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China Is Building a Robot Army of Model Workers

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Can China reboot its manufacturing industry—and the global economy—by replacing millions of workers with machines?

Will Knight writes: Inside a large, windowless room in an electronics factory in south Shanghai, about 15 workers are eyeing a small robot arm with frustration. Near the end of the production line where optical networking equipment is being packed into boxes for shipping, the robot sits motionless.

“The system is down,” explains Nie Juan, a woman in her early 20s who is responsible for quality control. Her team has been testing the robot for the past week. The machine is meant to place stickers on the boxes containing new routers, and it seemed to have mastered the task quite nicely. But then it suddenly stoppedworking. “The robot does save labor,” Nie tells me, her brow furrowed, “but it is difficult to maintain.”

The hitch reflects a much bigger technological challenge facing China’s manufacturers today. Wages in Shanghai have more than doubled in the past seven years, and the company that owns the factory, Cambridge Industries Group, faces fierce competition from increasingly high-tech operations in Germany, Japan, and the United States. To address both of these problems, CIG wants to replace two-thirds of its 3,000 workers with machines this year. Within a few more years, it wants the operation to be almost entirely automated, creating a so-called “dark factory.” The idea is that with so few people around, you could switch the lights off and leave the place to the machines.

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But as the idle robot arm on CIG’s packaging line suggests, replacing humans with machines is not an easy task. Most industrial robots have to be extensively programmed, and they will perform a job properly only if everything is positioned just so. Much of the production work done in Chinese factories requires dexterity, flexibility, and common sense. If a box comes down the line at an odd angle, for instance, a worker has to adjust his or her hand before affixing the label. A few hours later, the same worker might be tasked with affixing a new label to a different kind of box. And the following day he or she might be moved to another part of the line entirely.

Despite the huge challenges, countless manufacturers in China are planning to transform their production processes using robotics and automation at an unprecedented scale. In some ways, they don’t really have a choice. Human labor in China is no longer as cheap as it once was, especially compared with labor in rival manufacturing hubs growing quickly in Asia. In Vietnam, Thailand, and Indonesia, factory wages can be less than a third of what they are in the urban centers of China. One solution, many manufacturers—and government officials—believe, is to replace human workers with machines

Gerald Wong, CEO of CIG, is developing an automated electronics factory.

The results of this effort will be felt globally. Almost a quarter of the world’s products are made in China today. If China can use robots and other advanced technologies to retool types of production never before automated, that might turn the country, now the world’s sweatshop, into a hub of high-tech innovation. Less clear, however, is how that would affect the millions of workers recruited to China’s booming factories.

[Read the full story here, at technologyreview.com]

There are still plenty of workers around now as I tour CIG’s factory with the company’s CEO, Gerald Wong, a compact man who earned degrees from MIT in the 1980s. We watch a team of people performing delicate soldering on circuit boards, and another group clicking circuit boards into plastic casings. Wong stops to demonstrate a task that is proving especially hard to automate: attaching a flexible wire to a circuit board. “It’s always curled differently,” he says with annoyance.

But there are some impressive examples of automation creeping through Wong’s factory, too. As we walk by a row of machines that stamp chips into circuit boards, a wheeled robot roughly the size of a mini-fridge rolls by ferrying components in the other direction. Wong steps in front of the machine to show me how it will detect him and stop. In another part of the factory, we watch a robot arm grab finished circuit boards from a conveyor belt and place them into a machine that automatically checks their software. Wong explains that his company is testing a robot that does the soldering work we saw earlier more quickly and reliably than a person.

After we finish the tour, he says, “It is very clear in China: people will either go into automation or they will go out of the manufacturing business.”

Automate or bust

China’s economic miracle is directly attributable to its manufacturing industry. Approximately 100 million people are employed in manufacturing in China (in the U.S., the number is around 12 million), and the sector accounts for almost 36 percent of China’s gross domestic product. During the last few decades, manufacturing empires were forged around the Yangtze River Delta, Bohai Bay outside Beijing, and the Pearl River Delta in the south. Millions of low-skilled migrant workers found employment in gigantic factories, producing an unimaginable range of products, from socks to servers. China accounted for just 3 percent of global manufacturing output in 1990. Today it produces almost a quarter, including 80 percent of all air conditioners, 71 percent of all mobile phones, and 63 percent of the world’s shoes. For consumers around the world, this manufacturing boom has meant many low-cost products, from affordable iPhones to flat-screen televisions.

