The Colbert Report’s Chinese New Year special report is indeed some of the best television reporting we have seen on China in some time.:
No, China has not yet decided to dump its Treasury bonds… but give it time.
AsiaPundit closely tracks both the Chinese currency and the US dollar. However, we don’t pay nearly as much attention to global prices for base metals. As such, we are a bit late in bringing you details of a global currency meltdown that is so severe that the United States is passing new capital control measures.:
WASHINGTON — People who melt pennies or nickels to profit from the jump in metals prices could face jail time and pay thousands of dollars in fines, according to new rules out Thursday.
Soaring metals prices mean that the value of the metal in pennies and nickels exceeds the face value of the coins. Based on current metals prices, the value of the metal in a nickel is now 6.99 cents, while the penny’s metal is worth 1.12 cents, according to the U.S. Mint.
Under the new rules, it is illegal to melt pennies and nickels. It is also illegal to export the coins for melting. Travelers may legally carry up to $5 in 1- and 5-cent coins out of the USA or ship $100 of the coins abroad “for legitimate coinage and numismatic purposes.”
For those who, like ourselves, are deficient in mathematics that means that a US nickel is worth almost 40 percent more melted down than it based on its denomination. Chinese demand for base metals is generally cited as a prime reason for rising prices.
And it is not just the US. This is indeed a global currency meltdown. As this 2003 article notes China has been seeking European coins for melting. Within Asia, there is massive smuggling of the Philippine peso to buyers in China.:
MANILA : With a face value of less than two US cents the humble Philippine one peso coin may be worth next to nothing at home but in metal-hungry China it spells big bucks.
So much so that smuggling of the coins has become something of a growth industry in the Philippines and a major headache for the central bank.
According to local media reports, the coins are sold in China for 1,000 pesos (US$20) per kilogramme and the metal derived from melting them down is used in the manufacture of electronics goods like mobile phones.
As we have not heard any reports of the melting of the Chinese yuan, we assume that either the nickel-plated steel material is worth more in coin rather than base-metal form or that owners of blast furnaces in China are betting on further appreciation of the local currency.
However, if anyone knows differently please comment — AP may yet consider requesting that our employer pay us in coins.
AsiaPundit has been known to criticize the reform of China’s banking sector. For instance, many of the bad assets held by state banks have been shifted to state-held asset management companies (AMCs) and still remain liabilities for the central government. Still, even in our criticism, we have been guilty of paying too much attention to the major state lenders and AMCs.
Occasionally, we are reminded that problems are even worse for the rural banking sector.:
BEIJING: A village cashier in west China lost 12,500 US dollars of public money after it was eaten by goats.
The incident occurred last May, when the village cashier surnamed Zhang and his wife in Linjiawan village in West China’s Shaanxi province were stunned by the scene when they saw their ten goats chewing the money, the state media reported on Wednesday.
The couple immediately slaughtered the goats and put together the cash debris taken out from the animal’s stomach, saving 297 pieces of notes worth 12.5 US dollars each, reported the Xi’an Daily on Tuesday.
“We are considering exchanging more damaged cash for Zhang and will treat it as a special case after reporting the incident to superiors, in view of reducing farmers’ economic burden,” director of the currency issuance section of the apex bank, People’s Bank of China, Hengshan County branch, Li Shengyang said.
Question: What was a “village cashier” doing hiding money by burying it in a goat pen? Does this strike anyone else as suspicious behavior? If I was thiking about secure places to store public money I don’t think “goat pen” would be the location that leaps to mind. I might consider “banks”, or “enormous steel safe” or even “locked trunk guarded by my shotgun-toting henchman, ah qiang and a brace of rottweilers”. But probably not “goat pen”.
Per “banks” as an option, that seems particularly useful to me. If Hengshan county has a branch of the People’s Bank of China, they probably have retail baking too. Could banks in Shaanxi be so hopelessly corrupt that they can’t even be trusted with deposits? If so, China’s banking system has further to go than I thought.
While this an incident of concern, we do note with relief that the PBoC does seem to have some deposit insurance in place. This should help prevent a full-blown systemic crisis should any individual animal pen be declared insolvent.
(Above image of 2003 goat coins stolen from here.)
The Bank of China’s IPO has exceeded expectations, with the lender’s share price rising 15 percent on the first day of trading. As well as being positive for early investors like Royal Bank of Scotland, it is good news for the country’s banking sector. Increased foreign investment should improve bank management and lending practices while the inflow will help its balance sheet.
This has worked relatively well for the Citigroup-invested Shanghai Pudong Development Bank (SPDB). :
THREE ILLITERATE peasants are in court this week accused of fleecing 82 million RMB from the Shanghai Pudong Development Bank through the use of forged PLA documents. 66 million RMB has already been frittered away, according to reports.
The black hole in the bank’s finances was discovered at the end of 2004 at its Beijing branch. It turns out that the 82 million RMB loan was signed off by the vice-chief of the branch without going through the required approval procedures. The vice-chief, Yu Tianlai, was sentenced to six years in prison last year. He said that he approved the loan because he wanted to take credit for a particularly large piece of business.
Yu admitted that the money was transferred to something called the Shanghai Zhisheng Chemical Company, which had presented accreditation documents from the Central Military Commission, saying that the company was responsible for decommissioning PLA materiel but needed a mortgage.
