China to reduce growth rate and combat pollution

The Premier of China Li Kequiang told the delegates at the opening of the National People's Congress that he would make the smoggy skies in many cities blue again and pledged to work more quickly to address pollution problems.

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China burns a great deal of coal to produce both heat and electricity contributing to the pollution problem in many cities. Public discontent over the lack of progress in tackling China's pollution problems has resulted in the issue becoming a priority for leadership of the Communist Party. Fortunately, the 10 day event attended by 3,000 members of the parliament got under way under blue skies as heavy gusts from the north blew away the grey smog that covered Beijing just the day before.

The situation has grown so bad that protests have broken out as residents have opposed the building of chemical plants and garbage incinerators as the population becomes more aware of the dangers of the continuing pollution. Premier Li said that the people were hoping for faster progress in improving air quality and promised. "We will make our skies blue again".

Li said the government would work to upgrade coal-fired power plants to achieve ultra-low emissions but would also prioritize integration of renewable energy sources into the energy grid. However, China is also lowering growth targets as it tries to become more reliant on a consumer driven economy rather than depending on exports. China is planning to cut steel production to reduce surplus production. The target for growth was around 6.5 percent or higher if possible according to the report by Li. This would be a bit lower than last year's rate of 6.7 per but still among the world's strongest growth.

Li pointed out that growing debt levels could pose a threat to future growth rates. Li also noted: "Both the de-globalisation trend and protectionism are growing. There are many uncertainties about the direction of the major economies' policies and their spillover effects, and the factors that could cause instability and uncertainty are visibly increasing." Song Lifang an economist at the Renmin University of Peking said that Trump's tough policies could hurt China but would have a limited effect, saying: "With China's domestic economy still in the phase of transformation, the tasks for China's economic growth are arduous but with great potential."

The Li report calls for 11 million new jobs, one million more than last year's target. Reform advocates complain that state companies still control many industries and benefit from monopolies and low cost bank loans making it difficult for entrepreneurs to compete. China promised foreign companies would get equal treatment to their Chinese counterparts after complaints by the US and European groups that the Chinese were trying to squeeze foreign companies out of some markets. However, the rhetoric contrasts with that of Donald Trump who promises to put America first. Although China is increasing its military spending by about 7 percent this is still considerable lower than the US which will increase spending by $54 billion or 10 percent.

China hopes to cut steel production by 50 million tonnes and coal output by more than 150 million tons this year. In a report the National Development and Reform Commission (NDRC) said it would shut or stop construction of coal-fired power plants with a combined capacity of more than 50 million kilowatts. The reduction is a continuation of moves to reduce the share coal plays in energy production and help cut pollution in a number of cities particularly in the north. The cut backs will also help meet climate-change goals while streamlining unwieldy and over-supplied smoke-stack industries such as steel.Premier Li said:"Officials who do a poor job in enforcing the law, knowingly allow environmental violations, or respond inadequately to worsening air quality will be held accountable." In its report, the NDRC said it would cut energy consumption per capita by 3.4 percent and curb carbon intensity by 4 percent this year. In 2016 China far exceeded its goal of eliminating 250 million tons of coal output and 45 million tonnes of steel capacity.

Chinese metal inventories soar as global economy slows

Workers are storing iron ore in granaries because regular storage is full. Copper ore is stored in car parks for the same reason.

In Quingdao port hundreds of piles of iron ore as tall as three story buildings occupy an area designated as "grains storage". In Shanghai car parks are being used for copper storage.

Copper stored in Shanghai is now twice the usual 300,000 tons average. Iron ore stocks are also a third more than average. With Europe in crisis demand is slowing and China itself is growing more slowly.

A manager at a copper tube manufacturer said:"New orders have slowed quite substantially from a year ago...With demand so weak, we've scaled back operations, shut one production line and reduced the number of shifts." For much more see this article.

China to see slower growth in 2012 but still 7.5 per cent

The Chinese Premier Wen Jiabao told the national congress that economic growth would slow in 2012. China faced problems from the international downturn and internal structural problems the premier said.

Wen set China's growth target at 7.5 per cent. For many advanced western economies this would be an excellent growth rate but last year China grew by 9.2 per cent and in years before that at a double-digit rate. The rate is also lower than the 8 per cent target that had been predicted earlier.

Wen wants the Chinese economy to become less export dependent. To do this he has to empower Chinese consumers. At a time when western countries are cutting pensions and spending less on a social safety net the Chinese are moving in an opposite direction. They intend to increase pensions and strengthen the social safety net.

While the Communist Party continues its hold over the system at the same time to be seen as legitimate and to gain support among the people they must carry through reforms of social programs and make sure that the larger population has more of a share in Chinese economic growth.

