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China’s Economy Faces Nine Major Challenges

[Editor’s Note: Li Zuojun, Deputy Director of the Institute of Resources and Environmental Policy Research at the Development Research Center of the State Council, published an article discussing the major problems that the Chinese economy faces. The Development Research Center of the State Council (DRC) is a leading policy research and consulting institution directly under the State Council. According to Li, the nine problems are: declining economic growth, inflation, economic bubbles, the changing economic growth engines, adjustments in our industries and regional business structures, environmental constraints, the social costs of development, the deteriorating international environment, and resistance to reform. The following are excerpts from Li’s article.] [1]

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Reports | | August 31, 2012 | Report

Profits dropped in China’s Industries

On August 27, 2012, the National Bureau of Statistics of China released statistics for China’s industries. According to the statistics, the profit for China’s national enterprises dropped 2.7% for the period of January through July, as compared to the same period in 2011. In July alone, the number dropped by 5.4 percent. This was the sixth consecutive month of cumulative negative growth. Falling iron and steel prices have led to losses for many listed companies that have published their interim reports for the first half of 2012. Maanshan Iron and Steel lost 1.9 billion yuan, Shandong Iron and Steel lost 996 million, and the Hangzhou Iron & Steel Group Company lost 107 million. Others, including the Shagang Group, saw their profits cut in half. The same occurred in coal and electricity companies where their profits went down between 10 and 14 percent in the second quarter of 2012.

Source: Caijing.com, August 29, 2012
http://comments.caijing.com.cn/2012-08-29/112089425.html

Briefings | | August 31, 2012 | Economy/Resources

Securities Times: Corporate Bad Debt on the Rise

According to an article in Securities Times, companies are facing possible noncollectable accounts as their customers are not making their payments on time or are not paying at all. As of March 2012, industrial enterprises’ accounts receivable had increased by 17.74% compared to the same period last year. As of August 23, 2012, the total accounts receivable of the 1,437 listed companies that had already published their interim reports had risen drastically – by 45% – compared to the previous year.

According to Li Yang, Vice-President of the Chinese Academy of Social Sciences, a top government think tank, China’s corporate debt-to-GDP ratio stood at 107 percent in 2011, the highest in the world. A ratio that exceeds 90 per cent is considered “dangerous.” Li cited the standard set by the Organization for Economic Cooperation and Development.

Source: Securities Times, August 28, 2012
http://news.stcn.com/content/2012-08/28/content_6755013.htm

Briefings | | August 31, 2012 | Economy/Resources

If China and Japan Start an Economic War, the United States Will Be the Winner

China’s state media Huanqiu published an opinion article in which the author, a research analyst at the Institute of the Ministry of Commerce, mentioned the United States in an effort to separate the Chinese people’s nationalistic emotions from the Sino-Japanese rift over the Diaoyu islands (called the Senkaku islands in Japan).

The author said, “Recently, quite a lot of people (in China) actively participated in the campaign to defend the Diaoyu (Senkaku) islands. The activity has escalated to ‘boycotting Japanese goods.’ It is not difficult to predict that the Japanese will also take a similar action and ‘boycott Chinese goods’ resulting in an economic conflict with China. … If a Sino-Japanese conflict takes place, the real strategic winner will only be the United States.” “The United States’ strategic objectives are to dominate the world and maintain the U.S.’ global interests. The United States will take advantage of any opportunity to suppress its competitors."

Due to the economic crisis, the United States is heavily in debt. It must also face the rise of emerging economies. The United States has felt the decline of its power to control the world. There are a considerable number of American policy makers who believe that weakening the strength of China by any means will result in an increase in U.S. power. The United States is hoping to revive its manufacturing sector and restore its international competitiveness. A conflict between these two big manufacturing countries is likely to become a huge economic opportunity for the United States. From the perspective of a shift in strength, the United States will be the beneficiary of a conflict between China and Japan.

Source: Huanqiu, August 27, 2012

http://opinion.huanqiu.com/1152/2012-08/3070291.html http://news.xinhuanet.com/world/2012-08/27/c_123635624.htm

Briefings | | August 31, 2012 | Geo-Strategic Trend

PLA Daily: U.S.-Japan Security Treaty Can’t Be a Protecting Shield

On August 29, People’s Liberation Army Daily, the official mouthpiece of the Chinese military, published a commentary on the recent renewed dispute over the Diaoyu Islands (called the Senkaku Islands in Japan), titled “Is the U.S.-Japan Treaty of Mutual Cooperation and Security a protecting shield for Japan?” The article stated that, although the United States holds that the issue of the Senkaku Islands falls within the scope of the Article 5 of the 1960 U.S.-Japan Treaty of Mutual Cooperation and Security, the U.S. government will not dispatch troops to solve the conflict.

