Bharat Rakshak

Singha wrote:housing shouldnt be a problem. if locked up factory cannot provide the dorm (owner fled to taiwan/hk/canada) all those partially occupied huge buildings can easily absorb the surplus labour
and provide them conditions better than the straw and bamboo shacks of the indian poor.

imagine owning your own luxury office-cum-workplace in pudong for free the princelings who own these magnificent towers will no doubt be efficient slum lords and extract 'rent' and 'tribute' from the abject vassals in true 'efficient' and top-down Han style.

for food, there's plenty of fish and fowl in the waters and the countryside. but first burning down and robbing the mansions of the rich will yield enough grain, ducks, roosters and corn to get through the lean patch.

problem? what problem - its all peace, progress and development.

wrdos wrote: besides your years long calling on a collapsing China, would you please give me a more scientific prediction of a simple but interesting issue.

When will India surpass China by, to say, nominal GDP in US$ term?

Hmmm, maybe it will turn out to be a too long journey for all of us to witness. OK, let's focus on a short term issue.

After this crisis, to say 1 or 2 years from now, the gap between the Chinese and Indian GDP data, no matter the nominal or ppp ones, will shrink or not? And your answer is definitely a "Yes"?

Then, let's wait and see.

wrdos wrote:Nice! It seems to me that there are so many great economists hiden here.
But, as I know, any prediction without a time scale is just, hmm......

So Ok, no matter Mr. vina or Mr. Ramana, besides your years long calling on a collapsing China, would you please give me a more scientific prediction of a simple but interesting issue.

When will India surpass China by, to say, nominal GDP in US$ term?

Hmmm, maybe it will turn out to be a too long journey for all of us to witness. OK, let's focus on a short term issue.

After this crisis, to say 1 or 2 years from now, the gap between the Chinese and Indian GDP data, no matter the nominal or ppp ones, will shrink or not? And your answer is definitely a "Yes"?

Then, let's wait and see.

Initially at least, it appeared to me that China had the right approach to the current crisis, namely to increase government spending (fiscal stimulus), encourage greater private consumption, broaden monetary policy measures and so on, with a view to diversifying the economy's income streams from exports to more domestic means.

That has however not delivered the right results so far. Commercial banks are already in trouble on their stock of bad loans and poor capital ratios as I wrote last week (see Going, going, GOME, Asia Times Online, December 6, 2008); coming as they do after two decades of strong economic growth, there is reason to fear the impact of even two or three years of recessionary conditions.

Chinese investors were burned at the altar of stock and property markets by the central bank's asinine policy of increasing interest rates and constricting lending in place of allowing currency appreciation from 2005. This decline in Chinese stocks has come about at the worst possible time - before an economic bust - rather than when going into the spiral; that means the government will have to do a whole lot more in China than it would otherwise expect to anywhere else in the world.

Then there are the various other scandals in China, ranging from high-level corruption to the incompetence of regional officials in dealing with the Sichuan earthquake and the Tibetan riots; those with an economic bent of mind would also consider the sharp declines in November trade figures that highlighted the misplaced tight credit policy of the central bank.

Given all this, China appears to have significant self-doubts about the government's ability to deliver a fiscal stimulus without overcoming high levels of leakage from corruption and plain incompetence; in effect the government's mianzi - or pubic perceptions of the government's prestige - from recent events, including the successful Olympics, are possibly seen as insufficient given the negative lian - the confidence of society in the authorities' moral character - from other events such as recent corruption scandals and builders' incompetence that was exposed in the Sichuan earthquake.

Doubts over the government's competence in handling the economic decline mean that attempting new or innovative courses of action would be too risky for the communist party; hence the hankering for the tried and tested formula of stronger exports.

With the medication switched between those who should increase production [US] and those who should increase consumption [PRC], we are unlikely to see any improvement to the global economy over the near future.

