China Economy Forum

[LeveragedBuyout]

1. This has been talked about for ages now: Transform the economy in terms of the value each unit of production creates.

2. Distribute the created wealth more evenly and efficiently across the social strata.

The difference is that under the reforms proposed in the video, "state capitalism" goes away.

 

[Pangu]

Hitting the right note at the right time. Deng was another who communicated well during his overseas travel.

 

[Chinese-Dragon]

I have really high hopes for the new Chinese leadership.

The next 10 years are going to be absolutely VITAL for us, it will be a period of transition, and thus prone to dangerous instability. But if we can overcome that, then we will be sitting on a very solid foundation.

The next 10 years may be one of the most important decades in modern Chinese history.

 

[terranMarine]

I have really high hopes for the new Chinese leadership.

The next 10 years are going to be absolutely VITAL for us, it will be a period of transition, and thus prone to dangerous instability. But if we can overcome that, then we will be sitting on a very solid foundation.

The next 10 years may be one of the most important decades in modern Chinese history.

He's exactly what China needs, throwing big tigers into cages.

 

[dlclong]

 

[cirr]

Finding Your “Comfort Zone”: A Guide to Industrial Parks in the Yangtze River Delta (Part 1)

Posted on July 15, 2014 by China Briefing

By Rainy Yao

SHANGHAI — The Yangtze River Delta (YRD) Economic Region, comprised of 16 cities (i.e., Shanghai, Nanjing, Suzhou, Wuxi, Changzhou, Yangzhou, Zhenjiang, Nantong, Taizhou, Hangzhou, Ningbo, Huzhou, Jiaxing, Shaoxing, Zhoushan and Taizhou) in Zhejiang and Jiangsu provinces, is the largest megaregion in the world. In 2010, the State Council released the “Yangtze River Delta Regional Plan,” promoting the YRD as a key international gateway for the Asia-Pacific region, as well as an important global center for the modern service and manufacturing industries. The Plan establishes a target per capita GDP in the region of RMB110,000 by 2020.

Over its four years of development, the YRD Economic Region has taken a leading role in China’s economy. In 2013, the region’s GDP was close to RMB10 trillion, accounting for 17.2 percent of national GDP. Attracted by potential revenues and preferential policies, more and more foreign investors have chosen to establish their businesses in the YRD, especially in its many development zones. But given that these zones vary in terms of the tax policies and investment environments they can provide, it can be hard to tell which is right for your business. In this two part article, we compare five major types of development zones in the YRD to help foreign investors find the best fit for their specific industry.

1. Economic and Technological Development Zones (ETDZ) can be divided into four types based on their specific emphasis, namely technology-intensive industries and emerging industries; export and international trade; tourism and service industry; and cooperation between Chinese and foreign countries. Some ETDZs also include high-tech industrial development zones, export processing zones or bonded zones. The preferential policies offered in ETDZs include：

• Resident FIEs shall be subject to a corporate income tax (CIT) rate of 15 percent. FIEs with an operation period of more than 10 years will be exempt from CIT for two years starting from the first profitable year, and taxed at a half rate in the three years following.
• Exemptions and reductions of municipal income tax (MIT) shall be decided by the local government.
• The profit gained by Sino-foreign joint ventures shall be exempt from remittance tax when remitted abroad by the foreign party.
• Raw materials, spare parts, components and packaging materials required by enterprises in bonded zones for the processing of export goods shall be exempt from customs duty and imports tax.

Example: Approved in 1993, the Hangzhou Economic & Technological Development Area (HEDA) is the only national-level development zone in China which includes an industrial park, a high concentration of colleges and universities, and an export processing zone. Pillar industries include equipment manufacturing, electronic information industry, bio-pharmaceutical industry and food & beverage industry.

