Friday 15 January 2010

Manipulation or revovery

Interesting article in China Briefing about the China recovery. H/T: blog comment.

There is nothing new here but the concerns are real and mirror my own. Things are not always what they seem in China.

China’s Exports More to do with Manipulation than Recovery [Chin Briefing]

The news that China’s exports increased by 17.7 percent in December year-on year is impressive. So too, the statistic that China has now overtaken Germany as the world’s largest exporter. In turn, this has lead to commentary about the position of the RMB against other globally traded currencies such as the Euro and the U.S. dollar. However, in announcing that China has overtaken Germany, analysts have been jumping the gun – Germany has yet to release its own export figures for December. As in the news that in 2009 China overtook the United States as the world’s largest vehicle market make for interesting headlines, there is the matter of sustainability. Are these positions sustainable? Let’s examine both of these situations.


China’s export boom
Also overlooked in the export equation when it comes to China figures is the matter of manipulation of taxes to encourage exports. Again, this is not a sustainable situation in the longer term. China needs tax revenues to pay for the extraordinary cost of continuing its development. Yet here is where the real truth lies: China’s export boom has come largely as a result of the huge incentives given by China’s export rebate program, speeding up repayments of VAT and widening the quantity of products that could be reclaimed. China has enhanced this by extending claim deadlines widened VAT scope to assist with R&D, extended VAT refunds to overseas contractors, abolished VAT altogether in certain construction situations, and increased refund rates.

The argument, when looking at China’s growth, is how much of this is truly sustainable. Massive fiscal handouts for vehicle and property purchases, a stock market that appears fed by loose cash rather than underlying fundamentals from its companies, and exports driven by massive tax incentives is going to be a tough act for China to keep up.


Thursday 14 January 2010

Humorous article warning: "Google v China"

The Daily Mash take a humorous look at the recent Google v China fight. The impact of Google's new tough stance will be interesting to watch. I suspect Google were not making much money anyway so this is not such a large loss although it is evidence that globalisation is not always a one way street.

Limited tex provided due to bad language and subversive nature of the text.


THE last great battle of our time was underway last night as Google and China began fighting for control of every living thing on the face of the Earth.

A fragile truce between the world's two biggest powers collapsed as Google accused China of reneging on a deal which would see the search giant control North and South America and those parts of Africa where people can afford netbooks.

Google said China was planning to use Great Britain as a launch pad for a transatlantic invasion instead of simply turning the country into a gigantic pork farm and round-the-clock abattoir.

China is now mobilising the four million troops of the People's Liberation Army, while Google is understood to be upgrading YouTube to allow for faster streaming of those strangely hypnotic, homemade pop videos.


Professor Henry Brubaker, of the Institute for Studies, said: "It's very evenly balanced. China has millions and millions and millions of people, whereas Google has things like Chrome, Street View and access to every piece of personal information that has ever existed despite what they keep saying in their relaxed, open-necked shirt, hacky sack-playing manner."


Sunday 10 January 2010

Economic CRASH in China coming soon

As an economist one never likes to dwell on "good news" stories. The previous post on the 56% exporting rebound gave the wrong impression.

There remain a number of issues with the Chinese growth miracle that simply do not add up. The stockmarket and house prices are significantly overvalued.

At least James Chanos has got China's card marked. Good coverage from the New York Times. In this case he may lose his money - he must make sure not to underestimate the Chinese governments ability to plough on regardless.

I am sure China is cooking the books and house prices are out of the range of the vast majority of hard working Chinese. He is right to raise the "crash" possibility.

Contrarian Investor Sees Economic Crash in China [New York Times]

SHANGHAI — James S. Chanos built one of the largest fortunes on Wall Street by foreseeing the collapse of Enron and other highflying companies whose stories were too good to be true.

James Chanos made his hedge fund fortune predicting problems at companies and shorting their stock.

Now Mr. Chanos is betting against China, and is promoting his view that the China miracle has blinded investors to the risks in that economy.

Now Mr. Chanos, a wealthy hedge fund investor, is working to bust the myth of the biggest conglomerate of all: China Inc.

