Chinese Economics Thread

[bladerunner]

[QUOTE]

Can't remember for sure myself,

I found it . the guys name is Robert Weidemer . His book is called "Aftershock Survival Summit"

He strikes me as a bit of a Sensationalist (his predicted inflation rate while not in the hyper class , struck me as so) and I was wondering how much credibility he had.


Robert Weidemer's aftershock survival summit predicts the unthinkable

[Norfolk]

[QUOTE=bladerunner;187396]

I found it . the guys name is Robert Weidemer . His book is called "Aftershock Survival Summit"

He strikes me as a bit of a Sensationalist (his predicted inflation rate while not in the hyper class , struck me as so) and I was wondering how much credibility he had.


Robert Weidemer's aftershock survival summit predicts the unthinkable

Think I vaguely remember something about this. Wasn't he advertising something like this on the radio about a year or so ago? Would hear the ad while driving to lunch during work, and checked out the video presentation or whatever it was that was advertised. Was relatively fine with what he was talking about until towards the end. Then I wasn't really sure of his recommendations or even really what he was talking about. Might have been getting a little confused by what he was saying there; don't really remember what that was now.

[Norfolk]

China services PMI retreats in April, Reuters, via The South China Morning Post, 3 May, 2012:

China's non-Manufacturing Purchasing Managers’ Index (PMI) showed on Thursday that the services sector cooled last month, retreating from March’s 10-month high to hit 56.1 in April.

The softer reading underscores the two manufacturing PMI figures for April – one official, one from HSBC – which showed weakness among smaller enterprises despite improved headline figures.

The China Federation of Logistics and Purchasing revised its index last month to reflect seasonal adjustments, with the revision helping push the March index to 58, the highest since May, last year.

Less than positive news, more of which is at the link.

"Better" news here:

HSBC April PMI Rises to 49.3; Recovery Under Way, Caijing Magazine, 2 May, 2012:

Final reading of the HSBC China Manufacturing PMI, a major indicator for the country's manufacturing activities, rose for the fifth consecutive month to 49.3 in April, a sign that China's slowdown is stablizing , according to a HSBC report released Tuesday.

The report said the rise was led mainly by improving new orders flows which hit a six month high of 49.7 and a slower rate of production contraction at 49.3 from March's 47.4.

Meanwhile, new exports orders rose back above 50 for the first time in three months to 50.2 in April, after posting below 48 the two months prior.

America's Yuan Fixation, by Stephen S. Roach, Caixin Online, 3 May, 2012:

For seven years, the United States has allowed its fixation on the yuan's exchange rate to deflect attention from far more important issues in its economic relationship with China. The Strategic and Economic Dialogue between the United States and China in Beijing is an excellent opportunity to examine – and rethink – America's priorities.

While Roach is certainly correct on many things, and the statistics do firmly back up his claims, I'm still rather leary of his conclusion - working-class consumers on both sides of the Pacific are under pressure; and Great Power competition ain't over yet:

The United States needs to refocus the U.S.-China trade agenda toward expanded market access in these and other areas – pushing back against Chinese policies and government procurement practices that favor domestic production and indigenous innovation. Some progress has been made, but more is needed – for example, getting China to join the World Trade Organization's Government Procurement Agreement. At the same time, the US should reconsider antiquated Cold War restrictions on Chinese purchases of technology-intensive items.

For a growth-starved United States, the opportunities of market access far outweigh the currency threat. The long-dormant Chinese consumer is about to be unleashed. This plays to one of America's greatest strengths – its zeal to compete in new markets. Shame on the United States if it squanders this extraordinary chance by digging in its heels with same timeworn approach in the Economic and Strategic Dialogue.

Revisiting predictions, by Michael Pettis, China Financial Markets, 3 May, 2012:

In 2006 I started making a number of predictions based on what I thought was the necessary and logical development of China’s growth model. Some of these predictions seemed fairly outlandish, especially to China analysts – Chinese and foreign – who had very little knowledge of economic history or other developing countries, but many of them so far have turned out quite well.

As more and more analysts are beginning to understand the constraints of the Chinese growth model I think it might be useful to list some of these predictions to get a sense of what might be still to come.　 Perhaps my bet with The Economist has caused me to throw caution to the winds, since a smart economist never makes his predictions explicit, but here they are:

Visit the link to see 'em.

FTA negotiations launched, by Li Jiabao, China Securities Journal, 3 May, 2012:

"The first round of negotiations will take place later this month ... and I hope the negotiations can be finished within two years," Chinese Minister of Commerce Chen Deming told a news briefing in Beijing.

　　"After seven years of preparation, the launch of the FTA negotiations is a turning point to take bilateral cooperation to a higher level.

　　"We hope the accord will also serve as a starting point for the economic integration of East Asia," said South Korean Trade Minister Bark Tae-ho.

Sure beats the Greater East Asia Co-Prosperity Sphere.

Factory activity indicator expands, by Wei Tian and Gao Changxin, China Securities Journal, 2 May, 2012:

A key manufacturing gauge rose to a 13-month high in April but clouds still hover over the economy as smaller businesses struggle due to weak demand.

　　The Purchasing Managers' Index (PMI), an indicator of manufacturing activity, climbed to 53.3 last month from 53.1 in March, the highest since March 2011, according to a statement by the China Federation of Logistics and Purchasing on Tuesday.

Better news.

[escobar]

Analysis: China's shipyards founder as building boom ends

Welder Zhang fires up his blow torch and looks up at the towering, 8,800-tonnes oil tanker that is likely to be his last job at China's privately owned Qiligang Shipbuilding Co.

