China Challenges

Five First Reforms for China’s New Leadership

Brian Klein says:

Without significant reform China’s best days may be behind it as growth slows and opportunity stagnates. Five areas of low-hanging fruit would have a significant near-term impact.

1. Ending the hukou system – What’s old continues to be new as residency permits (dating back to Imperial times) restrict individual rights beyond their hometowns. When convenient, limitations on work are ignored for migrants in factories or on construction sites, but their children can’t attend school, they have no rights to medical care and they can’t buy property. Ending this antiquated system would be a boon for low-end real estate development and reduce costs for companies that currently maintain worker’s dormitories. It would also significantly improve the future workforce with guaranteed education for all in a country struggling with an aging population.

2. Opening the financial sector – Ever since China joined the WTO there were promises of market opening that have never materialized. Western firms have generally limped along hoping one day opportunity would arrive. That day has never come. The end result: a state-dominated sector that starves much of the private sector of needed investment and non-market saving rates. Free up both and a strong consumer class follows. When foreign firms can compete openly for deposits, access money at the same preferential rates as their state-owned counterparts, and offer the full range of banking services in the mainland as they can in Hong Kong times will indeed be changing.

Read more: http://brianpklein.com/wp/five-signs-of-china-reform/

 

Why Chinese Firms' Cross-Border Deals Fall Apart

The HBR Blog says:

During the past decade, Chinese firms have become aggressive cross-border acquirers. Unfortunately they have been struggling to actually close their deals.

Some deals have failed because of national security concerns in the U.S., including CNOOC's attempt to purchase Unocal in 2005 and Huawei's attempt to buy 3Leaf Systems in 2011.

More often, though, Chinese firms have announced deals and are then unable to follow through. For instance, Bright Food was near closing on a deal to purchase GNC for between $2.5 billion and $3.0 billion in 2011, but then had to retract because the companies could not agree on terms and struggled to get Chinese regulatory approval. 

These examples are rather more typical than they should be. According to a study (forthcoming) by Olga Hawn of Duke University, cross border deals involving Chinese companies are almost twice as likely to break down (15% of the time) as deals involving companies from other BRICS countries (8%) and three times as likely as those involving Western multinationals (5%).  

Read more: http://blogs.hbr.org/cs/2012/11/why_chinese_firms_cross_border_deals_fall_apart.html

Will China Repeat Japan's Mistakes?

At Seeking Alpha, Dr Craig Pirrong writes:

Japan misallocated capital for years, and is paying the price now. China, through its stimulus programs, showcase projects, and now these efforts to prop up politically connected losers, is also wasting capital on a colossal scale. When originally "invested", this money shows up as GDP, and props up the growth rate. But if that capital is used unproductively, that GDP gold turns to dross.

The Chinese hatred for everything Japanese - a hatred that is waxing particularly hot right now - will likely prevent them from learning something from the Japanese experience. But by failing to heed the Japanese experience, China is running the very serious risk of repeating it.

It is far better to submit to the gales of creative destruction than to attempt to preserve an unviable structure and unviable firms. Japan tried otherwise and failed. China seems intent on making the same mistake.

Read more: http://seekingalpha.com/article/1022501-will-china-repeat-japan-s-mistakes?source=email_global_markets&ifp=0

Chinese Willing to Pay More for Made-in-USA Goods

The WSJ says:

In a survey conducted by the Boston Consulting Group, 47% of Chinese said they either “absolutely” or “somewhat” favored U.S.-made options when confronted with a choice between two items of equal price and quality — one domestic, the other Made in the USA. Over half said they’d chosen U.S.-made goods over less expensive Chinese products in the last month, with 61% saying they’re willing to pay more for the U.S. made goods — in some cases quite a bit more.

Willingness to splurge on U.S. imports varied depending on the product. Some were obvious choices. For instance, many Chinese — mindful of scandals involving food contamination — were willing to pay more for U.S.-made baby food. But other choices were more surprising: The Chinese were also willing to pay big premiums for U.S. made running shoes and mobile phones.

Read more: http://blogs.wsj.com/economics/2012/11/14/chinese-willing-to-pay-more-for-made-in-usa-goods/

China Continues to Drive International Student Growth in US

The Chronicle of Higher Education reports:

The story, once again, is China. Thousands of mainland Chinese students in pursuit of an American education helped drive up international enrollments at colleges across the United States last fall, according to the latest "Open Doors" report from the Institute of International Education.

Double-digit growth from China, primarily at the undergraduate level, along with a steady uptick in Saudi Arabian students are largely responsible for the increase in international enrollments to 764,495, a 5.7-percent rise over the year before.

These drivers are so significant that for the first time in 11 years there are more international undergraduate than graduate students in the United States.

"That's likely to be a game changer," says Allan E. Goodman, the institute's president. Undergraduates not only stay longer, he noted, but have more impact on campus culture, both inside the classroom and out.

In all, the total number of international students in the United States grew faster in 2011 than it did in 2010 or 2009, as did the number of first-time students—a 6.5-percent increase—which is perhaps a more accurate measure of long-term interest in American education.

Read more: http://chronicle.com/article/China-Continues-to-Drive/135700/?cid=gn&utm_source=gn&utm_medium=en

What Obama’s second term means for Asia

East Asia Forum says:

During its first term, the Obama administration provoked China’s anger by condemning its sweeping territorial claims and military assertiveness in the South China Sea. During the campaign, each candidates accused the other of failing to stand up to China: the Romney camp accused Obama of not condemning Chinese currency manipulation, while the Obama camp accused Romney of helping companies that shipped American jobs to China and doubted whether a Romney administration could crack down on Chinese dumping in the American market. This could be dismissed as election rhetoric, and Asian (including Chinese) analysts seem to regard Obama as a more moderate voice than Romney in dealing with trade and finance disputes with China. With China’s own leadership change over, one might expect a period of stability in bilateral relations under the second Obama administration. Yet Chinese suspicions of the US rebalancing policy as being a new form of containment would conflict with the administration’s desire to pursue a more constructive relationship with Beijing.