As most of the world bets on China to help lift the global economy out of recession, Mr. Chanos is warning that China’s hyperstimulated economy is headed for a crash, rather than the sustained boom that most economists predict. Its surging real estate sector, buoyed by a flood of speculative capital, looks like “Dubai times 1,000 — or worse,” he frets. He even suspects that Beijing is cooking its books, faking, among other things, its eye-popping growth rates of more than 8 percent.

“Bubbles are best identified by credit excesses, not valuation excesses,” he said in a recent appearance on CNBC. “And there’s no bigger credit excess than in China.” He is planning a speech later this month at the University of Oxford to drive home his point.

As America’s pre-eminent short-seller — he bets big money that companies’ strategies will fail — Mr. Chanos’s narrative runs counter to the prevailing wisdom on China. Most economists and governments expect Chinese growth momentum to continue this year, buoyed by what remains of a $586 billion government stimulus program that began last year, meant to lift exports and consumption among Chinese consumers.

Still, betting against China will not be easy. Because foreigners are restricted from investing in stocks listed inside China, Mr. Chanos has said he is searching for other ways to make his bets, including focusing on construction- and infrastructure-related companies that sell cement, coal, steel and iron ore.

Mr. Chanos, 51, whose hedge fund, Kynikos Associates, based in New York, has $6 billion under management, is hardly the only skeptic on China. But he is certainly the most prominent and vocal.

For all his record of prescience — in addition to predicting Enron’s demise, he also spotted the looming problems of Tyco International, the Boston Market restaurant chain and, more recently, home builders and some of the world’s biggest banks — his detractors say that he knows little or nothing about China or its economy and that his bearish calls should be ignored.

“I find it interesting that people who couldn’t spell China 10 years ago are now experts on China,” said Jim Rogers, who co-founded the Quantum Fund with George Soros and now lives in Singapore. “China is not in a bubble.”

Colleagues acknowledge that Mr. Chanos began studying China’s economy in earnest only last summer and sent out e-mail messages seeking expert opinion.

But he is tagging along with the bears, who see mounting evidence that China’s stimulus package and aggressive bank lending are creating artificial demand, raising the risk of a wave of nonperforming loans.

“In China, he seems to see the excesses, to the third and fourth power, that he’s been tilting against all these decades,” said Jim Grant, a longtime friend and the editor of Grant’s Interest Rate Observer, who is also bearish on China. “He homes in on the excesses of the markets and profits from them. That’s been his stock and trade.”

Mr. Chanos declined to be interviewed, citing his continuing research on China. But he has already been spreading the view that the China miracle is blinding investors to the risk that the country is producing far too much.

“The Chinese,” he warned in an interview in November with, “are in danger of producing huge quantities of goods and products that they will be unable to sell.”

In December, he appeared on CNBC to discuss how he had already begun taking short positions, hoping to profit from a China collapse.

In recent months, a growing number of analysts, and some Chinese officials, have also warned that asset bubbles might emerge in China.

The nation’s huge stimulus program and record bank lending, estimated to have doubled last year from 2008, pumped billions of dollars into the economy, reigniting growth.

But many analysts now say that money, along with huge foreign inflows of “speculative capital,” has been funneled into the stock and real estate markets.

A result, they say, has been soaring prices and a resumption of the building boom that was under way in early 2008 — one that Mr. Chanos and others have called wasteful and overdone.

“It’s going to be a bust,” said Gordon G. Chang, whose book, “The Coming Collapse of China” (Random House), warned in 2001 of such a crash.

Friends and colleagues say Mr. Chanos is comfortable betting against the crowd — even if that crowd includes the likes of Warren E. Buffett and Wilbur L. Ross Jr., two other towering figures of the investment world.



The 56% rebound - Is China back?

The China export crash was expected. The recovery is better than I thought it would be but after something has fallen so far it is relatively simple to achieve large rebounds but this is impressive.

Will it last? Doubtful. The stimulus package is in the front line again. It has a lot to answer for. My posts on the metal stocks and the empty city are also relevant here.

China’s economy rebounds with 56% annual rise in imports [Times Online]

China’s economic juggernaut showed the strength of its recovery with exports rising for the first time in 14 months and imports soaring by a staggering 56 per cent in December from a year earlier.

