Tag Archives: Shenzhen

China’s Pressing Need To Prevent Industrial Accidents

Landslide at industrial zone in Shenzhen, December 2015

The deadly landslide that engulfed part of the Hengtaiyu Industrial Park in Shenzhen was, on the basis of the early reports, a man-made disaster. It would appear that a mountain of mud composed of illegally dumped construction waste piled up over a quarry over the past two years became unstable. It then, in the parlance of civil engineers, ‘spilled over’.

A torrent of soil slammed into 33 industrial and dormitory buildings just before noon, and also ruptured the West-to-East natural gas pipeline causing an explosion. Some 900 people evacuated. Three are said to have been injured, but at least 91 were reported missing as of Monday morning, presumably buried under the mud that is estimated to cover more than 60,000 square meters to a depth of 6 meters (see photo above).

The attention the massive rescue effort is getting from the highest levels —  President Xi Jinping and Premier Li Keqiang have sent urgent instructions to provincial and local authorities — indicates the political threat such disasters potentially hold — and underlines the shortcomings in the approach to hazard management.

Complaints by residents about illegal dumping went unheard or were ignored by Shenzhen officials. Shoddy building compounded the damage. The two factors exacerbate a view that untrammeled economic development has been at the expense of citizen well-being.

That is not a view that the Party can tolerate. In this case, local officials will, no doubt, be found to take the blame. In the longer-term, industrial safety legislation will have to be enforced to prevent industrial accidents taking the toll they currently do.

The Shenzhen landslide was just as much a man-made disaster as the series of massive blasts at a hazardous-materials warehouse in Tianjin that killed more than 100 people in August or the explosion that ripped through a chemical factory in Changzhou in Jiangsu Province earlier in the month. Or the fireball at a petrochemical factory in Rizhao in Shandong Province the previous month. Or the succession of accidents in China’s mines stretching back. At least 750 people have died in industrial accidents in the construction, manufacturing and mining sectors this year.

Employers will always push the boundaries of health and safety legislation — of which China has plenty. But it requires diligent local officials to enforce those rules. Of those, China is lacking.

The most effective industrial safety policy is a preventative health and safety culture.  Good practice on work safety standardization is more prevalent than it was a  decade ago, but it remains the exception rather than the rule. And it requires resources and political will at the local level to enforce it. We wish the extraordinary rescue effort in Shenzhen every success, but residents would have been better served by it not being necessary in the first place.

Sadly, we fear we will be saying the same after the next large industrial accident, and repeating it until the political attitude changes to one that says the Party best shows that it is looking after citizens by preventing preventable industrial accidents in the first place rather than by rushing to clean up the mess afterwards.

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Shenzhen Joins Pilot For China’s Carbon Trading Market

Shenzhen has been added to the list of provinces and municipalities that will pilot China’s proposed carbon trading market. That takes the initial set to seven. The participation of Beijing, Chongqing, Shanghai, Tianjin, Hubei and Guangdong has been known since the summer. An official with the National Development and Reform Commission confirmed the go-ahead with the pilot scheme to Xinhua, but otherwise details remain sketchy. Central government has still to set overall carbon discharge reduction targets, which are a prerequisite for establishing the national carbon trading market that has been pencilled in for a 2015 launch.

By then, China’s goal is to have cut carbon dioxide emissions per unit of GDP by 17% from 2010 levels, according to a white paper on climate change issued this week ahead of the UN’s forthcoming climate change talks in Durban in South Africa. A reduction of that magnitude will be a tough ask given the pace of the economy’s growth. The pilot carbon-trading scheme is expected to start in 2013.

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China’s Muni-Bond Market Brought Back To Life

This Bystander noted last year that moves were afoot to develop a municipal bond market as a way to put the financing of provincial and local governments on a more transparent footing, and to wean it from the off-balance sheet financing via captive investment vehicles that local authorities have resorted to get round restrictions on official borrowings. As of June, 2010, these captive investment vehicles accounted for 7.7 trillion yuan of local government borrowings (more than three-quarters of the total), and had become some of the most riskiest parts of local government finances in the eyes of the finance ministry.

Now, Zhejiang and Guangdong provinces and the municipalities of Shanghai and Shenzen have been given permission by the ministry to issue three- and five-year bonds on a trial basis. It is the first such direct muni-bond issuance sanctioned in 17 years.  Collectively the quartet are expected to be capped at 20 billion-30 billion yuan first time round. (Update: Shanghai, 7.1 billion yuan; Guangdong, 6.9 billion yuan; Zhejiang, 6.7 billion; and Shenzhen 2.2 billion yuan.) That would be one-tenth of the annual issuance now made by the finance ministry on behalf of local governments to help meet funding shortfalls.

Though the bonds will issued by the four authorities, they will be closely supervised by the ministry. The proceeds of the sales will be kept in a special account at the ministry, which will oversee the payment of interest and principal, and, in effect, guarantee the bonds. The ministry will also have a big say in what the money raised can be used for. Zhejiang is expected to be first out of the gate, raising funds for infrastructure projects. If all goes well, other provincial and city governments will be allowed to follow suit.

