Monthly Archives: August 2008

Another Strong Earthquake Rocks Sichuan, And Why

The death toll from the latest earthquake to rock Sichuan is beginning to mount. Xinhua now says at least 28 people died in the strong quake that hit on Saturday afternoon and destroyed 100,000 houses southeast of Panzhihua City and over the provincial border into Yunnan.

The quake, which Xinhua said was a 6.1 but the U.S. Geological Survey recorded as a 5.7, occurred at the southern end of the fault line of the May 12th quake that left 70,000 dead. Aftershocks are still continuing, including a 5.6 on Sunday, Xinhua reports, here via AFP.

Another earthquake also struck on Saturday, a 5.3 in the remote Tianshan mountains in Xinjiang. No reports yet of casualties.

There were a couple of 6.1 quakes in Sichuan at the beginning of this month. The May quake seems to have increased stress on faults in and around the Sichuan basin, which may explain why there have been so many strong aftershocks since. These could continue for years, says Tom Parsons of the U.S. Geological Survey, whose analysis of the geological effects of the May 12 quake, Stress changes from the 2008 Wenchuan earthquake and increased hazard in the Sichuan basin, was published in Nature earlier this year.

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Bank Of China Dumps U.S. Agency Debt

The FT reports that Bank of China, China’s fourth largest commercial bank, has sold a net $4.6 billion of debt issued by the two giant but troubled U.S. mortgage agencies, Fannie Mae and Freddie Mac.

Two points to be made about this: first, foreign investors have been the mainstay of this market, averaging purchases of $20 billion a month in the year to July, according to U.S. Federal Reserve data. That is twice their purchases of U.S. Treasuries. But but now Asian investors in particular have become net sellers of the agency debt. That is removing an important prop from under the market.

Second, Bank of China is still state-controlled, so its sales could signal an official change of sentiment towards holding agency debt or even U.S. dollar-denominated securities in general. For now, the stepped up purchases of Treasuries by foreign investors makes the second of those unlikely, but it needs a weather eye kept on it.

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Lost In Translation

EastSouthWestNorth led this Bystander to Black and White Cat’s post entitled “How The New York Times (should have) covered the Olympics“. It shows how the Beijing Evening News translated a New York Times piece on the Beijing Games and the editing that went on in the process, a taste of which below.

The net effect is to sanitize the Times’ piece by redaction. While some of the cuts could be explained by a need to cut for length, as the commentary of the post points out, “every single statement that could possibly be seen as negative — and there’s quite a lot — has been expunged from the Beijing Evening News article, and almost every nuanced phrase that carries any negative connotations has been turned into one of unqualified praise.”

Such Orwellian editing shouldn’t come as a surprise, but seeing the edits in the raw copy throws it into stark relief.

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More Violence In Xinjiang

More violence in the far west, with reports of a gunfight close to Kashgar in which two police died in a clash with seven suspected Uighur militants. At least, two more police are reported to have been wounded.

It is the fourth such deadly incident in the border regions of Xinjiang province in as many weeks. The BBC quotes Dilxat Raxit, spokesman for the World Uighur Congress based in Germany, as saying that mass detentions were taking place following the gunfight.

It is tempting to seek parallels between the Uighurs and Tibetans, two minorities in their ancestral lands following heavy-handed Han homesteading. A difference is that that there isn’t a Uighur equivalent of the Dalai Lama that the authorities can vilify.

Jamil Anderlini writing in the FT points out another difference: the increasing importance of Xinjiang as a source of the energy and minerals needed to fuel China’s booming eastern cities raises the stakes for Beijing in its battle against Uighur separatists agitating for an independent state.

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Chinalco Gets Australia’s Limited Nod For Rio Tinto Stake

Australia is walking a fine line over Chinese investment in its natural resources. It has approved Chinalco’s recent purchase of a minority stake in Anglo-Australian miner Rio Tinto, but said any further share purchases will require prior approval. Nor can Chinalco have a seat on Rio’s board, Wayne Swan, Australia’s Federal Treasurer, ruled on Sunday.

State-owned Chinalco, along with the U.S.’s Alcoa, has been buying what they say is a target 14.9% stake in Rio, the subject of a $164 billion takeover bid from BHP Billiton. The pair said in February that they had paid $14.1 billion for a 12% stake in Rio’s London-listed shares, or 9% of the total group. As a consumer of iron ore in particular, China doesn’t like the prospect of so much supply being concentrated by the merger of the world’s no 2 and no 3 products.

Approval of the share purchases to date was expected, despite some muttings that Australia was leaning towards backing off its open-to-foreign-investment stance. The Australian government does seems to have used the ruling to set a ceiling on what it it considers an acceptable level of Chinese investment, and that may mean Chinalco won’t end up with a large enough shareholding to have a material affect on the outcome of the Rio-BHP  bid.

The other point in all this is that while China is still an important market for Australian natural resources, taking 20% of Australia’s output, Australia is getting relatively less important as a supplier as China’s needs continue to grow and China’s companies turn to mines in Africa and South America. Rio and BHP operate on those continents, too. The Australian government may be walking the wrong line.

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Olympic Gold Medals: Its All About The Economics

The Games are over. Beijing and the rest of China now faces the inevitable post-party hangover.

It was certainly quite a show both on and off the track. China got its craved for position atop the gold medals table, but the U.S. won the most medals overall, so both countries can claim to be No. 1 as they return to their more usual bilateral fare — trade, product safety, yuan revaluation, market access, human rights, &c.

