China Translated

Did anyone notice a new world order emerging at the recent meeting of business leaders in Davos?  Me neither.  But we must have been looking in the wrong place, because everyone’s favourite Communist Party magazine - Outlook Weekly - saw it quite clearly.

Here’s my translation of the main points of an article on Vice Premier Li Keqiang’s trip to Switzerland, from the latest edition:

‘The summit at Davos was happily timed to coincide with two ’saying goodbye to the old and welcoming the new’ moments.  The first was the end of the 00’s and the beginning of the 10’s.  The second was the waning of the old Western dominated world order, and the dawning of a new world order, where large emerging countries will have greater power and influence.

The world is becoming multi-polar, and this process is leading to rapid reform of global systems of governance.  International power and influence is shifting from the West to the East and from the North to the South.  Western countries are being compelled to share their influence with emerging countries in the East.

After the financial crisis, the centers of global influence are the US, EU, China, Russia, Japan, India, and Brazil.  ‘One super power many strong powers’ （一超多强）has become ‘One super power six strong powers’ （ 一超六强).  The US might still be the only super power, bu the six other powers now includes four developing countries.’

The article goes on to set out China’s ‘four principles’ for global economic governance, as set out by the Chinese representative at the G8 meeting in September 2009.  These are:

1. The objectives of governance: to push forward economic globalisation, with a focus on mutual benefit and win-win solutions

2. The subject of governance: all countries should participate on an equal basis in global governance

3. The process of governance: the process should be consultative, with the interests of all countries - especially developing countries - considered

4. The system of governance - at different levels and in different spheres, to increase the representative nature of global governance, a new framework for economic governance should be constructed

Finally, the article notes that at a briefing for Chinese media ahead of Vice Premier Li’s trip, a spokesman for the Foreign Ministry added his own three principles for reform, which can basically be boiled down to a greater role for developing countries in global governance, and respect for all countries’ right to determine their own development model.

The main points and general tone of the argument in this article certainly supports the idea that post-crisis China has growing confidence about its weight in world affairs.  The authors use of the term ‘one super power six strong powers’ is also interesting.  The term ‘one super power many strong powers’ has been in China’s international relations vocabulary since the end of the cold war, expressing the hope that multiple smaller powers would be able to check the influence of the US.  The transition from ‘many strong powers’ to ’six strong powers’ might be wishful thinking on the part of China, but also indicates some crystallisation of thought in Beijing as to who those ‘many strong powers’ might be.

China - Africa relations, China - Latin America relations, EU-China Relations, Financial Crisis, IFIs, International Relations, US-China Relations

The question of whether China should buy Greek sovereign debt has been in the news this week, and has prompted some reflections from Fudan University’s celebrity economist Sun Lijian.  This is my translation of the main points from his recent blog posting:

‘A few considerations on whether we should invest our precious foreign exchange reserves in Greek debt:

First, if there is no double dip downturn in the US and EU, investment will naturally start to move away from low yielding and liquid products, into higher yielding products.  Buying undervalued products, like this Greek debt, fits in with the spirit of post-crisis investment.  This is especially true as the US dollar will continue to fall in value, and low yields on US Treasury debt will not make up for the exchange rate loss on our holdings of dollar debt.  Investing in Greek debt would help maintain the stability of the value of China’s FX reserves.

Second, if trade surplus countries don’t recycle their surplus back to trade deficit countries, they won’t support the spirit of free trade, and might encourage trade deficit countries to adopt protectionist policies.  Considering the overall interests of the Chinese economy, some diversification of reserves away from just one trade deficit country - the US, toward trade deficit countries in the EU, make sense.’

Of course, Sun’s view is not necessarily the view of the State Administration for Foreign Exchange.  The guardians of China’s USD2.3trn in foreign reserves continue to play their cards close to their chests.  But it’s interesting to hear his views on the importance of protecting the value of reserves by seeking out higher yielding investments, and the relation between recycling reserves into trade deficit countries and maintaining trade partners’ tacit support for China’s export-based growth strategy.

You can see Sun’s original posting, in Chinese, here.

EU-China Relations, Exchange rate, Trade, US-China Relations

For millions of migrant workers, Chinese New Year is a time to head home to reconnect with family and friends.  Getting there, however, is something of a challenge. 

With almost two weeks still to go before the beginning of the festivities, Dongguan Railway Station is already feeling the pressure.  Here are some photographs of scenes from the railway station, taken today. 