The man alleged to be responsible is 51 year-old Liu Shulin, a farmer who became a construction worker in Beijing.
In November, prior to his selection as US treasury secretary, Henry Paulson gave an extended interview to Germany’s Der Spiegel, offering some of his views on topics including the US deficits and China’s treasury holdings. While generally optimistic on foreign holdings of T-bills, Paulson is not in denial about the deficit being a problem.:
SPIEGEL: The U.S. economy is increasingly dependent on the willingness of the Chinese and other Asian countries to buy huge quantities of U.S. dollars to keep the currency from crashing. Is America’s monetary independence under threat?
Paulson: I think it’s ironic when the very people who rely on growth in the United States for their exports complain about our deficit at the same time. The majority of the world’s countries depend on America as the most important engine for growth.
SPIEGEL: But this situation - where the world’s poorest nations feed capital to its richest country - flies in the face of all experience. It would be like water running up a mountain.
Paulson: It is as much in China’s interests as those of the U.S. that China invests in the dollar. I would say the same about some of our European trading partners. Moreover, a lot of money around the world is seeking investment opportunities. Growth and returns on capital are important drivers of these inflows.
SPIEGEL: Nonetheless, how do we get out of this situation?
Paulson: The United States can only reduce its budget deficit through further growth and greater spending discipline. Trade imbalances normally take care of themselves over time, as currencies adjust or - as in Europe - there is increased growth. Provided, of course, that we are not going to have trade wars or an increase in trade barriers. Those would be very bad for the world economy.
Today come two views on China’s trade surplus, and the US deficit, that are worth paying attention to. One arguing that there may be a serious problem with China’s statistics (surprise) and the other suggesting that China’s surplus is a positive thing for America.
Standard Chartered economist Steven Green, one of the best China hands at any investment bank, offers a rather frightening essay in Businessweek suggesting that the majority of China’s 2005 trade surplus was, essentially, hot money.:
The export of fake goods out of China is commonplace whether you are talking about designer bags, blockbuster movie DVDs, or “Mont Blanc” pens. Many European and U.S. holidaymakers take these knock-offs home with them — some of them knowing they’re counterfeit; others are unaware. Underground Chinese firms spirit such goods out of the mainland on a much larger scale.
Now we may we have identified another fake: the supposedly gargantuan global trade surplus China enjoys with the rest of the world. Much of China’s trade surplus in 2005 was not trade at all, we think, but rather capital inflows (perhaps as much as $67 billion) disguised as trade. If so, this has major implications for China’s trade policies, the yuan, and the way the U.S. deals with China.
Also worthwhile is P.J. O’Rourke’s latest offering, in which he provides his typically acerbic musing on the surplus and other aspects of his recent three-week visit to China.:
There is no such thing as a trade deficit. It doesn’t matter if America imports all of its goods from China and exports nothing but pieces of paper. The Americans want the computer monitor, and the Chinese want handsome portraits of Benjamin Franklin. No coercion is involved. Nobody is making Americans buy Chinese goods. It’s not like the Opium Wars when the British forced the Chinese to accept shipments of, shall we say, pharmaceutical imports. Maybe the Chinese will fight a war with America–the Consumer Electronics War of 2007, with Chinese gunboats cruising the fountains in America’s malls. But it hasn’t happened yet.
I look around my house, and everything except the kids and dogs was made in China. And I’m not sure about the kids. They have brown eyes and small noses. All the Chinese got in return were those pieces of paper and an occasional 747 and some Microsoft software. Even if the software is illegally copied 1.3 billion times–and it was, I saw it on sale–China is getting the short end of the stick. This is another economic principle that America’s policymakers can’t get through their lumpy, bruised skulls. Imports are good. Exports are bad. Imports are Christmas morning. Exports are January’s Visa Card bill.
AP very briefly met O’Rourke on his trip and he did offer an improved view of Shanghai — which he described in his 1989 text ‘Eat the Rich‘ as the “worst of both worlds.”
AsiaPundit could have used this information a year ago. Via China Rant, advice on how to detect fake Chinese bills.:
Thanks to for the below picture. Supposedly, “Checking the black vertical line is really black is a good idea, and a quick scratch of Mao’s jacket (which should be slightly ribbed) is usually enough.” The top one is fake.
At Indonesian economy blog Sarapan Ekonomi, a look at the strategic planning of .:
“We usually do day and night surveys to see how crowded the street is before deciding to start selling in one,” said Tabroh, a 60-year old seasoned stall owner in Ampera, South Jakarta.
“All you need to do after you decide to stay in one place is contact the local district officer, and, you know … give them a contribution,” he said.
… “One can do well with Rp 5 million as a start, to have the stall built and shop for first stock,” he explained.” Now, I only pay Rp 5,000 a day for electricity and a security fee of Rp 10,000 a month.”
They could earn as much as Rp 3 million (about US$ 300) of monthly income. Not bad, compared to the salary of tenured professor which, according to Ahmad Syafii Maarif, is about Rp 2.7 million.
China’s state-run broadcaster, CCTV is now producing a documentary on the Coming Collapse of America.:
A China Central Television (CCTV) unit is developing an epic, fall-of-Rome-flavored documentary TV series around the theme of America in decline.
