CHINAwatch

China has to rescue the Euro out of self-interest?

There are views in some quarters that because the EU is China's biggest trading partner and China's largest export destination, China has to bail out the Eurozone, come what may, otherwise China herself will collapse as a result.

These views are over-hyped. Even if the Euro were to collapse, and I am not saying that it will,

(a) this would not mean the end of the EU as the stronger members will survive and do not necessarily have to be dragged down into the abyss. So while China's exports will be severely hit, as what happened at the height of the financial crisis, this would not mean China's export to the EU will totally collapse;

(b) the US market for Chinese cheap goods, though weak, is not to be written off as it is precisely during difficult times that more people will flock to cheaper goods;

(c) Inter-regional trade amongst China, Japan, Taiwan, and Korea has been growing rapidly to over 50% of their total trade. So the EU market though vitally important may not of itself spell Armageddon for China.

(d) Much of China's economy still depends on capital infrastructural investment driven by the Chinese state, backed by the world's largest foreign currency reserve of $3.2 trillion and counting. It was with financial muscles like this that the situation was stabilized quickly at the start of the financial crisis with a massive stimulus package. This palliative is still on the cards in extremis.

(e) As I was outlining elsewhere, China's domestic consumption is booming. With suitable supportive policies, this may provide a further cushion against any dramatic external shock.

(f) Regardless of recurring China Collapse predictions over the past few decades, it is important to understand that the Chinese Communist Party has come a long way since the days of Chairman Mao. See an analysis in a research note "Why the Chinese Communist Party may last longer than you think: A closer look into the China Threat and China Collapse theories" at http://www.andrewleunginternationalconsultants.com/files/…

That is why up to now, China does not appear to jump to join the European fire brigade or to suggest that she is willing to act at least as lender of last resort.

Neither is China incentivized to do so, as her plea to be treated as a Market Economy (Russia has long been so recognised) seems to have fallen on deaf years and much as she wants to import more from the West, the embargo is still not lifted on a lot of potential export to China of high-tech (and high-value) content.

Make no mistake. Europe remains China's largest trading partner and China will wish to see a stable and prosperous Europe as a vast market for her exports and source of strategic imports, let alone the huge contagious systemic risk should the Euro become unravelled. Additionally, China is very interested in acquiring European technologies, expertise, brands, asssets and markets. But that it not to say China will sell her family jewels or throw good money after bad for the rescue of the Eurozone.

Best regards,

Andrew

Debate: India-China Standoff (over the South China Sea)

Live TV debate on Times NOW of India on 20 September, 2011

Part I Click here

Part 2 Click here

Debate: China openly warns India over the South China Sea

A live TV debate on Times NOW of India on 15 September 2011

Click here

Ten years on after 9/11, the world has dramatically changed in more ways than one

On the 10^th anniversary of 9/11, it is sobering to reflect on  how the world has changed almost beyond recognition in many ways beyond terrorism.

First, the unipolar world is fast fading if not completely gone. American is still in a position to lead but her capacity to do so is much constrained as diminished financial resources, military overreach, divisions amongst Western allies, the rise of the Emerging Markets, the emergence of non-state actors including terrorists, and global issues like climate change, epidemics, and nuclear proliferation, all underline the realities of an inter-connected, inter-dependent, and multi-polar world (1).

Second, global economic gravitas is clearly shifting from the West to the East. What used to be peripheral countries in the late 18^th century have become today’s “emerging economies”. They now collectively contribute almost three-quarters of global growth, while their share of economic output is projected to account for almost 60% of total world output by 2030 (2).

Third, as a developing country, China has become the world’s second largest economy and is rising as a superpower. Nevertheless, China’s per capita income in purchasing power parity terms will still be trailing behind the United States at least by mid-century if not beyond (3). What is more, during this trajectory, though China has become increasingly convergent with the global norm economically, she remains largely divergent politically. There is a growing, classic security dilemma between the United States as the extant sole superpower and China as a rising challenger.

Additionally, while China has become the largest trading partner with many Asian countries including Japan, there is increasing anxiety amongst China’s Asian neighbours about a perceived “China threat”, which extends beyond intractable territorial disputes with China in the South China Sea.

As the US is re-asserting her traditional interests in the Asia Pacific while China is fast modernising her navy, there is growing tension in regional security covering strategic choke points along sea lanes in the South China Sea and the Indian Ocean (4).

The bilateral relations between the United States and China are thus set to test the skill and imagination of the two countries if world peace and stability are to be maintained in the coming decades.

