China Economy: News & Discussion

Discussion in 'China' started by Rage, Jun 1, 2009.

  1. Rage

    Rage DFI TEAM Stars and Ambassadors

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    Hyperinflation is rampant inflation or inflation gone 'out of control'. It is a monetary effect owing itself either or to simultaneously large increases in the supply of money or increases in the velocity of money over short intervals. In prevailing theories of hyperinflation, the 'confidence model' suggests that monetary velocity or the frequency with which a particular bill or unit of currency changes hands in a specified time interval, spirals upwards rapidly when sellers demand a higher premium over and above the (nominal) value of that currency either due to: a) speculation that the issuing authority: the Central Reserve Bank will not remain solvent or b) due to consumers unwilling to hold on to notes they conceive will loose value rapidly or become valueless, primarily due to a cataclysmic event or series of events such as stock runs or losses in war. In the 'monetary model', hyperinflation results on account of a cyclical cumulative causative effect of a rapid increase in the volume of the circulating medium. Analogous to any other inflation, the issuing body prints more currency to bankroll fiscal deficits as a result of lax fiscal policy or other exigent circumstances. To match the policy of rapid currency expansion, prices are marked up by private entrepreneurs to cover the expected erosion in currency value. As a result, the Central Bank accelerates the rate at which it prints currency to cover the increase in prices. What results is a spiralling erosion in the value of the currency, or what we call 'hyperinflation'.

    'Living standards', depending on how that is defined, may not necessarily decline in the interim in countries with sufficiently well established market economies during hyperinflation. Because real output, and therefore per capita real output, does not decline in well-entrenched economies until the very last, terminal stages of the economy (if indeed hyperinflation is allowed to proceed that far). The only thing that has changed is the nominal and real value of money (the ratio of money supply to price level), which, if economies are sufficiently well-established can be offset by intra-day loans, incomes policies, specie, and holding a currency based on assets loaned against by banks (as with the Rentenmark in pre-WW2 Deutschland). Though in countries making a transition from central to market-orientation, output does decrease drastically because state enterprises must roll back production drastically in order to mitigate financial losses.

    Hyperventilation is what your boy 'badguy2000' does when he sees an article remotely upbraiding of China.

    In other parts of the world, the two together is what'd be called a 'barb'.



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  2. Daredevil

    Daredevil On Vacation! Administrator

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    China’s growth figures fail to add up

    Manipulation is the key for CCP, be it Olympics or Economy

    China’s growth figures fail to add up

    By Jamil Anderlini in Beijing
    Published: August 4 2009 19:20 | Last updated: August 4 2009 19:20

    China’s gross domestic product figures are among the world’s most closely watched since they can move markets or boost hopes of an imminent recovery.

    But the latest set of first-half numbers provided by provincial-level authorities are far higher than the central government’s national figure, raising fresh questions about the accuracy of statistics in the world’s most populous nation.

    GDP totalled Rmb15,376bn ($2,251bn) in the first half, according to data released individually by China’s 31 provinces and municipalities, 10 per cent higher than the official first-half GDP figure of Rmb13,986bn published by the National Bureau of Statistics.

    All but seven of the regions reported GDP growth rates above the bureau’s first-half figure of 7.1 per cent. At the start of the year, Beijing set 8 per cent as China’s growth target for the year.

    With the rest of the world looking to China as a beacon of expansion, the discrepancy is a reminder that statistics there are often unreliable and manipulated regularly by officials for personal and political purposes.

    In recent years, provincial figures have suggested consistently the world’s third-largest economy is bigger than Beijing’s published estimate, but the discrepancy appears to have widened this year.

    Even state-controlled media reports and editorials have in recent days raised questions over their accuracy.

    The Global Times, controlled by the People’s Daily, the Communist party mouthpiece, reported that the public reacted with “banter and sarcasm” to NBS figures showing average urban wages in China rose 13 per cent in the first half to $2,142.

    It quoted an online poll showing 88 per cent of respondents doubted the official numbers.

    An editorial on Tuesday in the China Daily, the government’s English-language mouthpiece, quoted another survey that found 91 per cent of respondents sceptical of official data, up from 79 per cent in 2007.
    :blum3:
    Economists abroad have also questioned the reliability of the data in recent months.

    “Despite starkly limited resources and a dynamic, complex economy, the state statistical bureau again needed only 15 days to survey the economic progress of 1.3bn people,” said Derek Scissors, of the Washington-based Heritage Foundation, referring to the time it took for the bureau to produce the figures after the end of the first half this year. “At worst, results are manufactured to suit the Communist party.”

    Some economists say provincial officials have enormous incentives to improve their career prospects by exaggerating local economic growth.

    The NBS itself is often wary of data provided by local governments and tends to revise down preliminary estimates using its own statistical model, according to official economists.

    Calls to the NBS, which like most Chinese government agencies rarely responds to requests for comment, were not returned.

    The criticism has prompted the NBS to launch a campaign last week, entitled “Statistical Feelings: We have walked together – Celebrating the 60th anniversary of the founding of New China,” to boost confidence among statisticians.

    The campaign has already produced works such as: “I’m proud to be a brick in the statistical building of the republic.” In another poem, a contributor writes: “I can rearrange the stars in the sky because I have statistics.”
     
  3. Daredevil

    Daredevil On Vacation! Administrator

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    Beijing’s dollar trap

    Beijing’s dollar trap

    By Peter Garnham
    Published: July 30 2009 17:19 | Last updated: July 30 2009 19:00

    China is caught in a dollar trap that has prompted a concerted effort to “internationalise” the renminbi and promote its use outside the country.

    Fears over the value of China’s massive dollar holdings, accumulated over the past decade as the country pursued an aggressive policy of export-led growth, have been the trigger for the move.

    The market’s focus thus far during the financial crisis has been on China’s call for less dependence on the dollar as a reserve currency and repeated calls for the US to avoid debasing its currency through aggressive monetary and fiscal easing.

    But many analysts believe China’s calls for a change to the international monetary regime – earlier this year it suggested using the International Monetary Fund’s special drawing right as a reserve currency – are merely a distraction.

    Indeed, China has little incentive to talk down the dollar and such calls are regarded as little more than pleas to the US authorities to keep their finances in check.

    Simon Derrick, at Bank of New York Mellon, says China is not in a position to sell a significant portion of its dollar holdings in the open market without causing considerable damage to itself. This means that it must explore a number of different short- and long-term strategies to deal with the problem.

    “Developments this year indicate that China now believes that its best long-term strategy is to increase the international role of the renminbi, including its use as a reserve currency,” he says. “This might be the first signal that China is now considering a potential timetable, presumably over years rather than months, for moving towards capital account convertibility.”

    It is no wonder the Chinese are concerned about their exposure to the US.

    China announced its foreign exchange reserves, the world’s largest, had risen by a record $178.3bn to $2,130bn in the second quarter. Although the exact breakdown of the stockpiles is a secret, analysts estimate that 65-70 per cent are held in dollars.

