China News - Autumn 2010

China investing in Europe

In the past, China has been hesitant to invest in Europe, but figures show a 30% surge last year. Today, Europe looks tempting as the yuan strengthens and cash strapped European governments forget concerns over foreign ownership of key assets. During a recent visit to Greece, Chinese Vice Premier Zhang Dejiang completed 14 deals - reportedly the largest Chinese investment package in Europe - covering a range of sectors from construction to telecoms. In Cosco, the Chinese shipping group paid Greece $4.1 billion to lease much of Greece's largest container port, which will be a useful gateway for Chinese goods to enter Southern European markets.

Meanwhile, Irish authorities have opened talks with China to develop a 240-hectare industrial park in central Ireland where Chinese manufacturers could operate inside the EU free of quotas and costly tariffs and also create 10,000 new jobs. There seems to be big mutual benefit here because Europe needs money and China needs markets. (From Newsweek 19/7/10)

China investing in Africa

Two-way trade between Africa and China was $10 billion in 2000 but grew to $90 billion by 2009, according to Chris Alden, author of 'China in Africa'. This exceeded the $86 billion worth of trade with the US in 2009. Examples of investment are: $20 billion in construction in Algeria, $23 billion in oil refineries in Nigeria; $6 billion in infrastructure in the Democratic Republic of Congo; $2.5 billion in offshore oil in Angola; $5.5 billion in banking in South Africa and $14 million in mobile phones in Somalia.

The Chinese method is quick. Loan deals with multilateral agencies take years, but the China-Angola discussions took weeks. 'With the West, there are studies, analyses and bureaucracy, but the Chinese just ask what the government wants and they don't question or comment or judge. They just do it', said a Western official. In almost every African country today you can see Chinese engineers with their sleeves rolled up, overseeing work crews. IMF officials in suits crunching numbers just don't have the same kind of dash.

Apart from aid the Asian model of development is looking increasingly attractive. African governments look at Western economic instability over the past two years and see a better model in Asia's extraordinary growth. Special economic zones, one of the engines of China's growth for two decades, are popping up across the African continent. What distinguishes Chinese business people from their Western rivals in Africa is how risk-happy they seem.

The Chinese ambassador to Congo says, 'Before African countries never profited from their resources, now they help build infrastructure. Other countries say that Congo has a lot of problems; we say it has huge potential.' The key is long term vision. There is risk, but the Chinese will be there in 50 years time: short term problems, but long term - not much risk. China has helped transform the idea of Africa from a destination for charity to a place for business.

In 2006, for the first time, flows of foreign direct investment (FDI) into Africa were greater than those of aid. According to the Organisation for Economic Cooperation and Development, $48 billion of FDI flowed into Africa, compared to $40 billion of aid. In 2008, FDI reportedly reached $88 billion. 'Trade, not aid' is the new mantra of influential African leaders like Rwandan President Paul Kagame.

A representative of the Mineworkers Union at a mine where 49 miners died might be expected to be cautious about China; however, he said, 'I've worked for the British, the Americans, a Jew and the Swiss. They all closed. The way the Chinese are investing, they're not leaving. My boy will get a job in this mine and his boy after him. China is taking over. And I tell you, it's a blessing. (From Time 5/7/10)

Eastern demand fuels growth

Two years ago, economists would ridicule the idea of 'decoupling' - that the economies of China and other emerging powers could move independently of developments in Western nations. The deep recession in the West which was a blip in most emerging markets' growth, refuted them. Now it seems markets are starting to recouple again - except the other way round. China has turned into a locomotive for growth in the West.

The clearest evidence is Germany: Europe's biggest economy is on a roll, with unemployment dropping for the last 13 months in a row and GDP expected to grow by 2% (some say 3%) in 2010 - far above the Europe-wide average of just 1%. Three quarters of that growth has been generated by Germany's export industry; of those gains almost half are shipments to China, India and other emerging markets.

Audi, considered dead half a year ago, will set a new annual sales record this year on the back of soaring deliveries to China, where it sells more vehicles than it does in Germany. Machinery makers ship an average of 73% of their production abroad and China last year exceeded the US as the biggest export market. Japan has also seen a boost in exports to China, but much of this is simply to Japanese-owned factories there. German exports on the other hand are almost purely a product of Chinese growth. (From Newsweek 16/8/10)

China for the Chinese

(summary of a report on Chongqing by Isaac Stone Fish in Newsweek)

If a city ever exemplified the future of China, it is the western metropolis of Chongqing, a frenetic sprawl of 32 million people. It is a place where you will find surprisingly few foreigners and non-Chinese companies. Apart from sectors which are off limits to foreigners such as telecommunications and steel, only 6% of foreign firms registered in China have a western presence. This points to China's new growth trajectory, one defined by Chinese companies and Chinese demand, rather than by outsiders.