The caption on the top picture says: ‘Spring travel hasn’t even started, and passengers are like a wave: Dongguan Railway Station expects 87,000 travellers a day in the run up to the holiday’

Culture, Infrastructure, Labour markets, Social Policy

I recently finished reading Beijing Doll, an autobiographical novel by teenage writing sensation Chun Sue.  The back cover says that Chun is ‘the voice of a new generation’ and that her novel will ‘take readers to the streets of Beijing, where a disaffected generation spurns tradition for lives of self expression, passion, and music.’

Chun clearly sees herself as a rebel and an idealist, rejecting the authority of school and parents, attempting to live up to her own personal set of ideals.  But for Chun and her friends, the path to freedom appears to end in the shopping mall.  Here’s a section of one of the final chapters:

‘I picked out a green notebook, and went to cruise the cosmetics counters whilst G paid for it.  There were lots of things I wanted to buy, some of newest nailpolish by ZA, green eyeliner pencil, perfumed powder, Red Earth white eyeliner pencil, coloured mascara, and L’Oreal liquid foundation, which was cheaper and moister than other brands, so you don’t have to wet your face before you put it on.  Then there were Revlon Colorstay lipsticks, since I was tired of using nothing but light colours on my lips; I might as well not use any lipstick at all in that case, and save the money.’

If she really is the voice of a new generation, it’s time to buy shares in cosmetics retailers.

Culture, Retail

Currency Wars is a very popular book in China.  It’s author, Song Hongbing, has tapped into a rich vein of nationalism and suspicion about the West, especially the role of US investment banks.

His argument, which is entirely specious, is that  a cabal of investment bankers have dictated the course of world history since the Napoleonic wars, are the gatekeepers to the US presidency, and - should they be allowed into the Chinese economy - would bring the current benign social order crashing down to serve their own evil interests.

I discussed this book with a Chinese friend who works in the financial sector and he said that its popularity was an interesting social phenomenon.  But the author was so obviously a crazy conspiracy theorist that his work had no influence at all in policy or finance circles.

Finance graduates might be able to see through the smoke and mirrors, but the book had a major influence on public opinion, and a follow up - imaginatively entitled ‘Currency Wars II’ - has just hit the book stores.

This is my translation of the main points from a chapter in the first Currency Wars, focusing on the potential evils of allowing foreign investment banks into the Chinese economy, and the benefits of returning to gold as the basis of the international financial system:

‘Control of money supply is key to control of the economy.  You might think that foreign banks have no way of influencing the money supply in China, that the People’s Bank of China controls the supply of money.  In fact, by issuing loans, banks influence the money supply.    Let foreign banks into China, and they would deliberately manipulate the money supply, using excess supply to cause inflation, and restricting supply to cause deflation, crippling the economy, as they have done to destabilize foreign countries throughout history.

The US is already using its influence to disrupt China’s money supply.  By manipulating its trade deficit with China, the US can increase the money supply in China, and that can lead to bubbles in the property sector and equity markets.  China’s Central Bank can only control the problem by selling bonds to soak up the additions to the money supply, but this increases the national debt.

These are the currency wars, and as long as the US dollar is the main international currency, China has no way to fight back.  Only when gold again becomes the basis of the international currency system can we have an independent, fair, and harmonious financial system.’

Of course, there is a kernel of truth in all this.  Hedge funds, many of them US hedge funds, were instrumental in destabilising Asian economies in the Asian Financial Crisis.  China’s trade surplus, combined with the fixed exchange rate, does cause problems for the People’s Bank of China.  The role of the US dollar in the international financial system is beneficial to the US and harmful to its creditors.

But the way all of these facts is put together is completely wrong.  It’s not foreign banks who are creating a problem in China’s money supply, it is domestic banks.  It’s not the US that is forcing China to run a trade surplus with a fixed exchange rate - it’s a deliberate part of China’s development policy.  And a US dollar based international financial system might have its flaws, but the world moved away from the gold standard for a reason - because it tied money supply to the availability of a scarce commodity - and a return is not on anyone apart from Song Hongbing’s agenda.

Banking, Exchange rate, International Relations, Monetary Policy, Trade, US-China Relations

Every year CCTV broadcasts a live party to celebrate the Chinese new year with assorted celebrities performing songs and comedy skits.  High production values and positive message have proved a winning formula and you can see an example of how it all looks here.