Workers at CIG retrieve items from one of several mobile robots that ferry materials around the facility.

In recent years, though, China’s manufacturing engine has started to stall. Wages have increased at a crippling 12 percent per year on average since 2001. Chinese exports fell last year for the first time since the financial crisis of 2009. And toward the end of 2015 the Caixin Purchasing Managers’ Index, a widely used indicator of manufacturing activity, showed that the sector had contracted for the 10th month in a row. Just as China’s manufacturing boom fed the global economy, the prospect of its decline has already started to spook the world’s financial markets.

Automation appears to offer an enticing technological solution. China already imports a huge number of industrial robots, but the country lags far behind competitors in the ratio of robots to workers. In South Korea, for instance, there are 478 robots per 10,000 workers; in Japan the figure is 315; in Germany, 292; in the United States it is 164. In China that number is only 36. Read the rest of this entry »

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China’s First Nobel Laureate in Science 

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Ms. Tu won for the discovery of artemisinin, a drug that has significantly reduced mortality rates among malaria patients.

Tu Youyou, awarded the Nobel Prize in physiology or medicine on Monday, is the first citizen of the People’s Republic of China to win a Nobel for a scientific discipline and the first female Chinese citizen to win any Nobel. Imprisoned writer Liu Xiaobo was the first Chinese citizen to win a Nobel while in China in 2010 when he was awarded the peace prize. Chinese novelist Mo Yan won the literature prize in 2012.

Physicists Li Zhengdao and Yang Zhenning, who left China prior to the Communist Party takeover in 1949, shared the 1957 physics prize while working in the U.S. Both men later became U.S. citizens.

Tu Youyou: Conqueror of Malaria

Tu Youyou: Conqueror of Malaria

Ms. Tu won for the discovery of artemisinin, a drug that has significantly reduced mortality rates among malaria patients, according to the prize announcement. The 84-year-old retired professor at the China Academy of Chinese Medical Sciences was awarded the prestigious Lasker Medical Research Award in 2011 for the same feat.

The discovery of the drug came in the early 1970s as the result of a program established by Mao Zedong to find a cure for malaria that would help the North Vietnamese in their fight with South Vietnam and the U.S., according to Chinese state media. Ms. Tu led a team that scoured traditional Chinese medicinal texts for remedies that might fight the parasite. They eventually identified artemisinin, a compound contained in a plant known as sweet wormwood that proved unusually effective in fighting the disease.

[Read the full story here, at China Real Time Report – WSJ]

“It is one of the few very truly innovative drugs to come out of China,” said Ray Yip, former China program director for both the U.S. Centers for Disease Control and Prevention, and the Gates Foundation. “The introduction of artemisinin was a major force in containing the scourge of malaria.” Read the rest of this entry »


Analysis: China’s Aggression Requires a More Forceful American Response

Beijing’s New World Order

Like wedding anniversaries, state visits by foreign leaders are occasions to celebrate the positive, and that’s what the Obama Administration will stress as Chinese President Xi Jinping tours the U.S. this week. Get ready for an announcement about arms-control in cyberspace, a progress report on a bilateral investment treaty, and bromides about mutual friendship.

“Under Mr. Xi, Beijing sees itself as a strategic rival rather than a partner. Its foreign policy is increasingly aggressive, sometimes lawless, a reality that’s become clear even to the Obama Administration.”

These columns have rooted for China’s emergence as a major U.S. trading partner and responsible global power since Deng Xiaoping became the first Chinese Communist leader to visit the U.S. in 1979. And we’ve had more than a few occasions to score China-bashers in Washington, whether over protectionist steel tariffs or allegations of Beijing’s “currency manipulation.”

