November 13, 2008
By: Peter Navarro
Years from now, China's embrace of a massive fiscal stimulus, announced this week, will be seen as a far more important marker of the country's emergence as an economic superpower than even the successful hosting of the 2008 Summer Olympic Games.
This two-year, US$600 billion fiscal stimulus - equal to a stunning one-sixth of China's entire gross domestic product - focuses primarily on the construction of economically critical infrastructure, such as rail and energy networks and politically critical infrastructure, like low-income housing and healthcare. The historic importance of China's "New Deal" is evident in at least five factors.
First, China's swift action aptly illustrates how this putatively communist country can flexibly embrace the kind of mainstream Keynesian economics that has kept the capitalist world (mostly) in prosperity since the end of the Great Depression. It's pitch-perfect fiscal policy.
Second, in a supreme irony, China has acted far more quickly and decisively than the United States, with the students now teaching their former mentors. Indeed, Chinese officials, many of them schooled in US universities, seemed to have grasped far more quickly than US officials like Federal Reserve chairman Ben Bernanke the futility of relying solely on interest rate cuts for rapid recovery.
In particular, businesses won't invest, no matter how low interest rates go, if the recession remains. Nor will lower interest rates entice consumers to buy big-ticket items such as cars and houses if they are worried about their jobs and shrinking stock portfolios. Chinese officials have grasped this point, even as European officials have thus far rejected fiscal stimulus and US officials continue to quibble over the size and timing of any package.
Third, China's fiscal stimulus package puts a powerful exclamation point on the tightly woven interconnectedness of the world's major economies. While China continues to run large trade surpluses with the US and Europe, it is equally true that exports to China by American, European and even Asian countries constitute an ever-increasing component of economic growth.
In this global trade, countries like Germany, Japan and the US provide sophisticated capital equipment for China's "factory floor". As China expands its infrastructure, companies like Hitachi and Caterpillar likewise benefit from increased sales to China.
Fourth, the focus of China's fiscal stimulus particularly on infrastructure illustrates a sophisticated understanding - seemingly lacking in the United States - of what is necessary to build a strong economy. In its next stage of development, China's rail system must far better serve the inland areas of China where large pockets of rural poverty and high unemployment persist, despite three decades of robust growth. In fact, while the coastal areas from the Pearl River Delta up to Dalian have prospered, much of inland China remains impoverished. Swiftly developing better roads and rail and a more reliable and extensive electricity grid and water system is just what the country needs.
Fifth, China's New Deal will act as a powerful stimulus for domestic demand. Today, the Chinese economy is far too heavily dependent on export-driven growth. By stimulating domestic demand, China will not only better insulate itself from the vagaries of global trade. Rising domestic demand should also help reduce trade frictions that have arisen because of the large trade surpluses China runs with Europe and the US.
Finally, China's fiscal stimulus may also prove to be the beginning of the end of China's willingness to finance the budget and trade deficits of the United States.
For almost a decade, China has recycled many of the dollars it has earned through its export trade back into the US bond market. This has kept interest rates low in America and allowed the American consumer to spend far beyond his or her means.
Now, however, China is going to need its foreign reserves and export earnings for domestic purposes. That should certainly mean fewer dollars available for recycling back to the US. In this way, China's fiscal stimulus may act as a significant constraint on America's own ability to successfully implement its own fiscal stimulus - even as China uses Keynesian policies to eclipse the US as the world's reigning economic superpower.
Peter Navarro is a professor at The Paul Merage School of Business at the University of California-Irvine, a CNBC contributor and author of The Coming China Wars. www.peternavarro.com.
Tuesday, November 18, 2008
Cashing in on China's Boom
November 20, 2008
By: Hu Yue
Foreign banks continue to fare well here on the back of the country's torrid economic growth
Sitting on piles of bad mortgages and unpaid credit-card debts and auto loans, several foreign banks have seen their profits plummet along with the broader economic downturn in the West. But the good news is that they still see China as a bright spot for expanding their business.
In the first three quarters this year, foreign banks in China earned 10.12 billion yuan ($1.48 billion) in profit, double the amount they made during the same period last year, said the China Banking Regulatory Commission in a statement on September 25.
The banking regulator said these institutions currently have an average ratio of non-performing loans of 0.52 percent of their total loans and that their capital-adequacy ratio averages 16.9 percent, underlining their healthy fundamentals, good asset quality, adequate capital provisions and sound liquidity.
Guo Tianyong, Director of the Research Center of the China Banking Industry under the Central University of Finance and Economics, told Beijing Review that foreign lenders have enjoyed buoyant business here largely because of China's economic boom in recent years and its strong domestic financial market, which has been growing exponentially.
Zhang Xi, a senior banking analyst at China Galaxy Securities Co. Ltd., agreed. She said a growing number of wealthy Chinese have ensured high returns for the foreign banks' wealth management and private banking services, which account for a big chunk of the banks' total revenues.
China's embrace of foreign lenders dates back to 1978 when the Japan Import and Export Bank was authorized to set up a representative office in Beijing. Ever since then, more and more foreign banks have penetrated China's market by extending their branch networks and product offerings and buying stakes in their Chinese counterparts, particularly after being offered broader access to lucrative retail renminbi services at the end of 2006.
A survey conducted by Pricewaterhouse-Coopers LLP (PWC) indicated that most foreign banks are expected to further tap into the world's fastest-growing major economy. In a poll of 42 foreign banks, the global consultancy said nine anticipated at least a 100-percent revenue growth in China this year, and many foresaw 40-50 percent annual revenue growth rates over the next few years.
The bullish growth predictions by overseas banks are based on confidence that more clients will be attracted to their deeper and more sophisticated product offerings and global client relationships, PWC said.
But as the financial crisis unfolds, many now fret that the foreign banks, after getting hit hard at home, may drag their feet in pushing into China in the face of a possible economic slowdown.
Zhang downplayed the concerns, saying China's banking system, one of the few in the world that have largely emerged unscathed by the financial chaos, remains stable and healthy, and therefore would maintain its appeal to foreign lenders.
Guo said the foreign banks' buoyant profit growth in China was likely to lose some steam as the crisis drained some of their financing sources at home, although it would remain much higher in most parts of the world. He added that the foreign banks would continue to value their China foothold. A case in point is Bank of America Corp., which has not sold its holdings in China Construction Bank Corp. as many expected, he said.
The worries are turning out to be truly unwarranted, because foreign banks have not bulked from the Chinese market, but continue to look to the country as a calm port in the storm. Since October, several foreign banks, including the Bank of East Asia Ltd. and Standard Chartered Plc, have added new branches to their banking networks in China.
Besides this, a growing number of foreign banks such as Citigroup Inc. and HSBC Holdings Plc, are making a push into the country's vastly under-serviced rural areas. HSBC said it would open about 30 branches in the countryside in the next few years, while the country has approved Citigroup's plans to establish two microcredit firms in the rural areas of Hubei Province in central China.
Guo said rural finance represents the future development trend of the banking sector in the long run and may become fresh growth points for both foreign and Chinese lenders.
Analysts say Chinese banks, particularly the "big four" state-owned banks, are now able to stand on their own feet after a few years of restructuring, but still need to improve their risk management, corporate governance and efficiency in a fully competitive market environment.
As foreign lenders spread across the country, they also face increasing competition in private banking and wealth management from China's large banks, which are eager to reduce their dependence on their traditional lending business and boost their fee income.
In the end, it will be a win-win situation that allows foreign players into the country's internal business cycle, Guo said.
"The arrival of foreign banks has benefited the local banking industry and customers with new services, managerial expertise and methodologies," Guo said. "They can also play a catalytic role in improving the corporate behavior of Chinese banks."
By: Hu Yue
Foreign banks continue to fare well here on the back of the country's torrid economic growth
Sitting on piles of bad mortgages and unpaid credit-card debts and auto loans, several foreign banks have seen their profits plummet along with the broader economic downturn in the West. But the good news is that they still see China as a bright spot for expanding their business.
In the first three quarters this year, foreign banks in China earned 10.12 billion yuan ($1.48 billion) in profit, double the amount they made during the same period last year, said the China Banking Regulatory Commission in a statement on September 25.
The banking regulator said these institutions currently have an average ratio of non-performing loans of 0.52 percent of their total loans and that their capital-adequacy ratio averages 16.9 percent, underlining their healthy fundamentals, good asset quality, adequate capital provisions and sound liquidity.
Guo Tianyong, Director of the Research Center of the China Banking Industry under the Central University of Finance and Economics, told Beijing Review that foreign lenders have enjoyed buoyant business here largely because of China's economic boom in recent years and its strong domestic financial market, which has been growing exponentially.
Zhang Xi, a senior banking analyst at China Galaxy Securities Co. Ltd., agreed. She said a growing number of wealthy Chinese have ensured high returns for the foreign banks' wealth management and private banking services, which account for a big chunk of the banks' total revenues.
China's embrace of foreign lenders dates back to 1978 when the Japan Import and Export Bank was authorized to set up a representative office in Beijing. Ever since then, more and more foreign banks have penetrated China's market by extending their branch networks and product offerings and buying stakes in their Chinese counterparts, particularly after being offered broader access to lucrative retail renminbi services at the end of 2006.
A survey conducted by Pricewaterhouse-Coopers LLP (PWC) indicated that most foreign banks are expected to further tap into the world's fastest-growing major economy. In a poll of 42 foreign banks, the global consultancy said nine anticipated at least a 100-percent revenue growth in China this year, and many foresaw 40-50 percent annual revenue growth rates over the next few years.
The bullish growth predictions by overseas banks are based on confidence that more clients will be attracted to their deeper and more sophisticated product offerings and global client relationships, PWC said.
But as the financial crisis unfolds, many now fret that the foreign banks, after getting hit hard at home, may drag their feet in pushing into China in the face of a possible economic slowdown.
Zhang downplayed the concerns, saying China's banking system, one of the few in the world that have largely emerged unscathed by the financial chaos, remains stable and healthy, and therefore would maintain its appeal to foreign lenders.
Guo said the foreign banks' buoyant profit growth in China was likely to lose some steam as the crisis drained some of their financing sources at home, although it would remain much higher in most parts of the world. He added that the foreign banks would continue to value their China foothold. A case in point is Bank of America Corp., which has not sold its holdings in China Construction Bank Corp. as many expected, he said.
The worries are turning out to be truly unwarranted, because foreign banks have not bulked from the Chinese market, but continue to look to the country as a calm port in the storm. Since October, several foreign banks, including the Bank of East Asia Ltd. and Standard Chartered Plc, have added new branches to their banking networks in China.
Besides this, a growing number of foreign banks such as Citigroup Inc. and HSBC Holdings Plc, are making a push into the country's vastly under-serviced rural areas. HSBC said it would open about 30 branches in the countryside in the next few years, while the country has approved Citigroup's plans to establish two microcredit firms in the rural areas of Hubei Province in central China.
Guo said rural finance represents the future development trend of the banking sector in the long run and may become fresh growth points for both foreign and Chinese lenders.
Analysts say Chinese banks, particularly the "big four" state-owned banks, are now able to stand on their own feet after a few years of restructuring, but still need to improve their risk management, corporate governance and efficiency in a fully competitive market environment.
As foreign lenders spread across the country, they also face increasing competition in private banking and wealth management from China's large banks, which are eager to reduce their dependence on their traditional lending business and boost their fee income.
In the end, it will be a win-win situation that allows foreign players into the country's internal business cycle, Guo said.
"The arrival of foreign banks has benefited the local banking industry and customers with new services, managerial expertise and methodologies," Guo said. "They can also play a catalytic role in improving the corporate behavior of Chinese banks."
Chinese Basic Scientific Knowledge on Rise
November 17, 2008
Xinhua News Agency
Scientific and technological awareness has been increasing among the Chinese people, according to a survey released on Sunday.
The survey by the Chinese Association for Science and Technology (CAST) reveals that people with basic science and technology knowledge account for 2.25 percent of the total population of 1.3 billion, compared to 1.6 percent in 2005 when a similar survey was last conducted.
The survey covers 10,080 people, aged between 18 and 69, from 31 provinces, autonomous regions and municipalities on the Chinese mainland.
Carried out from December 2007 to February 2008, the survey indicates 18.4 percent of the Chinese people understood scientific terms, 33.5 percent understood scientific methods and 59.4 percent understood the relation between science and society.
The respondents held that teachers, scientists and doctors are the most respected professionals and 40.1 percent of the parents hoped their children would become scientists.
As to the relation between scientific development and human resources, 82.8 percent of the respondents agree that "stimulating children's interest in science and technology will be conducive to the development of China's talents."
The Chinese people also have high expectations on future development of science and technology. The survey says that 81.9 percent of the respondents believe modern science and technology will bring the offsprings more opportunities for development.
Xinhua News Agency
Scientific and technological awareness has been increasing among the Chinese people, according to a survey released on Sunday.
The survey by the Chinese Association for Science and Technology (CAST) reveals that people with basic science and technology knowledge account for 2.25 percent of the total population of 1.3 billion, compared to 1.6 percent in 2005 when a similar survey was last conducted.
The survey covers 10,080 people, aged between 18 and 69, from 31 provinces, autonomous regions and municipalities on the Chinese mainland.
Carried out from December 2007 to February 2008, the survey indicates 18.4 percent of the Chinese people understood scientific terms, 33.5 percent understood scientific methods and 59.4 percent understood the relation between science and society.
The respondents held that teachers, scientists and doctors are the most respected professionals and 40.1 percent of the parents hoped their children would become scientists.
As to the relation between scientific development and human resources, 82.8 percent of the respondents agree that "stimulating children's interest in science and technology will be conducive to the development of China's talents."
The Chinese people also have high expectations on future development of science and technology. The survey says that 81.9 percent of the respondents believe modern science and technology will bring the offsprings more opportunities for development.
Sunday, November 9, 2008
China's 4 Trillion Yuan Stimulus to Boost Economy, Domestic Demand
November 9, 2008
Xinhua News Agency
China said on Sunday it will loosen credit conditions, cut taxes and embark on a massive infrastructure spending program in a wide-ranging effort to offset adverse global economic conditions by boosting domestic demand.
This is a shift long advocated by analysts of the Chinese economy and by some within the government. It comes amid indications that economic growth, exports and various industries are slowing.
A stimulus package estimated at 4 trillion yuan (about US$570 billion) will be spent over the next two years to finance programs in 10 major areas, such as low-income housing, rural infrastructure, water, electricity, transportation, the environment, technological innovation and rebuilding from several disasters, most notably the May 12 earthquake.
The policies include a comprehensive reform in value-added taxes, which would cut industry costs by 120 billion yuan.
Commercial banks' credit ceilings will be abolished to channel more lending to priority projects, rural areas, smaller enterprises, technical innovation and industrial rationalization through mergers and acquisitions.
The decision was announced on Sunday by the State Council, or cabinet, after Premier Wen Jiabao presided over an executive meeting on Wednesday.
The meeting decided that credit expansion must be "rational" and "target spheres that would promote and consolidate the expansion of consumer credit."
With 100 billion yuan from current-year central government funds and another 20 billion yuan brought forward from next year's budget for post-disaster reconstruction, the fourth quarter is expected to see a total investment of 400 billion yuan across the nation.
The massive spending plan was expected to play a remarkable role in sustaining growth as 4 trillion yuan investment is an equivalent of one third of the nation's total fixed asset investment last year, according to Zhang Liqun, researcher with the Development Research Center of the State Council.
"With the deepening of the global financial crisis over the past two months, the government must take flexible and prudent macro-economic policies to deal with the complex and changing situation," said the meeting.
The meeting also announced that China will adopt "active" fiscal and "moderately active" monetary policies and map out more forceful measures to expand domestic demand, speed up the construction of public facilities and improve living standards of the poor to achieve "steady and relative fast" economic growth.
The active fiscal policy alone would not bear much fruit without the coordination of easing monetary policy. The two should work together to confront the economic complexity of home and abroad, said Yuan Gangming, researcher with the Center for China in the World Economy of Tsinghua University.
The policy change comes out in time as the global financial crisis begins to affect China's real economy. The adjustment is more resolute and timely as China draw lessons from the Asian financial crisis in 1998, said director of the Research Institute for Fiscal Science of Ministry of Finance Jia Kang. He noted the easing policy was expected to prevent big ups and downs in the economy.
He said the value-added tax reduction would encourage enterprises to invest more in the long run.
The macro-economic policy changes announced on Sunday are one of only a few major shifts during the 30 years since the beginning of reform and opening up in 1978.
The most recent modification was in December, when the government resorted to a combination of "tight" monetary policy and "prudent" fiscal policy to fight inflation.
With the monthly consumer price index, the main gauge of inflation, expected to drop further through year-end -- after plunging from a 12-year high of 8.7 percent in February to 4.6 percent in September -- the focal task of macro-economic control has shifted from beating inflation to sustaining economic growth.
The past three months have seen a series of stimulus policies: interest rate cuts, lower bank reserve requirement ratios, tax changes, higher credit quotas and the injection of central government funds to infrastructure construction.
The meeting decided that higher investment must be able to facilitate economic restructuring, promote growth potential by channeling investment to where it's most needed and spur private consumption.
Although the economy has maintained double-digit growth for years, fixed-asset investment and exports have dwarfed consumption as the two pillars of expansion. With global recession clearly in view, China must sustain itself by exploiting the domestic market to offset weaker demand abroad.
The meeting identified the ongoing world economic adjustment as "a new opportunity" for China to speed industrial restructuring, introduce advanced technologies and talents from abroad.
Despite challenges, China has a great potential to develop its domestic demand and a solid financial system, the meeting noted.
"As long as we take the right measures in a resolute and timely way to grasp the chance and rise to the challenges, we will surely secure steady and relative fast economic growth," the meeting noted.
Xinhua News Agency
China said on Sunday it will loosen credit conditions, cut taxes and embark on a massive infrastructure spending program in a wide-ranging effort to offset adverse global economic conditions by boosting domestic demand.
This is a shift long advocated by analysts of the Chinese economy and by some within the government. It comes amid indications that economic growth, exports and various industries are slowing.
A stimulus package estimated at 4 trillion yuan (about US$570 billion) will be spent over the next two years to finance programs in 10 major areas, such as low-income housing, rural infrastructure, water, electricity, transportation, the environment, technological innovation and rebuilding from several disasters, most notably the May 12 earthquake.
The policies include a comprehensive reform in value-added taxes, which would cut industry costs by 120 billion yuan.
Commercial banks' credit ceilings will be abolished to channel more lending to priority projects, rural areas, smaller enterprises, technical innovation and industrial rationalization through mergers and acquisitions.
