China Economy Forum

[Anees]

Canada cuts foreign aid to China as part of bid to slash $377-million in international assistance spending

anada has cut direct foreign aid to China as part of an overhaul of international assistance spending.

It’s one of 14 countries that will see their aid either reduced or eliminated by the end of next year as the Canadian International Development Agency slashes $377 million in aid spending by 2014-2015.

The cuts are part of an overhaul of bilateral aid programming, with CIDA aiming to target funds more precisely and work more with the private sector.

Many have persistently questioned why China received bilateral aid from Canada, given its economic superpower status, military muscle and increasing influence on world affairs, including a growing development budget of its own.

“When you go to the eastern part of China, which is where probably where 99 per cent of Canadians, if they go to China, do go, places like Beijing or Shanghai, they would put to shame almost any Canadian city,” said Bruce Muirhead, associate vice-president of external research at the University of Waterloo, who has studied the issue of Canadian aid to China.

It’s not the urban areas where CIDA puts its money, it’s in the rural areas
“But if you go a little bit into the interior, it’s a completely different situation. … It’s not the urban areas where CIDA puts its money, it’s in the rural areas. Those people really need help.”

In 2010-2011, Canadian taxpayers contributed close to $30 million to China, via both bilateral and multilateral channels.

Most was funnelled to capacity-building programs that worked on helping the Chinese reform their legal and environmental policy.

Aid will continue through international groups and humanitarian channels, if required, but CIDA Minister Julian Fantino says the end of the China program is recognition of the country’s emergence as the world’s second-largest economy.

Related
Chris Selley: Tom Mulcair’s foreign aid hypocrisy
‘We fund results-based projects, not organizations:’ Fantino defends Tory funding for anti-gay religious group
Jonathan Kay: A Canadian foreign-aid insider explains our $1.5-billion Afghan sinkhole
Joseph K. Ingram: Why foreign aid still matters for developing countries
“CIDA has and will continue to evaluate and adjust international development investments so that they can deliver tangible results for those most in need around the world and contribute to Canada’s values and interests,” Fantino said in an email.

“We look forward to continuing to build a partnership with China that advances our common interests, Canadian values and the friendship between the peoples of our two countries.”

Other countries seeing bilateral aid budgets eliminated are Cambodia, Malawi, Nepal, Niger, Rwanda, Zambia and Zimbabwe, for a total of $39 million in savings.

Budgets for aid to Bolivia, Pakistan, Mozambique, Ethiopia, Tanzania and South Africa are being reduced to save $76 million.

Of the six countries seeing their budgets pared back, five belonged to the so-called “countries of focus,” a select group of 20 nations who together received 80 per cent of Canada’s international aid.

The program was started in 2009 by the Conservatives after criticisms aid was too scattershot and not reaping enough rewards either for taxpayers or for the countries in need.

But now the concept of “focus” countries seems to be falling out of favour.

Security problems and accountability issues have made many countries less attractive for direct support than they were in the past.

Meanwhile, the idea of the program is seen by the Conservatives as potentially restricting their desire to align aid spending with their declared policy priorities.

That includes focusing on helping specific industries grow in the developing world.

“We will continue to seek out innovative ways to partner with the private sector, such as the agriculture industry, so that we can achieve greater development results which are more sustainable over the long-term,” Fantino said.

The New Democrat critic for international development said her concern is that aid budgets seem to shift on a whim.

“CIDA is not the minister’s pet toy to do with what he wants to do with it,” said Helene Laverdiere.

The non-governmental organization sector says while it would obviously like to see more international assistance spending, the real issue now is a lack of clarity on where — and how — the government wants to spend what scarce dollars remain.

It’s been two years since CIDA actively solicited program ideas from the not-for-profit sector.

All eyes are on Thursday’s budget to see whether aid funding is further reduced or whether a new program direction is clearly laid out.

“Suddenly, there are no more funds available and no direction whatsoever on what to expect, and how and why,” said Chantal Havard, a spokeswoman for the Canadian Council for International Co-operation.

She said some hints can be gleaned for which countries remain on the focus list — Columbia, Peru, Indonesia, Vietnam and Bangladesh, all trading partners for Canada.

“The trend that we see is that there is more and more an alignment of Canada’s commercial interests, foreign policy and the international development agenda,” Havard said.

