China Digital Times

CHINA NEWS SECTION: Economy

• Carl Minzner: The System that Divides China

  

  In the Los Angeles Times, associate professor of law at Washington University’s school of law in St. Louis, writes an op-ed outlining the changes that are necessary for true reform of the hukou system:

  Recent electoral reforms sidestepped crucial questions of whether to allow migrants to vote and stand for election in the cities where they work. Tough economic conditions for obtaining urban residency under many local reforms (such as actually purchasing a house) exclude low-income rural migrants living in rental apartments. In the northern city of Shijiazhuang, such reforms generated a mere 11,000 applicants for urban registration, out of a total population of about 300,000 migrant workers.

  In addition, many national and local reforms have ground to a halt over thorny funding issues. Local governments resist shouldering the burden for extending education and health benefits to migrants. Many urban residents oppose cuts to their privileged levels of access to public services.

  Chinese officials also have not responded positively to efforts by activists and journalists to foster public discussion of these issues. Last week, foreign news outlets reported that Zhang Hong, one of the key editors responsible for the March 1 joint editorial, was forced to resign. And authorities have deleted the editorial itself from websites throughout China.

  Effectively addressing the plight of Chinese migrants requires much deeper reforms to the hukou system. It requires breaking the hereditary nature of the residency system. It requires shifting funds to better provide for migrant needs. It requires eliminating the 1950s-era regulations that underlie the hukou system and eroding the iron linkage between residency status and public services. And it requires a frank and open discussion of these issues in the Chinese media.

  Read more about the hukou system and migrant workers via CDT.

  » Read more
  • March 16, 2010 9:52 AM

• Obama Faces Test of Ties with Beijing

  

  The Financial Times reports on the challenges facing the Obama administration as it defines its relationship with China:

  So far this year the administration has sought to minimise the fallout from differences with China over $6.4bn in arms sales to Taiwan, a meeting between Barack Obama, president, and the Dalai Lama, and a dispute between Google and Beijing.

  But all of these issues pale in comparison with the overriding economic priority of, as Washington sees it, righting the balance with China specifically and Asia generally. The goal sought by Mr Obama is for Asian economies to shift emphasis to domestic demand and away from producing cheap goods for US consumption, while the US in return increases savings rates.

  It is precisely in this area where most political pressure on the administration is bearing down, as members of Congress, labour unions and Mr Obama’s political base call for a tougher line against the allegedly undervalued renminbi. It is also here that China’s self confidence, as one of the biggest buyers of US government debt, is greatest.

  Also related, John Pomfret reports in the Washington Post on China’s increasingly “anti-Western” tone:

  China has long felt bullied by the West, and its stronger stance is challenging the long-held assumption shared among Western and Chinese businessmen, academics and government officials that a more powerful and prosperous China would be more positively inclined toward Western values and systems.

  China’s shift is occurring throughout society, and is reflected in government policy and in a new attitude toward the West. Over the past year, the government of President Hu Jintao has rolled back market-oriented reforms by encouraging China’s state-owned enterprises to forcibly buy private firms. In the past weeks, China announced plans to force Western companies to turn over their most sensitive technology and patents to Chinese competitors in exchange for access to the country’s markets.

  Internally, it has carried out more arrests and indictments for endangering state security over the past two years than in the five-year period from 2003 to 2007, according to a report released Friday by the Dui Hua Foundation, a San Francisco-based human rights organization.
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  China has also reined in the news media and attempted to control the Internet more vigorously than in the past. This month, it announced regulations designed to make it harder for China’s fledgling community of nongovernmental organizations to get financial support from overseas. In foreign affairs, after years of playing down differences, it has reverted to a tone not heard in more than a decade, condemning recent U.S. decisions to sell weapons to Taiwan and to have President Obama meet the exiled Tibetan leader, the Dalai Lama.