    The largest increase in reserves was in May, when the dollar weakened sharply as Treasury yields in the US rose. Fear of a weaker dollar contributed to inflows to China, sparking offsetting intervention by the Chinese authorities to stem strength in the renminbi.

    Clearly more dollar weakness – it hit its lowest level against a basket of six leading currencies this week – is not in China’s interest. Qu Hongbin, chief China economist at HSBC, says this has prompted Chinese policymakers to rethink the root causes of the “dollar trap” they find themselves in.

    “There is a growing consensus in Beijing that one of the fundamental reasons the country has fallen into this trap is that its own currency is not yet an international currency,” he says.

    This means Chinese exporters and importers have to rely on the dollar for invoicing more than 70 per cent of the country’s $2,600bn annual trade flows.

    With China’s exports surging nearly 30 per cent annually from 2002 to 2007, and government controls on overseas investment by domestic corporations and households, most of the dollar receipts can be recycled out of the country though just one channel: the central bank’s reserve accumulation.

    “To find an ultimate solution to this issue, apart from gradually loosening controls on capital outflows, Beijing has realised that it is time to push the internationalisation of the renminbi,” says Mr Qu.

    Mr Qu says this move is long overdue, given China’s rising economic power relative to the limited use of the renminbi overseas.

    China’s nominal gross domestic product topped $4,300bn last year and is estimated to reach $4,700bn this year, implying that China may overtake Japan as the world’s second-largest economy in 2010. HSBC says China was already ranked as the world’s third-largest trading country last year, and is likely to overtake Germany as the world’s second-largest trading nation by the end of this year.

    In order to kick-start the process of internationalisation, China has begun an ambitious scheme to raise the role of the renminbi in international trade and finance and reduce reliance on the dollar.

    Earlier this month, China announced a pilot initiative that expanded settlement agreements between Hong Kong and five big trading cities, including Guangzhou and Shanghai.

    On top of this, to provide seed money to its trading partners, this year the People’s Bank of China has signed a total of Rmb650bn ($95bn) in bilateral currency swap agreements with six central banks: South Korea, Hong Kong, Malaysia, Indonesia, Belarus and Argentina.

    HSBC says China is still in talks with other central banks to form additional swap agreements and was likely to expand them to cover all the country’s trade with Asia, excluding Japan.

    This would be followed by an expansion to take in other emerging market countries, including those in the Middle East and Latin America, that needed renminbi to pay for their imports of Chinese manufactured goods.

    Mr Qu believes the process of internationalising the renminbi may be quicker than many expect, estimating that more than half of China’s total trade flows, primarily bilateral trade with emerging market countries, are likely to be settled in renminbi in the next three to five years.

    “This means that nearly $2,000bn worth of cross-border trade flows would be settled in renminbi, making it one of the top three currencies used in global trade,” he says.

    But not all analysts believe that China can solve its dollar dependency so quickly.

    Indeed, Marc Chandler at Brown Brothers Harriman describes China’s efforts so far in providing currency swap lines as a “drop in a bucket” compared with its trading volumes.

    He says China’s dollar dependency is a problem of its own making, given that its reserve accumulation has sometimes been larger than its trade surplus as it sterilises foreign direct investment and speculative inflows into the country.

    “I don’t see how use of the renminbi, even if it could be foisted on other countries would solve any of China’s problems,” says Mr Chandler.

    He says a more flexible currency will help the Chinese authorities avoid painting themselves deeper into a corner, but it will not change China’s competitive position very much, given the way it really competes is cheap labour costs. I think the talk of international monetary regime change and the renminbi as an invoicing currency is largely political posturing.”
     
  4. Koji

    Koji New Member

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    Online video and audio: programmes and multimedia | The Economist


    The link above is a video-blog by the Economist. In the particular segment, they examine the four largest economies in the world: US, China, Japan, and Germany and see their effects on global recovery.

    It brings up an interesting point arguing that China's rapid growth is not so much related to exports, as many believe.
     
  5. Daredevil

    Daredevil On Vacation! Administrator

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    China’s Growth an Accounting Miracle

    By Vitaliy Katsenelson | Posted: 08-10-09 | 11:29 AM

    Now we are learning how China has achieved its “miracle growth.” The country showed positive GDP growth while its electricity consumption declined in the beginning of 2009 – creative accounting that makes Enron’s accountants appear as dilettantes. A paper published by John Makin at American Enterprise Institute explains it well:

    “Once China had announced its 8 percent growth target, it began to disburse funds directed at a sharp increase in public works spending. It is important to understand that the disbursal of funds is recorded as GDP growth. So the government can easily control the pace of growth by the pace at which it releases funds that have already been allocated in the stimulus package to the creation of higher production or growth numbers. Funds disbursed for fixed-asset investment by state-owned enterprises or provincial governments are counted as having been spent when they are disbursed. In fact, the funds go out to the state-owned enterprises and provincial governments and may be held until actual projects are identified and undertaken.”

    But wait, it gets worse:
    “…Ambitious planners count shipments [consumer products] as retail sales while end-use demand may be absent. In such cases, the “sales” are made to happen by virtually giving away the products that have already been produced and counted as GDP growth.”

    I am not convinced if China will have inflation in the long-run. It appears that deflation is a more likely scenario as China is ridden with overcapacity – the country was geared for much higher global growth. I can, however, see inflation erupting in a very short timeframe as money has been thrown at the consumer/companies, and we are seeing this in the stock market and real estate. But in the long run, inflation appears an unlikely outcome: overcapacity and slower demand from the US and Europe will force Chinese producers to cut prices to increase utilization and stimulate demand.

    Lately, we’ve started hearing whispers of the Chinese renminbi contending for the status of the world’s reserve currency. On the surface it more or less makes sense. The US is struggling and Europe has structural problems. John Mauldin correctly put it, “EU was designed for prosperity not for adversity.” It will be hard for the EU experiment to survive in the long run. But that’s a topic for a different discussion.

    China on the other hand is chugging along. I heard (though not confirmed) the Chinese stock market now has a greater market capitalization than Japan’s. Though the Chinese economy has the size of a global currency contender, it lacks one not-so-little element that the global economy will require for renminbi to become the world’s currency – political stability. We forget that China is still not a democracy. I am not sure what to call the political system of the People’s Republic of China but I don’t think it’s the “people’s” nor is it a “republic.” The rule of law is a nascent concept in China. Something is only legal if the government thinks it is legal.
    And finally, I’m sure China doesn’t want the renminbi to be the world’s currency as it would drive up the value – a suicide for an export-based economy.

    P.S. I highly recommend you read Peter Drucker’s paper called Managing Oneself – it is terrific. I’ve read it the first time about six years ago, had a huge impact on my life. Also, a friend forwarded a very interesting article by Anatole Kaletske (I’ve never heard of him until today), he makes a very interesting case that European Central Bank has outdone even our mighty Fed in quantitative easing.

    Vitaliy N. Katsenelson, CFA, is director of research at Investment Management Associates in Denver, Colo., and is the author of "Active Value Investing: Making Money in Range-Bound Markets" (Wiley 2007).
     
  6. Daredevil

    Daredevil On Vacation! Administrator

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    China’s economic policy: A ‘Great Wall’ or Capuan complacency?