The decision was announced on Sunday by the State Council, or cabinet, after Premier Wen Jiabao presided over an executive meeting on Wednesday.
The meeting decided that credit expansion must be "rational" and "target spheres that would promote and consolidate the expansion of consumer credit."
With 100 billion yuan from current-year central government funds and another 20 billion yuan brought forward from next year's budget for post-disaster reconstruction, the fourth quarter is expected to see a total investment of 400 billion yuan across the nation.
The massive spending plan was expected to play a remarkable role in sustaining growth as 4 trillion yuan investment is an equivalent of one third of the nation's total fixed asset investment last year, according to Zhang Liqun, researcher with the Development Research Center of the State Council.
"With the deepening of the global financial crisis over the past two months, the government must take flexible and prudent macro-economic policies to deal with the complex and changing situation," said the meeting.
The meeting also announced that China will adopt "active" fiscal and "moderately active" monetary policies and map out more forceful measures to expand domestic demand, speed up the construction of public facilities and improve living standards of the poor to achieve "steady and relative fast" economic growth.
The active fiscal policy alone would not bear much fruit without the coordination of easing monetary policy. The two should work together to confront the economic complexity of home and abroad, said Yuan Gangming, researcher with the Center for China in the World Economy of Tsinghua University.
The policy change comes out in time as the global financial crisis begins to affect China's real economy. The adjustment is more resolute and timely as China draw lessons from the Asian financial crisis in 1998, said director of the Research Institute for Fiscal Science of Ministry of Finance Jia Kang. He noted the easing policy was expected to prevent big ups and downs in the economy.
He said the value-added tax reduction would encourage enterprises to invest more in the long run.
The macro-economic policy changes announced on Sunday are one of only a few major shifts during the 30 years since the beginning of reform and opening up in 1978.
The most recent modification was in December, when the government resorted to a combination of "tight" monetary policy and "prudent" fiscal policy to fight inflation.
With the monthly consumer price index, the main gauge of inflation, expected to drop further through year-end -- after plunging from a 12-year high of 8.7 percent in February to 4.6 percent in September -- the focal task of macro-economic control has shifted from beating inflation to sustaining economic growth.
The past three months have seen a series of stimulus policies: interest rate cuts, lower bank reserve requirement ratios, tax changes, higher credit quotas and the injection of central government funds to infrastructure construction.
The meeting decided that higher investment must be able to facilitate economic restructuring, promote growth potential by channeling investment to where it's most needed and spur private consumption.
Although the economy has maintained double-digit growth for years, fixed-asset investment and exports have dwarfed consumption as the two pillars of expansion. With global recession clearly in view, China must sustain itself by exploiting the domestic market to offset weaker demand abroad.
The meeting identified the ongoing world economic adjustment as "a new opportunity" for China to speed industrial restructuring, introduce advanced technologies and talents from abroad.
Despite challenges, China has a great potential to develop its domestic demand and a solid financial system, the meeting noted.
"As long as we take the right measures in a resolute and timely way to grasp the chance and rise to the challenges, we will surely secure steady and relative fast economic growth," the meeting noted.
China Plans 10 Major Steps to Spark Growth
November 10, 2008
Xinhua News Agency
China will take 10 major steps to stimulate domestic consumption and growth as it turns to an "active" fiscal policy and "moderately easy" monetary policy, an executive meeting of the State Council said on Sunday.
Here are the 10 major steps:
-- Housing: Building more affordable and low-rent housing and speeding the clearing of slums. A pilot program to rebuild rural housing will expand. Nomads will be encouraged to settle down.
-- Rural infrastructure: Speeding up rural infrastructure construction. Roads and power grids in the countryside will be improved, and efforts will be stepped up to spread the use of methane and to ensure drinking water safety. This part of the plan also involves expediting the North-South water diversion project. Risky reservoirs will be reinforced. Water conservation in large-scale irrigation areas will be strengthened. Poverty relief efforts will be increased.
-- Transportation: Accelerating the expansion of the transport network. That includes more dedicated passenger rail links and coal routes. Trunk railways will be extended and more airports will be built in western areas. Urban power grids will be upgraded.
-- Health and education: Beefing up the health and medical service by improving the grass roots medical system. Accelerating the development of the cultural and education sectors and junior high school construction in rural western and central areas. More special education and cultural facilities.
-- Environment: Improving environmental protection by enhancing the construction of sewage and rubbish treatment facilities and preventing water pollution in key areas. Accelerating green belt and natural forest planting programs. Increasing support for energy conservation and pollution-control projects.
-- Industry: Enhancing innovation and industrial restructuring and supporting the development of the high-tech and service industries.
-- Disaster rebuilding: Speeding reconstruction in the areas hit by the May 12 earthquake.
-- Incomes: Raising average incomes in rural and urban areas. Raising next year's minimum grain purchase and farm subsidies. Increasing subsidies for low-income urban residents. Increasing pension funds for enterprise employees and allowances for those receiving special services.
-- Taxes: Extending reforms in value-added tax rules to all industries, which could cut the tax corporate burden by 120 billion yuan (about US$17.6 billion). Technological upgrading will be encouraged.
-- Finance: Enhancing financial support to maintain economic growth. Removing loan quotas on commercial lenders. Appropriately increasing bank credit for priority projects, rural areas, smaller enterprises, technical innovation and industrial rationalization through mergers and acquisitions.
These 10 moves are expected to have positive effects on cement, iron and steel producers amid a boom in infrastructure investment. Commercial lenders will benefit as loan ceilings are abolished, and medium-sized and small companies are likely to benefit from preferential policies.
Xinhua News Agency
China will take 10 major steps to stimulate domestic consumption and growth as it turns to an "active" fiscal policy and "moderately easy" monetary policy, an executive meeting of the State Council said on Sunday.
Here are the 10 major steps:
-- Housing: Building more affordable and low-rent housing and speeding the clearing of slums. A pilot program to rebuild rural housing will expand. Nomads will be encouraged to settle down.
-- Rural infrastructure: Speeding up rural infrastructure construction. Roads and power grids in the countryside will be improved, and efforts will be stepped up to spread the use of methane and to ensure drinking water safety. This part of the plan also involves expediting the North-South water diversion project. Risky reservoirs will be reinforced. Water conservation in large-scale irrigation areas will be strengthened. Poverty relief efforts will be increased.
-- Transportation: Accelerating the expansion of the transport network. That includes more dedicated passenger rail links and coal routes. Trunk railways will be extended and more airports will be built in western areas. Urban power grids will be upgraded.
-- Health and education: Beefing up the health and medical service by improving the grass roots medical system. Accelerating the development of the cultural and education sectors and junior high school construction in rural western and central areas. More special education and cultural facilities.
-- Environment: Improving environmental protection by enhancing the construction of sewage and rubbish treatment facilities and preventing water pollution in key areas. Accelerating green belt and natural forest planting programs. Increasing support for energy conservation and pollution-control projects.
-- Industry: Enhancing innovation and industrial restructuring and supporting the development of the high-tech and service industries.
-- Disaster rebuilding: Speeding reconstruction in the areas hit by the May 12 earthquake.
-- Incomes: Raising average incomes in rural and urban areas. Raising next year's minimum grain purchase and farm subsidies. Increasing subsidies for low-income urban residents. Increasing pension funds for enterprise employees and allowances for those receiving special services.
-- Taxes: Extending reforms in value-added tax rules to all industries, which could cut the tax corporate burden by 120 billion yuan (about US$17.6 billion). Technological upgrading will be encouraged.
-- Finance: Enhancing financial support to maintain economic growth. Removing loan quotas on commercial lenders. Appropriately increasing bank credit for priority projects, rural areas, smaller enterprises, technical innovation and industrial rationalization through mergers and acquisitions.
These 10 moves are expected to have positive effects on cement, iron and steel producers amid a boom in infrastructure investment. Commercial lenders will benefit as loan ceilings are abolished, and medium-sized and small companies are likely to benefit from preferential policies.
China Tests Its Mettle in Syria
Chris Zambelis
November 6, 2008
Solidifying the People's Republic of China's burgeoning relationships with the countries of the Middle East remains a top priority for Beijing. The impetus behind China's resurgent efforts to extend its influence within the Middle East stemmed from Beijing's pursuit of energy resources to sustain its rapidly expanding economy.
As the world's fastest-growing consumer of oil and third-largest net importer of oil, energy will continue to be the most important motivating factor shaping China's foreign policy toward the Middle East in the foreseeable future. The looming global economic downturn will also prompt China to seek out new consumer markets for Chinese-made goods amid rising consumer fears and shrinking global demand from developed markets.
The determinants of Chinese strategic thinking toward the Middle East, however, transcend the issues of energy security and market access, and in many respects have changed dramatically, especially since the Cold War. China is widely recognized as a rising power that is becoming increasingly confident in exerting its newfound leverage to assert its interests and shape geopolitics in its favor.
Consequently, China is keen on projecting its influence in the Middle East, a region where it was largely relegated to the sidelines amid the Cold War rivalry between the United States and the Soviet Union. Throughout much of the Cold War, China viewed the Middle East as an opportunity to showcase its revolutionary credentials by criticizing its more powerful Soviet rival, albeit from afar, for not doing enough to empower countries such as Syria and the peoples of the region (or, in some cases, for acting as an imperial power, in its view, on par with the United States and the West).
China's controversial decision to export intermediate-range ballistic missile systems and related technology to Syria and other states in the region in the late 1980s and early 1990s represented Beijing's first significant inroads as an actor in the Middle East with the potential to shift the balance of power on the ground. Moscow's refusal to augment Syria's missile capabilities with a long-range capability during the waning days of the Cold War drove Damascus to seek other partners to bolster its military capabilities.
Consequently, Chinese arms sales at the time contained an ideological component that sought to fill the void left by the decline of Soviet influence in Syria and the Middle East. Furthermore, a key factor behind the missile sales (and other arms sales) to Syria and other countries, however, was to fund the People's Liberation Army.
Beijing's move to supply Syria and other countries in the region with advanced missile capabilities prompted Washington to impose sanctions on China on the sale of computers and other areas under the auspices of the 1987 Missile Technology Control Regime (MTCR), which forced the Chinese to renounce their intentions to follow through with the missile sales to Syria. Despite Chinese and Syrian denials, serious questions remain regarding the full extent of China's support for Syria's missile programs.
Since the early 1990s, and especially amid China's rapid economic expansion, Beijing's approach towards Damascus has since experienced a marked shift in priorities and behavior, a shift shaped largely by China's efforts to present itself as a mature and responsible actor in international affairs.
China's increasingly diversified and booming economy also will allow it to depend less on weapons sales, especially if such sales threaten to undermine China's political and diplomatic position in the international arena, as was the case in its bilateral relationship with the United States in the early 1990s over its dealings with Syria. Despite this shift in Beijing's behavior, China remains a major supplier of arms to countries whose intentions have come under US and international scrutiny. This time, however, China is able to export arms from a position of strength to bolster its geopolitical objectives, as opposed to economic necessity.
Outside of the military realm, Beijing's influence has grown significantly in recent years, commensurate with its increasing economic power. Beijing's efforts to engage the region are also reinforced by a resounding welcome from both the state and popular sectors, as regional governments and publics are eager to see an end to what is widely viewed as a harmful US hegemony in the Middle East. These sentiments prevail even in countries that count the United States as a strategic ally. China's attempts to forge close and multifaceted ties with key Middle East states such as Syria, a country with modest oil reserves relative to its neighbors and a struggling economy, reflect the increasing complexity of China's foreign policy toward the region and show that Beijing's concerns extend beyond oil and markets - particularly in the case of Damascus.
Business as Usual
In accordance with Beijing's strategy toward the Middle East, Chinese Vice President Hu Jintao's January 2001 meeting with Syrian President Bashar al-Assad helped initiate a new chapter in Sino-Syrian relations that would lead to the expanded trade and closer bilateral ties both countries share today.
Furthermore, Assad's visit to Beijing in July 2004 marked the first visit by a Syrian leader since the establishment of relations between both countries in 1956. The Syrian leader's trip occurred against the background of the US invasion and occupation of Iraq and increasing US pressure on Syria for its alleged role in facilitating elements of the Iraqi insurgency. Syria was one of the first countries in the Middle East to recognize China, a milestone frequently touted by leaders in both China and Syria as a symbol of the enduring friendship shared by both countries. Since Assad's landmark 2004 visit to Beijing, high-level contacts between Chinese and Syrian dignitaries have become commonplace, especially contacts within the business sectors.
Reflecting the pattern of Beijing's relations elsewhere in the region, Chinese oil giants have invested hundreds of millions of dollars in Syria in recent years to modernize the country's aging oil and gas infrastructure, and have entered into joint ventures with Syrian energy firms in the areas of oil and gas exploration and oil refinement.
In a recent development, the China Petrochemical Corporation (Sinopec) announced its US$2 billion purchase of Canada's Tanganyika Oil Co Ltd, a firm with major operating interests in Syria's oil industry. Chinese investments in Syria also encompass the electricity, construction, telecommunications, agriculture, transport and tourism sectors.
In an effort to further boost Chinese investment in Syria, Damascus has proposed the creation of a Chinese Industrial Zone and a China Telecom Park. The bilateral trade volume between both countries reached $1.87 billion in 2007, up almost 33% from 2006, a figure that is expected to double by 2011. China has since become Syria's single-largest trading partner. To demonstrate the rapid expansion of Sino-Syrian trade relations, the bilateral trade volume in 2000 was only $174 million. Despite this impressive expansion in trade, the overall volume of Sino-Syrian trade remains relatively small compared with China's trade relations elsewhere in the region.
However, the steady upward trajectory of trade relations in recent years suggests that trade ties will continue to grow. While Syria welcomes Chinese investment, a growing Syrian trade deficit has also caused some Syrians to resent the growing "Made in China" imprint on their country, especially as cheaper Chinese-made goods squeeze out their Syrian-produced counterparts in the local markets mostly as a result of preferential trade agreements and excessive undervaluing of the yuan.
Culture and Soft Power
The rapid expansion of Sino-Syrian trade relations is augmented by a bilateral effort to foster closer cultural ties between both countries that go beyond business and diplomacy. The diplomatic discourses of both countries, for instance, regularly extol the virtues of their ancient and proud histories. Having endured colonialism, occupation and foreign interference in its domestic affairs, Syria and other developing countries in the region look to China with a sense of pride.
As a developing country in its own right, China has charted an independent path toward economic development and modernization that serves as a model worthy of emulation in the developing world, a point frequently touted by Beijing. For countries such as Syria, China's experience provides a viable alternative to the Western-led economic development models championed by the United States and former European colonial powers that once occupied the Middle East, models that are often viewed as neo-colonial institutions. China's case is also bolstered by the fact that it does not have a legacy of colonialism in the region.
Chinese cultural centers are also opening up across Syria, and Syrians are increasingly learning Chinese. China is also promoting Syria as a tourist destination for its citizens, a gesture that is welcomed in Damascus. Tourism revenue is a crucial source of hard currency for cash-strapped Syria. A steady stream of Chinese tourists traveling to Syria help to alleviate Syria's trade imbalance and is seen as a sign of goodwill by the Chinese toward Damascus.
Testing Ground for Chinese diplomacy
While China is eager to make its presence felt in Syria and the wider Middle East, it is careful not to overplay its hand, given that the region remains within the US sphere of influence. China is aggressive when pursuing investment opportunities and access to markets, but it is less amenable to undertaking other actions that could potentially increase tensions with the US.
China's approach to relations with staunch US allies such as Egypt are emblematic of its careful balancing act in its Middle East diplomacy. In the case of Sino-Egyptian relations, China knows its limits, and is content with expanding economic and cultural ties without appearing to directly threaten the strategic relationship Egypt maintains with the US. Beijing is well aware that it is in no position to match Washington's commitment to Egypt, not to mention contend with the fallout in US-Sino relations that would result through an effort to lure Cairo away from Washington.
While China is awash with cash, for instance, there are no indications that China has ever seriously considered outbidding the annual $2 billion military and economic aid package the United States provides Egypt. Despite persistent rumblings of budding Chinese-Egyptian military contacts, Beijing instead focuses on building business and cultural ties with Cairo.
However, the dynamics at play in the Sino-Syrian interface are far more complex. Syria is entangled in a web of rival interests and regional tensions and conflicts that are sure to affect China down the line, especially as China's footprint in the Middle East grows in the economic and political spheres. Given Syria's tense relationship with the US, Beijing's ties with Damascus raise a host of issues for China. Among others, Washington is likely to see expanding Sino-Syrian ties as a move meant to check US power in the Middle East, thus prompting a potential US response in Asia or elsewhere.
Syria is also at the center of the Arab-Israeli conflict. The current status of the Golan Heights, for instance, a region in southwestern Syria that was seized and occupied by Israel during the 1967 war, and unilaterally annexed in 1981, remains a serious obstacle to an Israel-Syrian peace agreement. Further complicating matters is the presence of over 18,000 Israeli settlers living among the approximately 20,000 Syrians who remained in the region following the Israeli occupation. The international community does not recognize Israel's claims over the Syrian territory. There is also is a strong consensus that any future Israeli-Syrian peace would require Israel to return the Golan Heights to Syria - an opinion openly supported by China.
The fall of the Soviet Union and the subsequent loss of military and economic support from Moscow left Damascus severely weakened in the face of its more powerful neighbors and with few viable options to emerge out of its regional isolation, save for its relationship with Iran. As a result, Syria is eager to court China as an ally. In fact, the Ba'athist regime in Damascus looks to China as a bulwark against US pressure against Syria, especially amid growing pressure from Washington over what it labels as Syria's links to terrorism, nuclear proliferation and related concerns.
Despite its controversial relationship with Israel, Syria's main rival in the region, China also remains a stalwart supporter of the Syrian and Arab stance when it comes to the plight of the Palestinians, as evidenced through its frequent condemnations of Israel's occupation of Palestinian land and vocal support for Palestinian self-determination.
Likewise, Syria is a vocal supporter of Beijing's "One China" principle that defines Taiwan as sovereign Chinese territory. A pillar of Chinese foreign policy in the Middle East and elsewhere is to shore up support for its "One China" policy in order to isolate Taiwan and undermine its relations with the US and other countries that recognize its independence.
Although virtually all of the oil consumed by Taiwan is derived from imports (approximately 900,000 barrels per day), 80% of which originate in the Middle East, the lure of Chinese investment and the prospects of forging close ties with an emerging global power such as China vastly outweigh any benefits Syria or other Middle Eastern countries may reap from recognizing Taiwan.