China intends to expand health spending, unemployment insurance, increase farming income, expand consumer credit and begin a system of paid vacation time.

Wen said:"China's economy is encountering new problems," "There is downward pressure on economic growth. Prices remain high. Regulation of the real estate market is at a crucial stage." Wen admitted that there were inefficiencies and shortcomings in the government handling of the economy over the last year. He even noted the problem of local authorities expropriating land illegally.

In the fishing village of Wukan last year villagers threw out the local communist authorities over just such an issue. In a surprising move the provincial party leaders intervened and granted concessions to the villagers including releasing imprisoned villagers. They also ordered new elections in the town. In spite of all this, increased political and internet freedoms do not seem to be part of the new plan. For more see this article.

China tackles social divide..

Although under Mao China was much poorer in terms of GDP on the whole the distribution of wealth was more egalitarian. With the transition to a market economy and privatisation of state assets a class of quite wealthy Chinese is even more apparent and goods are now rationed mostly on the basis of wealth rather than by a national plan under the previous command economy. While many in urban areas can buy goods that were not available generally before many are also left behind and if anything worse off than under the previous command economy. Many too find that land is being confiscated for development with no benefit to the peasants.

By spending money to help and develop the countryside China will stimulate domestic demand and make itself less dependent upon exports. Also, the Chinese Communist Party may garner more support for itself and maintain its hold on power without the need for much repression. This is from aljazeera.

China vows to tackle social divide

China's premier has opened the country's annual parliamentary session pledging to tackle a growing social divide and make "improving people's well-being" the focus of the country's development.

Speaking at the start of the National People's Congress (NPC) in Beijing, Wen Jiabao said China faced "major problems" that "urgently require solutions".

"We must always remember that developing the economy is inseparable from improving people's well-being and safeguarding social fairness and justice," he said.

"Everything we do, we do to ensure that the people live a happier life with more dignity and to make our society fairer and more harmonious."

The Chinese premier's annual address to the NPC is Beijing's equivalent of the US president's state of the union speech, in which the government outlines its priorities in the year ahead.

"We will not only make the pie of social wealth bigger by developing the economy, but also distribute it well on the basis of a rational income distribution system"

Wen Jiabao,
Chinese premier

Although usually regarded as China's parliament, the annual meeting of the NPC has no real legislative power but usually meets to rubber-stamp the decisions of the Communist Party elite.

Wen devoted much of Friday's speech to the economy, with emphasis on trying to push consumer spending as part of China's attempts to reduce its dependence on exports.

He again set a target of eight per cent economic growth this year and called 2010 a "crucial year in the battle against the global slowdown".

Eight percent growth has become the figure China's leaders feel is the minimum necessary to avoid widescale joblessness and social unrest in the world's most populous country.

'Major problems'

But Beijing also plans to increase spending on social programmes and direct more development money to rural areas as Wen said urgent solutions were needed to combat "major problems" in the areas of healthcare, education, housing, income distribution and public administration.

Key points of Wen's speech

China faces "crucial year" in battle against global downturn

Target of 8 per cent growth for 2010

Vow to bridge gap between rich and poor, boosting social spending in rural areas by 12.8 per cent

Tighten up credit and keep tight rein on inflation at around 3 per cent

Cap urban unemployment at 4.6 per cent

Pledged to keep value of currency, the Yuan, "basically stable"

Addressing the millions of mainly rural poor who had been left behind by China's economic boom he said the government would step up efforts to broaden the social safety net.

"We will not only make the pie of social wealth bigger by developing the economy, but also distribute it well on the basis of a rational income distribution system," Wen said.

According to the latest official figures, China's rural-urban wealth gap was the widest last year since the launch of economic reforms three decades ago.

In 2009 urban per capita income stood at 17,175 yuan ($2,500), or more than three times the average rural income of 5,153 yuan.

Wen added that the government would act to curb excess lending and high housing prices as authorities try to steer China's economy away from the easy credit and state investment that warded off the worst effects of the global recession.

"We will resolutely curb the precipitous rise of housing costs," Wen said, hinting at the government's fears that surging house prices could erode gains from economic reforms and possibly fuel social unrest.

He also said China would reform the "hukou" household registration system, relaxing regulations that often prevent China's 180 million migrant workers from getting access to social services such as education and healthcare.


Wen says China's economy is expected to grow by 8 per cent this year [EPA]
Earlier this week in an unusual joint editorial, 13 major state-controlled newspapers across China called for the abolition of the hukou passes, saying the system "shackles the people's rights".

Al Jazeera's Melissa Chan, reporting from Beijing, said the works report by Wen on the state of the nation was very focused on domestic issues and mostly centred on the economy.