    China’s economic policy: A ‘Great Wall’ or Capuan complacency?

    August 11, 2009 5:15amby Arthur Kroeber
    By Arthur Kroeber

    “China’s spirit”, opined the People’s Daily in a recent editorial, is a “Great Wall” built to ward off global crisis.

    In purple prose heralding China’s recent heroic successes, the editorial extols the Communist Party for leading China back from the global economic abyss after the country recorded 7.9 per cent growth in the second quarter of this year.

    “This situation in China is in sharp contrast with Western developed nations, where the economic growth has kept sliding,” it concludes.

    The nauseating tone of the editorial reminds us of a famous quotation by the Roman historian Livy, explaining why the Carthaginian commander Hannibal failed to destroy the Roman Empire.

    “Capua was Hannibal’s Cannae,” Livy wrote. It is a judgment that China’s leadership (and smug editorial writers) would do well to heed today.

    Cannae was the great battle in 216 BC in which Hannibal, having brought a motley force and some elephants over the Alps into Italy two years previous, annihilated the entire Roman army.

    One of his generals urged him immediately to march on to Rome and end the war by decapitating the Roman state, which he could have easily done. Inexplicably, Hannibal chose not to but dithered a while, giving the city time to organise its defence.

    That delay, the racy if moralising historian Livy wrote a couple of centuries later, saved the Roman Empire – and hence, we may fairly speculate, made possible a couple millennia of Western civilisation.

    Hannibal instead led his troops into winter quarters in the decadent city of Capua, where they became so demoralised by pleasure that they lost their fighting spirit.

    The Carthaginians spent another decade knocking about the peninsula, engaging in a series of desultory and inconclusive battles, after which they retired back to north Africa where Hannibal was finally defeated and disgraced.

    The moral of the story, according to Livy, is that complacency is more destructive than calamity.

    The Romans bounced back from calamity because they had a resilient set of alliances based on well-developed political and economic ties and a constitutional system that enabled a broad array of talent to come forward and express itself. No error lasted too long unchecked.

    The Carthaginians, on the other hand, proved unable to recover from their morale-sapping complacency because they relied on a single strongman and had no mechanism to correct his errors.

    One of our firmest maxims is that economics is not a morality play. But the widespread tendency now to point to the financial crisis as an omen of the inevitable decline of the west and the inevitable rise of China causes us to suspend the rule for a day and apply Livy’s moral point to the current situation.

    The financial crisis was a calamity, and it will force important changes in how markets in advanced economies are run. But these changes occur within a system that is extremely robust and resilient, precisely because it is open, power is widely dispersed, information flows freely, and talents of many kinds find many avenues to express themselves.

    The strength and dynamism of that system have not been called into question, any more than during the financial panics of the late 19th century, which the current crisis resembles more strongly than the oft-invoked Great Depression.

    China’s ability to maintain economic growth of around 8 per cent despite the global shock took many by surprise. But this ability has nothing to do with systemic advantages, a distinct “China model” of growth, or skill in macroeconomic management.

    Still less has it anything to do with the reasons cited by the People’s Daily editorial.

    China’s present economic vitality results from a Great Wall all right – a Great Wall of borrowed cash. There is nothing remarkable or spiritual about an economy growing at 8 per cent when credit is allowed to expand by 34 per cent.

    The fact becomes even less remarkable when we recognise that nominal GDP (the appropriate comparator for nominal credit growth) grew just 3.8 per cent in the first half. In other words, 10 dollars of new loans were required to generate just one dollar of economic growth.

    In fact China’s first-half growth shows one thing and one thing only: the existence of a powerful state with the ability to commandeer its citizens’ wealth and plough it into more buildings, bridges and roads, with no regard for the return those investments will bring.

    We were bemused last winter when people convinced themselves that the Chinese state lacked this capacity, and hence that growth was doomed.

    Today we are perturbed when the self-congratulators within China and the Cassandras of global capitalism without proclaim that this desperate binge reflects some kind of systemic strength.

    This spending spree was fine as a temporary measure to buy time for serious structural reforms that will increase private consumption and investment, which are the only reliable drivers of long-term growth.

    But the government’s decision last month to leave in place the current let-’er-rip monetary policy suggests a rising risk that Chinese policy makers will make the same mistake as Hannibal in Capua.

    Addicted to the creature comforts of high growth, they are unwilling to stop the money flow and undergo the tough re-training necessary to ensure that China evolves from the road-building and widget-assembling behemoth it is today into a diversified, vibrant, genuinely competitive economy.

    Despite present appearances, it is a better bet that the West will recover from its deservedly humbling financial Cannae than that China will shake off the demoralising effect of its Capuan complacency.
     
  7. mattster

    mattster Respected Member Senior Member

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    I read an recent article in the Foreign Policy magazine where the Chinese Amercan author makes a very good point - Democracies generally highlight their shortcomings and diminish their successes. This is because the media in the free-world generally considers bad news to be more interesting.

    Socialist countries tend to hide all the bad stuff and only highlight their successes because the media is controlled by the state. So its really hard to know what the real situation is in countries like China.

    There is no transparency, and therefore the risk to investors is much higher in China than India. Thats why I think the chinese people keep bidding up the real-estate market to unsustainable levels. They dont read these types of articles that show both sides of the story.
     
  8. badguy2000

    badguy2000 Respected Member Senior Member

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    well, USA's greedy wall street indeed read all such articles that whos both sides of stories, but they still bidding up "poisonous bonds" to unsustainable level and pull the whold world into crisis.

    guy, now it is USA that is on the edge of bankrupt,instead of China.

    I really feel it amazing that a guy who is almost bankrupt still insist that he be more economically "sustainable" than a big buck and refuse to rethink why he is "bankrupt".
     
  9. Known_Unknown

    Known_Unknown Devil's Advocate Stars and Ambassadors

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    Although the above article about China might be exaggerating things a fair bit, it is also an exaggeration to say that the Americans are bankrupt. They have a $14 trillion economy which is more than 4 times the size of China's and 13 times the size of India's. As long as the US$ is the primary mode of exchange internationally, the US can never go bankrupt. And as long as the US is the world's largest economy, there is no alternative for other countries but to maintain the primacy of the US$.
     
  10. india rock

    india rock New Member

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  11. Known_Unknown

    Known_Unknown Devil's Advocate Stars and Ambassadors

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  12. india rock

    india rock New Member

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    which one you use ,imf cia or wb
     
  13. Known_Unknown

    Known_Unknown Devil's Advocate Stars and Ambassadors

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    The IMF. But you can use any one you like, the figures are pretty close. :)
     
  14. Sridhar

    Sridhar House keeper Moderator

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    [FONT=Verdana, Arial, Helvetica, sans-serif]What Chinese Authorities Do Not Want You to See
    By Tom Dyson
    Tuesday, August 18, 2009

    If the Chinese authorities had caught him making this video, they would have arrested him...

    Hugh Hendry is a hedge-fund manager from Britain. Eclectica is the name of his fund. He's outspoken and critical of the establishment. You could say he's somewhat of a pariah in London's hedge-fund industry. In 2008, his fund generated 32% by making massive bearish bets...


