Chinese Economics Thread

The Chinese authorities created it hoping that the Europeans and the Americans would get their act together in the meantime. That didn’t happen and now this is deflating

Click to expand...

Just the US dollar, the euro, Japan's yen and the British pound are currently part of this select band.

Earlier this month, IMF head Christine Lagarde backed the yuan's inclusion.

If the decision is made, the yuan is likely to join the basket next year, experts said.

China is the world's second largest economy behind the US, and asked for its currency to become a reserve currency last year.

Concerns about Beijing keeping the yuan artificially low to help exporters is one reason why the currency has previously failed to meet the criteria for reserve currencies set out by the IMF.

However, Chinese officials have a made a concerted effort to build support for the yuan's inclusion, and a recent IMF staff report endorsed such a move.

Initially, the currency's inclusion would be largely a symbolic gesture, analysts said.

Click to expand...

Labor force growth

China has been through a period of rapid labor force growth in which it needed to generate 20 million jobs a year. However, that phase is over. The Chinese working-age (15–64) population has started to decline, as it has in most advanced economies. In sub-Saharan Africa, on the other hand, by 2035 the number of people reaching working age will exceed that of the rest of the world combined (IMF, 2015; see Chart 1). Africa and south Asia will be the main sources of labor force growth in the global economy, as workforces elsewhere shrink. That means there is great potential for mutual benefit from foreign investment that flows from the aging economies such as China to younger and more dynamic ones in Africa.

In investigating China’s foreign direct investment (called overseas direct investment by the Chinese), we used firm-level data compiled by China’s Ministry of Commerce. Chinese enterprises that make direct investments abroad are supposed to register with the Ministry of Commerce. The resulting database provides the investing company’s location in China and its line of business. It also includes the country to which the investment is flowing and a description in Chinese of the investment project. However, it does not include the amount of investment. During 1998–2012 about 2,000 Chinese firms invested in 49 African countries. There are about 4,000 investments in the database because firms often have more than one project. The typical investing firm is private and much smaller than the big state-owned enterprises involved in the megadeals that have captured so much attention. Based on the descriptions of the overseas investment, we categorized the projects into 25 industries covering all sectors of the economy—primary, or raw materials operations; secondary, or materials processing; and tertiary, or services. The allocation of the projects across countries and across sectors provides a snapshot of Chinese private investment in Africa.

Some things immediately jump out from the data on the number of investments. The investments are not concentrated in natural resources. The service sector received the most number of investments—such as sales affiliates or operations that provide assistance to construction and transportation. There were also significant investments in manufacturing. Most foreign direct investment is in the service sector both globally and in Africa, so in this sense Chinese investment is typical. Chinese investment is well dispersed in Africa: in resource-rich countries like Nigeria and South Africa, but also in non-resource-rich countries like Ethiopia, Kenya, and Uganda (see Chart 2). Even in resource-rich countries, natural resource projects make up a small portion of individual investments.

Click to expand...

Please, Log in or Register to view URLs content!

.
(AFP) - Chinese Internet tycoon Jack Ma's mooted buyout of Hong Kong's struggling South China Morning Post could see the paper prosper from his Midas touch, analysts say, but also further erode its independence and with it the city's press freedoms.
The once globally renowned paper was founded in 1903 and has long given international readers an insider's perspective on Hong Kong and the mainland, providing a window on events from the Mao era to China's 1980s economic awakening and the 1997 handover.

But profits and sales have evaporated, hit by an industry-wide plunge in advertising revenue and unable to deal with the transition to the digital age.

Readers' trust has also dipped as a more pro-Beijing editorial policy has not gone unnoticed in a city that saw tens of thousands take to the streets last year to protest against mainland interference.

Ma, the founder of Chinese e-commerce behemoth Alibaba, is in talks to buy a stake in the paper's publisher, a source familiar with the potential deal told AFP, with discussions reported to be at an advanced stage.

"I think it's a smart move for Jack Ma," said financial analyst Jackson Wong.

Please, Log in or Register to view URLs content!

Jack Ma, the founder of Alibaba, is in talks to buy a stake in the South China Morning Post's pu …
"He has tons of cash and he knows how to run a business in China very well."

Links with Alibaba would also give the paper a necessary boost in terms of its online platform, added Wong, associate director for Simsen Financial Group.

