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Topic: China (Read 122197 times)
Reply #550 on:
February 19, 2014, 09:29:54 PM »
Jane Goodall alarmed China plundering Africa, but admits destructive habits changing
China is exploiting Africa's resources just like European colonizers did, with disastrous effects for the environment, acclaimed primatologist Dr Jane Goodall told AFP.
On the eve of her 80th birthday, the fiery British wildlife campaigner is traveling to world capitals lecturing on the threats to our planet.
During the past decade China has been investing heavily in African natural resources, developing mines, oil wells and running related construction companies.
Activists accuse Chinese companies of paying little attention to the environmental impact of their race for resources.
“In Africa, China is merely doing what the colonialist did. They want raw materials for their economic growth, just as the colonialists were going into Africa and taking the natural resources, leaving people poorer,'' she told AFP in an interview in Johannesburg in South Africa.
The stakes for the environment may even be larger this time round, she warns.
“China is bigger, and the technology has improved... It is a disaster.''
Other than massive investment in Africa's mines, China is also a big market for elephant tusks and rhino horn, which has driven poaching of these animals to alarming heights.
But Goodall, who rose to fame through her ground-breaking research on chimpanzees in Tanzania, is optimistic.
“I do believe China is changing,'' she said, citing as one example Beijing's recent destruction of illegal ivory stockpiles.
“I think 10 years ago, even with international pressure, we would never have had an ivory crush. But they have,'' she added.
“I think 10 years ago the government would never have banned shark fin soup on official occasions. But they have.''
Her organization Roots and Shoots, founded over two decades ago to instil conservation values in children, has also become involved in China.
“We work with hundreds of Chinese children, and they are not different from children we work with here. They all love nature, they love animals, they want to help, there's no difference because they're Chinese,'' she said.
Young people's enthusiasm to change the world gives her hope.
“These young people will become the next parents, the next teachers, the next lawyers, the next business people and the next politicians, some of them.''
“The biggest problem is that people understand but don't know what to do,'' she said.
“If you have one thousand, one million or eventually several million people all making the right choice, all thinking about the consequence of their behavior, then we're going to see big change.''
Another glimmer of hope is “this amazing resilience of nature,'' she continued, citing as an example the China's Loess Plateau on the Yellow River bouncing back after massive soil erosion.
“It was set to be the biggest totally destroyed ecosystem in the world,'' she said.
A US$400-million project funded by the Chinese government and international donors introduced better farming methods in the area, which greatly reduced erosion and lifted 2.5 million people out of poverty, according to the World Bank.
“That took a lot of money, but if you look at it now, it's all green, lush and farmland, and children have come back from the cities. It's even got a whole area for wildlife,'' said Goodall.
“We still have a small window of time to change things.''
Reply #551 on:
February 19, 2014, 10:07:20 PM »
while speaking of Jane goodall one must watch this video and as noted anyone who watches should bring their hanky along;
It is the window video in the third picture box 3 minutes long:
bahttp://www.care2.com/causes/the-heartfelt-hug-that-said-it-all-chimp-thanks-jane-goodall-for-rescue.htmlck in the wild
Richard Young; Marc Faber:Bankruptcies coming and it won't be pretty
Reply #552 on:
March 20, 2014, 02:43:46 PM »
SHOCK: Wave of Bankruptcies Set to Hit China
March 17, 2014 by Young Research
Print This Post
In a shocking admission Chinese Premier Li Keqiang warned lenders in the country to prepare for a wave of defaults on debt in the coming year. China had so far been able to prevent embarrassing defaults among its corporations, even by presumably bailing out the world’s largest bank earlier this year (no one knows exactly what happened here but common sense would point to a hidden government bailout). But the government couldn’t, or wouldn’t, act fast enough to save Shanghai Chaori Solar Energy last week. It’s a signal from the Communist Party that Beijing is getting out of the bailout business. Borrowers, lenders and investors should take heed. Phillip Inman reports that the Middle Kingdom is facing serious challenges.
Li’s warning followed the failure of Shanghai Chaori Solar Energy to make a payment on a 1bn yuan (£118m) bond last week. The default was the first of its kind for China and widely seen as pointing to the end of 11th-hour government bailouts for troubled enterprises.
Some analysts said the decision to let some indebted firms collapse was a sign the authorities had learned from the Japanese boom and bust experience of the late 1980s and early 1990s. Tokyo was plunged into two “lost” decades of stagnation after it prevented zombie companies from declaring bankruptcy – even blocking petitions from bondholders in the courts – when a property collapse exposed debts many times the value of their businesses.
However, figures this week revealed that Beijing is copying the Japanese tactic of ramping up public infrastructure spending to replace the steep slowdown in private sector investment. Fixed asset investment, a measure of government spending on infrastructure, expanded 17.9% during the first two months of 2014, the National Bureau of Statistics said.
If China’s economic troubles force it to reduce purchases of U.S. treasury securities, and the Fed continues to taper its own purchases, there’s no telling what could happen to interest rates. There could be serious risks to America’s ability to fund itself. You can find our advice on profiting from the risks and opportunities of such shocks in our premium strategy reports, Richard C. Young’s Intelligence Report and Young Research’s Global Investment Strategy.
Reply #553 on:
March 21, 2014, 10:36:05 PM »
"If China’s economic troubles force it to reduce purchases of U.S. treasury securities, and the Fed continues to taper its own purchases, there’s no telling what could happen to interest rates. There could be serious risks to America’s ability to fund itself. "
I think they mean there could be serious risks to our continuing ability to
China Property Collapse Has Begun
Reply #554 on:
April 14, 2014, 02:39:23 PM »
As predicted here...
China Property Collapse Has Begun
Nothing is going right for Hangzhou at this moment. Walmart will be closing its Zhaohui store in that city on April 23 as a part of its overall plan to dump marginal locations—about 9% of the total—in China.
Thanks to the world’s largest retailer, another large block of space in Hangzhou, the capital of Zhejiang province, will go on the market at a time when there is generally too much supply. The problem is especially pronounced in the city’s premium office market. Hangzhou’s Grade A office buildings at the end of 2013 had, according to Jones Lang LaSalle, an average occupancy rate of 30%.
The real weakness, however, is Hangzhou’s residential sector. The cause is simple: massive overbuilding. Sara Hsu of the State University of New York at New Paltz writes that Hangzhou faces “burgeoning swaths of empty apartment units.”
Hangzhou’s market has not yet collapsed. There are still secondary sales, for instance. Singapore’s Straits Times reports Allen Zhao, a businessman, has been looking to sell his two-bedroom flat in Hangzhou for 2 million yuan. His neighbor just let go a similar unit for 1.7 million. If Zhao also sells for that amount, he will make a profit, but he will be disappointed. “That is not much more than the price I paid in 2012,” Zhao told the paper. “Now I’m regretting not selling earlier—more bad news about the property market keeps coming in every day.”
New homes also face price pressure. Developers in Hangzhou are now offering deep discounts, and investors and owners are noticing. And not just in that city. “It seems that the 30% price cut in Hangzhou really changed the way Chinese people think about real estate,” writes Anne Stevenson-Yang of J Capital Research, “and I doubt there is any turning back from here.” (more at link)
China housing bubble about to burst 2.0?
Reply #555 on:
April 15, 2014, 12:02:43 PM »
WSJ: China's growth struggles
Reply #556 on:
April 21, 2014, 07:19:12 AM »
Addresses themes I have discussed here for years, but comes to a more optimistic sense of things. I can't this this is wrong though , , ,
China's Growth Struggles
Market reform is crucial to avoiding the middle-income trap.
Updated April 20, 2014 5:16 p.m. ET
China's first quarter growth of 7.4% beat expectations last week, but it was a six-quarter low and below Beijing's 2014 target of 7.5%. Some analysts worry the country is vulnerable to a property market collapse and explosion of bad bank loans. So is the main engine of global growth about to stall?
One thing most everyone agrees on: China is in transition from a go-go phase driven by abundant capital and labor (think of the U.S. in the late 19th century) to a more mature development track in which growth depends on productivity gains. At this point other countries such as Brazil and Malaysia fell into the "middle-income trap" and stagnated, while South Korea and Taiwan powered through to become wealthy, although not without crises along the way.
Through the 2000s, Beijing struggled to rein in growth to avoid inflation, and any time the economy looked to be slowing it simply eased restrictions on investment and was off to the races again. Now gross capital formation, which averaged 15% from 2000-10, is around 10% as costs rise and profits are squeezed. The economy is overleveraged, with total debt (government and private) exceeding 200% of GDP. Negative purchaser managers index (PMI) indicators reflect the realization that companies can't rely on high GDP growth to repay loans.
Beijing's new leaders seem to recognize that financial reform and a period of deleveraging are needed to meet this challenge. Since slower growth is a necessary part of this program, the current slowdown could be read as a positive sign that the days of growth at any cost are over. The announcement last month that deposit rates will be liberalized over the next two years signals an end to financial repression, by which interest paid on savings was kept low to make borrowing cheaper. That suppressed consumption and led to the most lopsided economy the world has ever seen, with investment accounting for about 50% of GDP.
Like many of China's past reforms, de facto deposit-rate liberalization started well before the official announcement, in the form of what's been called the shadow banking system. While dangerous risks may be hidden here, there is a considerable upside: The state banks created entities to attract deposits at market rates of interest.
This "reform" came about because banks found that profit margins were shrinking on traditional loans to state-owned companies and local governments. So they sold high-return "wealth-management products" (WMPs) to investors and used the money to lend at still higher rates to private companies. By pricing risk, WMPs make the allocation of capital more efficient.
Another piece of good news is that access by private companies to bank loans has grown dramatically, surpassing the loans to state enterprises in 2012. This would have happened even faster if Beijing's post-2008 stimulus hadn't given a big boost to state firms. Private firms now account for two-thirds of investment, up from 40% a decade ago.
Over the last decade, demographic trends have pushed wages up faster than productivity growth. You wouldn't know it with all the angst about high inequality, but this trend has put pressure on managers to find efficiency gains. And it will help force Beijing to sell off state-owned enterprises that can't keep up. All of this suggests that China may follow South Korea and Taiwan and avoid the middle-income trap.
But it doesn't say whether a crisis is brewing in the next few years. Most crisis scenarios concern the property market, which accounts for almost a quarter of the economy. The problem is not so much high prices, since the average cost of an apartment has tracked rising urban incomes. Nor is it leverage, since regulations restrict mortgages and many buyers pay with cash. It is simply volume.
A side-effect of China's low bank-deposit rates and dysfunctional stock market is that many households have put their savings into empty apartments, which are so numerous they have spawned "ghost cities." When prices begin to fall, most owners will likely hold on and wait for a rebound. That means a long period of stagnation as the excess supply gradually comes onto the market.
The loss of such a big driver of growth will be painful, but by itself it shouldn't trigger the kind of financial crisis the U.S. saw in 2008. Chinese firms, ever flexible, will seek out new opportunities, and that could pay some surprising dividends. One reason China has been slow to produce innovative firms or global brands is that much of the country's talent and capital have been sucked into the production of empty buildings.
