Wednesday 30 September 2009

Overcapacity to be curbed

The China stimulus package has been something to behold. Massive compared to other countries and a massive distortion.

Whilst is may have saved the global economy (in the short term) it is/has stored up a whole lot of trouble. Bubbles in the stock market and property market to name the obvious ones. Actually they are not technical bubbles, simply rises that are not supported by economic fundamentals.

Today the FT reports on the overcapacity of the industrial sector. Basically firms that should have gone bust didn't leading to more inefficient firms than there should be (although a lot more people in jobs that there would have been).

Also of relevance given Copenhagen is that the stimulus package meant the survival of highly polluting firms that would otherwise have gone under leading to higher emissions than would otherwise have been the case. These are the sectors that should be targeted (although they can also be large employers).

These jobs will be lost eventually - how China manages this will be interesting to watch.

China moves to curb industrial capacity [FT]

China on Wednesday announced details of plans to curb severe overcapacity in industrial production that has been made worse by the country’s Rmb4,000bn ($585bn) stimulus package.

The State Council, China’s cabinet, said in a strongly worded statement that highly polluting sectors including steel, coke, cement and plate glass must cut capacity, while silicon and wind power producers should pursue more orderly development.


The details came after the State Council first said in late August that it would ask local authorities to “resolutely [curb] overcapacity and redundant construction”, after the country’s massive stimulus measures and excess bank lending led to unbridled expansions.

It said industrial overcapacity could cause intense competition and derail the country’s economic recovery if no action was taken.



Tuesday 29 September 2009

Win in China - the movie

From the inbox:

Robert A. Compton, Two Million Minutes executive producer, and award-winning film maker Ole Schell team up to tell the story of the world's largest and most lucrative business-plan competition. The competition is held...not in the United States or in any western country, but in communist China.

Commentators in the film include Jack Ma, founder of Alibaba Group and Chairman of Yahoo China, James Fallows, correspondent for The Atlantic Monthly and China expert Orville Schell.

Given unprecedented access to the TV shows producers, contestants, judges and audience, Schell discovers in China things are often not as they first appear.

For the first time, westerners see Chinese capitalism in its rawest form. Superficially similar to western business, Chinese business culture is unique. Beneath the game shows surface lies a nuanced, subtle view of Chinese business practices, ambitions, ethical norms and competitive behaviors.


"Bridge to China" - a US essay

At least some Americans in middle America are beginning to see the light. If there were more commentators in the US prepared to wake up to the simple realities of the global economy the US would be better prepared for the future. Tom Watkins publishes his essay.

Bridge To China [Dome]

It may be good politics to rhetorically beat up on China to score points with beleaguered Michigan workers, but it does nothing to build jobs-producing relationships with the fastest-growing large economy on the planet.

My current work in China and my more than 20 years of travel there convince me that rather than stirring fear, we need to be devising an aggressive plan to make China’s rise and globalization work for us. China can and must be part of the ingredients necessary to reinvent and revitalize Michigan’s economy.


As recently as August 25, in a fundraising appeal for her lieutenant governor’s bid to succeed her, she wrote: “Michigan stands at a crossroads: what kind of state do we want to be in the 21st century? Do we want to be a place where the unemployed suffer while we watch our jobs shipped off on a slow boat to China, on the Internet to India, or on a fast track to Mexico?” This type of appeal pops back up at the same time the chairman of the state party can’t wait to reopen the Democrats’ 2006 anti-China playbook; he’s already throwing jobs-exporting charges against an entrant in the earliest stages of the Republican primary contest.

This type of rhetoric not only fails to create a single Michigan job, it makes the task that much harder by perpetuating anti-China and anti-Asian sentiment.

It’s high time the governor and the rest of us in Michigan stopped using China for division and subtraction and started developing a plan to assure that China’s rapid rise results in addition and multiplication of jobs in Michigan.

Some of the comments are worth reading - it appears that at least some people are prepared to listen. Their future might depend on listening to commentators such as Tom Watkins.


Saturday 26 September 2009

The new housing bubble in China

I will post a lot more on this topic but I believe that a large percentage of China's stimulus package ended up in the housing market (and the overinflated stockmarket).

Both will fall again in my view but in the meantime the predictable articles are gaining online and offline column inches.

