China Challenges

Chinese GDP Data: How Reliable?

The WSJ reports:

How big is the Chinese economy? Answering that question is not as straightforward as looking up the number on the National Bureau of Statistics website. China’s GDP data is haunted by controversy, with widespread doubts about its accuracy.

The release last year of U.S. diplomatic cables by Wikileaks has added further fuel to the fire. Records of a 2007 conversation between China’s Vice Premier Li Keqiang – then the Party Secretary of Liaoning province, and U.S. Ambassador Clark Randt – revealed that Mr. Li had little faith in the GDP data, at least at the provincial level.

A smiling Mr. Li said that the GDP data was “man made” and “for reference only,” according to the Wikileaks cable. To keep track of growth he preferred to look at three different indicators: electricity output, freight hauled by rail and bank loans.

But is the man tipped to be China’s next premier right to distrust the GDP data?

Read more: http://blogs.wsj.com/chinarealtime/2011/06/10/chinese-gdp-data-how-reliable/?mod=WSJBlog

Mainland Markets Surpass Japan in Market Cap

The China Economic Review reports:

Mainland China's two stock exchanges combined have become the world's second-largest stock market by capitalization with US$4.72 trillion, the South China Morning Post reported. According to Bloomberg, The combined market value of the Shanghai and Shenzhen stock exchanges passed that of the Tokyo Stock Exchange (TSE) on January 4, as Japan's Nikkei-225 Index fell to finish at a 117-month low. The TSE's market capitalization stood at US$4.11 trillion, yesterday while the two mainland exchanges posted a combined US$4.61 trillion.

Source:

http://www.chinaeconomicreview.com/dailybriefing/2008_01_16/Mainland_stock_markets_pass_Japan_for_No_2.html

China SOEs to Pay Dividends

The China Economic Review reports:

Beijing announced that state-owned enterprises (SOEs) will begin paying 5% and 10% dividends, depending on the industry, as it readies to launch its profit-collection program, the Wall Street Journal reported. China's 155 SOEs were previously not required to pay dividends, and in most cases used profits for faster expansion. Energy, telecommunications and tobacco companies will pay 10%, while steel, transport and electronics firms will pay 5%. No specific date was given for when in 2008 companies would begin paying dividends.

Source:

http://www.chinaeconomicreview.com/dailybriefing/2007_12_12/State_firms_to_pay_dividends_in_2008.html

Asia's Technological Ambition

The Economist says:

Both China and India are now restless with technological ambition. China's government does not have the luxury of choosing between progress and stability; it cannot enjoy social peace without economic advance. For the past 30 years it has tried to turn the clock forward. By 2015 its research scientists and engineers may outnumber those of any other country. By 2020 it aims to spend a bigger share of its GDP on research and development (R&D) than the European Union.

India, for its part, surveys the future with uncharacteristic optimism. Its technological confidence has grown immeasurably thanks to the success of its software and IT firms. The heirs to Aryabhata and Brahmagupta, India's digital ambassadors have won acclaim for their mastery of ones as well as zeros.

But even as India's technological powers make a splash in the world, they stir only the surface of its own vast society. India produces more engineering graduates than America. But it has only 24 personal computers for every 1,000 people, and fewer than three broadband connections. India's billion-strong population cuts both ways. Whenever an Indian demographic appears as a numerator, the resulting number looks big. But whenever its population is in the denominator, the number looks small. It is like looking at the same phenomenon from opposite ends of a telescope. As of now, India matters more to technology than technology does to India.

To read more:

http://www.economist.com/specialreports/displaystory.cfm?story_id=10053169

China's Minsheng Bank Invests in US Bank

AFP reports:

China Minsheng Bank said on Monday it planned to buy 9.9 percent of UCBH Holdings Inc for up to 317 million dollars in the first strategic investment by a Chinese lender in a US bank.

Minsheng Bank, which currently has no branches abroad, will have the option to increase its stake in San Francisco-based UCBH to 20 percent in future, the mid-sized Chinese bank said in a statement with the Shanghai Stock Exchange.