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“China’s lawlessness is most obvious at sea and in cyberspace. Since 2010 Chinese leaders have claimed ‘indisputable sovereignty’ over most of the South China Sea, covering an area more than twice the Gulf of Mexico and among the world’s most heavily trafficked commercial waterways.”

But it is now impossible to ignore that China is attempting to redefine its relationship to America and the rules of world order. Under Mr. Xi, Beijing sees itself as a strategic rival rather than a partner. Its foreign policy is increasingly aggressive, sometimes lawless, a reality that’s become clear even to the Obama Administration. The U.S. needs to show that it will resist this behavior—even as it seeks to steer China’s leadership back toward global norms.

[Read the full story here, at WSJ]

China’s lawlessness is most obvious at sea and in cyberspace. Since 2010 Chinese leaders have claimed “indisputable sovereignty” over most of the South China Sea, covering an area more than twice the Gulf of Mexico and among the world’s most heavily trafficked commercial waterways. The dubious basis for this claim is a dotted-line on a 1947 Chinese Nationalist map—the same Nationalists Mao Zedong exiled to Taiwan in 1949.

Beijing’s leaders have used this map to assert maritime claims against Vietnam, the Philippines, Malaysia and Indonesia. They also make claims against Japan. Their aggressive island-building, which has created 2,900 acres of new land, is the most visible example. Read the rest of this entry »


[VIDEO] China’s Latest Fashion Trend? Beansprout Hairpins: ‘The Highly Sought Illusion of a Plant Protruding from the Head’

Men, women, grandmothers and children in China are all donning the beansprout hairpin—a barrette that creates the highly sought illusion of a plant protruding from the head. Photo/Video: Menglin Huang/The Wall Street Journal


China Stock Markets: Sharpest Dive Since 2007

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China’s stock markets suffered their sharpest daily fall since the global financial crisis on Monday, with the government withholding support at a time when investors world-wide have been rattled by volatile selling in China and a slowdown in its economy. As WSJ’s Chao Deng and Anjani Trivedi report:

The Shanghai Composite Index’s loss of 8.5% by Monday’s close was its largest daily percentage decline since February 2007. Today’s performance reminded investors of an 8.5% drop on July 27, when worries mounted that authorities were pulling back on measures to prop up the market.

Monday’s performance erased Shanghai’s gains for the year, reverberated across Asia and weighed on global markets at an inopportune time for China. Next week, it will host world leaders for a memorial parade meant to show off its military power and increasing clout on the global stage. In addition, Chinese President Xi Jinping is slated to visit the U.S. next month. But a global selloff was already gathering pace by late afternoon in Asia, with European stocks and U.S. stock futures falling sharply. Read the rest of this entry »


China Just Did What?

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Chriss W. Street continues:

…China is about to show its third straight quarter of negative real (after inflation) GDP growth. The nation had been relying on a stock market boom to play a “decisive role” in funding the nation’s “Silk Road” reforms to transition to a consumer economy.

But as Breitbart News warned in “China’s Lehman Brothers Weekend Begins,” the “Red Dragon” has suffered a financial collapse equivalent in degree to the U.S. stock crash in 2008-9. Unlike the U.S., which used a formal government bailout to stabilize markets, the Communist Party instructed the nation’s banks to use their own balance sheets to guarantee the current $8 trillion stated value of all of China’s 2800 listed stocks.

As Stratfor’s John Minnich points out, “market capitalization of Chinese stock markets hovered around $1 trillion to $2 trillion” before the recent stock boom. At its peak on June 12, “China’s stock market capitalization, all the markets across the country, was something in the area of $10 trillion to $11 trillion.”

[Read the full text here, at Breitbart.com]

Minnich comments that people before the boom might gamble some of their personal savings into the stock market, but “it wasn’t critical to financing, corporate financing in the Chinese economy. Almost all corporate finances came through the state-owned banks.” Read the rest of this entry »


Chinese Stock Market Chaos Could Be Worse Than Greek Debt Crisis: ‘The Disorder Could Be Monstrous’

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While the world worries about Greece, there’s an even bigger problem closer to home: China

A stock market crash there has seen $3.2 trillion wiped from the value of Chinese shares in just three weeks, triggering an emergency response from the government and warnings of “monstrous” public disorder.