Barring a miracle, the 50-year-old will soon join the thousands of unemployed shipbuilders who have fallen victim to the end of China's maritime boom and the long-awaited consolidation of its more than 1,600 shipbuilding companies.

Four years into one of the worst downturns to afflict the global shipping industry, hundreds of small to mid-sized shipyards are teetering on the brink of bankruptcy as foreign orders dwindle and domestic lenders slash credit.

"The building of this ship is almost done, and we don't expect to have any new jobs soon," said Zhang, who asked to be identified by one name.

"We used to work 30 days a month, but now we work only 10 to 20 days because not many ships are being built. Many workers have moved on to other jobs."

Qiligang Shipbuilding is one of several troubled firms in the eastern coastal Zhejiang province, the world's largest manufacturing base for small to medium-sized dry docks.

According to local media, around 80 percent of shipyards in Zhejiang have either suspended production or are operating at half their capacity.

"The grass is growing high in many yards that have closed due to a lack of orders," said Zhang Shouguo, secretary general of industry group the China Shipowners' Association.

"This is just the beginning of the woes for shipbuilders and the worst has yet to come."

To survive and keep some of the sector's 400,000 workers employed, shipyards must turn to less lucrative businesses such as leasing vessels, real estate or, in the worst case, tearing apart the ships they once used to build, industry experts say.

"Shipbuilding is a very cyclical industry and those who can maintain strength, complete structural restructuring and transform will be a major force after the recovery," said Zhang Yao, spokesman for Singapore-listed Yangzijiang Shipbuilding (YAZG.SI), one of China's largest vessel building firms.

"For others without flexibility to deal with the market changes, dormancy may be their best choice. Eventually more than 30 percent of existing shipbuilders will disappear."

His forecast is relatively optimistic compared to the view of other industry officials. The head of the government's China State Shipbuilding Corporation, Tan Zuojun, told local media in February he believed 50 percent of domestic shipyards would go bankrupt in the next two to three years.

MARITIME RECESSION

The shipping industry has yet to recover from being mauled by the 2008 global financial crisis, which triggered what the International Monetary Fund called the "Great Trade Collapse".

The Baltic Dry Index .BADI, the benchmark for the freight market and an indicator of global economic activity, plummeted more than 94 percent in 2008 from a record high of 11,793 points. This week, it was trading above 1,100.

During a maritime recession, shipbuilding is usually the first and hardest hit sector as global ship owners delay or cancel orders for new vessels to save capital reserves.

But in China, the world's biggest shipbuilder by volume, government intervention helped the industry defy the norm.

Debt-laden shipyards that otherwise should have gone bust were allowed to stay afloat thanks to easy credit, which stemmed from government efforts to bolster foreign exchange reserves to protect the economy from the crisis.

Lending to the overall shipping industry shot up more than 500 percent year-on-year to nearly $4 billion in 2008, according to loan market information service Thomson Reuters LPC.

"When Chinese shipyards have new orders, the buyers must bring foreign currency into China since the shipping contracts are in U.S. dollars," said Lam Pak Ho, Hong Kong-based senior manager at Bank of China.

The huge expansion in Chinese shipyards, which currently hold about half the world's new ship orders, helped create a glut of low-tech vessels that has kept freight rates low and prolonged the agony for ship owners across the globe.

As these foreign firm struggle, orders have declined and financing has become problematic, prompting Beijing to turn its back on what has now become an unprofitable business.

Credit has also dried up as the government tries to cool the economy, falling more than 87 percent from 2008 to around $501 million last year.

New orders to Chinese shipyards tumbled 52 percent last year to 36.22 million deadweight tonnes, the China Association of National Shipbuilding Industry says. This year, new orders are down about 40 percent year-on-year in January-February.

SURVIVAL OF THE FITTEST

Only the largest Chinese shipyards such as China Shipbuilding Industry Corp (601989.SS), China Rongsheng Heavy Industries (1101.HK) and Yangzijiang Shipbuilding, are expected to survive this round of consolidation.

In the government's five-year economic forecast, China's 10 largest shipbuilders are expected to hold at least 70 percent of the domestic market by the end of 2015, compared to less than 50 percent in 2010.

A short drive from the Qiligang Shipbuilding yard in Zhejiang, two unfinished oil tankers stand in the once bustling dry dock owned by struggling Dongfang Shipbuilding (DFSB.L).

The shipyard, which had employed more than 600 workers just over a year ago, could become another scrap yard if the company fails to find a more profitable way to survive. China is one of the world's leading ship recycling nations.

"At the end of this year, you could see many shipyards turn into scrap yards," said Venkatesh Narayanaswamy, the former chairman of Dongfang Shipbuilding. "This would be the worst case scenario, because the profit margins are much lower."

[gjy2105]

Naturally, they will need to consolidate.

Analysis: China's shipyards founder as building boom ends

Welder Zhang fires up his blow torch and looks up at the towering, 8,800-tonnes oil tanker that is likely to be his last job at China's privately owned Qiligang Shipbuilding Co.

Barring a miracle, the 50-year-old will soon join the thousands of unemployed shipbuilders who have fallen victim to the end of China's maritime boom and the long-awaited consolidation of its more than 1,600 shipbuilding companies.

Four years into one of the worst downturns to afflict the global shipping industry, hundreds of small to mid-sized shipyards are teetering on the brink of bankruptcy as foreign orders dwindle and domestic lenders slash credit.

