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Saturday, December 31, 2011
China Pins Hopes on Public Housing
One of the biggest public-housing projects in history will help determine whether China can remake its real-estate sector fast enough to prevent its economy from flaming out.
China is in the midst of a crash program to build 36 million subsidized apartments by the end of 2015—enough units to house the entire population of Germany. The goal is twofold: to head off social unrest by ensuring decent places to live for low-wage workers, but also to cushion an expected fall in high-end construction—the result of policies to tame property speculation—by ramping up construction at the low end: so-called social housing.
"Social housing is the No. 1 priority when it comes to support economic growth, ensure social stability and bring down average housing prices, as far as the government is concerned," said UBS analysts Tao Wang and Harrison Hu in a recent note.
The slowdown in China's growth is becoming evident in nearly every new release of economic data. On Friday, a manufacturing survey indicated contraction for a second straight month. Exports, which along with real estate have become the economy's biggest question marks, showed a pronounced dip in the HSBC's Purchasing Managing Index, which came in at 48.7 in December, below the 50 reading that marks expansion.
Beijing's trading partners are closely watching its economic shifts: China's construction sector uses as much steel annually as the U.S., Japan and Germany combined, Ms. Wang notes. Glass, concrete, energy, furniture, home appliances and other industries also rely on China's housing market.
In China, those sectors account for more than 25% of GDP, and the social-housing push thus aims to be a form of economic stimulus that could spell the difference between a gentle slowing of China's growth—or a sharp plunge.
But the vast experiment faces a number of pitfalls that could risk damaging a crucial economic engine at a time of weakness elsewhere around the globe. Those problems include inflated accounts of progress, shoddy construction and problematic financing.
One of China's most ambitious social-housing efforts is under way in the southwestern metropolis of Chongqing.
Last month, Xiang Yuankun, a 26-year-old Chongqing factory worker, moved into a two-bedroom rental for just $85 a month. He snagged the apartment after entering a lottery for those earning less than 2,000 yuan, or $315, a month and living in less than 13 square meters, or 140 square feet, the size of a parking space.
His new apartment "is a privilege," he says.
But critics argue that Beijing is mismanaging the social-housing effort. While the central government set the housing goal, it has largely left the implementation and financing to local governments, which get much of their revenue by selling land to developers for luxury apartments, not low-profit housing.
There is widespread suspicion that Chinese municipalities are inflating the number of apartments they are building, or relabeling projects already under construction as social housing. In November, for instance, the Ministry of Housing said work on foundations was sufficient to qualify as "housing starts," prompting derision that it was counting holes in the ground. Of 30 developers surveyed by Standard Chartered Bank, 21 said that less than 30% of the social housing being built was actually new construction.
The social-housing project may also lead to bad loans a few year's down the road. "The lion's share of the funding comes from the [state-owned] banking system," said He Fan, an economist at the Chinese Academy of Social Sciences. While apartment sales may turn a profit, rental properties probably won't, which "will be a heavy burden for banks," he said. He compares the program to "highways in the desert," which he claims some local governments have built to meet highway-construction targets.
There is plenty of evidence of rushed efforts. Wang Yulan, a 56-year old retiree, moved into her new city-built apartment in a 33-floor Chongqing tower three months ago and immediately found a broken cupboard hinge, leak stains on both sides of her short foyer and badly misaligned window sills.
The city's mayor, Huang Qifan, dismisses criticism: "It is just like using a magnifying glass to check the quality of the skin of a beautiful lady," he says.
Mr. Huang has chosen a risky strategy: locating the bulk of the housing many miles from the crowded downtown in the hope that the new towns will eventually develop into new centers of activity. Chinese policy makers' build-it-and-they-will-come approach has worked in some cases, most prominently in Shanghai's bustling Pudong district. But in other cases, it has led to the construction of so-called ghost cities: neighborhoods devoid of tenants or employers.
Critics point to a proliferation of ghost towns as evidence that China's real-estate market is a bubble that's bound to burst in a way that will badly damage the Chinese economy.
A looming supply of cheaper housing may be one factor now undercutting demand for property and also prices. In Shanghai, China Overseas Land recently discounted a batch of apartments by 25%. Nationwide in November, apartment prices were 0.17% lower than the previous month, the second month of falling prices, and some analysts predict new apartments may sell for about 30% less in 2012 than they did this year.
"The country will maintain its unswerving stance of the regulation of the property market next year to make housing prices return to a reasonable level," the China's Politburo, the Communist Party's top decision-making body, said in a statement on Dec. 9.
To compensate the government is doubling down on its bet on social housing.
Set more than 40 kilometers (about 25 miles ) from Chongqing's downtown, Xiyong Micro-Machinery Industry Park Low-Cost Housing Project consists of more than 55 buildings topping 30 floors, each painted pale green with white trim and some draped with red banners with hammer-and-sickle logos of the Communist Party. The nearly complete project consists of 20,000 two-bedroom and studio apartments. Each rental unit is furnished with a stove and toilet-shower room, but no hot water or closets. Refrigerators may need to go in the living room. Many units have patios.
Outside the front gate, there's a new stainless-steel bus shelter for a yet-to-come bus route. A subway is planned, but won't open until 2013. Across the quiet eight-lane byway near the project is farmland. A villa development and a mall called "Premier Intellectual City" flank the low-cost housing project. Nearby, workers are putting the finishing touches on an electronics factory. It is a far cry from the glitzy $3.5 billion luxury apartment-hotel-mall project Chongqing has just announced for its downtown.
Rosealea Yao, a real-estate specialist at Dragonomics Research in Beijing, is skeptical that projects in the deep suburbs will generate enough revenue to cover the interest on the loans taken out to build them, producing a drain on the city's budget for years to come. Many of the apartments are too small, she adds, to convince migrants to bring their families to live with them, making them little more than nicer versions of migrant dormitories.
The Chongqing city government says it can comfortably finance the projects and would subsidize its cost. "We don't have to worry about a bubble or nonperforming assets," said a statement by the mayor's office.
China moving to more convertible yuan: Zhou
(Reuters) - China's central bank governor argued in comments published on Saturday that Beijing does not control the yuan's flow across borders as tightly as some think and that it is natural for the currency's trading band to be widened over time.
Zhou Xiaochuan said in an interview with Chinese magazine Caixin that China did not fare badly on an International Monetary Fund measure of currencies' convertibility under the capital account.
But he stopped short of calling for a fully convertible currency.
"If the highest standard of measurement is to have wholly unrestricted convertibility, then so many developed countries have not achieved 100 percent full convertibility," Zhou told the magazine.
Investors increasingly expect that China will give them more freedom to trade the tightly controlled yuan.
While the currency is already convertible under China's current account, the broadest measure of trade in goods and services, the capital account, which measures inflows and outflows of different types of capital, is still closely managed by Beijing as it worries about capital flight and hot money inflows.
Countries with convertible currencies under their capital account let their currencies trade with few restrictions for investment purposes.
Zhou noted China must regulate levels of foreign debt incurred by private and public sectors to reduce currency risks, monitor cross-border deals to guard against illegal activities such as money laundering, and combat speculative capital flows.
"Excluding the above three factors and judging from the 40 sub-items set by the IMF, you may find that actually China is not that far from capital account convertibility," Zhou said.
Still, he said Beijing would keep improving the exchange rate regime to make it more flexible, adding it is natural for the currency to fluctuate in a bigger trading band in future.
"The yuan's trading band will be widened," he said.
China currently lets the yuan trade in a 0.5 percent range, and moves to increase that band would show Beijing is gradually relaxing its control over the currency.
"Compared with international markets, you may know that the 0.5 percent (daily trading band) is quite a small floating band," Zhou said.
INFLATION CONCERNS WANING
Investors had speculated earlier this year when China was fighting three-year high inflation that Beijing would widen the yuan's trading band to accelerate its rise and combat price pressures.
Instead, Beijing raised interest rates three times, moves that have produced some tentative success: Inflation eased to 4.2 percent in November, down from a 6.5 percent high in July.
Zhou acknowledged that price pressures are easing and that the job of fighting inflation is not as urgent as before. But he warned against complacency.
"Inflationary pressure is easing, and curbing inflation is not as urgent as in 2011," he said. "But we should not lower our guard against inflation and must appropriately manage inflation expectations."
He said that it is difficult for China to achieve the government's annual inflation ceiling of 4 percent this year and he expects inflation to be around 5 percent this year.
"China has been always having relatively big scope to adjust its monetary policy," Zhou said when asked whether a drop in China's foreign exchange purchases in recent months has given the central bank more room to adjust monetary policy.
President Hu Jintao in his televised New Year's address on Saturday, said the government would continue to maintain relatively fast economic growth and manage inflationary expectations in the year ahead.