    Earlier this year, Hendry took a trip to Guangzhou, China's third-largest city after Beijing and Shanghai. There's been a huge construction boom in China in recent years, and Guangzhou is one of the hot spots. Developers have erected so many skyscrapers, Guangzhou's central business district could easily match Chicago or Boston for the number of modern, high-rise buildings.


    So Hendry shot a video of the office buildings in the district. He focuses on one shiny black skyscraper with a giant neon screen at its base. It's close to 100 stories... And it's obviously brand new...

    "This is a seriously large building," says Hendry. "We're talking at least half a billion dollars to construct this thing. It's empty! Who is going to fill this thing? Who is going to pay the debt that that building is resting on?"

    Hendry's film shows several more skyscrapers... each as large and modern as any new tower you'd find in Manhattan... and they are all completely empty.

    "This is astonishing," he concludes... You can watch the whole video here.

    Thing is, the Chinese are incredibly touchy about foreign journalism. I experienced it first hand when I was in China last year and tried to organize a tour of a factory in Lanzhou. They almost arrested me when they discovered I didn't have a journalist visa. If the Chinese had known Hendry was filming empty buildings and posting his movie on the web, they would have definitely arrested him...

    So why does Guangzhou have so many empty office buildings? It's because of false market signals. The Chinese government's inflation and easy-money policies have led developers to build more office space than Guangzhou needs.

    Now that the world economy has fallen apart, the malinvestment sticks out like an empty skyscraper.

    From the reports I've heard, it's not just Guangzhou. There are now too many factories, too many buildings, and too much infrastructure relative to demand all over China...

    Instead of letting the market liquidate these mistakes when the crisis struck, the Chinese government decided to make it even worse. Over the last nine months, it has forced banks to make more terrible loans and encouraged a new batch of unnecessary construction. A second China bubble has formed. You can see this second bubble in this chart of Shanghai's stock market index. It rose over 100% between November 2008 and July 2009.

    [​IMG]
    [​IMG] [FONT=Verdana, Arial, Helvetica, sans-serif] The Police Caught Me Breaking into a Freight Yard in China[/FONT] [FONT=Verdana, Arial, Helvetica, sans-serif] Why I'll Never Invest in China [/FONT] But that bubble may be about to end... Three weeks ago, the Shanghai stock market reached a peak and started falling. Now we have the downtrend. We have a fantastic opportunity to short this bubble and make a fortune as the new Chinese miracle falls apart...

    There are a lot of ways to go about shorting China. You can sell short commodities like copper and oil. Chinese stocks and commodities tend to trade along with each other. You can also short the big Chinese stock ETF (FXI) or buy an "inverse fund" that profits when Chinese stocks fall. The symbol here is FXP.

    Good investing,

    Tom

    What Chinese Authorities Do Not Want You to See
    [/FONT]
     
  15. Sridhar

    Sridhar House keeper Moderator

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    Growing Internal Instability: Will China Divert Externally?
    Maj Gen Dhruv C Katoch (Retd) [email protected]
    China's historic shift from centrally planned to market economy has made it the manufacturing centre of the world. This has however come at the cost of a widening development gap between urban and rural areas and between coastal regions and inland/frontier areas. Many people in China have also lost the assurance of a lifetime job and the social safety-nets that they enjoyed a generation ago. Opening the economy, creating new labour-market mechanisms, and encouraging internal-migration flows have also impacted on China’s peripheral regions such as Xinjiang, TAR and elsewhere.

    Impact of Global Recession

    As the Chinese economy is closely integrated with the global economy, it cannot be insulated from global recessionary trends. Today, close to 40 per cent of Chinese GDP comes from exports and it is this segment which has been hit hardest by global recession. Lack of domestic demand for goods being exported has perforce led to a cutback in production which has further translated into job losses. China already had a huge unemployment problem with 120 million unemployed on a continuous basis. To this has now been added an additional 20 million newly unemployed due to the global financial crisis and its resulting closed factories. Add another 6 million new graduates into the work force (2008-2009) and we get a sense of the magnitude of the problem China is faced with.

    To combat recession, China has relied mainly on the Monetary Expansion route to tackle the economic crisis. Two major measures undertaken in this regard are: -
    • RMB 4 trillion (USD 585 billion) has been pumped into the economy in a stimulus package, to be deployed over two years in a bid to stimulate demand within the Chinese economy.
    • RMB 5 trillion (USD 731 billion) worth of loans given by Chinese state owned banks to people and to businesses both large and small.

    Impact of Chinese Monetary Policy

    The stimulus package makes the Chinese economy look bullish as so much money has been spent in just 6 months. All analysts are therefore saying that China is booming again. This however may not be true as the effects of the stimulus package are at best temporary. Sooner or later market fundamentals will come into play and then we will see a different picture emerge. Some facts which need to be considered are: -
    • Loans given by state owned banks have been utilised by many borrowers in stock trading investment. An amount in excess of $170 billion has gone into the stock market with a staggering 480,000 share trading accounts being opened by the week ending 20 February.
    • In addition, the Chinese government is giving a 5 per cent grant to every person buying a car and a 20 per cent grant to anyone buying an electronic product; such subsidies are not sustainable.
    • China saw a Net Capital flight of $240 billion in Q4 2008. This, in conjunction with the data on bank lending indicates that the communist regime in Beijing is having major problems in handling China's economy. What explains the positive numbers presently coming out of China is only the impact of the stimulus package. While this will cause a temporary rise in the rate of GDP growth for the current quarter, it would be wrong to annualise it. Perhaps the quarter ending June 2009 was the last good quarter and the downslide may very well start now.

    There is so much money floating around (Close to $800 billion with ordinary people, with an additional over $170 billion having gone into the stock market), that China will soon have a huge inflation problem unless they tighten up their monetary policy and suck the liquidity out of the system before they lose all control over prices. If they lose control over prices and if they have runaway inflation in the middle of the winter (October 2009 - March 2010) then it could create huge law and order problems all over China.

    The Oil Factor

    Oil data coming out of China looks bullish. Demand has increased from a low of 6.07 mbpd in January 2009 to 7.7 mbpd in May 09. This huge increase of 1.6 Mbpd has not been used for Chinese Phase I strategic storage, which at 102 million bbls was declared totally full in Q4 2008. Also, Phase II of Chinese strategic storage at 170 million bbls has not yet been built. This indicates that the oil has actually been run in the two new Chinese refineries. Further, if stock building has taken place, it has been on the products side in commercial and other storage downstream of the refineries.

    The question to be asked now is this: Why has Chinese oil demand increased from a low of 6.07 Mbpd in Jan 09 to 7.7 Mbpd in May 2009? The world oil prices by current indicators are not going to witness an upward spiral in the short term so obviously this increase in demand has not been generated due to an anticipated surge in world oil prices. So, if rising refinery runs in China in the midst of growing financial chaos are not indicative of the Chinese economy bottoming out, what is the diesel, gasoline and jet fuel produced in the refineries being used for? Is stocking taking place for an anticipated military operation?

