China – Page 11 – artdiamondblog.com

Chinese Boom Financed by Government Debt and “Clever Accounting”

“An empty lot in Wuhan, China, where developers intend to build a tower taller than the Empire State Building in New York.” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. A1) . . . the Wuhan Metro is only one piece of a $120 billion municipal master plan that includes two new airport terminals, a new financial district, a cultural district and a riverfront promenade with an office tower half again as high as the Empire State Building.
. . .
The plans for Wuhan, a provincial capital about 425 miles west of Shanghai, might seem extravagant. But they are not unusual. Dozens of other Chinese cities are racing to complete infrastructure projects just as expensive and ambitious, or more (p. A8) so, as they play their roles in this nation’s celebrated economic miracle.
In the last few years, cities’ efforts have helped government infrastructure and real estate spending surpass foreign trade as the biggest contributor to China’s growth. Subways and skyscrapers, in other words, are replacing exports of furniture and iPhones as the symbols of this nation’s prowess.
But there are growing signs that China’s long-running economic boom could be undermined by these building binges, which are financed through heavy borrowing by local governments and clever accounting that masks the true size of the debt.
The danger, experts say, is that China’s municipal governments could already be sitting on huge mountains of hidden debt — a lurking liability that threatens to stunt the nation’s economic growth for years or even decades to come. Just last week China’s national auditor, who reports to the cabinet, warned of the perils of local government borrowing. And on Tuesday the Beijing office of Moody’s Investors Service issued a report saying the national auditor might have understated Chinese banks’ actual risks from loans to local governments.
Because Chinese growth has been one of the few steady engines in the global economy in recent years, any significant slowdown in this country would have international repercussions.

For the full story, see:
DAVID BARBOZA. “Building Boom in China Stirs Fears of Debt Overload.” The New York Times (Thurs., July 7, 2011): C8.
(Note: online version of the article is dated July 6, 2011 and has the title “Building Boom in China Stirs Fears of Debt Overload.”)
(Note: ellipses added.)

Chinese Emphasis on Rote Learning Produces Passive Researchers

(p. A15) Hardly a week goes by without a headline pronouncing that China is about to overtake the U.S. and other advanced economies in the innovation game. Patent filings are up, China is exporting high-tech goods, the West is doomed. Or so goes the story line. The reality is very different.
. . .
But more than 95% of the Chinese applications were filed domestically with the State Intellectual Property Office–and the vast majority cover “innovations” that make only tiny changes on existing designs. A better measure is to look at innovations that are recognized outside China–at patent filings or grants to China-origin inventions by the world’s leading patent offices, the U.S., the EU and Japan. On this score, China is way behind.
. . .
China’s educational system is another serious challenge because it emphasizes rote learning rather than creative problem solving. When Microsoft opened its second-largest research lab (after Redmond, Wash.) in Beijing, it realized that while the graduates it hired were brilliant, they were too passive when it came to research inquiry.
The research directors attacked this problem by effectively requiring each new hire to come up with a project he or she wanted to work on. Microsoft’s approach is more the exception than the rule among R&D labs in China, which tend to be more top-down.

For the full commentary, see:
ANIL K. GUPTA AND HAIYAN WANG. “Chinese Innovation Is a Paper Tiger; A closer look at China’s patent filings and R&D spending reveals a country that has a long way to go.” The Wall Street Journal (Thurs., July 28, 2011): A15.
(Note: ellipses added.)

China’s “Orwellian Surveillance System”

“A customer in a Beijing cafe not yet affected by new regulations surfed the Web on Monday.” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. A4) BEIJING — New regulations that require bars, restaurants, hotels and bookstores to install costly Web monitoring software are prompting many businesses to cut Internet access and sending a chill through the capital’s game-playing, Web-grazing literati who have come to expect free Wi-Fi with their lattes and green tea.

