The Great Debate UK

from The Great Debate:

China can outgrow overcapacity, at least for now

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WeiGucrop.jpg-- Wei Gu is a Reuters columnist. The opinions expressed are her own --

China watchers are worried that excessive lending leads to massive overcapacity. However, the risk of Beijing pressing too hard on the brake is even greater. At least for now, China should be able to growing its way out of its bad debt problems.

Banking regulator Liu Mingkang recently told a conference that China's banks should lend out 6-7 trillion yuan next year, equivalent to about one fifth of China's annual output. Some think that is too much. However, these fears are overdone. Indeed, if new lending falls below 10 trillion yuan, bad debts will soar, private investment will be crowded out and the economic recovery may be derailed.

Since the stock of loans has been enlarged by this year's explosive credit growth, the regulator's target represents  a 15 percent increase in China's loan base. This is in line with past trends, but marks a sharp slowdown from this year's 30 percent growth in total loans.

Just to keep funding current ongoing projects, the economy would need 8.3 trillion yuan in new loans in 2010, according to Nomura estimates. So the current goal implies that here would be no money left for new projects, and some current projects will not receive funding.

from The Great Debate:

Mickey’s Magic needed for Disneyland Shanghai

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WeiGucrop.jpg-- Wei Gu is a Reuters columnist. The opinions expressed are her own --

China has finally given a green light for Disneyland to build a theme park in Shanghai. Negotiations that started when Bill Clinton was in the White House have concluded just before President Barack Obama is due to visit. The approval looks like a coup for Walt Disney Co, but it will take all of Mickey's magic to prevent the park from becoming another government-financed loss maker.

Disney's last theme park in the region was anything but a hit. Hong Kong Disneyland was created in 2005 in an effort to boost employment in the epidemic-stricken region, but attendance numbers have fallen short of target. This hits the Hong Kong government harder than Disney, because the former not only took an initial 57 percent equity stake in the venture, but also spent $1.75 billion building related infrastructure like a metro line and ferry piers.

from The Great Debate:

Winning the copyright battle in China

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WeiGucrop.jpg-- Wei Gu is a Reuters columnist. The opinions expressed are her own --

When it comes to protecting intellectual property in China, the United States often feels that its pleas are falling on deaf ears. Its best hope is that China recognizes that copyright protection is in its own interests. To achieve that, Washington needs to push for changes from within.

After a fruitless decade of lobbying China on intellectual property, Washington has reached for the microphone. This week, the U.S. Chamber of Commerce launched a high-profile international forum on intellectual property in Guangzhou, capital of Guangdong Province and best known as both China's manufacturing hub and the global centre for intellectual property theft.

from The Great Debate:

Imagine when China runs a trade deficit

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WeiGucrop.jpg-- Wei Gu is a Reuters columnist. The opinions expressed are her own --

If current trends continue, China might swing to a trade deficit in the not-too-distant future. Given that China has enjoyed more than a decade of strong exports, this may sound a bit far-fetched. But even if it happens, this would not necessarily be something for the world to worry about.

Some economists have recently sounded alarm bells about the possibility of a Chinese trade deficit. They argue that if the Chinese current account surplus shrinks, it would leave Beijing with less spare cash to buy U.S. Treasury bonds. Then who would fund the U.S. budget deficit -- and, by implication, U.S. consumers?

from The Great Debate:

For Chinese exporters, grass is greener abroad

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WeiGucrop.jpg- Wei Gu is a Reuters columnist. The opinions expressed are her own. -

The U.S.-China tire dispute threatens to spill into other sectors and squeeze Chinese exporters' already razor-thin margins further. It might seem mind-boggling to many that Chinese manufacturers are still hanging on to weak overseas markets even though the domestic economy looks much healthier and surely offers more potential.

But there are structural reasons why the grass is greener outside China. The risk of not getting paid, or getting paid late, is significantly lower when dealing with foreign buyers. The cost of international shipping has dropped so much that it can be cheaper to send goods over the Pacific Ocean than across the country.

from Commentaries:

