PRC Economy and Industry: News and Discussions

wrdos · Post by **wrdos** » 11 Mar 2010 12:16

China releases the recent data of industrial productions through the first two months of 2010. In order to avoid the influence of Chinese new year, the country has long been using the combination data of January and February for economic analysis. The week long Chinese new year holidays may occur either in January or February according to different years, thus distort the economic statistics data of the two months.

Coal: 470 million ton (+30.5%, annual growth)
Crude oil: 32 million ton (+5.8%)
Electricity generation: 609 billion kilowatt (+22.1%)
Steel: 130 million ton (+25.4%)
Cement: 200 million ton (+26.5%)
Automobiles: 2.85 million (+89.7%)
Sedans: 1.48 million (+87.7%)

vina · Post by **vina** » 11 Mar 2010 20:15

Coal: 470 million ton (+30.5%, annual growth)
Crude oil: 32 million ton (+5.8%)
Electricity generation: 609 billion kilowatt (+22.1%)
Steel: 130 million ton (+25.4%)
Cement: 200 million ton (+26.5%)
Automobiles: 2.85 million (+89.7%)
Sedans: 1.48 million (+87.7%)

Good Good. A fly in the ointment (small onree of course), that our dear friend did not report is inflation. It seems to have literally shot up!. So all that nice funny money and wampum dumped so liberally everywhere is showing up someplace huh?.

Oh, well, the interest rates absolutely have to go up in China. The money supply needs to be cut drastically. Now , now, what will that do the currency if they free it up , as the pressure to do that will start getting inexorably higher.. A good 15 to 20% rise in the Chinese currency in the next few months is on the cards.

One way to cool inflation is to let currency rise . That lowers costs of imports and douses the fire hose like Renmimbi Wampum being pumped in the local Chinese economy because of artificially low rates and in addition a flood of foreign money chasing the interest rate arbitrage will come flooding in. All nice onree. Problem is 'expolts" get hit hard and lots of migrant rural labor Abduls will get out of work again as the govt spending/stimulus winds down. Tough choices to make. Lets see how the Chinese handle it.

RamaY · Post by **RamaY** » 12 Mar 2010 04:22

wrdos wrote: Coal: 470 million ton (+30.5%, annual growth)
Crude oil: 32 million ton (+5.8%)
Electricity generation: 609 billion kilowatt (+22.1%)
Steel: 130 million ton (+25.4%)
Cement: 200 million ton (+26.5%)
Automobiles: 2.85 million (+89.7%)
Sedans: 1.48 million (+87.7%)

Assuming the royal ekhonomy of PRC is set to grow at 8% this year, what could be the inflation in the first two months? Can we safely assume it to be anywhere between 6-12%?

So the real growth came in automobiles and sedans production (or purchasing). It explains the stocked up automobiles in empty parking lots etc?

wrdos · Post by **wrdos** » 12 Mar 2010 07:43

Chinese inflation rate was 2.7% in February and 1.5% in January.

Hari Seldon · Post by **Hari Seldon** » 12 Mar 2010 08:05

wrdos wrote:Chinese inflation rate was 2.7% in February and 1.5% in January.

Sweet.

Now reconcile that with home price increases in Shanghai and Beijing of 15% and 20% in Dec and Jan respectively.

And then tell me 'Bubble, what bubble?' onlee.

Thank you and Jai hu.

Ameet · Post by **Ameet** » 13 Mar 2010 03:35

China assesses its gold strategy

http://www.atimes.com/atimes/China_Busi ... 1Cb01.html

Chinese leaders convening in Beijing for the annual plenary session of the National People's Congress (NPC) - China's ceremonial legislature - this week will, among other things, hammer out a blueprint for the ascendancy of the country's currency, the yuan (or renminbi).

2009 China reportedly bought 454.1 tons of gold from its domestic market, which is equivalent to nearly 50% of the total purchases of 890 tons of gold made by the world's central banks last year.

.........China increased its gold reserves by 76% in six years (2003) to 1,054 tons in 2009.

China's present gold holdings make up about 1.2% of its total forex reserves, according to Market Watch.

US gold reserves totaled 8,133.5 tons in September 2008, accounting for 76.5% of its total forex reserves. Japan's 765.2 tons accounted for 1.9% of its forex reserves. The Guangzhou Daily reported in 2008 that China's central bank was considering raising its gold reserve by 4,000 metric tons from the then 600 tons to diversify its forex risks.A China News report last year, citing Ji Xiaonan, the chair of the supervisory board for big state-owned companies under the Chinese State Council's state assets commission, said that "China's gold reserves should reach 6,000 tons in the next three to five years and perhaps 10,000 tons in eight to 10 years".

A senior official from the People's Bank of China (PBoC) suggested, "China should formulate a long-term plan and constantly and secretly increase its gold holdings, claiming that at present the percentage of gold in China's total reserve was too low ... PBoC should try to buy as much gold as possible from China's annual gold output of almost 300 tons, while the gold needed by industries and residents could be imported."

ArmenT · Post by **ArmenT** » 13 Mar 2010 12:10

Jim Jubak: Is China Actually Bankrupt?

Katare · Post by **Katare** » 14 Mar 2010 09:14

China to bid on US high-speed rail projects

"China is willing to share its mature and advanced technology with other countries to promote development of the world's high-speed railways," Wang said.

Singha · Post by **Singha** » 14 Mar 2010 09:33

but I thought the chinese themselves have purchased european and japanese tech for their high speed trains?

looks like the process of 'cloning' is nearing completion

Katare · Post by **Katare** » 14 Mar 2010 22:29

China PM defends assertive trade, foreign policy

wrdos · Post by **wrdos** » 15 Mar 2010 07:32

China January-February Fiscal Revenue Up 32.9% To CNY1.36 Tln (US$ 199.2 billon)

http://online.wsj.com/article/BT-CO-201 ... theadlines

BEIJING (Dow Jones)--China's fiscal revenue for the first two months of this year rose 32.9% from a year earlier to CNY1.360 trillion as the recovery in the domestic economy boosted tax revenue growth, the Ministry of Finance said Sunday.

A low base of comparison from the year-earlier period during the worst of the global financial crisis also was a factor in boosting revenue growth at the start of this year.

