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China’s Opportunity under the Subprime Lending Crisis

This is an article from the 21st Century Business Herald on October 29, 2008. It reflects part of the Chinese scholars’ thinking on how to deal with the current international financial crisis. The full translation follows. [1]
China should establish its strategic goals based on its international political goals

The subprime lending crisis has become the largest economic crisis since the Great Depression of the 1930s that spread through all of the capitalist countries. Because the center of this crisis is the US and Europe, which control the world’s economic and politic hegemony, China is in a relatively good situation. Although the crisis is having a certain impact on our export-oriented economy, at the same time this is a rare opportunity that China won’t encounter in a hundred years. If China fully takes advantage of this opportunity, it may significantly improve its position in the international economic and political system. Thus taking a certain degree of pressure and paying a small price is worth it.

We need to bear in mind that the economic goal of an isolated country is just absolute growth alone. But in the international system, as the result of interest distribution, a country not only needs to pursue the absolute growth rate; it also needs to pursue a relative growth rate, because the latter decides the country’s position in the interest distribution pattern; it decides what role a country plays regarding cheap labor; or a country can obtain a reasonable share of international trade and economic growth. During development, a big country in the process of growth should be good at seizing the opportunities created by instability and disaster. In the face of turmoil, all countries will be affected, but only during instability can the country with the ability to sustain the risk show its superiority. A big power is not worried about itself being impacted. During global economic decline, it does not even worry if the nation’s economic absolute scale declines, as long as its decline is less than its competitors. Then its relative position in the structure of the world is in fact rising. In the future’s recovery it would obtain much more profits than previously. If it can obtain more profits in the future, then the impact it suffers today is rather an investment.

In the face of the subprime lending crisis, whether we deal with it, or take advantage of it, first we need to be clear on China’s goals. When facing any major incident, our effort should be directed to a series of goals, from the lowest to the highest goals. On this basis we can know clearly what choices we have. During this crisis, China’s goals are listed below from low to high in sequence:

Reduce and eliminate the losses from the subprime lending crisis, weaken the subprime lending crisis’ impact on China’s economy and society, and ensure that China’s economy will continue growing at a certain rate. This is the lowest goal that China must achieve.

Use the crisis to weaken the competitors’ opportunities, etc., establish and consolidate the dominant position of the country and the nation’s capital on the domestic market. This is the necessary precondition for a great power to rise in the outside world. It can also place us in an initiative situation, whether attacking or defending.

Improve to the greatest extent China’s right of discourse in the world economic system, including consolidating, and enhancing our economic impact on neighboring countries/regions and other major countries/territories, and improving as much as possible China’s influence in the whole international economic system.

Regarding making efforts surrounding the first level goals, from enhancing the export incentives, to stimulating the domestic market, we have seen it (the effort), now and what is needed is to put measures in a timely manner to implement them.

On the second level, the first thing we need to do is to use the opportunity of the subprime lending crisis impacting the headquarters of the foreign-funded enterprises, and selectively buy back the foreign enterprises with a fair option. It not only will weaken the impact of the foreign-funded enterprises on domestic bank credit, suppliers business accounts receivables, and employment, but it will also help to break the foreign investment’s monopoly, help to build and consolidate the dominant position of the country’s and the nation’s capital on the domestic market, to reduce the pressure on the country’s foreign exchange reserves’ continued high growth, and at the same time to develop investment channels consistent with the national public interest, for large quantities of domestic surplus capital. Of course, we need to be selective when we acquire domestic foreign-funded enterprises. With other things being equal, priority should be given to buying back those foreign enterprises in the domestic market. The foreign enterprises with overseas markets are the second priority; high-tech and strategic enterprises are the first priority; low-skill, everyday consumer goods enterprises are the second priority. If we cannot grasp the sales channels of the acquired business, the acquisition is no more than a pile of waste metal. It is much easier to grasp the domestic sales channels than the overseas sales channels. The acquisition of high-tech and strategic foreign-funded enterprises can help us to obtain at least some technology that we do not have, and to enhance control over the strategic business. The low skill, everyday consumer goods enterprises have a low entry barrier. Thus they may not offer the technology that we need.

