Changing China
Giant on the move
Why China can’t save the global economy this time
By Nicholas Consonery The opinions expressed are his own.
When the global economy broke down in 2008, China was the savior. At that time Beijing rolled out a massive stimulus that was one of the biggest—per size of the economy—that the world has ever seen. The resulting benefits bolstered China’s economic strength at a time when the rest of the global economy was staggering under the weight of failing banks and surging public debt.
But the success of Beijing’s stimulus has masked underlying weaknesses in the country’s growth model. And the market is now waking up to the realization that global economic growth might remain suppressed for years to come.
In this environment, investors should be aware that the Chinese economy won’t be able to serve as the beacon of global growth indefinitely. Exports and investment overshadow household consumption. Public pressure is growing on the government to make growth more sustainable. The yawn between rich and poor is widening. And the Chinese leadership struggles to negotiate such difficulties with a homogeneous 1.3 billion person population dispersed throughout a country that is in different stages of development at the same time.
Reigning over this conundrum is the Chinese Communist Party—the 80-million member strong political apparatus in the unenviable position of being responsible for ironing out the country’s massive economic imbalances.
In a new report entitled “China’s Great Rebalancing Act” my colleagues and I on Eurasia Group’s China Team offer our assessment of the Party’s capabilities.
Our conclusion? China’s weaknesses are not just economic but also political. We argue that the Chinese political system is an obstacle to economic change in China, because the top leadership currently lacks the willingness to push through bold reforms that would require picking clear winners and losers in the government and the state-supported corporate sector. These reforms would lead the Chinese economy away from public investments and toward a more robust and diversified growth model, with consumption playing a bigger role. But the results of Beijing’s efforts to “rebalance” in this way—which is the ostensible goal of the Party’s much-heralded 12th Five Year Plan—will be disappointing for foreign investors and for policymakers in Beijing alike.
from MacroScope:
The iPod – the iCon of Chinese capitalism
Walking past Apple's sleek shop along London's Regent Street on Sunday, my wife asked me what I wanted for Father's Day.
"An iPad?" I ventured, half-jokingly.
"Are you sure you want one? Don't you care how they're made?" came her disapproving reply.
She was, of course, referring to the rash of suicides among Chinese workers at Foxconn, the Taiwanese manufacturer of Apple's much desired iPads and iPhones.
The deaths prompted the company to raise salaries and cut working hours but lingering concerns over conditions for its over 1 million workers in China were underscored by a plant explosion last month that killed at least 3 people.
Workers like those who live and work in Foxconn's sprawling Chinese facilities have long been the backbone of the country's vast manufacturing sector which churns out a torrent of consumer goods for export.
But the recent labour unrest that has erupted in parts of China suggests that this low-cost export-fuelled growth model may be wheezing towards its expiry date.
Thank you for your comment.
Apple is working with Foxconn to prevent more worker suicides, including auditing the Chinese plants of its supplier to ensure conditions comply with its standards.
The point of my blog is that the iPod is an interesting prism through which to view China’ economy and gauge its shift in emphasis from manufacturing and exports to domestic consumption.
At first glance, the iPod encapsulates China’s manufacturing prowess. It is able to assemble very sophisticated products at a cost that is low enough to attract global companies. So much so that these Made-in-China iPods and iPad contribute to the trade surplus in China’s favour against the U.S.
But a closer examination of the iPod story also reveals the limitations of the Chinese model. The country remains far behind in innovation and doesn’t own the intellectual property behind many of the products it exports.
A University of California study, for instance, found that the iPod accounted for almost 41,000 jobs worldwide in 2006, of which only 30 jobs were in manufacturing in the US.
But more than two thirds of all the wages paid to workers in the iPod value chain were estimated to have been paid to US workers.
The Other China Stimulus
By Zhou Xin
As the world watches how Beijing’s $585 billion stimulus package can create opportunities for investors, they might be overlooking another mini-stimulus that is coming in a matter of weeks: the lavish celebration the government will be staging to mark the 60th anniversary of the founding of the People’s Republic of China on Oct. 1.
On top of what is expected to be a huge military parade through central Beijing, massive firework displays are expected to light up the capital and other big cities around the country.
Although overall spending figures are secret, speculation about the windfall profits that the country’s only listed fireworks firm could reap from the event have caused its share price to, well, explode over the last month or so.
Panda Fireworks shares have more than doubled in value over the past month, even amid a more than 14 percent fall in the benchmark Shanghai Composite Index over the same period. (See the chart plotting their values and relative performance.)
The company, which had revenue last year of about 173 million yuan ($25 million) and profits of 13.6 million yuan, announced on Monday that it was “engaged in some bidding” that would add 5-10 million yuan to its profits this year.
Supply Push?
