Monday, 30 November 2009

More on China's excess capacity problem

Articles on China's capacity problem seem to come in waves. In a follow up to yesterday's post we see that the FT has jumped on the problem.

It is about time that the mainstream press woke up to the illusion that China has created through its massive stimulus package. There has to be payback and it may be coming sooner than we think.

This excess capacity will lead to pricing pressures in the US and Europe - touched on my Tyler in a previous blog post - leading to more firm closures in the West becuase you can bet that the Chinese government will and can afford to subsidise their companies longer that in Europe and the US (even if we were allowed to).

The cost of China’s excess capacity [FT]

The world has changed; but China has not. China has responded to the world financial crisis with what seems to be great success. But this is an illusion. China’s solution – a surge in spending on investment – will create greater excess capacity. China’s high-savings, high-investment economy is costly for its people and destabilising for the world. The time for a radical reform is long past.

In a disturbing new report, the European Chamber of Commerce in China lays out the challenge in six sectors: aluminium, where the capacity utilisation rate is forecast to be 67 per cent in 2009; wind power, on 70 per cent; steel, on 72 per cent; cement, on 78 per cent; chemicals, on 80 per cent; and refining, on 85 per cent. Yet vast additional capacity is on the way.

The scale of the excess capacity is breathtaking. At the end of 2008, China’s steel capacity was 660m tons against demand of 470m tons. This difference is much the same as the European Union’s total output. Yet, notes the report, “there are currently 58m tonnes of new capacity under construction in China”. To the extent that gross domestic product is driven by such absurd spending is a measure of waste, not of economic welfare.

Foreign producers fear the impact of China’s growing surplus capacity on their markets. But this is not just a problem for specific industries. It is a broader problem. China has become hooked on an unbalanced pattern of economic development, in which investment cures this year’s excess capacity by increasing next year’s.

In China’s current development model, household income is taxed, to support corporate profits. Corporations now generate more than half of China’s huge savings. Since consumption tends to grow more slowly than GDP, excess capacity can only be used up via yet more investment or exports. This year, economic crisis has made the latter impossible. But China desperately needs to expand its exports once again. The result may well be a crisis in the trading system.

China’s trading partners have to engage with the rising giant. They must explain that they cannot – and will not – absorb the surplus capacity its heavily distorted model of development is creating. But they can point out that this pattern also damages the standards of living of ordinary Chinese. China has to shift income from its corporations to its households and spending from investment to consumption. What is needed for that is a massive structural reform. This must start now. Indeed, it may already be too late.


Sunday, 29 November 2009

New York Times on future trouble in big China

Following on from the great petrol mystery comes the great China mystery in aggregate as reported by the New York Times.

Tyler is right to point out the high stakes that the Chinese government is now playing. It cannot afford to fail - the dollar peg aimed at boosting exports and hence growth has worked but the global recession is causing problems.

He is also right to point out the perverse incentives of regional officials. There is widespread "making up of numbers" from what I can gather.

This article is impressively doom-laden but it is about time that these issues were addressed elsewhere. Followers of this blog will know that I have been banging on about these topics for a while.

Civil unrest in China is a distinct possibility is the economy slips up to painfully.

Dangers of an Overheated China [New York Times]

PRESIDENT OBAMA’S recent trip to China reflects a symbiotic relationship at the heart of the global economy: China uses American spending power to enlarge its private sector, while America uses Chinese lending power to expand its public sector. Yet this arrangement may unravel in a dangerous way, and if it does, the most likely culprit will be Chinese economic overcapacity.

Several hundred million Chinese peasants have moved from the countryside to the cities over the last 30 years, in one of the largest, most rapid migrations in history.

To help make this work, the Chinese government has subsidized its exporters by pegging the renminbi at an unnaturally low rate to the dollar. This has supported relatively high-paying export jobs; additional subsidies have included direct credit allocation and preferential treatment for coastal enterprises.

These aren’t the recommended policies you would find in a basic economics text, but it’s hard to argue with success. Most important, it has given many more Chinese a stake in the future of their society.

Those same subsidies, however, have spurred excess capacity and created a dangerous political dynamic in which these investments have to be propped up at all cost.

China has been building factories and production capacity in virtually every sector of its economy, but it’s not clear that the latest round of investments will be profitable anytime soon. Automobiles, steel, semiconductors, cement, aluminum and real estate all show signs of too much capacity. In Shanghai, the central business district appears to have high vacancy rates, yet building continues.

