Turning the Heat Up on Trade


Meantime on the trade front we may be in for another turn of the screw. Given then intransigence of Beijing on the currency issue, turning the heat up at the WTO may be a more politically viable strategy for the US. The bang per decibell rate could be higher, at least at the ballotbox. Of course, on another time-honoured theory, a good way to head-off problems is to position yourself at the head off the race and then lead the pack well away from main street by turning down the nearest convenient cul-de-sac.

The US is ratcheting up pressure on China to abide by its commitments in the World Trade Organisation in an effort to defuse domestic political demands to begin penalising Chinese exports to the US.


Robert Zoellick, the US trade representative, on Wednesday warned that Chinese access to the US market depended on "fair" two-way trade.

"I believe in open markets [and] I think the United States' market should remain open, but the only way that we can maintain open markets is if American exporters have an opportunity to export here," he said in Beijing.

That followed similar statements in Washington late on Tuesday by Grant Aldonas, undersecretary of Commerce, who arrives in China on Friday with Commerce secretary Don Evans to continue pressing the trade issue.

"We expect action from the Chinese," he told a hearing of members of Congress who were demanding stronger action. "The time has come to measure up," he said, stressing that the US had been patient in waiting for China to meet its WTO commitments. "There's a point at which the bill comes due and that point is now."

The language is the toughest yet from the top two trade officials in the US. Ratcheting up the pressure over WTO compliance would be the easiest way for the administration to show immediate progress with China, given Beijing's reluctance to revalue the renminbi. Several bills currently circulating in Congress would slap tariffs on Chinese imports unless China moves quickly to revalue. Mr Zoellick repeatedly linked US willingness to keep its market open to Beijing's willingness to resolve problems over such issues as intellectual property violations and controls on agricultural imports. "We need to make progress on [these issues] and we need to make progress soon," said Mr Zoellick.

The US has yet to bring any dispute cases against China since it joined the WTO in 2001, which has angered Congress, as the bilateral trade deficit ballooned to $103bn (€87bn) last year and $65bn in the first seven months of this year.

Mr Aldonas said that China could respond by eliminating its rebate of value-added taxes for exports, which Beijing announced last week would be reduced by an average of three percentage points. He also said the Chinese government should use only legally-purchased software as a way of combating piracy. In spite of all the strong words, the administration has been trying to discourage a congressional backlash against trade with China.
Source: Financial Times
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China's Growing Telecom Clout


The nascent China Teelecom industry is making its presence felt in Geneva:

China's leading telecommunications equipment makers are taking to the global stage in every sense. The ambition of Huawei and ZTE to expand internationally on the back of their success in a growing domestic market was displayed in the sizes of their stands at last week's ITU Telecom World 2003 in Geneva, the quadrennial showcase for the big telecoms companies. Measured by floor space, Huawei and ZTE could argue they were bigger global equipment players than Cisco Systems and Alcatel. Both stands beat Cisco's in size and scope, while France's Alcatel, which spent E14m ($16.3m) on its booth last time at Telecom World 1999, was nowhere to be seen, saying it could no longer justify the expense.

The dominance of Asian displays - including a three-storey tower block that took Samsung five weeks to erect - was seen as a clear message from the region that it had arrived as a telecoms powerhouse. In spite of a recession that has seen many European and American equipment makers and carriers go to the wall over the past four years, their Asian counterparts have survived and thrived. "We have the largest stand in the whole China booth at 526 square metres," said Richard Lee, Huawei's international advertising and promotions manager. "The Geneva show really helps us to build up our brand, not only in Europe but globally."

Until now, Huawei has been known outside Asia more for a patent row with Cisco than for its network equipment. "Cisco [litigation] did not slow us down. We withdrew our products in the US and now both sides have decided to stay litigation," said Mr Lee. With 2002 revenues of $2.7bn, Huawei figures in 16th place in Gartner's global top 20 of equipment makers - well behind number one Nokia on $28.3bn, Cisco at $19.2bn and Alcatel at $13.2bn. But expected 2003 revenues of $3.5bn should lift it above companies such as Panasonic and a restructured Marconi - another no-show in Geneva following its huge display four years ago. Much of Huawei's growth has been fuelled by its home market where a nation of 1.3bn people is quickly taking to mobile telephony and the internet, while fixed-line phone access is being extended in rural areas.