"Acquiring a stake in UCBH is mainly targeted at being able to use its branch network," said Wang Qian, a Shanghai-based analyst with Industrial Securities.

"UCBH mainly serves ethnic Chinese in the United States, which will facilitate Minsheng's ambition of expanding its overseas operations."

To read more:

http://www.channelnewsasia.com/stories/afp_world_business/view/304510/1/.html

McKinsey Survey: More Affluent Chinese Looking to Borrow

The China Economic Review reports:

Almost a third of affluent Chinese are looking to borrow money, up from 19% in 2004, according to a new survey by consultancy McKinsey cited in the Financial Times. McKinsey classifies those in China who earn more than US$50,000 per year as "affluent." As many as 2 million people now qualify for this category, and it is estimated the number is growing by about 15% a year. Just over half the respondents in the survey said they would be willing to pay for financial advice, up from 40% in 2004, and well above the Asian average of 31%. McKinsey said the jump in borrowing demand from 19% to 31% was the most surprising element as, nationwide, China's borrowing demand is reasonably flat, climbing to 21% this year from 19% in 2004. The country's overall bankable population is about 130 million households, equivalent to 70% of the urban population.

Source:

http://www.chinaeconomicreview.com/dailybriefing/2007_08_30/Survey:_Chinas_wealthy_look_to_borrow_money.html

China's Wall of Money

The Independent reports:

Are we about to see a great wall of Chinese money slam into the world's equity markets?

The Chinese authorities have announced that for the first time, citizens will be permitted to own foreign shares. Given the nerve-shredding gyrations on Western stock markets, that sounds like a good idea. Millions of enthusiastic Chinese share buyers would be very helpful right now, underpinning stock exchanges weakened by our own flight from riskier assets.

It will happen, although it seems, in typical Chinese style, to be something that will evolve slowly rather than burst forth upon the international scene with all the impact of a brightly decorated dancing dragon in a Chinese new year festival. However the longer-term effects will be as dramatic, and, as they say over there, even the longest journey starts with a single step.

The beginnings are modest enough. China's currency regulator, the State Administration of Foreign Exchange, has announced that Chinese citizens with a Bank of China account in the northern city of Tianjin will be allowed to invest in foreign equities under a pilot scheme. The regulator didn't specify an investment maximum, and nor did they say when the trial will start. Purchases will be limited to Hong Kong-listed shares, mostly firmly centred on the Hong Kong/Chinese economy but with a sprinkling of stocks that also offer a wider exposure to the world, such as HSBC and Standard Chartered.

To read more:

http://news.independent.co.uk/business/analysis_and_features/article2891171.ece

China's Boomtowns

National Geographic has a story on China's Boomtowns.  Check it out here:

http://www7.nationalgeographic.com/ngm/0706/feature4/

China's Economy Becoming More Competitive

Reuters reports:

The United States remains the world's most competitive economy but China is gaining ground, the Swiss-based International Institute for Management Development (IMD) said on Thursday.

Singapore and Hong Kong were second and third in the index of 55 countries behind the U.S. economy in the IMD's annual rating that measures countries' economic performance, government efficiency, business efficiency and infrastructure.

China moved up three spots to 15th. Other big gainers in 2007 included Germany, the Netherlands, Luxembourg and Sweden, while South Africa, Japan, Finland and Australia lost ground.

To read more:

http://news.yahoo.com/s/nm/20070510/bs_nm/competitiveness_imd_dc_1

Shanghai's Stock and Awe

The Shanghai Daily reports:

CHINESE mainland-listed companies charted a hefty 46.8 percent rise in 2006 net profit on the back of the nation's blistering economic growth, firms' annual financial reports show.

A total of 1,474 companies traded in Shanghai and Shenzhen posted a cumulative net income of 378.12 billion yuan (US$51.2 billion) for last year. Earnings per share averaged 0.24 yuan in 2006, up 25.6 percent from a year before.

