real estate - The return of the Wenzhou gang

A telling article about the influence of Wenzhou people on real estate in Shanghai, by Richard McGregor of the FT, where he describes this group of people that are looking for ways to spend their cash.
Tour groups were suspended in May, but will resume. "The central government ordered us to stop the tours but supply and demand rather than individual behaviour or administrative intervention will eventually rule the market," says Dong Wenyuan, of organizing Wenzhou Evening News in the FT.
More signs that this bubble is going to burst.

The landing: in your safety position, please – the WTO column

(Soon in Chinabiz)

Is China heading for a soft landing of its overheated economy or can we expect any day a ‘brace, brace’ as the machine hits the ground in a less sophisticated way?

“It is too early to say,” Professor Wu Jinglian told me last Friday when he spoke in Shanghai. When even this outspoken economist does not dare to give a prediction, there is reason enough not to sound too sure about what is going to happen in the next six months.
The sentiment is turning negative, so much is clear. Car sales hardly grew in June, for the first time in two years of double digit growth. The New York Times reported last week from Guangzhou a virtual buyers’ strike. A growing row of financial scandals keeps on hitting confidence in the domestic banks.
Since a financial crisis has as much to do with economy as with psychology it is important to note those signals. When people start to lose their confidence that will add greatly to whatever economic problems there might be.
During a conference on financed co-organized last week by the China Europe International Business School (CEIBS) in Shanghai Professor Lester Thurow of MIT noted that the Chinese government was very busy in preventing financial crises. He warned, that would not be enough, since financial crises are unavoidable and it is important for a country to have the tools in place to “clean up the mess”, as he described it, after the crisis had happened.
Japan was his example of a country that is already for twelve years in an economic crisis because its culture does not allow people to go bankrupt. That failure to “clean up the mess” allowed the crisis to fester on much longer than needed.

Is then China on the brink of a collapse, five years after it entered the Word Trade Organization (WTO), as the lawyer-turned-author Gordon Chang predicted a few years ago?
Although there are rough times ahead of us, I believe there is a fair possibility the unavoidable short-term crises can be contained. With few exception crises in China have had always a limited nature. Shanghai has about 19 different real estate markets, I was taught by a real estate agent. When the top end of the market tumbles, some of the more wealthy owners might end up with a negative equity. But that does not mean that the real estate in the whole city ends up in shambles. Other real estate markets still see a shortage and might continue to boom.
Maybe the New York Times is right and there is a buyer’s strike going on in Guangzhou. But that does not mean that buyers in Shanghai and Beijing will do the same.
China is internally very diverse, even divided, and that makes any crisis almost always a limited crisis that would not hit the nation at large. Since most of the domestic media are still controlled by the government, a nationwide panic could also be prevented.

Much more threatening is the long term crisis, as also Wu Jinglian pointed out. Each dollar earned in China costs eight times more energy than the same dollar in the United States. Plans to urbanize 200 million farmers and other large scale projects will cause fallout that will hit not only China, but the world, as the prices for oil, steel and other construction materials over the past few years have illustrated. The current economic growth is not sustainable and that is bad news, for example for the automotive industry that is just betting 10 billion USD on the sustainability of China’s growth. The developed world used the 1960s and 1970s to change their economies into more sustainable ones. China might not have that much time.

Fons Tuinstra

Economy – Growth is unsustainable – Wu Jinglian

 

In the margin of a conference on finance, CEIBS-professor and economist Wu Jinglian warned that the current growth rate of China’s economy is unsustainable because of the lack of efficiency. “We use per dollar GDP much more energy than any other country,” Wu said.

China has embarked into a massive urbanization drive, that should bring 200 million of its farmers into existing or new cities. According to Wu that will be impossible, unless the country learns how to use its resources in a more efficient way.

 

banking - China needs private banks to prevent crisis - Economist

 

Unless China wholeheartedly develops private banks, a banking crisis will be unavoidable, said renowned economist and CEIBS-professor Wu Jinglian on Friday in Shanghai. Wu spoke during the China International Conference on Finance on the urgency of reform in the banking sector.

