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Vice Minister of Finance: Current Economy Unsustainable

Wang Baoan, Vice Minister of Finance, wrote an article at Qiushi on challenges the China’s economy faces. He summed up the problems into “four highs” and “four lows:” high input, consumption, pollution and speed; and low output, efficiency, efficacy and tech content. 

Wang wrote, “The ‘current version’ of China’s economy is unsustainable.” He cited a few examples to support his conclusion. China’s use of resources is inefficient. The energy consumption of the gross domestic product (GDP) is 2.6 times the world average. The GDP per capita is only 21 percent of the U.S. and 32 percent of Japan. One U.S. dollar increase in GDP needs five U.S. dollars in investment. “This growth relying on and supported by investment is unsustainable.” 
Other examples include excess production capacity in steel, flat glass and shipbuilding. The excess capacity in solar photovoltaic modules and wind power equipment hit over 40 percent. Commenting on lack of innovation in China, Wang wrote, “When one fish died in the pond, it is an accident. If the majority of the fish died, it indicates that water is the problem.” 
Source: Qiushi, January 1, 2014 
http://big5.qstheory.cn/zxdk/2014/201401/201312/t20131230_307459.htm

China’s Local Government Debt Climbed to 17.9 Trillion Yuan

China’s National Audit Office (NAO) announced on Monday that, by the end of June 2013, local government debt had increased to 17.9 trillion yuan, soaring 67 percent over the figure for three years ago.

According to the NAO’s last figure, for the end of 2010, the total debt of local governments in China was 10.7 trillion yuan. China’s local governments cannot borrow directly from banks. Their debt is built up mainly by establishing some financial entities and using these entities to borrow money for infrastructure projects. Government debt also includes financial guarantees for some projects.

If the debt of the central government is included, the Chinese government’s overall debt is 30.3 trillion yuan, accounting for 53.3 percent of GDP. Some analysts worry that the economic slowdown could lead to an increase in bad debts, thus putting pressure on large state-owned banks. The NAO report also points to an over-reliance on land related fiscal revenue as a cause of the rapid increase in local government debts.

Source: Voice of America, December 30, 2013
http://www.voachinese.com/content/china-local-government-20131230/1820431.html

People’s Daily: China’s First Commodity Exchange Opened Its Doors

People’s Daily recently reported that the Bohai Commodity Exchange (BOCE) officially started its first business day in Tianjin on December 18. BOCE is a trading platform for large scale commodity exchanges, following international trading standards. Initial commodity categories focus on crude oil, coal, nonferrous metals and agricultural and forestry products. The Exchange is planning to provide comprehensive services including trade, settlement, logistics, and finance. The goal of BOCE is to become a commodity trading center and pricing center with significant power to influence the market. By the end of 2013, over 60 brands and commodities had been listed on BOCE. 
Source: People’s Daily, December 19, 2013
http://www.022net.com/2009/12-19/426241293324347.html

NDRC: International Investments below US$1 Billion No Longer Require Approval

Southern Metropolis Daily recently reported that the Chinese National Development and Reform Commission (NDRC) announced a new policy governing Chinese overseas investments. The new policy allows Chinese investors not to seek Chinese government approval for investments below US$1 billion outside of China. Instead, the investors are asked to fill out a for-record-only form. The new policy replaces the old requirement to get approval from NDRC, the Ministry of Commerce, and the State Administration of Foreign Exchange (SAFE), which typically took four months. Both state-owned companies and privately owned companies enjoy the same rights under this new rule. However, the new policy does not apply to investments involving “sensitive regions or sensitive industries.” 
Source: Southern Metropolis Daily, December 16, 2013
http://news.nandu.com/html/201312/16/600970.html

SOE’s Debt for November Year to Date Increased 14.5 Percent

On December 20, People’s Daily published an article about the financial status of State Owned Enterprises (SOEs). The financial reports from SOEs showed that November year to date sales and profits were up 11.3 and 8.2 percent respectively compared to the same period last year. However their total debt was close to 60 trillion yuan (US$9.8 trillion), up 14.5 percent. The industries that saw growth in their profits include power, electronics, building construction, auto, and transportation. The industries that saw a decline in their profits include non-ferrous metals, coal, chemicals, and light industries.

Source: People’s Daily, December 20, 2013
http://ccnews.people.com.cn/n/2013/1220/c141677-23895718.html

Three Gorges Dam May Cause Earthquakes

Shen Guofang, head of an assessment group for the Three Gorges Dam, acknowledged that the dam can definitely induce earthquakes. 

"It is certain that irrigation dams will induce earthquakes, but the magnitude is generally small. They are primarily microseismic or very microseismic. That is because the deep penetration of the reservoir water along the fault would reduce their resistance to shear. Also enormous pressure from the dam itself and from the water will lead to the formation of certain changes in the geological structure.” 
Sheng dismissed suggestions that the Three Gorges Dam may have caused the Wenchuan earthquake in May 2008 (8.3M) and the Lushan earthquake in April 2013 (7.0M). 
Source: Xinhua, December 18, 2013 
http://news.xinhuanet.com/local/2013-12/18/c_125875613.htm

Control of Local Government Debts to Be a Top Priority in 2014

According to the China Central Economic Work Conference, China’s highest-level economic conference, held from Dec 10 to 13, one of the top six priorities for next year will be the control of local government debts. 

The third item of the six reads, “Third, focus on prevention and control of debt risk. As an important task of economic work, take control and resolve local government debt risk. Combine short-term response and long-term institution building and defuse local government debt risk. Strengthen the standardization of the source of risk, categorize local government debts, put them under budget management, and tighten up government borrowing programs. Assign responsibilities and hold officials accountable. Governments at provincial, district and city levels should be responsible for their respective local debts, for strengthening education, and for tests, so as, ideologically, to rectify incorrect performance-driven behavior.” 
Source: People’s Daily, December 13, 2013 
http://politics.people.com.cn/n/2013/1214/c1001-23839592.html

Sina Finance: China’s Economy Is Slowing Down

Well-known Chinese online financial news portal Sina Finance recently reported that, although rapid growth has made China the world’s second largest economy, the Chinese economy is suffering its lowest growth rate in over twenty years. Many key western investors have started cutting jobs in their Chinese operations. Examples are Hewlett-Packard (HP), International Business Machines (IBM), Johnson’s, and software services provider Bsquare Corp. According to the Chinese government’s official numbers, foreign investment grew 4.7 percent, while domestic investment growth reached 19.9 percent, as compated to the same period last year. Based on statistics provided by a large Chinese online job market vendor, overall job offers increased by 30 percent. However, at the same time, offers from western companies declined by 5 percent. Interviews of well-known headhunter companies also confirmed that business from international companies has shown a significant slow-down. 
Source: Sina Finance, December 13, 2013
http://finance.sina.com/bg/tech/sinacn/20131213/0344924833.html