Rishirishi wrote: Words, I just came back from China last week. Did good business but China is getting pricy, the costs are going up. I paid 118 rmb for a bus ride from Nanjing to Hangzhou (that is close to Rs 750 for a 300 km ride). Also had the fortune to travel by CHR (bullet train) from Shanghai to Nanjing. The train ride was great, truly world class. The same goes for the bus ride. The highway was great, smooth and among the best I have ever seen. Also used Hangzhou, Xiamen and Shenzen airports for domestic travel. Again the airports were fantastic. The organisation everywhere was great. I think even the Bus stand was better organised then Delhi airport.

I have predicting the bust of China for a loong time, as you probably remember. You used to make fun of me. Well this time I saw all the signs. The export is unsustainable, and is contracting. A lot of the suppliers I spoke to, were talking of solid resession (up to 35-40% drop in exports). Lots of factories are forced to close down. While the government spending on infrastructure is going full speed, the private investment seems to have stopped. Huge complexes with 1000 plus flats, lying vacant. With exports accounting for over 40% of GDP, China has a problem. People say that the economy may slow down to below 7% growth. I personally will be surprised if the economy manage to avioid contracting by 2-3%.
The question is if the country can manage to increase domestic demand for goods and services, and stay out of resession.

rsingh wrote:I think China will grow 15%. All steel mills will provide metal for PLA atnks. Every Chinese boy will have to buy 50 toys....by law. Every body will have to drive 100km everyday to make up for falling oil demand and every Chinese will have to buy 10 pairs of ladies underwear to compensate for the falling export. Some guys are living in cookosland denying simple facts.

wrdos wrote: This thread is supposed to be a forum of serious discussions on Chinese economy, but not Chinese bashing, right?

wrdos wrote:What surprised me is that despite all the international organizations or banks are giving predictions on 2009 Chinese economy, from 7% to 8.5%, members of this forum insist it will become a -2 or -3%. And just as usual, without any supporting proofs, just "personally, I think, ........".

So what I can only say is:

1) Please give a timescale to any of your predictions, no matter 1 year, 2 years, or 100 years, but please give us a timescale of an exact number;
2) Let's wait and see.

As for your Chinese trip, in future, please take some time to visit north and inland Chinese provinces like Inner Mongolia and Xinjiang, too. Currently, they are the fastest developing provinces of the country, not Shanghai or Guangdong anymore.

For the travel cost, I don't think it changes much in China recently. In 1998, a taxi trip from downtown Beijing to its Airport costed me 100 yuan. Last year, it costed me also 100 yuan. Except food and housing, all the other things are becoming cheaper every year in China.

Maybe you are using the rupee term, then it might be true.

BTW, welcome to Hangzhou. I was not born there, but I got my master's degree in the city with a lot of sweet memory. I like it very much.

Rishirishi wrote: Words, I just came back from China last week. Did good business but China is getting pricy, the costs are going up. I paid 118 rmb for a bus ride from Nanjing to Hangzhou (that is close to Rs 750 for a 300 km ride). Also had the fortune to travel by CHR (bullet train) from Shanghai to Nanjing. The train ride was great, truly world class. The same goes for the bus ride. The highway was great, smooth and among the best I have ever seen. Also used Hangzhou, Xiamen and Shenzen airports for domestic travel. Again the airports were fantastic. The organisation everywhere was great. I think even the Bus stand was better organised then Delhi airport.

I have predicting the bust of China for a loong time, as you probably remember. You used to make fun of me. Well this time I saw all the signs. The export is unsustainable, and is contracting. A lot of the suppliers I spoke to, were talking of solid resession (up to 35-40% drop in exports). Lots of factories are forced to close down. While the government spending on infrastructure is going full speed, the private investment seems to have stopped. Huge complexes with 1000 plus flats, lying vacant. With exports accounting for over 40% of GDP, China has a problem. People say that the economy may slow down to below 7% growth. I personally will be surprised if the economy manage to avioid contracting by 2-3%.
The question is if the country can manage to increase domestic demand for goods and services, and stay out of resession.

K_Reddy wrote:I am disgusted at the anti-Chinese gloating and sheer childishness in this post. Sure we see the Chinese as competitors and the Chinese government does every thing it can to undermine us, but what good will come from this? You will drive out real discussion from this important post. Please keep it civil. Internet etiquette guys.

