Monthly Archives: January 2011

Footage Of China’s First Aircraft Carrier

Footage has appeared on the internet said to be the disused aircraft carrier hull China bought from Russia in 1998 and has been fitting out in Dalian. Work on the 58,500-ton Varyag appears to have been progressing rapidly. In the second half of the clip (via YouKu or, below, via YouTube), which changes from color to grainy black and white, the vessel is seen under power and taking an aircraft landing on its deck.

Due to come into service next year, the Varyag is being turned into a training carrier for the crews that will man China’s fleet of indigenous carriers now being built.

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Central Bank Announces 2011 Monetary Growth Target

The central bank has put some hard numbers on the switch it announced at the end of last year to more prudent monetary policy. The People’s Bank of China, in its quarterly monetary policy report, says it wants to slow the growth in the money supply to 16% in 2011. Last year, the money supply grew by 19.9% on its broad M2 measure. The bank noted that “inflation pressure is quite big” and says that controlling inflation will move up its policy agenda.

The relatively modest proposed slowing of monetary growth suggests the bank can only move cautiously to reduce the excess liquidity in the system. Interest rates, bank reserve requirements and open-market operations are the tools the bank says it has to rein in money supply and bank credit growth. So expect all to be continued to be deployed during the year — and the central bank to struggle to dampen inflationary expectations.

 

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North China Plain Drought Leaves Millions Facing Water Shortages

Three months of drought across the North China Plain is leaving millions short of drinking water, Xinhua reports. There are concerns that the situation will worsen. Lack of rain has affected the wheat growing belt across six provinces from Shandong on the coast to Shanxi in the center of the country. Hebei has had only 2 mms of rain since November, 80% less than normal. Shandong is said to be facing its worst drought in a century. Fire trucks are delivering drinking water to residents.

A fifth of the farmland planted to winter wheat on the North China Plain, some 2 million hectares, has been affected by the drought. Direct economic losses are put at more than 1 billion yuan, with more to come as there is no relief to the drought in sight. Cloud seeding to induce rain and snow is likely.

The government, concerned about the effect of the prolonged drought on the spring harvest of the winter wheat crop, has already allocated 4 billion yuan ($607 billion) for farm irrigation and rural water conservation. Last week, following a State Council meeting on the current drought chaired by Prime Minister Wen Jiabao, it allocated a further 2.2 billion yuan to drought relief. Wen visited drought affected areas in Henan last week.

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Revolt In Egypt. Who Knew?

Two days of street protests in Egypt calling for the ousting of President Hosni Murbarak are proving troubling for Beijing’s propaganda meisters. They follow a similar popular revolt in Tunisia that overthrew the government. Our man in London reports that the situation in Egypt is dominating the news broadcasts there. Ditto in the U.S., according to our man in New York. Not so in China, where reports of  thousands of people taking to the streets in the country’s three most important cities in a popular uprising against a dictatorial and repressive government, and one in which the army has for the most part stood benignly by, have been scant, to say the least.  A search for Egypt on the Sina microblogging service returns the information that “according to relevant laws, regulations and policies, the search results are not shown”. Hear no evil, see no evil, do no evil?

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Unintended Consequences Of Yuan Revaluation

Our man with his ear to the ground moving and shaking the global elite at the World Economic Forum’s annual meeting in Davos sends word that amidst a general half-glass full/glass half empty sentiment towards China’s commitment to revaluing its currency, there is some concern that a revalued yuan against the dollar would be a mixed bag for U.S. firms. U.S. exporters would find their products becoming relatively cheaper in the Chinese market. In the other direction, American firms with Chinese operations would find their exports from China becoming relatively more expensive. Foreign-affiliates account for 54% of all China’s exports, according a finance ministry report last year. Against that, foreign affiliates would also be repatriating higher profits in dollar terms from their domestic Chinese sales, and their margins would be helped by getting cheaper raw materials when those are imported.