Damascus also expressed solidarity with Beijing over its handling of the riots in Lhasa, capital of the Tibet Autonomous Region, in March, labeling the Tibetan uprising as an act of "sabotage" that was intended to undermine Chinese unity and stability. In fact, both China and Syria see eye-to-eye when it comes to resisting efforts by the US and elements in the international community to chastise each when it comes to their respective human-rights records. Beijing and Damascus see such efforts as foreign interference in their respective domestic affairs.
In addition to its role in the Arab-Israeli conflict, Syria's relationship with Iran has also left the ruling Ba'athist regime isolated among its Arab neighbors and Turkey. Syria is also a permanent fixture in Lebanon's complex politics. Syria is also involved in a series of disputes regarding water rights and borders with Turkey. Syria has also been criticized for its role as a gateway for insurgents traveling to Iraq to fight US-led coalition forces. Making matters worse, Syria is also home to over 1 million Iraqi refugees who fled the violence and instability in Iraq. All of these issues directly involve the US or close US allies, thus forcing China to tread carefully in its dealing with Syria.
A View From Damascus
In an ideal scenario for Damascus, an emboldened China would serve to bolster Syria's position beyond the trade and diplomatic spheres. This would include closer cooperation in the defense arena to shore up Syria's antiquated military through the sale of advanced weapons platforms.
Although China has a history of arms sales and transferring sensitive military technology to Syria, to include missile technology, and to other countries in the region, there are no indications that Beijing is planning to provide Syria with advanced weapons platforms that would tip the regional balance of power in the foreseeable future.
Doing so would escalate regional tensions and draw China closer to the simmering conflicts in the region. While certain elements in China may relish an opportunity to respond in kind to sales of advanced weapons systems by the US to Taiwan and other American allies in Asia, a policy Beijing perceives as a bid to contain China, by arming opponents of the US in the Middle East, Beijing appears to be taking a measured approach when it comes to considering major arms transfers to Syria.
However, in late 2007 a series of reports surfaced alleging that China was prepared to sell both Iran and Syria its J-10 fighter jets. Ironically, the design of China's J-10s contains technology used in the development of Israel's Lavi fighter jets, technology which was sold to China after Israel ceased development of the aircraft due to financial constraints. On a related note, Syria is actively courting Russia in a similar vein to serve as a potential partner analogous to the role Moscow played during the Cold War, especially in the area of defense cooperation. Damascus has even gone as far as to invite Russian forces to establish a naval base in Syria.
At a minimum, Syria hopes that China will one day use its position as a permanent member of the United Nations Security Council to play a more constructive role in any negotiations between Syria and Israel over a comprehensive peace agreement, essentially serving as a counter to the US, which supports Israel. Syria would also like to leverage its growing relationship with China in a bid to improve relations with the US. Damascus also hopes that closer Sino-Syrian ties will entice Moscow to increase its stake in friendlier relations with Syria.
Conclusion
Sino-Syrian relations are poised to develop even further in the years ahead. China will continue to look to Syria, in addition to the rest of the Middle East, as a source of economic potential and as an opportunity to project Beijing's influence in the region. However, as China's interests in Syria expand, Syria's continued isolation and complex geopolitics will pose a series of challenges for Chinese diplomacy that warrant closer consideration.
Indeed, the Sino-Syrian relationship will force China to make hard decisions down the road. How China reacts to future regional and international crises involving Syria will also showcase China's value as a potential partner and ally for others looking to Beijing for support.
November 6, 2008
Solidifying the People's Republic of China's burgeoning relationships with the countries of the Middle East remains a top priority for Beijing. The impetus behind China's resurgent efforts to extend its influence within the Middle East stemmed from Beijing's pursuit of energy resources to sustain its rapidly expanding economy.
As the world's fastest-growing consumer of oil and third-largest net importer of oil, energy will continue to be the most important motivating factor shaping China's foreign policy toward the Middle East in the foreseeable future. The looming global economic downturn will also prompt China to seek out new consumer markets for Chinese-made goods amid rising consumer fears and shrinking global demand from developed markets.
The determinants of Chinese strategic thinking toward the Middle East, however, transcend the issues of energy security and market access, and in many respects have changed dramatically, especially since the Cold War. China is widely recognized as a rising power that is becoming increasingly confident in exerting its newfound leverage to assert its interests and shape geopolitics in its favor.
Consequently, China is keen on projecting its influence in the Middle East, a region where it was largely relegated to the sidelines amid the Cold War rivalry between the United States and the Soviet Union. Throughout much of the Cold War, China viewed the Middle East as an opportunity to showcase its revolutionary credentials by criticizing its more powerful Soviet rival, albeit from afar, for not doing enough to empower countries such as Syria and the peoples of the region (or, in some cases, for acting as an imperial power, in its view, on par with the United States and the West).
China's controversial decision to export intermediate-range ballistic missile systems and related technology to Syria and other states in the region in the late 1980s and early 1990s represented Beijing's first significant inroads as an actor in the Middle East with the potential to shift the balance of power on the ground. Moscow's refusal to augment Syria's missile capabilities with a long-range capability during the waning days of the Cold War drove Damascus to seek other partners to bolster its military capabilities.
Consequently, Chinese arms sales at the time contained an ideological component that sought to fill the void left by the decline of Soviet influence in Syria and the Middle East. Furthermore, a key factor behind the missile sales (and other arms sales) to Syria and other countries, however, was to fund the People's Liberation Army.
Beijing's move to supply Syria and other countries in the region with advanced missile capabilities prompted Washington to impose sanctions on China on the sale of computers and other areas under the auspices of the 1987 Missile Technology Control Regime (MTCR), which forced the Chinese to renounce their intentions to follow through with the missile sales to Syria. Despite Chinese and Syrian denials, serious questions remain regarding the full extent of China's support for Syria's missile programs.
Since the early 1990s, and especially amid China's rapid economic expansion, Beijing's approach towards Damascus has since experienced a marked shift in priorities and behavior, a shift shaped largely by China's efforts to present itself as a mature and responsible actor in international affairs.
China's increasingly diversified and booming economy also will allow it to depend less on weapons sales, especially if such sales threaten to undermine China's political and diplomatic position in the international arena, as was the case in its bilateral relationship with the United States in the early 1990s over its dealings with Syria. Despite this shift in Beijing's behavior, China remains a major supplier of arms to countries whose intentions have come under US and international scrutiny. This time, however, China is able to export arms from a position of strength to bolster its geopolitical objectives, as opposed to economic necessity.
Outside of the military realm, Beijing's influence has grown significantly in recent years, commensurate with its increasing economic power. Beijing's efforts to engage the region are also reinforced by a resounding welcome from both the state and popular sectors, as regional governments and publics are eager to see an end to what is widely viewed as a harmful US hegemony in the Middle East. These sentiments prevail even in countries that count the United States as a strategic ally. China's attempts to forge close and multifaceted ties with key Middle East states such as Syria, a country with modest oil reserves relative to its neighbors and a struggling economy, reflect the increasing complexity of China's foreign policy toward the region and show that Beijing's concerns extend beyond oil and markets - particularly in the case of Damascus.
Business as Usual
In accordance with Beijing's strategy toward the Middle East, Chinese Vice President Hu Jintao's January 2001 meeting with Syrian President Bashar al-Assad helped initiate a new chapter in Sino-Syrian relations that would lead to the expanded trade and closer bilateral ties both countries share today.
Furthermore, Assad's visit to Beijing in July 2004 marked the first visit by a Syrian leader since the establishment of relations between both countries in 1956. The Syrian leader's trip occurred against the background of the US invasion and occupation of Iraq and increasing US pressure on Syria for its alleged role in facilitating elements of the Iraqi insurgency. Syria was one of the first countries in the Middle East to recognize China, a milestone frequently touted by leaders in both China and Syria as a symbol of the enduring friendship shared by both countries. Since Assad's landmark 2004 visit to Beijing, high-level contacts between Chinese and Syrian dignitaries have become commonplace, especially contacts within the business sectors.
Reflecting the pattern of Beijing's relations elsewhere in the region, Chinese oil giants have invested hundreds of millions of dollars in Syria in recent years to modernize the country's aging oil and gas infrastructure, and have entered into joint ventures with Syrian energy firms in the areas of oil and gas exploration and oil refinement.
In a recent development, the China Petrochemical Corporation (Sinopec) announced its US$2 billion purchase of Canada's Tanganyika Oil Co Ltd, a firm with major operating interests in Syria's oil industry. Chinese investments in Syria also encompass the electricity, construction, telecommunications, agriculture, transport and tourism sectors.
In an effort to further boost Chinese investment in Syria, Damascus has proposed the creation of a Chinese Industrial Zone and a China Telecom Park. The bilateral trade volume between both countries reached $1.87 billion in 2007, up almost 33% from 2006, a figure that is expected to double by 2011. China has since become Syria's single-largest trading partner. To demonstrate the rapid expansion of Sino-Syrian trade relations, the bilateral trade volume in 2000 was only $174 million. Despite this impressive expansion in trade, the overall volume of Sino-Syrian trade remains relatively small compared with China's trade relations elsewhere in the region.
However, the steady upward trajectory of trade relations in recent years suggests that trade ties will continue to grow. While Syria welcomes Chinese investment, a growing Syrian trade deficit has also caused some Syrians to resent the growing "Made in China" imprint on their country, especially as cheaper Chinese-made goods squeeze out their Syrian-produced counterparts in the local markets mostly as a result of preferential trade agreements and excessive undervaluing of the yuan.
Culture and Soft Power
The rapid expansion of Sino-Syrian trade relations is augmented by a bilateral effort to foster closer cultural ties between both countries that go beyond business and diplomacy. The diplomatic discourses of both countries, for instance, regularly extol the virtues of their ancient and proud histories. Having endured colonialism, occupation and foreign interference in its domestic affairs, Syria and other developing countries in the region look to China with a sense of pride.
As a developing country in its own right, China has charted an independent path toward economic development and modernization that serves as a model worthy of emulation in the developing world, a point frequently touted by Beijing. For countries such as Syria, China's experience provides a viable alternative to the Western-led economic development models championed by the United States and former European colonial powers that once occupied the Middle East, models that are often viewed as neo-colonial institutions. China's case is also bolstered by the fact that it does not have a legacy of colonialism in the region.
Chinese cultural centers are also opening up across Syria, and Syrians are increasingly learning Chinese. China is also promoting Syria as a tourist destination for its citizens, a gesture that is welcomed in Damascus. Tourism revenue is a crucial source of hard currency for cash-strapped Syria. A steady stream of Chinese tourists traveling to Syria help to alleviate Syria's trade imbalance and is seen as a sign of goodwill by the Chinese toward Damascus.
Testing Ground for Chinese diplomacy
While China is eager to make its presence felt in Syria and the wider Middle East, it is careful not to overplay its hand, given that the region remains within the US sphere of influence. China is aggressive when pursuing investment opportunities and access to markets, but it is less amenable to undertaking other actions that could potentially increase tensions with the US.
China's approach to relations with staunch US allies such as Egypt are emblematic of its careful balancing act in its Middle East diplomacy. In the case of Sino-Egyptian relations, China knows its limits, and is content with expanding economic and cultural ties without appearing to directly threaten the strategic relationship Egypt maintains with the US. Beijing is well aware that it is in no position to match Washington's commitment to Egypt, not to mention contend with the fallout in US-Sino relations that would result through an effort to lure Cairo away from Washington.
While China is awash with cash, for instance, there are no indications that China has ever seriously considered outbidding the annual $2 billion military and economic aid package the United States provides Egypt. Despite persistent rumblings of budding Chinese-Egyptian military contacts, Beijing instead focuses on building business and cultural ties with Cairo.
However, the dynamics at play in the Sino-Syrian interface are far more complex. Syria is entangled in a web of rival interests and regional tensions and conflicts that are sure to affect China down the line, especially as China's footprint in the Middle East grows in the economic and political spheres. Given Syria's tense relationship with the US, Beijing's ties with Damascus raise a host of issues for China. Among others, Washington is likely to see expanding Sino-Syrian ties as a move meant to check US power in the Middle East, thus prompting a potential US response in Asia or elsewhere.
Syria is also at the center of the Arab-Israeli conflict. The current status of the Golan Heights, for instance, a region in southwestern Syria that was seized and occupied by Israel during the 1967 war, and unilaterally annexed in 1981, remains a serious obstacle to an Israel-Syrian peace agreement. Further complicating matters is the presence of over 18,000 Israeli settlers living among the approximately 20,000 Syrians who remained in the region following the Israeli occupation. The international community does not recognize Israel's claims over the Syrian territory. There is also is a strong consensus that any future Israeli-Syrian peace would require Israel to return the Golan Heights to Syria - an opinion openly supported by China.
The fall of the Soviet Union and the subsequent loss of military and economic support from Moscow left Damascus severely weakened in the face of its more powerful neighbors and with few viable options to emerge out of its regional isolation, save for its relationship with Iran. As a result, Syria is eager to court China as an ally. In fact, the Ba'athist regime in Damascus looks to China as a bulwark against US pressure against Syria, especially amid growing pressure from Washington over what it labels as Syria's links to terrorism, nuclear proliferation and related concerns.
Despite its controversial relationship with Israel, Syria's main rival in the region, China also remains a stalwart supporter of the Syrian and Arab stance when it comes to the plight of the Palestinians, as evidenced through its frequent condemnations of Israel's occupation of Palestinian land and vocal support for Palestinian self-determination.
Likewise, Syria is a vocal supporter of Beijing's "One China" principle that defines Taiwan as sovereign Chinese territory. A pillar of Chinese foreign policy in the Middle East and elsewhere is to shore up support for its "One China" policy in order to isolate Taiwan and undermine its relations with the US and other countries that recognize its independence.
Although virtually all of the oil consumed by Taiwan is derived from imports (approximately 900,000 barrels per day), 80% of which originate in the Middle East, the lure of Chinese investment and the prospects of forging close ties with an emerging global power such as China vastly outweigh any benefits Syria or other Middle Eastern countries may reap from recognizing Taiwan.
Damascus also expressed solidarity with Beijing over its handling of the riots in Lhasa, capital of the Tibet Autonomous Region, in March, labeling the Tibetan uprising as an act of "sabotage" that was intended to undermine Chinese unity and stability. In fact, both China and Syria see eye-to-eye when it comes to resisting efforts by the US and elements in the international community to chastise each when it comes to their respective human-rights records. Beijing and Damascus see such efforts as foreign interference in their respective domestic affairs.
In addition to its role in the Arab-Israeli conflict, Syria's relationship with Iran has also left the ruling Ba'athist regime isolated among its Arab neighbors and Turkey. Syria is also a permanent fixture in Lebanon's complex politics. Syria is also involved in a series of disputes regarding water rights and borders with Turkey. Syria has also been criticized for its role as a gateway for insurgents traveling to Iraq to fight US-led coalition forces. Making matters worse, Syria is also home to over 1 million Iraqi refugees who fled the violence and instability in Iraq. All of these issues directly involve the US or close US allies, thus forcing China to tread carefully in its dealing with Syria.
A View From Damascus
In an ideal scenario for Damascus, an emboldened China would serve to bolster Syria's position beyond the trade and diplomatic spheres. This would include closer cooperation in the defense arena to shore up Syria's antiquated military through the sale of advanced weapons platforms.
Although China has a history of arms sales and transferring sensitive military technology to Syria, to include missile technology, and to other countries in the region, there are no indications that Beijing is planning to provide Syria with advanced weapons platforms that would tip the regional balance of power in the foreseeable future.
Doing so would escalate regional tensions and draw China closer to the simmering conflicts in the region. While certain elements in China may relish an opportunity to respond in kind to sales of advanced weapons systems by the US to Taiwan and other American allies in Asia, a policy Beijing perceives as a bid to contain China, by arming opponents of the US in the Middle East, Beijing appears to be taking a measured approach when it comes to considering major arms transfers to Syria.
However, in late 2007 a series of reports surfaced alleging that China was prepared to sell both Iran and Syria its J-10 fighter jets. Ironically, the design of China's J-10s contains technology used in the development of Israel's Lavi fighter jets, technology which was sold to China after Israel ceased development of the aircraft due to financial constraints. On a related note, Syria is actively courting Russia in a similar vein to serve as a potential partner analogous to the role Moscow played during the Cold War, especially in the area of defense cooperation. Damascus has even gone as far as to invite Russian forces to establish a naval base in Syria.
At a minimum, Syria hopes that China will one day use its position as a permanent member of the United Nations Security Council to play a more constructive role in any negotiations between Syria and Israel over a comprehensive peace agreement, essentially serving as a counter to the US, which supports Israel. Syria would also like to leverage its growing relationship with China in a bid to improve relations with the US. Damascus also hopes that closer Sino-Syrian ties will entice Moscow to increase its stake in friendlier relations with Syria.
Conclusion
Sino-Syrian relations are poised to develop even further in the years ahead. China will continue to look to Syria, in addition to the rest of the Middle East, as a source of economic potential and as an opportunity to project Beijing's influence in the region. However, as China's interests in Syria expand, Syria's continued isolation and complex geopolitics will pose a series of challenges for Chinese diplomacy that warrant closer consideration.
Indeed, the Sino-Syrian relationship will force China to make hard decisions down the road. How China reacts to future regional and international crises involving Syria will also showcase China's value as a potential partner and ally for others looking to Beijing for support.
Sunday, November 2, 2008
China-Russia Pipeline Pact Boosts Energy Links
October 30, 2008
China Daily
A Sino-Russian pact on a pipeline from Siberia to supply oil to China's northeast was among the agreements witnessed by Premier Wen Jiabao and his Russian counterpart Vladimir Putin in Moscow on Tuesday.
Russian media reports said Moscow's agreement to move ahead on the long-delayed project was won with pledges of financial support from Beijing.
The pipeline, which extends from western Siberia to the Pacific coast, is to be connected to China from the Siberian city of Skovorodino, 70 km north of the Sino-Russian border. The cost of the pipeline spur has been estimated at $800 million.
Russian pipeline monopoly Transneft and China National Petroleum Corp (CNPC) agreed to build the spur to carry 15 million tons a year of oil (300,000 barrels per day) between the countries' trunk pipelines from 2009. This would be enough to meet 4 percent of China's annual demand.
Russia's top energy official, Deputy Prime Minister Igor Sechin, said Russian oil firms would receive "considerable" loans from China in return for increased oil supplies and that the exact amount would be determined by individual projects.
"Financing is required to realize major projects," Sechin told reporters after the signing ceremony.
Three industry sources close to talks reportedly said the countries were in talks to secure between $20 billion and $25 billion in Chinese loans in exchange for greater supplies of Russian oil.