2. High-Tech Industrial Development Zones (HTDZ) are designed for the commercialization of research and specific technology-heavy industries, namely IT, electronics, pharmaceuticals and new materials. Compared with ETDZs, enterprises set up in an HTDZ receive more incentives for innovation, making this type of zone an attractive option for high-tech industries. Preferential policies are as follows:

Corporate Income Tax (CIT):

• • A CIT rate of 15 percent applies to eligible high-tech companies. Foreign-invested manufacturing enterprises with an operating period of more than 10 years will be exempt from CIT for the first two years of operations, and eligible for a 50-percent reduction for the 3 years of operations following the enterprise’s first profitable year.
  • Eligible high-tech FIEs can extend the five-year CIT exemption and reduction (10 percent of CIT) period for an additional three years.
  • Enterprises with a large output value of export products (more than 70 percent of product output value) shall be subject to a CIT rate of 10 percent in the year after the CIT exemption and reduction period.
  • Foreign investors reinvesting profit earned from an FIE for a term of no less than 5 years are eligible for up to a 40 percent refund on CIT paid on the re-investment. If the investment is made into operating or expanding an export production enterprise or advanced technology enterprise, the investor is entitled to a full refund on CIT paid on the re-investment.
  • FIEs eligible for a CIT rate of 15 percent shall also be exempt from MIT. Other foreign-invested manufacturing enterprises shall be exempt from MIT during the CIT exemption and reduction period.

Value-added Tax (VAT): Foreign-invested manufacturing enterprises who sell finished goods overseas shall be exempt from VAT.

Tariffs: Raw materials or semi-finished goods shall be exempt from import tariffs and import-related VAT.

Example: Established in 1992, the Changzhou National Hi-Tech District (CND) is home to over 5,000 manufacturing facilities including more than 1,300 foreign-invested enterprises (FIE). Pillar industries include equipment manufacturing, chemical & new materials and emerging industries. Unlike other HTDZs, the CND also features an automotive parts, accessories and tools industry.

Between the two types of zones, HTDZs offer a more sophisticated package of tax exemptions and reductions than ETDZs. To be eligible for these, however, it is necessary that an enterprise’s business scope be sufficiently technology-heavy to qualify for entry to an HTDZ.

In Part 2 of this article, we expand our horizons beyond manufacturing zones and into the realm of imports/exports and logistics, including a look at China’s export processing zones, free trade zones and bonded logistics zones.

- See more at: Finding Your “Comfort Zone”: A Guide to Industrial Parks in the Yangtze River Delta (Part 1) | China Briefing News

 

[LeveragedBuyout]

A nice short article to summarize the situation in China. Why is everyone nervous about the economy, why does China need to reform/rebalance, and what are the risks.

China and the cost of stimulus | FT Alphaville

China and the cost of stimulus
David Keohane Comment |

Compare and contrast time. First Nomura, on China’s June credit and money growth data which grew at their fastest pace in three months in June:

M2 growth rose more than expected to 14.7% y-o-y from 13.4% on policy easing, and new total social financing also rose strongly to higher-than-expected RMB1.97trn in June from RMB1.40trn, largely led by off-balance sheet credit.

Stronger money and credit data are positive for short-term growth, but the renewed pick up in off-balance sheet credit raises a longer-term concern – if this is the start of another major upswing in TSF led by a less regulated shadow financing sector, it raises the risk of a sharper slowdown further out.

We continue to expect real GDP growth to stay at 7.4% y-o-y in Q2, unchanged from Q1, and also expect government to ease policies further in Q3, which should help growth to rebound slightly to 7.5% y-o-y in Q3 and 7.6% in Q4.​

Then Peking University’s Michael Pettis, in his latest note:

Beijing can manage a rapidly declining pace of credit creation, which must inevitably result in much slower although healthier GDP growth. Or Beijing can allow enough credit growth to prevent a further slowdown but, once the perpetual rolling-over of bad loans absorbs most of the country’s loan creation capacity, it will lose control of growth altogether and growth will collapse.