But he also warned that "uncertainty about the global economic recovery is on the rise."
The yuan closed at a record high against the dollar on Friday, passing through resistance at 6.30 and ending 2011 with an appreciation of 4.7 percent, with traders citing signs of central bank intervention to push the yuan up at the end of the year.
The yuan's gains for the year are in line with the 4 to 5 percent traders in the onshore market had expected at the start of the year.
Traders still see the yuan appreciating in 2012 as China faces U.S. pressure to do more to rebalance bilateral and world trade, while it continues to record trade surpluses.
A Chinese Official Tests a New Political Approach
BEIJING — In a year of China under lockdown, when dissident writers have received breathtaking prison sentences and the mere whisper of a “Jasmine Revolution” has spurred mass detentions, perhaps the riskiest thing a Chinese politician could do is put his iron glove on the shelf.
Which makes Wang Yang’s gamble this month in Wukan all the more interesting.
Mr. Wang, the up-and-coming Communist Party secretary of the southern Chinese province of Guangdong, faced a political turning point when 13,000 irate residents of Wukan evicted their leaders and barricaded themselves in their coastal village for 13 days in a last-straw uprising against local corruption.
Given a choice of storming the village with armed police officers or conceding that the villagers’ complaints had merit, Mr. Wang chose the latter. And in a single morning, he defused a standoff that had drawn unflattering worldwide news coverage.
The decision won him praise in the Communist Party’s flagship newspaper, People’s Daily, which called it an act of “political courage” in a tense situation. Some analysts said it might have strengthened his already strong prospects to land a seat on China’s elite ruling body, the nine-member Standing Committee of the party’s Politburo, when a wave of mandatory retirements vacates seven of the seats this coming year.
And it raised the hopes of those here who want someone liberal — as defined by China’s restrictive definitions — to push for political and social reforms at the highest level of China’s leadership.
“He seems to favor reform,” said Zhang Lifan, a historian formerly with the government-run Chinese Academy of Social Sciences. “At least Mr. Wang realizes that maintaining stability with force and violence is both economically and politically unsustainable, and came up with an alternative that seems to work better.”
But as is amply shown by the travails of China’s best-known quasi liberal, Prime Minister Wen Jiabao, having a soft heart for the dispossessed gets a politician only so far in a party where stability is the trump card.
“How high can a man jump?” asked Yan Lieshan, a senior editor of Southern Weekly, a Guangzhou-based newspaper known for hard-hitting reporting. “If officials overstep the limits set by the central government, their positions will become untenable.”
And in fact, while Mr. Wang has sometimes talked boldly about how power should not be concentrated in a “minority of elites,” many liberal-minded analysts characterize his own initiatives in Guangdong as modest, at best.
“Wang Yang’s problem is when you try to make reform happen inside the system, if you go too fast you hurt the interests of others, and they will gang up on you to eliminate you,” Mr. Zhang said.
Like President Hu Jintao, widely seen as his ally, Mr. Wang, 56, comes from modest circumstances in Anhui, one of China’s poorest provinces. Forced to leave school at 17 to work in a food factory, he got his political start in the early 1980s in Anhui’s Communist Party Youth League, serving under Mr. Hu, who led the organization. One political insider said Wan Li, the Anhui party secretary who served as China’s vice premier through most of the 1980s, first noticed Mr. Wang in Anhui and remained an influential backer.
After impressive stints in local, provincial and national jobs, Mr. Wang gained two posts in 2007: membership on the 24-member Politburo and appointment as party secretary of Guangdong, China’s most populous province and the government’s minilaboratory for more progressive policies.
Almost immediately, he talked of “thought emancipation” and the need to pioneer changes — and just as quickly hit head winds.
On the economic front, he tried to use administrative levers to replace low-end, heavily polluting workshops and factories with high-tech, value-added industries. That prompted fierce resistance from local officials, who argued that deserting the factories that drove Guangdong’s export-based economy would be fiscal suicide.
Lin Jiang, an economics professor at Sun Yat-sen University, said Mr. Wang tried to carry out a basically sound policy too hastily, costing him crucial local support. Still, like other academics, Mr. Lin credits him with reaching outside traditional circles for fresh points of view.
On the political front, Mr. Wang began a campaign for “Happy Guangdong,” derided by critics as empty sloganeering. But he also spoke more seriously of officials’ need to heed the “sunken voices” of the masses. In June, he declared that “the economic rights of some of the grass roots have not been protected and their political rights are not being realized.”
Solving those problems, he added, is more important than “singing and praising glories.” Many took that as a jab at Bo Xilai, the ambitious party secretary of the Chongqing municipality who has pushed to revive Maoist culture and is often portrayed as Mr. Wang’s rival.
But Mr. Wang’s apparent support for greater political openness has not borne much fruit. Six months into his tenure, he considered making Shenzhen, the commercial hub of more than 10 million that is considered the birthplace of China’s economic reforms, a showcase for political change. The plan envisioned a gradual shift to the direct election of many officials, a strengthening of local legislatures and a study of how the party-controlled judiciary could be made independent.
None of that came to pass. “The plan was really bold and probably too radical,” said Xiao Bin, an economics professor at Sun Yat-sen University. At a meeting in August 2008 in Shenzhen, he said, he warned Mr. Wang and others that “anything so comprehensive coming out of Shenzhen would send shock waves around the country” — and ultimately backfire.
Instead, Mr. Wang approved more mundane administrative reforms in a relatively obscure district called Shunde, combining 41 government departments and their parallel party structures into 16. Scholars say the new structure is more efficient, with fewer party functionaries lacking clear duties.
Mr. Wang also allowed Guangzhou, the provincial capital, to publish its budget for the first time in October 2009. While a national law passed the previous year allowed Chinese citizens to request such information, it also gave officials wide latitude to withhold it to protect state secrets or society’s interests. Indeed, on the same day that Guangzhou posted figures for 114 agencies online, Shanghai declared its budget a state secret. So many people tried to view the Guangzhou budget that the Web site’s server crashed. After angry citizens complained that the city had allocated more than $11 million to operate kindergartens for the children of government workers, the city agreed to gradually reduce the subsidy.
Guangdong also made it easier for nongovernmental organizations like charities and environmental groups to register as legal entities. As of next July, organizations no longer will be required to find a “responsible supervisor” — typically a government-run organization with a party committee — to sponsor their registration.
Provincial officials say the change that could aid the development of civil society in a province where the number of nongovernmental organizations already is rising more than three times as fast as the national average.
If such loosening is unorthodox, it is nothing compared with the risks Mr. Wang could face by taking a more tolerant approach to antigovernment protests.
His peaceful settlement of Wukan’s uprising earns praise in Beijing now. But that could turn into accusations of soft-heartedness and strategic miscalculation should his conciliatory approach lead to more and bolder protests.
Even some of Guangdong’s local party cadres do not seem fully onboard. Consider the Dec. 19 outburst from Zheng Yanxiong, the party secretary of the city whose territory includes Wukan, two days before Mr. Wang’s emissary settled the Wukan villagers’ grievances.
“There’s only one group of people who really experience added hardships year after year. Who are they? Cadres, that’s who. Me included,” Mr. Zheng railed during a session with Chinese reporters. “Your powers decline every day, and you have fewer and fewer methods at your disposal — but your responsibility grows bigger and bigger every day.”
“Ordinary people want more and more every day,” he continued. “They grow smarter every day, and they are harder and harder to control.
“Today’s government officials are having a hard time.”
Man dies from bird flu in southern China
BEIJING — A bus driver in southern China who contracted the bird flu virus died Saturday, health authorities said, in the nation's first reported human case of the deadly disease in 18 months.
The man, surnamed Chen, died in Shenzhen -- a boomtown that borders Hong Kong where thousands of chickens have already been culled after three birds tested positive for the H5N1 avian influenza virus in mid-December.
He developed a fever on December 21 and was taken to hospital four days later, and diagnosed with severe pneumonia, said the health department in Shenzhen, a city of more than 10 million people.
The 39-year-old then tested positive for the H5N1 virus, the department said, adding he had apparently had no direct contact with poultry in the month before he was taken ill, nor had he left the city.
The H5N1 virus is fatal in humans in about 60 percent of cases.
However, it does not pass easily among humans, and the World Health Organization says it has never identified a "sustained human-to-human spread" of the virus since it re-emerged in 2003.
The health department in Guangdong province, where Shenzhen is located, announced Saturday that the bus driver died after his lung, heart and liver functions deteriorated.
"So far, 120 people who have had close contact with him have not presented abnormal symptoms," it said in a statement.
An official at the Shenzhen agriculture and fisheries bureau, surnamed Jiang, told AFP the bus driver had had no contact with birds.