China is already the world's largest telecommunications market by subscribers, yet teledensity - the number of telephones in use for every 100 people - is still fewer than 40, compared with 50-70 in Europe. Spending on networks is expected to increase in China in 2004, according to International Data Corp, the research firm. China's telecoms companies are spending on their networks in the high 20s as a percentage of revenues, compared with an industry average of 10 per cent.

IDC predicted last week that China would account for 48 per cent - or $15.8bn - of the region's spending on network equipment compared with an estimated 44 per cent share in 2003. The figures excluded Japan. ZTE has enjoyed success selling to developing countries such as Nigeria, India and Zambia, as well as in its home market. Shi Lirong, vice-president, told a news conference in Geneva the company was earning 25 per cent of its revenues overseas and aimed to double this to 50 per cent by 2008, when it expected annual sales of $10bn. It is just behind Huawei in Gartner's league table with $1.4bn in revenues last year.

Both Huawei and ZTE insist their success is built on the quality of their products and research and development as much as the lower costs of labour and manufacturing in China. Huawei has research centres in Silicon Valley, Stockholm, Dallas and Moscow, as well as in China, where it is developing a 3G standard - TD-SCDMA - in partnership with Siemens. It was also number two behind Alcatel in the last quarter in the world market for DSL broadband equipment, while ZTE was promoting its "end-to-end solutions" for mobile networks at the show. "Huawei and ZTE are now spending a lot on R&D and are punching above their weight there," says Dean Eyers, worldwide director of telecoms at the Gartner research firm. "A lot of their focus has been on price and they are not ahead of the innovation curve at this phase. But [Geneva] has put them on the radar screen and they absolutely could have an impact on a global scale."
Source: Financial Times
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Asia at the Crossroads

Stephen Roach yesterday, on a topic you've been hearing quite a bit about recently at China Economy Watch:

Asia’s wrenching financial crisis of 1997-98 marked a critical turning point for the region that we are only now beginning to understand. The ascendancy of China is the most obvious and important hallmark of the post-crisis era. But the awakening of India is not without potentially profound implications as well. The road has been considerably rougher for the so-called newly industrialized economies of Asia -- Korea, Singapore, Taiwan, and Hong Kong. Meanwhile, Japan has languished in its post-bubble malaise. The balance of economic power is in the process of shifting in Asia. Old Asia is floundering and a New Asia is emerging. That poses profound challenges for the region and for the broader global economy.

Relative growth disparities between New and Old Asia leave little doubt as to the shifting sources of regional economic growth. Since 1990, China’s economy has tripled in size in real terms, while India’s has doubled. Over the same period, 1990 to 2003, the Japanese economy has increased by only 15%. The math of economic development obviously makes it much easier for poor countries to grow far more rapidly than rich ones. Yet China and India still have a long way to go in catching up with Japan. While convergence in overall GDP terms could occur at some point in the next 20-30 years, on a per capita basis -- the most relevant comparison in terms of living standards -- it will take considerably longer. In 2002, real output per capita in Japan was still about 40 times greater than in China and nearly 100 times that of India. Based on an extrapolation of recent trends -- an heroic assumption, to be sure -- Chinese convergence with Japan in per capita terms is unlikely for another 40-50 years; in the case of India, it could take considerably longer.

Outsourcing itself is not the breakthrough. Offshore production options through normal trade channels have been around for decades. What’s new is the breadth and depth of such platforms. What’s also new is the Internet -- the means by which these platforms can now be connected to globalized distribution systems. Moreover, there’s also a new urgency to such outsourcing, driven by the heightened imperatives of cost-control. Lacking in pricing leverage and awash in excess capacity, companies in the high-cost developed world have made the global labor arbitrage a key tactic of competitive survival. In manufacturing, this manifests itself in the form of a massive wave of foreign direct investment into China; FDI into China hit $53 billion in 2002, making it the largest recipient of such flows in the world. In services, the Internet has been the ultimate enabler of technology diffusion and knowledge-based output -- central to new global platforms that open the door to vast legions of low-wage white-collar workers. Courtesy of the global labor arbitrage, the growing role of China and India arises out of shared necessity -- theirs as well as ours.