The epicentre of the new growth is China's vast western expanse, rather than the eastern coastline. In the western areas, people have less than half the number of cars and air conditioners than their eastern counterparts and hence growth prospects are better here. Government policy here is more favourable to investment and also 68% of China's natural gas and 30% of its iron ore are located here too. The potential here is likely to be tapped by the Chinese themselves rather than foreigners.

Now that the eastern seaboard has a respectable per capita income, the development policy has shifted west. Last week the government announced new western infrastructure projects totalling $101 billion, even more than the 2009 figure. While eastern China was more of a private-sector entrepreneurial growth story, the development of the west is a study in state-led capitalism. In addition, the west borders on politically sensitive areas such as Xinjiang and Tibet and the government will want to exert greater control in commercial affairs there.

Note this week's massive IPO of the Agricultural Bank of China, which serves the western parts; unlike the IPO's of China's other banks, this was done without a foreign partner, partly because of mistrust of overseas financial institutions which are increasingly seen as unreliable. Over the next 10 years, there is going to be a shift in the nature of private investment, with more money coming from the Chinese themselves rather than foreigners.

The change is already under way, notes one well-known American consultant. In 1990 foreign investment - not including Hong Kong or Taiwan - represented 8.2% of total investment in China, but by 2008, that figure had fallen to 4.9%. In the 1980s and 90s, foreign firms were attracted to eastern China by the provision of infrastructure parks for factories and outsourcing operations. In western China, with the focus on domestic consumption, lower-cost housing is needed which foreign firms cannot provide. Housing markets are hyper-local in China just the same as the rest of the world. (From Newsweek 19/7/10)

From the British press

China now world's second economy

China cruised past Japan to become the world second biggest economy yesterday casually, stripping its neighbour, Japan, of that title it has held for 40 years and remorselessly tipping the balance of power in Asia towards Beijing. The Japanese Cabinet Office put the country's GDP for the second quarter of 2010 at $1.2883 trillion (£822 billion) - $48.6 billion behind China's nominal GDP for the same period. The data is only preliminary and viewed over the first six months of the year, Japan is still slightly ahead. Tokyo can also take some comfort in the fact that its per capita GDP of $39,731 is about ten times higher than China's. In purchasing power parity, China overtook Japan about a decade ago.

Estimates about when China's economic output would overtake that of the US are falling all the time. Goldman Sachs predicted last year that this would happen in 2027 - fourteen years earlier than their previous prediction made in 2003. More recently, Pricewaterhouse Coopers has predicted that it could happen as soon as 2020. Other analysts take the view that GDP per head is possibly of greater importance, where in terms of GDP per head, according to World Bank figures, China is behind Albania, Gabon, Peru and Tonga. In addition, in terms of the UN's Human Development Index China, is behind Azerbajan, Iran and Libya. (From The Times 17/8/10)

The West to be left behind in 'green energy'?

Britain and Western countries could be left behind by China, which is investing 'furiously' in low carbon technology, aiming to profit from tough climate change targets in the next 20 years, a leading Tory MP warned today. Tim Yeo, chairman of the Commons energy and climate change select committee in his new book, 'Green Gold: The Case for Raising our Game on Climate Change', says the West needs to be careful about China, assuming that it is 'completely off the page' on climate change. He says that they are using this period furiously, while their economy is growing, to invest in low-carbon technology.

They are building a high-speed rail network which will cut the need for domestic flights; they are investing in renewable energy; they have quite demanding vehicle standards and they have a quite impressive tree planting programme. Yeo says that the West could be in for a shock. 'The danger is that we wake up in 10 years time and find that they have overtaken us.' (From The Guardian 19/7/10)

Electricity development in China

China's endless power-plant construction has accounted for 80% of the world's new generating capacity in recent years and will continue for many years to come, says Edward Chen of Credit Suisse, an investment bank. Capacity added this year alone will exceed the installed total of Brazil, Britain and Italy and will come close to that of France and Germany. By 2020 China should be producing more than America, the current world leader. The huge expanse of generating capacity serves many purposes; not least is bolstering national pride, especially in rural areas that not long ago were consigned to darkness after sundown. Officials are aware that China's abundant power attracts investors who are leery of the flickering industrialisation of other emerging countries.