"So far, we have not received any reports of any birds being infected," he said.
"It is unclear where the patient got the flu from. We will not make any plans to kill domestic birds unless we know that was the source, or if there is any sign of birds being infected."
Chinese and Hong Kong authorities have been working closely together since December 21 after live poultry supplies were suspended to the glitzy financial hub following the discovery of infected birds.
A spokesman for the Hong Kong health department said in a statement authorities would heighten their vigilance "and continue to maintain stringent port health measures in connection with this development".
Health authorities in China have also vowed to stay in "close contact and work together" with Hong Kong and "jointly step up measures in controlling the epidemic", the official Xinhua news agency said.
China is considered one of the nations most at risk of bird flu epidemics because it has the world's biggest poultry population and many chickens in rural areas are kept close to humans.
In the last reported human case in China, a young pregnant woman died of bird flu in June 2010 in the central province of Hubei.
The bus driver's death brought to 27 the number of people who have died in China since 2003, out of 41 reported human cases.
Authorities in Hong Kong have raised the bird flu alert level to "serious" since they discovered infected chickens, resulting in major disruptions to poultry supplies over the busy Christmas period.
The avian influenza virus has killed more than 330 people around the world, with Indonesia the worst-hit country. Most human infections are the result of direct contact with infected birds.
Scientists fear H5N1 could mutate into a form readily transmissible between humans, with the potential to cause millions of deaths.
Highlighting those fears, the World Health Organization said on Friday it was "deeply concerned" about research into whether H5N1 could be made more transmissible between humans after mutant strains were produced in labs.
Two separate research teams -- one in the Netherlands and the other in the United States -- separately found ways to alter the virus H5N1 so it could pass easily between mammals.
China says finds no more excess toxins in milk
(Reuters) - China's quality watchdog said it has found no further problems with milk tainted by high levels of carcinogenic mildew in tests of products by major dairy producers.
Public concern was triggered this week after milk giant Mengniu Dairy Co Ltd said its Sichuan plant had destroyed products found by a government quality watchdog to contain the cancer-causing substance aflatoxin.
Aflatoxin occurs naturally in the environment and is produced by certain common types of fungi. It can cause severe liver damage, including liver cancer.
The General Administration of Quality Supervision, Inspection and Quarantine said in a statement late on Friday that checks covering other major producers "did not discover levels of aflatoxin which exceed standards."
The companies tested included Mengniu, Beijing Sangyuan Foods Co, Yili Industrial Group Co, Nestle SA and Bright Dairy & Food Co, it said.
Fungi and the aflatoxin they produce can infect crops before harvest or during harvesting and storage. The tainted crops then enter the food chain either directly or indirectly via animal feed.
The official Xinhua news agency, citing a quality watchdog official, said the toxin had originated from cows eating mildewed feed.
The aflatoxin scare has since spread to some cooking oils and peanuts in the southern province of Guangdong.
These incidents are the latest in a string of safety scandals to hit China's food industry in recent years.
In 2008, at least six children died and nearly 300,000 became ill in China from drinking powdered milk laced with melamine, an industrial chemical added to low-quality or diluted milk to give misleadingly high protein readings.
Friday, December 30, 2011
Space Plan From China Broadens Challenge to U.S.
BEIJING — Broadening its challenge to the United States, the Chinese government on Thursday announced an ambitious five-year plan for space exploration that would move China closer to becoming a major rival at a time when the American program is in retreat.
Coupled with China’s earlier vows to build a space station and put an astronaut on the moon, the plan conjured up memories of the cold-war-era space race between the United States and the Soviet Union. The United States, which has de-emphasized manned spaceflight in recent years, is now dependent on Russia for transporting its astronauts to the International Space Station. Russia, for its part, has suffered an embarrassing string of failed satellite launchings.
China has been looking for ways to exert its growing economic strength and to demonstrate that its technological mastery and scientific achievements can approach those of any global power. The plan announced Thursday calls for launching a space lab and collecting samples from the moon, all by 2016, along with a more powerful manned spaceship and space freighters.
In recent years, China has also sought to build a military capacity in keeping with its economic might, expanding its submarine fleet and, this year, testing its first aircraft carrier, a refurbished Soviet model. Under the new space plan, it would vastly expand its version of a Global Positioning System, which would have military as well as civilian uses.
The plan shows how the government intends to draw on military and civilian resources to meet the goals, which the government is betting will also produce benefits for the Chinese economy. “This approach offers lessons for other advanced space powers, including the U.S., which needs to make sure it sustains its high-level investment in various aspects of space development across the board,” said Andrew S. Erickson, a professor at the United States Naval War College who has studied the Chinese space program.
While a leader in the business of launching satellites, China is still years behind the United States in space. Its human spaceflight accomplishments to date put it roughly where the United States and the Soviet Union were in the mid-1960s.
But China has consistently stuck to a development timeline for its program and met the realistic goals set out in its five-year plans, which are mainstays of the Communist Party’s authoritarian system.
For human spaceflight, the plan lays out a continuation of China’s steady but unrushed efforts to develop technologies and extend its capacities. It says that China will begin the work to land its astronauts on the moon, but it does not provide a target date for when they will go.
“I think it is a comprehensive, moderately paced program,” said John M. Logsdon, former director of the Space Policy Institute at George Washington University. “It’s not a crash program.”
By contrast, NASA’s direction tends to shift with every change of presidency. President George W. Bush called on NASA to return to the moon by 2020. President Obama canceled that program and now wants the agency to send astronauts to an asteroid. NASA shut down its 30-year space shuttle program after a final flight in July.
“The one thing that is admirable about their program is they don’t have fits and starts,” said Joseph R. Fragola, a space safety expert who has visited the space facilities in China. “Their program is low budget but it is laid out, and they follow it in an orderly process, and we don’t do that.”
Experts say Beijing is approaching its space program the way it did its military modernization. In addition to the aircraft carrier, which it bought from Ukraine, China has also made a progress on an anti-ship ballistic missile, which could be deployed to ward off foreign warships. Last January, the Chinese military tested a stealth fighter hours before Robert M. Gates, the defense secretary at the time, met in Beijing with President Hu Jintao.
Unlike in the United States, where there are separate military and civilian space programs, in China the People’s Liberation Army is the driving force behind development of the Chinese space program. Civilian institutions, including various universities and laboratories, are part of the military-led efforts. In the white paper that laid out the plan, released by the State Council, China’s cabinet, the authors took pains to say that Beijing was not seeking to challenge any nation militarily with its space program.
“China always adheres to the use of outer space for peaceful purposes, and opposes weaponization or any arms race in outer space,” the paper said.
Analysts say one of the more notable goals of the five-year strategy is to further develop the Beidou Navigation Satellite System, which on Tuesday began providing navigation, positioning and timing data on China and surrounding areas. The white paper said China intended to have a global system by 2020, with 35 satellites in orbit. If it met that goal, China would join Russia in having a system that tries to rival America’s. China has already launched 10 satellites for the Beidou system, and plans to launch six more next year.
Beidou is not as advanced as its American counterpart, but it is expected to overshadow the Russian system and would provide the Chinese military with an alternative to relying on a civilian version of the American network. Beidou would also be used for civilian purposes, like providing drivers with a navigation tool.
“This has major commercial implications, it has major security implications,” Mr. Erickson said. “To be a great military and space power, it’s important to have one’s own satellite navigation system.”
The white paper, which follows similar reports released in 2000 and 2006, also said China would develop new Long March launch vehicles to deliver heavier payloads into orbit. It will also work on improving conditions for human spaceflight.
To lay that groundwork, the paper said, China “will launch space laboratories, manned spaceship and space freighters; make breakthroughs in and master space station key technologies, including astronauts’ medium-term stay, regenerative life support and propellant refueling; conduct space applications to a certain extent and make technological preparations for the construction of space stations.”
On deep-space exploration, the paper said China planned to launch orbiters that would make soft lunar landings and do roving and surveying. After that, the paper said, China will collect samples of the moon’s surface and bring them back for analysis.
The paper also said China planned to carry out a comprehensive plan for upgrading its satellite technology and widening the uses of its satellites.
“In aggregate, this is clearly going to propel China even further into space to a significant degree,” Mr. Erickson said. “There’s relentless progress across the board.”
In 2003, China became the third country to send a human into space, behind the United States and the Soviet Union, when it put Yang Liwei into orbit around the earth. It launched a lunar probe in 2007 that orbited the moon and took pictures, and the next year completed its first spacewalk when Zhai Zhigang remained for 13 minutes outside the Shenzhou 7 spacecraft.
