The Sinocism China Newsletter For 08.31.12

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FT Alphaville has two interesting posts in a “China Myth” series. The ever-increasing hunger for steel and The rapid march towards urbanisation both challenge some of the assumptions that underlie the more positive predictions for China’s economy. Some Chinese economists are very bearish, with one, Li Zuojun, an economist at the Development Research Center of the State Council, recently warning in an internal speech that there will be an economic crisis in 2013.

Caixin looks at the problems in Ordos, home of possibly the most-discussed “ghost city” every built. In Tall Order in Ordos: Giving a Ghost City Life we learn that:

…as of August, the government owed some 5 billion yuan to construction companies for vacant and incomplete buildings in Kangbashi.

Efforts to pay off debt have been complicated by falling demand for undeveloped land, which the Ordos government – like counterparts across China – auctions to property developers. City revenues from land transfers declined 80 percent in the first half from the same period 2011.

And the city has found it increasingly difficult to pay off creditors with land in lieu of cash.

“In the past, the government used land for repaying debt,” said a project manager for a local road contractor. “But land is losing value now, and companies are unwilling to accept it.”

How many Ordos (Ordoses?) does China have?

Those who believe an economic crisis will lead to the collapse of the Communist Party should read Stephen Platt and Jeffrey Wasserstrom’s new essay in The Atlantic. In China’s Long History of Defying the Doomsayers they write that:

As specialists in modern Chinese history, we see ample precedent to suggest that, despite the Communist Party’s ongoing struggle to maintain legitimacy, it could remain in secure power for the foreseeable future at the least…

China’s military is presently powerful enough and its diplomacy stable enough that the Communist Party faces no realistic threats from outside. Internally, its control over society is effective enough that, while unrest and discontent may be widespread, there are neither well-organized opposition parties nor rebellious armies that might seriously challenge the central government. For now, the Communist Party finds itself in a position that would be enviable to the officials of the late Qing. It could, if it wished, reinvent itself with a new legitimizing narrative, or even open the way to a new multiparty political structure as the Nationalists did in Taiwan, likely without fear of being overthrown in the process. If it does not make such changes, however, then it seems likely that the corruption and internal dissent of today will continue to mount. If that happens, then it is likely only a matter of time until that dissent and corruption reach a critical mass necessary to end the regime. But, as the world learned from the late Lord Macartney’s failed prediction, those processes can take many generations longer than we might expect. Even if the Communist Party’s legitimacy does weaken enough for the party to fall, it might not be in any of our lifetimes.

The New York Times reports that US prosecutors think Chinese Banks Funneled Money to Iran:

Information on how Chinese banks may have routed money on behalf of Iranian banks and corporations is more valuable than any monetary settlement the authorities could win from the global banks, law enforcement officials with knowledge of the cases said, because the United States could use the information to strengthen its efforts to choke off economic dealings with Iran.

The prosecutors are in the early stages of examining a handful of Chinese banks with operations in New York. They are concerned that the banks may allow clients suspected of financing weapons development to open accounts in China, and then get access to dollars through money transfers from a foreign bank by way of its American subsidiary…

Part of the problem with Chinese banks, the officials said, is that unlike their European counterparts, the banks and their regulators have largely ignored American authorities’ requests for information.

China is not happy with America’s ability to force global banks to either provide information or lose access to the US banking system, a penalty that is effectively a death sentence for a financial institution. Last month the US sanctioned the Bank of Kunlun, controlled by the China National Petroleum Corporation, for Iran dealings, a move that upset Beijing and perhaps was part of the impetus for the August 22 People’s Daily piece “加紧制裁伊朗 打压欧洲银行 美国想借反洗钱稳固金融霸权 US Using Anti-Money Laundering to Strengthen its Financial Hegemony”. Effective US control of the global banking system is a very valuable US strategic asset, and it drives China nuts.

If the US government can track terrorist financing through the Terrorist Finance Tracking Program (Official US Department of Treasure site) that the New York Times exposed in 2006′s Bank Data Is Sifted by U.S. in Secret to Block Terror, what kind of Chinese money transfers can it track?

Happy Labor Day Weekend to my American readers. Monday’s post may be light and late, as it is the first day of first grade for our twins.

Today’s links:

BUSINESS AND ECONOMY

资金再度护盘 仍需提防两大利空_股票频道_一财网 - on “mysterious capital” buying shares to prop up shanghai market. Central SOEs among the buyers, to keep the index above 2000?// 结合今日盘中资金异动情况看,央企类权重个股进场护盘在近期或者还将会持续,因此预计股指的下跌空间相对有限。

Bets on Escalated Policies Drive Oversea Bargain Hunters into China Stocks-Caijing - In the recent two weeks only, as much as 98 million U.S. dollar of funds flowed into those funds, it said. This has been the first time since February for oversea investors buying into Chinese stocks for consecutive weeks in late July and August.