To read more:

http://www.shanghaidaily.com/sp/article/2007/200705/20070508/article_314991.htm

Mainland Markets Move Pass Hong Kong

The Standard reports:

The buoyant China stock market has become the world's sixth largest - displacing Hong Kong - after mainland shares extended their spectacular gains in the past month.

The combined market capitalization of the Shanghai and Shenzhen bourses, including A shares and B shares, reached 13.95 trillion yuan (HK$14.106 trillion) Tuesday after the Shanghai Composite Index and the Shenzhen Composite Index surged 28.74 percent and 66.85 percent year-to-date, respectively.

After the benchmark Hang Seng Index jumped another 138 points Tuesday, Hong Kong's bourse had market capitalization of HK$13.9666 trillion.

China's 56 percent leap in market cap from 8.94 trillion yuan at year-end 2006 to Tuesday's 13.95 trillion yuan knocked the SAR from sixth to seventh in global stock market rankings.

To read more:

http://thestandard.com.hk/news_detail.asp?pp_cat=2&art_id=42027&sid=13080100&con_type=3

Baidu Offers Search Engine for Blind

CSR China reports:

Chinese search engine service provider Baidu.com says it will soon launch a barrier-free service for the blind and those with visual disabilities.

Baidu began developing the barrier-free project about six months ago and named it  "The Blind's Lane Program". This program has reportedly received great support from the China Blind People's Association.

China has about 5 million blind people, accounting for 18% of the world's total. It also has more than 6 million people who have visual disabilities.

Although there is a lot of software for the blind to use, most of the software are not specially designed for the blind to approach and search Internet information. Baidu says this is why it has launched this new service.

To read more:

http://www.chinacsr.com/2007/03/16/1142-baidu-will-offer-search-engine-service-for-the-blind/

Key Trends in China's Growth Story

Jonathan Anderson at the Globalist writes:

It's true that many of the elements of China's mainland growth in the 1990s and the first half of this decade are similar to those of the Asian “tigers” 30 years ago. However, most observers today have only vague memories of those heady Asian growth days of yore, and in any case China's experience also has a number of unique elements. Consider the following trends: 

To read more:

http://www.theglobalist.com/DBWeb/StoryId.aspx?StoryId=6029

A Chinese Boeing Under Consideration

The China Economic Review reports:

China's State Council is considering a proposal that could see the country develop its own large passenger jets, industry sources told Reuters . The multibillion dollar project, the product of a recent hearing attended by government officials and industry experts, would ease China's reliance on the likes of Boeing and Airbus. AVIC I and AVIC II, the country's two state aircraft manufacturers would be involved along with the Commission of Science Technology and Industry for National Defense. It is said that a prototype would be produced by 2010. Both AVIC I and AVIC II make components for Boeing and Airbus and they also have experience developing civilian jets. According to the latest Airbus projections, China will need around 2,650 new passenger aircraft over the next 20 years.

Source:  www.chinaeconomicreview.com

Entrepreneurial Spirit in China

Justin Chan at Insight writes:

After years of growing governmental support, entrepreneurial spirit in China has now reached a fever pitch. Opportunities are everywhere but diligent research, the right strategy  – plus passion and luck – are the factors determining boom from bust.

If you need proof that China is now one of the most capitalistic countries on the planet, consider the dramatic shift away from giant state-owned enterprises (SOEs) toward small and medium enterprises (SMEs) over the past 30 years. In 1978, SOEs contributed 78 percent of China's total industrial output, a figure that dropped to 26 percent just ten years ago. Today, according to a 2006 report commissioned by the National Development and Reform Commission (NDRC) and the Ministry of Commerce, SMEs in China now make up 99.6 percent of total enterprises in China, and fuel nearly 60 percent of the country's GDP.

Although private businesses began their emergence in the mid 1980s (such as the government's experimental approval of private business ownership in Wenzhou, which later spread to other cities), they were not officially granted legal status until the 1988 Amendments to the PRC Constitution. Today, private business ownership is actively encouraged by the Chinese government. While international entrepreneurs generally do not enjoy these new government perks, growing numbers are still entering the China market. They say the main challenge in launching a start-up in China now is simply to be on the right side of the risk-versus-reward equation.