"The building of this ship is almost done, and we don't expect to have any new jobs soon," said Zhang, who asked to be identified by one name.

"We used to work 30 days a month, but now we work only 10 to 20 days because not many ships are being built. Many workers have moved on to other jobs."

Qiligang Shipbuilding is one of several troubled firms in the eastern coastal Zhejiang province, the world's largest manufacturing base for small to medium-sized dry docks.

According to local media, around 80 percent of shipyards in Zhejiang have either suspended production or are operating at half their capacity.

"The grass is growing high in many yards that have closed due to a lack of orders," said Zhang Shouguo, secretary general of industry group the China Shipowners' Association.

"This is just the beginning of the woes for shipbuilders and the worst has yet to come."

To survive and keep some of the sector's 400,000 workers employed, shipyards must turn to less lucrative businesses such as leasing vessels, real estate or, in the worst case, tearing apart the ships they once used to build, industry experts say.

"Shipbuilding is a very cyclical industry and those who can maintain strength, complete structural restructuring and transform will be a major force after the recovery," said Zhang Yao, spokesman for Singapore-listed Yangzijiang Shipbuilding (YAZG.SI), one of China's largest vessel building firms.

"For others without flexibility to deal with the market changes, dormancy may be their best choice. Eventually more than 30 percent of existing shipbuilders will disappear."

His forecast is relatively optimistic compared to the view of other industry officials. The head of the government's China State Shipbuilding Corporation, Tan Zuojun, told local media in February he believed 50 percent of domestic shipyards would go bankrupt in the next two to three years.

MARITIME RECESSION

The shipping industry has yet to recover from being mauled by the 2008 global financial crisis, which triggered what the International Monetary Fund called the "Great Trade Collapse".

The Baltic Dry Index .BADI, the benchmark for the freight market and an indicator of global economic activity, plummeted more than 94 percent in 2008 from a record high of 11,793 points. This week, it was trading above 1,100.

During a maritime recession, shipbuilding is usually the first and hardest hit sector as global ship owners delay or cancel orders for new vessels to save capital reserves.

But in China, the world's biggest shipbuilder by volume, government intervention helped the industry defy the norm.

Debt-laden shipyards that otherwise should have gone bust were allowed to stay afloat thanks to easy credit, which stemmed from government efforts to bolster foreign exchange reserves to protect the economy from the crisis.

Lending to the overall shipping industry shot up more than 500 percent year-on-year to nearly $4 billion in 2008, according to loan market information service Thomson Reuters LPC.

"When Chinese shipyards have new orders, the buyers must bring foreign currency into China since the shipping contracts are in U.S. dollars," said Lam Pak Ho, Hong Kong-based senior manager at Bank of China.

The huge expansion in Chinese shipyards, which currently hold about half the world's new ship orders, helped create a glut of low-tech vessels that has kept freight rates low and prolonged the agony for ship owners across the globe.

As these foreign firm struggle, orders have declined and financing has become problematic, prompting Beijing to turn its back on what has now become an unprofitable business.

Credit has also dried up as the government tries to cool the economy, falling more than 87 percent from 2008 to around $501 million last year.

New orders to Chinese shipyards tumbled 52 percent last year to 36.22 million deadweight tonnes, the China Association of National Shipbuilding Industry says. This year, new orders are down about 40 percent year-on-year in January-February.

SURVIVAL OF THE FITTEST

Only the largest Chinese shipyards such as China Shipbuilding Industry Corp (601989.SS), China Rongsheng Heavy Industries (1101.HK) and Yangzijiang Shipbuilding, are expected to survive this round of consolidation.

In the government's five-year economic forecast, China's 10 largest shipbuilders are expected to hold at least 70 percent of the domestic market by the end of 2015, compared to less than 50 percent in 2010.

A short drive from the Qiligang Shipbuilding yard in Zhejiang, two unfinished oil tankers stand in the once bustling dry dock owned by struggling Dongfang Shipbuilding (DFSB.L).

The shipyard, which had employed more than 600 workers just over a year ago, could become another scrap yard if the company fails to find a more profitable way to survive. China is one of the world's leading ship recycling nations.

"At the end of this year, you could see many shipyards turn into scrap yards," said Venkatesh Narayanaswamy, the former chairman of Dongfang Shipbuilding. "This would be the worst case scenario, because the profit margins are much lower."

[J-XX]

michael pettis has been dead wrong on the chinese economy. the guy is a complete nutjob, a wacky professor. pettis predicted after the asian financial crisis that china will have a horriible deacade in the 2000's and after the 2008 cris, he predicted china will be the last out of the recession. china had a great decade in the 2000's and was the first out of the recession in 2008.

the guy is a china hater, he should not be taken seriously, why this guy is allowed to spew his anti-chinese propaganda in chinese universities, i will never know.

the guy should be fired from his job. pettis is more nuttier than paul krugman, and krugman is one helluva kook.

every prediction of pettis on china has been dead wrong, then the guy twists his prediction to escape the humiliation.
the guy just cannot handle the fact that china is going to surpass america economically, there is no two ways about it.

[Equation]

"Barring a miracle, the 50-year-old will soon join the thousands of unemployed shipbuilders who have fallen victim to the end of China's maritime boom and the long-awaited consolidation of its more than 1,600 shipbuilding companies."

I never knew there were that many shipbuilding companies in the world, let alone in China.