The software, which costs businesses about $3,100, provides public security officials the identities of those logging on to the wireless service of a restaurant, cafe or private school and monitors their Web activity. Those who ignore the regulation and provide unfettered access face a $2,300 fine and the possible revocation of their business license.
. . .
The new measures, it would appear, are designed to eliminate a loophole in “Internet management” as it is called, one that has allowed laptop- and iPad-owning college students and expatriates, as well as the hip and the underemployed, to while away their days at cafes and lounges surfing the Web in relative anonymity. It is this demographic that has been at the forefront of the microblogging juggernaut, one that has revolutionized how Chinese exchange information in ways that occasionally frighten officials.
. . .
One bookstore owner said she had already disconnected the shop’s free Wi-Fi, and not for monetary reasons. “I refuse to be part of an Orwellian surveillance system that forces my customers to disclose their identity to a government that wants to monitor how they use the Internet,” said the woman, who feared that disclosing her name or that of her shop would bring unwanted attention from the authorities.

For the full story, see:
ANDREW JACOBS. “China Steps Up Web Monitoring, Driving Many Wi-Fi Users Away.” The New York Times (Tues., July 26, 2011): A4.
(Note: ellipses added.)
(Note: the online version of the story is dated July 25, 2011.)

The Victimless Crime of Selling Rice Wine

“Illegal rice wine for sale in Chinatown. The wine is popular among immigrants from Fujian Province.” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. A22) The restaurant looks like so many others in the roiling heart of Chinatown, in Lower Manhattan: a garish sign in Chinese and English, slapdash photos of featured dishes taped to the windows, and extended Chinese families crowding around tables, digging into communal plates of steamed fish, fried tofu and sautéed watercress.

But ask a waitress the right question and she will disappear into the back, returning with shot glasses and something not on the menu: a suspiciously unmarked plastic container containing a reddish liquid.
It is homemade rice wine — “Chinatown’s best,” the restaurant owner asserts. It is also illegal.
In the city’s Chinese enclaves, there is a booming black market for homemade rice wine, representing one of the more curious outbreaks of bootlegging in the city since Prohibition. The growth reflects a stark change in the longstanding pattern of immigration from China.
In recent years, as immigration from the coastal province of Fujian has surged, the Fujianese population has come to dominate the Chinatowns of Lower Manhattan and Sunset Park, Brooklyn, and has increased rapidly in other Chinese enclaves like the one in Flushing, Queens.
These newcomers have brought with them a robust tradition of making — and hawking — homemade rice wine. In these Fujianese neighborhoods, right under the noses of the authorities, restaurateurs brew rice wine in their kitchens and sell it proudly to customers. Vendors openly sell it on street corners, and quart-size containers of it are stacked in plain view in grocery store refrigerators, alongside other delicacies like jellyfish and duck eggs.
The sale of homemade rice wine — which is typically between 10 and 18 percent alcohol, about the same as wine from grapes — violates a host of local, state and federal laws that govern the commercial production and sale of alcohol, but the authorities have apparently not cracked down on it.

For the full story, see:
KIRK SEMPLE and JEFFREY E. SINGER. “Illegal Sale of Rice Wine Thrives in Chinese Enclaves.” The New York Times (Weds., July 20, 2011): A22-A23.
(Note: the online version of the story is dated July 19, 2011.)

“A Colossal Investment Project, Born of the State, Steeped in Corruption”

“Online critics have scornfully contrasted the difference between government rhetoric about the promise of high-speed rail and the reality of the troubled network. Local residents mourned victims of the train crash in Wenzhou on July 26.” Source of caption and photo: online version of the WSJ article quoted and cited below.

(p. C1) China’s high-speed rail system is an apt metaphor for the country’s hurtling economy over the past decade: a colossal investment project, born of the state, steeped in corruption, built for maximum velocity, and imposed paternalistically on a public that is at once amazed and skeptical. The rail system has married foreign technology with national ambition in a network billed as the biggest and most advanced in the world, in a country whose per capita income ranks below that of Jamaica.

