China Economy Forum

[eazzy]

^ Depends on what you call a City I guess. Tokyo proper has about 12m inhabitants I think.

 

[yusheng]

Shanghai International Shipping Center - Yangshang Deepwater Harbor
It is constructed with beams and slabs supported on piles in a total length of 1,600m at the first phase, consists of 5 container berths accommodating the sixth-generation container carriers, The harbor district covers 1.7km2 of land. The approach channel is dredged for a distance of 10.43km.

 

[Edison Chen]

Click to view the full-size infographic in high resolution.

 

[cirr]

Buildings shaped like numbers

 

[cirr]

China to Build 50 Coal Gasification Facilities

August 6, 2014

China plans to build 50 coal gasification plants in less populated northwestern parts of the country, using the gas produced to generate electricity in the more populated areas, where smog is prevalent. Two coal gasification pilot plants have been built, three more are under construction, and 16 have been approved for construction, while the rest are in various planning stages. Eighty percent of the 50 plants are to be located in northwest China, in the provinces or regions of Xinjiang, western Inner Mongolia, Ningxia and Gansu. [1]

These plants are part of China’s plan to alleviate air pollution in its smoggiest cities by reducing coal use in these areas by 2017, instead using gas from coal produced miles away. According to the Chinese state-owned power companies, these plants are considered “clean energy” or “new energy.” To achieve cleaner air in the cities through gasification, net carbon dioxide emissions will increase, while water scarcity may result from a gasification process that uses a great deal of water.

China to Build 50 Coal Gasification Facilities

 

[TaiShang]

China's machinery sector picks up

China's machinery industry continued to recover with rising profitability in the first half of 2014 following moderate growth last year, according to a report released on Tuesday.

The report, issued by the China Machinery Industry Federation (CMIF), said aggregate profits across the sector increased 19.6 percent to 715.3 billion yuan (115.9 billion U.S. dollars) for the first six months of 2014 compared with an average 15.6-percent growth in the whole of 2013.

Following the increased growth rate, the federation raised its profit growth forecast for 2014 to 15 percent from a 12 percent forecast made in February.

The CMIF's vice president Chen Bin attributed the increased performance to lower energy and raw material prices and increased added value, thanks to the innovations made by China's machine makers.

According to the report, technology breakthroughs put Chinese enterprises in a favorable position when doing business with foreign partners.

From January to June, trade surplus in the machinery sector rose to 35.8 billion U.S. dollars as more high-end machines were sold to overseas markets.

Despite these improvements, the CMIF report cautioned that difficulties still linger.

Sluggish domestic demand is pushing lower prices and stockpiling of products. High financing costs and account receivables are also burdening China's machine makers.

The development of the machinery industry is crucial to a country's manufacturing sector. China's machine makers had a strong decade from 2001 with rapidly expanding revenues. But the development then decelerated due to an economic slowdown, overcapacity and uncompetitive products. h "Generally speaking, the machinery sector is improving. But enterprises should brace themselves for future uncertainties as prospects are not solid enough," said Chen.

 

[LeveragedBuyout]

I promised to pull back on my Chinese economy posts, but this one is such a good snapshot of the current situation, I felt it would be fitting as my last economy post. This article does a thorough job of quantifying the current challenges. And as usual, let me qualify that I sincerely hope the worst case scenario doesn't play out, as it would inevitably cause the US economy to crash as well.

News In Charts: The Sweet And The Sour Taste Of Policy Stimulus | Alpha Now | Thomson Reuters

NEWS IN CHARTS: THE SWEET AND THE SOUR TASTE OF POLICY STIMULUS
August 7th, 2014 by Fathom Consulting

Four months ago, when we published our previous Global Economic and Markets Outlook ‘Big Trouble in Little China’ – China’s economic slowdown was plain to see. Output had risen by just 1.5% in the first quarter of the year, and that was the slowest rate of expansion in two years. Had the economy continued to grow at this rate through the remainder of 2014, growth for the year as a whole would have been just 6.8% – some way short of the government’s official target. It seemed inevitable that policy makers would engage in further stimulus. And they did, as we set out below. What was in doubt was whether the authorities would act quickly enough to prevent China’s mounting NPL problem from spreading rapidly through China’s banks and shadow banks. And here, the jury is still out.

Government spending up. Credit up.