Unlike the crude state-sponsored videos that glorified the September 11 terrorist attacks as a humiliating strike against an arrogant superpower, the planned multipart production promises to be a slick dissection of American economic and military might.
Production notes for the CCTV series, which is tentatively scheduled to air in 2007, are said to provide a revealing glimpse of how certain government officials see the US–namely, as a dying hegemon. The Chinese view is that a number of factors, including “structural” economic problems and imperial overstretch, are combining to end US global supremacy.
In an effort to support and promote this point of view, the CCTV documentary plans to cover all the bases, to use an old American expression borrowed from baseball.
For example, the producers plan to devote at least one episode to the US immigration crisis and attempt to draw historical parallels between a commonly perceived cause of the fall of ancient Rome–unchecked immigration and invasions–and the flood of illegal immigrants pouring into the United States from Mexico and Latin America.
In an ironic twist, the segments on the US economy will supposedly highlight the gloom-and-doom opinions of some smart, successful citizens–fund managers, investment bankers, and analysts–who argue that the country has entered a long period of decline, an economic twilight of sorts, from which no escape is realistically possible. The talking heads of finance are expected to make the case for aggressively investing in emerging markets, especially the so-called BRIC countries (Brazil, Russia, India, China) that are destined to dominate the global economy by 2050, according to an increasingly fashionable Wall Street concept.
It’s unfortunate that this production will not likely air on the English-language CCTV station. It could have been interesting.
AsiaPundit doesn’t see a major decline of the US in the near future. But he is concerned about the States’ debt position and asset bubbles. A major correction would not be a surprise
That said, AP also enjoys talk of China’s Coming Collapse.
As the world’s largest producer of plastic and vinyl trinkets, it should be no surprise that China has become the world’s top source for sex toys. What is more surprising — and welcome in a country known for weak domestic consumption — is that the products are increasingly being bought domestically. Simon cites the SCMP.:
The Chinese are much more adventurous than Europeans and Americans when it comes to sex toys, said Wu Hui , chairman of Wenzhou Adam and Eve Health Products. “It’s strange. Among the countries we export to - developed countries in Europe and the Americas - they like simplicity. In China, they want more functions.”…
At one of the company’s shops in Wenzhou , a middle-aged woman clerk proudly shows products to a customer. “Before I worked here, I had never seen these things before,” she said. Despite a lack of customers on a recent morning, she claimed that all the types of products on display had found buyers. “Someone has bought everything, even these,” she said, gesturing to a pile of leather garments adorned with metal.
Holding up an item labelled the Erotic Butterfly, she said: “This is suitable for young ladies.” She then moved on to demonstrate several other products. Customers who make it through the door are not usually embarrassed. One day last winter, a man bought an inflatable doll and declared he needed it to keep warm.
Meanwhile, Frances visits China’s largest sex-product market in Guangzhou and discovers the trade is watched over by Deng Xiaoping:
South-East Asia’s biggest sex market that is, though I always expected Thailand, or Korea or Japan who have the first three places when it comes to matters of size, located off 战前路 Zhanqian Lu, near the main station, and like all main stations in all cities I’ve been, the part of town I have a mental border around labeled ‘dodgy’, though that is not the word that springs to mind to describe a meter high fat, erect schlong radiating a smutty deep orange glow.
Really I didn’t know whether to choose the walls of full-leather masks, ball-gags, restraints, harnesses and designer ropes, or the shelves of 20cm high manga-porno models, or the endless fields of dildos, vibrators, plugs, jelly-vibrating-crustations, things to insert into other things… So I settled on Orgaster! super vibration!, something about skinship scandal g-spot pornography? Is this turning into one of those sex-spam blogs? The other option was a poster of 鄧小平 Deng Xiaoping.
While he may not care to be associated with the market, as the trade wouldn’t have existed without his economic reforms, AsiaPundit considers the Deng poster appropriate.
AsiaPundit has been an on-and-off admirer of Paul Krugman for many years. AP particularly enjoyed some of his essays prior to and after the Asian FInancial Crisis, although he did find much of Krugman’s non-economic New York Times work excessively polemic.
But all things considered — and whatever your political inclination — when Krugman speaks on currencies he should be listened to.
Via the New Economist, a Krugman essay (not column) on the prospects of a dollar crisis.:
Concerns about a dollar crisis can be divided into two questions: Will there be a plunge in the dollar? Will this plunge have nasty macroeconomic consequences?
The answer to the first question depends on whether there is investor myopia, a failure to take into account the requirement that the dollar eventually fall enough to stabilize U.S. external debt at a feasible level. Although it’s always dangerous to second guess markets, the data do seem to suggest such myopia… The various rationales and rationalizations for the U.S. current account deficit that have been advanced in recent years don’t seem to help us avoid the conclusion that investors aren’t taking the need for future dollar decline into account. So it seems likely that there will be a Wile E. Coyote moment when investors realize that the dollar’s value doesn’t make sense, and that value plunges.
(Image stolen from here.)
IndCoup noted an article last week by ex-World Bank chief economist Joseph Stiglitz praising Chinese planning. Sarapan Ekonomi, an Indonesian economics blog, .
