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Caixin has published an abridged translation of its recent cover story Revamping the Landscape of Forex Flows (资本流出中国). Caixin is generally a hard-hitting publication that is not afraid of writing truthful, negative reports about China and its economy. This Caixin report on the capital account deficit is not nearly as alarmist as some of the recent reports about capital flight:
[The] Capital account deficit [is] said to be an intended result rather than a sign people are losing confidence in the economy…
Capital flows out of China may be accelerating, a phenomenon commonly associated with waning confidence in a nation’s economy, yet the foreign exchange regulator says the change is a step in the right direction…
From January to June, China received US$ 79.1 billion more than it paid out in cross-border transactions, yet the value of foreign currencies converted into yuan at Chinese banks exceeded that of yuan converted into foreign currencies by only US$ 29.5 billion. In principle, Chinese enterprises and individuals held the difference in their forex account…
This is in sharp contrast to between 2003 and late 2011, when most enterprises and individuals wanted to convert their forex holding into yuan assets, because the yuan was expected to appreciate, said Zhang Bin, a research fellow at Chinese Academy of Social Sciences. Now that the yuan’s exchange rate began fluctuating both ways, the incentive to hold yuan instead of a foreign currency has weakened.
Therefore, companies started adjusting their assets to hold more foreign currencies, he said. Capital outflows resulted from this adjustment are incremental in nature, he said, as opposed to a typical capital flight, where investors lose confidence in a nation’s economic fundamentals and move out their investments for fear conditions may soon deteriorate.
Such capital flight of course could still happen eventually, but perhaps we should be wary of any current reports saying it already has.
In China Banks Cut Foreign-Currency Deposit Rates the Wall Street Journal reports that regulators are taking steps to prop up the Renminbi:
The lowered rates make it less attractive for investors to place deposits in foreign currencies, hence discouraging them from selling the yuan aggressively in the foreign exchange market.
“We have noticed the recent decrease in yuan deposits and increase in the dollar deposits due to the shift in yuan’s outlook, which puts pressure on the yuan and China’s monetary policy. Such cuts could slow the process and ease the yuan’s depreciation pressure,” said Nomura China economist Zhang Zhiwei.
Xinhua today notes that Chinese more willing to keep foreign currencies:
Zhao Qingmin, a financial researcher with the China Construction Bank, said banks will no longer see huge foreign exchanges surplus as the market expects the yuan to devalue in the coming months.
“Now the Chinese enterprises and residents are more willing to keep their wealth in foreign currencies due to such a market expectation,” Zhao said.
So is some of the shift to foreign exchange just speculation by Chinese firms and individuals? Is Caixin missing the bigger picture, or are reports of flight exaggerated?
Yesterday the Wall Street Journal reported on US plans for a new missile defense system in Asia. Today the New York Times reports that China is developing Intercontinental Missile Capabilities and at the Wall Street Journal China blog Andrew Erickson and Gabe Collins write in China’s Ballistic Missiles: A Force to be Reckoned With that if the new missile defense system is directed at China it is probably a futile project:
Modest investment in ballistic missile defense offers the U.S. valuable technology development, general deterrence and some level of protection against dangerous regimes possessing limited ballistic missile capabilities, such as those of North Korea and Iran.
But while useful for other purposes, missile defense encourages, rather than dissuades, Chinese improvement of strategic nuclear forces.
Beijing can build so many missiles, at such an affordable cost, as to exceed the interception capability of any conceivable missile defense system. Attempting to overcome this reality would risk entering the U.S. into a race that it could not afford to wage, let alone win. China’s military overall still has weaknesses such areas as training and real-time coordination of sensors, but the SAF [Second Artillery Force] enjoys particular strengths in these respects as well and should not be underestimated.
There is much we do not know about China’s nuclear forces, and last year a report by adjunct Georgetown professor and defense policy veteran Phillip A. Karber ignited a controversy. The report, based in part on an analysis by his students of a fictional Chinese TV series, argued that US intelligence has dramatically underestimated the size of China’s nuclear arsenal. Those claims were quickly debunked by the Federation of American Scientists, the Union of Concerned Scientists and others and just a few weeks ago the commander of U.S. Strategic Command, not someone you would consider soft on anything, rejected high estimates for china’s nuclear arsenal:
“I do not believe that China has hundreds or thousands more nuclear weapons than what the intelligence community has been saying, […] that the Chinese arsenal is in the range of several hundred” nuclear warheads.
