China Comment

Energy, Environment, and Economy

Border Incursions Tied to Lama Support?

The Asia Times reported recent border incursions by China’s troops into Indian territory in the area of Sikkim on June 16. Troops moved nearly one kilometer into the territory, then departed. There have been over 70 Chinese incursions into Sikkim since January 2008.

It is interesting these incursions happened in Sikkim, which China has acknowledged as part of India as recently as May 2004, rather than in Arunachal-Pradesh and Aksai Chin which are territories still under dispute- of course, incursions are still ongoing in Arunachal-Pradesh.

It is odd, but it appears the major Western news sites have oddly enough not yet picked up on this issue. Perhaps this is because India’s foreign ministry is “playing down” the news.

Sudha Ramachandran, writing for the Asia Times, has many ideas for why China increased its belligerence. Chief among his ideas is that the Chinese are using incursions in Sikkim to encourage India to give concessions in Arunachal and Aksai. Also in agreement is a China expert at an Indian think tank who argues China might be backing off recognition of Sikkim as part of India. The Chinese foreign minister, however, recently reiterated China recognizes Sikkim as part of India.

An increased show of force is likely to cause the Indian populace to dig in and oppose India ceding land. Since the Chinese are not led by foolish military leaders (one would presume),  perhaps the increase in incursions is due to something else.

I would posit the main reason for the new incursions in a territory the Chinese already agree is part of India is to give the Indians a warning not to shelter and encourage the D*l*i L*ma of T&b&t&n Buddhism fame. China already warns countries not to receive the spiritual leader under threat of damaging relations. And the recent unrest unnerved Beijing. It reasonable to expect that China is willing to undertake drastic measures to limit the D*l*i L*ma’s influence in India.

The Chinese do not want their country to split because of tensions, and perhaps they see the Indians as encouraging those tensions. Thus, the border incursions are a warning among others that Bhaskar Roy of the India-based South Asia Analysis group describes, which are designed to modify India’s foreign policy behavior and its relationship to the D&l*i L&m&.

* An Economic Times article briefly explains the situation.

28 June, 2008 Posted by | China Diplomacy, China Military | , , , , , , , , | Leave a comment

China’s Nuclear Power

In February 2008, construction began on the Ningde Nuclear Reactor in Fujian province. According to China Daily, the reactor should cost around $7.1 billion to construct and will open for generation in 2012. Yearly, it will generate 33 billion kWh of power (3.3 GW). Ningde is just one of China’s nearly 30 reactors planned to be constructed between 2008 and 2020.

China is embracing nuclear energy. However, China’s nuclear industry is still nascent. Compared to France’s 59 operational reactors, and Japan and the United States’ 55 and 104, respectively, China only has “11 nuclear reactors currently in operation” and six under construction as of June 2008. These reactors “last year generated 62.86 billion kWh [6.2 GW], up more than 14 percent on 2006… [N]uclear power still accounts for less than 2 percent of the country’s total output… [But China] wants to boost this figure to 4 percent by 2020,” according to China Daily. By 2010, China plans to have 12 GW online. As of 2008, China can generate 9 GW a year.

China’s planned amount of nuclear power as a percentage of their energy mix (4 percent) amounts to an insignificant amount compared to nuclear’s predominance in the United States. In the US, nuclear power accounts for “20 percent [of power]… and nearly 80 percent in France,” according to the Washington Post. 

It does not appear nuclear energy will become a significant source of energy insecurity should future geopolitical problems arise between China and foreign countries. Coal remains the main ingredient in China’s energy mix.

In 2020, the Chinese hope to have nuclear power capacity of 60 GW. Also according to China Daily, China “will need to start construction on about 4 new generators a year through 2015 to meet its ambitious target.”

WILL CHINA MEET ITS TARGET OF ADDING NEARLY 50 GIGAWATTS OF NUCLEAR POWER IN 12 YEARS?

 China needs to satisfy a few strategic areas before they can have a strong, functioning nuclear industry.

Uranium Acquisition- China purchases uranium from Kazakhstan  and signed an agreement with Australia (2006). Imports of uranium account for 700-800 tons of the 1,600 it consumes yearly. Its uranium needs should expand to 4,000 yearly tons in 2010 (according to Bloomberg) and then 8,000 tons a year by 2020, according to AFP.

According to China Daily, more domestic exploration will be undergone. “Key areas that would be scoured for natural uranium include the Yili Basin in” Xinjiang and parts of Inner Mongolia. NTI has a chart of existing Chinese uranium mines and supplies. “China has [at least] an estimated 57,000 tons of uranium in the [already explored] south.” In 1995, the OECD estimated China’s readily-extractable uranium supplies at 65,000 tons, according to NTI. A 2007 Bloomberg news report estimates China’s domestic supplies at 300,000 tons, but that’s probably optimistic even though Chinese geologists are discovering new sources, mostly located in China’s border provinces. The location of these uranium deposits means that the Chinese government will have an even greater desire to increase border and internal security in these provinces.

IAEA data on country-by-country estimated recoverable uranium reserves are available HERE. China is estimated to only possess 1% of the world’s available reserves. Australia (24%) and Kazakhstan (17%) account for the lion’s share.

To reduce China’s reliance on uranium imports, it has established a strategic reserve for uranium. The reserve should be completed by 2010. According to the IHT, “China is building storage tanks in Zhenhai, Zhousan and Qingdao and in the northern city of Dalian.”

Enrichment Expertise- China has been aggressive in pursuing nuclear energy independence. In May 2008, Russia and China signed an agreement for a $1 billion investment in the completion of a gaseous centrifuge enrichment plant. The completion of the agreement, by 2010, should bring the Russian constructed capacity of Chinese Uranium enrichment plants to an ability to process over 1,600,000 SWU (Separative Work Units) per year. Compared to other countries’ capacities for enrichment in 2003; China’s amount will still be low. Russia, for example, can enrich over  25,000,000 SWU a year. The US can enrich 11,300,000 a year, and Japan can enrich 1,150,000 SWU a year.

Equipment- China has several indigenous nuclear power equipment plants being constructed. The most recent was built from June 2007-June 2008 in Shandong province. The plant produces steel containment vessels, according to a Hong Kong Ta Kung Pao article. Its “annual output volume is able to meet the demand of two sets of generating units in the AP1000 [type] nuclear power plant. “

Reactor Designs- China is attempting to develop its own reactor design, so it will not have to transfer technology from abroad. According to the Washington Post, “Groundbreaking for an experimental $416 million Chinese plant is scheduled for 2009.”

Operational Expertise- China “is relying heavily on Western contractors such as Westinghouse to teach its engineers to build and operate plants,” according to the Washington Post. In December 2006, US-based but Japanese Toshiba-owned Westinghouse signed an agreement to build four new 3rd generation plants in China.

Waste Disposal- China plans to deposit its nuclear waste in the Beishan Mountains in Gansu province near Dunhuang, according to the Washington Post and The Asia Times. The repository will not be opened until 2050. Before China can begin transporting spent fuel to its interior, it will need to upgrade rail lines and security.

Conclusion- China’s nuclear industry faces a number of challenges in becoming self-sufficient and self-sustaining. It will also likely not be a major player in the country’s total energy supply until after 2020, since it will account for so little of China’s total energy supply (Around 4% of the mix). 

Beijing will probably need to confront Uranium supply dearths more aggressively, whether by beginning massive domestic extraction investments (with all the environmental destruction and populace dislocation that may involve) or increasingly seeking investments abroad in places that can supply said Uranium, such as by going back into Niger and more aggressively exploring resources in Australia.

Currently, China lacks the technical expertise to completely self-develop their nuclear energy program, as Xinhua admits. However, after 2020, when China’s capacity is expanded, Chinese indigenous reactor designs, expertise and operators may become players on the world market and the Chinese could be exporting their expertise elsewhere in the world.

APPENDIX

Chinese Nuclear Reactors

 Chinese Nuclear Reactors (From The World Nuclear Association)

 

The above map suggests more nuclear reactors are soon planned for the north of China; however, by examining actual work orders, all power plants planned to be built before 2015 are in China’s south.

After 2015, one reactor should be operational in Shandong, with several others under construction.

Chinese Nuclear Power Companies (Partial List)

China National Nuclear Corp.

China Guodian Corp. (also produces other types of energy)

Chinese Nuclear Reactors (Partial List)

Coastal/South

* Ningde Nuclear Reactor in Fujian (construction begins- Feb 2008; planned open- 2012)

* Sanmen Nuclear Reactor in Zhejiang (construction begins- 2007; planned open- 2011)

* Daya Bay (2) in Guangdong (~2 GW) (1994)

* Lingao (2) in Guangdong (~2 GW) (2002, 2003) (Expansion Planned)

* Yangjiang in Guangdong (Planned)

* Qinshan (5) in Zhejiang (~3.1 GW) (1991, 2002, 2002, 2003, 2004) (Expansion Planned)

* Tianwang (2) in Jiangsu (~2 GW) (2007)

* The World Nuclear Association has a more technical indepth report on the Chinese Nuclear Industry.