Ma founded Alibaba in 1999 and under his stewardship it has become China's biggest e-commerce company, operating consumer-to-consumer platform Taobao, which is estimated to hold more than 90 percent of the mainland market.

It has also branched out, buying ChinaVision Media in 2014 and renaming it Alibaba Pictures, today China's biggest film company, which produced this year's blockbuster "Mission: Impossible -- Rogue Nation".

And it is developing a video and TV streaming service similar to Netflix.

Please, Log in or Register to view URLs content!

Readers' trust in Hong Kong's South China Morning Post has dipped as a more pro-Beijing edit …
Ma is now looking to move into traditional news, joining the likes of fellow Internet tycoon and Amazon founder Jeff Bezos who bought the Washington Post in 2013.

But there are concerns that under Ma's ownership, the paper's editorial independence will continue to be stripped away -- a process that observers say begun under current owner Malaysian billionaire Robert Kuok.

"For all readers of the South China Morning Post the paper has become progressively pro-Beijing, I think this trend will continue," said Willy Lam of the Chinese University of Hong Kong's Centre for China Studies, a former China editor at the paper.

"Ma has very close ties with the government so I'm sure he doesn't want any so-called embarrassing or offensive articles to appear in the Morning Post after he has taken over," Lam said.

"He... has been a major beneficiary of the Chinese system, so it is logical to expect... that he would not want any criticism of the system."

Please, Log in or Register to view URLs content!

Tens of thousands took to the streets of Hong Kong last year to protest against mainland interferenc …
- A 'loss' for Hong Kong -

The paper's stance had become increasingly pro-Beijing since Kuok, who is heavily invested in China, bought it from media tycoon Rupert Murdoch in 1993.

"I was kicked out because Robert Kuok was very unhappy with what he considered to be (my) excessively critical view on Chinese politics," said Lam, who edited the paper's China section from 1989 until he was dismissed in 2000.

According to Lam, many major Hong Kong-based media companies are increasingly influenced by Chinese shareholders as Beijing seeks to push its authority in the semi-autonomous city.

"For the past several years, they have gradually but relentlessly boosted control over Hong Kong media," he said.

The paper's outgoing editor-in-chief Wang Xiangwei was also accused of muzzling the newspaper to appease Beijing, amid increasing fears Hong Kong is losing its cherished freedoms.

But, as Lam warns, the paper's value remains routed in its journalism, which will be lost if its editorial independence is diminished.

"(Ma) has to walk a fine line, if either the Post or any other major media becomes a propaganda sheet then its value is lost."

Media analyst To Yiu-ming described the Post's pro-Beijing slide and now the potential sale of the paper to Ma as a loss for Hong Kong.

"I think it's lost a channel for expression of liberal news. We've lost a platform for professional journalists to honour their duties," said To, an assistant professor at Hong Kong Baptist University's journalism school.

"It's also a loss for (the) Hong Kong people."

Click to expand...

We also asked whether factor endowments—such as land, labor, and capital—and other country characteristics influence the number and types of investment projects from Chinese investors. If Chinese investment is similar to profit-oriented investment from other countries, then the number and nature of projects should be related to the factor endowments as well as to other characteristics of the recipient countries. We found that although Chinese foreign direct investment in Africa is less prevalent in sectors that require high-skilled labor, it does tend to gravitate toward those countries with a better-trained workforce, suggesting that Chinese investors aim to exploit the edge these countries have over other countries in the region whose workforces lack the same level of training. We also found that Chinese foreign direct investment is more concentrated in capital-intensive sectors in the more capital-scarce countries, suggesting its importance as a source of external financing for the continent.

Our initial assessment of Chinese investment in Africa looked at the number of investment projects without reference to the size of the investment—which may explain why our findings about the nature of China’s investments did not support the common belief that China is an outsized investor in Africa. But when we looked at investments by size, we also found that China does not dominate foreign direct investment in Africa. Using the Ministry of Commerce’s aggregate data on the stock of Chinese foreign direct investment (that is, the value of the investment in place) in different African countries, we found that at the end of 2011 it was only 3 percent of total foreign direct investment on the continent. Most of the investment came from Western sources. Although that figure may seem small to many people, it is confirmed by other sources. According to the United Nations Conference on Trade and Development (2015) new Chinese foreign direct investment in Africa during 2013–14 was 4.4 percent of the total investment flow—only slightly more than the Chinese share of investment in place. EU countries, led by France and the United Kingdom, are overwhelmingly the largest investors in Africa. The United States is also significant, and even South Africa invests more on the continent than China does.

