China Challenges

American Engineering Group Accused of Conspiracy

CNet reports:  The Standardization Administration of China, a group promoting China's wireless encryption standard, accused the U.S.-based engineering group Institute of Electrical and Electronics Engineers (IEEE) of conspiracy and unethical behavior on Monday, according to reports by the Xinhua News Agency, China's official news agency.

The accusation was made in an appeal to the International Organization for Standardization (ISO), based in Geneva, to reconsider its March decision to reject China's encryption technology known as WAPI (WLAN Authentication and Privacy Infrastructure) in favor of the American IEEE's 802.11i encryption standard.

To read more:

http://news.com.com/China%20battles%20rejection%20of%20Wi-Fi%20encryption%20algorithm/2100-7351_3-6077975.html

IPR - India's Advantage

In the the Wall Street Journal (via YaleGlobal), Richard Wilder and Pravid Anand write:

India is rapidly evolving into Asia's innovation center, leaving China in the dust. Its secret weapon? Intellectual property-rights protection. In recent years, New Delhi has taken big steps to protect these rights, and the results have been dramatic. It may appear as if India's recent economic rise is solely due to its low-cost outsourcing opportunities for foreign businesses. But this is only part of the story.

Thanks to international treaties such as the Agreement on Trade-Related Aspects of Intellectual Property (TRIPS) of the World Trade Organization, Indian IP laws were significantly revamped starting in the mid-1990s. In 1994, the Indian Copyright Act was amended to clearly explain the rights of a copyright holder and the penalties for infringement of copyrighted software. The law has been called one of the "toughest in the world."

To read more:

http://yaleglobal.yale.edu/display.article?id=7474

Chen Faces a Crisis

The Standard reports:  Taiwan President Chen Shui-bian is struggling to weather a political crisis amid attacks from even factions of his own party after his son-in-law was detained on suspicion of insider trading.

Chao Chien-ming, a doctor married to Chen's daughter, was detained Thursday after marathon questioning on suspicion of insider trading in a scandal that has sparked opposition calls for the embattled leader's resignation.

To read more:

http://www.thestandard.com.hk/news_detail.asp?pp_cat=5&art_id=19588&sid=8174028&con_type=1

China's Military Spending

At Slate, Mr. Fred Kaplan analyzes the Pentagon's view of China.  He notes:

Take the budget. China officially says it's spending $35 billion on its military, a 14.7 percent increase over last year's budget, amounting to 1.5 percent of its gross national product. (The U.S. military budget is nearly 15 times as large and amounts to 4 percent of our GNP; Japan's and South Korea's defense budgets are larger than China's, too.) The report says that China's growth "sustains a trend that has persisted since the 1990s of defense budget growth rates exceeding economic growth"—but read on—"although the growth of defense expenditures has lagged behind the growth in overall government expenditures over the same period of time."

To read more:

http://www.slate.com/id/2141966/

Resignation After Big IPO

The Bank of China had a huge IPO in Hong Kong a few days ago.  Today, the China Economic Review reports:

Bank of China's US-born credit risk chief announced his impending resignation a month before the bank started marketing its US$9.7 billion Hong Kong initial public offering, the South China Morning Post reported.

Lonnie Dounn, 53, said his resignation 18 months after his appointment was for personal reasons. He was the first non-Mandarin-speaking foreigner to manage credit and market risk at a major mainland bank. Risk management improvements were seen as one of the top concerns during the bank's IPO, the largest in the world since 2000.

Dounn's resignation will become effective in September, giving BOC time to find a replacement. Dounn may have been among the bank's five highest-paid officials with a package of about US$1.1 million per year.

To read more:

www.chinaeconomicreview.com

The Limits of Autocracy

The new book China's Trapped Transition - The Limits of Developmental Autocracy - by Minxin Pei sounds interesting.  The Weekly Standard writes:

According to Pei, the widely accepted belief that East Asia's "strong government authority + pro-market policies = superior economic performance" neglects the crucial point, that a strong state can just as easily be a "grabbing hand" as a "helping" one; that is, be a "predatory state."

The results, he writes, are "dire." The belief that economic development under such conditions could lead to democracy is "wishful thinking because the predatory state and economic development are, logically, mutually exclusive."

To read more:

http://www.weeklystandard.com/Content/Public/Articles/000/000/012/237flvga.asp

Beijing Bans Dangerous Dolls

This is strange.  Beijing is going after so-called Voodoo Dolls.  Newsweek reports:

The dolls have become increasingly popular among the Middle Kingdom's misanthropes and trend-conscious teens. Customers purchase a doll (pin included), attach a piece of paper bearing the name of their enemy to the doll and then stab away.

