CHINAwatch

The Economist - 'Which emerging economies are at greatest risk of overheating?' The findings may surprise you.

For the article 'Some like it hot' in Economic Focus in the Economist, 30 June, 2011 Click here

Who wants to pick a date when China will become democratic?

The following is reported in Next Big Future, a science and technology blog on 23 June, 2011:

‘A groundbreaking report analyses 150 countries and 60 years of history, and concludes that rising levels of wealth are entrenching democracy in many emerging markets.

According to the report, Russia is highly likely to become a strong democracy within the next few years; China will become a democracy by 2017; and Kenya and Ghana are set to follow Nigeria towards ever-safer democracy levels. It concludes that trade and investment in “non-democracies” should be increased, rather than imposing sanctions on them.

The report asserts that democracies are “immortal” above the per-capita GDP level of $10,000, which probably now includes Mexico, Brazil and Turkey, as well as all EU member states and South Korea. It notes that autocracies have less chance of becoming democracies than vice-versa up to the $3,500 per-capita GDP level; and that rising income levels will lead to democracy unless the country is an energy exporter. “Controversially, it would appear that trade, investment and even tourism to foster growth is a better policy option than sanctions for Western governments hoping to promote democracy in non-energy exporting states,” the report concludes.’

See http://nextbigfuture.com/2011/06/economist-predicts-that-china-will-be.html#more

The prediction that China will become a democracy by 2017 comes from Charles Robertson, chief economist of Renaissance Capital.

It is true that demands for democracy will grow with higher income levels. But this linear projection is flawed in the case of China for the following reasons -

First, size of the economy and GDP per capita can be highly misleading. Although Golman Sachs forecasts China's economy to overtake the US by 2027, her GDP per capita still ranks about 100th, amongst some of the poorest countries in Africa. This is what Premier Wen Jiabao refers to as the paradox of 1.3 billion people. What appears as a big economy comes to peanuts when divided by that number and what appears to be a small problem can become colossal when multiplied by that number.

Second, the driver for democracy is generally the more educated middle-class. A study in McKinsey Quarterly (2006) indicates that the annual household income cohort RMB 100,001 (US$15,459) to 200,000 is expected to jump from 9.8% of the total in 2005 to 36.4% by 2025. Many people will become much happier financially but that level of income at that % proportion by 2025 hardly justifies the Roberson prediction.

Third, similarly, democracy may become more likely when a country's economy becomes more consumer-oriented. Consumption now only accounts for 34% China's economy. Stephen Roach, Chairman of Morgan Stanley Asia and author of 'The Next Asia (John Wiley and Sons, 2009) reckons the growth of China's consumption in the next few decades could be as fast as 1% of GDP a year. That will take anothe 16 years from now for China's economy to have just 50% represented by consumption. That will be exactly 2027, when Goldman Sachs thinks China's seconomy will overtake the US, which may provide an opportunity for China to turn more democratic. That is still 10 years after Robertson's chosen date.

Fourth, I used the word 'more' advisedly. President Hu used the 'D' word 61 times in his open address at the CPC Congress in 2007. 'Democracy' is in fact mentioned in the Chinese Constitution, though, irconically, not in the Constitution chartered by American's Founding Fathers, according to Steve Hanke, a celebrated Professor of Apllied Economics with John Hopkins Univerity and Senior Fellow of the Cato Institute. Indeed, China has become much more 'democratic' compared with the days of Chairman Mao. There is no doubt that this progress will continue. For example, there are more open and genuine elections at the village level (in fact covering the majority of China's population). But that is not to say China is necessarily heading to the Western multi-party adversarial model of democracy.

Fifth, recent performance of Western adversarial politics, such as the current paralysis in the US Congress, only serves to reinforce the conviction of Chinese leaders that it's best to develop China's own model of democracy.

Sixth, regardless of any repressions, cults and separatists, there is as yet no widely-based politcal movement for change and no alternative political party or figure exist. It is difficult to imagine that by 2017, things could have evolved so dramatically for a country of 1.3 billion people with diverse interests and developments in 32 provinces, municipalities, 2 special adminstrative regions, and 56 ethnic groups.

Seventh, the Chinese Communist Party is not exactly unpopular, winning the highest ratings in the world in independent surveys of how people feel their country is going, accordig to successive PEW surveys over the past few decades. Those who like Collapse theories may wish to visit my research note 'Why the Chinese Communist Party may last longer than you think: A closer look at the China Threat and China Collapse theories' at http://www.andrewleunginternationalconsultants.com/files/…

Last but not least, having said all that, I just want to make the point that political development seldom lends itself to economic projections. China is changing all the time and there are may imponderables. I don't think anyone is qualified to predict a date, perhaps not even the Chinese leaders themselves.

Andrew

www.andrewleunginternationalconsultants.com

A China white knight for Greece with history's largest infrastructure project for a Low-Carbon Europe?

The possibility of a Greek default is looming large. In addition to belt-tightening and measures to restore Greek balance sheets to a sound footing, various recipes have been mooted on how to re-package Greek debt, including 'haircuts' for private investors. As protestors swelled to 20,000 in Athens and Prime Minister George Papandreou offered to resign, the sovereign debt crisis shows every promise of turning into a Greek tragedy that could spread within and without the Eurozone, threatening the long term viability of the Euro.

During an interview today (17 June) in New York with Charlie Rose, Alan Greenspan, former Chairman of the Federal Reserve, said that a default by Greece is “almost certain” and could re-plunge the US economy into another recession.

