jiabao had accumulated at least $2.7 billion in "hidden riches", a report China labelled a smear.

However, without an independent judiciary, efforts to fight graft will almost certainly falter, and the control-obsessed party has shown no sign of embarking on this reform. (Reporting by Ben Blanchard; Editing by Michael Perry)

[peter]

Foreign exchange reserves can be used to pay down external obligations or purchase things outside China. They're not someone one can use to address domestic yuan-denominated corporate insolvency, unless they can somehow 'assign' forex to companies to use make purchases abroad and generate new revenue streams to address their debt. That would be a rather expensive way to try and solve the problem, without any guarantee of success either.

Why can't they turn the green dollars into red yuan in the market?

[Suraj]

Foreign exchange reserves can be used to pay down external obligations or purchase things outside China. They're not someone one can use to address domestic yuan-denominated corporate insolvency, unless they can somehow 'assign' forex to companies to use make purchases abroad and generate new revenue streams to address their debt. That would be a rather expensive way to try and solve the problem, without any guarantee of success either.

Why can't they turn the green dollars into red yuan in the market?

It *was* already in the market. Those are earnings for transactions conducted in foreign currency. They were exchanged for yuan by the PBoC. The bank just happens to hold the nominal value in dollars as forex reserves. It's not some magic pile of pixie dust cash available to use - it's already out there, unless it has been sterilized via open market operations to maintain sufficient liquidity without triggering inflationary symptoms.

[Rony]

China’s manufacturing sector must reinvent itself if it’s to survive

[Shankas]

A couple of examples of things to come

Water filtration firm brings manufacturing home from China

Hornby model paint production exits China as costs soar

[peter]

Foreign exchange reserves can be used to pay down external obligations or purchase things outside China. They're not someone one can use to address domestic yuan-denominated corporate insolvency, unless they can somehow 'assign' forex to companies to use make purchases abroad and generate new revenue streams to address their debt. That would be a rather expensive way to try and solve the problem, without any guarantee of success either.

Why can't they turn the green dollars into red yuan in the market?

It *was* already in the market. Those are earnings for transactions conducted in foreign currency. They were exchanged for yuan by the PBoC. The bank just happens to hold the nominal value in dollars as forex reserves. It's not some magic pile of pixie dust cash available to use - it's already out there, unless it has been sterilized via open market operations to maintain sufficient liquidity without triggering inflationary symptoms.

Trillions of US treasury is held by Chinese. This can all be converted back to Yuan. China is an autocracy. They can set the prices and voila no inflation.

[Suraj]

Trillions of US treasury is held by Chinese. This can all be converted back to Yuan. China is an autocracy. They can set the prices and voila no inflation.

That's what I said - it already has been converted into yuan, since the dollars themselves cannot be used as currency in China by the exporters receiving the dollars/euros/whatever. The central bank prevents too much liquidity through sterilization bonds to prevent inflationary conditions from exacerbating. The notion of being able to wish away inflation through legislative fiat is laughable. They tried that in India (and in China and USSR) in the old socialist command economy days...

[Don]

http://www.japantoday.com/category/worl ... bal-trader

China overtaking U.S. as global trader


By JOE McDONALD and YOUKYUNG LEE

World Nov. 29, 2012 - 07:15AM JST ( 23 )


SEOUL —

Shin Cheol-soo no longer sees his future in the United States.

The South Korean businessman supplied components to American automakers for a decade. But this year, he uprooted his family from Detroit and moved home to focus on selling to the new economic superpower: China.

In just five years, China has surpassed the United States as a trading partner for much of the world, including U.S. allies such as South Korea and Australia, according to an Associated Press analysis of trade data. As recently as 2006, the U.S. was the larger trading partner for 127 countries, versus just 70 for China. By last year the two had clearly traded places: 124 countries for China, 76 for the U.S.

___

In the most abrupt global shift of its kind since World War II, the trend is changing the way people live and do business from Africa to Arizona, as farmers plant more soybeans to sell to China and students sign up to learn Mandarin.

The findings show how fast China has ascended to challenge America’s century-old status as the globe’s dominant trader, a change that is gradually translating into political influence. They highlight how pervasive China’s impact has been, spreading from neighboring Asia to Africa and now emerging in Latin America, the traditional U.S. backyard.