My brother-in-law is the country manager for China; he works for a Detroit based auto parts manufacturer. He says the situation is aggravated by the fact that lay offs are so easy in China. With so many people out on the street, the Chinese government is starting to get real panicky. But overall he is a China believer. They have huge cash reserves and a very low debt to GDP ratio. With true Chinese style economic mobilization, they may be able to get out of this yet.

The thing about the Chinese is, they compare themselves to Taiwan, HK, Korea and Japan. The party bosses travel to these country and come back home with an inferiority complex. They want to show that they are no less then anybody. This is where their drive comes from. Super cities, bullet trains, this is what its all about. They have tasted success and the whole country wants more. They now believe they can do it. An able leadership and a willing people makes for an amazing combination. Let’s see if they can carry this energy forward and make it happen before bureaucratic rot and corruption set in to their totalitarian regime. The regime itself seems to have a high degree of internal accountability and motivation. This is a grand experiment. The Chinese have a saying “May you live in interesting times”.

I have a very comfortable IT job with a banking major and live with my folks (am 25). This NRI friend of mine is heading to China for 5 months on a English teacher assignment and wanted me to join him. Every school must have a native English teacher by law in China, so you have agencies that hire thousands of collage kids looking for an adventure from the west to do the job. The teaching is not very affective, especially since its so difficult for Chinese to transition into English. But I have met lots of people who have had a lot of fun doing it. I wanted to go just for a change of pace. Some of the towns just outside Shanghai, are amazingly beautiful and have a per capita of 10,000$. The job pays about the same as I make here, but that not the point. Unfortunately my parents are completely against it. Too bad.

Rishirishi wrote:They were already celebrating "Thanks giving".

paramu wrote:

Rishirishi wrote:They were already celebrating "Thanks giving".

When are they going to celebrate July 4, President's Day etc....

Rishirishi wrote:

K_Reddy wrote:I am disgusted at the anti-Chinese gloating and sheer childishness in this post. Sure we see the Chinese as competitors and the Chinese government does every thing it can to undermine us, but what good will come from this? You will drive out real discussion from this important post. Please keep it civil. Internet etiquette guys.

My brother-in-law is the country manager for China; he works for a Detroit based auto parts manufacturer. He says the situation is aggravated by the fact that lay offs are so easy in China. With so many people out on the street, the Chinese government is starting to get real panicky. But overall he is a China believer. They have huge cash reserves and a very low debt to GDP ratio. With true Chinese style economic mobilization, they may be able to get out of this yet.

The thing about the Chinese is, they compare themselves to Taiwan, HK, Korea and Japan. The party bosses travel to these country and come back home with an inferiority complex. They want to show that they are no less then anybody. This is where their drive comes from. Super cities, bullet trains, this is what its all about. They have tasted success and the whole country wants more. They now believe they can do it. An able leadership and a willing people makes for an amazing combination. Let’s see if they can carry this energy forward and make it happen before bureaucratic rot and corruption set in to their totalitarian regime. The regime itself seems to have a high degree of internal accountability and motivation. This is a grand experiment. The Chinese have a saying “May you live in interesting times”.

I have a very comfortable IT job with a banking major and live with my folks (am 25). This NRI friend of mine is heading to China for 5 months on a English teacher assignment and wanted me to join him. Every school must have a native English teacher by law in China, so you have agencies that hire thousands of collage kids looking for an adventure from the west to do the job. The teaching is not very affective, especially since its so difficult for Chinese to transition into English. But I have met lots of people who have had a lot of fun doing it. I wanted to go just for a change of pace. Some of the towns just outside Shanghai, are amazingly beautiful and have a per capita of 10,000$. The job pays about the same as I make here, but that not the point. Unfortunately my parents are completely against it. Too bad.

Go man go. Get out of the parents nest and just go. You wont regret it (Chinease girls, who love people with long noses, he he). People there are friendly, open and nice.