Nor is there really any effective limit to what the Chinas and Indias of the world can offer up as cost-effective substitutes to the high-wage developed world. Both nations, which collectively account for nearly 40% of the world’s population, have the functional equivalent of infinite supplies of excess labor. China has an urban workforce that amounts to about 400 million, and in India the nonagricultural workforce is estimated at 167 million. Both of these vast nations, of course, still have a large portion of economic activity tied up in traditional agriculture -- 15% of total value added in the case of China and 25% for India. At the same time, they also suffer from a huge deficiency in agricultural productivity; US farm workers, for example, are more than 125 times more productive than their Indian counterparts and 150 times more productive than those in China, according to the World Bank. In many respects, that only enhances the pipeline of candidates for the global labor arbitrage. As agricultural productivity rises and farm workers are displaced, the expansion of low-cost labor pools available for outsourcing platforms has no end in sight.

Wage comparisons are the obvious icing on the cake for the global labor arbitrage: Over the 1995-99 period, World Bank data put Chinese manufacturing labor costs on a per worker basis at about 2.5% of those in Japan and the United States; for India, the ratio works out closer to 4%. Moreover, China’s labor costs are only a small fraction of those in the newly industrialized Asian economies -- 3.5% of those in Singapore and 7% of those in Korea and Hong Kong. Not surprisingly, these wage differentials match up with comparable economy-wide productivity disparities. But that’s precisely the point: Outsourcing platforms are high-performance pockets in low-wage, low-productivity economies such as China and India. Foreign-funded subsidiaries in China now employ some 3.5 million workers, up more than 3.5 times over the past decade; the number is double that if subsidiaries funded in Hong Kong, Taiwan, and Macao are included. Similar trends are evident in services outsourcing. India currently employs about 650,000 professionals in IT services, a figure that is expected to more than triple over the next five years, according to one study (see The IT Industry in India: Strategic Review 2002, published by India’s National Association of Software & Service Companies with McKinsey & Co.). Courtesy of the global labor arbitrage, increasingly well-educated work forces in both countries have become agents of dramatic change in Asia and the broader global economy. Barring a breakdown in trade liberalization and globalization, all this paints a rapidly changing picture of Asia.
Source: Morgan Stanley Global Economic Forum
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Upward Revision on Chinese Growth


Just look at these numbers. I know someone is going to writre and tell me all this is a fantasy, but just let me say it doesn't look like it!

China's economic growth accelerated to 9.1 percent in the third quarter, driven by increased investment as Sony Corp. built factories and China United Telecommunications Corp. expanded its network to meet demand. The rate was higher than the 6.7 percent reported in the second quarter and the 8.7 percent median forecast of five economists surveyed by Bloomberg News. Growth for the full year will probably be about 8.5 percent, the pace achieved in the first nine months, National Bureau of Statistics Deputy Director Qiu Xiaohua, said at a press briefing in Beijing.

China's economy, the sixth largest in the world, is growing more than twice as fast as the five biggest -- the U.S., Japan, Germany, the UK and France. Including Hong Kong, China is now the top export destination for South Korea and Taiwan and one of the three biggest overseas markets for Japan, Thailand and Singapore. "China is really the engine that drives the entire region,'' Ford Motor Co. Chief Executive Officer William Clay Ford Jr. said at a separate briefing in the Chinese capital. ``We do expect to expand aggressively in China.'' Ford, the world's No. 2 carmaker, today said it plans to spend as much as $1.5 billion boosting production at its plant in the city of Chongqing, southwestern China. The company, keen to grab a bigger slice of the world's fastest-growing auto market, said it will add a second factory and an engine-making plant.


Sony, the world's second-biggest consumer electronics maker, said it has invested $8 billion so far in China and predicts the country will become its No. 2 market -- behind the U.S. -- within five years. China Unicom, the nation's No. 2 mobile-phone-service provider, ordered a $139 million code- division-multiple-access network from Nortel Networks Corp. in the third quarter. Fixed-asset investment, which includes foreign direct investment and accounts for about a third of China's economy, rose 31 percent in the first nine months of this year as companies such as Sony invested in new plant and machinery, and the government built roads, bridges and dams. That's helping to create jobs and boost incomes in the world's most populous nation.