China's economic slowdown recalls Adam Smith's remark, often quoted by Milton Friedman : "There is much ruin in a nation." It is a reminder that even though many things go wrong, market forces, if allowed to operate, generally bring about a positive outcome. We can't rule out that there is so much malinvestment on balance sheets that a crisis is coming. But the fact that China's leaders still have the courage to expand the market's role gives hope that this slowdown doesn't herald the end of its growth story.
WSJ: China RE buble bursting
Reply #557 on:
May 05, 2014, 11:24:15 AM »
PoTH: Chinese economy looking shaky
Reply #558 on:
July 17, 2014, 10:52:08 AM »
Gertz: China making intercontinental hypersonic missles.
Reply #559 on:
July 20, 2014, 12:32:02 AM »
"A line drawing of the scramjet-powered vehicle shows that the concept being studied for eventual construction is nearly identical to an experimental National Aeronautics and Space Administration (NASA) scramjet vehicle called the X-43."
Duh how'd that happen?
Anyway the article:
****Report Reveals Chinese Military Developing New Scramjet-Powered Hypersonic Missile
BY: Bill Gertz
July 9, 2014 5:00 am
China’s military is working on a jet-powered hypersonic cruise missile in addition to an advanced high-speed glide warhead that was tested earlier this year.
A Chinese technical journal disclosed new details of research on what China’s defense researchers are calling a hypersonic cruise vehicle.
A line drawing of the scramjet-powered vehicle shows that the concept being studied for eventual construction is nearly identical to an experimental National Aeronautics and Space Administration (NASA) scramjet vehicle called the X-43.
Publication of details of work on the powered hypersonic cruise vehicle indicates China is pursuing a second type of ultra-fast maneuvering missile capable of traveling at speeds of up to Mach 10—nearly 8,000 miles per hour. Such speeds create huge technical challenges for weapons designers because of the strain on materials and the difficulty of control at high velocities.
Large numbers of Chinese military writings in recent years have focused on hypersonic flight. However, few have addressed scramjet powered hypersonic flight.
The Washington Free Beacon first disclosed Jan. 13 that China has conducted the first test of an unpowered hypersonic glide vehicle that U.S. intelligence agencies believe will be used to deliver strategic nuclear warheads through U.S. missile defenses.
The January test of the Wu-14 hypersonic vehicle signaled the beginning of what analysts say is the start of a new high-technology arms race to build high speed maneuvering strike vehicles.
The United States is developing both scramjet-powered and glide-hypersonic missiles. Russia’s government has made development of hypersonic missiles a priority.
The Chinese report outlines in technical detail how a scramjet-powered cruise vehicle operates at speeds greater than Mach 5 and discusses how to integrate airframe design with scramjet propulsion.
A scramjet is an engine that uses supersonic airflow to compress and combust fuel, creating a highly efficient propulsion system with few parts.
The report analyzed “preliminary design methods for airframe/engine integrative configuration.”
The analysis “may serve as a basis for quick preliminary design and performance evaluation of airframe/engine integrative configuration” for a future Chinese hypersonic cruise vehicle, the report said.
The scramjet cruise vehicle was described in a technical military journal called Command Control & Simulation. The article was published by the 716 Research Institute of the state-run China Shipbuilding Industry Corp., China’s largest maker of warships, submarines, and torpedoes.
Chinese drawing of hypersonic cruise missile Command Control & Simulation
Chinese drawing of hypersonic cruise missile / Command Control & Simulation
The study by China’s major naval weapons builder is a sign the PLA may be considering the strike vehicle for use against U.S. aircraft carriers and warships as part of what the Pentagon calls “anti-access, area denial” weapons.
China’s hypersonic weapons are among the most secret programs within the Chinese military, along with anti-satellite weapons and cyber warfare tools. However, China’s Defense Ministry confirmed the test asserting that it was “normal” scientific experiment and not aimed at any foreign state.
Military experts said the disclosure of the scramjet cruise missile is unusual and part of China’s large-scale high-technology arms buildup.
“China long ago identified hypersonics as a critical future military technology and has invested heavily in its development for future weapons,” said Rick Fisher, with the International Assessment and Strategy Center. “The old Bush administration concept of Prompt Global Strike using hypersonic non-nuclear warheads may be dormant in Washington, but it is very much alive and flourishing in Beijing.”
Fisher said a scramjet vehicle would have advantages over the Wu-14 glide vehicle, including better-sustained speeds, some maneuvering, and a depressed trajectory that would complicate efforts by U.S. missile defenses to intercept the ultra-fast maneuvering strike missile.
China’s Chengdu Aircraft Corporation has been leading the development of a hypersonic scramjet engine test platform similar to the decade-old Pentagon-NASA X-43, Fisher said.
Pentagon-NASA X-43 hypersonic scramjet powered vehicle NASA
Pentagon-NASA X-43 hypersonic scramjet powered vehicle / NASA
Fisher said the Chinese report does not make clear whether China is concentrating on scramjet power for future weapons. However, it could signal that researchers have made advances in such engines and materials.
Larry Wortzel, a former China-based military intelligence officer, said Chinese hypersonic arms are what Beijing calls “assassins’ mace” weapons that will give China a strategic edge in any future conflict with the United States.
“China is continuing with a number of programs to develop what Beijing considers to be ‘assassins’ mace’ weapons that defeat conventional defenses, including these hypersonic strike vehicles,” Wortzel said in an email. “The United States must move forward with its airborne and ship-borne laser programs and electromagnetic guns if we are to be able to counter China’s new weapons.”
U.S. hypersonic missile programs have been limited by the federal defense spending crisis that has constrained advanced weapons research.
Congress approved $70.7 million for an Army hypersonic missile program—an amount that is considered far less than what both China and Russia are investing in hypersonic arms.
Alan R. Shaffer, principal deputy assistant defense secretary for research and engineering, told a defense industry conference that a U.S. scramjet-powered hypersonic prototype, the X-51, is a leading choice for a military system of conventional rapid precision strike.
“We, the U.S., do not want to be the second country to understand how to have controlled scramjet hypersonics,” Shaffer said.
The Air Force Research Laboratory announced July 3 it will set up a new High Speed Experimentation Branch to study hypersonics at Arnold Air Force Base.
Russian Deputy Prime Minister Dmitry Rogozin said July 3 that Russian missile manufacturers must master the technology for both precision-guided and hypersonic weapons. Moscow has set a goal of 2020 to build its first hypersonic missile prototype.
The People’s Liberation Army (PLA), in a strategic review published last year, stated that new U.S. hypersonic weapons and other nations’ development of hypersonic arms pose a major threat to China’s national security.
The review said new weapons capable of striking land from space will have a “serious impact on national security.”
Among the weapons being developed by foreign powers, the Chinese military said, are “near space craft, spacecraft, and transatmospheric vehicles.”
It was the first time China mentioned the threat posed by the new generation of hypersonic threats in a public document. The report, “Strategic Review 2013,” was published by the PLA think tank Center for National Defense Policy.
It warned that “the role of space power is changing from information support, to space command operations and space-to-ground attacks.”
“The United States is intensifying the construction of its space confrontation capabilities and building a rapid responsive space system,” the report said, adding that the shift has begun from using space for support to ground attacks.
The report noted the U.S. development of near-space strike vehicles, including the X-51, a scramjet powered hypersonic vehicle developed by Boeing, the HTV-2, a glide strike vehicle, and the X-37 space plane launched atop a rocket. The PLA review called these weapons “new measures of power” and stated that they were “a bid to eliminate the boundary between air and space.”
Lee Fuell, a technical intelligence specialist at the Air Force National Air and Space Intelligence Center, told a congressional hearing in January that China’s hypersonic glide vehicle was a ballistic missile-launched system that glides and maneuvers to its target at speeds up to Mach 10 (about 7,611 mph).
Fuell said U.S. intelligence agencies believe that the glide vehicle is “associated with [China’s] nuclear deterrent forces.” Hypersonic strike vehicles also could be used for conventional precision-guided strikes, he said.
A Chinese-language version of article is available from the Canada-based Oriprobe information services.
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Reply #560 on:
July 20, 2014, 09:17:28 AM »
Please post in the Military Science thread as well.
Stratfor: The End of Consensu Politics in China
Reply #561 on:
August 09, 2014, 12:35:53 PM »
The End of Consensus Politics in China
Tuesday, August 5, 2014 - 03:02 Print Text Size
By John Minnich
Chinese President Xi Jinping's anti-corruption campaign is the broadest and deepest effort to purge, reorganize and rectify the Communist Party leadership since the death of Mao Zedong in 1976 and the rise of Deng Xiaoping two years later. It has already probed more than 182,000 officials across numerous regions and at all levels of government. It has ensnared low-level cadres, mid-level functionaries and chiefs of major state-owned enterprises and ministries. It has deposed top military officials and even a former member of the hitherto immune Politburo Standing Committee, China's highest governing body. More than a year after its formal commencement and more than two years since its unofficial start with the downfall of Chongqing Party Secretary Bo Xilai, the campaign shows no sign of relenting.
It is becoming clear that this campaign is unlike anything seen under Presidents Jiang Zemin and Hu Jintao. Both carried out anti-corruption drives during their first year in office and periodically throughout their tenures as a means to strengthen their position within the Party and bureaucracy and to remind the public, however impotently, that Beijing still cared about its well being. But that was housekeeping. This appears to be different: longer, stronger, more comprehensive and more effective.
With this in mind, we ask: What is the fundamental purpose of Xi's anti-corruption campaign? An attempt to answer this question will not tell us China's political future, but it will tell us something about Xi's strategy -- not only for consolidating his personal influence within the Party, government and military apparatuses, but also and more important, for managing the immense social, economic, political and international pressures that are likely to come to a head in China during his tenure. Getting to the heart of the anti-corruption campaign -- and therefore understanding its inner logic and direction -- provides insights on the organization and deployment of political power in China and how those things are changing as the Party attempts to remake itself into an entity capable of ushering China safely through the transformation and crises to come.
The Campaign Continues
The announcement July 29 of a formal investigation into retired Politburo Standing Committee member Zhou Yongkang marked something of an end to the first major phase of Xi's anti-corruption campaign. By all accounts, Zhou was one of the most powerful men in China throughout the 2000s. During his tenure on the Standing Committee, Zhou controlled the country's domestic security apparatus, a pillar of the Chinese government's power. Prior to that, he had served as Party secretary of Sichuan province, an important inland industrial center and breadbasket with historically strong regionalist tendencies. And before Sichuan, Zhou chaired state-owned China National Petroleum Corp., the country's most powerful energy firm and the direct descendent of the Ministry of Petroleum. Zhou was known to sit at the apex of at least these three power bases, and his influence likely extended deep into many more, making him not only a formidable power broker but also, at least in the case of his oil industry ties, a major potential obstacle to reform. Certainly, Zhou and his vast networks of influence and patronage were not the sole targets of the Xi administration's crackdown, but he and his associates, including former Chongqing Party Secretary Bo Xilai, widely seen as an early competitor of Xi, formed its central axis.
