This China Bystander is developing a fascination with the food and drug safety issue. Yes, it is news — latest development: three companies at the centre of the complaints have been shut down by the authorities. But a moment’s reflection prompts the thought that the issue has become a proxy for China’s adjustment to economic development. England and Germany and then the U.S. went through a similar experience as they industrialized — a transformation from capitalism raw in tooth and claw — inhuman labour conditions, unsafe products, inadequate regulation — to being a society that encourages people who, in the words of Abraham Lincoln, try to improve their lot in life–and thereby the lot of us all. It will be a stumbling, messy process in China, as it was in Europe and the U.S. It is foolhardy, even quixotic, to try to identify history’s turning points as they happen. We may just be witnessing a government pragmatically trying to prevent a trade war that is in no one’s interest. Then again, we might well be in the midst of something far more significant.
Monthly Archives: July 2007
Today’s hike in interest rates comes as little surprise given Thursday’s strong growth and inflation numbers. But a 0.27% increase in commercial banks’ benchmark one-year deposit and lending rates to 3.33% and 6.84% respectively won’t in itself do much to dampen inflation or the overheating economy (GDP grew by 11.9% year or year in the second quarter — a ‘blistering pace’, says the Peoples Daily). Real interest rates are still negative. Expect more administrative controls on investment and credit, much as happened to cool the economy in 2004. But with corporate profits growing strongly, inflation being caused mainly by high food prices and export demand remaining vigorous, the economy should continue to grow briskly.
The fate of Wang Xiujie, better known as the popular stock-tips blogger Daitou Dage 777 and who was detained by police earlier this month, is being weighed by authorities in the north-eastern city of Changchun, according to the People’s Daily, with a decision on whether to take him to court to be made in the coming week.
Wang’s arrest was part of China’s attempt to crack down on the proliferation of unregulated investment advice companies and private “hedge funds” that have helped fuel a frenzied rise in stock prices over the past 18 months. By some estimates, private funds now have $50 billion under management – roughly a third of the formal sector, according to a Financial Times report.
Wang, 35, set up his site, named for a kung fu character, in 2005, and more recently was running a text messaging stock tips service, reportedly earning more than 13 million yuan for his investment advice. Beyond self aggrandizement, a bit of resume padding and shameless self-promotion (none of which are unknown in the investment world, of course), it is unclear what Wang has done wrong and whether he has crossed some unmarked line between selling stock tips and runnng an investment business without a licence, or whether he has gone beyond that to misappropriating money.
Chinese investors are continuing to open individual brokerage accounts at a rapid rate and Wang is likely to be used as a warning to other unlicensed investment tipsters as regulators continue to try to damp down a frothy-looking market.
Chinese and U.S. officials will meet in Beijing at the start of August to discuss food safety, the People’s Daily reports. The goal is to agree rules on dealing with tainted food exports and other consumer products by the end of the year. The discussions will be intended to take some of the sting out of the tit-for-tat suspensions of chicken and pork exports from Tyson Food and six other U.S. companies following the U.S.’s imposition of restrictions on seafood exports from China.
The talks will follow a visit by E.U. Consumer Protection Commissioner Meglena Kuneva due next week. The E.U. and China signed a memorandum of understanding on cooperation for consumer goods safety last January. An E.U. report last year said nearly half of the reported unsafe products in Europe came from China, with toys and electrical appliances the most complained about.
Update: The U.S. is to review its rules intended to keep out harmful imports, Reuters reported. Health and Human Services Secretary Michael Leavitt, whose department includes the Food and Drug Administration, will lead a panel of administration officials charged with recommending ways to improve import safety in 60 days. “This is not a slap at China”, White House spokesman Tony Snow said.