“If China does not find support today, the disorder could be monstrous.”

And the effects for Australia could be serious, affecting our key commodity exports and sparking the beginning of a period of recession-like conditions.

“State-owned newspapers have used their strongest language yet, telling people ‘not to lose their minds’ and ‘not to bury themselves in horror and anxiety’. [Our] positive measures will take time to produce results,” writes IG Markets.

“All short-selling — the practice of betting that stocks will fall — has been banned, and Chinese media has rushed to reassure citizens.”

“If China does not find support today, the disorder could be monstrous.”

In an extraordinary move, the People’s Bank of China has begun lending money to investors to buy shares in the flailing market. The Wall Street Journal reports this “liquidity assistance” will be provided to the regulator-owned China Securities Finance Corp, which will lend the money to brokerages, which will in turn lend to investors.

The dramatic intervention marks the first time funds from the central bank have been directed anywhere other than the banks, signalling serious concern from authorities about the crisis.

At the same time, Chinese authorities are putting a halt to any new stock listings. The market regulator announced on Friday it would limit initial public offerings — which disrupt the rest of the market — in an attempt to curb plunging share prices.

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“The market crash there is generating headlines, but it’s not going to have the same impact as a comparable crash would in a developed market.”

While the exact amount of assistance hasn’t been revealed, the WSJ reports no upper limit has been set.

All short-selling — the practice of betting that stocks will fall — has been banned, and Chinese media has rushed to reassure citizens.

Yesterday, shares in big state companies soared in response to the but many others sank as jittery small investors tried to cut their losses, Associated Press reports. The market benchmark Shanghai Composite closed up 2.4 percent but still was down 27 percent from its June 12 peak.

Experts fear it could turn into a full-blown crash introducing even more uncertainty into global markets as Europe teeters on the edge of a potential eurozone exit by Greece, after Sunday’s controversial referendum.

For Australia, the market crash in China is likely to impact earnings on key exports iron ore and coal, further slashing government revenue, while also putting downward pressure on the Australian dollar.

Jordan Eliseo, chief economist with ABC Bullion, said it was important to remember that the amount of wealth Chinese citizens have tied up in the stock market is relatively minor compared with western investors.

Stocks only make up about 8 per cent of household wealth in China, compared with around 20 per cent in developed nations. Read the rest of this entry »


China’s Troubling Robot Revolution

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China is now shifting its appetite to robots, a transition that will have significant consequences for China’s economy — and the world’s

Martin Ford writes: Over the last decade, China has become, in the eyes of much of the world, a job-eating monster, consuming entire industries with its seemingly limitless supply of low-wage workers. But the reality is that China is now shifting its appetite to robots, a transition that will have significant consequences for China’s economy — and the world’s.

In 2014, Chinese factories accounted for about a quarter of the global ranks of industrial robots — a 54 percent increase over 2013. According to the International Federation of Robotics, it will have more installed manufacturing robots than any other country by 2017.

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Midea, a leading manufacturer of home appliances in the heavily industrialized province of Guangdong, plans to replace 6,000 workers in its residential air-conditioning division, about a fifth of the work force, with automation by the end of the year. Foxconn, which makes consumer electronics for Apple and other companies, plans to automate about 70 percent of factory work within three years, and already has a fully robotic factory in Chengdu.

[Check out Martin Ford’s book “Rise of the Robots: Technology and the Threat of a Jobless Future” at Amazon.com]

Chinese factory jobs may thus be poised to evaporate at an even faster pace than has been the case in the United States and other developed countries. That may make it significantly more difficult for China to address one of its paramount economic challenges: the need to rebalance its economy so that domestic consumption plays a far more significant role than is currently the case.

China’s economic growth has been driven not just by manufacturing exports, but also by fixed investment in things like housing, factories and infrastructure — in fact, in recent years investment has made up nearly half of its gross domestic product. Meanwhile, domestic consumer spending represents only about a third of the economic pie, or roughly half the level in the United States.