Home rates going through the roof: city dwellers [People's Daily Online]

Shou Zhenwei, a 28-year-old working at a state-owned company in Beijing, said he felt the home prices had gone through the roof and to buy a home in Beijing was like an unrealistic dream for him.

Shou had to increase his budget from 1 million yuan (146,420 U.S. dollars) last year to nearly 1.5 million yuan this year to buy a second-hand two-bedroom apartment in downtown Beijing together with his fiancée.

A recent survey released by the People's Bank of China (PBOC), the central bank, showed that 65.2 percent of Chinese urban residents in 50 cities nationwide thought that home prices were "high and unacceptable" in the third quarter, up 2.8 percentage points from the second quarter.

About 41.5 percent of respondents predicted that home price in Chinese cities would continue to rise, said the PBOC.

Home price in Beijing would continue to rise moderately in next five years, Liu Xiaoguang, president and chief executive officer of Beijing-based Capital Group, a leading property and finance conglomerate, told Xinhua.

Shou is only one of the millions of Chinese rushing to buy an apartment this year, as they thought home prices had hit the bottom at the start of the year.

Chinese home sales volume and prices began to pick up since February, boosted by people's pent-up demands and their heartened confidence of the economy recovery.

Wang Ke, a sales manager at a Beijing-based IT firm, called himself "a housing slave", as he spent more than half of his salary on the housing mortgage every month, reported Saturday's China Daily.

Wang coughed up 1.2 million yuan for a 70-square-meter flat in Beijing within the fourth ring road by borrowing the down payment from his parents and paying the rest of the 20-year loan in equal monthly installments of 4,500 yuan.

Areas within the fifth ring road is considered the central city in Beijing.

Analysts held that home prices should not increase too quickly, otherwise it would add too much pressure to urban dwellers and hurt the long-term healthy development of the property industry.


What should China do about Iran?

China is big in Iran and will almost certainly get bigger. This week's revelations on nuclear facilities, whilst not surprising in the slightest, do put China in a bit of a spot.

Mu view is that China will reject sanctions and cash in on the inability of the West to actually do anything. If tough sanctions are imposed and China ignores them it will massively undermine the West's efforts. China produces pretty much everything and its oil companies are expanding aggressively.

China has a huge amount to gain - hence the reluctance to play ball at the moment.

The result - I predict Western military involvement before long. Israel will be the catalyst in my opinion.

China signals opposition to Iran sanctions [FT]

China signalled its hostility to new sanctions on Iran over its nuclear programme on Thursday, even as western powers intensified their drive to increase pressure on Tehran.

A day after foreign ministers from the world’s big powers – including China itself – called on Tehran to deliver a “serious response” to their offer of negotiations over the nuclear programme, Beijing highlighted its misgivings on a tougher stance. “China always believes that sanctions and pressure should not be an option and will not be conducive to the current diplomatic efforts over the Iran nuclear issue,” said Jiang Yu, a foreign ministry spokeswoman.


In recent years, Iran has become one of China’s most important suppliers of crude oil and Chinese companies have announced large investments in Iran’s capital-hungry oil and gas sector. Oil traders said this week that China had begun selling large quantities of refined oil to Iran , despite a strong US push to block such imports.


In previous years, Russia and China have initially resisted UN sanctions resolutions against Tehran before finally agreeing to measures against Iranian banks and companies linked to missile and nuclear programmes.

At a meeting with Barack Obama, the US president, on Wednesday, however, President Dmitry Medvedev of Russia provided more explicit support, asserting that “in some cases sanctions are inevitable” but adding that “sanctions rarely lead to productive results”.


Will China raise the stakes on US weakness

First, apologies for not posting recently. I now have a senior academic management role (sigh), have been at an international conference and have been involved in writing a number of research papers with an academic visitor.

But now I should be able to do better - apologies again.

What is interesting me at the moment is the current balance of power between the US and China. The 2007 crisis hit both countries hard but China appears to have bounced back and is on its feet (although still a little unsteady). The US however has just managed to begin clambering back up the ropes.

[I will cover later why I think China could be back on the floor again].

My feeling is that China smells US weakness but what to do about it? Deliver a knock out blow? But how? China is already aggressively expanding with investment in Africa, Latin America and around the world. The 60th celebrations give China a chance to demonstrate its military might. Taiwan is always lurking in the background and US weakness could provide an opportunity for some action.