Cheap, reliable electricity is one of the reasons why China remains the preferred location for manufacturing even as its wages rise above countries such as Vietnam, Bangladesh, Indonesia and the Philippines. China is much more dependent on electricity than other economies because of the expansion of energy-intensive industries such as steel making and aluminium smelting. Thus the Chinese economy is more exposed to shifts in the price of coal, oil and natural gas. As a consequence, China produces large amounts of greenhouse gases.

However, China has long been pushing development of alternative forms of electricity generation. Although the use of coal will continue to be the major source of power generation, the new coal-fired plants are more efficient and cleaner and the proportion of coal's share will decrease from 75% to 65%. Hydropower will expand by more than half, but its share of the total will drop from 21% to 20%. Wind power is expected to expand significantly, taking its share from 3% to 7%. Nuclear power's share will increase from 1% to 7% as China is building 21 nuclear power stations - far more than any other country. By 2020 China hopes to be a leader in advanced nuclear reactors and export its technology to other countries. China is also using solar energy and incinerators to generate electricity. (From The Economist 1/5/10)

China's trade pact with Taiwan

Beijing and Taipei made a big stride to peace yesterday and a thaw in frosty relations. The Taiwan side believes it could create 250,000 new jobs and boost GDP. China is counting on important political gain after decades of teetering on the brink of war. (From The Times 30/6/10)

Treasure hunt in Africa

Archaeologists today begin a £2 million dig on the coast of Kenya to try to prove that Chinese explorers reached Africa 80 years before Vasco da Gama. This is a three-year joint project by Kenyan and Chinese academics searching for a 600-year-old shipwreck off Lamu Island in the Indian Ocean. It is believed that the ship was part of a fleet of six-masted junks commanded by the Chinese Admiral Zheng He. The ships, called 'treasure ships' were 400 feet long, compared to Vasco da Gama's ship which was a mere 89 feet long.

Zheng was born in 1371 and was a Muslim inially named Ma He who was raised at the court of the Ming Emperor in China. He made seven voyages to Asia, Africa and the Middle East before his death and burial at sea in 1435.

When DNA tests were recently carried out on Swahili inhabitants of the Lamu archipelago, just off the Kenyan coast, traces of Chinese ancestry was found. This could be evidence that the islanders could be descendants of survivors of a missing ship which was wrecked off the African coast. According to Purity Kiura, head of archaeology at the National Museum of Kenya, the project is symbolic of China's wider efforts to demonstrate deeper links with Africa. (From The Sunday Times 1/8/10)

Chinese airliner in service by 2016?

Boeing and Airbus are about to be challenged by China and Russia, lured by a market said to be worth $1.6 trillion. About 20,000 narrow-bodied aircraft - typically with a single aisle and between 100 to 200 seats - are expected to be built in the next two decades with Boeing and Airbus having at least 90% of the market with their 737 and A320 family of jets. Although Brazil (Embraer) has started to encroach with its E190 and E195 and also Canada (Bombardier) is due to enter the market in 2013, the biggest threat is likely to be China and Russia.

According to analysts, the best-case scenario for the big two by 2030, is that their market shares will drop from the present 47% (Airbus) and 43% (Boeing) to 38% each, with Embraer at 10% and the Chinese grabbing 14%. The worst-case scenario is Airbus and Boeing on 19% each by 2030, the Chinese on 17% and other manufacturers on up to 10%. The Chinese COMAC-AVIC with a seating capacity of 156, maximum range of 2,200 miles could enter service by 2016. (From The Times 14/6/10)

China becoming an urban society?

By the year 2015 more than half of China's population will be for the first time living in cities as industrialisation drives migration from the countryside. During the past 30 years China has moved from a predominantly peasant society to a country with more than 160 cities with a population of more than one million people. Li Bin, director of China's National Population and Family Planning Commission said that 700 million people - of a projected population of 1.39 billion will be living in cities by 2015.

The rush for better-paid factory jobs has posed challenges for the government. A shortage of affordable housing, low wages, a rise in violent crime and a widening gap between rich and poor have contributed to an estimated 10,000 demonstrations a year. The World Bank estimate that a relative shortage of labour is expected to constrain China's economy in the next decade and China's GDP growth will slow to 7% a year compared almost 10% a year, every year since 1995. This could make it harder to generate jobs, which could add to social pressure. China, unlike India, has managed its massive urbanisation without creating slums, faces discontent from migrants who have rural registration documents which means they are not entitled to some basic services - but trial relaxation of rules is being exercised. However changes are not fast enough for some organisations such as the World Bank who say that reform will help speed up a new class of urban consumers. (From The Telegraph 5/7/10)

The 'long march' home

Young, gifted Chinese brought up in the West are heading back to China, the country from which their parents left for a better life. An example is James Chau who works for China Central TV's English Channel (CCTV News) and broadcasts to 15-20 million viewers in China and to more than 80 countries. He was born in London but his parents came from Hong Kong and Indonesia.

