中国欧盟经理人协会 EU-China Managers Association

The prime minister calls frankly for political reform

CHINA is enjoying its new status as the world’s second-largest economy, but the prime minister, Wen Jiabao, is refusing to relax. During a visit to a southern boomtown he declared that economic gains could yet be lost without reforms to the political system. One official newspaper called his speech one of “extraordinary importance”, but sceptics abound.

His remarks on August 20th and 21st in the city of Shenzhen have been compared by some optimists to those made by the late Deng Xiaoping during a tour of the same city in 1992. Deng’s calls for market-oriented reforms sent central-planners scurrying and unleashed the entrepreneurial energy that has helped China to grow at giddy rates since. During his trip Mr Wen laid flowers before a statue of Deng, who turned Shenzhen into a test bed for economic change exactly 30 years ago. ...

Chinese banks are undergoing an odd kind of bail-out

THE banks of China did their duty by supporting the government’s stimulus efforts last year. Lending soared by a frenetic 32% in 2009; growth has slowed this year, but remains a robust 18%. Now the government is standing by the banks.

A flurry of reports in the local Chinese press predicts that on August 24th Huijin, a branch of China Investment Corporation (CIC), the country’s sovereign-wealth fund and the holder of big stakes in all of its main banks, will issue the first of a series of bonds. Up to 187.5 billion yuan ($28 billion) should be raised in short order, with much of the demand coming from China’s state-controlled companies. These funds are expected to be used to support rights offerings by the big Chinese banks later in the year, as they seek to maintain capital ratios and protect against an expected wave of dud loans. ...

In China’s factories, pay and protest are on the rise. That is good for China, and for the world economy

CHEAP labour has built China’s economic miracle. Its manufacturing workers toil for a small fraction of the cost of their American or German competitors. At the bottom of the heap, a “floating population” of about 130m migrants work in China’s boomtowns, taking home 1,348 yuan a month on average last year. That is a mere $197, little more than one-twentieth of the average monthly wage in America. But it is 17% more than the year before. As China’s economy has bounced back, wages have followed suit. On the coasts, where its exporting factories are clustered, bosses are short of workers, and workers short of patience. A spate of strikes has thrown a spanner into the workshop of the world.

The hands of China’s workers have been strengthened by a new labour law, introduced in 2008, and by the more fundamental laws of demand and supply (see article). Workers are becoming harder to find and to keep. The country’s villages still contain perhaps 70m potential migrants. Other rural folk might be willing to work closer to home in the growing number of factories moving inland. But the supply of strong backs and nimble fingers is not infinite, even in China. The number of 15- to 29-year-olds will fall sharply from next year. And although their wages are increasing, their aspirations are rising even faster. They seem less willing to “eat bitterness”, as the Chinese put it, without complaint. ...

As the supply of migrant labour dwindles, the workshop of the world is embarking on a migration of its own

THE angrier they become, the less intimidating they seem. The strikes, stoppages and suicides that have afflicted foreign factories on China’s coast in recent months have shaken the popular image of the country’s workers as docile, diligent and dirt cheap. America’s biggest labour federation, the AFL-CIO, blames imports from China for displacing millions of Americans from their jobs. But in June its president applauded the “courageous young auto workers” who waged a successful strike at a Honda plant in Foshan demanding higher wages.

While foreign unions cheer, multinational companies fret. According to UNCTAD, foreigners have invested almost $500 billion in China’s capital stock. Their affiliates employ about 16m people in the country. For a decade this combination has dominated global manufacturing growth, dispatching ever cheaper goods from China’s ports. Of China’s 200 biggest exporters last year, 153 were firms with a foreign stake. But the recent unrest has put Chinese labour at odds with foreign capital. ...

Enthusiasm for Chinese companies abroad but not at home

OF THE many oddities surrounding Chinese stockmarkets, the most glaring has long been the premium mainland investors pay for shares listed domestically over what those same shares trade for in Hong Kong. Now the puzzle is why the premium has disappeared (see chart).

The usual explanation for the existence of the premium ran as follows. A closed capital account and a tightly run financial system left Chinese investors with only three places to put their money: property, with its high transaction costs and manic price moves; bank deposits, offering diminutive interest; or shares, with price moves as big as property but lower dealing costs. That paucity of choices drove shares higher than in places with more options. ...

China is slowing. That’s good news

DON’T paint a snake with legs, the Chinese will say, when someone is in danger of spoiling something by overdoing it. For months China’s policymakers have been trying to slow the country’s economy, which grew venomously in the year to the first quarter. The fear is that policymakers will overdo it, spoiling one of the rare sources of dynamism in a moribund world economy.