Read more: http://www.eastasiaforum.org/2012/11/11/what-obamas-second-term-means-for-asia/

Foreign Policy: China Decides

The FP says:

The world's other superpower is having its own "election" this week. And if all goes according to plan, on Nov. 14 nine (or seven) men (and possibly one woman) will stride across the stage in Beijing’s massive Great Hall of the People as the new members of the Politburo Standing Committee, China's most powerful decision-making body. They will wave, clap, and smile confidently, signaling to the world the inevitability of their leadership and hiding the messy reality of decades of infighting and moral compromise by which they climbed their way to the top. And their optimism will mask the reality of a China that is facing some of the most severe and daunting challenges in its modern history.

Read a number of articles here: http://www.foreignpolicy.com/china_decides

How Americans and Chinese View Each Other

Pew Rsearch Center says:

Over the past year, public opinion surveys in the United States and China have shown evidence of rising tensions between the two countries on a host of issues. These include increasingly negative perceptions of each other and concern over economic and trade policies.

See the results here: http://www.pewglobal.org/2012/11/01/how-americans-and-chinese-view-each-other/#src=prc-newsletter

Chinese students abroad weigh returning to the motherland

The CER reports:

The highest goal for China’s elite students used to be gaining admission to Beijing’s prestigious Tsinghua University or Peking University. In more recent years, however, the consensus seems to have shifted, with an increasing number of students choosing to go overseas in search of world-class educations.

More than 300,000 Chinese students – disillusioned with the mainland’s exam-based education system that smothers critical thinking – attended overseas universities in pursuit of a higher degree last year.

Many of these students strive to gain a foothold working abroad after graduation, but limited job opportunities send roughly 70% back to their homeland, according to recruitment consultancy Zhilian Zhaopin. The Ministry of Education says the number of “haigui,” or students returned from overseas, surged from 50,000 in 2008 to nearly 340,000 last year.

Read more: http://www.chinaeconomicreview.com/putting-down-roots

China Has Hipsters, Too

The Atlantic reports:

It's happened all over the world, and it's happening in China, too. As the country's middle class swells in number -- and its people discover the pleasures and disappointments of a life spent  pursuing material comfort -- there has come the emergence of a distinct  counter-culture. In Chinese, they are the wenyi qingnian (文艺青年), or wenqing for short, literally meaning "cultured youth." It's China's closest  equivalent to the alternately beloved and reviled English word, "hipster."

What does a typical "cultured youth" look like? Baidu Baike, China's  version of Wikipedia, contains an entry on the term that quotes writer  and musician Guo Xiaohan: "I'm a very typical wenyi qingnian. I like poetry, novels, indie music, European cinema, taking pictures,  writing blogs, cats, gardening, quilting, making dessert and designing  environmentally friendly bags."

They are twee, nostalgia-driven, and hipster-ish, with a dash of  poet. Spiritual at heart, yet living in a very secular, money-driven  modern China, wenqing are marked as highly individualistic, romantic, cultural connoisseurs.

Read more: http://www.theatlantic.com/international/archive/2012/11/china-has-hipsters-too/264414/

America's Double Take on China

The Globalist says:

It was a sunny autumn day in southern Alabama. Monroeville, a small city of 28,000 people, was dotted with signs greeting a group of more than 80 potential Chinese investors.

"Welcome China," the signs declared in both English and Chinese. They could be found in front of the local Walmart and Burger King — and even between haystacks in a field.

Meanwhile up north that same week, in the swing state of Ohio, China was not a desired partner, but a villain. President Barack Obama and his Republican challenger, Mitt Romney, fought over who would be tougher on a country viewed as a threat to American power and as the principal killer of American jobs.

Read more: http://www.theglobalist.com/printStoryId.aspx?StoryId=9787

An encounter with an anti-Japanese real estate agent

The Shanghaiist reports:

"We absolutely will not do business with Japanese dogs," declares this real estate agent located in Brilliant City. "Give us back our Diaoyu Islands."

Read the story here:

http://shanghaiist.com/2012/10/28/an_encounter_with_an_anti-japanese.php

China manipulates its currency to our advantage, saving Americans billions of dollars. Why should we complain?

Mark Perry says:

Mitt Romney continues to accuse China of unfairly manipulating its currency, and if elected, pledges to “label them a currency manipulator on day one” so that he can then “apply tariffs where they’re taking our jobs.”  Governor Romney’s position is wrong.  We shouldn’t criticize China.  We should profusely thank the Chinese government and its people for the generosity they are bestowing on the millions of low-income and middle-class American consumers, and thousands of U.S. businesses buying products made in China at discount prices because of a currency policy that strengthens the value of the U.S. dollar.

As I explained last December in The American (modified slightly):

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 to the American people. In addition, the Chinese would produce and send to America another $100 billion worth of raw materials, parts, industrial equipment and 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.aei-ideas.org/2012/10/china-manipulates-its-currency-to-our-advantage-saving-americans-billions-of-dollars-why-should-we-complain/

Going Cheap With Chinese Stocks

Russ Koesterich writes:

Last month, I wrote that investors shouldn’t dismiss China just yet, since indicators were signaling a softer landing than some have feared. Now, new economic data  supports our view that investors should consider an overweight to Chinese stocks.