Figures published by the Institute of Public Policy Research Institute revealed that 47,000 Britons live in China - up by 30% since 2006. Many are of Chinese origin and are in the age range of 25 to 44. They believe that Beijing is the new Promised Land and that the country is so young. One commented that his Chinese background and his Western upbringing gave him a distinct advantage and another said, 'When we go to China, we think, Awesome! I'm discovering my Chinese roots.' (From The Sunday Times Magazine 1/8/10)

China's women billionaires

Only 14 of the world's 1,000 dollar billionaires are self-made women and only seven did it without help from relations. Of these 14 women who made it through entrepreneurship seven are Chinese. Topping the list is Wu Yajun, aged 44, a property developer with a net worth of $3.9 billion. Three other Chinese women made their fortune from property and the others from chemicals, recycling materials and pharmaceuticals. JK Rowling, the author of the Harry Potter books was the only British woman on the list - fourteenth on the list with a net worth of $1.0 billion. (From The Daily Telegraph 16/6/10)

From the Chinese press

Chinese judge at UN

Veteran Chinese diplomat and international law expert Xue Hanqin was elected judge of the UN International Court of Justice on 30 June 2010. She is member of the International Law Commission and was elected by the UN General Assembly and the Security Council in separate votes. She is the only woman amongst the 15 judges of the International Court of Justice and is the third Chinese to serve on the court. The court is located at The Hague in the Netherlands and is the principal judicial organ of the UN. It settles legal disputes between states and gives advisory opinions to the UN and its specialise agencies. (From Beijing Revue 15/7/10)

Hong Kong Nobel laureate honoured

Charles Kao Kuen the winner of the 2009 Nobel Prize for Physics has been awarded a Grand Bauhinia Medal, Hong Kong's highest honour. Kao, 77 is widely regarded as the 'father of fibre optics' and played a key part in promoting research and higher education in Hong Kong. He first joined the Chinese University of Hong Kong (HKCU) in 1970 when he founded the department of physics. He was vice chancellor from 1987 to 1996. (From Beijing Review 15/7/10)

A new chapter in Mainland/Taiwan relations On 29 June, the mainland's Association for Relations across the Taiwan Straits (ARATS) and Taiwan's Straits Exchange Foundation (SEF) signed the Economic Cooperation Agreement (ECFA). This agreement was first proposed on both sides of the Taiwan Straits during 2005 and following six months of consultations, the ECFA has been brought into being.

The EFCA lays the foundation for the gradual normalisation of cross-straits economic ties and provides a mechanism for further cooperation. An 'early harvest' list of goods and services of the ECFA lists 539 Taiwan products worth $13.83 billion or 16% of Taiwan's exports to the mainland in 2009, that are likely to receive zero tariff rates during the next two years. In return 267 categories of mainland products worth $2.85 billion or 10.5% of the mainland's export to Taiwan in 2009 will be available to the island tariff-free.

The removal of investment and trade barriers will result in significant increases in areas of economic and trade cooperation. Also the realisation of the ECFA offers valuable experience for future negotiations between the mainland and Taiwan on broader issues. (From Beijing Review 22/7/10)

Training for petition officials The State Bureau for Letters and Calls, China's top petition administration began a training programme for the heads of petition authorities in cities and major counties in China. The first class opened in Beijing in mid-May. The programme enrolled 600 people and the course will last two years. The objective is to help petition officials do a better job in safeguarding the rights of the people and consolidating ties between the government and citizens. Founded in 1951, the offices receive letters, calls and visits from individuals and groups who proffer suggestions, complaints and grievances. Officials then direct the issues to the appropriate departments, monitor the handling process and then provide feedback to the originator. (From China Today July 2010)

Reduction in mainland-Taiwan airfares

Li Jiaxiang, director of the Civil Aviation Administration of China, said that airlines from both the mainland and Taiwan had decided to slash ticket prices for flights across the Straits by 10 to 15%. This announcement was made at the second Straits Forum which was held from 20 to 25 June in Xiamen, Fujian Province. According to the Air China website, the full price for a June flight between Beijing and Taipei is 3,500 yuan.