Now begins another phase. There are indications that it will center on the military. There are other signs that it will target Shanghai, the primary power base of Jiang Zemin and the locus of financial sector reform in China. Further neutralization of Zhou's allies in energy and public security will likely be necessary, too, as the Xi administration seeks to accelerate market-oriented reforms in the oil and natural gas sectors and to reinforce its internal security footprint in peripheral regions like Xinjiang as well as the Han Core. But ultimately, it is unclear which individuals and networks will anchor the next phase. The possibilities are as numerous as the Xi administration's myriad near- and medium-term policy goals.
The question of who or what will be targeted next is subordinate to that of why. Not why, specifically, they will be targeted, but why the campaign must and will continue. This brings us back to our question regarding the fundamental purpose of the anti-corruption campaign. It may be impossible to divine, beyond mere speculation, its future on a tactical level -- that is, what will come in three, five or eight months' time. But the direction of the campaign so far, combined with other actions by Xi, such as the formation of a unified National Security Council chaired by Xi himself and his apparent wresting of the reins of economic and social reform from Premier Li Keqiang, suggest that some other and deeper shift is underway, one for which the anti-corruption campaign is at once a vehicle and a symptom. Stratfor believes this shift involves nothing less than an attempt to rework not only the way the Communist Party operates but also the foundations of its political legitimacy.
To understand why, we look first not at Xi and what he has done thus far but at China and what it will undergo over the next decade. This will give us a sense of the external constraints and pressures of which Xi's administration is no doubt aware and to which it has no option but to respond. These constraints and pressures, more than any other factor, will shape Xi's actions and the Communist Party's evolution in the years to come.
A World Constrained
Over the next decade, the defining constraints on China will emanate from within. They are fundamentally economic in nature, but they cannot be disassociated from politics and society.
China is in the midst of an economic transformation that is in many ways unprecedented. The core of this transformation is the shift from a growth model heavily reliant on low-cost, low value-added exports and state-led investment into construction to one grounded in a much greater dependence on high value-added industries, services and above all, domestic consumption. China is not the first country to attempt this. Others, including the United States, achieved it long ago. But China has unique constraints: its size, its political system and imperatives, and its profound regional geographic and social and economic imbalances. These constraints are exacerbated by a final and perhaps greatest limit: time. China is attempting to make this transition, one which took smaller and more geographically, socially and politically cohesive countries many decades to achieve, in less than 20 years.
The bulk of this work will take place over the next 10 years at most, and more likely sooner, not because the Xi administration wants it to, but because it must. The global financial crisis in 2007-08 brought China's decadeslong export boom cycle to a premature close. For the past six years, the Chinese government has kept the economy on life support in the form of massively expanded credit creation, government-directed investment into urban and transport infrastructure development and, most important, real estate construction. In the process, local governments, banks and businesses across China have amassed extraordinary levels of debt. Outstanding credit in China is now equivalent to 251 percent of the country's gross domestic product, up from 147 percent in 2008. Local governments alone owe more than $3 trillion. It is unknown -- deliberately so, most likely -- what portion of outstanding debts are nonperforming, but it is likely far higher than the official rate of 1 percent.
Despite claims that China's investment drive was and is irresponsible -- and certainly there are myriad anecdotal cases of gross misallocation of capital -- it nonetheless fulfills the essential role of jumpstarting the country's effort to "rebalance" to a new, more urban and more consumption-based economic model. But the problem, again, is time. China's real estate sector is slowing. Sales, home prices and market sentiment are falling, even in the face of continued expansion of the overall credit supply. The days of high growth in the housing construction sector are numbered and prices, along with overall activity, are on a downward trend -- one that can and will be hedged by continued high levels of investment and credit expansion, but not one that can be stopped for long. Real estate and related construction activity will remain the crucial component of China's economy for the foreseeable future, but they will no longer be the national economic growth engines they were between 2009 and 2011.
This means that in the next few years, China faces inexorable and potentially very rapid decline in the two sectors that have underpinned economic growth and social and political stability for the past two or more decades: exports and construction. And it does so in an environment of rapidly mounting local government and corporate debt, rising wages and input costs, rising cost of capital and falling return on investment (exacerbated by new environmental controls and efforts to combat corruption) and more. Add to these a surge in the number of workers entering the workforce and beginning to build careers between the late 2010s and early 2020s, the last of China's great population boom generations, and the contours emerge of an economic correction and employment crisis on a scale not seen in China since Deng came to power.
The solution, it would seem, lies in the Chinese urban consumer class. But here, once more, time is China's enemy. Chinese household consumption is extraordinarily weak. In 2013, it was equivalent to only 34 percent of gross domestic product, compared to 69-70 percent in the United States, 61 percent in Japan, 57 percent in Germany and 52 percent in South Korea. In fact, it has fallen by two percentage points since 2011, possibly on the back of the anti-corruption campaign, which has curbed spending by officials that appears to have been erroneously counted as private consumption. There is reason to believe that household consumption is somewhat stronger than the statistics let on, but it is not nearly strong enough to pick up the slack from China's depressed export sector and depressive construction industries. China's low rates of urbanization relative to advanced industrial economies underscore this fundamental incapacity.
Whatever the Chinese government's stated reform goals, it is very difficult to see how economic rebalancing toward a consumption- and services-based economy succeeds within the decade. It is very difficult to see how exports recover. And it is very difficult, but slightly less so, to see how the government maintains stable growth through continued investment into housing and infrastructure construction, especially as the real estate market inevitably cools. This leaves us with a central government that either accepts economic recession or persists in keeping the economy alive for the sake of providing jobs but at risk of peril to its reform initiatives, banks and local governments. The latter is ugly and very likely untenable under the current political model, which for three decades has staked its claim to legitimacy in the promise of stable employment, growth and rising material prosperity. The former is absolutely untenable under the current political model.
The pressures stemming from China's economy -- and emanating upward through Chinese society and politics -- will remain paramount over the next 5-10 years. The above has described only a very small selection of the internal social and economic constraints facing China's government today. It completely neglects public anger over pollution, the myriad economic and industrial constraints posed by both pollution and pervasive low-level corruption, the impact of changes in Chinese labor flows and dynamics, rising education levels and much more. It completely neglects the ambivalence with which many ordinary Chinese regard the Communist Party government.
It also neglects external pressures and risks, whether economic or military. What would another global economic crisis and recession do to China's already hobbled export sector? What would a prolonged spike in oil prices -- the result, perhaps, of deepening crises in Russia or Iraq -- mean for Chinese industry and its change to China's growing army of car drivers? What impact will structural changes in the East Asian and world systems, such as Japan's attempt at a national economic and military revival, have on China's overseas economic and maritime interests, or on Chinese society's confidence in the strength of its military and government? The potential risks, many of them of moderate to high probability, are legion. It takes only one to materialize to dramatically reduce the likelihood that the Communist Party, as currently constituted, survives China's transformation.
The Old Model Breaks Down
Xi knows this. He and his advisers know China's virtually insurmountable challenges better than anyone. They know how little time China has, how fragile the Party's political legitimacy -- its claim to the Mandate of Heaven -- has become over the past three decades and how great the consequences of inaction will be. But they also know how much potentially greater are the consequences of failure. Knowing all these things, they are acting to reconstitute the Party one cautious step at a time.
The anti-corruption campaign is one of those steps. It serves many overlapping functions: to clear out potential opponents, ideological or otherwise; to consolidate executive power and reduce bureaucratic red tape so as to ease the implementation of reform; to remind the Chinese people that the Communist Party has their best interests at heart; and to make it easier to make tough decisions.
Underlying and encompassing these, we see the specter of something else. The consensus-based model of politics that Deng built in order to regularize decision-making and bolster political stability during times of high growth and that effectively guided China throughout the post-Deng era is breaking down. It can no longer hold in the face of China's transformation and the crises this will bring. Simply put, now that its post-1978 contract with Chinese society -- a social contract grounded in the exchange of growth for stability -- is up, the Party risks losing the public support and political legitimacy that this contract undergirded. A new and more adaptive but potentially much less stable model is being erected, or resurrected, from within the old. This model is grounded more firmly in the personality and prestige of the president and more capable, or so Chinese leaders seem to hope, of harnessing and managing the Chinese nation through what could well be a period of turmoil.
This does not necessarily mean a return to Imperial China, nor does it mean a return to the days and methods of the Great Helmsman, Mao. It doesn't even mean the new model will succeed, even remotely. What it means will be decided only by the specific interplay of structure and contingency in the unfolding of history. But it is this transformation that serves as the fundamental, if latent, purpose for Xi's anti-corruption campaign.
Editor's Note: Writing in George Friedman's stead this week is Stratfor Asia-Pacific Analyst John Minnich.
Read more: The End of Consensus Politics in China | Stratfor
Centripetal and Centrifugal Forces
Reply #562 on:
September 26, 2014, 04:41:38 PM »
Centripetal and Centrifugal Forces at Work in the Nation-State
Tuesday, September 23, 2014 - 03:00 Print Text Size
By Zhixing Zhang
"Here begins our tale: The empire, long divided, must unite; long united, must divide. Thus it has ever been." This opening adage of Romance of the Three Kingdoms, China's classic novel of war and strategy, best captures the essential dynamism of Chinese geopolitics. At its heart is the millennia-long struggle by China's would-be rulers to unite and govern the all-but-ungovernable geographic mass of China. It is a story of centrifugal forces and of insurmountable divisions rooted in geography and history — but also, and perhaps more fundamentally, of centripetal forces toward eventual unity.
This dynamism is not limited to China. The Scottish referendum and waves of secession movements — from Spain's Catalonia to Turkey and Iraq's ethnic Kurds — are working in different directions. More than half a century after World War II triggered a wave of post-colonial nationalism that changed the map of the world, buried nationalism and ethnic identity movements of various forms are challenging the modern idea of the inviolable unity of the nation-state.
Centripetal and Centrifugal Forces at Work in the Nation-State
Yet even as these sentiments pull on the loose threads of nations, in China, one of the most intractable issues in the struggle for unity — the status of Tibet — is poised for a possible reversal, or at least a major adjustment. The long-running but frequently unnoticed negotiations have raised the possibility that the Dalai Lama, Tibet's spiritual leader, may be nearing a deal that would enable him to return to his Tibetan homeland. If it happens, it would end the Dalai Lama's exile in Dharamsala, India — an exile that began after the Tibetan uprising in 1959, nine years after the People's Republic of China annexed Tibet. More important, a settlement between Beijing and the Dalai Lama could be a major step in lessening the physical and psychological estrangement between the Chinese heartland and the Tibetan Plateau.
Tibet, the Dalai Lama and Self-Determination
The very existence of the Tibetan issue bespeaks several overlapping themes of Chinese geopolitics. Most fundamentally, it must be understood in the context of China's struggle to integrate and extend control over the often impassable but strategically significant borderlands militarily and demographically. These borderlands, stretching from northeast to the southwest — Manchuria, Mongolian Plateau, Xinjiang, Tibet and the Yunnan Plateau — form a shield, both containing and protecting a unified Han core from overland invasion. In attempting to integrate these regions, however, China confronts the very nature of geographic disintegration and the ethnic identities in these restive borderlands, which have sought to resist, separate or drift away from China at times when weak central power has diminished the coherence of China's interior.