Last week, China reported third quarter gross domestic product (GDP) growth in line with economists’ expectations of 7.4%, but other measures suggest that the economy may soon accelerate, including the following:

• Exports rebounded strongly in September, up 9.9% compared to the previous
  year.
• China’s broad measure of monetary supply (M2) is now expanding at
  nearly 20% a year, the fastest pace since the spring of 2010.
• Retail sales are also starting to accelerate, after steadily declining
  during the first half of the year.

Our expectation is that Chinese growth has probably slowed to around 7.5%-8%.

Read more: http://seekingalpha.com/article/942581-going-cheap-with-chinese-stocks

Higher costs in China forcing firms to relocate

The China Daily reports:

According to a survey by the Capital Business Credit, a US-based financial consultancy firm, 40 percent of major companies interviewed said they have plans to move factories from China to other locations, including Vietnam, Pakistan, Bangladesh and the Philippines.

Huo Jianguo, director of the Chinese Academy of International Trade and Economic Cooperation, affiliated to the Ministry of Commerce, said the move by some firms to Southeast Asia is both "clear" and "understandable."

Huo said China is still an attractive destination for manufacturing investors, thanks to its large domestic market, its relatively mature investment environment, and its skilled workforce.

"We also note some manufacturers and foreign companies are moving operations from coastal regions to central and western areas," he said. An example he cited was Samsung, which announced this year its largest overseas investment deal will be located in Xi'an, a city in Northwest China.

But lower costs in other countries could soon change, some said.

"The advantage (of labor and production costs) in Southeast Asian countries will only last for a few years," said Chen Jian, a general manager of a garment company headquartered in Foshan, on the Pearl River Delta.

"The trend is just like what happened some 10 years ago when many manufacturing industries in Hong Kong and Taiwan moved to the Pearl River Delta to chase cheap labor. But now you can see how much our labor costs have gone up."

To read more: http://www.chinadaily.com.cn/china/2012-10/21/content_15834915.htm

Ditch the charge against China, Govenor Romney

Claude Barfield writes:

As someone who generally supports Governor Romney’s economic policies, I can only cringe when he gets on the China currency kick. Whether China “cheats” on trade as a general rule is certainly fodder for the campaign, but the vow to name the People’s Republic of China as a “currency manipulator” on his first day in office smacks of empty campaign rhetoric that, if followed, could lead to a futile and mutually destructive tit-for-tat trade war. It is also yesterday’s problem—and solution.

Since 2005, when Beijing scrapped the rigid peg, the yuan has risen over 30% against the dollar—and 9% since 2009. Since 2007, the current account surplus has dropped from 10% of GDP to 3 %; and an IMF projection this summer forecast the surplus to continue at 4-5% over the near term. Even Peterson Institute scholars who have been hawks on China currency manipulation have changed their tune: Peterson’s main China scholar, Nicholas Lardy, has recently stated: “We ought to declare victory” in this area.

Read more: http://www.aei-ideas.org/2012/10/ditch-the-charge-against-china-govenor-romney/

Guangzhou Official with 21 Houses Outted on Sina Weibo

Mingtiandi real estate newsletter says:

Cai Bin had it all.  A wife and son, a senior job in the urban management bureau of Guangzhou’s Panyu District, and 21 houses. And then Weibo ruined everything.

Authorities in the southern Chinese city of Guangzhou announced in a report on October 11th that Cai Bin would be suspended from his post after investigations showed that reports of his housing portfolio on Sina Weibo were substantially correct.

The housing-happy official was brought down by Chinese netizens who posted records of his 21 properties on the Internet, along with photos which included some luxury villas. According to reports of the local government’s decision last week, the estimate RMB 40 million value of the 21 homes was well above what Mr Cai could have afforded through his RMB 10,000 per month government salary. Cai’s wife is a retired government official and earned an even lower monthly income.

Read more: http://www.mingtiandi.com/real-estate/cre-news/20121014/guangzhou-official-with-21-houses-outted-on-sina-weibo/?utm_source=mtd+real+estate+list&utm_campaign=a7d0d707bf-RSS_EMAIL_CAMPAIGN&utm_medium=email

The ‘new normal’ of Chinese growth

Yiping Huang says:

Some market participants argue that the policy makers are ‘way behind the curve’ because of the once-a-decade leadership transition.

It is unlikely the Chinese government is simply ignoring the growth risks. A more plausible explanation is the underlying view among officials that the current growth downturn is as much structural in nature as cyclical. According to our estimation, the economy’s potential growth rate has already moderated, from 10 per cent in 2000–10 to an estimated 8 per cent over 2010–20, and will slow further to 6 per cent over 2020–30. If these figures are roughly correct, then the 7–8 per cent range may have become the ‘new normal’ of Chinese growth. In any case, the government has already revised down its GDP growth target to 7.5 per cent in 2012, from 8 per cent in previous years, and may further take it down to 7 per cent in 2013.

Read more: http://www.eastasiaforum.org/2012/10/14/the-new-normal-of-chinese-growth/

The Employment Impacts of Chinese Investment in the United States

Thilo Hanemann and Adam Lysenko say:

The recent uptick in Chinese acquisitions in the United States has rekindled old fears about the political and economic impacts of foreign investment. A particular concern is that Chinese investments will harm rather than help local employment, because state ownership and China’s industrial policy might lead its firms to acquire assets overseas only to move  jobs and production back home. In this note we assess the validity of such claims by analyzing the employment impacts of almost 600 Chinese direct investment transactions in the United States between 2000 and 2012. Our key findings are:

Chinese investment creates American jobs: The recent surge in Chinese investment is yielding employment benefits. We estimate that majority-owned U.S. affiliates of Chinese companies directly support around 27,000 jobs in the United States today, up from fewer than 10,000 five years ago.

