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US-China Business Council
News Overview – March 26, 2014
Must Read
Chinese News Sources
Notables
17. NYT - Sinosphere: A Chinese-style suit for Xi Jinping’s European trip
18. LAT: She's no Hillary Clinton: Michelle Obama plays it safe in China
19. WSJ - China Realtime: Michelle Obama wants to balance the U.S.-China education deficit
20. NYT - Sinosphere: Ex-Bloomberg editor tells why he left
21. FT - Martin Wolf: China’s struggle for a new economy
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Edited by Marc Ross
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Must Read
1. WSJ: China yuan reforms seen pushing asset markets into world's top two
China is poised to accelerate liberalization of its capital and foreign exchange markets, a move that will turn the yuan into a major reserve currency within 10 years and catapult Chinese stock and bond markets into the ranks of the world's two biggest, according to researchers from an Australian government-sponsored think tank. A comprehensive report by Geoff Weir and Kathleen Walsh from Australia's Center for International Finance and Regulation argues that if new experiments with free-market finance in the Shanghai Free Trade Zone succeed, the Chinese government will expedite the opening up of its capital account. Such a move, which would allow more or less unrestricted exchange of yuan for other currencies, has been flagged as a five-year goal by the Chinese Communist Party's Central Committee. Nonetheless, many observers are skeptical it will happen quickly, mostly because "convertibility" for the yuan--also known as the renminbi, or RMB--would deeply challenge the profitability of China's mammoth banking system.
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2. IUSCT: Froman to testify before Ways and Means next week on trade agenda
U.S. Trade Representative Michael Froman will testify next week before the House Ways and Means Committee at hearing on the president's trade policy agenda, according to congressional sources. Sources said the hearing will likely take place late in the week, although the exact date remains unclear. Ways and Means is expected to officially announce the hearing seven days before it takes place. Froman is also expected to testify before the Senate Finance Committee on the trade policy agenda on April 3, congressional sources said last week. Rep. Tom Reed (R-NY), a member of the Ways and Means Committee, hinted at Froman's appearance during a Congressional Steel Caucus hearing today, saying that the trade representative will "be before us within the next seven days." When reached for further comment, Reed said a final date for Froman's appearance had not been set. The Finance Committee and the House Ways and Means Committee typically hold hearings in the spring on the president's trade policy agenda, which is due every year by March 1.
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3. WP: U.S. notified 3,000 companies in 2013 about cyberattacks
Federal agents notified more than 3,000 U.S. companies last year that their computer systems had been hacked, White House officials have told industry executives, marking the first time the government has revealed how often it tipped off the private sector to cyberintrusions. The alerts went to firms large and small, from local banks to major defense contractors to national retailers such as Target, which suffered a breach last fall that led to the theft of tens of millions of Americans’ credit card and personal data, according to government and industry officials. “Three thousand companies is astounding,” said James A. Lewis, a senior fellow and cyberpolicy expert at the Center for Strategic and International Studies. “The problem is as big or bigger than we thought.”
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4. Bloomberg Businessweek: A $6.8 trillion price tag for China's urbanization
China has finally put a price tag on its massive plan for urbanization, and it’s a big one. The cost of bringing an additional couple of hundred million people to cities over the next seven years? Some 42 trillion yuan ($6.8 trillion), announced an official from China’s Ministry of Finance last week. “The flaws in the previous model, in which urban construction mostly relied on land sales and fiscal revenue, have emerged in recent years, and the model is unsustainable,” warned Wang Bao’an, vice minister of finance, on March 17. His comments came one day after China’s State Council and the Central Committee of the Communist Party released the “National New-type Urbanization Plan (2014-2020),” which aims to lift the proportion of Chinese living in cities to 60 percent by 2020, from 53.7 percent now. A timely report issued by the World Bank and the Development Research Center of the State Council provides suggestions as to how to pay the big bill. Released today, Urban China: Toward Efficient, Inclusive and Sustainable Urbanization, is the second joint effort by the two organizations, coming just over two years after the publication of an earlier report on economic reform called China 2030.
