China’s Edifice Complex

shanghai-skyline

IT WAS ONLY this year that the tallest building in the country was topped out. At 632 metres, Shanghai Tower, an office-cum-hotel development, reaches 140 metres — and 27 floors — further in to the sky than China’s existing height record holder, the Shanghai World Financial Center that was completed in 2008. Both can be seen in the photo above.

The Burj Khalifa in Dubai is the world record holder at 828 metres and 163 floors. But the Shanghai Tower’s place in the sun as China’s tallest building will be short lived. The Ping An Finance Center in Shenzhen is due to be completed next year, at 660 metres. The Suzhou Zhongan Center, a hotel, residential and office complex, is scheduled for completion in 2020, at 729 metres. Even that will be in the shadow of the proposed pair of Bionic Towers, in Shanghai and Hong Kong, if that project ever gets off the ground, so to speak. They are envisioned to be 1.3 kilometres tall and contain 300 floors.

For all the well advertised travails of the property market, China is seeing a continuing boom in skyscraper building. Twenty-two of the world’s 38 tallest buildings under construction are in China. There are four in Shenzhen, two each in Kunming, Nanning and Wuhan, and one each in Changsha, Chengdu, Dalian, Foshan, Guangzhou, Jinan, Taiyuan, Tianjin, Wuhu, Xiamen, Zhenjiang and Zhuhai. None of them will be less than 300 metres tall (the definition of a ‘supertall’ building; 600 metres-plus counts as ‘megatall’, 200 metres plus is merely ‘tall’).

Add in completed and topped-out buildings and China will have 67 buildings higher than 300 metres. That compares with 17 in the United States, where the tallest building under construction, in New York, is a mere 273 metres and 47 stories high. Europe has just six — five in Moscow and one in London, but none higher than 374 metres and 95 floors which will be the height of the tallest building now under construction in Moscow.

The number also stands in marked contrast to China of just 25 years ago. In 1990, there were only four tall buildings, with another 45 under construction. By 2000, there were 25 completed and the same number under construction. By 2010, it was 35 and 14 respectively. This year: 353 completed and 150 under construction.

Improved materials and construction technologies — China is a pioneer of tall prefabricated buildings — are behind the vertical building boom everywhere, along with growing pressure on urban land. Also, cities desire iconic towers designed by world-class architects to give physical expression to their rising economic weight.

China’s developers have overwhelmingly been building office and hotel towers. They are only now starting to put up residential tall buildings as has happened elsewhere in Asia, notably India and South Korea. China has, after all, moved more than 300 million people from the countryside to the cities in the past 20 years. The peak of that unprecedented migration may be passed, but the movement of people is not done.

The wildly ambitious and now stalled Sky City in Changsha in Hunan province was meant to include schools, a hospital, apartments, theatres, cinemas, shopping centres, and a ‘vertical farm’ able to feed the tower’s intended 30,000-plus residents. It may never get built and prove to be the poster child for vanity projects that become white elephants, but it may equally prove to be the model for the future.

The Xi-Li leadership is promoting urbanization as an engine that will move the economy towards more consumption and less reliance on investment and exports for growth. Improving city planning by limiting sprawl is a priority for the National Development and Reform Commission, China’s main economic development policymaker. That ambition may be crimped by the slowing economy or, conversely, made more urgent.

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China Struggles To Crimp Cozy Local Business Breaks

THIS BYSTANDER HEARS that there has been considerable resistance to an edict from Beijing late last year instructing local governments to stop offering tax and other incentives to businesses. The proscribed incentives include tax rebates, cheap land, and social security concessions. The aim of the measures, contained in a document from the State Council known as Circular 62, is to standardize local tax and fiscal regimes, knock back local protectionism and generate fairer market competition.

Any incentives not in line with national priorities were to be stopped immediately, and those that local officials felt were had to be submitted to finance ministry review by end-March. However, many local officials have been dragging their feet and protesting that the changes will disrupt local business conditions. Finance ministry officials have softened their initial hard line on implementation of the changes to exhorting businesses crying foul to take professional advice on getting their houses in good order. They are also recognising that the tight timeline they first set is unlikely to be met.

Local officials are feeling squeezed between using a tried and trusted policy tool — preferential treatment for local investors and enterprises — to reverse the overall slowdown in economic growth and the fiscal discipline being imposed on them from above. They have already had their financial freedom crimped by restrictions on their access to off-balance sheet financing, notably through captive special investment vehicles.

The primary driver for that was central-government fears about the risks of the local-government debt bomb going off. The anti-local protectionism measures are more about central government removing the local distortions that bedevil the economy while at the same time exerting more central control over fiscal management.

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The China-Blue Waters Of The Mediterranean

IT WON’T BE the first time that the PLA-Navy and its Russian counterpart conduct joint exercises. But it will be the first time they do so in the Mediterranean Sea. And that sends both a certain and a provocative geopolitical signal to Brussels, London and Washington beyond.

