15 August, 2005

china economic roundup (iv)

Constructive reading via Howard French, a Foreign Affairs item called “The Myth behind China’s Miracle.”

Washington need not worry about China’s economic boom, much less respond with protectionism. Although China controls more of the world’s exports than ever before, its high-return high-tech industries are dominated by foreign companies. And Chinese firms will not displace them any time soon: Beijing’s one-party politics have bred a timid business culture that prevents domestic firms from developing key technologies and keeps them dependent on the West.

On a related note, Simon points to a letter in this week’s Economist noting that the magazine was guilty of serious hyperbole in saying that China rules the world.:

SIR - You propagate the canard that, economically, China now rules the world ("From T-shirts to T-bonds", July 30th). It does nothing of the kind. In real dollar terms (purchasing-power parity valuations are at best controversial, at worst misleading) China has made a continuously declining contribution to global GDP growth from 10% of the total growth registered in 2001 to an estimated 6% in 2004-its share of real global GDP was an estimated 2.2% for 2004. There is also some quantitative flaw in your argument that cheap Chinese exports kept global inflation down, as China’s share of global trade (an estimate unencumbered by PPP considerations) stood at 6.6% of global exports and 6.2% of global imports in 2004.
It is the speed of the rise of China’s share in global economic and trade flows, as well as the growth of its demand for commodities, that has obscured the fact that China consumes, for example, less than 10% of the global output of oil. So what is truly special about China? Its average position in the scheme of things is still very small, although its absolute speed of growth and its opening economy are a harbinger of growth to come. But all of this is a far cry from controlling the world economy.

Great discussion at the Becker-Posner blog on the risks that Chinese ownership of US companies may bring through  several  posts . Here Gary Becker outlines a possible benefit, Chinese investment on the US may limit - rather than increase - security risks.:

Chinese ownership of American companies may not be sufficiently important "hostages" to discourage a military attack on Taiwan or elsewhere. But the point I tried to make on this issue is that China, not America, bears the economic risk from ownership of American assets, since these assets would be taken over by the US in the event of any military conflict, the way German assets in the US were taken over during world War II.
There is evidence, in studies by Solomon Polochek and others, that trade does reduce the probability of conflict between nations, but many other factors are also relevant. So a few examples are not decisive, whether they go in one direction or another. I believe that even the quantitative studies by Polochek and others are far from decisive, but they are the best we have so far.

With a merger of Anshan Iron & Steel Group Co Ltd and Benxi Iron & Steel Group confirmed, the Business China blog reproduces a Xinhua item in which an industry representative argues the necessity of consolidation for the industry in China.:

Although the prices stabilized to some extent recently, Yang maintained that the industry was still facing a gloomy future, predicting that the small and less competitive manufacturers would be put into a tight corner.
So it is urgent for them to be regrouped with bigger and stronger ones, Yang noted.
In addition, many international iron and steel producers have invested heavily in the country’s industry over the past years.

At Destructonomics, a look at what China’s growing grain shortage may mean for global commodity markets.:

…it’s rather remarkable that China’s been able to feed 20% of the world’s population with 7% of the world’s arable land for as long as they have. However, the dynamic has now changed as China’s production is now lower than consumption. China’s economy is in transition. As a result of this growth, China will simultaneously be growing less grain and consuming more.

It was a positive for free trade that the Bush administration was able to secure approval of the Central American Free Trade Agreement (Cafta), but it will be a negative for China’s textile producers. The Big Yuan says it’s payback time.:

Rep. Robin Hayes, R-N.C., said he changed from opposing the free trade deal with six Latin American countries to supporting it because of commitments the administration had made to provide relief to the U.S. textile industry. “Not until the administration said it would work with the industry on the issue of exploding imports from China was I able to support (CAFTA).”
The administration has been handling quotas on a category by category basis since a comprehensive trade deal ended last Jan. 1, but China is currently on pace to export $24 billion of textiles to the U.S. (a 60% increase over 2005).
From the article: Gary Hufbauer, a trade expert at the Institute for International Economics in Washington, said he estimated that a comprehensive agreement limiting a broad array of Chinese clothing imports could raise U.S. clothing prices by $6 billion annually, or about $20 for every American. Consumers have been benefiting from falling clothing prices over the past year, reflecting a big surge in cheaper-priced Chinese products.

Sun Bin argues that China has an advantage over India in that it’s more of a meritocracy (due to the absence of a caste system), and one where women have greater opportunity to work.:

Fair play is the fundamental of capitalism. China is still far from perfect, it is hardly the model for fair play. Singapore is. There are so much more that China needs to do. But China learns about fair play very fast and practices it better than other developing countries. The unfairness in India and those other countries is so enormous that it makes China looks like a saint. Such unfairness is sociological and cultural, rather than political or policy driven.

On a related note, Barbarian Envoy
points to an excellent Business Week series of articles from its newest
edition on China and India and offers summaries of several notable items.

Logan Wright notes that China is getting serious about possible inflation, or is at least talking about it.:

Lin Yifu, director of China Center for Economic Research (CCER)of Beijing University, said that owing to the overproduction in most manufacturing sectors since 1998 and the to-be-overcapacity from over-investment in some sectors in 2003 and 2004, China is expected to see deflation caused by overcapacity in the latter half of 2005.
    Evident deflation is apparent to appear in the fourth quarter this year, said Wang Jian, deputy secretary general for the Economic Research Institute under State Development and Reform Commission, predicting overcapacity to take place likely in 2007.
So deflation in the latter half of 2005, or the latter half of 2007, or never.  One interesting fact is that Chinese economists are now repeating the "overcapacity" mantra more frequently than before; maybe they’re just reading Andy Xie and trying to sound cool for their domestic media, but maybe the problem is more fundamental and structural, and it’s become okay to talk about it publicly, to shift the balance of domestic priorities toward controlling the problem.

by @ 12:51 pm. Filed under China, Money, India, Asia, Coming collapse, East Asia, Economy, Northeast Asia, South Asia, Economic roundup

One Response to “china economic roundup (iv)”

  1. Sun Bin: A blog on business strategy and business related is Says:

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