Last year, one Lao Meng decided that it would be fun to put together his own 山寨春晚 (Shanzhai Chunwan - imitation spring party) using celebrity lookalikes to replicate the real thing.  He encountered some problems along the way which gave cause for reflection to Southern Weekend.  You can see the opinion piece by Xiong Peiyun in Chinese here.

The main points of the Southern Weekend article as translated by me are:

2008 was a good year for the creation of new words, including 山寨 （shanzhai: imitation goods which look like the original).  Lao Meng’s 山寨春晚 (shanzhai chunwan - imitation spring party) initially was very popular, catching the attention of internet users and with lots of people volunteering to help.  But it looked like it was over before it had even begun when TV channels and websites decided not to broadcast the event.

This gives rise to more serious considerations.  What’s wrong with a few people getting together to have some fun?  How can a few refusals stymie ordinary people’s attempts to enjoy themselves?

China has moved beyond the time of rationing food and clothing, why is enjoyment now being rationed?  People have the right to enjoy themselves, and everybody knows you can’t enjoy yourself on your own.  People are social, they like to get together.  In a well functioning society, as long as people aren’t breaking the law, they can enjoy themselves after their own fashion.

You could say that the imitation spring party is tasteless and vulgar.  But if you ban it on that basis, that is replacing the law as arbiter with power and morality as arbiter.  On top of that, Lao Meng’s imitation spring party isn’t tasteless, it’s just sharing the fun more widely.

Another criticism of the imitation spring party is that it would compete with the CCTV party for viewers attention.  But isn’t it good to give people a choice, and let them decide what they want to watch?

What’s more, the CCTV party is government and business orientated.  It’s good to appeal to the nation as a whole and to have a positive message, and of course there is a lot of money to be made with adverts as there are so many people watching.  But, free from these constraints, the imitation spring party could offer something which is a purer reflection of the culture.

In the end, you can’t force someone to join your party, and then when you have them bound up there, tell them your blessings are heartfelt and you value their freedom.’

This year, Lao Meng is having another try, and, according to recent press reports, has already received the appropriate permits.  Lao Meng is contrite about his failure to apply for the proper permits last year,   and the name of the event has been changed fom ‘山寨春晚’ (shanzhai chunwan) to the less politically sensitive ‘民间春晚‘ （minjian chunwan - people’s spring party).  Auditions are apparently underway, as are negotiations with television stations for broadcasting the event to a national audience.

Culture, Media, Social Policy

2009 was an astonishing year for car sales in China.  A combination of reduced tax on low fuel consumption cars, and subsidies to rural dwellers to buy vehicles, resulted in a surge in purchases.  That surge played a key part in propping up domestic consumption.  In fact, if you net out spending on cars, consumption growth in 2009 looks pretty anemic.

How many cars will Chinese people buy in 2010?  A research note from China Galaxy Securities sets out some bullish predictions, this is my translation:

‘Increases in income will be the main reason why there is a strong increase in consumption of autos in 2010.  According to international experience, when average per capita GDP hits about $1000, a country will start to see households purchasing cars.  In 2001, when China’s per capita GDP passed the $1000 mark, households had already started to purchase cars.  The number of family cars purchases each year from 2003 -2007 was 1.78m, 2m, 2.93m, 4.11m, and 4.93m - around a 1m increase every year.   In 2008, per capita GDP passed the $3000 mark.  According to the normal progression, the number of family cars sold should have reached 6m.  But because of the financial crisis, only 5.5m were sold.

In 2009, according to the normal progression, 7m cars should have been sold, and in 2010 8m.  But because of subsidies to buy, and pent up demand from 2008, the number of cars sold in 2009 was 8.5m.  That means in 2009, 0.5m cars that should have been sold in 2008 were sold late, and 1m cars that should have been sold in 2010 were sold early.  Adding it up, we predict car sales in 2010 of 7m (the 8m that would normally have been sold, minus the 1m that were sold a year ahead of expectations).’

As someone who cycles around an increasingly gridlocked and gritty Beijing, I find the focus on increasing car ownership bizarre.  But with Chinese incomes continuing to rise, subsidies to car ownership remaining in place, and car ownership an importance symbol of status in a status orientated society, its difficult to see a change in the trend.

Here’s a link to Galaxy Securities website.

Retail

It was bank lending that funded China’s economic stimulus.  In 2009, China’s banks lent out more than CNY9.5trn.  That’s more than double what they lent in 2008, and only slightly less than a third of GDP.

