China Challenges

76% See China as Bigger Economic Threat Than Military One

Rasmussan Reports finds:

The International Monetary Fund has now projected that China will surpass the United States as the world's number one economy by 2016, and Americans overwhelmingly believe China represents a bigger threat to America economically than militarily these days.

Source: http://campaign.r20.constantcontact.com/render?llr=zmzggocab&v=001vAT3y6bgAL5OK1yxwPfjpvSF6geIyEH-qlpDhHPM5XGwW5p-Vw8MQ3ES1vEF31EiBp7qQjifp_55PMHqXU0sxXT2Zczp78Hkqz5lF7oKwfkHbq9zLLZ1Rg%3D%3D

IMF bombshell: Age of America nears end

Moneywatch says:

 The International Monetary Fund has just dropped a bombshell, and nobody noticed. For the first time, the international organization has set a date for the moment when the “Age of America” will end and the U.S. economy will be overtaken by that of China.

And it’s a lot closer than you may think. According to the latest IMF official forecasts, China’s economy will surpass that of America in real terms in 2016 — just five years from now.

Put that in your calendar.

It provides a painful context for the budget wrangling taking place in Washington right now. It raises enormous questions about what the international security system is going to look like in just a handful of years. And it casts a deepening cloud over both the U.S. dollar and the giant Treasury market, which have been propped up for decades by their privileged status as the liabilities of the world’s hegemonic power.

Read more: http://www.marketwatch.com/Story/story/print?guid=25965F12-6D1A-11E0-8CAB-00212804637C

Taxing China's Assets

Foreign Policy says:

For much of the past decade, the United States has begged, pleaded, and threatened China to change its disruptive currency practices, which artificially make Chinese exports cheap and foreign goods sold in China expensive.

Today, in the midst of prolonged economic weakness, with the U.S. trade deficit rising and unemployment persistently high -- and Chinese-owned U.S. debt probably exceeding $2 trillion -- legislative pressure is again growing to raise trade barriers against Chinese goods. Since June 2010, China has allowed its currency, the renminbi, to rise nearly five percent against the dollar. But there has been no slowdown in its manipulative purchases of U.S. assets, implying that the renminbi remains deeply undervalued.

The United States clearly needs to ratchet up the pressure on China, and the next installment of the U.S.-China Strategic and Economic Dialogue, scheduled for early May in Washington, provides a natural opportunity. But what action can the United States take to persuade China to stop its harmful behavior?  Minor trade measures, such as a few more antidumping or countervailing duty cases to levy penalty duties on U.S. imports of Chinese paper or steel, will not make an appreciable dent in the trade deficit or the unemployment rate. And major trade measures, such as a tariff or quota against all Chinese exports, would likely be ruled illegal by the World Trade Organization and would almost certainly provoke Chinese retaliation against U.S. exporters. Moreover, a trade war across the Pacific would quickly create vested interests among protected U.S. and Chinese industries, making the retaliatory measures hard to unwind. For these reasons, it is no surprise that U.S. policymakers have been reluctant to launch a trade war with China; officials in Beijing understand this reluctance well and, accordingly, have viewed U.S. threats as bluffs.

Read more: http://www.foreignaffairs.com/articles/67810/joseph-gagnon-and-gary-hufbauer/taxing-chinas-assets?page=show

Inflation in China

Patrick Chovanec says:

The standard measure of inflation, the Consumer Price Index (CPI), includes both food and fuel in the “shopping basket” of prices it measures. Food, however, is often subject to “price shocks” — sudden spikes in prices — because of temporary shortages due to weather or similar supply disruptions. Oil, which most industrialized countries are required to import, is even more subject to volatile price fluctuations due to war, unrest, environmental disasters, or any other number of other causes that are completely external to the management of the domestic economy. As a result, many economists argue that it is better to look at “core CPI” — CPI minus the food and fuel component — for a better measure of the underlying inflationary pressure in an economy.

I would argue that food, and possibly fuel, should not always be discounted quite so easily, especially if inflationary demand is pushing up prices broadly — as I think is happening in China today. However, it’s important to note that recent spikes in oil prices, due to the unrest in Libya and other Arab states, is distinct from China’s homegrown inflation problem and is something beyond Chinese policymakers’ immediate control (although it’s equally fair to note that the broader pressure behind rising oil prices more generally is being driven, in large part, by the growing appetite of China and other rapidly emerging markets for oil imports — a demand which may be inflated by China’s expansive monetary policy).

Read more here: http://seekingalpha.com/article/265135-inflation-and-the-truckers-strike-in-shanghai?source=email_watchlist

China’s Train Wreck

The Washngton Post says:

For the past eight years, Liu Zhijun was one of the most influential people in China. As minister of railways, Liu ran China’s $300 billion high-speed rail project. U.S., European and Japanese contractors jostled for a piece of the business while foreign journalists gushed over China’s latest high-tech marvel.