You are very correct about the comparison with Taiwan, HK, Japan and Korea. But they party bosses forget that China is still a poor country. The could have been better spent on rural infrastructure. The Chinease many have a lot of reserves, but they will face massive problems in the near future. About 40% of their economy depends on exports. The problem is that China does not conusme products from rest of the world, and there is a limit to how long the show can go on. China has some serious problems comming.

Yogi_G wrote:

Rishirishi wrote:

paramu wrote:I think you missed the point, Chinese don't seem to understand the significance of Thanks Giving. From your statements, they are running fast to ape Americans without understanding what they are doing. That could as well be the reason for their downfall.

hey Rishi, just curious abt your China being a "poor" country statement, looking at both nominal and PPP GDP of China it is clearly a middle income country and they dont have the worst Gini numbers....I wonder what leads you to term them as "poor", but hey you are the guy who has been to PRC so you probably do know more about them than me, so just curious what makes u call them poor??

Firstly. Do not believe any of the Chinease statistis. They don't have a fair independent system to monitor the economy.

Pockets of China may be defined as"middle income" what ever that means. But in a country where people are willing to work 6 days per week for a mere 200 dollars per month, cant be called "middle income". The wages are actually Higher in India. The great difference in China is that perhaps 3-400 million or so have an income of 200 dollars per month. Another difference is that China has recieved massive ammounts of forigin investments.

But the problem China faces today is that 40% of its GDP is related to forigin exports. The budged surplus and the slowdown of international economy is very very dangerous for China. Firstly it means that countries are going to buy less, even worst is the senario that china may be forced to blance its trade blance, because the world may refuse to run up more trade deficits. That means either allowing increase of the value of Rmb or face trade barriers. In either case, it means loosing the price advantage. It is worth noting that Chinas only competative advantage have been price. They have not managed to build brands or sell solutions to the outside world.
The third great problem for China will be fall in private domestic and forigin invstments.

Acording to people like Gorge Soros, no one really knows what the growth rate of China has been. But is definately the highest among the large economies.
My personal view is that the exports could contratct as much as 35% - 40%. And the private investments will fall sharply. Some of this can be compensated by government spending. But there is a limit to that.
I have been predicting a fall of Chinease GDP for a few years now. Because I think growth Chinas model is unsustainable.

India and China can be compared to a preshure cooker and a normal pan with a lid. When people get angry in India, the people are allowed to vent their anger, by demonstrating etc. But in China everything is kept locked up. The danger is that steam builds up and ends in a huge blast.

Yogi_G wrote:

Firstly. Do not believe any of the Chinease statistis. They don't have a fair independent system to monitor the economy.

Pockets of China may be defined as"middle income" what ever that means. But in a country where people are willing to work 6 days per week for a mere 200 dollars per month, cant be called "middle income". The wages are actually Higher in India. The great difference in China is that perhaps 3-400 million or so have an income of 200 dollars per month. Another difference is that China has recieved massive ammounts of forigin investments.

But the problem China faces today is that 40% of its GDP is related to forigin exports. The budged surplus and the slowdown of international economy is very very dangerous for China. Firstly it means that countries are going to buy less, even worst is the senario that china may be forced to blance its trade blance, because the world may refuse to run up more trade deficits. That means either allowing increase of the value of Rmb or face trade barriers. In either case, it means loosing the price advantage. It is worth noting that Chinas only competative advantage have been price. They have not managed to build brands or sell solutions to the outside world.
The third great problem for China will be fall in private domestic and forigin invstments.

Acording to people like Gorge Soros, no one really knows what the growth rate of China has been. But is definately the highest among the large economies.
My personal view is that the exports could contratct as much as 35% - 40%. And the private investments will fall sharply. Some of this can be compensated by government spending. But there is a limit to that.
I have been predicting a fall of Chinease GDP for a few years now. Because I think growth Chinas model is unsustainable.

India and China can be compared to a preshure cooker and a normal pan with a lid. When people get angry in India, the people are allowed to vent their anger, by demonstrating etc. But in China everything is kept locked up. The danger is that steam builds up and ends in a huge blast.