Wen listed cooperation on resource development first among five proposals for economic cooperation with Russia.
"Energy cooperation is an important part of the China-Russia strategic partnership," said a statement issued after Wen's meeting with Putin. "The two sides support deepening cooperation in developing oil and gas resources."
Apart from the pipeline agreement, Xinhua reported, the two countries agreed to:
work jointly in oil production and processing, natural gas production and in chemical industries;
extend cooperation in nuclear energy, including the construction of Tianwan nuclear power plant in Jiangsu province, uranium mining, post-processing of spent fuel and the treatment of nuclear waste;
strengthen long-term cooperation in space technology to ensure the completion of the 2007-09 space cooperation program as scheduled;
promote cooperation in nanotechnology, energy saving, ecology and rational utilization of natural resources;
enhance cooperation in such areas as trade and project financing, and export credit insurance; and
further cooperate in the civil aviation sector, including joint manufacturing of large civilian helicopters.
Wen concluded his three-day official visit to Russia yesterday and left for Kazakhstan to continue his two-nation tour.
China Daily, Xinhua and agencies
China Daily
A Sino-Russian pact on a pipeline from Siberia to supply oil to China's northeast was among the agreements witnessed by Premier Wen Jiabao and his Russian counterpart Vladimir Putin in Moscow on Tuesday.
Russian media reports said Moscow's agreement to move ahead on the long-delayed project was won with pledges of financial support from Beijing.
The pipeline, which extends from western Siberia to the Pacific coast, is to be connected to China from the Siberian city of Skovorodino, 70 km north of the Sino-Russian border. The cost of the pipeline spur has been estimated at $800 million.
Russian pipeline monopoly Transneft and China National Petroleum Corp (CNPC) agreed to build the spur to carry 15 million tons a year of oil (300,000 barrels per day) between the countries' trunk pipelines from 2009. This would be enough to meet 4 percent of China's annual demand.
Russia's top energy official, Deputy Prime Minister Igor Sechin, said Russian oil firms would receive "considerable" loans from China in return for increased oil supplies and that the exact amount would be determined by individual projects.
"Financing is required to realize major projects," Sechin told reporters after the signing ceremony.
Three industry sources close to talks reportedly said the countries were in talks to secure between $20 billion and $25 billion in Chinese loans in exchange for greater supplies of Russian oil.
Wen listed cooperation on resource development first among five proposals for economic cooperation with Russia.
"Energy cooperation is an important part of the China-Russia strategic partnership," said a statement issued after Wen's meeting with Putin. "The two sides support deepening cooperation in developing oil and gas resources."
Apart from the pipeline agreement, Xinhua reported, the two countries agreed to:
work jointly in oil production and processing, natural gas production and in chemical industries;
extend cooperation in nuclear energy, including the construction of Tianwan nuclear power plant in Jiangsu province, uranium mining, post-processing of spent fuel and the treatment of nuclear waste;
strengthen long-term cooperation in space technology to ensure the completion of the 2007-09 space cooperation program as scheduled;
promote cooperation in nanotechnology, energy saving, ecology and rational utilization of natural resources;
enhance cooperation in such areas as trade and project financing, and export credit insurance; and
further cooperate in the civil aviation sector, including joint manufacturing of large civilian helicopters.
Wen concluded his three-day official visit to Russia yesterday and left for Kazakhstan to continue his two-nation tour.
China Daily, Xinhua and agencies
China Creates 9 Million Jobs In Three Quarters
October 27, 2008
Xinhua News Agency
The Ministry of Human Resources and Social Security said on Monday that the country created 9.36 million jobs in the first three quarters, and helped another 4.09 million laid-off workers be re-employed.
The Ministry's spokesman Yin Chengji said at a news briefing that by the end of September China had a registered unemployment rate of four percent, with about 8.3 million being unemployed. The unemployment rate was the same as what the country had at the end of last year.
Yin said the government has transferred 219,000 labors from areas, which were hit by a massive earthquake on May 12 in southwest China's Sichuan province, to other places for new jobs. Another 865,000 people were aided by the government to find jobs in places where they live.
The spokesman said the government would take further responsibility of creating jobs, by offering taxation, financing and other incentives for start-up businesses.
Further coordination with related governmental bodies will be made to increase employment of graduates from colleges and universities.
About 215 million workers joined the nationwide urban pension system, nearly 274 million participated in the basic medical care system, 122 million were in the unemployment insurance mechanism, 135 million were covered by the work injury insurance and 88 million were in the maternity insurance, the ministry figures show.
The government will start tryouts to establish a pension system in rural areas and expand the urban pension system to rural migrating labors, Yin said.
Xinhua News Agency
The Ministry of Human Resources and Social Security said on Monday that the country created 9.36 million jobs in the first three quarters, and helped another 4.09 million laid-off workers be re-employed.
The Ministry's spokesman Yin Chengji said at a news briefing that by the end of September China had a registered unemployment rate of four percent, with about 8.3 million being unemployed. The unemployment rate was the same as what the country had at the end of last year.
Yin said the government has transferred 219,000 labors from areas, which were hit by a massive earthquake on May 12 in southwest China's Sichuan province, to other places for new jobs. Another 865,000 people were aided by the government to find jobs in places where they live.
The spokesman said the government would take further responsibility of creating jobs, by offering taxation, financing and other incentives for start-up businesses.
Further coordination with related governmental bodies will be made to increase employment of graduates from colleges and universities.
About 215 million workers joined the nationwide urban pension system, nearly 274 million participated in the basic medical care system, 122 million were in the unemployment insurance mechanism, 135 million were covered by the work injury insurance and 88 million were in the maternity insurance, the ministry figures show.
The government will start tryouts to establish a pension system in rural areas and expand the urban pension system to rural migrating labors, Yin said.
China's Economy Can Be Steered Toward Soft Landing
October 29, 2008
By: Yu Yongding (China Daily)
China still enjoys a generally smooth economic development even as the international financial tsunami continues to engulf the whole world and its aftermath is yet to unfold.
Since July last year, the country has been plagued by rising inflation because of an overheated economy, with the CPI increasing to 8.7 percent in February year-on-year. To bring the intractable inflation under control, the central government adopted a tight currency policy. As a result, the CPI has shown a downward tendency in the past two months. Coinciding with the declining CPI is the slowdown of the country's gross domestic product (GDP), investment and trade surplus.
This should not cause us excessive worries. As early as four years ago when the 11th Five-Year Plan was drafted, the central government set an explicit goal of realizing a basic import and export balance in foreign trade in 2010. The macro-control has also promoted the country's economic restructuring although it slowed down the fast-running economy to a certain degree.
The current economic slowdown is only normal in its long-term development track. Since the 1990s, the country has experienced two economic development cycles, in which different development speeds alternated.
The deteriorating US financial crisis has affected China's exporting environment, thus unavoidably curbing its economic growth. However, with a well-operating fiscal performance and an astronomical amount of foreign reserves, we should have full confidence to curb any possible serious slide in our economy and bring it to a soft landing.
The country should still stick to a restrictive financial policy aimed at curbing inflation. We have no need to excessively worry that such a policy might hamper the country's economic development, if it can maintain a growth of no lower than 9 percent.
There was once a prevailing opinion among some economists at home that the appreciation of the yuan, China's currency, was the main culprit behind its year-long flying inflation. This is in essence a misconception about the relationship between inflation and currency revaluation. It is common sense that currency appreciation always helps stem inflation. It was precisely the misconception that caused many people to strongly oppose the country's move to appreciate the yuan in 2003 and 2004.
The current inflation is caused not by an appreciated yuan, but by an overheated economy and external pricing impacts. It is an indisputable fact that the appreciation of China's renminbi lowered the prices of imported oil, soybean and iron ores, thus helping contain inflation.
Some people also think that expectations about the yuan's appreciation caused the inflow of a lot of international hot money, which, in their view, would result in an excess of capital fluidity. As a matter of fact, any abrupt and large or marginal appreciation of the yuan would preempt possible chances for international speculative capital to flow to China.
Also, it is inaccurate to attribute the inflow of hot money in the past years to people's expectations about an appreciated yuan. Driven by its pursuit of a bumper return, a lot of international capital flowed to the country's rosy property industry in 2005 and 2006 and to its bullish stock market in 2006 and last year.
It is for sure that no international hot money would come to China only for the meager profits gained through expectations of a 3 percent appreciation of the yuan. Also, with a set of workable capital monitoring and management systems in place, any speculative international capital can be completely kept away from China's door.
In drafting a policy for the yuan's appreciation, the country's original goal was to promote a transformation of its economic structure and lower its economic dependence on external demands, but not to curb inflation. Under this established strategy, the country should not change its currency policy just because of the change of economic development cycles.
Any export increase through adhering to the yuan's low exchange rates is essentially to subsidize foreign countries, especially the US, through sacrificing the national interests. In the face of a devalued dollar and an aggravating inflation in the US, any attempt to pursue a rapid trade surplus growth is only for the interests of foreign trade sectors at the expense of the whole economy.
It is known that the country can stimulate domestic demands and increase public spending to offset any possible negative effects on its economic growth to be brought by the decline of trade surplus following the yuan's appreciation.
To reduce to a minimum the negative effects brought by an appreciated yuan, the country should further strengthen the capital control system. It is very necessary for the central bank to strengthen control and management on the movement of trans-national capital to stop excessive foreign capital entering the country's low-priced stock market. At the same time, we should also be on a high alert against any abrupt exodus of hot money, which would also cause strong impacts upon the national economy.
The author is former director of the Institute of World Economics and Politics under the Chinese Academy of Social Sciences
By: Yu Yongding (China Daily)
China still enjoys a generally smooth economic development even as the international financial tsunami continues to engulf the whole world and its aftermath is yet to unfold.
Since July last year, the country has been plagued by rising inflation because of an overheated economy, with the CPI increasing to 8.7 percent in February year-on-year. To bring the intractable inflation under control, the central government adopted a tight currency policy. As a result, the CPI has shown a downward tendency in the past two months. Coinciding with the declining CPI is the slowdown of the country's gross domestic product (GDP), investment and trade surplus.
This should not cause us excessive worries. As early as four years ago when the 11th Five-Year Plan was drafted, the central government set an explicit goal of realizing a basic import and export balance in foreign trade in 2010. The macro-control has also promoted the country's economic restructuring although it slowed down the fast-running economy to a certain degree.
The current economic slowdown is only normal in its long-term development track. Since the 1990s, the country has experienced two economic development cycles, in which different development speeds alternated.
The deteriorating US financial crisis has affected China's exporting environment, thus unavoidably curbing its economic growth. However, with a well-operating fiscal performance and an astronomical amount of foreign reserves, we should have full confidence to curb any possible serious slide in our economy and bring it to a soft landing.
The country should still stick to a restrictive financial policy aimed at curbing inflation. We have no need to excessively worry that such a policy might hamper the country's economic development, if it can maintain a growth of no lower than 9 percent.
There was once a prevailing opinion among some economists at home that the appreciation of the yuan, China's currency, was the main culprit behind its year-long flying inflation. This is in essence a misconception about the relationship between inflation and currency revaluation. It is common sense that currency appreciation always helps stem inflation. It was precisely the misconception that caused many people to strongly oppose the country's move to appreciate the yuan in 2003 and 2004.
The current inflation is caused not by an appreciated yuan, but by an overheated economy and external pricing impacts. It is an indisputable fact that the appreciation of China's renminbi lowered the prices of imported oil, soybean and iron ores, thus helping contain inflation.
Some people also think that expectations about the yuan's appreciation caused the inflow of a lot of international hot money, which, in their view, would result in an excess of capital fluidity. As a matter of fact, any abrupt and large or marginal appreciation of the yuan would preempt possible chances for international speculative capital to flow to China.
Also, it is inaccurate to attribute the inflow of hot money in the past years to people's expectations about an appreciated yuan. Driven by its pursuit of a bumper return, a lot of international capital flowed to the country's rosy property industry in 2005 and 2006 and to its bullish stock market in 2006 and last year.
It is for sure that no international hot money would come to China only for the meager profits gained through expectations of a 3 percent appreciation of the yuan. Also, with a set of workable capital monitoring and management systems in place, any speculative international capital can be completely kept away from China's door.
In drafting a policy for the yuan's appreciation, the country's original goal was to promote a transformation of its economic structure and lower its economic dependence on external demands, but not to curb inflation. Under this established strategy, the country should not change its currency policy just because of the change of economic development cycles.
Any export increase through adhering to the yuan's low exchange rates is essentially to subsidize foreign countries, especially the US, through sacrificing the national interests. In the face of a devalued dollar and an aggravating inflation in the US, any attempt to pursue a rapid trade surplus growth is only for the interests of foreign trade sectors at the expense of the whole economy.
It is known that the country can stimulate domestic demands and increase public spending to offset any possible negative effects on its economic growth to be brought by the decline of trade surplus following the yuan's appreciation.
To reduce to a minimum the negative effects brought by an appreciated yuan, the country should further strengthen the capital control system. It is very necessary for the central bank to strengthen control and management on the movement of trans-national capital to stop excessive foreign capital entering the country's low-priced stock market. At the same time, we should also be on a high alert against any abrupt exodus of hot money, which would also cause strong impacts upon the national economy.
The author is former director of the Institute of World Economics and Politics under the Chinese Academy of Social Sciences
Reform, Opening Up Lead to China's Sci-Tech Boom
October 22, 2008
Xinhua News Agency
MOSCOW -- China's science and technology have progressed in many areas since the country adopted the policy of reform and opening up 30 years ago, a Russian China expert said in a recent interview with Xinhua.
China has made tremendous scientific-technological achievements in the past 30 years, said Yakov Berger, a China expert with the Far East Institute of the Russian Academy of Science. "It began to explore the universe and make peaceful use of atomic energy. Above all, it reached leading world levels in these fields."
The invention of transgenic rice by Chinese scientists not only meets domestic demand, but also contributes to the solution of global food shortage, he said, adding China has achieved breakthroughs in health care and renewable energy exploration as well. Moreover, China has caught up with or even surpassed some developed countries in science and technology in terms of many indicators, Berger said, "For example, Chinese research results quoted by scientific-technological documents have increased significantly in recent years."
Meanwhile, China's investment in basic research grew from 1 percent of its gross domestic product (GDP) to 1.5 percent, and the number is expected to reach 3 percent in the future, he said, noting the percentage would be even higher in some high-tech sectors.
China is faced with the shortage of intellectuals during the development of innovative economy, as is the situation in Russia. However, China is nurturing scientific brains while putting research projects into practice, said Berger.
China is striving to be an economic and political world power in the coming decades, but to achieve that goal, it has to become a scientific powerhouse first, he said.
Unlike the early stage of its reform and opening up when its vast low-cost workforce contributed a great deal to China's economic miracle, science and technology has begun to play an increasingly important role in China's economic growth, said the Russian expert.
China used to manufacture simple goods with its cheap labor, but today it has increased the technical contents of these products, he said.
Berger noted a large number of core technologies are still under the control of Western countries, and in this regard China should take advantage of technological advances to change its mode of economic growth.
The 17th national congress of the Communist Party of China in October, 2007 set the goal of building an innovative nation, indicating a new mode of development for China, he said.
The Chinese leadership has realized the country has to narrow down the gap with the West in many key areas of science and technology so as to ensure a smooth economic and social transition in this century, he added.
On cooperation between Russia and China in science and technology, Berger said the two countries have great potential in this regard and scientists of both countries have interest in bilateral cooperation.
The two sides are carrying out fruitful cooperation in such areas as aviation, energy, environmental protection, gene engineering, biological medicine and energy conservation, which will further expand the basis of cooperation, he said.
China also maintains cooperation with many other countries and such interaction facilitates the advancement of science and technology in the world, he said.
Xinhua News Agency
MOSCOW -- China's science and technology have progressed in many areas since the country adopted the policy of reform and opening up 30 years ago, a Russian China expert said in a recent interview with Xinhua.
China has made tremendous scientific-technological achievements in the past 30 years, said Yakov Berger, a China expert with the Far East Institute of the Russian Academy of Science. "It began to explore the universe and make peaceful use of atomic energy. Above all, it reached leading world levels in these fields."
The invention of transgenic rice by Chinese scientists not only meets domestic demand, but also contributes to the solution of global food shortage, he said, adding China has achieved breakthroughs in health care and renewable energy exploration as well. Moreover, China has caught up with or even surpassed some developed countries in science and technology in terms of many indicators, Berger said, "For example, Chinese research results quoted by scientific-technological documents have increased significantly in recent years."
Meanwhile, China's investment in basic research grew from 1 percent of its gross domestic product (GDP) to 1.5 percent, and the number is expected to reach 3 percent in the future, he said, noting the percentage would be even higher in some high-tech sectors.
China is faced with the shortage of intellectuals during the development of innovative economy, as is the situation in Russia. However, China is nurturing scientific brains while putting research projects into practice, said Berger.
China is striving to be an economic and political world power in the coming decades, but to achieve that goal, it has to become a scientific powerhouse first, he said.
Unlike the early stage of its reform and opening up when its vast low-cost workforce contributed a great deal to China's economic miracle, science and technology has begun to play an increasingly important role in China's economic growth, said the Russian expert.
China used to manufacture simple goods with its cheap labor, but today it has increased the technical contents of these products, he said.
Berger noted a large number of core technologies are still under the control of Western countries, and in this regard China should take advantage of technological advances to change its mode of economic growth.
The 17th national congress of the Communist Party of China in October, 2007 set the goal of building an innovative nation, indicating a new mode of development for China, he said.
The Chinese leadership has realized the country has to narrow down the gap with the West in many key areas of science and technology so as to ensure a smooth economic and social transition in this century, he added.
On cooperation between Russia and China in science and technology, Berger said the two countries have great potential in this regard and scientists of both countries have interest in bilateral cooperation.
The two sides are carrying out fruitful cooperation in such areas as aviation, energy, environmental protection, gene engineering, biological medicine and energy conservation, which will further expand the basis of cooperation, he said.
China also maintains cooperation with many other countries and such interaction facilitates the advancement of science and technology in the world, he said.
Wednesday, October 29, 2008
Buffet Moves Into China
October 29, 2008
By: Ding Wenlei
Warren Buffett is financing BYD Co. Ltd.'s auto dream with a strategic investment of $230 million
American investor and businessman Warren E. Buffett has found a "really long hill" in China to snowball his wealth. The "Oracle of Omaha" is known for his investment wisdom as well as his famous likening of finding investments to a snowball. "The important thing is to find wet snow and a really long hill," he has said.