Voodoo Dolls Online offers a wide range of dolls in assorted colors. "Do you want to make your enemy feel as if someone is always stalking him behind his back?" reads the caption next to a doll clad in black. " 'The Magic Shadow Killer' will thoroughly destroy his spirit." Another popular item is the "Little Angel," which purportedly brings good luck and helps its owner find true love.

Authorities at Beijing's Industrial and Commercial Management Department claim the dolls encourage superstition and "promote feudalism and feudal beliefs."

To read more:

http://www.msnbc.msn.com/id/12958900/site/newsweek/

Number One in 2050

The China Economic Review reports:

China is poised to become the largest economy in the world by 2050 and lead a group of seven nations that, as a block will surpass the G7 group of developed nations. According to a report by PricewaterhouseCoopers, China will lead a group of seven nations expected to become 25% larger than the G7 in terms of US dollars and 75% larger in terms of purchasing power parity.

By itself, China will surpass the US in purchasing power parity by 2050, the report says, even if growth is expect to slow down from the skyrocketing levels of recent years. The Emerging Seven, as the report calls them, are Brazil, Russia, India, China, Indonesia, Mexico and Turkey.

Source: www.chinaeconomicreview.com

China Trade Numbers: Not Really Accurate

At Businessweek, Mr. Stephen Green and his colleagues at Standard Chartered Bank have uncovered some disception in China's trade surplus numbers.  After noting many problems with the trade numbers, they conclude:   

Our numbers show that the China's trade surplus could have been as small as $35 billion in 2005. Trade could have disguised some $67 billion of non-trade capital inflows. We made a long list of assumptions to get to this number, and we are not claiming that it is absolutely accurate. But it does give a hint as to the potential scale of these foreign currency inflows.

So, say we are right. Then there are two big implications for China's policymakers. First, China's booming trade surplus does not necessarily indicate new and real pressures for yuan appreciation. This is another reason for cautious currency appreciation. As soon as the yuan reaches a point where expectations of appreciation disappear, China's trade surplus could suddenly be sharply reduced. Second, Beijing has said that it will try and bring down the trade surplus in 2006.

To read more:
http://www.businessweek.com/globalbiz/content/may2006/gb20060522_662112.htm

Previous Thinker comment on China trade numbers:
http://www.americanthinker.com/comments.php?comments_id=3935

The Real Long March

A new book by Sun Shuyan called "Long March" is at the top of my wish list.  The CSM reports:

For China, it's Paul Revere's ride and Washington crossing the Delaware in one.

The Luding Bridge battle is the most famous moment in the Long March, itself the defining legend of modern China. The Red Army is hotly pursued in 1935. Soldiers hoof it 24/7 for 140 miles.

They must cross the Dadu River, or be wiped out! But a 300-year-old chain-suspension bridge is closely guarded. So a suicide squad shimmies over the chains, under machine-gun fire, and wipes out the dreaded Nationalist enemy. The Red Army crosses! The China of Mao is saved!

Mao told the story to American chronicler Edgar Snow, who apotheosized it in his 1937 "Red Star over China." Mao's poem about the battle, "Gunfire licked the heavens/ Iron chains rocked," is included in the book and became a Chinese Gettysburg Address, memorized by kids.

Just one problem: A "battle" never quite happened.

To read more:
http://www.csmonitor.com/2006/0522/p01s02-woap.html

The Original E&Y Report

Mr. Dan Harris at the China Law Blog has kindly sent me the original Ernst and Young NPL report that has generated so much debate in recent weeks.  To read more:

http://www.chinalawblog.com/chinalawblog/files/ey_rehc_nonperformingloans_may20061.pdf

Henry Hyde Objects to Yasukuni Visits

A conservative Republican in Congress is pressing the Japanese Prime Minister Koizumi on the Yasukuni issue.  Last Wednesday the Japan Times reported:

Prime Minister Junichiro Koizumi's contentious visits to Yasukuni Shrine are a matter of religious freedom, the government said Tuesday, rejecting criticism leveled by a powerful U.S. congressman.

The remarks followed media reports from Washington that Henry Hyde, chairman of the House of Representatives International Relations Committee, is seeking a guarantee from Koizumi that he will not visit Yasukuni Shrine if he is invited to deliver a speech to Congress during a trip to Washington planned for late June.

To read more:
http://search.japantimes.co.jp/cgi-bin/nn20060517a1.html

Aerospace outsourcing to China

The push toward global sourcing has reached a new level in Asia.  Newsweek International reports:

Aerospace outsourcing to China follows a familiar pattern: chasing low labor and production costs. But the majority of foreign imports for both Boeing and Airbus are coming from countries like Japan and Canada, where costs are just as high as or higher than at home.

The key to collaborating globally comes down to expertise, says David McKenna, an executive in Boeing's airplane-production global-strategy unit in Seattle. "We want to have the best partners in the world in our new program ... whether they're from Italy, Sweden, France, Korea, Japan, China [or] the United States," he says.

