PRC Economy - New Reflections : Dec 15 2011

[Vasu]

From Bloomberg:

Hyundai Heavy to Raise Ship Prices as China Yards Falter

A third of China’s yards may shut down in about five years as they struggle to win orders, an industry group said last week.

About 483 shipyards in China won $10.5 billion worth of orders in the first six months of this year, while 94 builders in South Korea got $18.5 billion, according to Clarkson Plc, the world’s biggest shipbroker.

The order book at Chinese shipbuilders fell 23 percent at the end of May from a year earlier, according to the China Association of National Shipbuilding Industry. One-third of the nation’s yards facing the danger of closing have failed to get orders “for a very long period of time,” Wang Jinlian, the group’s secretary general, said July 4.

Chinese shipyards are faltering as orders have tumbled because of the global excess of commodity, oil and container ships. The surplus fleet and a global economic downturn damped cargo rates and deterred owners from ordering more vessels.

The yards face labor unrest as they pare employees. Rongsheng said some workers who were made redundant formed a blockade outside the headquarters of the group’s production base on July 2. The company has sought financial support from the government even as it holds talks with banks for renewing credit facilities.

“The Chinese shipbuilding industry is still facing unprecedented challenges,” Rongsheng said in a statement. “Demand in the global shipbuilding market has continued to decline and prices for new vessels have failed to rebound.”

A strong premise is that Chinese builders are losing out on orders because shipping companies are moving towards more efficient and environment friendly vessels, again indicating that while China has great prowess in bulk manufacturing, they are finding it tough moving up the value chain.

[krishnan]

483 is way too many

[zlin]

95 Chinese companies make Fortune Global 500

A total of 95 Chinese companies are named in the newly released Fortune Global 500 list, marking the 10th consecutive year-on-year increase with 16 more entries than last year, according to a list published by Fortune magazine Monday.

Among the 95 Chinese companies, 89 are from the mainland and Hong Kong while the rest are from Taiwan, according to the Fortune Global 500, an annual list ranking the world's largest corporations in terms of revenue.

The number of Chinese companies on the list is second only to the US, which has 132 entries. The total revenue of the 95 Chinese companies amounted to $5.2 trillion last year, accounting for 17 percent of the total revenue generated by the 500 companies, according to the US magazine.

There are also 18 Chinese companies making a debut on this year's list, including BAIC Group, China Minsheng Ba­n­k­­­ing Corp and Shanxi Coking Coal Group.

The number of Chinese companies on the list could reach 110 by 2014, and China might catch up with the US and become the country with the most listed companies by 2015, L. Michael Cacace, a senior editor at Fortune, predicted in an article published Monday on fortunechina.com.


china

4 Sinopec Group 428.2 8.2
5 China National Petroleum 408.6 18.2
7 State Grid 298.4 12.3
29 Industrial & Commercial Bank of China 133.6 37.8
50 China Construction Bank 113.4 30.6
64 Agricultural Bank of China 103.5 23.0
70 Bank of China 98.4 22.1
71 China Mobile Communications 96.9 11.9
76 Noble Group 94.0 0.5
80 China State Construction Engineering 90.6 1.3
93 China National Offshore Oil 83.5 7.7
100 China Railway Construction 77.2 0.8
102 China Railway Group 76.7 1.2
103 SAIC Motor 76.2 3.3
111 China Life Insurance 73.7 -1.7
119 Sinochem Group 71.8 0.8
134 China Southern Power Grid 66.7 1.0
141 China FAW Group 64.9 2.6
146 Dongfeng Motor Group 61.7 1.3
161 China North Industries Group 58.0 0.7
172 CITIC Group 55.4 4.8
178 Shenhua Group 54.5 6.2
181 Ping An Insurance 53.8 3.2
182 China Telecommunications 53.4 1.1
187 China Resources National 52.4 1.9
192 China Minmetals 51.8 0.7
196 China Post Group 50.9 4.1
209 China South Industries Group 48.0 0.2
212 Aviation Industry Corp. of China 47.4 1.0
213 China Communications Construction 47.3 1.2
222 Baosteel Group 45.7 0.9
231 China Huaneng Group 44.3 0.1
243 Bank of Communications 43.1 9.3
256 People's Insurance Co. of China 40.8 1.1
258 China United Network Communications 40.6 0.4
266 Jardine Matheson 39.6 1.7
269 HeBei Iron & Steel Group 39.3 -0.2
273 Aluminum Corp. of China 38.8 -0.8
277 China National Aviation Fuel Group 38.4 0.1
292 China Railway Materials 37.2 0.1
299 China Guodian 36.8 0.2
302 China Metallurgical Group 36.8 -0.8
311 Jizhong Energy Group 35.3 0.1
315 Huawei Investment & Holding 34.9 2.4
318 Jiangsu Shagang Group 34.6 0.1
319 China National Building Materials Group 34.5 0.5
322 Shougang Group 34.3 0.1
326 Sinomach 34.0 0.7
328 Wuhan Iron & Steel 33.9 0.0
329 Lenovo Group 33.9 0.6
336 Beijing Automotive Group 33.4 1.1
343 Tewoo Group 32.9 0.1
354 Power China 32.0 0.7
355 ChemChina 32.0 -0.2
357 COFCO 31.8 0.6
359 Greenland Holding Group 31.7 1.2
363 Hutchison Whampoa 31.3 3.4
364 Zhejiang Materials Industry Group 31.2 0.0
373 Shandong Energy Group 30.7 0.9
376 China Datang 30.4 -0.1
387 Amer International Group 29.6 0.6
388 Shandong Weiqiao Pioneering Group 29.6 1.1
389 China Huadian 29.3 0.5
390 Shanxi Coal Transportation & Sales Group 29.3 0.0
395 China Electronics 29.0 0.2
401 China Ocean Shipping 28.7 -0.4
403 Shanxi Coking Coal Group 28.6 0.0
404 Henan Coal & Chemical 28.6 -0.4
406 Xinxing Cathay International Group 28.6 0.3
407 Yangquan Coal Industry Group 28.6 0.0
408 China Power Investment 28.6 0.2
411 China Minsheng Banking Corp. 28.4 6.0
412 China Merchants Bank 28.0 7.2
414 Jiangxi Copper 27.9 0.3
415 Kailuan Group 27.8 0.1
417 China Shipbuilding Industry 27.8 1.0
428 Industrial Bank 27.2 5.5
429 China Pacific Insurance (Group) 27.2 0.8
430 Shanxi LuAn Mining Group 27.1 0.0
432 Datong Coal Mine Group 27.0 -0.1
435 Shanxi Jincheng Anthracite Coal Mining Group 26.8 0.3
446 Sinopharm 26.2 0.3
460 Shanghai Pudong Development Bank 25.4 5.4
464 Shaanxi Yanchang Petroleum (Group) 25.3 2.4
466 Bailian Group 25.2 0.1
477 Zhejiang Geely Holding Group 24.6 0.1
482 China Nonferrous Metal Mining (Group) 24.1 0.1
483 Guangzhou Automobile Industry Group 24.1 0.1
493 Ansteel Group 23.6 -1.6