Chinese planners now talk of the need to restrict investment in sectors that are overflowing with unsold products. The global market is no longer strong, and domestic demand was never enough in the first place.

Regional officials have an incentive to prop up local enterprises and production statistics, even if that means supporting projects or accounting practices that are not sustainable. For an individual business, the standard way to get more capital resources is to put forward a plan for growth. Because few sectors are mature, and growth has been so widespread, everyone can promise to be profitable in the future.

Over all, there is a lack of transparency. China’s statistics on its gross domestic product are based more on recorded production activity than on what is actually sold. Chinese fiscal and credit policies are geared toward jobs and political stability, and thus the authorities shy away from revealing which projects are most troubled or should be canceled.

Put all of this together and there is a very real possibility of trouble.

China has had a 30-year run of stellar economic growth. But it’s only human nature for such expansion to breed too much optimism, overextending an entire economy. Americans have found this out the hard way in their own financial crisis.

History has shown that no major economy has grown into maturity without bubbles, crises and possibly even civil strife or civil wars along the way. Is China exempt from this broader pattern?

The notions of excess capacity and malinvestment were common in business-cycle theory of the 19th and early 20th centuries, when growing Western economies had frequent crashes of this kind. Numerous writers, from the Rev. Thomas Malthus to the Austrian economist Friedrich A. von Hayek, warned about the overextension of unprofitable capital deployments and the pain from the inevitable crashes. These writers may well end up being a guide for understanding China today.

What will the consequences be for the United States if and when the Chinese economic miracle encounters a major stumble? A lot of Chinese business ventures will stop being profitable, and layoffs and unrest will most likely rise. The Chinese government may crack down further on dissent. The Chinese public may wonder whether its future lies with capitalism after all, and foreign investors in China will become more nervous.

In economic terms, the prices of Chinese exports will probably fall, as overextended businesses compete to justify their capital investments and recoup their losses. American businesses will find it harder to compete with Chinese companies, and there will be deflationary pressures in both countries. And even if the Chinese are selling more at lower prices, they may be taking in less money over all, so they may have less to lend to the United States government.

In any case, China may end up using more of its reserve funds to address domestic problems or placate domestic interest groups. The United States will face higher borrowing costs, and its fiscal position may very quickly become unsustainable.

That’s not so much a prediction as a very possible contingency, and we should be prepared for it. For now, we should avoid two big mistakes. The first would be to assume that just because borrowing costs are now low, we can postpone fiscal responsibility and keep running up the tab — with the aid of Chinese lending, of course. The history of financial crises shows that turning points can come swiftly and without much warning.

The second mistake would be to demand too many concessions from the Chinese. What we see in the numbers today are a growing China and a somewhat ailing America. Yet there’s a real chance that, soon enough, Chinese economic weakness will be a bigger problem than was Chinese economic strength.


Cars in China and the great missing petrol mystery

In this blog we often ponder the reliability of any data that China provides. The great missing "petrol" mystery has been covered by no less that the Economist.

I have to say that the rumour that China's state owned companies have been buying shed loads of cars and storing them in car parks is just too odd to be made up. It is thus clearly true.

After seeing the clogged up roads in 3 Chinese cities last month it is hard to believe that people are driving less. Slower I agree with but not less.

Never underestimate either the power of state owned enterprises on over estimate the quality of Chinese data.

Exhaust fumes and mirrors [Economist]

IN JANUARY sales of vehicles in China surpassed those in America. Passenger-car sales have grown by around 45% this year. Yet sales of petrol have failed to keep pace (see chart). Attempts to explain this baffling phenomenon come up with widely differing answers, in part because the data present problems at every turn. It is not known for sure, for example, how many cars are being sold by dealers to their final owners; nor how much petrol is being sold at the pump. The car-scrappage rate is also obscure, so the growth of China’s total passenger-car stock is hard to calculate. When it comes to questions of consumer behaviour, such as distances travelled by car owners and how these are affected by petrol prices, tolls or other costs, the guesswork multiplies.

By the end of October sales of passenger cars from factories to dealers this year had reached 8.2m. Arthur Kroeber of Dragonomics, a consultancy, estimates that this could mean an increase in the total number of passenger cars in use of between 20% and 25%. Petrol sales are hard to quantify. But partial data from the first nine months suggest there has been hardly any increase.