China’s ambitious reform agenda has been side-lined in recent months, with policy makers focused instead on stimulating the economy with yet more largely wasteful government expenditure. The purse strings have been loosened again.

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Monetary tools have been deployed too. In the twelve months to June, total social financing (or TSF), a measure of the total amount of credit offered to non-state entities, hit a nine-month high. And China’s banking regulator has also lent a hand. On 28th July it was announced that the method for calculating banks’ loan-to-deposit ratios is set to change. This will facilitate yet more lending, as it allows banks to lend more without breaching the 75% threshold currently in place under Chinese law.

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It is working – for now

The HSBC manufacturing PMI was stuck below 50.0 throughout the first quarter of 2014. However, in June it climbed above 50.0, and in July it hit an 18-month high of 51.7. In contrast to the situation three months ago, China is no longer at the bottom of the global ‘PMI’ league table.

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In the four-quarters to 2014 Q2, China’s economy expanded by 7.5%, in line with the government’s official target for the calendar year as a whole, and 0.1 percentage points stronger than the equivalent figure for Q1. Growth is, of course, still a long way below the average annual rate of more than 10% seen during the previous decade.

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But massive overinvestment …

As we set out in ‘Big Trouble in Little China’, China has built up a vast amount of excess productive capacity. Since China joined the WTO in 2001, its ratio of investment to GDP has climbed from 35% to almost 50%. A good portion of this rise occurred in the aftermath of the financial crisis. Faced with a reduction in external demand for its goods and services, China ought to have raised domestic demand by encouraging more household expenditure. Instead it increased its productive potential still further.

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China’s property markets provide just one illustration of the degree of overinvestment that has taken place. The quantity of vacant floor space in China has ballooned in recent years – in May commercial and residential space ‘waiting for sale’ exceeded 500 million square meters. This is feeding through to prices. In both May and June a typical new home in China’s largest cities sold for less than it did the previous month.

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… implies a massive non-performing loan problem

The China Banking Regulator Commission estimates that non-performing loans (NPLs) held by the country’s ten biggest banks amounted to some 1% of GDP at the end of last year. We have long doubted these official statistics, and so four months ago we put together some of our own.

A loan made to a company for the purposes of investment will turn bad whenever the project that it is used to finance fails to earn a return that is sufficient to cover the interest cost. In that regard investment returns, both on average and across companies, are a key determinant of the magnitude of a country’s non‐performing loan problem. Under fairly standard assumptions about production technology the returns to investment, measured by the marginal product of capital, are proportional to the inverse of the capital / output ratio. In other words, as capital rises relative to output, the returns to investment fall. But not all projects earn the average return – some do better and some do worse.

We calibrate our model of China’s non-performing loan problem using the experience of Japan through the 1990s and into the 2000s. By comparing the average marginal product of capital in Japan with both the cost of finance in that economy and the quantity of non-performing loans, we can obtain an estimate of the variability of investment returns around the average. If the variability of returns in China is the same as that in Japan – and we have no grounds to believe that it would be substantially higher or substantially lower – then we estimate that, following a reduction in the average marginal product of capital from 8% to 4%, the stock of non-performing loans in China has more than doubled as a share of GDP from 8% in 2008 to 17% in 2013 – much higher than the official 1% estimate.

In its latest Annual Report, the BIS draws conclusions that are very similar to our own. It finds that China is now the world’s most over-leveraged economy, and that the ratio of private sector debt to GDP needs to fall by more than half in order that debt-servicing costs become manageable.

Creaking at the seams?

The steady drip, drip, drip of bad news coming from China’s troubled financial sector seems to be gathering pace. At the start of July, a Chinese trust fund announced that one of its Wealth Management Products, the $200 million ‘Credit Equals Gold #2’, may face trouble making payments after a Shanxi coal mining company defaulted. The company did indeed miss the payment and the product’s maturity was extended by 15 months in the hope that enough cash could be raised through a fire sale in order to repay investors. Moreover, in July ‘Huatong Road & Bridge Group Co Ltd’ announced that it was in danger of failing to repay the principal on a maturing one-year bond issue. Just one week later it ‘found’ the RMB 400 million needed to avoid default, while declining to name the mystery benefactor. Finally, last week it was reported that China’s banking regulator had encouraged governments in five provinces, including Shanghai, to set up asset management companies to buy up bad loans from troubled lenders.