In April this year, some lateral thinking was featured in a joint Paper 'A Modest Proposal for Overcoming the Euro Crisis' by Yanis Varoufakis of the Department of Economics, University of Athens and Stuart Holland, Department of Economics, University of Coimbra, Portugal. The main trust of their proposal is a 'Tranche Transfer' - transferring a share of national debt and borrowing to Eurobonds held and issued by the European Central Bank (ECB). This, according to the two authors, would obviate any fiscal transfers, taxpayer-funded buy-backs, or changing any existing Treaties.

The proposed new EU Bonds are designed for a 'European New Deal' which can re-energize the stalling Trans-European Networks (TEN) project in Transport, Energy and Telecommunications, including a pan-European high speed rail that links more and more Member States together. Apart from economic revival, a high speed rail system across the European continent would also help foster a low-carbon economy in Europe, to start with. There is a suggestion that investment from China should be solicited. Click here

Whether and how the financial mechanics for this new EU Bond based on a 'Tranche Transfer' should best be worked out remain to be further investigated, but in addition to the possibility of averting a dangerous default crisis for Greece and the Eurozone, if not for the rest of the world, the idea of linking this proposal to the development of a pan-European high-speed rail network tallies with an interesting report dated 13 March, 2010 by Zachary Shahan in Clean Technica, a green energy blog. Click here

According to the report, China is already about halfway through the construction of the largest high-speed rail (HSR) network in the world with the world’s fastest trains. For example, the operating speed of the much-anticipated Beijing-Shanghai high-speed railway is set at 300 km/h initially for better safety, but could reach 350 km/h in the future in the light of experience, said a senior railway official.

‘With its internal projects getting closer to completion, China's new goal is to continue on with a HSR revolution internationally in order to create two-day HSR trip times between Beijing and London’, according to the report.

The international network is supposed to include a total of 17 countries and as planned, is likely to be the largest infrastructure project in history. Extending south to Singapore and northeast into Mongolia and Russia, the trans-continental network’s main European connection is likely to go through India, Pakistan and the Middle East, though exact routes are yet to be determined.

China is understood to be in communication with Russia, Iran, Pakistan, India and Myanmar regarding development of the internal rail lines in each of those countries that would connect to the network. In fact, the report points out that construction for the Southeast Asia link has started and Myanmar is about to begin building its portion of the link.

The central and eastern European portions of the network are moving ahead as well, according to Wang Mengshu, a senior consultant working on the project, as mentioned in the report.

China is said to prefer funding the whole project itself in exchange for natural resources it lacks. The aim is to complete this network in 10 years.

The report argues that ‘Clearly, China is intent on this for its own benefit. In exchange for developing the system, it could acquire tons of much needed natural resources from other countries, as stated above. However, perhaps more importantly, creating such a network would probably solidify China's central role in the Asian economy and perhaps even the world economy.’

‘Nonetheless, China says that other countries approached it for help and that is how the idea got started. "It was not China that pushed the idea to start with," said Wang. "It was the other countries that came to us, especially India. These countries cannot fully implement the construction of a high-speed rail network and they hoped to draw on our experience and technology."

As the report suggests, presumably all the countries connected to the network would benefit from better transportation options and increased mobility. However, with China at the center of the process, it is likely to be the biggest winner.

One may ask, as the report does, ’Is China going to make the US' HSR network (if it ever gets built) look like a toy train set? Is this huge system ever going to get built? Is it going to get built in 10 years as China hopes?’

While the answers to these questions will no doubt raise questions of geopolitics and geo-economics, the on-going momentum for this project comes at an interesting time when Europe may be hoping to leverage China’s financial muscle in coping with a looming sovereign debt crisis and in boosting its economic revival.  

China has already shown considerable interest in buying European debt as a further means to export her fast-accumulating surplus capital. The proposal should be even more attractive to China in helping to realize the vision of linking China to Western Europe by high-speed rail.

What is more, this could set a concrete example of how a grand global strategic vision and a win-win partnership could lead to the development of a low-carbon world in addition to helping diffuse a European sovereign debt time bomb, if not another global financial and economic crisis.

This is certainly some food for thought for Premier Wen Jiabao and his European hosts during his forthcoming visit to Hungary, Britain and Germany from 24-28 June next week.

Andrew

www.andrewleunginternationalconsultants.com

Hong Kong companies to continue China listings - Case of Prada

Live TV interview on Squawk Box with CNBC on 17 June, 2011

Click here

The Brahmaputra - A possible, creative solution to a transnational water conflict

Live TV debate on Times Now of The Times of India on Monday 13 June, 2011 (Indian time) in which I ventured the idea of a joint India/China partnership to create a 'Transnational Special Economic Corridor' along the Brahmaputra with investment from China.

This would serve to capitalize on the mighty water resources of the Brahmaputra to create jobs and sustain livelihoods in the massive river delta and basin areas encompassing the peoples of India, China, Bangladesh, Nepal, Bhutan and parts of Myanmar with a total population more than Western Europe and North America combined.

Part 1 - Click here

Part 2 - Click here

Part 3 - Click here

Some background on the detate inside China on the proposed water diversion from Tibet’s Yarlung Zangbo River to north-west China is discussed in an article by Zhang Ke in ChinaDialogue on 13 June, 2011.

Click here

Why the Chinese Communist Party may last longer than you think: A closer look into the China Threat and China Collapse theories

A research note dated 4 June 2011

Download Why the Chinese Communist Party may last longer than you think