Tibet in many ways represents the extreme edge of this pattern. Indeed, while the formidable geography of the Tibetan Plateau (its altitude averages 4.5 kilometers, or almost 2.8 miles, above sea level) largely inured it from most frontier threats to the Han core compared with the more accessible Manchuria, Mongolian Plateau or Xinjiang. Perhaps no borderland is as fraught with as much consequence as Tibet under China's contemporary geopolitical circumstances. The Tibetan Plateau and its environs constitute roughly one-quarter of the Chinese landmass and are a major source of freshwater for China, the Indian subcontinent and mainland Southeast Asia. The high mountains of the Himalayas make a natural buffer for the Chinese heartland and shape the complex geopolitical relationship between China and India.
Historically, China's engagement with the Tibetan Plateau has been lacking and not characterized by national unity. Starting in the 7th century, China made sporadic attempts to extend its reach into the Tibetan Plateau, but it wasn't until the Qing dynasty that the empire made a substantial effort to gain authority over Tibetan cultural and social structures through control of Tibetan Buddhist institutions. The weakening of China after the Qing dynasty led peripheral states, including Tibet, to slip from Chinese central rule.
Since the People's Republic of China began ruling over Tibet in 1950, the perennial struggle manifested as political, religious and psychological estrangement between political power in Beijing and the Dalai Lama, the charismatic political and spiritual symbol of the Tibetan self-determination movement, who consistently has resisted China's full domination over Tibet. Here, the nominally impersonal process of geopolitics confronts the rare individual who has a lasting impact. The Dalai Lama has concentrated the Tibetan cause into himself and his image. It is the Dalai Lama who represents the Tibetan identity in foreign capitals and holds a fractious Tibetan movement together, holding sway over both indigenous Tibetans in the homeland and the old and new generations of Tibetan exiles.
Perennial Struggle and Contemporary Moves
Under the People's Republic, China has some of the clearest physical control and central authority over one of the largest and most secure states in China's dynastic history. However, the ancient compulsion to secure the Chinese periphery did not go unaddressed by China's Communist leadership.
Over the years, the central government has pushed aggressively to bolster Han Chinese economic and demographic dominance over the borderland while attempting to overcome the physical barriers of distance through grandiose infrastructure projects, including road and rail links. And yet, the estrangement with the Dalai Lama has left Beijing dealing with the perception that its control over the Tibetan Plateau is partial and of questionable legitimacy. Meanwhile, the Dalai Lama's international prestige exposed the central power in Beijing to numerous international critics. Moreover, it offered New Delhi an opportunity to exploit Beijing's concerns by hosting the Dalai Lama and the Tibetan government-in-exile.
Beijing sees no space to allow the autonomy demanded by the Tibetan exile movement; it is a short path from robust autonomy to direct challenge. Beijing's strategy has been to try to undermine the Dalai Lama's international prestige, constrain interaction between the exile community and Tibetans at home and hope that when the spiritual leader dies, the absence of his strong personality will leave the Tibetan movement without a center and without someone who can draw the international attention the Dalai Lama does. Central to Beijing's calculation is interference in the succession process whereby Beijing claims the right to designate the Dalai Lama's religious successor and, in doing so, exploit sectarian and factional divisions within Tibetan Buddhism. Beijing insists the reincarnation process must follow the Tibetan religious tradition since the Qing dynasty, meaning that it must occur within Tibetan territory and with the central government's endorsement, a process that highlights Tibet's position as a part of China, not an independent entity.
Beijing's plan could work, but the cost would be high. Without recognition from the Dalai Lama, Beijing's appointed successor — and by extension, Beijing's authority in Tibet — can hardly be accepted by the wider Tibetan community. To resist Beijing's attempt at interference, the Dalai Lama has in recent years made various statements signaling that the ancient traditions of the succession process could break. In particular, the Dalai Lama has discussed the potential for succession through emanation rather than reincarnation. This would place his knowledge and authority in several individuals, each with a part of his spiritual legacy, but none as the single heir. Emanation can occur while the Dalai Lama is alive, thus giving him the ability to manage a transition. He has also mentioned the possibility that no successor will be named — that the reincarnation of the Dalai Lama will end, leaving his legacy as the lasting focus for Tibetans.
More concretely, the Dalai Lama has split the role of spiritual and political leadership of the Tibetan movement, nominally giving up the latter while retaining the former. In doing so, he is attempting to create a sense of continuity to the Tibetan movement even though his spiritual successor has not been identified. However, it also separates the Dalai Lama from any Tibetan political movement, theoretically making it easier for the spiritual leader and Beijing to come to an accord about his possible return as a spiritual — but not political — leader. But the maneuvering by the Dalai Lama reflects a deeper reality. The Tibetan movement is not homogenous. Tibetan Buddhism has several schools that remain in fragile coordination out of respect for the Dalai Lama. The Tibetan political movement is also fragmented, with the younger foreign-born Tibetans often more strongly pressing for independence for Tibet, while the older exiles take a more moderate tone and call for more autonomy. The peaceful path promoted by the Dalai Lama is respected, but not guaranteed forever, by the younger and more radical elements of the Tibetan movement, which have only temporarily renounced the use of violence to achieve their political goals.
The future of the Tibetan movement after the Dalai Lama's death is uncertain. At a minimum, the spiritual leader's fame means no successor will be able to exercise the same degree of influence or maintain internal coherence as he has done. Just as the Dalai Lama was concerned that an extremist wing of the new Tibetan generation would undermine his moderate ideology and dilute the movement's legitimacy, Beijing fears that the post-Dalai Lama era would enable multiple radical, separatist or even militant movements to proliferate, leaving Beijing in a much more difficult position and potentially facing a greater security threat.
Beijing and the Dalai Lama have shown a willingness to reach a political settlement in the past, but their attempts failed. As uncertainties loom for both sides amid concerns about the spiritual leader's age and the changing domestic dynamics facing China's new president, Xi Jinping, both sides could see a departure from previous hostilities as a reasonable step toward a low-cost settlement. In other words, both Beijing and the Dalai Lama — and by extension his mainstream followers — understand how little time they have and how, without a resolution, the uncertainties surrounding the Tibet issue could become permanent after the spiritual leader's death.
Optimism Now, but Caution Ahead
The report of the Dalai Lama's possible return to Tibet comes as Beijing has resumed talks with representatives of the spiritual leader. This round of negotiations comes after nine rounds of failed talks over the past decade and four years after the last attempt. Nonetheless, the mood appears at least somewhat optimistic on both sides. In recent weeks, the Dalai Lama has offered conciliatory comments about Xi and intimated that he could be open to returning to Tibet, a longstanding desire of the 79-year-old spiritual leader. For its part, Beijing has released some Tibetan political prisoners and reportedly allowed the Dalai Lama's image and words to be used in certain Tibetan regions after years of prohibition.
Of course, many uncertainties surround the return of the Dalai Lama; it is even uncertain whether it could happen at all. Indeed, overcoming 55 years of hostile relations takes enormous effort, and even if the Dalai Lama is allowed to return to Tibet, it is only one of several steps in much broader negotiations between Beijing and the Tibetan exile community over how to reach a resolution, including the possible resettlement of 200,000 Tibetans in exile, the status of the government-in-exile, the authority of the Dalai Lama and, ultimately, the succession process for the spiritual leader.
Over the years, the Dalai Lama repeatedly has expressed a strong desire to return to the Tibetan homeland, seeing it as an end goal in his longstanding efforts to gain Tibetan autonomy. Although Beijing had always left the option open, it repeatedly emphasized that any dialogue with the Dalai Lama would be confined to the scope of an arrangement for the spiritual leader and would carry no political implications. In other words, any agreement will be based on the premise that expanded Tibetan autonomy is not an option and that Beijing's authority over Tibetan regions — and by extension, the borderland in Xinjiang and Inner Mongolia — will remain intact. Similarly, the Dalai Lama will not accept a weakening of his spiritual authority among the Tibetan community or of his role in choosing successors. Nonetheless, with Beijing's concern over the proliferation of radical wings of the Tibetan movement abroad, allowing the Dalai Lama to return to Tibet could mitigate some of the tension and give Beijing a way to divide and weaken the Tibetan movement.
In moving toward an agreement, both sides would have to prepare for some political risk. For Beijing, the foremost concern would be managing the enormous religious influence of the Dalai Lama at home, where he is seen as a challenger to the Communist Party's political leadership. For the Dalai Lama, the main concerns would be managing the role of the Tibetan political leadership overseas and the potential repercussions within the exile movement from the developing settlement's contrast with their goal for Tibetan autonomy.
Perhaps more important, even if there were signs of a resolution developing, the succession issue is likely to be a roadblock. Beijing is unlikely to give any concession in its authority to appoint a reincarnated spiritual leader, and the Dalai Lama shows little intention of allowing Beijing's unilateral move.
Confronting a Geopolitical Curse
Despite various uncertainties, questions and risks, the potential ramifications of even the slim possibility of rapprochement illustrate China's ancient geopolitical dynamism at work.
Again illustrating how an individual can play a role in geopolitics, the potential for reconciliation between Beijing and the Dalai Lama could affect the balance between China and India. China has long viewed India's decision to host the Tibetan government-in-exile as a hostile gesture. However, India's ability to exploit China's concerns about Tibet has diminished along with the government-in-exile's influence and claim to represent Tibet as a legitimate entity. Already, New Delhi has shown waning enthusiasm for accepting Tibetan refugees and greater concern that the internal fragmentation of the Tibetan community will make hosting the exile community more of a liability than a benefit. However, a settlement would not eliminate the underlying geopolitical rivalry between India and China on other fronts — from their 4,000-kilometer land border to the maritime competitions in the Indian Ocean and South China Sea and their competition for energy and other resources.
Even if a settlement on the Tibet issue emerges in the distant future, it does not mean the end of the China-Tibet struggle. Indeed, since 2009 there have been many Tibetan self-immolations, and Beijing's economic developments in many parts of the ethnic borderlands widely are perceived as flawed or incomplete. Quite likely, a detente with the Dalai Lama will result in radicalized and more extremist elements emerging overseas, seeking self-determination and, like many of their counterparts around the world — from Scotland to the Kurds in the Middle East — challenging the centripetal forces of nation-states.
Historically, when Han China is strong, so is its control over these buffer regions. Control of the buffer regions, in turn, is a key precondition for a strong and secure Han China. This arrangement will become crucial as Beijing grapples with the potential challenges in the social, economic and political transformation in the Han core in the coming years. Therefore, despite the flux mentioned in the aphorism from Romance of the Three Kingdoms, for Beijing the ultimate goal is to confront an ancient geopolitical curse by cementing its control over its borderlands and uniting China permanently and irreversibly, however unrealistic this goal might be.
Editor's Note: Writing in George Friedman's stead this week is Stratfor Asia-Pacific Analyst Zhixing Zhang.