IndCoup ponders Joseph Stiglitz’s praise on China’s miraculous economic development, on which Greenstump speculates that IndCoup “believes China is a model Indonesia should follow”.
Regardless, in terms of economic growth, poverty reduction, and population control, Indonesia is every bit as “miraculous” as China.
Since the late 1960s, both Indonesia and China has been growing fast. Moreover, as shown in the graph above, average Indonesians had been always richer than people of China. Until the 1998 financial crises, that is, when the Indonesia’s economy shrank by 13 percent and has been growing slower since.
Still, Indonesia’s poverty today is in no way worse than China’s; For example, China’s poverty gap at $1 a day (a measure of incidence and depth of poverty) is 4 percent, while Indonesia’s is less than 1 percent.
AsiaPundit also took exception with the Stiglitz article which starts out with this premise.:
Part of the key to China’s long-run success has been its almost unique combination of pragmatism and vision. While much of the rest of the developing world, following the Washington consensus, has been directed at a quixotic quest for higher GDP, China has again made clear that it seeks sustainable and more equitable increases in real living standards.
It surprises AP that Stiglitz, after three years of working with the World Bank, would feign such ignorance. Since the Deng Xiaoping-era China has consistently put emphasis on GDP growth over income equality or social welfare. The shift he is now praising is largely a creation of the newest five-year plan.
That said, AP agrees that much of the five-year plan is reasonable. It’s largely agreed that more even income distribution and stronger domestic consumption are needed. The fallen tigers of ‘97, generally, did not consider the importance of domestic demand until after their export-driven economies collapsed. China is wise to do so now.
The respective rebounds of the victims of ‘97, in part, were based upon how quickly they shifted to policies that stoked domestic demand.
South Korea quickly cleared bad loans and, in a rather insane manner, promoted consumption through personal debt (creating a new credit crisis in the process), Thailand did less but it did extend rural credit and ran a moderately successful asset management program for debt. Indonesia struggled with political turmoil and indecision for most of the post-1997 years. AP will not speculate on how China will fare.
That China is preemptively addressing issues that the rest of Asia did after 1997, and after Japan’s bubble burst, is welcome. However, AP is not confident that the country will do so successfully before its own imminent correction.
China’s miracle is impressive. So too were Korea’s, Thailand’s and Indonesia’s. AP will withhold judgement on how China’s overall economic management rates until after he sees how the country responds to a deep recession. He will give the state some credit, for instance, this is far more sensible than anything he was hearing from the pre-1997 Bank of Korea. But broader comparisons of China and Indonesia will be withheld until the former has its crisis.
The World Bank has completed a study of Chinese outward foreign direct investment, surveying Chinese 132 firms on their investment plans and opinions on issues relating to foreign investment at home and abroad.
A power point presentation of the study is here.
Among the questions asked was whether firms found it easier or more difficult to do business in various foreign locations. Not surprisingly, most respondents found business conditions easier in the West and all respondents found the North Korea the most difficult environment for business.
AsiaPundit does not find it surprising that Chinese businesses find the Middle East the second-worst location for investment. While China hands may find this hard to believe, as a former resident of the region who now lives in China, AP will attest that Arab bureaucracies are even more unbearable than what is found in heavily bureaucratized China.
(via the PSD Blog)
Most of the economists AsiaPundit communicates with expect a slow appreciation of the Chinese currency, to a level of around 7.8 to the dollar by year end. This is one of the few outliers.:
Currency Strategists: CLSA’s Walker Forecasts Chinese Yuan Drop
April 10 (Bloomberg) — China’s yuan may fall 2.3 percent by the year-end because economic growth will slow, said chief economist Jim Walker at CLSA Ltd., the Asian investment banking arm of France’s biggest lender by assets, Credit Agricole SA.
Expansion in the world’s fastest-growing economy may cool to about 7 percent this year, from 9.9 percent last year, Walker said in an interview March 28. Foreign direct investment in China, which exceeded $60 billion in each of the past two years, may reverse as company earnings and investment drop.
Senators Lindsey Graham and Chuck Schumer would not be happy. Which is a shame, South Carolina’s Graham made great friends during his last visit and had even managed to get Chinese vice premier Wu Yi to go stateside for a ‘pimp my state’ visit .
South Carolina has a good business environment and has become one of the hotspots for Chinese investment in the United States, Chinese Vice Premier Wu Yi said here on Sunday.
Economic and trade contacts and cooperation between the southeastern U.S. state and China have produced good results in recent years, with South Carolina’s trade with China reaching 3.26 billion U.S. dollars in 2005, Wu said at a meeting with U.S. Senators Lindsey Graham and Jim DeMint, both from the state.
The vice premier said she was deeply impressed by the hospitality of the South Carolina people and the desire of the state’s businesses to cooperate with China.
South Carolina has become a hotspot for Chinese investment. China’s Hai’er Group established a home appliances production base in South Carolina in 1999, its first in North America, creating job opportunities and contributing to local economic development, she said.
America’s Finest News Source has reported that China will be consuming about 80 percent of the scrap metal harvested from the freshly auctioned Detroit.:
DETROIT—Detroit, a former industrial metropolis in southeastern Michigan with a population of just under 1 million, was sold at auction Tuesday to bulk scrap dealers and smelting foundries across the United States.
