By Ding Qingfen and Xin Zhiming (China Daily)

BEIJING: Exports should not be sidelined as the nation rebalances its economy to encourage consumption, top government officials and policy advisors said.

China's exports have seen strong growth for many years, contributing to a large part of the country's stable economic progress. However, the global financial crisis, which has hit the country hard since mid-2008, as well as growing trade disputes, have prompted policymakers and advisors alike to rethink the country's export-related policies.

There have been growing voices among scholars that the country should stop supporting exports while shifting it focus to domestic consumption.

Zhang Zhigang, a member of the Chinese People's Political Consultative Conference (CPPCC), however, said that if the country wants to encourage consumption, exports are "vital".

"Growing exports can create more jobs and provide the impetus for domestic consumption," Zhang, also chief economist of the Center for International Economic Exchanges, said during the ongoing National People's Congress and CPPCC sessions on Sunday.

Minister of Commerce Chen Deming on Saturday said that export-related sectors provide at least 90 million jobs - about 7 percent of the national population - and therefore affect consumption.

"How can we expect them to spend and consume more if they lose their jobs or have their salaries cut because of grim exports?" asked Chen.

China's exports, which experienced robust growth of more than 25 percent before 2008, dropped by 16 percent last year. Economists believe the growth will remain at 15 percent this year.

"China should strike a balance between stabilizing exports and spurring domestic consumption, to optimize its economic structure," said Zhang.

In the annual government work report last Friday, Premier Wen Jiabao outlined China's trade policy, saying it will "develop exports in a steady way" this year.

"It means China will not ignore exports, but is considering the issue seriously," said Zhang Xiaoji, a CPPCC member and senior researcher at the Development Research Center of the State Council. "It is no doubt good news for China's manufacturers and exporters", since many of them are still suffering from the fallout of the global financial crisis.

The country should continue its export-supportive policies and keep the Chinese currency, or yuan, at a "reasonable" level, Zhang Zhigang said.

However, overseas pressure - both from the United States government and currency speculators - is mounting for China to hasten the appreciation of its yuan, since they believe the yuan is undervalued.

Zhou Xiaochuan, governor of the central bank, said on Saturday that China must be "very cautious" in resuming yuan appreciation, which stopped in the second half of 2008. Zhou said it is only a temporary measure for dealing with the crisis, which means that the door for yuan appreciation remains open, analysts said.

"But we are not sure whether it will come next week or the second half of this year," said Stephen Green, head of research of Standard Chartered Bank (China).

Source - http://www.chinadaily.com.cn/china/2010npc/2010-03/08/content_9551192.htm

By Kenneth Rogoff

IF YOU listen to American, European or even Chinese leaders, Japan is the economic future no one wants.

In selling massive stimulus packages and bank bailouts, Western leaders told their people: 'We must do this or we will end up like Japan, mired in recession and deflation for a decade or more.'

Chinese leaders love pointing to Japan as the prime reason not to allow any significant appreciation of their conspicuously undervalued currency. 'Western leaders forced Japan to let its currency rise in the second half of the 1980s, and look at the disaster that followed.'

Yes, nobody wants to be Japan, the fallen angel that went from being one of the world's fastest growing economies for more than three decades to one that has slowed to a crawl for the past 18 years. No one wants to live with the trauma of the deflation that Japan has repeatedly experienced. No one wants to navigate the precarious government-debt dynamic that Japan faces, with debt levels far above 100 per cent of gross domestic product (even if one factors in the Japanese government's vast holdings of foreign exchange reserves). No one wants to go from being a world-beater to a poster child for economic stagnation.

And yet visitors to Tokyo today see prosperity everywhere. The shops are bustling. Restaurants are packed with people, dressed in better clothing that one typically sees in New York or Paris. After all, even after nearly two decades of 'recession', per capita income in Japan is more than US$40,000 (S$56,000). Its unemployment rate was low during most of its 'lost decade' - and although it has shot up recently, it is still only 5 per cent.

So what gives? First, things look a lot grimmer when one gets two hours outside of Tokyo to places like Hokkaido. These poorer outlying regions are hugely dependent on public works projects for employment. As the government's fiscal position has steadily weakened, the jobs have become far scarcer. True, there are beautifully paved roads all around, but they go nowhere. Old people have retreated to villages, many growing their own food, their children having long abandoned them for the cities.

Even in Tokyo, the air of normalcy is misleading. Two decades ago, Japanese workers could expect to receive massive year-end bonuses, typically amounting to one-third of their salary or more. Now these have gradually shrunk to nothing. True, thanks to falling prices, the purchasing power of workers' remaining income has held up, but it is still down by more than 10 per cent. There is far more job insecurity than ever before as firms increasingly offer temporary jobs in place of once-treasured 'lifetime employment'.

Although hardly in crisis - yet - Japan's fiscal situation grows more alarming by the day. Until now, the government has been able to finance its vast debts locally, despite paying paltry interest rates. Remarkably, Japanese savers soak up some 95 per cent of their government's debt. Perhaps burned by the way stock and real estate prices collapsed when the 1980s bubble burst, savers would rather go for what they view as safe bonds, especially as gently falling prices make the returns go further than would be the case in a more normal inflation environment.

Unfortunately, as well as Japan has held up until now, it still faces profound challenges. First and foremost, there is its ever-falling labour supply, owing to extraordinarily low birth rates and deep-seated resistance to foreign immigration. The country also needs to find ways to enhance the productivity of those workers it does have.

