In the latest example of what we have dubbed “the most over-hyped theme in emerging markets,” the Carnegie Endowment’s Yukon Huang defends China’s imbalanced growth model as a natural consequence of rapid urbanization in an FT Alphavile guest post. He writes, “urbanization largely explains both the decline in labor’s share of income and the increase […]
RGE has long argued that without interest rate reform, the People’s Bank of China (PBoC) will eventually lose control of the country’s money supply. This is probably a strange thing to bring up after what appears to have been a very successful tightening cycle in which M2 growth has slowed to 13.1% y/y in Q3, […]
Shanghai’s ports are returning to normal after the government capitulated to the demands of truckers who had gone on strike to protest rising costs over the past couple of weeks. Government officials agreed to roll back fees and sent out a representative to take a survey of the truckers’ grievances.
The amplified shock from Japan’s March 11 earthquake, then tsunami, then nuclear crisis has rippled through the supply chain of its emerging Asia (EM Asia) neighbors. Production shutdowns and weakened demand in Japan began to register in Asia’s trade channels in the weeks following the disaster. As the extent and duration of disruptions to production in Japan become more apparent, the severity of regional supply chain interruptions and the effects on EM Asia’s industrial production and export volumes and prices through 2011 can be better anticipated.
China can blow bubbles faster and bigger than just about any other country, but the Extraordinary Salt Mania of March 2011 takes the cake for speed, size and bizarreness. The brief, dazed run on salt by investors following the March 11 tsunami demonstrates China’s susceptibility to speculative bubbles and the potential to pass on the effects to international markets (discussed further in our China Monthly).
China’s banks pay out massive dividends relative to their internal capital generation capacity. This is a recipe for capital destruction. The heads of China’s largest state-owned enterprises (SOEs) tend to have a ministerial ranking, equal to a State Council member or provincial governor, but the heads of China’s largest banks are ranked a notch lower. Central Huijin, a division of China’s sovereign wealth fund, has a majority ownership stake in China’s largest banks and can control them directly through the board room, whereas the other SOEs report to an organization that is technically not even part of the government. It is hardly surprising therefore that while most SOEs pay miniscule dividends, state-owned banks routinely pay out 50% of profits in dividends. Resource companies, the SOE sector with the next highest required payout ratio, only pay 10% and many SOEs do not pay any dividends; meanwhile, they receive subsidized capital from the banks.
The “days of rage” sweeping through the Middle East and North Africa (MENA) have raised questions about the possibility of a similar movement erupting in China. At a glance, the ingredients for uprising appear to be present. Online calls for a “Jasmine Revolution” in China resulted in a massive staging of security forces at the planned protest sites, which could be taken as a sign of the Communist Party’s insecure grip on power. Like several of the MENA governments, China’s ruling elite is plagued by corruption and is preparing for a transfer of power. Inequality has devolved to Sub-Saharan levels, and the political system provides few outlets for popular grievances to be aired. However, China is unlikely to face a popular uprising for six reasons, discussed in more depth in our latest China Monthly.
A Bloomberg News article from Michael Forsythe on China’s National People’s Congress is making waves today. Coming on the heels of the failed “Jasmine Revolution” in China, the article seeks to show that the NPC is representative of the widening income gap in China.
The richest 70 of the 2,987 members have a combined wealth of 493.1 billion yuan ($75.1 billion), and include China’s richest man, Hangzhou Wahaha Group Chairman Zong Qinghou, according to the research group Hurun Report. By comparison, the wealthiest 70 people in the 535-member U.S. House and Senate, who represent a country with about 10 times China’s per-capita income, had a maximum combined wealth of $4.8 billion, data from the Washington-based Center for Responsive Politics show.
The emerging market powerhouse known as “Chindia” is becoming a focal point of global attention as China and India show themselves to be growth dynamos of the coming Asian Century. But examining these countries’ intrinsic differences, as we do in “‘Chindia’: Putting the Emerging Market Giants Into Perspective,” is more illustrative than listing their similarities—and the two countries are likely to be on a divergent path over the next five years in the areas of growth, economic policy and politics.
Nobody could accuse Chinese policy makers of being ignorant of their economy’s weaknesses, but they have not done much to address them either. In 2007, Premier Wen Jiabao said China’s economy was “unstable, unbalanced, uncoordinated, and unsustainable.” The 2006-10 Five-Year Plan pledged to alleviate China’s reliance on exports and investment for growth, while reducing inequality by boosting incomes in the interior provinces. The global financial crisis deserves much of the blame, but today China’s “four uns” have only grown worse. The current Five-Year Plan looks much like the previous, and will sound the right notes for reform. The problem, as always, will be in the follow through. The main constraint is China’s political economy, in which provincial leaders are rewarded for delivering strong growth and state-owned banks are hardwired to push out as many loans as hamstrung regulators will bear. The coming political transition in 2012-13 will make policy makers risk averse in the near term, but we are hopeful for change after 2013.