One dramatic explanation has been proposed by Gordon Chang, an author and longtime doomsayer on China. Mr Chang wrote in October in Forbes magazine of what he admitted were unconfirmed reports that central-government officials had ordered state-owned enterprises to buy cars, which had then simply been stored in car parks.

Stephen Green of Standard Chartered, a bank, offers a more prosaic explanation. People are buying more fuel-efficient cars, he suggests, and are using their cars less because of high fuel prices. Much of the growth in car sales this year has been encouraged by tax cuts on sales of small cars, which use less fuel. And Mr Green says petrol is 20% dearer than it was two years ago, creating a “powerful reason to drive less”. Mr Kroeber says that uncertainties remain even after taking account of these factors, and the figures were inconsistent even when gas-guzzlers were more common. But he rejects Mr Chang’s theory. “It’s just a reflection that China is a big and chaotic place” rife with incomplete data, he says.


Saturday, 28 November 2009

More on China's Dollar problem

China's accumulation of vast quantities of dollars has always interested me - the death grip that the US and China have got into can only end in carnage somewhere down the line. When and what the trigger will be is still beyond me.

Harvard's Ken Rogoff comments. He is absolutely right to bring in the experience of the Europe in the 1970's.

I have a suspicion that the US will inflate its way out of debt. Betting on higher inflation in the US might be a good bet.

He is also right to point out that domestic consumption is not something that will change over night. Rogoff points out there is room to grow but I still think he is overstating the case. Consumption in China will take decades to reach Western levels.

China’s Dollar Problem [Project Syndicate]

CAMBRIDGE – When will China finally realize that it cannot accumulate dollars forever? It already has more than $2 trillion. Do the Chinese really want to be sitting on $4 trillion in another five to 10 years? With the United States government staring at the long-term costs of the financial bailout, as well as inexorably rising entitlement costs, shouldn’t the Chinese worry about a repeat of Europe’s experience from the 1970’s?

During the 1950’s and 1960’s, Europeans amassed a huge stash of US Treasury bills in an effort to maintain fixed exchange-rate pegs, much as China has done today. Unfortunately, the purchasing power of Europe’s dollars shriveled during the 1970’s, when the costs of waging the Vietnam War and a surge in oil prices ultimately contributed to a calamitous rise in inflation.

Perhaps the Chinese should not worry. After all, the world leaders who just gathered at the G20 summit in Pittsburgh said that they would take every measure to prevent such a thing from happening again. A key pillar of their prevention strategy is to scale back “global imbalances,” a euphemism for the huge US trade deficit and the corresponding trade surpluses elsewhere, not least China.

The fact that world leaders recognize that global imbalances are a huge problem is welcome news. Many economists, including myself, believe that America’s thirst for foreign capital to finance its consumption binge played a critical role in the build-up of the crisis. Cheap money from abroad juiced an already fragile financial regulatory and supervisory structure that needed discipline more than cash.

Unfortunately, we have heard leaders – especially from the US – claim before that they recognized the problem. In the run-up to the financial crisis, the US external deficit was soaking up almost 70% of the excess funds saved by China, Japan, Germany, Russia, Saudi Arabia, and all the countries with current-account surpluses combined. But, rather than taking significant action, the US continued to grease the wheels of its financial sector. Europeans, who were called on to improve productivity and raise domestic demand, reformed their economies at a glacial pace, while China maintained its export-led growth strategy.

It took the financial crisis to put the brakes on US borrowing train – America’s current-account deficit has now shrunk to just 3% of its annual income, compared to nearly 7% a few years ago. But will Americans’ newfound moderation last?

With the US government currently tapping financial markets for a whopping 12% of national income (roughly $1.5 trillion), foreign borrowing would be off the scale but for a sudden surge in US consumer and corporate savings. For the time being, America’s private sector is running a surplus that is sufficient to fund roughly 75% of the government’s voracious appetite. But how long will US private sector thrift last?

As the economy normalizes, consumption and investment will resume. When they do – and assuming that the government does not suddenly tighten its belt (it has no credible plan to do so) – there is every likelihood that America’s appetite for foreign cash will surge again.

Of course, the US government claims to want to rein in borrowing. But, assuming the economy must claw its way out of recession for at least another year or two, it is difficult to see how the government can fulfill its Pittsburgh pledge.