This is almost certainly not what Chinese policy makers had in mind when they started encouraging exporters to explore the domestic market to help make up for a drop in Western demand: sex toy makers opening flagship stores in Beijing.
But as an article and a video by my colleagues Ben Blanchard and Kitty Bu explore, that is just one of the side-effects the global slowdown is having on the world’s most populous country.
With factory owners looking to tap the local market to soak up excess capacity now that the export market is less reliable, many are setting up their own local brand names and retail outlets.
In the case of many products, like clothing and electronics, that does not necessarily portend any significant change in habits or lifestyle.
But in other areas, companies’ efforts to build up demand for their goods in the home market will themselves increasingly serve to shape tastes and lifestyles.
It’s not just firms like Sweet Secrets, which says it holds the country’s first registered trademark for a sex toy company.
An array of products previously sent straight overseas has been popping up on shelves in many of Beijing’s markets over the past several months, exposing especially young shoppers to a new set of possibilities.
Love the Motherland, Love Statistics
The next time anyone questions the reliability of Chinese statistics, they should first spare a thought for the sensitive, earnest souls who gather the data. The National Bureau of Statistics asked its employees to craft poems to celebrate the 60th anniversary of the People’s Republic of China.
Like Chinese growth surging beyond economists’ forecasts, their literary talents are sure to leave critics gasping for breath.
Here are three of the entrants in the poetry competition, “Statistics Affection: We Walk Together“.
—
Numbers by Yu Bo, statistician in Fujian province
Numbers Poor, Innocent For the people, fill in the tables True-to-facts, they can be relied upon Ask for the source of numbers, say no to fakes The whole nation moves forward, a blessing for people of all nationalities For 60 years, strengthening the roots of the Chinese nation
—
Statistics in China is a joke.Given their penchant for secrecy, they would hide an earthquake.
Can China save the world?
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.
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.
The war that changed China
Thirty years ago today, China invaded its one-time Communist ally Vietnam to “teach it a lesson”, to the delight of Beijing’s newfound friend, Uncle Sam, which was still smarting from having lost its own Vietnam War. The attack came on the heels of Washington switching diplomatic recognition from Taipei to Beijing and a closed-door meeting between China’s paramount leader Deng Xiaoping and U.S. President Jimmy Carter in Washington. Three decades on, it remains unclear just how much Deng told Carter about the incursion and whether Washington offered any assistance such as satellite imagery of Vietnamese troops and military bases. Until the Chinese Foreign Ministry and the U.S. State Department declassify minutes of the meeting, the world will not know for sure whether the United States offered to back China in the event the Soviet Union rushed to Vietnam’s rescue. Now the great wheel of history has turned again, and 30 years on, the United States is seeking China’s help in applying pressure on another Communist neighbour, North Korea. China’s foray into Vietnam was brief yet in some ways disastrous. Its troops suffered terribly against the battle-hardened Vietnamese who were fighting on their home soil. But there is no arguing that the invasion was a watershed event that smoothed the way for China to mend fences with the West. American investors, tourists and students flocked to China. Western and Japanese aid and loans flowed in, while trade and investment mushroomed, helping to transform the world’s most populous nation from an economic backwater into an export powerhouse and the world’s third-biggest economy. In an apparent quid pro quo, China abandoned its longstanding policy of “liberating” Taiwan and offered “peaceful reunification” in an overture to the self-ruled island it has claimed as its own since their split in 1949 amid civil war. Also in 1979, Deng invited Tibet’s exiled spiritual leader, the Dalai Lama, to visit, prompting the latter to renounce advocacy of Tibetan independence, beseech CIA-armed and -trained Tibetan guerrillas to end their struggle and send his older brother to China on fact-finding trips. The United States softened its criticism of human rights abuse in China, including the imprisonment of dissident Wei Jingsheng for challenging Deng at the height of the Democracy Wall movement. American Sinologist David Shambaugh described as a “marriage of convenience” the teaming up of the United States and China to curb Soviet expansionism. (http://www.iht.com/articles/2009/01/06/opinion/edshambaugh.php) On a lighter note, American culture invaded China. Many Chinese traded their Mao suits for jeans or business suits and dined at McDonald’s and KFC outlets. Hollywood movies and rock ‘n’ roll — once considered decadent by China’s ideologues — swept many Chinese off their feet. The honeymoon abruptly ended on June 4, 1989, when Chinese troops crushed student-led demonstrations for democracy centred on Beijing’s Tiananmen Square. China slipped into diplomatic isolation in the face of U.S. sanctions. China broke out of isolation and forced the United States to deal with it after menacing Taiwan with war games in the run-up to the island’s first direct presidential elections in 1996. Bilateral relations see-sawed in the ensuing years, hitting low points when NATO bombed the Chinese Embassy in Belgrade and a U.S. spy plane collided with a Chinese jet fighter over Chinese airspace. Fast forward to February 2009. When U.S. Secretary of State Hillary Clinton visits on Friday, she will be dealing with a richer, more confident and assertive China. Again, but now in peacetime, it will be a China that needs the United States as much as the United States needs China. The United States needs China to help rein in a nuclear North Korea and help nurse the global economy back to health. But China’s abrupt slowdown in growth and exports shows that it remains yoked to U.S. fortunes.
