9 August, 2005

china economic roundup (i)

Welcome to the first of what will be a semi-regular feature, a roundup of blogging on China’s economy.

Via China Digital Times, Robert Reich in the American Prospect warns that the US housing bubble is being fueled by Chinese money

Here’s where the China connection comes in. A major reason why mortgage rates have stayed low is that there’s a lot of money around. And much of that money has been coming from abroad. China and the rest of Asia have been putting their spare cash into America, in order to prop up the dollar and make it easier for them to export to us.
But that’s about the change. We’ve been pressuring them to let their currency rise, and they’re getting the message. We don’t know yet how much they’ll let it rise. But the writing’s on the wall, in Chinese characters. And other Asian nations are following China’s lead.
You don’t have to be a zen master to see this means less Asian money flowing into the United States. Which in turn means long-term interest rates — including mortgage rates — will start to rise. It’s just supply and demand: less money around, and the cost of borrowing goes up.

Incidentally, Asiapundit warns that Shanghai’s property bubble is being fueled by speculative inflows.

In the wake of failed takeover bid’s for Unocal and Maytag, Horse’s Mouth anonymous guest blogger Martyn notes that China hasn’t been creating many world beaters even when acquisitions have been successful.:

Fortune 100 list 2004 of China’s top listed companies predicts that fewer than five will become global leaders ten years from now. However, George Baeder of international strategy consultants Monitor Group says, “That’s probably an optimistic view.” I would tend to agree with him.
Chinese companies have also, to date, made some horrific foreign investment decisions and not just related to paying inflated prices for extremely dodgy assets. TCL purchased French multinational Thomson last year, including America’s 86-year-old RCA. “We thought we could sell RCA as a premium brand, but in fact it had already deteriorated into pretty much a low-end brand,” says TCL’s Vincent Yan. TCL had forecast a turnaround at RCA by the second half of this year. That has now been moved back to the first quarter of 2006 and looks extremely optimistic.

The Big Yuan reports that China’s loans from the World Bank are coming under fire.:

The World Bank, whose charter aims to fight poverty in developing nations, continues to lend about $1 billion to China annually, and according to the International Herald Tribune, these loans are increasingly coming under fire. Duncan Hunter, chairman of the House Armed Services Committee, feels that while these loans are being used to develop roads and infrastructure the PRC is able to invest more into its own armed services. He says, “We have to be very vigilant.”

But, Talk Talk China muses that corporate China may have some advantages, although these stem from a lack of ethics.:

While the West is mired down in debates over globalisation and corporate social responsibility, conservative governments in the US restrict stem cell research, and EU governments dither over GM food safety, one begins to see a real opportunity opening up for China to take the lead in these areas, perhaps finally finding its own place in the world — and leaving the West behind in the dust, nursing its ethical qualms.

At the Economist’s View, a look at the winners an losers from China’s currency revaluation.:

If employment and manufacturing do increase, there are transitional costs to consider as the article notes.  Rising interest rates will cause less activity in sectors such as housing and more activity in other sectors such as (hopefully) computer chips.  But during the transition unemployment could potentially increase.  Nevertheless, to the extent that such rebalancing is healthy for the economy in the long-run, there is a long-run benefit that follows the short-run cost, but the cost does need to be acknowledged.

While a stronger yuan may cut into China’s manufacturing exports, there’s one export that might see an increase. After all, ill-gotten gains just became two percent more valuable. (Update: the five billion yuan figure was reported in the Standard, Xinhua is reporting the amount is 50 billion dollars) :

4,000 Chinese officials fled China last year with an estimated 5 billion Yuan [HK$4.80 billion-US$600 million] in graft money in tow. The currency figure seems a little low to me since this only amounts to US$150,000 for each of the 4,000 fugitives, not enough to even buy a house in Canada or the US. I figure that this figure is probably substantially understated since a higher number would imply that the problem is nowhere near under control.

Via Survived Sars, a link to an excellent brief from the Jamestown Foundation on the limits of Chinese Economic reform:

There have always been two Chinas: a maritime China, caught up in the economic growth of modern times and looking beyond her frontiers; and a continental China, agrarian, bureaucratic, conservative, and unaware of the economic advantages of international capitalism. It is this second China that consistently controls the political power within Beijing. Economic growth has mainly been concentrated in maritime cities, while the vast hinterland remains very unevenly integrated into a national economy. Given its size and rate of growth, this inequity between reformed and unreformed areas may greatly distort free-market trading systems.

by @ 8:06 pm. Filed under China, Money, Asia, Coming collapse, East Asia, Economy, Northeast Asia, Economic roundup

3 Responses to “china economic roundup (i)”

  1. Simon World Says:

    Daily linklets 10th August

    Rusty is covering the Fuzhou suicide bombing. If you’re in Hong Kong this Thursday evening, go take a walk around TST with Stefan and Dave. James Tien sees the doctor. North Korea is facing another famine, despite even hills being cultivated as farmla…

  2. Martyn Says:

    Hi AP, great round-up. Much appreciated. I hope this will become a regular feature of AP. The Jamestown Foundation article (linked to “Survived Sars” above) is an absolute must read I think.

    I wrote the post “The Good, The Bad and The Chinese Companies” on the Horse’s Mouth. My name is actually tagged at the end of the article so I wasn’t trying to be anonomous! Thanks.

  3. dylan Says:

    I think you’ll find the corrupt officials fled with 50 billion yuan (not 5 billion). A big difference!

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