Yes, the Federal Reserve could tighten monetary policy. But they will not worry too much about the next financial crisis when the aftermath of the current one still lingers. In our new book This Time is Different: Eight Centuries of Financial Folly , Carmen Reinhart and I find that if financial crises hold one lesson, it is that their aftereffects have a very long tail.

Any real change in the near term must come from China, which increasingly has the most to lose from a dollar debacle. So far, China has looked to external markets so that exporters can achieve the economies of scale needed to improve quality and move up the value chain. But there is no reason in principle that Chinese planners cannot follow the same model in reorienting the economy to a more domestic-demand-led growth strategy.

Yes, China needs to strengthen its social safety net and to deepen domestic capital markets before consumption can take off. But, with consumption accounting for 35% of national income (compared to 70% in the US!), there is vast room to grow.

Chinese leaders clearly realize that their hoard of T-Bills is a problem. Otherwise, they would not be calling so publicly for the International Monetary Fund to advance an alternative to the dollar as a global currency.

They are right to worry. A dollar crisis is not around the corner, but it is certainly a huge risk over the next five to 10 years. China does not want to be left holding a $4 trillion bag when it happens. It is up to China to take the lead on the post-Pittsburgh agenda.


Friday, 27 November 2009

EU piles on RMB pressure

It is not only the US who want to see the RMB appreciate. Now the EU want in on the act. This pressure will have a limited impact.

EU leaders step up pressure on renminbi [FT]

China will come under renewed pressure this weekend to begin strengthening its currency when three of Europe’s most senior economic policymakers visit the country.

Ten days after Barack Obama, US president, called for an appreciation of the renminbi during a trip to Beijing, a similar case will be made by Jean-Claude Trichet, European Central Bank president, Joaquin Almunia, the European Union’s economic affairs commissioner, and Jean-Claude Juncker, the Luxembourg prime minister who chairs eurozone finance minister meetings.

The three policymakers will be in Nanjing this weekend, ahead of Monday’s EU-China summit to be held in the eastern city. The meetings with their Chinese counterparts come at a time of increasing international attention on the renminbi which has been effectively pegged to the US dollar since the middle of 2008. Concerns that China is getting a competitive advantage by tracking the weakening dollar have been particularly acute in Europe, given the euro’s strength.

Beijing says China needs a stable exchange rate against the dollar to assist its economic recovery, which it says has benefited the rest of the world.

A meeting of the ruling Politburo on Friday gave no indication that China planned to pull back the aggressive stimulus measures it has adopted this year. A summary of the meeting read on the main national news on Friday night, which made no reference to currency policy, said that the government would maintain “active fiscal policy and appropriately relaxed monetary policy”.

There have been a few hints that policy could change, most notably the announcement from the central bank three weeks ago that the exchange rate would take into account “capital flows and major currency movements”, an acknowledgement of both the large speculative inflows of capital that China is receiving and the weakness in the US dollar.

European policymakers have no illusions that China’s exchange rate policy will change overnight but see their visit this weekend as part of a process of gradual persuasion.

Like the US, the European authorities favour an orderly appreciation of the Chinese currency. They fear a global economic adjustment process in which the euro strengthens further, hitting export prospects. However, Europe’s tactics have been lower key than the public pressure Washington has tried to exert on Beijing.



Thursday, 26 November 2009

Economist special report on China-US relations

A recent edition of the Economist published an excellent 16 page special on the China-US relationship. I was in China when it came out so could not blog about it then.

The most interesting article in called "round and round it goes" and touches on the "two drunks propping each other up" argument relating US spending, exchange rates and China's Treasury holdings.

There is some truth in the argument that China has been kidnapped by the US. I suspect the US will try to inflate away its debt and China will be the loser.

Here is the full report.

A wary respect [Economist]

Here is the report on the unsustainable position of US buying Chinese exports and China buying US treasuries. It cannot continue. Most of this article is old news to those who read this blog and I also disagree on a number of points. A new round of protectionism is possible but I believe that China is learning the game very quickly and thus I suspect this is not where the real problem lies.