  » Read more
  • March 15, 2010 10:02 PM

• China’s Scramble for Water; One Section of Huge Project Halted

  

  The Washington Post reports that the massive south-to-north water diversion project has been stymied due to protests from academics, environmental activists, and the public:

  The source of the water predicament is China’s own economic success. A bigger economy means more factories and power plants, all prodigious users of water for processing and cooling. Big cities are getting bigger, using more drinking, shower and sewage water. People are eating better, and growing more food requires more water. They crave entertainment, too; the Beijing area has 100 golf courses and a dozen ski resorts with man-made snow.

  The result has been a scramble for water that is pitting downstream communities against upstream ones, farmers against factories, and people concerned about the country’s environment against those worried that water shortages might be the mighty Chinese economy’s Achilles’ heel. Unlike oil needs, which can be supplemented with imports, water needs pose a much more intractable threat to China’s rise.

  “China is facing two prominent challenges: water shortages and pollution,” said Ma Jun, director of the Institute of Public and Environmental Affairs, a Beijing-based group. On top of that, “what’s not receiving attention is the destruction of the river ecosystem, which I think will have long-term effects on our water resources.”

  » Read more
  • March 15, 2010 7:55 PM

• Paul Krugman: Taking on China

  

  In his new column, Paul Krugman calls China’s refusal to reevaluate the currency “a significant drag on global economic recovery”:

  To give you a sense of the problem: Widespread complaints that China was manipulating its currency — selling renminbi and buying foreign currencies, so as to keep the renminbi weak and China’s exports artificially competitive — began around 2003. At that point China was adding about $10 billion a month to its reserves, and in 2003 it ran an overall surplus on its current account — a broad measure of the trade balance — of $46 billion.

  Today, China is adding more than $30 billion a month to its $2.4 trillion hoard of reserves. The International Monetary Fund expects China to have a 2010 current surplus of more than $450 billion — 10 times the 2003 figure. This is the most distortionary exchange rate policy any major nation has ever followed.

  And it’s a policy that seriously damages the rest of the world. Most of the world’s large economies are stuck in a liquidity trap — deeply depressed, but unable to generate a recovery by cutting interest rates because the relevant rates are already near zero. China, by engineering an unwarranted trade surplus, is in effect imposing an anti-stimulus on these economies, which they can’t offset.

  So how should we respond? First of all, the U.S. Treasury Department must stop fudging and obfuscating.

  » Read more
  • March 14, 2010 7:31 PM

• Internet Ideology War: Google’s Spat with China Could Reshape Traditional Online Freedoms

  

  Scientific American has an article looking at ways Google could help subvert Internet censorship in China and elsewhere if it leaves China:

  Google could combat China’s censorship efforts by helping those within China breach the so-called Great Firewall. As with buildings in the physical world, every location on the Internet has an address associated with it—an Internet protocol, or IP, address. In addition to filtering certain keywords, the administrators of the Great Firewall maintain a huge list of blocked IP addresses. Circumvention tools send a user to an unblocked address, then pipe in all outside information through that “proxy” IP address. Yet at any time, this tunnel could collapse. “One of these IP addresses could last forever, or for months, or for minutes” before the authorities find it and block it, says Hal Roberts, an expert in circumvention tools at the Berkman Center.

  Hence, any large-scale circumvention effort requires a huge number of addresses to cycle through, along with an enormous amount of bandwidth to support all the tunneling. “If we could magically convince all Chinese people to use [these services],” Roberts says, “then someone would have to pay for the entire outgoing bandwidth of China.” That might strain Google’s resources, but not by much.

  Still, there are good reasons for Google not to start this kind of proxy war. Promoting a free and open Internet is one thing; actively undermining the laws of a sovereign nation is another. Moreover, these same circumvention tools also work as anonymity tools—anyone can use proxy servers to hide their true identity. “This makes them very useful for all kinds of bad activities,” Roberts says. “They could be used to hack Google’s servers or for attacks against Google services using click fraud and spam. So there’s a strong question from Google’s point of view whether it is in their best interest to promote them.”

