Brad Setser asks if Alan Greenspan is promoting moral hazard… in China.:

Listen to one Chinese fund manager in this morning’s Wall
Street Journal:

Mr. Zhu (who helps manage US dollar investments for the
Bank of China) expresses confidence in the US dollar and the health of the US
home market.  Housing is so vital to the US
economy, Mr. Zhu and some of his counterparts at other Chinese banks reason,
that US authorities will prevent a bust."

Sounds like Chinese fund managers believe in the Greenspan
(Hubbard? Lindsey? Bernanke?) put …
…

I also suspect Mr. Zhu would be on to something.  If
interest rates ever were really to rise, I
would not be surprised if (some) homeowners - if one can call folks
with big
debt and little equity homeowners - started to demand, loudly,
protection from
higher rates.   And i suspect politicians here in the US
would take notice.  Florida likes to flip condos — and it is a
swing state.

There are more China-related posts from Setser this week on the durability of Bretton Woods II and the CNPC bid for PetroKazakhstan.

If you haven’t already seen it, Martyn at the Peking Duck has a great post on China’s fuel subsidies.:

That’s the ‘how’ of it, as to the ‘why’, we need only to glance at the
balance sheets of the mainland’s oil refiners. Together they lost 4.19
billion yuan in the first half of this year. Compare that to a profit
of 16.38 billion yuan for the same period last year (figures from the
China Petroleum and Chemical Industry Association). No wonder there are
few happy bunnies among the executives at Sinopec and PetroChina. Their
crude oil refining companies have been sacrificed for the greater good
of society, i.e. to bear the losses incurred in providing cheap
subsidized oil. Technically, China’s domestic crude and refined oil
prices are linked to the international benchmarks but, in reality,
domestic price increases have only been applied to crude, domestic
refined oil prices have not closely followed those of the international
market and have therefore fallen way behind in the last couple of years
as international prices have sky-rocketed.

Also at the Duck, Lisa notes a report on China’s widening urban-rural income gap, as usual for the site, the comments are worth reading, commenter Dylan notes that a lack of labor mobility is a major part of the problem:

..there is no unified labour market because people are not free to become
permanent residents wherever they please. Rather a system of residency
permits and exclusions from social services and rights operates to
systematically disadvantage those born in rural communities. That is
why farmers working in urban areas are referred to as a floating
population - they have no rights to permanent residence in the city.
This is no accident. Urban Chinese fear few things more than an
"invasion" of "rude peasants" seeking jobs, housing, social services,
and political power.

China Confidential offers a brief look at a planned tax cut.:

China plans to eliminate income taxes for low-income workers. But
experts say the measure will mainly benefit poor people in the cities
rather than the majority of China’s poor in the countryside–a
reflection, perhaps, of increasing concern that the urban underclass
could represent a more serious threat to social stability than the
left-behind rural poor, despite recent violent protests in the
countryside.
The government plans to help some of the country’s poorest by nearly doubling the threshold for paying personal income tax.
State
media reported on Tuesday that China’s parliament agreed to raise the
lowest taxable income to $185 a month, from the current $99.

The Globalization Institute blog looks at EU hypocrisy and the damage caused by textile quotas.

first it was the butter mountains and the wine lakes; then the food
dumped on developing countries; now 54m Chinese-made sweaters and 14m
pairs of trousers are sitting in warehouses, banned from the shops,
because of the latest idiotic policy from the European Union (EU).
These garments will soon be joined by millions of bras and blouses,
Chinese imports that have been paid for by European clothing retailers
but cannot be sold.
In June, after most of these items had already been ordered, the
European trade commissioner, Peter Mandelson, went native and agreed to
quotas on Chinese textiles - in other words, rules limiting the number
of Chinese garments that can be imported. These quotas, which went into
effect on 12 July, have started to be met, leaving retailers unable to
sell their autumn product ranges until next year.
The EU’s stance is perverse and immoral and will hit the weakest and
poorest hardest, both in Europe and in China; it shows that Brussels’
supposed commitment to economic development and solving world poverty
is utterly worthless. In theory, since 1 January, the world has enjoyed
free trade in textiles, a welcome development. But the EU is still
allowed to impose anti-Chinese quotas until the end of 2008 as part of
the Textile Specific Safeguard Clause which China agreed to as part of
its ascension to the World Trade Organisation.

Should Chery Motors survive the intellectual property lawsuit brought on by General Motors, how would the car fare in western markets? The Stalwart takes a look.:

Sub-$4,000 Chery cars might just, excuse the bad joke, wevolutionize the
auto industry. Just the fact that a car can be so easily copied, with a
level of quality which competes with the world’s biggest brands, this
should set of alarm bells at the automakers. The Chery QQ is using many
of the same parts as GM’s Spark since these are becoming more
standardized, and available due to the fact that their manufacture is
increasingly outsourced to third-parties.

Is Taiwan investment in China slowing or surging? Michael Turton takes a look, and admits that it’s hard to get a good answer:

While year on year figures for June double, YOY figures for July
fall. The difference is $410 million to $371 million, so the real
difference is between the figures for last year, it looks like.
However, good numbers are hard to obtain, as this 2002 article points out:

Unofficial
estimates, however, have always put actual investment much higher given
that many Taiwan companies circumvent government supervision by
investing in China through a subsidiary in a third country, in
particular tax havens such as the Bahamas and the Virgin Islands.

Imagine Taiwanese circumventing the authorities. That just never happens….