Ma Ying Jieu has won what has been a tough and closely watched election in Taiwan. Emphasizing close relations with the mainland, Ma celebrated the victory as a victory for the people of Taiwan. The DPP, with charismatic (and “native Taiwanese”) Tsai, gave stoic (and “外省人”) Ma a much bigger challenge this time (characterization by my deep-green family-in-laws), losing to Ma by what looks like a 51.6 to 45.63 margin (compared to the 58% to 42% margin in 2008). While the issue of independence has been much toned down this time, relations with the Mainland still dominated the election, with issues of the economy also a major issue.
Zhang Monan is economics researcher with China’s State Information Center and frequently appears on China Daily with her “big picture” takes on the global financial system. She is worthwhile following if you wish to understand how China sees the jostling of control between the now currently dominant developed countries and the emerging developing countries for a fairer share of wealth. In her 2010-07-05 article, “Towards new financial order,” she summarizes the inevitable competition (or “cooperatition” if you will) from developing countries in reshaping our worlds financial institutions. Below are snippets from her article:
Google issued a press release on their blog just a few hours ago pertaining to their operation in China. It is big news and will take some time to digest. I don’t want to comment, just get the story out. Read more…
China is finally coming after Detroit from this WJS article
* With the recent bad quality problems of Chinese products, China really cannot establish a name brand outside China – at least for a while. It is a good way to buy a brand name.
* Cost too much to build dealerships in foreign countries and learning international marketing and laws. It is a good and cost effective way. They are many former US dealers begging for dealership with ample of cheap retail space.
* China still lacks a lot of expertise in top auto technologies such as engine, transmission and environmental control devices. All these can be transferred from Volvo. A win-win situation.
* With China’s (or the company’s) reserve, it is a timely bargain that will return better than most of the past foreign investments, let alone the US treasuries.
* Why China will succeed in this deal?
– The $25 or so (with exception of Mexico) hourly wage cannot compete with $1 hourly wage else where.
– The huge and growing market of China itself.
– The Chinese engineering graduates are no dummies. They’re so dedicated and they work longer hours than most in the west. 12 hour work for one engineer actually equates to 16 hour work of the counterpart in the west working 8 hours when you consider coffee breaks, socializing in the office, holidays, vacations…
* It is the major part of the auto market. Electric cars from another Chinese company is a very small part of today’s auto market. I was a little surprised they did not bid on some division of GM like Pontiac.
* Volvo is a good and reliable car, but on the more expensive side. My friend after surviving from a could be fatal accident with a Volvo is buying Volvo cars for life.
Hope it will not go to Germany way to build cars so sophisticated that it is a big problem to own one in US with expensive parts and unqualified technicians.
This is the full session between Niall Ferguson and James Fallows at the recently held Aspen Ideas Festival. Allen had posted excepts and we promised you the complete discussion as soon as it became available. Niall Ferguson had coined the term “Chimerica” to describe the symbiotic relationship between the economies of China and the United States. He currently sees this relationship as being in jeopardy, while James Fallows feels the relationship is far stronger the most realize. This video is slightly over 75 minutes.
In our Dalai Lama Warns of Looming Violence thread, Wukailong linked to this essay covering three political scenarios that China might face in the year 2020. The author, Cheng Li is Senior Fellow at the John L. Thornton China Center of the Brookings Institution and William R. Kenan Professor of Government at Hamilton College. His summary is as follows:
I ran across this article today on Stratfor, the geopolitical global intelligence service. It discussed a side of China’s political and economic situation that we have touched upon here and there but never delved into that deeply. It highlights some of the intraparty differences within the CPC and expands on the philosophies of those factions.
I’d like to hear everyone’s comments, and especially those from our bloggers living in China, about how they view the two primary economic factions and their strategies within the party. There are several links within the article that take you to further analyses of those particular subjects.
Intro: China’s accumulation of foreign currency is a hotly debated topic. Secretary of Treasury Geithner recently characterized it as “currency manipulation,” a legal term of art which allows the United States to take retaliatory measures.
I have written a paper that approaches this practice from a different angle, and recommends a different solution. The paper can be downloaded here http://ssrn.com/abstract=1332842
In this paper, I revisit the historic ideas surrounding miserliness and usury. I explain why these were economically pernicious activities, and why they were socially stigmatized or made illegal. The paper then moves onto international relations. I argue that China has been acting as miser and usurer on the world stage, at the expense of its own needs and global productivity. The world needs to balance spending vs. saving/investing/lending, and if there is too much of the latter then a rebalancing is inevitable. China has been doing too much of the latter, and the current economic crisis is that rebalancing.
The preferred solution to this problem is not trade protectionism, but rather increased trade. Over the past decade Americans have spent trillions of dollars on Chinese goods and services. This created employment in China and helped the country achieve its potential. The Chinese have responded by hoarding and lending that money. But a relationship where Americans spend and Chinese save and lend is not viable. Only when China takes the dollars Americans spend to employ Chinese, and uses it to employ Americans, will there be a sustainable relationship that can tap the productive potential of both countries. The United States has taken the first step and spent to establish this relationship. It is now China’s turn to spend, to advance that relationship.