Analysts and policymakers tend to look at economic figures for the first two months of the year together to factor out the Lunar New Year holiday effect because this year the week long break fell in February, while it was in January in 2009.

The government's CNY4 trillion stimulus program, launched in November 2008, runs through the end of this year, so Beijing's fiscal intake is important to look at when considering its ability to carry out its spending program.

In its annual budget report, the ministry has projected fiscal revenue to grow around 8% this year to CNY7.393 trillion, after rising 11.7% in 2009.

In its Sunday statement posted on its Web site, the ministry said fiscal revenue in January rose 41.2% from a year earlier to CNY865.9 billion and was up 20.4% to CNY494.5 billion in February.

In the January-February period, tax revenue rose 35% to CNY1.247 trillion and non-tax revenue rose 12.7% to CNY113.02 billion, the ministry said.

The ministry said that it expects the growth in revenue will slow from May as the low-base effect disappears.

-Yajun Zhang contributed to this article; Dow Jones Newswires; (86 10) 8400-7712; [email protected]

Neshant · Post by **Neshant** » 15 Mar 2010 09:14

its beginning to sound suspiciously like 'the great leap forward II' where all kinds of astronomical statistics are put out.

common sense says demand does not jump 40% in one year for any staple like housing or food or power consumption or commodity consumption - unless its just wild ass speculators running amock.

Its like US increasing its GDP from 14 trillion to 20 trillion in 1 year. those kinds statistics are bogus.

abhishek_sharma · Post by **abhishek_sharma** » 15 Mar 2010 09:24

China Uses Rules on Global Trade to Its Advantage

http://www.nytimes.com/2010/03/15/busin ... 5yuan.html

abhishek_sharma · Post by **abhishek_sharma** » 15 Mar 2010 09:24

Taking On China

http://www.nytimes.com/2010/03/15/opini ... ugman.html

vina · Post by **vina** » 15 Mar 2010 13:35

-- Cross Posting.

Oh well. The Chinese Premier Wen Jiao Bao's recent "fantastic" quote of "Shanghai Statistics" to affirm that the Chinese currency is "correctly valued" and everything else can mean only one of two things. 1) The Chinese are posturing and unleashing rhetoric (or to use the words of our esteemed Chinese friends here, being "boasters") , before the ultimate cave in , put tail between their legs and do championship down hill skiing like their esteemed "taller than the mountains " brothers in the southwest the Pakis. or 2. They have become so caught in their own voices and rhetorics that they have become dumb enough to take on the entire world and suffer one of their great 'humiliations' at the hands of the white, brown, black , yellow and blue "barbarians" .

Somehow I think they will turn tail and slink. If the Chinese Commies want to rachet up nationalism and get into a fight, the consequences of punitive tarriffs on their "expolts" and physical block of their external trade will be devastating and will be borne solely and absolutely by them.

The excesses of the recent past in the name of the stimulus will come home to roost and can absolutely NEVER be inflated away /be subsumed by growth in such a scenario.

With the party apparatchicks deeply involved in the mercantile and commercial aspects of this gaint ponzi scheme, there will be immense pressure on the Chinese leadership to cave in and do the "right thing" , even to the extent of a possible putsch if needed (money talks after all , no one wants to end up from being a multi millionaire to being a pauper from the foolish actions of some old dinosaurs at the top).

Despite all that if the Chinese are hell bent on a confrontation (stupid things do happen... like the militarist pre WWII regime in Japan for instance, PRC resembles that regime the most IMHO.. talk about ending resembling the monster you purport to hate the most) then all hell will break loose.

If it is that scenario no 2) that comes to pass, China will be totally isolated and the only "friend" will be the loser "Tarrel than Mountain friends", the Pakis. The urge to hurt US and the rest of the world strategically will force these two together even closer. Expect more, nuke and missile , weapons transfers to Pakiland and Iran from China and the temptation to Pakiland in a a desparate effort to untangle itself from Unkil's squeeze by embracing China very tightly..

Alright.. All right. The operative word for India from the AEP article is this.

Handle with care

But who am I to say so (after all, as they say in Hindi, What goes my fathers?... Or in Inglees, No Skin off my nose). But if the Chinese let the Paki's embrace them so closely it will be embrace of a desparte man in deep waters who cant swim. After great turmoil, China will realize, that they have to cut the Paki embrace or the Pakis will drag them down with them.

All in all. Jai Mao, Jai Hu and Jai Wen. Interesting times indeed.

Masaru · Post by **Masaru** » 16 Mar 2010 06:28

Creative accounting

China Accounting Shift Narrows Deficit

In a report to China's legislature this month, the ministry estimated the total budget deficit for 2010 at 2.8% of GDP, "basically the same as last year." A strict cash accounting of government expenditures, however, would widen the 2010 deficit to 3.5% of forecast GDP, and shrink the 2009 deficit to 2.2% of GDP, according to calculations by The Wall Street Journal that were verified by three economists.

China provides "scant information" about its public finances, the group said. The difference in the 2010 deficit accounting hinges on the treatment of 260.82 billion yuan ($38.16 billion) in local government spending that was "carried over" from 2009. According to the ministry's report, this money was allocated for projects in 2009 but wasn't spent. Though it will be spent in 2010, it is being counted in the 2009 budget.

Under those principles, to count all of the cash the government will actually spend in 2010 requires adding the "carried over" funds to the 8.453 trillion yuan in formal budgeted spending. That would increase the budgeted 1.05 trillion yuan deficit for 2010 by 260.82 billion yuan, pushing it to 3.5% of expected GDP from 2.8%.

Neshant · Post by **Neshant** » 16 Mar 2010 08:13

US transparency 82?

You got to be joking man.

The entire Federal Reserve operates behind an iron curtain of secrecy.

Even elected politicians can't find out what's going on.

wrdos · Post by **wrdos** » 17 Mar 2010 11:44

Siemens joins China bid for Saudi rail link

By Jamil Anderlini in Beijing

Published: March 16 2010 13:56 | Last updated: March 16 2010 18:50

http://www.ft.com/cms/s/0/ae804264-30fa ... abdc0.html

Siemens has dropped a bid to supply trains and equipment for the $7bn Mecca-to-Medina high-speed railway line project in Saudi Arabia, opting to join a Chinese consortium bidding for the work.