There were few signs of that in the economic picture provided by the National Bureau of Statistics this week. China’s output grew by 10.3% in the year to the second quarter, the bureau said, slower than its growth in the previous quarter (11.9%), but not too much slower (see chart). Inflation also eased, falling back below the central bank’s official target of 3%, thanks partly to cheaper fruit and vegetables. ...

China has now transformed the appearance of its big banks, leaving the vexing issue of substance

THE $19.2 billion raised by Agricultural Bank of China’s initial public offering (IPO), which was priced on July 6th and 7th, does not simply mark one of the world’s largest-ever stockmarket listings (the biggest, if the bank fully exercises a right to issue additional shares). It also ends a decade-long process to transform China’s huge financial institutions from wards of the state to banks that resemble publicly listed firms in the rich world.

The deal attracted more than the usual amount of attention—in part because of ongoing palpitations in global markets, in part because Chinese share prices in particular have collapsed in recent months, and in part because the listing coincides with fierce debate about the health of China’s banking system. Agricultural Bank itself is notable for both its gargantuan size (320m customers) and its giant past loan losses. Optimists see it as a superb macro play on China, pessimists as a Chinese version of Fannie Mae and Freddie Mac, America’s nominally private, and deeply flawed, housing-finance firms. ...

The rise of China’s state-backed banks is stunning. But success will force the model to change

THERE is no more potent symbol of the relative decline of Western finance than the revolution in Chinese banking over the past decade. While American and European banks have been busy blowing up, China’s have been transformed from communist bureaucracies crippled by bad debts into something resembling world beaters.

That metamorphosis has been completed by the flotation of Agricultural Bank of China, the last of the five big state-owned banks to list (see article). Even by Chinese standards it is colossal, with 320m customers, 441,000 staff and more branches than many Wall Street firms have desks. Four of the world’s ten biggest banks by market value are now Chinese. In 2004 none was. Better-known (and more global) lenders such as Deutsche Bank and Barclays look rather puny by comparison. It’s natural to wonder if more than just firms are being eclipsed: whether a freewheeling era is being superseded by a “Beijing consensus” of state-managed finance. Though neat, such a conclusion looks wrongheaded. ...

China’s adjustment of its currency is too small and slow for many

CHINA might have hoped for better. The decision at last to suspend its exchange-rate peg to the dollar bought the Chinese government little more than a moment’s peace with its largest trading partner. Ominously, Charles Schumer, a Democratic senator from New York, is still busily pressing ahead with legislation designed to force China into a significant revaluation.

Mr Schumer has sought congressional action against Chinese trade policies since 2004. But with unemployment still near 10% and little change in the dollar-yuan rate since 2008, his strategy has attracted growing support. The senator introduced a new measure, with bipartisan sponsorship, in March this year. If passed, the bill would force the Treasury to issue a ruling on whether China is manipulating its currency (a determination Tim Geithner, the treasury secretary, postponed making in April). Chinese goods might then be subject to import tariffs. ...

After 61 years of forced separation, a slow restoration of financial ties

THE Economic Co-operation Framework Agreement signed by Taiwan and China on June 29th encompasses hundreds of categories in goods and services (see article). Negotiations were particularly wrenching for agriculture and financial services because each, in its own way, raises security concerns.

The risks that come from the loss of control over food supplies are obvious. The link between financial services and security is more subtle. China’s banks, insurers and brokerages are all, to at least some extent, state-controlled. No surprise then that Taiwan, if it hopes to remain politically independent, fears having its companies nourished by credit that is run by Beijing. Anyone doubting the intensity of these concerns need look only at the American government’s efforts to sell AIG’s Taiwanese life-insurance operations to a Hong Kong partnership that is suspected of being backed by mainland money. The deal, announced last year, is still stuck in regulatory purgatory in Taipei. ...

China’s new-found flexibility on its currency should ease trade tensions with America, but may turn attention to others

CHEAP goods from China can sour relations with America even when they are sweet. Earlier this month, for example, American officials seized a shipment of honey from China because it violated food-safety standards. It contained an antibiotic used to treat “foulbrood”, a disease that afflicts bee larvae. The bust was lauded by Charles Schumer, a Democratic Senator from New York, who condemned China’s “honey launderers”.

But honey is not the stickiest issue dividing the two countries. Mr Schumer and many other members of Congress also rail against China’s currency, the yuan, which they believe is artificially cheap. They have been urging President Barack Obama to get tough. On June 16th he wrote a letter to the leaders of the G20 underscoring that “market-determined exchange rates are essential to global economic vitality.” Many feared a case of foul mood when the leaders gathered in Toronto on June 26th-27th. ...