China, for instance, can handle assembling metal aircraft like Airbus's A320 or building wingboxes, but doesn't yet have the skills to craft the newest composite wings, which the 787 will debut commercially. For those, Airbus will rely on British Aerospace, which is an independent contractor now that it's sold its 20 percent stake in Airbus back to the Franco-German majority owners, EADS.

To read more:

http://www.msnbc.msn.com/id/12652775/site/newsweek/

Summer Palace and 1989

In the South China Morning Post (via AsiaMedia), Vivienne Chow and Joey Liu write:

The director of Asia's only hope of winning the Palme d'Or this year is expected to withdraw his movie Summer Palace from the Cannes Film Festival's competition after it failed to win the approval of the mainland's censors yesterday.

Organisers selected the film by mainland director Lou Ye for the competition but Beijing requires all films competing abroad to be vetted by the State Administration of Radio, Film and Television (Sarft).

The delegation representing Summer Palace -- which includes Lou and cast members Hao Lei and Guo Xiaodong -- decided to go ahead with their trip but Lou declined to speak to the media after arriving in Cannes last night.

"Nothing has changed," the film's publicist said in Cannes of Lou's travel plans. "But the director didn't want to speak [to the media] until they had seen the film."

Summer Palace, which may still be screened at Cannes out of competition, traces the relationship of a young couple separated by the 1989 pro-democracy demonstrations and is the first mainland production to tackle the subject.

To read more:

http://www.asiamedia.ucla.edu/article-eastasia.asp?parentid=45737

Red Ken on Chairman Mao

Mr. Guy Adams writes in the Independent:

It's been a few months since Ken Livingstone dropped a decent clanger, so thank goodness London's Mayor retains a deeply-held affection for the People's Republic of China.

                                        

Back in January, Ken used a visit to Beijing to defend the Communist regime's human rights record, comparing the Tiananmen Square massacre to poll tax riots in Trafalgar Square.

Yesterday, history repeated itself. During his weekly Mayoral Question Time at City Hall, Livingstone, right, decided to stick up for one of the last century's foremost dictators, Chairman Mao.

Asked about his attitude to regimes alleged to abuse human rights (the Tory questioner cited China and Venezuela) Ken claimed Mao's cultural revolution was "justified", because it improved chiropody.

"One thing that Chairman Mao did was to end the appalling foot binding of women," he announced. "That alone justifies the Mao Tse-tung era."

The comment met with disbelief from members of the London Assembly. They note that Jung Chang's recent book on Mao blames him for the deaths of seventy million people.

"At first, we thought it was just a flippant joke," says one. "But it soon became clear that Ken was being serious."

Last night, London Assembly Tories went on the offensive over the incident: "The fact that these outbursts are becoming more frequent and more outlandish should be of grave concern to all Londoners."

To read more:
http://news.independent.co.uk/people/pandora/article485885.ece

Typhoon Chanchu

Reuters reports: China evacuated more than 600,000 people as the strongest typhoon on record to enter the South China Sea in May bore down on the south coast on Wednesday, causing flight and shipping delays around the region.

To read more:

http://www.msnbc.msn.com/id/12829941/

Survey - No Improvement in IPR Protection

The China Economic Review reports:

The enforcement of intellectual property rights in China has not improved, according to a membership survey carried out by the American Chamber of Commerce in China. Of the 214 US companies surveyed, 55% said enforcement levels remained the same while 7% believe they have deteriorated. The majority - 55% - said their business was being damaged by poor IPR protection and 41% said that counterfeit copies of goods they produced increased during 2005.

"Though American businesses generally agree the awareness of IPR issues has increased, the problem is the penalty and punishment on IPR violations [is] not reverberant in China," said Charles Martin, president of AmCham China. He called on the US to improve visa processing for Chinese businesses – lack of access to the US market is seen as being partly responsible for the IPR situation.

To read more:

www.chinaeconomicreview.com

Aso's War Problem

In the Japan Times, Robyn Lim notes that Taro Aso, a leading candidate to be country's next prime minister has a family problem.  Lim explains:

When Foreign Minister Taro Aso visited Australia recently, did he know that the father of the Australian foreign minister, Alexander Downer, had been a Japanese prisoner of war in the notorious Changi jail in Singapore? And if Alexander Downer Sr. had been sent to a certain camp in Kyushu, as some 200 other Australian POWs were, he might have become a slave laborer in the Aso family coal mine.

Aso was in Australia for security talks with his American and Australian counterparts. But can Japan really expect Australia to be a partner in constraining Chinese ambition if Australians think that Japan is becoming more part of the problem than the solution?

