Monthly Archives: May 2009

Will Australia Please U.S. By Taking Gitmo Uighurs–Or Please China By Not

U.S. President Barack Obama has dropped a hot potato in the lap of Australia’s pro-Beijing Prime Minister Kevin Rudd. He has asked him to take at least six and as many as 10 of the remaining 17 Uighurs being held at Guantanamo Bay.

Beijing wants them all returned. The U.S. won’t do that because of fears in Washington that the Uighurs, coming from a Muslim minority which has a separatist movement, will be persecuted. China accuses the Gitmo Uighurs of belonging to the East Turkestan Independence Movement, which is Beijing’s culprit of first choice for almost any act of political violence in China.

The Gitmo Uighurs, captured in Afghanistan in 2001, were cleared for release in 2004 after being cleared of links to terrorism. Albania took five and Sweden one but U.S. appeals to other countries to take some have fallen on deaf ears–or at least been drowned out Chinese warnings not to.

Australia’s foreign minister Stephen Smith has played a straight bat so far: “We will consider these individuals on a case-by-case basis in accordance with our immigration law, in accordance with our domestic and international immigration obligations,” he said and added “where it is appropriate, take into account security advice and considerations.”

In the end Australia will have to choose sides between its old best friend, America, and its new best friend, China.

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Timothy Geithner Goes To Beijing

The U.S. has needed China to buy its debt for some years. Now it needs it to buy its goods as well. U.S. Treasury Secretary Timothy Geithner’s first trip to Beijing in that role next week will see him pushing both lines, reassuring China about the Obama administration’s fiscal responsibility towards the $768 billion of Treasury securities China owns, and encouraging Beijing not so much to open up its domestic market as to develop it. Hectoring on the renminbi’s value, human rights and to a lesser extent climate change will take a back seat. Then there is the little matter of North Korea’s nuclear testing. Given Pyongyang’s quixotry, neither Washington nor Beijing can be quite certain even this close what the agenda for those discussions might be. But for both a tumbling North Korea is just as bad as a tumbling dollar.

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Blowing Up Bridges To Nowhere

It would seem a 40-year old bridge in Sichuan sufficiently well-built to withstand last year’s devastating earthquake should be let well alone. Yet local officials with stimulus money to spend tried to blow it up so they could replace it with a newer bridge built with some of the 4 trillion yuan Beijing earmarked last November to reinvigorate the economy.

It is one of a couple examples quoted in a recent editorial in the China Daily castigating local officials for being overeager to secure new construction projects — and the funding for them. While the China Daily didn’t explicitly join the dots to stimulus spending, Forbes’s Tina Wang does. Beijing, increasingly concerned about bad loans and squandered resources, is now moving to “tame its credit tiger,” she says.

We have noted before how stimulus money has been finding its way into fixed and financial assets, providing an economic sugar high rather than developing long-term domestic demand. The National Audit Office said last week that banks need to get better at  lending for projects that do just that, rather than to give short-term loans that are finding their way into speculation or local official’s pockets. Guidance is already being given to the banks to that end.

What this will also like mean is that the state-owned banks will increasingly lend to their old customers, state-owned industrial enterprises. Regardless of plans to ease investment controls on private enterprise, small and medium sized enterprises will continue to find financing difficult to get, regardless of whether they are genuine entrepreneurs or just frontmen for local and provincial officials with a hand on the honeypot.

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Dollars, Coppers, Any Old Iron

A new twist in the saga of what China is doing with its still mostly dollars foreign exchange reserves: Brian Jackson, senior strategist at Royal Bank of Canada, reckons that it is using them to stockpile commodities such as copper and iron ore as the voices in Beijing fearing the ever rising cost of Washington’s financial bailout will only push inflation higher and the dollar lower get more strident. “Increased spending on commodities represents a reallocation of China’s sovereign wealth away from the accumulation of financial assets,” Jackson said in a May 15 research note (here via Bloomberg ).

April’s imports of iron ore and copper were at record levels last month, not given the slowdown in growth what would be expected from underlying industrial demand, though Prime Minister Wen Jiabao said in March that China would take advantage of globally low commodity prices to stockpile natural resources. But long before that Wen had expressed his concerns about the dollar’s fall in value and its impact on the value of China’s foreign reserves (see “China’s Dollar Dilemma“).  If Jackson is right, then the commodities stockpiling may be a more strategic than opportunistic move than it first appeared.

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China Expands Stealth Stimulus Package

This Bystander noted a couple of days back that there was a risk that the stimulus cash would run out before the underlying economy regained vigor–and that might mean the additional stimulus money Prime Minister Wen Jiabao says he has in his back pocket might be brought out. Now comes news, via Xinhua, that Beijing is expanding its subsidy program for the interior to the coastal cities.

The program applies to purchases of new cars and home appliances and is aimed at boosting domestic consumption, and by extension domestic employment. The target is to add 3m jobs in light engineering over the next three years. Beijing is allocating 5 billion yuan ($730 million) to the program for this year, up from the original 1 billion yuan, for the vehicles part, and 2 billion yuan for domestic appliances.

Stealth stimulus.

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Top-Up Stimulus On The Way?