China’s Long March 5 rocket, currently under development, would be able to lift about 25 tons to low-earth orbit, comparable to the United States’ Delta IV Heavy rocket and much smaller than the Saturn V rocket that launched the Apollo spacecraft to the moon four decades ago. But that would be enough for China to get to the moon by launching its lunar spacecraft in pieces and assembling it in the earth’s orbit.
China Shifts Foreign-Investment Focus
China has reshuffled a list of key sectors where it wants to attract foreign investment, downgrading traditional industries like autos and putting more emphasis in emerging fields such as new energy sources.
The changes reflect a broader shift in the country's economic strategy, as leaders seek to transition away from a dependence on heavy manufacturing and toward higher-tech and more environmentally friendly industries.
The National Development and Reform Commission, China's top economic planning agency, publishes a "foreign investment catalogue" every few years that divides investment into broad categories: encouraged, allowed, and restricted. On Thursday it unveiled its latest catalog, which replaces the last one in 2007.
The catalog reflects broad guidelines to be followed by other organs of the state. Specific policies to encourage foreign investment, such as preferential tax structures or streamlined approval processes, are in the hands of various government agencies and local governments.
Foreign investment in auto manufacturing will move from being encouraged to merely being permitted, due to potential overcapacity and "blind investment" in the sector, the NDRC said in a statement. A report by the state-run Xinhua news agency also cited the need to support domestic auto manufacturers.
"This probably reflects the maturity of the Chinese car manufacturing industry. That industry is now at a different stage then it was 10 years ago," said Dirk Moens, secretary general of the European Union Chamber of Commerce in China.
"As long as it is not restricted or banned, we believe it might limit new entry into the market, but it should allow sound operating conditions for those already in the market," he said.
China has surpassed the U.S. to become the largest auto market in the world and a major profit center for global auto makers, although they are still required to operate in joint ventures with Chinese companies, holding maximum stakes of 50%.
Major U.S. car makers predicted that the change would have little impact on their business in China.
"General Motors continues to be a key pillar of the Chinese auto industry," the company said in a statement. "We expect the new guideline to have minimal negative impact on GM's future plans in China."
"This change does not impact Ford's existing investments in China," Ford Motor Co. said in its own statement. "Ford remains strongly committed to the Chinese market, which will drive a large part of Ford's growth globally within this decade and beyond."
Slowing auto sales growth in China, to about 3% this year from about 32% last year, has particularly affected local auto brands, and this has driven authorities to direct more support to domestic auto makers, said Namrita Chow, senior analyst at IHS Automotive.
"We're expecting that there will be more laws that come in to facilitate greater technical know-how flow toward Chinese companies," she added.
At the same time, areas such as alternative energy cars, electrical machinery, Internet equipment, and some service industries are being moved into the encouraged category.
New methods to extract fossil fuels will also receive more favorable treatment. Foreign investors will be allowed to form joint ventures with Chinese companies for the exploration and development of shale oil, oil sands, heavy oil, shale gas and seabed gas hydrate. Previously, foreign companies were allowed only to cooperate with domestic companies in these areas.
However, even in areas where investment is to be encouraged, many restrictions still remain. For instance, the new catalog limits foreign ownership in electric car-battery production to 50%, meaning investors will still have to partner with local companies.
In a draft version of the catalog submitted to the public for comments in April, this 50% limit applied to all parts for new-energy vehicles, but the European Chamber of Commerce, among others, lobbied Beijing to loosen the restrictions.
"I'm happy to see that change," said Mr. Moens. "I would be even more happy to see the restriction on batteries also gone."
China's factories falter, pro-growth policies eyed
BEIJING (Reuters) - China's factory activity shrank again December as demand at home and abroad slackened, a purchasing managers' survey showed on Friday, reinforcing the case for pro-growth policies to underpin the world's second-largest economy.
The People's Bank of China is widely expected to lower its requirement for the amount of cash banks must hold as reserves to let lenders inject more credit into the economy to fight headwinds from Europe's debt crisis and sluggish U.S. demand.
The HSBC Purchasing Manager's Index, designed to preview the state of Chinese industry before official output data are published, inched up to 48.7 in December from a 32-month low of 47.7 in November, but fell short of the flash reading of 49.
The HSBC PMI has been mostly under 50, which demarcates expansion from contraction, since July.
"While the pace of slowdown is stabilizing somewhat, weakening external demand is starting to bite," said Qu Hongbin, China economist at HSBC.
"This, plus ongoing property market corrections, adds to calls for more aggressive action on fiscal and monetary fronts to stabilize growth and jobs, especially with prices easing rapidly."
He said China would avoid a hard economic landing so long as policy easing measures filtered through in coming months.
HSBC believes a PMI reading of as low as 48 in China still points to annual growth of 12-13 percent in industrial output.
China's once turbo-charged economy is on track to slow for a fourth successive quarter, easing further from the first quarter's 9.7 percent annual growth rate with economists expecting the final three months of the year to have slipped below 9 percent.
The official PMI, due to be published on Sunday, is expected to paint a similar picture, suggesting the world's second-largest economy is finishing 2011 on a weak note, in tandem with the global economic outlook.
Both the official and HSBC PMIs are stuck near their weakest levels since early 2009, when China took a blow from the global financial crisis.
Economists polled by Reuters earlier this month forecast the PBOC will deliver 200 bps of required reserve ratio (RRR) cuts by the end of 2012 but refrain from an outright cut in interest rates unless quarterly GDP growth dips below 8 percent.
Economists typically view growth of 7 to 8 percent as the bare minimum needed to generate enough jobs to help China absorb the urban influx of rural migrants and maintain social harmony.
"I think the government will ratchet up pro-growth policies if (quarterly) growth falls below 8 percent, otherwise the economy could face big risks," said Guotai Junan Securities economist Wang Hu in Shanghai.
"Another RRR cut could happen any time."
ROOM FOR RRR CUTS
China's central bank cut reserve requirements for commercial lenders late in November for the first time in three years.
The RRR remains at 21 percent for big banks, giving the central bank plenty of room to cut and free up funds that could be used for lending.
Persistent capital outflows from China are putting more pressure on the central bank to release cash to keep credit conditions supportive for growth.
Underlying indexes of the HSBC PMI showed softening demand at home and abroad, which helped cool inflation -- a boon for Chinese policymakers, according to the data collated by UK-based information firm, Markit.
The sub-index for overall new orders edged up to 46.9 in December from November's 45, but still signaled falling demand. New export orders shrank in a reflection of listless demand from the United States and Europe -- China's top overseas markets.
Average input costs faced by manufacturers continued to moderate as raw material prices slipped, the HSBC survey showed.
Inflation appears to be cooling, having fallen from a three-year high of 6.5 percent in July to 4.2 percent in November, creating additional room for policy easing to support growth.
HSBC's Qu expects the government to move on the fiscal front to boost job creation, cutting taxes for exporters -- a sector employing more than 30 million workers -- while increasing spending on public housing and other projects.
"On top of monetary easing, mainly in the form of further reserve ratio cuts, we have long argued that fiscal policy can and should play a more important role in stabilize growth and jobs," Qu said.
Slowing Chinese Growth Means Ore-Vessel Rates at Lowest in Decade: Freight
The weakest growth in demand in at least a decade for shipments of iron ore, the second-biggest commodity cargo after crude oil, means rates for the largest vessels will plunge to the lowest level since 2002.
Capesizes, each hauling about 160,000 metric tons of ore, will earn an average of $15,000 a day next year, about 4 percent less than in 2011, the median estimate in a Bloomberg survey of 10 analysts shows. While that implies losses for ship owners and investors in their companies, speculators can profit because forward freight agreements, handled by brokers and used to bet on transport costs, are anticipating an average of $16,367, according to data from the London-based Baltic Exchange.
Owners are contending with the biggest fleet in history as vessels ordered when rates reached $233,988 in 2008 continue to leave ship yards. The glut may widen because trade in iron ore will expand 2.5 percent next year as the number of capesizes rises 9.8 percent, according to Clarkson Plc, the world’s biggest shipbroker. Economic growth in China, whose steel mills consume 65 percent of all seaborne ore, will slow to the weakest since 2001, economist estimates compiled by Bloomberg show.
“The question for ship owners now is how are you going to hang on, how long are you going to hang on, and when is the light at the end of the tunnel?” said Andreas Vergottis, the Hong Kong-based research director at Tufton Oceanic Ltd., whose $1.45 billion shipping hedge fund is the world’s largest. “There is definitely no light in the 2012 tunnel.”
Freight Costs
Rates (BCAVRT) for capesizes averaged $15,639 this year, down from $33,298 in 2010, according to the exchange, which publishes freight costs for more than 50 maritime routes. The 1,000-foot- long ships need about $20,000 a day to break even, Oslo-based Arctic Securities ASA estimates.