I am interested in comments before the paper is published, so please do not hesitate to write me at the link above with any feedback.
Note: post title and content changed per the author’s request. -admin
If you’ve been reading the Chinese press this week, you might have come across two strikingly unharmonious pieces of information.
I am speaking of the treatment of the Shanghai Tower news by China Daily (ht Shanghaiist). In the space of 3 days from 11/28 to 12/01 China Daily has changed its tune radically in two articles about the construction of the new tower, which started last Saturday.
The first article is pretty neutral. It announces the beginning of the works, and has Shanghai CCP’s Lin Xu declare that spending on infrastructure will “help companies to weather the crisis“.
The second article, an unsigned editorial, is ripe with criticism of about every possible aspect of the project. Including some juicy ones: “symbolizes that blind worship and race for skyscrapers has reached a new high” and “The money could still be spent better elsewhere on so many priorities“.
What is going on here? Who forced this article into Beijing’s China Daily, the largest English language newspaper in China? It is a quickly written and poorly edited/translated article, someone obviously overrode the usual procedures of the newspaper to get this text to press ASAP. Someone you wouldn’t dare to edit or reject.
I have expected some major efforts by the Chinese government to encourage internal economic development and consumption in the face of the global meltdown. In particular, I thought it would be the time to spread the benefits of infrastructure and its followup development to areas beyond the coastal areas. Nevertheless, I am surprised about the scale of stimulus package announced by Beijing. $586 billion is on a par with the $700 billion financial rescue plan passed in the U.S. But in terms of relative size and impact, the Chinese plan sounds much more impressive. That $700 billion is, after all, a rescue effort with modest effect at stimulating the economy. The real stimulus plan in the U.S., is yet to be figured out and waiting for Obama.
[Update] Here are some details of the Chinese stimulus plan, as reported in Chinese news media.
During my travels these last weeks in Europe and Asia, and on my return to China, I have observed some rather striking contrasts. So much that they made me think a lot about the present state of Chinese economy, and here is a word about it.
Two different ways of seeing the world
I was in Europe for the last time the week of the “Meltdown Monday”, the one when the Lehman Brothers declared bankruptcy. Quite scary, but the news didn’t seem so surprising for anyone. Ever since the beginning of the year most people had seen the crisis coming. On the Spanish beaches, there were less tourists to be seen this summer, and the variable rate mortgages were getting stiffer for all. The governments that were not in electoral campaign had profusely announced what was to come.
“In the past, China has been blamed for the low-degree of internationalization of its financial industries. Now it seems we are profiting from this ‘fault’,” the commentary said.
Many Chinese economists share this view. “Our not-fully-open financial system and not-fully-convertible currency saved China from being rattled during the 1997 Asian Financial Crisis. And now again this seems to be a strong dam to protect us against the current financial tsunami,” an economics researcher with the Chinese Academy of Social Sciences (CASS) said.
“It is evident that the financial industries cannot become entirely market oriented. The semi-market, semi-government-control system may prove a better [system]. The problem in China is that the part of government control is too big and thus reforms are needed to deregulate.”
In early September, Steven N S Cheung, a Hong Kong-born Chinese-American economist living in exile in China, being wanted by the US government for alleged tax evasion, claimed that China “has formed the best system in the history of human kind”.
In 2002, the GDP of China was 10.2 trillion yuan, and the GDP of the US was 10.6 trillion US dollar. At the year-end exchange rate, China’s GDP was 11.7% of the US’. In 2007, the GDP of China was 24.7 trillion yuan, and the GDP of the US was 14.0 trillion US dollar. At the end-end exchange rate, China’s GDP was 24.0% of the US’.
If we assume the relative paces of the underlining economic numbers remain the same, China will catch up the US in 2019. That’s scenario #1. The key underlining economic numbers are: nominal GDP growth and currency exchange rate. Read more…
There is probably only one other issue capable of challenging the Olympics for national attention in China right now: the collapse of the housing market in China, led by Shenzhen. Home prices in Shenzhen grew very rapidly in recent years (on the order of 50%-100% ), and now appear to be falling just as quickly.
But for some people, it might not be falling fast enough. Two years ago, Zou Tao organized a campaign to fight rising prices in Shenzhen called “Not Buy House” (explanation courtesy of ESWN). The government gave Zou Tao a firm “suggestion” that such mass campaigns were not welcome. Now, he’s back. Courtesy of Southern Metropolis, an article on his new campaign (连接):
Zou Tao organized a “Not Buy House” campaign two years ago. He is now initiating a new campaign: “Housing For Ten Thousand – Group Buying Activity”. He has already established a web platform at www.zoutao.com, and online voting and registration is currently on-going. Zou Tao says that he is doing this voluntarily without any compensation. His goal is to use a group-buying model to push down housing prices, and let those without homes find a place to live.
Thanks to one our visitors (Traveler, Youzi, 游子), a debate about fundamental issues that divide many Chinese has been brought to our blog (see comment in earlier thread). In this post, I want to express my opinions on the economy, democracy, and the Chinese government.