 

Wu expects that the opening up of the banking sector in two years time, when foreign banks can also hold deposits in Renminbi, will have a profound impact on the domestic banks. “Domestic banks can no longer dilute their non-performing loans with the savings of the customers and they lose their current monopoly,” Wu said. He also expected that the fast aging populations would show lower savings rates than the past decade.

Too late, too little, was how the advisor of former Premier Zhu Rongji qualified the banking reforms in China. In the 1990s China bailed out the banks and set up four Asset management Companies (AMC’s) to deal with a portion of their non-performing loans. Wu: “But the banking system itself remained unchanged, so new performing loans could develop.” After a first decline non-performing loans were up to 22.6 percent again at the end of 2003 according to figures by the People’s Bank of China. Wu: “1.4 trillion renminbi worth of non-performing loans remained and most of them are unrecoverable.” Outsiders estimated the percentage was then double the official figure.

“Only in 2001 for the first time strict measures were taken and quota’s were introduced to reduce the non-performing loans,” Wu said. He doubts whether the banking system has structurally improved. Wu: “The banks are reducing their ratio of non-performing loans by getting in more deposits. That will not last because of foreign competition. Also, more loans are now long-term, so it will take longer to find out they will not perform. Recent scandals with companies like D’Long and Foshan show that new non-performing loans, sometimes billions of renminbi per time, still appear.”

What made China’s transition from a planned economy into a market economy more successful than the transition in the former Soviet Union and Eastern Europe is because China has effectively used the private sector as a tool for change. Wu: “When you restructure a state-owned industry without having any private capital available, you can only give your assets away. Nobody can buy it, and then it all goes to a small group of very powerful people.” Also the non-state sector in China created a pool of real entrepreneurs that could be used to reform the economy. Wu: “You need to have true entrepreneurs who know what it is to compete. When you have no entrepreneurs, it is hard to run a market economy.” Because the state assets were not turned over to a small group of wealthy people, reforms in China are much more supported by the society than in the former Soviet Union and Eastern Europe, Wu added.

Unfortunately, that valuable lesson has been forgotten in the banking sector and regulators are very reluctant to give a go ahead to private banks. “That is wrong,” said Wu.

He acknowledged that private banks could have problems, lack of capital reserves and a larger vulnerability. Wu: “But that is no reason not to develop private banks. We have delayed the reform of the banking industry too long. Our focus has been too much on the state banks, who were favored and subsidized by the tax money. That created too many moral hazards… All the bankers knew the state would have to come to their rescue whatever they would do.”

Wu fears that unless China unleashes internal competition by the non-state sector – like it has done in other sectors of the economy – real reform will be possible. “The owner of the equity is often an empty shell,” Wu complaints. “The banking reform is now done by the original management and that is a big problem. That makes reform very difficult, while it is very urgent.”

 

 

 

slowdown - Car sales in June record lowest growth in two years

"There was no "single smoking gun", said Michael Dunne, of Automotive Resources Asia in Shanghai, who believes that the drop in car loans alone cannot explain the extent of the slowdown," in today's Financial Times on a dramatic slowdown in the sales of cars in June. Compared to June 2003 sales grew 2.2 percent, the lowest growth in two booming years.
"There has been sensational growth for so long and there is a very real chance we have hit an intermediate ceiling," Dunne added.
Domestic demand might see a broader slowdown, that might hit more industries, as economist debate how to get a slow landing of the economy, while some signs indicate the beginning of a buyers' strike.

economy - China loses annually two million jobs in manufacturing

Shanghai - China has lost 15 million jobs in manufacturing between 1995 and 2002, when the USA lost two million jobs in the same period, a study of the Conference Board concludes. US-based manufacturers and trade unions often blame China for taken away their jobs, but have very little eye for the larger picture that shows up in this study.
“As its manufacturing productivity accelerates, China is losing jobs in manufacturing – many more than the United States is – and gaining them in services, a pattern that has been playing out in the developed world for many years,” concludes The Conference Board study.
The results are based on a survey of 51,000 companies and part of cooperation between the Conference Board and China’s National Bureau for Statistics.
Matthew Spiegelman, Economist at The Conference Board and co-author of the study, notes: “The U.S. lost 202,000 textile jobs between 1995 and 2002, a tremendous decline by any measure. But China lost far more jobs in this sector –1.8 million. All told, 26 of China’s 38 major industries registered job losses between 1995 and 2002.”
Only three industries do not show a decline in employment but a gain, the study says, electronics and telecommunications (374,0000), garments (160,000) and leathers and furs (129,000). In most of those cases foreign investments had an influence.
The loss of jobs in the state-owned manufacturing was very substantial, twelve million jobs, only compensated by a gain of nine million jobs in the private sector, leading to a net loss of four million jobs.