To read more:

http://www.amcham-shanghai.org/AmchamPortal/MCMS/Presentation/Publication/Insight/InsightDetail.aspx?Guid={F4B51287-D74C-4B19-AA85-E2BD02140DBB}

Reverse Mergers, Chinese Style

Businessweek says:

Big-ticket IPOs in New York and Hong Kong for Chinese banks and insurance companies make headlines. But in recent years another class of Chinese company has been quietly tapping the international capital markets. Enterprises that don't have the heft or profits for a splashy initial public offering are finding they can get a coveted overseas listing through a reverse merger.

To read more:

http://www.businessweek.com/magazine/content/07_10/b4024067.htm?chan=globalbiz_asia_today%27s+top+story

R&D Spending in China

The OECD has some interesting findings about R&D spending in China.

To read more:

http://www.panasianbiz.com/2006/12/china_will_overtake_japan_in_r.html

http://www.oecd.org/document/26/0,2340,en_2649_201185_37770522_1_1_1_1,00.html

China's Tech Firms Gaining Ground

The China Economic Review reports:

China's technology companies are gaining ground on their foreign rivals in terms of size and efficiency and are making the move from low price to high price product segments, according to a survey by McKinsey & Co and Beijing-based Tsinghua University. The survey, which covered around 39,000 companies in China across a broad range of tech sectors, found that improving processes mean firms no longer rely on cheap labor for a competitive edge, the Wall Street Journal reported. Among tech companies generating at least US$1.25 billion per year in revenues, those in the private sector posted an average of US$53,700 in revenue per worker in 2005, up from US$28,800 in 2001. Foreign tech firms operating in China averaged US$56,000 per worker in 2005, down from US$63,900 in 2001. Total revenues generated by Chinese tech companies hit US$700 billion in 2005, up from US$250 billion in 2001, and their share of export sales rose to 43% from 32%.

To read more:

www.chinaeconomicreview.com

The Buy China Syndrome

BusinessWeek says:

Call it the Buy China syndrome. All year there has been a virtual feeding frenzy for Chinese stocks. Mainland companies have raised nearly $50 billion in share offerings on domestic exchanges in Shanghai and Shenzhen and overseas bourses in 2006.

That includes the $20 billion that Chinese mega-lender, Industrial and Commercial Bank of China (ICBC), is expected to rake in with the biggest initial public offering in history. It's selling 15% of its shares to the public and its stock will start trading on Oct. 27 (see BusinessWeek.com, 9/27/06, "China's ICBC: The World's Biggest IPO Ever").

One reason is that China's hyper-growth wave shows no signs of abating. This $2.6 trillion economy grew at a torrid 10.6% pace during the first half, and third-quarter gross domestic product data due out on Oct. 19 are expected to show 10%-plus year-on-year.

To read more:

http://www.businessweek.com/globalbiz/content/oct2006/gb20061019_258733.htm?chan=globalbiz_asia_investing

China Climbs in Globalization Index

Foreign Policy magazine has issued a new Globalization Index and says:

Ask investment bankers about globalization’s newest frontier, and they might respond with one cryptic syllable: BRIC. The acronym, coined by the investment bank Goldman Sachs, stands for Brazil-Russia-India-China. “If things go right,” says one Goldman report, “in less than 40 years, the BRIC economies together could be larger than the G6 [Britain, France, Germany, Italy, Japan, and the United States] in US dollar terms.” But for all their prominence in predictions about globalization’s future, the BRICs have generally scored poorly on the Globalization Index, in large part because they have massive populations that are still rural and isolated from the global economy.

This year’s index shows that the isolation may finally be ending. China climbed three spots in the index, while Brazil and Russia each improved by five places. India’s ranking remained the same, but its overall performance improved in most areas. Each of these developing-world heavyweights is opening up in its own way. China’s trade volume grew to more than $1 trillion in 2004, pushing it past Japan to become the world’s third-largest trading nation (behind the United States and Germany).