This is clearly unsustainable. After all, there eventually has to be a return on all those investments. Factories have to produce goods that are profitably sold. Homes have to be occupied, and rent has to be paid. Generating those returns will require Chinese households to step up and play a larger role: They will have to spend far more, not just on the goods produced in China’s factories, but increasingly in the service sector.

[Read the full text here, at NYTimes.com]

Making that happen will be an extraordinary challenge. Indeed, the Chinese leadership has been talking about it for years, but virtually no progress has been made. One problem is that even in the wake of recent wage increases, average Chinese households simply have too little income relative to the size of the economy. Read the rest of this entry »


‘Not the Only Gorilla in the Jungle’: Japan Overtakes China as Largest U.S. Bondholder

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Japan’s purchases will help soothe lingering concerns that U.S. bond prices could decline as China slows its buying. 

Min Zeng in New York, Lingling Wei in Beijing and Eleanor Warnock in Tokyo report: Japan dethroned China as the top foreign holder of U.S. Treasurys for the first time since the financial crisis, following a wave of purchases by buyers shifting money to the U.S. as Japan’s economic policies push down interest rates there.

“China is currently the 800-pound gorilla in the U.S. Treasury market. However, it is not the only gorilla in the jungle.”

–James Sarni, a managing principal at investment manager Payden & Rygel, which oversees $90 billion of assets

In reclaiming its status as the largest foreign creditor to America in U.S. official data, Japan is japan-chart-WSJreasserting itself as Beijing holds its Treasury portfolio steady amid a weakening Chinese economy.

“U.S. debt bears higher yields than government bonds offered in other rich nations, thanks to the perception of stronger U.S. growth prospects and to central-bank bond purchases that have driven yields near zero across Europe and in Japan.”

Private investors and official institutions in Japan owned $1.2244 trillion of U.S. government securities at the end of February, compared with $1.2386 trillion at the end of January, according to the latest monthly data released by the Treasury on Wednesday.

China held $1.2237 trillion of Treasury debt at the end of February, compared with $1.2391 trillion a month earlier.

Over the past year, Japan has boosted its holdings by a net $13.6 billion, while China’s holdings dropped by $49.2 billion.

“The single largest holder of U.S. long-term debt is the Federal Reserve, with more than $2 trillion. The amount has surged from $755 billion at the end of 2007, fueled by Fed purchases of long-term securities in response to the financial crisis”.

The Treasury data, released with a two-month lag, don’t capture all of the Treasury-bond holdings China may have parked at middlemen in places such as the U.K. and Belgium. Many analysts and investors believe China has considerable holdings bought through such intermediaries. The Treasury notes on its website that “it is difficult to draw precise conclusions about changes in the foreign holdings of U.S. financial assets by individual countries” from the capital-flow data.

“The shift also reflects changes sweeping China. The world’s most-populous nation has in recent months largely held its Treasury portfolio in place, reflecting a slowdown in the growth of its $3.73 trillion foreign-exchange reserve, the world’s largest, and an effort to shift those reserves toward higher-yielding assets.”

The Japanese purchases have helped drive long-term U.S. bond yields near record lows despite an economic expansion that averaged 2.7% annually over 2013-14. Those low yields have, in turn, helped keep down interest rates for Americans on everything from home loans to credit cards. Read the rest of this entry »


The Great Wall of Manners: China to Start Keeping a List of Badly Behaved Tourists

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Recent guidelines issued by state media have included gems such as admonitions against wearing clothing items that have images of pigs on them and making off with chunks of coral when diving off the coast of Fiji

Chinese tourists behaving badly abroad are in for a shock when they return to the motherland.

New measures announced this week by China’s national tourism authority mean that misdeeds by wayward Chinese vacationers will now be kept on record for a period of up to two years.