Read more: Centripetal and Centrifugal Forces at Work in the Nation-State | Stratfor
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Similar to noises I have made
Reply #563 on:
January 08, 2015, 03:46:36 PM »
Reply #564 on:
January 25, 2015, 08:23:29 PM »
Are these leaks being done with "inside" help? Must be:
Reply #565 on:
March 10, 2015, 12:28:39 PM »
I have often spoken of Chinese demographic issues , , ,
WSJ: China Deflation
Reply #566 on:
March 10, 2015, 03:25:37 PM »
A modest pickup in China’s consumer inflation in February has failed to ease concerns among economists over China’s deflation risks. On the factory side, China now has seen industrial deflation for three full years, meaning manufacturers can’t raise prices and will have a difficult time justifying hiring and investment. Policy makers still need to further ease policy to head off deflation risks, many economists say.
The consumer price index, a major gauge of inflation, was up 1.4% from a year ago in February compared with January’s 0.8% increase, a five-year low. The rebound in February’s CPI was mainly due to a faster increase in food prices during the Lunar New Year holiday.
The producer price index, which measures prices at the factory gate, slid 4.8% from a year ago, worsening from January’s 4.3% drop and marking three full years of declines. It was also the biggest fall in the PPI since October 2009.
China's edebt crisis: addressing the problem but missing the mark
Reply #567 on:
May 16, 2015, 10:51:42 PM »
China's Debt Crisis: Addressing the Problem but Missing the Mark
May 15, 2015 | 09:15 GMT
A Chinese commuter rides past the CCTV office in the Central Business District in Beijing. (AFP PHOTO/Mark RALSTON)
China is granting local governments greater autonomy by allowing them to swap up to $160 billion in outstanding loans for lower-interest, slow-maturing government bonds.
The program will provide a crucial buffer against local government debt crises in 2015 and beyond.
The initiative may reduce economic stress in the near term but fails to address the largest contributor to China's crisis: corporate debt.
A significant evolution is underway in how China manages its rising levels of local government debt. On May 14, the Chinese government announced that by September, it would complete the first phase of a new plan that allows local governments to swap outstanding loans for low-yield, slow-maturing local bonds. Under the plan, localities would have a steady and stable repayment path for the more than $3 trillion in local government debt accumulated during the past six years of rapid, post-financial crisis spending. It will also have the added benefit, Beijing hopes, of lowering local government debt-servicing costs, thus freeing up tens of billions of yuan in liquidity in the short run. For now, local governments will be able to exchange only a small portion of outstanding loans (about $160 billion) for local bonds, but if successful, the program will likely expand substantially in the years to come.
The debt swap plan comes at a crucial time for China's economy. In recent years, the country's slowing growth rate has steadily eroded the local governments' abilities to service outstanding debts, much less sustain the level of investment needed to keep the economy humming. By allowing localities to swap 50 percent or more of maturing outstanding debts this year, the new plan will provide a much-needed buffer against local government debt crises in the near term — and beyond, if the program expands as Beijing intends. Although the plan is a welcome departure from the Chinese government's previous ad hoc methods of managing local government debt maturation, it fails to address the most pressing problem: outstanding corporate debt.
At the end of 2014, Chinese businesses owed more than $16 trillion, accounting for 61 percent of China's total outstanding debt and equal to nearly 180 percent of the country's gross domestic product. That compares with $3.38 trillion owed by local government financing vehicles (LGFVs), the means through which local governments raise virtually all of their cash.
The idea of allowing local governments to issue their own bonds is not new to China. Until recently, central government leaders consistently rejected the idea of granting localities greater autonomy. For most of the 2000s, the central government opted to keep virtually all financing under the control of a handful of major state-owned commercial banks and their local affiliates. When the global financial crisis forced Beijing to rapidly ramp up spending and investment after 2008, the central government refused to allow localities to issue their own debt and created a legal framework for LGFVs to operate and draw capital from state-owned banks, ultimately falling under the central government's control.
In 2008, when the country was facing a potentially destabilizing economic crisis, the decision to bind local government finances to the state-owned banking system via LGFVs was reasonable. Beijing was worried that economic imbalances between coastal and inland provinces could fuel political instability and fragmentation. From the vantage of 2008, LGFVs seemed to provide the central government a means to dramatically expand local governments' spending capacity — local governments cover 85-90 percent of all government expenditures, including for infrastructure development and social services — while retaining a degree of control over how and when that money was spent.
This state-controlled strategy, however, began to break down after 2010, when Beijing attempted to ease lending to LGFVs. The decrease in loans from state-owned banks resulted in the creation of "shadow lending" tools thanks to a persistent demand from businesses and LGFVs. By 2013-2014, shadow lending — some of it in the form of off-balance sheet lending by state-owned banks themselves — accounted for an uncomfortably large share of China's total outstanding debt and new credit creation. The new economic reality forced the central government to clamp down and correct the growing reliance on shadow lending, a process that partly explains the timing of the start of China's real estate and broader economic slowdowns in early 2014.
Even in the face of declining economic growth, Beijing is loath to reverse the trend. For one, the slowdown — and the reform and restructuring it implies — is a crucial step on the path to rebalancing China toward an economic growth model grounded in private consumption, high value-added manufacturing and services. More to the point, the sheer scale of outstanding credit and industrial overcapacity, combined with the rapid deterioration in credit's return on investment, means that reversing the current decline would require unsustainable levels of new spending. With little option but to allow the economy to falter, the Chinese government has instead turned its focus to managing the slowdown. Enabling local governments to repay their old debts while maintaining a baseline of spending is central to this effort.
Enter the new debt swap program. By exchanging higher-interest, fast-maturing loans for low-interest, slow-maturing bonds, Beijing aims to prolong but soften the pain of repaying those debts and free more cash for local governments to spend in the near term. In short, Beijing hopes that this new process of gradually granting autonomy to the local governments will cut down on a number of entrenched problems and force the localities to think more carefully about how they spend their money going forward. The simple fact that Beijing is proceeding with the creation of local bond markets suggests that the central government understands it no longer has any choice but to allow greater local fiscal autonomy. It is no coincidence that this process coincides with a sharp consolidation of the central leadership's powers in other spheres of Chinese political and economic life. China's leaders are aware that the country is moving toward a consumption-driven economic growth model. To mitigate future challenges posed by this transition, the government is moving rapidly to ensure maximum control over central party, government and security apparatuses.
The Elephant in the Room
The debt swap program has gotten off to a somewhat choppy start. In late April, Jiangsu province delayed an 81 billion-yuan ($13 billion) bond issuance, likely because of a lack of interest among commercial banks in purchasing the low-yield, slow-maturing securities. In response, the central government allowed commercial banks to use bonds bought from local governments as collateral for low-cost loans from the central bank, thus offsetting the impact of swapping higher-interest loans for low-interest local bonds on commercial banks' balance sheets. As the program expands, bonds will become an increasingly viable alternative financing route, and the room for error will grow. In the near term, local government debt defaults remain a real risk, especially in areas where growth is slowing the most and LGFV reliance on shadow lending is highest. But the debt swap program provides a viable and likely stable blueprint for metabolizing the debts accumulated by local governments over the past decade or so.
However, this plan does not address the larger and more pressing issue of corporate debt, and no comparable plan for managing corporate debt exists. The corporate debt is more than four times the size of local government debt and is also that which sustains the vast majority of employment in China. For the time being, Beijing seems to be counting on the ability of service industries and agriculture, with financial help from the banking sector, to absorb the employment leftover from industrial consolidation — both government-driven and economically induced — and corporate closures. As the slowdown continues, the rate and scale of corporate debt crises is likely to grow substantially. Unemployment among manual laborers and manufacturing is also expected to grow. Although a plan to improve local government solvency and boost local governments' liquidity could provide a buffer against social and political instability in the near term, the corporate debt must be addressed and eased to ensure China's long-term prosperity.
Reply #568 on:
May 17, 2015, 02:12:29 AM »
If only our debt crisis were so manageable.
China: Lawsuit seeks damage for pollution
Reply #569 on:
May 18, 2015, 12:48:45 PM »
May 18, 2015 4:54 a.m. ET
BEIJING—An environmental dispute involving a stone quarry in southeastern China marks the first test of a new Beijing effort to use the courts to help clean up the country’s massive pollution problems.
In a lawsuit that began trial on Friday in a court in China’s southeastern Fujian province, environmental groups accused four mine operators of stripping a mountainous area of trees and causing about two hectares’ worth of damage. They are suing the defendants to either restore the area themselves or pay 1.1 million yuan ($177,000) for a third party to do so. For their part, the defendants have said that the group doesn’t have the right to sue and disputed the sum requested, saying that the way it was calculated was flawed. They also said the damage caused wasn’t intentional.
Experts say the case, brought by environmental groups Friends of the Earth and Fujian Green Home, is the country’s first public-interest suit lodged under its new environmental law. Revised for the first time since 1989, the revamped environmental law came into effect in January and gave nonprofit groups greater ability to sue on behalf of the public for environmental damages.
While Chinese official statistics show that regulators have pursued more criminal cases against alleged polluters, experts say private lawsuits haven’t yet caught up. To help private citizens, separate new rules that went into effect in May have made filing private lawsuits easier. Already, a Chinese court earlier this month accepted a series of suits from tourism groups seeking 40 million yuan in damages from ConocoPhillips over alleged damages from the 2011 Bohai Bay oil spill in the waters off northeastern China. ConocoPhillips didn’t respond to a request for comment.
The test in the case in Fujian is whether more nonprofit groups will be encouraged to make use of the new rules enacted in January despite remaining hurdles that include high fees and lack of experienced legal personnel. “Just because a group is qualified to sue doesn’t mean they have the ability to bring a suit, much less that they have that aspiration,” said environmental lawyer Xia Jun. “The law can’t force people to sue.”
In 2014, the number of criminal actions related to the environment totaled about 16,000 cases, according to a government judicial work report released in March. The official news agency Xinhua said that marked a rise of more than eight times from 2013. The number of civil cases involving damages from pollution rose by 51% to 3,331, the agency said, though Zhang Bao of the Central South University School of Law said that the numbers have fluctuated in recent years without an obvious increase.
Prior to the new environmental law, courts rarely accepted environmental suits brought by nonprofits. Even when government-backed groups such as the All-China Environment Federation brought suits, they faced serious barriers. In 2013, the federation attempted to lodge eight cases, and all were rejected by the courts, it said.
Since the new law went into effect in January, the number of cases accepted by the courts on environmental issues has remained in the single digits, environmentalists say. In part, that is because few nonprofits have been trying, said Wang Canfa, founder of the Center for Legal Assistance to Pollution Victims. “Before, some expected that there’d be a great surge in cases. In fact, that didn’t happen,” he said.
The new law requires nonprofits to have worked in the environmental sector for five years and to be registered with the government. According to the government, several hundred nonprofits are eligible to bring suits under the new law.
Bringing a case can rack up thousands of dollars in legal bills—a challenge in a climate in which nonprofits’ ability to fundraise is already strictly curtailed. Courts often require plaintiffs to hire independent bodies to help appraise the monetary value of the environmental damage claimed, compounding the expense. The number of nonprofits with the interest and ability to bring such suits, said Mr. Xia, the environmental lawyer, is “pitifully small.”
A traditional Chinese reluctance to bring lawsuits is also a factor, says Ge Feng of Friends of Nature. The group recently set up a 300,000 yuan legal fund backed by the Alibaba Foundation, which was founded by e-commerce giant Alibaba Group Holding Ltd. , to help support lawsuits.
