Economy/Resources - 223. page

China Review News (CRN) recently published an article discussing the strategy for China’s sustainable growth after the U.S. debt crisis. The article pointed out two main challenges: (1) the investment-based growth model needs adjustment; (2) the export-oriented economy must change its focus to a unified domestic market. The article suggested that China has a similar debt risk from its large local government debt total of RMB 10.7 trillion. Meanwhile, currently, Chinese exports concentrate on sectors that have a thin profit margin; the large trade volume does not generate a high profit. The author concluded that, unless the current growth model switches to the domestic market, it will be hard to recover from the damage caused by the U.S debt crisis.

Source: China Review News, August 10, 2011
http://gb.chinareviewnews.com/doc/1017/9/4/6/101794661.html?coluid=53&kindid=0&docid=101794661&mdate=0810071138

On August 12, People’s Bank of China released its “2011 Second Quarter Report on the Implementation of China’s Monetary Policy,” which emphasized that China’s monetary policy in the second half of 2011 remains unchanged. Stabilizing commodity prices will continue to be the top priority of its macro-economic control measures. The report also stated that the Central Bank will increase the flexibility of its policy to make it more targeted and predictable so that it will help to balance the relationship between maintaining economic growth, adjusting the economic structure, and managing inflation expectation.

Source: China News Service, August 12, 2011
http://www.chinanews.com/cj/2011/08-12/3255226.shtml

According to a commentary in Beijing Times, China should be on guard for four uncertainties in its economy. The first uncertainty is whether China can continue to rely on the investment model of the high speed rail. “Presently the Ministry of Railways is under tremendous pressure due to high debts and low passenger usage. In the event that (this type of) investment is significantly scaled back and this engine is lost, can China maintain a high growth economy?” The second uncertainty comes from mid-size to small businesses which are the life blood of China’s economy. The third uncertainty is whether inflation control is effective. It is anticipated that the inflation rate will be as high as 6.7% for July. The fourth uncertainty is the large reduction in the GDP growth rates for Beijing, Shanghai, Guangzhou and other cities, which may be a sign of a slowdown of China’s GDP.

Source: BeijingTimes, August 9, 2011
http://news.jinghua.cn/348/c/201108/09/n3428025.shtml

According to People’s Daily, the Ministry of Industry and Information Technology (MIIT) has issued data showing that, from January to May 2011, China’s domestic apparent consumption (production plus net imports) of oil reached 198 million tons, an increase of 10.3 percent over the same period last year. The apparent consumption of crude oil was 191 million tons, an increase of 8.5 percent. China relies on imports for 55.2 percent of its crude oil consumption, a proportion surpassing that of the U.S. MIIT warned that China’s oil consumption outpaces its GDP growth, placing tremendous pressure on energy production and conservation, as well as the reduction of emissions. The Chinese Academy of Engineering projects that, by 2030, even under a pessimistic scenario, China’s annual oil demand will reach 644 million tons. Without proper control, China may have to import 70 percent of the oil it consumes.

Source: People’s Daily online, August 4, 2011
http://energy.people.com.cn/GB/15324102.html

Sun Lijian, a Professor of Finance and Vice Dean of the School of Economics at Fudan University, wrote an article in Shanghai Securities News recommending that China should expand Shanghai’s offshore settlement business to control the dollar value of its holdings of U.S. debt. “When they (the United States) threatened to default, we realized how critical it is for China to … internationalize the renminbi.” Sun recommended that China leverage Shanghai as an international financial center and proactively expand the Asian dollar offshore settlement business. This would enable China to get around the bottleneck from the absence of a market mechanism for adjusting the exchange rate and the interest rate, the lack of international finance professionals, and the deficiencies in risk management. That, wrote Sun, would allow China to protect, to the maximum extent, the dollar value of its holdings of U.S. debt, and buy time for China to internationalize the renminbi.

Source: Shanghai Securities News reprinted by Qiushi, August 1, 2011
http://www.qstheory.cn/jj/jjyj/201108/t20110801_98836.htm

On People’s Daily Online, Niu Wenxin, Managing Editor and Chief Commentator of the CCTV Finance Channel, commented on the “sky-high" U.S. debt. Niu argued that, technically speaking, the U.S. government is already bankrupt. The total U.S. debt in 2007 was $US73 trillion, including hidden debts such as social security liability and bonds issued by companies with government guarantees or by local governments, but the total of U.S. current assets is only $US50 trillion. “The best choice for the U.S. is to repudiate its debt” and “force other countries to accept U.S. debt restructuring.”

“It is a ‘zero-sum’ game. If the U.S. wins, other countries (including China) will lose.” Niu then listed four reasons why China should not tighten its monetary supply: 1. Such a tightening will suppress economic growth. 2. It may lead to a financial crisis and recession in China. 3. It will cause higher unemployment. which in turn will result in social unrest and challenges to the CCP’s ruling position. 4. Europe is trying to hang on to the U.S. and hopes China will be sacrificed.

Source: People’s Daily Online, August 1, 2011
http://finance.people.com.cn/GB/15294964.html

China Review News published a commentary stating that, though China’s loose monetary policy quickly stimulated the economy, its residual effect has been to dampen China’s economy. First, a huge amount of loans has built up inflation pressure. The CPI has kept increasing since the fourth quarter of 2010; it reached a peak of 6.4% in June 2011. Since 2010, the People’s Bank of China has been forced to raise the deposit reserve ratio 12 times and the interest rate 4 times. This credit tightening causes economic growth to slow down. The unemployment rate may shoot up as small-and-mid-level businesses face challenging times to get loans.

Second, in 2008, by issuing bonds, local governments financed 70% of the government’s 4 trillion yuan ($US600 billion) stimulus package. By the end of 2010, local government’s debts had jumped to 10.7 trillion yuan ($US1.6 trillion). Local government’s inability to pay back the loans will hurt banks. The large local government debts also hinder the central bank’s ability to fight inflation, as higher interest rates makes it harder for local governments to pay back their loans.

Third, China’s efforts to cool down the overheated real estate market will hurt construction and other real estate related industries.

Source:
China Review News, August 3, 2011
http://gb.chinareviewnews.com/doc/1017/8/3/8/101783832.html?coluid=1&kindid=0&docid=101783832&mdate=0802001129

According to China Review News (CRN), a Politburo meeting chaired by Hu Jintao on July 22 reported that China’s general economic health is positive, but the issues of imbalance, inconsistency and unsustainability are still very pronounced. New issues are also coming up due to the changes in the international and domestic environments. The primary goal of macroeconomic management is to stabilize the overall consumer price level, which includes maintaining strong control over the real estate market. The meeting also emphasized the firm position of lowering the rate of increase in housing prices and speeding up the development of low-income housing projects. The meeting called for unifying all thoughts and actions on all administrative levels towards the direction that the Party Central Committee pointed out.

Source: China Review News, July 22, 2011
http://gb.chinareviewnews.com/doc/1017/7/5/4/101775457.html?coluid=151&kindid=0&docid=101775457&mdate=0722214159