[escobar]

Innovation, skills to drive outsourcing industry

China's outsourcing industry is likely to double in volume by 2016 on account of a fast growing domestic market, with innovation rather than low costs being the leading driving force, industry insiders said.

...Corbett predicted that China's outsourcing market will be among the world's top three in the next five years along with the United States and Europe, and customers from the technology, automobile, logistics and healthcare sectors will be the key drivers of development.

As a result, "I would be surprised if the industry (in China) does not at least double in the next four years", Corbett said.

"More multinational companies select China not only because of its low costs, but also to cash in on the fast-growing Chinese consumer market," said Angela Wang, chair of IAOP's Beijing chapter and senior vice-president of Neusoft Corp, the largest IT solution and service provider in China...

[escobar]

Central bank's rise comes at economy’s expense

According to a report released last week by Standard Chartered Bank, the People's Bank of China (PBC) has become the world's largest central bank, surpassing the European Central Bank (ECB) and the US Federal Reserve.

The PBC is now not only the biggest central bank in terms of total assets, but also because it is the world's largest supplier of global liquidity, according to the abovementioned report. Specifically, its total assets reached 28 trillion yuan ($4.5 trillion) as of the end of February, compared to the $3.5 trillion held by the ECB and the Federal Reserve's $3 trillion. Furthermore, in 2011, China's broad money supply (M2) accounted for 52 percent of the world's total.

Although the PBC's new status may give it more sway in the world of global banking, the nation has paid a big price to see the central bank reach such heights. Mounting M2 has led to rising inflationary pressures and the PBC's expanding asset base has come at a substantial financial cost.

Over the past five years, the PBC has seen its M2 increase by a dangerously fast pace of 146 percent to reach $13.8 trillion as of the end of February. At the end of 2011, China's M2 to GDP ratio reached 189 percent, while the ratio for most developed countries stands at below 100 percent. In the US, for example, the ratio stood at 64 percent at the end of last year.

Surplus money supplies are especially hazardous for China, as the yuan can only be circulated on the mainland, a situation which pushes up the risks of inflation as monetary policies ease. Over the past two years, sharp M2 increases have helped create bubbles in speculative sectors and have directly contributed to sharp price spikes, especially for daily necessities such as pork and vegetables...

[J-XX]

Central bank's rise comes at economy’s expense

the inflation in china is making china uncompetitive.
manufacturing costs have soared.
things like energy, raw materials, transportation costs, labour costs, etc have risen so much that china is losing its edge in manufacturing and companies are moving production out of china.
china must stop increasing the M2 so much, must start to drain some of that excess liquidty to bring inflation under control.
inflation remains the biggest risk to china's growth. the excess liqudity has gone into the real estate sector which has created a price bubble (not credit bubble), this bubble is now popping. this is healthy for the economy in the long term, not good for short term though.[COLOR="Silver"]

[escobar]

China-US talks yield tangible results

The fourth round of Strategic and Economic Dialogue has wrapped up in Beijing, with concrete results. After two days of talks, Chinese Vice Premier, Wang Qishan, State Councilor, Dai Bingguo, U.S. Secretary of State, Hillary Clinton, and Secretary of Treasury, Timothy Geithner, attended a joint press conference. That follows a work conference hosted by Wang Qishan and Tim Geithner, and a strategic dialogue headed by Dai Bingguo and Hillary Clinton.

Deepening strategic trust and building new relations. Through two days of dialogue and exchange, China and the US are closer to managing their differences, and promoting greater cooperation.

Chinese Vice Premier Wang Qishan says the two sides agreed to further explore the potential for bilateral trade and investment, and made concrete commitments.

"The US committed to take into account China’s concerns in reforming its high-tech export control policy, encourage exports of high tech products for civil use to China. The US also welcomes Chinese enterprises to invest in the US, and promised to facilitate Chinese investment. The two sides agreed to start the 7th round of bilateral investment treaty talks as soon as possible," said Wang.

US Secretary of State Hillary Clinton says this: through dialogue the two sides have built trust that enables them to have open and candid conversations. She notes, the two countries will continue this conversation, respect each other’s core interests, and seek common ground.

Hillary Clinton said, "You have to look at the trend line, not just the headlines. That is especially true in China-US relationship. The trend is clear. Our country is growing more interdependent. So we need to build a resilient relationship that allows both of us thrive and meet our regional and global responsibilities."

US Treasury Secretary Tim Geithner says this round of talks have resulted in significant progress in economic issues. He welcomes steps China has agreed to take, to boost US exports and protect intellectual property rights.

"We welcome these changes, we welcome as well the recent increase in Chinese businesses and investment in the US, the closer integration of our economies, the greater role that China assumes with our support in the IMF and world bank, and other international institutions, and the increase in cooperation we built on a very broad and diverse range of economic and financial issues," said Geithner.

---------- Post added at 07:31 PM ---------- Previous post was at 07:31 PM ----------

China-US talks yield tangible results

The fourth round of Strategic and Economic Dialogue has wrapped up in Beijing, with concrete results. After two days of talks, Chinese Vice Premier, Wang Qishan, State Councilor, Dai Bingguo, U.S. Secretary of State, Hillary Clinton, and Secretary of Treasury, Timothy Geithner, attended a joint press conference. That follows a work conference hosted by Wang Qishan and Tim Geithner, and a strategic dialogue headed by Dai Bingguo and Hillary Clinton.

Deepening strategic trust and building new relations. Through two days of dialogue and exchange, China and the US are closer to managing their differences, and promoting greater cooperation.

