Changing China

Giant on the move

Can China save the world?

April 19, 2009

 

China has long said that its biggest contribution to a world racked by financial turmoil would be to ensure that its own economy grows strongly, implying that a rising Chinese tide will lift all boats. The latest data show that Beijing has delivered on one part of the bargain; its economy, the toast of the world over the past five years, is once again ahead, far ahead, of the pack. 

 

Many investors and companies are confident that the second part of the bargain will follow – that China’s recovery will be just the cure for markets still woozy from the financial battering. Such faith is not yet justified.

 

To be sure, China has already delivered a cortisone injection to some commodities, notably copper, the price of which has risen more than 40 percent this year. Strong stock markets, from Japan to Canada, since March are in part a play on positive sentiment spilling over from the Chinese rally that began in January. China also stands as the one growth market for global auto makers.

 

But there are plenty of reasons to rein in expectations. China’s voracious appetite for commodities in the past few months looks more like strategic stockpiling than true industrial demand. Amid China’s upbeat March data, its overall imports actually fell more steeply than in February.  And the foreign business community in China is complaining that it is not getting a fair chance at contracts linked to the government’s 4 trillion yuan ($585 billion) stimulus package.  

 

There is also the risk that China’s strength to date, topping the forecasts of even the most optimistic of analysts, has created an awkward situation where markets are now counting on the country to constantly outperform; merely growing in line with expectations would be a disappointment. 

 

It is notable that one of the most sober voices has been that of Chinese Premier Wen Jiabao, who urged caution after “better than expected” economic figures last week and reiterated the stance on Saturday during comments at the Boao Forum for Asia. Gone was his catchphrase of the past few months that “confidence is more important than gold”. In its place was a warning against “blind optimism”.

 

Photo Caption: Labourers work on scaffolding at a construction site in Changzhi, Shanxi province on April 16, 2009. REUTERS/Stringer

Comments

It appears China will look after China in a pragmatic fashion which has many benefits to other nations, but will clash with some vested interests.
eg: 3000 years of trade with Indonesia is facilitated by yuan currency swaps and state backed trade finance – not USD volatility and exchange risks, hedging costs and counter party risks, etc.
eg: Chinese capital for joint ventures or ownership of mines, railroads, ports, farms etc in resource exporting nations – not
as much sovereign debt with unknown currency and default risks. China is the worlds largest gold producer, which can substitute for other reserves.
eg: Limited involvement in other nations politics – not a global mission/empire as per the USSR or USA which has to be “sold” to their own people as the locals resist with guns and bombs.
History will tell.

Posted by Survivor? | Report as abusive
 

The shift in Wen Jiabao’s tone is shattering…

The quest for atmospheric profits needs to be dampened. The expectations are way too high…

A more realistic goal, in these economic times, is to not lose money.. not be concerned about not making money…

If one sets the expectations lower that investment in China will not lose money in the short term, then China is still a safe bet….

 

The massive Chinese stimulus, and the ongoing redirection of production toward domestic demand (infrastructure, household and government social activities) runs the risk of igniting inflation. Even though growth is at lower levels than hitherto, there appears to be more money sloshing around because of the stimulus. The switch in demand may run into capacity constraints since productive resources take time to shift.
This suggests that China’s ability to re-ignite the world economy whilst maintaining its own stability may be limited. The Chinese economy – even adjusted for purchasing power – is much smaller than the U.S., Japan or the Euro-zone.
“Survivor” states that China is “the world’s largest gold producer”. It is third after South Africa and the U.S.. Gold would have to have an enormous revaluation to make a contribution in terms of reserves.

 

Cortisone is a catabolic, not an anabolic steroid. Perhaps using an adrenalin injection as a metaphor would make more sense.

Posted by Scott | Report as abusive
 

The Chinese government must be either reformed drastically or completely dismantled and restructured incorruptly into a fully democratic state for China to reach its potential. Unfortunately, I don’t think either of those things will be happening soon. The Chinese people have huge, possibly immeasurable, capabilities but they are hampered by the stifling government. For China to be able to save the world, all of the current communist leaders must be removed or, as I wrote above, the government should undergo complete reform or rebuilding.

Posted by Zuzana Ali | Report as abusive
 

how does china’s ecological disaster, the fact that 1 in 3 cigarettes are lit in china, and widespread corruption factor into growth projections? at some point, something has got to give

Posted by jd | Report as abusive
 

that actually all depends sure they have a good goverment there but to save the world you need a good goverment everywhere now how is china suppose to help the world when they are in just one piece of the world how are they going to help us and other countries and also how long is this good goverment suppose to last this is what i want to know don’t you? hope so.