The combined earnings of the 14-company Bloomberg Pure Play Dry Bulk Shipping Index (BPG4DBS) will drop 82 percent this year, analyst predictions compiled by Bloomberg show. Eight of the companies will report even lower profit or losses for 2012. Kawasaki Kisen Kaisha Ltd. (9107), based in Tokyo and the top capesize operator, will lose money this fiscal year and next.
Chinese growth will drop to 8.5 percent next year, compared with 9.2 percent in 2011, the median of 14 economist estimates compiled by Bloomberg shows. Steel production in the country, which accounts for about 44 percent of the world total, fell in each of the six months through November, according to the Brussels-based World Steel Association. China will import 5.8 percent more iron ore next year, against 10 percent in 2011, Clarkson estimates.
Container Shipping
A rally in capesize rates that began in August and lifted charter costs to $32,889 on Dec. 12 is already fading, declining 16 percent to $27,512 since then, according to the exchange. FFAs anticipate a further drop to $15,096 in the first quarter, bourse data show. The market for the contracts, which also covers oil tankers and container shipping, was valued at $24 billion in 2010, according to the exchange.
Rates may rebound should Chinese growth exceed economists’ expectations. Clarkson, based in London, raised its estimate for 2011 Chinese iron-ore imports three times this year, increasing the forecast by 4.8 percentage points overall. The nation’s economy expanded 10.4 percent in 2010, more than the 9.5 percent anticipated by economists surveyed by Bloomberg in January.
Slumping rates and values for secondhand (BESPCAPE) ships may also spur owners to scrap older vessels. The difference between the price of a 20-year-old capesize and its demolition value declined 47 percent to $3.1 million this year, Clarkson data show. Eleven percent of the fleet is at least 20 years old.
Biggest Cost
Owners may also seek to boost earnings by slowing ships down to burn less fuel, their biggest cost. Capesize speeds averaged 9.6 knots this year, compared with almost 10.7 knots in 2010, ship-tracking data compiled by Bloomberg show. Speed cuts mean vessels take longer to complete voyages and seek new business, effectively reducing the fleet’s capacity.
The number (VESLCPIS) of capesizes has risen 58 percent to 1,186 since the end of 2007 and outstanding orders at yards equate to 27 percent of existing capacity, according to data from Redhill, England-based IHS Fairplay.
There are also gluts beyond so-called dry-bulk commodity shipping. Returns from hauling Saudi Arabian crude to Japan, the industry’s benchmark route, fell 53 percent to $12,445 a day this year, according to the exchange. That’s less than the $30,200 that Hamilton, Bermuda-based Frontline Ltd. (FRO), the biggest operator of supertankers, says it needs to break even.
Trading Route
An index (CTEXIDEX) reflecting charges for six types of containers slid 43 percent since the start of April, according to the Hamburg Shipbrokers’ Association. Volumes of steel boxes carrying everything from televisions to furniture to the U.S. from Asia, the biggest inter-regional trading route, dropped for the first time in almost two years in the third quarter, according to Newark, New Jersey-based PIERS, which operates a database of U.S. waterborne trade activity.
It’s not just capesize owners suffering within dry-bulk shipping. Panamaxes (BPRATCR), which carry about half as much cargo, will earn $13,250 a day in 2012, compared with an average of $14,000 this year, the Bloomberg survey of analysts shows.
The Bloomberg Dry Bulk Pure Play Index, which also includes shipping companies that operate panamaxes, plunged 45 percent this year, compared with a 10 percent decline by the MSCI All- Country World Index of equities. Treasuries returned 9.7 percent, a Bank of America Corp. index shows.
Kawasaki Kisen, which has 82 capesizes, will report a net loss of 33.2 billion yen ($427 million) for the fiscal year ending in March, compared with net income (9107) of 30.6 billion yen in the prior period, the mean of 17 analysts’ estimates shows. The loss will shrink to 11.6 billion yen in the following year. Shares of the company, which also operates other vessel types, fell 61 percent this year in Tokyo trading.
“Dry bulk has a massive demand driver in China,” said Erik Nikolai Stavseth, an analyst at Arctic Securities in Oslo whose recommendations on shipping companies returned 12 percent in the past year. “But as vessels keep being built, you basically need another China to mop up all the ships.”
Hertz China
Car rental giant ready to shift into overdrive
To remain viable, American car rental giant Hertz Global Holdings Inc is diversifying its services in China instead of just relying on multinational companies for cash.
"China is a country with a huge population, so to serve foreigners and multinationals is less than enough," says Susan Xu, marketing director of Hertz China.
Established in 1918, Hertz has more than 8,000 offices in 146 countries. It is the largest car rental company in the United States, owning 30 percent of the car rental market at major US airports.
In Europe, it is the third-largest car rental company, with 69 airport locations.
Last year, the company's revenue from its car rental business totaled $6.5 billion worldwide.
Hertz China is contributing a very small fraction to its global revenue, the company admits, although it entered China in 2002. Like all car rental companies in China, its corporation is still financially supporting Hertz China.
"Hopefully in three years, we can break the balance when customers have accumulated," Xu says.
Currently, 80 percent of its revenue comes from multinationals who have signed global contracts with Hertz, Xu says.
"In 2002, the Chinese operations were established mainly to serve customers who needed to rent a car overseas. But in 2009, Hertz realized the potential of the local market and decided to switch the focus," Xu says.
Hertz made a great leap this year. It added three outlets in China: Tianjin, Chengdu and Shenzhen. Between 2002 and 2010, it had only two offices in China - one in Beijing and another in Shanghai.
In August, Hertz China partnered with GE to sign an agreement with the Shanghai government to roll out electric car rentals, sending the message that Hertz is tightening its relations with local governments.
To better communicate with Chinese clients, Hertz hired Chinese managers and salesmen and saleswomen to explore the local market. Even the CEO frequently visits China.
At the same time, it is targeting the rising Chinese middle-class consumers who travel abroad for fun. According to the National Tourism Administration of China, outbound travel increases by 20 percent in China every year.
"There is huge potential in this segment," Xu says. "As we have nearly 150 locations around the world, we have advantages in offering the global services."
Hertz China plans to work with its travel agent partners to extract more business from travelers heading overseas. It is also promoting its global solutions program by offering special services to attract individual customers.
Hertz China helps Chinese drivers apply for international licenses and foreigners obtain the proper paperwork for Chinese licenses.
Xu agrees that the dependence on multinationals is a double-edged sword for Hertz. "In terms of corporate clients, we are already ahead of many competitors, thanks to our multinational ties; but we are not very successful in the consumer market," Xu says.
Ou Guoli, a professor from Beijing Jiaotong University with research focus on transportation, says Hertz has to move beyond its global network. "In China, multinationals are a big market segment for car rental companies. But more potential lies in individual customers."
He adds that Hertz is a brand for ordinary consumers in international markets, and it should reinforce that idea in China.
However, Hertz's expansion efforts seem conservative when considering its Chinese competitors.
Compared to Hertz's five offices, eHi Car Service has 300 outlets in 50 cities and Topone Car Rental has opened outlets in 26 cities.
"We want to make sure the business is profitable before we move on," Xu says. "Scale is not our major concern right now."
As a pioneer of car rentals, Hertz's practices have been copied by latecomers - to offices inside airports, the ability to return cars to different cities, and offering GPS devices and mobile phone services inside the car.
However, when this system was brought to China in 2002, Hertz found it hard to sustain because individual customers were scarce. Reports of fraud and car damage were consistently occurring, and there were no laws or regulations outlawing these types of activities.
Running a car rental business in China is much more costly than in the US, too, Xu says, because the company has fewer channels to get rid of older vehicles.
"In the US, Hertz (typically) signs agreements with car manufacturers who buy back the used cars after one to two years at a good price," she says. "But (here), we are working together with the global headquarters to negotiate the purchase price (with manufacturers)."
Huang Zhibiao, marketing director of Topone Car Rental, says the Chinese market is very different from the US, and foreign companies, such as Hertz, have to adapt to this condition to survive in this country.
"In China, many customers prefer to hire a driver when renting a car instead of driving cars by themselves. Besides, long-term rentals from companies are contributing much more than individual customers," Huang says.
"Foreign companies have to consider these differences before they expand."
Thursday, December 29, 2011
New satellites to extend China's military reach
(Reuters) - China this week reached a milestone in its drive to master the military use of space with the launch of trials for its Beidou satellite global positioning network, a move that will bring it one step closer to matching U.S. space capabilities.
If Beijing can successfully deploy the full 35 satellites planned for the Beidou network on schedule by 2020, its military will be free of its current dependence for navigation on the U.S. global positioning network (GPS) signals and Russia's similar GLONASS system.
And, unlike the less accurate civilian versions of GPS and GLONASS available to the People's Liberation Army (PLA), this network will give China the accuracy to guide missiles, smart munitions and other weapons.