Round and round it goes [Economist]

AT ONE stage it all seemed to be working, even if it appeared a little surreal. China, a developing country, lent vast amounts of money to wealthy America to feed its spending habit. Americans spent the money on Chinese-made goods, sending the dollars back to China, which lent them to America again. But now many talk of a decoupling of the two economies. Niall Ferguson, a Harvard historian who, only a couple of years ago, popularised the term “Chimerica” for the symbiosis between the two, now says it is a marriage headed for the rocks.


You lose, we lose

As far as the economy is concerned, China heartily agrees. It may grumble about the dollar’s dominance in the global trading system, but it has no desire to pull the rug from under America’s economy. A run on the dollar would be a blow to China itself, slashing the value of its stash of over $800 billion in US Treasuries. Chinese officials also worry openly about a possible resurgence of inflation in America, which would also drive down the value of the dollar. The American budget deficit spooks China, but appears to make little difference to its willingness to lend. China, says Wu Xiaoqiu of Renmin University, has been “kidnapped” by America’s currency. China’s purchases of US Treasuries will naturally slow down along with its export growth. But for now the country is still piling them up.

China may dream of a different world in which the yuan ranks alongside the dollar, euro, sterling and yen as a reserve currency. It is beginning to promote use of the yuan instead of the dollar in transactions with some of its trade partners, but it has set no timetable for making its currency convertible. In September it bought $50 billion in IMF bonds to boost its influence in the institution and strengthen the role of non-dollar currencies (IMF bills are linked to a basket of currencies). But China has not sought to ease the Americans or Europeans out from their dominant roles in the World Bank and the IMF.

When Timothy Geithner, now treasury secretary, said during a Senate confirmation hearing in January that Mr Obama believed China was “manipulating” its currency to gain an unfair trade advantage, the administration was quick to back away from the remark. The yuan’s value has hardly been mentioned in public since. A recent study by the Peterson Institute says that the yuan remains “significantly undervalued”, by 15-25% against a weighted average of the currencies used by China’s trading partners. But American officials know just how prickly China can get when it is accused of mercantilism.

As Americans save more and buy less from China, America’s trade deficit with China—which has been its biggest with any country since 2000—will shrink anyway. But protectionist sentiment in both countries will remain strong. Mr Obama’s decision in September to impose punitive tariffs on imports of Chinese steel pipes and tyres infuriated the Chinese government, although it has so far resisted lashing out (summitry with Mr Obama being too big a party to spoil).


The pungent smell of money

What has been the best investment in China this year? Gold? Copper? No, the humble garlic bulb. Why? Because of swine flu.


What is more sinister is the rumours of "bulb hording" - the Chinese are learning about the dark arts of capitalism very quickly indeed.

I like this story. I am not sure why, but I like it.

Hold Your Nose: Garlic Is Best Investment In China [PlanetArk]

BEIJING - The price of garlic in China has nearly quadrupled since March, propelled by its very pungency to rank ahead of gold and stocks as the country's best-performing asset this year.

The trigger for the bull run may have been the idea that the potent bulb can ward off H1N1 swine flu, Morgan Stanley economists said.

That chimes with some anecdotal evidence. The China Daily reported last week that a high school in Hangzhou, a prosperous city in eastern China, had bought 200 kg of garlic and forced students to eat it every day for lunch to stay healthy.

"I don't know about H1N1, but it can prevent ordinary colds," Zhang Ping, 74, told Reuters at a vegetable market in Beijing. "Take me. I've not had cold for many years and every year I buy several dozen pounds of garlic."

Others have been looking for darker forces behind the surge.

China Business News said coal mine bosses -- who are often depicted as being both extremely rich and nefarious speculators -- had been playing the garlic market, hoarding bulbs and hauling them between storehouses.

Garlic served as a case study of the asset price appreciation that Morgan Stanley thinks China will have to contend with after a flood of lending by banks to help fight off the global financial crisis.

In some parts of Shandong province, the wholesale price of garlic is up as much as 40-fold.

"Too much liquidity in any market can lead to speculation," analyst Jerry Lou said in a research note this week. "The most recent evidence of asset speculation in China's commodity markets has been for garlic."

But a more mundane factor may lie at the root of it all.

Garlic prices were extremely low last year, convincing many farmers that it was not worth planting the crop again, a wholesale trader was quoted as saying in the Nanfang Daily.

Supply could not keep up with a pick-up in demand from home and abroad, sending prices sky-high, the trader said.

Yi Xianrong, a researcher with the Chinese Academy of Social Sciences, a top government think-tank, said there was no need for panic.