It is on the investment rather than trade account that a yuan revaluation may have the greatest unintended consequences. It would become more expensive for U.S. companies to invest in setting up Chinese operations, giving an advantage to those already there. It would also likely boost China’s outward foreign direct investment (FDI), as it lowers the cost to Chinese firms of buying overseas assets. This Bystander recalls that that is what happened in Japan after Washington arm-twisted Tokyo into allowing a 50% revaluation of the yen against the dollar in 1985-87. Japan’s overseas FDI went from barely $6 billion in 1984 to nearly $50 billion by 1990.

In China’s case, the drive overseas is led by the search for natural resources. Manufacturing accounts for less than 10% of Chinese firms’ FDI. Some labor-intensive manufacturers are looking abroad for cheaper labor in the face of rising wages at home; more than 700 Chinese companies had invested in operations in Vietnam as of last July, according to Vietnamese officials. That is a drop in the bucket of the country’s manufacturing cohort, and they are mostly small or low-value-added manufacturers from Guangdong and the provinces bordering Vietnam. Yet a rising yuan could sweep along more in their wake. If Japan’s experience were to be replicated (and Beijing has resisted such a rapid forced appreciation having seen the effect on Japan’s domestic economy), the bigger flood of Chinese firms looking beyond natural resources to invest in access to foreign markets, brands and technology would be likely to prove much more troublesome for Western competitors, and to expand trade friction into investment friction.

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Some China Cities Slowly Getting Greener

Urbanization and industrialization is a filthy business. Industry pollutes. More of it just pollutes more. As nation after nation has gone through the industrialization phase of rapid development, each has had to trade-off the benefits of growth and their environmental costs. China is no exception, but it puts great store on being green. We are directed to a new article published by McKinsey & Co., the firm of management consultants, which asks the question, how green are China’s cities. Its answer? The country’s push for sustainable urban development shows mixed results. As a whole, China’s cities don’t meet global benchmarks for sustainability, but things are getting better and there are examples of successes for the laggards to follow.

The article is based on a paper first published last year by a joint team from the firm, Tsinghua University and New York’s Columbia University. Its Urban Sustainability Index uses data from 2004-2008 and covers 112 cities in China. It groups 18 indicators in to five categories, from the provision of basic needs such as clean water to political and policy commitment to sustainability.

The commonalities among the successful cities were “an unwavering focus on industrial restructuring, designing sensible transit systems and green space, pushing improvements through standards, monitoring and pricing, and exploring ways to make industries more resource efficient.” As might be expected, the successes also “displayed a clear, long-standing commitment to achieving their sustainable ‘vision”… “engineered a large degree of cooperation among relevant departments, for instance between those responsible for environmental protection and urban planning”…and “maintained commitment to their overall goals through several changes in leadership”.

The greenest cities do well across all these measures. Some examples: Tianjin has been consolidating heavy industry away from urban centers, a taking advantage of the moves to make fewer but larger new plants more energy efficient. Shenyang has now got almost all its heavy industry out of its center and is redeveloping the brownfields left behind as residential districts. Qingdao, arguably China’s greenest city, has pushed redevelopment projects to follow mass transit routes, increasing bus ridership at the expense of more heavily polluting private vehicles. Kunming is a pioneer in giving buses priority on roads. Nanning has developed  three greenbelts along the Yongjiang river as part of the creation of urban woodlands and green areas to absorb carbon dioxide emissions. Shandong province officials publicly identified the region’s 1,000 biggest polluters and set aggressive waste reduction targets for each of them.

We don’t underestimate the difficulty of implementing green policies, especially in a country where they require considerable coordination between often competing bureaucracies and in which the yardsticks of success against which local officials are measured (and promoted) have been ones of economic growth. Improving the quality of urban life is an objective of the new five-year plan and a high policy priority for the leadership. Gains are being made. The overwhelming majority of the 18 indicators in the Urban Sustainability Index show improvement during the study period. Yet the relatively limited amount of success stories so far among 112 cities also tells its own story.