According to the announcement, “tourist uncivilized behavior records” will be compiled for those travelers that behave in an unseemly manner—including getting into fights, defacing public property or historical relics, disrespecting social norms of the host nation, gambling or whoring.  Although the notification didn’t specify whether the guidelines were aimed at Chinese behaving badly at home or abroad, the most scandalous tourist behavior has tended to involve Chinese abroad.

“According to the announcement, ‘tourist uncivilized behavior records’ will be compiled for those travelers that behave in an unseemly manner—including getting into fights, defacing public property or historical relics, disrespecting social norms of the host nation, gambling or whoring.”

When necessary, such files – which will be maintained for a period of up to two years — will be shared with Chinese authorities such the police, immigration, banking and transportation authorities, the announcement said, without specifying what kinds of consequences might follow.

[Read the full text here, at WSJ]

If the flow of examples of uncouth behavior by some of China’s 100 million annual travelers in recent months is any guide, China Real Time expects the keepers of such records will be busy.

“Don’t throw water bottles everywhere, don’t destroy people’s coral reefs and eat fewer instant noodles and more local seafood.”

— President Xi

From tantrums involving the hurling of hot water at flight attendants to writing graffiti on ancient monuments in Egypt, Chinese tourists have been making headlines for all the wrong reasons. Chinese authorities in recent years have grown worried about how some of its roving nationals could be damaging the country’s image abroad.

“Why don’t we just learn from Singapore and just cane them?”

— Wisecrack from a Weibo user

On a visit to the Maldives last September, even President Xi Jinping spoke out,  saying China needed to teach its citizens to be “a bit more civilized” when overseas. Read the rest of this entry »


Is China’s Communist Party Doomed?

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Is China’s Ruling Party on the Brink of Collapse?

[With and HO-FUNG HUNGARTHUR R. KROEBERHOWARD W. FRENCHSUISHENG ZHAO]

“The endgame of Chinese communist rule has now begun,” influential China scholar David Shambaugh wrote in a March 7 article in the Wall Street Journal. “And it has progressed further than many think.”

Is the ruling China’s Communist Party (CCP) on the brink of collapse? We asked several China hands for their take:

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Ho-fung Hung, Associate Professor of Sociology, Johns Hopkins University:

I agree with Shambaugh that there are serious cracks in the CCP regime, not only because of his arguments and evidence but also because of his deep knowledge about and long-time access to the party’s elite. Whether these cracks will lead to the end of CCP rule, nevertheless, is difficult to predict. The prediction about a CCP endgame this time might end up like the many unrealized predictions before. It may also be like the story of boy crying wolf: The wolf didn’t come the first two times, but it finally came when Chinese leader Xi Jinpingnobody believed it would come. The bottom line is, the CCP is facing very tough challenges. Whether and how it can weather them is uncertain.

“Xi’s purges surely make new enemies and make most of the Party elite feel deeply anxious about their fortunes.”

Xi is a leader who came to power with very few sources of legitimacy. Mao and Deng were among the founding fathers of the People’s Republic of China. Deng handpicked his successors Jiang Zemin and Hu Jintao — both of whom got the backing of party elders when they came to power. Xi, despite his princeling background, is the first leader chosen out of a delicate compromise among party factions.

“It won’t be so surprising if some of those anxious elite conspire to depose Xi.”

Amidst Xi’s rise to power, the mysterious Wang Lijun incident occurred, followed by the unusual downfalls of former top leaders Bo Xilai and Zhou Yongkang. What Wang actually told the American diplomats during his sleepover in the U.S. Consulate in Chengdu, and what sensitive information he eventually conveyed to Beijing is still unknown. But the rumor that he revealed a plot by other princelings to get rid of Xi through a coup does not sound too crazy. If this is true, then Xi’s frenetic purge of other factions in his anti-corruption campaign makes sense as a desperate move to whip the disrespectful elite to submission through creating a culture of terror within the Party.

Xi’s purges surely make new enemies and make most of the Party elite feel deeply anxious about their fortunes. It won’t be so surprising if some of those anxious elite conspire to depose Xi. Such internal coup against unpopular leaders is not alien to the CCP — it happened with the downfall of the Gang of Four in 1976, and former party chairman Hua Guofeng a few years later.

