Opinion

The Great Debate

China can outgrow overcapacity, at least for now

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.

Mickey’s Magic needed for Disneyland Shanghai

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.

Winning the copyright battle in China

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.

Imagine when China runs a trade deficit

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?

China’s start-up market can win against the odds

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

It is hard to be very optimistic about China’s proposed stock market for start-up companies. After all, similar attempts in other countries have a decidedly mixed track record. Why would China, where small private companies face an uphill battle against state-owned firms, be any exception?

Nevertheless, there are reasons to believe that the start-up market, set to debut in October, offers better potential than previous efforts in Singapore, Germany and Hong Kong.

For Chinese exporters, grass is greener abroad

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.

In addition, selling to large buyers such as Wal-Mart creates volumes large enough to compensate for weak margins. Moreover, Chinese exporters get all sorts of export rebates and local government incentives which help to lower their costs.

Ex-Google China chief’s dream factory

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.

China finds tricky export niche amid global slump

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

As exports of manufactured goods slow, China has found a new niche — exporting its construction boom.

With many countries in the world adopting stimulus plans to drive demand, China has been scrambling for these public spending dollars. And it is well placed to do so.

China stock jitters look overdone

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.

Yuan trade settlement mission impossible, for now

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

The People’s Bank of China’s ambitious plan to settle foreign trades in yuan has been given the cold shoulder by companies both at home and abroad. The failure of this experiment shows the difficulties China faces in internationalising its currency.

Launched by the PBOC with a fanfare almost two months ago, the pilot scheme has so far seen only thin volumes of yuan trade settlement. Guangdong province, the country’s export hub, was supposed to be the cornerstone of the plan, but local officials said they found few willing counterparties.

  •