Canada cuts foreign aid to China | World | News | National Post

 

[Anees]

Can China End Corruption?

The country's new leaders say they will. But how much power do they have? Part of an ongoing series of discussions with ChinaFile.

In his first press conference after taking office as China's new premier, Li Keqiang declared that one of his top priorities would be to fight corruption, because "corruption and the reputation of our government are as incompatible as fire and water." This put Li on message with his boss, Xi Jinping, who said approximately the same thing a few months ago upon taking office as General Secretary of the Party.

Sure, tell me about it. Hu Jintao and Wen Jiabao also said it when they took office ten years ago. In the decade before that, Jiang Zemin and Zhu Rongji declared that corruption was the most serious threat to the regime. Before them, Deng Xiaoping had said it -- and in his reign it actually almost happened, with the Tiananmen pro-democracy demonstrations which were partly triggered by resentment of corruption. And before Deng, Mao had said the same thing.

Why can't the Party really root out corruption? Excuse me for being simple-minded, but doesn't an effective attack on corruption require independent prosecutors and courts, and a free press? An authoritarian regime generates temptations for its all-powerful officials at every level to abuse power faster than its internal supervision mechanisms can catch the abusers. And a secret, internal self-policing process is irremediably infected with political and personal favoritism. The opportunity to exercise uninhibited power, or to get in bed with those who do, is one of the chief attractions of the system for its members and supporters -- not a threat to its power but actually one of the mechanisms it uses to stay in power.

If the leaders keep saying one thing and doing another, that's PR, not policy. Some people continue to buy it.

Ouyang Bin:

Professor Nathan, I think it is a super important PR campaign (thanks for coming up with such a pungent word) for the Party today.

The paradox of anti-corruption by the Party is that true, corruption jeopardizes the Party's rule, but so does any serious and effective anti-corruption measure, independent prosecutors and courts, a free press, and not to mention an opposition party. I really doubt to what degree and from what angle the Party is evaluating the threat of corruption. Nearly all the books and articles reflecting on the collapse of the Soviet Union by the Party think tanks have chapters on corruption. But most of them talk about how corruption undermined the Soviet Party's ability to control its members and let the people down. So, as long as somebody is still buying it, and as long as the Party can still use it to punish an unlucky few like Chen Xitong, Chen Liangyu and Bo Xilai, why bother ending the show?



Can China End Corruption? - ChinaFile - The Atlantic

 

[Anees]

China’s Hidden Debt Risk

BEIJING – In the last 200 years, there have been more than 250 cases of sovereign-debt default, and 68 cases of domestic-debt default. None of these was an isolated incident. Indeed, such defaults – combined with factors like large current-account or fiscal deficits, overvalued currencies, high public-sector debt, and insufficient foreign-exchange reserves – have always triggered financial crises, from the Mexican peso crisis in 1994 to the Russian ruble crisis in 1998 to the American subprime mortgage crisis in 2008.