The choice, in other words, is not between hard landing and soft landing. China will either choose a “long landing”, in which growth rates drop sharply but in a controlled way such that unemployment remains reasonable even as GDP growth drops to 3% or less, or it will choose what analysts will at first hail as a soft landing – a few years of continued growth of 6-7% – followed by a collapse in growth and soaring unemployment.

A “soft landing” would, in this case, simply be a prelude to a very serious and destabilizing contraction in growth. Rather than hail the soft landing as a signal that Beijing is succeeding in managing the economic adjustment, it should be seen as an indication that Beijing has not been able to implement the reforms that it knows it must implement. A “soft landing” should increase our fear of a subsequent “hard landing”. It is not an alternative.
​

Pettis’s point is that what could be construed as good news coming out of China is really nothing of the sort. All you are getting is a continued reliance on a unsustainable model.

Now, assuming that is the case above — and, as ING’s Tim Condon says, it’s probably worth waiting for another month before drawing that conclusion since seasonal factors might be warping the numbers — you have two broad ways of looking at it.

One, it’s business as usual and China will continue along a path of investment driven growth until they no longer can. Or two, this is China’s reform minded leadershipgiving due deference to danger in the property market while throwing sops to the elites they are up against in attempting to rebalance the economy.

If you buy Pettis’s argument, you’ll hope it’s the latter. For the record, he “would give two chances out of three that Beijing will manage an orderly “long landing”, in which growth rates continue to drop sharply but without major social disruption or a collapse in the economy.”

 

[Beidou2020]

A nice short article to summarize the situation in China. Why is everyone nervous about the economy, why does China need to reform/rebalance, and what are the risks.

China and the cost of stimulus | FT Alphaville

China and the cost of stimulus
David Keohane Comment |

Compare and contrast time. First Nomura, on China’s June credit and money growth data which grew at their fastest pace in three months in June:

M2 growth rose more than expected to 14.7% y-o-y from 13.4% on policy easing, and new total social financing also rose strongly to higher-than-expected RMB1.97trn in June from RMB1.40trn, largely led by off-balance sheet credit.

Stronger money and credit data are positive for short-term growth, but the renewed pick up in off-balance sheet credit raises a longer-term concern – if this is the start of another major upswing in TSF led by a less regulated shadow financing sector, it raises the risk of a sharper slowdown further out.

We continue to expect real GDP growth to stay at 7.4% y-o-y in Q2, unchanged from Q1, and also expect government to ease policies further in Q3, which should help growth to rebound slightly to 7.5% y-o-y in Q3 and 7.6% in Q4.​

Then Peking University’s Michael Pettis, in his latest note:

Beijing can manage a rapidly declining pace of credit creation, which must inevitably result in much slower although healthier GDP growth. Or Beijing can allow enough credit growth to prevent a further slowdown but, once the perpetual rolling-over of bad loans absorbs most of the country’s loan creation capacity, it will lose control of growth altogether and growth will collapse.

The choice, in other words, is not between hard landing and soft landing. China will either choose a “long landing”, in which growth rates drop sharply but in a controlled way such that unemployment remains reasonable even as GDP growth drops to 3% or less, or it will choose what analysts will at first hail as a soft landing – a few years of continued growth of 6-7% – followed by a collapse in growth and soaring unemployment.

A “soft landing” would, in this case, simply be a prelude to a very serious and destabilizing contraction in growth. Rather than hail the soft landing as a signal that Beijing is succeeding in managing the economic adjustment, it should be seen as an indication that Beijing has not been able to implement the reforms that it knows it must implement. A “soft landing” should increase our fear of a subsequent “hard landing”. It is not an alternative.
​

Pettis’s point is that what could be construed as good news coming out of China is really nothing of the sort. All you are getting is a continued reliance on a unsustainable model.

Now, assuming that is the case above — and, as ING’s Tim Condon says, it’s probably worth waiting for another month before drawing that conclusion since seasonal factors might be warping the numbers — you have two broad ways of looking at it.