"This will allow a big jump in the precision attack capability of the PLA," said Andrei Chang, a Hong Kong-based analyst of the Chinese military and editor of Kanwa Asian Defense magazine.
China has launched 10 Beidou satellites and plans to launch six more by the end of next year, according to the China Satellite Navigation Management Office.
Chinese and foreign military experts say the PLA's General Staff Department and General Armaments Department closely coordinate and support all of China's space programs within the sprawling science and aerospace bureaucracy.
As part of this system, the Beidou, or "Big Dipper," network will have an important military role alongside the country's rapidly expanding network of surveillance, imaging and remote sensing satellites.
China routinely denies having military ambitions in space.
Defense Ministry spokesman Yang Yujun Wednesday dismissed fears the Beidou network would pose a military threat, noting that all international satellite navigation systems are designed for dual civilian and military use.
CATCHING UP WITH THE U.S.
China accelerated its military satellite research and development after PLA commanders found they were unable to track two U.S. aircraft carrier battle groups deployed in 1996 to the Taiwan Strait at a time of high tension between the island and the mainland, analysts say.
The effort received a further boost when it was shown how crucial satellite networks were in the 1991 Gulf War, the 1999 NATO bombing of Yugoslavia and the 2003 invasion of Iraq.
While China still lags the United States and Russia in overall space technology, over the last decade it has rapidly become a state-of-the-art competitor in space-based surveillance after deploying a range of advanced satellite constellations that serve military and civilian agencies.
With the launch of more than 30 surveillance satellites over the last decade, according to space technology experts, the PLA can monitor an expanding area of the earth's surface with increased frequency, an important element of reliable military reconnaissance.
That coverage gives PLA commanders vastly improved capability to detect and track potential military targets.
Real-time satellite images and data can also be used to coordinate the operations of China's naval, missile and strike aircraft forces in operations far from the mainland.
"What we are seeing is China broadly acquiring the same capabilities in this area as those held by the U.S.," said Ross Babbage, a defense analyst and founder of the Canberra-based Kokoda Foundation, an independent security policy unit.
"Essentially, they are making most of the Western Pacific far more transparent to their military."
In a recent article for the Journal of Strategic Studies, researchers Eric Hagt and Matthew Durnin attempted to estimate the capability of China's space network using orbital modeling software and available data on satellite performance.
China's most basic satellites carried electro-optical sensors capable of taking high resolution digital images in the visible and non-visible wavelengths, wrote the authors.
More advanced satellites launched in recent years carried powerful synthetic aperture radars that could penetrate cloud and cover much bigger areas in high detail.
Added to that, China was now deploying satellites that could monitor electronic signals and emissions, so-called electronic intelligence or ELINT platforms, the authors said.
"Next to China, only the United States possesses more capable tactical support systems in space for tactical operations," they wrote.
China urges stability in Strait of Hormuz
(Reuters) - China urged peace and stability on Thursday after Tehran threatened to punish proposed Western sanctions by choking off oil flows through the Strait of Hormuz, but declined to make any other comment about the crisis.
The foreign ministry's terse, one sentence public response to Tehran's threats over the world's most important oil route reflects China's sensitivities about its close business links with Iran.
"China hopes that peace and stability can be maintained in the strait," ministry spokesman Hong Lei told a briefing in answer to a question about escalating tensions that have pushed up oil prices.
He did not answer a question about whether China had had any contact with Tehran or other governments about the threat.
China's official Xinhua news agency said in a commentary speculation about war with Iran over the past few years had ended up simply amounting to "crying wolf."
"To avoid the real arrival of the wolf, all sides should show greater sincerity and flexibility," it wrote.
China has long defended its oil and trade ties with Iran as legitimate, and criticized unilateral sanctions that could stymie those ties.
Iran's threat to block crude shipments through the Strait of Hormuz, a crucial passage for Middle Eastern suppliers, followed the European Union's decision to tighten sanctions on Iran over its nuclear program, as well as accompanying moves by the United States to tighten unilateral sanctions.
China has driven global oil demand growth for a decade and has increasingly relied on shipments from the Middle East, where Iran and rival Saudi Arabia compete for the market. China bought 547,000 barrels per day of crude from Iran through to October this year, up from 426,000 barrels per day for all of 2010.
Only Saudi Arabia and Angola sell more than Iran to China.
International tensions with Iran have increased since a report by the United Nation's International Atomic Energy Agency in November concluded Tehran appears to have worked on designing a nuclear weapon and may still be pursuing research to that end.
Iran denies this and says it is developing nuclear energy for peaceful purposes.
Iran has expanded its nuclear activities despite four rounds of U.N. sanctions since 2006 over its refusal to suspend uranium enrichment and give access to U.N. nuclear inspectors.
As a permanent member of the U.N. Security Council, China has the power to veto resolutions mandating such sanctions. But Beijing has instead voted for them, while working to ensure its oil and trade ties are not threatened.
China, however, has also criticized the United States and European Union for imposing their own separate sanctions on Iran, and said they should not take steps reaching beyond the U.N. resolutions.
Banks 'must prepare' for eurozone changes
BEIJING - Chinese banks should prepare technically and strategically for a partial break-up of the eurozone, said an analyst at Bank of China Ltd (BOC) on Wednesday.
The biggest risk for Chinese lenders lies in securitized euro-denominated debt, said Li Jianjun, an international finance analyst at BOC, one of the four biggest State-owned lenders by market value.
"That will be a big problem, because banks have to clear up not only euro debt but also related debt if the situation worsens," he said.
An exit of some weaker members from the eurozone might be the worst-case scenario, but market participants are already preparing, even though government officials in the zone continue to deny the possibility of that outcome, Li said.
He said that although Chinese lenders have become more prudent since the start of the sub-prime crisis in the US, they still held such debt.
"BOC might not be the worst-affected Chinese bank in the worst-case scenario. It's still unclear how much the country's lenders will lose if some economies start to use their own currencies instead of the euro."
As the most internationalized Chinese lender, BOC was included on a list of 29 globally systemically important financial institutions in early November by the Financial Stability Board, an international policy coordination organization.
"Undoubtedly, the global foreign exchange market, which is valued at $4 trillion each day, will suffer great shocks if the eurozone partially breaks up and the whole trading system changes."
The Wall Street Journal reported last week that at least two global banks had taken steps to install back-up technology systems that could handle trading in the former European currencies.
The newspaper said that banking regulators in the UK and US had asked major banks to update their levels of preparedness in recent weeks.
British media reported on Monday that the UK Treasury was working on a contingency plan for a potential euro meltdown that includes capital controls. Banks in the eurozone placed a record amount of overnight funds at the European Central Bank (ECB) on Wednesday, a sign that they are increasingly wary that each other might default.
"The possibility of any exit from the eurozone is still quite limited, judging from the current situation, as the ECB already took some loosening measures," said Tang Jianwei, economist at Bank of Communications Co Ltd.
Last week, the ECB agreed to lend 523 euro area banks a total of 489.2 billion euros ($639.5 billion) to ensure lenders have enough liquidity.
Wang Tao, head of China economic research at UBS Securities Co Ltd, said the ECB is likely to undertake further quantitative easing to cope with the debt crisis. "But without a fundamental reform across the euro area, the moves may not be enough to stabilize the market."
"A break-up of the 17-member state Euro Area, even a partial one involving the exit of one or more fiscally and competitively weak countries, would be chaotic," according to Willem Buiter, chief economist at Citigroup Global Markets Inc.
An exit, partial or full, would likely be precipitated by disorderly sovereign defaults in the fiscally weak and uncompetitive member states, whose currencies would weaken dramatically and whose banks would fail.
There would be a collapse of systemically important financial institutions throughout the European Union and North America and years of global depression if Spain and Italy were to exit the euro, he said.
French Train China Nuclear Experts
PARIS—France has long exported its nuclear power technology. Now, as global demand wavers, the country is pitching its nuclear education too.
In five years, about 100 Chinese nuclear engineers will graduate from the Franco-Chinese Institute for Nuclear Energy in southern China's Guangdong province. Trained by top French professors, the graduates will leave the school fluent in French and with master's degrees in nuclear engineering.
For France, which is financing about half the cost of the recently opened university, the bet is a bold one: that these Chinese students will go on to become top nuclear officials who will practice high safety standards and hand lucrative contracts to French nuclear companies.
"We want to share our teaching methods," says Marianne Laigneau, the head of human resources at French state-owned power company Électricité de France SA, which pays roughly 10% of the school's €4 million ($5.2 million) annual budget. "But the aim is also to train future Chinese decision makers who can facilitate partnerships with France."