26 June, 2008 Posted by | China Energy, China Future | , , , , , , | 4 Comments

Futurecast (Part II): Russia and India

In this continuation of my review of Robert Shapiro’s Futurecast, I analyze his discussion on why Russia, India, and other countries will fail to achieve China and United States’ levels of growth in the coming ten to twenty years.

SHOULD THE WORLD BE CONCERNED ABOUT RUSSIA AND INDIA?

Shapiro discusses why Russia and India will not be able to match the United States or China in relative successfulness. He points out India is ranked 118th in the world for literacy.

Additionally, the Indian economy is still greatly underdeveloped. 60% of Indian labor is based in agriculture, and 20% is centered in extremely small, often one-person-businesses due to a regulatory culture with restrictive land policies and subsidies to miniature businesses that impedes business consolidation (101).

In comparison, a little less than 1% of the US’s economy is based in highly productive agriculture, and 43% of China’s workers serve in agricultural fields, all according to the CIA’s World Factbook. 

In 2004, partially due to restrictive government policies, India received only $5.3 billion (2.3%) of the world’s FDI that was sent to developing countries; China received $60.6 billion (over 20%) (162). While this indicates India has potential to grow; the changes in regulatory environment need to come much quicker to encourage such growth.

India’s Democratic society is far less likely to sanction the painful changes than China’s semi-autocratic government permitted to increase efficiency and development. China ended many state pensions, reduced health benefits, and evicted thousands from their homes. Shapiro does not believe India has the political will to carry through similar needed reforms.

Shapiro does not discuss, but it bears mentioning that India also faces a military challenge. With unrest and instability increasing in Pakistan, the chances for an armed confrontation over Jammu-Kashmir and other disputed regions may increase.

Muslim-led terrorist attacks, such as a 2006 train bombing by extremists that killed over 170, have been significant in recent years (See the Jamestown Foundation’s Terrorism Monitor and the CFR report on Indian terrorism for more information; an Indian think tank discusses terrorist violence in India  and points out that the number of yearly deaths have declined from 2002 to 2006, but still over “2,765 people died in terrorism-related violence in India during year 2006.” [Important to note: some violence involved other groups such as the Naxalites])

Shapiro also avoids in-depth discussion of possible China/India and China/United States confrontation in the near future. China and India have been working hard to resolve border disputes, but all disputed land is not yet resolved. Additionally, both have interests in Southeast Asia, and their expanding navies could come into a conflict over operational spaces. A naval confrontation over bottlenecks such as the Strait of Malacca, however, will not be likely until both countries develop their militaries to become true regional powers- something that will elude China until the mid to late 2010s, and which India may not achieve until the 2020s.

RUSSIA

Shapiro argues Russia’s demographic decline (its aging and population decrease) will contribute to a drop in productivity that will be exacerbated by a murky legal environment that could discourage foreign investment and development. Considering how Russia is currently benefitting from $135 a barrel oil, it is becoming much more flush with cash.

But extra cash does not necessarily equate to extra power. Mexico, Saudi Arabia, Nigeria, and other Middle Eastern states have squandered huge oil windfalls in the past without managing to pull their countries out of poverty and into fully sustainable modern economies.

Shapiro’s analysis of Russia could have benefitted from an indepth discussion of the effect that increasing linkages between China and Russia might have in spurring Moscow to faster development.

China/Russia trade was $50 billion in 2007, and Russia is China’s 8th largest trade partner. Chinese FDI in Russia is estimated at only $3 billion in 2006, “less than 5% of total FDI stock in Russia,” according to a report in the China and Eurasia Forum Quarterly. However, that amount of Chinese FDI sent abroad still accounts for the 6th highest Chinese foreign FDI received by any country in 2006 (excluding tax havens).

Russia may have the largest FDI ODI (Outward Directed Investments) of the BRIC (Brazil, Russia, India, and China) countries– valued at $50 billion+ in 2007, but its FDI has yet to have a large positive effect on foreign countries. Russia’s largest investment targets are located in Cyprus (receiving 37.5%), Luxembourg (26.7%), and the United States (6.7%). Of Russia’s allies in the CIS (Commonwealth of Independent States), Armenia and Belarus receive the most investment according to Deutsche Bank, but it would be difficult to argue that either of those countries has become an economic success due to Russian development.

A later analysis will examine the Russian/China energy trade, but the data for Russia/China business and resource trade, according to Deutsche Bank and a China-Eurasia Forum Quarterly report by Libor Krkoska and Yevgenia Korniyenko, indicates Russia’s culture of bureaucratic inertia will disrupt development. Also, Russia’s corrupt business practices have gotten worse, according to Freedom House, which might stunt further development. 

Russia has a long way to go before it can become a viable partner for China, and historical tensions between the countries might yet preclude strong agreement and alliances in the next five to ten years.

RECIPE FOR SUCCESS?

Shapiro lauds slashing corporate tax rates [as was done to good effect in Sweden and Ireland] (33) and convincing workers that “their interest lies in accepting fewer benefits and less economic security from their governments” (32), since “the American and Chinese approaches can sustain themselves over the next generation, while Japan and Europe’s systems cannot” (34).

Shapiro points out that from 1990 to 2006 “the global market share of European manufacturers shrank from 18.5% to just over 14%, while the global market held by American companies rose from 21 to 23%” (183). He cites that the key to growth– he gives Ireland as an example [especially due to its IT and Pharmaceutical industry successes] (201)– is to “open its economy to foreign competition and investment.”

“In 2006, Europe’s major countries accounted for just 10% of world GDP, less than 1/2 of what America produced that year” (176).

Shapiro spends the rest of the book discussing challenges in health care, energy, and the environment, lamenting a possible doomsday-scenario of economic collapse in China coming on $150 a barrel oil. We’ll see how that plays out. China’s Oil Price Freeze discussed some of the tensions threatening to emerge in response to China’s insistence on keeping energy prices stuck at November 2007 levels, and Consequences of China’s Oil Price Hike discussed tensions that might emerge now that China has raised some energy prices.

CONCLUSION

Futurecast offers little new specific for China-watchers and makes a few slightly dubious surface-assertions in regards to Chinese strengths and weaknesses, but that has to be expected from a broad overview. The book is easy to read, and doesn’t make any glaring errors.

If one is reading for a broad and ambitious look at future geopolitics two to ten years down the line, this book is a good read. I would recommend it to a person who is generally interested in China, or anyone who wants to feel happy about the United States’ place in the world community since this book does an excellent job of Pro-America cheerleading.

24 June, 2008 Posted by | Book Review, China Diplomacy, China Future | , , , , , , , , , , , | 1 Comment

Off The Shelf: Futurecast 2020 (Part I)

Futurecast: 2020 argues that only the United States and China will be considered great economic and political powers in 10 to 20 years. Its author, Robert Shapiro (a former Clinton Administration advisor) reaches this conclusion primarily by arguments based on demographics (aging in countries), obligations (European social safety nets will drain their coffers and ability to produce), innovation (Shapiro argues America can uniquely benefit), and business development (Shapiro argues both China and the United States possess good capabilities and regulatory environments).

I will discuss Shapiro’s most provocative statements in an analysis of what the future holds for China and the United States in relation to the rest of the world.

MILITARY

* Shapiro gives a possible warning of future confrontation between China and the US. “Even deep economic relationships do not preclude wars between the parties, once they’re each other’s near peers in military power.” (20) For example, in the “calm” before WWI, world trade was at an all-time high. and yet that trade led to war, and an arms race rather than peace.

China’s military spending budget has increased by double [percentage] digits for 20 consecutive years, this year rising nearly 18% to at least $59.6 billion (There are many estimates of the precise amount of spending since China does not calculate its military spending the same way that other countries tend to calculate theirs; but the important thing is that China is spending AT LEAST this much.)

However, it is unlikely, even given current levels of assumed spending, that China will be able to challenge the US even on a regional scale until around the year 2020 (Zalmay Khalizad discusses it HERE; but Mulvenon, Cordesman of the CSIS, and others have discussed China’s military force at length in full-length books).

But being directly able to match the US tank for tank may not matter since the Chinese are investing a lot in asymmetrical warfare. The most famous book on China’s asymmetrical and military policy is China Debates the Future Security Environment, by Michael Pillsbury. It’s a little out of date (from 2000), but it’s free on the Internet so it is easy to check out. (A slightly alarmist report on Chinese cyberterror from The Guardian is also available.)