But it looks like MAD 2.0 it will be, and maybe that is what it has to be?
Today’s links:
BUSINESS AND ECONOMY
哈尔滨阳明滩大桥垮塌_网易专题 – Netease News micro-site on the Harbin bridge collapse. Huge news in China//
At Least 3 Killed After Bridge Collapsed in North China-Caijing – Too much corruption in wake of 2009 stimulus, money too easy, government starting to appear as unable to deliver the goods//At least three people were killed and five other injured early Friday morning after four trucks travelling abroad plunged off a collapsed bridge in a northeast China city
China no longer simply ‘world’s factory’ – People’s Daily Online – The over-expansion of the virtual economy and its disconnection from the real economy is the main cause of the global financial crisis and subsequent prolonged global economic downturn. Europeans have realized that Germany is able to stand firm in the storm thanks to its strong manufacturing sector. The U.S. government is also making active efforts to revive manufacturing. Almost all developed countries have shifted their strategic focus back to the real economy.
China should prepare for economic uncertainty: paper | Reuters – should ready plans to respond to near term risks in an economy facing significant downward pressure, but keep the broad policy focus on longer term structural adjustments, the official People’s Daily said in a front page editorial on Friday.
WSJ Interview: Soho China’s Zhang Xin (Video) – WSJ – Zhang on shift to building and owning. rental yields are way up. but SOHO will have to build much higher quality buildings than they have historically..lots of folks who bought units in some of the Beijing buildings would probably be happy to sell back to SOHO…//
北京疯狂的房租：限购后涨30% 地下室也要1500_中国经济网 On huge jump in residential rents in Beijing
China Exclusive: Tragedies of failed Chinese tourist towns – Xinhua | English.news.cn – ZHENGZHOU, Aug. 24 (Xinhua) — Visitors to Runan County, branded the hometown of the “butterfly lovers,” China’s answer to Romeo and Juliet, find a scene of desolation.
Caterpillar Cuts China Production as Digger Slump Reaches Mining – Bloomberg – Caterpillar Inc. (CAT), which gets 25 percent of sales in Asia, Komatsu Ltd. (6301) and Sany have all slashed output in the world’s biggest construction-equipment market this year as a demand slump caused by slower economic growth spreads from building to mining. Sales of large excavators, mainly used by miners, last month plunged the most since at least January 2009, contributing to the 15th straight decline in the overall market.
POLITICS
Gu Kailai trial: Chinese netizens believe that Bo Xilai’s wife has hired a body double to represent her in court and possibly serve her time in prison. – Slate Magazine – Dr. Bavarian concluded that Gu Kailai and the person appearing in court were “likely the same person.” Dr. Bavarian could not provide an answer with 100 percent certainty due to the relatively poor resolution of the images of the woman in court, which were taken from state television broadcasts. The calculations are sensitive to such issues as the person’s pose, tilt of the head, and lighting. None of these were ideal in this case. “I’m not saying it is the same person,” he emphasized. However, overall, the measurements of features on the face of the woman in court—such as the distance between specific places on the nose, eyes, and lips—were reasonably close matches to known photographs of Gu. Because the courtroom images showed “a high degree of similarity” to known images, “if I was testifying in court, I would say it is likely the same person.”
明鏡新聞網: 明鏡獨家：中共十八大10月中下旬召開 – Mingjing News claims Politburo meeting imminent, will set 18th Party Congress for middle/late October, with October 18 as likely date. We’ll see…//
明鏡新聞網: 胡家天下令家黨：未來執政者都與令密切相關 – more from mingjing news on the power and influence of ling jihua
TECH
胡舒立与马化腾的交易焦点：财新计划三年内IPO|资本|胡舒立|马化腾_21世纪网 – With Tencent investment, Caixin Media now planning an IPO within 3 years? Longish piece on Hu shuli and Caixin//核心提示：银广夏、基金黑幕，以及后来的非典、鲁能，一次又一次让这个身高一米五八，语速极快的女人处在风口浪尖，也一次又一次刷新她的知名度。
Bronte Capital: Focus Media: My new obsession – But Carlyle have competent staff laced throughout their organization. They will do their due diligence – and if the deal closes I think you can presume that Muddy Waters was wrong. If the deal doesn’t close with the backing of the the largest shareholder and at this pricing then you probably have to conclude that Muddy Waters is right. If Muddy Waters is right then the revenue and the margins of this firm are grotesquely overstated and the stock is probably going to settle somewhere below two dollars.