Fourth, along with China and India, Islam is on the ascendant, not because of but in spite of extremism in some quarters. Emerging strong, secular Islamic countries like Turkey, Indonesia, and perhaps more importantly Egypt, underline the need for a change in world order and power politics to accommodate growing Islamic voices.

Fifth, the financial crisis has exposed the global contagion of debt, excessive leverage, high-frequency trading, and the divide between liquidity and debt-and-consumption driven growth. The can being kicked down the road is how the West would be able to maintain adequate long-term job growth to preserve the social contract with the Main Street without compromising the vitality of financial flows and globalized value and production chains.

Sixth, the middle class is rising rapidly in the developing world. The emerging economies are adding 125m people into the middle class each year, doubling  the global middle class population to 3.2bn by the end of this decade.  By 2020, Asia is set to comprise more than 50% of the global middle class population, or more than 40% of global consumption (5). This would change the shape of global consumer markets and have long-term implications for world resources.

Seventh, for the first time since its inception, major cracks are appearing in the Eurozone. The hour of reckoning seems to be arriving. A decisive choice has to be made between a more politically-unified or a two-track Europe. Either course would  have earth-shattering global consequences in currency, finance, economics and geopolitics.

Eighth, as the long-term value of the greenback is increasingly being called into question, the so-called Triffin Dilemma (6) and the need for a more sustainable global reserve currency system are gaining worldwide attention. This comes at a time of increasing global currency volatility, the growing uncertainty of the Euro’s future, rising Petrodollar wealth, and rapid internationalization of the Chinese yuan. How the world currency system would involve over time may have a seismic impact on the world’s economic and geopolitical landscape.

Ninth, unlike previous industrial revolutions, several countries with very large populations are all industrializing and urbanizing at the same time. This has ushered in an Age of Scarcity. Concerns about the environment as well as energy and resource security, including food and water, are on the top of national agendas. Coupled with increasing anxieties about Climate Change, it would clearly be ecologically unsustainable if the developing world were to replicate the energy and resource-intensive model of the so-called “American Dream”.  How to attain a “Low Carbon Future” for all would demand much closer cooperation between the developed and the developing countries in a common “One-World” mindset.

Tenth, throughout the past few centuries, Adam Smith’s Invincible Hand has worked wonders not only in the West but has been embraced by virtually all socialist and communist countries. However, the “fundamentalist capitalism” defining the financial crisis has begged the question (as was asked ironically by China’s Premier Wen Jiabao) whether the moderating hand of the state has been at least sidelined if not forgotten, along with Adam’s Smith’s earlier “The Theory of Moral Sentiments”. On the other hand, income inequalities in both the United States and China have been rising to alarming levels. A sense of social injustice is coming to the fore in both countries. Moreover, a rising, more vocal and now internet-empowered middle-class is beginning to assert its aspirations and opinions, not only in the Arab street but in the cyberspace of China and the streets in the Western world. Regardless of political ideologies, how to respond to this rising divide between the government and the governed would remain a hotly debated issue across the globe in the coming decades.

It goes without saying that the crumbling edifice of the Twin Towers on September 11, 2001 changed America and the world. While the images are still fresh in our mind, it is timely to commemorate this historical human tragedy and to reflect upon the continuing fight against global terrorism. However on this anniversary, it is at least equally, if not even more instructive, to ponder how countries should best respond to the challenges and opportunities of a dramatically transformed world in the wake of this epoch-defining catastrophe.

Andrew

www.andrewleunginternationalconsultants.com

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(1)  National Intelligence Council Report – Global Trends 2025: A Transformed World, Washington DC, 21 November 2008

 (2)  Aziz, Zeti Akhtar, Governor, Bank Negara Malaysia,  An end to western dominance: How change will ripple out across the world, Official Monetary and Financial Institutions Forum, September 2011

 (3)  Tatom, John, When Will China's Prosperity Catch up with the US?, Networks Financial institute at Indiana State University, 31 January 2007 (http://mpra.ub.uni-muenchen.de/17779/1/MPRA_paper_17779.pdf accessed on 11 September, 2011)

 (4)  Kaplan, Robert, Monsoon, The Indian Ocean and the Future of American Power, Random House, New York, 2010

 (5)  Aziz, ibid.

 (6)  The dilemma was first identified by a Belgian-American economist in the 1960s, Robert Triffin, who opined that global reserve currency-issuing countries have to suffer large trade deficits in order to supply the world with enough of its currency to fulfill the world demand for foreign exchange reserves. This leads to a conflict of interests as well as tension between what are national monetary policy imperatives of the reserve currency issuing country and what is best for global currency stability.

