China Watch Blog

China Watch Blog has learnt that China continued its upward march in the rankings of a global competitiveness report released on Thursday, and is now ranked 27th in the Global Competitiveness Report (GCR) compared with 29th place a year back, while the United States was displaced from the top of the table by Switzerland.

The nation’s ranking improved by two notches on the back of advances made in the financial sector and the massive infrastructure construction, the China Daily reported, citing the GCR 2010-2011, released by the World Economic Forum (WEF).

China has also increased its lead over other emerging economies like Brazil, Russia and India, whose rankings remained stable, the report said, adding that as China moves up the global ladder, the country promises further open trade and a greater investment environment.

The GCR was based on the Global Competitiveness Index, which includes the 12 pillars of competitiveness such as infrastructure, macroeconomic environment, health and primary education.

“China has been rising and rising in recent years,” said Jennifer Blanke, chief economist of the WEF. She said the gap between China and other BRIC nations (Brazil, Russia, India and China) is also increasing.

Brazil, India and Russia were ranked 58, 51 and 63 in the WEF report. Switzerland dislodged the US to grab the top slot.

“The biggest strength of China is its large and growing market,” said Blanke. She expressed confidence that China will continue to rise in the ranking.

According to the report, China has scored well in several assessment factors such as market size and microeconomic environment, with rankings of second and fourth respectively. But in areas such as higher education and training, technological readiness and financial market development, the country still needs to make more advances.

“Most of the BRIC nations have been improving. But China’s improvement has been more faster,” said Robert Greenhill, managing director and chief business officer of WEF.

China Watch Blog has picked up news that Deutsche Bank was quoted as saying Thursday that China’s economic growth in the next decade is likely to fall to 7% from the current rapid pace .

“Reasons for slowing down the economy in the next 10 years include decreasing export volumes, slowing down in property demand and urbanization,” said Ma Jun, Chief Economist with the Deutsche Bank.

The Chinese government has set the target of 8% GDP growth in order to maintain economic and social stability. The country has maintained rapid economic growth of over 8 % for 10 years, starting with the 8.4 % in 2000. The high was 14 % in 2007, and China reached a surprising 9 % amid the global financial crisis in 2008, according to data from the National Bureau of Statistics.

“In 2015, the large portion of aging people and the population structure change affected by the One-child Policy will be an impediment to economic development,” Life Weekly magazine quoted Chris Sturdy, Asia-Pacific chairman with the Bank of New York Mellon Corporation. “By then, China’s economic growth might drop to 5-6 %.”

But former central bank adviser Fan Gang expressed a different view. “China’s economy is likely to continue growing rapidly over the next 20 to 30 years if the pace of growth stays at 8 % and with 8 million new jobs every year.”

Fan attributed the future high economic growth to high residents’ saving, continued foreign investment, relatively low labour costs, and scientific and technical innovations.

Many like to do crystal ball gazing, and China Watch Blog’s view is that Mainland China huge and fast growing middle class, who are already boosting the economy with their domestic consumer spending, will play a very important role in the future, and don’t forget that there are other Chinese and foreigners living outside China who are likely to immigrate to the Mainland as many area already doing now that will tip the scales.

So we do believe that Fan is right in his forecast.

China Watch Blog picked up this news that Taiwan’s index monitoring the manufacturing industry edged up 0.24 of a percentage point to 116.88 in July and that of service industry fell 2.61 percentage points to 124.43.

According to Taiwan Institute of Economic Research (TIER), a major economic think tank in Taiwan, among the industries monitored, banking showed better performance in July than the previous month and is predicted to continue to improve over the next six months; while construction experienced the opposite, the Taiwan Economic News reported.

Chen Miao, director of the Center for Economic Forecasting at TIER, predicted that Taiwan’s economic growth in the second half will slow down, without exceeding that in the first half.

The percentage of manufacturers surveyed who foresaw better economic climate in July declined by 6.4 percentage points from that of a month earlier, and the percentage of who foresee better climate in the next six months also dropped 4.7 percentage points to 29.4%.

China Watch Blog picked up this news that a survey was carried out to judge the international image of Chinese cities, and guess what? Shanghai scored the highest among 30 cities that were assessed.

The survey, co-conducted by Gallup Consulting, a global consultancy, was launched in April via an online questionnaire circulated among foreigners living in the Chinese mainland and abroad. A total of 7,980 foreigners took part in the survey.