ECONOMIC SUCCESS

Shapiro argues that “demographics and globalization will intensify economic inequality almost everywhere” (22); but that the societies with the greatest inequalities will likely be the richest, like China and the United States, since globalization allows returns on investment to rise (22).

Shapiro discusses how China and the United States are best positioned to take advantage of globalization due to their “freewheeling market capitalism” (16) which allows for innovation and can help the countries escape the burdens of aging and social-welfare systems Shapiro argues will plague Europe and lead to a “geopolitical marginalization” (21)… since “Europe has steadily cut its defense capacities and commitments…[it is] likely to be preoccupied politically with the fierce domestic conflicts certain to erupt when that slow growth collides with the tax hikes and spending cuts requried to keep their pension and health-care systems going (21).

Due to these declines, Shapiro argues, Europe will by necessity grow closer to United States whose military can protect Europe and help ensure its steady flow of raw material resources.

OTHER DEMOGRAPHICS

Shapiro touches on China’s aging; but notes that its large population, if properly educated, can mitigate most of the troublesome effects of a declining workforce. Even if China grays, its population is not expected to begin aging until the late 2010s, and at least through the early 2020s, around 75% of the population will be working-age or younger.

Another factor explaining why China’s aging will not necessarily hobble the country, is that unlike most other aging countries; Japan, the US, and Europe, China has not yet reduced the size of its agricultural industy– it still represents around 43% of their labor force. China still has a long way to go on reducing agricultural employment and retooling that employment into more productive industries. Therefore, in terms of raw productive ability, China will be able to benefit from a continually expanding industrial-production pool as more agricultural workers shift into city employment.

However, Shapiro avoids a detailed discussion on China’s environmental or health problems. Considering how he allots much discussion arguing that China and America are strong countries with strong economies in part because they lack national health care, this is a bit confusing.

China’s environmental problems have gradually worsened; 16 of their cities are listed as the 20 most polluted in the world. The preponderance of pollution will lead to more chronic conditions, and more lost-days at work which can cut into productivity. When I lived in Beijing, every year we suffered a few “purple” level pollution days where the air quality index rated worse than 500 parts particulate matter pollution- the highest level measured.

INFRASTRUCTURE

Shapiro discusses the usual things about China developing massive amounts of infrastructure and still having a long way to grow. As a World Bank Report stated in regards to China’s massive infrastructure investments: “Annual capital expenditures for transport, electricity, piped gas, telecommunications, urban water supply and sanitation increased steadily from US$39 billion in 1994, to US$88 billion in 1998, and to US$123 billion (about 8.7% of GDP) in 2003.”

Infrastructure needs to be constructed rapidly to encourage continual expansion of China’s economy. According to the Economist “logistics costs… amount to 18% of GDP in China compared with 10% in America” and “between 2006 and 2010 $200 billion is expected to be invested in railways alone, four times more than in the previous five years. ” It will be interesting to see if China’s government can maintain those levels of investment, given the current global recession.

DIPLOMACY

Shapiro then explains how China’s growth and increasing relevance in international trade and resource transfers will encourage new diplomatic alignments. Shapiro argues that a China and Europe alliance or a China and Russia alliance could pressure America and cause it and its world financial institutions to alter policies (40).

PART II will discuss Russia and India, Recipies for Success, and Conclusions on the book.

Feel free to sound off in the Comments section of this post for your opinions on the book and my analysis.

Futurecast 2020

by: Robert J. Shapiro (Undersecretary of Commerce 1998-2001, Senior economic advisor to the Clinton, Gore, and Kerry Campaigns, cofounder of SONECON LLC.) 2007.

23 June, 2008 Posted by | Book Review, China Environment/Health, China Future | , , , , , , , , , , | 2 Comments

Consequences of China’s Oil Price Hike

China has finally raised the prices on its oil. It came a bit sooner than I expected, but as I stated in “China’s Oil Price Freeze,” the raise was a lot lower than needs to be done (China’s prices are still 1/4 cheaper than gas in the US and 1/3 cheaper per liter than oil in the UK). The United States’ prices on oil have risen over 50% since December 2007 (based on calculations of average gas prices of 2.71 in 2007, according to the EIA);

China only raised their oil prices 16 to 18%. (In November, they raised prices 11% to confront $80/barrel oil;  China’s oil companies appear to still have a shortfall of $21 dollars per barrel from current prices of nearly $130 a barrel.)

Rising oil prices will affect Chinese stability, inflation, and government openness.

STABILITY

According to Xinhua, the Chinese State news agency: “more subsidies would be offered to farmers, public transport, low-income families and taxi drivers to cushion the crunch of price rises.” According to FT, “the finance ministry said the targeted subsidies would amount to Rmb19.8bn ($2.9bn, €1.8bn, £1.5bn).”

Given  China’s huge trade surplus, the burden of cost can be arguably borne by the government (And the amount of subsidies direct to the people currently is far less than the amount of subsidies ($50 billion plus) the Chinese government would have needed to give to state oil corporations forced to do business at under-market prices. Apparently,  Sinopec was losing money on imports when “the international price exceeded $78 a barrel.”)

The problem with the Chinese government pumping a lot of money into the hands of its poor peasants, however, is that it can lead to inflation. In a similar situation in Indonesia “the [Indonesian] government forecasts inflation will rise to 12% in June — up from 8.96% in April — as the fuel-price increase feeds into the broader economy.”

INFLATION

Remember, in 1989, part of the impetus for the massive protests was runaway inflation, rising unemployment and lowering standards of living. And as Pieter Botellier of the Jamestown Foundation also argued; “the Communists’ defeat of the Nationalists in the Chinese civil war of 1945-1949 was greatly assisted by the run-away inflation of those years, which sharply reduced the popularity of Chiang Kai-shek’s Republic of China (ROC) government. “

This is not to say China’s government is in any danger of losing its grip on power– but rising inflation might cause its leaders to look to past lessons of history and react skittishly to the consequences of unrestrained inflation. According to Prof. Victor Shih of Northwestern, this is the highest inflation we’ve seen in China since the mid 1990s. Also according to Shih, there is a current factional dispute in China’s leadership about whether to continue to tighten the monentary supply, or to reevaluate the RMB upward to correct the domestic inflation problem. It’s a complicated situation, and I recommend reading his article for more details.

OPENNESS

In light of increased tensions as a result of upwardly spiraling inflation and energy costs; President Hu Jintao might be encouraged to crack down more on free press and coverage of unrest that will likely emerge as people are able to afford less and less.

The Chinese belief has long been that silencing opposition makes it go away. We’ll see what happens over the coming months.

RESULTS

Due to transportation costs, Chinese food prices will increase even more than the 22% percent they have already appreciated since last year. (In all, according to the BBC, China’s inflation as of April was up 8.5% on the year.) Rising inflation could lead to big problems and the end of 4 kuai (.50 cent) meals that sustain many low-paid migrant workers who labor in the cities and send remittances to their farming families.

Already, there has been a slight decrease in the amount of migrant workers in China’s coastal cities (regrettably, I can’t currently find the Journal article I saw the numbers for this cited in- I will post it as soon as I find it), driving up prices for construction and leading to more inflation. The eventual return of these workers to their villages and second-tier cities might be good for the economy in the long-term as some population stress is removed; but in the short term, their return with big city views, and big city demands for quality of life, these returnees could have big cosmopolitan demands for their local governments- demands that might not be met and could cause social unrest.

IN SUMMARY:

ONE Beijing still needs to subsidize a gap of around $20 in international purchases of oil. Its importing companies are still losing cash, but ultimately China can weather slightly cheaper oil prices than the rest of the world since “average Chinese [domestic] production costs were about $US20 ($21)”. It’s the internationally-bought oil gap that China has to pay for.

TWO China also has to manage the social unrest that will originate due to the rising oil prices. Subsidies to the right populations should take a lot of the bite out of that unrest. Prof. Victor Shih of Northwestern speculates a little on what needs to be done to prop up the Chinese middle and lower classes after gas prices rise. 

THREE There may be citizen-government clashes over the increased oil prices, much as there were in March 2007 during the Yongzhou Mass Incident,  sparked over rising public transportation costs. This could be why public transport costs are being kept steady. (According to the FT, “CSFB, the investment bank, estimates that an 8 per cent increase in fares would add 2.3 percentage points to inflation. “)

FOUR If there are clashes, the government will likely clamp down, and try to keep the media from reporting on negative developments since China does not want to look bad in the year of its Olympics (as noted in my earlier article.) How successful they are remains to be determined.

FIVE And certainly, other reprecussions will be demonstrated, from migrant worker movements, to wage price increases, to possible capital flight from China. Remember, it’s China… Anything can happen.

—-

Also of note: An article on hidden cost of fuel subsidies explains why China needed to reevaluate its oil prices.