In a sign of the growing global competitiveness of Chinese rail manufacturers, Siemens abandoned its own bid as part of a consortium with the Saudi Binladin Group.

Instead, it has joined a bid led by state-owned China South Locomotive & Rolling Stock Corporation for the second phase of the Haramain high-speed rail project, according to people familiar with the situation.

Siemens will provide signalling and electrification equipment to the Chinese consortium, which also includes China Railway Construction Corp and the Beijing Railway Administration.

The 450km railway will link Islam’s two holiest sites via the port of Jeddah and will ease congestion during the annual Hajj pilgrimage, when more than 2.5m people make the journey to Mecca.

The Chinese bid is seen as the frontrunner – China Railway Construction Corp, which is also state-owned, was part of a consortium that won a $1.8bn contract to build the first phase of the project last year.

“Siemens realised when China threw its hat in the ring, that they were unlikely to win so they decided to join them rather than let one of their competitors team up with the Chinese bidder,” said one person involved in the project.

France’s Alstom and South Korea’s Hyundai and Samsung are also bidding for the second phase of Haramain, according to a person close to the situation. Siemens said it was unable to comment on the project because of the ongoing tender.

Final bids for the project are due in on May 1.

Analysts said Siemens’ decision to hitch its wagon to the Chinese bid was a sign of how competitive the Chinese rail industry has become and how state backing from Beijing helps in winning contracts abroad.

A series of bids by state-owned Chinese rail companies in Saudi Arabia and elsewhere have all been co-ordinated by China’s Railway Ministry. Two $1.8bn contracts were announced last year during a visit to the Kingdom by Hu Jintao, China’s president.

Additional reporting by Eliot Gao in Beijing

wrdos · Post by **wrdos** » 17 Mar 2010 11:50

High-speed China changes rail landscape

http://www.ft.com/cms/s/0/a04d14cc-310b ... abdc0.html

For decades the high-speed railway sector has been dominated by a handful of companies in Europe, Japan and North America, which have mostly concentrated on projects in their own regional markets.

But just as the industry is witnessing a proliferation of high-speed rail projects across the globe, the rapid rise of Chinese state-owned rail producers is posing a serious threat to the dominance of companies such as Germany’s Siemens, France’s Alstom, Canada’s Bombardier and Japan’s Kawasaki.

“Chinese companies are changing the landscape of the global railway market because of the dimensions of their home market and because they are becoming involved in international tenders, which is new,” said Dominique Pouliquen, Asia-Pacific managing director for Alstom.

In a sign of how competitive the Chinese state railway equipment producers have become, Siemens has abandoned its bid for the second phase of the “pilgrim express” linking the holy cities of Mecca and Medina in Saudi Arabia, and has joined a Chinese consortium instead.

While the Chinese companies are new to the global stage and lag their European rivals in terms of quality and technology, they have some significant advantages.

“Price is their number one competitive advantage and they are very well organised with financing support from Chinese state-owned banks,” Mr Pouliquen told the Financial Times. “They offer a global package, which is usually combining technical solution with financing, so it is very easy for governments to make a decision to use their products.”

The Chinese ministry of railways, which directly owns many rail companies, co-ordinates tenders so they don’t bid against each other, and encourages foreign companies to join Chinese consortia by holding out the prospect of greater access to an enormous market.

Analysts said Chinese companies were already very active in bidding for projects in Middle Eastern countries such as Saudi Arabia and Iran, and Latin American countries including Argentina, Brazil and Mexico.

They are also targeting projects in Australia and the US, and have made significant inroads in their own region, with contracts in Thailand and Hong Kong.

The rise of the Chinese rail industry with its global aspirations has happened quickly.

Iain Carmichael, managing director Lloyd’s Register Rail in Asia, said that as recently as three years ago Chinese companies didn’t have the knowhow for many parts of their own rail systems, such as signalling and high-speed technology, and that provided a huge opportunity for European companies.

“But as the Chinese gained the knowhow, the relationship changed, so now the Chinese have the upper hand and the Europeans now have to work co-operatively if they want to compete,” he said. “Rolling stock products are built cheaper in China than anywhere else and the quality is now at the level where they can sell to global projects.”

He said the main constraint on Chinese exports of rolling stock was capacity, because Chinese producers were trying to keep up with orders at home in what had become the largest market in the world.

“Some big manufacturers are tripling their output this year and we’re seeing a vast expansion of metro systems as well as high speed rail,” Mr Carmichael said.

China’s market for rail equipment, including trains, components, signalling systems and other equipment, is expected to quintuple from an average of $10bn a year in the period between 2004 and 2008 to more than $50bn a year between 2009 and 2013, according to estimates from McKinsey.

This year China is expected to account for more than half the total global expenditure on rail equipment.

The government plans to build at least 30,000km of railway, most of it high-speed, in the next five years and China is soon expected to overtake Russia to have the second-largest rail infrastructure in the world, after the US.

These ambitious expansion plans have been on the books for years but, in the wake of the financial crisis, the government accelerated its build-out to boost growth, moving the target date for completion for many projects from 2020 to 2015.

The size and scale of the Chinese market partly explains why European and international rail equipment providers are scrambling over each other to partner Chinese state producers inside the country and around the world.

But co-operation has come at a price.

“European manufacturers have complained that they have transferred technology to China as required [by Beijing] and now the Chinese are using their technology to compete on price in the international market and even in the European home markets,” said Evan Auyang, an executive at Hong Kong-based Transport International and a former infrastructure consultant at McKinsey.

Chinese regulations for the sector include onerous local content requirements stipulating that 70-90 per cent of rail equipment must be Chinese-made. The official state policy on using foreign rail technology is known as “introduce, digest, absorb then innovate”.

“Around 90 per cent of the technology the Chinese currently are using is derived from their partnerships or equipment developed by foreign companies,” Mr Pouliquen said.

