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The State Council Approved the Pearl River West River Economic Belt Development Plan

China Review News carried an article that was originally published in People’s Daily about the development plan for the “Pearl River West River Economic Belt.” According to the article, the Guangdong Development and Reform Commission has received approval from the State Council to proceed with the development plan. The plan makes eco-environmental protection a prerequisite, while focusing on the development of infrastructure, urbanization, and public services in the Pearl River and West River regions. According to the article, the plan will help to increase the effort of environmental protection while promoting economic exchanges in the inland region. According to the approval that the State Council issued, the municipal governments of Guangdong and Guangxi provinces will collaborate in carrying out the execution of the development plan. The Guangdong Development and Reform Commission will also be responsible for supervision and inspection.

Source: China Review News, July 20, 2014
http://hk.crntt.com/doc/1032/9/5/8/103295866.html?coluid=151&kindid=11511&docid=103295866&mdate=0720115937

Briefings | | |   Economy/Resources

Local Governments Are Increasing Their Investments

China Enterprise News reported that, in spite of the central government’s efforts, local governments are increasing their expenditures and banks are funding the local governments through financial management products. 

According to the National Bureau of Statistics, none of the provinces, except Anhui, reached their GDP goals in the first quarter of 2014. Heilongjiang Province had the lowest GDP growth rate. At 4.1 percent the rate was less than half of the estimate. As of the present, the provinces of Guangdong, Hainan, Hebei, Heilongjiang, and Guizhou, as well as Tianjin City, have announced grand investment plans. When added together, local government investments total more than 10 trillion yuan. 
With few local projects eligible for central government funding, the sources of funds for these grand investment plans remains to be resolved. Tight bank credit and a sluggish land market do not offer any hope. Even the recent pilot program that allows local governments to issue and service their own bonds cannot cover the gap. The 14 billion yuan in bonds that Guangdong plans to issue is miniscule compared to the investment plan of 3.67 trillion yuan it announced on April 9, 2014. 
However, according to sources from banks, the banks have been funneling funds to local governments through financial management products such as loan trusts. For the local governments, the cost of these funds is higher than regular bank loans. However, the approval process is not subject to policy changes and, once approved, the proceeds are transferred promptly to the local governments. 
Source: China Enterprise News reprinted by Xinhua, July 15, 2014 
http://jjckb.xinhuanet.com/invest/2014-07/15/content_512790.htm
Briefings | | |   Economy/Resources

Government Think Tank: China Faces Extended Slow Growth

Cai Fang, Director of the Institute of Population and Labor Economics under the Chinese Academy of Social Sciences, published to rebuttal to the prediction that the bubble of the Chinese economy may burst. He also admitted that China’s economy is in for a period of slow growth. 

Cai wrote that, over the years, there have been significant changes in the demographic structure of China’s population. After the growth rate of the population between 15 and 59 peaked in 2010, it then slowed down and has since fallen. On the other hand, the dependency ratio is increasing. This fundamental demographic change has led to a general shortage of workers, persistent wage increases, a substantial surge in manufacturing costs, and the disappearance of China’s traditional competitive advantage. More importantly, because there is no unlimited supply of labor, the returns on capital have been decreasing. The returns on investment have fallen considerably. The gradual reduction of surplus agricultural labor will also slow the labor reallocation of resources, thereby reducing any improvement in productivity. Therefore, China is expected to experience a period of slow growth in its economy. 
Source: Qiushi, July 15, 2014 
http://www.qstheory.cn/dukan/qs/2014-07/15/c_1111595037.htm
Briefings | | |   Economy/Resources

Tencent: Seven Ways to Transfer Funds Out of China

According to Tencent Financial, the wealthy in China use a number of means to transfer large amounts of money out of China.

Underground banks conduct the largest share of this type of business. When funds are deposited into an account in an underground bank in China, the client can withdraw the foreign equivalent from an overseas account at the same bank. A second method is currency exchange agents. They secure enough people who will lend their residence cards to exchange up to $50,000 per residence card. Therefore, for one large transfer, it may take days or even weeks to locate enough people.

Other methods include import and export trading companies that engage in money laundering as a side business. Gambling in Macao provides another channel to transfer funds out of China. Some people set up an offshore company and transfer funds little by little through an intermediary. This approach takes a long time and requires expertise in international accounting principles. 
A lesser known method is to purchase U.S. real estate investment funds. Then at the end of the investment period, the funds remain in the U.S. Some people in Southern China purchase insurance policies from the Hong Kong market. The high premium insurance allows the policy holder to cancel and to change the beneficiary. Once the insured or the beneficiary arrives in Hong Kong, they cancel the insurance and receive a refund of the premium. 
Source: Tencent Financial, July 10, 2014 
http://finance.qq.com/a/20140710/013803.htm
Briefings | | |   Economy/Resources

State Media: Bank of China Engages in Money Laundering

The state’s media, China Central Television (CCTV), reported that the Bank of China, one of the four major state banks, engages in money laundering. In violation of government control of cross-border fund transfers, it transfers large amounts of cash abroad for clients who plan to emigrate overseas. 