Despite China’s now-slowing economy, its share of world output and trade is expected to keep rising, with growth forecast at up to 8 percent a year over the next decade, far above U.S. and European levels. This growth could strengthen the hand of a new generation of just-named Chinese leaders, even as it fuels strain with other nations.

Last year, Shin’s Ena Industry Co. made half his sales of rubber and plastic parts to U.S. factories. But his plans call for China, which overtook the United States as the biggest auto market in 2009, to rise fivefold to 30% of his total by 2015. He and his children are studying Mandarin.

“The United States is a tiger with no power,” Shin said in his office, where three walls are lined with books, many about China. “Nobody can deny that China is the one now rising.”

___

Trade is a bit like football — the balance of exports and imports, like the game score, is a neat snapshot of a jumble of moves that make up the economy, and both sides are apt to accuse each other of cheating from time to time. Also, the U.S. and China are both rivals and partners who can’t have a match without each other, and a strong performance from both is good for the entire league.

Trade may get less publicity than military affairs or diplomacy, yet it is commerce that generates jobs and raises living standards. Trade can also translate into political power. As shopkeepers say, the customer is always right: Governments listen to countries that buy their goods, and the threat to stop buying is one of the most potent diplomatic weapons.

China has been slow to flex its political muscle on a large scale but is starting to push back in disputes over trade, exchange rates and climate change.

“When a German chancellor or French president goes to China, right at the top of the list, he’s trying to sell Airbuses and other products and is being sensitive to China’s political concerns, like on human rights,” said C. Fred Bergsten, a former U.S. Treasury Department official who heads the Peterson Institute for International Economics in Washington.

The United States is still the world’s biggest importer, but China is gaining. It was a bigger market than the United States for 77 countries in 2011, up from 20 in 2000, according to the AP analysis.

The AP is using International Monetary Fund data to measure the importance of trade with China for some 180 countries and track how it changes over time. The analysis divides a nation’s trade with China by its gross domestic product.

The story that emerges is of China’s breakneck rise, rather than of a U.S. decline. In 2002, trade with China was 3 percent of a country’s GDP on average, compared with 8.7% with the U.S. But China caught up, and surged ahead in 2008. Last year, trade with China averaged 12.4% of GDP for other countries, higher than that with America at any time in the last 30 years.

Of course, not all trade is equal. China’s trade is mostly low-end goods and commodities, while the U.S. competes at the upper end of the market.

Also, even though Chinese companies invest abroad and employ thousands of foreign workers, they lag behind American industry in building global alliances and in innovation, which is still rewarded in the marketplace. China’s competitive edge remains low labor and other costs, while the U.S. is the world’s center for innovation in autos, aerospace, computers, medicine, munitions, finance and pharmaceuticals. The Chinese have yet to build a car that will pass U.S. or European emission standards.

And the United States still does more trade overall — but just barely. If the trend continues, China will push past the U.S. this year, a remarkable feat for a country so poor 30 years ago that the average person had never talked on a telephone.

“The center of gravity of the world economy has moved to the east,” said Mauricio Cardenas, the finance minister in Colombia. Like most of Latin America, his country is still more closely tied to the U.S., but its trade with China has risen from virtually nothing to 2.5% of GDP, a more than tenfold increase since 2001. “I would say that there is nothing comparable in the last 50 years.”

In one sense, China’s growing presence in trade is just restoring the Middle Kingdom to its historic dominance. China was the biggest economy for centuries until about 1800, when the industrial revolution propelled first Europe and then the U.S. into the lead.

China began its return to the global stage in the 1990s as a manufacturer of low-priced goods, from T-shirts to toys. Factories in other countries slashed costs to meet the “China price” or were pushed out of the market.

As the new millennium dawned, the U.S. remained by far the world’s dominant trader, rivaled collectively by Europe but no single nation. However, from 2000 to 2008, China’s imports grew 403% and exports 474%, driven in part by its entrance into the World Trade Organization and its move to higher-value production.

China’s imports of oil and raw materials for its factories propelled resource booms in parts of Asia, Africa and Latin America. China’s demand for steel for manufacturing and construction grew so fast that its mills now consume half the world’s output of iron ore.

Zambia, a major copper producer, switched to the China column in 2000. Australia, a coal and iron ore exporter, followed in 2005. Chile, another copper supplier, moved in 2009.