And Forbes discusses in more detail the weird situation where one of China’s national oil companies, Sinopec suffered under the system and required billions in state subsidies to prop up its foreign oil acquisitions.

http://www.eeo.com.cn/ens//Industry/2008/06/25/104320.html Also had an interesting article on the possible reprecussions of the price rise on China’s national oil companies.

20 June, 2008 Posted by | China Economy, China Energy, China Future | , , , , , , , , , | Leave a comment

China’s Prison Population

It is well known that the US leads the world in incarceration rates with 751 per 100,000 people in prison; but it is less well known how China’s incarceration rates compare. Interestingly, China, which is often portrayed as a police state, only has 119 prisoners per 100,000 people, according to December 2007 data posted at King’s College London. China ranks 113th on the list. But what does this say about China? Is it a safer place? If so, then why is it a safer place? Are criminals not getting arrested? Or, is all the data not being reported?

IS CHINA A SAFE PLACE?

The data says a lot of things- for example, it tends to punish countries that better report true rates of incarceration (by ranking them higher in the list). Countries that have higher stability and greater rule of law will also tend to have higher incarceration rates. For example, the Democratic Republic of Congo, which lacks order and stability ranks a relatively benign 183rd place with only 57 people incarcerated per 100,000. 

But the number of prisoners in a country doesn’t tell the full story about crime, so I compared data on year 2006 incarceration rates to data on crimes per 100,000. That data is from 1994-1997, so it’s a bit out of date, but it is relatively legitimate, from the UN. 

In China, there were 131 crimes per 100,000 people in 1997. (This was probably massively underreported; but when compared to rates of incarceration- at only 119 per 1,000 people as of 2006, it seems fairly legitimate.)

For comparison with other Asian countries that have Confucian histories; Taiwan had 256 (at 31st place), and South Korea had 97 (at 133rd). And Japan had 63 per 100,000 incarcerated, putting it at 177th place. This indicates China’s 113th place is average when compared to a cultural-group incarceration rate.

Japan, South Korea, and Hong Kong all suffer higher crime rates than the Chinese. In Japan there were 1,507 crimes per 100,000 people in 1997. In S. Korea, there were 3,741 crimes per 100,000 people in 1997.  In Hong Kong, there were 1,070 crimes per 100,000 people in 1997.

Comparing China to other post-Soviet countries such as Cuba, Russia, and even the Soviet Bloc countries; it also ranks quite favorably: Cuba had 531 incarcerated per 100,000 (at 5th place), and Russia had 632 (at 2nd place) [With 1,627 crimes per 100,000 in 1997. (Which I would assume is underreported)], Georgia had 428 (10th place) [With 256 crimes per 100,000 in 1997- almost, but not quite as low as China's numbers and strikingly strange considering its high amount of people currently incarcerated), Ukraine had 325 (29th place) [With 1,162 crimes per 100,000], and Latvia had 287 (35th place) [With 1,496 crimes per 100,000].

Among other developing countries, Brazil was 54th with 270, and India was in 203rd place with 52 people behind bars per 100,000 citizens [and a 1997 reported crime rate of 179 per 100,000 people].

Interestingly, France was in 140th place with only 91 prisoners per 100,000 citizens, but France was a leading country in the survey of reported crimes committed with over 6,754 crimes per 100,000 people in 1994.

Denmark, Belgium, Germany, New Zealand, Sweden and Moldova (at 32,000+ crimes per 100,000 people in 1997) all suffered numbers in excess of 8,000 reported crimes committed per 100,000 people.

In the US, there were 5,375 crimes per 100,000 people in 1994.

WHY WOULD CHINA BE A SAFER PLACE?

The question then emerges, why would China have less criminals than are present in other societies? Assuming the majority of criminals are arrested, some would argue that Chinese Confucian values encourage people to respect the law.

Others would argue that close Chinese kinship ties ensure that “black sheep” are scolded by their family and kept in line. This belief would segue with social control/ social constraint criminological theory.

Also perhaps the supervision of “block captains” in charge of neighborhoods who function like a support group/neighborhood watch, resolve problems that in other societies would lead to conflict. Japan has a similar system in place, where policemen visit citizens in their district, going door to door and meeting with them several times a year.

ARE CHINESE CRIMINALS GETTING ARRESTED?

A discussion on whether or not criminals are actually getting arrested in China would involve an in-depth report I cannot go into at this time. Anecdotally, China has a high proportion of private security guards; they can be seen everywhere. In major cities like Beijing or Shanghai, the gonganju, the police, and the chengguan can be often seen patrolling.

However, examining the data closer, “bad” data reporting on actual arrests might account for part of the relatively low alleged Chinese prison population.

A reevaluation of China’s prison population rate is necessary since “There are two types of administrative detention: according to Chinese government statistics there were more than 500,000 serving administrative detention in re-education-through-labour camps in 2005, and it is reported (U.S. State Department Human Rights Report 2005) that in 2004 there were 350,000 in a second type of administrative detention, which is for drug offenders and prostitutes. The number of pre-trial detainees is not known but has been estimated at about 100,000″ (King’s College Data).

“If this is correct the total prison population in China is about 2,500,000.” As opposed to the official statistic used in evaluation, which was 1,565,771″ (King’s College Data).

“A total prison population of 2,500,000 would raise the prison population rate to 189 per 100,000 of the national population” (King’s College Data).

This would put China’s position in world incarceration rates at 65th place.

This would still imply China is a relatively safe society; having a few less offenders incarcerated than 59th place Mexico.

TYPES OF CRIME AND CONCLUSION

It would be interesting to examine a cross-section report examining how many people are in prison for political crimes, violent crimes, subversive crimes, property crimes, and other crime strata. Before a full declaration can be made on how “safe” China is in regards to other countries, much more work needs to be done.

Nevertheless, it is clear that based on the rate of criminals per 100,000 in the population and possible dubious statistics on crimes committed per 100,000; China is oddly enough one of the safest countries in the world.

For Those of You Who are Tourists for the upcoming Olympic games: The US Government has a 2008 China Crime and Safety Report. (It is not very rigorous, but at least it’s something.)

19 June, 2008 Posted by | China General | , , , , , , , , | Leave a comment

Off the Shelf: China’s Economic Influence

The April 2008 CRS American government report I mentioned before in “China’s Soft Power” dredged up some good statistical data regarding China’s economic reach. However, the CRS analysis fell flat by not including Hong Kong’s FDI in the full calculation of China’s FDI and influence on foreign countries.  

China’s 2007 stock of FDI abroad is either $93.7 billion (according to the CIA), or $73.3 billion (according to the report; CRS, 22) or $292 billion (according to UNCTAD); but if you add Hong Kong there is an additional $534 billion or $769 billion in FDI stocks to be accounted (according to the CIA and UNCTAD respectively), or $43 billion in same-year 2006 FDI flows, according to UNCTAD.

Because Hong Kong’s FDI is omitted, the CRS report understates much of China’s world-wide influence.

Of course, much of Hong Kong’s $534 billion in FDI is reinvested back in the mainland.

Many factors can be evaluated when considering China’s worldwide economic influence. Here, I highlight two main ideas touched on in the report; China’ Foreign Trade, and its FDI.

CHINA TRADE

China’s main trading strengths are with countries bordering it such as Japan, South Korea, Central Asia, ASEAN, and Pacific Island Countries. Its total trade with Pacific Island Countries was $754 million in 2006, compared to $404 million by the United States, $3.7 billion by Australia, $918 million by Japan, and $832 million by the EU-25 countries (CRS, 36).

“[I]n 2007, China’s total trade with ASEAN was 17% larger than total U.S. trade ($200.6 billion versus $171.7 billion). China’s exports to ASEAN in 2007 were 55.6%” greater than United States’ exports to the region, while U.S. imports from ASEAN were 2.6% greater than China’s imports (CRS, 91).

“Based on the fact that China’s imports from ASEAN in 2007 grew by 21.1% (over the previous year), versus 12.4% for the United States, it is likely that China’s imports from ASEAN will be larger than U.S. imports [from the region] in 2008. China ran a $14.1 billion trade deficit with ASEAN, while the U.S. trade deficit totaled $50.6 billion” (CRS, 91).

China’s trade with Japan was $210.7 billion in 2006; Japan’s amount of trade with the US was $213.5. The trend in trade indicates China is probably now Japan’s number one trading partner (CRS, 43). Japan receives 9.5% of China’s exports.

China’s trade was greater that US trade with South Korea in 2006. China-SK had $118.1 billion in bilateral commerce, compared to America’s $76.9 billion in bilateral commerce with the peninsular state (CRS, 44). China’s trade with the country is rapidly accelerating and currently accounts for 4.6% of China’s exports (CRS, 45).