"The garlic market is cyclical. Price rises are short-term and they will fall again before long," Yi told Reuters.


Saturday, 21 November 2009

"China and the Manufacturing Terms-of-Trade of African Exporters"

China's relationship with Africa is a subject that I am currently interested in. This recent paper in the Journal of African Economics is a decent place to start.

When I indirectly considered this issue for China's Asian neighbour's China's increased exports more than compensated. This may not work for African countries as this paper shows. Interesting results.

China and the Manufacturing Terms-of-Trade of African Exporters"

Journal of African Economies, Vol. 18, Issue 5, pp. 781-823, 2009

NELSON B. VILLORIA, Purdue University

China's export expansion is commonly associated with lower global manufacturing prices. For most countries, lower prices heighten global competition but also allow importing a cheaper and wider set of inputs and consumer goods. This paper investigates the balance of these two forces in Kenya, Mauritius and the Southern Africa Customs Union, the largest exporters of manufactured goods in sub-Saharan Africa. The paper uses the economic geography model of Redding and Venables (in Economic geography and international inequality, Journal of International Economics, 62, 53-22, 2004) to decompose the import growth of a large number of countries into supply and demand capacities. This decomposition allows for analysis of the extent to which China's export growth has altered manufacturing import and export prices for the selected countries. The study finds that China has significantly decreased world prices in major markets for manufactures, especially textiles, wearing apparel and footwear, potentially displacing the clothing exports of the selected African countries. As a consequence of China's export growth, these focus countries have also seen substantial reductions in their import prices across all manufacturing sectors. However, an estimation of their terms-of-trade suggests that the reductions in export prices outweigh the decrease in import prices and the countries are deemed to lose from China's manufactures export expansion.


Thursday, 19 November 2009

Property: The bubble that keeps on inflating

In recent weeks I have read articles in the economist arguing that these is no bubble in Chinese property. I am not in that camp and believe that there is a bubble that is getting to dangerous proportions.

At last the FT is taking this issue seriously. I will not repeat the reasons - some are covered below. Just think Japan in the late 1980's and Japan's subsequent growth rate ever since.

The problem is a lack of alternative investments for the cash rich in China and loose lending by out of control banks.

This article represents a useful introduction.

Fears of China property bubble [FT]

A large bubble is forming in China’s property market as a result of Beijing’s credit-driven stimulus programme, one of the country’s most prominent real estate developers warned.

Zhang Xin, chief executive of Soho China, one of the country’s most successful privately owned property developers, told the Financial Times the asset bubble was leading to rampant wasteful investment in the sector, undermining the country’s long-term growth prospects.

“Real estate prices should only go up because people want to actually use the space, but at the moment we can see more and more empty buildings across the whole country and in every real estate segment,” Ms Zhang said. “The rising prices are a direct result of so much money coming from the banks and the Chinese banks should be very worried.”

Ms Zhang’s assessment was echoed by Fan Gang, a member of the central bank’s monetary policy committee, who warned on Wednesday that real estate in cities such as Beijing, Shanghai and Shenzhen was expensive and there was a growing risk of asset price bubbles.

Urban property prices in 70 big and medium-sized Chinese cities rose 3.9 per cent in October from a year earlier, accelerating from September’s 2.8 per cent rise, according to government figures.

Price rises in top-tier markets such as Beijing and Shanghai have been much faster. Analysts say the rebound has largely been driven by an unprecedented government-led expansion of bank lending. It is also being driven by government policies, including tax breaks, low interest rates and smaller down-payment requirements.

Investment in real estate development, a key driver of economic growth, rose 18.9 per cent in the first 10 months of the year on a year earlier, a marked acceleration from 17.7 per cent growth in January-September.

Ms Zhang said the current speculation should be a serious warning for the industry and the general economy.

“In Manhattan, they have vacancy rates of 10-15 per cent and they feel like the sky is falling, but in Pudong [the central business district in Shanghai] vacancy rates are as high as 50 per cent and they are still building new skyscrapers,” she said.

“If you look at GDP growth, then China looks like a new engine driving the global economy, but if you look at how growth is being created here by so much wasteful investment you wouldn’t be so optimistic.”


Wednesday, 18 November 2009

50 best blogs about China

Another one of those "50 best something or other lists".