    Prognosis

    The Chinese export-led market economy has taken a hit due to worldwide recession. As world markets are unlikely to stabilise in the short term, the spectre of massive unemployment due to loss of exports will only tend to further exacerbate the situation. Bank investments going into the stock market and large cash outflows will lead to inflationary pressures which are likely to come to the fore before the end of the year. Massive unemployment coupled with rising inflation is likely to cause serious disturbances initially in the coastal region and subsequently in other parts of the country. We can hence summarise the current internal situation in China as one being fraught with grave risks. We may yet see a repeat of Tiananmen Square protests of 1989 with the difference that the fires may not be so easy to quench this time. And this is likely to further inflame the fires of Lhasa and Urumqi. What may happen there is still an open question, but would need a careful watch.

    We also need to keep a very close watch on the oil consumption pattern in China. The reason for rising oil refinery runs in the midst of global recession need to be determined as the possibility that the oil in question is being used to build up resources for a military conflict cannot be ruled out. China’s communist regime, anticipating worsening of the economic crisis leading to widespread riots in the coastal region may spark off a military adventure somewhere to retain its hold on the levers of power and deflect attention from its internal crises. While a major military conflict over the Himalayas is not something which will benefit China, a limited incursion in its contested areas may well be on the cards. Or is the contest likely to take place on the high seas? Time will tell, but it would be wise to be prepared.
    (Disclaimer: The views expressed in this article are those of the author and do not represent the views either of the Editorial Committee or the Centre for Land Warfare Studies).


    The Centre for Land Warfare Studies (CLAWS)
     
  16. Sridhar

    Sridhar House keeper Moderator

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    Chinese facing world-class living costs
    By Tao Duanfang
    Guest Commentary
    Published: August 17, 2009Vancouver, BC, Canada, — A report on how Canadians managed their wealth in 2008, compiled by Environics Analytics with data from 80 different sources, showed that Vancouver has won the crown as the city with the highest net worth in Canada, exceeding the industrial city of Toronto and the oil city of Calgary. By rights, the people of Vancouver should have felt delighted and inspired. But their reactions to this “good news,” posted on the Internet and through interactive media, have involved mostly arguments and complaints.
    The reason is simple – Vancouver’s performance in terms of industrial output and average income was ordinary; the reason for its sudden rise in wealth was high housing prices, hiked up by new immigrants. For the original city dwellers, incomes remained the same while housing became much more expensive. Therefore being labeled “the richest city” did not make them pleased or proud.
    Reactions to this finding mirrored those to another investigation on worldwide costs of living conducted by Mercer, a U.S. consulting firm, in July. This report showed that Beijing had moved forward to ninth place from 20th place last year.
    On the other hand, China’s per capita gross domestic product in 2007 and 2008 respectively ranked 104th and 105th in the world, barely enough to be considered average. Then what does it mean when a country with a middle-range GDP has a cost of living in the top 10 or 20 countries?
    Some authorities and experts may think this ranking shows that Beijing is up to international standards, that the city has entered a “noble circle” of international metropolises. They may think Beijing has earned terrific face and glory over this.
    Nevertheless, for ordinary Beijing citizens, being ninth in cost of living means they face commodity prices comparable to those in Paris or New York, while their wages are closer to those of Bucharest, Romania or Kiev, Ukraine. It makes them feel they are living in housing built to the standards of Tirana, Albania or Chisinau, Moldova, with traffic and municipal services as awful as Mexico’s, while paying prices similar to those in Tokyo or London.
    Facing this ranking of ninth in the world in terms of living costs, Beijing citizens would first ask whether the quality of the city’s software, hardware, construction, transportation, medical services, commodity supplies and public services are worth this title.
    Secondly, they would be concerned about whether they could afford these living costs. How can they pay for a ninth-in-the-world standard of living? If they cannot pay for this standard, what kind of quality of life will they have?
    It shouldn’t be forgotten that there is a big gap between China’s social security system and those of developed countries in terms of healthcare, education, etc. Even though Beijing has a better quality of life than other Chinese cities, it is still merely like a tall man among short ones. Taking this into account, the title of “ninth in the world” could prove an unbearable heaviness of being for many Beijing citizens.
    No matter how helpless the common Chinese might feel, they have no choice but to continue their lives. They have little ability to change anything that might make their position in the world’s top nine more pleasant.
    As for those Chinese who do have the power to change things, how they view the title of “ninth in the world” is very critical. Are they infatuated with the halo of finally being considered in line with world practice? Or are they serious about what really needs to be done for the Chinese people?


    AFP: China warns of 'grave' jobs situation
     
  17. Sridhar

    Sridhar House keeper Moderator

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    Leninist China faces its capitalist crisis