China’s trade with Central Asia was $12 billion in 2006 (CRS, 71), accounting for 1.34% of Chinese export trade (CRS, 72). In 2003, US trade with Central Asia amounted to $1 billion. In 2006, the United States imported $1.3 billion from the 5 Central Asian states and exported around $927 million to them (Data from HERE, HERE, HERE), HERE, and HERE). for a total of around $2.3 billion; dwarfed by China’s trade with the region.

WHERE THE UNITED STATES’ TRADE INFLUENCE REMAINS STRONG

In contrast, the United States still trades more with Latin America and Africa, two regions often identified as places where China might eventually challenge the United States’ trade dominance.

“China’s overall trade with LAC [Latin American Countries] grew to about $70 billion in 2006, representing just 4% of its overall trade. In comparison, U.S. trade with Latin America and the Caribbean amounted to almost $555 billion in 2006″ (CRS, 26).

“From 2001–2006, the absolute value of U.S. goods trade with Africa, at $71 billion, was greater than that of Sino-African trade, but Chinese-African trade grew at a much faster rate than U.S.-African trade.” Then again, it had a longer way to rise. “China’s total trade with sub-Saharan Africa rose from $8.92 billion to $45.35 billion in that period, an increase of 409%, as compared to a 152% rise in total U.S.-African trade” (CRS, 119).

WHAT EFFECT DOES CHINA’S RISING TRADE HAVE?

China’s growing influence in trade with its Asian neighbors could lead to future trade embargoes and conflicts such as the 2001 mushroom/automobile trade war between China and Japan. This began when Japan placed a tariff on Chinese leeks and mushrooms. In return, the Chinese imposed oppressively high tariffs on Japanese cars, mobile phones, and air conditioners. The Japanese eventually backed off. It is important to note, however, that the mushroom trade war happened before full Chinese ascension to the WTO. Now that China is part of the WTO (since November 2001) and greater integrated into the world financial system, such trade wars might be less likely to occur.

US-CHINA TRADE & THE TRADE DEFICIT

The United States received, in 2006, 21% of China’s exports (CRS, 45). “In 2007 the United States incurred a merchandise trade deficit of $256 billion with China, $83 billion with Japan, and $13 billion with South Korea (43% of the total U.S. trade deficit of $816 billion) (CRS, 60).

CHINA FDI

As earlier noted; estimates of China’s FDI investments in foreign countries might be incorrect due to non-inclusion of Hong Kong FDI numbers into the CRS report.

From existing data, it appears China’s FDI sent abroad is relatively low.

“From 2002–2006, U.S. FDI flows to ASEAN were $13.7 billion (or 8.0% of total), making the United States ASEAN’s 4th largest source for FDI. Over this period, China’s FDI totaled $2.3 billion or 1.3% of total, making China the 10th overall source of ASEAN’s FDI” (CRS, 95). “The United States remains ASEAN’s 2nd largest trading partner (China ranks 5th) and its 4th largest source of foreign direct investment (China ranks 10th)” (CRS, 102).

“While China’s reported cumulative stock of FDI in [Latin America] amounted to $11.5 billion in 2005, the cumulative stock of U.S. FDI in the region amounted to $366 billion in 2005, and grew to $403 billion by 2006″ (CRS, 26).

Considering the difficulties of analysis; rather than getting into a deeper blow-by-blow analysis of China’s FDI around the world, I’ll point out an interesting point.

According to the UN; US and Japan’s year 2005 FDI into China accounted for $95 billion, which is $22 billion more than China’s total 2006 FDI invested everywhere in the world (CRS, 47). Using those numbers, it still appears that foreigners are developing and affecting China more than China is developing and affecting the world.

At least that’s how it is for now, anyway.

CONCLUSION

There’s a lot more to read in the US Government report, from a discussion on Sino-Japanese-Korean relations, to analyses of how the Taiwan issue affects international relations and of China’s energy diplomacy and the SCO (Shanghai Cooperation Organization), to in-depth discussion of international loans and trading and nuanced explanations of where China’s FDI is heading and why.

Despite its flaws, the report is still well worth checking out.

* Also of Interest: UNCTAD’s World Investment Report: 2006

17 June, 2008 Posted by | Book Review, China Diplomacy, China Economy, China Future | , , , , , , , , , , , | Leave a comment

Wind Power In China

 Long known for its polluting and dirty coal industry, did you know that China also has fast-developing and promising wind and nuclear industries? It needs to, especially since it became a net oil importer in the last ten years and is importing increasing amounts of coal to feed its economic expansion.

This article focuses on China’s Wind Industry.

“China intends to spend an estimated $200 billion on renewable energy over the next 15 years.” And as of April 2008, “the [Chinese] government has set a target for renewable energy to account for 10 percent of the country’s energy consumption by 2010 and 15 percent by 2020.” This may be a reasonable goal, given that China met its goal for installed wind-power generating capacity three years ahead of schedule.

In February 2008 a report was released that stated China’s wind power generation rose 95.2% to 5.6 million Kw hours in 2007. “The government plans to increase its wind power equipment to a combined installed capacity of 10 million kw by 2015, and to 30 million kw by 2020.”

To encourage further development; “The Chinese government has begun refunding value-added tax (VAT) and import duties on core wind power turbine parts and materials in a move to promote the development of clean energy.”

And feverish work has already begun:

In March, China announced the “creation of a high-level body to integrate its energy management, supervision and policies, functions that are currently dispersed among many government agencies.” This should allow for more streamlined development of the wind and renewables sector.

“China National Offshore Oil Corp. (CNOOC) plans to build the world’s biggest offshore wind farm… near Weihai City in eastern Shandong Province.” The whole project which will result in 1.1-2.5 million megawatt hours may take up to 10 years to complete.

“By 2010, China Power New Energy… plans to put into operation 1,500 megawatts (MW) of renewable energy capacity… It also plans to have another 1,500 MW under construction and a further 1,500 MW in the pipeline… That would be 50 percent higher than the company’s original target of having 1,000 MW of renewable energy capacity on stream, 1,000 MW under construction and another 1,000 MW in the pipeline… The company now had installed renewable energy capacity of 980 MW,”

Why the focus on wind? According to a 2007 research industry report by QYResearch “Wind power is the most popular renewable energy in China, compared to the solar energy industry; as its cost is much lower. Chinese wind power price is about 0.5-0.6RMB/KW.h while the traditional power price is about 0.2-0.3RMB/KW.h, but solar power price is about 8 times that of wind power price, therefore wind power is very welcome in China. “

For a little perspective, The Earth Policy Institute has a lot of good data on the amount of wind capacity installed worldwide. As of 2007 Germany leads the world with over 22,247 MW, the US is second with 16,818 (and led the world in 2007 installed capacity of over 5,000 MW), Spain is third with 15,145 MW, then India with 8,000 MW, China with 6,050 MW, and Denmark with 3,125 MW.

China added 3,449 MW of wind energy in 2008. Each year, China has added greater and greater amounts of wind energy capacity. With the current positive regulatory environment, increasing production capabilities, and the proliferation of environmentally-based trade fairs showcasing cutting-edge technology, China is demonstrating that it wants to move to the forefront of clean energy technology development. As quoted at the Green Leap Forward; “The National Reform and Development Commission was considering almost tripling wind energy targets for 2020, from 30 GW to as much as 100 GW. To put that number in context, realize that current installed wind capacity is about 94 GW…globally.”

Considering China’s rapid progress thus far in wind energy development; it appears that within the next three to ten years China might very likely become one of the world’s major leaders in wind renewable energy.

Other Interesting Tidbits
 * Junfeng Li at the WorldWatch Institute provides a nice analysis and chart listing of the major wind power producers in China.
* The Green Leap Forward had a good article on China’s Wind Power.
* China Wind Power Report: 2007
* China Brief on China’s new energy regulatory commission.
* Renewable and Alternative Energy News on China.

16 June, 2008 Posted by | China Energy, China Future, China Technology | , , , , , , , | 1 Comment

Criticism in China

The WSJ’s China Journal called attention to an interesting analysis of Chinese being critical in their blogs by calling attention to a paper presented at the Chinese Internet Research Conference that was a content analysis “conducted on more than 500 blogs with political content and discussion of news events from 2006.”

It underlied some of the challenges facing free speech and the “chilling effect” of control in Chinese society.

More research needs to be done in regards to whether challenging ideas are being posted and deleted by censors, posted and deleted by the bloggers, or if quite simply no one dares set their opinions down in digital ink.

Only 61% of 500 blogs with political analysis studied by Ashley Esarey of Middlebury College expressed criticism of some “important” group in society. 81% of Chinese newspapers “did the same.”

But the amount of “real criticism” is overstated by the raw numbers.