The government said 6.25 million jobs were created in the first nine months and the official urban jobless rate at end- September was 4.2 percent. The average disposable income in towns and cities -- home to two-fifths of China's 1.3 billion people -- rose 9 percent to 6,347 yuan ($767) in the first nine months of this year, the statistics bureau said today. Even as incomes climb, Chinese wages are among the lowest in the world. The hourly pay for a Chinese manufacturing worker is 61 cents rather than the $16.14 paid in the U.S., according to a study by economists at the Federal Reserve Bank of Dallas. Cheap labor is helping convince Sony, Siemens AG and other overseas companies to choose China as a hub for their operations. Siemens, the world's biggest engineering company, has invested more than $700 million in the 40 units it has in China. Chief Executive Officer Heinrich von Pierer, in an interview Monday with Der Spiegel magazine, said he could hire 12,000 Chinese software programmers for the cost of 2,000 German ones.

Foreign direct investment into China rose 12 percent to $40.2 billion in the first nine months of this year. This directly accounts for about 5 percent of the nation's gross domestic product and the factories built with these funds produce half China's exports. Overseas sales, which make up about 30 percent of the economy, increased 30 percent in the third quarter and factory production rose 32 percent. Retail sales, which account for more than two-fifths of the economy, rose about a 10th. This strong economic performance may help President George W. Bush argue the case for China to adopt a more flexible exchange rate when he holds talks with his Chinese counterpart, Hu Jintao, at the annual Asia-Pacific Economic Cooperation leaders' summit in Bangkok this weekend. The U.S. says the yuan, pegged to the dollar since 1995, doesn't reflect China's robust fundamentals, giving Chinese exporters an unfair advantage.

Even during the second-quarter outbreak of severe acute respiratory syndrome, a deadly virus that led to a slump in consumer spending, tourism and investment in Asia, China's economy grew more than twice as fast as the U.S. In the first quarter of this year, China posted economic growth of 9.9 percent, it's fastest expansion in seven years. "The economy is back to the trend of strong growth because the central bank has been increasing money supply since the second half of 2002,'' said Yusen Kwoh, chief economist at Millennium Capital Services Co. in Shanghai. Growth of M2, the broadest measure of the money supply, exceeded the bank's 18- percent target for a ninth straight month in September.

Still, economic growth may slow in coming months after the central bank, concerned runaway credit poses a risk to economic growth, in June tightened rules governing lending to the property sector and last month raised banks' reserve requirements, a move it estimated would remove some 150 billion yuan from circulation. A modest slowdown may boost investors' confidence. About three-fifths of 66 chief financial officers employed by companies with operations in China said they are concerned the economy is overheating, with almost a third claiming to have been affected by electricity shortages, according to a poll published Monday by CFO Asia, a monthly magazine. "We have had this year a torrid pace of growth in China,'' said Marc Faber, managing director of Marc Faber Ltd., who manages about $100 million and publishes the monthly newsletter Gloom, Boom & Doom Report. ``The faster an economy is growing, the more likely it is that it will have severe setbacks from time to time.'' China's gross domestic product, the value of the goods and services it produced, rose 8 percent to 10.2 trillion yuan last year. GDP in the first nine months of this year was 7.9 trillion yuan.
Source: Bloomberg
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Global Iron Ore Prices Rocket-Up on the Back of China's Growth


I've had a Couple of interesting pieces of feedback about my 'Gloom and Doom Brigade' post last Friday. I will get back to the substance of the feedback when I have more time to do it justice, but for now, to clarify one point. I said that ideas like the Olduvai theory were flawed, and 'flawed probably because it places too much emphasis on resource shortages'. This was to glib and too easy. Indeed I even went so far as to ask: "why is it that only people with flawed ideas interest themselves in these (interesting and important) problems", and in saying this I obviously went too far, too far, because it might be construed by implication that it was my opinion that all who are interested in this are flawed. This is not the case. I was letting rhetoric get the better of me, and expressing frustration that I had not found something better. Don't worry, in the post box people have been busy trying to put me straight. Meantime, since I do thing scarcity of resources can become a problem for all of us, just look at what is about to happen to iron ore prices consequent on China's rapid economic growth:

Cia. Vale do Rio Doce, Rio Tinto Group and other iron ore exporters may win a 9 percent price increase next year as demand soars because of surging Chinese steel production, AME Mineral Economics said.