Acquisitions help sustain existing jobs: While greenfield projects create the most new jobs, acquisitions have also helped support employment. Chinese investors have rescued numerous firms from bankruptcy, and there is no evidence of asset stripping behavior. Chinese buyers usually increase staff after acquiring a US business, as key assets –  human talent, experience and know how – are rooted locally and not prone to transfer abroad.

Read more: http://rhgroup.net/articles/the-employment-impacts-of-chinese-investment-in-the-united-states

Think Again: The BRICS

Foreign Policy reports:

There is no question that the BRICS -- Brazil, Russia, India, China, and the group's newest member, South Africa -- are big. They matter. In terms of population, landmass, and economic size, their pure dimensions are impressive and clearly stand out from those of other countries. Together, theymake up 40 percent of the world's population, 25 percent of the world's landmass, and about 20 percent of global GDP. They already control some 43 percent of global foreign exchange reserves, and their share keeps rising.

Read the report: http://www.foreignpolicy.com/articles/2012/10/08/think_again_the_brics?page=full

China Must Reform Or Risk Crisis, Experts Warn

Reuters reports:

China risks economic malaise, deepening unrest and ultimately even a crisis that could shake the Communist Party's grip on power unless its next leader, Xi Jinping, pushes through stalled reforms, experts close to the government have warned.

The warnings, striking for their openly urgent tone, have been aired both inside the party and publicly, and reflect an internal debate about the direction of the new leadership that takes power next month.

"There is a potential crisis in China's model of economic growth," said a paper from Strategy and Reform, one of several think tanks and groups that throughout this year have plied officials with blueprints for Xi's coming decade in power.

Read more: http://www.cnbc.com/id/49323219

 

 

Property Slump Reshapes List of China's Richest

WSJ reports:

Many of China's richest citizens have seen their wealth shrink this year amid
slowing growth and a weakening property market that has shifted wealth patterns
in the world's second-largest economy.

Read  more: http://online.wsj.com/article/SB10000872396390444083304578016170130692486.html?mod=WSJ_hp_us_mostpop_read

Why Americans Should Root for a Strong China Economy

Josh Boak writes:

Both President Obama and Mitt Romney portray China as a rival flaunting trade deals in order to steal American jobs, but what voters aren’t hearing is that the recent slowdown
by the Asian juggernaut may also hurt the U.S. economy.

A new report Thursday by the bank HSBC showed that Chinese manufacturing has
declined for the past 11 months as demand in Europe has waned. Many economists
doubt that China will return to developing at a steady 10 percent annual
clip—and that potentially has negative repercussions for American workers whose
livelihoods increasingly depend on that nation’s newfound wealth.

Read more at http://www.thefiscaltimes.com/Articles/2012/09/21/Why-Americans-Should-Root-for-a-Strong-China-Economy.aspx#SzkLzRHBiKyWQokv.99

Leslie T. Chang: The voices of China’s workers

A video from Guanxi Denmark of Leslie Chang speaking about life in a South China factory:

http://www.guanxidenmark.com/the-voices-of-chinas-workers/?goback=%2Egde_39836_member_163632714

Is China Killing Luxury? Burberry Tanks On Asian Weakness

Forbes reports:

Are luxury products finally feeling the sting of a global slowdown?

Despite incredible resilience in the sector, a few producers have acknowledged the effects of a cooling global economy, particularly in China.  The latest victim was British luxury-maker Burberry, which saw its shares fall more than 20% on Tuesday after noting same-store sales stayed flat in the last quarter; while management tried claimed they were facing a “broad-based” problem, CFO Stacey Cartwright admitted “China is a significant contributor to the decline.”

Read more: http://www.forbes.com/sites/afontevecchia/2012/09/11/is-china-killing-luxury-burberry-tanks-on-asian-weakness/

 

China ex-minister says foreign auto JV policy "like opium": report

Reuters reports:

 China's policy of requiring all foreign car makers to form local joint ventures is "like opium" for Chinese firms and is failing to foster world-class indigenous automakers, a former minister was quoted as saying.

China eclipsed the United States as the world's largest auto market by volume in 2009, but all the state-owned auto groups rely heavily on their foreign partners.

"It's like opium. Once you've had it you will get addicted forever," former machinery and industry minister, He Guangyuan, was quoted as telling the auto channel of Yahoo.com during an industry forum in Tianjin over the weekend.

Read more; http://www.reuters.com/article/2012/09/03/us-china-autos-foreign-idUSBRE88208120120903?feedType=RSS&feedName=businessNews&utm_source=dlvr.it&utm_medium=twitter&dlvrit=56943&goback=%2Egde_2966312_member_158507249

The myths about China pharma

FT reports:

Big pharma often waxes lyrical about why it makes sense to do more and more R&D in China: the size of the market; the need to be close to that market (and learn about the diseases that affect it particularly badly); and the local talent pool.

According to a study out this week from McKinsey, Healthcare in China, 80 per cent of global life science groups will be conducting R&D in China and other emerging markets by 2016. But it’s worth debunking a few of the myths about Chinese pharma R&D.

In China alone, total investment in R&D from major multinational drug companies has hit more than $2bn in the last five years. According to the report: “Chinese R&D sites are opening or growing almost as quickly as European and US sites are closing or shrinking”. But big pharma should be “wary of conventional wisdom about the conditions in China”, the report says. The biggest problem, it seems, is how to keep local talent sweet.