Shanghai's potential future development modeled at the Shanghai Urban Planning Exhibition Center. Bloomberg photo
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5. Bloomberg: China internet funds called vampires draw calls for rules
It has been labeled a “blood-sucking vampire” by a prominent commentator on state-run television. Executives at China’s largest banks have called for regulators to curb its rapid expansion. The focus of this ire is Internet financing, specifically Yu’E Bao, the fund pioneered nine months ago by Alibaba Group Holding Ltd.’s online-payment affiliate Alipay. Its ease of use, involving a few taps on a smartphone, has drawn deposits from 81 million customers, more than the population of Germany, as they chase returns higher than China’s banks can offer. The total exceeded 500 billion yuan ($80 billion) as of Feb. 28, according to the official Xinhua news agency, double the amount reported by Alipay in mid-January. At least six other technology firms, including Baidu Inc. and Tencent Holding Ltd., have embraced Internet financing with similar products offering returns as high as 10 percent and threatening to drain more cash from China’s banking system. Bank executives, unable to stop the outflow of their cheapest source of funding because interest rates on comparable deposits are fixed by the government at 0.35 percent, are calling for more regulation, saying that lack of oversight and risks related to account security, yield volatility and liquidity management threaten China’s financial stability.
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6. WSJ: China experiments with allowing debt defaults
Regulators aim to deter reckless lending amid a slowing economy.
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7. Reuters: China's Hangzhou latest city to restrict car sales
China's eastern city of Hangzhou will start restricting car sales from Wednesday, joining major cities, including Shanghai and Beijing, in the fight against snarling traffic and heavy smog in the world's largest automobile market. The Hangzhou government said on Tuesday the curbs would take effect while it canvassed public opinion on details of the move. It is proposing limiting sales to 80,000 units every 12 months, to be split evenly over that period, the government said on the city's official website (www.hangzhou.gov.cn). A final decision on details of the curbs will be released at the end of April, the government added. China's leaders have declared a "war" on pollution, as they seeks to calm public ire over water, air and soil pollution that often reaches levels experts consider hazardous.
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8. Reuters: China says polluting industry still growing too fast, heavy smog alert for Beijing
China's energy-hungry, high-polluting industries continued to grow too fast in 2013, putting "huge pressures" on the environment and causing air quality to worsen, the country's pollution agency said on Tuesday.Premier Li Keqiang "declared war" on pollution in a major policy address this month, but China has long struggled to strike a balance between protecting the environment and keeping up economic growth. China is still too slow in reforming its resource-intensive economy, the Ministry of Environmental Protection said in a statement on its website (www.mep.gov.cn). "The pace of restructuring and upgrading industries has slowed, the mode of development remains crude, and emissions of atmospheric pollutants have long exceeded environmental capacity," it said.Rapid urbanisation brought dust from new housing and road building, while more traffic increased emissions. Slower wind speeds than usual in northern China were an additional contributing factor last year.
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9. WSJ: France turns to history to woo Chinese investment
French seek to spur Chinese investment during visit by President Xi Jinping.
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10. FT: Beijing guides investors towards Britain
China’s state planning agency has issued a one-of-a-kind guide for Chinese investors interested in Britain, following a Downing Street push to attract £50bn of foreign capital to finance UK infrastructure projects.
On Tuesday, Oliver Letwin, the UK Cabinet Office minister and Prime Minister David Cameron’s intellectual troubleshooter, will unveil the 40-page guide at a ceremony in Beijing alongside the National Development and Reform Commission, China’s powerful state planning agency. This marks the first time the NDRC has issued a country-specific guide for Chinese investors and underlines the lengths that London is going to in its efforts to secure new money for its creaking transport and energy systems. The report highlights 18 Chinese firms that have already ventured into the UK., although it glosses over the difficulties encountered in deals such as SAIC’s fraught £1bn run at MG Rover.
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Chinese News Sources
11. Xinhua: Investment agreement with China key to boost trade ties: EU
An investment agreement between China and the European Union is good for their overall trade relations, said the EU ahead of crucial investment talks before Chinese president's visit. "Investment is one of the keys motors of any economy and is instrumental in generating growth and creating jobs," said EU Trade Commissioner Karel De Gucht in a statement on Monday. "Securing an ambitious investment agreement with China will be an important step not just for getting better market access and protection for investors, but for strengthening our trade relations with China overall," he added. On the eve of the first ever visit by a Chinese president to the European institutions, the European Union (EU) and China will hold their second round of talks on an EU-China investment agreement on Monday and Tuesday in Brussels.