Lawyers said they were cautiously optimistic about the outcome of the case in Fujian, saying that several of the individuals being sued had already been sentenced to prison stints of about a year.
In addition to empowering nonprofits to sue polluters, the government has also set up hundreds of environmental courts specializing in the issue across the country in recent years. Many environmental courts have languished, though, with some judges even transferred to assist with regular cases due to their low caseload, lawyers say.
—Lilian Lin contributed to this article.
Write to Te-Ping Chen at
Stratfor: The Grand Design of China's new trade routes
Reply #570 on:
June 29, 2015, 12:50:33 AM »
The Grand Design of China's New Trade Routes
June 24, 2015 | 09:15 GMT
Over the next several years, China will devote significant resources to the construction of Eurasian trade routes under its Belt and Road Initiative.
As transit routes come online, the proportion of Chinese maritime trade passing through South China Sea chokepoints will shrink.
The new infrastructure built as part of the Belt and Road Initiative will support China's economic rebalancing by opening new markets, generating demand for higher value-added Chinese goods and helping China build globally competitive industries.
Improving transit routes will lead to new security and political risks, and China's efforts to mitigate these threats could create frictions in the very areas where Beijing is trying to diversify its trade routes.
In 2013, China's President Xi Jinping proposed a plan to stimulate development in Eurasia by constructing what he called the Silk Road Economic Belt and the 21st Century Maritime Silk Road — revivals of the overland and maritime trade routes that once connected China and Europe. Since then, the "Belt and Road Initiative" has become a fixture in official Chinese discussions on both foreign and domestic policy. Nonetheless, the initiative is still loosely defined. Beijing claims there are about 60 Belt and Road countries, but there is no public listing of these countries. Although the initiative clearly centers on infrastructure investment, Chinese media coverage offers no straightforward definition of what projects count as part of the program. A pledge to install signs and information kiosks in Armenia is said to be under the banner of the Belt and Road Initiative, as is a $46 billion infrastructure investment package that Xi promised to Pakistan in April.
This lack of clarity makes it difficult to see what is special about the Belt and Road Initiative. After all, China has long been involved in infrastructure construction across Eurasia. However, with the Belt and Road Initiative, China has for the first time explicitly unified all of its infrastructure investments in Eurasia under a single coordinated plan. The initiative should not be understood as merely as the sum of its infrastructure projects. Rather, it should be seen as a strategy with a clear set of ends, ways and means, to be evaluated on its ability to support China's geopolitical objectives.
The strategy behind the Belt and Road Initiative is to diversify transit lines, thereby mitigating China's vulnerability to external economic disruption and reinvigorating China's slowing economy. China's ideal would be to link its inland cities to global markets with a diversified network of transit routes and energy pipelines, many of which would take inland routes and serve as alternatives to existing sea-lanes. The name of the initiative, "One Belt and One Road," is slightly misleading; this will not be a single overland road coupled with a single maritime route. The initiative envisions six corridors across Eurasia, many of which will mix land and maritime components.
Every project built along these corridors under the Belt and Road Initiative will serve both strategic and economic purposes, though some will prioritize one set of goals over the other. However, the overall orientation of the Belt and Road Initiative will be toward strategic objectives.
China's economy is dependent on foreign trade, 90 percent of which travels by sea. China's near seas — the Yellow Sea, the East China Sea and the South China Sea — are bounded by what Chinese strategists call the "First Island Chain," a series of islands (many of which are controlled by U.S. allies) that stretches from Japan to the Philippines to Indonesia. To reach ports on China's eastern coast, seaborne trade from the west must pass through maritime chokepoints such as the Strait of Malacca (through which 82 percent of China's crude oil imports passed in 2013). Passage through these maritime chokepoints is secured by another country: the United States, the world's dominant naval power.
The geographic enclosure of China's near seas would make it relatively easy for an adversary to disrupt or interdict Chinese trade. China faces many challenges in developing the ability to project sufficient naval power to safeguard seaborne trade as it passes through distant chokepoints. Instead, China must rely on the United States to provide security of the sea-lanes. Although maritime security is ostensibly a public good, China worries that, as a potential peer competitor to the United States, it will not always be able to rely on the United States to protect its shipping.
U.S. war planners have certainly not ignored China's geographic vulnerability. A 2015 Department of Defense report to Congress on China mapped out chokepoints for Chinese energy imports, a move unlikely to have gone unnoticed in Beijing. In the case of a war between the United States and China, many U.S. strategists favor imposing a distant blockade of Chinese waters. Although the U.S. Navy has unchallenged supremacy over the open ocean, resource constraints — and the risks posed by China's anti-ship capabilities in its near seas — suggest that U.S. forces would concentrate on blocking the chokepoints.
The Belt and Road Initiative aims to mitigate the risk of maritime interdiction by constructing transit routes along six economic corridors:
The China-Mongolia-Russia corridor, anchored by the Trans-Siberian railway
The New Eurasian Land Bridge, anchored by a set of railways running from central China (Wuhan, Chongqing and Chengdu) to Europe via Kazakhstan, Russia and Belarus
The China-Central Asia-Western Asia Corridor, speculated to follow the overland Silk Road Economic Belt as depicted in maps released last year by the state-owned Xinhua News Agency, passing through Central Asia, Iran and Turkey to reach Europe
The China-Pakistan Corridor, which would extend the Karakoram Highway, which already crosses the mountains between China and Pakistan, and build highway and rail links all the way through Pakistan to the port of Gwadar
The Indochina Peninsula Corridor
The Bangladesh-China-India-Myanmar Corridor
In these corridors, China will enhance existing transportation networks, construct new roadways and build intermodal transport hubs and energy pipelines. Alongside these projects will come investment in attendant infrastructure, including power plants and communications technology such as fiber-optic cables. China will not be starting from scratch — it has already built up a patchwork of infrastructure across Eurasia, and much of the Belt and Road work will simply link existing segments of road and railway.
Two of these corridors, the China-Mongolia-Russia corridor and the New Eurasian Land Bridge, will be entirely overland. They center on existing transcontinental rail lines and mainly focus on delivering relatively high value-added goods, such as electronics, which are sensitive to rapid changes in demand. China will shift a small fraction of its total trade to these routes, providing an outlet for industries in China's interior and giving the country a measure of insurance against naval interdiction.
Recognizing that it can only shift a small amount to inland trade routes, China will continue investing in port infrastructure along other corridors in the Belt and Road Initiative, particularly in the Indian Ocean region. However, China will find ways to link land and maritime routes, aiming to bypass the South China Sea chokepoints and minimize the distance of any single maritime leg of Chinese shipping. For example, the China-Pakistan Corridor could allow some Chinese goods to travel overland to Pakistan before embarking for Europe at the Chinese-constructed port at Gwadar.
The Belt and Road investments will also serve to build political support for China. Many countries along the proposed transportation corridors face huge budget shortfalls in the area of infrastructure development, together totaling trillions of dollars between 2010 and 2020. With its large financial resources, China is well poised to fill some of these gaps. In fact, some of the planned infrastructure projects will have no obvious connection to the development of transit routes. For example, China signed an agreement with Georgia in May to construct 30 greenhouses as well as provide additional agricultural assistance. However, China will be happy to meet these seemingly unrelated demands, both to bring in business for its construction industries and to secure the political support necessary to ensure the safe conduct of Chinese commerce through neighboring countries.
The strategic value of these corridors will be realized in the long term as the routes become fully linked. Aside from its long-term value as a contingency plan for Chinese trade, the Belt and Road strategy serves China's goal of alleviating its economic slowdown and correcting its internal geographic disparities. By official figures, China's economy is expected to grow at about 7 percent a year, though in reality, growth is likely to become substantially slower. To handle the slowdown, China aims to shift its industry away from the coast to the relatively underdeveloped inland provinces. Meanwhile, it seeks to produce higher value-added goods in coastal regions and expand coastal consumer bases to absorb manufactured goods from the newly industrialized interior.
The Belt and Road Initiative will aid in this process by constructing physical links between China's inland industry and new markets. Belt and Road infrastructure projects may give China a way to offload some of its growing surpluses in construction materials and rural labor. Although it may not be economically or politically feasible to tap into these surpluses for every project, overall the initiative will help alleviate some of China's overcapacity problems.
In addition to building up the "hardware" of infrastructure, China will try to streamline trade by pushing for new customs agreements and unified technical standards. These trade facilitation measures will complement the development of special economic zones and industrial parks along the Belt and Road corridors. Improved transit infrastructure and the elimination of trade barriers could make it cost-effective for China's inland industry to access new markets.
The construction of new roads may stimulate foreign demand for higher value Chinese manufactured goods, such as locomotives and train cars. As China builds up its construction companies, Belt and Road projects will create opportunities for them to gain more international exposure and experience. A higher international profile will enable Chinese industry to build proficiency and compete globally in sectors traditionally dominated by competitors such as Japan's Kawasaki Heavy Industries, South Korea's Samsung Heavy Industries and Germany's Siemens.
Carrying Out the Initiative
The tools China is using to implement Belt and Road expose the political objectives at the very heart of the program. To carry out this vast construction initiative, Beijing is relying on its panoply of state-owned enterprises, which reflects the Belt and Road strategy's orientation toward strategic, rather than solely financial, gain. Although state-owned entities sometimes sacrifice efficiency, they will enable Beijing to exert tighter central control over its projects.
These state-owned enterprises will receive financial backing either directly from Chinese policy banks, such as China Development Bank (which has pledged $890 billion for Belt and Road projects, most likely over the course of several years) and the Export-Import Bank of China, or from infrastructure investment funds such as the Silk Road Fund, which holds $40 billion. Additional money for these investment funds will come from China's foreign exchange reserves and China's sovereign wealth fund, which have $3.7 trillion and $220 billion available respectively. In addition, China will enlist other countries to finance these efforts through multilateral banks such as the Asia Infrastructure Investment Bank, which is scheduled to come online later this year with an initial capital base of $100 billion. China will not be able to devote all of this money to the Belt and Road strategy because of multiple competing demands, but the relative abundance of its financial assets suggests that China can afford to be generous. More Belt and Road-related deals in the $20 billion to $50 billion range will not be unusual or unduly taxing of Chinese resources.
Risks and Challenges Ahead
Although China has ample resources for building up infrastructure in the Belt and Road corridors, serious security and political challenges are likely to arise. Many of the Belt and Road projects, by their very nature of expanding transport links into underdeveloped or conflict-ridden regions, will generate additional security concerns. Construction teams and the infrastructure itself will need protection. To safeguard its interests, China will negotiate for improved host nation security for its projects. For example, Beijing and Islamabad appear to have secured an agreement under which Pakistan will allocate an army division composed of 10,000 troops specifically to protect Chinese workers, many of whom will be working on infrastructure projects in the restive province of Balochistan.