Like Prime Minister Junichiro Koizumi, Aso appears to believe that Japan's history problem is only with China and South Korea. That is untrue. Japan's history problem is also with other U.S. allies such as Australia and Singapore. And Aso has special problems, since his family has never acknowledged what it did, let alone offered restitution.

To read more:

http://search.japantimes.co.jp/cgi-bin/eo20060517rl.html

Chinese Fraud and Innovation

Michael Mandel at Businessweek notes the influence of academic fraud on innovation.  A few days ago, leading Chinese computer scientist Chen Jin was fired from his post as a dean of Shanghai Jiaotong University, one of the country's top schools, after the computer chip he supposedly invented turned out to be a fraud. He explains:

Yet trying to compress 100 years of economic progress into 20 may be taxing the Chinese economy. Innovation is a lot harder than it looks. Even major industrialized countries such as Japan, Germany, and France have a difficult time sustaining cutting-edge science and technology.

What's more, signs of financial stress continue to build. In early May, global accounting firm Ernst & Young issued a report that nonperforming loans in the Chinese banking system could be as high as $911 billion, up from $480 billion in 2002. This report had special authority, since E&Y is the auditor for one of China's four major commercial banks. Moreover, the need to protect against that level of nonperforming loans would help explain why China has worked so hard to build up its foreign exchange reserves, now at the astounding level of $875 billion.

However, after protests from the People's Bank of China, Ernst & Young retracted its report. The press release said, in part: "Upon further research, Ernst & Young Global finds that this number cannot be supported, and believes it to be factually erroneous."

To read more:

http://www.businessweek.com/globalbiz/content/may2006/gb20060516_267974.htm

More Academic Fraud

The Christian Science Monitor reports:

A recent Ministry of Science study of 180 PhD candidates in China found that 60 percent admitted plagiarizing, and the same percentage admitted paying bribes to get their work published.

"The actual situation might be worse than that, particularly in the area of social sciences," says Fang Zhouzi, a biochemist who splits his time between California and Beijing, and runs a website that has detailed more than 500 cases of serious academic fraud in China.

Mr. Fang is one of the feistiest whistle-blowers - wellknown and also feared in Chinese academic circles. Fang, whose real name is Fang Shi-min, is an Old Testament angel of vengeance when it comes to lying and cheating, and his work has led to a number of high-level fraud exposures and dismissals in the academic world.

To read more:

http://www.csmonitor.com/2006/0516/p01s03-woap.html?s=hns

Bad Loan Report Withdrawn

Update: Earlier this month, China Challenges posted a story about China's growing non-performing loans (NPLs).  Today, the accounting firm Ernst & Young has withdrawn this bad loan report.

For more details on the original report, read the American Thinker:

http://www.americanthinker.com/comments.php?comments_id=5102

What Cultural Revolution?

From South Korea, the Donga Illbo reports:

If you type the word “The Great Cultural Revolution” onto “Baidu,” China’s most popular search engine, you will get this warning: “Your search word could violate related laws.” The Chinese authorities have blocked searches for the term so that their people can not know the revolution. It is dreary that one can be punished just because of searching for the term.

Beijing Blocks the Term, “The Great Cultural Revolution”-

Although the 40th anniversary of the Great Cultural Revolution, which shook the whole country, is just a few days away (May 16), the Chinese government is too quiet. There will be not a single event held by social organizations, not to mention official events by the government. Chinese media outlets, including Xinhua News Agency, have not written a single line about the revolution as of May 12.

To read more:

http://www.sinolinx.com/frame/sinolinx.php?XML=0421mkw90sinolinxnewsfeed4vhjHi4341&url=http://english.donga.com/srv/service.php3?bicode=060000%26biid=2006051316558

Is Japan a "Normal" Country?

On miltary matters, has Japan finally become a "normal" country? In the Japan Times, Roger Pulvers writes:

On April 30, the Asahi Shimbun reported on the results of a Cabinet Office survey of public opinion regarding the Self-Defense Forces (SDF). The telephone survey was conducted between Feb. 16 and 26, with 1,657 of the 3,000 people contacted replying. Overall, 84.9 percent of respondents indicated they had a "favorable impression" of the SDF. That was the most favorable response in the occasional survey's more than 35-year history. In 1972, only 58.9 percent of respondents were well disposed toward those who defend the homeland.

Implied in this result is an astounding reality: Japan's postwar allergy to matters smacking of militarism has been overcome. In this respect, Japan has finally become a "normal' country, able to pose and threaten with the best of them.

How did this change come about; and why shouldn't Japan have an army like other countries, particularly some in the region that are not averse to striking the odd threatening pose toward Japan?