One, it’s business as usual and China will continue along a path of investment driven growth until they no longer can. Or two, this is China’s reform minded leadershipgiving due deference to danger in the property market while throwing sops to the elites they are up against in attempting to rebalance the economy.

If you buy Pettis’s argument, you’ll hope it’s the latter. For the record, he “would give two chances out of three that Beijing will manage an orderly “long landing”, in which growth rates continue to drop sharply but without major social disruption or a collapse in the economy.”

Just another 'China collapse' article.

Just one of about 1 million that have proven to be dead wrong for the past 40 years.

 

[LeveragedBuyout]

Just another 'China collapse' article.

Just one of about 1 million that have proven to be dead wrong for the past 40 years.

You clearly didn't even bother to read the article. To save yourself (and me) time in the future, please consider adding me to your ignore list.

 

[Edison Chen]

A very informative video, and I agree with the analysis and prescription.

00:37, this professor is very correct, his point is in 1990s China took steps to force up the savings by constraining the growth of consumption, and then allocating these savings to investments.

Deposit rate was very low since 1996, but people had to keep their money in the 4 state owned banks, because lack of threat of new entrants (the government policy and capital requirement and regulation was very strict). I think at that time those banks were performing some government functions, strictly speaking, they are not real commercial banks. They, on the behalf of government, lend the money mostly to state owned manufacturing companies, to secure and maintain the economy growth. So, people's income was low, even until now. The economy grows by sacrificing people's earning. That's why our consumption percentage of GDP is low.

 

[Jlaw]

Just another 'China collapse' article.

Just one of about 1 million that have proven to be dead wrong for the past 40 years.

The problem is China's universities are hiring pro western, liberal minded professors to teach the young people. They need to stop hiring fortune telling economics professor like Michael Pettis and I'm sure others too.

Feeding poison into the minds of the young students is never a good thing.

 

[LeveragedBuyout]

The problem is China's universities are hiring pro western, liberal minded professors to teach the young people. They need to stop hiring fortune telling economics professor like Michael Pettis and I'm sure others too.

Feeding poison into the minds of the young students is never a good thing.

I've lost patience with Beidou's and your posts, to be honest--you two continuously and mindlessly reply to imaginary insults to China that are not present in the post. If you had read the article properly, you would have noticed in the conclusion that the "pro western, liberal minded professor" concluded that it was likely that China would successfully make the transition to the next stage of development.

I'm going to save all of us from wasting our time further by adding you two to my ignore list. Nothing personal, just business. Good luck.

 

[Beidou2020]

The problem is China's universities are hiring pro western, liberal minded professors to teach the young people. They need to stop hiring fortune telling economics professor like Michael Pettis and I'm sure others too.

Feeding poison into the minds of the young students is never a good thing.

100% agree with you. Those anti-Chinese professors should be fired from all Chinese universities. CPC is making a grave mistake in allow pro-western and anti-Chinese scum from teaching young Chinese minds.

00:37, this professor is very correct, his point is in 1990s China took steps to force up the savings by constraining the growth of consumption, and then allocating these savings to investments.

Deposit rate was very low since 1996, but people had to keep their money in the 4 state owned banks, because lack of threat of new entrants (the government policy and capital requirement and regulation was very strict). I think at that time those banks were performing some government functions, strictly speaking, they are not real commercial banks. They, on the behalf of government, lend the money mostly to state owned manufacturing companies, to secure and maintain the economy growth. So, people's income was low, even until now. The economy grows by sacrificing people's earning. That's why our consumption percentage of GDP is low.

The consumption % is low because Chinese government calculates certain things that should be part of consumption as investment. Other countries count those as consumption so their consumption % is higher than China. A lot of housing related things are considered as investment whereas the rest of the world consider them consumption. If you counted the same way as the rest of the world, Chinese consumption would be over 50% of GDP.

China is the 2nd largest consumer market in the world and because of that low consumption %, people think China don't consume.