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Second, the party’s internal rift is unfolding at the worst possible time, as far as the economy is concerned. Yes, a 7.4 percent annual growth rate is an enviable number to many other emerging economies. But with the soaring indebtedness of the Chinese economy and the ever aggravating unemployment problem, the Chinese economy needs higher-speed growth to stay above water.

[Read the full text here, at Foreign Policy]

The debt hangover of the 2008-09 stimulus is worrying. China’s debt to GDP ratio jumped from 147 percent in 2008 to 282 percent now, and is still growing. It is at a dangerously high level compared to other emerging economies. The economic slowdown will lead to profit decline for companies and revenue shortfall for local governments, increasing their difficulty in servicing and repaying debts. A vicious cycle of defaults and further growth deceleration could turn a slowdown into something uglier.

With the detentions of employees of a business news website, China is increasing oversight of journalists; above, a Beijing newsstand. Agence France-Presse/Getty Images

It is possible that the CCP elite, no matter how much they dislike Xi and his anti-corruption campaign, will still prefer not to rock the boat. They are aware that they are nobody without the protection of the party-state, and their privileges will be under far greater threat in the wake of a regime collapse. It is also possible that in the years of pacification and domestication following the 1989 Tiananmen Square crackdown, China’s civil society and dissidents have become so timid and cornered that they are incapable of taking advantage of any cracks in the regime.

Is Xi successfully increasing his grip of power through the anti-corruption campaign, or does his rule still suffer from inadequate legitimacy behind the mask of invincibility? Only time can tell. But besides the endgame of CCP rule, we should also ponder another possible scenario: the rise of a hysteric and suffocating dictatorial regime which maintains its draconian control over a society gradually losing its dynamism. Perhaps we can call this hypothetical regime North Korea lite.

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Arthur Kroeber, Editor, China Economic Quarterly:

Neither China nor its Communist Party is cracking up. I have three reasons for this judgment. First, none of the factors Shambaugh cites strongly supports the crackup case. Second, the balance of evidence suggests that Xi’s government is not weak and desperate, but forceful and adaptable. Third, the forces that might push for systemic political change are far weaker than the party.

Shambaugh thinks the system is on its last legs because rich people are moving assets abroad, Xi is cracking down on the media and academia, officials look bored in meetings, corruption is rife, and the economy is at an impasse. This is not a persuasive case. True, many rich Chinese are moving money abroad, both to find safe havens and to diversify their portfolios as China’s growth slows. But in aggregate, capital outflows are modest, and plenty of rich Chinese are still investing in their own economy. Following an easing of rules, new private business registrations rose 45 percent in 2014 — scarcely a sign that the entrepreneurial class has given up hope.

China daily life

The crackdown on free expression and civil society is deeply distressing, but not necessarily a sign of weakness. It could equally be seen as an assertion of confidence in the success of China’s authoritarian-capitalist model, and a rejection of the idea that China needs to make concessions to liberal-democratic ideas to keep on going. It is also related to the crackdown on corruption, which Shambaugh wrongly dismisses as a cynical power play. Corruption at the end of the era of Xi’s predecessor Hu Jintao had got out of control, and posed a real risk of bringing down the regime. A relentless drive to limit corruption was essential to stabilize the system, and this is precisely what Xi has delivered. It cannot work unless Xi can demonstrate complete control over all aspects of the political system, including ideology.

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As for the economy and the reform program, it is first worth pointing out that despite its severe slowdown, China’s economy continues to grow faster than that of any other major country in the world. And claims that the reform program is sputtering simply do not square with the facts. 2014 saw the start of a crucial program to revamp the fiscal system, which led to the start of restructuring local government debt; first steps to liberalize the one-child policy and the hukou, or household registration system (discussed for years but never achieved by previous governments); important changes in energy pricing; and linkage of the Shanghai and Hong Kong stock markets. News reports suggest that we will soon see a program to reorganize big SOEs under Temasek-like holding companies that will focus on improving their flagging financial returns. These are all material achievements and compare favorably to, for instance, the utter failure of Japanese Prime Minister Shinzo Abe to progress on any of the reform agenda he outlined for his country two years ago. Read the rest of this entry »


REWIND: China Rejects Sign It May Soon Be Number One Economy

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China has rejected a World Bank report that suggests it might pass the United States this year to become the biggest economy measured by its currency’s purchasing power.