Graphical Representation linked from WSJ China Journal Blog

* A chilling 0% gave implicit or explicit criticism of the head of state.

I recall one teacher I had in China who shut the door whenever we discussed political terms, and would nearly hyperventilate whenever foreigners criticized their own political leaders. She couldn’t believe that foreigners could be so audacious.

* More upsetting, 0% gave criticism of local government leaders.

This belies a system where local government leaders have disproportionate power to harm people under their control and therefore, people fear to criticize them openly (at least in print–there is plenty of criticism happening verbally). As Chen Guidi discusses in Will the Boat Sink the Water: The Life of China’s Peasants, a book written by Chinese researchers investigating allegations of power abuse, there is a systemic problem of power concentration in the hands of a few elites, especially at lower levels of government.

* 2% gave explicit criticisms of local governments.

* 2% gave implicit criticisms of local governments.

* 8% explicitly criticized the national government.

Presumably, criticism in the aggregate should be easier to do than criticising any particular cadre. It should be noted that in the past it has been all right to criticize certain figures in government; from Chen Liangyu of Shanghai (busted in a corruption probe). Also, after Jiang Zemin stepped out of power, many made fun of his antics, especially those who were upset about his handling of the SARS epidemic.

*  12% practiced implicit criticism of the central government.

Interestingly, only 2% contained criticism of foreign countries. When contrasted to popular perceptions of rising Chinese nationalism, this low proportion merits further investigation.

* 19%, combined, criticised national and local phenomenon (which would include disasters like the snow emergencies in January/February.)

* 6% criticized public figures, private individuals or celebrities. (This would include criticisms of celebrities having more than one child, which became a big issue.)

* And 10% criticised corporations. Some of that criticism, though, might not be rooted in reality; instead it might be mercenary. As a BusinessWeek article states: “Plenty of companies are willing to pay for positive spin. PR outfits hire students to write postings that boost certain brands and criticize the competition, says a staffer at a Western PR firm in Beijing. The job description of one online help-wanted ad reads: “Publicize and popularize [products] via online forums and blogs. Send at least 50 propaganda posts per day.” Workers are offered 1.5 cents per post. ” (Imagethief does more analysis of this phenomena).

* As the study demonstrates, China’s civil internet society still has a far way to go before it can be counted on as a significant independent commentator on political issues at the crucial local and macro head-of-state levels.

14 June, 2008 Posted by | China Democratization | , , , , , , , , , , | Leave a comment

Isn’t That Odd? China’s Wind Grid Troubles

In a few hours I’ll post a more indepth article about Chinese wind power; but for this edition of “Isn’t That Odd?” I’ll discuss a little about some results of inefficient bureaucracies in China.

Similar to their counterparts in many state bureaucracies, China’s bureaucrats have a way of dropping the ball.

In January 2008, Reuters pointed out that: “China’s wind power generating capacity surged to 5.6 gigawatts by the end of last year, but over a quarter of it is still not connected to the grid because of bad planning.” With the creation of a National Energy Commission in March 2008, these inefficiencies might disappear, but some people who were hoping for a more comprehensive Ministry disagree.

I wonder if my earlier comment sunk in though, so I’ll repeat it: Over a quarter of wind-generating capacity installed in 2007 is still not attached to the grid- but why? Maybe because as the article goes on to say; “local governments are keen to jump on the renewable energy bandwagon as Beijing pushes greener growth, [therefore] they are approving new wind farms without proper planning.”

Chinese local governments, pursuing directives from the top have long been infamous for making grandiose plans that gain them plaudits from central planners, but don’t actually solve problems that the people are actually facing.

In Great Leap Forward times (1957-1959) local cadres gave “excess” food to the central government for redistribution while their citizens starved, because the cadres couldn’t admit the harvest was weak without admitting failure. In later times, shoddy buildings were constructed and polluting industries flourished because the important thing was the number of people employed, not the quality of the factory, or the buildings. This can have tragic consequences, as demonstrated by the collapses of shoddily-constructed schools as a result of the Sichuan earthquake.

So, in wind too, as in previous pushes toward “self-strengthening,” today’s Chinese government officials are making the same mistake as their predecesors did with the “backyard furnaces” (where steel was smelted en masse, but was of such low quality that all it really contribuited was greater pollution), and the project to eliminate birds (because they ate crops… somehow it was forgotten that insects, which birds eat, can be much more destructive.)

Likely, many of these wind generators are subpar- not up to international standards since the local cadres were more interested in gaining governmental plaudits than in really cleaning up the environment.

Oh well, that’s central planning for you. At least the turbines are there; some will work, and ultimately the cadres who know what they’re doing will (hopefully) be commended. (To take a pollyanna view of the situation.)

The question is, how many incompetent cadres will be reprimanded… But that’s a topic for another article.

13 June, 2008 Posted by | China Energy, China Technology, Isn't That Odd? | , , , , , , , | Leave a comment

China’s Oil Price Freeze

Considering recent shortages in fuel in some places in China, as reported by today’s WSJ and an article by the Jamestown Foundation, many may wonder why China is leaving its oil prices at the same level since the last raise in November 2007?

What follows is an analysis focusing on bank loans and stability concerns. More work needs to be done looking into the elite political decisions, namely the discussions between ministers in charge of different portfolios since that can also affect these decisions, but that will have to wait for later.

China wants to present a good image to the world while it prepares to host the Olympic games. The Olympics are a coming-out ceremony for them, an opportunity for much 爱国 (aiguo) or love of country/patriotism. Red, the color of China, appears everywhere. Even PEPSI changed its traditional blue to red in the run up to the Olympics. As one Chinese said in the article: “I thought it was a good idea when I saw those promotional cans. They’re supporting Team China.”

So, what stereotypes does China have to promote to present a good image of their country?

1.) China is not backward

Thus they have retranslated many formerly amusing signs that made little sense in English, such as “Deformed Man” signs outside toilets for the handicapped.

2.) China is ruled by law and order and every Chinese loves China.

Thus, they will increase security and recently presented new regulations aimed at discouraging protestors, both from outside and inside the country. Additionally, the recent clampdown on foreigners overstaying and sometimes working on tourist visas is somewhat based on this. China wants to catalogue all the people inside the country. Laxity in law enforcement is dissipating as the government becomes concerned that foreign elements might seek to upset the festivities.

This also explains the move to ban liquids on Beijing subways starting on May 9th, which appears to be based on International Flight legislation banning liquids on airplanes, and the ban on liquids in other major cities’ subways around the world.

Additionally, the ban of reporters from travelling freely in T*b*t is another example of China trying to present a good “face” to the world– if no one is seen protesting, then it doesn’t happen.

And of course China’s press has cracked down against “negative stories”, and the Hong Kong-based South China Morning Post and other media outlets routinely provide evidence of the country’s greater crackdowns on the free speech of the press. (“Free media for Games = media free of bad news, one city says.” South China Morning Post. March 20, 2007.); also see an April 30, 2007 report on: “The Olympics countdown – repression of activists overshadows death penalty and media reforms”

3.) China wants its economy to keep growing.

China has not reevaluated its currency extremely fast in order to control inflation since it fears (since 2007 in fact, when it had only appreciated 5% against the dollar since the July 2005 depegging, compared to the over 20% it has appreciated by April 2008) that exporters will not be able to survive if there is a rapid reevaluation. Chinese exports to the world have risen exponentially since the early 2000s as the multifiber agreement and trade protectionist agreements expired.

If exporters start suffering, then bad loans could accumulate back to levels not seen since 2005/6 when worries about China’s 10-45% nonperforming loans in state banks led some people to predict an imminent banking collapse– that did not happen, however (China claimed state banks NPLs were only 9.5%) . China seems to have cleaned up it banking act (surprisingly quickly), making its banks at least as solvent as those in America and Europe wracked by subprime.

Some argue that China’s state banks’ cleaned up their balance sheets. However, it appears that some exposure might be hidden. According to the 2006 NYT article: “China Construction had turned in the best numbers at that point, reducing its share to 3.92 percent of loan assets late in 2004, down from 17 percent in 2002… But the risk adviser began cautioning that bad loans were being hidden at the bank’s branches, erroneously labeled as good loans, even though company records showed that they were impaired. He told bank officials that in Beijing and Tianjin alone, he had uncovered $750 million in bad loans that had been deemed good.”

According to an article in Britain’s Telegraph from December 2006; “Less understood is that a sharp rise in the yuan could be the last straw for China’s banks, sitting on a network of loss-making factories living off marginal exports. Standard & Poor’s said a 25pc rise in the yuan combined with a 2pc rise in interest rates would slash corporate profits by a third.”

All these reasons may explain why China raised the reserve requirement to 17.5%. China’s leaders don’t want to risk a hit to their economy’s growth and want to insulate themselves from runs on banks that might happen if loans start to go bad.