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Dragon Mother To American Dream Mom

This is why we love the interconnected world. Dragon mother Amy Chua, the Yale University law professor whose book on alpha-mom parenting, Battle Hymn of the Tiger Mother, has whipped up such a storm of controversy and publicity in the U.S., is being published in the Chinese market under the title Being An American Mum. Gone is the simple text cover of the U.S. edition to be replaced by a picture of Chua in black jacket with a star-spangled map of America as a back drop. “The changes are aimed at…appealing to Chinese sensibilities,” Xinhua quotes Wang Feifei, the acquisition editor at CITIC Publishing House, as saying. “Many Chinese parents want their kids to excel and join the social elite,” he adds. Everyone else’s grass is greener, it seems.

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China’s Next-Gen Multinationals

For the past five years, Boston Consulting Group, a management consulting firm, has published an annual list of 100 companies from emerging economies that it reckons have the potential to become multinationals. All of what it calls its global challengers are fast growing and expanding internationally through acquisition. Sixteen countries from Argentina to the UAE contribute to BCG’s 2011 list. A third of the companies on it are from China.

Nine of the 33 Chinese firms are new additions this year, accounting for 40% of all debutantes. The nine are:

The concentration in mining and minerals, steel, construction and fossil fuels, across the list and highlighted by the Chinese newcomers signal, BCG says, the rising importance of infrastructure and natural resources to the success of developing economies. Add in, in China’s case, emerging clean technologies. Note, too, the emergence of Chinese civil engineering firms among the world’s leading contractors, thanks to access to cheap labour and capital, vertically integrated suppliers and lots of experience with large-scale infrastructure projects at home.

Within the next five years, BCG forecasts, half of those on its list could qualify for inclusion among the world’s 500 largest companies. Several of those will inevitably be Chinese. They will have to battle with the challenge today’s multinationals face, of being global companies decreasingly rooted in their home countries, a challenge that culturally may prove more difficult for Chinese companies than U.S., European and Japanese ones. But note the names now.

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China and America’s Stealth Fighters: Spot The Difference

China may have reversed engineered the J-20 stealth fighter it has been ostentatiously leaking pictures of in recent weeks from a U.S. F-117 stealth jet shot down by Serbia in 1999 while on NATO duty during the Kosovo war. That is the implication of remarks by Admiral Davor Domazet-Loso, Croatia’s military chief of staff at the time  who says Chinese agents bought up parts from the downed plane, one of the first to have been shot down, from local farmers. (via BBC). “At the time, our intelligence reports told of Chinese agents criss-crossing the region where the F-117 disintegrated,” Domazet-Loso says.

The BBC says a senior Serbian military official confirms that some of the pieces were removed by souvenir collectors, and that some ended up “in the hands of foreign military attaches”. If nothing else, this would all help explain why China and America’s stealth jets look so similar.

China (and Russia) maintained close intelligence links with Serbia during the Kosovo war. Beijing is long thought to have run an intelligence post from inside its Belgrade embassy during the war. The embassy was struck by U.S. bombs barely a month after the F-117 was shot down. The U.S. maintained the attack, which was orchestrated by the CIA and in which three people died and 20 were injured, was an accident, the intended target being a Serbian arms warehouse a quarter of a mile away. While we have absolutely no evidence to think otherwise, we do now wonder.

Update: State media have refuted the allegation that the J-20 is based on a downed F-117. The Global Times quotes test pilot Xu Yongling as saying that “the J-20 is a masterpiece of China’s technological innovation”. He adds that it would have been impossible for China to glean technology from the F-117, whose stealth technology lags far behind fourth-generation fighters and was regarded as ‘outdated’ even when it was shot down. The same article quotes an unnamed defence ministry official as saying “it’s not the first time foreign media has smeared newly unveiled Chinese military technologies. It’s meaningless to respond to such speculations.”

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China’s Open Throttle

Quite how fast is China’s economy growing? The Financial Times’s Lex column run’s Li Keqiang’s informal but crunchy measures of economic growth, the ones mentioned in a Wikileaked U.S. embassy cable from 2007: electricity consumption, rail cargo volume and bank lending. Lex finds that:

The first two are at full throttle: electricity consumption rose almost 15% last year, 8 percentage points more than in 2009, while freight traffic’s 10% growth over the first 11 months was about double the five-year average. New loans of 480 billion yuan last month, meanwhile, were 10 times their level of December 2007.

Those numbers suggest that the official GDP figures have yet to catch up.

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