Pupils salute as their teacher raises the Chinese national flag on the first day of their new semester at Gao'er Hope School located on the top of Xiaohuatan Mountain in Jinan, Shandong province, Sept. 1, 2009. (Reuters)

China, China everywhere

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We're all living in China's world now. How's your Mandarin?

By Thomas Mucha
Published: October 24, 2009 08:49 ET

BOSTON — Twenty years from now, will you be reading this column in Mandarin?

It sure felt like it this week as China dominated the global news cycle on just about every front — from economics, politics, culture and the Kingdom of Dwarves (more on that later).

Let's start, as stories about China should, with the economics.

  • Beijing said Thursday that its gross domestic product grew at a blistering rate of 8.9 percent in the latest quarter, suggesting that last November's $586 billion stimulus package is kicking in. That surge also puts China back on track, the government says, for hitting its annual growth target of 8 percent — the minimum rate it needs to absorb workers coming from the hinterlands and into its labor force.
  • But there's more. Industrial production (up 12.4 percent) and retail sales (up 15.1 percent) were also strong in the quarter. That's good news on two fronts. First, it suggests China's export engine is firing back into high gear, something it desperately needs right now. More importantly, Beijing has been engineering a long-term structural change to its economy, from one reliant on the ups and downs of exports to a more stable consumer-driven approach to growth. A sharp jump in consumer spending is a step closer to that worthy goal.

The news must have pleased U.S. Federal Reserve Chairman Ben Bernanke, who this week urged Chinese to spend more to help correct imbalances in the global economy — namely the U.S. trade deficit with China and an undervalued Chinese currency, both constant sources of political friction.

But China also gave Washington headaches this week after it took steps to impose new tariffs on nylon imports from the U.S. The nylon spat follows a string of simmering trade disputes over tires, auto parts and chicken.

Beyond trade and economics, the dragon is also sharpening its claws in global politics.

  • In one of the least noticed, yet scariest developments this week, China and India ratcheted up a war of words over disputed land in the Indian state of Arunachal Pradesh, which China claims as its own and over which the two countries went to war in 1962. But the two BRICs are also at odds over Beijing's cooperation with Pakistan in Kashmir, and an Indian invitation to the Dalai Lama to visit the disputed territory. While each of these issues is important and complex, the rising tension reflects something deeper. "The structural problem is leadership," Shen Kingli of China's South Asia Research Institute told the Christian Science Monitor this week. "The question is who leads in Asia?"
  • Beijing, too, is playing an increasingly important leadership role over the future of Iran's nuclear ambitions. With its seat on the United Nations Security Council as leverage, Beijing has been reluctant to go along with Obama Administration hopes to impose sanctions on Iran. That's not surprising when you consider that two of the companies that could end up on the target list for sanctions — China National Offshore Oil Company and Sinopec — are Chinese.
  • Beijing also seems headed for a larger role in Afghanistan. As reported this week by National Public Radio, the U.S. has been seeking help from China, the largest commercial investor in Afghanistan and a country that shares a 46-mile border with it. The U.S. would like Beijing to develop this mountainous and remote Wakhan Corridor as an alternate logistics route for troops and supplies flowing into Afghanistan. The topic is expected to come up next month, when President Obama makes his first trip to Beijing.

And let's not forget culture, where China seems to be everywhere too. 

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Posted by Dan Feldman on October 27, 2009 04:00 ET

Thomas:

I have lived in China for 5 years, and I speak Mandarin.

Your article "China, China everwhere" is nicely framed and fun to read, but it overestimates the strength and sustainability of China's export-led, state-corporatist model.

The numbers which the National Bureau of Statistics released last week were either misreported, misleading or false.

"it is unlikely that 3Q expansion was anywhere near the claimed 8.9%," writes Gordon C. Chang, a Forbes' columnist. "This claim is not consistent with other statistics."

"The economy, for example, is still dependent on exports: Before the massive government spending, about 38% of GDP was attributable to sales abroad. Yet exports tumbled 23.0% in July, 23.4% in August and 15.2% in September."

Chang also questions the supposed 17% Q3 growth in retail.

Chang thinks that chances are high that the government simply bought these “retail items” and either stored them in warehouses or parked them in State parking lots.

Huang Yasheng, a professor at Massachusetts Institute of Technology and the author of the the recently published book Capitalism with Chinese Characteristics, concludes that the massive stimulus package ($586 billion USD) has been funneled predominantly to state-owned corporations and the government bureaucrats who live off them, while fragile household consumers who received none of the largesse have become weaker.

China has not yet restructured its economy from an export-led, state-corporatist model. If the U.S., Europe and Japan are buying substantially less from China since the slowdown, how can an export-led economy grow at 8.9%? Either consumers or the government have picked up the slack. Huang illustrates that the stimulus just made the consumers weaker. Therefore, the Q3 GDP value (whatever it happens to really be) has been propped up with loans from state-owned banks to state-owned corporations and their favored projects.

This wasteful spending, as Michael Pettis argues, only further hurts household consumers in China. Why? Consumers in China will ultimately pay for these wasteful investments with low bank interest rates, higher taxes, etc. when overcapacity results in bad bank loans.

You can read my complete post here.
http://www.chinamanufacturingblog.com/2009/10/china-stimulus-strengthens...

Regards,

Dan

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