To read more:

http://www.foreignpolicy.com/story/cms.php?story_id=3603&page=2

The New Entrepreneurs

Harvard Business School has a new report about China's next generation of business leaders: The New Entrepreneurs.  To read more:

http://hbswk.hbs.edu/item/5523.html

The Global Patent Rankings

The China Economic Review reports:

China has overtaken Germany in the global ranking of patent applications to become the fifth largest source of filings, the Financial Times reported. In its first comprehensive report on patent activity, published Monday, the World Intellectual Property Organisation (WIPO) found China had a sevenfold increase in patent filings in 10 years, underscoring the increasing prominence of Asian industrial powers in intellectual property.

The UN agency ranked Japan top of the patent league, followed by the US, the European Patent Office, South Korea and China. Together, they accounted for three-quarters of all patents filed in 2004, the latest year for which comprehensive figures are available. In China half the patent filings in 2004 were by foreign companies, while most filings in Japan and South Korea are still by local inventors.

To read more:

www.chinaeconomicreview.com

40 Million Chinese SMEs

China News reports:

The number of medium and small businesses in China has exceeded 40 million, taking up 99.8% of the enterprises in the country, to become a main force boosting the Chinese economy.

To read more:

http://www.chinanews.cn//news/2005/2006-09-27/28205.html

UK attracts Chinese FDI

The Engaging China blog notes:

The UK is already by far the largest recipient of Chinese foreign direct investments in Europe, according to Ernst & Young. A third of that goes to London which now has over 2,000 Chinese-owned businesses as well as a resident Chinese community.

To read more:

http://www.engagingchina.com/blog/_archives/2006/9/20/2344151.html

China's Growing Supply Chains

Chetan Talwar at FinanceAsia.com says:

China has become the world's second largest economy in terms of purchasing power parity. Its rise to economic superpower status is being recognised by the West, with some predicting that it will overtake the United States and Germany within five years to become the world's biggest exporter. China already accounts for 6% of world exports and, as stated by a recent report from the Organisation for Economic Co-operation and Development (OECD), China's share is on track to increase to 10% by 2010.

One of the key reasons for China becoming the workshop of the world is significant government spending on infrastructure. Having the best manufacturing facilities in the world is fine, but if you cannot get your goods to the global market in time, your competitive edge is lost. The government has spent billions of dollars on superhighways, high-speed rail networks and some of the best port and loading facilities in the world.

To read more:

http://www.financeasia.com/article.aspx?CIaNID=36717

China Moves Up World Bank Rankings

ChennelNewsAsia reports:

Singapore is the easiest country in the world to do business in, while China is rapidly simplifying business procedures to keep it ahead of India in the global rankings, the World Bank said.

New Zealand is the second most business-friendly place, according to the annual "Doing Business" report, which ranked 175 economies in terms of regulations that enhance or constrain business.

Asian powerhouse China was ranked in 93rd place, but improved sharply from 108th, reflecting the pace of reforms being carried out and making it one of the top 10 economies with the most changes to simplify business procedures.

"Watch out, rest of the world: China is a top-10 reformer," said the report jointly published by the World Bank and the International Finance Corp.

"The government sped business entry, increased investor protections and reduced red tape in trading across borders. China also established a credit information registry for consumer loans. Now 340 million citizens have credit histories."

To read more:

http://www.channelnewsasia.com/stories/afp_asiapacific_business/view/228821/1/.html

China: Top FDI Destination

The  Shanghai Daily reports:

CHINA will keep its status as the developing world's top investment destination in coming years, attracting some US$80 billion in 2010 while neighboring India lags behind, according to a study released today, the Associated Press reported.

Foreign investment in Southeast Asia should rise, despite fears that investors might divert money to China, said the study by the Economist Intelligence Unit and Columbia University's Program on International Investment.