While the Chinese premier began his speech by saying that China had weathered the 2009 global economic downturn, his speech was quite cautionary about the challenges ahead, such as dealing with unemployment, she said.

And aside from the usual reiteration of China's claim over Taiwan, there was not much said on foreign policy.

'Solidarity'

Wen barely touched on the politically-sensitive issue of China's currency, saying only that it would keep the yuan "stable".


Wen said special emphasis would be placed on improving the lives of ethnic minorities [AFP]
He also made no mention of either China's sovereignty over Tibet or the Dalai Lama, whom Beijing accuses of trying to "split" Tibet from China.

Instead, hinting at recent unrest in Tibet and in the far western region of Xinjiang he said the government would place a special focus on further improving the living standards of China's ethnic minorities.

"The Chinese nation's life, strength and hopes lie in promoting solidarity and achieving common progress of our ethnic groups," he said.

"We need to take a clear-cut stand against attempts to split the nation, safeguard national unity, and get ethnic minorities and the people of all ethnic groups who live in ethnic minority areas to feel the warmth of the motherland as one large family."

The meeting of the NPC is expected to last around 10 days and will be closely watched for signs of any political power shift.

Particular attention will be on whether China's expected next generation of leaders led by Xi Jinping, the Chinese vice president, and Li Keqiang, the vice premier take on a higher profile.

Both men are seen as the top candidates to take over the Chinese presidency and premiership when the current incumbents stand down.

China experiencing labor shortage.

What is described seems less like a labor shortage than a shrinking of the vast pool of unemployed or underemployed in rural China which enabled Chinese companies to pay very low wages. The government stimulus program that has created jobs outside the big urban centers is enabling many Chinese workers to find work in their own areas. This is surely all to the good and a great boon for many Chinese families. This is from the NewYorkTimes.

Defying Global Slump, China Has Labor Shortage

By KEITH BRADSHER
GUANGZHOU, China — Just a year after laying off millions of factory workers, China is facing an increasingly acute labor shortage.

As American workers struggle with near double-digit unemployment, unskilled factory workers here in China’s industrial heartland are being offered signing bonuses.

Factory wages have risen as much as 20 percent in recent months.

Telemarketers are turning away potential customers because recruiters have fully booked them to cold-call people and offer them jobs.

Some manufacturers, already weeks behind schedule because they can’t find enough workers, are closing down production lines and considering raising prices. Such increases would most likely drive up the prices American consumers pay for all sorts of Chinese-made goods.

Rising wages could also lead to greater inflation in China. In the past, inflation has sown social unrest.

The immediate cause of the shortage is that millions of migrant workers who traveled home for the long lunar New Year earlier this month are not returning to the coast. Thanks to a half-trillion-dollar government stimulus program, jobs are being created in the interior.

But many economists say the recent global downturn also obscured a longer-term trend: China has drained its once vast reserves of unemployed workers in rural areas and is running out of fresh laborers for its factories.

Since China does not release reliable, timely statistics on employment, wages are considered the best barometer of labor shortages. And temp agencies here in Guangzhou raised their rate for factory workers this week to $1.17 an hour, from 95 cents an hour before the new year holiday.

The rate was 80 cents an hour two years ago, before the global financial crisis temporarily depressed wages and demand.

The dearth of returning migrants set off a desperate scramble this week to recruit the workers who did step off long-haul buses and trains returning from the interior.

At a government-run employment center in downtown Guangzhou, employers seeking workers outnumbered job-hunters Thursday afternoon.

Outside, Liang Huoqiao, a 22-year-old plastics worker, joined a small group of men and women studying a 40-foot-wide list of companies seeking workers.

“You can walk into any factory and get a job,” he said.

The official China Daily newspaper said on Thursday that surveys of employers showed that one in 12 migrant workers was not expected to return here to Guangdong Province. Cities farther north along China’s coast are also running low on labor; Wenzhou alone posted a shortage of up to one million workers.

Guangdong provincial officials announced on Wednesday that they were considering increasing the minimum wage, which varies by city and ranges from $113 to $146 a month.

Higher wages could ease labor shortages by prompting factories to reduce their work forces.

But many factories already pay well above the minimum wage. They are wary of further pay increases because it is not certain they can pass the increased costs on to their customers — in particular, strapped importers in the United States and the European Union.

Rising wages suggest the re-emergence of a worker shortage that was becoming evident before the financial crisis. A government survey three years ago of 2,749 villages in 17 provinces found that in 74 percent of them, there was no one left behind who was fit to go work in city factories — the labor pool was dry.

Mass layoffs in late 2008 and early 2009 because of the global financial crisis temporarily masked the developing shortage of industrial workers. But two powerful trends were still working to reduce the supply of young people headed for factories.