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12. CD: Developed nations 'need to consider impact' on world
Developed countries should be aware of the "spillover" effect of their economic policies, and emerging markets will remain an important force in global growth, despite their present difficulties, Premier Li Keqiang said when meeting International Monetary Fund Managing Director Christine Lagarde on Monday. "Developed countries should be aware of the spillover effect of their own economic policies," Li told Lagarde. "The emerging markets face challenges, but they remain an important force in world growth. He admitted there are difficulties for nations in coordinating their macroeconomic policies, but he urged all countries to strengthen dialogue and cooperation under international arrangements such as the Group of 20. The United States is expected to end its quantitative easing policy, as its economy has improved, but analysts said this might pose difficulties for emerging markets, which are struggling to cope with capital outflows in anticipation of higher US interest rates.
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13. SD: PBOC sees risk control as priority and denies smothering innovation
China's central bank said yesterday that controlling risks was the priority when it suspended some Internet financial services, answering concerns that excessive scrutiny was to smother innovation. Earlier this month, it halted virtual credit card issuance and quick-response payment services. The central bank is proposing a 10,000 yuan (US$1,613) ceiling on the amount of money consumers can transfer to third-party payment platforms every year. The move caused economists to question the bank’s attitude toward innovation, consumers to worry about online spending restrictions, and concern among payment companies about the effect on revenue. In its first official response to these concerns, the People’s Bank of China said it has made the decisions to control risk. But it said it will leave room for Internet financial innovations without “excessive and rigid” regulations.
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14. Caijing: Why ASEAN overtook China’s foreign investment last year
The ASEAN 5 – the large trading countries of Singapore, Malaysia, Indonesia, the Philippines and Thailand – last year achieved Foreign Direct Investment inflows of some US$128.4 billion, overtaking that of China at US$117.6 billion, according to figures released by Bank of America Merrill Lynch (BAML) last week. That US$128.4 billion represented a 7 percent year-on-year increase in FDI for these ASEAN countries last year, while China faced a 3 percent dip to US$117.6 billion. The BAML figures were calculated using official data and an estimate for Philippines FDI in Q4. This trend demonstrates a number of issues coming into play. Often touted as being caused by an increase in China labour and operational costs, the decline of FDI in China is only partially to do with increased costs. A major driver for the re-positioning of FDI into Asia is rather two other major forces converging – regional demographic change, and the ASEAN-China Free Trade Agreement.
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15. Caixin: Chinese smartphone makers, Qualcomm in battle royale over patent payments
Country's device manufacturers take complaints over high rates for chipmaker's royalties to top economic planner, which is investigating.
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16. Caixin: Project to move water to thirsty north plagued by pollution concerns
Chemical concentrations, garbage piles and mines are threatening the quality of water that is being diverted to quench the thirst of drier parts of the country.
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Notables
17. NYT - Sinosphere: A Chinese-style suit for Xi Jinping’s European trip
President Xi Jinping wore a modified Mao suit to a state dinner hosted by the Dutch royal family in Amsterdam on Saturday, eliciting surprise from Chinese citizens who are used to their leaders’ sartorial decisions being a model of suit-and-tie uniformity. The chatter about Mr. Xi’s outfit follows extended online discussion of the clothing of his wife, Peng Liyuan, and that of Michelle Obama during the American first lady’s trip to China with her mother and daughters, which began last week. The discussion of the first ladies’ apparel choices prompted objections that the women should be accorded significance for far more than what they wear, and that male leaders are rarely subjected to fashion analyses.