Since China’s era of reform and opening up began, the country has experienced three instances of large-scale public-finance problems. In the late 1970’s, the country faced a debilitating fiscal deficit. In the 1990’s, its corporate sector was plagued by “triangular debts” (when a manufacturer that has not been paid for its product is unable to pay its suppliers, which in turn struggle to pay their suppliers). Later that decade, financial institutions were burdened by bad debts generated by state-owned enterprises.
CommentsView/Create comment on this paragraphNow China is experiencing a fourth instance of elevated debt risk, this time characterized by high levels of accumulated local-government and corporate debt. To be sure, China’s national balance sheet, which boasts positive net assets, has garnered significant attention in recent years. But, in order to assess China’s financial risk accurately, policymakers and economists must consider the risks that lie in the country’s asset structure – and the liabilities that are not included on its balance sheet.
CommentsView/Create comment on this paragraphThe current problems are rooted in the government’s response to the 2008 global financial crisis. The first round of fiscal stimulus, supported by credit easing, led local governments and the financial sector to increase their leverage ratios. As a result, by 2010, China’s overall leverage ratio had risen by 30%.
CommentsView/Create comment on this paragraphIn 2011, local-government debt totaled ¥10.7 trillion ($1.7 trillion), with only 54 of more than 2,500 county governments debt-free. Debts incurred by local government investment vehicles (LGIVs) totaled almost ¥5 trillion – 46.4% of overall debt.
CommentsView/Create comment on this paragraphAt the end of 2011, China’s Treasury-bond debt stood at ¥7.2 trillion, and its ratio of foreign debt to foreign-exchange reserves reached 21.8%, having grown by 27% since 2010. But, while this represents an increase for China, it remains well below the widely recognized danger threshold of 100%.
CommentsView/Create comment on this paragraphLikewise, China’s debt/GDP ratio is rising, though it remains within the “safe” boundary of 60% – and is considerably lower than the ratio in most developed economies. At the end of 2011, China’s central-government debt amounted to 16.5% of GDP, and overall government debt totaled ¥18 trillion, or 38% of GDP.
CommentsView/Create comment on this paragraphJudging from its balance sheet, then, the Chinese government has a relatively large stock of net assets and a low debt ratio, and thus seems to be in a solid position to manage its liabilities. Indeed, according to China’s Academy of Social Sciences, China’s sovereign net assets increased every year from 2000 to 2010, reaching ¥69.6 trillion – enough to cover the government’s obligations.
CommentsView/Create comment on this paragraphBut positive net assets are not sufficient to eliminate financial risk, which also depends on asset structure (the liquidity of assets and the alignment of maturities of assets and liabilities). If a large proportion of a country’s assets cannot be liquidated easily, or would be greatly depreciated by a large-scale sell-off, the fact that assets exceed liabilities would not rule out the possibility of debt default.
CommentsView/Create comment on this paragraphIn China, this proportion of fixed, illiquid assets exceeds 90%. Resource assets account for roughly 50% of total government assets, with operating assets amounting to 39% and administrative (or non-operating) assets comprising another 6%.
CommentsView/Create comment on this paragraphThe latter two are difficult to liquidate. And, given that resource assets are scarce and non-renewable, the traditional practice of auctioning and leasing land to keep the fiscal deficit under control is unsustainable – especially at a time when external shocks or a domestic economic downturn could easily trigger a short-term solvency crisis or debt default. While fiscal revenues are on the rise, they account for only about 6% of China’s total assets – and their growth rate is slowing.
CommentsView/Create comment on this paragraphChina faces additional debt risks from contingent liabilities and inter-departmental risk conversion, especially in the form of implicit guarantees on debts incurred by local governments and state-owned enterprises. Indeed, such guarantees constitute the most significant medium- and long-term financial risks to China.
CommentsView/Create comment on this paragraphIn recent months, there has been a surge in LGIV bond issuance, aimed at supporting local governments’ efforts to stabilize economic growth through stimulus-style investment projects. But the implicit guarantees on these bonds – as well as on existing bank loans – amount to hidden extra-budgetary liabilities for the central government.
CommentsView/Create comment on this paragraphLocal governments have also accumulated massive amounts of non-explicit debt through arrears, credits, and guarantees. Once this debt’s cumulative risk exceeds a local government’s financial capacity, the central government is forced to assume responsibility for servicing it, directly endangering its own financial capacity.
CommentsView/Create comment on this paragraphAt the same time, China’s corporate sector relies excessively on debt financing, rather than equity. China’s non-financial corporate debt accounts for roughly 62% of total debt – 30-40% higher than in other countries. According to GK Dragonomics, China’s total corporate debt amounted to 108% of GDP in 2011, and reached a 15-year high of 122% of GDP in 2012.
CommentsView/Create comment on this paragraphMany of these heavily indebted enterprises are state-owned, and have borrowed from state-controlled banks. The implicit guarantees on this debt, too, suggest that the government’s liabilities are much higher than its balance sheet indicates.
CommentsView/Create comment on this paragraphChina is not too big to fail. In a fragile economic environment, policymakers cannot afford to allow the size of China’s balance sheet to distract them from the underlying structural risks and contingent liabilities that threaten its financial stability.

China

 

[xuxu1457]

Thank Canada for her aid to China, we will give aid to others too as we have the ability

 

[Wolfie]

What a total loser this Indian. He is happy to hear anti-China articles on the Chinese economy. Indian economy is literally collapsing and they are laughing at us. Sums up India and their civilisation.

 

[Wolfie]

We take that aid and give it India. We are an indirect source. Poverty stricken poor sanitation India gets all the aid. We give out aid.

 

[Wolfie]

Can India end corruption? Nope.
Why? It's part of Indian culture. That's why India will remain a 4th world nation.