For one, the Chinese government has rapidly expanded postsecondary education. Universities and other institutions of higher learning enrolled 6.4 million new students last year, compared to 5.7 million in 2007 and just 2.2 million in 2000.

At the same time, China’s birth rate has been sliding steadily ever since the introduction of the “one child” policy in 1977.

Labor shortages have returned quickly in recent weeks as these long-term trends have collided with a recovery in overseas demand for Chinese goods.

Far more jobs are available these days in China’s interior. Government projects like rail and highway construction have absorbed millions of workers, particularly after Beijing allocated nearly $600 billion to economic stimulus spending in 2009 and 2010. Consumer spending is also rising briskly; auto sales more than doubled last month from a year before, and this has created many jobs in retailing, restaurants, hotels and other inland businesses.

Even before the holiday, companies were struggling to find the employees needed to keep assembly lines running.

At many factories, white-collar managers and engineers were forced to spend time on assembly lines to meet deadlines before the lunar New Year, because laborers were in such short supply. The managers often struggled with the tedious but intricate tasks required to make everything from toys to DVD players

“People working in the office, like me, have been asked to help on the factory floor,” said Sky Niu, the sales manager at the Hengjia Electronics Company in Dongguan. “Of course, we can only help on the simpler tasks, such as packing.”

The labor shortage is not benefiting workers just through higher wages. Personnel managers here say they are also abandoning the informal tradition of not hiring anyone over 35 — they say they are now hiring workers up to 40 years old, and sometimes older, despite concerns about whether they can keep up week after week with the rapid pace of Chinese assembly lines.

It remains to be seen if Chinese factories will learn from their hiring difficulties now and be less quick to lay off workers during the next global downturn.

The current system “is not stable, it’s not healthy,” said Han Dongfang, the director of the China Labor Bulletin, a Hong Kong-based group that advocates collective bargaining.

Though the wage boost increases the prospect of inflation, it may have another more salutary aspect. The Obama administration has been pushing China to let the renminbi rise against the dollar, which would erode some of China’s formidable advantage in export markets. Rising wages in China have the same effect — while also giving Chinese families more spending power.

Letting wages rise benefits workers, said Jing Ulrich, the chairwoman of China equities and commodities at J. P. Morgan. Letting the currency rise benefits currency speculators, she said.

Mr. Liang, the 22-year-old plastics worker, said that he expected his pay to double in the next five years and added that he already had set his priorities.

“For sure, I want to buy a car,” he said. “Car first, then maybe marriage later.”

Hilda Wang contributed reporting.

China fears a real estate bubble

As some in the article note there is actually a need for quite a bit more housing in China, also the Chinese government is taking steps to reign in lending to some extent and cool things down. Nevertheless the article does point out some danger signs that might lead to a serious bubble in time if moves are not made now.


In China, fear of a real estate bubble

By Steven Mufson
Washington Post Staff Writer
Monday, January 11, 2010; A01



BEIJING -- With property prices soaring in key cities, many investors and bankers worry that China has the next great real estate bubble waiting to be popped.

The Chinese government is worried, too. On Sunday, the nation's cabinet, citing "excessively rising house prices" in some cities, said it will monitor capital flows to "stop overseas speculative funds from jeopardizing China's property market." It also said that any Chinese family buying a second home must make a down payment of at least 40 percent.

For investors, many of the usual bubble warning signs are flashing. Fueled by low interest rates, prices in Shanghai and Beijing doubled in less than four years, then doubled again. Most Chinese home buyers expect that today's high prices will climb even higher tomorrow, so they are stretching to pay prices at the edge of their means or beyond. Brokers say it is common for buyers to falsely inflate income statements for bank loans.

Some economists and bankers fear that they have read this script before. In Japan at the end of the 1980s and in the United States in 2008, residential real estate bubbles ended in big crashes, battered banks and slow recoveries. With China acting as a key engine of global growth, a bursting of the Chinese real estate bubble could be a pop heard round the world.

"It's definitely a bubble," said Beijing real estate broker Xu Xiangdong, a 24-year-old former nightclub cashier. "But it won't break because there is lots of support beneath the bubble because buying power is really strong."

Many economists say there are good reasons for such optimism. Rapid economic growth, rising family incomes, continued migration to the cities, pent-up demand for housing, and a banking system much less exposed to residential mortgages than banks in the United States or Japan could protect China, they say, from a real estate meltdown for years to come.

If not, then development firms and Chinese banks might teeter and construction could slow down, tossing millions of Chinese people out of work. A real estate bust might also shake confidence here just when the world is looking to Chinese consumers to start spending more to bring global trade into better balance.