China is on track to become the No. 1 economy by sheer size by the early 2020s and possibly sooner. But its leaders downplay such comparisons, possibly to avert pressure to take on financial obligations or make concessions on trade or climate change.

“…the NBS of China does not endorse these results as official statistics.”

— China’s National Bureau of Statistics

The estimate by the World Bank’s International Comparison Program says that based on 2011 prices, the purchasing power of China’s currency, the yuan, was much stronger than was reflected by exchange rates.

“It does bring home the sheer size of the Chinese economy, in the services and goods and that people in China are producing.”

— Mark Williams, chief Asia economist for Capital Economics

By that measure, China’s economy was 87 percent the size of the United States’ in 2011, or 15 percent bigger than the previous estimate, according to a calculation by RBS economist Louis Kuijs. Faster-growing China would pass the United States in purchasing power terms this year, though it still would be about 60 percent the size of the U.S. economy at market exchange rates. Read the rest of this entry »


Why China Wants to Dump the Dollar

china_cash_AFP

Chriss W. Street writes:  China’s Dagong credit rating agency on October 17th downgraded its United States sovereign credit rating to A- and maintained its negative outlook on America’s solvency. Dagong warned that despite Washington’s last-minute resolution of the debt ceiling deadlock, “The fundamental situation that the debt growth rate significantly outpaces that of fiscal income and gross domestic product remains unchanged.”

China’s official state-run news agency, Xinhua, reiterated its statements that because of the continuing risk of a U.S. debt default, it is “a good time for the befuddled world to start considering building a de-Americanized world.” This language is code for China wanting to abandon the U.S. dollar as the world’s “reserve currency” and move international financial transactions to the renminbi, the currency of the People’s Republic of China.

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Want to Understand How China is Doing? Don’t Look at GDP

 Why the classic benchmark statistic is unsuitable to describing the world’s second-largest economy.

Carlos Barria/Reuters

Carlos Barria/Reuters

For over a quarter century, the one figure that dominated discussion of China’s economy was this: eight percent. Beginning in 1982, when leader Deng Xiaoping established the percentage as necessary to quadruple the size of the country’s GDP by 2000, China has seldom failed to achieve it—even in 2009, when the world was enduring the worst downturn since the Great Depression. The eight-percent figure became so entrenched that it acquired an almost Talmudic significance, causing speculation that if the economy didn’t grow by that amount, social instability would surely follow. (The fact that the number eight is considered lucky in Chinese culture only added to the mystique.)

These days are now over. China’s GDP has failed to reach the benchmark for six successive quarters, checking in at 7.5 percent for the second quarter of 2013. Though this growth is still robust by global standards, the sub-eight percent figure has raised concerns that a Chinese  “slowdown” is now permanent—and will have serious consequences for the rest of the world. Read the rest of this entry »


China launches free trade zone in Shanghai

Workers finish off a large sign that reads "China (Shanghai) Pilot Free Trade Zone", on September 23, 2013 (AFP)

Workers finish off a large sign that reads “China (Shanghai) Pilot Free Trade Zone”, on September 23, 2013 (AFP)

Shanghai (AFP) –  China launched a free trade zone in its commercial hub Shanghai on Sunday, state-media reported, with the project seen as a testing ground for much-needed reforms in the world’s second largest economy.

The zone, which covers 29 square kilometres (11 square miles), “started operating Sunday”, the official Xinhua news agency said, adding that it was “a test bed for the Chinese leadership’s drive of deepening market-oriented reforms and boosting economic vigour”.

Reforms in the zone will be closely-watched as a key test of China’s ability to make long-pledged structural changes as it attempts to shift its economic model in the face of slowing growth. Read the rest of this entry »