Many businesses, as diverse as aeronautics groups and McDonald's Corp., have set up colleges in China to train future employees and partners. But for France, which carefully guards its nuclear know-how, the stakes are higher in the aftermath of the Fukushima Daiichi nuclear accident in Japan.
"If China's investment in nuclear [energy] fails either from an industrial or safety point of view, it will impact France's strategic choices," says Bernard Bigot, the head of the French Atomic Energy Commission, the agency that masterminded the country's nuclear expansion. "You only have to look at the impact that Fukushima had on France to understand that if a country invests in nuclear it has to do it in an exemplary manner."
The opening of the school underscores the lengths France is going to ensure its four-decade-long, €250 billion investment in nuclear energy continues to pay off. It also shows how the fate of France's nuclear industry is becoming increasingly entwined with China's.
Global safety concerns over nuclear power increased after Japan's March earthquake and subsequent radiation leak at the Fukushima plant. Now, ahead of elections next year, France's political consensus around nuclear energy is crumbling. The opposition Socialist Party has said it would close 24 of France's 58 reactors by 2025 if it is elected, reducing the country's dependence on nuclear energy by about one-third.
Several European countries, including Germany and Switzerland, have said since the Fukushima accident that they will phase out nuclear-power generation. China suspended its nuclear program amid the crisis in Japan, but Chinese officials seem ready to restart the program as early as year end.
Despite this, China is widely seen as the new nuclear El Dorado: The country is building 28 of the 62 reactors under construction across the world as it looks to reduce its use of heavily polluting coal and diversify its energy sources to meet booming demand, according to research by consulting group Capgemini.
China already represents an important source of revenue for some French state-controlled nuclear companies. French engineering group Areva SA, earned about 10% of its €9.1 billion in revenue in China in 2010. It has contracts to supply China with two reactors and recently signed a partnership with China National Nuclear Corp. to seek to optimize the Chinese company's existing nuclear plants.
But investing in China's nuclear development presents a conundrum. China is likely to become a global atomic power, says Colette Lewiner, an energy expert at consulting group Capgemini. "The issue being debated is to what lengths France should go to aid this process."
China also has a record of borrowing technology and trying to improve it. Analysts say training French-speaking engineers could give China a leg up, while helping potential sales in French-speaking regions in northern Africa, where China could eventually export nuclear-power technology.
France, like other nations that export nuclear technology, has long educated nuclear engineers from foreign countries with the aim of ensuring high safety standards. Normally, students or professors are invited to France to be trained before they return to their own country, says EDF's Ms. Laigneau. In China's case, such is the demand for engineers that France thought it easier to export its professors
The academy's €24 million six-year budget is provided by a consortium of businesses, including EDF, Areva and China Guangdong Nuclear Power Holding Co., while Chinese universities supply the buildings that house the program. A review will determine whether the French and Chinese will support the school beyond 2016.
China hopes to learn from French teaching methods and acquire extra knowledge about how to handle nuclear projects, says Yang Peiqing, the institute co-director. "We chose the French because first we believe that France is the leader of nuclear-energy technologies," Ms. Peiqing says. "We'd love to learn everything from the French."
Lure of Chinese Tuition Squeezes Out Asian-Americans at California Schools
Kwanhyun Park, the 18-year-old son of Korean immigrants, spent four years at Beverly Hills High School earning the straight As and high test scores he thought would get him into the University of California, San Diego. They weren’t enough.
The sought-after school, half a mile from the Pacific Ocean, admitted 1,460 fewer California residents this year to accept higher-paying students from out-of-state, many from China.
“I was shocked,” said Park, who also was rejected from four other UC schools, including the top-ranked campuses in Berkeley and Los Angeles, even with a 4.0 grade-point average and an SAT score above the UC San Diego average. “I took it terribly. I felt like I was doing well and I failed.”
The University of California system, rocked by budget cuts, is enrolling record numbers of out-of-state and international students, who pay almost twice that of in-state residents. Among those being squeezed out: high-achieving Asian-Americans, many of them children of immigrants, who for decades flocked to the state’s elite public colleges to move up the economic ladder.
In 2009, University of California administrators told the San Diego campus to reduce its number of in-state freshmen by 500 to about 3,400 and fill the spots with out-of-state and international students, said Mae Brown, the school’s admissions director. California residents pay $13,234 in annual tuition while nonresidents pay $22,878.
12-Fold Surge
As a result, almost 200 freshmen from China enrolled in 2011, up from 16 in 2009, a 12-fold increase. At the same time, the number of Asian-American Californians enrolled fell 29 percent to 1,230, from 1,723 in 2009. The 2009 figure is from the UC system’s office because San Diego didn’t have it available.
While the San Diego campus is accepting more Chinese students, the decline in Asian-American enrollment may be a result of the total drop in California resident admissions, and two years’ data doesn’t reflect a trend, said Christine Clark, a university spokeswoman.
“UC San Diego is committed to admitting and enrolling talented students from all ethnic and cultural backgrounds,” Clark said in an e-mailed statement.
Asian-American students fighting to distinguish themselves to college admissions officers now have to go up against Asians from overseas, said Casey Chang, a Chinese-American senior at Claremont High School in Claremont, California, east of Los Angeles. He said he has a 4.7 grade-point average and is applying to the San Diego campus for a joint undergraduate/medical-school program.
One in Five
“We’re all competing for the same goal, and the fact that they’re international makes them that much more interesting to the UCs,” Chang said.
One in five international students nationwide, or 57,000 undergraduates, came from China in 2010-11, a 43 percent increase over the previous year, according to the Institute of International Education in Washington. Colleges are more frequently tapping this pool as the surge in middle-class incomes in China coincides with steep budget cuts at U.S. state universities.
UC San Diego received $227 million from the state in the 2011-12 academic year, down from $301 million in 2007-08. Funding for the nine other University of California campuses dropped as well.
Helping to Pay
“The state is not a fully reliable partner in funding anymore,” said Scott Waugh, the provost at UCLA, where foreign enrollments have quadrupled since 2009. “If we’re going to give California residents the education they want and deserve, we need non-Californians to help pay for it.”
UCLA is increasing the size of its student body to accommodate more nonresidents, said Janina Montero, vice chancellor for student affairs.
Asian-Americans already are being displaced by University of California admissions policies that give preference to first- generation college students. The guidelines benefit low-income Latino and African-American students over middle-income Asian- Americans whose parents went to college, said Mitchell Chang, an education professor at UCLA.
“When you add this new trend on top of the political shifts, you might have a double whammy that tends to disadvantage Asian-Americans,” Chang said.
California students and their parents, Asian-Americans and others, say they’re fighting an uphill battle to enter schools that were established to provide them with an affordable education.
‘Taken Away’
Veronica Zavala’s son Brandon is a senior at Diamond Bar High School, about 30 miles east of Los Angeles. As an A student and the son of taxpayers and a state employee -- Brandon’s father is a prison guard -- he should be able to attend a University of California school, she said.
“There’s no reason why someone from another country should come and take my son’s spot,” Zavala said.
U.S. universities are expanding their ties to China and increasingly looking to China for financial support. At least a dozen private and public colleges are opening Chinese campuses with funding from Chinese municipalities. A Chinese government affiliate has spent millions of dollars to establish Confucius Institutes for Chinese language and culture at 75 American schools, including UCLA.
UCLA has received Chinese funding for its Confucius Institute since 2007, with the most recent grant of $320,000 for teacher training in Mandarin and for studying ways to integrate Eastern and Western medicine, according to the university.
The University of California’s state appropriation has been cut 28 percent -- almost $1 billion -- since 2007-08 and faces a midyear $100 million cut this year.
Enrollment of Chinese and other international students are surging at state universities across the U.S.
Washington, Michigan State
At the University of Washington in Seattle, the number of in-state students in the freshman class declined by almost 500 between 2007 and 2011, even as the school enrolled more total students. The percentage of out-of-state students surged to 34 percent of the freshman class from 19 percent over that same period, with more than half from overseas. Almost two-thirds of the international students are from China.
Washington residents pay $10,346 in tuition and fees while nonresidents pay $27,830.
At Michigan State University, in East Lansing, Chinese undergraduate enrollment soared 23-fold in five years, to 2,217 in 2011 from 94 in 2006. Total international enrollment almost tripled to 3,402 in the period and now makes up close to 10 percent of undergraduates.
Office in Beijing
Michigan State opened an office in Beijing in 2008 to improve recruiting efforts, said James Cotter, director of admissions. Student applications are vetted by the staff in Beijing, he said.
The increase in nonresident students comes as Michigan’s high-school population is expected to decrease 20 percent over two decades, so local students aren’t being squeezed out, Cotter said.