Arthur Kroeber, a Beijing-based analyst and managing director of Dragonomics, said China's economy is "not even close" to being a bubble like those seen in Japan, which endured more than a decade of sluggish growth after prices retreated, or in the United States, which helped bring about the current sharp global downturn.

"At some point the music will stop," Kroeber said. But he predicted that it would not happen in China for at least 15 years, when urbanization slows.

The bigger real estate problem in China now is access to housing. For many people -- especially the young or people moving to the cities from rural areas -- the dream of owning a home is more and more difficult to attain. The Xinhua news agency quoted Goldman Sachs as saying that housing price increases had outpaced wage hikes by 30 percent in Shanghai and 80 percent in Beijing in recent years.

A popular television soap opera known as "Snail House" depicts two sisters' desperate struggle to buy an ever more unaffordable home. One sister resorts to becoming the mistress of a corrupt, married official to get money for an apartment. Last month, after a broadcast official said the 33-part series was having a "vulgar and negative social impact" and using "sex to woo viewers," viewers lashed out at him on the Internet and accused him of owning multiple luxury homes.

Working out of an east Beijing building decorated with Ionic and Corinthian pedestals, Xu, the real estate broker, has seen apartment prices in the complex double in the past year, to $380 a square foot. Prices had already doubled over the three previous years. Now the sales-agent manager of a Century 21 franchise, his take-home pay is more than four times what he earned as a cashier. But Xu, a vocational school graduate and son of corn farmers in Jilin province, still rents.

Speculation has become common. Wang Zhongwei, a 35-year-old stock market analyst who owns the apartment where he lives, bought two apartments in 2004 for investment purposes. He borrowed from family and friends to meet mortgage payments twice as big as his take-home pay. But in the middle of last year, he sold the apartments for twice what he paid and made $145,000, a fortune here.

"It's much easier than working every day to make money," Wang said. "I work very hard and compete for my so-called career every day, but I don't make that much money from work." In November, he bought two more apartments.

The government has helped pump up the property market by keeping interest rates low, the currency undervalued and the fiscal spigots open. Standards for bank lending have been lax, with lending rising at a 30 percent annual pace in 2009, according to a report by the Los Angeles-based bond investment firm Pimco. Since the government exerted restraint in July, lending has risen at a slower, but still brisk, 15 percent annual rate.

Now top leaders are worried. In a year-end interview with the official Xinhua news agency, Premier Wen Jiabao said that "as the property market is recovering rapidly this year, housing prices in some cities are rising too fast, which deserves great attention of the central government." He vowed to "crack down on illegal moves, including hoarding of land and delaying sales for bigger profits." And he said the government would do more to provide affordable housing.

Last week, the government also nudged a key interest rate higher.

Still, many economists are sanguine.

"One of the legacies of China's prolonged stagnant growth prior to economic liberalization is an overwhelming shortage of residential property that meets its new living standards," Koyo Ozeki said in a report published by Pimco. "It will likely take a considerable period of time for supply to catch up to demand." That wasn't true in the Japanese or U.S. bubbles.

Ozeki, an executive vice president for Pimco in Tokyo, noted that the total credit for the property sector in China has grown to 40 percent of gross domestic product; in the United States, it hit 80 percent in 2007. For Chinese banks, exposure to real estate is less than 20 percent of assets, much smaller than in the United States. That should reduce the chances of a banking crisis.

In addition, while property prices are soaring in such areas as Beijing and Shanghai, price increases are more modest elsewhere. Government statistics say housing prices nationwide rose only 5.7 percent last year.

Moreover, China's homeowners carry less debt than homeowners abroad and the economy's rapid growth can probably keep incomes rising fast enough to cover mortgage costs. Kroeber said that mortgages issued from 2002 to 2008 equaled only 40 percent of the value of housing sold nationwide.

Liu Renping, a 30-year-old construction engineer originally from the countryside of Inner Mongolia, is typical of many first-time Chinese home buyers. After deciding to get married, he hunted for four months before buying a two-bedroom, 900-square-foot apartment on the northern edge of Beijing last March, even though it won't be completed until this October. He paid $162 per square foot and took out a mortgage out for half the money needed. The other half came from his mother, friends and his savings.

About 30 percent of the couple's pay will cover mortgage payments. "And my salary will increase in the near future. So I don't feel big pressure from my mortgage," Liu said.

Since he bought the apartment, prices in that development have jumped more than 50 percent. "I am lucky to have bought it early," he said. "If the price was this high when I bought the apartment, I wouldn't buy at all because it would have been too expensive and I wouldn't have been able to afford it."

Researcher Zhang Jie contributed to this report.