Read more: http://blogs.ft.com/beyond-brics/2012/08/31/the-myths-about-china-pharma/#

China—Not Wall Street—Caused 2008 Crisis: Study

CNBC reports:

Thought the global financial crisis in 2008 was caused by subprime bonds, collateralized debt obligations (CDOs) and other Wall Street engineering? Think again.According to a new study, China, not Wall Street bankers, was responsible for the global crisis and the ensuing recession. The study from the Erasmus Research Institute of Management said the saving frenzy of the Chinese created the cheap money, which fueled the U.S. housing bubble and its collapse.

Read more: http://www.cnbc.com/id/48814165/print/1/displaymode/1098/

China’s Health Care System Deeply Sick

WSJ reports:

As China’s new leaders take up their posts this fall, one of the most critical tasks that faces them will be reforming the country’s broken health-care system.

The Chinese government has spent $125 billion over the past three years to extend insurance coverage to 95% of the population while also improving access to hospitals and clinics. But despite that effort, the country’s health-care system still has a long way to go to and the challenges ahead are mounting, according to a new study from consultancy McKinsey & Co.

The report notes that China’s health care spending is poised to triple to $1 trillion by 2020 and while the rate of insurance coverage is high, so are the out-of-pocket burdens on consumers.

Read more: http://blogs.wsj.com/chinarealtime/2012/08/29/report-chinas-health-care-system-deeply-sick/

Huawei, ZTE Continue Playing D.C. Lobbying Game

Stan Abrams notes:

According the the US Senate, Chinese telecom equipment and terminal manufacturer Huawei spent USD 820,000 on lobbying in the US in H1 2012, compared to USD 200,000 in 2011. Chinese telecom equipment and terminal manufacturer ZTE has spent USD 80,000 on lobbying in the US in H1 2012, down from USD 100,000 in H1 2011.

Read more: http://www.chinahearsay.com/

US and China: Working Partners

Economist reports:

Anxiety about China has spread well beyond blue-collar sectors, reports Tony Damon, the boss of a Toledo-based architecture and engineering firm, SSOE, which designs high-tech research centres or test tracks for clients worldwide, including—increasingly—in China. Some of his graduate engineers voice alarm about the rivals pouring out of Asian universities and worry that SSOE does so much business in China. He replies that global growth is a question of survival, not choice, and that profitable work in China keeps jobs in Ohio.

Alas, such pragmatism in Toledo is not matched by national politicians, who have resorted to some of their fieriest China-bashing when in Ohio, a must-win swing state for both parties. In July, Barack Obama boasted to a crowd near Toledo that he was filing a complaint with the WTO against Chinese duties on imported cars, such as the Ohio-built Jeep Wrangler, and accused his rival Mitt Romney of building a business career on outsourcing jobs abroad. Visiting the state on August 16th, Mr Romney’s Republican running-mate, Paul Ryan, accused China of stealing American intellectual property, blocking market access and currency manipulation, and accused Mr Obama of being a “doormat” in the face of Chinese “cheating”.

In truth, both camps are mostly using China as a proxy—using the idea of a Chinese threat to define the other party as unwilling to defend American workers’ interests. In their more thoughtful moments, Mr Obama and Mr Romney admit that global competition is a reality that cannot be wished away. Yet such election-year double-talk has consequences. When Mr Obama and Mr Romney “talk that trash” about free trade, it makes it harder to win the trust of Chinese investors, frets Mr Bell. Both presidential candidates are “shooting for emotion”. His task is practical: saving his home city.

Read more: http://www.economist.com/node/21560875

China's patent targets mask weak innovation - study

Reuters reports:

China's ambitious drive to produce millions of new patents in the next few years as part of a switch from a "made in China" to "designed in China" economic model will curtail innovation standards, a European study warned on Tuesday.

China is seeking to transform itself from being the world's factory floor into a global pioneer by setting ambitious state-mandated patent targets -- a goal that has already resulted in it surpassing the United States last year in patent filings.

The European Union Chamber of Commerce said in a report that China filed more than 1.6 million patent applications in 2011, but only 32 percent met the highest threshold for patent quality -- new inventions.

The study noted that while China's innovation potential is "impressive", its actual innovation is "overhyped".

"This explosion (of patent applications) has come with a price in terms of the quality and mix of patents. This is not in the right direction," European Chamber Secretary General Dirk Moens said.

In some cases, financial incentives and performance evaluations for state-owned firms, officials and academics drive the filing of low-quality patents as they seek to meet quotas -- 2 million annually by 2015 under one national plan.

Read more: http://uk.news.yahoo.com/chinas-patent-targets-mask-weak-innovation-study-102843033--finance.html

Superpower Denied? Why China’s ‘Rise’ May Have Already Peaked

Minxin Pei writes:

In the coming decade, many of the favorable structural factors that have helped power China's double-digit growth in the past two decades are going to disappear.  Topping the list is the demographics.  The proportion of the Chinese population of working age peaked in 2011 and has started decreasing in 2012, according to a RAND study.  At the same time, the share of the elderly in the population is beginning to rise rapidly.  In 2010, 8.6 percent of the population was 65 and older.  By 2025, the figure will likely be 14.3 percent.  An aging population will increase labor costs, reduce savings and investments, inflate healthcare and pension costs — and slow down growth.