Meanwhile, exports surged as Apple, Samsung, Nokia and other electronics giants shifted final assembly to China. Shipments of mobile phones, flat-screen TVs and personal computers have jumped sevenfold over the past decade to nearly $500 billion. That made China a major customer for high-tech components supplied by countries such as South Korea, which swung into China’s column in 2003, followed by Malaysia in 2007.

In the U.S., Vermont-based manufacturer SBE Inc started exporting capacitors — energy-storage devices used in computers, hybrid cars and wind turbines — in 2006. The company now gets 15 to 20 percent of its revenue from China, and has hired 10 employees there.

As China grew richer, its people spent more.

Chinese ate more pork, fried chicken and hamburgers, rapidly sending up the demand for soybeans to make cooking oil and feed for pigs and cows. Some cattle ranchers in Latin America turned grazing land into fields of soy, a crop few in their region consume. Soybean exports helped push Brazil into the China column in 2010, and put China neck and neck with the U.S. as Argentina’s top trading partner.

In the Brazilian state of Mato Grosso, some 10,000 miles (17,000 kilometers) from Beijing, farmer Agenor Vicente Pelissa and his family raise cattle and soy on 54,300 acres, a farm twice the size of Manhattan. Half their 21,000-ton annual soybean harvest goes to China.

“We’ve invested more in technology and in better machines and equipment to meet this rising demand,” Pelissa said. “If it hadn’t been for China, we would not have not modernized our operations, at least not as quickly as we did.”

Even in the U.S., better known for manufacturing, farmers are rushing to sell to China. The United States is the largest exporter of soybeans to China, followed by Brazil and Argentina. China’s purchases of American soybeans have risen from almost nothing 20 years ago to a quarter of the crop: 24 million tons worth $12.1 billion, America’s largest export to China.

The boom is having a profound effect on farming communities, said Grant Kimberley, whose family farm near Des Moines, Iowa, now grows 4,000 acres of soybeans, up from 3,500 eight years ago.

“It’s provided more revenue for these farmers than they’ve ever seen in their lives,” said Kimberley, who is also director of market development at the Iowa Soybean Association. He said he sees more young people returning to the farm. “People can see there’s an opportunity to make nice livings for their families.”

___

It was the 2008 global crisis that showed the resilience of China’s exporters.

The recession set everyone back, but China less so than the U.S. or other major traders such as Germany. China does a bigger share of its trade with developing countries that suffered less and rebounded faster, while the United States sells to rich economies that are struggling. Chinese companies have boosted exports by 7% this year despite anemic global demand.

During the recession, Shin, the South Korean auto parts manufacturer, saw his sales fall 50%. He shut one of three production lines, and banks stopped lending him money.

But China’s auto market was powering ahead. So Shin hired an employee in China, and is now making plans for his first factory there. On a business trip to Germany, clients told him their Chinese factories would be larger than those at home.

Parents like Shin, who work at companies doing business with China, in turn fed enrollment growth at schools such as Teacher Ching, a Chinese-language kindergarten in Seoul.

Nancy Ching, the daughter of immigrants from Taiwan, opened the school with 15 students in 2004, the year after South Korea first moved from the U.S. column to the China column. Today she has 60.

“Mothers who send their kids here believe our children’s generation is the China generation,” she said in Chinese-accented Korean. “In the future, without learning Chinese, one won’t be able to get a job.”

China resumed its upward trajectory in the last two years. Even with key Western markets in a slump, exports are up 58 percent since 2009. Imports are up an even sharper 73%.

Rising incomes have driven demand for wine and other luxury goods, making China a lifeline for European and American vineyards when the global crisis battered traditional markets.

The Chinese have “helped Bordeaux a lot these past three years,” said Florence Cathiard, owner of Chateau Smith Haut Lafitte in the Pessac-Leognan area of France’s southwest, home of high-end Bordeaux wine.

France’s wine exports to China first surged in 2009, and by last year, China had surpassed the U.S. as a customer by volume. Americans still spend more, because they buy more expensive wines. But China is developing a taste for grand cru wine, the “great growths” that are considered exceptional and command higher prices.