New Film Chronicles How Jack Ma and Alibaba Beat eBay [TRAILER] – a former employee of the company, Porter Erisman, decided to make a film about the rise of the company as it was powered by its founder, Jack Ma. The result is Crocodile in the Yangtze: A Westerner Inside China’s Alibaba.com, which, Porter tells us, gives a “unique behind-the-scenes look at the eBay-Taobao battle” – the titanic tech tussle in which Jack Ma beat the American competition by better understanding the Chinese market.
Apple in China: not as cool as before | beyondbrics – According to IDC, Apple’s share of the Chinese smartphone market by shipments fell by nearly half to 10 per cent in the second quarter from three months earlier. The company came fourth in a ranking topped by Samsung and Lenovo, the Chinese company that is also the world’s second-largest PC vendor. IHS isuppli, another research firm, even sees Apple as an “also-ran” in China, trailing, with a market share of just 7.5 per cent, behind Coolpad, Huawei, Nokia and ZTE, as well as Samsung and Lenovo.
China joins smartphone revolution – Telegraph – all loaded with Weibo, massive implications for China’s censorship regime and civil society// According to the latest figures from industry research firm, IDC, smartphone shipments in China overtook feature phones for the first time during the period between April and June.
Tycoons, Insurance Firm Mull Web Financing, Sources Say – Caixin Online – very interesting. China needs a way to get loans to SMEs and entrepreneurs//Two Internet tycoons have joined hands with the country’s leading insurance provider to explore web-based financing business, sources say.The three parties are represented by Jack Ma, Ma Huateng and Ma Mingzhe. They just established a joint-venture company in Shanghai, a source close to the situation said.
FOREIGN AFFAIRS
Review & Outlook: China’s Abuse of Journalists – WSJ.com – The Chinese government has not responded to the journalists’ protest letter. But the state-run Global Times did publish a report on Wednesday refuting the idea that foreign reporters are being targeted. A Shanghai photojournalist noted that “Chinese journalists often face a worse situation than their foreign counterparts.” That is certainly true, and the rising number of attacks on local journalists deserves more attention. But foreign governments can more easily take action to improve treatment of their nationals working as reporters in China. Visas and accreditation for Chinese state-run media workers to enter other countries should be contingent on an end to state-sponsored thuggery.
Senior CPC official meets with attendees of Forum on China-Africa Media Cooperation – Xinhua | English.news.cn – Liu Yunshan (6th L, front), a member of the Political Bureau of the Communist Party of China (CPC) Central Committee and head of the CPC Central Committee’s Publicity Department, poses for a group photo with attendees of Forum on China-Africa Media Cooperation, in Beijing, capital of China, Aug. 24, 2012.
Kim Family Chef’s Redemption Suggests a Softening North Korea – NYTimes.com – Mr. Kim apparently had forgiven the transgressions of his family’s former chef, who goes by the alias Kenji Fujimoto, and wanted to see him again. Mr. Fujimoto, with some trepidation, agreed, and in a two-week visit that recently ended, he got a rare up-close glimpse of the enigmatic new leader. To hear Mr. Fujimoto tell it, Mr. Kim is already bringing change to the secretive Stalinist government, embracing a more approachable leadership style. He said that impression was driven home to him during his emotional reunion with the cherub-faced leader and his fashionably dressed wife last month at a government banquet hall in Pyongyang, the North Korean capital. He said he was immediately embraced by Mr. Kim — unthinkable under Mr. Kim’s stern, standoffish father, Kim Jong-il, who ruled the North for 17 years until his death in December.