 

[Azazel]

China’s Hidden Debt Risk

BEIJING – In the last 200 years, there have been more than 250 cases of sovereign-debt default, and 68 cases of domestic-debt default. None of these was an isolated incident. Indeed, such defaults – combined with factors like large current-account or fiscal deficits, overvalued currencies, high public-sector debt, and insufficient foreign-exchange reserves – have always triggered financial crises, from the Mexican peso crisis in 1994 to the Russian ruble crisis in 1998 to the American subprime mortgage crisis in 2008.

Since China’s era of reform and opening up began, the country has experienced three instances of large-scale public-finance problems. In the late 1970’s, the country faced a debilitating fiscal deficit. In the 1990’s, its corporate sector was plagued by “triangular debts” (when a manufacturer that has not been paid for its product is unable to pay its suppliers, which in turn struggle to pay their suppliers). Later that decade, financial institutions were burdened by bad debts generated by state-owned enterprises.
CommentsView/Create comment on this paragraphNow China is experiencing a fourth instance of elevated debt risk, this time characterized by high levels of accumulated local-government and corporate debt. To be sure, China’s national balance sheet, which boasts positive net assets, has garnered significant attention in recent years. But, in order to assess China’s financial risk accurately, policymakers and economists must consider the risks that lie in the country’s asset structure – and the liabilities that are not included on its balance sheet.
CommentsView/Create comment on this paragraphThe current problems are rooted in the government’s response to the 2008 global financial crisis. The first round of fiscal stimulus, supported by credit easing, led local governments and the financial sector to increase their leverage ratios. As a result, by 2010, China’s overall leverage ratio had risen by 30%.
CommentsView/Create comment on this paragraphIn 2011, local-government debt totaled ¥10.7 trillion ($1.7 trillion), with only 54 of more than 2,500 county governments debt-free. Debts incurred by local government investment vehicles (LGIVs) totaled almost ¥5 trillion – 46.4% of overall debt.
CommentsView/Create comment on this paragraphAt the end of 2011, China’s Treasury-bond debt stood at ¥7.2 trillion, and its ratio of foreign debt to foreign-exchange reserves reached 21.8%, having grown by 27% since 2010. But, while this represents an increase for China, it remains well below the widely recognized danger threshold of 100%.
CommentsView/Create comment on this paragraphLikewise, China’s debt/GDP ratio is rising, though it remains within the “safe” boundary of 60% – and is considerably lower than the ratio in most developed economies. At the end of 2011, China’s central-government debt amounted to 16.5% of GDP, and overall government debt totaled ¥18 trillion, or 38% of GDP.
CommentsView/Create comment on this paragraphJudging from its balance sheet, then, the Chinese government has a relatively large stock of net assets and a low debt ratio, and thus seems to be in a solid position to manage its liabilities. Indeed, according to China’s Academy of Social Sciences, China’s sovereign net assets increased every year from 2000 to 2010, reaching ¥69.6 trillion – enough to cover the government’s obligations.
CommentsView/Create comment on this paragraphBut positive net assets are not sufficient to eliminate financial risk, which also depends on asset structure (the liquidity of assets and the alignment of maturities of assets and liabilities). If a large proportion of a country’s assets cannot be liquidated easily, or would be greatly depreciated by a large-scale sell-off, the fact that assets exceed liabilities would not rule out the possibility of debt default.
CommentsView/Create comment on this paragraphIn China, this proportion of fixed, illiquid assets exceeds 90%. Resource assets account for roughly 50% of total government assets, with operating assets amounting to 39% and administrative (or non-operating) assets comprising another 6%.
CommentsView/Create comment on this paragraphThe latter two are difficult to liquidate. And, given that resource assets are scarce and non-renewable, the traditional practice of auctioning and leasing land to keep the fiscal deficit under control is unsustainable – especially at a time when external shocks or a domestic economic downturn could easily trigger a short-term solvency crisis or debt default. While fiscal revenues are on the rise, they account for only about 6% of China’s total assets – and their growth rate is slowing.
CommentsView/Create comment on this paragraphChina faces additional debt risks from contingent liabilities and inter-departmental risk conversion, especially in the form of implicit guarantees on debts incurred by local governments and state-owned enterprises. Indeed, such guarantees constitute the most significant medium- and long-term financial risks to China.
CommentsView/Create comment on this paragraphIn recent months, there has been a surge in LGIV bond issuance, aimed at supporting local governments’ efforts to stabilize economic growth through stimulus-style investment projects. But the implicit guarantees on these bonds – as well as on existing bank loans – amount to hidden extra-budgetary liabilities for the central government.
CommentsView/Create comment on this paragraphLocal governments have also accumulated massive amounts of non-explicit debt through arrears, credits, and guarantees. Once this debt’s cumulative risk exceeds a local government’s financial capacity, the central government is forced to assume responsibility for servicing it, directly endangering its own financial capacity.
CommentsView/Create comment on this paragraphAt the same time, China’s corporate sector relies excessively on debt financing, rather than equity. China’s non-financial corporate debt accounts for roughly 62% of total debt – 30-40% higher than in other countries. According to GK Dragonomics, China’s total corporate debt amounted to 108% of GDP in 2011, and reached a 15-year high of 122% of GDP in 2012.
CommentsView/Create comment on this paragraphMany of these heavily indebted enterprises are state-owned, and have borrowed from state-controlled banks. The implicit guarantees on this debt, too, suggest that the government’s liabilities are much higher than its balance sheet indicates.
CommentsView/Create comment on this paragraphChina is not too big to fail. In a fragile economic environment, policymakers cannot afford to allow the size of China’s balance sheet to distract them from the underlying structural risks and contingent liabilities that threaten its financial stability.