This one is on China and includes China Economics Blog.

Some useful sites that might be worth checking out.

50 Best Blogs to Learn All About China[Onlien Schools]

Over the past few decades China has risen to be one of the world’s biggest economic and political powers. Yet even as it has gained increasing recognition on the world stage, many people know little about Chinese culture, day-to-day life and politics. For those who can’t afford to fly around the world to explore in person, these blogs offer a chance to learn more about this ancient culture, modern country and diverse population without ever having to leave home.

Here is the business and industry section:

Business and Industry

Learn more about China’s national and international economics in these blogs.

15. China Law Blog: Learn more about how Chinese law impacts business on this blog.
16. PanAsianBiz: This blog reports news stories from all over Asia, China included.
17. China Economics Blog: Here you’ll get analysis and stats all about China’s economic development.
18. Black China Blog: Check out this site to learn about China’s aluminum and raw materials market.
19. China Business Services Blog: This blog will help you keep up with business and economic news in China.
20. Experience Not Logic: Visit this site to read interesting posts about business and law.
21. Silk Road International Blog: If you want to know more about doing business with China, this blog is a great place to start finding information.
22. Grape Wall of China: Learn about the Chinese wine industry and how it markets to the world’s largest market here.
23. China Goods News: This site can help you learn more about Chinese goods made for export.
24. The China Observer: With great insights and commentary, this site is an essential read on business in China.


Monday, 16 November 2009

Pictures of Pollution in China

The blog post title says it all. These are great pictures that should be seen to be believed.

Some make for very depressing viewing and are very far from the hotel in central Beijing that I recently stayed at.

Amazing Pictures, Pollution in China [China Hush]


Education in China - the long march

THES have a good overview of the Chinese education system. Having recently spent some time in different Chinese Universities I have my own views on this.

China's University system is changing fast and the quality of the best students and best Universities is unrivalled. They are beginning to employ the best staff and paying good salaries.

More Universities are needed but UK Universities need to be aware of how rapidly things are changing.

My impression is the problems of red tape mentioned below are being overcome and that things are not quite as bad as they might first appear.

The long march [THES]

China is hungry for Western-style universities, not least to fuel its economy. Phil Baty reports on the efforts to uproot corruption and bureaucracy and build a dynamic and vibrant world-class system.


But higher education is at something of a crossroads. While grappling with the effects of explosive growth in quality and access, the Government has also prioritised a drive - which some describe as an "obsession" - to ensure that an elite cadre of universities joins the ranks of the world's best.

Analysts in and outside China warn that its exceptional progress to date could be stymied - and its goal to create a truly world-class system thwarted - without deep cultural reform. "One of China's great challenges is to strengthen the academic profession," says Philip Altbach, director of the Centre for International Higher Education at Boston College. "For a start, nationally only 9 per cent of China's university staff hold doctorates. Traditions of academic freedom and meritocratic norms for promotions are slow to develop. Plagiarism and other forms of corruption are frequently reported.

"For China to develop a really world-class higher education system, it will need to ensure that the human and the philosophical 'software' is as well developed as the 'hardware' of buildings and laboratories," Altbach says.

There is no doubt that the "hardware" he refers to is in place. At the creation of the People's Republic of China 60 years ago this month, higher education was "small and weak", Altbach writes in an article in the June 2009 issue of Economic and Political Weekly. In 1949, the sector had just 205 universities, and a total of only 1.16 million students. The new Communist regime looked to the Soviet model of higher education, splitting universities into smaller vocational institutions, separating teaching from research and restricting academic freedom.


According to a March 2009 report on tertiary education in China by the Organisation for Economic Co-operation and Development (OECD), the number of researchers in the country increased by 77 per cent between 1995 and 2004, to a total of 926,000. By the end of 2006, China became the world's biggest investor in research and development after the US, spending some $136 billion (£85 billion). A report published earlier this month by the UK's Department for Business, Innovation and Skills confirmed that China had overtaken the UK to become the world's second-biggest producer of scientific papers (see box page 34).


For Times Higher Education contributor Hong Bing, an associate professor at the School of Journalism at Fudan University in Shanghai, the main problem is bureaucracy.

"It is true that Chinese universities have made much progress," he says. "But I think that increasing bureaucratisation is the number-one obstacle to success. Bureaucracy poses a big threat to creating a campus culture that encourages the independence of academics and the cultivation of students."

