Chinese Box

Back in China

After a couple of long periods of travelling, I am back in China and again pissed off at the internet. I will try to make my posts more regular once again.

Work is fun!

The European Chamber says everything I want to hear

I was at the big release of the European Chamber's 2009 "Position Paper," a 500-page document talking about all the things Europe really hopes China will do over the next year. An event that to my surprise had pretty much every major journalist I could think of there.

 Though I plan on delving into the 500 page document over the next few days (half of it is just a translation of the other half), what really was the most important aspect of the meeting for me was the constant regurgitation of the word "transparency." They took the very correct position, that the Chinese government can do pretty much whatever it wants, as long as its open about it, and discusses it with the business community first. I.e. Green Dam Mandate - they didn't announce it early enough to work out all the bugs. Or the Rio Tinto case - no one has any clue what information is protected by national security laws, so no one knows if they are breaking any laws.

Joerg Wuttke, the president of the chamber, made the simple statement that "corruption is a cancer in any economy," but it can only be fought bey transparency.

There was some other rather fun stuff relating to protectionism in the greentech sector. Particularly the highly publicized wind turbine case. I've noted previously that government intervention in this sector is already an issue, and the chamber implied that having a bunch of people jumping for handouts is seriously distorting the market (the term they used was that the market was "price driven," which is why the State Council said it would cut down on overcapacity soon.

Last thing on the someone saying something I wanted to hear list. Is that Wuttke argued that "SOEs (state-owned enterprises) are the big winners of the financial crisis." Which is what I've been saying all along.

The trouble with having a lazy printer

we went to press around the Aug 21, which was unfortunately the day this came out:

CHINA will abandon its disastrous experiment of putting the China Iron & Steel Association in charge of iron ore price negotiations this year.

The nation's biggest steelmaker, Baosteel, will be brought back to its traditional role in the frontline of the next round of discussions in December.

The often aggressive stance by CISA, which was brought in by the government to lead the discussion for the first time this year, has led to record stockpiles of iron ore and a soaring spot price that now stands at more than $US100 per tonne. China Business News yesterday quoted CISA chief Shan Shanghua as saying that Baosteel would lead talks with foreign miners to set next year's price in December.

CISA is expected to stay in the background and retain an organising role.

Its poor performance has cast a cloud over the future of Mr Shan.

There was a lot of talk about CISA's role in next year's iron ore negotiations in my focus story about commodities prices. Unfortunately. 

Anyways, except for that one caveat, this is unequivocal good news. Shan was a loud-mouthed bully, and while the loud mouthed was well appreciated by the standards of the perpetually silent communist party, he really did make a mess of everything.

Do coal barons deserve to benefit from Capitalism?

I've run into something of a moral problem. As I've mentioned in previous posts, I'm under the impression that state owned enterprises are in the midst of something of an asset grab, particularly in resources sector which is impacted by a nasty conjunction of rising prices for inputs, and price fixing by the government.

 Though the most notable bit of land grabbing is going on in the steel sector which will soon be completely controlled by the government. The government is announcing plans to consolidate the coal mining sector.

Now I'm pretty sure we shouldn't kid ourselves over whether this is anything other than a simple asset grab. But I'm seriously wondering whether I should care in this case. In my experience, while the Chinese government often does questionable things, like any large behemoth of an institution does, its generally a more responsible stakeholder than private entrepreneurs in China. Largely because private entrepreneurs have no protection, and the state has political backlash to think of. And Chinese coal barons probably kill more people than anyone else in China:

From Wikipedia:

China, in particular, has the highest number of coal mining related deaths in the world, with official statistic 6,027 deaths in 2004.^[23] To compare, 28 deaths were reported in the U.S. in the same year.^[24] Coal production in China is twice that in the U.S.,^[25] while the number of coal miners is around 50 times that of the USA, making deaths in coal mines in China 4 times as common per worker (108 times as common per unit output) as in the USA.

So these people might be in need of some regulation.

It's a moral black area that I'm not too fond of.

Pessimism update

World trade - the engine of global growth - has collapsed. Employment is still contracting throughout the world. There are no realistic scenarios for the global economy to regain high and sustainable growth.

via www.chinavalue.net

I very much enjoy reading Andy Xie. But is there any way in which this pessimistic take on the world economy is wrong?

I hate Chinese internet

I'm having serious problems accessing my blog. I'm going to try to do more blogging through secondhand channels, but (if you haven't already noticed) things might be a little slower for a bit.

I'm working out some conceptual issues, and then I think I'm going to get myself a real domain. More on that later, after I see whether this post publishes.

Does this mean transparency is illegal?

However, the fact is clear: a great many statistics about China's steel industry, discovered in Rio Tinto's computer and collected by bribing and spying for the past six years, has forced China to pay over 700 billion yuan more than the reasonable price on imported iron ore. What does this 700 billion yuan mean? In 2008, the fiscal income of Jiangsu Province, one of the most developed provinces in China, totaled 273.1 billion yuan, meaning that the over 70 million residents in Jiangsu need to work two years and a half to pay this 700 billion yuan, and on average each Chinese contributed more than 500 yuan! It also means China has sent over $100 billion to employers of these spies, accounting for 10% of Australia's GDP. It has also led to serious losses in China's steel industry.

via www.chinastakes.com

Chinese Yuan appreciation society

Last year when the Chinese yuan was in appreciation overdrive, there was talks of the currency hitting 6 to the dollar as early as December 2008. That of course didn't happen though, because as soon as the financial crisis started killing China's export market the government put all appreciation on hold. But there's a reasonable argument that the currency could start its upward trend again in the next few months.

Points to be made:

1. US inflation expectations are quite high right now, sending the price of gold back up to its historical highs.

2. If there is anything China cares about more than its export market, its the import of commodities.

3. Appreciation of the yuan would protect against commodities inflation

There are still quite a few maybes about the commodities re-inflation story, but I think that the logic behind yuan appreciation is returning to "normalcy."

Starstruck

I get star struck occasionally when I have big interviews coming up. Wish me luck with Jim Rogers (and read it when it comes out in September!).

Cracks in the Stimulus

So in my monthly macro-economic column, I'm officially not allow to state that I think China's 8% GDP growth target is ridiculous, but I'll say it now, its ridiculous. Economists will give you a lot of complicated reasons why I'm right (and quite a few why I'm wrong), but I think the simplest point to remember, is that GDP can be jacked up without anything good happening to the economy. Which many seem to be arguing is what's currently going on. Money is being invested in questionable goods with questionable utility. The act of investing jacks up GDP, but it doesn't necessarily solve the underlying problem of low unemployment and low real consumption. And it has the added problem of increasing trade tensions.

The two above links do a great job in describing more in depth the reasons why growth targeting might be causing problems, and also quite interestingly talk about some of the disagreements between the economic bureaucrats and the growth focused politicians, which if you take the time to read through the commyspeak is turning into quite aggressive comments in the People's Daily and such. (this decades long disagreement was the subject of the recent book by Victor Shih, who is one of the most enjoyable China focused academics, and bloggers, out there).