Additional reporting by Eliot Gao in Beijing

vina · Post by **vina** » 17 Mar 2010 13:21

Yawn.. Good ol' PRC Chinese strategy being played out again (note, Samsung/Koreans did exactly the same thing earlier as China is doing now with Altsom). Get the technology from the Europeans (in fact, the Chinese high speed train sets are Siemens ICE 3 sets!), and use the balance sheet of the Chinese govt to offer the same made in China trains and equipment at unbelievably low finance (zero percent nearly) and prices (thanks to the RMB/USD exchange rates) and compete against others who are more market oriented.

This is a classic case of non market competition which third party users like Saudi will benefit immensely and there is no recourse against it for the others, and the customer loves it. The problem will come essentially only when China wants to export to a US/Europe/Japan kind of developed market.

I was speaking with someone from Tejas networks recently and he was telling me how the Chinese were dumping at below cost and Tejas took the case to the govt and a 150% duty was imposed on Chinese imports..

But really I think this sort of non market based mercantile behavior has run it's course. Getting the RMB to rise (as it should) will be the first part of it and the second will be to take the exports of govt owned Chinese companies to court as enjoying subsidized non market financing subsidy..

wrdos · Post by **wrdos** » 17 Mar 2010 15:07

My 2 cents about Chinese railway related industry.

Sure it has all its problems but I am looking forward to a better future than what you suggested here.

1. The giant domestic market
China is and will be the largest railway market globally at least within the coming 20 years.
Currently China's share of market is >50%, in other words, bigger than all the other countries combined.

2. By the 1, Chinese manufacturers can enjoy a very low cost base, compared with other countries
The low cost of Chinese products is mostly from its scale, rather than the RMB or government finance as suggested here in this forum. It applies to almost all Chinese manufactured goods. It is why China can manufacture goods much cheaper than countries with much lower salaries, as in Vietnam or Bangladesh.

3. The big players by now were all from Europe and Japan. Unfortunately, their home markets are either too small or already full. For new markets, like America or even India in the future, hmmm, only money talks.

4. It is a good example of the all-sector Chinese manufacture industry.
The country is competing with US, Europe, Japan and Russia for satellite, jet fighters, ship building, telecommunication equipment, high speed train, power generation equipment markets;

and on the other hand,

it is also competing with Vietnam, Cambodia for shoe, shirt markets

Yeah, we have call centers in China also, although most likely for Japanese market.

vina wrote:Yawn.. Good ol' PRC Chinese strategy being played out again (note, Samsung/Koreans did exactly the same thing earlier as China is doing now with Altsom). Get the technology from the Europeans (in fact, the Chinese high speed train sets are Siemens ICE 3 sets!), and use the balance sheet of the Chinese govt to offer the same made in China trains and equipment at unbelievably low finance (zero percent nearly) and prices (thanks to the RMB/USD exchange rates) and compete against others who are more market oriented.

This is a classic case of non market competition which third party users like Saudi will benefit immensely and there is no recourse against it for the others, and the customer loves it. The problem will come essentially only when China wants to export to a US/Europe/Japan kind of developed market.

I was speaking with someone from Tejas networks recently and he was telling me how the Chinese were dumping at below cost and Tejas took the case to the govt and a 150% duty was imposed on Chinese imports..

But really I think this sort of non market based mercantile behavior has run it's course. Getting the RMB to rise (as it should) will be the first part of it and the second will be to take the exports of govt owned Chinese companies to court as enjoying subsidized non market financing subsidy..

Hari Seldon · Post by **Hari Seldon** » 17 Mar 2010 15:46

Very good points wrdos. Some quibbles as usual, however....

1. The giant domestic market
China is and will be the largest railway market globally at least within the coming 20 years.
Currently China's share of market is >50%, in other words, bigger than all the other countries combined.

Who's the 'customer'? The Government. So the govt in a sense both sells and buys the railroad infrastruc. In India we call it investment outlays in infrastruc. Now, the hope is that the investment outlays wil pay for themselves over their lifetime. No? Is that the case with PRC? For instance, what is the % capacity utilization for the recently launched high speed lines between shanghai and Beijing? Is the project likely to pay for itself over its lifetime even with 80% capacity utilzn? If yes, great and congrats. But if no, who bears the loss? Precisely, my point.

2. By the 1, Chinese manufacturers can enjoy a very low cost base, compared with other countries
The low cost of Chinese products is mostly from its scale, rather than the RMB or government finance as suggested here in this forum. It applies to almost all Chinese manufactured goods. It is why China can manufacture goods much cheaper than countries with much lower salaries, as in Vietnam or Bangladesh.

So is it your case then that there is no currency exchange issue at all w.r.t. prc's exports? If you really believe that, good luck to you.

vina · Post by **vina** » 17 Mar 2010 16:07

Is that the case with PRC? For instance, what is the % capacity utilization for the recently launched high speed lines between shanghai and Beijing? Is the project likely to pay for itself over its lifetime even with 80% capacity utilzn? If yes, great and congrats. But if no, who bears the loss? Precisely, my point

To quote two recent NYT articles on High Speeed train, the China's and another one on Spain's, it seems that the fare on the Chinese train from Wuhan to Guangzhou costs $72 (one way), CNN says 780 RMB or $115 for 1st class and RMB 490 for 2nd class .. The Spanish train from Barcelona to Madrid goes for around $160 to $300 for a far shorter journey. Now, even if there is a "China Price" in everything, and the Chinese build it at 1/3 the price of the Spanish, I am hard pressed to see how a near empty Chinese train can charge a 1/3rd less than the Spanish for a journey roughly more than twice as long and that too when the Spanish train is running full !.. Ah well.

Currency and Financial balance sheet of the Chinese govt

Fact is , if there is a currency rise, the export focused sector (shoes, handbags competing with Vietnam and Cambodia) kind of sectors will take body blows, while the "more value added, govt driven ones" will get flattened if there were no Chinese Govt balance sheet leverage and RMB. All in all, if it were a market play, things would look very different for the Chinese.