{deleted}

[Rishirishi]

Thanks for the overview. Very interesting reading. Can you mark the companies which are more then 50% private owned. I am writing a report.

[Austin]

Chinese economy dangerously overheating - expert

[Abhijeet]

Serious question. What is the place -- if there is one -- on this forum to talk about the Chinese and Indian economies in relation to one another?

I'm assuming that the reason to have a thread about the Chinese economy on an Indian forum like BR is to compare and contrast with the economy that matters the most to us -- the Indian economy. There is plenty to compare for obvious demographic and historical reasons.

This is as opposed to say the Japanese economy, which is different enough that there isn't a separate thread on the Japanese economy.

Without any reference to the Indian economy, this thread is simply going to become a collection of doom and gloom forecasts from the Indian posters and glowing progress reports from the Chinese posters.

I understand that posts that simply whine about India don't add much to the discussion, but thoughtful comparison of the two economies is useful and should be encouraged.

[Suraj]

Abhijeet: the restriction arises from a history of flamewars on the topic. There's little sense of moderation on the part of either Indian or Chinese posters when such a discussion occurs. It's not an exaggeration to state that dozens of people have been warned or banned related to the topic, over the years. The Japanese example isn't in any way relevant here.

The so called "thoughtful comparison of two economies" doesn't happen, any more than a thoughtful comparison of Indic and Abrahamic religions, or between the two sides of the political spectrum does, and even then the threads on those topics exist only to the extent that they do not become a moderating liability.

As it stands, comparative discussion isn't permitted in this thread, and is allowed to a limited extent in the Indian economy thread.

[Austin]

The sluggish silk road: China’s growth slows to 7.5%

The slowdown most experts expected has finally set in - Chinese GDP growth slowed to 7.5 percent in the second quarter, unhinging skepticism but hardly effecting stocks and indexes.

The world’s second-largest economy lost steam for a second consecutive quarter as both factory output and fixed-asset investment decreased.

Industrial production fell to 8.9 percent, more than expected, in June, missing the 9.1 percent target and down from 9.2 percent in May, and fixed-asset investment fell to 20.1 percent from 20.4 percent in the same period.

China's statistics bureau said the economy's performance in the first two quarters is ‘stable’ and fell within an expected range.

The quarterly contraction is the ninth of the 10 last financial quarters.

"These figures are not surprising, adding to signs of downward pressure on China's economy,” Zhou Hao, an economist at ANZ Bank in Shanghai, told Reuters.

China’s Statistic Bureau said the Chinese GDP fell to an annual rate of 7.5 percent from April to June, down from 7.7 percent in the first quarter. The Bureau has maintained a target growth rate of 7.5 percent for 2013, which dwarfs most shrinking economies in Europe and US growth of 1.8 percent in the first quarter, and is less than half of Singapore’s annualized 15.2 percent growth.

The 7.5 percent figure has already been trimmed down from a previous, over-zealous 8 percent growth target. Manufacturing slowed in June.

China has reaffirmed that the global economy has settled into a growth paradigm - the ‘new normal’, which, revised by the World Bank, will see the world GDP expand less than 2.2 percent this year.

[vina]

Well, toldja that China is going to find it extremely difficult to get it's low per capita income domestic consumers to make up for the lost demand from the richer global markets.

All that excess capacity and fixed investment has to be written off .. Growth in China is going to plummet to 2.5% or so (others think 3%) and stay there for a long time , whatever the govt does.

Now Paul Krugman joins the China doom& gloom (D&G) scenario. There is no escape this. The swagger is going to get knocked off the PRC and a Japan style next 2 lost decades is around the corner. Sorry guys, I hope it doesn't happen, but all indications are it is just that. Japan 1989 - China 2013! This "Lebarancing" oops Rebalancing is going to be bi*ch

Hitting China's Wall

July 18, 2013
Hitting China’s Wall
By PAUL KRUGMAN -

All economic data are best viewed as a peculiarly boring genre of science fiction, but Chinese data are even more fictional than most. Add a secretive government, a controlled press, and the sheer size of the country, and it’s harder to figure out what’s really happening in China than it is in any other major economy.

Yet the signs are now unmistakable: China is in big trouble. We’re not talking about some minor setback along the way, but something more fundamental. The country’s whole way of doing business, the economic system that has driven three decades of incredible growth, has reached its limits. You could say that the Chinese model is about to hit its Great Wall, and the only question now is just how bad the crash will be.