For the full commentary, see:
JASON DEAN And JEREMY PAGE. “Trouble on the China Express; The wreck of a high-speed train has enraged the Chinese public and focused attention on the corruption and corner-cutting behind the country’s breakneck economic growth.” The Wall Street Journal (Sat., JULY 30, 2011): C1-C2.

Chinese Government High-Speed Trains Are Financial “Black Holes”

(p. A11) BEIJING-A high-speed train from Beijing is scheduled to glide into Shanghai’s Hongqiao railway station on Thursday after its inaugural run, an event meant to showcase China’s technological prowess but one that lately has become part of a national debate about the pitfalls of megainvestment projects.
. . .
Detractors focus on corruption and safety problems that have lately tarnished the project’s image. Pricey tickets, they say, underscore China’s already huge rich-poor gap–and doom the trains to run half-empty, straining the national budget for years to come.
. . .
“Physically, they are good assets,” says Ding Yuan, an accounting professor at China Europe International Business School in Shanghai. “Financially, they are all black holes.”
More broadly, the high-speed rail problems underscore the shortcomings of a growth strategy that depends ever more heavily on investment in projects whose economic payoffs are uncertain.
. . .
Railways Minister Liu Zhijun proselytized for high-speed rail, telling leaders from Hubei province in January that they needed to “seize the rare opportunity to accelerate the development of the railway,” according to a Railways Ministry report.
. . .
Government spending on rail projects ballooned from 155 billion yuan in 2006 ($24 billion) to a budgeted 745 billion yuan ($115 billion) in 2011, according to state-run Xinhua news agency. The ministry’s debt ballooned to about 5% of GDP in the first quarter of 2011 from about 2% in 2007.
The project’s flaws became painfully clear in February, when Mr. Liu was fired amid allegations that he embezzled around $30 million. Although government investigators didn’t cite criticisms of the railway project, Mr. Liu’s successor, Sheng Guangzu, has scaled back plans to focus on projects already under construction, rather than expansion. Railway consultants say work has been suspended on new lines, including Hubei projects the fired minister was pushing.

For the full story, see:
BRIAN SPEGELE and BOB DAVIS. “High-Speed Train Links Beijing, Shanghai; Cornerstone of China’s Rail Expansion Illustrates Megaprojects’ Speed Bumps.” The Wall Street Journal (Weds., JUNE 29, 2011): A11.
(Note: ellipses added.)

Chinese Local Governments Hold Bad Infrastructure Debt

(p. C14) There is no such thing as a free stimulus.
At first sight, China’s response to the financial crisis looked cheap. A fiscal deficit totaling 3.1% of gross domestic product in 2009 and 2.6% in 2010 compares with 12.7% and 10.6% in the U.S. The reality is that it was considerably more expensive than that.
China’s response to the crisis came primarily from bank loans rather than central government debt. With many of those loans now threatening to turn bad, the cost may still end up on the government’s balance sheet.
The heart of the problem is debt taken on by local government financing vehicles in the course of two years of huge infrastructure investment. These are entities created and backed by local governments to get around legal constraints on their borrowing. No one knows how much debt they have.

For the full story, see:
TOM ORLIK. “Post-Stimulus: Who Pays for China’s Bad Loans?” The Wall Street Journal (Thurs., June 23, 2011): C14.

Few Good Jobs for China’s College Graduates

(p. A13) BEIJING–Young people calling themselves the “ant tribe” and living in Beijing’s outskirts have prompted a national discussion about the tough job market for college graduates in China.
The term “ants”–referring to the graduates’ industriousness as well as their crowded, modest living conditions–was coined in a book by Lian Si, a professor at the University of International Business and Economics in Beijing, who in a 2007-09 survey of 600 Beijing-area college graduates found their average monthly income was the equivalent of $300.
The book touched a nerve in China, inspiring both admiration for the young people’s striving and indignation at their living conditions. Earlier this year, several members of the Chinese People’s Political Consultative Conference, an advisory body to the government, said they were moved to tears on a visit to the village of Tangjialing when they heard two young men who shared a 50-square-foot room sing a song they composed about their tough lives.
. . .
The “Song of the Ants” is a favorite. Its refrain: “Though we have nothing, we are tough in spirit; though we have nothing, we are still dreaming; though we have nothing, we still have power; though we have nothing, we are not afraid of being deserted.”