 

[Edison Chen]

The consumption % is low because Chinese government calculates certain things that should be part of consumption as investment. Other countries count those as consumption so their consumption % is higher than China. A lot of housing related things are considered as investment whereas the rest of the world consider them consumption. If you counted the same way as the rest of the world, Chinese consumption would be over 50% of GDP.

China is the 2nd largest consumer market in the world and because of that low consumption %, people think China don't consume.

Yep, housing expenditure is a consumption, not an investment activity.

 

[Edison Chen]

Asia stocks manage muted cheer for China growth| Reuters

(Reuters) - Asian stocks held stubbornly steady on Wednesday after China reported economic growth that was just ahead of market expectations, enough to prompt a sigh of relief from investors, but little else.

China's economy expanded by 2.0 percent in the second quarter from the previous quarter, taking annual growth to 7.5 percent. Retail sales and industrial output were either in line with forecasts or slightly higher.

The data confirmed the Asian giant had stabilised after a shaky start to the year but still left the global outlook cloudy, particularly given recent weakness in the euro zone.

"The GDP figure is in line with our expectation, but the underlying momentum and recovery is still at a fragile state, especially given the property market correction," said Chang Jian, an analyst at Barclays based in Hong Kong.

"The recovery is quite dependent on the government support."

MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.1 percent while Japan's Nikkei barely budged.

Markets in China managed only a muted cheer and the Shanghai index dipped 0.1 percent.

Wall Street had provided scant direction after investors gave a muddled reaction to testimony from Federal Reserve Chair Janet Yellen.

Yellen reiterated that the U.S. labour market was far from healthy and signalled the Fed would keep monetary policy loose until hiring and wage data show the effects of the financial crisis are "completely gone".

Yet bond investors fixed on a comment that rates could rise more quickly should the labour market continue to improve at a rapid pace, and shoved up short-term Treasury yields.

The latest U.S. economic news was generally upbeat as a solid rise in core retail sales in June combining with upward revisions to past months led analysts to nudge up estimates for economic growth in the second quarter.

The Dow ended up a bare 0.03 percent, while the S&P 500 lost 0.19 percent and the Nasdaq dropped 0.54 percent.

High-flying social media and biotechnology shares took a hit after the Fed singled out the valuation of the sector as "substantially stretched."

But there was some brighter news for the tech sector as chipmaker Intel jumped more than 4 percent after beating estimates.

EURO BLUES

JPMorgan Chase & Co and Goldman Sachs outperformed after reporting strong results. JPMorgan finished up 3.5 percent and was the biggest gainer on the Dow.

The contrast to Europe was stark as banking shares were sideswiped when Portugal's Banco Espirito Santo slumped 17.5 percent to a fresh record low. Traders blamed concerns over the bank's Angolan loan portfolio and the sale of a stake at a low price by the bank's founding family on Monday.

Also not helping was the ZEW survey showing German analyst and investor morale dropped in July for a seventh straight month to its lowest level since December 2012.

European shares ended down 0.4 percent, while the euro took collateral damage and fell to $1.3567.

The single currency also took a mauling from the pound, which jumped when UK inflation surprised with a high reading, stoking speculation for interest rates to rise this year.

The euro sank to a two-year trough at 79.08 pence, while sterling made a six-year peak on the dollar at $1.7191. The U.S. currency still managed to gain elsewhere and its index edged up to a three-week high at 80.416.

An early mover in Asia was the New Zealand dollar, which slid to $0.8714 after the country reported softer-than-expected inflation.

In commodity markets, gold fell back to $1,295.96 an ounce and further away from last week's peak at $1,345.

Oil prices extended their recent decline as rising Libyan supplies and downbeat economic data from Europe sharpened concerns the global market was heading into a near-term glut.

World oil prices have been falling for three weeks now as traders shift their focus from violence in Iraq and Libya to weak global fundamentals.

Brent futures lost another 18 cents to $105.84 a barrel, having shed over a dollar on Tuesday. U.S. crude futures recouped a little of their losses to be up 23 cents at $100.19 a barrel.

(Editing by Clarence Fernandez)