"’Regardless of where and how you get your money, we can help you get it out [of China].’ The staff from a Bank of China branch said that it does not matter how black or dishonorable the money is; the bank has a way to clean it and get it overseas safely.” 
At a recent immigration expo in Beijing, an immigration agent explained that due to government control of fund transfers by individuals, one may be able to transfer up to $50,000 a year. In order to apply for investment immigration, one must transfer large amounts to accounts designated by foreign governments. To do that, one must go to the Bank of China. The Bank of China representative at the expo confirmed this information. “We help you convert such a large amount [of yuan] into foreign currencies and transfer it out in one transaction. That is the step we handle.” According to CCTV, the Bank of China charges its clients a 0.3 to 0.4 percent handling fee for these types of transfers. 
Source: Xinhua, July 9, 2014 
http://news.xinhuanet.com/2014-07/09/c_126731280.htm
Briefings | | |   Economy/Resources

Underground Electronics Recycling Sites Annual Production Close to 100 Billion Yuan

Guangming Daily recently published an article on electronics recycling. According to the article, there is an underground electronics recycling chain that covers an area from Beijing and Hebei to Guangdong Province. Its high profitability propels an annual production that is close to 100 billion yuan (US$16 billion). Meanwhile, the officially registered recycling companies lack sufficient business and their recycling processing lines sit idle. Xiejia Village, which is located 6 kilometers (4 miles) north of Beijing, is the largest electronics recycling center in the Beijing area. From there, most of the electronic boards go to Guiyu County in Shantou City, Guangdong Province while home appliances containing plastic, aluminum, and copper go to Shi Jia Zhuang Village in Shi Jia Zhuang City, Hebei Province. According to the article, a manager from Huaxin Green Spring Environmental Development Company stated the reason that the underground recycling centers are more profitable than the officially registered recycling sites. He said their company makes almost zero profit after paying for the costs and the taxes on their profit. However the unregulated underground recycling sites often do not adopt proper environmental measures and they use a process that causes serious air, water, and soil pollution. According to statistics, between 50 million and 80 million electronic appliances and electronic productions are scrapped each year in China; the number is expected to exceed 160 million by 2015. The article stated that how the electronic waste can be recycled properly and how the recycling industry is managed have become major issues.

Source: Guangming Daily, July 4, 2014
http://tech.gmw.cn/2014-07/04/content_11837397.htm

Briefings | | |   Economy/Resources

China’s Growing Dependence on Foreign Energy

A Chinese Academy of Social Science report, "World Energy and the Outlook for China, 2013 – 2014" made an assessment that China’s dependence on foreign energy will go up from the current 9 percent to 11 percent in 2015 and 26 percent in 2020. 
Oil. At present, the three largest countries from which China imports oil are Saudi Arabia, Angola, and Iran. Several years ago, in 2010, imports from these three countries accounted for 40 percent of the total oil imports. Geographically, the Middle East accounted for 50.1 percent of total Chinese oil imports, Africa 30.2 percent, followed by Latin America, the Commonwealth of Independent States, and Southeast Asia. Dependence on foreign oil is expected to grow from 55 percent in 2011 to 60 percent in 2015.
Iron ore. China is the world’s largest importer of iron ore. Its total imports of up to 440 million tons in 2008 accounted for 52 percent of the world’s seaborne iron ore. The sources are concentrated in a few countries: Australia, Brazil, and India.
Natural gas. More than 80 percent of China’s natural gas imports are from Australia. The dependence on foreign natural gas will increase from 19 percent today to 35 percent by 2015, and 40 percent by 2020.
Copper ore. China currently accounts for 17 percent of global copper consumption. It is the world’s largest consumer of copper and importer of copper concentrate.
Bauxite. Chinese bauxite resources are not scarce, but in recent years the country launched a large number of electrolytic aluminum projects, resulting in a surge in consumption. China is becoming a net exporter of bauxite.
Coal. Since 2002, Chinese coal imports have increased rapidly. In 2011, China surpassed Japan to become the world’s largest coal importer. The major coal exporters to China include South Africa, the USA, Canada, Colombia, Australia, Indonesia, Mongolia, Vietnam, and Russia.
Source: Guangming Daily, July 3, 2014
http://theory.gmw.cn/2014-07/03/content_11821154.htm
Briefings | | |   Economy/Resources

China Stock: Growing the RMB’s Global Presence

After the global financial crisis, a new trend developed in the world: the establishment of a "currency swap network." The U.S., in particular, established a Dollar Liquidity Swap Line among the U.S. Federal Reserve and the central banks in Europe, Canada, the United Kingdom, Switzerland, and Japan. The U.S. dollar still plays a dominant role.

China Stock published an article suggesting the steps China should take to grow the RMB’s global presence. First, China should participate in the U.S.-dominated “network of bilateral swap lines.” This would allow China to obtain dollars easily when money flows out of China. Second, China should advance the "The Chiang Mai Initiative Multilateralization" mechanism, turning this loose network of bilateral support into a tight multilateral capital rescue mechanism. Third, China should establish an RMB swap funding pool, to support the clearing of the RMB’s swap with other currencies.

Source: China Stock Online, June 26, 2014
http://news.cnstock.com/news/sns_jd/201406/3075560.htm

Briefings | | |   Economy/Resources