Start with the data, unreliable as they may be. What immediately jumps out at you when you compare China with almost any other economy, aside from its rapid growth, is the lopsided balance between consumption and investment. All successful economies devote part of their current income to investment rather than consumption, so as to expand their future ability to consume. China, however, seems to invest only to expand its future ability to invest even more. America, admittedly on the high side, devotes 70 percent of its gross domestic product to consumption; for China, the number is only half that high, while almost half of G.D.P. is invested.

How is that even possible? What keeps consumption so low, and how have the Chinese been able to invest so much without (until now) running into sharply diminishing returns? The answers are the subject of intense controversy. The story that makes the most sense to me, however, rests on an old insight by the economist W. Arthur Lewis, who argued that countries in the early stages of economic development typically have a small modern sector alongside a large traditional sector containing huge amounts of “surplus labor” — underemployed peasants making at best a marginal contribution to overall economic output.

The existence of this surplus labor, in turn, has two effects. First, for a while such countries can invest heavily in new factories, construction, and so on without running into diminishing returns, because they can keep drawing in new labor from the countryside. Second, competition from this reserve army of surplus labor keeps wages low even as the economy grows richer. Indeed, the main thing holding down Chinese consumption seems to be that Chinese families never see much of the income being generated by the country’s economic growth. Some of that income flows to a politically connected elite; but much of it simply stays bottled up in businesses, many of them state-owned enterprises.

It’s all very peculiar by our standards, but it worked for several decades. Now, however, China has hit the “Lewis point” — to put it crudely, it’s running out of surplus peasants.

That should be a good thing. Wages are rising; finally, ordinary Chinese are starting to share in the fruits of growth. But it also means that the Chinese economy is suddenly faced with the need for drastic “rebalancing” — the jargon phrase of the moment. Investment is now running into sharply diminishing returns and is going to drop drastically no matter what the government does; consumer spending must rise dramatically to take its place. The question is whether this can happen fast enough to avoid a nasty slump.

And the answer, increasingly, seems to be no. The need for rebalancing has been obvious for years, but China just kept putting off the necessary changes, instead boosting the economy by keeping the currency undervalued and flooding it with cheap credit. (Since someone is going to raise this issue: no, this bears very little resemblance to the Federal Reserve’s policies here.) These measures postponed the day of reckoning, but also ensured that this day would be even harder when it finally came. And now it has arrived.

How big a deal is this for the rest of us? At market values — which is what matters for the global outlook — China’s economy is still only modestly bigger than Japan’s; it’s around half the size of either the U.S. or the European Union. So it’s big but not huge, and, in ordinary times, the world could probably take China’s troubles in stride.

Unfortunately, these aren’t ordinary times: China is hitting its Lewis point at the same time that Western economies are going through their “Minsky moment,” the point when overextended private borrowers all try to pull back at the same time, and in so doing provoke a general slump. China’s new woes are the last thing the rest of us needed.

No doubt many readers are feeling some intellectual whiplash. Just the other day we were afraid of the Chinese. Now we’re afraid for them. But our situation has not improved.

[panduranghari]

Vina ji,
Krugman is as trustworthy on the economic analysis as much I am on military matters. Look at the arguments he made for QE, the economic crisis etc. in 2008-2009. That analysis has been thoroughly debunked and he has not yet apologised for defending the banksters.

[Austin]

Lend to spend: China loosens grip on interest rate regime

China’s central bank has removed controls on lending, and will now let financial institutions self-regulate rates which were previously constrained by a 70 percent floor benchmark.

As China enters a new paradigm, characterized by healthier and sustained growth, it is slowly moving to ‘free’ its economy of government controls in the hope of driving credit ratings and the real economy.

The central bank jettisoned the lower limit for commercial interest rates and eliminated its control on discounted bills, which are used as in business-to-business payments in China.

Saturday is the first day the new set of rules come into effect.

"This will support the real economy and improve economic restructuring and upgrading," the central bank said in a statement on their website.

The People's Bank of China didn't make any changes to its authority over deposit rates or mortgage lending.

China has long set a ceiling for bank-deposit rates and a floor for lending rates, which created an artificially high gap between the two, which yielded state banks with extra cash to feed into the fast-growing economy, which has slightly hampered consumption in China, compared with European countries and the US.

Lifting the ceiling on deposit rates would help spur domestic consumption as a driver of economic growth, which will decrease reliance on exports and make the Chinese economy more self-sufficient, and less dependent on foreign investment.

Interest rates are next

Before China decides to fully ‘open’ its economy and relinquish full control on capital flowing in and out of the country and jettison its ‘fixed’ currency, it will need to liberalize its interest rates.

The European Union has cut its interest rates to record lows to foster growth, but the Chinese government has indicated this is not the direction they’re heading, at least not yet.

Officially, China’s goal for 2013 is economic reform towards convertibility, but the government has been reluctant to free up interest rates out of concern that it would hurt the profitability of Chinese banks by forcing them to compete for deposits.

China’s booming, almost fairytale economic story, has developed five-fold over the last 23 years, aided by an emerging middle class, cheap labor, and an export driven strategy, but the recent departure from traditional central banking has signaled China has entered a new phase of modesty.

[chola]

Well, toldja that China is going to find it extremely difficult to get it's low per capita income domestic consumers to make up for the lost demand from the richer global markets.

The biggest problem with the lack of consumers statement is that it is not being heard in the corporate boardrooms. Especially in a week where Ford and GM are reporting record sales in China. That statement makes no sense when the largest markets for all sorts of consumer goods are in the PRC.