Chinese Vice Premier Wang Qishan says the two sides agreed to further explore the potential for bilateral trade and investment, and made concrete commitments.

"The US committed to take into account China’s concerns in reforming its high-tech export control policy, encourage exports of high tech products for civil use to China. The US also welcomes Chinese enterprises to invest in the US, and promised to facilitate Chinese investment. The two sides agreed to start the 7th round of bilateral investment treaty talks as soon as possible," said Wang.

US Secretary of State Hillary Clinton says this: through dialogue the two sides have built trust that enables them to have open and candid conversations. She notes, the two countries will continue this conversation, respect each other’s core interests, and seek common ground.

Hillary Clinton said, "You have to look at the trend line, not just the headlines. That is especially true in China-US relationship. The trend is clear. Our country is growing more interdependent. So we need to build a resilient relationship that allows both of us thrive and meet our regional and global responsibilities."

US Treasury Secretary Tim Geithner says this round of talks have resulted in significant progress in economic issues. He welcomes steps China has agreed to take, to boost US exports and protect intellectual property rights.

"We welcome these changes, we welcome as well the recent increase in Chinese businesses and investment in the US, the closer integration of our economies, the greater role that China assumes with our support in the IMF and world bank, and other international institutions, and the increase in cooperation we built on a very broad and diverse range of economic and financial issues," said Geithner.

[escobar]

Foreign firms bullish about economy

Germany has always been the cornerstone of the European economy but Europe is not as important to Germany as it used to be.

For the first time China has become German companies' top foreign investment destination, totaling 1.36 billion U.S. dollars by the end of last year, according to a survey by the Association of German Chambers of Industry and Commerce. The amount was more than the combined German investment in France, Spain and Italy.

The profound shift is visible in the case of Knauf Gips KG, a German-headquartered plasterboard manufacturer.

When asked what helped turn the family-owned workshop into the world's second-largest gypsum board maker, Mark Norris, the company's China chief executive officer, said one particular factor stands out - China.

After its entry into the Chinese market in the 1990s, Knauf built three plants in Beijing, Shanghai and Guangzhou. The initial investment soon gave Knauf a solid foothold in the country's dry-wall market.

Norris said he was quite bullish about the future and remained committed to continuing investment, despite decelerating economic growth in China, compounded by the European crisis and stagnation in the United States.

"In relative terms, China remains a dynamic growth engine compared with places like Spain and Greece, where there is absolutely no growth," he said.

"And people seem to forget that the market is so big, the demand for good quality is there.

"As we noticed over the past five years, a mid-to-upper class has emerged and the quality of life is increasing. People are prepared to pay for green building materials. Even though it's not comparable to the European or US standard, it is catching up quick."

While Knauf is poised to continue investing in the world's fastest-growing economy, its plans this year are set to be more reserved.

Knauf's ongoing project portfolio includes the completion of its largest plant in China in Taicang, Jiangsu province, a manufacturing base close to Shanghai. It will become the most advanced factory in the Asia-Pacific region that strives to stay carbon-neutral, according to the company.

But rather than expansion, Knauf will focus more on upgrading its existing plants. Starting from this year, Knauf is devoting millions of dollars to ensuring that all of its existing plants are purely steam-driven and no coal or heavy oil is used.

"If you look at the 12th Five-Year Plan (2011-15), you will notice that the previous one was much about quantity, growth and volume, whereas the current one is about quality, better living standards and a good environment," said Jan Kreibaum, president and CEO of Knauf Asia-Pacific. "It attaches importance to quality, where we exactly fit in.

"You can't have 20 coal plants with oil burners and say, 'yes, we are going green'. Chinese customers now do care that the green process is from start to finish," Kreibaum said.

Confident but rational, and putting quality before quantity - Knauf's China strategy this year is shared not just by other German companies but many European and US firms.

According to a poll conducted by the American Chamber of Commerce in Shanghai in February, the majority of US companies are bullish about China's economic outlook and will expand their investment this year.

According to Sarah Butler, managing director of consultancy Booz & Company's China division, for foreign firms, investing in China is no longer an option but a necessity.

"This reality is driven partly by the natural and inevitable saturation of their home markets as the Western economies mature and companies are driven by the need to continuously seek growth opportunities internationally."

Despite forecasts that China's economy will slow - which was verified by the latest year-on-year GDP growth of 8.1 percent in the first quarter - General Motors China is planning to double its sales volume to 5 million units over the next five years, said president and managing director Kevin Wale.

"It will still come between 7.5 to 9 percent of GDP growth, I believe. We will have a continuous and very strong presence here," he told China Daily.

GM has set aside 1 billion U.S. dollars to 1.5 billion U.S. dollars to support its China business, and will focus on renovating its current plants. For instance, the company just opened an extension to its plant in Qingdao and is extending another plant in Yantai.

"We will not consider major moves such as mergers and acquisitions any time soon," he said.

Jeff Kirwan, managing director of clothing retailer Gap Inc, said although the company is fairly new to the country, he still sees chances to do well.

Kirwan told China Daily that Gap plans to have 30 more stores, up from the current 15, and its presence will reach 10 cities by the 2012 fiscal year. Besides, China will be its largest growth vehicle in terms of both sales and investment.

"China is a competitive market and is becoming more so as more international retailers enter the marketplace. I foresee multiple brands coming under one company over the next five years," he said.

The downward adjustment of China's GDP growth target has failed to deter multinational corporations, as many see the opportunities to turn the current government goal to their advantage.