China’s Middle Income Trap

In his Opening Remarks on 3 September 2011 at the Conference on China’s Challenges for 2030 in Beijing, Robert B. Zoellick, World Bank Group President, wanted to understand how China could avoid the so-called “Middle Income Trap” – that stage when countries reaching about $3,000 to $8,000 per capita income seem to stall in productivity and income growth. The opening session is to critique and refine the initial findings of a joint project between the Development Research Center of the State Council and the World Bank on China’s medium-term development challenges up to 2030. Click here

Zoellick points out that China’s policymakers know what needs to be done, as evident from a changed policy direction in the 11th and 12th Five Year Plans. These focus on quality of growth, expansion of domestic demand through higher consumption, structural reforms to spur innovation and economic efficiency, and social inclusion to overcome the rural-urban divide and income inequality.

Nevertheless, in the midst of an uncertain world entering into a “new danger zone” with stalling Western economies, a looming European sovereign debt crisis, volatile commodity prices and surging food prices, Zoellick raised the following timely questions:

“How can China manage the shift from an intense focus on economic growth to a broader approach that highlights quality of growth, inclusive growth, sustainable growth – and the well-being of all Chinese citizens?

How can Chinese policymakers sustain economic growth while protecting the environment and using natural resources efficiently, and how can China transition toward green development? How can pricing policies assist?

What will it take to help China adjust to rapid urbanization – from 50 percent of the population living in cities today, to almost 70 percent in 20 years?

How can policymakers modernize the country’s fiscal and financial systems -- aligning revenues with expenditure responsibilities at different levels of government and placing all expenditures “on budget”?

How should policy makers address the roles of state and market, and private and state-owned enterprises? More fundamentally, perhaps – what should be the role of the state in China – with respect to land, labor, markets, and the rule of law?

What about rethinking the organization of public management, and the shift from administrative management to rule-based policies?

How can China best encourage open innovation – in products, systems, and technology – in ways that connect that innovation with the global network of ideas?

How should China interact with the international economy? China is already a key stakeholder in the world economy. Looking forward, how can China be a responsible international economic stakeholder, serving as a key partner in finding global solutions and sharing mutual responsibilities?

And – perhaps the most important question: How can China best draw on the talents, energy, and creativity of its people? In the next five years, more people will be leaving the Chinese workforce than joining it. How can policymakers ensure that the Chinese people can adapt, innovate, and play an active role in the healthy and positive process of change?”

These questions are shorthand for the gripping issues China has to contend with in overcoming the Middle Income Trap –

• Widening economic and social inequalities
• Balancing growth with ecological and resource constraints, including the economic pricing of energy and water resources
• Social, economic, and political adjustments in keeping with China’s massive and rapidly-growing urban citizenry
• Fiscal and financial reform including regulating the credit risks of numerous off-budget “local government financing vehicles (LGFVs)”
• State cronyism and the rule of law
• A society that nurtures creativity and innovation by promoting rather than restricting freedom of ideas and expression
• The need for greater protection of intellectual property rights
• Growth of talent in face of a looming aging population profile
• Readiness in shouldering greater international responsibilities commensurate with the size of China’s economy

By coincidence, so far how successful are China's top companies in overcoming the Middle Income Trap is revealed in the 2011 ranking of China's top 500 enterprises released at a “Top China Corporations Summit” on the same date in Chengdu, Sichuan. Click here

The lists, including separate ones for manufacturers and service companies, show that China's top 500 companies generated 3.631 trillion yuan ($5.39 trillion) in operating revenue last year, an increase of 31.6 percent, which is equivalent to 20.69 percent of the total operating revenue created by the world's top 500 companies in the same year. Their net profits grew by 38.67 percent from last year to 2.08 trillion yuan. Their tax contribution grew 28.77 percent to 2.73 trillion yuan, accounting for 37.4 percent of China's total tax revenue of 7.3 trillion in 2009.

However, behind these apparently impressive results are some stark realities. These lists continue to be dominated by state-owned enterprises (SOEs). Among the China's top 500, 316 are SOEs, accounting for 63.2 percent. Most are traditional industrial enterprises in the fields of steel, real estate, mining and oil and power generation. What is more, compared with Western global giants, their average profit margin was minuscule, at 5.74 percent in 2010, already higher than the average of 5.44 percent in 2009, while their return on net assets increased but to a meagre level of 1.93 percent.

"It is a tough job, in the short-term, to …catch up with their foreign counterparts in terms of …. the capability of resource integration, management expertise, brand building and intellectual property," said Miao Rong, a  China Enterprise Confederation (CEC) researcher who led the compilation of the lists.