The OECD report warns: "Chinese tertiary education remains highly regulated, and this regulation is highly centralised. However, the evidence from elsewhere in the world suggests that world-class institutions enjoy a degree of autonomy that is inadequate in China. World-class universities, in particular, flourish as autonomous - albeit accountable - institutions that encourage creativity, innovation, dynamism and responsiveness to demand. In today's world, all universities that aspire to global levels of excellence need to be agile, flexible and unencumbered by bureaucratic controls in order to succeed."


"Academic corruption ... is seriously damaging China's higher education and could affect China's ambitious bid for world-class status," he says. "China has many good policies to catch up in higher education. However, many of them have been terribly affected by corruption in their implementation, costing China a huge amount of resources and time. The problem is hard to overcome because it is so related to China's way of governance, and corruption has been in China for a long time."

He said that the problem persists because universities are controlled by Government and the Chinese administrative system is based on official authority and rank.


Altbach says: "China has had a policy of insisting that any foreign involvement in higher education in the country be in collaborative arrangements with Chinese partners. This is a wise policy as it ensures that Chinese institutions will have significant participation in decision-making at all levels, and also means that Chinese academic institutions can benefit from the ideas coming into the country - and ensure, as the Chinese say, that foreign imports will have 'Chinese characteristics' and meet local needs."

There are many varieties of such collaboration, he says. One example is the Xi'an Jiaotong University/University of Liverpool collaborative campus in Suzhou, which offers entire degree programmes in English, with degrees awarded jointly from the two partners. Another is the Johns Hopkins/Nanjing University joint degree, which is perhaps the oldest collaborative programme in China. There are also, Altbach adds, many smaller ones.

"Typically, both partners benefit," he says. "The Chinese institution gains experience, ideas, the prestige of a foreign link and added capacity. The overseas institution gets access to the Chinese market, perhaps earning profits from the arrangement, and establishes its 'brand name' in China's huge higher education marketplace."


China's growing prosperity has expanded the country's middle class enormously in recent decades, and this has in turn fuelled the explosion in university enrolments, writes Hannah Fearn.

However, the reservoir of potential students will begin to shrink from 2015 as the impact of the one-child policy starts to be felt.

Research carried out by the Economist Intelligence Unit on behalf of the British Council estimates that the demand for tertiary education in China will grow until 2013, presenting Chinese institutions and international universities with a huge pool of potential students.

The report, What Does the Future Hold?, notes how enrolment has shot up with China's sustained and substantial growth in gross domestic product.

At the time of the report's publication, China was the world's fourth-largest economy (more recent reports indicate that it has now climbed to third). Urban incomes, particularly on the east coast of the country, have increased markedly.

The middle-income band - those with a household income of more than £9,300 - is predicted to treble by the middle of the next decade.

"Higher education has already transitioned from being an advantage available only to the few to one that is available to the masses, with gross enrolment rising by around seven times since 1998," the report says.

Enrolment now stands at 20 per cent of the university-age population, and the Government plans to push the participation rate up to 40 per cent by 2020.


Saturday, 14 November 2009

China GDP per capita

China is a remarkable and fast growing country. However, GDP per capita is still low relative to the OECD and many other newly developed countries. The population size is the obvious cause.

This will have continued and profound implications not least regarding the real speed by which China will be able to grow as any capital investment needs to be costed against low wages.

From the inbox:

What is the GDP Per Capita for Every Country?

Click on the drop down menu in the right hand corner to see the groups that China belongs to. Current GCP per capita is $6000.


China Trip

Apologies yet again for some sluggish posting. This time, ironically, the lack of posts is due to the fact that I was actually working in China. Sadly, this blog is still blocked in the middle kingdom.

This is a shame as I have a lot of information that would be useful for students in China specifically regarding education opportunities in the UK.

One issue that is again taxing me is the reliability of data in China. This has always been a bugbear of mine but I am increasingly worried after talking to those at the coal face.

As an economist who has written a number of papers using Chinese data I am beginning to doubt the reliability of any results in empirical papers on China.

Officials in local regions have incentives to massage the figures and I suspect this takes place on a regular basis.

I will post more on my China experience. Having travelled to Beijing, Tianjin and Wuhan the most obvious observation is the sheer size of these cities and the relentless pace of development.

A remarkable, interesting and exciting country.