To read more:

http://www1.shanghaidaily.com/art/2006/09/06/291209/China_to_keep_as_top_investment_destination.htm

Suzhou: Attracting More FDI

Suzhou is a popular destination for FDI.  The China Daily reports:

Suzhou, long dubbed a paradise on earth for its famed ancient gardens, has turned out to be just as alluring to foreign investors.

The Jiangsu city tops the ranking of "China's 20 Most Attractive Cities for Foreign Investors," which was released yesterday. It is followed by Shanghai and Qingdao; and Beijing ranks seventh.

To read more:

http://www.chinadaily.com.cn/china/2006-09/01/content_678902.htm

And this story in Businessweek:

Suzhou is quickly emerging as a rival to Shanghai for semiconductor manufacturing. It is one of China's biggest exporters, and in 2003 surpassed Shenzhen to become the second-largest city by industrial production on the mainland, trailing only Shanghai. Last year, while foreign investment in China fell 0.5%, in Suzhou it grew 19.4%, reaching $5.03 billion. And while mainland gross domestic product grew 9.9%, the Suzhou economy roared forward 15.3%.

To read more:

http://www.businessweek.com/magazine/content/06_34/b3998455.htm

UN: China is a Model

Channel News Asia reports:

GENEVA : The UN's trade and development agency on Thursday called on poor nations to be more interventionist and to strengthen their national economies in a similar manner to China.

The annual report from the UN Conference on Trade and Development(UNCTAD) said standard reforms and deregulation promoted by the Washington-based World Bank and International Monetary Fund (IMF) had failed to create enough growth or cut poverty.

To read more:

http://www.channelnewsasia.com/stories/afp_asiapacific_business/view/227922/1/.html

The Best Chinese Brands

Chinese banks dominant BusinessWeek's new list of the top 20 Chinese brands.  To view the list:

http://www.businessweek.com/globalbiz/content/aug2006/gb20060825_342949.htm 

China's Global M&A Activity is Understated

A new report from McKinsey Quarterly on China's M&A activity says:

The computer maker Lenovo's $1.35 billion acquisition of IBM's personal-computer unit, in May 2005, made Lenovo the world's third-biggest maker of PCs. This move has caught the greatest degree of attention in what is still a relatively small tide of outbound Chinese direct investment.

But the official data—$5.5 billion in 2004 and an estimated $7 billion in 2005—do not include investments (such as the IBM acquisition) made by Chinese subsidiaries listed in Hong Kong or overseas exchanges. We estimate that actual outbound foreign direct investment is two to three times higher than the official figures. China is therefore a material, if not yet massive, new force in the global market for business assets.

To read more:

http://www.mckinseyquarterly.com/article_page.aspx?ar=1845&L2=18&L3=27&srid=17&gp=0

Chinese Youth Trust Local Brands

Businessweek reports:

A survey released by McKinsey & Co. on June 29 suggests Chinese teen spirit is unique in some key respects that complicate the efforts of multinational consumer-goods companies to win their allegiance. One of the more striking observations from the survey of nearly 800 youths aged 12 to 17, in both flashy urban centers such as Beijing and Shanghai and rural towns, is the strong nationalist streak among young teens. Many say they prefer and trust mainland brands over foreign ones. Another un-teen like characteristic: They generally want to save money.

For example, in this age cohort, salting money away is seen as a key value, along with a heavy sense of familial obligation to support aging parents. In fact, 96% of respondents cite this as a crucial responsibility. And 76% say they have to "save a significant amount of money because it is a virtue." That's actually more than the 64% of their parents who say the same thing. And a whopping 88% of surveyed teens say they trust Chinese brands, while only 65% say the same about foreign brands.

To read more:

http://www.businessweek.com/globalbiz/content/jul2006/gb20060731_829548.htm?chan=globalbiz_asia_today%27s+top+story

Fast GDP Growth Continues

David Cohen at Businessweek writes:

Just how strong is the Chinese economy? Economic growth apparently accelerated further during the second quarter, with recent press reports suggesting that gross domestic product data due for release July 18 picked up to a stronger than expected 10.9% year-over-year from 10.3% in the first quarter. The robust data would point to annual growth accelerating from 9.9% in 2005 to perhaps 10.5% in 2006.