Direct regular flights between the mainland and Taiwan began in August 2009 and by the end of May 2010, 20,000 passenger flights and 1,178 cargo flights had been flown. They transported 3.6 million passengers and 93,000 tons of goods. Now you can fly directly to Taiwan from 32 different airports on the mainland and an increase in the number of flights per week is anticipated, from the current 380 to 420. This number excludes charter flights. (From China Today, August 2010)

Communist Party of China (CPC) membership statistics

At the end of last year, the CPC had a total membership of 77.99 million members - a figure 116 times that of the 1949 number when the People's Republic was founded. [NB the population of China today, is about 2.5 times the 1949 figure]. Last year more than 20 million people applied to join and 2 million new members were admitted. There are 28 million graduates and 18.5 million members are under the age of 35 years. (also see Sinophile below).

The Party School of the CPC Central Committee is striving to open up to the outside world, said Li Jingtian, the Vice President of the school. Many foreign political and business leaders as well as scholars were willing to give lectures or deliver speeches. As a 'think tank' the Party School has established cooperation with more than 30 foreign universities, institutes and foreign think tanks. The Party School has trained 60,000 cadres over the past three decades. (From Beijing Review 8/7/10)

Underwater archaeology

Since April 2010, Chinese archaeologists have recovered more than 4,000 relics from the Nan'ao1, a merchant ship lying on a 27-metre deep seabed. This so far, is the only sunken ship China has discovered which dates back to the Ming Dynasty (1368-1644). This work is the top project of China's Underwater Cultural Heritage Protection Centre and will take up to two years to complete. China's sea trade began to flourish in the 7th century, exporting silk and porcelain using Guangzhou, Quanzhou and Ningbo seaports. The discovery of Nan'ao 1 shows that the area off Nan'ao Island in Shantou, Guangdong was an important trading station during the Ming Dynasty and was a prosperous section of the marine Silk Road.

The work being carried out on the vessel itself and the cargo of porcelain items will help considerably in the research of foreign trade and also that of shipbuilding and navigation during the Ming Dynasty. China has 18,000 km (11,185 miles) of coastline and boasts a long history of maritime culture. Experts estimate there are as many as 2,000 sunken ships in Chinese territorial waters. China's underwater archaeology only began 20 years ago but is catching up with the best techniques in the world. (From Beijing Review 24/6/10)

Floods kill 700 in worst toll in a decade

Flooding in China that has killed more than 700 people this year and inundated countless communities looks set to worsen as the country gets deeper into the typhoon season, the government warned on Wednesday. But officials said that a disaster on the scale of the historic 1998 flooding on the Yangtze River is likely be averted. Liu Ning, the head of the country's flood control central authority and vice minister of water resources, told reporters that a total of 701 people have died so far this year in flooding and that 347 people are missing.

He said that the rainy season would continue through August and that more downpours were expected. Heavy rains could spread to northern China, possibly causing flooding along major rivers such as the Huai, Yellow and Songhua. He believed that we must anticipate big disasters as more than 230 rivers had seen water levels rise past warning points.

The situation has triggered fears that China could see a repeat of 1998, when heavy rain left a trail of disaster along the Yangtze River and more than 4,150 people were believed to have been killed. More than 18 million were evacuated and millions of homes were destroyed. Liu stressed that lessons learned from 1998 and the 2006 completion of the Three Gorges Dam - which was partly built for flood control - would prevent such a recurrence. Although the upper reaches of the Yangtze drainage basin have seen the highest flood peak since 1987, Liu said that the Dam would prevent flood surges on the river's upper and lower reaches from 'converging' as they did in 1998. He said that the government was now feverishly co-ordinating the release of water by dams throughout the region to maintain a smooth flow.

The Three Gorges Dam is now playing an effective role in flood control and Liu added that numerous other dams and other flood control facilities were built in the wake of the 1998 Yangtze River disaster. (From South China Morning Post via Agence France-Press in Beijing 21/7/10)

China promotes use of internet

The State Council Information Office published a white paper on China's Internet Policy, stressing freedom of speech and more intensive application of laws relating to its protection. At the end of 2009, the number of netizens in China had reached 384 million - a figure 618 times that of 1997, with an annual increase of 31.95 million.

There were 3.23 million websites running in China last year - an increase of 2,152 times that of 1997. The growth of value-added components of the Chinese IT industry has been 26.6% annually and the industry's contribution to the national economy has increased from 1% to 10%. The Chinese government is determined to further promote Internet and applications development so that more people can benefit from the technology. (From China Today August 2010)

Sino File is compiled by Walter Fung with some input for From the Chinese Press by Teresa Ray.

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