As one professor said in regards to a 2006 report on China’s banks, quoted in the NYT: “If there is a slowdown, there will be a day of reckoning. It might be in a long, long time or it might be the day after the Olympics.”

BUT WHY WOULD RAISING GAS PRICES HURT THIS?

Considering all the unrest and trouble that China has recently suffered in T*b*t, and with increasingly loud voices calling for accountability in the construction of school buildings, China wants to avoid more unrest.

With inflation at around 8 percent on the year already, and likely to climb higher, increasing prices for gasoline and ending subsidies can send that rocketing even faster. China’s low per person GDP means that non-subsidized gas will negatively effect farmers, and small businesspeople disproportionately. This could cut into entrepreneurialship and send some to protest, like people have already done in India and Malaysia where “the pump price of gasoline rose Thursday by a whopping 41 percent to 87 cents a liter, or $3.30 a gallon.”

The question is, will gas shortages, caused by undersupply (due to price controls) result in more unrest than raising prices. It appears that as far as the Chinese leadership is concerned, they believe it is better to keep prices low, considering all the other hits to the world economy.

Therefore, I predict that if gas prices in China rise before the Olympics, they will rise much less than they have elsewhere in the world. More likely, the prices will be raised after the Olympic ceremonies are complete.

12 June, 2008 Posted by | China Economy, China Energy, China Future | , , , , , , , , , , | Leave a comment

John McCain’s China Policy

If John McCain, the presumptive American Republican Party presidential candidate wins in November 2008, his China policy appears to be one of seeking to maintain positive relations while attempting to convince China to become a responsible stakeholder in international affairs.

McCain’s voting record in the Senate indicates a relatively benign attitude toward China-US relations, but his recent campaign rhetoric indicates he might take a harsher line toward China. Then again, President Bush was harsh on China when he came into office, and that shifted sharply once he came to believe that although it might be popular to malign the country, the US might benefit by cooperating with the Asian state.

The often-quoted Yan Xuetong of “Qinghua University says Chinese-U.S. relations might be more stable under a McCain presidency than with either Democrat.”

I invite you to look below and come to your own conclusions about McCain’s statements on China.

CHINA DEMOCRATIZATION AND HUMAN RIGHTS

In (1999), McCain said that “we need not shrink from a strong advocacy of religious and political freedom [in China].” Shades of this statement were echoed McCain’s his April 2008 comments in regard to Beijing’s response to unrest in T*b*t; “If Chinese policies and practices do not change, I would not attend the opening ceremonies… It does no service to the Chinese government, and certainly no service to the people of China, for the United States and other democracies to pretend that the suppression of rights in China does not concern us. It does, will and must concern us.”

(All three Presidential candidates echoed similar statements regarding attendance of the opening ceremonies.)

McCain went on to urge China to engage in “a genuine dialogue” with T*b*ts spiritual leader. McCain said: “I have listened carefully to the D@l&i L&ma, and am convinced he is a man of peace who reflects the hopes and aspirations of T*b*t*ns.” He went on to say, “I urge the Chinese authorities to ensure peaceful protest is not met with violence, to release monks and others detained for peacefully expressing their views and to allow full outside access to T*b*t.”

DIPLOMACY AND ECONOMICS

He promotes economic engagement with China (1999), and voted for normalized trade relations with China in 2000. He appears to be a “free trade” Republican who believes that lowering barriers will increase democratization, make others wealthy and lead to peace. It appears McCain subscribes to the Thomas Friedman’s “Golden Arches Theory of Conflict Prevention” (Scroll down to see the definition).

However, in recent years, his statements in regards to China have turned more belligerent. In response to unsafe toy scandals in April 2008 McCain said “If I were president of the United States, the next toy that came into this country from China that endangered the lives of our children, it would be the last,”

McCain also implied that “the G-8 should be limited to democracies,” according to a Bloomberg article reposted on The China Post, which implies he would keep China, and Russia out of the world’s major economic decisions. The economic and political wisdom of keeping some of the most powerful economic powers away from the discussion table is a bit murky. Perhaps pressure-tactics might encourage a change in attitude by the countries- but that remains to be seen.

It appears McCain is willing to confront Beijing on issues such as their support for Myanmar (Burma) and China’s continued trade dealings with Sudan. As he said in May 2008, “”I would hope” Americans would sell stocks and other investments tied to Sudan, McCain told reporters… “because I think that government obviously is one that has done virtually nothing to prevent the genocide that is taking place in Darfur.”

His comments are a bit odd, coming as they did soon after China sent over 140 engineers and troops to Sudan, but it is a fact that China’s promotion of Sudan’s “national sovereignty” has resulted in it pushing for watered down UN votes sanctioning Sudan over its treatment of the minorities in the Darfur region.

CHINA AND TAIWAN

“Guarding against Chinese threats to our strategic interests in Asia is a sound rationale for helping reduce the growing threat to Taiwan from a mainland missile attack” (1999).

Considering McCain’s interest in East Asian security, it is likely he will support the continued de facto independence of Taiwan. He would unlikely, however, support de jure independence, seeing as he has previously spoken of a “One China” principle.

CONCLUSION

John McCain appears willing to challenge China on shoddy imports, and human rights. He also appears willing to seek to maintain American military interests in the region and may subscribe to a view that America’s long-term world-competitors are large states rather than small. This would encourage him to expand the size of the professional military, and perhaps purchase a larger amount of F-22s.

If McCain speaks most belligerently about China, it will be in regards to T*b*t, or Taiwan. While he has been noted for his compassion for the Sudanese people, beyond the stock sell-off he has had little to say directly on the subject.

Of course, American forces in East Asia are currently being drawn down as troops are moving gradually from  South Korea to Guam. The drawdown of US troops could ameloriate Chinese fears of American encirclement.

McCain would try to keep the trade levers open between the countries, believing trade would be mutually beneficial. McCain’s past record is of promoting economic policies that satisfy China, and benefit America by creating a more efficient supply-chain. These policies do much toward peacefully co-existing with the Chinese State.

It appears that a McCain presidency, though potentially confrontational in regard to Chinese human rights and shoddy merchandise, would tend to reflect George Bush’s status quo of criticising China, while still increasing trade, and working toward dialogue. That is, if the OLD free trade McCain overcomes the populist G-8 and dialogue-limiting McCain that has appeared in the 2008 election cycle. If the new, more belligerent McCain crafts China policy, then pressure and stresses might develop in the Sino-US international relationship.

* The major source article for this analysis was the CFR’s analysis of Presidential Candidates’ China views.

* John McCain’s major foreign policy article in Foreign Affairs is “An Enduring Peace Built on Freedom.”

12 June, 2008 Posted by | China Future | , , , , , , | 1 Comment

Obama’s China Policy

Barack Obama recently achieved status as the presumptive Democratic Party Presidential nominee, so it seems worthwhile to address what his future China policy might be like, should he be elected.

CHINESE CURRENCY REEVALUATION

Obama wants faster Chinese currency reevaluation, and threatens to levy duties against the Chinese if they do not move to strengthen the RMB against the dollar. 

The bill Obama promotes, S. 796, Sen. Bunning (R), and Stabenow (D)’s Fair Currency Act of 2007, appears similar to the failed Baucus’ 2006 bill S. 295 which attempted to designate China a currency mainpulator but which eventually did not pass because of fears that it was non-WTO compliant. 

Likewise, the Fair Currency Act appears similar to the unadopted 2007 S. 1607 Baucus/Grassley bill which sought to replace the current Treasury reporting structure which merely analyzes if foreign countries “manipulate the rate of exchange between their currency and the United States dollar for the purposes of preventing effective balance of payments adjustments or gaining unfair competitive advantage in international trade” (1) with a requirement that Treasury identify “fundamentally misaligned” currencies and designate them for priority action in semi-annual reports to Congress, whether or not the currency manipulation is maliciously intended.

Such a bill would introduce countervaling duties against Chinese exports to the United States, arguably helping domestic American manufacturers. Prices of goods will rise to some degree, but more manufacturing jobs will (theoretically) remain in the United States. (Read the bill HERE.) [A further analysis on the Bill and currency evaluation/manipulation will follow in a later article.] 

Former ambassador to the UN Economic and Social Council Terry Miller gives some insight into the effects of such a bill, arguing that “changing the exchange rate will, however, affect U.S. producers who use intermediate goods imported from China in their U.S. production processes. Renminbi appreciation will increase their costs of production. U.S. consumers of basic commodities like oil will also be hurt, as renminbi appreciation will make dollar-denominated commodities like oil cheaper for the Chinese. Chinese demand, already rising rapidly, will drive up the dollar price of such commodities worldwide, forcing American consumers to pay even more at the pump.” All Roads Lead to China had another interesting analysis on the wisdom of encouraging a currency reevaluation. I’m not certain I agree with either statements, but they make intriguing arguments. The economy is never quite as simple as it initially appears.