Rishi, thnx for the info, have you been to the rural areas of China?? if yes how better off are they than our rural areas?? Were you able to see a stark difference between urban and rural China? If yes then the talks of "evening" out differences and "rural socialism" by the CCP is just another bluff....

Rishirishi wrote:

Yogi_G wrote: Rishi, thnx for the info, have you been to the rural areas of China?? if yes how better off are they than our rural areas?? Were you able to see a stark difference between urban and rural China? If yes then the talks of "evening" out differences and "rural socialism" by the CCP is just another bluff....

Yes have been to rural areas. Stayed in a "resort" near Shanghai airport, and it was very much like India. Garbage on the streets, roadside vendors, etc. The Urban part can be divided into 2 types of areas, the area that is "showcase" and the area that is outside the "showcase" areas. The Showcase areas surpases just about anything on the planet (noting like it in Europe, but perhaps has its equal in Singapore").
From the elevated highways you get view of modern buildings and everything is shining. But the moment you go behind the "showcase areas" it is just like India. I had posted some pics a few years ago. There is unauthorised construction, "gali type areas", garbage on the streets, street vendors, "thelas" etc. Very much like India. Having said this, the chinease government is constantly demolishing the "bad" areas, and building highrise. You can discuss weather this is good or bad, but developent is taking place. However there seems to be a problem with selling the new built flats, as they are out of reach for the people originally living there. What happnes to the people who are forced to move, I do not know anything about. But I think they get some compensation. Perhaps some of the chinease frinds on the board can let us know.

OverallI think China may have a better strategy, as the towns get efficient infrastructure and become pleasent place to live. (at least for the people with money).

The Rural areas:
I think it may be simmilar to India, but the people are probably slightly better off. Factory workers keep the place alive, with small incomes. As I said in my previous post, India would be china if it could send 300 million from the rural areas to the urban areas, where they made some Rs 5-7000 per month.

A lot of people talk about transforming India, into an export oriented low cost manufacturing economy to employ the millions in rural India. I think this would be a wrong strategy, as it does not really solve the fundamental problem (create decent living conditions). I think India is on a very good path, where it is developing knowledge and service based economy. I think the main objective should be to create jobs that can give a decent outcome (at least Rs 15-20 000 per month). As I said, the income potential i much better in India, as compared to China.

But the Indian government needs to urgently adress infrastructural issues. Not overspend on prestige projects like China is ding, but in cost effective projects, that particularly target the rural areas. Developing the rural areas is the key to any economic sucess for India.

Rare is an analyst willing to even contemplate low-digit growth rates for China in 2009, let alone NO GROWTH (Jim Walker from Asianomics (ex CLSA) predicts 0-4% growth). But, while history doesn't repeat itself, it rhymes. During its first 30 years of recovery and industrialization after WW2, Japan experienced several "growth recessions" when its growth halved from the boom times. But in the mid 1970s recession, it got much worse. Industrial production growth went from +16% y-o-y throughout the first half of 1973 to -19% in February 1975! Real y-o-y GDP growth went from more than 10% to solidly negative for a few quarters in late 1974 and early 1975.

While it's always dangerous to draw direct analogies from one country to another or from one time period to another, a country that is 25+ years into its industrialization, that is heavily dependant on both net exports to the world at the time of a global GDP and trade collapse, and that is also dependant on its real estate construction, has to get into deep trouble.

Can the rest of the fixed infrastructure investment help (infrastructure investment commands by far the highest % of GDP)? If you exclude investments in factories etc. (which will plunge with plunging exports) and home and office building construction (which are already plunging), what's left has already peaked. 2008 should have been the peak railroad construction year based on their 5-year plan. 2009 will, at best, match it if the Chinese government does move up some of the planned future construction. Road construction already peaked couple of years ago. The same is likely true for ports. Airports should have a brighter future, but only long-term. So, no help from this largest sector of the economy either.

I don't think there will be any help from consumer spending either. While the Chinese were not buying stocks in Shanghai on margin as the US investors did in 1929, they still lost a lot of money there. And since that was an epic bubble (based on cyclically-adjusted P/E ratios, it exceeded the Japanese bubble of 1989 and vastly exceeded the US 1929 and 2000 bubbles), it has still to deflate. What's more important is that wage growth in China didn't match its GDP growth over the years, so wages declined as a share of GDP. Consumption as % of GDP has roughly matched that fall.