From where I stand in the American corporate landscape, I wouldn't predict anything. The Fortune 500 is already gearing towards a rebalanced Chini market where western goods from baby formula to cars to aircraft will dominate. Chini FDI jumped in jump and those funds were mainly for the domestic market since chini costs had ballooned with wages in the past five years.

The speed you see corporate America act is to me both frightening (because it tells me that the MNCs think this chini re-balance will succeed) and exhilarating as an American corporate animal because I can see the forces already marshaling for this new chiniland economy.

[Austin]

Yuan tipped to become top-3 global trade currency by 2015

More than 70 percent of the companies - amounting to 500-plus firms worldwide - surveyed by HSBC said they are willing to expand the usage of the yuan for their cross-border businesses in the next five years. And almost half of them believed they have sufficient knowledge of yuan internationalization.

"The new measures introduced by the People's Bank of China recently will have a big positive impact on deepening yuan internationalization," HSBC China said in the report.

"According to the survey, 42 percent of our corporate clients said the complexity of cross-border yuan transaction was one of the challenges they faced. But the new measures will ease those worries and boost the willingness to use the currency. We firmly believe that the yuan will join the ranks of top-three currencies for cross-border trade settlement by 2015," it said.

The survey also noted higher recognition of the currency in China's Hong Kong and the United Kingdom than the other four overseas markets monitored by HSBC, namely Singapore, Australia, Germany, and the United States.

[subhamoy.das]

Read this annual house hold income survey. http://economictimes.indiatimes.com/new ... 187942.cms

Now how on earth can families with Rs.10,000 per month income drive the kind of consumption that is being reported by the board rooms of NYC and constantly peddled by C's of this forum. Now the logic would be "Chinese are under reporting their income......"

[subhamoy.das]

http://en.wikipedia.org/wiki/Template:M ... currencies

Where is the Chinese currency in this list?

[vina]

Read this annual house hold income survey. http://economictimes.indiatimes.com/new ... 187942.cms

Now how on earth can families with Rs.10,000 per month income drive the kind of consumption that is being reported by the board rooms of NYC and constantly peddled by C's of this forum. Now the logic would be "Chinese are under reporting their income......"

Think vast inequalities, and far lower taxes (for eg, approx 40% of the retail price of a car in India is taxes alone, for a small car) and an economy some 4 times the per capita GDP of India with a higher populations, it is quite plausible.

Trouble is , that is built on export demand and not internal demand. The change will be wrenching.

[Austin]

^^ Perhaps that is the reason why they are lending so that it can boost internal consumption ....... The Chinese wont be under any illusion that manufacturing wont last for ever and they need to boost growth internally.

BTW what will it do to Chinese Economy if Yuan eventually gets reserve currency status beyond the liberty to print money will that boost Chinese Economy or Growth ?

[Theo_Fidel]

Yes. Many have pointed out that there is dual track in China. The 200 million or so with direct party contacts and official patronage are doing very very well. Often with multiple cars, 3-4-5 apartments/condos, foreign vacation, etc. Then the next 600 Million or so get the suicide watch w/ netting dormitories, no pee break jobs and end up in tunnels under cities, no houku, kids with grandma, etc. The very bottom 300 million or so with no English or skills have a life indistinguishable from destitute poor in India.

The 600 million and the bottom 300 million have all been promised their own BMW, they are loath to give up this dream that has been force fed into them...

Several economists have compared China to the Soviets, with openness characteristics…..
Even as late as the 1970’s everyone was impressed by the Soviet ‘miracle’ and there was no inkling of problems. In fact from about 1940 to 1980 the Soviet block was the fastest growing part of the world, raising per capita income, adjusted for inflation to about $8,000 to $12,000. For that matter Russia is still a relatively wealthy country, with income in the $15,000 range. I think China is certainly capable of that. But for anything more a complete dismantling of the present system will have to be done.

[Suraj]

WSJ: Stalled Project Shows Why China's Economy Is Wobbling

A $91 billion industrial project here, mired in debt and unfulfilled promise, suggests part of the reason why China's economy is wobbling – and why it will be hard to turn around.

The steel mill at the heart of Caofeidian, which is outside the city of Tangshan, about 225 kilometers (140 miles) southeast of Beijing, is losing money.

Nearby, an office park planned to be finished in 2010 is a mass of steel frames and unfinished buildings. Work on a residential complex was halted last Christmas, after workers completed the concrete frames. There is even a Bridge to Nowhere: a six-lane span abandoned after 10 support pylons were erected.
...
Chen Gong, chairman of Beijing Anbound Information, a Chinese think tank, says Caofeidian shows the flaws of the Chinese economic-growth model, in which the government plans investment and companies are expected to follow suit, regardless of market conditions. Chinese local governments are "driven by the blind pursuit of GDP," said Mr. Chen.

Economists widely expect the world's No. 2 economy to decelerate during the rest of 2013 and not to improve much next year. Though the government still is holding to its target of 7.5% growth in gross domestic product for 2013, down from 7.8% expansion last year and 9.3% in 2011.

The latest indication of slowing came on Wednesday, when a preliminary gauge of China's manufacturing activity fell to an 11-month low in July, while its sub-measure for employment dropped to its lowest since the global financial crisis.

China's Premier Li Keqiang has said he would press to keep China's growth in gross domestic product this year from slowing too much. But Mr. Li repeatedly has ruled out a big stimulus plan and has said China needs to remake its economic model so it relies less on investment and more on domestic consumption and the service sector.
...
China's leaders turned to credit-fueled investment to drive growth after export demand faded in the wake of the 2008 crisis. The share of investment in GDP rose to 48.1% in 2012 from 41.6% in 2007, as local governments built roads and airports, as property developers threw up forests of luxury apartments and as state-owned enterprises expanded factories and foundries.