In fact LM Naik of L&T is on record saying that if it weren't for the Chinese RMB and balance sheet in terms of supplier credit, the recent contracts the Chinese won in the Indian power sector simply wont have happened to this scale

Added.. Funnily enough, it seems that unlike trains in Europe , where the high speed train takes you straight to city central (like St Pancras in London) these high speed trains have their terminals which are a 1hr drive from the city center! Think of the irony, you whizz through 1000 kms in 3 1/2 hrs, but spend 1 hr each way to go home if you live in the city. So really not the substitute for air travel the way it is in Europe .

vina · Post by **vina** » 17 Mar 2010 20:25

Ah.. right on cue. A Noo Yawk Times editorial on the 'orrible Chinese and their e-Con-O-Mic policies. But I guess this time it is serious. The Chinese cannot get through this with bluster. After all, the best way to go on the offense and rally your country is to target a foreigner. Unkil is going to do it.

If this article is anything, it is clearly an indication of Unkil talking to the Europeans , Japanese and of course notably and surprisingly, the 'orrible Indoos (who would have not even got a mention, except as a passing derision as a basket case in matters e-Con-O-Mic, now the Slum Dawgs have a place in the high table aye.. interesting eh what?) as a joint "global multilateral front " against the Chinese .

Must be fun to watch the pow pow that is going to happen. But mark my words, whether the chinese realize it or not, they are at an inflection point. One of the fundamental assumptions they made when the splurged on the "stimulus" (some of which went into the high speed rail stuff , which in some estimates supported 6 million workers/Chinese Abduls) has it's bottom knocked out. They cannot export their way out of trouble now and sell the surplus elsewhere.

As for any question of trade war, remember, it is Chinese which have massive excess capacity of all sorts. If the Unkil and the rest of the world go behind trade curtains, it will be simply devastating to the Chinese and set them back by atleast 25 years not to mention savage turmoil and large scale national and personal bankruptcy and of course huge job losses and asset deflation. All those towers in Shanghai will remain empty forever and the high speed trains, and maglevs, if they run at all will be close to empty. I would advise my chinese friends to quit "boasting" , tuck tail between their legs and live to fight another day. Wrong time and place to pick a fight with Unkil and Rest of World IMHO.. Read it all here.

The New York Times
Printer Friendly Format Sponsored By

March 17, 2010
Editorial
Will China Listen?

The drumbeat of complaints in Washington about China’s manipulation of its currency — and the deafening silence pretty much everywhere else — might lead one to think that this is just an American problem. It isn’t.

China’s decision to base its economic growth on exporting deliberately undervalued goods is threatening economies around the world. It is fueling huge trade deficits in the United States and Europe. Even worse, it is crowding out exports from other developing countries, threatening their hopes of recovery.

After treading lightly on the subject of China, President Obama vowed last month to “get much tougher” about China’s cheap currency. On Monday, 130 members of Congress sent a letter to Treasury Secretary Timothy Geithner, demanding that the Obama administration designate China as a currency manipulator in a report due to Congress next month. On Tuesday, a bipartisan group of senators introduced a bill aimed to force the administration’s hand. This would ease the way to imposing retaliatory trade barriers against Chinese goods.

So far, China has been defiant. On Sunday, after the close of the annual National People’s Congress, Prime Minister Wen Jiabao rejected American complaints as “a kind of trade protectionism” and made clear that he had no plan to do anything differently.

Since 2003, China’s central bank has been purchasing huge amounts of dollars to keep the value of its currency, the renminbi, artificially low against the dollar. China backed away somewhat in 2005, allowing its currency to appreciate slowly from 8.25 renminbi to the dollar to about 6.83 renminbi by 2008. As the global recession hit, China slammed on the brakes in order to protect its exports. The renminbi has remained at about 6.83 since then, and the pain has been felt in countries as far apart as Mexico and India.

Beijing’s intervention is a textbook example of the beggar-thy-neighbor competitive devaluation forbidden by the International Monetary Fund’s charter.

The challenge now is how to persuade China to at least moderate its strategy without unleashing something even more destructive. As the decibel level has risen in Washington, Chinese officials have implicitly warned that they could retaliate by dumping Treasury bills from their central bank’s $2.4 trillion cache.

This would be risky for both countries. The move would weaken the dollar and lessen the value of China’s holdings. The United States might weather a sell-off or even benefit from the drop in the dollar’s value, but any precipitous move could further disrupt the skittish financial markets. And Beijing has other potential weapons, like tariffs and quotas. There is no guarantee of rationality in these showdowns. The fallout from a trade war would be felt around the world.

It makes a lot more sense to address the problem in a multilateral setting, where China couldn’t portray itself as a weak, righteous fighter holding out against arbitrary American power. Retaliation, or even the threat, would carry more legitimacy if it were part of a multilateral agreement and done on a world stage.

One way would be to press the I.M.F. to officially pronounce on whether China is breaking the rules and manipulating its exchange rate. That is part of the fund’s job, though it has preferred not to pick the fight. China would find it far harder to reject an I.M.F. determination than any American criticism. It could open the door for other aggrieved trading nations to eventually seek legal redress at the World Trade Organization.

Even before that, it would help if some other countries — certainly those in the European Union, but perhaps aspiring players including India and South Korea — started publicly making the case that the cheap renminbi is hurting them, too.

The world’s battered economy is certainly in no shape to keep absorbing China’s exports, subsidized through a cheap currency policy. The more countries that say this, the more likely Beijing will consider changing course — and the less likely this disagreement will escalate into a fight that no one can win.

Masaru · Post by **Masaru** » 17 Mar 2010 20:53

Now that all the technology has been bought/acquired the tightening comes

Foreign Executives Say Beijing Creates Fresh Barriers; Broadsides, Patent Rules

The changes suggest Beijing is reassessing China's long-standing emphasis on opening its economy to foreign business—epitomized by the changes it made to join the World Trade Organization in 2001—and tilting toward promoting dominant state companies.

Technology executives say they are highly concerned about government procurement rules issued late last year that would favor local suppliers who have "indigenous innovation."

Patent rules imposed Feb. 1 threaten to increase costs in China for foreign innovators in industries such as pharmaceuticals, and let authorities force foreign drug companies to license production to local companies at state-set prices. Many foreign executives say they see an upsurge in economic nationalism, accelerated by China's world-beating performance during the recession and a new disdain for Western economic management.

Signs of nationalism are evident in the grooming of state-owned companies to dominate their industries as "national champions," often at the expense of private Chinese companies as well as foreign firms. From airlines to coal mining to dairy products, government policies are expanding the state's role.