Chinese government economists, usually cautious in their assessments, hailed the strength of trade in December — albeit from a low base rate after exports slumped a year ago.

Huang Guohua, a customs agency economist, said that the December rebound marked an “important turning point”. He added: “We can say that China’s export enterprises have completely emerged from their all-time low in exports.”

China’s exports leapt 17.7 per cent in December from a year earlier, far outstripping the expected 4 per cent rise to break 13 months of decline, the Customs office figures showed.

The surge in export trade was matched by an even bigger leap in December's imports, which rose 55.9 per cent year-on-year to $112.3 billion (£70 billion), much more than the expected 31.0 per cent rise. That squeezed China’s trade surplus down to $18.4 billion compared with $19.1 billion in November and $39 billion in December 2008.

That rise reflected China’s stronger economic growth, driven by a 4 trillion yuan (£400 billion) stimulus package unveiled in November 2008 and by demand for imported raw materials and consumer goods at a time when demand in the United States and other foreign markets is weaker.


With China’s trade data for all of 2009 now out, the nation's crowning as the 2009 export champion is expected to be confirmed when Germany releases full-year trade figures on February 9. From January to November, Chinese exports were worth $1.07 trillion, while data from the German national statistics office on Friday showed that exports from the European heavyweight amounted to $1.05 trillion.

The robust figures from China echo similar rebounds in South Korea and Taiwan, which reported growth of 46.9 per cent and 33.7 per cent respectively.


China's empty city of Ordos

Where does China's 8% growth really come from?

Having just read the Genghis Khan trilogy I am a big fan of inner Mongolia and the fall of the Chin empire. The unwashed Mongol hordes operated an impressive and ruthless military machines. Although not intellectual these books are an easy read. Took me a week to read all three (see below).

Back to the empty city - Genghis was never a "city man" showing a strong preference for the open plains. Perhaps this explains the empty city of Ordos.

There are some simple supply and demand issues with the "empty city". This is another example of the waste from China's stimulus package. When the money runs out there will be carnage.

Here are the books on the cheap for those who like a boys own story with a body count in the millions.


Saturday 9 January 2010

"For all we may smile, you can still smell us"

This quote from Shi Yinhong at Renmin University is a good one and represents China's method of diplomacy.

I like this article in the latest Economist. China's role in Africa is interesting - are African countries seeing through China's smile?

The economics behind the smile are also well written. China needs people to like them - they have spent a lot of money convincing us. The more we like China the more we will buy from them and invest in China and the happier the Chinese people will be. Happy Chinese means the Chinese communist party will remain in power. Is the smile beginning to fade and the real China come through?

Copenhagen is the obvious case. China is now getting the bad publicity it deserves and can be seen from my previous Copenhagen post. China is papering over the cracks but the damage has been done.

This article is well worth a read.

From the charm to the offensive [Economist]

IF A single impulse has defined Chinese diplomacy over the past decade, it is its smile: near and far, China has waged a charm offensive. With its land neighbours, India excepted, China has amicably settled nearly all border disputes; it has abjured force in dealing with South-East Asian neighbours over still unsettled maritime boundaries. On the economic front, the free-trade area launched on January 1st between China and the Association of South-East Asian Nations is the world’s biggest, by population. China’s smiling leaders promise it will spread prosperity.

Farther afield, China has scattered roads and football stadiums across Africa. By the hundreds, it has set up Confucius Institutes around the world to spread Chinese language and culture. More than anything, the Beijing Olympics were designed to showcase gentle President Hu Jintao’s notions of a “harmonious world”. In all this, the leaders appear not simply to want to make good a perceived deficit in China’s soft power around the world. A more brutal calculus prevails: without peace, prosperity and prestige abroad, China will have no peace and prosperity at home. And without that, the Chinese Communist Party is dust.


But the message of harmony will ring hollow abroad if it is secured by muzzling voices at home. Besides, there is now less goodwill to go around. A smile is fresh at first, but loses its charm if held for too long. One problem with China’s smile diplomacy, says the man who coined the phrase, Shi Yinhong of Renmin University in Beijing, is that China’s global impact—its demand for resources, its capacity to pollute—is so much greater than a decade ago. “ For all we may smile, you can still smell us,” he says.