Photojournalist Ed Giles explores the new Burma – in pictures – Photojournalist Ed Giles explores the new Burma – in pictures
Why China Resents Japan, and Us – NYTimes.com – By Peter Gries. “Resents” seems like a PC headline pick; it is far too weak a word for how folks here feel about Japan// China-bashing will therefore be good election year politics for the Romney-Ryan ticket. But it will be bad for America’s relations with China and could undermine our national security. Many Chinese are already suspicious of American intentions, and ideologically driven rhetoric from across the Pacific will only confirm their worst fears. Worse, the Communist Party is currently undergoing its own leadership transition, and it is happening at a time when popular nationalism is bringing people into the streets. Because the party bases its legitimacy in large part on its nationalist credentials, no party leader is likely to quiet the nationalists until the new leadership is finalized. Lacking a secure foundation of mutual trust, American-Chinese relations today remain susceptible to the random accidents of history that have plagued them in the past.
Exclusive: North Korean leader asks for Beijing trip | Reuters – North Korean leader Kim Jong-un is seeking an ice-breaking trip to key ally Beijing next month to meet China’s outgoing and new leaders, a source with ties to Pyongyang and Beijing told Reuters on Friday.
SOCIETY
China Pressed to Prevent Abuse of Psychiatric Confinement – NYTimes.com – The abuse of involuntary commitment to psychiatric hospitals is a hot topic in China, with cases like Mr. Chen’s gaining widespread media attention. A Hong Kong-based human rights group, the Chinese Human Rights Defenders, in a report this week called on the government to ensure that a long-awaited Mental Health Law — under discussion for over quarter of a century — comply with international norms and protect the rights of both the mentally ill and the non-mentally ill from the power of the state, but also from the power of the family to incarcerate involuntarily, under conditions that are murky at best.
5 cops jailed for torturing farmer to admit murder — Shanghai Daily– FIVE police officers in a rural county in central China’s Henan Province have been jailed for torturing a farmer into admitting murder and causing him to spend 11 years in jail.Zhao Zuohai, a farmer in Zhecheng County, was acquitted last May after the man he was convicted of killing turned up alive.
Resettlement plan for 74,000 Beijing residents – People’s Daily Online – More than 74,000 rural residents living in mountainous areas around Beijing will be moved within five years and relocated to safe sites where there is no risk of flooding or landslides following rain, according to the municipal government.
无钱无根，谈何成家？|无钱|无根|成家_21世纪网 – no money, no house, no women want you? //尽管男性极其渴求伴侣，但有趣的是，虽然有65%的女性受访者也有固定伴侣的期望，但显然她们中的多数，并未把同一阶层的他们作为首选。这恐怕是单身比例高的重要原因。
Time for China’s One-Child Policy to Go-Becker – The Becker-Posner Blog– Fortunately, a large-scale movement has now emerged in China to force the government to alter radically, if not entirely abandon, the one-child policy. Even with its total abandonment, I do not expect more than a 0.2 or 0.3 bump upwards in China’s total fertility rate. This is partly because many families would find it difficult to overturn habits of family formation built up during the one-child era. In addition, with China’s expected development toward an increasingly modern economy, most families will not want more than a couple of children, and many will have only one or even none.Nevertheless, any adjustment upward in China’s fertility rate to more normal levels would be desirable, for it would remove the harshest effects of its one-child policy. In addition, freely determined fertility rates would correct the distorted sex ratio, and help China regain a more balanced age distribution that would encourage greater rates of innovation and better conditions for the elderly.
Confucius confusion – Globaltimes.cn – Daniel Bell told the Global Times that the revival of Confucianism bears strong political significance for the CPC. “As Marxism has lost its attraction in the past few decades, the Party resorts to traditional culture to glue the people together again,” he said. The CPC has been endeavoring to achieve “social harmony,” a concept Professor Zeng sees as being borrowed from Confucianism. The first step to bringing back Confucianism at full strength, for Zeng, is to boost Confucian valued education in schools. Li Xiangping, director with the Centre on Religion and Society, East China Normal University, played down the role of Confucianism in boosting traditional culture, and would like to see the country build on the many schools of thought it has inspired to create a better mix. “The key to a prosperous culture is to have cultural construction become independent of administrative power and business. Otherwise, when power and money are tangled with culture, it leads to a dead end,” he concluded.
Thanks for reading. The best way to see this daily post is to subscribe by email, especially if you are in China, as Sinocism is still blocked here. You can also follow me on @niubi or Sina Weibo @billbishop. And if you really like it feel free to donate through the button on the top right.