The foreign ministry has confirmed that two Chinese frigates and a supply ship will be among the nine warships involved in the exercises, which, Beijing says, will focus on actions where the two powers are likely to coordinate such as maritime resupply, rescue missions and escort duties. No damp squibs, the exercises will include live-fire practices.

The three Chinese vessels have been on anti-piracy duty off the Somali coast and were used in March to evacuate some 500 hundred Chinese citizens from Yemen.

There are no international high seas in the Mediterranean. All of it falls into the economic zone claimed by at least one of the some two dozen countries in it or bordering it. However, Chinese warships are no recent strangers to the waters. They evacuated more than 30,000 Chinese workers stranded in Libya after the overthrow of Qaddafi in 2011. Since then, a PLA-N frigate has twice been involved in the removal of chemical weapons from Syria.

The timing of the exercises is pointed. They will come shortly after President Xi Jinping visits Moscow on May 8th-10th. While there, he will attend the May 9th military parade to mark the 70th Anniversary of the end of the Second World War, which Russia celebrates the Soviet victory over Nazi Germany. NATO and other Western leaders are boycotting the event in protest against Russian President Vladimir Putin’s adventurism in Ukraine. Xi will be fêted as the honoured guest.

A contingent of PLA troops will march in the parade. The message is that both NATO and Asian nations should regard the China-Russia alliance as a growing counterweight on land and sea to the one between the United States and Japan. Beijing sees Washington’s pivot of its foreign and defence policy towards Asia as intended to hem in China.

Beyond the geopolitical posturing, there is substance to the growing reach of the PLA-N. Beijing has increasing national interests far from home, including in the Maghreb and more broadly the Middle East and East Africa. The PLA-N’s capacity to project blue-water power far from home is still meagre, but it is being built up systematically—now in the balmy waters of the Med as much as in the shipyards at home.

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The China-Aligned Movement

PRESIDENT XI JINPING’S will be arriving in Indonesia for the 60th Anniversary of the Bandung Conference by way of Pakistan. There could be no more apt metaphor for how China’s place in the world has changed.

At Bandung in 1955, Zhou Enlai and India’s Jawaharlal Nehru bestrode the emerging movement of African and Asian leaders summoned by Indonesia’s President Suharto to come together in ‘non-aligned’ anti-colonial solidarity — a “meeting of the rejected” as the American author Richard Wright who attended the conference described it.

Six decades on, Xi arrives having just announced $46 billion in Chinese investment in Pakistan, partly for energy but also to construct transport, energy and communications links between the western Chinese city of Kashgar and the blue-water port of Gwadar.

It is just one leg in the southern corridor of a grand Chinese scheme to create a new network of land and sea routes between East Asia and Europe. This New Silk Belt and Maritime Economic Road is such a central part of Xi’s foreign-policy initiative that the Politburo has set up a leading team to oversee its implementation .

As this Bystander has noted before,

to Beijing, Pakistan looks a lot like a corridor from the high plateau of China’s western reaches to the blue water ports of the Arabian Sea and thus access to shipping routes to the Middle East, Africa and Europe. The distance is relatively short, less than 1,500 kilometers as the crow flies, but at the northern end the terrain is difficult, the weather harsh, borders unsettled and security uncertain.

Road and rail links are patchy, particularly north of Pakistan’s capital Islamabad, and frequently disrupted. Nor is there yet a motorway connecting the capital to the southern port city of Karachi, let alone to Gwadar on the Gulf of Oman close to the border with Iran and where China is developing a deep-water port and naval base.

Xi described his trip to Pakistan, his first, as being like visiting his brother’s home. The two countries don’t seem familial allies, even if they have been discussing turning Pakistan into an energy pipeline for China since at least 2006. Not that they couch it in such terms: Xi calls it an “all-weather strategic partnership of cooperation”.

In the meantime, Beijing has been dancing delicately with its regional rival, Delhi. Xi’s bounteous trip to Pakistan, though, will make Indian prime minister Narendra Modi’s visit to China next month — a reciprocal visit for Xi’s trip to India last September — an uncomfortable one. It will be telling to see whether China is more a bestower or receiver of gifts on that occasion.

Modi has been taking a more assertive line with China than his predecessor, particularly in the Indian Ocean. He has also aligned India more closely with the U.S., signing a strategic agreement with Washington during President Barack Obama’s visit earlier this year.

Beijing blatantly cosying up to Pakistan will sit ill with India. Non-aligned no more — on either side. Bandung in 1955 seems not only a very different time, but a very different world.

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Lending Edging Out Of The Shadows

DOWN IN THE detail of the monthly monetary aggregates for March released earlier this week is the curious point that the M2 measure of money supply slowed its growth even as new bank lending appeared to speed up.

M2 rose 11.6% year-on-year in March, down from February’s 12.5%. New bank lending in the first quarter, at 3.61 trillion yuan ($582 billion), was up 20% year-on-year.