Viewed in isolation, these announcements are innocuous enough. Taken together, however, there are perhaps echoes of the early warnings signs received in the run-up to the collapse of Lehman Brothers bank in late 2008. The Chinese authorities are almost certainly intervening behind the scenes in an attempt to prevent contagion. But it is too early to say whether they will be successful. By turning on the monetary and fiscal taps, China’s policy makers succeeded in generating a modest rebound in activity through the second quarter. But the risk of a hard landing in China has not gone away. And while China continues to rely on the old methods of monetary and fiscal largesse to kick-start the economy, the greater those risks will become.

 

[Beidou2020]

This Yankee guy is a complete fool.

Chinese economy needs more investment especially in infrastructure. There is no such thing as growing an economy by consumption. Consumption does not create wealth. Consumption is the result of investment. Therefore there is no such thing as 'over investment'.

Western propaganda mouthpieces want to tell China to slow down investment to collapse the Chinese economy. If Investment slows, the entire economy will come to a halt.

Investment in factories, infrastructure, property is the life blood of the economy. China has massive savings which means high investment levels are needed to grow the economy. Only when investment is high does the economy grow.

What China needs is more investment, not less.

High growth in investment leads to more wealth created through high GDP growth which automatically leads to higher consumption.

 

[cirr]

BASF starts work on R&D center in Shanghai

By Chen Qide in Shanghai (chinadaily.com.cn) Updated: 2014-08-07 15:37

BASF, the world's leading chemical company, broke ground on Wednesday on the second phase of its innovation campus at the Pudong site in Shanghai in order to support its growth industries in Asia Pacific.

The 90-million-euro ($123 million) expansion consists of an additional regional research and development building and auxiliary facilities and it will be completed by the end of 2015, said Andreas Kreimeyer, member of the Board of Executive Directors of BASF SE.

"The expansion will reinforce BASF's commitment to globalizing its R&D activities and capturing growth opportunities in China and Asia Pacific," Kreimeyer said.

He said by 2020, around 25 percent of BASF's R&D employees will be located in Asia Pacific.

The innovation campus, BASF's most important R&D center in the region, is expected to become one of its largest R&D sites outside of Germany. With the expansion, BASF's regional research capabilities will be further strengthened, said Kreimeyer, also research executive director of BASF.

"The campus has proven to be an effective platform that not only responds quickly to market needs in China and Asia Pacific, but also connects BASF with the science community in Asia Pacific," said Martin Brudermuller, vice chairman of the Board of Executive Directors of BASF SE.

Eighteen months after its inauguration, the campus has strengthened BASF's position as the preferred innovation partner for customers in the region. Leveraging local market insights and BASF's strong global R&D network, the teams focus on innovative solutions to address the market needs in various industries across the region, he said.

In Asia, in addition to the campus in Shanghai, BASF also has R&D centers in Japan, Singapore and Korea. An Innovation Campus in India is also planned, he added.

BASF increased global spending on research and development to 1.8 billion euros in 2013, with around 10,650 scientists and researchers working in 3,000 research projects. With 1,300 patents filed last year and about 151,000 registrations and intellectual property rights worldwide, BASF is at the top of the global Patent Asset Index for the fifth time in succession.

BASF starts work on R&D center in Shanghai - Business - Chinadaily.com.cn

 

[cirr]

China's July trade surplus blows past estimates

1 Hour Ago CNBC.com

STR | AFP | Getty Images
Containers waiting to be transported in Qingdao port in Qingdao, east China's Shandong province.

China delivered a strong set of trade data on Friday, helping to temper losses in Asian stock markets spooked by escalating Middle East tensions.

The country's exports jumped 14.5 percent in July from the year-ago period, official data showed, much better than a Reuters forecast for a 7.5 percent increase and after climbing 7.2 percent in June.

Imports fell an annual 1.6 percent, compared with expectations of a 3 percent rise and following the 5.5 percent gain in June.

This pushed trade surplus to a record high of $47.3 billion in July, blowing past the $27 billion target and up from $31.5 billion in June.

The Australian dollar pared losses after hitting a two-month low earlier in the session on news that U.S. has authorized air strikes in Iraq. Shanghai stocks rose 0.1 percent after trading in negative territory for most of the session.