"From China's 12th Five-Year Plan, we see a clear strategic switch for China to be more focused on the quality of growth instead of speed. We think that is a right direction. In fact, we see more opportunities in that direction, especially in the fields of improved living standards, innovation of new materials and biotechnology," said Jiang Weiming, DSM's China president.

Headquartered in the Netherlands, the specialty chemical company has in the past five years aggressively entered life sciences, particularly food nutrition, which witnessed a 10-fold jump in sales.

DSM has developed vitamin and mineral mixtures to meet the needs of Chinese children suffering from anemia. Its net sales in China increased 30 percent year-on-year to 2 billion U.S. dollars in 2011.

Jiang said DSM will continue its strong focus on China and expects to more than double its China sales to more than 3 billion U.S. dollars by 2015, supported by planned investment of 1 billion U.S. dollars.

But it will shift from "an intensive portfolio to maximizing sustainable and profitable growth, with concentrated efforts to meet high-end demands for health and nutrition in China", Jiang said.

Only 8.5 percent of surveyed US companies in the AmCham survey are set to build new offices in China in 2012, whereas the majority would "evaluate" the pros and cons before making such a move.

This is a trend which will be sustained over the next decade or so, said Butler. Companies need to make the necessary investments to sustain their presence and competition over time.

According to Dan Steinbock, research director of international business at the India, China and America Institute in the US, it is only reasonable for European and US companies to shift from "going for presence" to "going for quality".

"When foreign companies established their operations in the mainland, China was still a low-cost nation. Now several regions are moving toward innovation-based competition and, over time, relatively poorer cities and provinces will follow. If foreign companies want to compete successfully in China's rapidly changing environment, they cannot remain complacent."

Maturing market

As the China market continues to develop, companies increasingly are treating it as a mature, fiercely competitive market with all the attendant benefits and challenges of such a status.

First, China has become a growth engine for most multinationals, so that to advance beyond a merely supportive role, a growing number of them see the necessity to introduce key technologies, or build research and development centers in the country.

Dow Chemical Co established its flagship 100,000 square meter innovation center in Shanghai in 2009, which now has more than 500 scientists and researchers working in 84 world-class laboratories.

According to Peter Sykes, president of Dow China, the lab has facilitated Dow's overall research and development globally and helped China to become its second-largest international market. In March, it opened a new center in Chengdu to explore more investment and innovation opportunities.

Likewise, General Motors signed an agreement with SAIC Motor Corp late last year to jointly develop electric vehicles in China. Tim Lee, president of GM's international operations, told China Daily that the two sides want the partnership to serve as the global test ground for new energy cars over the next five years.

The cooperation will leverage GM's expertise in electric vehicle development and global know-how and the techniques will be carried out in China.

In an earlier interview with China Daily, DSM's global CEO Feike Sijbesma said the company's decision to establish a global R&D center in Shanghai was a result of his "four-phase China" theory.

"It is a country with four different development phases. The first phase was to show the world how big a market it is. The second phase was flexing its muscles to become a productive manufacturer and a strong competitor. In the third phase, China was home to the industrial bases of Western companies," he said.

Now the fourth phase is coming with the Chinese realizing they can no longer depend on low-cost manufacturing and need to create a base for innovation and global brands.

Butler from Booz agreed. As China is climbing the global value chain, companies are no longer treating China as a "market to tap into" or a "manufacturing base", but rather placing an increasing portfolio of capabilities there.

According to Norris from Knauf, his company started to operate an innovation center in Taicang this year. "We have six senior research fellows up to now and we expect the team to have some 20 people when fully established."

These scientists mostly have to be Chinese people with knowledge of cutting-edge German technology, Norris noted.

"We need to come up with products that meet the demand of the locals here but you really can't expect German scientists to understand the environment or living conditions here in China".

What Norris said brings up a related issue for multinationals' China businesses: the "in China for China" trend.

In the AmCham survey, a maturing China market is forcing companies to target their product development toward China, with 71 percent responding that they have and also plan to sell and support products and services uniquely designed for the Chinese market.

Trumpf, the world's largest maker of laser cutting machines, has designed a special cutting machine to meet Chinese customers' needs.

"We are not producing in China to be less expensive, or to export to other parts of the world," said Nicola Leibinger-Kammueller, the company's chief executive officer.

"We are producing for the Chinese market."

Also a German family-owned enterprise, Trumpf took a similar approach to Knauf - it runs a plant in Taicang and is currently overhauling the factory to double its production capacity.

Her company also lowered its forecast for the Chinese market's growth rate from 100 percent in 2011 to a moderate 15 to 20 percent this year.

"We want a steady growth that focuses on the premium market, where demand for quality in China is absolutely rising."

And this trend may be good for another reason, according to Steve Ganster, managing director of Technomic Asia, a market entry consultancy.

"Given the challenges that will emerge in 2012, service companies will be in a good position to help their clients navigate the increased complexities, uncertainties and inevitable difficulties, as companies adjust their strategies, organizations and resources to align with a more dynamic economic environment," he said.

"The 'in China for China' trend is here to stay and service firms need to reshape their own priorities to accommodate this critical shift."

Challenges ahead

While foreign players have long wrestled with human resource constraints and intellectual property rights protection issues, they now rate rising costs and geographic diversity as emerging concerns.

More than nine in 10 companies surveyed by AmCham said rising costs hinder their business, with two-thirds saying price pressures are becoming more severe.

"Nobody is immune to the rising costs of labor, raw material and energy," Norris said. But as every enterprise has to tackle these issues, Norris sees opportunities.