A U.S. economist in Shanghai Daily

Interesting that a Chinese paper should publish a reasonably prominent American economist. On the list I am on (Pen-L) De Long was considered right wing but I suppose within the mainstream he is probably regarded as to the left. Anyway this is an interesting opinion piece. The piece makes it sound as if Marx looked at matters in moral terms and really does nothing to explain Marxist analyses. However, that problem doesn't matter in China at this stage. The article points out the problem of gross unequal distribution of income under capitalism and in China poverty within great wealth as it adopts a capitalist system. De Long has abandoned Pen-L for some time I believe but he likes to come back and provoke leftists.
It is hard to see how democratic policies can do that much to balance the market. Anyway it is not the market but capitalism that is the problem. Democratic politics is a realm where money counts just as in the marketplace and capital has the money and also the power of ownership of the means of production. Certainly democracy gives the people some power over market forces but it will always be limited by the needs of capital that is the engine that runs the whole system.


Shanghai Daily (2/1/08)Would Marx say rising tide today lifts all boats?By: J. Bradford DeLongA century and a half ago, Karl Marx both gloomily and exuberantlypredicted that the modern capitalism he saw evolving would proveincapable of producing an acceptable distribution of income.Wealth would grow, Marx argued, but would benefit the few, not the many:the forest of upraised arms looking for work would grow thicker andthicker, while the arms themselves would grow thinner and thinner.Ever since, mainstream economists (in the West) have earned their breadand butter patiently explaining why Marx was wrong. Yes, the initialdisequilibrium shock of the industrial revolution was and is associatedwith rapidly rising inequality as opportunities are opened toaggressiveness and enterprise, and as the market prices commanded by keyscarce skills rise sky-high. But this was - or was supposed to be -transient.A technologically stagnant agricultural society is bound to be anextremely unequal one: by force and fraud, the upper c lass pushes thepeasants' standards of living down to subsistence and takes the surplusas the rent on the land they control.By contrast, mainstream economists argued, a technologically advancingindustrial society was bound to be different.First, the key resources that command high prices and thus producewealth are not fixed, like land, but are variable: the skills of craftworkers and engineers, the energy and experience of entrepreneurs, andmachines and buildings are all things that can be multiplied.As a result, high prices for scarce resources lead not to zero- ornegative-sum political games of transfer but to positive-sum economicgames of training more craft workers and engineers, mentoring moreentrepreneurs and managers, and investing in more machines and buildings.Second, democratic politics balances the market. Government educates andinvests. It also provides social insurance by taxing the prosperous andredistributing benefits to the less fortunate. Economist Simon Kuznetsproposed the existence of a sharp rise in inequality uponindustrialization, followed by a decline to social-democratic levels.But, over the past generation, confidence in the "Kuznets curve" hasfaded. Social-democratic governments have been on the defensive againstthose who claim that redistributing wealth exacts too high a cost oneconomic growth.The consequence has been a loss of morale among those of us who trustedmarket forces and social-democratic governments to prove Marx wrongabout income distribution in the long run - and a search for new anddifferent tools of economic management.Increasingly, pillars of the establishment are sounding like shrillcritics. Consider Martin Wolf, a columnist at The Financial Times.Wolf recently excoriated the world's big banks as an industry with anextraordinary "talent for privatizing gains and socializing losses ...(and) get(ting) ... self-righteously angry when public off icials ...fail to come at once to their rescue when they get into (well-deserved)trouble ... (T)he conflicts of interest created by large financialinstitutions are far harder to manage than in any other industry."For Wolf, the solution is to require that such bankers receive their payin installments over the decade after which they have done their work.But Wolf's solution is not enough, for the problem is not confined tohigh finance.The problem is a broader failure of market competition to give rise toalternative providers and underbid the fortunes demanded for their workby our current generation of mercantile princes.(The author is professor of economics at the University of California atBerkeley and a former assistant US treasury secretary. Copyright:Project Syndicate, 2008. www.project-syndicate.org.)

Is China de-coupled from the US economy?

These are two articles on the Chinese economy and the effect of a US downturn on its economic growth. Even pessimistic projections place Chinese economic growth at over 9 per cent this year, certainly not much like a recession. Up until now China was worried about growing too quickly. With its environmental problems a slow-down is probably positive and it may be helpful in terms of domestic consumption versus export. The first article is from the Wall Stree Journal.