Read more: http://thediplomat.com/2012/08/09/superpower-denied-why-chinas-rise-may-have-already-peaked/?goback=%2Egde_2966312_member_144195474

Motorola China Staff Protest Layoffs, Trade Critics Confused

Stan Abrams writes:

OK, here’s a U.S. company laying off Chinese workers because of cost/productivity concerns. I’m not up on the latest criticism of international trade, so help me out here. As a loyal American populist, should I:

1. Be mad at Motorola for cutting jobs?

2. Be happy that a U.S. company is hiring fewer Chinese workers?

3. Be disappointed that Motorola isn’t closing its China operations entirely and moving back to Illinois?

Seriously, the whole thing makes me dizzy.

I’m reminded, indirectly, of a Matt Miller Op/Ed in the Washington Post (couple years ago maybe, and sorry, no link) in which he posed the following question to critics of free trade (and I paraphrase loosely): what’s the moral basis for protectionist policies that may save a few jobs at “home” if it means that a poorer country, or any country for that matter, loses out on those jobs and that income?

It’s a good question, and one that also pulls in issues relating to nationalism.

Read more: http://www.chinahearsay.com/motorola-china-staff-protest-layoffs/

What Romney and Ryan Should Know About China

The Weekly Standard reports:

Patrick Chovanec, a business professor at Tsinghua University's School of Economics and Management in China, writes in to say that Ryan and presidential candidate Mitt Romney should know this about China:

1) China's economy is not just slowing, it is entering a serious correction.  The investment bubble that has been driving Chinese growth has popped, and there are no quick "stimulus" fixes left.  There is the very real possibility of some form of financial crisis in China before year's end.

2) China is in the midst of a once-in-a-decade leadership transition that has not been going smoothly.  The transition will take place, but it has paralyzed the Chinese leadership's ability to respond to the country's growing economic troubles.  China's leaders believe time is on their side; they do not "get" how serious and urgent the situation is, and that what has always "worked" is no longer working.

3) China's economic problems spell trouble for the U.S. on several fronts. 
* First, China is flirting with devaluing its currency to boost exports—a move that will put it in direct conflict with Mitt Romney's commitments on this issue.
* Second, China is already dumping excess capacity in steel and other products onto the export market, a tactic that is likely to inflame trade tensions and reinforce imbalances in the global economy.
* Third, in a worst case scenario, China may be tempted to provoke a conflict in the South China Sea to redirect popular discontent onto an external enemy.

All of these things are happening now and could unfold before the end of the year, or the end of the campaign. They will certainly shape the first year of any Romney-Ryan administration.

Read more: http://www.weeklystandard.com/blogs/what-romney-and-ryan-should-know-about-china_649917.html

You'll never be Chinese

Mark Kitto writes:

Modern day mainland Chinese society is focused on one object: money and the acquisition thereof. The politically correct term in China is “economic benefit.” The country and its people, on average, are far wealthier than they were 25 years ago.

Traditional family culture, thanks to 60 years of self-serving socialism followed by another 30 of the “one child policy,” has become a “me” culture. Except where there is economic benefit to be had, communities do not act together, and when they do it is only to ensure equal financial compensation for the pollution, or the government-sponsored illegal land grab, or the poisoned children.

Social status, so important in Chinese culture and more so thanks to those 60 years of communism, is defined by the display of wealth. Cars, apartments, personal jewellery, clothing, pets: all must be new and shiny, and carry a famous foreign brand name. In the small rural village where we live I am not asked about my health or that of my family, I am asked how much money our small business is making, how much our car cost, our dog.

Read more: http://www.prospectmagazine.co.uk/politics/mark-kitto-youll-never-be-chinese-leaving-china/

China’s Young Rich: Not Top Students

WSJ reports:

According to a new list that tracks China’s young and wealthy, none of the wealthiest people born after 1980 graduated from Peking University or Tsinghua University, China’s top two universities. About two-thirds of the rich 32-years-old-or-younger graduated from non-key universities, including vocational colleges.

Read more: http://blogs.wsj.com/chinarealtime/2012/08/14/chinas-young-and-rich-not-top-students/

KPMG Starts Localization Transformation in China

Caijing reports:

KMPG, one of world's four largest international accounting firms, was approved by the Ministry of Finance on Friday to re-establish itself as a special general partnership enterprise from a Sino-foreign cooperative joint venture under contract, with a registered capital of 10 million yuan.

It marks the first of the so-called "big four" to localize its operations in China, under a government planning in May, which requires Sino-foreign cooperative accounting firms to localize their operations and hire more Chinese citizens to manage domestic affairs.

Under the new rules, the accounting firms should have at least 25 Chinese citizens as partners, employ more than 100 Chinese Certified Public Accountants (CPAs), and have registered investment of more than 10 million yuan.

Along with the notice to approve the transformation of KPMG, the MOF also posted an announcement of the coming conversion of Ernest & Young, which may happen very soon.

Read more: http://english.caijing.com.cn/2012-07-16/111950279.html

How Weibo Is Changing China

Yale Global says:

BEIJING: It was the last straw for Shanghai graduate student Wu Heng, when he heard that restaurants near him were using toxic chemicals to make pork taste like beef. He started a food-safety blog out of his dorm room in January. In April, he got 10,000 hits. In May, he got 5 million.

“Word spread on Weibo,” he says with a grin.

Weibo – China’s version of Twitter – has created a vigorous virtual public square since it was launched by the Chinese internet company Sina three years ago this month. The site, which allows users to post photos, videos, comments and messages, has since expanded with scorching speed. It now boasts some 350 million users.

“These days, a lot of people use Weibo as their main source of information, and information on Weibo can pass very fast,” says Wu. “So I update my Weibo account every day, with the latest news on food safety.”

Food safety is but one of the hot-button issues that have raised a public outcry on Weibo, providing a new source of public pressure on the government. A similar outcry came last summer after a high-speed train crash killed 40 people, just days after the expensive and high-profile project was rushed into service.  Weibo comments mocked official excuses and attempts to cover up bad management.