China's building and construction expansion will catapult Asian steel output to almost equal the rest of the world's production by 2008, the Sydney-based consultancy said.

Surging demand could raise prices to 33.5 U.S. cents a dry long ton unit for ore known as high-grade fines next year, when suppliers, such as BHP Billiton agree on contracts with Japanese and European steelmakers. Prices reached 30.83 U.S. cents for the year beginning April 1 -- up 9 percent from the previous year. "Our expectations are that there would be a substantial increase next year, mainly driven by China,'' Barry Eldridge, managing director of Australian iron ore exporter Portman Ltd., whose shares have gained 53 percent this year, said in an interview. ``On an average day, we'd knock back between eight and 11 inquiries we can't meet. We don't see any slackening in demand for at least two or three years.'' Shares of London-based Rio Tinto have gained 6.5 percent on the Australian Stock Exchange this year and rose 1 cent to A$36.16 today. BHP's shares ended trading down 28 cents, or 2.3 percent, to A$11.82 on the exchange, paring their gain since Jan. 1 to 16 percent. Portman shares were unchanged at A$1.50.

Australia is the world's largest iron ore exporter and the increase in prices is forecast to help boost the nation's earnings from the commodity to a record A$5.97 billion ($4.1 billion) in the year ending June 30, 2004, according to the government's commodity forecaster.

Surging iron ore demand is also benefiting South Korea, where Posco, the country's biggest steelmaker, reported a 32 percent jump in third-quarter profit this month. No. 2-ranked INI Steel Co. said today third-quarter operating profit leaped 47 percent because of higher prices. "Given the tight market conditions expected to prevail through next year, contract prices for premium Australian fines will return to levels not seen since 1991,'' AME said in a faxed statement. Further increases are expected in 2005, it said. In China, the world's largest producer and consumer of steel, investment in fixed assets rose 32 percent in the first eight months of this year as companies such as China United Telecommunications Corp. installed equipment and the government built roads, bridges and dams, the Beijing-based National Bureau of Statistics said last month.

"The sheer scale of the infrastructure development that is taking place in China should see demand for steel products remain strong at least until the Beijing Olympic Games in 2008 and the Shanghai Expo in 2010,'' Brian Kruger, chief financial officer of BHP Steel Ltd., Australia's largest steelmaker, told the American Chamber of Commerce in Australia on Friday in Melbourne. Rising prices are spurring expansion plans for Brazil's Vale, the world's biggest iron ore exporter, Rio Tinto, the second- biggest, and No. 3 ranked BHP, AME said. "Producers are scrambling to expand capacity, consumers are racing to secure supply and the industry is attracting new players like moths to a candle,'' AME said. Rio Tinto said last month Chinese iron ore imports may surge to more than 250 million tons a year by the end of the decade, after importing more than 100 million tons last year. Chinese steel demand may rise to between 275 million and 300 million tons a year, also by the end of the decade, Rio Tinto said.

To meet rising Chinese iron ore demand, Rio is expanding the capacity of its Hamersley Iron mine in Western Australia state. Iron ore accounted for 33 percent of the Anglo-Australian miner's net profit in the first half. Rio, BHP Hamersley will have capacity to export 85 million tons of iron ore in 2004, from 74 million in 2003, Rio has said. Rio's Robe River venture may also expand the capacity of its West Angelas mine to 25 million tons a year, the company said. Melbourne-based BHP is spending $65.5 million accelerating expansion of its iron ore business. Its 85 percent-owned Mining Area C iron ore project in Western Australia will be officially opened Oct. 30. "China's ravenous appetite for iron and steel is powering a global iron ore boom,'' AME said. Global iron ore demand will increase by more than 6 percent this year to 1.1 billion metric tons and reach an annual pace of more than 1.35 billion tons by 2008, the consultancy said.
Source: Bloomberg
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America's 'Productivity Advantage'


Brad had an interesting post some time back that I never got round to commenting on. Now's my opportunity:

The French--and the British (I know: I've shopped in Britain)--are deprived of the opportunity to buy in the equivalent of CostCo and WalMart, and deprived of the opportunity to get lots of good stuff cheap by shopping at high-volume retailers who have taken advantage of the efficiencies of distribution offered by bar codes, POS systems, databases, and all the other information-age inventions that make it possible for retailers and distributors to keep track of stuff.