  No matter what course the standoff takes in the months and years to come, it has brought into focus this battle for control over how unrestricted the Internet should be. Right now users depend on companies such as Google to defend the Internet from forces—governmental and otherwise—that would exert more top-down control over it. That may not be enough.

  » Read more
  • March 14, 2010 4:19 PM

• Drive to Tap into China Demand Spurs Partnerships

  

  The Financial Times reports on a slew of new deals which have Western oil companies cooperating with Chinese partners on various projects around the globe:

  Royal Dutch Shell has teamed up with PetroChina for a joint bid for Arrow Energy, the Australian gas company; Total of France is expected to work with CNOOC to develop Tullow Oil’s assets in Uganda; and BP has formed a partnership with China National Petroleum Corp to develop the giant Rumaila oil field in Iraq.

  The circumstances of each deal are different. In Iraq, for example, where the projects are technically straightforward but have political and security risks, having a Chinese partner provides important benefits to BP.

  Samuel Ciszuk of IHS Global Insight says CNPC brings political clout because it is state owned, as well as a “skilled, cheap workforce and a willingness to invest in a low-margin project”.

  Yet while these partnerships have a variety of motives, there is often a common ambition behind them; western companies hope to build on their respective relationships to secure greater access to the Chinese market.

  » Read more
  • March 14, 2010 1:53 PM

• China Issues Warning to Major Partners of Google

  

  As the conflict between Google and the Chinese government continues without resolution, authorities have stepped up their warning to the company by reminding its web partners that they must continue with censorship even if Google does not. From the New York Times:

  Chinese government information authorities warned some of Google’s biggest Web partners on Friday that they should prepare backup plans in case Google ceases censoring the results of searches on its local Chinese-language search engine, said the expert, who did not want to be identified for fear of retaliation by the government.

  The warning was the latest indication that two months of negotiations between Chinese officials and Google over government censorship have reached an impasse. The two sides have been at a standoff since Google announced in January that it planned to stop self-censoring the results of searches on its Chinese site, google.cn, in reaction to what it described as China-based cyber-attacks on its databases and e-mail accounts.

  The warning was intended to head off a wave of frustrated users should their internet searches be stymied because of Google’s conflict with the government. Google controls nearly 30 of China’s Internet search market.

  Also from the Wall Street Journal, via PoliticalDog101.com:

  Google’s threat to stop censoring challenges the core premise of engagement with China for the last several decades: that the country is so big and its market so important that it must be accepted on its own terms.

  Google’s challenge to Beijing stunned the business world. It is unusual for a company to publicly take issue with China’s policies—particularly something as sensitive as censorship—and even rarer for one to talk about the possibility of scaling back its business or leaving a market that is so important.

  “If Google does indeed get shut down, it is not the end of the story—it is the beginning,” said Xiao Qiang, the director of the China Internet Project at University of California at Berkeley. It is the beginning of the ‘Chinternet,’ which is under Chinese government regulation. It will control so much that even Google cannot exist. Other companies will have to face the same choice of whether to continue to operate under China’s heavy regulation or leave the country.

  Earlier this morning (9:30 am, March 15, 2010 Pacific Time) , CDT took the screenshot below of what appeared to be uncensored results of an image search for “89学生运动” on Google.cn, via a proxy computer inside of China:
  

  Currently (2:20 pm PST), the same search yields very different results, which again appear to be censored：
  

  CDT does not know what caused the differing search results in such a short period of time. But the former display had generated lots of attention among Chinese twitterers.

  » Read more
  • March 14, 2010 1:39 PM

• China to Bid on US High-speed Rail Projects

  

  China has been exporting the technology for high speed trains to Europe and Latin America and may soon do so in the U.S. From AP:

  China has built 4,000 miles (6,500 kilometers) of high-speed rail for its own train system and President Barack Obama issued a pledge in November with his Chinese counterpart, Hu Jintao, to cooperate in developing the technology.