BYD Co. Ltd. is Buffett's long hill in China and his first investment in a company here. MidAmerican Energy Holdings Co., a subsidiary of Berkshire Hathaway Inc., Buffett's conglomerate holding company headquartered in Omaha, Nebraska, announced on September 27 that it paid $230 million for a nearly 10-percent stake in the Shenzhen-based battery producer and automaker.
Established in 1995 and listed on the Hong Kong Stock Exchange in 2002, the BYD has seven production facilities located in different regions around China.
"We are very impressed by BYD's outstanding management team and its research and development capability, especially the capability of translating technologies to products," said David Sokol, Chairman of MidAmerican, at a press conference.
Buffett did not attend the news conference, but said in a statement that he was impressed with the management record of BYD's President Wang Chuanfu.
The investment sage is worshipped for his powerful, long-term investment strategy. He has traditionally shied away from technology-oriented companies and favored simple and mature businesses he understands. Some of his most famous investments include American beverage company Coca-Cola Co. and razor maker The Gillette Co., now owned by Proctor & Gamble Co.
But why would Buffett invest such a large amount in BYD, a company focused on hi-tech batteries and electric cars, as his first strategic investment in a Chinese firm?
Value Investing
Buffett is a high-profile proponent of "value investing," or the strategy of selecting stocks that trade for less than their intrinsic value. The intrinsic value of a security refers to the present value of all expected future income generated by the asset.
Such securities may have high dividend yields, low price-to-earning (PE) ratios or low price-to-book (PB) ratios. A low PB ratio, which compares the market value of a company to the value of its total tangible assets minus liabilities, could indicate the stock is currently undervalued and may have potential for future growth.
Buffett is known for his ability to calculate the intrinsic value of a business and then buy that company at a discount to its intrinsic value. In the case of BYD, Buffett bought the company's stock at a price of HK$8 ($1) per share when the PE ratio was less than 8 and the PB ratio was only 2.5.
It appears to be a real bargain for Buffett. BYD's shares had lost 45 percent of their value when their price dived from HK$77 ($10) per share at its peak to the current HK$8 per share in the past year, partly because of legal disputes between BYD and rival Foxconn International Holdings Ltd. over alleged patent infringement.
But Buffett has been focusing on "finding an outstanding company at a sensible price" rather than generic companies at a bargain price, because future distributions are only based on assumptions. He has stressed the long-term profitability of target companies.
Apart from the requirements related to "intrinsic value," a solid management team and good returns for shareholders, Buffett's other criteria for investment picks include companies that must have at least $5 million in after-tax earnings and have demonstrated consistent earning power. Zhou Jun, a company analyst at Investor Journal affiliated with the Economic Observer, said BYD basically meets all these requirements.
BYD reaped a net profit of 1.6 billion yuan ($235.3 million) last year, up 44.2 percent year on year. In the first half of this year, the company's net profit was 596 million yuan ($87.6 million), which ranked BYD among the top 30 of all 207 Hong Kong-listed industrial companies in terms of after-tax earnings.
In terms of consistent earning power, Buffet requires a company to have a sustainable competitive advantage, what he calls an "economic moat" that protects the company's profitability from competitors. BYD's moat, according to Zhou, lies in the company's leading technological advantages in rechargeable batteries and electric cars. This moat has enabled BYD to maintain a gross profit-to-sales ratio of more than 20 percent in the past five years, he said.
BYD's Moat
Analysts believe BYD's most attractive asset for Buffett is the development of green automotive technologies, including lithium-ion batteries and a related line of hybrid and all-electric vehicles.
Wang Chuanfu, President of BYD, said that electric vehicles would allow people to be less reliant on petrol-energy and reduce greenhouse gas emissions and air pollution.
At the press conference, Sokol called BYD's technologies "a game changer" to seriously reduce emissions of carbon dioxide and address problems related to global warming in the future.
BYD has risen from obscurity in a few short years to be one of the world's largest makers of rechargeable batteries for cellphones and other uses, with Nokia Corp., Motorola Inc. and Samsung Electronics Co. among its customers.
The battery maker acquired 77 percent of Shaanxi Qinchuan Auto Co. in 2003 in a controversial move to make fuel-efficient compact and subcompact cars for the Chinese market. The fast-growing auto-making unit currently accounts for nearly a third of BYD's revenue. Backed by its technological advantages in rechargeable batteries, the auto dark horse is now marrying its battery technology with plug-in hybrids that can also run on petrol as a back-up fuel and all-electric cars.
MidAmerican, an electricity and natural gas provider in the midwest and west United States, sees plug-in electric cars as the best alternative to fuel-powered engines, because the country already has the infrastructure to supply electricity for recharging vehicles almost anywhere.
Sokol said that MidAmerican was impressed with BYD's ability to produce electric cars that have a range of almost 190 miles on a single charge and can be 80 percent recharged in 15 minutes. By comparison, General Motors Corp.'s electric-powered vehicle, the Chevrolet Volt, has a battery range of just 40 miles on a full charge.
BYD plans to start selling F3DM hybrids in China at the end of this year. It says the batteries for the car will last 10 years or 2,000 charging cycles.
Buffett's $230 million investment gives BYD capital and credibility to pursue its ambition of making environmentally friendly hybrid cars and becoming the world's No.1 automaker by 2025. Wang said at the press conference that BYD would sell cars in the United States and might even move up its plans for entering the market in 2010, by using Berkshire Hathaway's money to accelerate research.
In a new move to integrate the upstream supply chain for its electric cars, BYD acquired SinoMOS Semiconductor (Ningbo) Inc. for about 200 million yuan ($29.4 million) on October 6.
By: Ding Wenlei
Warren Buffett is financing BYD Co. Ltd.'s auto dream with a strategic investment of $230 million
American investor and businessman Warren E. Buffett has found a "really long hill" in China to snowball his wealth. The "Oracle of Omaha" is known for his investment wisdom as well as his famous likening of finding investments to a snowball. "The important thing is to find wet snow and a really long hill," he has said.
BYD Co. Ltd. is Buffett's long hill in China and his first investment in a company here. MidAmerican Energy Holdings Co., a subsidiary of Berkshire Hathaway Inc., Buffett's conglomerate holding company headquartered in Omaha, Nebraska, announced on September 27 that it paid $230 million for a nearly 10-percent stake in the Shenzhen-based battery producer and automaker.
Established in 1995 and listed on the Hong Kong Stock Exchange in 2002, the BYD has seven production facilities located in different regions around China.
"We are very impressed by BYD's outstanding management team and its research and development capability, especially the capability of translating technologies to products," said David Sokol, Chairman of MidAmerican, at a press conference.
Buffett did not attend the news conference, but said in a statement that he was impressed with the management record of BYD's President Wang Chuanfu.
The investment sage is worshipped for his powerful, long-term investment strategy. He has traditionally shied away from technology-oriented companies and favored simple and mature businesses he understands. Some of his most famous investments include American beverage company Coca-Cola Co. and razor maker The Gillette Co., now owned by Proctor & Gamble Co.
But why would Buffett invest such a large amount in BYD, a company focused on hi-tech batteries and electric cars, as his first strategic investment in a Chinese firm?
Value Investing
Buffett is a high-profile proponent of "value investing," or the strategy of selecting stocks that trade for less than their intrinsic value. The intrinsic value of a security refers to the present value of all expected future income generated by the asset.
Such securities may have high dividend yields, low price-to-earning (PE) ratios or low price-to-book (PB) ratios. A low PB ratio, which compares the market value of a company to the value of its total tangible assets minus liabilities, could indicate the stock is currently undervalued and may have potential for future growth.
Buffett is known for his ability to calculate the intrinsic value of a business and then buy that company at a discount to its intrinsic value. In the case of BYD, Buffett bought the company's stock at a price of HK$8 ($1) per share when the PE ratio was less than 8 and the PB ratio was only 2.5.
It appears to be a real bargain for Buffett. BYD's shares had lost 45 percent of their value when their price dived from HK$77 ($10) per share at its peak to the current HK$8 per share in the past year, partly because of legal disputes between BYD and rival Foxconn International Holdings Ltd. over alleged patent infringement.
But Buffett has been focusing on "finding an outstanding company at a sensible price" rather than generic companies at a bargain price, because future distributions are only based on assumptions. He has stressed the long-term profitability of target companies.
Apart from the requirements related to "intrinsic value," a solid management team and good returns for shareholders, Buffett's other criteria for investment picks include companies that must have at least $5 million in after-tax earnings and have demonstrated consistent earning power. Zhou Jun, a company analyst at Investor Journal affiliated with the Economic Observer, said BYD basically meets all these requirements.
BYD reaped a net profit of 1.6 billion yuan ($235.3 million) last year, up 44.2 percent year on year. In the first half of this year, the company's net profit was 596 million yuan ($87.6 million), which ranked BYD among the top 30 of all 207 Hong Kong-listed industrial companies in terms of after-tax earnings.
In terms of consistent earning power, Buffet requires a company to have a sustainable competitive advantage, what he calls an "economic moat" that protects the company's profitability from competitors. BYD's moat, according to Zhou, lies in the company's leading technological advantages in rechargeable batteries and electric cars. This moat has enabled BYD to maintain a gross profit-to-sales ratio of more than 20 percent in the past five years, he said.
BYD's Moat
Analysts believe BYD's most attractive asset for Buffett is the development of green automotive technologies, including lithium-ion batteries and a related line of hybrid and all-electric vehicles.
Wang Chuanfu, President of BYD, said that electric vehicles would allow people to be less reliant on petrol-energy and reduce greenhouse gas emissions and air pollution.
At the press conference, Sokol called BYD's technologies "a game changer" to seriously reduce emissions of carbon dioxide and address problems related to global warming in the future.
BYD has risen from obscurity in a few short years to be one of the world's largest makers of rechargeable batteries for cellphones and other uses, with Nokia Corp., Motorola Inc. and Samsung Electronics Co. among its customers.
The battery maker acquired 77 percent of Shaanxi Qinchuan Auto Co. in 2003 in a controversial move to make fuel-efficient compact and subcompact cars for the Chinese market. The fast-growing auto-making unit currently accounts for nearly a third of BYD's revenue. Backed by its technological advantages in rechargeable batteries, the auto dark horse is now marrying its battery technology with plug-in hybrids that can also run on petrol as a back-up fuel and all-electric cars.
MidAmerican, an electricity and natural gas provider in the midwest and west United States, sees plug-in electric cars as the best alternative to fuel-powered engines, because the country already has the infrastructure to supply electricity for recharging vehicles almost anywhere.
Sokol said that MidAmerican was impressed with BYD's ability to produce electric cars that have a range of almost 190 miles on a single charge and can be 80 percent recharged in 15 minutes. By comparison, General Motors Corp.'s electric-powered vehicle, the Chevrolet Volt, has a battery range of just 40 miles on a full charge.
BYD plans to start selling F3DM hybrids in China at the end of this year. It says the batteries for the car will last 10 years or 2,000 charging cycles.
Buffett's $230 million investment gives BYD capital and credibility to pursue its ambition of making environmentally friendly hybrid cars and becoming the world's No.1 automaker by 2025. Wang said at the press conference that BYD would sell cars in the United States and might even move up its plans for entering the market in 2010, by using Berkshire Hathaway's money to accelerate research.
In a new move to integrate the upstream supply chain for its electric cars, BYD acquired SinoMOS Semiconductor (Ningbo) Inc. for about 200 million yuan ($29.4 million) on October 6.
Friday, October 24, 2008
China's Economy Has Ability to Recover From Slowdown
October 22, 2008
Xinhua News Agency
Experts attending a think tank strategic dialogue at the ongoing China-ASEAN Expo have shown confidence in China's steady economic growth despite the extensive downturn in the world economy.
China's gross domestic product (GDP) grew 9.9 percent during the first three quarters of this year, 2.3 percentage points lower than the same period of last year, the National Bureau of Statistics said Monday. China's GDP has grown with an annual average 10.6 percent since 2003.
Hadi Soesastro, executive director of Center for Strategic and International Studies of Indonesia, said that 9.9 percent is already a good achievement. "We could not simply think China's economy has sagged. China has made great achievements in improving the social interests for the public."
China has spent great amount of money on environmental protection, energy saving, greenhouse gas emission control and social welfare. The social interests and long-term effects are incalculable, he said.
"In consideration of the ongoing global economic crisis, 9.9 percent is still a good figure. China's economy is somewhat resistant to the outside impact and is easy to escape from a standstill," said Nguyen Van Nen, director of planning and promotion department of Vietnam Cooperative Alliance.
China's slowdown under the background of global recession is an opportunity for the country to readjust and transform, said Sheng Lijun, a researcher with the Lee Kuan Yew School of Public Policy, National University of Singapore.
"China should promote its technology innovation and transform itself from a traditional manufacturer to a modern industrialized country, setting a sound basis for its sustainable development," he said.
The weak demand in the West could make Chinese products oversupplied. The mounting protectionism also has a negative impact on Chinese economy, Sheng said. "China can invest in domestic infrastructure as well as that in ASEAN countries. The return is guaranteed."
"I think China's returning to a 10 percent growth rate needs two years at most. I am quite confident about that," said Tan Sri Mohamed Jawhar Hassan with the Institute of Strategic and International Studies of Malaysia.
The global market slipped into a recession in the 1997 Asian financial crisis and China also slowed down its pace. Chinese economy, however, gained a momentum soon after that and moved to a new high, he said.
"Now China's economic quality and the ability to recover is much better than 10 years ago. It will keep an 8 percent increase at worst," said Hassan.
China's steady growth is vital to the development of ASEAN countries. The China-ASEAN Free Trade Zone is expected to become the third largest free trade zone in the world in 2010 and the ties between China and ASEAN are set to become closer, said Nguyen Van Nen.
The close ties and strengthening cooperation between the two sides will definitely improve their resistance to the economic risks, he said.
"In the long run, I am optimistic about China's economy," he said.
Xinhua News Agency
Experts attending a think tank strategic dialogue at the ongoing China-ASEAN Expo have shown confidence in China's steady economic growth despite the extensive downturn in the world economy.
China's gross domestic product (GDP) grew 9.9 percent during the first three quarters of this year, 2.3 percentage points lower than the same period of last year, the National Bureau of Statistics said Monday. China's GDP has grown with an annual average 10.6 percent since 2003.
Hadi Soesastro, executive director of Center for Strategic and International Studies of Indonesia, said that 9.9 percent is already a good achievement. "We could not simply think China's economy has sagged. China has made great achievements in improving the social interests for the public."
China has spent great amount of money on environmental protection, energy saving, greenhouse gas emission control and social welfare. The social interests and long-term effects are incalculable, he said.
"In consideration of the ongoing global economic crisis, 9.9 percent is still a good figure. China's economy is somewhat resistant to the outside impact and is easy to escape from a standstill," said Nguyen Van Nen, director of planning and promotion department of Vietnam Cooperative Alliance.
China's slowdown under the background of global recession is an opportunity for the country to readjust and transform, said Sheng Lijun, a researcher with the Lee Kuan Yew School of Public Policy, National University of Singapore.
"China should promote its technology innovation and transform itself from a traditional manufacturer to a modern industrialized country, setting a sound basis for its sustainable development," he said.
The weak demand in the West could make Chinese products oversupplied. The mounting protectionism also has a negative impact on Chinese economy, Sheng said. "China can invest in domestic infrastructure as well as that in ASEAN countries. The return is guaranteed."
"I think China's returning to a 10 percent growth rate needs two years at most. I am quite confident about that," said Tan Sri Mohamed Jawhar Hassan with the Institute of Strategic and International Studies of Malaysia.
The global market slipped into a recession in the 1997 Asian financial crisis and China also slowed down its pace. Chinese economy, however, gained a momentum soon after that and moved to a new high, he said.
"Now China's economic quality and the ability to recover is much better than 10 years ago. It will keep an 8 percent increase at worst," said Hassan.
China's steady growth is vital to the development of ASEAN countries. The China-ASEAN Free Trade Zone is expected to become the third largest free trade zone in the world in 2010 and the ties between China and ASEAN are set to become closer, said Nguyen Van Nen.
The close ties and strengthening cooperation between the two sides will definitely improve their resistance to the economic risks, he said.
"In the long run, I am optimistic about China's economy," he said.
China's Population May Hit 1.5 Billion in 2033
October 23, 2008
Shanghai Daily
The population on the Chinese mainland is expected to reach 1.5 billion in 2033, an official revealed at a forum in Beijing today.
The population will see an annual increase of about eight million people in the next decade and may reach 1.36 billion in 2010 and 1.4 billion in 2020, said Li Bin, director of the National Population and Family Planning Commission.
The number of people above the age of 65 is expected to reach 320 million by 2040, which will make up nearly 22 percent of the population. The elderly segment was only 8.1 percent of the population in 2007, Li said.
In addition to the pressures of a greyer population, the country will also battle a sex-imbalance that may seriously disrupt social stability, Li warned.
The sex ratio, or proportion of males to females, has been getting increasingly skewed since the 1990s as many Chinese couples show a strong preference for boys.
The ratio has reached 119.92 in 2000 from 108 in 1981, which means 119 boys are born against every 100 girls across the country, according to the National Population and Family Planning Commission.
In five provinces, the figure even surged above 130, the commission said. Analysts say a proportion of 106 boys for every 100 girls can be considered normal.
China will have a male population of up to 30 million in 2020 who may not be able to find wives and partners because of the gender imbalance, Xinhua news agency cited Li Weixiong, a member of the People's Congress and also deputy director of China Economy and Society Reach Committee, in a previous report.
Meanwhile, China is also expected to see its largest population mobilization when 300 million people enter urban centers in the next two to three decades, Li warned.
Shanghai Daily
The population on the Chinese mainland is expected to reach 1.5 billion in 2033, an official revealed at a forum in Beijing today.
The population will see an annual increase of about eight million people in the next decade and may reach 1.36 billion in 2010 and 1.4 billion in 2020, said Li Bin, director of the National Population and Family Planning Commission.
The number of people above the age of 65 is expected to reach 320 million by 2040, which will make up nearly 22 percent of the population. The elderly segment was only 8.1 percent of the population in 2007, Li said.
In addition to the pressures of a greyer population, the country will also battle a sex-imbalance that may seriously disrupt social stability, Li warned.
The sex ratio, or proportion of males to females, has been getting increasingly skewed since the 1990s as many Chinese couples show a strong preference for boys.
The ratio has reached 119.92 in 2000 from 108 in 1981, which means 119 boys are born against every 100 girls across the country, according to the National Population and Family Planning Commission.
In five provinces, the figure even surged above 130, the commission said. Analysts say a proportion of 106 boys for every 100 girls can be considered normal.