Read miore: http://www.yaleglobal.yale.edu/print/8022

 

A Chinese Car Maker Is Reportedly Copying Volkswagen's Models And VW Can't Do Anything About It

Business Insider reports:

Chinese piracy is nothing new. Chinese piracy of entire car engines is, however. In what's turning into a warning for all car companies hoping to capitalize  on the Chinese market, China's First Automotive Works (FAW) is allegedly copying  Volkswagen's Golf and Polo model transmissions, then putting them into their own  cars, reports  German newspaper Handelsblatt.

Read more: http://www.businessinsider.com/a-chinese-car-maker-is-copying-volkswagens-models-and-vw-cant-do-anything-about-it-2012-7#ixzz230NZHQHW

China and the Glocal Mix

David Wolf says:

There are two basic schools of thought on marketing best practices in China. One school, the Exceptionalists, holds that China is such a unique place that there is little or nothing of value to be learned from overseas experts, academics, or practitioners about the marketing crafts that is applicable here. Only practices that are home-grown and developed with long local experience and a deep understanding of the Chinese culture can ever hope to succeed.

The other school, the Integrationists, holds that China is basically like any other market, just not quite as far along in its development. You may not be able to pull the latest marketing books off of the shelves at Barnes & Noble in New York and apply the recommendations here, but China is pretty much like the U.S. was 10, 20, or 30 years ago. (One member of this school of thought actually said that Chinese advertising agencies bore spooky resemblance to the HBO Miniseries Mad Men.)

I have been to both schools, and I have wound up as what I would call an Experimentalist. I believe that effective marketing in China comes from a combination of global best practices and locally-specific, highly relevant tactics and techniques. Let’s call this the Glocal Mix.

Read more: http://siliconhutong.com/2012/08/06/china-and-the-glocal-mix/

The Silver Linings In China's Slowdown

Seeking Alpha says:

China's gross domestic product for the second quarter declined to 7.6% in July, its lowest level since the height of the global financial crisis in 2009. At the same time, the International Monetary Fund reduced its 2012 growth forecast for China by 0.2 percentage points to 8%. While China has been adversely affected by external factors like the eurozone crisis, its current slowdown is mainly the result of internal structural issues, including a suppression of domestic consumption, says Tsinghua University's Patrick Chovanec.

"The main growth driver of the past several years has been an investment boom that was engineered in response to the global financial crisis," explains Chovanec, "and this investment boom is buckling under its own weight."

Read more: http://seekingalpha.com/article/781871-the-silver-linings-in-china-s-slowdown?source=email_authors_alerts&ifp=0

How the resurgence of state-owned enterprises threatens China’s economy

The CER reports:

“In the 80s and early 90s, many government officials and professors went into business to make money. Now, many people don’t have that courage. Popular opinion, the capital environment, institutions, all are more complementary to the development of big firms than small, entrepreneurial ones,” Wang Jianlin, chairman of real estate conglomerate Dalian Wanda, told journalists at the signing ceremony for his company’s purchase of US cinema chain AMC Entertainment in May.

Wang, a self-made man who now flaunts a 24-meter yacht and a private jet, said he’s seen many successful Chinese entrepreneurs sell their companies and emigrate in recent years. “When most of our entrepreneurs no longer have the motivation to strive, they just sell their businesses to go enjoy themselves, then this country is done for,” he said.

Wang’s comments offer a glimpse into a debate quietly raging in China: whether the country’s economic structure is crushing private industry. As usual in the country, at the core of the concern is a snappy, codified slogan: guojin mintui, meaning “the state advances, the private retreats.”

Read more: http://chinaeconomicreview.com/swept-under

In China, the rich can hire body doubles to do their prison time for them.

Slate says:

May 2009, a wealthy 20-year-old was drag racing through the city streets of Hangzhou, China, when his Mitsubishi struck and killed a pedestrian in a crosswalk. The car was traveling so fast that the victim—a 25-year-old telecom engineer of a modest, rural background—was flung at least 20 yards. Afterward, bystanders and reporters photographed the driver, Hu Bin, as well as his rich friends, who nonchalantly smoked cigarettes and laughed while waiting for the police to arrive at the scene.

These images, soon posted online, provoked a public outcry. Anger over the callous behavior of these wealthy Chinese youths was followed by accusations of a police cover-up. First, the local authorities admitted that they had underestimated the speed Hu’s vehicle was traveling by half. (Incredibly, the police had first suggested that Hu was going no more than 43 mph.) Public furor rose again when Hu received a three-year prison sentence, an exceptionally light punishment in a country where drunk drivers guilty of similar accidents can receive the death penalty.

But the most stunning allegation was that the man appearing in court and serving the three-year sentence wasn’t Hu at all, but a hired body double.

Read more: http://www.slate.com/articles/news_and_politics/foreigners/2012/08/china_s_wealthy_and_influential_sometimes_hire_body_doubles_to_serve_their_prison_sentences.html?wpisrc=newsletter_tis

On China’s second half recovery, or the lack of it

Also Spracht Analyst writes:

As the Chinese government does not really want to see real estate prices rebounding, there have been speculations that China will once again step up regulations on home prices.  And perhaps unsurprisingly, there are some chatters that the government will indeed step up the regulations.  Although this is unconfirmed at this stage, it is not hard to imagine that further restrictions on real estate transactions and so on at this moment in time would be the last thing the economy wants, if getting growth all you want.  As we mentioned last time:

… we do not see ways that the government can tighten one part of the economy (in this case, the real estate market) while at the same time stimulate the rest of the economy.  If the central government does decide that it is time to tighten the real estate market again, this could come in a rather unfortunate moment as the overall economy is slowing much more rapidly than both the government and the market previously thought.  Not to mention the impact of real estate market tightening on industries both upstream and downstream.