China's graduates will find it tougher than ever to get jobs in the coming year, as China's economy slows down and unemployment rises.

Experts say a chronic over-supply of graduates and a shortage of "high end" jobs had already been causing difficulties, but the mass lay-offs and business closures in recent months has made the situation even worse.

Three months after the end of the games, new figures show the "Olympic Effect" has been short-lived and hotels are empty, industrial output has fallen and the streets are quiet.

Much of the pain is due to the worldwide financial crisis – and in some cases due to brave decisions by the government to keep polluting industries shut to spare the environment.

But even the biggest single symbol of the modern rise of China, the "Bird's Nest" National Stadium, stands forlorn, largely unused except for a shrinking number of tourists.

Attempts to attract the city's main football team to move to the ground have failed – it is simply too big for the club's crowds. Instead, it charges 50 yuan – around five pounds – per person to come and stand where Usain Bolt and others touched glory in the summer.

Henry Zhang, deputy head of the Stadium's management firm, said he was concerned about whether it would recoup its investment. "I have been worried and I'm still worried," he said.

By Chris Buckley

China faces surging protests and riots in 2009 as rising unemployment stokes discontent, a state-run magazine said in a blunt warning of the hazards to Communist Party control from a sharp economic downturn.

The unusually stark report in this week's Outlook (Liaowang) Magazine, issued by the official Xinhua news agency, said faltering growth could spark anger among millions of migrant workers and university graduates left jobless.

"Without doubt, now we're entering a peak period for mass incidents," a senior Xinhua reporter, Huang Huo, told the magazine, using the official euphemism for riots and protests.

"In 2009, Chinese society may face even more conflicts and clashes that will test even more the governing abilities of all levels of the Party and government."

President Hu Jintao has vowed to make China a "harmonious society," but his promise is being tested by rising tension over shrinking jobs and incomes, as well as long-standing anger over corruption and land seizures.

China also faces a year of politically tense anniversaries, especially the 20th year since the June 1989 crackdown on pro-democracy protesters in Tiananmen Square. That date has already galvanised the "Charter 08" campaign by dissidents and advocates demanding deep democratic reforms.

While foreign commentary about risks to China's recipe of fast economic growth and one-party control are common, the nation's leaders are usually reticent about such threats.

This report and other recent open warnings may be intended to help snap officials to attention, said one Chinese expert.

"The candour about these problems reflects the severity of the unemployment problem. It's meant to attract the attention of all levels of government," said Mao Shoulong, a professor of public policy at Renmin University in Beijing.

"The government wants to show that stability is at the top of its agenda."

JOBLESS AND BITTER

The biggest threats to China's social fabric will come from graduating university students, facing a shrinking job market and diminished incomes, and from a tide of migrant labourers who have lost their jobs as export-driven factories have shut.

Factory closures, sackings and difficulties paying social security have already unleashed a surge of protests, the report said. Officials in provinces that have provided tens of millions of low-paid workers for coastal factories have reported a leap in the number returning to their farm homes without work.

State statistical authorities estimated that close to 10 million rural migrant workers had lost their jobs, the magazine said, without specifying when the sackings happened.

Including students who graduated in 2008 and had not found work, there would be more than 7 million university and college graduates hunting for jobs this year, Huang calculated.

The government's goal of annual GDP growth for 2009 of 8 percent would generate only 8 million new jobs for the whole country, he added. In 1989, discontented students formed the core of the pro-democracy protests.

"If in 2009 there is a large number of unemployed rural migrant labourers who cannot find work for half a year or longer, milling around in cities with no income, the problem will be even more serious," said Huang.

Huang is Xinhua's bureau chief in the southwest city of Chongqing, which has long been a cauldron of unrest. Other parts of China have also seen intense but brief and localised protests over police abuses, corruption and factory closures.