  “We are organizing relevant companies to participate in bidding for U.S. high-speed railways,” Wang Zhiguo, a deputy railways minister, told a news conference.

  Wang gave no details of where China’s railway builders might seek contracts, but systems are planned in California, Florida and Illinois. He said state-owned Chinese companies already are building high-speed lines in Turkey and Venezuela.

  » Read more
  • March 13, 2010 9:18 PM

• Economy the Focus as China Political Session Ends

  
  AP reports on the closing sessions of the NPC’s annual meeting in Beijing:

  The world’s third-largest economy may have escaped the worst of the global financial crisis by ordering $1.4 trillion in bank lending and government stimulus, but major problems remain for the country’s 1.3 billion people.

  Before its closing Sunday, the National People’s Congress will approve a budget with a more than 10 percent boost in spending to fuel the economic recovery, with more money for low-cost housing, extending pension coverage and other social programs. Premier Wen Jiabao, the country’s top economic official, will hold a rare news conference.

  The priorities continue Wen and President Hu Jintao’s yearslong efforts to spread the benefits of economic growth more broadly across a rapidly changing society. This year, inflation is a challenge. Property prices are soaring. The rich-poor gap is increasing and increasingly contentious. Millions of migrant workers and farmers go without basic government aid.

  Any of those issues could lead to social unrest — one of the ruling Communist Party’s biggest fears. This year’s session had the usual heavy police presence in Beijing, with dozens of activists reportedly harassed or detained.

  See also “CHINA NPC: Wen: If Economic Recovery Falters, Costs Will Be Very Great” from the Wall Street Journal.

  » Read more
  • March 13, 2010 8:35 PM

• How Does China Help Africa?

  

  On China Beat, Angilee Shah reviews The Dragon’s Gift: The Real Story of China in Africa:

  China is neither wholeheartedly supporting corrupt dictators, nor filled with ambitions of empire. The Dragon’s Gift, by her account, is no Trojan horse. Subtitled The Real Story of China in Africa, the book is the culmination of some 30 years of research and experience in both places.

  At one point, Brautigam warns her readers, “The level of detail on the history of the [Chinese aid] system and its component parts may be more than you want to know, particularly over the next few pages.” Though she is referring to one chapter, this lesson is true for the entire work. As Brautigam moves us beyond assumptions of exploitation and control of natural resources, a more complex story emerges.

  The truth is that China is itself a developing country that has successfully reduced its poverty from 53 to 8 percent over twenty years, while Africa’s poverty persists despite 60 years of aggressive foreign aid. Deng Xiaoping, the Communist Party leader who is credited with opening up China’s economy, once declared, “To get rich is glorious!”

  Chinese policymakers believe in this not just for themselves, but for Africa.

  Read another review of the book by Howard French.

  » Read more
  • March 12, 2010 11:26 AM

• Google ‘99% Certain’ to Shut China Search Engine

  

  The Financial Times has the latest in the ongoing saga of Google in China:

  Google has drawn up detailed plans for the closure of its Chinese search engine and is now “99.9 per cent” certain to go ahead as talks over censorship with the Chinese authorities have reached an apparent impasse, according to a person familiar with the company’s thinking.

  In a hardening of positions on both sides, the Chinese government also yesterday threw down a direct public challenge to the US search company, with a warning that it was not prepared to compromise on internet censorship to stop Google leaving.

  The signs that Google was on the brink of closing Google.cn, its local search service in China, came two months after it promised to stop bowing to censorship there. But while a decision could be made very soon, the company is likely to take some time to follow through with the plan as it seeks an orderly closure and takes steps to protect local employees from retaliation by the authorities, the person familiar with its position said.