OnlineJanuary 24, 2008China Turns Its Attention To Maintaining MomentumBy ANDREW BATSONJanuary 24, 2008BEIJING -- Even as China reported today a second year of annual growthabove 11%, the prospect of a U.S.-led global economic slowdown lookedlikely to force a shift in priorities: from curbing the boom tosustaining momentum.The government wants to generate 10 million urban jobs this year.Delivering that is likely to mean a sharper focus on the domesticeconomy, after a period when trade has been a big growth driver.China's export engine started to slow near the end of the year, andthe wider effects of that are already being felt. Economic growthpeaked at 11.9% in the second quarter, then eased to 11.5% in thethird. In the fourth quarter, the economy grew 11.2%, China's NationalBureau of Statistics said today in Beijing. For all of 2007, grossdomestic product expanded 11.4%, the bureau said.Some exporters, seeing orders from the U.S. fall off, are planning totrim staff, which could feed into a broader impact on households andconsumer spending. That is happening even as inflation in Chinaremains high, and as drops in stock markets and property prices alsothreaten to erode savings."The economic and financial conditions at home and abroad will be morecomplicated in 2008, and China is facing tougher challenges insustainable economic and financial development," Jiang Dingzhi, vicechairman of the China Banking Regulatory Commission, said this week.Top leaders are now still focused on combating inflation that reachednearly 5% in 2007. They have resorted to freezes in prices ofelectricity and fuels, and price controls on some foods. Thatinflation's persistence limits the government's ability to lift theeconomy through measures like interest-rate cuts.That could change quickly if inflation moderates and the U.S. andEurope continue to take a turn for the worse. "I think the governmenthas already started to pay attention to the possibility of a U.S.recession," says Zuo Xiaolei, chief economist for China GalaxySecurities in Beijing. Though even the most pessimistic forecasts callfor China's growth to ease to 9% or so this year, that would be asharp relative slowdown. "They should stimulate domestic consumptionto compensate for the loss of external demand," she says.Indeed, Chinese authorities have a track record of respondingaggressively to external economic slowdowns. In 1998, during the Asianfinancial crisis, a huge influx of government cash helped keep theeconomy growing by nearly 8%. Yet such efforts to boost the economyalso carry the risk that China could end up in a damaging downturnwhen the boost runs out.A boom in construction of housing, infrastructure and new factorieshas been the major driving force of China's expansion in recent years.Such investment has been so fast that many officials worry that moreis being built than is really needed. To avoid excess capacity, thegovernment has repeatedly moved to curb investment and warned thatfuture growth will have to be less reliant on such spending. But thoseconcerns may fall by the wayside if the leadership decides moreinfrastructure projects are needed to offset weaker exports."If the major economies do retrench fairly heavily, then maintaining adegree of growth that is consistent with social stability will requirea boost in construction and investment," says Glenn Maguire, Asiaeconomist for Societe Generale. A concrete increase in jobs could welloutweigh the more abstract worry of excess capacity or wastedinvestment. So, he says, "We may see a temporary pause in this desirefor more balanced growth."There is plenty of such spending under way. China's Ministry ofRailways earlier this month announced a major step-up in constructionof new railroads this year, with official plans calling for spendingabout $41 billion to lay 7,820 kilometers of new track. And withChina's cities growing by 18 million people a year, according toUnited Nations estimates, it wouldn't be difficult to speed upconstruction of housing and public works. About 10 major cities,including Beijing but also places like Chengdu, Wuhan and Guangzhou,are now building or expanding subway systems -- but there are severalothers whose plans are still waiting for approval.Similarly, most analysts expect fewer of the tax and regulatorychanges that were pushed through last year to limit exports of someproducts, mostly raw materials or those whose manufacture generateshigh pollution. Such measures were a response to the problems of thewide trade surplus, which had brought political friction with the U.S.and Europe, and flooded banks with cash they were ill-equipped todeploy properly.Yet as the U.S. economy has weakened, official talk of curbing thetrade surplus has subsided. Export growth slowed from about 29% in thefirst half of 2007 to around 22% in the second half, and thegovernment is once again concerned about aiding exporters. "Companies'exports are facing new pressure ... the task of stabilizing exports isvery heavy," Minister of Commerce Chen Deming said in a speech lastweek.A mild global slowdown could actually ease some of China's recenteconomic problems: domestic food prices that are being pushed up inpart by tight global agricultural markets, and a banking systemflooded with cash from an ever-expanding trade surplus. Governmentthink tanks are forecasting only a modest slowdown in economic growththis year, in the range of 10% to 11%, which is considered desirablegiven the strains that growth in excess of 11% has brought.But a big shock to the export sector that leads to an increase inunemployment would be a different matter."Although the current slowdown in export growth helps alleviate thetrade surplus and external imbalances, our nation still faces greatemployment pressures," argues Fan Caiyue, an economist for theNational Development and Reform Commission, in an article this week."We still need to maintain a certain amount of export growth, so ifexports substantially decline, it is not beneficial to maintainingstable and fast growth in our nation's economy."To reduce China's vulnerability to trade fluctuations and investmentcycles, the government over the past couple of years also has beentrying to encourage its consumers to spend more and save less. Yetwhile public-works projects can start up quickly, changing spendinghabits can take longer, and there hasn't yet been a big acceleration.After accounting for the effects of inflation, retail sales were up12.8% last year through November, little changed from the 12.7% pacein 2006.This year, officials are continuing to roll out policies designed toput more money in consumers' pockets, like higher minimum wages, andthey are continuing to expand new health-care and social-securityprograms to reduce the burden of those costs.