Ian Bremmer, president of the prominent political risk consultancy Eurasia Group, said he foresaw no departure from that pattern and no overwhelming crisis [ID:nSP364531].

"The party has built a large stockpile of domestic goodwill over the past three decades," Bremmer told Reuters in an interview this week, offering a more optimistic outlook.

"Toughening economic times will erode some of that credit, but the reserves are too deep for China to reach a crisis point in 2009."

China's economy expanded by 9.9 percent from a year earlier in the first nine months of 2008. But some economists doubt that the government can achieve its goal of 8 percent growth for 2009.

The Outlook report also stressed the nation's strains are about more than growth rates. Protests are increasingly politicised, making it harder for officials to douse them by force or cash hand-outs, the report said.

"Social conflicts have already formed a certain social, mass base so that as soon as there is an appropriate fuse it always swiftly explodes and clashes escalate quickly," said Huang.

(Editing by Nick Macfie and Dean Yates)

The eye-catching one was a coded story on capital flight from China, "China warns of risks from "abnormal" cross-border capital flow," from Xinhua. The reason that capital is exiting China now is that a lot of hot money came into China in 2008 to take advantage of a widely expected RMB apprecation (yours truly also thought the RMB was a one-way trade, but somehow managed not to act on it). Brad Setser and Michael Pettis have both watched the influx of speculative funds with considerable alarm, but the issue has not gotten traction in the media.

Pettis and Logan Wright wrote a Financial Times comment in July that gave a good overview:
During the first halves of 2005 and 2006, the trade surplus, FDI and estimated interest on China’s reserves accounted for 80-90 per cent of the country’s reserve accumulation. In the first half of 2007, these components accounted for about 70 per cent. This year, however, their share has declined dramatically to 39 per cent from January to May....Because there are likely to be speculative inflows buried in the trade and FDI accounts, their true share is probably even lower.

So what is powering China’s accelerating reserve accumulation? Probably hot money....more and more investors, business people and ordinary households are bringing money into China to take advantage of profits associated with the expected appreciation or to protect themselves from the losses they will incur with the rising renminbi...

There is no technical definition of hot money ....but it is possible to obtain rough proxies...In every case the proxy...shows a startling increase over the past 12 months. The fact that in recent months the authorities have taken increasingly desperate measures to staunch the inflows confirms this interpretation of soaring hot money proxies....

Hot money is notoriously unstable and even more notoriously procyclical. When the economy is growing, or even overheating, inflows are likely to increase net investment and add even more fuel to the economic engine. But when conditions change and the economy begins to slow or the country face financial risks, hot money is likely to flee the country, exacerbating the very conditions it is fleeing.

With this background, the importance of Xinhua story is more apparent:
China faces a threat of "abnormal" cross-border capital flow because of global financial tumult, the country's foreign exchange regulator said Tuesday...

More money flowing out of the border could increase the risk of liquidity strain in the country, which is especially dangerous amid the global financial crisis...

China's foreign exchange reserves had fallen for the first time since December 2003, Cai Qiusheng, a SAFE official, told a conference last month. He didn't give specific data of when that happened or by how much.

He said the current reserves were below 1.9 trillion U.S. dollars, the level recorded at the end of September. It was the largest reserve in the world.

The SAFE will improve management on fund flows in and out of the border and more closely monitor the balance of payments, said Hu.

He urged for better risk control in managing foreign exchange reserves, which was "the last safeguard" against risks.

China's central bank said Tuesday it will also strengthen scrutiny of cross-border capital flows and study ways to tackle "abnormal changes" in the balance of payments.

The People's Bank of China said it will check the validity of trade payments and step up supervision on individuals carrying foreign currencies in and out of the country.

I would assume "strengthen scrutiny of cross border capital flows" means "tighten foreign exchange controls even further."

And separate from the flight of hot money, we may be seeing a reversal of FDI investment as newly needy multinationals unload their stakes in Chinese companies to shore up their balance sheets, as Bank of America has. From Reuters:
Top U.S. lender Bank of America raising cash to weather a dismal market at home, is selling a $2.83 billion chunk of its holding in China Construction Bank (0939.HK: Quote, Profile, Research, Stock Buzz) at a 12 percent discount on Wednesday, according to a term sheet obtained by Reuters.