Improved transit links would provide new routes for the illicit movement of goods and people into China itself. China is especially sensitive to these transnational threats because of longstanding problems with separatist militants in its westernmost territory, Xinjiang, a critical node that is also where three of the six Belt and Road corridors exit China. To combat these transnational risks, China will provide assistance for domestic security organizations in countries along the Belt and Road networks. An indication of China's plans is Politburo member and chief of Chinese security Meng Jianzhu's prominent role in promoting law enforcement exchanges under the rubric of the Belt and Road. These exchanges most likely will include enhanced intelligence sharing and could lead to China conducting more joint law enforcement training with its Belt and Road partners. However, powerful regional stakeholders may worry that the expansion in Chinese security cooperation will come at the expense of their interests, especially in Central Asia, where Russia is wary of attempts to challenge its dominant role in regional security. China will need to engage in very active diplomacy to allay fears of displacement, but this will most likely be an uphill battle.
In addition to security hazards, considerable political risks could create difficulties for China's construction projects. Chinese aid could become politicized and draw criticism domestically. In Sri Lanka, Chinese construction on Colombo Port City, a $1.4 billion artificial island, was suspended in January after the election of President Maithripala Sirisena, who accused his predecessor of offering too many concessions to China. Chinese firms involved on the project lost $380,000 per day, and construction was only cleared to resume three months later. Similar localized headaches are likely to occur frequently. More seriously, regional tensions in areas such as Central Asia's Fergana Valley, which crosses the borders of countries that line the China-Central Asia-Western Asia corridor, and political instability within countries like Kazakhstan could present long-term perils for Chinese efforts to implement the Belt and Road strategy.
Ultimately, the geographic scale of the Belt and Road strategy and the complex geopolitics involved mean that China's success in building the six Belt and Road corridors will be highly uneven. Yet, although the Belt and Road strategy will be expensive and face formidable hurdles, the mitigation of trade insecurity will make the project well worth the cost in the eyes of China's leaders. As the transit routes come online, this network will provide several alternatives to the vulnerable sea-lanes through the South China Sea, giving China's economy some insurance against any single point of failure. In an instance of war, the Belt and Road infrastructure would greatly complicate potential U.S. plans to impose a distant blockade. Inland transit routes would naturally be insulated against naval interdiction, and the proliferation of short maritime transit legs would force the U.S. Navy to spread its assets over a large expanse rather than concentrate on a small number of chokepoints. In peacetime, these options would enhance China's political leverage by preventing any individual country from threatening to disrupt China's economic lifelines.
China: Stock Market Bubble Bursting?
Reply #571 on:
June 30, 2015, 10:27:30 AM »
My prediction of several years now may now be coming to pass:
Has China's Stock Market Bubble Burst?
June 30, 2015 | 09:00 GMT
In the coming months, the stark disjunction between China's stock market boom and its slowing economy will weigh more heavily on stock performance.
As the stock market boom inevitably winds down, authorities will struggle to contain financial fires caused by the sharp increase in reliance on margin financing (both formal and "shadow") by stock market investors. The volume of outstanding margin loans is too small to trigger a systemic crisis, but temporary liquidity crunches cannot be ruled out. The eventual decline of the stock market, combined with the continued slowdown of property markets across China, will leave ordinary Chinese with fewer options for investing their savings.
The Shanghai Composite Index, which tracks the performance of stocks on China's largest exchange, fell 3.3 percent on June 29, compounding a 7.4 percent drop June 26 — the largest single-day decline since 2008, when Chinese stocks were in the midst of a global financial crisis-induced collapse. Days of sustained falls, even as the country's central bank further cut reserve requirement ratios and interest rates, have reduced the Shanghai exchange more than 21 percent from its June 12 peak, officially making it a bear market. It is unclear whether the fall will continue or, as has happened several times in recent months, whether it will stabilize or even reverse itself in the weeks ahead. But the sharp declines over past weeks cast a spotlight on the increasingly glaring gap between China's buoyant equities and the reality of its continued, and in many ways deepening, economic slowdown.
There was an extraordinary boom in Chinese stocks over the past year. In the 12 months since June 2014, when the boom began, the combined market capitalization of the Shanghai and Shenzhen exchanges rose more than 140 percent. Since early May alone, more than 5 million new investors, most of them ordinary Chinese, have entered the market, bringing the total number of investors to 90 million. Over the past five months, total assets under management at China's mutual funds have nearly doubled, from $720 billion to over $1.2 trillion. In November 2014, China overtook Japan as the world's second largest stock market, with a market capitalization of $4.5 trillion. Today, its stocks have an estimated value of around $9 trillion, roughly equivalent to the country's gross domestic product.
Strikingly, however, this dramatic growth has taken place against a backdrop of steady declines across most major indicators in the economy at large. Industrial profits fell 1.4 percent in the first four months of the year, while those across the state-owned sector — which enjoys disproportionately high representation on China's largest stock exchange, in Shanghai — collapsed by nearly 25 percent. Profits are rising among private sector businesses, but at 6.1 percent in the January-April period, their annual growth pales in comparison to concurrent gains in the Shenzhen index, on which private enterprises are better represented. At the same time, growth in fixed-asset investments, which account for nearly 50 percent of China's GDP, has fallen to its slowest pace since the global financial crisis, and housing construction-related spending — by far the largest component of fixed asset investment — is growing at roughly one-third the pace of a year ago. To be sure, home prices and sales have seen a modest rebound in top-tier markets in recent weeks. And services, high-tech and consumption-related industries continue to grow at a stable rate. But these gains are far from sufficient to support nationwide GDP growth at the government's 7 percent annual target, let alone to explain the stupendous performance of China's equity markets in recent months.
A confluence of factors accounts for the sharp growth in Chinese equity markets over the past 12 months. Excitement over China's nascent high-tech sector, along with strong growth in consumption and services industries, has undoubtedly contributed to the boom. But these factors alone do not fully account for the rapidity and scale of gains made across the board on both of China's leading exchanges, nor for its coincidence with slower growth across most of the country's industrial sector. Rather, the current stock market boom must be understood in relation to two other factors: China's regime of strict capital controls and the decline, starting in March 2014, of the real estate sector.
Expansion in China's Stock Markets
A defining feature of China's financial and economic development over the past three decades has been the government's tight control over the flow of capital in and out of the country. For most of the Reform and Opening period, individual Chinese were prohibited from investing overseas. This has changed somewhat in recent years, in part in an effort to better regulate cross-border capital flows and to combat illicit capital flight. But even today, the vast majority of overseas Chinese investment comes from state-owned enterprises and high net-worth individuals, many of them Party officials or affiliates. Ordinary Chinese by and large are barred from parking their capital and seeking returns beyond China's borders.
Domestically, partially by design and partially because of a lack of financial depth (a legacy of the Mao era, during which securities were outlawed), ordinary Chinese have traditionally had few avenues for investing their savings. Until the late 1980s, they had two options: to deposit savings in state-owned banks, where returns consistently trailed inflation, or to keep them under their mattresses, where returns were even worse. The reason for this arrangement was simple: decades of self-isolation from global trade and financial markets made China in the 1980s an extremely capital-poor economy. And since the government owned the economy, and thus bore sole responsibility for raising and investing funds, it had to ensure it could capture as much of the population's wealth as possible. The easiest way to do this was to give ordinary Chinese no choice but to put their savings in state-owned banks.
China's earliest stock exchanges emerged organically in the late 1980s in cities like Shenzhen and Chengdu in an environment of extraordinary (and short-lived) political openness, rapid growth in private sector industry (which for the most part lacked access to state-controlled funds), and rising demand for higher returns from a population getting its first taste of capitalism in decades. By the early 1990s, however, these earlier exchanges had largely been co-opted by the state and transformed into a nationwide platform — with the newly created Shanghai exchange at its center — for raising capital for the state sector. Ordinary Chinese seeking new places to invest their savings cared little whether the exchanges targeted smaller private firms (as the original Shenzhen exchange did) or larger state-owned firms (as Shanghai, which became the model for other markets nationwide, did), so long as the returns were potentially greater than what might be earned on a commercial bank deposit.
This process coincided with the creation and expansion of commercial urban real estate markets in the mid-1990s, which provided another opportunity for ordinary Chinese to invest their savings. For a combination of social, cultural and policy reasons, and in part because of the lack of transparency and high volatility in China's increasingly state-centric stock markets, the development of the commercial real estate sector vastly outpaced that of stock markets in the 1990s and early 2000s. Stocks were a useful additional means of channeling the population's wealth into state entities, but they were not critical to the state's financing efforts. Indeed, in some ways the development of the stock market threatened Beijing's interests because the more deposits that were redirected to stocks, the less that went to banks' coffers. State-owned enterprises continued to rely primarily on banks for funding, and banks relied on consumer deposits.
The current expansion in China's stock markets is by no means the first, nor even the biggest, since official exchanges were opened in 1990, but it is in many ways the most significant. It comes amid the slowdown of China's decade-plus real estate boom and at a time when ever more Chinese seek means to protect and grow their savings. For the past 10-15 years, and especially since 2008, real estate has been not only the single most important industry in China but also by far the leading investment destination for ordinary Chinese seeking high returns on their savings. This speculative investment activity, much of it fueled by state-backed credit, sustained the extraordinary proliferation of housing markets across the country, and in doing so played a crucial role in maintaining high rates of employment and social stability in the wake of the global financial crisis.
While China's property sector was booming, ordinary Chinese had comparatively little incentive to invest in the stock market. In the 2000s, China's exchanges became notorious for their dysfunction and volatility because of lack of transparency and poor oversight of the initial public offering process. By 2006-2007, the last major boom period, they had come to be viewed by most ordinary Chinese as akin to the lottery — a far cry from property, which generated seemingly never-ending profits and had the benefit of being a fixed asset. Over the past several years, however, the government has gradually introduced a number of reforms aimed at professionalizing the country's biggest exchanges, including reforming the initial public offering process, strengthening the national securities regulator, and slowly opening Chinese stocks to Hong Kong and international investors.
The redevelopment of China's stock markets coincided with the slowing of China's housing market, and this convergence — combined with the proliferation of communications technologies that allow far more people to connect to markets than ever before — has underpinned the rapid growth of the Shanghai and Shenzhen exchanges over the past 12 months. In short, with real estate no longer capable of providing the returns it once did, ordinary Chinese have turned to stocks. For Beijing, this is in many ways a welcome development. As long as the market remains buoyant, it is providing a much-needed source of financing to thousands of Chinese companies, both state-owned and private, at a time when the government is working desperately to curb the economy's dependence on state-backed credit. At the same time, insofar as it allows ordinary Chinese to expand their wealth, it can be a useful tool of social management at a time of slowing growth, heightened concern over local government and corporate debt risks, and increased political uncertainty.
But as has become clear in recent weeks, China's stock markets are increasingly vulnerable to the sort of debt-fueled speculative activity that drove the country's housing boom into bubble territory and that has made the process of deflating that bubble so treacherous both economically and politically. One key difference between the ongoing boom and that of 2006-2007 is the emergence of margin financing, or loans used to invest in stocks. Before 2010, China had no formal channels for individual investors to take out loans for investment in the stock market. Certainly margin loan-like tools existed, but on a highly informal and ad hoc basis, disconnected from the state-owned banking sector and thus posing little threat to national financial stability. When the market crashed in 2008, it wiped out the personal savings of many millions of investors, but the lack of leverage minimized the risk of financial contagion.