That activity no doubt buoyed growth. But by rushing what normally would be a decade's worth of investment into a few years, China hastened an end of its era of rapid growth. Too many projects replicated each other, say economists, eventually creating supply gluts everywhere from housing to steel, concrete and solar-power equipment. A tendency to invest in high-profile, though redundant, large-scale projects also consumed bank financing that could have been better used to fund small firms and service companies starved of cash.

Since the early 1990s, China's overall return on investment has fallen by about a third, the International Monetary Fund says. The country over-invests by 10% of GDP, the Fund estimates. And each yuan of lending in China now produces just one-third the payoff in economic growth that it did before 2009, Fitch Ratings Inc. says.

"China's economic miracle doesn't seem that extraordinary when you see how credit has exploded," said Charlene Chu, Fitch's senior director in Beijing.

Still, relatively low government debt, which the IMF recently estimated at 45% of GDP, means China still has scope to backstop any sharp slide in growth or prop up the financial system, if required. But to avoid the mistakes made after 2008, Beijing would need to figure out how to target its infusions of money into underfunded parts of the economy to produce a long-term payoff.

One can see the byproducts of the previous big stimulus program everywhere, from ghost towns of big unoccupied housing projects on the outskirts of many Chinese cities, to unfinished infrastructure and factories.

Between 2000 and 2010, China added 28,000 square kilometers of urban space, the equivalent of 322 Manhattans, much of which was devoted to industrial development and housing. To keep the projects going, developers often took out new loans to cover old borrowings, a practice Chinese banking critics call "extend and pretend."

Société Générale GLE.FR +2.64% analyst Wei Yao estimates that up to a relatively high 38.6% of GDP goes to repay debt in the country. "No wonder that credit growth is accelerating without contributing much to real growth," said Ms. Yao. The result: there is less money to finance new projects and companies to drive economic growth.

The Caofeidian project dates back to at least 2003, when work began to transform the island into a big deep-water port and industrial site outside Tangshan, a city devastated by a 1976 earthquake that killed more than a quarter million people.

The central government wanted to move a big Shougang Group steel plant from Beijing to the new industrial park built on land reclaimed from the Bay of Bohai. Steel suppliers and users would be encouraged to move nearby, with plenty of office and residential space for workers.
...
Zhang Danping a spokesman for the Caofeidian government, said that while some projects had been halted during the winter, they had since all resumed, an assessment that workers on the site didn't appear to share.

Boosting lending further to pay for more investment, Beijing's traditional remedy to pump up growth won't work any longer, economists argue.

When credit is growing at twice the pace of GDP as it has been recently, said Ms. Chu, the Fitch analyst, "mathematically, there is no way to grow out of the poor investment decisions of the past."

[TSJones]

China has had a good run with its command directed export economy. It still has huge unmet needs for internal consumption and China wants to coninue to command it also. The problem is, gross inequalities have popped up from its protected internal economy while China has insisted that its exports have no restrictions in other countries. Added to this, is their currency is not fully convertible. This can't last.

Japan has the only fully convertible currency in Asia and its economy went stagnant in the '80's when they did it, so China fears going fully convertible. My guess is that they will despite all anounced intentions, still have restrictions and thus more resentment and more restrictions placed against their exports. They will become marginal producers if they continue to rely on an export driven economy.

[ashi]

Starbucks sees big growth in China

By 2014, Starbucks said China will surpass Canada to become the second largest market, after the United States.

[Austin]

China to Audit Government Debt as Economic-Growth Risks Rise

The first full audit since an initial review two years ago underscores concern expressed by institutions such as the International Monetary Fund, which this month cited risks to the economy from borrowing by local governments and an expansion of non-traditional sources of credit. The new leadership oversaw a showdown with state-owned lenders last month as the People’s Bank of China engineered a cash squeeze to pressure banks to better manage their operations.

“Local-government debt has become a focus in recent years and is a source of concern about China’s growth,” said Ding Shuang, senior China economist at Citigroup Inc. in Hong Kong, who previously worked for the IMF. “The new leadership is trying to give a clear answer.”

The first audit of local-government debt found liabilities of 10.7 trillion yuan ($1.8 trillion) at the end of 2010, the National Audit Office said in June 2011.

Fiscal Reforms

Ding estimated China has at least 12 trillion yuan of local-government debt. The review may pave the way for future fiscal reforms, including changes to rules on local governments’ roles and responsibilities, Ding said.

The benchmark Shanghai Composite Index (SHCOMP) fell 1 percent at 9:32 a.m. local time.

Separately, China’s government has decided to cap the ratio of the fiscal deficit to gross domestic product at 3 percent in a bid to avert a downgrade of China’s credit rating by international rating companies, China Business News reported today, citing an unidentified person familiar with the matter.

The government must be on “high alert” to the dangers of rising borrowing, Vice Finance Minister Zhu Guangyao warned on July 5, after central bank Governor Zhou Xiaochuan said in March that about 20 percent of local government debt is risky.

Local-government financing vehicles need to repay a record amount of debt this year, prompting Moody’s Investors Service to warn that Premier Li may set an example by allowing China’s first onshore bond default.

2008 Stimulus

Regional governments set up more than 10,000 LGFVs to fund the construction of roads, sewage plants and subways after they were barred from directly issuing bonds under a 1994 budget law. A 4 trillion yuan stimulus plan during the 2008-09 financial crisis swelled loans to companies, which they have been rolling over or refinancing with new note sales.

LGFVs may hold more than 20 trillion yuan of debt, former Finance Minister Xiang Huaicheng said in April. Refinancing will be a challenge after corporate bond sales slumped to a two-year low in the second quarter and policy makers cracked down on shadow-banking activities that bypass regulatory limits on lending.

