China Challenges

Is China Ready for 2012?

The Atlantic reports:

It is appropriate that the year began with the Tiger Mom and closed with an official indictment of the management of the Chinese high-speed rail program. The book ends of this year's China narrative capture the zeitgeist in 2011: the ever fiercer duels between the China bulls and bears. Yes, Amy Chua is American, but her story became instantly linked to the general competitive fears that Americans had about what appeared to be an unstoppable juggernaut -- perhaps one of the most overused nouns in describing China. From raising future Ivy Leaguers to clocking the fastest bullet trains, the Chinese can do it all and with exacting efficiency. It was a year in which many latched onto the China story, many more traveled to China for days or weeks and commented on it, and many used the country as a reflection of America's own debilitating dysfunctions. A "juggernaut" it may be, but China's size is also its curse. The country is no longer under the proprietary province of China specialists -- it is now subject to Saturday Night Live parodies and Gary Shteyngart's literary satire. For better or worse, 2011 saw the democratization of the China narrative.  

This debate is due in large part a consequence of this democratization, leading to a proliferation of "takes" on China that make it difficult to separate the good from the bad.

Read more: http://www.theatlantic.com/international/archive/2011/12/is-china-ready-for-2012/250162/

Red Envelopes and Gray Income in China

See Red in China says:

In China, the possibility of “gray income” can be an important factor when choosing a job. “Gray income” simply refers to receiving ”gifts” in exchange for improved service. It is most common when someone controls access to something like health care, education or job opportunities. The difference between this and bribery seems rather arbitrary, but people in China seem to accept the former while being disgusted by the latter.

The prevalence of gray income jumped out at me the other day after a good friend told me of a discussion he had in a local noodle shop with an off-duty policeman and his friend. At some point the policeman’s friend brought up the issue of gray income and how police officers have many sources of it, which the policeman vehemently denied. His friend than countered with a single piece of damning evidence, somehow this lowly public servant was able to afford to send his daughter to study in the US.

I’ve noticed similar disparities between people’s income and the purchases they make, and many Chinese netizens have taken notice too. In my office we joke that doctors’ coats have many pockets, because they need many places to hold red envelopes. Colleagues brush it off by saying that this is simply a way for the patient to thank them.

More often though, gray income is disguised in gift giving.

Read more:

China Rail Fail: 42% Spending Cut in Bullet Train Meltdown

Walter Russel Mead says:

The Panda Lobby, the pundits and policy wonks who want the US to imitate China’s state capitalism, has long celebrated what it claims to be China’s far sighted and effective approach to industrial policy.  China, the Panda pundits tell us, will own the future because of its courageous subsidies to green technology and high speed rail.  The meltdown of the Chinese solar industry has been widely reported; now comes word that the rail program is also in trouble.

Read more: http://blogs.the-american-interest.com/wrm/2011/12/26/china-rail-fail-42-spending-cut-in-bullet-train-meltdown/

The End of the Chinese Dream

Foreign Policy reports:

Despite China's astonishing economic growth, it has gotten harder for people like my friend to get by in the big city. His is not a particularly lucrative profession. Like many in Beijing, he cannot count on his annual pay to keep pace with China's official rates of inflation -- which many economists suspect are lowballed anyway. (The consumer-price-index inflation rate is considered so sensitive that the State Council approves it before it is released publicly.) Even so, every month this year consumer-price-index inflation has exceeded the official average monthly target of 4 percent. Last month state media hailed it as good news that it was, officially, just 4.2 percent.

Anyone in Beijing can point to examples of friends who see rents hiked 10 percent or more in one year. The prices at restaurants keep going up, even as portions are getting noticeably smaller. Throw in the loss of intangibles that money can't buy -- like air quality and food safety -- and you begin to understand the grumbling among some of Beijing's non-wealthy folks that their standard of living seems to be diminishing, even as the national GDP surges ahead at a heady 9 percent.

Could it possibly be true that a swath of people in China's big cities is downwardly mobile, if one compared wages with living expenses?

Read more: http://www.foreignpolicy.com/articles/2011/12/21/end_of_the_chinese_dream?page=full

The Impacts Of China's Real Estate Crash. A Hard Rain Is Gonna Fall.

Steve Dickinson writes:

There are two types of real estate investor in China. The first are pure speculators who treat residential real estate as a source of value, far removed from its original residential use. These investors purchase multiple properties without bothering even to remodel the units for actual use. They are responsible for the spooky flats of empty condo buildings that have become so common in all of China's cities.