Cathiard acknowledged that she was initially wary of China as a reliable market for her high-end wines. But the turning point for her came around 2008, when she was blown away by the number of people showing up for a master class by her chateau at a wine expo in Hong Kong.

China now accounts for 25% of Cathiard’s sales, making it her largest market.

The owners of Chateau Haut-Bailly, also in Pessac-Leognan, first traveled to China to test the waters in 2000, and it was too early.

“At the time, they didn’t know what a cork or a corkscrew was,” said Veronique Sanders, the chateau’s general manager.

Chinese sophistication has since advanced rapidly, she said.

“The difference with other emerging markets we’ve gone into in the past is the size of the country, which means it has an absolutely incredible potential.”

___

The next step in China’s trade evolution is to move beyond exporting TVs and lawn furniture to selling services and investing abroad.

The investment trend started with state-owned companies that bought stakes in foreign mines and oil fields. Smaller and private Chinese companies followed, acquiring foreign enterprises to gain a bigger foothold in overseas markets, more access to resources and better technology for their own development.

China is now pushing into construction and engineering, where U.S. and European companies have long dominated.

In Algeria, Chinese state-owned companies pushed aside established French and German rivals to win contracts to build a $12 billion cross-country highway and the $1.3 billion Great Mosque of Algeria. The Chinese have also built highways, dams and other projects in developing countries and are starting to win contracts in the U.S. and Europe.

On a new 50-kilometer (30-mile) highway leading north of Nairobi, the capital of Kenya, dark asphalt stretches across six to eight lanes.

The $300 million road was built by three Chinese companies and financed by the African Development Bank and the Export-Import Bank of China. It has cut a trip that took several hours 18 months ago to 10 minutes, said Joseph Makori, a professional driver.

“When we see the people from America, they say, ‘We want to assist Kenya’,” said Makori as he looked for work at an interchange about 10 kilometers from downtown. “But I don’t see it. China comes and I see one thing: the road.”

Chinese companies are starting to win government contracts in Kenya, which has ports that offer access to landlocked Uganda, South Sudan and Rwanda. Governments in Africa are keen to work with China because it does not tie development to human rights or democracy, said Stephen Mutoro, secretary general of the Consumer Federation of Kenya.

“China appears to have a long-term plan based on increasing its commercial interests where governance issues are given a back burner,” Mutoro said. The experience of Congo might foreshadow a more complex approach that Beijing envisages for other African nations. In 2008, the two governments signed a $9 billion deal for Chinese companies to build 177 hospitals and health centers, two hydroelectric dams and thousands of miles of railways and roads. In exchange, Congo was to provide 10.6 million tons of copper and 600,000 tons of cobalt.

The deal has since been scaled back to $6 billion under pressure from the International Monetary Fund, which felt Congo was taking on too much debt.

China’s outbound investment totaled $67.6 billion last year — just one-sixth of America’s nearly $400 billion — but it could reach $2 trillion by 2020, according to a forecast by Rhodium Group, a research firm in New York City.

As a result, Chinese companies are using a new export — jobs.

Employees at Volvo Cars worried after Chinese automaker Geely Holdings bought the money-losing Swedish brand from Ford Motor Co. in 2010. But two years later, instead of moving jobs to China, Geely has expanded Volvo’s European workforce of 19,500 to about 21,500.

Majority-owned U.S. affiliates of Chinese companies support about 27,000 American jobs, up from fewer than 10,000 five years ago, according to Rhodium.

In Goodyear, Arizona, Stacey Rassas was laid off in May 2010 after a 16-year career in quality control for aerospace and aluminum manufacturers. By late autumn, she and her husband were worried they might lose their house.

She finally landed a job that December at a new factory that makes solar panels for one of the world’s biggest solar manufacturers.

“It was the best day ever,” she said.

Her new employer? Suntech Power Holdings Co, a Chinese company.

[member_20292]

I just finished reading Niall Ferguson's book about the history of money. Good read. In one section he describes useless strip malls being built around Dallas in the 80's and their promoter duping many investors of their money; being sentenced to jail for 20 years.

Methinks that China is also going to have something like that bust or deflation. I recall a poster named Chola who was a markets expert speaking about the very same thing, and differing with the China bears, saying that in a market where so many piss poor people are present, there will always be demand for flats and apartments in general. If nothing they can recapitalize everything by printing money....the Chinese are so rich.