Every city needs to be judged by more than 200 foreigners on average to make the sample valid for scientific research, according to Wu Tao, chief consultant of Gallup Consulting China.

Thirty Chinese cities were rated in 12 criteria – attractiveness, culture, environment, citizen qualities, security, traffic, individuality, integrity, government efficiency, investment value, development potential and internationalization level.

Shanghai and Beijing came out with flying colors in terms of the general impression among foreigners. Chengdu ranked third on the list, with its citizen qualities scoring the highest among all 30 cities.

“People often refer to Paris as the home of fashion and Vienna as the home of music,” said Wang Changyuan, deputy general secretary of China Association of Mayors. “Similarly, promoting a city’s image will help make it much better known, hence attracting more talents and investments.”

Shanghai, which is the most well known Chinese city, ranked the top in most of the criteria, including integrity, government efficiency, investment value, development potential and internationalization level.

But when it came to social security, it sunk down to the 9th position, while Xi’an, capital of Northwest China’s Shaanxi province, emerged at the top, according to a China Daily report.

China Watch Blog has learnt that the Chinese government has approved a plan to boost service sector cooperation between the booming southern city of Shenzhen and Hong Kong, Xinhua reported, citing local authorities.

Under the plan, Shenzhen will build a 15-square-km service industrial zone in Qianhai in Nanshan district, said Xu Chongguang, deputy director of the Shenzhen municipal committee of planning, land and resources.

Xu said Shenzhen would invest 40 billion yuan ($5.9 billion) to build the zone that will house financial institutions and logistics, technology, telecommunications, media and commercial companies.

It is estimated that the zone’s gross domestic product DP) ill grow to 150 billion yuan by 2020.

“Financial cooperation between Shenzhen and Hong Kong will be a main priority for the Qianhai zone,” said Li Lin, director of the municipal finance office.

The Renminbi (yuan) settlement business is a breakthrough for the two sides’ financial cooperation, Li said.

Fang Yan, an analyst with Guosen Securities, said the zone would become a bridgehead for foreign capital to enter China and domestic businesses to expand in the world.

Shenzhen marked its 30th anniversary as a special economic zone on Thursday.

China Watch Blog:  Shenzhen City, bordering Hong Kong, will be catapulted into the ranks of the world’s most modern and habitable metropolises, according to a plan outlined by China’s Central Government in Beijing.

On the eve of its 30th birthday as China’s first economic reform zone, Shenzhen received a lavish “coming out” gift from the top policy-makers. The State-owned CCTV said Thursday in prime time news program that the city, a brainchild of late leader Deng Xiaoping, is to obtain a full package of preferential policies from Beijing, to invigorate the city’s rapid development.

Beijing has agreed to extend the SEZ (special economic zone) policies reserved for four districts of the city to cover all the administrative area of the city. The State Council on Wednesday decreed that the southern coastal city bordering the Hong Kong Special Administrative Region is to become “a national economic center” and “a city of global clout” in exchanges of culture, economy and technology.

However, Guo Wanda, vice-president of the Shenzhen-based China Development Institute, said the city must look to its own problems before it can stand alongside other international cities.

Citing one of his surveys, Guo said Shenzhen, though already on the way to becoming a developed economy, falls behind its overseas peers in many aspects, most notably in the efficient use of energy and resources.

The city’s GDP per square kilometer, for instance, was only eleventh the size of Hong Kong’s. Its water use efficiency measured by consumption per 10,000 yuan of GDP was less than a third of that of Japan. Official figures show its GDP is only half of Hong Kong’s, but its population and land area are double.

Apart from an unsustainable economic growth mode, other problems, such as corruption and labor exploitation, also exist, the China Daily report said.

Former mayor Xu Zongheng was formally removed from his post in mid-August for having abused his office to make profits for others, taking bribes and leading a corrupt lifestyle. And the suicides of 12 Foxconn employees this year also put Shenzhen in the limelight for all the wrong reasons.

Guo said the two issues are “convincing evidence” that economic growth alone cannot guarantee a service-oriented government and satisfaction for ordinary people.

“Thorny issues such as the widening wealth gap, corruption, unbalanced development and insufficient public services all need to be addressed soon,” he said.

All said, Shenzhen will be a boon to transport logistics professional who can connect and feed off the developments in the future.