Today, Liu Zhijun is ruined, and his high-speed rail project is in trouble. On Feb. 25, he was fired for “severe violations of discipline” — code for embezzling tens of millions of dollars. Seems his ministry has run up $271 billion in debt — roughly five times the level that bankrupted General Motors. But ticket sales can’t cover debt service that will total $27.7 billion in 2011 alone. Safety concerns also are cropping up.

Faced with a financial and public relations disaster, China put the brakes on Liu’s program. On April 13, the government cut bullet-train speeds 30 mph to improve safety, energy efficiency and affordability. The Railway Ministry’s tangled finances are being audited. Construction plans, too, are being reviewed.

Liu’s legacy, in short, is a system that could drain China’s economic resources for years. So much for the grand project that Thomas Friedman of the New York Times likened to a “moon shot” and that President Obama held up as a model for the United States.

Read more: http://www.washingtonpost.com/opinions/chinas-train-wreck/2011/04/21/AFqjRWRE_story.html

The Four Essentials For Sourcing From China.

Dan Harris says:

Got an email the other day from a friend whose company is getting ready to source from China. The email asked me what the company needed to know "to protect their butts in China." I told them they needed to know/do the following four things.

1.  Choose a good factory. This is the sine quo non of China sourcing. I am always saying that I can write the world's best contract, but if the party on the other side is a thief, the contract will have no value. How do you pick a good factory? The first thing you do is make sure that you have actually picked a factory, and not a broker claiming to be a factory. The best way to pick a good factory is to go and look at it yourself. The second best way is to have a qualified person you trust go and look at it. The third best way is to rely on the views of others.

Read more here:

http://www.chinalawblog.com/2011/04/the_four_essentials_for_sourcing_from_china.html

 

The Value of a Chinese Education

The Diplomat says:

I’d like to share a memorable comment from earlier this month by a professor at Beijing Normal University. The remark is about more than just education – it has quickly become a source of entertainment among Chinese netizens, and even something of a social issue.

On 4 April, a professor at one of the university’s research centres wrote a microblog entry that was presumably meant to offer some encouragement for his students.

‘When you’re 40 years-old, don’t come and see me if your net worth isn’t 40 million yuan ($6.1 million). And don’t tell people that you were my student. To a highly-educated person, poverty means shame and failure.’

The media immediately stirred up some debate on the issue, and many members of the public who responded were quick to argue that by emphasizing money, the professor had taken education back a step or two.

The professor responded that the blog entry was a joke, a defence that prompted even more criticism. Some netizens joked that he clearly has a good grasp of how serious China’s inflation problem is, noting that as his students are mainly in their 20s, by the time they are 40 years-old, 40 million yuan would be equivalent to about 10 million yuan now.

I don’t agree with trying to place a numerical value on education – even if a student becomes a teacher or ends up working in a shop they are still making a valuable contribution to society.

Read more: http://the-diplomat.com/china-power/2011/04/21/the-value-of-education/

Inflation in China Poses Big Threat to Global Trade

The NY Times reports:

“China is moving into a new era, a new norm,” said Dong Tao, an economist at Credit Suisse in Hong Kong. “In the previous decade, inflation was about 1.8 percent a year; in the next decade, it may be closer to 5 percent.”

The implications of such a shift are huge, not just for domestic consumers but perhaps even more so for exports. As wages and production costs rise, coastal factories are demanding higher prices for the goods they ship overseas. That means Americans, Europeans and other buyers will have to pay more for those goods or seek lower-cost suppliers elsewhere. In some cases, retailers are bidding for goods at prices the exporters consider too low.

“I hear that many Chinese exporters are rejecting orders from Wal-Mart and other Western retailers,” Mr. Tao said. “I’ve been covering the Chinese economy for a long time, and I’ve never heard that before.”

Many analysts say the government is going to have to do even more to slow the economy, through measures like placing additional restrictions on lending and continuing to raise interest rates, the textbook methods of fighting inflation by tightening the nation’s money supply.

Read more here:

http://www.nytimes.com/2011/04/18/business/global/18yuan.html?_r=1&nl=todaysheadlines&emc=tha2&pagewanted=all

 

Imports and GDP Calculations

Dan Griswold’s latest, data-rich study on the U.S. trade deficit is a must-read.  It says:

A nearly universal consensus prevails that the goal of U.S. trade policy should be to promote exports over imports, and that rising imports and trade deficits are bad for economic growth and employment.