Posted by hayley | Report as abusive
 

The way china is facing this crisis is somehow tricky, they are a exporter, but without having markets to sell to, then there cant be no growth.

For Zuzana Ali, who commented on this blog yesterday, the chinese gobernment has some issues indeed, but we cannot pretend to think that “capitalist-democracy” is the only way to go. It worked in Northamerica, it worked in Europe, but it does not work in many other parts of the workd. I live in China for a year, and there is nothing of pressure, stiffling or whatsoever, it surprised me to see that the gobernment was constantly encouraging people to learn, they gave bonus, benefits, and this was enforced. Things which we do not see that often in the West, if they are happy that way, who are we to try and force them to be westernized? what right do we have?

Posted by Miguel | Report as abusive
 

China has not only been stockpiling commodities, they have also invested heavily in mining and exploration companies, for example Rio Tinto and Fortesque in Australia. Compared to a year ago these mining stocks are dead cheap, China knows that it needs to secure a steady supply of commodities and this is the perfect time to do so.

 

Agree with the above — utopian declarations that China should create a liberal western-style democracy seem unfeasible. If anything, they’ll follow the precedent Deng set in the late ’70s, graft in some democratic elements, and slap a new name — “Democracy with Chinese characteristics” on their political system.

I think in many ways people are starting to expect way too much of China too quickly. The massive stress placed on its economy by the population size and domestic problems alone are big enough issues to deal with without having to “save the world” at the same time. As long as they can get their economy in order, kickstart infrastructure projects and bolster consumer confidence (while convincing them to buy bigger-ticket items), it will certainly be a step in the right direction for the global economy.

 

Yueyang Government of China robs it’s citizen’s property

Since the economic reform of the 1980′s, China’s economy has grown by leaps and bounds. With such fast-paced growth, China’s industries required ever more land for expansion. Local governments, eager to please industry, found a simple way to meet this increasing demand: expropriation. As all land in the People’s Republic of China legally belongs to the state, and not to individual citizens, local governments have devised clever ways to reclaim land. By cutting off the supply of utilities or even resorting to outright violence, governments may compel tenants or house owner to sell their land and houses at unrealistically low prices; the governments then turn around and sell this land to industry, turning a huge profit for state coffers. The following is a true story of one such “eviction”, conducted by the Yueyang government of Hunan Province against the land and property of Mr. Xiong.
In 2006, the Yueyang government decided to reclaim the land of the Yangshan Area, where Mr. Xiong’s house is located. In March of 2009, the government priced Mr. Xiong’s 252-square meter house at a nominal value of 203 RMB per meter squared. In compensation, the government will offer the Xiong family three relocation apartments at a subsidized price of 500 RMB per meter squared, but limited to 90 meters squared per every subsidized apartment. For any floor space greater than 90 squared meters, the family would be forced to pay the difference under market price. In the Yangshan Area the market price of a crude apartment is approximately 2300-2800 RMB per meter squared. Thus, whereas the Xiong family will sell their house to the government for 51,000 RMB, to purchase a comparable house from developers the family will have to pay close to 600,000 RMB. To compound the injustice, the government also offers no guarantee of when and where the subsidized housing complex will be built, thus leaving the family essentially homeless for the interim. Indeed, some residents evicted as far back as 2003 still do not have permanent housing to this day over 6 years later.
When the Xiongs initially refused to sell their house and property, the government at first resorted to intimidation, threatening to fine the family until they relented. When this tactic failed to break the resolve of the family, the government upped the ante by threatening the family with forced eviction and subsequent demolition of the house. Finally, on the morning of April 22, 2009, the government lost their patience and resorted to outright thuggery. The government paid a group of gangsters armed with clubs to march to the Xiongs’ house and threaten the family with physical violence. When the family called the police, no help came. Finally, the gangsters broke down the front door and beat the family to the point where the wife, mother-in-law, and sister were sent to the hospital for emergency evaluation. While the family was at the hospital, the Xiongs’ house was emptied of its furniture and valuables, and their house demolished. In just a single day, the Xiongs were physicially assaulted, robbed of their belongings, and left homeless, all at the hands of a brutal and greedy local government.
The hardworking men and women of rural China do not oppose industrialization, and they recognize that for China to ascend to its rightful place in the world’s economy sacrifices must be made by all. However, such transactions must be conducted under the rule of law, with provisions for the protection of property under a transparent legal system. Until such conditions are met, the actions of the local governments of China represent nothing but tyranny.

Posted by tie xiong | Report as abusive
 

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