The second are the normal citizens who purchase real estate as their primary residence. The high prices of the real estate bubble created by the speculators have created much pain for these normal home-buyers. Recent policies of the central government designed to contain the real estate bubble have been designed to benefit this segment of "normal" home buyers. However, it is probable that the recent collapse in real estate values has damaged these normal home buyers as much as, or even more than, the speculators.

Read more: http://www.chinalawblog.com/2011/12/the_impacts_of_chinas_real_estate_crash_a_hard_rain_is_gonna_fall.html

Apple struggles to take bigger bite out of China

Reuters reports:

It is not that Apple's iPhones and iPads are losing favour among Chinese consumers. The iconic products are flying off the shelves at Apple's five flagship stores in Shanghai and Beijing, unauthorised sellers, and even from fake shops dressed up to look eerily like the real thing.

The problem facing Apple seems to be timing.

Network technology is not sufficient to fully support iPhone and iPad capabilities, while other handset makers supply phones that support the various mobile standards used in China.

A tie up with another telecoms service provider would help catapult Apple sales. But the biggest by far, China Mobile Ltd (0941.HK) with more than 600 million subscribers, may not have matching technology in place commercially until late 2012 or 2013.

In the absence of that, Apple's relatively rigid global pricing structure and limited range of models are allowing more flexible competitors to grab market share at a faster pace.

Apple's smartphone market share has more than doubled since the first quarter of 2010, but others are doing better. Samsung Electronics Co Ltd's (005930.KS) market share has more than quadrupled over the same period.

"Apple's strategy in China is to capture the higher-end segment, which is a big enough market for it to tackle," said Jane Wang, an analyst at UK research firm Ovum.

Read more: http://in.reuters.com/article/2011/12/18/apple-china-idINDEE7BH06Y20111218?utm_campaign=China+-+Bing+News

Tax Reform and Hard Landing in China?

Patrick Chovanec says:

Smart tax cuts can play a role in stimulating innovation and consumption in China, and hence growth.  But the key is cutting the right taxes, and stimulating the right things.  China's current tax system is geared towards subsidizing production (particularly exports) and investment (particularly real estate) at the expense of savers and consumers.  This needs to change, but unfortunately many of the tax "reforms" officials are currently talking about go in the wrong direction.  Let me give three examples:

Lower and middle-income earners account for over half of all income tax revenue in China (compared to the U.S., where the top 10% of income earners pay 71% of federal income taxes, and the bottom half pay only 3%).  This places a huge burden on lower-income earners and suppresses consumption.  The solution, some Chinese policymakers believe, is simple:  make the tax code more progressive.  They even started to shift in this direction earlier this year.  The problem, though, isn't the tax rate -- China's top marginal rate is 45%. 

The problem is uneven enforcement and collection.  SOE employees -- including top management -- receive a lot of their compensation in-kind (free food, free housing, free car with driver, etc) and tax-free.  Business owners can classify their income in ways that avoid taxes.  Officials, we all know, receive much of their income under the table.  The only people who actually pay 45% of their real income are foreigners or Chinese nationals working for foreign companies.  Raising their tax rates -- which are already high -- will just drive people to Hong Kong.

Hear more: http://www.washingtonpost.com/business/chovanec-says-china-faces-harder-landing-than-expected/2011/12/12/gIQApMosqO_video.html

China says will hit U.S. auto imports with duties

Reuters reports:

China will impose punitive duties of up to 22 percent on large cars and SUVs exported from the United States, China's Commerce Ministry said on Wednesday, the latest in a series of trade disputes between the world's two largest economies.

The new duties take aim at vehicle exports valued near $4 billion and come at an awkward time for U.S.-China relations, with China's currency and trade policies becoming a focus of criticism for U.S. presidential candidates.

Vehicles affected by the new duties include the Cadillac Escalade made by General Motors Co, the Jeep Grand Cherokee from Fiat SpA affiliate Chrysler Group LLC and luxury SUVs from Daimler AG's Mercedes and BMW AG.

Chinese officials said the U.S.-built SUVs and luxury sedans were being dumped on the Chinese market and causing "substantial damage to China's domestic industry." Vehicle exports to China had already been subject to a 25 percent tariff and the new tariff will be in addition to that duty.