To read more:

http://search.japantimes.co.jp/cgi-bin/fl20060514rp.html

North Korea's "Hannah" and "Naomi"

Melanie Kirkpatrick in the Wall Street Journal tells the sad story of North Korean women trapped between China, South Korea, and North Korea.  She writes:

Old habits die hard--especially those whose disregard could mean death. So it is understandable that the North Korean refugees with whom I met this week set strict ground rules for our interview: no names, no photographs, no indication of their location in the U.S., and no identifying details of the Southeast Asian nation whose government risked the ire of China to permit them to depart for asylum in this country after they sought refuge in the U.S. Embassy there.

To read more:
http://www.opinionjournal.com/editorial/feature.html?id=110008365

China's Informal Economy

On the same day that the Senate approved another round of tax cuts, McKinsey's Diana Farrell provides more international evidence that Ronald Reagan, George W. Bush and JFK were correct that lower tax rates, do in fact, lead to higher tax revenue.

In a BusinessWeek article called Tackling the Informal Economy, Farrell says companies operating in the gray zone sap economic growth in the developing world.  She explains:

What do Japan, Singapore, South Korea, and Taiwan have in common? Obviously, they are Asian nations that joined the ranks of the wealthy during the second half of the 20th century. But a less well-known shared feature is that none of them have much of an informal economy.

Research on economic development from the McKinsey Global Institute (MGI) and others shows consistently that these two facts are closely related. Sadly, the converse is also true: When large numbers of businesses fail to register, ignore labor laws, flout regulations, and evade taxes, they hinder the expansion of more productive, modern companies.

Without mentioning any conservative or supply sider, she concludes:

The recipe for curbing informality is simple: streamline corporate taxes and business regulations, stiffen penalties for breaking the rules, and apply the penalties to all rule-breakers. Tackling the problem sector by sector will remove the risk of sudden increases in unemployment.

Spain's experience in the 1990s shows that it can be done. The government reduced corporate taxes and created a new agency to fight evasion. It also streamlined labor laws and lowered taxes on employment.

The result was mass job creation in the formal economy: Unemployment fell by 40% over the next six years. What is more, tax revenues collected from small companies went up by more than 75%, even though corporate tax rates had come down. Governments can use their revenue gain from tackling informality to help prepare workers who lose their jobs for new work in the formal economy.

To read more:
http://www.businessweek.com/globalbiz/content/may2006/gb20060508_633382.htm

Mexico versus China

Mexico is moving up the value chain. Businessweek reports:

For years the Mexican workforce has meant one thing to multinationals: cheap, reliable labor, perfect for assembling cars, refrigerators, and other goods in the maquiladoras lining the border with America. More complex engineering and design work was better done elsewhere in the global economy -- usually at company headquarters in the U.S., Europe, and Japan.

But as maquila-style assembly work migrated to cheaper locales, and India and China grabbed more sophisticated design and engineering assignments, Mexican officials knew they had to do something to stay in the global race. Quietly and steadily, they have. Over the past 10 years, the country's policymakers have been building up enrollment in four-year degree programs in engineering, developing a network of technical institutes that confer two-year degrees, and expanding advanced training programs with multinationals from the U.S. and elsewhere.

The result is a bumper crop of engineers. Currently, 451,000 Mexican students are enrolled in full-time undergraduate programs, vs. just over 370,000 in the U.S. The Mexican students benefit from high-tech equipment and materials donated to their schools by foreign companies, which help develop course content to fit their needs. Many of these engineers graduate knowing how to use the latest computer-assisted design (CAD) software and speaking fluent English.

To read more:

http://www.businessweek.com/magazine/content/06_21/b3985070.htm

Little International Collaboration at China's R&D Labs

The offshoring of some of America's R&D work continues to worry many people.  Businessweek reports:

If you're an executive planning a new research and development center, where would you locate it? For just about anyone from a big company, that's a no-brainer: Either India or China. A just-released survey of 186 of the world's biggest corporations found that 77% of new R&D centers over the next three years will go up in one of these two emerging economic superpowers.

Whether corporations know how to make the best use of Chinese and Indian tech talent is another question. The prime motives for opening R&D labs in China are to develop products for the mainland market or to be closer to their manufacturing plants, the study by consulting firm Booz Allen Hamilton and France's INSEAD business school found. In India, the key attraction is the nation's immense pool of top-notch, low-cost technical manpower. The survey canvassed companies in 19 nations with combined annual R&D spending of $76 billion in 2004.

But only a small portion of the multinationals surveyed are fully integrating their Chinese and Indian labs into their global innovation networks, in which engineers at home would collaborate full-time with counterparts in Asia. Only 38% of product-development projects currently are conducted at more than one site. The study also found that a small minority of projects involve research staff that report to managers at a different location -- another sign of low cross-border collaboration. While "many companies are building more international R&D networks," the study concludes, "few have really begun to build the internal capabilities to run these networks effectively and efficiently."