That even applies in places, such as Africa, where enthusiasm for China was once unbounded. China has more than a presentational problem. For instance, it sends Africa both destabilising arms and peacekeepers, the one generating demand for the other. China’s manufactures destroy local industries. Many Africans resent Chinese firms’ deals with their unpleasant leaders and blame them when leaders pocket the proceeds. China’s clout makes a mockery of two guiding tenets of its charm offensive: relations on the basis of equality; and non-interference.


Fear of the Dragon and the Economist

The economist always does a good job covering China. They are astute enough to know where all the action is.

China is now the world's biggest exporter and this will not change any time soon.

This article goes through all the old "overvalued" currency and "global balancing" stuff. Nothing new but a good summary.

Fear of the dragon [Economist]

MANY people start the new year by resolving to change their old ways. Not China. On December 27th Zhong Shan, the country’s vice-minister of trade, declared that China will continue to increase its share of world exports. Figures due out on January 11th are expected to show that China’s exports in December were higher than a year ago, after 13 months of year-on-year declines. China’s exports fell by around 17% in 2009 as a whole, but other countries’ slumped by even more. As a result China overtook Germany to become the world’s largest exporter and its share of world exports jumped to almost 10%, up from 3% in 1999 (see chart).

Monday 4 January 2010

China and metal - playing the long game

It is my considered opinion that the West is underestimating China on a number of different levels.

If we want to talk superpower politics, then China has always been a superpower albeit one that has been slumbering for 60 years. Remember the last 100 years is a very short period in China's history. In 10,000 years communism will be a mere footnote.

China is playing the long game - it can afford to and has the confidence of thousands of years of civilisation behind it. In contrast the US is a little like the playground bully. The US is young, has grown up quickly and become fat, bloated without losing its arrogance. The US has no friends - merely those that want to be seen to hang out with the playground bully and hope for a few crumbs. China is more like the teacher, simply sitting back with a rye smile and watching the children fight it out on the playground and doing its own thing for the long term good of China.

Where am I going with this - a recent post EAFE Pro looked at China's recent buying of copper and aluminum. I knew such buying was taking place but was surprised at the sheer scale. So why? China is taking advantage of the global recession to buy cheap and stockpile. China knows it will need the metal eventually just to construct the buildings, machines and cars it knows it will need in the future.

Here is the remarkable figure that caught my eye.

These reflect massive increases in imports over a short period of time. Is this all down to the stimulus package? If you have to vast reserves then buying up commodities that you will need in the future is a decent use of the money. Politically this enables China to be even less reliant on Western mining companies.

If one was an investor one would have to consider whether shorting copper is the way to go. If Chinese demand falls will the price follow it or does China intend to keep buying at these brakeneck levels.


Sunday 3 January 2010

Does learning Chinese lead to a good job in the US? No.

I have been following Ben Ross' blog since its inception. He is an interesting chap who provided excellent insights into living in China when he worked in a Chinese barbers - long story.

His discussion on what it means for a Westerner to learn Chinese and spend three years in China is interesting. I admit I probably fall into the "wow - you speak Chinese - you must be able to walk into a high paid job".

The problem I now see clearly is that there are so many native Chinese who speak excellent English so the average westerner will never really be able to compete however much they try to learn Chinese.

This is a great quote. To most of my friends the "spouse" bit would be more than enough encouragement.

Rather than a fortune and a new career, most expats seem to return home with little more than a thicker waistline, a prodigious collection of DVD’s, and possibly a new spouse.

Ben speaks a lot of sense and shows some natural ability as an economist as he argues the case why his friend is ultimately doomed. His bleakness is refreshing (to an economist).

Ok, So you learned Chinese…Now where’s that dream job??? [Ben Ross's Blog]

Earlier this week I received an e-mail from an American friend of mine who had recently moved from China back to the US. My friend had spent three years in the Middle Kingdom, taught English, studied Chinese, and even worked a “real” job in Shanghai for half a year, and had now been back in United States for three months. His Chinese was solid, as it should be for anybody who spends three years in China, and good enough to be used on an occupational level. In his e-mail, he explained the frustration he was experiencing trying to secure a job in the United States which could build on his experience in China.