Read more: http://www.reuters.com/article/2011/12/14/us-china-us-trade-idUSTRE7BD1LJ20111214

Closer to Labour Reform? China’s First Successful Collective Bargaining Case

E-ChinaCities says:

Last October, all was not well at the Guanxing Precision Machinery Product Factory – a Japanese-funded factory that manufactures watch chains for Citizen. The factory's employees were furious that 40 minutes had been deducted from their timecard every day since 2005 (to make up for the time spent going to the bathroom). On October 17th, all 1,178 employees decided to strike, using the tried and true stand outside in peaceful protest method to voice their great displeasure over their skewed wages. On November 6th, with the signatures of 584 people, 10 employee representatives hired the Shenzhen Laowei Law Firm to supply them with legal advice and help with the signing of agreements during their negotiations with the factory's management. The labour and management sides held two rounds of formal negotiation, and on November 19th, both sides signed the memorandum for the negotiation. On November 30th, the employee representatives received the first chunk of compensation for the five years of "40-minute-a-day-overtime". This marks the first time that collective bargaining between labour and management has been successful…without the intervention of the government.

Prospects of future dialogue on labour-management sustainability

According to Duanyi Cheng, the employee's labour lawyer and chief partner of the Laowei Law Firm, the factory's management and the employees' representatives mutually formed a "labour-management relations committee" on December 3rd. Employees can now go through the labour-capital relations committee to raise any appeals to the management, and can also use it to agree to any improvements that the management carries out.

Duanyi Cheng believes that the success of these negotiations could lead to prospects for future dialogue on labour-management sustainability.

Read more: http://www.echinacities.com/china-media/closer-to-labour-reform-china-s-first-successful.html

How far will home prices fall in Shanghai?

Shaun Rein writes:

In interviews with dozens of homeowners my firm conducted in the past several weeks, the majority expected a 10 percent plus price drop, but only a minority said they would sell if prices dropped that much. Less than 5 percent said they were rushed to sell. Over 90 percent said they would hold on to the units no matter how long it took prices to rebound.

Moreover, there is massive pent up demand from both the average Chinese looking for a house to live in and from real estate investors with cash in hand looking for places to park money in, given the lack of alternatives.

...

People in China have the money and the desire to buy homes but have been restricted from buying because of these regulations. They are now taking a wait and see attitude.

While the residential real estate sector is definitely slowing, pent up demand and lack of debt among homeowners will ensure a soft landing.

Read more: http://www.cnbc.com/id/45635543/

China’s 10-Year Ascent to Trading Powerhouse

The NY Times reports:

HONG KONG — As China heads into a weekend of speeches celebrating its 10 years as an official member of the global trade community, the rest of the world may want to contemplate the exported $49 microwave oven and the imported $85,000 Jeep Grand Cherokee.

Sunday is the 10th anniversary of China’s joining the World Trade Organization — a membership that helped turn China into the world’s biggest economy after the United States. Companies and consumers worldwide have benefited from China’s emergence as a top trading partner. And yet, because of special breaks and loopholes for China when it joined the W.T.O., it still shields its domestic markets from foreign competition much more than any other big nation.

Consider that $49 microwave oven and $85,000 Jeep.

Microwave oven prices have plunged in the West over the past decade, largely because China has combined inexpensive labor, excellent infrastructure and heavy factory investment to produce the ovens and a wide range of other consumer goods for export, making creature comforts more affordable to customers around the world.

Further, W.T.O. rules against protectionism have made it difficult for countries in the West to limit China’s sixfold surge in exports during those 10 years, even as the Chinese flood of products has forced factory closings and layoffs elsewhere.

Read more: http://www.nytimes.com/2011/12/09/business/global/chinas-10-year-ascent-to-trading-powerhouse.html?_r=1&pagewanted=print

The Dragon Year Baby Boom

Businessweek reports:

Smart executives know how to read business cycles. In China, some businesses also play close attention to demographic ones—especially the traditional spike in births associated with the Year of the Dragon, which starts on Jan. 23. More women in the world’s most populous nation are expected to try to time their pregnancies to fall in a year that the Chinese zodiac calendar associates with wealth and power. And the trend could be more pronounced this time, given the Chinese government’s more relaxed policies on family size. That may mean higher demand for infant and toddler products in the years ahead. Explains Michele Mak, a consumer sector analyst at BNP Paribas: “The dragon year baby boom is almost a sure thing, which will boost the demand for infant products such as baby formula, diapers, and clothes.”