For the full story, see:
Sue Feng and Ian Johnson. “Job Squeeze in China Sends ‘Ants’ to Fringes; Millions of College Graduates Stack Up, Seek Cheap Living on Beijing Outskirts.” The Wall Street Journal (Tues., May 4, 2010): A13.
(Note: ellipsis added.)
(Note: the online version of the story is dated May 3, 2010 and has the title “China Job Squeeze Sends ‘Ants’ to Fringes; Millions of College Graduates Stack Up, Seek Cheap Living on Beijing Outskirts.”)

Chinese College Graduates Are Underemployed “Ant Tribe” in Big Cities

(p. A1) BEIJING — Liu Yang, a coal miner’s daughter, arrived in the capital this past summer with a freshly printed diploma from Datong University, $140 in her wallet and an air of invincibility.

Her first taste of reality came later the same day, as she lugged her bags through a ramshackle neighborhood, not far from the Olympic Village, where tens of thousands of other young strivers cram four to a room.
Unable to find a bed and unimpressed by the rabbit warren of slapdash buildings, Ms. Liu scowled as the smell of trash wafted up around her. “Beijing isn’t like this in the movies,” she said.
Often the first from their families to finish even high school, ambitious graduates like Ms. Liu are part of an unprecedented wave of young people all around China who were supposed to move the country’s labor-dependent economy toward a white-collar future. In 1998, when Jiang Zemin, then the president, announced plans to bolster higher education, Chinese universities and colleges produced (p. A12) 830,000 graduates a year. Last May, that number was more than six million and rising.
It is a remarkable achievement, yet for a government fixated on stability such figures are also a cause for concern. The economy, despite its robust growth, does not generate enough good professional jobs to absorb the influx of highly educated young adults. And many of them bear the inflated expectations of their parents, who emptied their bank accounts to buy them the good life that a higher education is presumed to guarantee.
“College essentially provided them with nothing,” said Zhang Ming, a political scientist and vocal critic of China’s education system. “For many young graduates, it’s all about survival. If there was ever an economic crisis, they could be a source of instability.”
. . .
Chinese sociologists have come up with a new term for educated young people who move in search of work like Ms. Liu: the ant tribe. It is a reference to their immense numbers — at least 100,000 in Beijing alone — and to the fact that they often settle into crowded neighborhoods, toiling for wages that would give even low-paid factory workers pause.
“Like ants, they gather in colonies, sometimes underground in basements, and work long and hard,” said Zhou Xiaozheng, a sociology professor at Renmin University in Beijing.
. . .
A fellow Datong University graduate, Yuan Lei, threw the first wet blanket over the exuberance of Ms. Liu, Mr. Li and three friends not long after their July arrival in Beijing. Mr. Yuan had arrived several months earlier for an internship but was still jobless.
“If you’re not the son of an official or you don’t come from money, life is going to be bitter,” he told them over bowls of 90-cent noodles, their first meal in the capital.
. . .
In the end, Mr. Li and his friends settled for sales jobs with an instant noodle company. The starting salary, a low $180 a month, turned out to be partly contingent on meeting ambitious sales figures. Wearing purple golf shirts with the words “Lao Yun Pickled Vegetable Beef Noodles,” they worked 12-hour days, returning home after dark to a meal of instant noodles.
. . .
Mr. Li worried aloud whether he would be able to marry his high school sweetheart, who had accompanied him here, if he could not earn enough money to buy a home. Such concerns are rampant among young Chinese men, who have been squeezed by skyrocketing real estate prices and a culture that demands that a groom provide an apartment for his bride. “I’m giving myself two years,” he said, his voice trailing off.
By November, the pressure had taken its toll on two of the others, including the irrepressible Liu Yang. After quitting the noodle company and finding no other job, she gave up and returned home.