税消息满天飞 扩围有待经济回稳_财经频道_一财网 - expansion of property tax unlikely until economy recovers..and even then//

China Copper Demand Seen Growing at Slowest Pace in 15 Years – Bloomberg - Usage may increase 5 percent to about 7.7 million metric tons supported by demand from the power industry, Yang Changhua, who’s studied the market for more than a decade, said in a phone interview from Beijing. “It could turn out to be even lower, and we’re not optimistic about next year,” Yang said yesterday.

中期利润集体“跳水” 为国内制造业敲响警钟 新华社——经济参考网 - on the horrible corporate profits

Carrefour Denies News of Chinese Business Sale-Caijing - Carrefour, the world’s second-largest retailer, denied news that it would sale its Chinese business, after it announced to pull out of Singapore in the year end in a move to free up cash to cut debt. The company will continue to invest in China, and “Chinese market will still make steady progress,” said a spokesman with its public relations department in China.

Kevin Rudd joins the China bulls | | MacroBusiness - Find below the text of speech given by Kevin Rudd today. More of the same China commodity intensity for ever, though at least Garnaut’s China caution gets a mention. What seems to have passed our entire elite by the possibility that China will be fine and will continue to grow happily but we won’t benefit any longer.  If Michael Pettis proves correct, our entire elite should be condemned.

 

POLITICS

Dalai Lama sees encouraging signs of shift in China | Reuters - There are encouraging signs that attitudes towards Tibet are shifting in China, the Dalai Lama said on Wednesday, adding that the exiled Tibetan leadership is ready for fresh talks on his homeland if there was a genuine change of heart in Beijing.

邓聿文:胡温的政治遗产(上)-财经网 - interesting commentary on Caijing site on internet’s effect on governance/political system.// 网络及以网络为依托的新媒体出现,带来一个结果,就是彻底改变了中国社会的生态,极大地催生和提升了大众的民权意识,从而对执政党和政府的控制与治理构成了挑战。总的来讲,执政党和政府主要是基层政府在这种变革面前,还不适应

 

TECH AND MEDIA

360点火 百度应战 搜索上演“三国杀”_财经频道_一财网 - maybe the real risk to baidu from the curent battle with qihoo. zhou hongyi trying to play the anti-monpoly card, baidu is an effective monopoly// 周鸿祎心里清楚,要想赢得这场战争,必须要做好“合纵连横”,而由此引发的国内互联网巨头混战,将重新划分互联网江湖的敌友态势。

Inside Life at Qihoo 360: Working Under Constant Fear of CEO Zhou Hongyi [EXCLUSIVE] - There are several dozen people who have followed Zhou for 8 to 10 years. They don’t necessarily like Zhou, but they’ve become accustomed to his style and are well compensated with stock options. The old [Qihoo] 360 team behaves like pirates; they resent each other, but they work together for hopes of stock options and out of fear of the alpha-wolf leader. Only people with certain types of mentalities can stay for long

China to overtake US this year as world’s biggest smartphone market: report – Gadgetbox on NBCNews.com - IDC forecast that China’s share of the smartphone market will increase to 26.5 percent this year from 18.3 percent last year, while U.S. market share declines to 17.8 percent from 21.3 percent

Unleashing the Crocodile: What Alibaba’s Jack Ma Can Teach American Entrepreneurs | PandoDaily - highly recommend this film// “Crocodile in the Yangtze” is the first film by Porter Erisman, a former TV host and ad man who was one of the first Westerners to work for Alibaba. Erisman, an American, was a vice president at the company for seven years, at various times leading the company’s international website operations, international marketing, and corporate affairs. He first went to China for a short stint in 1994, when he hosted a travel TV show called “China Through Foreigners’ Eyes, and returned in 1998 after getting his MBA. After two years at ad agency Ogilvy & Mather, he went on to Alibaba to help expand its business-to-business operations to the US. While that goal is yet to be fully realized, it hasn’t hurt the company too much. Just by focusing on China, Ma has managed to grow the Alibaba Group into a $40 billion concern.

Out of Focus: China’s First Big LBO Deal is a Headscratcher | China Private Equity - That leaves M&A as the only viable option for the PE investor group to make some money. I’m guessing this is what they have on their minds, to flip Focus Media to a larger Chinese acquirer. They may have already spoken to potential acquirers, maybe even talked price. The two most obvious acquirers, Tencent Holdings and Baidu, both may be interested. Baidu has done some M&A lately, including the purchase, at what looks to many to be a ridiculously high price, of a majority of Chinese online travel site Qunar. So far so good. The risk is that neither of these two giants will agree to pay a big price down the line for a company that could buy now for much less… I’m fully expecting to be proven wrong eventually by this powerhouse group of PEs, and that they will end up dividing a huge profit pile from this Focus Media LBO. If so, the last laugh is on me. But,  as of now, the Focus deal’s investment logic seems cockeyed.