The article emphasized, “The fact that the Diaoyu Islands are China’s territory will not change in the slightest because of any party’s attempts to interfere. The Chinese government and its people will not back off because of a so-called treaty or certain people’s position. It is unwise for the Japanese to provoke incidents again and again in hopes of having the protection of the U.S.-Japan Treaty of Mutual Cooperation and Security. What is the most critical is that, in the face of the Chinese people’s righteous and determined resolution, no treaty can protect the Japanese from violating the interests of others.”

Source: PLA Daily, August 29, 2012
http://www.chinamil.com.cn/jfjbmap/content/2012-08/29/content_13331.htm

Briefings | | August 30, 2012 | Geo-Strategic Trend

State Media Attempts to Cool Down Dispute over Diaoyu Islands

On August 15, 2012, 14 Chinese activists landed on one of Diaoyu islands (called the Senkaku Islands in Japan) in the East China Sea. Their action caused a fresh round of heated disputes between China and Japan over the sovereignty of the territory.

In an attempt to cool down the Chinese activists’ expression of patriotism, Huanqiu (the Global Times), a division of People’s Daily, published an article written by Han Xiaoqing, the president of the Japan-China news agency (also a division of People’s Daily). The article, questioning whether the Chinese activists’ landing on one of the Diaoyu islands damaged China’s national interest, was titled “Is it a patriotic act for activists to land on the Diaoyu Islands or does it harm the country?”

The article said, “The Hong Kong activists’ actions in landing on the Diaoyu Islands again pushed the slightly eased Sino-Japanese relations into a fierce confrontational situation.” It argued that China’s most urgent national strategic objective is not to recapture the Diaoyu Islands. "Currently China’s most urgent and most important national strategic goal is to develop the economy and enhance economic strength in order to cope with the grim international situation and severe challenges."

In conclusion, the author stated, “The Hong Kong, Taiwan, and mainland activists landing on the Diaoyu Islands, regardless of their motives, was not a patriotic act, but an act that harmed the country.”

The article caused an uproar on Chinese Internet forums, with the majority of the postings calling it traitorous. The article was soon withdrawn from the Huanqiu website, but it is still available on many other Chinese websites.

Source: Huanqiu, August 28, 2012
http://opinion.huanqiu.com/1152/2012-08/3072485.html.
http://news.sina.com.cn/pl/2012-08-28/094525051069.shtml

Briefings | | August 30, 2012 | Geo-Strategic Trend

Chinese Economist: Expect an Economic Crisis in China in 2013

Li Zuojun, an economist at the Development Research Center of the State Council, recently delivered a speech on China’s economy, apparently at an internal meeting. According to reports, he stated that an economic crisis in China is on the way, and will possibly commence in July or August of 2013. A key feature of the crisis will be that small to medium sized businesses, banks, and local governments will declare bankruptcy, causing social conflicts to intensify even further. Li based his prediction on four reasons: the first is economic: the burst of the bubble in the housing market and local financial crisis; the second is international: the withdrawal of foreign investment from China; the third is political: the change in the control of the Communist Party; the fourth is the “triple witching”: the short, intermediate, and long term economic cycles all bottoming out at the same time.

Source: ifeng.com, August 24, 2012
http://house.ifeng.com/rollnews/detail_2012_08/24/17068910_0.shtml

Briefings | | August 30, 2012 | Economy/Resources

People’s Daily Editor’s Suicide highlights the Plight of Media Personnel in China

On August 22, 2012, Xu Huaiqian, the former editor-in-chief for the Dadi (Earth) supplement of People’s Daily, committed suicide. Xu’s suicide elicited heated responses from Chinese netizens. Xu Huaiqian’s words were quoted in Chinese media and quickly circulated on the Internet.

Xu said: “My pain is that I dare to think but I cannot speak out; I dare to speak out but I cannot write; I dare to write but I have no place to publish.”

Source: BBC Chinese, August 24, 2012
http://www.bbc.co.uk/zhongwen/simp/chinese_news/2012/08/120824_media_suicide_ana.shtml

Briefings | | August 29, 2012 | Grapevine

Cheng Xiaonong: U.S.-China Strategic Relations Have Crystallized

Xinhua Commentaries: “Exposing the Three Major Political Deficits of the U.S.”

The CCP’s Performing Arts Troupes in the U.S.

CCP, Master of Hostage Diplomacy