China will have a male population of up to 30 million in 2020 who may not be able to find wives and partners because of the gender imbalance, Xinhua news agency cited Li Weixiong, a member of the People's Congress and also deputy director of China Economy and Society Reach Committee, in a previous report.
Meanwhile, China is also expected to see its largest population mobilization when 300 million people enter urban centers in the next two to three decades, Li warned.
Faced With Global Slump, Can China Keep Up Economic Growth?
October 23, 2008
By: Jim Yardley and Keith Bradsher
For three decades, China has fueled its remarkable economic rise by becoming the world's workshop and unleashing a flood of low-priced exports. But faced with a possible global recession and weakening demand for Chinese exports, the question now is whether the ruling Communist Party can prevent the financial crisis from derailing the country's economic miracle.
This is a pressing question not just for China but for the rest of the world. Many economists say continued Chinese growth is vital to the global economy as the United States and Europe face severe downturns. Yet to navigate the crisis, many analysts say China will need to recalibrate its economic model, stoke domestic investment with heavy government spending and promote policies to increase consumer spending in a nation famous for high savings rates.
The global financial crisis is expected to be the main focus of a summit meeting of Asian and European leaders in Beijing this week.
It is also arising at a politically resonant moment for China. This is the 30th anniversary of the policy changes that propelled China's economic rise, a milestone that has raised inevitable questions about the future shape of reform. At the geopolitical level, China would seem well positioned to expand its influence as it sits on $1.9 trillion in foreign exchange reserves and could benefit from widespread calls to reorganize Western-dominated global financial systems.
But for now, most analysts say China's top priority is simply protecting its own economy. Chinese leaders say the domestic financial system is largely insulated from the global crisis but also warn of serious pressures at home and from abroad. Economic growth is at the lowest level in five years, unemployment is a growing concern and scores of factories are closing in the country's export region. Domestic stock exchanges have lost 65 percent of their value and real estate sales have plummeted.
Many economists believe China can avoid a serious downturn, but a significant slowdown would pose a political challenge for the Communist Party, which derives much of its legitimacy from delivering economic growth. Conventional wisdom holds that China's output must grow at a minimum of 8 percent for the economy to produce enough jobs to meet demand, and many economists expect growth to drop below that level next year.
Just last week, thousands of unemployed workers protested outside closed toy factories in Guangdong Province, the country's export hub. Slightly more than half the country's toy exporters shut down in the first seven months of this year, mostly very small companies that struggled to cope with new safety standards as well as weakening Western demand, according to China's customs agency.
If the growth rate "goes below 8 percent in 2009, I think they will be quite concerned," said Kenneth Lieberthal, a China specialist at the Brookings Institution in Washington. "They are always concerned about job creation."
Already, Chinese leaders are preparing a response that could resemble the government spending spree from 1998 to 2000 that is credited with helping China avoid the worst of the Asian financial crisis. Former Prime Minister Zhu Rongji poured billions of dollars into projects like flood control, road building and new airports to pump economic output. Much of that infrastructure is now considered essential to China's competitive advantage as a manufacturing exporter.
Today, improvements are needed in railroads and the electrical power grid. But China's most conspicuous needs are the softer side of a modern economy — a health care network, lower tuition and fees for schools and universities and improvement in the rudimentary social safety net, economists say.
Such steps are seen as crucial if China is to give consumers — especially working-class urban residents and the 800 million people still classified as peasants — the confidence to spend rather than increase their savings.
"China's infrastructure is excellent - compare it to India," said Xu Xiaonian, an economics professor at the China Europe International Business School in Shanghai. "It's getting harder for the government to find ways to spend money productively. It's stimulus for the sake of stimulus."
David McCormick, the U.S. under secretary of the Treasury for international affairs, said during a telephone interview that Chinese officials understood that the sheer size of their economy, combined with weakening demand overseas, meant increasing demand for goods and services within China would be in the country's own interest. "They can't count on exports being such a driver of their economy going forward," he said.
To date, the most significant new measure is the land reform announced Sunday after days of mixed signals. Full details of the program are still unclear, but the plan allows farmers for the first time to lease or transfer land, a landmark step in what is still nominally a socialist country. Economists believe the measure will lift the rural economy, though few predict sudden benefits. To raise rural incomes more rapidly, the top Chinese economic planning agency on Monday increased the minimum purchase price of wheat by up to 15 percent beginning next year.
But transforming the countryside and creating a nation of consumers is likely to be a more difficult process than China's transformation into a manufacturing giant. In recent years, President Hu Jintao and Prime Minister Wen Jiabao have eliminated the ancient agricultural tax and increased spending on rural initiatives. Yet the rural-urban income gap has continued to worsen. Today, China still has more than 500 million people living on less than $2 a day; nationwide per capita income is only about $2,000. The social safety net remains so inadequate that most peasants save their spare earnings to protect against a medical crisis or as a thin cushion for old age.
Andy Rothman, a longtime analyst at CLSA Asia-Pacific Markets, an investment bank, said that the government had been promoting domestic consumption for years but that by necessity it was a gradual process and not one that could provide a quick fix to a global slowdown.
"This isn't something you want to move ahead at light speed," Rothman said. "China trying to step into the breach by handing out credit cards to 800 million peasants would be a disaster just a few years down the road."
From a geopolitical standpoint, China would seem to have an opportunity to fill a void created by a weakened West, especially given the country's huge foreign exchange holdings. President Asif Ali Zardari of Pakistan visited Beijing earlier this month in search of financial edge to help his country stave off bankruptcy - an overture that could become more common as China is increasingly perceived as sitting on a money pot.
More pertinent to the United States is whether China will re-examine its strategy of financing U.S. debt. Chinese experts say that the American and Chinese economies are so intertwined that Chinese leaders will not make any abrupt changes in its policy of directing the bulk of its foreign currency reserves to dollar-denominated assets. Indeed, the U.S. Treasury secretary, Henry Paulson Jr., and other senior U.S. officials have been in almost daily contact with their Chinese counterparts.
"China, with the responsibility of a big country, will not make trouble for international financial markets," said Hu Angang, a Chinese economist who is the director of the Center for China Studies at Tsinghua University. "The Chinese government is very rational and flexible, and very clearly recognizes any policy does not just influence domestic markets but also global markets."
McCormick said that U.S. officials had not asked their Chinese counterparts to buy any specific portion of the Treasury bonds that would be issued to finance the Bush administration's $700 billion economic recovery plan. But U.S. officials have tried to impress on Chinese officials that the United States remains an attractive place to invest.
"We've certainly tried to give them confidence we're taking the appropriate policy steps," McCormick said, adding that the United States had also encouraged China to continue to be "a stable and long-term investor in the global financial system."
Some Chinese experts are suggesting that China could use more of its foreign reserves to purchase stocks in Western companies and even leverage positions onto corporate boards. Doing so, these experts say, would allow China to develop expertise and gain more experience in global business.
But others say China was stung by the backlash after a state-owned Chinese petrochemical company sought to purchase Unocal and would be cautious in making any moves deemed politically risky. Domestic pressures also exist; public criticism has erupted after some investments by the country's sovereign wealth fund lost money.
McCormick said that the United States welcomed investments by sovereign wealth funds, whether from China or any other country.
No one is yet certain when the global financial system will stabilize, but the crisis has convinced many economic analysts that the system itself will be re-examined. The financial crisis is "a ground-shaking event, but people are going to stick to the same system," said Wang Tao, chief of the China economic research unit for UBS Securities. "But they are going to think about how to reform the system, and China will probably have a stronger voice than before."
In recent years, some Chinese experts have written analyses about the inevitability of an American decline and how China must prepare to manage it. But in the face of the current crisis, most Chinese analysts say China is nowhere near ready yet to stand as a superpower.
"China doesn't want to be viewed as a replacement for the States," said one Chinese scholar who requested anonymity so that he could discuss the mind-set of government officials. "We are still a developing country. We have more foreign reserves than other countries, but we also have more problems."
By: Jim Yardley and Keith Bradsher
For three decades, China has fueled its remarkable economic rise by becoming the world's workshop and unleashing a flood of low-priced exports. But faced with a possible global recession and weakening demand for Chinese exports, the question now is whether the ruling Communist Party can prevent the financial crisis from derailing the country's economic miracle.
This is a pressing question not just for China but for the rest of the world. Many economists say continued Chinese growth is vital to the global economy as the United States and Europe face severe downturns. Yet to navigate the crisis, many analysts say China will need to recalibrate its economic model, stoke domestic investment with heavy government spending and promote policies to increase consumer spending in a nation famous for high savings rates.
The global financial crisis is expected to be the main focus of a summit meeting of Asian and European leaders in Beijing this week.
It is also arising at a politically resonant moment for China. This is the 30th anniversary of the policy changes that propelled China's economic rise, a milestone that has raised inevitable questions about the future shape of reform. At the geopolitical level, China would seem well positioned to expand its influence as it sits on $1.9 trillion in foreign exchange reserves and could benefit from widespread calls to reorganize Western-dominated global financial systems.
But for now, most analysts say China's top priority is simply protecting its own economy. Chinese leaders say the domestic financial system is largely insulated from the global crisis but also warn of serious pressures at home and from abroad. Economic growth is at the lowest level in five years, unemployment is a growing concern and scores of factories are closing in the country's export region. Domestic stock exchanges have lost 65 percent of their value and real estate sales have plummeted.
Many economists believe China can avoid a serious downturn, but a significant slowdown would pose a political challenge for the Communist Party, which derives much of its legitimacy from delivering economic growth. Conventional wisdom holds that China's output must grow at a minimum of 8 percent for the economy to produce enough jobs to meet demand, and many economists expect growth to drop below that level next year.
Just last week, thousands of unemployed workers protested outside closed toy factories in Guangdong Province, the country's export hub. Slightly more than half the country's toy exporters shut down in the first seven months of this year, mostly very small companies that struggled to cope with new safety standards as well as weakening Western demand, according to China's customs agency.
If the growth rate "goes below 8 percent in 2009, I think they will be quite concerned," said Kenneth Lieberthal, a China specialist at the Brookings Institution in Washington. "They are always concerned about job creation."
Already, Chinese leaders are preparing a response that could resemble the government spending spree from 1998 to 2000 that is credited with helping China avoid the worst of the Asian financial crisis. Former Prime Minister Zhu Rongji poured billions of dollars into projects like flood control, road building and new airports to pump economic output. Much of that infrastructure is now considered essential to China's competitive advantage as a manufacturing exporter.
Today, improvements are needed in railroads and the electrical power grid. But China's most conspicuous needs are the softer side of a modern economy — a health care network, lower tuition and fees for schools and universities and improvement in the rudimentary social safety net, economists say.
Such steps are seen as crucial if China is to give consumers — especially working-class urban residents and the 800 million people still classified as peasants — the confidence to spend rather than increase their savings.
"China's infrastructure is excellent - compare it to India," said Xu Xiaonian, an economics professor at the China Europe International Business School in Shanghai. "It's getting harder for the government to find ways to spend money productively. It's stimulus for the sake of stimulus."
David McCormick, the U.S. under secretary of the Treasury for international affairs, said during a telephone interview that Chinese officials understood that the sheer size of their economy, combined with weakening demand overseas, meant increasing demand for goods and services within China would be in the country's own interest. "They can't count on exports being such a driver of their economy going forward," he said.
To date, the most significant new measure is the land reform announced Sunday after days of mixed signals. Full details of the program are still unclear, but the plan allows farmers for the first time to lease or transfer land, a landmark step in what is still nominally a socialist country. Economists believe the measure will lift the rural economy, though few predict sudden benefits. To raise rural incomes more rapidly, the top Chinese economic planning agency on Monday increased the minimum purchase price of wheat by up to 15 percent beginning next year.
But transforming the countryside and creating a nation of consumers is likely to be a more difficult process than China's transformation into a manufacturing giant. In recent years, President Hu Jintao and Prime Minister Wen Jiabao have eliminated the ancient agricultural tax and increased spending on rural initiatives. Yet the rural-urban income gap has continued to worsen. Today, China still has more than 500 million people living on less than $2 a day; nationwide per capita income is only about $2,000. The social safety net remains so inadequate that most peasants save their spare earnings to protect against a medical crisis or as a thin cushion for old age.
Andy Rothman, a longtime analyst at CLSA Asia-Pacific Markets, an investment bank, said that the government had been promoting domestic consumption for years but that by necessity it was a gradual process and not one that could provide a quick fix to a global slowdown.
"This isn't something you want to move ahead at light speed," Rothman said. "China trying to step into the breach by handing out credit cards to 800 million peasants would be a disaster just a few years down the road."
From a geopolitical standpoint, China would seem to have an opportunity to fill a void created by a weakened West, especially given the country's huge foreign exchange holdings. President Asif Ali Zardari of Pakistan visited Beijing earlier this month in search of financial edge to help his country stave off bankruptcy - an overture that could become more common as China is increasingly perceived as sitting on a money pot.
More pertinent to the United States is whether China will re-examine its strategy of financing U.S. debt. Chinese experts say that the American and Chinese economies are so intertwined that Chinese leaders will not make any abrupt changes in its policy of directing the bulk of its foreign currency reserves to dollar-denominated assets. Indeed, the U.S. Treasury secretary, Henry Paulson Jr., and other senior U.S. officials have been in almost daily contact with their Chinese counterparts.
"China, with the responsibility of a big country, will not make trouble for international financial markets," said Hu Angang, a Chinese economist who is the director of the Center for China Studies at Tsinghua University. "The Chinese government is very rational and flexible, and very clearly recognizes any policy does not just influence domestic markets but also global markets."
McCormick said that U.S. officials had not asked their Chinese counterparts to buy any specific portion of the Treasury bonds that would be issued to finance the Bush administration's $700 billion economic recovery plan. But U.S. officials have tried to impress on Chinese officials that the United States remains an attractive place to invest.
"We've certainly tried to give them confidence we're taking the appropriate policy steps," McCormick said, adding that the United States had also encouraged China to continue to be "a stable and long-term investor in the global financial system."
Some Chinese experts are suggesting that China could use more of its foreign reserves to purchase stocks in Western companies and even leverage positions onto corporate boards. Doing so, these experts say, would allow China to develop expertise and gain more experience in global business.
But others say China was stung by the backlash after a state-owned Chinese petrochemical company sought to purchase Unocal and would be cautious in making any moves deemed politically risky. Domestic pressures also exist; public criticism has erupted after some investments by the country's sovereign wealth fund lost money.
McCormick said that the United States welcomed investments by sovereign wealth funds, whether from China or any other country.
No one is yet certain when the global financial system will stabilize, but the crisis has convinced many economic analysts that the system itself will be re-examined. The financial crisis is "a ground-shaking event, but people are going to stick to the same system," said Wang Tao, chief of the China economic research unit for UBS Securities. "But they are going to think about how to reform the system, and China will probably have a stronger voice than before."
In recent years, some Chinese experts have written analyses about the inevitability of an American decline and how China must prepare to manage it. But in the face of the current crisis, most Chinese analysts say China is nowhere near ready yet to stand as a superpower.
"China doesn't want to be viewed as a replacement for the States," said one Chinese scholar who requested anonymity so that he could discuss the mind-set of government officials. "We are still a developing country. We have more foreign reserves than other countries, but we also have more problems."
China's Next Test: Health Care
October 20, 2008
Reuters
China's economic boom has resulted in stark inequity between its urban and rural populations in terms of health, and experts urged the government to work harder at providing health care for everyone.
Infant mortality in China's countryside stands at 123 for every 1,000 live births compared with 26 in the richest counties, the experts wrote in a paper published in The Lancet medical journal.
Of every 1,000 children, 64 in the countryside will not live beyond their fifth birthday, compared with 10 in the cities.
The report, by researchers in China, the United States and Britain as well as from the World Health Organization, is part of a special series on China's health reforms.
While life expectancy in Shanghai is 78.1 years, that figure is 66.1 in Gansu, one of the poorest provinces.
The team of experts also highlighted China's "missing women."
"In China, the problem has been exacerbated in recent decades by the practice of sex-specific abortions," the experts wrote.
The report continued that "discrimination lasts through infancy and childhood, reflected in higher death rates for girls."
"In 2000, infant mortality was 33.7 per 1,000 live births for girls compared with 23.9 per 1,000 for boys."
The authors attributed the disparities to inadequate government investment in health care, which increased "out-of-pocket" costs, hitting the poorest the hardest.
There was also insufficient government stewardship, which resulted in "doctors using their knowledge to prescribe inappropriate yet profitable procedures and drugs."
Another paper in the series highlighted the preference among medical and health care graduates for joining pharmaceutical and biotechnology companies instead of the medical profession, where they are needed.
This paper, led by Sudhir Anand of the University of Oxford, estimated that one million such graduates between 2000 and 2005 were not absorbed into the country's health care workforce.
"Although the production of doctors and nurses has greatly expanded in recent years, serious problems of distribution remain," the experts wrote, adding that "the goal of its health reform should be to promote equitable and universal access to basic health services."
Another paper highlighted how health care was taking up the bulk of household incomes, or a whopping 50 percent in 2006 (more than 18 times that in 1990) because of inadequate health insurance.
This compares with 45 percent in South Korea, 16 percent in Sweden, 15 percent in Japan and 11 percent in France.
"The average cost of a single hospital admission is now almost equivalent to China's annual income per head and is more than twice the average annual income of the lowest 20 percent of the population," wrote the team, led by Hu Shanlian from Fudan University in Shanghai.
"More than 35 percent of urban households and 43 percent of rural households have difficulty affording health care, go without, or are impoverished by the costs," they wrote.
The papers noted recent moves by the Chinese government to modernize the public health system and introduce health insurance plans, but much more needed to be done, especially to raise the level of reimbursement and help people who live in poverty.
Another Lancet report warned that chronic illnesses like cancer and heart and respiratory diseases were time bombs, and that the Chinese should reduce their intake of fatty foods and salt, stop smoking and start exercising.
Increasingly affluent Chinese consumed between 25 and 100 percent more fat each day in 2002 compared with 1982, sharply raising the risk of heart disease and cancer, the experts wrote in The Lancet.
While the country was plagued by infectious diseases before 1990, chronic illnesses are now the main health problem and accounted for 74.1 percent of all deaths in 2005, up from 47.1 percent in 1973, the researchers wrote.
While these chronic illnesses have to do with people living longer, several high-risk factors are also involved.
Apart from a fatty diet, many Chinese consume a relatively high 12-gram dosage of salt daily, which the paper said accounted for hypertension in about 177 million Chinese adults.