The dots are there. They are just not joined up.Wu Guanzheng, the party’s top disciplinarian, instructs a training course for ministerial officials and provincial party heads on the importance of preventing corruption. President Hu Jintao wants no one, especially not those away from the prosperous east coast, left behind in the dash for prosperity. A judge in the Shanxi brick kiln slave labor case calls the brutal forced labor of children and the mentally ill an “an ulcer on socialist China“, and sentences one man to death and 28 others to jail. Ninety five county officials are sacked or punished for their lax oversight. New labor laws strengthening workers rights are to be introduced in January.Lots of dots. But none connected to the one that matters for China’s development — municipal and provincial authorities.The public outcry over the brick kiln slavery started at the grass roots and over the internet — a mother looking for her missing child. It is inconceivable that a slave labor scheme on the scale of the one uncovered in Shanxi could have existed without at very least the tacit collusion of higher-level officials than the ones state media have focused on.Yet, so far, they are clear and free. It is the same systemic bureaucratic corruption that leaves China with some of the world’s most dangerous mines.For all Beijing’s emphasis on its anti-corruption drive just 97,000 officials were found guilty of bribe-taking or breaching financial rules in 2006, a number whose relatively small size speaks for itself.
Chinese investors start to shun stock market amid volatility runs a Xinhua headline to a report that there has been a slowing in the growth rate of individual brokerage accounts.
Investors opened 66,100 A-share accounts on Friday [July 13], the second consecutive day when the number of new accounts opened daily was below 70,000, according to the [China Securities Depository and Clearing Co. Ltd].
It said the A-share accounts opened each day dropped to 99,957 on July 2, the first time lower than 100,000 since May 12, and remained under 100,000 for ten consecutive days. The number was over 300,000 at its peak time.
Chinese officials have for some time being trying to talk down prices on the Shanghai stock market which after a year and a half of triple digit gains still have the look of a bubble to them despite market cooling moves such as tripling stamp duty for stock transactions.
But the talk, in this case at least, seems to be getting ahead of the reality. The number of retail brokerage accounts passed the 100 million mark in May, with 5 million new ones opened in April and 27 million in the year to that point — five times 2006′s new-accounts rate. The total has now reached 108 million, according to China Securities Depository and Clearing Co. Ltd. Is an 8% growth in retail brokerage accounts in a month and a half really investors “shunning” stocks, even if the pace of new openings is slacking a bit?
With institutional and foreign investors kept mostly at arm’s length in Hong Kong, 80% of the investment in the Shanghai and Shenzhen markets comes from local retail investors. There are few more attractive alternatives for their savings. Interest rates for bank deposits are minuscule and even the red-hot property market is showing some response to government restrictions on bank financing for property investment.
Beijing still faces the regulator’s classic dilemma in talking down the market — how to dampen speculation without sending stocks slumping. A sudden tumble in prices, as a result of an interest rate hike, say, would leave many new investors facing large losses and angry at the government for causing them.
A tip of the hat to Chris O’Brien for his Phoney harmony, fake vaccines and false hospitality post on his Beijing Newspeak blog about the daily lot of a non-Chinese editor at the Xinhua news agency, polishing Beijing officialese into readable English. He makes it sound like a cross between life in a Dilbert cartoon and journalism’s equivalent of The Office.
China has suspended the imports of some U.S. chicken and poultry on safety grounds, according to a widely posted Associated Press report. Officials say salmonella was found in Tyson Food products and growth enhancers and other drugs in chicken’s feet from Sanderson Farms. Other U.S. companies affected include Cargill, AJC and Triumph Foods. Coming amid the international calls for China to improve the safety standards of its own food and drug exports and a day after the U.S. Commerce Secretary called for China to step up its oversight of product and food exports to the U.S., as noted here yesterday, this all seems to smack of not very subtle political point making.
Update: A Xinhua report quotes Zhou Bohua, director of the State Administration of Industry and Commerce, saying that fake and low-quality food had been detected in 34,400 cases with with nearly 5,800 tons of substandard foods recalled in the first half of the year, involving an aggregate value of 67.7 million yuan (8.9million U.S. dollars).
Krishna Guha, writing in the Financial Times, summarizes the latest developments in China’s attempts to deal with its food and drug safety issues, including the military doing spot checks on its own suppliers. Guha’s story leads with Thursday’s call by U.S. Commerce Secretary Carlos Gutierrez for Beijing to step up its oversight of Chinese product and food exports to the U.S. After at least a couple of scares, this is bubbling up as an issue with American consumers. Surprisingly, Congress hasn’t latched on it yet, but such is the readiness of some in Congress to bash China, it is surely only a matter of time.
Update: The FT reports that China has banned use in toothpaste of a potentially toxic industrial chemical. Toothpaste made in China will no longer be allowed to contain diethylene glycol, a thickening agent often used in antifreeze.