I also want to send a few sentences to Mr. Wahaha: please do not so easily “represent” the Chinese or the Chinese government. I don’t know if you’re an oversea student or overseas Chinese, but regardless of China is strong or small, it doesn’t have anything to do with you having greater face and authority in the face of Westerners. Furthermore, China’s economic growth is the result of hard work by Chinese citizens, and not the government’s charity; our lives are improving, because these are the returns from our own work, not because of a government or certain political party has bestowed them on us.
Now, we get to a topic that has nothing to do with Western media and being overseas. Now we get to a topic that has to do only with being “left” or “right”, being a supporter or opponent of the current Chinese government. This topic should be kept separate from the topic above.
Let me start by sending a few sentences to you, Traveler: please do not so easily assume that we hope for a strong China because we need “face”. I will not speak for Wahaha, but many of us are extremely successful, and do not need to borrow face from anyone. We can silence ourselves on China tomorrow, and we will not suffer for it. We can cut ourselves off from China tomorrow, and no one in the United States will force us back. Here’s a bit of advice for you if you ever come to the West, and are embarrassed by an association with the Chinese: if nothing else, we can always pretend to be Japanese. No one in the West could possibly know the difference
The vast majority of Chinese favor and support the “opening up and reform” period started in 1978. But many are also very nostalgic for the Mao era, a time when equality was guaranteed, a time when socialism in China was far more than just a hypothetical. One simple example is translated below.
This article has been spread around numerous Chinese forums, actual origin not clear. (原贴)
I was born in 1954, in a village in Shandong province. I have a sister, and our parents are also peasant farmers. I want to start by talking about the prices of agricultural goods, starting with wheat as an example. From 1970 – 1980, the market price for wheat was: 0.35 RMB/shijin (ed: 0.5 kg), later growing to 0.35 RMB/shijing. The cost of things didn’t really change, it was very stable during this period. So the problem I want to discuss is, when a farmer sells a half kilogram of wheat on the market, what can he do with that money?
[Update inserted at the end]
The U.S. Fed chairman Bernanke gave some amazing recycled remarks to the International Monetary Conference on June 3, 2008. In that speech, he offered some gems of wisdom such as:
In the financial sphere, the three longer-term developments I have identified are linked by the fact that a substantial increase in the net supply of saving in emerging market economies contributed to both the U.S. housing boom and the broader credit boom. The sources of this increase in net saving included rapid growth in high-saving East Asian countries and, outside of China, reduced investment rates in that region; large buildups in foreign exchange reserves in a number of emerging markets; and the enormous increases in the revenues received by exporters of oil and other commodities. The pressure of these net savings flows led to lower long-term real interest rates around the world, stimulated asset prices (including house prices), and pushed current accounts toward deficit in the industrial countries–notably the United States–that received these flows. … The housing boom came to an end because rising prices made housing increasingly unaffordable. The end of rapid house price increases in turn undermined a basic premise of many adjustable-rate subprime loans–that home price appreciation alone would always generate enough equity to permit the borrower to refinance and thereby avoid ever having to pay the fully-indexed interest rate. When that premise was shown to be false and defaults on subprime mortgages rose sharply, investors quickly backpedaled from mortgage-related securities. The reduced availability of mortgage credit caused housing to weaken further.
As Mike Whitney so nicely summarized for Bernanke: “It’s all China’s fault. Really.”
Whew. That’s a pretty long-winded way of saying the Chinese are to blame for everything that’s gone wrong in the markets for the last 10 months.
Today’s Xinhua article brings to our attention that China’s forex reserves have ballooned to $1.76 trillion as of the end of April. To put this number in perspective: it is about 15% of the US annual economic output.
Before people get carried away, allow me to explain what the forex reserves is not: it is definitely not the government’s money, so there is no sense in talking about the government spending it. It is also not some kind of surplus money sitting around with no purpose. The forex reserves is part of the collateral that backs RMB-denominated debt obligations of China, and that includes all Chinese money and government bonds.
According to this Xinhua article, which quotes AFP, which got its information from a “Chinese media source” (got it?), China’s forex reserves increased by $74.5 billion in the month of April, or $100 million per hour. (The article and all the English ones that copy it say $10 million, but they all did their math wrong!)
China’s (mainland) forex reserves is followed in size by Japan’s at $1 trillion, Russia’s at $548 billion, India’s at $316 billion, and Taiwan’s at $287 billion. Of course, only Japan is part of the G7 in this group, so it is an exercise for the reader to figure out how much the remaining 6 of the G7 have.
A large forex reserve gives currency stability and can be a defense of a country’s credit-worthiness. On the other hand, its rapid increase adds to the inflationary pressure in China. Besides trade surplus and foreign investments, nobody has a good idea for where all this extra money is coming from — from Chinese expats, perhaps? I know many of them have sent money back as the RMB rises something like 8% a year against the USD. (On a side note, isn’t it interesting that the shrill rhetoric of Congress to make China revalue the RMB or face punitive tariffs has all but vanished…)
Something to ponder, where is this all headed?