President Xi Jinping of China and his wife, Peng Liyuan, left, met with King Willem-Alexander of the Netherlands, Queen Maxima and Princess Beatrix, right, at the Royal Palace in Amsterdam on Saturday. Reuters photo
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18. LAT: She's no Hillary Clinton: Michelle Obama plays it safe in China
Michelle Obama, who has been an effective if tamped-down first lady, took her daughters and mother to China this week. The seven-day trip, which ends Wednesday, is not much different from other most traditional first lady trips, where highly choreographed appearances and interactions centering on the importance of education unfurl predictably. Obama’s conversations and statements are friendly, inspirational and anodyne. The Obamas have also taken in the sights, and if you'd like to see what they have seen, you can read her official blog. Their itinerary includes the Forbidden City, the Summer Palace, the Great Wall and the Chengu Panda Base, home to dozens of the magical creatures. Only once has the first lady even remotely broached a sensitive political topic. In a conversation Saturday with students at the Stanford Center at Peking University, she took a veiled swipe at Chinese censorship. It is so important for information and ideas to flow freely over the Internet and through media,” she told the students. “Because that’s how we discover the truth, and how we learn what’s really happening in our communities, in our country and in our world.” (She said the same thing here, in a Q&A with the Chinese news site Caixin Online.) I never thought I would say this, but Michelle Obama's low-key China trip makes me long for the days when Hillary Clinton held sway in the East Wing. Things were so much more exciting then.
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19. WSJ - China Realtime: Michelle Obama wants to balance the U.S.-China education deficit
Michelle Obama wants more Americans to come to China. The focus of the U.S. first lady’s weeklong trip here is education, with Mrs. Obama both working to encourage American students to study abroad in China and promote the U.S. as a destination for Chinese students headed overseas. Speaking to 58 students gathered at a high school in Chengdu on Tuesday for a Q&A session after delivering a speech to an audience of about 700—as well as to 20,000 more Chinese students from rural areas who were being connected to the talk via satellite—Mrs. Obama emphasized the importance people-to-people exchanges have on bilateral relations. “You have to be comfortable traveling and living in all parts of the world, because that’s how you’re going to get jobs in the future,” she said in response to a question from one of the students. “We can’t solve these problems together if we don’t know one another. And the best way to learn about one another is to live together and learn each other’s languages.”
Michelle Obama sits in class with students at the Chengdu No. 7 High School. AFP photo
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20. NYT - Sinosphere: Ex-Bloomberg editor tells why he left
Below is the on-the-record text of an email message that Ben Richardson, a former senior Bloomberg News editor based in Hong Kong, sent to Jim Romenesko, an American journalist who writes about the news media on his popular blog, jimromenesko.com. Mr. Romenesko reported on Monday on Mr. Richardson’s recent departure from Bloomberg. Mr. Richardson was involved in the editing of a story last year on China’s wealthiest man, Wang Jianlin, the founder of the Dalian Wanda Group, and Mr. Wang’s financial ties to the families of Communist Party leaders. Several Bloomberg employees have said that top editors in New York decided last October not to run the article in order to avoid raising the ire of senior party officials, who had been angered in 2012 by investigative reporting at Bloomberg, and running the risk of Bloomberg getting expelled from mainland China. Matthew Winkler, the editor in chief of Bloomberg News, denied the accusations of self-censorship and said that the article had not been spiked. One of the main reporters on the article, Michael Forsythe, was suspended by Bloomberg. Mr. Forsythe left the company and now works for The New York Times.
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21. FT - Martin Wolf: China’s struggle for a new economy
What are the prospects for the Chinese economy? Few, if any, economic questions can be more important. I have just attended this year’s China Development Forum in Beijing, which brings western business leaders and scholars together with senior Chinese policy makers and academics, with this question very much in my mind. Outside China, pessimism has been growing about the ability of the colossus to sustain its rapid growth. Worriers are paying particular attention to excessive capacity, investment and debt. I share the view that making the transition to slower and more balanced growth is an extraordinarily hard challenge even by the standards of those China has already met. Yet betting against the success of Chinese policy makers has been a foolish wager. When a superb horse meets a new obstacle, the odds must be on the horse. But even the best horse may fall. In many important industries, output is already below 75 per cent of capacity. Yet China is far too large to export its way out of this. In the case of steel, for example, its annual capacity is 1bn tons and output 720m, 46 per cent of the global total. A significant slowdown in infrastructure and property investment would devastate capacity utilisation in steel. The same is true for cement. Bad debt would soar. The big question now is whether the corrective forces in the economy could overwhelm the ability of the authorities to manage the needed adjustments smoothly. Some might argue that a crash is precisely what is needed. The authorities will disagree and so, which matters not at all, do I. They also have many levers under their control. Nonetheless, the downside risks from financial stress and macroeconomic adjustment have been rising sharply. I plan to assess the scale of the risks and possible responses next week.
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