China last week announced measures to support the economy, including tax cuts for small firms, amid signs growth will ease for a third quarter. A report on July 27 showed industrial companies’ profit growth slowed to 6.3 percent in June from a year earlier, compared with a gain of 15.5 percent in May.

[RamaY]

Yes. Many have pointed out that there is dual track in China. The 200 million or so with direct party contacts and official patronage are doing very very well. Often with multiple cars, 3-4-5 apartments/condos, foreign vacation, etc. Then the next 600 Million or so get the suicide watch w/ netting dormitories, no pee break jobs and end up in tunnels under cities, no houku, kids with grandma, etc. The very bottom 300 million or so with no English or skills have a life indistinguishable from destitute poor in India.

The 600 million and the bottom 300 million have all been promised their own BMW, they are loath to give up this dream that has been force fed into them...

Several economists have compared China to the Soviets, with openness characteristics…..
Even as late as the 1970’s everyone was impressed by the Soviet ‘miracle’ and there was no inkling of problems. In fact from about 1940 to 1980 the Soviet block was the fastest growing part of the world, raising per capita income, adjusted for inflation to about $8,000 to $12,000. For that matter Russia is still a relatively wealthy country, with income in the $15,000 range. I think China is certainly capable of that. But for anything more a complete dismantling of the present system will have to be done.

+1.

The crude models I developed indicate Chinese economy will plateau at $15t PPP. From there the ppp will work against them.

Sooner than later we will see the two chinas you mentioned above. My gut feeling is that the CPC will subsidize the second china to hold control over first china. Recent intra party fight is the result of this IMO.

[kumarn]

'China's Paris' turns into a ghost city

compared to the above kind of development, Delhi alone has dozen half a million plus cities around it with good infra with prices that people cab afford. And they are occupied. But no one talks about india's rapid urbanization.
10-12 years back when I started surfing BRF, there were comparisons on the number of mobiles, then FDI, then cities and infra. India closed the gap on the first and no one talks about it anymore. On FDI, we are not doing that badly. With more cities and delhi metro type infra projects coming up it will be fun to read what people will wail about next...

[Austin]

Will China's economy crash?

Editor's note: Michael Pettis is a professor of finance at Peking University, a senior associate at the Carnegie Endowment for International Peace and author of "The Great Rebalancing" (Princeton University Press).

(CNN) -- After many years of euphoria over China's rapid growth and the country's apparently inevitable rise to global economic dominance, the China story has taken a serious turn for the worse. China, it now seems, is about to collapse, and along the way it may well bring the world economy down with it.

Fortunately, the new story may be as muddled as the old one.

China's economic model has relied heavily on investment and debt. It shouldn't be a surprise that after many years of tremendous growth driven at first by badly needed investments, Chinese spending on infrastructure and manufacturing capacity is slowing down.

During the same period, debt levels surged as borrowed money poured into more highways, airports, steel mills, shipyards, high-speed railways, and apartment and office buildings than the country could productively use.

A few economists predicted as far back as 2006 that China would face a serious debt problem. By 2010, it became obvious even to the most excited of China bulls that this was indeed happening.

To protect itself from the risk of a debt crisis, China must bring spending to a halt. Beijing now wants to rebalance the economy away from its excessive reliance on investment and debt, and to increase the role of consumption as a driver of growth.

But this cannot happen except at lower growth rates.

So what happens next -- will China collapse? Probably not. A financial collapse is effectively a kind of bank run, and as long as government credibility remains high, banks are guaranteed and capital controls are maintained, it is unlikely that China will experience anything like a bank run.

What is far more likely is that in the coming years, China's gross domestic product growth rate will continue to decline as the country focuses on stimulating consumption.

Growth rates during the administration of President Xi Jinping are unlikely to exceed 3% to 4% on average if the economic rebalancing is managed well.

Will the slower growth rate be a disaster for China? Certainly, it would be huge departure from the growth rate of roughly 10% a year for nearly three decades. Would much lower growth rates create high unemployment and huge dislocations for the economy? Some are worried about such scenarios. But the Chinese economy has so far shown a lot of resilience despite passing storms such as the global financial crisis.

Beijing has huge challenges ahead. China's growth has been a boon to large businesses, the state, the powerful and the wealthy elite. What the Chinese government needs to do is recalibrate growth so that average household incomes can rise and consumers have more money to spend.

This will not be easy to pull off, but there are positive signs. Xi's government seems determined to make the necessary changes, even at the expense of much slower growth.

Even if GDP growth declines but average Chinese household income grows at 5% to 6% a year, it would put China in the right direction.

As for the rest of the world, there's no reason to panic over China's economic slowdown. Contrary to popular beliefs, China is not the global engine of growth; it is merely the largest arithmetic component of global growth. What drives global growth is demand. China, with a large trade surplus, is not a net provider of demand to the world.

What matters to the world, in other words, is not how fast China grows but rather, how its trade with foreign partners evolves. If China rebalances in an orderly way, its imports of manufactured goods and services should rise faster than its exports. This will be good for the world.

What's more, manufacturing industries around the world that lost out to China in the export business will benefit. When wages rise for Chinese workers -- so that they have more money to buy goods and services at home -- it means other developing countries will have a chance to compete for exports if they offer lower labor wages.

There is no doubt that Beijing has a long road ahead in terms of managing a huge economy, but as of now there should be nothing surprising or unexpected about the slowing growth of China. It will probably benefit the Chinese people and the global economy.

[Austin]

CNN On China Series ( Video )

'On China:' Can Xi Jinping lead?

'On China:' Political reform needed

'On China:' Will China use its military?