Knauf will introduce one of its hit products, spray plaster, to China in 2012. The building method is up to three times faster than manual plastering, enabling a three-man team to complete up to 150 square meters of high-quality plasterwork every day. And by applying such practices, Knauf helps his clients save labor costs.

It is the same story with Trumpf. Although its products are generally two to three times more expensive than those from its domestic counterparts, Leibinger-Kammueller said their machines offer great advantages.

"Ten years ago, labor was very cheap in China, but not any more. As our Chinese customers also face soaring labor costs, they gradually turn to our machinery to save labor," she said.

Companies cite China's vast geographic diversity as another challenge.

And this has led multinationals to cautiously expand to inland cities, not for the sake of expansion, but out of various considerations.

"In terms of geographic coverage, the Chinese market is huge. Our customers always require a rapid and effective response to fulfill their critical demands. It's quite challenging for us to move our products in an efficient way from our manufacturing sites in the coastal areas to customers across China," Sykes from Dow said.

In order to cope with this, Dow pays close attention to the supply chain, distribution, and logistics capabilities. It has invested 200 million U.S. dollars in a terminal and logistics center and a transactional processing service center in Tianjin.

Knauf is also considering heading west but the plan is still under evaluation. Such a move could help the company cut its freight costs by up to 25 percent..

While reducing costs is one concern, Kirwan from Gap has his own reasoning.

"In the US, when we are doing particularly well in one area and not so well in another, we are able make adjustments accordingly. But here we found it a little bit more difficult in China, where each key area and city has its unique circumstances," he said.

The company is steadily expanding so that it can learn more about how to cope with situations, he added.

According to Steinbock, companies must adapt to local needs to remain relevant in China. Most importantly, they must learn to think in terms of China's diversity, which will be an increasing reality.

There is also increased competition. The AmCham study showed most respondents identify Chinese private companies, followed by other foreign firms, as the source of the largest surge in competition.

Regarding regulation, companies will be held to an increasingly mature set of standards in realms such as food safety, workforce protection and manufacturing safety, said Butler.

"We believe the disciplining effect brought on by the maturation of the market is overall positive for Western players but may pose short-term challenges."

Evolving agenda

And companies noticed an interesting phenomenon - the evolving attitude toward foreign companies from local governments.

In the past, governments welcomed any foreign investors who could push up local GDP and raise the employment rate. Now they tend to be more "selective and picky" in terms of who to get to invest.

Wale from General Motors said a particular city will welcome your investment if what you are doing happens to coincide with its strategic layout.

In the case of General Motors, some local governments would like to utilize its presence to either reform the overall industrial sector or to catch up in areas such as safety regulations and emissions.

The one thing Norris found is that government officials speak about "sustainability" all the time, which was a rare occurrence even three years ago.

"When we were looking west, we found some great zones. But the officials in these places would turn down our requests because they found us hard to fit into those parks that are designed as either a pharmaceutical zone or an automobile zone," he said.

And the governments are now looking for role models to stay energy-efficient. "We were driven and challenged by the Taicang government to hit this level of green and sustainability. This is rare," he said.

Steinbock believed that local governments should focus on attracting only appropriate foreign investment that supports their overall growth policies. In turn, foreign multinationals should focus on appropriate localities that best serve their strategies.

"Let's compare this with the US market. With more than 310 million people, the US has some 50 states, which have grown increasingly specialized focusing on different comparative advantages.

"China is in a different stage of development, but the same process of differentiation has begun on the mainland as well. Being selective and picky is a good thing."

[AssassinsMace]

BBC News - China: The world's cleverest country?

8 May 2012 Last updated at 19:03 ET

China: The world's cleverest country? By Sean Coughlan

BBC News education correspondent


This is the most extensive insight into how China's school standards compare with other countries

China's results in international education tests - which have never been published - are "remarkable", says Andreas Schleicher, responsible for the highly-influential Pisa tests.

These tests, held every three years by the Organisation for Economic Co-operation and Development, measure pupils' skills in reading, numeracy and science.

Pisa tests - the Programme for International Student Assessment - have become the leading international benchmark.

The findings indicate that China has an education system that is overtaking many Western countries.

While there has been intense interest in China's economic and political development, this provides the most significant insight into how it is teaching the next generation.

'Incredible resilience'

The Pisa 2009 tests showed that Shanghai was top of the international education rankings.

But it was unclear whether Shanghai and another chart-topper, Hong Kong, were unrepresentative regional showcases.

The OECD's Andreas Schleicher: "Fairness and relevance are not the same thing"
Mr Schleicher says the unpublished results reveal that pupils in other parts of China are also performing strongly.

"Even in rural areas and in disadvantaged environments, you see a remarkable performance."

In particular, he said the test results showed the "resilience" of pupils to succeed despite tough backgrounds - and the "high levels of equity" between rich and poor pupils.

"Shanghai is an exceptional case - and the results there are close to what I expected. But what surprised me more were the results from poor provinces that came out really well. The levels of resilience are just incredible.

"In China, the idea is so deeply rooted that education in the key to mobility and success."

Investing in the future

The results for disadvantaged pupils would be the envy of any Western country, he says.

Mr Schleicher is confident of the robustness of this outline view of China's education standards.

In an attempt to get a representative picture, tests were taken in nine provinces, including poor, middle-income and wealthier regions.

High school students shout slogans such as "I must go to college" in a pre-exam event in Nanjing
The Chinese government has so far not allowed the OECD to publish the actual data.