On the third level, we can use the right conditions as an exchange in which we use the right format and scale to participate in the western financial crisis. This will also help to maintain China’s external demand from shrinking dramatically. The exchange condition should be across political and economic lines, etc. of which, in the economy, the possible choices include asking the other side to ensure market entry and the right of China’s goods, services and investments (thus opening a path for the growth of China’s investments); reduce or stop any interference to the trade relationship between China and the third country, thus improving China’s right of discourse in the international economy system; or taking China’s suggestions during multilateral trade and financial negotiations, and so on.

Any crisis can mean the reshuffling of the existing economic and political structure, meaning that all emerging great powers have obtained more rising opportunities. After the Opium War, China’s weakness and turmoil created an unprecedented opportunity for Japan to rise. The First World War allowed the United States to leap from a European economic colony not long ago to become a European creditor. The Great Depression in 1930s allowed the Soviet Union to quickly rise from a nation of poverty and underdevelopment, with the majority of the population illiterate. The Second World War destroyed the ruling status of the British Commonwealth and the French empire. The United States and the Soviet Union quickly replaced them. In view of this, as long as the leadership is strong, the goal is clear and appropriate, and the action is timely and strong, it is entirely possible for China to make full use of this opportunity to leap forward and upgrade its position in the international political and economic system.

Endnote:
[1] 21st Century Business Herald, October 29, 2008
http://www.nanfangdaily.com.cn/spqy/200810290106.asp

China Launching Another Round of Media Control

The Communist Politburo has issued a directive mandating further control of media as a preemptive strike against potential social unrest in 2009. A Politburo directive cited information from the State Security Department and from military intelligence sources indicating China will face severe challenges and crises because “anti-china forces, domestic and overseas are actively strategizing their activities.”  As a result, the Politburo has increased funding for the Communist Propaganda Department and the Ministry of Public Security.

At a meeting towards the end of November, the Party’s Propaganda Department decided to initiate a preemptive strike in anticipation of increasing social unrest in 2009.  It has blacklisted 6 print media and all websites except sina.com.  In addition, 55 media professionals have also also blacklisted.  “You should know that this is China.  The Internet has a border.  It is not a place where you can exercise your free will.  The Internet must be under the control of the Party.  It is the Party’s Internet as well as the mouthpiece of the Party,” said Mr. Chen of the Propaganda Department. 

Source: Boxun.com, December 4, 2008
http://news.boxun.com/news/gb/china2008/12/200812040011.shtml

China to Provide Scholarships to New York State University Students

China Ministry of Education will provide 10 scholarships per year from 2009 to 2012 to New York State University.  The scholarships will enable undergraduates to study for one year in China.  The State’s authorities for administration of overseas Chinese students and related funding will be responsible for admission and enrollment into Chinese universities.

 

Source: Xinhua, December 4, 2008

http://news.xinhuanet.com/newscenter/2008-12/04/content_10456740.htm

China’s Biggest Concerns of the U.S.- China Trade

Minister of Commerce expressed 4 major concerns during the 5th U.S.-China Strategic Economic Dialogue: textiles free trade, advanced and new technology trade, categorization of China as market economy, trade barriers (antidumping and countervailing duty).  Minister Chen indicated at a press event that China’s exports has suffered to a great extent now as result of the financial crisis and that therefore the U.S., China and other countries should step up the opposition to trade protectionism.

Source: Xinhua, December 4, 2008
http://news.xinhuanet.com/newscenter/2008-12/04/content_10457760.htm

Background Material: Annual Meeting System Between China and Russia Premiers

Chinese Premier Wen Jiabao and Russian Prime Minister Vladimir Putin met on October 28 in Moscow, Russia, for the thirteenth annual meeting between the premiers of the two countries. During the meeting, Wen and Putin exchanged their views on major issues regarding the pragmatic cooperation between the two countries. On the same day, the Xinhua News Agency published the background material on its website (Xinhuanet) about the system of the two premiers having regular meetings annually. Below is a translation to the background material. [1]

Xinhuanet, Oct. 28: Annual Meeting System Between Chinese and Russian Premiers

In April of 1996, Yeltsin, the Russian president at the time, visited China. He and Jiang Zemin, who was then the chairman of China, came to an agreement that there should be periodic meetings between China and Russia. They both agreed that it was very important that different branches of the two countries could communicate frequently in various ways and it was especially important for the leaders of the two countries to get in touch regularly. From December 26 to 28 of the same year, Li Peng, the premier of China at the time, went to Russia for a working visit. During the visit, the two sides agreed to a new system of having annual meetings between the two Premiers. Since the establishment of this system, the premiers from the two countries have met once every year.