To read more:

http://www.businessweek.com/globalbiz/content/may2006/gb20060510_613772.htm

Green GDP is Axed

The China Economic Review reports:

The government has scrapped its plan to estimate a “green measure” of gross domestic product amid escalating concern about the toll economic growth has taken on the environment, reported the Financial Times. “It is virtually impossible to calculate accurately a figure for GDP adjusted for the impact on the environment,” said an official from the National Bureau of Statistics.

Beijing is concerned that increasing environmental destruction is not being received well by the citizenry. Leaders requested that statisticians come up with an index of economic growth in terms of impact on the environment three years ago, to help assess the performance of politicians at a local level. The latest five-year plan, released in March, calls for balanced growth, rather than pursuing expansion at any cost.

To read more:

www.chinaeconomicreview.com

China's Gitmo Conflict

On the same day that China was given a seat on the United Nations Human Rights Council, AP reports, via AsiaOne:

China on Tuesday blasted a U.S. decision to release five Chinese Muslims from the Guantanamo Bay detention center to seek asylum in Albania, describing them as suspected terrorists and demanding their return.

A European-based Uighur Muslim activist said the men would face the death penalty or torture if sent back to China.

To read more:

http://hosted.ap.org/dynamic/stories/C/CHINA_GUANTANAMO_DETAINEES?SITE=ASIAONE

China on UN Human Rights Council

Along with Cuba and Saudi Arabia, China is a new member of the United Nations Human Rights Council.  An AP report notes that U.S. Assistant Secretary of State Kristen Silverberg said "on the whole, we think it is an improvement over the commission."

"We are committed to engaging actively in the coming weeks with all of the elected members ... to make sure that this body is effective," she said. "We think think that the real test of this council will be whether it can take effective action in serious cases of human rights abuse like Darfur, ... Burma, North Korea and other places."

To read more:

http://www.cbsnews.com/stories/2006/05/10/ap/world/mainD8HGKDJ81.shtml

A Trillion Dollars in Bad Loans

The Australian reports that China's mismanaged state-controlled banks may have more a trillion dollars in non-performing loans (NPLs).  It explains:   

According to Ernst & Young, the accounting firm, bad loans in the Chinese financial system have reached a staggering $US911 billion ($1.18 trillion), including $US225 billion in potential future NPLs in the four largest state-owned banks.

This equals 40 per cent of gross domestic product and China has already spent the equivalent of 25-30 per cent of GDP in previous bank bail-outs.

The revelation shows that half-hearted reforms have addressed merely the symptoms of China's financial fragility. Poor business practices are blamed for NPLs but the real source is political. As long as the communist party relies on state-controlled banks to maintain an unreformed core of a command economy, Chinese banks will make more bad loans.

To read more:

http://www.theaustralian.news.com.au/story/0,20867,19067992-36375,00.html

Graduates Face Employment Difficulties

Even with its impressive growth rates, millions of Chinese will face serious employment difficulties during the next two quarters with 60 percent of new graduates facing unemployment, according to a Xinhua article.  It explains:

"It is hard to create new jobs in large numbers due to surplus production capacity, more trade frictions and the revaluation of the yuan. As a result, it will be less easy to tackle employment pressure", said Zhang Xiaojian, vice minister of the Ministry of Labor and Social Security.

To read more:

http://news.xinhuanet.com/english/2006-05/07/content_4518343.htm

Currency Manipulator Decision Time

Is Washington ready to label China a currency manipulator?  The Standard says we may find out soon.  It explains: 

If the US Treasury deems China a currency manipulator when it releases its foreign exchange report this week, it could trigger more dollar weakness especially against the yen.

Previous biannual reports have criticized China, but stopped short of formally labeling it a currency manipulator for keeping its yuan cheap to gain an edge in international trade.

To read more:

http://www.thestandard.com.hk/news_detail.asp?pp_cat=22&art_id=18219&sid=7848992&con_type=1

Searching for a Asian Euro

The IHT reports:

The tentative steps taken this week by finance ministers from China, Japan and South Korea to coordinate their currencies may have roots in an ultimately futile purpose: to defend the yuan, yen and won from attack by speculators.

Linkage may discourage quick movement in and out of a currency, but it will not deter it - not in the age of electronic trading and black boxes that help traders exploit the smallest anomaly in pricing. Nevertheless, the moves by the three countries to more closely coordinate foreign exchange policies, even if it never produces a currency like the euro, should be applauded as a useful exercise in identifying strengths and weaknesses in the regional economies and financial system, and how best to take advantage of regional growth.

Source:  http://www.iht.com/articles/2006/05/05/business/wbview06.php

Millions of Blogs, Little Profit

A Reuters news story says the number of Chinese bloggers is expected to hit 60 million by the end of this year.  Zhang Xiaorong, strategy development director of "Bokee," which was set up in 2002 and claims the biggest share of China's blogging market, said his company adds about 100,000 blogs a day.