For the full story, see:
ANDREW JACOBS. “China’s Army of Graduates Is Struggling.” The New York Times, First Section (Sun., December 12, 2010): A1 & A12.
(Note: ellipses added.)
(Note: the online version of the story is dated December 11, 2010 and has the title “China’s Army of Graduates Struggles for Jobs.”)

Chinese Government Created Real Estate Bubble in a Dozen Ghost Towns Like Kangbashi Area of Ordos

“As China’s roaring economy fuels a wild construction boom around the country, critics cite places like Kangbashi as proof of a speculative real estate bubble they warn will eventually burst.” Source of photo: online version of the NYT article quoted and cited below. Source of caption: online version of the NYT slideshow that accompanied the online article quoted and cited below.

The October 19, 2010 New York Times front page story (quoted below) on the Ordos ghost town in China, was finally picked up by the TV media on May 30 in a nice NBC Today Show report.
It should be clear that the Chinese real estate bubble will burst, just as real estate bubbles eventually burst in places like Japan and the United States. What is not clear is what the effects will be on the Chinese and world economies.

(p. A1) Ordos proper has 1.5 million residents. But the tomorrowland version of Ordos — built from scratch on a huge plot of empty land 15 miles south of the old city — is all but deserted.

Broad boulevards are unimpeded by traffic in the new district, called Kangbashi New Area. Office buildings stand vacant. Pedestrians are in short supply. And weeds are beginning to sprout up in luxury villa developments that are devoid of residents.
. . .
(p. A4) As China’s roaring economy fuels a wild construction boom around the country, critics cite places like Kangbashi as proof of a speculative real estate bubble they warn will eventually pop — sending shock waves through the banking system of a country that for the last two years has been the prime engine of global growth.
. . .
Analysts estimate there could be as many as a dozen other Chinese cities just like Ordos, with sprawling ghost town annexes. In the southern city of Kunming, for example, a nearly 40-square-mile area called Chenggong has raised alarms because of similarly deserted roads, high-rises and government offices. And in Tianjin, in the northeast, the city spent lavishly on a huge district festooned with golf courses, hot springs and thousands of villas that are still empty five years after completion.
. . .
In 2004, with Ordos tax coffers bulging with coal money, city officials drew up a bold expansion plan to create Kangbashi, a 30-minute drive south of the old city center on land adjacent to one of the region’s few reservoirs. . . .
In the ensuing building spree, home buyers could not get enough of Kangbashi and its residential developments with names like Exquisite Silk Village, Kanghe Elysees and Imperial Academic Gardens.
Some buyers were like Zhang Ting, a 26-year-old entrepreneur who is a rare actual resident of Kangbashi, having moved to Ordos this year on an entrepreneurial impulse.
“I bought two places in Kangbashi, one for my own use and one as an investment,” said Mr. Zhang, who paid about $125,000 for his 2,000-square-foot investment apartment. “I bought it because housing prices will definitely go up in such a new town. There is no reason to doubt it. The government has already moved in.”
Asked whether he worried about the lack of other residents, Mr. Zhang shrugged off the question.
“I know people say it’s an empty city, but I don’t find any inconveniences living by myself,” said Mr. Zhang, who borrowed to finance his purchases. . . .

For the full story, see:
DAVID BARBOZA. “A City Born of China’s Boom, Still Unpeopled.” The New York Times (Weds., October 19, 2010): A1 & A4.
(Note: ellipses added.)
(Note: the online version of the commentary is dated October 19, 2010 and has the title “Chinese City Has Many Buildings, but Few People.”)

Source of graph: online version of the NYT article quoted and cited above.