There are three major regular meeting branches under this system: the meeting between premiers, the meeting for humanitarian affairs cooperation, and the meeting for energy negotiation among representatives. In all the foreign cooperation systems, this one [the meeting between the premiers] has the highest level, the most complete framework, and the widest area of discussion. The establishment of this system has pushed forward the good neighborliness and mutual beneficial cooperation, and has driven a healthy development of the strategic partnership of Russia and China. The major successes resulting from these meetings in recent years are as follows:

9/8/2001: Chinese Premier Zhu Rongji and Russian Premier Kasiyanov met in St. Petersburg for the Sixth Regular Meeting and signed a joint communiqué.

8/22/2002: Chinese Premier Zhu Rongji and Russian Premier Kasiyanov met in Shanghai for the Seventh Regular Meeting. The two parties thoroughly exchanged opinions on issues such as enhancing cooperation between the two nations, anti-terrorism, and easing tensions in hot spot regions.

9/24/2003: Chinese Premier Wen Jiabao and Russian Premier Kasiyanov met in Beijing for the Eighth Regular Meeting. The two parties both agreed that at the same time of making breakthroughs in the development of bilateral economic and trade relations, the two countries should extend humanitarian cooperation.

9/24/2004: Chinese Premier Wen Jiabao and Russian Premier Fradkov met in Moscow for the Ninth Regular Meeting. In a friendly and collaborative atmosphere, the two parties summarized the cooperative achievements between the two countries, worked over ways for solving existing problems, and determined the priorities of future works.

11/3/2005: Chinese Premier Wen Jiabao and Russian Premier Fradkov met in Beijing for the Tenth Regular Meeting. The two sides signed eight agreements in the fields of economics, education, health, banking, etc., and issued the “Joint Communiqué of the Tenth Regular Meeting Between Chinese and Russian Premiers.”

11/9/2006: Chinese Premier Wen Jiabao and Russian Premier Fradkov met in Beijing for the Eleventh Regular Meeting and both attended the closing ceremony of China’s “Year of Russia.” The two sides signed 17 agreements in the fields of energy cooperation, financial insurance cooperation, news exchange, etc.

11/6/2007: Premier Wen Jiabao and Russian Premier Zubkov met in Moscow for the Twelfth Regular Meeting. They signed a joint communiqué, and together attended the signing ceremony for signing the agreements on the cooperation between the two countries in the fields of trade, energy, technology, banking, border trade, etc.

Endnotes:
[1] Xinhuanet, October 28th, 2008
http://news.xinhuanet.com/world/2008-10/28/content_10267944.htm

Xinhua: Europe Is Not As United As France Expects

France did not receive the full support from Europe in its move to meet with the Dalai Lama, says International Herald Leader of Xinhua. “Things have not turned out to be what the naïve France expected – it has encountered the pressure from its partners.” The International Herald Leader reported comments from European officials, the UK’s Guardian and think tank analyst that are negative of the upcoming meeting between French President Nicolas Sarkozy and the Dalai Lama.

Source: International Herald Leader, December 1, 2008
http://news.xinhuanet.com/herald/2008-12/01/content_10438145.htm

Nearly 300,000 Children Sick By Tainted Formula Milk

According to the Ministry of Health of China, as of November 27, about 294,000 babies and young children had suffered "urinary system abnormalities" after taking formula milk from Sanlu and other brand names. Of 51,900 requiring hospital in-patient treatment, 861 remain in hospital and 154 are severe cases.

Source: Ministry of Health of China, December 1, 2008 http://www.moh.gov.cn/publicfiles/business/htmlfiles/mohbgt/s3582/200812/38386.htm

Belgian Reporter and Crew Beaten in Henan for AIDS Story

Belgian reporter Tom Van de Weghe of the Flemish public TV station VRT, his Australian cameraman and his Belgian assistant were in Henan province doing a report on AIDS in China when they were attacked and robbed by eight men recruited by the Henan provincial authorities, VRT said.

The eight men intercepted them while they were on their way to a village and demanded that they surrender the videotape of interviews they had already done. The crew handed over the videocassettes after being hit. Their assailants also took money, microphones and batteries.

VRT has demanded an apology and compensation. The Belgian government has asked the Chinese authorities for an explanation.

Source: BBC Chinese, December 2, 2008
http://news.bbc.co.uk/chinese/simp/hi/newsid_7760000/newsid_7761000/7761098.stm