The U.S. lender was selling more than 5.62 billion shares, or nearly 13 percent of its holding in Construction Bank, at HK$3.92 apiece, in a placement that had been widely anticipated.

The stake represents about 2.5 percent of Construction Bank, and will leave Bank of America with a 16.6 percent holding in the Beijing-controlled lender once the sale is completed.

"The news has been expected but investors will still take it hard because BoA will most definitely sell more. They need the money," said Francis Lun, general manager with Fulbright Securities in Hong Kong.

ChinaStakes gives an update on the Chinese housing market that makes the US seem almost balmy. Note that in China, consumers mortgages are not common and even when they are used, loan to value ratios are very low, so a fall in real estate prices does not lead to the sort of large scale foreclosures that we see here. However, Chinese banks are very exposed to developers, and the article discusses how a very high percentage of new development is unsold (enough to constitute a three year overhang in Beijing, for instance). China's central bank last fall forecast a 10% to 30% fall in real estate over the next two years (and recall this is an even bigger decline in real terms, since China still has a high inflation rate) and warned of resulting liquidity problems for real estate companies and banks.

From ChinaStakes:
For those who have worked in the Beijing real estate industry over the past 10 years, 2008 has been the worst. Latest figures revealed by the Beijing Bureau of Statistics show that housing sales area between January and November totaled 7.389 million square meters, a drop of 52.4% over the same period of 2007.

A 50+% decrease in sales leaves much new housing vacant. By the end of December, 2008, the number of salable houses and apartments under construction in Beijing reached 188,031, while finished but unsold houses and apartments totaled 174,290, leaving over 360,000 units on the market. If they are sold at 120,000 a year, the rate in 2007, it will take at least 3 years to sell them all, and that’s if no more are built....

The drop in new housing prices has also directly affected the prices of used housing. According to 21st-Century Real Estate, prices for 85% of the second-owner housing on the market saw an average price fall of 8.9% in the second half of 2008...

2009 will be a year of adjustment for the real estate industry....Any boom in a real sense, with rising housing prices, won’t come until 2011 at the soonest

Savills, one of the world’s largest property service firms, reckons the 2008 vacancy ratio of A-level commercial property in Shanghai’s Pudong district may be as high as 25.6%.

And then there is the residential market. In 2008 in Shanghai, new housing turnover slumped by 57%, year on year. In Nanjing and Hangzhou, the other two big cities in the Yangtze River Delta, trading volume slumped by 54.3% and about 50%, respectively. Prices in these three cities have not been cut, but industry insiders believe it is just a matter of time before developers will have to do so to promote sales, perhaps by as much as 15% to 20% in 2009

And the last sighting, from People's Daily, "69.6% of Beijing residents affected by financial crisis":
69.6% of the respondents said they were "directly affected" by the financial crisis, according to a specialized survey of over 2,000 respondents in 18 districts and counties in Beijing released by the Beijing Social Facts and Public Opinion Survey Center.

Those who believed that they were "severely" affected account for 15.7% of respondents. Of which, the percentage of respondents who chose this option was highest in the 41 to 50-year-old age group, reaching 22.2%.

Moreover, the survey shows that those who were least affected by the financial crisis were teachers, and those who were affected the most were "self-employed/freelance workers."...

Among households with incomes less than 10,000 yuan per month, the lower the income of the household the greater the impact they felt from the financial crisis.

kobe wrote:CCTV Guidelines for Chinese Journalists

this chinese "don't loose face" policy is going extreme

- tainted milk scandal? - don't report it too much
- benazir bhutto assassination? - don't report on pakistan's imminent collapse
- china factory shut down? - no big deal, nothing to report
- shanghai stock market collapse? - ignore it
- dalai lama in hospital? - yes report it
- dalai lama released from hospital? don't report it

as long as commies will play these mind control games, chinese population will be deprived of truth. their society will lack wisdome and creativity.