In the short term, the benefits of that lending are clear in China’s rapid recovery from the impact of the global crisis.  In the longer term, the costs in terms of inflation, bad loans, and a stimulus which tilted the economy further toward a reliance on investment as a driver of growth, could be enormous.

In an article in a recent edition of Business Forum China, I take a look at some of those costs.  You can read the article here.

Uncategorized

Chongqing and the rest of central and western China is to the coast what China as a whole is to the rest of the world – cheaper and less developed, but moving faster. It feels like a different country sometimes, and this thought occurred to me last week just as our taxi maneuvered gingerly around a giant excavator fitted with a jackhammer, which was trying to break up the street as we were trying to drive on it. Our city taxi was on a search for a CNG station, which are relatively common in urban Chongqing but quite rare in the suburbs where we were. We were following a local taxi which had promised to lead us to the only local station, and so when he went around the excavator down a very unpromising-looking back street, so did we, literally darting past when the big arm pulled its drill back for another try. That might have happened in Shanghai ten years ago, but Shanghai is more first-world now, and you would expect to see traffic barriers and a flagger to wave vehicles through. Suburban Chongqing isn’t there yet.

CNG stands for “compressed natural gas,” and many vehicles in Chongqing run on it, not only most (if not all) buses and taxis, but also many others, including the black sedan that took me to the airport the day I left. They can also use gasoline, but gas is more expensive, so drivers will take some trouble to get CNG – I personally experienced several lengthy detours, and saw several long lines at CNG stations of mostly taxis that were willing to wait to get the cheaper fuel. As a gas, CNG takes up more space than gasoline, so taxis have to refuel several times a day, even though the tanks take up a good part of the trunk. On the other hand, CNG is much less polluting than gasoline, and in Chongqing’s famous smog this is a big plus.

However, it probably wasn’t the environmental benefits that originally pushed natural gas vehicle development, but fuel availability. Sichuan, which borders Chongqing and used to administer it, was the site of the world’s first industrial use of natural gas. Gas was found in sites that had salt springs and, as early as the Western Han dynasty (221 BC – 23 AD) was piped through bamboo tubes to fuel boilers that reduced the brine to obtain salt. Transport links to coastal China were weak until very recently, despite the city’s strategic river location, so development of vehicles that could use the locally available fuel was an obvious choice.

There are actually many places in the world that rely on CNG as a supplementary fuel to gasoline; China is only in 7th place by number of vehicles (Pakistan, Argentina and Brazil are the top three.) Many more use “autogas,” also referred to as liquefied petroleum gas (LPG,) which is a mix of butane and propane (the proportion varies by the season, for reasons known to chemists. Like CNG, it’s cheaper than gasoline, but it has fewer environmental benefits and is produced from petroleum.) There are attempts to promote CNG cars in the developed world, but these run into the problem we encountered in Chongqing – you have to find a place to fill them up. There is a chicken-and-egg problem common to all “new” automobile fuel schemes, including not only CNG but also electric and hydrogen: nobody wants to built a network of filling stations for cars that don’t exist, but nobody wants to buy a car they can’t fuel. Chongqing is hardly unique in having a second fuel infrastructure, but if you come from the United States, being in Chongqing is like visiting a future in which a large number of cars are not running on gasoline, and doing it semi-successfully. Only semi-, because while the fleet is large the infrastructure is still clearly lacking – CNG shortages played a role in a Chongqing taxi strike in late 2008, after which the government promised to increase supplies, but my anecdotal experiences show that problems remain. The private automobile market in Chongqing is booming, but it’s not likely that many of the new cars hitting the road will be CNG vehicles until you don’t have to spend so much time on the road just looking for a fillup.

- Don Johnson

Energy, Environment, Guest contributor, Infrastructure, Regional

Google has threatened to pull out of the Chinese market, citing concerns about hacking attacks on the gmail accounts of Chinese reformers.  Here’s a joke on the situation which is currently doing the rounds on the Chinese internet;

‘NetEase, Tencent, Baidu and Google are sitting together eating shit. 

Google, who has been eating with his hand over his nose, suddenly exclaims: ‘this shit stinks, I’m not eating it anymore!’

Hearing this, Baidu stealthily scoops up Google’s portion into its own plate, and continues to eat.’

You can see the Chinese orignal here.

Culture, Social Policy, US-China Relations