The trade reading is the latest batch of positive news on China's economy, which grew 7.5 percent in the second quarter from 7.4 percent in the first quarter, thanks to a burst of stimulus measures from Beijing to support growth.

According to Chi Lo, senior economist of Greater China at BNP Investment Partners, while exports will increasingly become less important to China's economy, the switch to a focus on consumption remains patchy.

"The export sector is not going to be playing a major role in driving Chinese growth. The Chinese economy has rebalanced from export-led to domestic-led. The thing is domestic-led still is investment and the switch to consumption has to be done and that is the difficult part," Chi said.

China's July trade surplus blows past estimates

 

[TaiShang]

This Yankee guy is a complete fool.

Chinese economy needs more investment especially in infrastructure. There is no such thing as growing an economy by consumption. Consumption does not create wealth. Consumption is the result of investment. Therefore there is no such thing as 'over investment'.

Western propaganda mouthpieces want to tell China to slow down investment to collapse the Chinese economy. If Investment slows, the entire economy will come to a halt.

Investment in factories, infrastructure, property is the life blood of the economy. China has massive savings which means high investment levels are needed to grow the economy. Only when investment is high does the economy grow.

What China needs is more investment, not less.

High growth in investment leads to more wealth created through high GDP growth which automatically leads to higher consumption.

Indeed. Investment (R&D, infrastructure, social security etc.) is the key for a country with large segments of society still hoping to achieve a middle income status.

Looks like the Western analysts hope China to cut investment spending and spur consumption with whatever rich and middle class it has. That's the ticket to having slums, greater income inequality and many other social ills.

It is stupid for China not to invest in tangibles (roads, railways, harbors, dams etc) when its economy grows, trade generates huge surpluses, and unemployment remains at an acceptable rate despite millions of new graduates joining the workforce.

Consumption should not be particularly encouraged; but follow its own course -- with wealth, consumption will follow. But traditional saving culture of the Chinese society is not necessarily a bad thing.

 

[Beidou2020]

Indeed. Investment (R&D, infrastructure, social security etc.) is the key for a country with large segments of society still hoping to achieve a middle income status.

Looks like the Western analysts hope China to cut investment spending and spur consumption with whatever rich and middle class it has. That's the ticket to having slums, greater income inequality and many other social ills.

It is stupid for China not to invest in tangibles (roads, railways, harbors, dams etc) when its economy grows, trade generates huge surpluses, and unemployment remains at an acceptable rate despite millions of new graduates joining the workforce.

Consumption should not be particularly encouraged; but follow its own course -- with wealth, consumption will follow. But traditional saving culture of the Chinese society is not necessarily a bad thing.

100% true.
Ignore these Yankees and their 'advise' to China. Taking 'advise' from the Yankees is like taking advise from an 'F' student.

 

[TaiShang]

9.33-pct return for China's sovereign wealth fund

China Investment Corp.(CIC), the country's sovereign wealth fund, had a net return of 9.33 percent on its overseas investment in 2013, the company said in a report on Friday.

The fund's return rate declined slightly from 10.6 percent in 2012, but is still much better than its 4.3-percent loss in 2011.

The cumulative annualized net return has stood at 5.7 percent since the CIC's inception in 2007, according to the report.

The CIC was founded with initial capital of 200 billion U.S. dollars and aims to manage China's massive foreign exchange reserves.

 

[Lux de Veritas]

http://www.nytimes.com/2014/08/09/w...-to-high-speed-rail-to-expand-reach.html?_r=1

A favorite export from China to its neighbors these days are high-speed rail lines designed to make trade routes in the vast stretches of Asia more accessible and fortify Chinese dreams of turning its southern reaches into the capital of mainland Southeast Asia.

But not everyone wants to be bound so close.

A rail project that would pass through the mountains of northeast Myanmar to the coastal plains on the Indian Ocean would give China a shortcut to the Middle East and Europe. For China, the strategic importance of the proposed line can barely be overstated: The route would provide an alternate to the longer and increasingly contentious trip through the South China Sea.

However, the Myanmar government viewed the project as a one-sided proposition and put it on the back burner last month, allowing a memorandum of understanding to lapse. It gave no timeline for when it might reconsider.

“If the project is to be resumed, another memorandum has to be signed,” Ye Htut, the minister of information, said in a telephone interview, “and we have many things to think about before we might do that.”