There has been a remarkable surge in margin financing over the past five months, both formal and informal. Since January, the value of outstanding margin loans has doubled to roughly $350 billion. Informal margin financing has an estimated value of between $80 billion and $160 billion. Though small compared to the total value of China's stock market or assets in the state-owned banking sector, the surge in margin financing both formal and shadow raises the risk of a liquidity crunch — and possibly wider financial contagion — if and when the market does enter into terminal decline. In recent weeks, the government has moved to limit banks' exposure to margin loans by raising the minimum assets required to qualify for margin financing and creating a program to facilitate the rollover of margin loans. But these measures, like policies intended to cool China's housing market by tightening the flow of bank credit in years past, could have the side effect of driving up demand for informal sources of margin financing.
One outstanding question raised by the fall in stock prices during the week leading up to June 26 is what new investment avenues may emerge if and when the current stock market boom does come to an end. The massive oversupply in China's housing sector makes a significant, sustained recovery in real estate markets beyond a handful of top-tier cities highly unlikely in the next 6-12 months and possibly for years to come. But with capital controls still largely in place and with the government likely to proceed slowly with efforts to liberalize interest rates on bank deposits, it is unclear what other high-return options exist for ordinary and wealthy Chinese alike, not to mention for China's growing industry of institutional investors such as mutual funds. China's population is increasingly attuned to the benefits of investing, and as the economic slowdown begins leading to unemployment in many regions over the coming months, it will be increasingly dependent on it. But Beijing will struggle to provide its populace with new investment opportunities.
China's scientific ethical divide
Reply #572 on:
June 30, 2015, 10:35:50 AM »
A Scientific Ethical Divide Between China and West
By DIDI KIRSTEN TATLOWJUNE 29, 2015
Huso Yi, the director of research at the Chinese University of Hong Kong Center for Bioethics, said of China’s gene modification work, “The consensus among the scientific community is, ‘not for now.’ ” Credit Billy H.C. Kwok for The New York Times
BEIJING — China is spending hundreds of billions of dollars annually in an effort to become a leader in biomedical research, building scores of laboratories and training thousands of scientists.
But the rush to the front ranks of science may come at a price: Some experts worry that medical researchers in China are stepping over ethical boundaries long accepted in the West.
Scientists around the world were shocked in April when a team led by Huang Junjiu, 34, at Sun Yat-sen University in Guangzhou, published the results of an experiment in editing the genes of human embryos.
The technology, called Crispr-Cas9, may one day be used to eradicate inheritable illnesses. But in theory, it also could be used to change such traits as eye color or intelligence, and to ensure that the changes are passed on to future generations.
Dr. Huang and his colleagues tried to modify a gene that causes a blood disorder called beta-thalassemia. The experiment failed in 85 embryos. Even so, to many in global science, it was a line that should not have been crossed.
Scientists in the West generally abjure this sort of research on the grounds that it amounts to genetic engineering of humans. In any event, the technology is still in the earliest stages of development.
“The consensus among the scientific community is, ‘not for now,’ ” said Huso Yi, the director of research at the Chinese University of Hong Kong Center for Bioethics.
Yet Chinese scientists seem in no mood to wait.
“I don’t think China wants to take a moratorium,” Mr. Yi said. “People are saying they can’t stop the train of mainland Chinese genetics because it’s going too fast.”
China is quickly building infrastructure for scientific research.
In 2013, the last year for which statistics are available, the state invested more than 1.18 trillion renminbi, or $190 billion, which is more than 2 percent of its gross domestic product, in “the development of scientific research and experimentation,” according to China’s National Bureau of Statistics.
In 2011, the state invested about $140 billion, or 1.84 percent of its G.D.P., the bureau said.
“The gap between China’s new bioscience technologies and that of the West is closing,” said Zhai Xiaomei, a member of the country’s National Medical Ethical Committee and a professor at Peking Union Medical College.
But the research juggernaut is gathering momentum in a country where training in ethics for scientists was introduced, under pressure from the West, only a dozen years ago.
“The ‘red line’ in the West and in China are not too similar,” Deng Rui, a medical ethicist at Shanxi Medical University, said in a telephone interview. “Ethics are a question of culture, and that is about tradition, especially where it touches on human life.”
“Confucian thinking says that someone becomes a person after they are born. That is different from the United States or other countries with a Christian influence, where because of religion they may feel research on embryos is not O.K.”
The state does set limits, Ms. Deng said: “Our ‘red line’ here is that you can only experiment on embryos that are younger than 14 days old.”
The proscription is contained in a document issued by the health and science ministries in 2003. It now urgently needs updating, she said. Chinese scientists adhere to globally accepted ethical and scientific norms, said Ms. Zhai, the medical ethics committee member. But many scientists experience pressure not to do so, she acknowledged.
“Inside China, there are people who are opposed to international standards, citing cultural differences,” Ms. Zhai said. “This force is actually quite powerful sometimes.”
In the case of Dr. Huang’s experiment, the national committee decided that it was ethically acceptable because it “was not for reproductive purposes,” Ms. Zhai said, a stance that surprised some overseas scientists.
“They chose to use embryos that would soon be destroyed. So far, we have been regarding it as a very fundamental research, instead of interventions in or editing of germ cells,” Ms. Zhai said.
But she struck a warning note: “If you want to edit genes in germ cells with the intention of using this right away, it’s absolutely not O.K., because the technology has yet to become mature.”
Disturbed by the recent study, Rao Yi, a professor of biology and director of the four-year-old Center of Life Sciences at Peking University, run jointly with Tsinghua University, warned that scientific research in China urgently needed more effective ethical oversight.
“The more technology we have, the more dangerous we are to ourselves and entire humankind,” Dr. Rao said.
Chinese scientists are generally poorly paid, he said, but may receive a bonus of up to $32,000 per article from the state for publishing in international scientific journals, providing financial incentives for pushing the boundaries.
“Do first, talk later” is the attitude of many, Dr. Rao and two colleagues wrote recently on iScientist, an online community for Chinese researchers.
A global medical ethics body run by the World Health Organization or the United Nations should be set up to regulate scientific experimentation, Dr. Rao said.
More unpleasant scientific surprises are looming, several scientists said. “Right now, human gene editing is the main thing,” Mr. Yi said. Geneticists in China “don’t want to be guided by Western people.”
The mind-set among Chinese researchers, according to Mr. Yi: “ ‘We’re going to do it, then see what’s wrong, then fix it. But the conceptual discussion may be missing.’ ”
Correction: June 30, 2015
WSJ: Chinese market support moves are doomed to fail
Reply #573 on:
July 10, 2015, 10:30:44 AM »
Memo to China: Your Market Moves Are Doomed to Fail
By Jason Zweig
In your heart, you probably hope the Chinese government will succeed in its stunning interventions this past week to stay the panic on China’s stock exchanges.
In your head, you should suspect it will fail.
There’s something poignantly human about every attempt to make markets behave as we all wish they would: always rising and making us richer, never falling and inflicting pain upon us.
Governments have been trying—and failing—to control markets for centuries. If the Chinese government succeeds, it will be the exception to that rule. If it fails, the results could be dire.
The Chinese authorities made a rising stock market such a priority that they encouraged local investors to buy stocks on margin, or with borrowed money, until total margin loans exceeded $320 billion. That was nearly 9% of the total value of Chinese stocks—and 10% greater than the gross domestic product of Hong Kong.
“Not only were Chinese investors not familiar with the downside risks of [trading on margin], neither were the regulators and policy makers,” says Zhiwu Chen, a finance professor at the Yale School of Management who studies the Chinese capital markets. “As a result of this recent experience, I do think China will go through much rethinking and slow down its efforts to open up its financial markets.”
Other governments have blazed, or bumbled along, the same trail.
After the bursting of the speculative South Sea Bubble in 1720, the British Parliament instituted Sir John Barnard’s Act, which, starting in 1734, banned trading in futures and options. Traders shrugged and kept on speculating; the law remained on the books, bereft and ignored, until it was finally repealed in 1860.
After Wall Street’s first crash, in 1792, the state of New York banned futures trading and short selling; speculators paid no heed. As populism swept the U.S. in the late 19th century after several market panics, state after state banned trading in options. But speculators traded anyway—even in crooked “bucket shops” if they had to.
Even the Code of Hammurabi (ca. 1750 B.C.) stipulated that traders who didn’t use the sales contracts mandated by the king “shall be put to death.” Speculators probably pulled their braided beards and found ways to evade the heavy hand of that government, too.
After the Japanese stock market collapsed in 1990, the government introduced “price-keeping operations,” buying billions of dollars’ worth of shares toward the end of the fiscal year. That swelled up the balance sheets of Japan’s biggest banks, which had enormous stockholdings—but it prevented the banks from cleaning up their bad loans. Even now, after a recent binge of stock buying by the Bank of Japan, the Nikkei 225 index lurks 49% below its record level, in 1989, of more than 38900.
In China, too, debt is the problem. “When a bubble pops, it’s leverage that almost always proves so corrosive and destabilizing on the way down,” says Lawrence White, professor at New York University’s Stern School of Business who specializes in financial regulation.
By leaving regulations on margin debt loose, the Chinese government is encouraging further speculation in stocks that may still be overpriced.
“If stocks remain above their fundamental value, then all [the Chinese government] is doing with these kinds of interventions is trapping capital rather than letting investors reallocate it to a higher use,” says Eugene White, an economist at Rutgers University who studies the history of financial booms and busts.
And, if that’s the case, this round of interventions may only end up necessitating more.
As of this Friday, stocks on the Shenzhen Stock Exchange traded at an average of 45 times their earnings. That price/earnings ratio is down from its high of 68.9 in June. But it’s still more than double the average P/E of 18.5 for stocks world-wide, according to the investment firm MSCI.
“There is a possibility that [Chinese policy makers] have overestimated their ability to manage this situation,” says Thomas Rawski, an economist at the University of Pittsburgh who has been analyzing the Chinese economy for more than 40 years. “The outcome depends on the psychology of the investors in these markets.”
And that can be fiendishly hard to control. Financial historian Larry Neal of the University of Illinois likens the Chinese authorities to John Law, the brilliant 18th-century financier who, serving the French government, simultaneously pumped up the value of that nation’s currency, national debt and stock market.
In late 1719, after investors turned euphoric and then panicked, Law stepped in to support market prices. As soon as he stopped propping them up, prices fell again. Then Law “decreed a markdown,” says Prof. Neal, “and that just destabilized everything.” The collapse of Law’s plan, now known as the Mississippi Bubble, wiped out his company’s stockholders and effectively stifled the financial markets of France for at least a century.
The economist Friedrich Hayek wrote that markets are a “marvel” at aggregating small insights from large numbers of people. The data or power to outsmart markets isn’t given to governments, he warned, “and can never be so given.”
The Chinese government regards markets as clay that can be molded. Instead, markets are like water: They always find their own level, no matter who or what tries to control them.
Roughly 1,000 years ago, King Canute demonstrated that not even the most powerful monarch can command the waters. Sooner or later, the Chinese government will learn the same lesson.
Reply #574 on:
July 10, 2015, 11:44:12 AM »
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