Here is the second article from the Economist:

An independent streakJan 24th 2008 HONG KONG>From The Economist print editionINVESTORS were until recently big fans of the "decoupling" theory, thenotion that Asian economies can shrug off an American recession. This week'splunge in share prices, at one point taking the MSCI Emerging Asia Indexdown 25% from its October high, suggests they have changed their minds. Butthe fact that their stockmarkets are still coupled does not mean that theireconomies will follow America over a cliff.Decoupling was always a misnomer if it implied that an American recessionwould have no impact in the East. Exports and hence profits would certainlybe squeezed; some fear Japan may even be tipping back into recession.Instead, the real argument in the rest of Asia was that it would suffer lessthan in previous American downturns.As well as hitting exports, America's troubles could also affect emergingAsia through financial channels. Its exposure to the subprime mess isthought to be smaller than that of American or European banks. Even so,Chinese bank shares tumbled this week on reports that they would have tomake bigger write-downs on their holdings of American subprime securities.And if shares slide further as global investors flee from risky assets, thiscould dampen business and consumer confidence in the region.Some Asian economies are more vulnerable than others. Singapore, Hong Kongand Malaysia are the most exposed, with exports to America equivalent to 20%or more of their GDPs, compared with only 8% in China and 2% in India. Thereare already some ominous signs. Singapore's exports to America are down by11% over the past year, whereas Malaysia's fell by 16%. Exports to otheremerging economies and to the European Union surged, so total exports stillgrew by 6% in both economies. But that was much slower than at the start of2007, and the worry now is that demand from Europe has started to flag.The growth in China's exports to America slowed to only 1% (in yuan terms)in the year to December from over 20% in late 2006. So far the impact on GDPhas been modest. Figures published on January 24th showed that China's GDPgrew by a sizzling 11.2% in the year to the fourth quarter, down from 11.5%in the previous three months. Most economists expect growth to slow to astill-healthy 9-10% this year, but there are growing concerns that newgovernment limits on bank lending risk choking the economy.China's economy would probably still expand by around 8-9% even if exportgrowth dried up. During the 2001 American recession China's GDP growthbarely slowed. In contrast, Hong Kong, Singapore, Taiwan and Malaysiasuffered full-blown recessions, with growth rates falling by more than tenpercentage points from peak to trough. America's slump is likely to bedeeper than in 2001 and Asia is now more integrated into the global economythan it used to be. Doomsters conclude, therefore, that these economiescould be hit even harder this time.The main reasons to be more optimistic are that domestic demand (consumerspending and investment) is likely to remain stronger and that governmentshave more flexibility to offset America's malaise. Last year, despite aslowdown in America's imports, most Asian economies grew faster as domesticdemand sped up everywhere except Thailand. Robert Prior-Wandesforde, aneconomist at HSBC, says that those who argue that Asia cannot decouple fromAmerica are ignoring the fact that they already have. Take Malaysia: itsexports to America plunged, yet its GDP growth quickened from 5.7% at theend of 2006 to 6.7% in the third quarter of last year.Contrary to the popular view that Asia's meltdown during the 2001 recessionwas entirely due to a slump in exports, Peter Redward, at Barclays Capital,argues that a fall in investment played a bigger role. Too much debt andexcess capacity weighed down firms, particularly in the electronicsindustry, which was at the heart of the American recession. Today firms arein much better shape. Capacity utilisation is high across the region;outside China, investment as a share of GDP is historically low; companybalance-sheets are stronger and real interest rates are low. Firms aretherefore less likely to slash investment than in 2001.Slowing exports will affect domestic spending. But macroeconomicfundamentals are much healthier in East Asia these days. Largeforeign-exchange reserves make countries less vulnerable to shocks. Budgetsare in surplus or close to balance, providing more scope for fiscal stimulusto support growth.For all these reasons, even if Asia's exports clearly have not decoupledfrom America, its economies will be less hurt by a recession there than inthe past. Standard Chartered forecasts that emerging Asia will grow by anaverage of 6.4% in 2008, down from 7.8% in 2007. In 2001 growth dropped bythree percentage points, to 4.2%. Financial markets were slow to realisethat growth and hence profits in some countries in emerging Asia will bedented by an American downturn. But now they risk exaggerating the potentialdamage.