Economy/Resources - 205. page

In a special report about China’s real estate market, Shanghai Security News Online reported that some small and mid-sized developers in the second and third-tier cities in China have abandoned their businesses as they are no longer able to make payments on their loans. Taking Changsha, the capital city of Hunan Province, as an example, the developers of eight real estate projects have fled. There are similar cases in Nanjing City, Jiangsu Province, Jiaxing City, Zhejiang Province, Anyang City, and Henan Province.

The common thread among these run-away developers is that they have borrowed heavily, as much as several hundred million Yuan, from private money lenders. Such loans carry a high interest rate (in Changsha, they run from 3 to 5%, and sometimes even as high as 10% per month). Normally the loans are due in less than a year. While local banks charge only 0.7% per month, with China’s tightened bank loan policies, these developers could no longer get a bank loan.

According to the World Union’s report, for real estate developers in China, 1 trillion yuan (U.S. $163 Billion) in debt payments will be due soon.

Source: Shanghai Security News Online, February 28, 2012
http://www.cnstock.com/index/cj/201202/1871405.htm?page=7

China Review News (CRN) recently republished an article by Professor Zhao Xiao from the Beijing University of Science and Technology. The article stated that the total amount of international settlements done with the Chinese currency in 2011 was RMB 2.08 trillion (around US$306 billion). At the same time, the U.S. unemployment rate was above 8.5% and 15% of the U.S. population received government help. Professor Zhao believes that China’s currency is preparing to challenge the dominance of the U.S. dollar and the United States is playing defense. Zhao pointed out three major challenges China has to overcome: (1) maintaining the stable growth of both the domestic economy and China’s exports; (2) gaining enough national acceptance by promoting fairness, justice, and democracy; (3) establishing an international alliance against the current currency leader – the United States – by enhancing China’s soft power, or even its “hard” power.

Source: China Review News, February 13, 2012
http://gb.chinareviewnews.com/doc/1020/0/8/3/102008309.html?coluid=53&kindid=0&docid=102008309&mdate=0213081204

On February 16, Li Keqiang, China’s Vice Premier, who is discussed as the likely successor to Wen Jiabao as Premier, published a feature article in the Chinese Communist Party’s flagship publication Qiushi Journal. The article elaborates on China’s 2012 national economic strategy with a focus on boosting domestic demand by urbanization.

Li points to three “structural problems” in the Chinese economy: First, a slowdown in the drive for economic growth. “While the external demand declines, factors restricting the growth of domestic demand are also increasing. It is difficult for people’s income to maintain a rapid growth and Chinese enterprises’ ability and willingness to invest has waned. There are many obstacles to expanding private investment.” Second, there are many factors that drive up prices. “They include the upward pressure on production costs caused by labor, land, energy resources, and other production factors; the impact of inflation on the importation of bulk commodities in the international market, as well as the effect of the deepened price reform of raw materials.” Third, the problem of unbalanced, uncoordinated and unsustainable development is still prominent.

Source: Qiushi, February 16, 2012
http://www.qstheory.cn/zywz/201202/t20120216_138924.htm

According to recent data released by China’s Central Bank, by the end of the fourth quarter of 2011, China’s foreign exchange reserves had fallen to $ 3.181 trillion, a decrease of $20.55 billion or a decline of 0.6%, compared to the end of the third quarter of 2011. The decline in the foreign exchange reserves occurred because of China’s policy adjustments, the slower speed of China’s economic growth, and capital outflows.

Source: China Review News, February 14, 2012
http://gb.chinareviewnews.com/doc/1020/0/9/5/102009536.html?coluid=10&kindid=253&docid=102009536&mdate=0214084959

A-Finance recently published an article analyzing the fact that the profit that the Chinese banking system makes is greater than that of the tobacco industry or the oil industry. According to CBRC (the China Banking Regulatory Commission), in the first three quarters of the year 2011, the increase in the banking system’s annual profit was 35.4%. Those who work in the banking industry have an average income that is dramatically higher than any other industry in China. An analysis showed that the primary sources of profit are the high interest differential, frequently collected fees, and a massive amount of “wealth management” products. The net interest differential contributes from 75.7% to over 90% of the banking system’s annual income. The differential is the highest in the world and is determined by the government. Meanwhile, 79% of the services that banks provide are fee-based. Today, these fees are ten times higher than they were ten years ago. Chinese banks are considered monopolies both as institutions that take deposits and as lenders.

Source: A-Finance, February 6, 2012
http://www.afinance.cn/bank/yhxw/201202/420475.html

Xinhua published an article which observed three changes have occurred in 2012 in Chinese companies’ overseas investments. First, there was a change in the investment philosophy from the time of start-up to merger and acquisition. If a Chinese company builds a new business in competition with existing traditional industries, clashes with those local businesses will likely occur; the Chinese business often becomes the “enemy” in the local community. Second, the sectors where investments are made appear to be more diversified, moving from the resources sector to the technology, brand name, and distribution sectors. There have been political complexities associated with the acquisition of resources overseas. These acquisitions have tended to occur in Africa and South America, and have brought geo-political risks that cannot be ignored. The acquisition of technology, brand name, and distribution businesses make up for the weakness in manufacturing in China and also can be easily accepted overseas. Thirdly, recent acquisitions have involved private equity (PE), which is viewed as good progress. With PE’s expertise in investment, their participation has enhanced the success rate of China’s acquisitions.

Source: Xinhua, February 12, 2012
http://news.xinhuanet.com/fortune/2012-02/12/c_111515389.htm

Xinhua‘s Huanqiu interviewed Lin Boqiang, the Director of the China Center for Energy Economics Research at Xiamen University. In the interview, Lin commented on China’s strategic oil stockpile. He observed, “Unfortunately, our response to the demand to stockpile oil came late. Had we taken action sooner, we would have been in a better position to take advantage of the international oil price dive that occurred in 2008 and to enhance our stockpile capability.”

The China National Petroleum Reserve Center was established on December 18, 2007. The plan was to complete the build-up of China’s reserves within 15 years in three phases. The first phase has been completed and the second phase is scheduled to conclude in 2012. The third phase is in the design stage and is scheduled for completion in 2020. At the present time, China’s strategic oil stockpile will last 50 days. Lin said that after the second phase, China will have 60 days of oil stockpiled, and when the project is completed the oil reserve is to reach 90 days. He estimated that the U.S. may have about 90 to 100 days of strategic oil stockpiled, and can support well over six months. Currently about 55% of the oil that China consumes is imported.

Source: Huanqiu, February 10, 2012
http://mil.huanqiu.com/Observation/2012-02/2426983.html

On February 7, 2012, China Review News published an article about China’s development strategy after the death of al-Qaeda leader, Osama bin Laden. According to the article, since the success of the U.S. counter-terrorism strategy, China and the U.S. are no longer close. The theory of the "China threat" in some Western countries has changed into increased containment of China. How to break through the Unites States and the Western countries’ containment is a big challenge for China’s development. However, China’s huge foreign exchange reserves provide a solid backing for Chinese enterprises to go abroad. Internally, China should deepen its institutional reforms and provide a better life for the ordinary people.

Source: China Review News, February 7, 2012
http://gb.chinareviewnews.com/doc/1020/0/2/3/102002391.html?coluid=53&kindid=0&docid=102002391&mdate=0207083644