Ultimately, the Chinese RMB has appreciated 18% since 2005 when it removed its peg from the dollar and began to float against a market basket of currencies; but the bill argues China’s currency is still undervalued by as much as 40%.

PELOSI AND ANTI-CHINA SENTIMENTS

Barack Obama, if elected, will lead a Democratic Party alongside a powerful anti-China House Majority Leader, Nancy Pelosi. Pelosi is famous (in China) for unveiling a pro-democracy banner in Tian@nmen Square in 1991 while on a Congressional docket- hardly a subdued gesture by a future national leader. She is often confrontational against China, very pro-T*b*t, and has pushed for changes in China’s population control policies. A commentary in Xinhua, the AP of China, has many derisive things to say about her.

Depending on how much influence Pelosi and the rest of the Democrats’ anti-China lobby might have on Barack Obama, Sino-American relations could degrade under an Obama presidency.

OBAMA AND TAIWAN

Obama supports the “One China Principle” and congratulates Taiwan for its developing democracy, but beyond that has had few constructive statements or declarations of policy on the situation.

CONCLUSION

Although Obama has yet to construct a fully cohesive China policy, a vote for Obama appears to be a vote against coddling China economically. It remains to be seen whether he is a military anti-China hawk, like the recently ousted air force generals who promoted purchases of 381 new F-22 jets in opposition to the Bush Administration’s suggested number of 183, partially because they saw America’s future as confronting conventional armed forces rather than insurgencies.

 The Council on Foreign Relations discusses more of Obama and the other candidates’ China policies at length HERE.

[A future article  on this site will examine McCain's China Policy]

–(1) Exchange Rates and International Economic Policy Coordination Act of 1988. A part of the: Omnibus
Trade and Competitiveness Act of 1988. Cornell University Law School. 1988. http://www.law.cornell.edu/uscode/html/uscode22/usc_sec_22_00005301—-000-.html

11 June, 2008 Posted by | China Economy, China Future | , , , , , , , , | Leave a comment

Who’s #1?

Reality check here. China’s economic power is great, and getting greater every day, but it is important to note where China stands in relation to the world.

ECONOMICS, EXPORTS, AND IMPORTS

Despite being hot on the heels of Germany in striving to become the world’s third largest economy, and despite surpassing the US in April 2008 as the world’s second largest exporter, China still trails the United States in global economic heft.

People may now buy more Chinese products than those made in America; but there is an argument that much of China’s rise in exports is due to its new position as a final assembly-point for goods made elsewhere in Southeast Asia and the world. “These patterns are reflected in the Morgan Stanley estimate that 60% of the US trade deficit with China is due to imports from subsidiaries of US firms,” according to the EU’s European Commission.

 And although people don’t buy as much “American” as previously, Americans still buy much of the world; purchasing $2 trillion in imports, compared to China+Hong Kong’s $1.2 trillion.  Contracts and contacts with foreign countries can restrain their actions and influence their internal policies.

THE BUSINESS OF BUSINESS

Where United States companies go, and where its IMF and World Bank head, countries shake.  WalMart’s GDP in 2006 was larger than that of 144 of the world’s 170+ countries’ GDPs. 

China lacks an indigenous globally recognized top brand (See BusinessWeek/Interbrand’s 2007 survey); the US has 7 of the top 10. (A discussion of the top 20 Chinese brands such as Haier, and Lenovo is HERE). (IBM discusses the problem HERE on page 7.)

UNITED NATIONS

The US still accounts for the greatest percentage of UN funding (22% to China’s 2%, Russia’s 1%, and Germany’s 8% as of 2006. Only Japan’s 20% comes close to the US’ level of contribution.) Without US funds going in, the UN would largely be inoperable.

GDP

Additionally, the US had a 2007 GDP of over $13.7 trillion; China possessed a GDP of $3.249 trillion; The US stock of foreign FDI investments in 2006 was worth$2.3 trillion in 2006; China’s net worth of foreign FDI investment stock was $93.75 billion in 2007. France and the UK both realized values of over $1 trillion. China ranked 23rd on the CIA/WorldFactbook list list, behind Brazil. Even with Hong Kong factored in to China’s total, however, (since many Chinese businesses mainly do business with the outside world through Hong Kong; the total equals 534 billion, placing Chinese stock of foreign FDI investments in 8th place behind Germany, Switzerland and the Netherlands and just ahead of Spain.) It should be noted, however, some of Hong Kong and China’s listed FDI is an overlap, since despite the countries being unified; Hong Kong investments in China are counted as FDI investments.

Of course, if China keeps developing at the fast economic clip it has set, over 10% year-on-year for the past 10 years, and at over 9% through 2009 according to the OECD, the country could come to pass the United States in GDP size around 2035.

AGING CHALLENGES

However, it should be remembered that China is aging fast. By 2020, China’s population aged over 60 will be 16.7% (equal to that of the US’ elderly population in 2000); up from 10.1% in 2000 (AARP Bulletin, June 2008, 24). The US’ proportion will have grown to 22.8% by that time- on par with Japan’s proportion as of 2000.  China’s One Child Policy, instituted in 1979, will begin to be harshly felt after around 2016- the date where the number of over-65 persons exceeds the number of under-18-year olds.

Worries about who will take care of the grandparents will put stress on China’s social welfare system to provide increasingly greater proportions of their GDP, similar to, and perhaps worse than America’s current social security and medicare crises. [A later article will examine China's aging in detail.]

RURAL-URBAN ECONOMIC PLATEAU

China is growing fast, but with growth can come hiccups as an economy reaches a plateau. Once a majority of rural farmers have moved to the cities, as happened after over 25 years of growth in Korea and Japan, the productivity increases begin to decline. In China, the rural population is still 56%; compared to Japan’s 21%, Korea’s 19% and the United States’ 23%. (see page 61 of this UN report on Urbanization). Once China’s rural population drops to a 30%, then all the easy growth will be gone.

China’s economic weight in the world can be overstated, but it has natural limits to its growth, limits that were reached by the Asian Tiger economies in the 1990s. Remember, everyone thought Japan was going to “own America” in the 1990s; but bad investments, bank failures, a sluggish economy, and the American Internet-tech revolution combined to flummox Japan and help hoist America back into its position as the world’s economic leader.

CONCLUSIONS

America may not always hold the lofty position of the world’s #1 economy, but for the short term its government, its FDI, its companies, and its instruments- the World Bank and the IMF continue to matter more to the world.

10 June, 2008 Posted by | China Business, China Economy, China Future | , , , , , , , | Leave a comment

Isn’t That Odd? Segway Scooters

Isn’t That Odd is an occasional feature that aims to provide insight onto the Chinese psyche by pointing out particularly Chinese ways of thinking.

Segway Scooters, which in America cost about $5,000 on ebay and $4000-$6000 as of 2006 according to USA Today actually cost more in China- to the tune of $10,000!

Why do they cost so much? They have to be imported, and aren’t manufactured in China. In fact, they’re at a plant of a company based in New Hampshire.

******

Still… Couldn’t costs go down? Isn’t it surprising that they cost so very much more in China? According to the International Herald Tribune Article, Segway doesn’t want to move to China since it’s afraid its technology will be stolen by Chinese manufacturers. Well, they may be too late to prevent that. It appears copies have already begun emerging.

And as for the Segway name, which I believe is trademarked. It might have already been appropriated by a Chinese company making a remarkably similar product it calls “Segway scooter” (I suppose “Segway” is used in a similar manner as “Kleenex” is used when referring to tissues)

Compare this picture of a Segway on the Charmbright site Charmbright Segway Scooterto the ones on the real Segway site. Not being a Segway expert I can’t say whether the Chinese version is a copy, whether they are retailing the Segways on license (which I doubt since the Segway site has no mention of a “Charmbright.”). 

Charmbright’s listing says they are a “Manufacturer, Exporter, Agent” of Segway scooters from “Industrial Park, Jinhua,, Zhejiang, , China [CN]” which implies that they are creating them from scratch. Their post is quite recent; it’s from Apr 14, 2008.

So what is Charmbright? from their site: “CharmBright Limited is a professional manufacturer of sports products, marine products, fitness equipment and outdoor products. Our production line currently includes ATV, Dirt bikes Go karts, Scooters, Outboard motors, Inflatable boats, Trampolines, Pro-Jump, Waterbird, Skateboards, Fitness massager, etc.”   

Someone at Segway should probably check this out, for IP reasons.

7 June, 2008 Posted by | China Business, Isn't That Odd? | , , , , , , | 3 Comments

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