 

FOREIGN AFFAIRS

CHINASCOPE – PLA Daily: U.S.-Japan Security Treaty Can’t Be a Protecting Shield - On August 29, People’s Liberation Army Daily, the official mouthpiece of the Chinese military, published a commentary on the recent renewed dispute over the Diaoyu Islands (called the Senkaku Islands in Japan), titled “Is the U.S.-Japan Treaty of Mutual Cooperation and Security a protecting shield for Japan?” The article stated that, although the United States holds that the issue of the Senkaku Islands falls within the scope of the Article 5 of the 1960 U.S.-Japan Treaty of Mutual Cooperation and Security, the U.S. government will not dispatch troops to solve the conflict.

“More ‘doing’ required”: Ding Gang brings the taoguang-yanghui debate to the South China Sea « southseaconversations 讨论南海 - Ding Gang, senior reporter at the People’s Daily, had an opinion piece in yesterday’s Huanqiu Shibao, titled, ‘Ding Gang: more “doing” required in the South China Sea‘…he seems to be arguing that while China has done well out of the Scarborough Shoal standoff, next time it should be Chinese authorities, rather than the Philippines’ navy, who kickstart the original incident…Ding’s argument draws its intellectual and political power from the ongoing debates over the famous ‘taoguang yanghui/yousuo zuowei‘ dualism, a legacy of the “28 Character Foreign Policy Guideline” attributed to Deng Xiaoping.

Ex-US consulate guard admits trying to sell secrets to China – World News - Bryan Underwood, 32, planned to sell information about the U.S. consulate being built in Guangzhou to China’s Ministry of State Security for $3 million to $5 million, the U.S. Attorney’s office said in a statement.

Krugman–Fear-of-China Syndrome – NYTimes.com - So who’s actually financing the US budget deficit? The US private sector. We don’t need Chinese bond purchases, and if anything we’re the ones with the power, since we don’t need their money and they have a lot to lose. In fact, we don’t want them to buy our bonds; better to have a weaker dollar (a point that the Japanese actually get.) To make excuses for Rob Portman, lots of people keep getting this wrong, even after all these years. But really, truly, the last thing we need to worry about is whether the Chinese love our bonds.

Ukraine Turns to China for Cash to Duck Vote-Damaging Deal Terms – Bloomberg - Currency-swap and loan deals agreed since June may reach as much as $9 billion, raising China’s standing in Europe’s biggest iron-ore and corn exporter as the fastest-growing major global economy seeks to secure materials and food supplies.

Pakistan in talks to hand port to China – FT.com - dust off those “string of pearls” reports// Pakistan is planning to transfer operational control of its strategically important Gwadar deep water port from Singapore’s PSA International to a Chinese company, according to a Pakistani minister.

For Cnooc Chairman, Oil Rigs Are a ‘Strategic Weapon’ – WSJ.com - BEIJING—When China launched its first deep-water oil rig in May, Cnooc Ltd. CEO -0.07% Chairman Wang Yilin delivered a message to employees and his Communist Party superiors about what it meant to Beijing’s ambitions abroad… ”Large-scale deep-water rigs are our mobile national territory and a strategic weapon,” he told a crowd gathered at Cnooc’s glittering headquarters in central Beijing as well as rig workers by videoconference.

美国发言人遭中国记者质问钓鱼岛归属显尴尬|钓鱼岛问题|中日领土争端|中日关系_新浪新闻 - english language video–Chinese reporter puts state department spokeswoman on spot over naming of senkakus/diaoyu islands

 

SOCIETY AND CULTURE

About Time: A Bold Move From an Embattled Chinese Official – China Real Time Report – WSJ - With the clock possibly ticking down on his career, one beleaguered bureaucrat in the northwestern province of Shaanxi — Provincial Work Safety Administration head Yang Dacai – decided on Wednesday to break new ground. Rather than fall silent, Mr. Yang shocked observers by engaging with his critics in a live chat.

陕西省纪委调查在延安车祸现场微笑官员|安监局长微笑照|杨达才|杨达才戴名表_新浪新闻 - the smiling official in yan’an is now being investigated by the provincial disciplinary inspection commission. not sure the chat helped//

 

ENVIRONMENT

China plans further steps to enhance weather modification – Xinhua | English.news.cn - China said Thursday it will take more active steps to enhance weather modification, in a bid to better serve agricultural production and disaster relief work…The country aims to build a relatively complete weather modification system by 2020