Park, who graduated from Beverly Hills High School in June, thinks he would have been admitted to UC San Diego if it hadn’t reduced the number of slots for California residents. His combined math and verbal SAT score of 1340 exceeded the university’s average of 1233. His older brother was admitted to the school in 2009 with lower test scores, Park said.
“It’s kind of unfair,” said Park, who played volleyball and basketball in high school and took eight advanced placement classes, all with the aim of getting into an elite university. While he dreamed of attending Berkeley, his guidance counselor told him that San Diego was a realistic goal.
“I feel I met the university’s standards to get in,” he said. “I expected to get in.”
‘13th Grade’
Instead, Park is taking classes at Santa Monica College, a two-year community college he once mocked as “13th grade.” He’s reapplying to the UCs this fall as a transfer student.
While it cut in-state freshman enrollment, UC San Diego increased the number of resident transfer students from California community colleges to 2,340 from 1,624 over two years, said Brown, the admissions director.
“The University of California has been the major vehicle for social mobility for the Asian-American community,” said Don Nakanishi, a retired UCLA professor who ran the school’s Asian American Studies Center for 20 years. The campuses at Berkeley, Los Angeles and San Diego are among the most selective public colleges in the U.S., admitting less than 40 percent of all undergraduate applicants.
About 43 percent of all undergraduates at Berkeley are Asian-American, compared with 16 percent at Harvard University and Yale University and 23 percent at Stanford University.
Nonresident Plans
To boost revenue, the University of California system plans to increase nonresident enrollment to 10 percent from 6.6 percent of all undergraduates, said Nathan Brostrom, the University of California’s executive vice president of business operations. Much of that increase will be at Berkeley, UCLA and San Diego, the campuses with the greatest appeal to out-of-state students, he said.
Berkeley enrolled 96 Chinese students in 2010, up from 55 in 2009. In the same period, the number of Asian-American freshmen who enrolled at Berkeley dropped 22 percent to 1,116, the lowest since 1995. Enrollment of white students at Berkeley also fell 29 percent as total admissions of state residents dropped.
While California and other state universities admit foreign students for legitimate educational reasons, some may be abdicating their responsibility to educate their own citizens, said Patrick Callan, president of the Higher Education Policy Institute.
‘Revenue Chasing’
“At what point is this not diversifying the student population and just becomes another form of revenue chasing?” said Callan, who is based in San Jose, California. “We’re in some danger of simply taking whoever can pay the most.”
At UC San Diego, Chinese students say they are viewed skeptically by other students who think they’re only there because they pay more, said Zijin Xiao, 20, a freshman from Shenzhen, China.
“They think ‘The foreign students, they admit some who are not fit, maybe they’re not good at academics,’” Xiao said. “It makes me upset.”
She and fellow Chinese students say they are comforted by the large number of their compatriots at the university, which makes the transition to a new country easier.
Xiaojing Pang, 22, a communications major from Guangdong province who goes by Celia, said the cost of San Diego’s tuition is a burden, though she understands the tradeoff.
“I need the education and they need my money,” she said.
Wednesday, December 28, 2011
U.S. to Press for Yuan Gains While Declining to Name China a Manipulator
The Obama administration declined to brand China a manipulator of its exchange rate while calling the yuan undervalued and vowing to press for further appreciation of the currency.
The Treasury Department, releasing its semi-annual report to Congress on the currency policies of major trading partners, said yesterday it will “press for policy changes that yield greater exchange-rate flexibility” in the yuan. The report also criticized Japan for unilaterally selling the yen in August and October, and specified that the U.S. didn’t support the actions.
The U.S. contends that China uses an undervalued currency to give its exporters an unfair advantage in overseas markets and boost growth. At the same time, the administration of President Barack Obama has sought to avoid actions that could cause friction with the world’s No. 2 economy and the second- largest U.S. trade partner.
“The administration has probably decided it would be counter-productive to pull the trigger at this stage on the charge of currency manipulation,” said Eswar Prasad, a senior fellow at the Brookings Institution in Washington and a former International Monetary Fund economist. “Given the fragility of its economic recovery, the U.S. cannot afford a broader trade war with China at this juncture.”
The Chinese government is unlikely to respond “constructively” to pressure on its currency policy and therefore the administration “prudently decided to save its powder for future battles,” Prasad said.
‘Strong’ Pressures
The Treasury said in the report that China “has resisted very strong market pressures” over the past decade for appreciation of the yuan. “China’s real effective exchange rate has exhibited persistent and substantial undervaluation, although the estimated range of misalignment has narrowed over the course of the past 18 months.”
The U.S. should move beyond the “useless, meaningless” quarrel over the yuan’s exchange rate and look to new areas for bilateral and global trade cooperation, China’s state-run Xinhua News Agency said in a commentary today. The nation is making the currency more flexible, and gradually moving toward more balanced trade, Hong Lei, a spokesman for the foreign ministry, said at a briefing in Beijing today.
China often bristles at criticism that its exchange rate is undervalued. It disputed an IMF staff assessment in July that the currency is “substantially below the level consistent with medium-term fundamentals,” citing reasons including faulty current-account projections.
Criticism on Japan
The Treasury also criticized Japan, which unilaterally sold the yen twice in the foreign-exchange market after Group of Seven economies jointly intervened after the March earthquake. The operations in August and October took place when market conditions were orderly and global economic developments were affecting other major currencies as well, the report said.
“The United States did not support these interventions,” the Treasury said, adding that the impact of the unilateral yen sales was temporary. “Rather than reacting to domestic ‘strong yen’ concerns by intervening to try to influence the exchange rate, Japan should take fundamental and thoroughgoing steps to increase the dynamism of the domestic economy.”
‘Deeply Disturbing’
The criticism marks a contrast with last year when Treasury Secretary Timothy F. Geithner refrained from joining U.S. lawmakers in criticizing Japan’s decision to intervene in September 2010. Geithner said Oct. 6, 2010, that Japan didn’t fuel international tensions when it sold the yen even as Sander Levin, then head of the House Ways and Means Committee, had called the move “deeply disturbing” and then Senator Christopher Dodd said it violated international accords.
In China, the yuan appreciated about 7.5 percent against the dollar as of Dec. 16 since it decided to loosen controls on the yuan in June 2010. Because inflation in China is higher than in the U.S., the yuan has risen by about 12 percent against the dollar in real terms, the Treasury said.
“While China’s real exchange rate has appreciated, the process of appreciation remains incomplete,” the Treasury said. It cited China’s accumulation of $3.2 trillion in foreign exchange reserves as of September and a persistent current- account surplus as evidence the yuan “is persistently misaligned and remains substantially undervalued.”
Moving More Quickly
“It’s time for them to go ahead and move towards a market- based system for their currency,” Obama said in Hawaii at the Asia-Pacific Economic Cooperation summit last month. “We recognize they may not be able to do it overnight, but they can do it much more quickly than they’ve done it so far.” Obama said that “most economists” estimate the yuan is 20 percent to 25 percent undervalued.
The yuan weakened yesterday to 6.3219 per dollar. It touched 6.3160 on Dec. 26, the strongest level since the country unified the official and market exchange rates at the end of 1993.
China will maintain a “prudent” monetary policy and a “proactive” fiscal policy next year, the official Xinhua news agency reported Dec. 10, citing a meeting of the Communist Party’s Politburo led by President Hu Jintao.
The Senate voted 63-35 on Oct. 12 for legislation that would let U.S. companies seek duties to compensate for “misaligned” currencies. House Speaker John Boehner said he has “grave concerns” with the bill because it might start a “trade war,” casting doubt on whether it will become law.
Romney’s View
Republican presidential candidate Mitt Romney said Nov. 12 he would make a case against China at the World Trade Organization for manipulating its currency to artificially lower prices and run a trade surplus. The U.S. had a $273 billion trade deficit with China last year.
The Treasury has taken the “right approach” by negotiating with China directly and at international forums, John Frisbie, president of the U.S.-China Business Council, told reporters in Washington last month. The council’s members include JPMorgan Chase & Co. (JPM), Coca-Cola Co. (KO), Boeing Co. (BA) and General Motors Co.
The Treasury’s stance isn’t shared by other corners of the government. The U.S.-China Economic and Security Review Commission, a body created by Congress in 2000, said in its annual report last month that China “continues to manipulate the value of its currency,” keeping the yuan low to reduce export prices and increase the cost of imports.
“This policy also reduces U.S. exports to China while it encourages U.S. consumers to purchase Chinese exports,” the commission said. “The result has been lost production and jobs in the United States.”
Under a 1988 law, the Treasury is required to report to Congress twice a year on international economic conditions and exchange-rate policies. The Treasury is required to enter direct talks with a country deemed to be manipulating its currency, and also seek redress through the International Monetary Fund. The last country labeled a manipulator was China, in 1994.
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