Moreover, when it comes to the value of investments, China allocates its direct investment in Africa much as other countries do. Chinese and non-Chinese investors are both attracted to larger markets and both are attracted to natural-resource-rich countries. So although most Chinese investments are in services and manufacturing, those tend to be smaller than the typically large-value investments in energy and minerals. Western investment favors these expensive natural resource projects too.

One important difference between expensive investments by China and by Western firms involves governance: Western investment is concentrated in African countries with better property rights and rule of law. Chinese foreign direct investment is indifferent to the property rights/rule of law environment, and its expensive investments tend to favor politically stable countries. This difference makes sense because a significant portion of Chinese investment is tied up in state-to-state resource deals.

China’s slowdown
Analysts have asked whether the recent slowdown in China’s economy, the stock market turbulence in the second quarter of 2015, and the renminbi depreciation in August 2015 may augur a slowdown in Chinese foreign investments.

The underlying issue in China’s economy is that it has relied on exports and investment for too long and is making a difficult transition to a different growth model. Because China is the largest exporter in the world, it is not realistic for its exports to grow much faster than world trade. The recent growth in China’s export volume has been in the low single digits, similar to the growth rate of world trade. There is nothing wrong with China’s competitiveness; it is just facing a slow-growing world market. Depreciation likely would not change the picture much because other developing economies may follow suit.

China’s stimulus package following the global financial crisis of 2008–09 was heavily oriented toward boosting investment and took its investment rate to 50 percent of GDP. That maintained growth for a while, but it has resulted in excess capacity throughout the economy. There are many empty apartments, the capacity utilization rate in heavy industry is low, and there is much underused infrastructure, such as highways in smaller cities and convention centers in cities where there is no demand for them. Because of the excess capacity it is natural for investment to slow and affect the overall growth of the economy. The slowdown in China has had an immediate effect on Africa because it has contributed to declining prices for primary products and declining volumes of exports for African economies.

But the weaker news for the old industrial Chinese economy during the first half of 2015 was matched by some positive news from the new economy. In contrast to industry, the services sectors grew rapidly. Most of the service output is consumed by households, and household income has been rising steadily for the past three decades. Still, the slowdown in investment is bound to have some spillover effect on employment, income, and consumption.

Even though the economic slowdown in China has hurt African exports and export prices, it carries some potential positive news. The deceleration in domestic investment in China means that for the moment China has even more capital to send abroad. Although its consumption rate should gradually rise, for the foreseeable future China is likely to have an excess of savings over investment, which means that it will continue to provide capital to the rest of the world. This can happen in a fairly orderly fashion. The authorities have laid out an ambitious set of reforms that should facilitate the shift from investment-led growth to a model based more on productivity growth and consumption growth. The plans include a number of steps to foster the new model. For example, to allow more labor flexibility, authorities plan to relax rules that tie a household’s government benefits to the region in which the household is registered. They also intend to introduce financial reform to price capital better and allocate it to the most efficient use, and to open up the service sector, which is still largely closed to foreign trade and investment.

A smooth transition should enable China to continue to grow in the 6 to 7 percent range for the next decade. It will not provide increases in demand for energy and minerals on the scale of the past, but it should be a stable source of direct investment for other countries. Africa will have to compete for its share through infrastructure investment, improvements in the investment climate, and strengthening of human capital because, as we found, countries with more human capital attract the more skill-intensive investment from China.

There is, however, a possibility of a more negative outcome. For the first time, Chinese outward investment is exceeding inward investment by a large amount; the slowdown in the domestic economy is part of the reason, as domestic Chinese firms are looking elsewhere for profits. In fact, the net capital outflow from China in 2015 is extraordinary. The IMF’s 2015 Article IV staff report projects a current account surplus of $337 billion. Through September the central bank’s reserves declined by $329 billion. The two numbers together provide a rough estimate of $666 billion in net capital outflows.

If China does not make a smooth transition to a new growth model, it will remain a major source of capital in the short run but it will not grow as well over the medium to long term and thus will not be as important a source of capital. China’s successful rebalancing will be a better outcome for both China and for the rest of the developing world.