Inefficiency in agriculture, retail and government is legendary. Even at Japan's world-beating export firms, reluctance to confront the ingrained interests of the old-boy network has made it difficult to prune less profitable product lines - and the workers who make them.

As the population ages and shrinks, more people will retire and start selling those government bonds that they are now lapping up. At some point, Japan will face its own Greek tragedy as the market charges sharply higher interest rates.

The government will be forced to consider raising revenues sharply. The best guess is that Japan will raise its value-added tax, now only 5 per cent, far below European levels. But is it plausible to raise taxes in the face of such sustained low growth?

Investors who have bet against Japan in the past have been badly burned, grossly underestimating the Japanese people's remarkable flexibility and resilience. But the fiscal road ahead looks increasingly perilous, with political consensus fraying badly in recent years.

In the end, are foreign leaders right to scare their people with tales of Japan? Certainly, the hyperbole is overblown; the Chinese, especially, should be so lucky. But nor should apologists for deficits point to Japan as reason to be calm about outsized stimulus packages. Japan's ability to trudge on in the face of huge adversity is admirable, but the risks of crisis ahead are surely greater than bond markets seem to recognise.

The writer, a former chief economist of the International Monetary Fund, is Professor of Economics and Public Policy at Harvard University.

Source - http://www.straitstimes.com/Review/Others/STIStory_497618.html 

Feb 25, 2010

Offenders face the wrath of the party as well as prosecution

By Xiao Han (China Daily)
Updated: 2010-02-22 09:38

The central government plans to implement a new policy in the first half of this year to encourage auto industry consolidation and further the development of Chinese-brand passenger vehicles, an official from the Ministry of Industry and Information Technology said at a recent news conference.

According to sources with knowledge of the new policy, it intends that Chinese-brand passenger vehicles will comprise at least half of vehicle sales by 2015 and sedans made by entirely domestic automakers will have about 40 percent of the nation's car market.

Statistics from the China Association of Automobile Manufacturers (CAAM) show that 4.58 million Chinese-brand passenger vehicles were sold last year, some 44.3 percent of the total.

Sales of domestic sedans hit 2.22 million units, almost 30 percent of the segment.

The new policy will also focus on accelerating consolidation between automakers and could lead to a new round of reshuffling, industry insiders said.

China became the world's largest auto producer and market last year with both production and sales surpassing 13.5 million vehicles due in part to government incentives.

There are now more than 130 carmakers across the country, but most of them are small enterprises with annual production and sales of fewer than 10,000 units.

Only five had sales of more than 1 million units last year as the country's top 10 carmakers moved a total of 11.89 million vehicles to account for 87 percent of overall sales, according to market data.

Consolidation moves

Last year, Chang'an Motor Corp acquired two minivan makers - Hafei and Changhe - as well as engine producer Dong'an Auto from the Aviation Industry Corp of China (AVIC), marking the biggest asset deal ever between State-owned auto companies.

Chang'an is the fourth-largest motor group in China and the local partner of US carmaker Ford Motor and Japan's Mazda and Suzuki. After the acquisition, Chang'an's 2009 sales were only 30,000 units behind Dongfeng, the country's third-largest motor group.

Guangzhou Automobile Group Corp, the country's sixth-biggest automaker, bought a 29 percent stake of Shanghai-listed SUV maker Changfeng Motor Co Ltd for 1 billion yuan in May last year.

Beijing Automobile Industry Holding Corp, China's fifth-largest carmaker, reportedly finalized a deal last month to buy a 40 percent stake in Daimler AG's van joint venture with Fujian Motor Industry Corp.

By 2012 policymakers hope consolidation will result in two to three large-scale auto groups, each with annual production capacity surpassing 2 million units, and four to five companies with annual output of more than 1 million vehicles, according to the national auto industry revitalization plan released in March last year.

The current top-four Chinese motor groups are SAIC Motor Corp, FAW Group, Dongfeng Motor and Chang'an Motor. Carmakers including Beijing Automobile, Guangzhou Automobile, Chery, Geely and Sinotruk form the second tier in the country's auto industry.

Going global

Li Yizhong, minister of Industry and Information Technology, said recently that in addition to fueling industry consolidation, the government will also implement measures to encourage domestic automakers in reaching overseas this year through investment, acquisition of foreign brands, building research and development facilities and developing sales networks.

Industry sources said that the new policy calls for 20 percent of overall sales by major auto groups to be generated overseas in the next few years.

In the wake of the financial crisis, China's vehicle exports fell sharply by 45.7 percent to 369,600 units last year, according to statistics from the General Administration of Customs. Industry analysts generally expect a rebound in car shipments this year as the foreign markets begin to recover.

Despite the poor export performance, Chinese companies were aggressive in acquiring overseas assets in 2009.

Homegrown carmaker Geely's bid for Swedish luxury brand Volvo received a lot of media exposure in 2009. The Zhejiang-based company will reportedly close the deal soon.

Beijing Automotive bought some of Swedish carmaker Saab's core assets and technologies for $200 million last year.

Li noted that along with encouraging acquisitions and consolidation, the government will restrain overcapacity in the auto industry.

Li also said that the ministry will accelerate the development of new energy vehicles, including hybrid, pure electric and fuel battery models.

The new policy will reportedly stipulate that Chinese partners hold at least a 50 percent share in newly built Sino-foreign joint ventures that produce core parts for alternative-energy vehicles.

Source - http://www.chinadaily.com.cn/bizchina/2010-02/22/content_9483044.htm