This Bystander has noted before that the signs of revival in the economy are more to do with stimulus spending and pressed lending by state banks than a revival of trade and industry: exports in April were still down 22.6% from the same month a year earlier, energy usage, which correlates closely to industrial production, declined 3.5% year on year during the month and there is scant sign of factory excess capacity shrinking. Though retail sales were up 14.8% in April year-on-year, urban fixed asset investment during January to April was up 30.5% compared to the same first four months of 2008 as money poured into housing, railways and other infrastructure.

Equities are reflecting this, with the Shanghai Composite Index up by more than 45% this year. Indeed, more than reflecting it; the rise gives credence to those who say stimulus spending has been front loaded and we may already have got  through four fifths of the money earmarked for this year. The leveling off of bank lending in April would support that point of view.

If the funds run dry before global trade revives, the economy will slump again, and with it optimism that China can pull the global economy through this recession. We recall Prime Minister Wen Jiabao saying at the National People’s Congress in March that he had a top-up stimulus package sitting in his  back pocket should it be needed. We may be seeing it after all, and perhaps sooner rather than later.

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Huntsman Reportedly Set To Be U.S. Envoy To Beijing

Jon Huntsman is set to be named as the U.S. ambassador to Beijing, according to the Associated Press. Huntsman is the moderate two-term Republican governor of Utah and was consider a potential presidential candidate in the U.S. elections due in 2012. He is also a Chinese speaker having been a Mormon missionary in Taiwan. He was the first President Bush’s ambassador to Singapore and later the U.S.’s deputy trade representative. His quiet political style and preference for back-room negotiation over public bombast would likely go down well in Beijing.

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5/12 Quake One Year On

The first anniversary of the Sichuan quake that killed nearly 90,000 and displaced hundreds of thousands more is upon us.

It would be cheering to think the coverage would be about a mix of remembrance and rebuilding, physical, social and emotional. While there has been some of that, and that should not be underestimated: officials are aiming to complete reconstruction by September, a year ahead of schedule, the BBC’s Michael Bristow says, the world’s attention has been drawn more to attempts by the authorities to suppress any opportunities for aggrieved parents to use the occasion to press for an official investigation into why so many of their children died, particularly in the collapse of what parents claim were shoddily built schools.

An official report, published last week, said there was no grounds for believing the school buildings were substandard, though that was based on the evidence of the original blueprints, begging any questions about construction standards. There is plenty of local anecdotal evidence that many of the schools had been badly constructed, as their disproportionate destruction compared to other buildings would suggest.

Official efforts to prevent parents pressing for recourse either through the courts or administrative channels have been severe. Control of domestic and foreign media in the run up to the anniversary has been as strict. Some foreign reporters have complained of harassment (see: China Cracks Down On Foreign Journalists); domestic press just told to avoid anything sensitive. The window of openness that occurred for a few weeks after the terrible events of May 12, 2008 is again closed, leaving sorrowed hearts in deeper shadow.

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Filed under Media, Politics & Society, Sichuan earthquake

China’s Automakers Likely To Cross Taiwan Strait For Parts

Taiwan’s three largest auto parts makers, Tong Yang Industry, TYC Brother Industrial and Depo Auto Parts Industrial, are open to investment from the mainland, Bloomberg reports. China’s car makers would get core design and manufacturing technologies they lack as assemblers and Taiwan’s parts makers would get access to on of the world’s still growing car markets. SAIC and Geely, who have acquired auto technologies in the U.K. and South Korea and Australia respectively, would be the most likely be in the vanguard of investors. Beijing lifted its ban on Taiwan investment on April 29 (see: “First Cross-Strait M&A Deals Struck“); for its part Taipei is considering opening 65 industries to mainland investment.

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Swine Flu Quarantine — Prudent or Discrimatory?

China knew SARS and the 2004 outbreak of avian flu in its pigs, made mistakes in dealing with both,  and is trying to make good on those in its reaction to the current outbreak of swine flu. Has it overreacted?

The World Health Organization has criticized Beijing for its quarantining — would forced detention and deportation be a more accurate description? — of groups from Mexico, Canada and other countries identified as  being possible carriers of the virus despite a lack of any symptoms.

On Wednesday, more than 100 Mexican nationals, none of whom had displayed any symptoms of the virus and who were being quarantined at hospitals and hotels in China, were returned home on a chartered government plane.

China also lifted a preventive quarantine on a group of visiting Canadian students, being kept in a Changchun hotel, though, again,  none of the students  displayed any symptoms of the virus. The decision to release the students came after Canada had put on the diplomatic squeeze.

According to the WHO’s latest H1N1 flu situation report (see map below), Hong Kong has had one confirmed case (out of 1,893 worldwide) and no deaths; the mainland, none on either count. h1n1-map

Yet Beijing has has defended its measures, saying an outbreak in the densely populated nation could be catastrophic. As if to prove the point, 119 Chinese nationals stranded in Mexico returned to Shanghai on Wednesday and, though all are healthy, they have all been put in preventive quarantine for a week.

Authorities in the U.S. and Europe wouldn’t, at this point in the pandemic scare, have imposed involuntary quarantines to combat the virus. Has Beijing been prudent or discriminatory?

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