economy - Waiting for the unavoidable financial crisis


Professor Lester Thurow was one of very few dissenting voices at the 2004 China International Conference in Finance, organized jointly by CEIBS, MIT Sloan School of Management and the China Center for financial research at Tsinghua University now in Shanghai.
Surrounded by Chinese officials that tried to explain how they worked hard to prevent a financial crisis in China, Thurow stated that a financial crisis would be as unavoidable as the upcoming earthquake in San Francisco. "It can happen tomorrow, it can happen in hundred years time," Thurow said. "You have to be prepared for the day when it happens and be able to clean up the mess you will have."
He compared the way how the US dealt with the savings and loans crisis in the late 1980s through a solid bankruptcy legislation, and Japan where the crisis drags on for already twelve years because similar tools are not being used.
Whatever China would do to prevent a financial crisis, it would in the end not be enough, since the crisis could also be triggered off by events outside China, Thurow argued. The US has a trade deficit of about 500 billion US dollar. When that money is going to disappear, China will have a problem of 100 billion US dollar. Thurow: "Such a crisis will cost worldwide 25 million jobs, most of it in China."
Could something be done to prevent this crisis, the audience wanted to know. Thurow: "You can stop selling to the US. But then the crisis will most likely come sooner."
Thurow: "The government has put a lot of research to find out when San Francisco will be hit by this earthquake. They cannot find it out. It is the same with this financial crisis, you only know it will happen."

wages - China Wage indicator


What should I earn? What should my employees earn? Both employees and employers in China struggle often with that question, even more than in countries where the labor market is more regulated. With the help of an European wage indicator project, from the beginning of 2005 you might get a bit of guidance as also the China Wage Indicator will take off.
Tomorrow - on July 8 - in Europe in total eight countries will join the originally Dutch project and more countries will follow. Chinabiz is coordinating the efforts in China with top-academic partners and many others to develop into a leading benchmark on the labor market.
To celebrate with our new European partners tomorrow in the Netherlands, we already had a soft opening of the Chinese site. You cannot check your salary yet, but that is only a matter of time. Mail us for more questions.

telecom - New merger rumors

New rumors about a possible set of mergers among six domestic Chinese telecommunication carriers have emerged, referring to articles in state media. The merger is supposed to facilitate the roll-out of the 3G technology without creating an competing and overlapping network.
Such a more - denied by some of the key players - would go very much against the legacy of former prime minister Zhu Rongji, who has been splitting former quasi-monopolist China Telecom two times to increase competition, quality and destroy this former powerblock, led by former minister of the Information Industry Wu Jichuan.
It seems unlikely, but not impossible.

economy - Bearish sentiments prevail - NYT

"Gesturing at the near absence of customers along the street, one tea merchant complained, 'Of course the economy is very bad - just look out there.'" The New York Times reports (republished in the IHT) from Guangzhou the most bearish take on China's economy I have seen up to now.
The prediction that we are at the brink of a economic downturn that might last a few years are not new, but this is the first time I see such a solid overview of bad signs from the third most important city in China.
I do not see similar signs in Shanghai on a larger scale, but that might be a matter of time.

media - Second screening of Fahrenheit on Thursday evening

The technical disasters let me almost forget to announce that there will be a second (and probably last) informal viewing of Michael Moore's "Fahrenheit 9/11" on Thursday evening. For details and rsvp-ing, please email me.
The DVD has arrived in several stores in Shanghai too, but the quality is still very poor compared to the copy I obtained.