The consensus creed is based on a misunderstanding of how U.S. gross domestic product is calculated. Imports are not a “subtraction” from GDP. They are merely removed from the final calculation of GDP because they are not a part of domestic production.

Contrary to the prevailing view, imports are not a “leakage” of demand abroad. In the annual U.S. balance of payments, all transactions balance. The net outflow of dollars to purchase imports over exports are offset each year by a net inflow of foreign capital to purchase U.S. assets. This capital surplus stimulates the U.S. economy while boosting our productive capacity.

An examination of the past 30 years of U.S. economic performance offers no evidence that a rising level of imports or growing trade deficits have negatively affected the U.S. economy. In fact, since 1980, the U.S. economy has grown more than three times faster during periods when the trade deficit was expanding as a share of GDP compared to periods when it was contracting. Stock market appreciation, manufacturing output, and job growth were all significantly more robust during periods of expanding imports and trade deficits.

The goal of U.S. trade policy should not be to promote exports at the expense of imports, but to maximize the freedom of Americans to trade goods, services, and assets in the global marketplace.

Chinese Media’s Ostrich Policy

The Diplomat says:

A friend of mine who recently returned from Tokyo asked me why the Chinese media has only been reporting on the conflict between the pro-Gaddafi military and the opposition, rather than analyzing the reasons why there are so many people opposed to Gaddafi’s rule.

Certainly, the Chinese media has been very interested in the conflict in Libya. But it has mostly been reporting on the actual conflict and how the West is ‘attacking’ Libya. In contrast, there has been little analysis on the political issues facing Libya, including how Gaddafi’s government is falling apart, the country’s long-term political outlook, and why many Libyans are so unhappy with their ruler.

The reason is simple: the Chinese media is adhering to its ‘ostrich policy’.

Read more: http://the-diplomat.com/china-power/2011/04/12/chinese-media%E2%80%99s-ostrich-policy/?utm_source=The+Diplomat+List&utm_campaign=a915670d85-Diplomat_Brief_2011_vol13&utm_medium=email

A City of 260 Million. Where Else But China?

Gordon Chang writes:

Beijing is planning to combine nine southern Chinese cities into the world’s largest urban area.  Called the “Turn the Pearl River Delta into One” scheme, the plan will effectively merge Guangzhou, Shenzhen, Dongguan, Foshan, Huizhou, Zhaoqing, Jiangmen, Zhongshan, and Zhuhai into a single megacity with a geographical size larger than Switzerland.

Guangzhou, the capital of Guangdong province, is already considered the world’s second largest metropolis with 24.9 million residents.  The other eight cities in the Pearl River Delta plan will mean that the new unit will have a total of 42 million inhabitants.  Add in the neighboring Special Administrative Regions of Hong Kong and Macau, which some Chinese planners would like to do, and you have a megacity of 50 million people.

The PRD, as the Pearl River Delta is known to locals, is already an economic unit that accounts for a tenth of China’s economy and a quarter of the country’s trade by value. Government officials and private developers have already linked the nine cities with roads, tunnels, and bridges, but planners would like to see even more connecting infrastructure.

Read more: http://blogs.forbes.com/megacities/2011/04/11/a-city-of-260-million-where-else-but-china/?partner=commentary_newsletter

More Chinese Grad Students Eyeing U.S.

Inside Higher Ed reports:

Last year, the survey showed that while international graduate applications were up 9 percent over all -- the same as this year, with 72 percent of institutions reporting growth -- the rates of growth at the three countries that send the most students were strikingly different. Applications from China rose 20 percent, compared to a 1 percent increase from India and no increase at all from South Korea (together, those three countries account for about half of international graduate students studying in the U.S.).

But this year, those three key countries have evened out a bit. China again saw a big (and not unexpected) increase of 18 percent, but India and South Korea’s applications rose, too, at 7 percent and 2 percent, respectively. (In last year’s annual Open Doors report, China overtook India as the country sending the most students to the U.S. And, noted Nathan E. Bell, director of research and policy analysis at CGS, applications from South Korea are actually fewer today than they were in 2008, after they dropped 9 percent that year and stayed flat the year after.)

Read more here:

http://www.insidehighered.com/news/2011/04/12/survey_shows_international_graduate_student_applications_increasing_at_colleges_in_u_s

Donald Trump on China

Managing the Dragon blog says:

Trump seems to think that imposing a large tariff on Chinese goods would cause manufacturing to move back to the United States. Being U.S.-centric, he doesn’t realize that there are 6.8 billion people in the world, only 1.0 billion of which live in North America, Western Europe, Japan and Australia. The other 5.8 billion people, including those in China, live in countries that have much lower wage rates than those in the United States. Slapping a 25 percent tariff on Chinese goods would not cause jobs to move back to America, but would instead be a boon to the other developing countries of the world.