Five percent more babies are typically born in a dragon year—the last one was in 2000—because many parents want their progeny to be associated with the icon of China’s emperors, says Tak-Hong Cheung, who runs the obstetrics and gynecology department at Prince of Wales Hospital in Hong Kong. That baby bump will add fuel to population growth that’s already expected to reach 1.388 billion by 2020, up from 1.334 billion in 2009, according to the United Nations.

China set a one-child policy in 1979 to curb population growth and drive prosperity. Now, facing an aging labor force, Beijing is allowing couples who are both only children to have two kids of their own.

Read more: http://www.businessweek.com/printer/magazine/year-of-the-dragon-may-give-chinas-economy-a-lift-12082011.html

China Bank Crisis Led by Debt Seen by 61% in Global Poll

Bloomberg reports:

Dec. 8 (Bloomberg) -- Most global investors predict China will face a banking crisis within the next five years, paring their appetite for the nation’s shares and eroding confidence in its leadership, a Bloomberg Global Poll indicated.

Sixty-one percent of respondents said they anticipate a crash in the financial industry by late 2016, and only 10 percent were confident China’s banks will escape trouble, according to the quarterly poll of 1,097 investors, analysts and traders who are Bloomberg subscribers conducted Dec. 5-6.

Evidence of slowing growth in China -- including the weakest manufacturing performance in more than two years, falling home sales and ebbing export growth -- has stoked concern that non-performing loans will climb in the world’s second-largest economy. The risk is a legacy of a record 17.6 trillion-yuan ($2.8 trillion) lending boom unleashed by Premier Wen Jiabao in 2009-2010 amid the global recession.

Read more: http://www.businessweek.com/news/2011-12-08/china-bank-crisis-led-by-debt-seen-by-61-in-global-poll.html

Cigarettes Consumed in China: 50,000 per second

The China Economic Review notes:

50k: The cigarettes consumed in China every second

Source: Business Insider

Why We Should Thank the Chinese Currency Manipulators

Mark Perry writes:

At a recent event hosted by The Aspen Institute, "Is U.S. Trade Policy Helping or Hurting Manufacturing?" and featuring former U.S. Trade Representative Susan Schwab and former principal economic adviser to Vice President Joseph Biden Jared Bernstein, there was a lively debate on a number of issues relating to trade and manufacturing. While there were differences of opinion on most topics, there was a strong consensus (including among the attendees) on one topic: China is a currency manipulator. Here is a summary of that consensus, as I understand it:

1. China manipulates its currency by keeping the yuan undervalued and the dollar overvalued.

2. That currency manipulation gives China an economic advantage that harms the United States.

3. The United States and other countries should individually or collectively take steps to persuade or force China to stop its manipulation.

4. Solutions to China’s currency manipulation range from direct legislation, like the bill passed recently in the Senate that will impose stiff tariffs on Chinese goods if the Treasury finds evidence of currency manipulation, to other forms of indirect pressure on China to persuade it to stop manipulating its currency.

Let me break from that consensus about China’s currency policy and present an alternative position:

The ‘manipulation’ of China's currency is actually to the distinct advantage of millions of American consumers and U.S. businesses buying products made in China.

In the best of all possible worlds for the United States, China would use its labor and capital to manufacture consumer products like clothing, footwear, furniture, electronics, and appliances and send $300 billion worth of these products to U.S. consumers for free every year as a gift or a form of foreign aid to the American people. In addition, the Chinese would produce and send to America another $100 billion worth of raw materials, parts, industrial supplies, inputs, and natural resources at no charge, as a gift to American manufacturers every year. (Note: That’s roughly the amount of goods we will purchase from China this year.)

Read more: http://www.american.com/archive/2011/december/why-we-should-thank-the-chinese-currency-manipulators/article_print

Beijing Girl says, "A man without money is garbage/trash!"

ChinaSmack says:

From Sina Weibo:

@大鹏看天下: Beijing, subway, a girl in red with a thick Beijing accent scolds her boyfriend as “useless”: “A man without money is garbage/trash! Not having money, just thinking about it is frightening! You’ll be nothing in the future, and you want me to marry you, forget it! I’m moving out tonight, bye bye~” Seeing her boyfriend’s silence, the girl angrily leaves leaving him behind. A nosy person secretly recorded the entire incident. After watching and listening, it is truly shameful.

Read more: http://www.chinasmack.com/2011/videos/a-man-without-money-is-garbage.html