It is the second major Chinese project to be suspended in Myanmar, once an unquestioning client of China, since a nominally civilian government took over there three years ago, setting off a tussle for influence in the country between China and the United States and its allies. In 2011, soon after the new government took office, construction of the Chinese-financed Myitsone hydroelectric dam at the headwaters of the Irrawaddy River was suspended.

The latest setback in Myanmar was not all bad news for China. With considerable gusto, the new junta in Thailand gave approval on Aug. 1 for two Chinese high-speed rail projects that had been shelved because of financing difficulties under the previous government. The head of the junta, Gen. Prayuth Chan-ocha, announced the revival of plans that call for more than 620 miles of rail links from Thailand to Kunming, the capital of Yunnan province, by 2021.

In all, China wants to build thousands of miles of track that will loop through Laos, Cambodia, Thailand and Malaysia and head south to Singapore as part of a grand trans-Asian rail accord signed by nearly 20 Asian countries in 2006.

“When the people of the mainland countries soon find through the convenience of high-speed rail that Kunming is their closest neighbor but a few hours away, the Yunnan capital will eventually become, in effect, the capital of mainland Southeast Asia,” said Geoff Wade, a visiting fellow at the College of Asia and the Pacific at the Australian National University.

The gravitational pull of Southeast Asia toward China through its well-developed and relatively inexpensive high-speed rail technology was almost inevitable, despite opposition in some places, Mr. Wade said.

China’s powerful prime minister, Li Keqiang, serves as chief salesman, showing off exhibits of Chinese-made high-speed tracks and trains wherever he travels in the region. He pitched them to Quentin Bryce, then the governor general of Australia, when she visited Beijing last year, even though Australia, ever more economically tied to China, is a rich country.

In Myanmar, the rail project was designed to run close to two Chinese-built pipelines for oil and gas that were completed last year, despite widespread opposition from farmers living along the route. Residents and “social organizations” were also opposed to the railway, Myint Wai, the manager of the ministry of rail transportation, said last month.

Resentment against China is widespread in Myanmar, and the grass-roots discontent about the rail project was of great concern to the military junta because the generals who retain seats in Parliament face elections in 2015, Myanmar media reports said.

“China has not been the flavor of the month for some time,” said Thant Myint-U, a Myanmar historian.

Investment from China has dropped since the height of its influence under the junta, but China remains Myanmar’s top investor, according to Myanmar government figures. And the growth of Chinese exports, which results in a flood of cheap consumer goods, continues to explode, up by more than 50 percent since 2011.

The fear of Chinese domination is pervasive. “The China railway project is a national security issue,” said U Than Htut Aung, the chief executive of Eleven Media, a group that publishes newspapers that have campaigned against the project. “Through the Sino-Myanmar railway, China can easily access the Indian Ocean, and Myanmar’s security would be threatened. Because of the rail, Myanmar could become a second Crimea.”

Japan, concerned about the economic strength of its archrival, China, across Southeast Asia, is presenting itself as an alternative benefactor. It has increased its investment in the region and targeted Myanmar with its largess, particularly in the rail projects that are so dear to China.

Japan recently won the contract to upgrade a track, built more than a century ago, from Yangon, Myanmar’s commercial capital, to Mandalay, a job that China was originally scheduled to do. Japan has also offered to modernize Yangon’s decaying urban transit system.

Still, the Chinese have not given up. The Chinese ambassador to Myanmar, Yang Houlan, said at a recent news conference in Yangon that even though the memorandum of understanding on the rail project had expired, China was ready to work with Myanmar at any time.

So confident is China that Myanmar will eventually sign up for the project, plans are going ahead to gouge an 18-mile rail tunnel out of the rugged Gaoligong Mountains that straddle the border with Myanmar and serve as the entry point to Yunnan Province and Kunming.

The engineering challenge of constructing the tunnel through the mountain range is similar to building on the permafrost in Tibet, said Wang Mengshu, a tunnel expert at the Chinese Academy of Engineering.

Myanmar will inevitably come to its senses and agree to the Chinese railway, said Zhu Zhenming, a professor at the Yunnan Academy of Social Sciences, and an expert on Southeast Asia, for the simple reason that it will serve as a conduit for even more Chinese goods on the Myanmar market.

 

[United westand]

Do they mean, Myanmar prefer to work with Japan ?