[TSJones]

I don't think China's economy is going to crash either. However, it is silly to assume it will keep its growth in a ever upward straight line growth pattern. That's not the real world. Could China someday become the world's largest economy? Yes, it could. But in order to do so it is going to have to change its economy from top down, managed export driven, to a combination of imports and exports. It will also have to do something about its currency if it wants to establish it as a reserve currency like the dollar, pound, euro and yen. In other words, subject itself to the market place. We'll' see.

[Hari Seldon]

The Hacking of Michael Pettis

krugman uvacha.

Oh, wow. I mentioned a couple of weeks back that when I tried to get to Michael Pettis’s essential blog on Chinese economics, I ran into **** ads. At the time I found it funny; but I took another look today, and find Pettis reporting not just that he was hacked, but that it took place repeatedly, and that the blog is on hiatus while they rebuild.

Commenters over there are suspicious — this sounds awfully persistent for **** salesmen, and you have to wonder whether someone doesn’t like frank assessments of Chinese economic prospects. And it makes me grateful that this blog is protected by Times firewalls etc., given the stuff that has happened outside that protection — e.g., fake Google plus, Facebook, and Twitter accounts in my name, to cite just the stuff I know about.

Well, the chinis have a lot to learn about the fine art of subtlety... its not as if credible (and hence, potentially dangerous) yanqui scholars' digital activities aren't under 24x7 e-surveillance only. Just that the NSA or even the CIA types wouldn't be stoopid enough to leave their fingerprints open for the world to see. Only.

[Austin]

I don't think China's economy is going to crash either. However, it is silly to assume it will keep its growth in a ever upward straight line growth pattern. That's not the real world. Could China someday become the world's largest economy? Yes, it could. But in order to do so it is going to have to change its economy from top down, managed export driven, to a combination of imports and exports. It will also have to do something about its currency if it wants to establish it as a reserve currency like the dollar, pound, euro and yen. In other words, subject itself to the market place. We'll' see.

China Economy if it ever crashes will have a domino effect much like US economy crash in 2008 had its own.

More likely it will settle down to 5-6 % in the long run and not the 8-9 % they are aiming for ....eventually even the chinese leadership realises that growth via export will taper down and the best way to sustain growth is through internal consumption.

Eventually they would also move towards some form of managed democracy in a decade or two ....all democracy model in the end of the day are managed these days so chinese will have their own way based on their internal dynamics.

[chola]

Eventually they would also move towards some form of managed democracy in a decade or two ....all democracy model in the end of the day are managed these days so chinese will have their own way based on their internal dynamics.

East Asian democracy is more akin to fascism -- homogenous more than a little racist societies with state support for monopolistic capitalism (chaebol, keiretsu) and cutthroat mercantilism. The chinis won't be a long way off from this model but where they suffer (as with any commie state) is the lack of support and capital for the private firms. They will never get the type of corporations like Samsung, Toyota or even Foxconn as long as they push their SOEs as national "champions" instead of the private ones.

[Theo_Fidel]

More likely it will settle down to 5-6 % in the long run and not the 8-9 % they are aiming for

That is a bit optimistic IMO. In the present SOE + State control Banks + land confiscation + investment led growth + Authoritarian + low soft power + zero IP protection + export drug situation, it is very easy to see the model settling on 1%-3% type growth. Of the dozens of things tried only 2 have worked. Capital investment + exports. Both are seriously weakening with nothing replacing them.

[Austin]

China’s Debt Surge Pressures Xi-Li to Avert Lost Decade

[Christopher Sidor]

It was expected that PRC would have to maintain 8% or higher growth rate to keep domestic discontent in check. But this mythical figure of 8% was a red herring. Going forward after 2015, when the PRC's working age population peaks, the number of new comers in the workforce will decline. This will automatically lead to a decrease in the number of new jobs that need to be created for the youth. This can be accomplished by a lower level of growth.

A more important factor will be the level of inflation. One of the causes ascribed to the 1989 upheaval was the extremely high level of inflation in the PRC economy leading upto 1989. Another factor is the demand destruction which is still ongoing in the north atlantic countries. This has impacted PRC. As long as PRC had markets which could absorb whatever it produced it was all fine. But that is no longer the case. And final factor is the level of credit created in the PRC economy as a reaction to the 2008 crash. These are the 3 things which will jointly or individually determine how PRC's economy will behave for the rest of the decade.

There is a view of though which says that there is a world recession every 7-9 years. The last recession happened in 2008. If we assume that there is some truth in this view of thought then the next recession will happen in the time frame of 2015-2017. This dovetails nicely with the draw down of the Fed unlimited bond buying program which is expected to get over by 2014. Once that happens the music will stop and all the cheap money sloshing around in the world will recede. The question is when that happens, what will be the fate of PRC's economy? Again just to reemphasis this depends on the view that there is a recession every 7-9 years being true.

[harbans]

I will never be Chinese

[wong]

Yuan Climbs to 19-Year High as Exports Surge, PBOC Raises Fixing

http://www.bloomberg.com/news/2013-08-0 ... ixing.html

[subhamoy.das]

I have not yet got my list of CHINESE products - either for consumers or for business - and how they fare in terms of market share inside CHINA and outside it. Some of the posters here vouched that CHINESE economy has moved on from contact manufacturing to manufacturing own product. So where are these products? Can we see glimpse of some of them. I am afraid the answer has been a deep silence so far. I think state driven economices will never be able to deliver products which needs innovation which comes from freedom to dream and take the dream to market.