Based on Chinese definitions, 22.8 percent of Chinese were overweight in 2002. About 7.1 percent in the population were obese in 2002.
The paper also drew attention to the smoking habit of many Chinese.
"One in every three smokers in the world is a Chinese man," the experts wrote. They reported that cigarette consumption increased to 2,022 billion in 2006, to a level 17.4 percent higher than in 2002.
The average Chinese male smoker smoked 15 cigarettes a day in 2002, up from 13 in 1984.
The costs of China's disease burden from smoking were likely to be vast, and China will suffer reduced productivity and more premature deaths, the researchers warned.
"Hypertension and tobacco can be targeted health priorities," wrote the team, led by Yang Gonghuan of the Chinese Center for Disease Control and Prevention in Beijing. "Reduction of salt intake should become a national campaign."
Reuters
China's economic boom has resulted in stark inequity between its urban and rural populations in terms of health, and experts urged the government to work harder at providing health care for everyone.
Infant mortality in China's countryside stands at 123 for every 1,000 live births compared with 26 in the richest counties, the experts wrote in a paper published in The Lancet medical journal.
Of every 1,000 children, 64 in the countryside will not live beyond their fifth birthday, compared with 10 in the cities.
The report, by researchers in China, the United States and Britain as well as from the World Health Organization, is part of a special series on China's health reforms.
While life expectancy in Shanghai is 78.1 years, that figure is 66.1 in Gansu, one of the poorest provinces.
The team of experts also highlighted China's "missing women."
"In China, the problem has been exacerbated in recent decades by the practice of sex-specific abortions," the experts wrote.
The report continued that "discrimination lasts through infancy and childhood, reflected in higher death rates for girls."
"In 2000, infant mortality was 33.7 per 1,000 live births for girls compared with 23.9 per 1,000 for boys."
The authors attributed the disparities to inadequate government investment in health care, which increased "out-of-pocket" costs, hitting the poorest the hardest.
There was also insufficient government stewardship, which resulted in "doctors using their knowledge to prescribe inappropriate yet profitable procedures and drugs."
Another paper in the series highlighted the preference among medical and health care graduates for joining pharmaceutical and biotechnology companies instead of the medical profession, where they are needed.
This paper, led by Sudhir Anand of the University of Oxford, estimated that one million such graduates between 2000 and 2005 were not absorbed into the country's health care workforce.
"Although the production of doctors and nurses has greatly expanded in recent years, serious problems of distribution remain," the experts wrote, adding that "the goal of its health reform should be to promote equitable and universal access to basic health services."
Another paper highlighted how health care was taking up the bulk of household incomes, or a whopping 50 percent in 2006 (more than 18 times that in 1990) because of inadequate health insurance.
This compares with 45 percent in South Korea, 16 percent in Sweden, 15 percent in Japan and 11 percent in France.
"The average cost of a single hospital admission is now almost equivalent to China's annual income per head and is more than twice the average annual income of the lowest 20 percent of the population," wrote the team, led by Hu Shanlian from Fudan University in Shanghai.
"More than 35 percent of urban households and 43 percent of rural households have difficulty affording health care, go without, or are impoverished by the costs," they wrote.
The papers noted recent moves by the Chinese government to modernize the public health system and introduce health insurance plans, but much more needed to be done, especially to raise the level of reimbursement and help people who live in poverty.
Another Lancet report warned that chronic illnesses like cancer and heart and respiratory diseases were time bombs, and that the Chinese should reduce their intake of fatty foods and salt, stop smoking and start exercising.
Increasingly affluent Chinese consumed between 25 and 100 percent more fat each day in 2002 compared with 1982, sharply raising the risk of heart disease and cancer, the experts wrote in The Lancet.
While the country was plagued by infectious diseases before 1990, chronic illnesses are now the main health problem and accounted for 74.1 percent of all deaths in 2005, up from 47.1 percent in 1973, the researchers wrote.
While these chronic illnesses have to do with people living longer, several high-risk factors are also involved.
Apart from a fatty diet, many Chinese consume a relatively high 12-gram dosage of salt daily, which the paper said accounted for hypertension in about 177 million Chinese adults.
Based on Chinese definitions, 22.8 percent of Chinese were overweight in 2002. About 7.1 percent in the population were obese in 2002.
The paper also drew attention to the smoking habit of many Chinese.
"One in every three smokers in the world is a Chinese man," the experts wrote. They reported that cigarette consumption increased to 2,022 billion in 2006, to a level 17.4 percent higher than in 2002.
The average Chinese male smoker smoked 15 cigarettes a day in 2002, up from 13 in 1984.
The costs of China's disease burden from smoking were likely to be vast, and China will suffer reduced productivity and more premature deaths, the researchers warned.
"Hypertension and tobacco can be targeted health priorities," wrote the team, led by Yang Gonghuan of the Chinese Center for Disease Control and Prevention in Beijing. "Reduction of salt intake should become a national campaign."
Saturday, October 18, 2008
Blowups Aside, China Is Doing Well As a Money Manager
October 16, 2008
Rick Carew
Quick: Is China the "dumb money" or the "smart money?"
China's sovereign wealth fund and some of its financial firms have taken big hits on their high-profile overseas investments in companies like Morgan Stanley, Blackstone Group and Barclays.
Those losses have attracted some tough criticism, and no doubt made regulators wary of greenlighting other efforts to bargain-hunt among the wreckage of Wall Street and the City.
The reality is that those high-profile troubled investments total only a bit over $10 billion. That's about 0.5% of the country's $1.9 trillion in foreign exchange reserves.
Much of the rest of that -- which economists put at 60% to 70% -- is in U.S. Treasurys, agency debt, and corporate bonds. Those holdings, especially U.S. Treasurys, have done well as a flight to quality makes them more attractive than equities or less well secured debt.
Even the problems at Fannie Mae and Freddie Mac haven't hurt China as the U.S. rescue plan leaves bondholders whole.
So, high-profile blowups aside, the fact is that China has done very well over the past year managing its money.
Where China went right is in staying away from the momentum investing of the past few years. That's kept the country's nest egg safe -- even as the country's forex safeguard, the State Administration of Foreign Exchange, put small amounts of money into more risky investments like private equity funds and blue-chip stocks.
The country's sovereign wealth fund, China Investment Corp., has less than $100 billion allocated for overseas deals and has become increasingly gun-shy about pulling the trigger as its investments in Morgan Stanley and Blackstone soured.
Outsiders may gloat over those ill-timed moves. But in truth, among the world's biggest investors, China may turn out to have been the smartest money of all.
Rick Carew
Quick: Is China the "dumb money" or the "smart money?"
China's sovereign wealth fund and some of its financial firms have taken big hits on their high-profile overseas investments in companies like Morgan Stanley, Blackstone Group and Barclays.
Those losses have attracted some tough criticism, and no doubt made regulators wary of greenlighting other efforts to bargain-hunt among the wreckage of Wall Street and the City.
The reality is that those high-profile troubled investments total only a bit over $10 billion. That's about 0.5% of the country's $1.9 trillion in foreign exchange reserves.
Much of the rest of that -- which economists put at 60% to 70% -- is in U.S. Treasurys, agency debt, and corporate bonds. Those holdings, especially U.S. Treasurys, have done well as a flight to quality makes them more attractive than equities or less well secured debt.
Even the problems at Fannie Mae and Freddie Mac haven't hurt China as the U.S. rescue plan leaves bondholders whole.
So, high-profile blowups aside, the fact is that China has done very well over the past year managing its money.
Where China went right is in staying away from the momentum investing of the past few years. That's kept the country's nest egg safe -- even as the country's forex safeguard, the State Administration of Foreign Exchange, put small amounts of money into more risky investments like private equity funds and blue-chip stocks.
The country's sovereign wealth fund, China Investment Corp., has less than $100 billion allocated for overseas deals and has become increasingly gun-shy about pulling the trigger as its investments in Morgan Stanley and Blackstone soured.
Outsiders may gloat over those ill-timed moves. But in truth, among the world's biggest investors, China may turn out to have been the smartest money of all.
Tuesday, October 14, 2008
Economist Upbeat About Chinese Economy
October 14, 2008
Pang Li
Despite the global financial crisis, Yao Jingyuan, chief economist at China's National Bureau of Statistics (NBS) expressed optimism about the prospects for the Chinese economy in an interview with China Economic Weekly.
Yao admitted the global economic situation is complex and difficult. The credit crunch in the US has led to a financial crisis. The American economy, which generates a quarter of global production, is set to slow down. The Eurozone has also been hit hard. According to statistics published on August 14 by Eurostat, Eurozone GDP declined 0.2 percent in the second quarter of 2008, the first decline since 1995.
Yao said a world slowdown will inevitably cut demand for China's exports. And the strengthening of the Renminbi is affecting China's competitive edge. Growth in exports to the USA, China's second largest trade partner, declined 5.7 percentage points in the first half of 2008.
Soaring commodity prices especially oil, which breached US$140 per barrel at one point have also badly affected China, the second largest oil consumer in the world. Last year's grain reserves amounted to just 15 percent of crop consumption, lower than the safety line of 18 percent. This triggered huge hikes in international grain prices, exerting pressure on China's domestic grain market.
But in spite of the challenges, Yao said the Chinese economy is basically healthy and drew attention to four points:
Firstly, the economy has maintained rapid growth for over three decades. In the first half of 2008 growth was 10.4 percent, demonstrating that the economy is still on track.
Secondly, there have been favorable structural changes to the economy. In 2007, domestic consumption overtook exports as the principal driver of growth. Unit energy consumption is also declining. Both points indicate that China is moving towards a more sustainable growth model.
Thirdly, the country's 39 major industries yielded good returns in 2007. And financial revenues reached a staggering 5100 billion yuan (about US$747 billion), up 31 percent year-on-year. These achievements show how efficiently the macro-economy is operating.
Fourthly, living standards are growing, due to improvements in the social security system and increases in household income.
Finally, Yao identified two priorities for the government in the second half of the year. Controlling commodity prices should remain a top priority. Despite the effects of global inflation China managed to rein in the CPI from 7.7 percent in May to 4.9 percent in August. Second, the authorities should maintain steady growth and avoid sharp fluctuations.
Pang Li
Despite the global financial crisis, Yao Jingyuan, chief economist at China's National Bureau of Statistics (NBS) expressed optimism about the prospects for the Chinese economy in an interview with China Economic Weekly.
Yao admitted the global economic situation is complex and difficult. The credit crunch in the US has led to a financial crisis. The American economy, which generates a quarter of global production, is set to slow down. The Eurozone has also been hit hard. According to statistics published on August 14 by Eurostat, Eurozone GDP declined 0.2 percent in the second quarter of 2008, the first decline since 1995.
Yao said a world slowdown will inevitably cut demand for China's exports. And the strengthening of the Renminbi is affecting China's competitive edge. Growth in exports to the USA, China's second largest trade partner, declined 5.7 percentage points in the first half of 2008.
Soaring commodity prices especially oil, which breached US$140 per barrel at one point have also badly affected China, the second largest oil consumer in the world. Last year's grain reserves amounted to just 15 percent of crop consumption, lower than the safety line of 18 percent. This triggered huge hikes in international grain prices, exerting pressure on China's domestic grain market.
But in spite of the challenges, Yao said the Chinese economy is basically healthy and drew attention to four points:
Firstly, the economy has maintained rapid growth for over three decades. In the first half of 2008 growth was 10.4 percent, demonstrating that the economy is still on track.
Secondly, there have been favorable structural changes to the economy. In 2007, domestic consumption overtook exports as the principal driver of growth. Unit energy consumption is also declining. Both points indicate that China is moving towards a more sustainable growth model.
Thirdly, the country's 39 major industries yielded good returns in 2007. And financial revenues reached a staggering 5100 billion yuan (about US$747 billion), up 31 percent year-on-year. These achievements show how efficiently the macro-economy is operating.
Fourthly, living standards are growing, due to improvements in the social security system and increases in household income.
Finally, Yao identified two priorities for the government in the second half of the year. Controlling commodity prices should remain a top priority. Despite the effects of global inflation China managed to rein in the CPI from 7.7 percent in May to 4.9 percent in August. Second, the authorities should maintain steady growth and avoid sharp fluctuations.
China's Economy to Remain Strong, Consultants
October 15, 2008
Xinhua News Agency
China will keep reasonably robust economic growth despite the ongoing international economic recession, according to Merrill Lynch analysts here on Tuesday.
"As part of the world economy, China certainly would be affected by the current financial crisis," said Liu Erfei, the company's managing director. "We expect the country's economy to slow down from its (current) double-digit growth to an 8 or 9 percent (annual GDP) increase, still relatively rapid."
He added while some countries including the United States stumbled in the credit sector from over-leveraging themselves, China didn't get itself involved in a similar problem.
The New York-based investment bank and brokerage house attributed the country's stable economic performance to the governmental control on its state capital.
"Domestic capital market has not been completely open to the outside yet. This enables the country to avoid major international financial risks," Liu said.
The country was spared much trouble as it didn't invest in sub-prime related financial products, the failure of which had been acknowledged as a prime cause for the present global financial woes.
Meanwhile, the company's research showed domestic consumption would stand out as a major driver for the country's economic growth at a time when exports and the property sector were affected by a shrinking global market.
A developing pro-labour policy, as well as an emerging major consumer force of people born after 1978, would help accelerate the nation's consumption, according to Merrill Lynch market analyst Cui Wei.
"Our view on China's economy in the next five to 10 years is very optimistic," Liu added.
Xinhua News Agency
China will keep reasonably robust economic growth despite the ongoing international economic recession, according to Merrill Lynch analysts here on Tuesday.
"As part of the world economy, China certainly would be affected by the current financial crisis," said Liu Erfei, the company's managing director. "We expect the country's economy to slow down from its (current) double-digit growth to an 8 or 9 percent (annual GDP) increase, still relatively rapid."
He added while some countries including the United States stumbled in the credit sector from over-leveraging themselves, China didn't get itself involved in a similar problem.
The New York-based investment bank and brokerage house attributed the country's stable economic performance to the governmental control on its state capital.
"Domestic capital market has not been completely open to the outside yet. This enables the country to avoid major international financial risks," Liu said.
The country was spared much trouble as it didn't invest in sub-prime related financial products, the failure of which had been acknowledged as a prime cause for the present global financial woes.
Meanwhile, the company's research showed domestic consumption would stand out as a major driver for the country's economic growth at a time when exports and the property sector were affected by a shrinking global market.
A developing pro-labour policy, as well as an emerging major consumer force of people born after 1978, would help accelerate the nation's consumption, according to Merrill Lynch market analyst Cui Wei.
"Our view on China's economy in the next five to 10 years is very optimistic," Liu added.
A Defensive Battle
October 10, 2008
Hu Yue
China jumps into action to counteract the fallout from the crippling U.S. financial crisis
The hard-won passage of the unprecedented $700-billion bank bailout plan in the United States has finally brought hope of an end to the country's financial nightmare. While it remains to be seen whether the government rescue can cure the market ills at their root, the repercussions of the financial woes have been felt far beyond the United States. Wall Street-generated gloom also has spread to already skittish Chinese investors, illustrated by the roller-coaster ride that domestic stock prices have been on in recent weeks.
While China's economy chugged along by a robust 10.4 percent in the first half, concerns that its growth will be subdued have taken hold. Signs of looming recession are proliferating in the export sector, a key drive of the country's growth because of waning demand from the United States.
Meanwhile, a consumer-spending spree seems less likely to take place since an overwhelming bear market has wiped more than 60 percent off domestic stock markets this year.
"Given the global financial chaos and a marked slowdown in the world economy, the domestic economy may head for a downward spiral," Premier Wen Jiabao said in a statement last month. His comment indicated the government's growing concerns about far-reaching damage to the broader economy if the stock market, overshadowed by the roaring U.S. financial fallout, is further left to find equilibrium on its own.
As the latest effort in a string of moves to shore up the shaky confidence in domestic markets, the central bank on October 8 announced cuts in both the reserve-requirement ratio and the benchmark one-year deposit and loan interest rate, by 0.5 percentage points as of October 15, and by 0.27 percentage points as of October 9. On the same day, the State Council suspended the 5-percent tax levied on the interest income of bank deposits starting on October 9.
Prior to that, the China Securities Regulatory Commission (CSRC) announced on October 5 that it would shortly start a trial program for financially sound securities firms to engage in margin trading and short selling. Margin trading allows investors to borrow money from brokerages to buy shares, while short selling lets them sell securities that they do not own, but have borrowed from securities firms. Short sellers then try to buy back the stock at a lower price, attempting to profit from an expected decline in the stock price. Analysts say the program will bring a measure of calm to the shell-shocked market because brokerages currently have much more cash available to lend than shares, and the scale of any margin trading would far outweigh that of short selling in the initial stages.
The CSRC said in the announcement that the program, in the long run, would inject more vitality into the market and bump up liquidity. More importantly, it could provide a vehicle for investors to hedge against risks, diversify the business of brokerages and help the fledgling market mature beyond the boom-bust cycle, it said.
Analysts say the stock market has appeared to be bottoming out since the central bank on September 16 cut interest rates for the first time in more than six years. The central bank also lowered the reserve requirement ratio for small banks, further salving the wounds of small and medium-sized enterprises starved of liquidity. The surprise move was widely interpreted as a decisive shift by the government toward bucking growth after protracted inflation fears that had crimped the economy.
The interest rate cut came just a few hours after Lehman Brothers Holdings Inc. announced it had filed for bankruptcy. It is expected to prevent external pressure on China's domestic economy from becoming entrenched, although the central bank made no mention of the U.S. economic washout in announcing the rate cut. Domestically, the country's inflation eased to 4.9 percent in August from 8.7 percent in February, removing the major stumbling block to the government's stimulation efforts.
In another move, the country encouraged government entities to lift their stakes or buy back shares of major listed banks and companies that they control to provide a floor for the tumbling market. The share-buying mania of listed companies was led by Central Huijin Investment Co. Ltd. (Huijin), an investment arm of the government, which already held majority stakes in the Industrial and Commercial Bank of China Ltd., Bank of China Ltd. and China Construction Bank Corp. Huijin purchased 2 million new shares of each bank on September 23, infusing some steam into the market's recovery.
Moreover, regulators lifted the stamp tax on share purchases on September 19-the first time in history that the government had levied a unilateral stamp tax on stock trades. This move enlivened stock trading in the following days.
On the fiscal front, the government this year dropped administrative fees for individually-owned businesses and reinstated higher export tax rebates for textiles and some other products. Besides this, the country's embrace of a reformed value-added tax system is expected to further alleviate the burden on enterprises. Analysts also believe that more fiscal stimuli are on the way as the risks of an economic freefall deepen.