This doesn't matter much to John Kay: he doesn't have trouble financing his vacation to the Mentonnaise Riviera: "...between Monaco and Italy, the mountains and the sea, Menton is like an island where life flows serenely... Nestled at the foot of the Azur Alps which plunge into the Mediterranean..."

But there are lots of guys living in western Europe for whom the lack of an opportunity to shop at a WalMart equivalent--and thus to shave 50% off the retail margins they pay while shopping in the picturesque marché municipal--is a real loss. True, they would miss out on their "pleasant excursion[s] to pick up some produce in Menton's marché municipal and browse the FT over an espresso in the place Clemenceau." But if they paid less for produce and staples, they might use the money to pay for a better vacation of their own, or perhaps a dishwasher. They are more than picturesque background figures to entertain John Kay's eye: they are people with limited incomes, but with lives and plans of their own.

And it is not a good thing that western Europe today deprives them of their choice. They are not free to choose to shop at Andronico's, Safeway, or CostCo. Even though the fact that they are deprived of that choice does not strike John Kay as a big deal, it is. For them, it is a problem that, in this particular dimension, Europe is not like America.
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Now in one sense Brad is right. we don't have the 'drive and shop' model of the Americans, at the same time we don't have the obesity and life expectancy problems (so we may have some positive - if unmeasured 'externalities'). We do, however have (plenty of) bar codes, POS systems, data bases, and we're getting more by the day. My take is that what we're slow on is extending the supply lines - WalMart style - into China, and getting the real benefits of IT leverage, and that is one of the main 'drags' on the living standards of our 'working classes':

Andrew Tsuei's job is to fill the shelves of Wal-Mart, the world's biggest retailer. He heads a chain of 23 buying offices scouting for goods in 50 countries. Mr Tsuei's own sleek silver and grey HQ is in Shenzhen, a Chinese city so new that it was paddy fields just 25 years ago.

Today Shenzhen is the gateway to the world's biggest manufacturing zone. Shipping-firm Orient Overseas Container Line this year named the world's largest container ship after it - the OOCL Shenzhen. The rise of Shenzhen's Pearl River Delta hinterland into a global manufacturing powerhouse has fuelled admiration, and - increasingly - envy among the top developed nations. China's economy is growing at roughly 8% a year, easily outperforming G7 countries. Economists think it could overtake the United States as the world's biggest economy by mid-century. It has a bigger trade surplus with the US than Japan, Asia's last miracle growth story, and last year it displaced Britain as the world's fifth biggest exporter. China has arrived at the world's top table and the hosts are increasingly nervous. It is accused of sucking jobs and growth from somewhere else - usually the US or Hong Kong - and a vociferous US Congressional lobby wants it punished. US demands for forced currency reforms have been echoed by the International Monetary Fund (IMF) and G7 club of advanced economies. Guangdong province, up the Pearl River from Hong Kong contributes 10% of China's economy, pours out one third of China's exports, and has pulled in one third of China's total foreign investment. Few people around the world had heard of this region until it became the birthplace of the deadly Sars flu outbreak.

But its global economic importance has been snowballing since China's Communist rulers decreed an experiment in capitalist economics there in 1980. A visit to Yantian, one of Shenzhen's two ports, brings home the scale of China's trade. Its 40 cranes can load one container every two minutes, up to 1,200 an hour. "We never stop," says general manager Kenneth Tse, who radiates energy and wears a navy silk tie scattered with golden currency symbols. Construction is going on to double Yantian's capacity by end-2004. Hong Kong remains the biggest container port in the world - also thanks to China's trade. But nine-year old Yantian handled the same amount of goods last year as Felixstowe, the UK's biggest container terminal.

How has the Delta achieved such rapid growth? And can it keep going? Cheap labour is one answer. "Basically what you have to pay somebody to be an assembly line worker is what is costs to get them off the farm," says Prof Michael Enright of Hong Kong University. Real wages have been static for a decade, but there is no shortage of workers. Everywhere, blue blouses hang drying outside factory dormitories, home to 20 million migrants. Manufacturers now come here to be near their suppliers and buyers, not because of the tax breaks that fuelled early growth. "What we see developing in the PRD is basically quite a deep economy," says Prof Enright.