Site of the former Detroit Museum of African-American History, which took in over $135.
“This is what’s best for Detroit,” Mayor Kwame M. Kilpatrick said. “We must act now, while we can still get a little something for it.”
Once dismantled and processed, Detroit is expected to yield nearly 14 million tons of steel, 2.85 million tons of aluminum, and approximately 837,000 tons of copper.
Another company, Bayonne, NJ’s A-1 Salvage, purchased the recently vacated Tiger Stadium for approximately $.17 a ton. A spokesman for the firm said that the People’s Republic of China had expressed interest in purchasing the dismantled sports venue. China is the world’s largest buyer of scrap metal, and could receive up to 80 percent of the city.
The city’s pending shutdown will make thousands of items with no scrap value, and several train-cars full of law enforcement equipment such as handguns, battering rams, and police clubs and riot suits, available to other buyers.
This is a joke of course. Detroit has nothing to worry about for a while.
SAIC won’t start competing with General Motors with its own-branded autos for several months.
How much has China been responsible for the loss of US jobs and industries? Via Howard French, Oxford Economics shows how relatively small China’s impact on US manufacturing has been.:
Amid all the squeals in Washington at the yawning US trade deficit with China, one strikes a specially resonant political chord: that unfair Chinese competition is annihilating US manufacturing industry and “stealing American jobs”. The assertion is so common it has assumed the status of fact. Yet it is almost entirely false.
For a start, the bilateral imbalance may be overstated. After ironing out the wide discrepancies between both sides’ data, Oxford Economics, a consultancy, finds China’s share has hovered at about a fifth of the total US merchandise deficit since 1995. That suggests the former is as much a result as a cause of the latter’s growth. Heaping all the blame on China would be off the mark, even if US manufacturing were dying.
But by most measures, it is in rude health. The US is still the top manufacturing nation, producing almost a quarter of global output, the same as in 1994, while Japan’s share has shrunk. Adjusted to reflect steady falls in the prices of manufactures relative to other goods and services, US output has doubled since 1985 and its share of gross domestic product has changed little in half a century.
True, more output is from plants owned by non-US companies, some of which have displaced indigenous production. That may fuel popular perceptions of national decline, particularly because greenfield factories usually shun the old rust belt. But corporate nationality is irrelevant to overall economic welfare, except insofar as foreign-owned plants often out-perform locally owned ones.
What of China as “job thief”? US manufacturing employment is in long-term decline, just as it is in other rich countries. But that is chiefly because of impressive productivity gains. Had none occurred since 1970, almost 40 per cent of all US jobs would – in theory – be in manufacturing, three times today’s level. But the comparison is meaningless because standing still would have consigned US manufacturers to competitive oblivion.
Of course, Chinese competition has claimed some US manufacturing jobs. But Oxford Economics puts the losses from 2000 to 2010 as low as 500,000 – no more than the US labour force sheds each week. Their disappearance is also partly a statistical illusion. Many manufacturing jobs are actually in services, such as finance and marketing, which yield far higher returns. As companies have disaggregated or outsourced operations, official employment data have re-allocated swaths of workers to the services sector.
If US manufacturing is stronger than many Americans believe, China poses a weaker challenge than is often supposed. Its output is still less than half that of the US – and many of its industries are suffering a severe profits squeeze. Indeed, to call China a manufacturing economy is something of a misnomer. In reality, it is the world’s biggest final assembly shop, with minimal local value-added.
(Image stolen from here.)
Oops! Singapore’s government investment arm Temasek accidently sent an e-mail to several reporters letting them in on executive talking points relating to its purchase of a stake in Standard Chartered.:
A Temasek document, entitled "2006-03 Taurus Q&As" - which was designed to help its executives answer media enquiries on its 12% stake in Standard Chartered - was yesterday sent as an email attachment to some journalists instead of another file. The document contains 59 questions and answers and was prepared by staff to anticipate questions that might arise from the acquisition. Given that Temasek has rarely done Q&As with the media, the exercise represents a somewhat unique insight into what the Singapore state investment agency currently perceives its perceptional issues are and its own stance on these issues. In what follows we have reproduced the entire Q&A section. It is unedited, except to state in square brackets where answers were left blank.
Full copy of the e-mail is here. Interestingly, talking point 33 provides a response to a question that will not be asked within Singapore.:
33. Your CEO is also the PM’s wife. The PM is also the Minister for Finance, heading MOF which is your shareholder. Is her appointment politically motivated? Wouldn’t there be conflicts of interest?
We are not here to discuss politics since we are not politicians or a political organization.
Our CEO is accountable to the Board of Directors, who is headed by an independent Chairman, just like any other commercial organisation.
In the day job, AsiaPundit covers both real estate and automobiles. While the Shanghai property market can be fascinating, there is always something a bit more appealing about automotive events. That said, AP is pleased that the bursting of the property bubble may lead to more interesting property market events.:
Today on the Netease BBS: The 8th annual Shanghai Spring Real Estate Market, held last week at the Shanghai Exhibition Center, one-upped the booth babes of other trade shows with a real estate girl. As the BBS poster says (rough translation):
This is something that hasn’t been seen before in real estate fairs…Car shows have “car models,” sports events have “babes,” but having a female model stripped bare in this kind of an environment, will using these methods really sell real estate?