Affect on China
Premier Wen Jiabao reassured investors at the beginning of October that the government would continue to support a stable capital market, prop up exporters and spur the consumer market as the country edges toward a market-driven economy.
The foundations of the Chinese economy remain solid with a fluid and resilient financial market, Wen said. "But the impact of the U.S. financial meltdown on the Chinese economy should not be underrated, and efforts to maintain a healthy financial sector should not be relaxed," he said.
China's safeguards against the U.S. financial meltdown had come more swiftly than expected. The central bank said in a statement on October 4 that the country's financial regulators had put in place counteractive programs, including stronger financial oversight and risk controls.
Meanwhile, the central bank has pledged to work closely with international financial institutions to scan every corner of the global financial system where a new set of risks may hide.
"We are confident and well-positioned to maintain a stable financial system and a sound real economy through a variety of flexible control measures," the central bank's statement said.
Hu Yue
China jumps into action to counteract the fallout from the crippling U.S. financial crisis
The hard-won passage of the unprecedented $700-billion bank bailout plan in the United States has finally brought hope of an end to the country's financial nightmare. While it remains to be seen whether the government rescue can cure the market ills at their root, the repercussions of the financial woes have been felt far beyond the United States. Wall Street-generated gloom also has spread to already skittish Chinese investors, illustrated by the roller-coaster ride that domestic stock prices have been on in recent weeks.
While China's economy chugged along by a robust 10.4 percent in the first half, concerns that its growth will be subdued have taken hold. Signs of looming recession are proliferating in the export sector, a key drive of the country's growth because of waning demand from the United States.
Meanwhile, a consumer-spending spree seems less likely to take place since an overwhelming bear market has wiped more than 60 percent off domestic stock markets this year.
"Given the global financial chaos and a marked slowdown in the world economy, the domestic economy may head for a downward spiral," Premier Wen Jiabao said in a statement last month. His comment indicated the government's growing concerns about far-reaching damage to the broader economy if the stock market, overshadowed by the roaring U.S. financial fallout, is further left to find equilibrium on its own.
As the latest effort in a string of moves to shore up the shaky confidence in domestic markets, the central bank on October 8 announced cuts in both the reserve-requirement ratio and the benchmark one-year deposit and loan interest rate, by 0.5 percentage points as of October 15, and by 0.27 percentage points as of October 9. On the same day, the State Council suspended the 5-percent tax levied on the interest income of bank deposits starting on October 9.
Prior to that, the China Securities Regulatory Commission (CSRC) announced on October 5 that it would shortly start a trial program for financially sound securities firms to engage in margin trading and short selling. Margin trading allows investors to borrow money from brokerages to buy shares, while short selling lets them sell securities that they do not own, but have borrowed from securities firms. Short sellers then try to buy back the stock at a lower price, attempting to profit from an expected decline in the stock price. Analysts say the program will bring a measure of calm to the shell-shocked market because brokerages currently have much more cash available to lend than shares, and the scale of any margin trading would far outweigh that of short selling in the initial stages.
The CSRC said in the announcement that the program, in the long run, would inject more vitality into the market and bump up liquidity. More importantly, it could provide a vehicle for investors to hedge against risks, diversify the business of brokerages and help the fledgling market mature beyond the boom-bust cycle, it said.
Analysts say the stock market has appeared to be bottoming out since the central bank on September 16 cut interest rates for the first time in more than six years. The central bank also lowered the reserve requirement ratio for small banks, further salving the wounds of small and medium-sized enterprises starved of liquidity. The surprise move was widely interpreted as a decisive shift by the government toward bucking growth after protracted inflation fears that had crimped the economy.
The interest rate cut came just a few hours after Lehman Brothers Holdings Inc. announced it had filed for bankruptcy. It is expected to prevent external pressure on China's domestic economy from becoming entrenched, although the central bank made no mention of the U.S. economic washout in announcing the rate cut. Domestically, the country's inflation eased to 4.9 percent in August from 8.7 percent in February, removing the major stumbling block to the government's stimulation efforts.
In another move, the country encouraged government entities to lift their stakes or buy back shares of major listed banks and companies that they control to provide a floor for the tumbling market. The share-buying mania of listed companies was led by Central Huijin Investment Co. Ltd. (Huijin), an investment arm of the government, which already held majority stakes in the Industrial and Commercial Bank of China Ltd., Bank of China Ltd. and China Construction Bank Corp. Huijin purchased 2 million new shares of each bank on September 23, infusing some steam into the market's recovery.
Moreover, regulators lifted the stamp tax on share purchases on September 19-the first time in history that the government had levied a unilateral stamp tax on stock trades. This move enlivened stock trading in the following days.
On the fiscal front, the government this year dropped administrative fees for individually-owned businesses and reinstated higher export tax rebates for textiles and some other products. Besides this, the country's embrace of a reformed value-added tax system is expected to further alleviate the burden on enterprises. Analysts also believe that more fiscal stimuli are on the way as the risks of an economic freefall deepen.
Affect on China
Premier Wen Jiabao reassured investors at the beginning of October that the government would continue to support a stable capital market, prop up exporters and spur the consumer market as the country edges toward a market-driven economy.
The foundations of the Chinese economy remain solid with a fluid and resilient financial market, Wen said. "But the impact of the U.S. financial meltdown on the Chinese economy should not be underrated, and efforts to maintain a healthy financial sector should not be relaxed," he said.
China's safeguards against the U.S. financial meltdown had come more swiftly than expected. The central bank said in a statement on October 4 that the country's financial regulators had put in place counteractive programs, including stronger financial oversight and risk controls.
Meanwhile, the central bank has pledged to work closely with international financial institutions to scan every corner of the global financial system where a new set of risks may hide.
"We are confident and well-positioned to maintain a stable financial system and a sound real economy through a variety of flexible control measures," the central bank's statement said.
Fending off the Crisis
October 10, 2008
LAN XINZHEN
The U.S. financial crisis is having an adverse impact on China, but also offers some opportunities and lessons for the country
The U.S. financial crisis was a hot topic at the World Economic Forum's summer meeting in the Chinese port city of Tianjin in late September. More than 1,000 participants discussed what role China would play in global economic leadership in the years ahead and its economic development.
In light of the U.S. financial crisis, Chinese companies, just as other international firms, must overcome the challenges it has introduced to play a significant role in global economic leadership in the future. How companies should cope with the risks of the crisis was the central focus of the participants at the Annual Meeting of the New Champions, also known as the Second Summer Davos Forum.
Making the Best of It
The U.S. financial crisis has directly affected the Chinese banking industry. Many Chinese banks do business with U.S. financial companies, and China considers the U.S. financial market as its model for financial reform.
Liu Mingkang, Chairman of the China Banking Regulatory Commission (CBRC) and one of the speakers at the forum, said on September 27 that despite the current financial turmoil, China would make the best of the situation to improve its information sharing system. He said the CBRC has cooperated with bank regulators from various countries and signed 32 memorandums of understanding for cooperation.
"Since the beginning of this financial turmoil, we have been providing various kinds of very important information, telling our opinions to financial regulators of other countries in a friendly but straightforward way," Liu said. He also said the CBRC would adopt a more effective way to protect the depositors so they could avoid losses from the financial crisis, but he did not provide details.
On September 16, the day that Lehman Brothers Holdings Inc. said it had filed for bankruptcy, the People's Bank of China, the country's central bank, lowered the interest rate on loans as well as the deposit reserve rate to allow more capital to enter the market. It was one of the steps the central bank has taken of late to loosen the tight monetary policy that has been in place for more than a year.
When the U.S. financial crisis started, some Chinese economists suggested that China's financial institutions purchase U.S. financial stocks. But Jiang Jianqing, Board Chairman of Industrial and Commercial Bank of China (ICBC), said at a forum session on September 27 that his bank would hold on tight to its "pockets" instead of "bottom fishing" for U.S. financial stocks.
"We are still stressing our investment base on strategies, but not on finance," Jiang said.
Liu added that China's banking industry also was ready to absorb unemployed talent from the Wall Street.
Boon for Venture Capital
The venture capital sector is one of the fuses that ignited the current U.S. financial crisis. John Zhao, CEO of Beijing Hony Future Investment Advisor Ltd., said he believes that while the crisis may have a negative impact on China's investment banking industry, it would not be the same overwhelming disaster that it has been for American investment banks. Unlike U.S. institutions, Chinese investment banks are still in the initial stages of development, and bankers are making cautious investment decisions.
Zhao said the U.S. financial turmoil has brought an opportunity of transformation for those in the Chinese venture capital sector who have not yet experienced a financial crisis. It would let them draw on the experience and learn its lessons to prevent similar mistakes, he said. Although the five largest U.S. investment banks have now either closed their doors or been taken over by other companies, Zhao said Chinese investment banks would continue to grow, because China's economy is developing quickly and offers many attractive investment opportunities.
Chen Hong, Board Chairman of the Hina Group, also believes that China's venture capital and private equity sectors are still in the initial stages of development and that the country's economy will continue its high-speed growth over the next decade. Currently, Chinese venture capital firms invest billions of dollars each year in only a few hundred companies, while most of China's 27 million small and medium-sized enterprises find no access to such capital. This, on the other hand, projects the broad vista for Chinese venture investors.
At present, most of China's venture capital and private equity firms are located in major cities such as Beijing, Shanghai and Shenzhen, and in some second-tier cities such as Chongqing, Dalian and Tianjin. Chen noted there are many excellent companies in other cities that need, but cannot obtain investment, because venture capital firms are not familiar with the cities or that entrepreneurs do not know how to contact them.
"When people are familiar with this sector, I think there will be more companies of better quality that can get investment from venture capital firms, so I am not worried about the development of China's venture capital and private equity sectors," he said.
Going Global
Skyworth Group Co. Ltd. is a Chinese electronics company in the process of going global. Zhang Xuebin, the company's board chairman and chief executive officer, said at the forum that he believes it is difficult for Chinese companies that want to do business internationally to make an assessment now about how the U.S. financial crisis will affect their prospects. But in general, the crisis would serve as a good opportunity for more Chinese enterprises to become international players.
Whenever an economic or financial crisis occurs, some companies collapse while others grow stronger, Zhang said. For example, South Korea's Samsung Group grew very rapidly after the Asian Financial Crisis a decade ago, he added.
"I think that the market will finally be concentrated around some strong companies," Zhang said. "As often happens, a crisis or difficult period is the best time for such concentration to be accomplished."
The current financial crisis would make it difficult for some small and medium-sized enterprises to survive or maintain their previous operating pace, thereby forfeiting many market resources, Zhang said. As for Skyworth, Zhang said he views the crisis as an opportunity and not a threat, because the company has been growing quickly and is at the forefront of China's color TV industry.
Because the financial crisis will have the greatest impact on companies in developed countries, Wang Jianzhou, Board Chairman and CEO of China Mobile Communications Corp., said at the forum on September 28 that his company's international strategy would mainly focus on prominent emerging markets, where companies from developed countries may not set up operations because they are mired in the current financial turmoil.
Real Estate Woes
Forum participants also discussed the fallout from the U.S. subprime mortgage crisis on the real estate market as one of the root causes of the overall financial turmoil. They raised questions as to whether China's overheated real estate market would experience a similar situation.
Guo Shuqing, Board Chairman of China Construction Bank, believes such concerns are unnecessary.
"On China's housing loan market, there won't be a subprime mortgage crisis as in the United States," Guo said at the forum. He pointed out that China's home loans, which amount to 3 trillion yuan ($439 billion), account for only 13 percent of the country's GDP, much less than the 50 percent of GDP they account for in the United States.
Ronnie Chichung Chan, Board Chairman of the Hong Kong-based Hang Lung Properties Ltd., said on September 27 that China's real estate market would not suffer a collapse, because the government has been aware of the industry's overheated development and has adopted macroeconomic measures to cool down the market.
Although domestic property developers are not experiencing serious problems, it does not mean they have not or will not be affected by the financial crisis, Chan said. At present, most must deal with broken capital chains, a problem that the current financial crisis makes doubly difficult to solve.
"Some real estate companies will be inevitably knocked out," Chan said.
It will take time for the country's real estate industry to be further reorganized, but when it happens, the industry will emerge stronger and more orderly, he added.
LAN XINZHEN
The U.S. financial crisis is having an adverse impact on China, but also offers some opportunities and lessons for the country
The U.S. financial crisis was a hot topic at the World Economic Forum's summer meeting in the Chinese port city of Tianjin in late September. More than 1,000 participants discussed what role China would play in global economic leadership in the years ahead and its economic development.
In light of the U.S. financial crisis, Chinese companies, just as other international firms, must overcome the challenges it has introduced to play a significant role in global economic leadership in the future. How companies should cope with the risks of the crisis was the central focus of the participants at the Annual Meeting of the New Champions, also known as the Second Summer Davos Forum.
Making the Best of It
The U.S. financial crisis has directly affected the Chinese banking industry. Many Chinese banks do business with U.S. financial companies, and China considers the U.S. financial market as its model for financial reform.
Liu Mingkang, Chairman of the China Banking Regulatory Commission (CBRC) and one of the speakers at the forum, said on September 27 that despite the current financial turmoil, China would make the best of the situation to improve its information sharing system. He said the CBRC has cooperated with bank regulators from various countries and signed 32 memorandums of understanding for cooperation.
"Since the beginning of this financial turmoil, we have been providing various kinds of very important information, telling our opinions to financial regulators of other countries in a friendly but straightforward way," Liu said. He also said the CBRC would adopt a more effective way to protect the depositors so they could avoid losses from the financial crisis, but he did not provide details.
On September 16, the day that Lehman Brothers Holdings Inc. said it had filed for bankruptcy, the People's Bank of China, the country's central bank, lowered the interest rate on loans as well as the deposit reserve rate to allow more capital to enter the market. It was one of the steps the central bank has taken of late to loosen the tight monetary policy that has been in place for more than a year.
When the U.S. financial crisis started, some Chinese economists suggested that China's financial institutions purchase U.S. financial stocks. But Jiang Jianqing, Board Chairman of Industrial and Commercial Bank of China (ICBC), said at a forum session on September 27 that his bank would hold on tight to its "pockets" instead of "bottom fishing" for U.S. financial stocks.
"We are still stressing our investment base on strategies, but not on finance," Jiang said.
Liu added that China's banking industry also was ready to absorb unemployed talent from the Wall Street.
Boon for Venture Capital
The venture capital sector is one of the fuses that ignited the current U.S. financial crisis. John Zhao, CEO of Beijing Hony Future Investment Advisor Ltd., said he believes that while the crisis may have a negative impact on China's investment banking industry, it would not be the same overwhelming disaster that it has been for American investment banks. Unlike U.S. institutions, Chinese investment banks are still in the initial stages of development, and bankers are making cautious investment decisions.
Zhao said the U.S. financial turmoil has brought an opportunity of transformation for those in the Chinese venture capital sector who have not yet experienced a financial crisis. It would let them draw on the experience and learn its lessons to prevent similar mistakes, he said. Although the five largest U.S. investment banks have now either closed their doors or been taken over by other companies, Zhao said Chinese investment banks would continue to grow, because China's economy is developing quickly and offers many attractive investment opportunities.
Chen Hong, Board Chairman of the Hina Group, also believes that China's venture capital and private equity sectors are still in the initial stages of development and that the country's economy will continue its high-speed growth over the next decade. Currently, Chinese venture capital firms invest billions of dollars each year in only a few hundred companies, while most of China's 27 million small and medium-sized enterprises find no access to such capital. This, on the other hand, projects the broad vista for Chinese venture investors.
At present, most of China's venture capital and private equity firms are located in major cities such as Beijing, Shanghai and Shenzhen, and in some second-tier cities such as Chongqing, Dalian and Tianjin. Chen noted there are many excellent companies in other cities that need, but cannot obtain investment, because venture capital firms are not familiar with the cities or that entrepreneurs do not know how to contact them.
"When people are familiar with this sector, I think there will be more companies of better quality that can get investment from venture capital firms, so I am not worried about the development of China's venture capital and private equity sectors," he said.
Going Global
Skyworth Group Co. Ltd. is a Chinese electronics company in the process of going global. Zhang Xuebin, the company's board chairman and chief executive officer, said at the forum that he believes it is difficult for Chinese companies that want to do business internationally to make an assessment now about how the U.S. financial crisis will affect their prospects. But in general, the crisis would serve as a good opportunity for more Chinese enterprises to become international players.
Whenever an economic or financial crisis occurs, some companies collapse while others grow stronger, Zhang said. For example, South Korea's Samsung Group grew very rapidly after the Asian Financial Crisis a decade ago, he added.
"I think that the market will finally be concentrated around some strong companies," Zhang said. "As often happens, a crisis or difficult period is the best time for such concentration to be accomplished."
The current financial crisis would make it difficult for some small and medium-sized enterprises to survive or maintain their previous operating pace, thereby forfeiting many market resources, Zhang said. As for Skyworth, Zhang said he views the crisis as an opportunity and not a threat, because the company has been growing quickly and is at the forefront of China's color TV industry.
Because the financial crisis will have the greatest impact on companies in developed countries, Wang Jianzhou, Board Chairman and CEO of China Mobile Communications Corp., said at the forum on September 28 that his company's international strategy would mainly focus on prominent emerging markets, where companies from developed countries may not set up operations because they are mired in the current financial turmoil.
Real Estate Woes
Forum participants also discussed the fallout from the U.S. subprime mortgage crisis on the real estate market as one of the root causes of the overall financial turmoil. They raised questions as to whether China's overheated real estate market would experience a similar situation.
Guo Shuqing, Board Chairman of China Construction Bank, believes such concerns are unnecessary.
"On China's housing loan market, there won't be a subprime mortgage crisis as in the United States," Guo said at the forum. He pointed out that China's home loans, which amount to 3 trillion yuan ($439 billion), account for only 13 percent of the country's GDP, much less than the 50 percent of GDP they account for in the United States.
Ronnie Chichung Chan, Board Chairman of the Hong Kong-based Hang Lung Properties Ltd., said on September 27 that China's real estate market would not suffer a collapse, because the government has been aware of the industry's overheated development and has adopted macroeconomic measures to cool down the market.
Although domestic property developers are not experiencing serious problems, it does not mean they have not or will not be affected by the financial crisis, Chan said. At present, most must deal with broken capital chains, a problem that the current financial crisis makes doubly difficult to solve.
"Some real estate companies will be inevitably knocked out," Chan said.
It will take time for the country's real estate industry to be further reorganized, but when it happens, the industry will emerge stronger and more orderly, he added.
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