China

Do you seriously have any idea what you just posted here.And yes Chinese corporate sectors have a huge debt burden primarily because of the huge infra projects taking place.Unlike companies in US and Europe which relies on Equity financing Chinese Corporates use Debt financing.Chinese stock markets are merely superficial.Like other markets it doesn't exchange ownership of a commodity or services,They mainly trade securities.At a fundamental level, China's markets do not price companies and their businesses because its listed companies are not for sale, and never have been.So companies are heavily depended on borrowing from the banks that are owned by Chinese Govt.

 

[Beast]

Do you seriously have any idea what you just posted here.And yes Chinese corporate sectors have a huge debt burden primarily because of the huge infra projects taking place.Unlike companies in US and Europe which relies on Equity financing Chinese Corporates use Debt financing.Chinese stock markets are merely superficial.Like other markets it doesn't exchange ownership of a commodity or services,They mainly trade securities.At a fundamental level, China's markets do not price companies and their businesses because its listed companies are not for sale, and never have been.So companies are heavily depended on borrowing from the banks that are owned by Chinese Govt.

Don't forget we have 3.3 trillion national reserve to save ourselves. That 3.3 trillion can't be fake. Indian got what to save you all?

Strong national reserve is what prevented Singapore to suffer the 1997 and 2008 financial crisis. I can be assure, India is 10 times worst than China and the worst is India don't have 3.3 trillion to save you.

 

[Bhai Zakir]

The china bubble is near burst it got delayed due to rising EU/US economies but now it gonna burst into pieces.

 

[Beast]

The china bubble is near burst it got delayed due to rising EU/US economies but now it gonna burst into pieces.

LOL.. Are you jealous of China success? I can see you are full of sour grapes. Turkey is rank where in top 10 economy in the world??

 

[Pandora]

I bet you didnt even read this article and secondly don't post such idiotic threads without a fair knowledge of economics.

 

[Anees]

What a total loser this Indian. He is happy to hear anti-China articles on the Chinese economy. Indian economy is literally collapsing and they are laughing at us. Sums up India and their civilisation.

Zhang Monan

Zhang Monan is a fellow of the China Information Center, a fellow of the China Foundation for International Studies, and a researcher at the China Macroeconomic Research Platform.

I bet you didnt even read this article and secondly don't post such idiotic threads without a fair knowledge of economics.

Zhang Monan

Zhang Monan is a fellow of the China Information Center, a fellow of the China Foundation for International Studies, and a researcher at the China Macroeconomic Research Platform.

 

[Pandora]

Zhang Monan

Zhang Monan is a fellow of the China Information Center, a fellow of the China Foundation for International Studies, and a researcher at the China Macroeconomic Research Platform.

Zhang Monan

Zhang Monan is a fellow of the China Information Center, a fellow of the China Foundation for International Studies, and a researcher at the China Macroeconomic Research Platform.

Please Just take a hike.

 

[john.mccainn]

this thread really gonna attract china haters.
oh yeah lets begin the party.