These were mere annoyances when China was an emerging market. Today, the huge Chinese market is increasingly fundamental to the health of large Western multinationals. Lose here, say Western executives, and multinationals are weakened globally.

For many multinationals in China, today's profits follow years of investment, much of it encouraged by government policies designed to lure capital. Now, at the point when their dream of access to a giant market is becoming reality, China is so prosperous that it has less need for foreign funds. Foreign investment has grown much slower than the rest of China's economy, amounting to 1.8% of gross domestic product in 2009, down from a peak of 6% in 1994.

Beijing has long harbored suspicions the West wants to hobble its economic rise. Analysts say that lately, such insecurities have strengthened the hand of leaders who want to limit foreign presence in the economy.

While there are still proponents of openness, says Mr. Ross of WilmerHale, "there are louder voices pushing China to be more protectionist and to be more nationalist."

Classic strategy of luring in companies by advertising the huge internal market and shut them out when the local industry has caught up technologically.

wlin · Post by **wlin** » 17 Mar 2010 21:01

About the question of who is customer for China high speed rail. Here is one youtube video.

http://www.youtube.com/watch?v=2oZ3vBspkmM

It was took at Feb 19th. Changsha south station. The train is from Wuhan to Guangzhou. You can see to board the train took three minutes. And there was no seat for people boarding on Changsha. They all have to stand. So it is full when the train started from Wuhan.

They board the train 9:30 pm from Changsha. Arrived to Guangzhou before 11:30 pm which is 707 km away. The price is 350 rmb about 50 dollars.

The Wuhan-Guangzhou capacity utilization last month is above 100% because they sold so many standing seats. The railway ministry said it was 101% while some China forum said it is 110%. The price is decided by state plan committee for the purpose of saving Airline companies. If it were decided by Railway ministry they can charge less rate and still got profit.

When talking about the profit, you need to keep one thing in mind: the major purpose for Railway ministry to build these high speed railway is to free its fright transport capacity in the existing lines. The state planning committee (I don’t know its current name) does not allow railway ministry to raise its passenger rate (the price has not changed for 20 years) but the fright rate is floatable. So if the railway ministry is a private company, they would stop all passenger train because of fright transport demand is so overwhelming. So the new high speed railway can allow railway ministry to do two things: 1, raise the passenger rate. 2, they can stop some passenger train in existing line and free the capacity so they can run more cargo fright service which is very profitable.

So if you are talking about high speed rail profit, the answer is if you include the free fright transport capacity of existing line, it is absolutely profitable. If you only calculate the high speed railway itself, the answer is mixed. For some line like Beijing-Shanghai, Bejing-Hongkang. Shanghai-Chengdu, the answer is pretty clear. For some other line connection inland cities. The answer is not that clear. For example like Xian-Zhengzhou, the capacity utilization is about 80% last month which is the lowest among all running lines. These two cities are consider poor city in China. If consider the spring festival effect, the 80% does not look good. But after the whole network built on 2012, the capacity utilization will definitely up. Because it will be connected to other big cities like Beijing, Shanghai, Guangzhou and Wuhan. The same thing applies to Wuhan-Guangzhou line, after the Beijing-Wuhan line start to run next year, it will be even better.

About the station location, I guess vina is talking about Guangzhou. The reason is the new Guanzhou rail station is still under construction. So the current Guangzhou north station is like a temp station. The new Guangzhou station will be delivered this year and it will be called Guangzhou south station and will be the biggest station in Asia. All stations will be connected by Metro. Well they are still under construction. Bottom line is all new high speed railway stations in big cities will be connected by Metro.

wlin · Post by **wlin** » 17 Mar 2010 21:31

Sorry for my all caps user name. It is a mistake. How can i change it to wlin?

Katare · Post by **Katare** » 17 Mar 2010 22:25

wlin,

Your reply makes sense. Similarly metro rail systems are not even operationally profitable by themselves but they are still built where needed. Massive subsidies are provided for metros to run but over all economic and social return to society justify those costs. Similar justifications may be true for new high speed chinese railways since Indian railways has similar issues. Most of the Indian railway's capacity and priority is occupied by loss making passenger services which is sustained by extorting money from freight loaders.

What are your views on Yuan/$ exchange rate/peg?

China unyielding on yuan as U.S. raises pressure

wlin · Post by **wlin** » 17 Mar 2010 22:39

correction here, the current capacity utilization 101%， the railway ministry claimed is for all high speed rails not for Wuhan-Changsha. Wuhan-Changsha is about 110%. It is kind of special because spring festival. The official spring transport period started at late Jan and ends at 3/10.

wlin wrote:About the question of who is customer for China high speed rail. Here is one youtube video.

http://www.youtube.com/watch?v=2oZ3vBspkmM

It was took at Feb 19th. Changsha south station. The train is from Wuhan to Guangzhou. You can see to board the train took three minutes. And there was no seat for people boarding on Changsha. They all have to stand. So it is full when the train started from Wuhan.

They board the train 9:30 pm from Changsha. Arrived to Guangzhou before 11:30 pm which is 707 km away. The price is 350 rmb about 50 dollars.

The Wuhan-Guangzhou capacity utilization last month is above 100% because they sold so many standing seats. The railway ministry said it was 101% while some China forum said it is 110%. The price is decided by state plan committee for the purpose of saving Airline companies. If it were decided by Railway ministry they can charge less rate and still got profit.

When talking about the profit, you need to keep one thing in mind: the major purpose for Railway ministry to build these high speed railway is to free its fright transport capacity in the existing lines. The state planning committee (I don’t know its current name) does not allow railway ministry to raise its passenger rate (the price has not changed for 20 years) but the fright rate is floatable. So if the railway ministry is a private company, they would stop all passenger train because of fright transport demand is so overwhelming. So the new high speed railway can allow railway ministry to do two things: 1, raise the passenger rate. 2, they can stop some passenger train in existing line and free the capacity so they can run more cargo fright service which is very profitable.