  The status of talks between Google and the Chinese government has been unclear following confusing and contradictory statements from both sides. Then, earlier this week, Google CEO Eric Schmidt said he thought the stand-off with the Chinese government over Internet censorship and cyber attacks would be resolved “soon” but that the company was still committed to ending censorship of its Chinese search engine. His remarks launched speculation that Google was preparing to leave the China market, which a Google spokesperson has since denied. Now, Li Yizhong, China’s minister of industry and information technology, has warned Google against opening Google.cn, the New York Times reports:

  Speaking on the sidelines of the National People’s Congress, China’s quasilegislative session, Mr. Li said that he hoped for an amicable resolution to the standoff. But he gave no indication that the government would ease the censorship rules that are at the heart of Google’s ultimatum.

  “I hope Google will abide by Chinese laws and regulations,” The Associated Press quoted Mr. Li as saying. But “if you want to do something that disobeys Chinese law and regulations, you are unfriendly, you are irresponsible and you will have to bear the consequences.”

  Whether the company chooses to remain in China, he added, is up to Google.

  Also from the Wall Street Journal, via PoliticalDog101.com:

  Google’s threat to stop censoring challenges the core premise of engagement with China for the last several decades: that the country is so big and its market so important that it must be accepted on its own terms.

  Google’s challenge to Beijing stunned the business world. It is unusual for a company to publicly take issue with China’s policies—particularly something as sensitive as censorship—and even rarer for one to talk about the possibility of scaling back its business or leaving a market that is so important.

  “If Google does indeed get shut down, it is not the end of the story—it is the beginning,” said Xiao Qiang, the director of the China Internet Project at University of California at Berkeley. It is the beginning of the ‘Chinternet,’ which is under Chinese government regulation. It will control so much that even Google cannot exist. Other companies will have to face the same choice of whether to continue to operate under China’s heavy regulation or leave the country.

  Read a report about Li’s statement from the Global Times. Read more about the Google dispute via CDT.

  » Read more
  • March 12, 2010 11:09 AM

• Chinese Officials’ Children in Corruption Claim

  

  The corruption of the children of government officials, or princelings, is the main source of public dissatisfaction in China, according to a recent online poll. The country’s former auditor general has called for better legal structures to oversee their business dealings, the Financial Times reports:

  “From the numerous cases currently coming to light, we can see that many corruption problems are transacted through sons and daughters [of officials],” Li Jinhua said in the online forum on Thursday. Mr Li is widely respected for his role as China’s top anti-corruption official between 1998 and 2008.

  He said the rapidly growing wealth of Communist officials’ children and family members “is what the public is most dissatisfied about”.

  A recent online opinion poll conducted by the People’s Daily found that 91 per cent of respondents believe all rich families in China have political backgrounds.

  The children of China’s top leaders are often referred to as “princelings”. Many have been educated in the west and have extensive business dealings in China.

  But it is unusual for senior officials and the party’s own mouthpiece to discuss the issue of nepotism and corruption in such a public way as the subject is regarded as potentially destabilising in a one-party state where the leadership lacks a democratic mandate.

  Meanwhile, a new measure announced during the NPC meetings will require disclosure by civil servants and their family members of their assets. From People’s Daily:

  
  Minister of Supervision Ma Wen, a cabinet member, told reporters in Beijing on the sidelines of parliamentary sessions that a Communist Party Central Committee guideline will come into force, that requires all officials in the country to report detailed information about income, property owned and investments, and jobs held by their spouses and children.

  However, critics still complain that the list is “not exhaustive” and there is no effective way to ensure such a (reporting) system is well implemented, and some are seeking legislation making it mandatory for officials to declare assets, the China Daily reported on Friday.

  “The task this year is to implement and improve the new system,” Ma, who is also deputy secretary of the Central Commission of Discipline Inspection, the country’s top anti-graft watchdog, told the newspaper.

