Economy/Resources - 257. page

Beijing News recently published an article by well known scholar Ma Guangyuan on the cost of Chinese labor. The article quoted the results of a study by the Chinese central bank. In Dongguan, a major manufacturing city in Guangdong Province, the minimum wage standard went up from RMB 350/month in 1994 to 770/month in 2008 – an annual increase rate below 5%.

The article pointed out that the "miracle" of the "Chinese Model" is obviously built on a "low wages in exchange for profit" basis. As a result, consumer spending remains low. For the past 30 years, the average annual increase in China’s GDP rate has been far higher than the increase in the rate of consumer income. Cheap labor is more of an Achilles’ heel than the "core competitive advantage" of "Made in China". 

Source: Beijing News, May 30, 2009.
http://www.thebeijingnews.com/comment/letters/2009/05-30/008@013649.htm

The credit rating organization, Fitch Rating, said that Chinese banks are taking huge risks in providing loans to support the government’s plan to stimulate the economy. In the first four months of this year, under the push of the government’s infrastructure development plan, Chinese banks offered loans in the amount of Renminbi 5,200 billion yuan (762 billion dollar), surpassing the 4,900 billion yuan total bank loans for last year. Aggressively targeting profits is another reason for the increase in bank loans.

The Bank of China’s quarterly report said that its supervising arm is following up on the actual usage of the loans. Fitch Rating’s interpretation is that the government has lost control of the loans; otherwise it would know where the money went. It also pointed out that as the assets quality at China’s banks starts to deteriorate, more problems will surface down the road.

Source: BBC Chinese, May 21, 2009
http://news.bbc.co.uk/chinese/simp/hi/newsid_8060000/newsid_8062600/8062633.stm

The CCP Central Party School’s newspaper, Study Times, recently published an article discussing the importance of increasing the Chinese people’s wealth. The key point is that compared to the growth of China’s national wealth, the growth of average people’s income has lagged far behind. According to a study of the period from 1995 to 2007, China’s fiscal income increased by 5.7 times, and the average yearly increase was 16%. In contrast, the average annual increase of city residents’ disposable income was 8%, and the average annual increase of rural residents’ disposable income was 6.2%. Consequently, many people are asking, “How can we spend more money when we don’t have any money?"

The article’s author argued that the ultimate goal of a country’s economic and social development is to let its people have a prosperous life. A “wealthy nation full of poor people” can never sustain a society’s healthy growth.

Source: Study Times, May 25, 2009.
http://www.studytimes.com.cn/WebPage/ny1.aspx?act=1&id=2672&nid=9696&bid=12&page=1

Voice of America published an article about the Chinese Stimulus Package based on reports by the Chinese State Auditing Administration. The auditing publication revealed issues on the how the spending effort was completed. Some investments were used for monetary speculation. Some funds were not actually delivered to the intended projects. Small and medium sized businesses were left behind. By the end of March, based on audit results covering 335 new projects in 18 provinces, the Central Government delivered 94% of the promised funds while only 48% of corresponding local investments were actually completed. The US agency Stratfor Global Intelligence suggested that, the Chinese Stimulus Package can help the economy in the short term at the cost of a long term solution.

Source: VOA, May 20, 2009.
http://www.voanews.com/chinese/n2009-05-20-voa2.cfm

On May 20, the International Herald Leader, under Xinhua News, reported on the foundation laying ceremony for China’s biggest luxury shopping center in Shanghai. Among the ceremony attendees was French LVMH group President Beorne Arnold who expressed confidence in the Chinese market.

Beorne Arnold’s confidence is not unfounded. According to a research, in 2008, for the first time, China replaced the U.S. and became the second largest consumer of luxury goods in the world. However, China’s luxury goods consumption is a dysfunctional social phenomenon. The majority of luxury goods consumers are young people with less earning power who buy things in order to show off. Additionally, non-Chinese brands dominate the luxury goods market, which negatively impacts the expansion of China’s domestic brands. The consumption also does not help the tens of millions of Chinese who are living below the poverty line. Per China’s present poverty relief standard, over 40 million people live below poverty line. Using the UN’s poverty standard, the number is over 150 million.

Source: International Herald Leader, May 25, 2009.
http://news.xinhuanet.com/herald/2009-05/25/content_11430893.htm

Epoch Times expressed that the report that China released on 2009 first quarter GDP was not convincing and the Economist pointed out that the figures had likely been fudged. The government released GDP and production numbers for the first quarter of 2009 declaring 6.1% and 16% increases respectively over the same period in 2008. However, the electricity production in the first quarter was 4% down from the same period a year earlier. In the past, GDP and electricity output have moved broadly together, although it is not a one-to-one relationship.

Economists have long questioned whether China has been massaging its GDP data. It is widely believed that China’s GDP growth was overstated during the period after the Tiananmen Square Massacre and the Asia Crisis period.

Source:
[1] Epoch Times, May 25, 2009
http://www.epochtimes.com/gb/9/5/25/n2537054.htm
[2] Economist, May 21, 2009
http://www.economist.com/finance/displaystory.cfm?story_id=13692907

Xinhua quoted Hong Kong Wen Wei Po’s article, reporting that in the U.S., there are many companies like General Motors and Citibank that are in trouble, indicating the U.S. economy is still struggling, far from what the Washington officials claim “U.S. economy has reached the bottom.” “No wonder Obama’s hair has turned grey after taking office.”

GM’s stock went down to $1.09 per share on May 12. It was taken out of the Dow Jones Index and listed as junk stock. Citibank also went below $1 and was taken out of the Dow Jones Index. According to Bloomberg, in May 2000, the combined market value of GM and Ford was $100 billion, 50 times the market value of the  Shanghai Automotive Industry Corporation (SAIC) Group. At the beginning of 2009, SAIC’s market value is more than Renminbi 40 billion yuan ($6 billion), more than the combined value of GM and Ford.

Source: Xinhua, May 22, 2009
http://news.xinhuanet.com/world/2009-05/22/content_11418440.htm

To cope with the international financial crisis we must the expand domestic demand, promote consumption, innovation, and foster new economic growth, thereby improving the overall quality of the economy and international competitiveness.

At present, the market continues to be weak in exports; exports are losing steam in leveraging economic growth.  The expansion of consumption, especially in rural areas, has become an important focus to maintain China’s steady economic growth.  Employment relates to human dignity and social stability, national strategic planning must take into consideration the unemployment problem.  In order to balance the social resources, as well as human resources, effective implementation of national development strategy with employment as one of the top priorities must take place.

Source: StudyTimes.com, May 18, 2009.
http://www.studytimes.com.cn/WebPage/ny1.aspx?act=1&id=2649&nid=9602&bid=4&page=1