China’s slightly freer currency would be all the more welcome if it spurred moves to boost consumption

FOR months the rich world’s policymakers have quietly pressed China to abandon its exchange-rate peg with the dollar. On June 19th, a week before world leaders from the G20 were due to gather in Toronto, China at last gave ground. The country’s central bank said it would again allow the yuan to move more freely against a basket of currencies, although it ruled out a one-off revaluation as unwarranted. The announcement was greeted cautiously by Tim Geithner, America’s treasury secretary, but in private he may be relieved that a potentially nasty row over the yuan has been averted.

China’s move is also timely because it assuages fears that it has become less committed to rebalancing its economy. Its huge current-account surplus was cut by more than a third as a share of GDP last year, and had seemed likely to shrink further. But a surge in exports in May raised concerns that China would once again rely on selling to foreign markets for growth now that the rich world has emerged from recession. By allowing a more “flexible” yuan, China stands a better chance of disarming its critics in Congress who believe that it has been unfairly subsidising its exporters with a cheap currency (see article). It also gives China more tools with which to cool its economy and tame inflation. A stronger yuan would cut the costs of imported goods. Even better, abandoning the fixed tie with the dollar has liberated China’s interest-rate policy. ...

Strikes are as big a problem for the government as they are for managers

AS CHINESE strikes go, the one that crippled Honda’s car production in late May was relatively discreet: no picketing, no clashes with police, little sign of copycat action. But it was significant. The stoppage was one of the biggest and longest-running in an enterprise with foreign investors. And it has exposed worrying problems for the government and factory owners in China’s industrial heartland.

Company officials said normal production resumed on June 2nd at the Honda Auto Parts Manufacturing Company’s plant in an industrial zone on the edge of Foshan, a city in the southern province of Guangdong. The strike over wages (which broke out briefly on May 17th and began anew on May 21st) had halted production at the Foshan facility and forced the temporary closure of all Honda’s car-assembly plants in China that depend on it. Trouble could flare anew. Some workers remain unhappy with a settlement offered by the Japanese firm. ...

Two books ask how far China’s model of “state capitalism” will spread

The End of the Free Market: Who Wins the War Between States and Corporations? By Ian Bremmer. Portfolio; 230 pages; $26.95. Viking; GBP18.99. Buy from Amazon.com, Amazon.co.uk

The Beijing Consensus: How China’s Authoritarian Model Will Dominate the Twenty-First Century. By Stefan Halper. Basic Books; 296 pages; $28.95 and GBP16.99. Buy from Amazon.com, Amazon.co.uk ...

China’s economic boom can survive a property bust

A DISCARDED toilet bowl lies on a pile of rubble in Tongzhou, a Beijing suburb which is busily remodelling itself as a “modern” and “international” city. On one side of the railway, a string of single-storey dwellings, built of brick and tile, have yet to be demolished. Their occupants make the most of the surrounding debris, loading bent window frames onto the back of bicycles to be sold as scrap. On the other side of the tracks tower new blocks of flats, more than 20 storeys high, waiting for their first residents.

Tongzhou’s new flats are one example of the property boom in China, where 1.87 billion square metres of living space were under construction in the first quarter of this year, 36% more than a year earlier. The boom has resonated widely. Banks have expanded their mortgage-books briskly; local governments are filling their coffers by selling land to developers or to the “urban investment vehicles” they sponsor. Property and construction represent about 10% of China’s GDP, not counting the consumer goods that homebuying inspires, such as the quilts and curtain rails on sale in Tongzhou’s market. ...

Taiwan’s tech firms are conquering the world—and turning Chinese

WHICH is the world’s most important technology trade show? Gadget freaks will insist on CES in Las Vegas. Old hands are likely to pick CeBIT in Hanover, Germany. But the cognoscenti argue that nowadays Computex in Taipei, which celebrates its 30th anniversary next week, rules the roost.

Taiwan is now the home of many of the world’s largest makers of computers and associated hardware. Its firms produce more than 50% of all chips, nearly 70% of computer displays and more than 90% of all portable computers. The most successful are no longer huge but little-known contract manufacturers, such as Quanta or Hon Hai, in the news this week because of workers’ suicides (see article). Acer, for example, surpassed Dell last year to become the world’s second-biggest maker of personal computers. HTC, which started out making smart-phones for big Western brands, is now launching prominent products of its own. ...