  » Read more
  • March 12, 2010 10:10 AM

• China’s Inflation Soars to 16-mth High

  

  Bloomberg reports:

  China’s inflation reached a 16-month high, industrial output climbed and new loans exceeded forecasts, adding to the case for the
  government to pare back stimulus measures.

  Consumer prices rose 2.7% in February from a year earlier, the National Bureau of Statistics said in Beijing on Thursday, compared with the 2.5% median estimate of 29 economists surveyed by Bloomberg News. Seasonal factors stemming from a weeklong holiday may have boosted prices. Production rose 20.7% in the first two months of 2010, the most in more than five years.

  Premier Wen Jiabao aims to hold full-year inflation around 3% after banks flooded the financial system with money to drive a rebound from the global recession. Gross domestic product grew 10.7% last quarter and central bank Governor Zhou Xiaochuan said March 6 that anti-crisis policies, including the yuan’s peg to the dollar, must end “sooner or later.”

  See also “China’s Swan Song” from Paul Krugman.

  » Read more
  • March 11, 2010 1:39 PM

• Jing Ulrich: Debunking the Myth of a China Collapse

  

  Jing Ulrich is managing director and chairman of China equities & commodities at JPMorgan. She wrote this piece on the Financial Times:

  Global sentiment towards China’s economy and asset markets has turned from exuberance just a few months ago to overriding concern about the side-effects of last year’s remarkable credit growth. A number of commentators have warned of credit excesses and an over-investment bubble, which they say could bring economic turmoil.

  Critics have also pointed to China’s Rmb 4,000bn stimulus programme and last year’s 33 per cent surge in new bank lending as obvious hallmarks of excess liquidity and a lowering of lending standards. Some have raised concerns about hidden debt risks among local government investment entities, while media reports of Chinese “ghost cities” and empty commercial property are cited as evidence of local excesses.

  The worst-case fears concerning the property market are based on a layer of truth and we have previously highlighted the untenable nature of price increases in some big cities, as well as the possibility that last year’s boom was partly fuelled by misdirected bank loans. However, there are crucial differences between China’s property markets and those of the US or Dubai.

  » Read more
  • March 10, 2010 4:01 PM

• Mismanaging China’s Rural Exodus

  

  A column in the Financial Times looks at the future of China’s internal migration and household registration reform, quoting a rural expert who predicts that China’s urban population will grow from 45% of the total to 70%:

  The startling numbers conjure up images of mass migrations and the trebling or quadrupling in size of big cities such as Beijing, Shanghai and Guangzhou. In practice, it is unlikely to be quite like that. China, after all, is a planned economy. Even so, McKinsey Global Institute, which has researched China’s urbanisation trends, paints one scenario under which, by 2025, the country will have 15 super-cities with an average population of 25m people each. Meanwhile, many cities will “move” to the countryside as the state frantically constructs new urban centres in the interior and as changing land use blurs the distinction between village and town.

  This is not futurism. By some counts, China already has some 170 cities with a population above 1m. That compares with nine in the US and two in the UK. In population terms, Tianjin is China’s New York and Qingdao its Los Angeles.

  The emergence of second and third-tier Chinese cities with big populations has businesses salivating at the prospects of a consumer bonanza. A steady stream of urbanites could indeed become tomorrow’s purchasers of kitchen appliances, insurance and cars. City authorities will need mass-transit systems, power grids and telecoms equipment. Chinese urbanisation could, as McKinsey says, be the biggest business opportunity of the next several decades.

  There is a hitch. Not only will planners need to build the physical infrastructure to accommodate this urban groundswell. Harder still, China will have to erect a legal framework. As things stand, of the estimated 200m migrants who have already swapped their hoe for factory aprons or a hard hat, the bulk have no right to permanent residence in the cities. The so-called hukou registration system, instituted by Mao Zedong in the 1950s as a way of limiting internal migration, divides China’s urban population into two castes – privileged official residents and marginalised migrants.

  » Read more
  • March 10, 2010 3:26 PM

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