“I thought learning Chinese would be a hot commodity when I got back, and didn’t expect it would be this tough to find a job,” he expressed.

His sentiments are not out of the ordinary. In fact, the post-China unemployment funk is practically unavoidable for former expats upon their re-entry to the Western World, even in times when the economy is healthy. Part of the funk is due to the natural difficulties in transitioning back to American life. However, these frustrations are often aggrandized by high expectations, which are predicated on a fallacy that seems to follow any Westerner who has spent significant time living in China. It usually goes something like this and comes from the likes of parents, grandparents, teachers, generally anybody who is in a natural position to give you advice:

“Oh, you’re learning Chinese? China is the world’s next super-power, you know. You’ll be in high demand when you get back home.”

(Notice how people who make these comments never seem to be in the position to make use of your services. Yet they are confident others will be lining up to do exactly that.)

Chinese people provide similar, unsolicited life coaching. The line I hear most is:

你会英文也会中文。你应该做生意 。 “You speak English and Chinese. You should start a business.”

(As if that’s all it takes.)

The funny thing is that most of the people dispensing this kind of advice have never actually been in the situation which would require testing it out in the first place. They’ve never been an expat in China. And they’ve never looked for a “China job” in the US. However, they have heard all about it in the news, and they all seemingly buy into the axiom that: China is the next world superpower, and therefore there is no better way to cash in than to study Chinese.

The simple fact is however, mastery of Chinese, no matter how good you are, is NOT a golden ticket to employment in the United States.* That is, of course, unless your career goals are purely linguistic in nature (i.e. Chinese teacher, interpreter, or translator). More often than not, expats who learn Chinese and return home, find their way back into the same career (or school) path they had before they ever left for China in the first place.

Big money, international trades, product sourcing…these dreams are all in the trajectory of the scores of Tom Joads who show up annually in the Middle Kingdom. Everybody comes to China with a plan to strike it rich. Rather than a fortune and a new career, most expats seem to return home with little more than a thicker waistline, a prodigious collection of DVD’s, and possibly a new spouse. While China certainly is the current land of opportunity, capitalizing on this fact is not simply a matter of learning the language.

Although Chinese may in fact be in high demand, what’s equally important is to factor in is the supply of Chinese speakers. According to the US census, in 2006 there were 2.5 million** people in the United States who speak Chinese at home. That’s more than any language other than English and Spanish. What this means is that not even counting the hundreds of thousands of American currently studying Chinese as a second language, there are already over two million Americans, who by virtue of growing up speaking Chinese, speak the language better than you ever will, regardless of how much you study. From international traders to insurance salesmen to delivery boys at the local chop suey joint, most of the “China jobs” in the US are filled by Chinese Americans.

On the other side of the ocean, English proficiency in the Middle Kingdom is spreading like SARS in a Chinese train station during Spring Festival. Every year Chinese universities are churning out millions (literally) of graduating English majors, a large percentage of whom don’t find jobs with their bilingualness either. Those that do, tend to start out in the 1000 RMB per month range, about 170 USD. In short, there is no bottleneck in communication between China and the United States. And in a capitalist world governed by the laws of supply and demand, there is little justification for hiring an American and paying him an American wage solely because he can speak Chinese.

That being said, it certainly is possible to create a career out of your China experience, but here are some points you should consider.

-A decent “China job” is best attained by using Chinese to augment a pre-existing skill set. While the language alone won’t procure much in the way of employment, Chinese should give a competitive advantage to individuals who already have existing qualifications such as an engineering degree, a background in biochemistry, or experience in the financial sector.

-There are a substantial amount of career-oriented positions available which will make use of your Chinese skills. The thing is, most of them are in China, particularly Beijing, Shanghai, and Shenzhen. If your goal is to base your career on Chinese, you should be comfortable with the idea that you’re going to be spending the majority of your time in China.

-In order to secure a job using your Chinese, you’re going to have to be pretty good. Basic conversational skills and “knowing the culture” aren’t going to get you squat. It’s difficult to pinpoint exactly, but you should be able to sit in on a business meeting, soak up the details, and contribute to the conversation without falling too far behind. We’re talking a pretty advanced proficiency level here. Being literate helps too.