The sheer concentration of suppliers is certainly one reason Mr Tsuei stuffs his shopping trolley here. "Many retailers worry about buying the right thing, then they worry about buying enough of it," he says. At Wal-Mart "we worry about buying enough". "Enough" for him means $12bn (£7.2bn) this year, roughly 10% of the $116bn trade deficit the US clocked up with China in the 12 months to July. Vast amounts of what the world wears comes from here - clothing, footwear, watches, jewellery. In 2001, two thirds of shoes imported to the US came from China, says the World Trade Organisation. But China's exports are getting increasingly hi-tech, something that makes its critics nervous. A fifth of Guangdong's industrial output is now consumer electronics. It is the biggest sector, worth 4.3bn yuan ($500m).

One reason is investment from foreign electronics and telecoms giants like Nokia, IBM, Phillips and Siemens. Foreign firms investing in China do so partly to tap its growing consumer market, but overwhelmingly to produce for export, according to Morgan Stanley chief economist Stephen Roach. He thinks tirades against China's cheap exports are scapegoating it for the problems of the world economy. Chinese officials think so too. "We don't understand why Americans are complaining about us. They should feel thankful to us because we're producing low priced goods they can benefit from," says Chen Weilin, the Guangdong province official in charge of IT development.

China's State Council has come up with a plan to double the region's growth, giving the go-ahead to a huge bridge linking the western side of the Pearl River with Hong Kong. The idea is to bring the west shore within a three hour car drive of Hong Kong, its international airport, foreign investors and financiers and pump it up into another Shenzhen. It should also speed the integration of Hong Kong, a city which is struggling economically after decades of viewing mainlanders as poor relations. Wal-Mart's procurement strategy offers a snapshot of the shifting industrial balance. It buys food and trinkets in Europe - gold chains in Italy, olive oil in Spain, wine in France. And what does Wal-Mart buy in Britain? "Almost nothing - except stores!" laughs Mr Tsuei.
Source: BBC News
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China's New Rich


If you want to know just how lop-sided economic growth in China is right now, just check out Richard Hoogewerf's rich list.

Almost 60 per cent of the wealth collected by the new 100 richest Chinese business people comes from real estate sector, while also new industries on the list like the steel industry ride the building boom, says author Rupert Hoogewerf. IT-entrepreneurs also made their comeback on the list.

William Ding Lei, CEO of www.netease.com is one of the unexpected returnees even as the number one with an estimated capital of 900 million US$. “He is the Bill Gates of China," says Hoogewerf. Ding, together with Charles Zhang of www.sohu.com were also present in the first rich lists Hoogewerf made five years ago, but the dotcom bust wiped much of their capital away. Even last year Ding saw his Nasdaq almost suspended because of accounting problems.

Hoogewerf skirts the question on how sustainable the profits in the IT-industry are nowadays. The IT industry has only four really large Nasdaq-listed players, whose profits are based on SMS and that is under pressure both by government pressure and the fear it might be outdated again soon by more convenient technologies.

“Look at our number ten, Hoogewerf says, “Chen Tianqiao of Shanda Networking only founded his company for online games in 1999. I only noticed him for the first time in the middle of last year.?

The new Rich List shows in more ways the fast changing dynamics. Forty of the top-100 are newcomers. Hoogewerf: “Some people of the old list were pretty upset when they discovered they were listed lower than last year, even though their businesses have been growing very fast over the past year, but others have been growing faster.?The cutoff rate last year was 70 million US$, in 2003 110 million US$. Some businesses double every year, but only now they become sizable, you see them grow very fast, adds Hoogewerf. The higher cutoff rate gives some stability, thinks Hoogewerf. “It is very hard to get that kind of money in one lucky deal.?

About one third of the top-100 has entered politics, either as a member of the CPPCC (23 per cent) or of the National People’s Congress (11 per cent). About a quarter is estimated to be member of the Communist Party. Private business is so large, it cannot ignore politics, and politics cannot ignore the private entrepreneurs, says Hoogewerf.
Source: ChinaBiz
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and here's another piece on the same topic from Yahoo:

A new survey shows the fast transformation of China's economy is producing wealth in areas far away from industries dedicated to serving the country's basic needs, which created the country's first multimillionaires.