    Don't put too much faith in the Chinese to deliver the world from recession


    China is heading for big trouble. Fearful of a political backlash from the sort of deep recession being suffered in the west, Beijing has embarked on a programme of reckless expansion that is providing short-term gain at the expense of long-term pain.
    This is an unfashionable view. The conventional wisdom is that China has taken the bold steps necessary to tackle the global downturn, and that its mixture of Keynesian pump-priming and Leninist centralised control will help drag the rest of the world back to prosperity.
    Strategically, it's a pivotal moment. It is assumed that at some point in the 21st century, the role of the world economic (and hence political) superpower will be ceded by the United States to China, and that the slump of the past two years will hasten this process. Why? Because traditionally it has been the US that has acted as the locomotive for the rest of the global economy and this time it is China in the vanguard; if German manufacturers now look to Guangdong rather than the midwest to boost their order books, that marks a shift in power.
    One half of this argument certainly rings true. The US remains by far the most powerful nation on earth, but bubble economics and military overstretch have sapped its strength. After years of living beyond their means, American consumers are now retrenching fast. Rising unemployment and pay cuts meant that total pre-tax household income was down 3.4% year on year in June and even after President Obama's tax cuts were taken into account disposable income was down 1.3%. Little wonder, then, that consumer spending is weak. With unemployment likely to hit 10% over the coming months and total hours worked in the economy's private sector down 7% on a year ago, the US is in no position to act as the buyer of last resort for the rest of the world.
    The US economy has deep-rooted problems: it has a hollowed out industrial base; it has over-indebted consumers; it has a crippled housing market. To make matters worse it now has an exploding budget deficit and gently rising long-term interest rates. There is a very real risk of a double-dip recession in the US.
    As a result, all eyes are now on China to see whether the world's biggest developing country can pick up the baton. On the face of it, there are encouraging signs. China's economy bounced back in the second quarter and on some estimates grew at an annual rate of almost 15% in the three months ending in June. Put another way, the global economy grew by 1.6% in the second quarter; without China it would have been flat at best.
    The optimistic case goes as follows. China is doing the heavy lifting for the rest of the world by pouring trillions of yuan into infrastructure projects and by expanding its money supply at a faster rate than any other country. Beijing's actions will provide an outlet for exports from the rest of Asia and from Europe, while giving the US time to recuperate.
    Economic locomotive
    This all sounds a bit too good to be true. Firstly, China, despite its explosive growth in the past three decades, remains a much smaller economy than the US. Measured by market exchange rates, the size of China's economy is about 20% of America or the European Union, and that limits the extent to which it can act as an economic locomotive.
    Nor are its economic statistics as squeaky clean as they might be. John Makin, in a piece for the American Enterprise thinktank, said China was having a "bogus boom". Dodgy accounting practices, he said, meant that goods count as sold when they leave factories, not when they are actually bought by consumers, and bank loans count towards GDP as soon as they are disbursed, even if companies hoard the cash or use the money to buy shares.
    Secondly, China's growth has been dominated by investment and exports. Consumption has accounted for a declining share of national output, in contrast to the west, which means – as the Marxist writer Chris Harman notes in a forthcoming book* – that the colossal increase in production cannot be absorbed domestically. Instead, the surplus goes into still higher levels of investment or is channelled into overseas markets.
    Finally, it is almost inevitable that much of the stimulus package has been squandered. While it is comforting to believe that the leadership of the Chinese Communist party calmly produced a blueprint for global recovery, the reality is somewhat different.
    Hu Jintao's government is petrified by the possibility that recession will lead to social unrest. As Jonathan Fenby put it for Trusted Sources, a research group that specialises in emerging markets: "China's policy responses to the current economic downturn are being powerfully shaped by political factors, given the regime's need to maintain its claim to legitimacy through growth."
    In political terms, the policy is working. Opinion polls showed that people in China are far more positive about the prospects for the economy than people in the west. Economically, though, there is a cost. Chucking money at the economy will lead to an even bigger problem of over-investment, an explosion in bad loans and a tendency for a good chunk of the increase in the money supply to leak out into speculation. Over-capacity and falling profit rates will mean that many inefficient companies kept alive by the injection of cheap money will have real problems in servicing their debts.
    This approach to crisis management is nothing new. China has responded in the way that Alan Greenspan did after the dotcom crash: it has solved the problems of one bubble by creating another. China's fiscal boost is being spent on domestic infrastructure projects rather than on the military spending and the tax cuts favoured by George Bush, but by copying what Washington did between 2001 and 2003 Beijing is running similar risks. The reports of a spate of fake mortgages to buy flats on bank credit have clear echoes of the sort of malpractice associated with the subprime scandal in the US.
    Train wreck
    Fenby warns that China's path out of the crisis "looks longer and more complex than the headlines suggest" and Chinese policy makers are certainly worried by rising property prices, a doubling in value of the Shanghai stockmarket and the need to mop up some of the excess liquidity sloshing around the economy. In June, the China Banking Regulatory Commission warned of "grim credit and market risk" as a result of a fall in corporate earnings and excess capacity.
    It is encouraging news that the Chinese leadership is aware that there could be big trouble ahead. Being aware of a potential problem and doing something about it are, however, quite different. Tackling China's underlying economic problems will be tough, unpopular and time-consuming.
    But if Beijing ducks the economic challenge for political reasons, the consequences threaten to be severe. Albert Edwards, analyst with Société Générale, says China is now an accident waiting to happen. "If the US in 2007 was a slow motion train wreck with carriage after carriage coming off the rails in turn, China will at some point soon be pile-driving straight into the buffers."
    What's more, if the recent US experience is anything to go by, the crash will not be long in coming.


    Leninist China faces its capitalist crisis | Business | The Guardian
     
  18. RPK

    RPK Indyakudimahan Senior Member

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    China becomes Japan's biggest trading partner surpassing US - China - World - NEWS - The Times of India

    BEIJING: In a first, China has surpassed the United States to become Japan's largest trading partner. The move is expected to have a softening
    effect on China-Japan disputes over an island and have wide implications in Asian region including India.

    "Japan's exports to China also set a record, making the country Japan's largest export destination and eclipsing the US for the first time," the Japan External Trade Organization said in a statement discussing the bilateral trade situation for the first half of this year. Though trade volumes between the two countries have actually fallen, the slide is much less than the reduction in Japan's trade with other countries including the US, it said.

    Japan's trade with the US accounted for just 13.7% of its total world trade in the January-June period. Its trade with China accounted for 20.4% of the total trade volume giving Beijing tremendous clout over its neighbor's economy. South Korea, another neighbor, accounted for 6.1%.

    Japan's exports to China fell 25.3% from a year earlier to $46.5 billion dollars. Japanese imports from China slipped 17.8% to $56.2 billion dollars, JETRO said. JETRO has also projected a decline of Sino-Japanese trade for the whole year of 2009, the first yearly contraction since 1998 Asian financial crisis.

    JETRO offered an interesting observation while making predictions for the second half of 2009. "Due to weak growth in personal incomes, Japanese consumers will turn more towards inexpensive clothing and food items from China — but this will have limited impact on a value basis," it said.

    Japanese imports of low-priced parts and materials from China (used in finished goods production in Japan) are likely to decrease again in 2009, as an early recovery in both internal and external demand is thought unlikely, it said.

    JETRO said the Chinese government’s economic stimulus package had an impact on the country’s imports and this led to some recovery in bilateral trade in the second half of 2009.
     
  19. Daredevil

    Daredevil On Vacation! Administrator

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    Expansive China faces grass-roots resentment

    Mon Aug 17, 2009 8:28pm EDT
    By Christian Lowe

    ALGIERS (Reuters) - Algerian shopkeeper Abdelkrim Salouda has witnessed China's global economic expansion first-hand and he does not like it, especially since he was in a mass brawl this month with Chinese migrant workers.

    "They have offended us with their bad behavior," said Salouda, a devout Muslim who lives in a suburb of the Algerian capital. "In the evening ... they drink beer, and play cards and they wear shorts in front of the residents."

    From Africa to Europe, the Middle East and the United States, China's drive to project its economic might abroad can sometimes breed fear and resentment.

    The risks are likely to grow as Beijing channels more of its foreign exchange reserves, which stood at $2.13 trillion at the end of June, into foreign investments.

    From having a handful of tiny investments abroad less than two decades ago, China has grown to the world's sixth-biggest foreign investor and overtook the United States as Africa's top trading partner last year.

    That breath-taking rise has brought problems: allegations from emerging countries that China is stripping them of resources and suspicions in the developed world that obscure state interests lurk behind Chinese investments.

    Where governments welcome Chinese investments for the boost they bring to their economies, a widely perceived Chinese tendency for Chinese firms to import their own workers has created tensions with job-seekers.

    "It's very new, it's very big, it's full of potential hazards, it's also full of potential benefits," said Kerry Brown, Senior Fellow at Britain's Chatham House think tank.

    MORE INVESTMENTS IN THE PIPELINE

    The challenge of how to deal with such tensions will only be magnified as the global slowdown prompts Beijing to pump even more of its foreign exchange reserves overseas.

    China used to be content to keep its surplus dollars in the bank or in U.S. government debt. But the financial crisis and subsequent downturn have, in some quarters, shaken faith in the strength of the dollar and U.S. Treasuries.

    With China still needing to secure access to global resources, some Chinese policy-makers are talking about redirecting billions of dollars into overseas investment instead.