Click to expand...

Blackstone said:

Continued...

Click to expand...

Please, Log in or Register to view URLs content!

Shenzhen property boom leaves Hong Kong in dust
Ben Bland in Shenzhen and Hong Kong


Although Shenzhen was long the poor cousin of neighbouring Hong Kong, the property markets in the two cities are diverging as Hong Kong’s highly inflated real estate prices start to fall while Shenzhen surges ahead on the back of a technology boom.

Housing prices in Shenzhen have jumped more than 30 per cent in the year to date, making it the fastest-growing major

Please, Log in or Register to view URLs content!

, while asking prices for Hong Kong luxury flats have dropped by up to 5 per cent in the past three months.


The two housing markets’ deviating paths highlight the wider trends shaping the Chinese economy.

Despite the broad slowdown in

Please, Log in or Register to view URLs content!

, Shenzhen is growing rapidly because its internet and technology companies are expanding and attracting many ambitious graduates. Nanshan, the district at the heart of the city’s emerging technology industry, generates the highest gross domestic product per person of any Chinese region at $48,000 a year, more than Hong Kong and not far behind Singapore.

Meanwhile, Hong Kong’s more mature economy is feeling the effects of lower growth in the mainland, while its luxury goods and retail industries have been hit by President Xi Jinping’s corruption crackdown.

Li Liangman, a 29-year-old who works for a construction company, moved from Beijing to Shenzhen three months ago to take advantage of the career prospects and much cleaner air.

“Life is good but the housing prices have really been shooting up,” she says while shopping at the city’s glitzy Mixc mall. “I’m not sure if I will be able to buy somewhere here.”

At the upscale Colourful Garden development in Shenzhen’s Luohu district, where some apartments boast views of Hong Kong, 70 per cent of the 550 units were sold in the first week of sales last month, with a typical 53 square metre, two-bedroom flat going for more than $400,000.

“Many young families are moving here so demand is really good,” says a salesman for the developer.

While property prices in many lesser Chinese cities have fallen in the past few years because of a credit binge and

Please, Log in or Register to view URLs content!

, the tier-one cities of Beijing, Guangzhou, Shanghai and Shenzhen have fared much better.

Impact of mainland economic woes on territory’s once-booming luxury goods industry deepens

Shenzhen is leading the pack thanks to its more welcoming policy towards migrants from elsewhere in China and the fact it is home to established technology companies such as Huawei, ZTE and Tencent, as well as a growing number of successful start-ups including drone maker DJI.

Jeffrey Gao, a property analyst at Nomura in Hong Kong, says that while second-tier cities on average have one year of housing inventory, the tier-one average is nine months and Shenzhen has just over six months.

“We’re seeing a lot of Hong Kong people buying in Shenzhen because although prices are rising quickly, they are still maybe half or 40 per cent of what you need to pay in Hong Kong,” he says.

Please, Log in or Register to view URLs content!

benefited from the rapid growth of the Chinese economy and relatively low interest rates over the past decade, says Paul Louie, a property analyst at Barclays.

But that virtuous circle is turning into a potentially vicious one as China slows and borrowing costs look set to rise — Hong Kong’s currency is pegged to the US dollar and the Federal Reserve is expected to begin a tightening cycle soon.

Asif Ghafoor, chief executive of Spacious, a property website based in Hong Kong, says that asking prices for apartments in Hong Kong’s more prestigious districts have dropped as much as 5 per cent in the past three months, while rents have dropped by as much as 11 per cent in some luxury developments.

While affordability is an issue for residents of both Hong Kong and Shenzhen, Mr Louie says one key difference is that buyers in Shenzhen are betting on strong wage growth in the years ahead, while Hongkongers fear their salaries will stagnate as the economy struggles.

Click to expand...

IMF Lifts Chinese Yuan to Elite Lending-Reserve Currency Status
Move underscores China’s growing economic power; also designed to encourage more reforms

By IAN TALLEY
Updated Nov. 30, 2015 7:22 p.m. ET

China notched an economic milestone Monday, with the International Monetary Fund adding the yuan to its elite basket of reserve currencies, a move designed to spur greater liberalization in the world’s No. 2 economy.