Photo Credit: A Vietnamese border guard stands next to a border marker between China’s Guangxi and Vietnam’s Lang Son provinces on Jan. 13, 2009. REUTERS/Kham
two chinas is akin to two irelands; the people of northern ireland consider themselves to be british and want no rule from dublin. political intrigue and chamberlainesque pieces of paper aside, the people of taiwan want no rule from beijing; have these people no say in their future? do those leaders who call for freedom in tibet and uyghurstan have no sympathy left for the taiwanese?
Karaoke Blues
Has the fat lady sung in China?
Karaoke is much maligned in most of the West and much loved in most of China.
After years in Beijing, I’ve become perhaps too fond of all-night singing sessions in the city’s karaoke palaces, where you can rent a room for two or 20 friends to croon along to tens of thousands of Chinese numbers and an eclectic English selection that ranges from old hymns to Amy Winehouse.
For as long as I’ve lived here, singing on a Saturday night meant reserving a room, arriving on time (more than 10 minutes late and you lose your room) and then waiting around for at least half an hour for the previous group to tear themselves away from the mics and for the cleaners to do a quick mop-up.
But on a recent weekend, we decided to stop by my favourite karaoke lounge after dinner just in case they could squeeze us in.
We almost lost our voices when the manager ushered us straight to a room — no queue, no fuss, no waiting for clean up. Several rooms nearby also looked empty.
Beijing’s middle class has seemed fairly immune to the financial crisis that has put a greater strain on manufacturers, new graduates and poor, migrant labourers.
Snapshots of a China in flux
Not so many weeks ago, selecting a name for this newly rechristened blog would have been a snap.
The ideas came pouring in, with variations centered on the rising might of China’s economic powerhouse, fresh from memories of Beijing’s triumphant hosting of the Olympic Games and following years of double-digit economic growth that have made China the world’s third-largest economy after the United States and Japan.
How quickly the picture can change. Now, business confidence is plunging and even government forecasters are warning about the risks of social unrest from rising unemployment as the export sector wilts. The government has rushed out a $585 billion stimulus program in hopes of keeping GDP from slipping below 8 percent, but private economists think even that may be overly optimistic.
The image of an ascendant China has not entirely lost its currency, of course, but the sudden, sharp slowdown in economic growth from its breathtaking pace of 13 percent — albeit still the fastest of any major economy — favoured a more neutral moniker for our China blog. And So we selected “Changing China,” which more accurately encompasses the rapid swings of fortune in this mighty nation of 1.3 billion people.
We invite readers to engage with us on the many issues touching today’s China, with snapshots that will be addressed in blog entries by dozens of Reuters reporters and editors in Beijing, Shanghai, Hong Kong, Taipei and elsewhere. These issues will include, but won’t be limited to, the income gap between urban and rural workers, the policy tug of war over efforts to maintain sufficient economic growth while also making progress on cleaning up an environment ravaged by single-minded pursuit of profits. It will also touch on prospects for continued opening and reforms, on intellectual property rights as well as real estate and other market stimulus plans. There will be light-hearted anecdotes that focus on quirky observations of lifestyles, sports, entertainment. The list is nearly endless, because practically every aspect of life in China is in flux.
We hope this blog will introduce perspectives and viewpoints that may not make it into our regular Reuters news stories but which nonetheless will maintain the sense of balance, fairness and objectivity you can expect from Reuters. We invite you to engage in this dialogue, with comments, opinions, suggestions and other feedback.
So join us in capturing the events that have put this vast nation in transition.
The process of a foreigner describing a big country like China (or India or Russia) is like the legendary blind men describing the elephant. China is a country with 56 different minorities – each with different culture, history, language and point of view. The people in the North, South, East & Western part of China are very different from one another in terms of the culture, language and standard of living. China has only been a modern nation since the time of Deng Xiao Ping in the 1970s when he expounded the tenets of modernisation for China and opened up the country to the West.
Even for foreigners who lived for a while in China and speak Mandarin – they too are confounded by Chinese history, culture and diversity – just like the legendary Blind Men. If you ask any foreigner to describe China – each will have a different story or perspective depending on who, where, what, when and how.
It will be good to get different perspective from readers who has lived and worked in China and is fluent with Mandarin and Returning Chinese from overseas – who is fluent in English and can provide a different perspective to Westerner about their homeland.