Media - More movements at the Shanghai front

Purely by accident, I started to write about the changes in the Shanghai Daily yesterday. And purely by accident I can read today in the Financial Times interesting details about what is going on. Important developments, I would say.
"In another example of overseas interest in the Chinese media market, interests associated with Kerry Stokes, owner of Australia's Seven Network, have been advising the state-owned Shanghai Daily on its editorial and business management," writes the FT. "Bob Cronin, a former senior media executive in Western Australia, Mr Stokes' home state, is working in the municipal government-controlled English language newspaper as an adviser on daily news."
Of course everybody is still in denial when it comes to the question of foreign investments in this state-owned paper. Peter Zhang, the chief editor, explains that such would not be possible at this stage.
The FT continues: "However, Mr Stokes could be able to invest in an advertising and management company separate from editorial to provide services to the paper, as a number of foreign companies have done....Mr Stokes has growing interests in China, as the authorised distributor for Caterpillar products in nine provinces and as adviser to Beijing on telecasting the 2008 Olympics."

technology - Back in action again

An new hard drive and a lot of work, but the machine is back in action. Only my outlook - one of the famous features of this gifted Mr. Gates - is still lacking. My original setup disks only partially survived the Shanghai humidity.

technology - The hard drive is making noises

Fortunately I'm working with some people who are better in technical stuff than I am. It looks that I'm getting a back-up of most of my documents (something you should do before you get problems), but the hard drive does make unhealthy sounds. Might take a few days and a new drive to reinstall everything again. I might be late in responding to emails.

media - Shanghai Daily revisited

What can the Australian minority share holder of the Shanghai Daily actually do, I wondered this weekend.
Quite a responded one of my readers in a private email. Because I used to rely on their online edition, I had actually not seen quite substantial changes in their paper edition. So, as I was on my way to get my computer not repaired I picked up today's issue. As an internet addicts, it has been quite some time ago that I actually bought a paper.
And changes were there: section were expanded, a page with classifieds, an improved feature section and actually an opinion page with - among others - a contribution on press freedom. It was of course on American press freedom: you cannot expect too much.
Is it going to help? I hope so, but have my doubts as traditional media are losing their clout as the internet eats up their revenue from classifieds, is faster en more outspoken in its opinions. Established dailies have a hard time to keep momentum, it might be too late to get a new one going. A drastic revamp of their online operation should be next on the agenda of the Australian investor.

technology - Disaster strikes...

Last night my loyal Sony suddenly broke down, for the first time ever. Seems to be a hard drive problem, now trying to save the information.

media - SMS filtering with Chinese characteristics

(next week at tidbits)

Sight. Now even the New York Times dived into the recent hype about China’s supposed filtering of SMS messages on the 300 million mobile phones in the country it is time to look back on what actually happened. The Russian newswire Interfax reported first that a small unknown company called Venus Information Technology obtained a license for an SMS filtering system. But then the NGO’s chipped in and the press release triggered off a press coverage that suggested the country could be on the brink of a conservative revolution.
Similar systems to filter the internet have been – by and large – a failure in China, because the negative economic fallout of the filtering system, bringing internet traffic down to almost nothing, proved to be two years ago so massive the filters basically had to be switched off. The frequent use of homonyms in Chinese for sensitive words made it also rather useless as an instrument for political control, compared to other methods.
But those subtleties tend to go lost in an optimistic, engineer driven technology like telecommunication. And the media see a picture that matches their classic clichés about China and so they report about a massive policy change based on a press release and add only dispatches of China’s propaganda machines that would otherwise be discarded as biased nonsense.

I just sent off some really nasty SMS-messages. Now see what happens.

economy - Chinese tourists packing for Europe

Chinese tourists can visit from 1 September 27 European countries, the China National Tourism Association announced Saturday in Beijing. That is good news for both the tourists and the related industries in Europe. Airplanes will be more packed than they are already.
The move does not come unexpected, as preparations were already in full swing, despite a multitude of pending issues. One of them would be the possibility for European countries to return Chinese without a legal status. The announcement does not say whether this has been solved, I assume it merely has been forgotten for economic reasons.