To read more:

http://www.businessweek.com/investor/content/jul2006/pi20060718_458706.htm?chan=top+news_top+news+-+preview%2C+approve%2C+publish+from+here

China's M&A Activity Soars 71%

The China Economic Review reports:

Mainland mergers and acquisitions rose 71% year-on-year in the first half of 2006, reaching a record US$41 billion in deals, according to Dealogic. Foreign cash accounted for US$12.8 billion of the total. The largest cross-border deal was the US$3.8 billion a consortium led by Goldman Sachs paid for a stake in Industrial and Commercial Bank of China.

Dealogic figures show the mainland-led capital-raising efforts in Asia, excluding Japan, which saw M&A funds reach a record US$183 billion in the period, 60% more than the first half of last year. Hong Kong was a distant second.

To read more:

www.chinaeconomicreview.com

Dan's Diary

If you are into high-tech, check out Dan's China Diary. To take a look:

http://www.silicon.com/research/specialreports/china/0,3800011742,39159766,00.htm

Chinese Middle Class Trends

A new study from McKinsey Quarterly says:

Two features of China's emerging middle class are already particularly notable. First, it will be unusually young compared with that of most developed markets, whose highest earners tend to be middle aged. In the United States, for example, income generally peaks between the ages of 45 to 54.9 Since higher-paying jobs, on average, require a higher level of education and training than what older generations have obtained, the Chinese government currently makes substantial investments in higher education for the younger cohorts, meaning that the country's wealthiest consumers will be from 25 to 44 years old.10

Second, the urban middle class will dwarf the current urban-affluent segment in both size and total spending power. From 2010 onward we will see some distinct subsegments among the affluent—including the mass- and global-affluent categories—but they will still total only 40 million households by 2025, accounting for just 11 percent of all urban dwellers. Their total consumption will equal 5.7 trillion renminbi11—just 41 percent of middle-class consumption.

To read more:
http://www.mckinseyquarterly.com/article_page.aspx?ar=1798&L2=7&L3=10&srid=17&gp=0

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

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/

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

China's Outward Direct Investment

Global Insight says in a new special report about China:

Chinese companies spent a reported US$6.9 billion on overseas investments during 2005, and official forecasts posit that international M&A activity by Chinese firms will increase by a total of US$60 billion over the next five years.

This report is the first in a series examining the growth of Chinese outward direct investment (ODI) into various regions of the world, and its impact on the country's commercial and diplomatic relationships. Chinese ODI flows remain modest compared to the country's annual inflows of foreign direct investment (FDI), but as China's hunger for natural resources and markets increases, so too will the influence of its firms in host markets...

To read more:

http://www.globalinsight.com/Highlight/HighlightDetail2717.htm?CFID=14301141&CFTOKEN=93276862

New Manufacturing Export Leader

IndustryWeek reports:

After pulling even with the U.S. last year in manufactured exports, China, whose symbol is the red dragon, this year "will almost certainly" surpass the U.S. to become the world's number one exporter of manufactured goods, says Ernest H. Preeg, the senior fellow in trade and productivity at the Manufacturers Alliance, an Arlington, Va.-based business and public policy research group.

To read more:

http://www.industryweek.com/ReadArticle.aspx?ArticleID=11701

Airbus Plans Assembly in China

The New York Times reports that Airbus is moving closer to assembling its A320 aircraft in China.  In my view, this is the key section in the article:

The plant would essentially clamp together parts of the A320, a small fraction of the manufacturing process. More than half the components, including technology-rich elements like the cockpit, would be produced in Europe and flown to China. Two senior executives close to Airbus said the portion of work at the assembly plant would represent 4 percent to 5 percent of the value of the aircraft.