I disagree. There is certainly a bubble that they are walking into. It is a system with ginormous contradictions, and from personal experience I believe that such systems are unsustainable.

I was also taking a look at the financials and the fates of a few fixed asset companies that are supposedly doing well in India. Amongst them were Airtel (towers are the fixed assets), Tata Telecom (same); DLF (buildings) and Tata Corus. And in each one of these cases, the companies are mired in debt and thus cannot fuel expansion.

Which brings me to ask everyone. If a company like DLF, whose products are in excellent demand, is mired in debt and having a heavy time in general in surviving, how do the marginally profitable, murky-deal making, poor construction quality and poorer financial govt. owned Chinese companies survive in the Chinese market?

I am sure of one thing. Chinese infra companies and their ecosystems are fked up and in a mess. Jim Chanos is right about this.

The only thing that this house of cards needs to bring it down, will be something gentle. A small border war with India perhaps. A Taiwan straits flashpoint. An incident with Japan. If markets go down, and freeze up, there is no telling what will happen in China, both with the market and later with the fate of the CPC.

It is in the CPC's strongest interest to make sure that the Chinese juggernaut works well. They just might pull it off, since their very survival depends on it.

Or not. And have either an implosion (unlikely) or a Japanese style (deflation) which will allow India to catch up.

[peter]

Trillions of US treasury is held by Chinese. This can all be converted back to Yuan. China is an autocracy. They can set the prices and voila no inflation.

That's what I said - it already has been converted into yuan, since the dollars themselves cannot be used as currency in China by the exporters receiving the dollars/euros/whatever.

Can you expand on this a bit more? Because if Chinese exporters bring in the green dollars as taxes for Chinese Government why does this need to be converted to Yuan before US treasury can be bought for these dollars?

The central bank prevents too much liquidity through sterilization bonds to prevent inflationary conditions from exacerbating. The notion of being able to wish away inflation through legislative fiat is laughable. They tried that in India (and in China and USSR) in the old socialist command economy days...

What is a sterilization bond? Though I will direct your attention to an autocrat who lived in India in 13th 14th century and he fixed prices and his economy really did well. He was Allauddin Khilji.

[peter]

[..]
Which brings me to ask everyone. If a company like DLF, whose products are in excellent demand, is mired in debt and having a heavy time in general in surviving, how do the marginally profitable, murky-deal making, poor construction quality and poorer financial govt. owned Chinese companies survive in the Chinese market?
[..]

W.r.t DLF is this rope a dope or truth? With gift of land from Haryana Govt, the do need debt to grow and build. More debt means less taxes and perhaps greater opportunity to siphon off money to the private coffers of the likes of DLF chairman and the Vadras and Hoodas of the world?

[Vayutuvan]

Paging poster wong

Is it poverty that made this teenager sell his kidney for an iPad?

7 jailed in 'kidney for iPhone' case

[Chinmayanand]

Paging poster wong

Is it poverty that made this teenager sell his kidney for an iPad?

7 jailed in 'kidney for iPhone' case

It's not poverty , it's his love for ipad. Now, since the poor fellow is not a member of CPC or PLA , he decided to do away with his kidney. I hope, he can live on one and has not sold both. His pragmatic effort for buying his beloved ipad should be appreciated. He has shown the way forward in the middle kingdom for the poor chinese , err, they are not poor , i forgot , they have kidneys to barter.This is a new revolution. Something to learn for the pakis instead of taking their begging bowl out , they should barter their kidneys too in exchange of dollahs. This enlightening approach must pass from the taller mountains to the punjabi plains of napakistan.

[JE Menon]

Let's hope it's not a fake iPad. Last I heard there were a few fake Apple stores, so...

[Hari Seldon]

Let's hope it's not a fake iPad. Last I heard there were a few fake Apple stores, so...

I hope it wasn't a fake kidney.

[krishnan]

i think they took both is kidney...buy one get one free

[RamaY]

Let's hope it's not a fake iPad. Last I heard there were a few fake Apple stores, so...

It is sad but might be close to truth.

[hanumadu]

I hope, he can live on one and has not sold both.

He will use the other one for next year's model.

[JE Menon]

Or maybe one nut...


Seriously the fakery going on is awesome to behold and the scale.