We are not convinced that real estate market in China could have reached the bottom if the government loosen at this point, but tightening will certainly be bad for the overall economy.

On top of that, we have also just highlighted the unknown risks of inflation arising from the recent increase in global agricultural commodities prices.

Read more: http://www.alsosprachanalyst.com/economy/on-chinas-second-half-recovery-or-the-lack-of-it.html?utm_source=Also+sprach+Analyst+Newsletter&utm_medium=email&utm_campaign=c5b2a3512e-RSS_EMAIL_CAMPAIGN

Morgan Stanley Explains Why They're Still So Bullish On China

Business Insider reports:

Despite the recent  slowdown, Morgan  Stanley analyst Helen Qiao is very optimistic on the Chinese economy. She expects the economy to grow 8.5 percent this year and 9 percent in  2013.

In fact, she believes a 6 - 7 percent growth rate is "below China's long-term  potential level and is unsustainable".

Qiao says she anticipates growth to pick up in the second  half of the year on more policy easing:

Read more: http://www.businessinsider.com/morgan-stanley-bullish-china-2012-7#ixzz22Fq6EWMn

Chinese investment: a new form of colonialism?

Yao Yang, Peking University writes:

It is news to none that China is expanding its resource-acquisition activities across the world. And in its search for mining and drilling rights, China seems more than willing to work with any government that will help secure such investments, including those accused of rampant corruption or severe human rights violations.

Even in countries with more benign governments, resource exports still may not help to improve living standards for ordinary people, as resource exploitation often leads to environmental degradation and adverse effects from the so-called Dutch disease. China is routinely accused of importing resources from countries caught up in this ‘disease’, before then ‘dumping’ cheap manufactured goods on them. As a result, Chinese international investment is often seen as a form of ‘new colonialism’.

Read more: http://www.eastasiaforum.org/2012/07/24/a-new-form-of-colonialism/

Recharging China’s electric-vehicle aspirations

McKinsey says:

China understands that embracing electric vehicles could help it not only to manage its energy dependency and environmental challenges but also to build a car industry that could leapfrog its global competitors in this emerging sector. But progress toward that goal has been disappointing, and the country needs a new strategy, McKinsey research finds. Automakers have produced only a fraction of the vehicles once expected. Ownership has fallen far short of projections, and the needed infrastructure has failed to materialize. Notwithstanding massive investment in battery R&D by automakers and suppliers, few vendors are qualified to provide batteries to the industry.

Read more: https://www.mckinseyquarterly.com/China/Recharging_Chinas_electric-vehicle_aspirations_2998

Changsha announced surreal investment plan to stimulate economy

Also Sprach Analyst says:

Yesterday, Changsha, the capital city of Hunan, announced that they have held some sort of a roadshow for banks on 25 July to promote RMB829.2 billion worth of investment projects.  This followed yet another roadshow by the city of Changsha for state-owned enterprises held in Beijing last week.  Some took that as a massive stimulus programme.

It is indeed massive.  According to Nomura’s calculation, RMB829.2 billion represents some 147% of Changsha’s 2011 nominal GDP, making it sounds totally surreal.  Of course, it would be unreasonable to expect all 147% of GDP to be spent in one single year, and it could very well be the case that the local government overstated the number.  The purpose of the roadshows are basically to ask state-owned enterprises to invest, and to ask banks to lend money. 

The big question to most so far appears to be on the financing of the projects.  As local government finances worsen together with the economy and banks now relatively cautious in lending, it does appear that this is the key constraint.

Read more: http://www.alsosprachanalyst.com/economy/changsha-announced-surreal-investment-plan-to-stimulate-economy.html?utm_source=Also+sprach+Analyst+Newsletter&utm_medium=email&utm_campaign=e6c9e15bd5-RSS_EMAIL_CAMPAIGN

China and the Middle-Income Trap

Peter Drysdale writes:

'The middle-income trap' is an idea that derives from the experience of a host of emerging economies that looked as if they were on the road to high-income status but did not really make it. Stagnation in growth rates occurred before they were able to progress from being a middle-income country to a high-income country. Industrial 'catch-up' might be difficult for many countries, but it is the easy part compared with effecting the transition to a per capita income of, say, US$10,000 (Malaysia's per capita income in exchange rate converted terms or US$15 in purchasing power parity terms) and to over US$60,000 (Australia's). As economies become wealthier and the technology they need to apply more sophisticated, they lose the advantages of 'starting from behind'. They need to be capable of operating closer to the technological frontier and compete further up the value chain.

The idea is straightforward enough. The risk is real. The recent report on China's economic prospect from the World Bank and China's Development Research Centre reveals that only 13 of the 101 countries deemed to be middle-income countries in 1960 had achieved high-income levels in 2011. Some parts of Asia, including some ASEAN economies, appear to be caught in the 'middle-income trap'.

What is not so clear is what the cause of growth petering out has been. There's a burst of research on that subject around the world right now.

Two things clearly play an important role: failure to invest in the human capital that is necessary to take income to a higher level; and failure to reform institutions and governance so that they support an adaptive and creative economy and society. Where reforms stall and the structure and growth of human capital is inadequate, there is a risk that Asia's emerging economies, even China, might fall into the 'middle-income trap'.

Read more: http://www.eastasiaforum.org/2012/07/23/asias-human-capital-and-the-middle-income-trap/.