One issue to investigate further is that a US decline hurts China given the massive amounts of paper that China owns.

It will be interesting to watch. It is noteworthy that the financial times is picking up on this with a long article on the "Stiring Dragon".

My view is that the US suffered major setbacks under Bush. Ombama might just save them. Policies on biotechnology, online gaming and the rather strange practice of teaching creationism in schools will have a long term negative impact.

China can, and in my view will, capitalise. The US empire is in decline. 2 wars, greedy bankers and some very poor policy decisions have left the door wide open for China to step in and take a world leading position. Sure, China has many many problems that I have covered in this blog but we are looking ahead to the next 20 years.

I love the paper title by Wang Yiwei at Fudan University called “How we can prevent the US from declining too quickly”.

This is a a question that might actually need an answer.

The dragon stirs [FT]

Turn on the television news next Thursday and on display will be the sort of images from China that used to capture the imagination in the days of the Soviet Union. Dozens of tanks will roll down Beijing’s main avenue and past Tiananmen Square, followed by immaculate ranks of goose-stepping soldiers. New military hardware will be proudly paraded, from mobile missile launchers that can reach Washington to J-10 fighter jets produced at a Chinese plant.


Yet the bigger question raised by these celebrations is: what does Beijing really think of the US? Or, more specifically, does it now believe America – embroiled in two wars and with its economy wilting after last year’s financial crisis – is facing inevitable decline? If the answer is yes, it will have big implications for some of the most important global issues in President Barack Obama’s in-tray, from the future role of the dollar to Iran.

The perception that the US is weakened “could imbue Chinese policymakers with the confidence to be more assertive on the international stage”, says Bonnie Glaser at the Center for Strategic and International Studies in Washington.

Chinese leaders rarely make unguarded comments about the US, although Wen Jiabao, prime minister, has articulated fears about a future collapse in the value of the dollar. “Of course we are concerned about the safety of our assets. To be honest, I am a little bit worried. I request the US to maintain its good credit, to honour its promises and to guarantee the safety of China’s assets,” he said at his annual press conference in March.

Yet behind the scenes of the country’s rise in recent years has been a fierce debate about the future direction of foreign policy among the think-tanks and elite universities that advise politicians – pitting academics who argue that Beijing should take a more confrontational attitude to the US against those who believe development is best supported by playing within the existing world order.

Until recently, that discussion was on hold because of a consensus that the US was by far the dominant power and would remain so for at least another two decades. The status quo is described as yi chao duo qiang – one superpower and several great powers. Even many who proposed taking a more assertive stance against America often argued that such a posture was not for now. Better to bide our time and develop our economy, they said, and follow Deng Xiaoping’s advice to “hide the brightness, nourish obscurity”.

Yet there are signs the belief in US invincibility is waning. Even before the financial crisis, some scholars were questioning US dominance on the grounds that the Afghanistan and Iraq wars had damaged it both financially and morally. In 2006, Wang Yiwei at Fudan University in Shanghai sparked a huge response with an article that had the provocative title: “How we can prevent the US from declining too quickly”.


China has also become much more aggressive in doing energy deals, including in parts of the world that are politically sensitive in the US. Chinese companies used to be cautious about Latin America, in part because it was considered to be the US backyard, but PetroChina is making a large investment in Venezuela and Sinopec is trying to become involved in Brazil’s new oil discovery.

Chinese oil companies are also investing heavily in Iraq and Iran. Indeed Iran, the country which arguably presents the toughest diplomatic challenge facing the Obama White House, is now China’s third-largest supplier of oil and China has started selling refined gasoline to Iran, in a move that could complicate US efforts to limit the supply of fuel to the country.


Saturday 5 September 2009

China Education - 25 facts

From the inbox.

I like this post. Generally speaking UK Universities provide a high quality postgraduate education and some departments are becomingly increasingly dependent on Chinese students - the 9% growth in local provision may have a long term impact on the UK University sector.

See the right hand column of this blog for recommended UK PG courses in Economics and related subjects.

25 Surprising Facts About China’s Education System [Teaching tips]


Learn about China’s education history and its basic laws and regulations here.