"The expected 60 million bloggers would account for more than half of China's 110 million netizens," Xinhua quoted Zhang as saying.

The university report forecast the number of bloggers in China would hit 100 million by 2007. Xinhua did not elaborate. Although the industry has invested heavily in blogs, none of the blog service providers are making profits, the report said.

To read more:

http://news.yahoo.com/s/nm/20060506/wr_nm/china_blogs_dc

Beijing's Bishops versus The Vatican

The Washington Post reports:

The Vatican said Thursday that two bishops ordained by China's government-controlled Catholic church this week faced excommunication and warned that their elevation endangered a lengthy dialogue designed to restore Vatican relations with China and to regularize Catholic worship in the country.

To read more:
http://www.washingtonpost.com/wp-dyn/content/article/2006/05/04/AR2006050400311.html?referrer=email

Expats Explore China

The number of Western expats, like myself, is growing in China.  Newsweek International reports:

China seems to be awash in expats who seem content to drift from one job to another before landing something that catches their fancy. They are taking advantage of burgeoning demand for local-hire China hands with Mandarin-language skills in entertainment, media, finance, trading and other fields.

At the same time, Western firms are looking to scale back on their longstanding practice of sending highly compensated expats to China with housing allowances and hardship pay. Instead, they’re turning to a labor pool of Westerners—estimated at 300,000—who have decided to settle in China, at least while the economy continutes to grow and rents (one-bedroom apartments in Beijing start at $300 a month) stay cheap.

To read more:

http://www.msnbc.msn.com/id/12634786/site/newsweek/

Higher Interest Rates, Faster Chinese Growth

At Bloomberg, Mr. William Pesek Jr. makes an important point.  He writes:

Moments after China's central bank shocked the world with a rate increase, Goldman Sachs Group Inc. was telling clients that the surprise move may boost the economy, instead of slowing it.

The central bank's governor, Zhou Xiaochuan, couldn't have been happy, yet Goldman economist Hong Liang had a point -- one to which markets should be paying more attention.

The People's Bank of China last week raised its one-year lending rate to 5.85 percent from 5.58 percent, while holding the deposit rate at 2.25 percent. Liang warned that only adjusting the former increases banks' lending margins and may boost credit creation, the opposite of what Zhou wanted.

Why? Chinese lenders derive more than 90 percent of revenue from the difference between the two rates. ``It enhances banks' incentives to lend,'' said Liang, head of China economic research at Goldman Sachs in Hong Kong.

To read more:

http://quote.bloomberg.com/apps/news?pid=10000039&refer=columnist_pesek&sid=aFklD7TonswA

Public Radio Battle in Hong Kong

As many conservative Americans complain about the political bias the New York Times and the public broadcasting stations across the country, a similar debate is growing over the public funding of a Hong Kong radio station.  The Christian Science Monitor reports:

A quiet battle over whether the only free and independent broadcaster on the land mass of China will remain so is intensifying. Over a 77-year span, Hong Kong public radio has dished out a blend of credible news and cultural programming in three languages, served as a link between expatriates and the Hong Kong street, and has gained increasing editorial autonomy and respect in China's most sophisticated city.

Yet that is exactly what bothers influential pro-Beijing forces who wish media to more fully trumpet government policies. Many of them see Radio Television Hong Kong, or "RTHK" as it is popularly known, as an irritant at best and a damaging critic at worst - allowing a broad range of opinion, including mild satire and programs that may challenge official proposals, all at taxpayer expense.

To read more:

http://www.csmonitor.com/2006/0504/p07s02-woap.html?s=hns

Google's Name Games

The negative reaction to Google's new Chinese name continues.  Morningstar notes:

Google's  new Chinese moniker GuGe, which means "valley" and "song," is drawing groans from Chinese users who say it is "weird," "unsophisticated" and lacking a certain cool factor, SearchEngineWatch reports. A protest site, NoGuge.com, has sprung up and collected thousands of signatures - and many suggestions for alternative names. Good Morning Silicon Valley says the favorites are: Gougou, or "dog dog," which is how Google is already widely known in China.

To read more:

http://news.morningstar.com/news/DJ/M05/D03/200605031445DOWJONESDJONLINE000973.html?Cat=AsiaPac

New Survey on the Taking of Farmers Land

New research from Michigan State University shows the challenges Chinese farmers face in keeping their land away from greedy developers.  Mr. Jeff Riedinger, acting dean of International Studies and Programs explains:

According to survey data, the number of annual takings was 15 times higher in 2005 than in 1995 – a trend that runs counter to recent legislation, including the Rural Land Contracting Law, designed to protect quasi-private property rights.