U.S.-China trade spat more about cars than tyres

Why are the U.S. and China trading blows about something as mundane as car tyres at a time when the world is trying to avoid slipping back into trade protectionism?
It's not purely about the $1 billion worth of tyres China sells to the U.S. every year. It has more to do with the $100 billion of automotive vehicles, parts and engines America buys from abroad. China is worried about the direction of U.S policy. Beijing fears that the administration may find ways to thwart China's future plans to ship vehicles to America.
China may not yet export cars to America, but it already exports a growing number of parts. Cars are in the pipeline. A recent spate of bids from Chinese companies such as Geely for failing U.S. and European auto brands have shown that it has the ambition to be the next Japan or Korea.
Auto sales are the only bright spot in U.S. consumer spending due to the Treasury-financed "cash for clunkers" program. Fears about stimulus dollars leaking abroad are one of the reasons the U.S. trade unions have been aggressively pushing for anti-dumping tariffs.
The worry is that the U.S. has imposed the tariffs under a law designed to protect domestic U.S. producers from being damaged by a sudden surge in imports from China. Determining whether this has occurred is a bureaucratic exercise in which experts determine whether such damage is occurring and propose remedies. But there is a political circuit breaker -- the president has discretion in whether to implement remedies.
At least four similar, so-called Section 421 petitions were filed during the presidency of George W. Bush, according to the international trade commentator, Scott Lincicome, but none were approved. In this case, Obama came down on the side of the union. This has raised fears in Beijing that there will be more cases in coming months.
The Chinese side seems to fear that Obama is bending too much to domestic constituencies such as union and producer interests. Washington needs to be careful about this. Since it wants to export its way out of recession, it should not agitate China, which is potentially a major purchaser of U.S. exports.
China does not want the Obama presidency to set a precedent by discriminating against Chinese goods at this time. Moreover, it is concerned that other countries might follow suit and start to target Chinese goods as well. Its reliance on exports is potentially the big weak link among China's recovery.
That's why Beijing, which has limited its protest mostly to words in recent years for fear of more retaliation, quickly spun into action this time. China's counterpunch is equally forceful. It is launching an anti-dumping investigation into imports of U.S. chicken products and vehicles.
The idea is presumably to raise the political cost for Obama of taking his pen out of his pocket every time a Section 421 case, which specifically targets China, is presented for his signature.
During the first half of this year, 89 percent of China's chicken imports came from America, representing a fifth of all U.S. chicken exports. In comparison, tyres account for just 0.4 percent of the value of goods what China sells to America each year and 0.07 percent of China's total exports.
While it is no secret that America subsidises its agriculture industry, China also spares no effort in helping exporters and putting up import barriers to protect domestic manufacturers. For example, China agreed in August to stop some discriminatory charges it imposed on imported U.S. auto parts after a World Trade Organization ruling from September 1.
After chicken, U.S. soybeans might be the next target. As much as 40 percent of China's soybean imports came from America last year. And this year, China's soybean imports increased by 28 percent.
The last time China took retaliatory measures was during the "garlic trade war" against Japan and South Korea in 2000-2001.
Washington and Beijing have vowed to cooperate in seeking to revive global economic growth, but the dispute over tyres has laid bare the two countries' continued friction over trade. This could spill into the G20 summit later this month and Obama's scheduled visit to China in November.
In previous meetings between the top leaders of the two countries, mostly the U.S. lectured and China listened. Now Beijing is more outspoken about expressing its own concerns and many at home are calling for more tit-for-tat policies.
It remains to be seen how the U.S. will react to a more assertive China.

from The Great Debate:

Ex-Google China chief’s dream factory

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wei-gu.jpg-- Wei Gu is a Reuters columnist. The opinions expressed are her own --

Google's former China head Kai-Fu Lee wants to create China's next internet giant in a factory. He believes that by combining the smartest entrepreneurs, the shrewdest businesspeople and the brightest business ideas, he will be able to create five highly sellable companies a year. That sounds like an ideal model for venture capital, but is he being realistic?

Lee's plan, formulated while he spent time in hospital over the summer, follows a battle with Beijing regulators who wanted to censor Google searches that lead to pornographic sites. It has drawn strong support from investors.

from The Great Debate:

China stock jitters look overdone

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WeiGucrop.jpg-- Wei Gu is a Reuters columnist. The opinions expressed are her own --

Just as Chinese stocks often rise without fundamental support, they are now tanking even though companies just had a better-than-expected earnings season.

Fears about a policy shift towards tighter liquidity are blamed for the 22 percent decline in the Shanghai market from its August peak. But those fears are largely overblown. Beijing might be talking about boosting domestic consumption, but structural reforms take time and there is little the authorities can do other than continuing to reinflate the economy in the short run.

from The Great Debate:

China’s bailout of Taiwan is good for the region

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wei-gu.jpg-- Wei Gu is a Reuters columnist. The opinions expressed are her own --

If market performance is anything to go by, Taiwan is the biggest beneficiary of China's economic stimulus.

Because of Taiwan's heavy dependence on exports to Western consumers, it was assumed there was little Beijing could do about its downturn. But Beijing has gone out of its way to take care of the recession-hit island. This year, it sent several procurement missions to Taiwan to buy billions of dollars of goods, even though Taiwan's trade surplus with China is already approaching as much as a fifth of its economy.

from The Great Debate:

China’s banks, running hard to stand still

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wei-gu.jpg-- Wei Gu is a Reuters columnist. The opinions expressed are her own --

Chinese banks are like enthusiastic runners on an accelerating treadmill. The weakening economy means poor lending decisions are threatening to catch up with them, but the banks are sprinting ahead by expanding their loan books ever faster. They cannot keep this up for ever.

For now things still look fine. China Banking Regulatory Commission (CBRC) this week claimed that Chinese banks were managing credit risk sagely, pointing to record low non-performing loan ratios. Given the massive increase in the number of loans outstanding -- up 24 percent since the start of the year -- it's not surprising that the proportion of them that are non-performing at large commercial banks, which accounts for 60 percent of the lending, has declined from 2.4 percent to 1.8 percent in the past six months.

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