But Mr Schleicher says the results reveal a picture of a society investing individually and collectively in education.

On a recent trip to a poor province in China, he says he saw that schools were often the most impressive buildings.

He says in the West, it is more likely to be a shopping centre.

"You get an image of a society that is investing in its future, rather than in current consumption."

There were also major cultural differences when teenagers were asked about why people succeeded at school.

"North Americans tell you typically it's all luck. 'I'm born talented in mathematics, or I'm born less talented so I'll study something else.'

"In Europe, it's all about social heritage: 'My father was a plumber so I'm going to be a plumber'.

"In China, more than nine out of 10 children tell you: 'It depends on the effort I invest and I can succeed if I study hard.'

"They take on responsibility. They can overcome obstacles and say 'I'm the owner of my own success', rather than blaming it on the system."

Education's World Cup

This year will see another round of Pisa tests - it's like World Cup year for international education. And Mr Schleicher's tips for the next fast-improving countries are Brazil, Turkey and Poland.


GLOBAL EDUCATION RANKINGS
Pisa tests are taken by 15-year-olds in reading, maths and science. Previous leaders in these subjects:

2000: Finland, Japan, South Korea
2003: Finland, Hong Kong, Finland
2006: South Korea, Taipei, Finland
2009: Shanghai, Shanghai, Shanghai



Mr Schleicher, a German based in the OECD's Paris headquarters, has become the godfather of such global education comparisons.

Armed with a spreadsheet and an impeccably polite manner, his opinions receive close attention in the world's education departments.

The White House responded to the last Pisa results with President Barack Obama's observation that the nation which "out-educates us today will out-compete us tomorrow".

The next round of global league tables will test 500,000 pupils in more than 70 countries - with the results to be published late next year.

Education ministers will be looking nervously at the outcome.

"In the past, politicians could always say we're doing better than last year - everyone could be a success," he says, describing the tendency for national results to rise each year.

The arrival of Pisa tests sent an icy draught through these insulated corridors.

No excuses

Perhaps the biggest discomfort of all was for Germany - where "Pisa shock" described the discovery that their much vaunted education system was distinctly average.

Finland was the education world leader in rankings a decade ago
And the biggest change in attitude, he says, has been the United States - once with no interest in looking abroad, now enthusiastically borrowing ideas from other countries.

"Education is a field dominated by beliefs and traditions, it's inward looking. As a system you can find all kinds of excuses and explanations for not succeeding.

"The idea of Pisa was to take away all the excuses.

"People say you can only improve an education system over 25 years - but look at Poland and Singapore, which have improved in a very short time, we've seen dramatic changes."

The biggest lesson of the Pisa tests, he says, is showing there is nothing inevitable about how schools perform.

"Poverty is no longer destiny. You can see this at the level of economies, such as South Korea, Singapore."

Fair comparison?

A criticism of such rankings has been that it is unfair. How can an impoverished developing country be compared with the stockpiled multiple advantages of a wealthy Scandinavian nation?

Here Mr Schleicher makes a significant distinction. It might not be fair, but such comparisons are extremely relevant. "Relevance and fairness are not the same thing," he says.

South Korea is identified by the OECD as an example how education can drive economic growth
Youngsters in the poorest countries are still competing in a global economy. "It's a terrible thing to take away the global perspective."

He also attacks the idea of accepting lower expectations for poorer children - saying this was the "big trap in the 1970s".

"It was giving the disadvantaged child an excuse - you come from a poor background, so we'll lower the horizon for you, we'll make it easier.

"But that child has still got to compete in a national labour market.

"This concept of 'fairness' is deeply unfair - because by making life easier for children from difficult circumstances, we lower their life chances."

'Sorting mechanism'

So why are the rising stars in Asia proving so successful?

Mr Schleicher says it's a philosophical difference - expecting all pupils to make the grade, rather than a "sorting mechanism" to find a chosen few.

He says anyone can create an education system where a few at the top succeed, the real challenge is to push through the entire cohort.

In China, he says this means using the best teachers in the toughest schools.

The shifting in the balance of power will be measured again with Pisa 2012, with pupils sitting tests from Stockholm to Seoul, London to Los Angeles, Ankara to Adelaide.

"I don't think of Pisa as being about ranking, it tells you what's possible. How well could we be doing?"

[delft]

Western countries are helping to internationalize RMB:
DAILY NEWS

IRAN (sanctions)
China is buying crude oil from Iran paying with its currency Yuan as US sanctions make it difficult for Iran to accept payments in (usual) US Dollars.

and make it more necessary:

Crisis escalates as insurrection breaks German control of Europe - Telegraph

[escobar]

China foreign trade growth slows in April

China's foreign trade rose 2.7 percent year on year to 308.08 billion U.S. dollars in April, with a surplus of 18.42 billion U.S. dollars, the General Administration of Customs (GAC) said Thursday.

The growth rate represents a slowdown from the 7.1-percent rate logged in March.

Exports amounted to 163.25 billion U.S. dollars in April, up 4.9 percent year on year, while imports edged up 0.3 percent to reach 144.83 billion dollars, the GAC data showed.

For the first four months of the year, the country's foreign trade went up 6 percent from a year earlier to 1.17 trillion U.S. dollars, with exports and imports up 6.9 percent and 5.1 percent to 593.24 billion U.S. dollars and 573.94 billion U.S. dollars, respectively.

China saw trade surplus of 19.3 billion U.S. dollars during the January-April period, the GAC said.