Commentators weigh in all sides:
“Whoever marries this woman is an idiot.”
“This is totally normal.”
“This is an artistic experience and they’re going to make a lot of money!”
“Are they selling real estate or sex?”
Chuck Schumer and Lindsey Graham, the two US senators proposing the headline-grabbing 27.5% tariff on all Chinese goods should the country fail to further revalue its currency, have just completed their tour of the mainland. They stopped for a brief press conference and chamber of commerce meeting in Shanghai to cap off the visit.
The two, as noted in an SCMP item linked to by Simon have softened their criticism of the country, but as Simon also notes this is likely a short-lived change.:
The two US senators behind proposed legislation to impose punitive tariffs on Chinese products have shifted from seeing "China as a threat" to a potential "close ally" after meeting top mainland leaders yesterday. New York Democrat Charles Schumer and South Carolina Republican Lindsey Graham said they had achieved significant understanding through their "amazing three days" in Beijing.
Bowled over by Wu Yi but still hedging their bets. The senators are doing what politicians do best - changing their message according to the crowd. You can bet as soon as they land back in Washington it will be "I’ve seen the enemy up close" again. And the Chinese have very politely told the Americans to piss off; This WaPo article also points out that the senators’ visit and the bid to impose currency and other reforms is backfiring:
AsiaPundit was at the Shanghai press conference and was moderately impressed by the senators’ change of tone. Graham noted that China would need further structural reforms to its financial system ahead of any changes to the currency regime and Schumer repeatedly noted that he would prefer a government-to-government solution rather than passage of the bill - essentially admitting that it is a tool to pressure China.
Still, AP doubt that the China trip was as much of an eye-opener as the senators claim. Surely they could have learned about the banking system by tapping their assistants for research, or by reading the Economist or the Financial Times.
The tour was more of a publicity stunt than a fact-finding mission. But AsiaPundit will say that the pair managed to withstand a 34-minute press conference with local and foreign financial reporters without saying anything profoundly stupid.
The local journalist behind Non-violent resistance was less impressed with their event yesterday in Beijing.:
It’s one thing to read a thousand times and write at least 15 times in the past year about the Schumer-Graham duo and their notorious bill, but quite another to sit on the press bench and hear them actually talk about it at a press conference in Beijing.
They couldn’t remembe vice premier Wu Yi’s name, whom they had just been meeting half an hour ago, ("one tough lady, she would do well in an American courtroom, I like her a lot" was all they could muster), and two and a half years after raising that sorryass China-bashing bill of theirs, Schumer still couldn’t get his pronunciation right ("yuan" with a Y instead of "won" with a W, Chinese instead of Korean currency, your Senatorial High-ness).
"The jury is still out" my ass. To hear them talk, Schumer in his slick baritone and Graham in his southern drawl, about "the bay-est interest of the Una-ited States of Ame-erica", "buka-uz too many people depending on us to get this right", I was so disgusted I didn’t even raise my hand to ask a question. What’s the point of asking anyway? They’re just here for the show.
AsiaPundit has heard enough Chinese officials mangle English to be more accepting of the duo’s language problems. AP also agreed with Schumer when he said he prefers Shanghai to Beijing. AsiaPundit will also note that Schumer, true to form, mentioned New York at least four times during the Shanghai press conference (or roughly once every 9 minutes).
"I will pay Shanghai at least what I consider the ultimate compliment, ‘you’re a lot like New York.’ Shanghai is much more like New York than Beijing - which was the first city we visited - in a whole lot of ways."
This is not a podcast, as TypePad’s podcast-enabled template doesn’t seem to be working, but the presser is on audio below.
Press Conference Audio File
Morgan Stanley’s Stephen Roach has just finished a three-day tour of Beijing, meeting, separately, with senior Communist party leaders and three touring US Senators, two of whom are sponsors of a bipartisan bill that would put 27.5%.tariffs on Chinese goods if the country does not further revalue its currency by a similar amount.
Roach’s observations are both astute and chilling.
Chuck Schumer is a very smart and savvy man. He is using the bully pulpit of a prominent politician to put so much pressure on China that it will have no choice other than to give. Nor does he have much doubt that this approach will work. "This is exactly what I did in Japan in 1986," he said - apparently the last time he was in Asia. "It worked in Japan and it will work in China." Senator Schumer is not Reed Smoot - Utah’s protectionist senator who co-sponsored the Smoot-Hawley Tariff Act of 1930 that led to the Great Depression. In the end, Schumer doesn’t want tariffs - he wants to go down in history as the man who made China blink. But he is perfectly prepared to play high-stakes political poker in order to achieve this objective. So is the rest of the US Congress. The big risk is that China calls Washington’s bluff and the two parties start to stumble down the very slippery slope of trade frictions and protectionism.