The decision—effective next October—confers international status on China’s currency as the government starts to ease restrictions on its rigidly controlled exchange-rate and financial system. It also marks the start of a potentially more perilous course for China. A more freely traded yuan and open markets, down the road, could add volatility to China’s trade picture and raise the risk of capital flight.

The IMF’s decision will eventually put the yuan alongside the dollar, euro, pound and yen in the fund’s reserve-currency basket, with the IMF giving more weight to China’s currency than to either the yen or pound.

But while the decision is a boost for China’s national self-esteem, it isn’t likely to drive a huge surge in yuan buying. Nor is there much threat the yuan will soon displace the dollar as the world’s pre-eminent reserve currency, especially given China’s many political and economic challenges.

“This inclusion is clearly an important milestone in a journey…that will include certainly more reforms,” IMF Managing Director Christine Lagarde said after the board approved the yuan’s inclusion.

Anointing the yuan as a reserve currency is in part a simple acknowledgment of China’s economic heft: The country now accounts for more than 15% of the global gross economic output, nearly triple what it was a decade ago.

And for the Chinese, the yuan’s higher status is part of a larger strategy to boost the country’s economic leverage. The government has ramped up lending to foreign governments, greatly expanded trade settled in yuan and created emergency credit facilities for other governments. Earlier this year, it launched the Asian Infrastructure Investment Bank, an institution analysts say was designed in part to rival the Washington-based World Bank.

Still, inclusion of the yuan in the IMF basket is in large part symbolic. The IMF uses the reserve basket to denominate its emergency loans, not to create an internationally traded asset.

Whether the yuan is embraced by central banks as a reserve currency will hinge on Beijing’s success in deepening its financial system and adding far greater transparency to the inner workings of its economy.

Over the past year, Beijing has rolled out a series of policies—including freer interest rates and easier foreign investor access—to meet the IMF’s criteria for yuan inclusion in the IMF’s Special Drawing Right lending basket.

IMF staff say the yuan easily met the first measure: The currency must be issued by a major exporter. But IMF economists in August questioned whether the currency met the second benchmark of being “freely tradable.”

ENLARGE
Beijing authorities subsequently rolled out several more financial-sector overhauls, including a devaluation that the authorities said was intended to make the yuan’s value more market based.

U.S. officials privately question the yuan’s ripeness for reserve-currency status but also see the step as aiding efforts by reformers within the People’s Bank of China to liberalize the country’s economy. The U.S. Treasury issued a short two-line statement saying it supported the IMF staff recommendation to include the yuan.

After the IMF’s announcement, China’s central bank pledged to accelerate efforts to overhaul the country’s financial system and further open its markets.

Inclusion of the yuan “means the international community expects China to play a more active role in global economy and finance,“ the People’s Bank of China said. ”China will speed up the effort to promote financial reforms and opening.”

Eswar Prasad, a Cornell University economist and former top China hand at the IMF, said the IMF’s decision will strengthen the hands of economic reformers but warned of obstacles ahead.

“Domestic opposition to further financial-sector reforms and market-oriented liberalization measures remains fierce, and this decision by itself is unlikely to shift the balance substantially,” he said.

The more China opens up its markets, the more it exposes its economy to the risk of capital flowing out. If China were to open up its markets more broadly, cooling growth prospects could turn such investor exodus into a stampede of cash out of the country, as many emerging markets have experienced in recent months.

Some fund watchers also say that support in the international community for the move is partly political consolation for the failure of the IMF to overhaul the lending institution’s governance structure to give China and other emerging-market nations more of a vote in line with their evolving economic heft in the world.

The decision by U.S. lawmakers to repeatedly reject ratification of a governance deal is a sore point for China and other developing powers. They say that snub by the shareholder-run IMF is prompting them to create their own international economic institutions. Awarding Beijing’s currency reserve status is designed in part to encourage China’s government to greater international political and economic responsibility.

Several U.S. lawmakers who have long castigated China for its currency policy criticized the IMF’s decision.

“This decision does nothing but validate China’s history of cheating on its currency,” said Sen. Bob Casey (D., Pa.). Sen. Charles Schumer, (D., N.Y.), said “the IMF is choosing to reward China’s currency manipulation instead of combating it.”

Failure to win IMF reserve-currency status would have also been an embarrassment for China’s leadership as it takes over the rotating presidency of the Group of 20 major economies next year.

—Lingling Wei and Mark Magnier contributed to this article.

Click to expand...