    The resentment felt by the Algerian shopkeeper toward his new Chinese neighbors is not universal: people in many places welcome the benefits from Chinese investment.

    Those can include aid with few strings attached, capital for infrastructure that Western donors will not fund and competition that drives down prices.

    Despite the clashes in Algeria's capital this month, its government welcomes Chinese investment.

    A $9 billion minerals-for-infrastructure deal is presented by Congolese President Joseph Kabila as a cornerstone of his plan to rebuild the Democratic Republic of Congo after years of war. China will build roads, schools and hospitals in exchange for mining rights. In Guinea's capital, Conakry, the Chinese government is building a 50,000-seat sports stadium as a gift.

    "We are very satisfied with our cooperation with China," said Denis Sassou-Nguesso, the president of Congo Republic on a visit to a hydro-electric dam being built by Chinese contractors.

    "Contrary to certain assertions, it's not just Chinese on the various construction sites, there are also numerous Congolese workers," he said.

    MIGRANTS SEEN AS A THREAT

    But in some countries, it is the sheer size of the Chinese presence that causes tension.

    Russian officials estimated that last year there were 350,000 Chinese migrants living in the country's far eastern regions, many illegally. The native population, in an area almost 10 times the size of France, is just over 7 million.

    Asked if the numbers of Chinese migrants jeopardized Moscow's control there, a senior Russian migration official said: "There is a threat. It should not be overstated but there is a threat," said the official, who did not want to be identified because of the sensitivity of the subject.

    Elsewhere, the fact that the lion's share of Chinese investments are from the state itself or state-controlled companies, is the source of friction.

    One of the best-known cases of thwarted Chinese expansion was when U.S. lawmakers blocked the sale of oil company Unocal to China's CNOOC Ltd. in 2005.

    One senator said the deal would effectively give the Chinese Communist Party control over a strategic U.S. resource.

    In Sudan, rebels accuse Beijing of supporting Khartoum in the six-year-old conflict in Darfur -- and they see Chinese companies as the embodiment of that policy.

    "Their only interest in Sudan is their own economic benefit," said Al-Tahir al-Feki, a spokesman for Sudan's rebel Justice and Equality Movement.

    "As soon as that benefit is gone they will disappear, leaving so many things destroyed behind them."

    Another accusation leveled at Chinese investors is that they cut corners.

    Five Zambians were shot and wounded in 2005 in a riot over pay and safety standards at a Chinese-owned mine, and a year later 52 Zambians were killed in an explosion at a Chinese firm manufacturing explosives for mining.

    In January, Chinese traders in Guinea closed their shops for several days for fear of reprisals after the authorities found Chinese-made fake medicines.

    "A part of the population attacked the Chinese expatriates, whom they associated with the offenders. We ... had to intervene to calm the situation," said a military source who was speaking on condition of anonymity because he was not authorized to speak to the media.

    MANAGING INVESTMENT FLOWS

    China says its investors are forced to go into "frontier markets" because developed countries lock them out of more stable economies. As a result, they say, the risks they face are higher.

    There is some truth in that argument, said Brown from the Chatham House think tank, a former British diplomat in Beijing and the author of "The Rise of the Dragon," a book on Chinese investment.

    "The underlying pattern we find is that in countries where governance is decent like Botswana or South Africa, where there's reasonable rule of law and some kinds of infrastructure to control ... Chinese investment, then it's not too problematic," he said.

    "However, in countries where there are problems of governance, problems of environmental impact, problems of labor rights, unfortunately Chinese investment performs very poorly indeed."

    China has started to address the damage to its reputation as an overseas investor. Big firms have hired Western consultancy firms to give advice. Many are now seeking local partners, or favoring less high-profile indirect investments.

    There are signs too that the Chinese government is doing more to win over the trust of local communities.

    In Algeria, the Chinese embassy said it had advised its nationals to respect the country's traditions. In Zambia, poor communities have received Chinese donations that include footballs and boreholes for drinking water.

    But much of the responsibility will still rest with investment recipients to set out clear rules on how they manage the growing flows of cash.

    "My hunch is that foreign governments have got to make decisions about where they want the money to go and where they say no," said Kerry.
    Expansive China faces grass-roots resentment
    Mon Aug 17, 2009 8:28pm EDT
    By Christian Lowe

    ALGIERS (Reuters) - Algerian shopkeeper Abdelkrim Salouda has witnessed China's global economic expansion first-hand and he does not like it, especially since he was in a mass brawl this month with Chinese migrant workers.

    "They have offended us with their bad behavior," said Salouda, a devout Muslim who lives in a suburb of the Algerian capital. "In the evening ... they drink beer, and play cards and they wear shorts in front of the residents."

    From Africa to Europe, the Middle East and the United States, China's drive to project its economic might abroad can sometimes breed fear and resentment.

    The risks are likely to grow as Beijing channels more of its foreign exchange reserves, which stood at $2.13 trillion at the end of June, into foreign investments.

    From having a handful of tiny investments abroad less than two decades ago, China has grown to the world's sixth-biggest foreign investor and overtook the United States as Africa's top trading partner last year.

    That breath-taking rise has brought problems: allegations from emerging countries that China is stripping them of resources and suspicions in the developed world that obscure state interests lurk behind Chinese investments.

    Where governments welcome Chinese investments for the boost they bring to their economies, a widely perceived Chinese tendency for Chinese firms to import their own workers has created tensions with job-seekers.

    "It's very new, it's very big, it's full of potential hazards, it's also full of potential benefits," said Kerry Brown, Senior Fellow at Britain's Chatham House think tank.

    MORE INVESTMENTS IN THE PIPELINE

    The challenge of how to deal with such tensions will only be magnified as the global slowdown prompts Beijing to pump even more of its foreign exchange reserves overseas.

    China used to be content to keep its surplus dollars in the bank or in U.S. government debt. But the financial crisis and subsequent downturn have, in some quarters, shaken faith in the strength of the dollar and U.S. Treasuries.

    With China still needing to secure access to global resources, some Chinese policy-makers are talking about redirecting billions of dollars into overseas investment instead.

    The resentment felt by the Algerian shopkeeper toward his new Chinese neighbors is not universal: people in many places welcome the benefits from Chinese investment.

    Those can include aid with few strings attached, capital for infrastructure that Western donors will not fund and competition that drives down prices.

    Despite the clashes in Algeria's capital this month, its government welcomes Chinese investment.

    A $9 billion minerals-for-infrastructure deal is presented by Congolese President Joseph Kabila as a cornerstone of his plan to rebuild the Democratic Republic of Congo after years of war. China will build roads, schools and hospitals in exchange for mining rights. In Guinea's capital, Conakry, the Chinese government is building a 50,000-seat sports stadium as a gift.

    "We are very satisfied with our cooperation with China," said Denis Sassou-Nguesso, the president of Congo Republic on a visit to a hydro-electric dam being built by Chinese contractors.

    "Contrary to certain assertions, it's not just Chinese on the various construction sites, there are also numerous Congolese workers," he said.

    MIGRANTS SEEN AS A THREAT

    But in some countries, it is the sheer size of the Chinese presence that causes tension.