China Watch Blog has learnt that the Chinese economy will start to stabilize in the fourth quarter after the recent marked slowdown due to government tightening measures, but it might face downside risks next year as external demand weakens, a senior economist with the Royal Bank of Scotland (RBS) was quoted as saying in a China Daily report.

“The ratio between new orders and finished goods in China’s purchasing managers’ index readings has started stabilizing in the past two months, showing the inventor adjustment is taking place,” Ben Simpfendorfer, chief China economist at RBS, said, adding that the economy will initially stabilize in the fourth quarter as the inventory adjustment ends.

China’s purchasing managers’ index (PMI), a leading indicator of economic health, has fallen for two consecutive months to 51.2% in July, barely above the expansive baseline of 50%.

The moderate PMI, together with marked slowdown in China’s GDP, which dropped to 10.5% in the second quarter from the 11.9% three months ago, has caused concern that the economy may head for a deeper slowdown in the coming months.

The country is due to release its August PMI figure next Wednesday.

China Watch Blog has picked up a news quoting senior officials from the Ministry of Finance and China Banking Regulatory Commission as saying that there are indeed certain risks for loans borrowed by local government financing platform enterprises, but downplayed the issue say that the overall risk is currently controllable and will not lead to systematic risks. (We all pray that they are right).

An official from the ministry was quoted as saying by a  People’s Daily as saying that the local financing platform enterprises have played roles in advancing local infrastructure construction and coping with the impact of the international financial crisis.

The related problems lie in the overly-rapid expansion of their debt and financing scale, non-standardized operating practices and the provision of loan guarantees by local governments in an irregular or indirect manner.

According to reports, the reasons behind the fast rise in loans involving local financing platform enterprises over recent years mainly lie in that local governments are attempting to complete the supporting work for the projects invested in by the central government. In response, the official said that the reasons do exist, but the more important reason is that the enterprises have sought to meet the financing demands of local governments for developing public welfare projects.

China Watch Blog has learnt that China is confirmed to have overtaken Japan as the world’s second-largest economy, trailing only the United States, according to a Shanghai Daily report.

The report says that according to data released yesterday by the Japanese Cabinet Office, Japan’s nominal gross domestic product (GDP) for the second quarter totaled US$1.288 trillion, less than China’s US$1.337 trillion.

Despite the milestone, Chinese officials said the nation still remains a developing country, with a per-capita gross domestic product that lags far below that of advanced nations.

According to the World Bank, China’s per-capita GDP was a bit more than US$3,600 in 2009, ranking 124th worldwide. Japan’s per-capita GDP, in contrast, amounted to over US$39,000.

Japan remained a bigger economy than China in the first half of 2010. China’s economy expanded 11.1 percent from a year earlier to 17.28 trillion yuan (US$2.55 trillion) in the first six months, compared with Japan’s US$2.57 trillion.

However, the dynamics of development indicate that Japan is unlikely to retain its position as the world’s second-biggest economy for the full year.

Transport logistics professional please take note.

China Watch Blog has picked up this article and warns Transport and Logistics professionals to beware. The report Xia Bin, director of the Financial Institute of the Development and Research Center of the State Council as saying that judging from current trends, economic growth next year may be more complicated than this year.

“The slowdown of China’s economic expansion is not only associated with the growth base of last year, but it is the inevitable result of macroeconomic regulation and control initiated this year. The direction of the macroeconomic regulation and control should firmly be unchanged and the transformation in the economic development mode should be further advanced,” he says.

China’s GDP growth rate in 2010 stood at almost 12 percent in the first quarter and over 10% in the second quarter. The signs of the moderation in the GDP growth have already emerged.

Xia suggested that China should firmly maintain the direction of economic regulation and control and adhere to the principles of “continuity, stability, flexibility and pertinence” put forward during the central economic working conference in 2009.

Three major policy variables are the main factors to help stabilize China’s economic situation in the near future – real estate policies, policies on local governments’ financing platforms and policies on restricting overproduction capacity and energy consumption, he said.

He explained that expanding the domestic demand is the key to ensure China’s stable economic growth in a certain period of time in the future.

“It is critical to begin the research on long-term institutional reforms as soon as possible when implementing short-term policies,” Xia said.

The institutional reforms include the reform of the income distribution system, such as lifting the threshold for levying personal income tax and lowering the tax rates of the service industry.