-But most importantly, finding a good China job relies much more on your actual skill set than your language skills per se. This is where people tend to kid themselves and hide behind their HSK scores. If you’re a poor communicator, disorganized, or can’t create an Excel spreadsheet, these traits are going to hurt your chances at employment much more than your inability to properly pronounce the third tone. Regard the bulk of your China job search as you would any other job search which wouldn’t pertain to your China experience. Your Chinese language chops are the gravy.

Now all of this is not to say that learning Chinese is a waste of time. Learning a foreign language, especially one spoken by 20% of the world’s population is, provides access to a wealth of knowledge and experiences unattainable to monolinguals. The ability to speak Chinese will allow opportunities for personal and intellectual growth to which it would be impossible to attach any price tag. But in terms of paying dividends measured in annual salary, the rewards of learning Chinese will likely never exceed the time and effort put into it. If you do decide devote the time and energy to study Chinese, do so out of a desire to further your own personal curiosities and intellectual development, not under the pretense that it will directly boost your career. For that, you’d be better off getting an MBA.

*I am assuming the same would apply to Canada, Australia, New Zealand, or Western Europe, but since I’ve never lived in any of those countries, I’m going to limit my direct discussion to the US.

**I’m willing to grant a significant number of that 2.5 million speak a dialect other than Mandarin (Unfortunately the census lumps all Chinese dialects together). However, current trends in immigration indicate that a) Chinese immigration to the US continues to increase and b) the vast majority of recent immigrants are proficient Mandarin speakers.


Asia Universities on the rise

Good article from IPE Zone.

Will Universities in the UK suffer as China develops into an importer of students?

Asia Moving Up World University League Tables [IPE Zone]

A while ago, I featured a World Bank publication concerning how to create institutions of higher learning. While there are still strenuous debates about whether creating universities with high international standing should be a goal for developing countries, there is no doubt that many Asian ones have made significant strides in competing with the best of the best in the world. Singapore has always been notable in that its highly educated workforce has been the envy of the region if not the world in propelling development via "human capital."

There is, however, a rapidly rising newcomer to the scene that you all know of - China. Aside from placing three universities in the Times Higher Education Top 100 (if you include Hong Kong, that is), the PRC has made it an objective to become a destination for students--an importer of them instead of an exporter. Talk about the only area where the Chinese are keen on more imports save for Western "dual use" technologies! [also the previous post on that point] While I still have some reservations about the Times' methodology, there is no doubting the expenditures Asian countries are putting into education for both national development and to attract fee-paying foreign students. Interesting stuff; perhaps the changing balance of educational prestige will help signal the advent of the long-awaited Pacific century:

On China:

China is now expanding its entire education system rapidly, from primary schools to research centres. It intends to become an importer rather than an exporter of students, threatening the business plans of many universities around the world that depend on Chinese students. In our work on these rankings, we have encountered big increases in the amount of research being published by Chinese academics. Not all of it is world class, but over time it is likely to improve, as is teaching quality in Chinese universities. There is certainly a stark contrast between China’s placing here and the very modest showing by India. No mainstream Indian universities appear in our top 200. As in 2008, India is represented by only two of the Indian Institutes of Technology.


Economists are "cheapskates"

This WSJ article hits the nail on the head. Economists are notoriously tight fisted and are well known for being the academics who give the least to charity. Using economics undergraduates in "experimental economics" is also flawed due to the indoctrination that the suffer at the hands of academics such as myself.

It is interesting that the US AEA conference is held in the first month of the year when business could not be any slower thus keeping hotel prices down.


I like this quote:

In questioning after the experiment, the sociologists found that for many of the economics students, the concept of investing fairly "was somewhat alien."

In China the propensity to gve "gifts" to visitors in inefficient. I wonder if things will change as the country develops.

Secrets of the Economist's Trade: First, Purchase a Piggy Bank [WSJ]

Academic economists gather in Atlanta this weekend for their annual meetings, always held the first weekend after New Year's Day. That's not only because it coincides with holidays at most universities. A post-holiday lull in business travel also puts hotel rates near the lowest point of the year.

Economists are often cheapskates.