Moreover, in blaming an undervalued Chinese currency for the loss of American jobs, Trump has fallen into the same trap that many politicians have fallen into before him. In spite of what they believe is an obvious connection between the currency exchange rate and the trade deficit with China, the empirical evidence does not support such a connection.

Since July, 2005, the yuan has appreciated by 21 percent against the dollar, yet this has had no impact on either the amount of imports from China or the U.S. trade deficit with the country. In 2005, the U.S. imported $244 billion of goods from China and ran a trade deficit of $202 billion. By 2010, despite the increased value of the yuan, imports had increased by 50 percent to $365 billion, and the trade deficit had increased by 35 percent to $273 billion.

Trump also isn’t worried about a trade war with China, and somehow believes that the U.S. will fare well if a punitive tariff on Chinese goods leads to such an outcome.

Read more here:

http://managingthedragon.com/?p=975

China Bubble: Empty Mega Mall and Million Dollar Pooch

Vikram Mansharamani at Yale Global says:

By almost any metric, economic progress in China over the past several decades has been phenomenal: GDP per capita, literacy rates, health care, infant mortality, life expectancy and national wealth have all improved remarkably.

However, as the famous disclaimer reads on most mutual fund advertisements, “past performance is no guarantee of future performance,” and this appears to be the case with respect to China’s progress. In fact, China today exhibits many of the signs that characterize the great speculative manias throughout history.

Might China slow to a more sustainable GDP growth rate, say 5 percent, in the coming years? Significant evidence suggests that such an outcome is not as outlandish as the global investment community currently believes. A Chinese slowdown of this magnitude would have material impacts upon commodity markets, emerging markets and even the S&P 500’s business and earnings mix. In short, how China goes, so goes the world economy. Given this global economic interdependence, it’s highly imprudent for policymakers and investors not to consider the possibility of such a slowdown.

Read more here:

http://yaleglobal.yale.edu/content/china-bubble-million-dollar-pooch?utm_source=YaleGlobal+Newsletter&utm_campaign=e140828d5c-Newsletter9_14_2010&utm_medium=email

10 Reasons Why your Chinese Employee is Leaving You

The Foreign Entreprenuers Blog says:

I recently attended an event hosted by Servcorp Shanghai where Christian Groeger and Valourie Xuan, from Fiducia Management Consultants, delivered a presentation entitled “Winning the Talent War (in China) in 2011”.

High staff rotation is a big challenge for companies in China. Mr. Groeger approached the “talent war” drivers from both the employee and the employer’s perspective. Today I reproduce here Mr. Groeger’s insights about drivers and external influences from the employee’s perspective:

1. Problems with supervisors and leadership
This is a universal driver, which usually does not get that much attention because people are usually not that honest about their personal feelings. Interpersonal problems are easily compounded in intercultural (foreigner/local, returnee/local) settings.

2. Work-Life Imbalance
This issue is rapidly gaining importance, especially with younger employees – the  generation born in the 90’s or 90后 (jiu-ling-hou) as they are called in China. Members of this generation tend to be more self-conscious and have higher expectations about life than their parents generation.

Read more here:

http://www.foreignentrepreneursinchina.com/2011/04/10-reasons-why-your-chinese-employee-is-leaving-you/

Profiting From Piracy: Robin Li’s Problem Is China’s Problem

Forbes says:

One dirty if open secret to the turbocharged growth of Chinese Internet services is that they have been convenient portals to piracy. Youku and Tudou became famous for their troves of pirated movies and television shows on their way to leading the Chinese online video sector. Taobao became the go-to Web marketplace in China for counterfeit goods while becoming the go-to Web marketplace in China, period (see my story in this issue of Forbes on Taobao’s creator, Jack Ma). And Baidu’s reputation for full service in enabling users’ quests for pirated content — such as larding search results with mp3 links for one-stop downloading — helped the Chinese search engine to its dominant perch.

Baidu’s billionaire co-founder and CEO Robin Li, the richest man in China with $9.4 billion, is viewed by some as the Chinese Internet’s pirate king. In recent days, Li has faced a swell of criticism that he built his fortune in part by stealing from the poor, or more precisely, by allowing others to steal from the poor — in this case, Chinese authors whose works have been pirated en masse via user uploads to Baidu’s Wenku (Library) service. It is like a Napster for books, only if Napster were owned by Google. (Google Books operates under a different, if also controversial, model, the most important difference being it does not allow users to download the entire text of copyright-protected books.)

Read more here:

http://blogs.forbes.com/gadyepstein/2011/03/29/profiting-from-piracy-robin-lis-problem-is-chinas-problem/