To read more:

http://www.iht.com/articles/2006/03/15/business/airbus.php

Delay in Space Ambitions

The China Economic Review reports:

China’s third manned space mission will be delayed by six months as scientists work on creating a spacesuit that can withstand a spacewalk, state media reported. Having announced last year that Shenzhou 7 would launch at some point in 2007, the government is now likely to postpone this date until 2008.

The mission is to be manned by three astronauts and the authorities are particularly keen on seeing it feature China’s first ever spacewalk. The country’s first manned space mission took place in 2003 and a second, longer mission carrying two astronauts took place last year.

To read more:

www.chinaeconomicreview.com

A Round of Chinese Golf

Along with gunpowder, the wheelbarrow, the umbrella, printing and paper, did China really invent golf?

A Growing Chinese Middle Class

Robert Samuelson at RealClearPolitics.com writes:

Chris Holling of Global Insight figures that households with at least $20,000 annual income have firmly joined the middle class. In 2000, China had 52 million households above that threshold; by 2010, it will have 149 million, predicts Holling.

Beijing Predicts Slower Growth and Higher Inflation

The China Economic Review reports:

Economic growth will slow to 9.6% in the first quarter of 2006 and 9.4% in the second quarter due to a deceleration in export growth, according to a State Information Center report. China’s GDP increased 9.9% in 2005 following a 10.1% increase in 2004.

The center also predicts a 2.2% year-on-year rise in the consumer price index during the first quarter and 1.9% in the second quarter, while the values of agricultural, industrial and service sector production will rise 4.5%, 11.1% and 9.1% respectively. Investment is set to rise 24% year-on-year in the first quarter and 22% in the second quarter, a slight fall on the 25.7% increase in fixed asset investment seen in 2005, which came despite government efforts to restrain it.

To read more:

www.chinaeconomicreview.com

Deceiving High-Tech Export Numbers

A few weeks ago, a report from the Organization of Economic Cooperation and Development which claimed China's high-tech exports had surpassed those of the US for the first time caused considerable alarm in the Western media.  The China Economic Review points out:

Numbers can be deceiving, though. While high-tech exports have increased, it's not all DVD and MP3 players: the presence of budget-buy washing machines and air conditioners cannot be ignored.

"These figures also include white goods, and not only high-end electronics, "said Stephen Pong, executive director of the America-Hong Kong Electronics Association (AHKEA).

And 78% to 80% of the high-tech goods exported are only assembled in China from foreign components.

To read more:

http://www.chinaeconomicreview.com/subscriber/articledetail.php?id=913

Sino-Russian Car Partnership

Chinese car companies are expanding overseas.  The SCMP reports:

Chery Automobile has signed an agreement with a Russian company to assemble its cars for sale to Europe and the two may invest US$200 million in a factory, according to industry sources.   The Russian partner is a private company, Avtotor, based in Kaliningrad on the border of Lithuania and Poland, both members of the European Union.

To read more:

http://biz.scmp.com/bizchina/ZZZEVVSH8JE.html

Economic Synergies

Mr. Micheal Vatikotis makes some interesting points about the complex relationship between India and China. He writes:

Superficially, India and China make more logical partners than protagonists. Both economies are booming so that trade and investment synergies are proliferating. India's hi-tech companies are flocking to China, where there are opportunities for applying research and innovation in cost-effective ways. China's manufacturers see in India a potentially vast market for appliances, cars and the steel that is used to make them.

To read more:

http://www.iht.com/articles/2006/01/23/opinion/edvatik.php#

Rare Earths Monopoly

According to the IHT, China has effectively cornered the market for an obscure group of minerals that are vital to high-technology industry.  Mr. David Lague writes:

China now supplies about 95 percent of the world's consumption of "rare earths," according to international mineral industry experts. Rare earths are a class of minerals with properties that make them essential for applications including miniaturized electronics, computer disk drives, display screens, missile guidance, pollution control catalysts and advanced materials. In 1994, China's share of the market was 46 percent, according to industry statistics.

To read more:

http://www.iht.com/articles/2006/01/22/business/rare.php