Beijing banned local governments from selling their own bonds–and from running deficits, come to that– in 1994 when it became concerned local authorities were running up huge debts they wouldn’t be able to pay. Now policymakers are concerned that local authorities have again borrowed too heavily in the wake of China’s post-2008 global financial crisis stimulus, and that in a slowing economy and cooling property market they will again struggle to repay their loans. Worse, that could trigger a banking crisis.

While the immediate priority is to clean up and deflate the local government debt bubble before it can go damagingly pop, the development of a local-government bond market is in Bejing’s long-term plan for developing its domestic financial markets. Beijing is moving cautiously, however. It remains wary of giving provinces more control over their own development, at the expense of central control. The initial quartet are trustees, so to speak, and financially sound enough to test the waters without too great a risk of mishap.

Beijing will still have to guarantee the debt of many provinces for sometime to come, and there is a real risk that some of the weaker provinces won’t able to maintain their debt service. As Liu Mingkang, head of the banking regulator, noted earlier this week, there are serious concerns about the levels of local government debt. “We cannot deny that local government financing platforms have not been managed well,” he said.

A quick glance west to Greece or east to California reveals the trouble fiscally wayward and heavily indebted national and local governments can get into. Having prided itself on avoiding the worst excesses of the prelude to the recent global financial crisis, Beijing doesn’t want to go there in its aftermath.

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When Beijing Betters London And Shanghai LA

A McKinsey Global Institute ranking of the world's top 50 cities by GDP in 2005

By 2025, Shanghai and Beijing will have higher GDPs than Los Angeles and London, a further sign of the world’s eastwards economic shift. The prediction comes from the McKinsey Global Institute, the economic research arm of McKinsey & Co., the international consultancy firm, which has been working on mapping the changing economic power of the world’s metropolitan areas, and is recirculating some work on this it first released in March. Shanghai is already among the world’s top 50 cities ranked by GDP, but as well a Beijing, Chengdu, Chongqing, Foshan, Guangzhou, Hangzhou, Nanjing, Shenyang, Shenzhen, Tianjin, Wuhan and Xian will all join it by 2025, McKinsey predicts. European cities will be most numerous among the dropouts, but another will be Taipei.

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World’s Fastest Underwater Train: It Will Be Chinese

Despite the corruption scandal surrounding China’s high-speed rail network and calls from some quarters for a pause for breath in its breakneck expansion, the superlatives continue to rack up. Add to the list, the fastest underwater trains. Strictly speaking, the existing record is yet to be broken. But the tunnel through which the trains will run has been built, Xinhua reports. Its stretches for 10.8 kilometers under the Pearl River estuary on the run from Guangzhou to Shenzhen and Hong Kong that will open next year. Trains will be able to speed through it at a record-setting 350 kph, with the trip between Guangzhou to Hong Kong cut to 40 minutes from the current two hours.

 

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Shanghai Bears

The Shanghai and Shenzhen stock markets are now approaching a level 20% below their peak in mid-October. Such a fall in a year is the rule of thumb for a market in a developed country to be called a bear market. Yet share prices on the Shenzhen exchange are still more than double and those in Shanghai more than four-fifths again higher than they were a year ago.

This is a flow of money bubble — just like Japan’s stock bubble in the 1980s and America’s in the 1990s. Stocks offer a better return than alternatives, which in China, like Japan at the time, are few in number, and so people are borrowing to invest speculatively on the basis that they will be able to get out in time. Full speed ahead and damn the risk.

The smarter fool theory rarely works. When the flow of money gets cut off — for whatever reason: government policy, some exogenous event, an unexpected shock — it drains away rapidly. Stock prices fall quickly and many investors — usually individuals who can least afford it — get left stranded high and dry.

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Clamping Down On The Banks

Intriguing story in the Economic Observer, as reported by the AP, that China National Petroleum Corp and Sinopec are under investigation for being clients through subsidiaries of an illegal bank in Shenzhen.

Both companies have refused to comment on the reports, beyond acknowledging that the investigation is underway. The bank has been under investigation since last summer, and is now closed. It is thought to have been financing the purchase of gas by Hong Kong residents, who often drive to Shenzhen to buy gas at cheaper, state-controlled prices.

It would be unusual for a state-owned company to use such a financial institution. Small and medium sized business in the south and east use them to get round red tape.

The report comes as Beijing is again clamping down on bank lending in an attempt to rein in the runaway economy though higher interest rates and administrative guidance to banks, including foreign banks, to freeze lending until the end of the year.

Last week, the government said fixed-asset investment in factories and property was  27% higher in the first 10 months of 2007 than a year earlier, one of the highest rates in recent years. In the first nine months of the year, the economy grew at 11.5% and is on pace this year for its fastest rate since the early 1990s.

This is all more breakneck growth than Beijing is comfortable with, and which, given its still rudimentary market-based macro-economic controls, it is tackling with all the traditional tools at its disposal.

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