Yet for all Project 119 on the one side, and Michael Phelps and the Redeem Team on the other, medal counts all come down to economics: “Statistical modeling shows that population size and income per head provide an almost faultless method for identifying medal totals”, writes U.K. academic Stefan Szymanski in “The Market for Olympic Gold Medals” (free abstract here). U.S. academics Gary Becker and Richard Posner summarize the arguments in “Determinants of the Olympic Success of Different Countries“. There is a good summary of the literature on the subject at Economic Logic. And an ingenious way of looking at the same factors through the opposite end of the telescope at YouCalc’s Real Olympic Medal Count.

So it makes sense that China’s increasing medal tally over the past four Olympics follows its growing wealth, while the U.S. is in relative decline. Its 11% share of all medals is its smallest going all the way back to 1952 when it won 17% of the medals.

Szymanski tells Forbes that he expects China’s medal total will drop at the next Olympics, because that it what always happens to host nations the Olympics after. Greece’s 26 medals in Athens as followed by just 4 in Beijing. He also makes an interesting point about how globalization is spreading not just wealth but also Olympic medals. A record 81 different countries won medals in Beijing. As Mihir Bose at the BBC notes, three won medals for the first time in Beijing, and three more won their first individual medals.

Even if you pretend you can keep the politics out of the Games, you can’t keep the economics away.

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Chasing Gold

Following the gold medal table at the Beijing Games is rather like watching a middle distance race in which the front runner has taken a big early lead, but in which his main rival is now chasing him down. Can he hold on for victory? Or will he be pipped at the tape?

China’s lead in the gold medal tally is substantial, but that is because, swimming apart, the early schedule favored its better sports. But the United States is starting to cut back the lead now the track and field events, or the athletics, depending on whose English you speak, are underway.

The prize, of course, is more than mere sporting bragging rights, but we don’t need to rehearse the geopolitical rivalry discussions here.

Those who follow such things tell this Bystander that the U.S. is likely to end up with 45-47 golds and China with 44-46 come Sunday’s final event (boxing). That’s a photo finish in prospect. Liu Xiang’s hamstring, the U.S. 4x100m relay team’s butterfingers or some other disaster or triumph yet to come could be the difference.

Could it even be a dead heat?

Update: Final tally: China 51 golds; U.S. 36. So much for the form experts. Remind me never to back their racing tips.

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Hua Guofeng’s Single Mark On History

Thinking back to the overthrow of the Gang of Four in 1976, I have to pinch myself to remember the disarray that the country was in then following a decade of Cultural Revolution, and how difficult it was to piece together from the outside what was really happening in the power struggle between the radicals and reformers within the party’s elite that was coming to a head even before Zhou Enlai and Mao Zedong died that year.

My mind turns back to those days now because of the death of Hua Guofeng, Mao’s loyal and somewhat enigmatically anointed successor, at age 87. (Terse Xinhua annoucement here.) Remember Mao’s “With you in charge, my heart is at ease” deathbed line? A flimsy claim of legitimacy for a successor, especially one who had only made the Politburo five years earlier, but sufficient in the chaotic circumstances of the time.

Hua was a Mao loyalist to the core and his steady plod to the apex of power owed more to that loyalty and a knack of keeping his head down than any proficiency as a bureaucrat or ideologue. He would soon be elbowed aside by the wily old survivor Deng Xiaoping, and drift into obscurity. But in the few weeks after Mao’s death, Hua changed China’s destiny by sanctioning the army’s arrest of the Gang of Four.

It may have been a reluctant decision, especially as one of the quartet was Mao’s widow, Jiang Qing. And it may have been made out of a well-exercised instinct for self preservation. Hua also clearly had no idea what to do next politically or economically, beyond looking more and more like his beloved Mao — something Deng would soon turn against him.

But with the hindsight of three decades, it is clear that with one decision Hua brought down the curtain on the tumultuous Mao era he had devoted his life to and ensured that the stage was set for those who would reform the economy and open the country to the world. It was his solitary mark on history, but a profound one.

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The 10 Worst Laws In China

Props to Foreign Policy for its list of the 10 Worst Chinese Laws: A reminder that the legal system in China remains an agent of the state, not one of its checks and balances.

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CNPC and Sinopec Bidding Jointly For Petro-Tech Peruana?

Word reaches this Bystander of an unusual possible takeover bid by a Chinese firm, or rather pair of firms.

CNPC, parent of PetroChina, and Sinopec are bidding between $1.5 billion and $2.5 billion for Petro-Tech Peruana, which holds eight licences for drilling in 5 million acres off the Peruvian coast, Reuters reports. Plenty of Chinese companies are buying up natural resources around the world, and, as we have noted before, they have plenty of the wherewithal to do so, but it is uncommon for them to mount joint bids.

That said, Sinopec is also working with China’s third big oil company, CNOOC, on acquiring fields in Angola. This may all point to increasing coordination between CNPC, Sinopec and CNOOC to make sure they are not falling over each other as the world’s biggest oil and gas reserves get increasingly scarce and expensive to acquire, and oil and gas companies turn more to small- and medium sized fields, such as Peru’s

Petro-Tech Peruana made Peru’s first offshore oil discovery earlier this year and has also found natural gas. It may lack the resources to develop two fields that are estimated to hold 1.1 billion barrels of oil and up to 1.2 trillion cubic feet of gas respectively. The company is a subsidiary of Offshore International Group, a privately held American oil and gas company based in Houston and owned by William M. Kalopp, who appears to split his time between Texas and Lima.

CNPC and Sinopec, if they do mount a bid, will likely find themselves in competition with Brazil’s Petrobras and Royal Dutch Shell. But they won’t find themselves without familiar neighbours. Steelmaker Shougang and the Zijin Mining Group already have operations in Peru.

And the bid, again if it happens, will be an interesting test of the current temperature of Sino-American relations as election season in the U.S. heats up. Will Chinese firms bidding for American-owned energy companies, even those owning assets far from the U.S., become a political cause celebre in the way CNOOC’s big for Unocal did in 2005?

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