With our usual caveats about reading too much into one month’s figures and making apples and oranges comparisons, it does seem that a large increase in lending hasn’t translated into economic activity in the real economy. Even allowing for the slowing of the economy, it looks as if intermediary credit is being rolled into the banking system — or to put it another way, out of shadow banking and into the (hopefully) cleansing light of the formal banking sector.

Given the warning contained in the IMF’s latest World Economic Outlook published earlier in the week that shadow banking was one of the main vulnerabilities of China’s economy —a warning repeated in the Fund’s Global Financial Stability Report, which said curtailing the riskiest parts of shadow banking should be China’s overall financial stability priority — and the central bank’s long standing concerns about the systemic risk that the $3.2 trillion sector poses to financial system, that is to be welcomed.

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IMF Says Structural Reforms Key To China Soft Landing

THE INTERNATIONAL MONETARY Fund has left its forecast for China’s GDP growth this year at 6.8%. That is broadly unchanged from its January update, though go down to two decimal places and there is a slight lowering of the forecasts. A year ago, the Fund was forecasting 7.3% growth for this year.

The number for the first quarter has come in at 7.0% year-on-year, down from 7.3% for the fourth quarter of last year and its slowest pace since the 2008 global financial crisis. The official target for the full year is ‘about 7%’.

The new edition of the Fund’s World Economic Outlook says Beijing’s attempts to rebalance the economy will continue to be a drag on growth, though managing the glide path of slowing the economy to a more sustainable long-term growth rate is the plan. “The authorities in China are now expected to put greater weight on reducing vulnerabilities from recent rapid credit and investment growth. Hence the forecast assumes a further slowdown in investment, particularly in real estate,” the IMF says.

Its forecast for 2016 remains at 6.3% (again, a slight softening if you go to more decimal places). The effect of that will be felt in commodity-exporting countries and China’s main trade partners — and much more widely if China’s economy slows faster than that, the so-called ‘hard landing’.

The question domestically is the extent to which structural reforms and lower oil and other commodity prices will expand consumer spending, and thus moderate the pace of the overall slowdown. On the answer to that question lies the extent to which Beijing will need to make a monetary policy response, either by cutting interest rates or lowering banks’ reserve requirements ratios.

China has room to ease. Cheaper commodities, including oil, and the appreciation of the currency is keeping inflation low. The IMF forecasts consumer price inflation to be 1.2% this year and to increase gradually into 2016. However, as the Fund notes, “striking a balance between reducing vulnerabilities, supporting growth, and implementing reforms remains challenging”.

Giving market mechanisms a more decisive role, eliminating distortions, and strengthening institutions is key. The Fund underlines the need for financial and state-owned enterprise reforms to increase the efficiency of resource allocation and reforms in the pension system and other social safety nets to shift the composition of growth toward domestic consumption.

The need for such reforms are the more urgent because the demographics that underpinned the productivity gains that drove double-digit rates of growth for three decades are now moving against China more strongly than in any other leading emerging economy.

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China’s Environment And The Slowly Expanding Pockets Of Dissent

OFFICIALS IN THE southern Chinese town of Luoding in Guangdong province have cancelled plans to build an incinerator plant following mass protests this week. This volte-face followed more citizen concern about an explosion earlier in the week at a PX petrochemicals plant in Fujian that triggered some of China’s biggest environmental protests in 2007. The week also brought news that the environment ministry on March 30 had vetoed the construction of the $3.75 billion Xiaonanhai hydroelectric dam on the middle reaches of the Yangtze River 40 kilometres upstream of Chongqing.

The proposed dam threatened scores of species of endangered freshwater fish. Its cancellation marks a rare victory for Chinese environmental campaigners over the country’s powerful state-owned dam-building industry.

Environmental issues are highly sensitive for the Party. They are increasingly becoming the locus of social activism and dissent, and constitute the largest class of ‘mass incidents’ involving more than 10,000 people. As such, they are a potential source of that most feared threat to the political status quo, instability. Worse from the authorities point of view, environmental non-government organizations are a seed that could grow into political movements able to challenge the Party’s institutional monopoly of political power.

Beijing is managing this dissent by tolerating it in limited areas, and increasingly allowing spontaneous (i.e., no coordinated collective action) small-scale local activism. It has controlled labour unrest in much the same way. Worker incidents are not allowed to be coordinated by preexisting groups. They have to be specific to an individual enterprise. And they can’t have a life beyond the resolution of the specific incident, i.e. they can’t spawn a lasting organisation. The same blueprint is being applied to environmental protests.

The continuing clampdown on academia and on the media, including social media, which is a potentially powerful way to ‘organise without an organisation’, indicates that this tolerance will not be extended to any bigger thinking dissent or organisation against central government. Ideology remains inviolate.

There is to be no joining of the dots between economic development, environmental degradation and social inequalities. Witness the quick censorship of the online documentary about air pollution, Under the Dome, produced by Chai Jing, a former TV presenter and CCTV investigative journalist, once it had gone viral on social media. Such an approach acts as a social safety valve, allowing a build-up of pressure to be blown off and the system to return to its pre-existing stable state.

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