1. Before 1949, 80% of the Chinese population was illiterate: Before the People’s Republic of China was founded, nearly 80% of the 500 million people living in China were illiterate. During Mao Zedong’s rule, education became one of the government’s chief priorities and experienced great change during the Cultural Revolution.

2. Chinese citizens must attend school for nine years: The public education system in China, governed by the Ministry of Education, states that all Chinese citizens must attend school for at least nine years.

3. Chinese youth have a 99% literacy rate: UNICEF reports that from 2000-2007, Chinese youth ages 15-24 years old enjoyed a 99% literacy rate.

4. China intends to match developed countries for supplies and school conditions by 2010: Though China’s primary and secondary schools are lacking in supplies and modern structures, they have created a special fund that will allow them to match the standards of well-developed countries by the year 2010.

5. Private schools were not implemented until the 1980s: While private schools have been common in the United States for years, China did not allow private schools to operate until the early 1980s.

6. Local governments and businesses oversee secondary education: High schools and upper middle schools are run by state and local governments as well as local business leaders.

7. Senior-level middle schoolers or high schoolers must pay tuition: After completing the compulsory nine years of education, students who wish to continue in high school, or the senior-level middle school, must pay a small tuition fee.

8. After-School Education: After-school education is an important aspect of the Chinese education system, and it is overseen by joint efforts between the Communist Youth League, Committee for Women’s and Children’s Work, and various departments in charge of education, technology, culture and more.

Layout and Grade-Specific

Discover the intricate layout of preschool, primary school and secondary school in this section.

9. Preschool lasts three years: Chinese students often start preschool as young as three years old and do not enter elementary school until they are six.

10. Preschool curriculum: Preschools and kindergartens put a lot of emphasis on training young children, since the Chinese believe that this time is crucial to personality development. Students are taught to play games, dance, sing, act and uphold the values of Truth, Kindness and Beauty.

11. Middle school is split into two categories: Lower middle school students receive a basic academic education including foreign language, Chinese language and math, but after they graduate, they take a test to determine their vocational/technical path or another basic extension of traditional school in which students learn science and the humanities while preparing for university.

12. High school lasts for three years: Chinese students receive primary or elementary school education for six or seven years, but are typically in middle school and high school for three years each.

13. Vocational schools: Vocational schools train students to become medium-level workers like technical personnel, construction managers and farmers.

14. Schools for Skilled Workers: These schools are set up to train junior middle school graduates in production and operations fields.

15. Students must take a test to go to high school or vocational school: Those who do not pass the test effectively end their formal education.

16. Preschool education in rural areas is still a work in progress: In China’s remote, aging communities, preschools and primary schools use alternative education options like game groups, activity centers and mobile aid centers to reach young children.

17. Vacation: Primary schools have 13 weeks of vacations and holidays, junior secondary schools have 12 weeks, and senior secondary schools have 10-11 weeks of vacation and holidays.

18. Junior Vocational Schools are mostly located in rural areas: Junior vocational schools, which prepare students to enter the labor market, are most often found in rural and disadvantaged communities.

19. Special education: Gifted and special needs students were not addressed until the 1985 National Conference on Education. There are now 1,540 special education schools in China, plus special vocation training schools for special needs students.

Higher Education

College and graduate school enrollment has increased significantly in the last few decades. Learn how and why these changes are occurring below.

20. College students apply through a central enrollment system: China’s Ministry of Education oversees all college applications.

21. Each year, nearly half a million engineering students graduate from college: Wikipedia estimates that each year, 450,000 engineering students graduate from Chinese universities.

22. Adult higher education programs have increased: In 2002, the Ministry of Education of the People’s Republic of China reports, there were 607 higher education institutions (HEIs) for adults and over 2.2 million adults enrolled in unique higher education programs.

23. Tuition changes: China used to cover the costs of college students, but a new system is evolving, in which students compete for scholarships and some students pay part of their tuition.

24. Graduate education is a relatively new concept: As China plans to improve its economic status, more systems are put into place to support graduate education. Between 1990 and 1995, graduate education enrollment increased at an average annual rate of 9.3%.

25. Between 1999 and 2004, college enrollment nearly quadrupled: In 1999, enrollment in higher education stood at 1.6 million, and in 2004, enrollment was up to 4.473 million students.