[DavidD]

Here's a very interesting blog by someone who traveled through China earlier this year to verify the reports of ghost towns in China. He hit up all the major "ghost town" spots, including the New South China Mall, Ordos, and Zhengzhou, etc. I've included some quotes on each, and as you'll see, it's not all good and it's not all bad, it is, rather, quite a mixed bag and not everything is what it seems to be.

http://thechinachronicle.com/series/chi ... st-cities/

1) New South China Mall (Great Mall of China)

There was that special stillness in this mall that only deserted places that were intended for crowds of people can have. It was like the feeling you get when walking through an abandoned hotel, an amusement park closed for the season, or a ghost town. Nothing in the world can seem more still than a place where humans are conspicuously missing. It’s almost like you’re an archaeologist looking upon the ruins of your own time, the temporal displacement is startling. An uncomfortable feeling of impermanence and ephemerality is in the air of these places, and the conception that everything — including yourself — is being hurled towards eminent demise is never more stark.

...........

Whatever is the case, this mall is a reality check on China’s rampant growth and a challenge to see if it can substantiate it’s breakneck pace of development and economic growth. If this mall can be saved and made to prosper it would be a monumental symbol of what this country is capable of. This will all be told in the future.

2) Dantu

I stood in front of the municipal government building, and felt the need to double check myself. What I was finding in Dantu was incredibly inconsistent with previous media reports that I’d read, and I wanted to be absolutely positive that I was in the right place. I took out my phone and pulled up the infamous satellite images that showed Dantu as being uninhabited just three years ago. I found the long, rectangular pond on the map that I was standing right in front of, and I knew that there was no mistake: I was in the center of what was once a ghost city.

............

Dantu is no longer an eyesore in the menagerie of China’s broader development scheme, it is a evidence that an initially stagnant new city can eventually gain enough inertia, business, and residents to come to life. What I found there was a place not unlike thousands of other new developments that are spread all across China. Dantu should be crossed off China’s list of ghost cities: they pulled it off.

3) Xinyang

“Nobody lives here yet,” she replied, and then added, “We are not open yet.”
“When will you be open?”
“Not until 2015.”
“If I bought an apartment when could I move in?” I asked
“In 2015, or maybe 2014.”
Far from being a forgotten about ghost city, people were not even being allowed to move in here yet.

............

Although dozens of major publications have proclaimed the Xinyang development to be a ghost city, it seems as if no foreign journalist has yet published an account of actually visiting the place. Once this district is seen from the ground it is immediately clear that the “ghost city” claims were not only premature, but also completely incorrect. The dust has not even settled here and the construction crews have not even cleared out. Calling this place a ghost city is like calling a store bankrupt before it even opens its doors. Xinyang’s new district is not a ghost city, it is a massive construction site.

Read more http://thechinachronicle.com/welcome-to ... built-yet/

4) Zhengzhou

“We discovered that the most populated country on earth is building houses, districts, and cities with no one in them,” began a report on 60 Minutes which aired on March 3rd. The news program’s timeless correspondent, Lesley Stahl, ventured out to the city of Zhengzhou accompanied by the Hong Kong based financial adviser, Gillem Tulloch, and got the low down on China’s ghost city phenomenon.

............

The area that 60 Minutes shot in surely looked “ghost-like” on film, but when I arrived there I found an entirely different scene. I found a sparkling new financial district that was full of sparkling new cars, well-dressed pedestrians, corporate offices of major businesses, skyscrapers full of occupied offices, expensive coffee houses, laundry hanging in the windows of luxury condos, there were cars parked in nearly every available parking space, and signs of life everywhere. There was nothing desolate about the Zhengdong CBD, it appears to be functioning as planned.

............

Did 60 Minutes actually go into a skyscraper that was full of businesses, walk into an office full of workers, film a district full of life out of the windows, and then claim that it was all deserted?

5) Ordos

I then took my sandwich and went to find a seat. I pulled up next to a couple of young guys and immediately began drilling them with my questions. One was from Shanxi, the other from relatively nearby Baotou. Both had come to Kangbashi for work. Both had arrived last year. I then asked them the hallmark question of my ghost city tour:
“Did you know that the media in the United States says that nobody lives here?”
This wasn’t news to them. One of them code shifted, responding in English:
“Last years, no people. Last year, they come.”
His language was rudimentary, but he got the point across with precision: Kangbashi came alive over the past year.

............

The Chinese government isn’t just building new cities, washing their hands, patting themselves on the back for a job well done, and calling it a day. No, they are actually putting programs into work to transform these places into thriving urban centers. To initiate this process, the local government provides residents and investors with a variety of incentives to get them on the ground and the wheels of of a new city in motion.
“Those people in the place where we ate don’t have to pay rent,” Sunflower explained. “Not even McDonalds pays rent.”
Gaining inertia for these new cities is a Catch-22 scenario: nobody is going to move to in if there’s no commercial presence, and businesses are not going to set up if there are not any people. To solve this problem the local government provides business space rent free until the city is up and running. For the most part, if you want to open up a business in Kangbashi, you can do so free of charge.

[Christopher Sidor]

^^^
If one goes to Greater Noida in the National Capital region one would find similar ominous signs. In fact I remember the new Gurgaon in mid-1990s which wore all a deserted look. So these cities are by themselves not the problem. But rather they represent two very specific issues, issues which are common in India too
1) Many of these houses are bought up by real estate speculators, pushing up the prices. This pushes people who are the actual residents away from these houses.
2) The average man is willing to put up massive amounts of money so that he can buy one such house. This is the same reason why Indians buy gold, because they do not trust their currency to hold value. In the past 10 years it has depreciated by about 50%.

Now for a country which has to encourage private consumption, how will this work if people are putting such massive amounts of money into real estate? Will they have the leeway to drive up the consumption?

[kmkraoind]

200 cracks in Haikou bridge 'no danger,' say authorities

[Christopher Sidor]

Why is that we are not viewing posts by Chinese or Overseas Chinese or even Taiwanese these days in these Chinese related threads? They seem to have gone silent. Quite a few of them were rather illuminating.