Other survey data reflect a gross inadequacy in terms of how farmers are compensated for takings and dubious claims of public interest associated with such takings. Among these findings: Only one in five farmers subject to a taking said they were consulted about the amount of compensation they might receive. In about a third of cases where cash compensation was promised, the promise has not been fulfilled.

More than 30 percent of government reasons given for most recent takings were for reasons that, according to most Western legal norms, wouldn't qualify as public interest – factory (15.8 percent), development zone or industrial park (13.1 percent), urban or suburban apartments or housing (2.8 percent), and gas station (1 percent.)

To read more:

http://newsroom.msu.edu/plugins/newsroom/printversion.asp?id=2768

China's Rating Falls in State Index

Foreign Policy magazine has just released their 2006 Failed States Index (FSI) and China's overall ranking has declined.  In the new index Sudan topped the list and was rated the world's most failed state based on 12 indicators.

In 2005, China ranked 75th, now it ranks 57th.

For the 2006 rankings:  http://www.fundforpeace.org/programs/fsi/fsindex2006.php

For the 2005 rankings: http://www.fundforpeace.org/programs/fsi/fsindex2005.php

For more analysis:  Go to Foreign Policy's website 

Hong Kong's Talent Shortage

Similar to many cities on the mainland, Hong Kong faces serious talent shortage in the years ahead.  The Standard reports:

Alarm bells have apparently also sounded inside the government, where officials have been busy promoting Hong Kong as "Asia's World City." Not wishing to contradict this claim, immigration officers were discreet in their announcement February of a U-turn on an unpopular ban on dependants of expatriate workers from working in Hong Kong. The ban was enforced in 2003 by then-chief executive Tung Chee- hwa because of high unemployment at the time.

The ban is expected to be lifted this summer, when the government will also introduce the Quality Migrant Scheme, a program that will allow up to 1,000 "top-notch" professionals from the mainland and overseas to live in Hong Kong for a trial period of one year before deciding upon a job.

But these open-door efforts may add up to little in light of the increasing trend for skilled people to follow the "northward flow" to mainland cities, according to local recruitment agencies. In fact, the number of talented people leaving Hong Kong for the mainland in recent years was at least double the number making the reverse journey - a strong indication of the current demand - said Dan Chavasse, managing director of Michael Page International, an executive recruitment agency with offices in Hong Kong and Shanghai.

To read more:

http://www.thestandard.com.hk/news_detail.asp?pp_cat=11&art_id=17794&sid=7756185&con_type=1

Hidden Costs of China's Exchange Rate Policy

Developing countries like China and Russia continue to invest billions of dollars in American government bonds which are a low risk, low return choice. In the NY Times, Mr. Eduardo Porter notes:   

"It is an irony of our times that the majority of the world's poorest people now live in countries with vast international financial reserves," Lawrence H. Summers, the president of Harvard and a former Treasury secretary, told an audience of Indian economists in Mumbai last month. "It seems appropriate that part of the focus of the international financial architecture move toward the challenge of deploying their large reserves as effectively as possible."

There is a logic to this investment strategy, unprofitable as it is. The Treasury bond binge by China is part of a policy of exchange-rate management to keep the value of its currency competitive against the dollar — a core component of the nation's export-led economic strategy.

To read more:

http://www.nytimes.com/2006/04/30/business/yourmoney/30view.html?_r=1&8ym&emc=ym&oref=slogin

Hardship Payment for 1989 Victim

The BBC and Guardian are reporting that a Chinese mother whose son died in the 1989 Tiananmen crackdown gets a "hardship" payment from local government officials.  The Guardian explains:

The Chinese authorities have compensated the mother of a youth who died after being beaten in police custody during the 1989 crackdown on pro-democracy protesters, in the first known payment of its kind. A human rights activist said yesterday that police in Chengdu had reportedly paid 70,000 yuan (£4,800) as "hardship assistance" to Tang Deying, who has campaigned for 17 years for an official apology and redress for the death of her son.

To read more:

http://story.stlouisstar.com/p.x/ct/9/id/cc23a7655e0160c9/cid/2411cd3571b4f088/

China's Major Economic Shift

In Newsweek International, Mr. Stephen Roach argues:

This is a pivotal moment. China is moving to create a normal consumer market early in its development—far earlier than Japan and South Korea ever considered dropping the export-led model. Beijing is thus doing its part to address major global imbalances—between high Asian saving and high U.S. spending—at a time when Washington has yet to acknowledge its role: to restrain American consumption.

However, as China converts saving into consumption, it will have less surplus capital to fund America's shortfall—raising the odds for a hard landing for the U.S. economy. America needs to stop bashing China and get its own spending habits in balance.

To read more:

http://www.msnbc.msn.com/id/12554317/site/newsweek/