So if you are talking about high speed rail profit, the answer is if you include the free fright transport capacity of existing line, it is absolutely profitable. If you only calculate the high speed railway itself, the answer is mixed. For some line like Beijing-Shanghai, Bejing-Hongkang. Shanghai-Chengdu, the answer is pretty clear. For some other line connection inland cities. The answer is not that clear. For example like Xian-Zhengzhou, the capacity utilization is about 80% last month which is the lowest among all running lines. These two cities are consider poor city in China. If consider the spring festival effect, the 80% does not look good. But after the whole network built on 2012, the capacity utilization will definitely up. Because it will be connected to other big cities like Beijing, Shanghai, Guangzhou and Wuhan. The same thing applies to Wuhan-Guangzhou line, after the Beijing-Wuhan line start to run next year, it will be even better.

About the station location, I guess vina is talking about Guangzhou. The reason is the new Guanzhou rail station is still under construction. So the current Guangzhou north station is like a temp station. The new Guangzhou station will be delivered this year and it will be called Guangzhou south station and will be the biggest station in Asia. All stations will be connected by Metro. Well they are still under construction. Bottom line is all new high speed railway stations in big cities will be connected by Metro.

wlin · Post by **wlin** » 17 Mar 2010 23:09

I think it is a good thing for China RMB to appreciate. If the current premier is not Wen but still Zhu, Rongji. I think Zhu already revalue the currencylong time back. The currency revaluation is long time due. The reason, current premier does not know anything about economy.

The ironic thing is the reason why China government does not want to revalue its currency is because of US and other Western countries push for it. So China leaders kind of think it must be something bad for China so they resist it. The reason why US push it, is because of China does not want to appreciate RMB.

To appreciate RMB will only benefit China and I do not see it benefits USA. Someone may argue it may hurt China’s export economy. I think first the export importance is extremely overrated. It would a joke to seriously think a 1.3 billon people country’s economy is based on export. It is like to think the India economy is based on service outsourcing. The employment of export economy is about 20-30 million at most. Compare to the whole employment labor force, it is not a good potion and lower paid. And RMB appreciation will not destroy export economy. Why? Even the exchange rate is 3.0, the labor cost is still much cheaper than American. So the job will not return to US. It may leave Guangdong or Jiangsu, Zhejiang but not return to US. It may go to inland China because of the infra improve of inland provinces. It may go to other countries. But I think the quantity will be limited. Because the RMB has been acted like an anchor in Asia currency. If RMBs moves, everybody moves. If RMB appreciates, the currency of India, South Korea, Thailand, Vietnam will all moved up. So the comparative cost will not rise dramatically. To appreciate RMB will cool the China economy without rising interest and will lower oil and raw material import cost. But the inflation in USA will fly and interest will go up. So it is a stupid for China not to rise RMB value and it is stupid for USA to ask for it.

I really hope USA can keep push because that is probably the only way to move RMB up. I do not bet the idiot Wen can understand all this logic.

Katare wrote:wlin,

Your reply makes sense. Similarly metro rail systems are not even operationally profitable by themselves but they are still built where needed. Massive subsidies are provided for metros to run but over all economic and social return to society justify those costs. Similar justifications may be true for new high speed chinese railways since Indian railways has similar issues. Most of the Indian railway's capacity and priority is occupied by loss making passenger services which is sustained by extorting money from freight loaders.

What are your views on Yuan/$ exchange rate/peg?

China unyielding on yuan as U.S. raises pressure

Ameet · Post by **Ameet** » 17 Mar 2010 23:23

China in Midst of Greatest Bubble in History

http://www.bloomberg.com/apps/news?pid= ... Ze4JWeV1aw

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

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

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

Hari Seldon · Post by **Hari Seldon** » 18 Mar 2010 05:17

^^FWIW, if indeed capacity util in prc's rail systems are >100% then prc has gotten something right. More power to them.

AFAIK, from some news reports I read a while back, most of the shiny new lines built were heavily underutilized - pointing to resource misallocation and capital wastage on a grand scale.

vina · Post by **vina** » 19 Mar 2010 12:38

Yawnn.. Just as expected after all the rhetoric from the Chinese (or being "boasters" as our Chinese friends would put it) , now preparing the ground for tucking tail between legs and skiing downhill.

China tries to cool Yuan dispute with the US .

No matter what. This issue is far too serious for it to end by just papering over. The Chinese either do downhill Skiing and avert a conflict or the US , Europe , Japan and others will have no option but to confront China on this..

Good anyways. I hope the Chinese keep a "cool head, leave emotions and politics at the door" (it is sort of nice to give advice to others, let us see if they can take what they dish out

) and address the issues on hand

.

RayC · Post by **RayC** » 19 Mar 2010 13:22

The reason, current premier does not know anything about economy.

So it is -

Row Row Row your boat gently down the stream,

Merrily merrily merrily merrily, life is a but a dream.

Christ, that shows how China goes!

vina · Post by **vina** » 19 Mar 2010 13:38

Anyways. Whichever way you look at it, the Chinese are in a tough place wrt to the currency.

Kow-tow to the Gwei-Lo and Ang-Mo Gao and revalue the currency by 10% ,20%, 25% (which I think is the right amount) and the much vaunted $2.4 trillion reserves take hits of $240b, $480b and $600b .. Think of it.. $240BILLION goes up poof-- disappears, just like that !.

On the other hand, if you don't kow tow and manage to get into a trade war, "expolts" get slammed, Abduls get laid off, there is massive turmoil, growth slams hard, the giant investment bubble that is China currently explodes irrevocably and causes massive turmoil.

So what is the Chinese govt going to do ?.. Watch $400 to $500b go poof or watch asset bubbles burst tremendously hard.

In any case I think the investment bubble bursting is inevitable. The question is one of trigger. Which one will burst it ?. China resembles Japan of the mid 80s, seemingly master of all it surveys , "a manifest destiny" in the making.. A massive investment and real estate bubble , that was basically bankrolled by massive merchandise exports (just like today's china) on the backs of an "undervalued" currency.

1985, the Japanese get into a currency agreement with the US and Europe, 1989, the investment bubble bursts massively and Japan never recovered from that really.

The parallels are uncanny. Investment bubble, undervalued currency, trade partners pushing back , huge problems with banks.. All it needs is a random trigger..

Oh well. Remember folks.. Operative word.