While the senators claimed they were there to listen and learn, my guess is that this was a classic window-dressing sojourn. As I probed them on the issues, they had all the answers down pat - their minds were made up. Schumer actually conceded the point on the structural macro linkage between the trade deficit and the national saving problem - a first for a major China basher. This, of course, has been a major leg of my own macro stool for longer than I care to remember. "I agree with you," he said, "America doesn’t save enough and we consume too much." Fine to that point, but then he turned the logic inside out: "I care deeply about the loss of US manufacturing jobs to China. If I am successful in cutting our trade deficit with the Chinese, not only will those jobs come back home but I will have succeeded in boosting US saving and cutting excess consumption. My bill can do all that and more." I am rarely speechless, but at that point, I started to choke on a huge bite of watermelon. "Let me get this straight," I gasped, "tariffs will boost saving?" Too late - he was already off to face the ever-present battery of cameras and microphones.
In a short span of 24 hours, I had heard it all on both sides of the China debate. The Chinese leadership was amazingly transparent in expressing their own hopes and concerns at a critical juncture on the nation’s extraordinary journey. And then the Washington crowd blitzed into Beijing with an agenda of its own. What was missing was a willingness to bend - for both sides to come together in the best interests of the collective whole. The great paradox of globalization never seemed more vivid - our economies may be global but our politics remain decidedly local. Unless we resolve that paradox, I am afraid the win-win dreams of globalization advocates could remain fleeting.
Given the tale Roach recounts, AsiaPundit would also have been more impressed with the CCP leaders than the senators. However, it is also worth noting that the CCP are very keen to impress investment bankers and would be very well coached on what to say and what not to utter.
Similarly, the senators are playing for a domestic audience. One would hope that Schumer doesn’t really think that raising prices on Chinese goods would boost US savings or bring labor-intensive factories back from China (although it could benefit textile and footwear makers in places such as Vietnam and Bangladesh).
Peter Dorsman at Peaktalk notes a proposal from the China’s legislative advisory body, the CPPCC, for a change to the nation’s banknotes that AsiaPundit would welcome.:
At the moment I am reading Mao : The Unknown Story which even after all that we’ve learned about communism and its depraved despots still is a revealing read. The question is how many copies have made it into mainland China and to what extent it will influence a rethink of the Chairman. Well, he may no longer find himself on Chinese banknotes:
Delegates to an advisory body to China’s parliament have proposed that Deng Xiaoping, architect of the nation’s economic reforms, and Sun Yat-sen, father of the revolution that toppled the last emperor in 1911, should grace the new bills, state media reported on Monday.
It may be a small gesture, but it is a siginificant move in the ongoing process of China rewriting its own history.
While AP is in agreement that the addition of Deng and Sun to the country’s banknotes would be good news, he doesn’t really see the proposal as one of great significance.
But more on that in a moment.
On Peter’s other question, AsiaPundit offers his assurances that there are absolutely no copies of the Chang-Halliday book in China.
And if there were they would certainly not be brought to the Great Hall of the People to be read by journalists ahead of boring press conferences.:
And the book would definitely not be brought anywhere near the Forbidden City.:
There is simply no way to get a copy of such a book in China.
Back to the currency matter. Unfortunately, the proposal on the new notes isn’t a proposal that is imminently likely to pass. Jeremy at Danwei notes some other CPPCC pitches that were made.:
See also gay marriage, the one child policy and edible toothpicks.
Via the Opposite End of China, the Economist Intelligence Unit looks at political risk in China. And, in spite of the recent stories of rising protests and increasing ‘mass incidents,’ the EIU says the risk of a coming collapse is low to moderate under four different scenarios.:
Mishandling of protests in Hong Kong destabilises the Chinese leadership (Low Risk)
The Chinese government accepted the resignation of Hong Kong’s chief executive, Tung Chee-hwa, in March 2005. Mr Tung’s unsuccessful attempts to force through unpopular national security legislation in 2003 had prompted demonstrations attended by several hundred thousand. The appointment of a new chief executive, Donald Tsang, previously a leading civil servant, eased tensions, and pro-government parties did well in September 2004 elections for the Legislative Council (Legco). However, Mr Tsang’s plans for electoral reform were voted down in December 2005 by pro-democracy parties, who wished to see a faster move towards universal suffrage. The Chinese government has ruled out early moves towards full democracy, and there are fears that clashes between China and Hong Kong politicians over democracy in the territory could have repercussions for political stability in China as China’s leadership struggles to reassert its authority. (image )
Local protests broaden into a wider movement (Moderate Risk)
Local protests will continue to be sparked by a number of issues including lay-offs, failure to pay workers, environmental pollution, corruption and illegal seizures of land. The local government’s failure to properly compensate peasants for seized land was, for example, the cause of recent protests in Shanwei, in Guangdong province, in which several demonstrators were shot dead by police. To date the government has faced down such protests by addressing some of the complaints raised and arresting most of the leaders, but this tactic may not be so successful in the future. The size and number of protests appears to be growing, and the spread of mobile phones has made organisation of demonstrations easier. (image here)
The continuing political transition results in a struggle for power or policy paralysis (Low Risk)
Major shifts in the balance of power are unlikely, and would only occur in the context of a specific controversy (for example, the mishandling of a major health crisis or a collapse in growth could prompt a realignment of power). While most factions within the CCP seem to support the current policy stance, businesses should be aware that the emphasis of policy could change if such a shift occurred. (image via here)
Further disease outbreaks occur, creating public anger and leadership disunity (Moderate Risk)
The growing risk posed by bird flu has been recognised as one of the key threats to China’s strong economic growth rates. The World Health Organisation (WHO) has noted that bird flu appears to be widespread among the country’s poultry population, and outbreaks have occurred in numerous provinces in 2004-05, both among wild birds and among birds raised domestically and commercially. If these outbreaks spread they could devastate the country’s poultry and egg industries, which are among the largest in the world. … This category of risk is also increased by the partisan nature of the press, which can be relied upon to suppress facts deemed unhelpful to the party leadership. Companies should consider establishing contingency plans to cope with a potential health crisis that could render a large proportion of employees ill or disrupt logistics systems. (image via here)
The Development Bank Research Bulletin compares the 2006 economic forecasts on India and China by the three major investment banks that cover both countries.