China's original push two decades ago toward a market economy was led by entrepreneurs such as Larry Rong Zhijian, who built the country's first international investment company Citic Pacific group, while two brothers from rural Sichuan province addressed shortages on the farm with an animal feed operation.

These people remain among the country's richest today, along with self-styled tycoons who snapped up property before most Chinese thought about the need for new housing and offices. Yet, a new survey on the country's rich suggests that as China's drive toward the global economy gains momentum, it has become less obvious where pots of gold might be hidden. Chinese entrepreneurs are making a fortune catering to a new generation, with business interests ranging from the Internet to confectionaries to soccer.

The country's richest man now is a 32-year-old entrepreneur, William Ding Lei, whose Web-based short-messaging service might be considered frivolity if it and others like it weren't the envy of telecommunication companies everywhere. Even valuing Ding's assets is newfangled for China, since his fortune rises and falls in line with the share price on his 52% stake in NASDAQ-listed NetEase.com Inc. (NTES). This week his worth was around US$1.3 billion, up from US$900 million at the end of September, but he wasn't even considered among the country's wealthiest a year ago. The rankings of China's 100 richest were published Thursday by a 33-year-old English accountant, Rubert Hoogewerf, who has been on their trail for five years. "It gives an idea of how far China has developed," he says. Worth US$300 million, Zhang Yin is perhaps the biggest exporter from the U.S., in terms of volume. Her America Chung Nam Inc. buys wastepaper there and sends it around the world, where it is made into products like boxes to hold six-packs of Coke.

Guo Hao's Agricultural Holdings in Fujian has organic farms, giving him a wealth of US$230 million. Wang Chuanfu is worth US$185 million on the back of a rechargeable battery business called BYD Co. (1211.HK). Wahaha Group's Zong Qinghou makes soft drinks and children's clothes, giving him a wealth of US$145 million. The bottom line is US$110 million this year, whereas it was just US$6.0 million when Hoogewerf's first list was published in 1999. But it still doesn't have anyone from the entertainment industry. And the rich tend to be a provincial bunch, with fewer than eight said to speak "passable English."

China's rich are also increasingly close to the government, with 34 holding a party-appointed post, although Hoogewerf waves off a suggestion the entrepreneurs could be fronts for the state. He says they tell him things like, "as our business grows, it's impossible to avoid politics." Hoogewerf is publishing the list with Euromoney Institutional Investor Plc (ERM.LN). He and New York-based Forbes magazine, which will announce its own ranking of China's rich later this month, parted ways earlier this year in a dispute over control of the list.

Forty of the 100 names this year are new compared with the list published last year in Forbes, which goes some way toward underscoring how topsy-turvy China's move toward a market economy has been. Li Zhaohui, a 22-year-old with wealth of US$290 million, became the youngest person on the list and China's first millionaire heir when his father was killed earlier this year in a business dispute. His control of Shanxi Haixin Iron and Steel Group underscores another trend, steel millionaires, with five of the 10 youngest having some interest in the industry. The Li case also underscores how getting onto the list is sometimes seen in morbid terms. Several of the people who came to public view through lists like Hoogewerf's have fallen extraordinarily hard.

Among those dropping right off this year's rankings is Zhou Zhengyi, a now-discredited Shanghai property tycoon arrested in September after being identified as kingpin in a banking and property scandal that touched high-level bankers and bureaucrats. He was ranked No. 11 with a wealth estimated at US$320 million when the list was published by Forbes in 2002.

His fall followed that of Yang Bin, a one-time envoy to North Korea listed in 2001 as worth US$900 million. He is now serving an 18-year sentence for fraud and bribery in northern China. Hoogewerf says he doesn't accept that Chinese entrepreneurs have "original sin," meaning that succeeding in the country's requires dirty dealing. The consistent anchor to riches in China has remained property, with most of the top-10 and nearly 60% of the overall wealth emerging from the sector. But information about these property multimillionaires can be notoriously sketchy, with Guangdong-based tycoon Zhu Mengyi's Hopson Development (0754.HK) said to be China's biggest real estate developer. "Nobody knows him. He's terribly low key. I couldn't find a photograph of him to save my life," Hoogewerf said.
Source: Yahoo News
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