Handle with caution

vina · Post by **vina** » 19 Mar 2010 14:02

wlin wrote:I think it is a good thing for China RMB to appreciate. If the current premier is not Wen but still Zhu, Rongji. I think Zhu already revalue the currencylong time back. The currency revaluation is long time due. The reason, current premier does not know anything about economy.

Wise words. I agree with you that letting the currency float will remove a large part of the inflationary pressures building within China and most importantly , remove the commodity inflation that builds up because of massive Chinese imports based on an undervalued currency.

It will stop the commodity bubble on one hand and remove the deflation in manufactured goods and services on the other and bring stuff back in balance.

However, the problem of investment bubble in China will still persist. I just hope they manage to deflate it slowly without bursting.

To appreciate RMB will only benefit China and I do not see it benefits USA.

It does by 1) Increasing competitiveness of US exports 2) makes imports more expensive and improve trade imbalance of US overall.

Someone may argue it may hurt China’s export economy. I think first the export importance is extremely overrated. It would a joke to seriously think a 1.3 billon people country’s economy is based on export.

Net Exports are I think around 6% of China's GDP aren't they ? With around $700b exports in a $ 3 or $4T economy, it is pretty sizeable . The Chinese Private sector leads the exports and if the Indian experience with Govt companies and everything is an indication,much of the "formal" employment will be with the private sector. The Govt enterprises are probably not that labor intensive as they would have been 25-30 years ago I guess after all the reorganization and efficiency improvements.

Even the exchange rate is 3.0, the labor cost is still much cheaper than American. So the job will not return to US. It may leave Guangdong or Jiangsu, Zhejiang but not return to US. It may go to inland China because of the infra improve of inland provinces. It may go to other countries. But I think the quantity will be limited.

I agree that the jobs wont return to China. But what it will do is make US exports more competitive globally. The issue is not about CURRENT jobs, but future growth rates.

Because the RMB has been acted like an anchor in Asia currency. If RMBs moves, everybody moves. If RMB appreciates, the currency of India, South Korea, Thailand, Vietnam will all moved up.

No. They wont. Not all those countries are strongly correlated with China. There are different factors at work in each economy. Definitely not India.

So the comparative cost will not rise dramatically. To appreciate RMB will cool the China economy without rising interest and will lower oil and raw material import cost.

That part is absolutely correct. It will lower inflationary expectations in China and prick the global commodity bubble. Everyone benefits from that.

But the inflation in USA will fly and interest will go up. So it is a stupid for China not to rise RMB value and it is stupid for USA to ask for it.

Here I have to disagree. See, the problem with China's currency policy is this. It exports massive commodity price inflation , while exporting deflation in manufactures. So it is exporting inflation to one part of the world , while simultaneously exporting deflation to another.

In fact the fight the US currently has is actually deflation in goods and services (while facing potential inflation in commodity prices). So that is why a RMB increase will benefit both China AND US AND the rest of the world (or rather countries like India which are commodity importers in net).

I really hope USA can keep push because that is probably the only way to move RMB up. I do not bet the idiot Wen can understand all this logic.

Oh, the "Idiot" Wen understands this quite well. The problem is he doesnt care about this and is more concerned about China's internal problems of maintaining growth and stability. From the Chinese govt's perspective, they have an ideal formula that served them absolutely brilliantly for 25 years , and would just like doing more of what has worked so well until now. Unfortunately for them, the old formula cannot work anymore and that is why the Chinese growth model is at an inflection point. It is a fork in the road and hard choices have to be made.

Katare · Post by **Katare** » 20 Mar 2010 01:13

In all this Yuan/$ conversion rate saga, India is most conspicuous by its continuous silence. Since its private industry and govt finances are suffering more than any other country from cheap Chinese imports of finished products, Indians should be shouting from the roof-top. But for somehow it seems like we, like the rest of the world, have outsourced this fight to evil USofA.

Prem · Post by **Prem** » 20 Mar 2010 02:06

If chinese bubble burst , will it bring down the commodities prices all over ? There is currently bubble in commodities too.

Neshant · Post by **Neshant** » 20 Mar 2010 07:56

In fact the fight the US currently has is actually deflation in goods and services (while facing potential inflation in commodity prices). So that is why a RMB increase will benefit both China AND US AND the rest of the world (or rather countries like India which are commodity importers in net).

Is now the right time to diversify out of commodity currencies like AUD and CAD? They are getting stronger at the moment. Is this going to change in the near future.

Problem is all the non-commodity currencies look like crap with bad fundamentals.

vina · Post by **vina** » 20 Mar 2010 15:13

Neshant wrote:Is now the right time to diversify out of commodity currencies like AUD and CAD? They are getting stronger at the moment. Is this going to change in the near future.

Problem is all the non-commodity currencies look like crap with bad fundamentals.

AUD and CAD are getting stronger because they are the ones facing inflation and they have increased interest rates. Currency game is largely an interest rate arbitrage game there vs USD.

Let us see economies which are facing inflation.. Aus, CAD, Brazil, China and India. India's case is separate and is largely due to large fiscal deficits that goes to the history of MMS govt gambling on high growth rates in the previous budget and having the global economic crisis blow up in it's face and then forced to run even bigger deficits.

For the other countries, they are all commodity exporters and linked to a great extent /dragged up by the Chinese commodity buying with the Yuan undervalued and of course with record low interest rates, betting on commodities as a potential inflation hedge has minimal costs, so all investors/speculators (depending on whether you a commie or not) piling in.

Now the trick is, if the Chinese RMB moves up, imported commodities and other inputs become CHEAPER for Chinese manufacturers, while Chinese manufactured exports become more expensive for the importer (because of higher cost in importing currency of Chinese value addition). So all in all, there will be some demand destruction from China of commodities , Chinese growth will cool a bit, inflation will go down if Chinese currency appreciates.

More importantly, with interest rates rising, the cost of speculating in commodities is going to get more expensive and riskier. Yeah. I do think an interest rate hike will let some air out of the commodity bubble . And if the US starts growing, the dollar will strengthen and then there will be a massive pop in the commodity bubble.

Watch the US Fed funds rate. The commodity bubble popping is directly correlated with that.