Deutsche Bank always has no preference!
Deutsche Bank forecasts that China’s GDP will grow at 9% in year 2006, while India will grow at 6.9%. This creates a 2.1% growth gap. Both numbers are almost the same as the consensus in the industry. This is not the first time; I have to mention that last year DB did the same thing. DB always agrees with the consensus view!
Citigroup loves Indian foods!
Citigroup however thinks the gap should be smaller. Citi predicts that China will grow at 8.7%, while India at 8.1%, which produces a merely 0.6% gap compared to DB’s 2.1%. I have to mention that Citi’s 8.1% forecast of India GDP growth in year 2006 is the highest among all major forecasters. Their forecast of 7.5% for last year was also the highest. Citi does love Indian foods!
Morgan Stanley does not like Asian foods!
Interestingly, Morgan Stanly is very pessimistic about both India and China. Morgan Stanley thinks China will grow at only 7.8% while India at 6.6%. Among all major forecasters who have released numbers for China and India, Morgan Stanley’s forecast is the lowest. Last year MS also was the most pessimistic about the two countries, and missed the target by wide margin. They must have some private information and hard evidence backing their persistent opinion. I will try to find it out and share with readers in the next weeks.
AsiaPundit admits to being a bit of a bear on China. It’s not that China’s economic growth is a myth. The ‘miracle’ is very measurable. However, anything that can be measured cannot be called a miracle.
There will be a crisis, it could be sparked by bad policies at home or abroad. A collapse of US housing markets, for instance, could easily plunge the Middle Kingdom into despair. When the crisis happens, the interesting thing will be how it plays out socially and politically.
The US tends to solve its problems quickly and has the political flexibility to dismiss bad administrations by ballot. Japan’s biggest crisis sparked a decade of deflation. After the Asian crisis Indonesia emerged a democracy, the Philippines never really found its feet, while South Korea made a wonderful transformation.
Perhaps a European historian can tell us what happened when the Weimar Republic collapsed, European history isn’t one of AsiaPundit’s areas of expertise.
Predicting when a crisis will occur is a crap shoot, although there are indicators that can provide warning signs. Guessing what happens after a crisis hits in next to impossible.
China Law Blog earlier this week posted a response challenging Minxin Pei’s doom-and-gloom article on China’s problems. Today Dan Harris, the blog’s author, notes that Tom Barnett and James Na have replied.:
I blogged a few days ago about a recent article by Minxin Pei predicting China’s enivitable fall. At that time I talked about the article having generated "quite a bit of buzz in the blogosphere." The buzz is even louder now.
I posted Dr. Pei’s article because I found it thought provoking, but I did not sign on to its pessimistic conclusion. I suggested that those interested in these sorts of "big idea think pieces" on China should read "big idea" bloggers like James Na, Dan Drezner and Tom Barnett, whose views range all over the China optimist-pessimist map.
Barnett and Na both took me up on my suggestion and both ran posts on the Pei piece. Na liked Pei’s thesis. Barnett did not.
Separately, Tyler Cowen adds.:
I will go on record in agreement (with Pei). More specifically, how about a bone-crunching, bubble-bursting, no soft landing, Chinese auto crash-style depression within the next seven years? This is also my biggest worry for the U.S. economy, I might add.
If you are not convinced, raise your right hand and repeat after me: “China in the 20th century had two major revolutions, a civil war, a World War, The Great Leap Forward [sic], mass starvation, the Cultural Revolution, arguably the most tyrannical dictator ever and he didn’t even brush his teeth, and now they will go from rags to riches without even a business cycle burp.” I don’t think you can do it with a straight face.
Making a guess on when the crisis will occur, AsiaPundit will agree with Gordon Chang that China will collapse in 2005. That is inaccurate, but it does put AP in good company.
Speaking of Mr Chang, AsiaPundit will take this opportunity to gripe that he will miss one of Chang’s speaking engagements in Shanghai due to a scheduling conflict caused by the National People’s Congress. Worse still, AP will miss Tiara Lestari’s photo exhibit in Bali because of those darned ‘commies.’ Tiara had even offered an invite to AP.
China should collapse. It deserves it. The leadership of the Chinese Communist Party has - by refusing to reschedule its silly parliament - prevented AsiaPundit from meeting a really hot Indonesian model and former Playmate. This is personal.
Oddly, Mrs AsiaPundit doesn’t seem upset with the CCP over this latest outrage.
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