    Russian officials estimated that last year there were 350,000 Chinese migrants living in the country's far eastern regions, many illegally. The native population, in an area almost 10 times the size of France, is just over 7 million.

    Asked if the numbers of Chinese migrants jeopardized Moscow's control there, a senior Russian migration official said: "There is a threat. It should not be overstated but there is a threat," said the official, who did not want to be identified because of the sensitivity of the subject.

    Elsewhere, the fact that the lion's share of Chinese investments are from the state itself or state-controlled companies, is the source of friction.

    One of the best-known cases of thwarted Chinese expansion was when U.S. lawmakers blocked the sale of oil company Unocal to China's CNOOC Ltd. in 2005.

    One senator said the deal would effectively give the Chinese Communist Party control over a strategic U.S. resource.

    In Sudan, rebels accuse Beijing of supporting Khartoum in the six-year-old conflict in Darfur -- and they see Chinese companies as the embodiment of that policy.

    "Their only interest in Sudan is their own economic benefit," said Al-Tahir al-Feki, a spokesman for Sudan's rebel Justice and Equality Movement.

    "As soon as that benefit is gone they will disappear, leaving so many things destroyed behind them."

    Another accusation leveled at Chinese investors is that they cut corners.

    Five Zambians were shot and wounded in 2005 in a riot over pay and safety standards at a Chinese-owned mine, and a year later 52 Zambians were killed in an explosion at a Chinese firm manufacturing explosives for mining.

    In January, Chinese traders in Guinea closed their shops for several days for fear of reprisals after the authorities found Chinese-made fake medicines.

    "A part of the population attacked the Chinese expatriates, whom they associated with the offenders. We ... had to intervene to calm the situation," said a military source who was speaking on condition of anonymity because he was not authorized to speak to the media.

    MANAGING INVESTMENT FLOWS

    China says its investors are forced to go into "frontier markets" because developed countries lock them out of more stable economies. As a result, they say, the risks they face are higher.

    There is some truth in that argument, said Brown from the Chatham House think tank, a former British diplomat in Beijing and the author of "The Rise of the Dragon," a book on Chinese investment.

    "The underlying pattern we find is that in countries where governance is decent like Botswana or South Africa, where there's reasonable rule of law and some kinds of infrastructure to control ... Chinese investment, then it's not too problematic," he said.

    "However, in countries where there are problems of governance, problems of environmental impact, problems of labor rights, unfortunately Chinese investment performs very poorly indeed."

    China has started to address the damage to its reputation as an overseas investor. Big firms have hired Western consultancy firms to give advice. Many are now seeking local partners, or favoring less high-profile indirect investments.

    There are signs too that the Chinese government is doing more to win over the trust of local communities.

    In Algeria, the Chinese embassy said it had advised its nationals to respect the country's traditions. In Zambia, poor communities have received Chinese donations that include footballs and boreholes for drinking water.

    But much of the responsibility will still rest with investment recipients to set out clear rules on how they manage the growing flows of cash.

    "My hunch is that foreign governments have got to make decisions about where they want the money to go and where they say no," said Kerry.
     
  20. 1.44

    1.44 Member of The Month SEPTEMBER 2009 Senior Member

    Joined:
    Jun 8, 2009
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    PetroChina takes C$1.9 billion stake in Canada oil sands

    PetroChina takes C$1.9 billion stake in Canada oil sands

    CALGARY, Alberta (Reuters) - PetroChina is set to pay C$1.9 billion ($1.7 billion) for a 60 percent stake in two planned Canadian oil sands projects, China's biggest investment yet in one of the world's largest untapped oil regions.

    PetroChina, the world's most valuable oil company, has signed an initial agreement to take majority control of the proposed MacKay River and Dover oil sands projects owned by Canada's closely held Athabasca Oil Sands Corp (AOSC), properties that could eventually produce as much as 500,000 barrels per day, the Canadian company said on Monday.

    "They obviously see a lot of upside," Sveinung Svarte. ASOC's chief executive, said in an interview.

    PetroChina's international arm will also provide some financing for AOSC, which controls about 1.3 million acres of oil sands properties in the Canadian province of Alberta.

    "PetroChina is probably looking to lock in a sizable position in the oil sands," said Chris Feltin, an analyst at Tristone Capital. "But it's going to take a long time to develop Athabasca's projects."

    The oil sands in northern Alberta have the largest crude reserves outside the Middle East. But while China's state-controlled oil companies have been aggressively acquiring conventional oil reserves around the world to power a growing economy, they have so far made only very small investments in the oil sands.

    Sinopec owns a 10 percent stake in a planned Total SA project while CNOOC owns just under 17 percent of a small privately held oil sands project.

    PetroChina is the first major player to invest in the oil sands region since oil prices plunged last year and billions of dollars worth of projects were canceled.

    The recent dearth of investment may help smooth approvals for the deal from the Canadian government, which has recently been making an effort to improve relations with China.

    "The Canadian government is looking for investment and injections of capital," said William Lacey, an analyst at FirstEnergy Capital. "I don't see why this wouldn't be viewed as a positive."

    Athabasca said it had notified Ottawa of its pending deal with the Chinese firm.

    "We've been in contact with the Canadian government and the Alberta government to make sure they were aware this transaction was coming," Bill Gallacher, AOSC's chairman, said on a conference call. "We are going to obviously follow the required regulatory approvals pathway that's needed in order to make sure this transaction moves forward."

    Athabasca and PetroChina plan to exploit the properties, which contain an estimated 5 billion barrels, using thermal techniques, in which the tarry-bitumen reserves are heated so they flow to the surface.

    Athabasca Oil Sands has already filed for regulatory approval in Alberta to build two pilot projects to test production at the properties and expects to seek further approval for a 35,000 barrel per day project at the MacKay River site, which could be operating within five years.

    Future expansions could take output from the two sites to between 300,000 and 500,000 barrels per day, Gallacher said, though no schedule for those additional phases has been set.

    Svarte said the company would likely ship its initial output to U.S. refiners, but would consider other export routes if they open up.

    PetroChina was an early backer of Enbridge Inc's Northern Gateway pipeline, in 2005 signing a memorandum to consider taking up to half the space on what was then seen as a 400,000 bpd pipeline to take oil sands crude to an export port on Canada's West Coast.

    PetroChina has never moved to cement that agreement, though Jennifer Varey, a spokeswoman for Enbridge, said the memorandum of understanding the two companies signed remains in effect.

    Enbridge plans to apply for a permit to build the line later this year. If approved the now 525,000 bpd line could offer PetroChina a way to move its share of oil sands production to its home market.

    The deal is PetroChina's second this year for a Canadian company. It's trying to buy Verenex Energy Inc so it can get the Canadian company's Libyan oil properties, but the North African country's government has said it would like to acquire Verenex itself and has so far refused to approve the acquisition.

    PetroChina's American Depository Receipts fell $3.44 to $109.75 on Monday on the New York Stock Exchange.

    PetroChina takes C$1.9 billion stake in Canada oil sands - Yahoo! Canada News
     

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