These realities also echo a sobering note for the US-China Business Council on why Western (especially American) businesses may still rule, at least for now, by Peter Nolan, director of the China Big Business Program at Cambridge University. It shows how much China’s export prowess is dependent on imported and embedded Western technologies and how far ahead and entrenched is the West in the commanding heights of global strategic businesses including commercial aircraft industries, finance, and the world’s top brands. Click here

Robert Zoellick applauded China for having achieved unparalleled development success during the past three decades, lifting half a billion people out of poverty and maintaining an yearly average economic growth rate of 10 percent. In July of this year, the World Bank Group reclassified China as an upper middle income economy and in the next 15 to 20 years, China is well-positioned to join the ranks of the world’s high-income countries, according to Zoellick. But he cautioned that such a transition is by no means the norm. Only a handful of countries or economies have made it. The best success examples in Asia are South Korea and to a lesser extent, Taiwan, according to Michael Schuman in an article posted on Times.com (10 August, 2010). Click here  Many countries in South East Asia and Latin America, however, are still struggling with the Middle Income Trap (between a GDP per capita of $3000 to $8000).

In a Special Report “Beware the Middle Income Trap”, The Economist (23 June, 2011) outlined some of China’s current daunting challenges including huge local government debt, over-investment, an asset bubble, inflation and rising social unrest. Click here

In a critical assessment of China's current macroeconomic situation and economic challenges posted on the Communist Party of China’s website on 1 September 2011 Click here , Premier Wen Jiabao, while acknowledging that “complex, unstable and uncertain” domestic and international challenges still remain, highlighted the following to show that the overall situation remains largely positive -

• Domestic demand growing at 16.8% p.a. to play an increasing role with reducing trade surplus.
• Summer agricultural production increased by 6.2 billion catties (3.1 billion kg).
• Price inflation within manageable levels.
• Government revenue increased by 31.2% (by 1.35 trillion yuan).
• Profitability of large industrial enterprises increased by 28.7 %.
• Strategic structural adjustment speeding up: growth rates of engineering and pharmaceutics higher than those of large industrial enterprises; software, informatics, culture, creative and other service industries on the rise.
• Central and Western regions in process of accommodating relocated industries.
• Urban employment increased by 6.55 million jobs.
• Per capita cash income of peasants increased by 13.7%; per capita urban disposal income increased by 7.6%.
• Government investments in social security, employment creation, healthcare and public housing expanded by wide margins.
• Slower growth at reasonable levels, largely a result of macroeconomic adjustments.

According to the Premier, China will continue to focus on balanced but reasonably fast growth, economic re-structuring and inflation management for the rest of this year.

At the 17th National Congress of the Communist Party of China (CPC) in October, 2007, President Hu Jintao set the target of achieving an all-round moderate-income society by quadrupling the per capita GDP of the year 2000 by 2020. China’s per capita GDP in 2000 of $949 has now grown to $4260 (September 2011), already well exceeding the original target by 2020.

However, to emerge from the Middle Income Trap by 2020, China will need to maintain an annual growth rate of 7% whereby per capita income will grow to $8380 by 2021. The 7% growth target is stipulated in the latest Five Year Plan (2011-2015), but with a slowing domestic economy and an uncertain global economic outlook, this trajectory is not guaranteed.

In the final analysis, each Chinese currently consumes about one-fifteenth of primary energy as an American. Multiplying the American per capita energy consumption by China’s population is clearly not feasible within the Earth’s resource limits. The pursuit of a higher-income Chinese Dream will therefore need to take place in a Low-carbon Future. The country is already starting to move in that direction but success is by no means assured.

China may well overcome the odds and attain the ranks of high-income countries within 20 years as hoped by Zoellick, but the road to utopia is fraught with barriers. It is clear that China needs to redouble her efforts and remain on her toes if she is to overcome the Middle Income Trap.

Best regards,

Andrew

www.andrewleunginternationalconsultants.com

Premier Wen Jiaboa feels China's economic pulse

A critical assessment of China's current macroeconomic situation and economic challenges ahead at the start of the new Five Year Plan (2011-15) by Premier Wen Jiabao as posted (in Chinese) on www.qstheory.cn, a Communist Party of China website, on 1 September 2011.

Click here

Following is an English synopsis of the salient points

Download Premier Wen feels the pulse of China's economy

Chinese economy slowing

Live interview on Worldwide Exchange on CNBC on 1 September, 2011

Click here

China's economy to slow to 3% growth by 2020 - Professor Michael Pettis

Professor Michael Pettis is a professor at Peking University's Guanghua School of Management, where he specializes in Chinese financial markets. From 2002 to 2004, he taught at Tsinghua University's School of Economics and Management and, and from 1992 to 2001, at Columbia University's Graduate School of Business. 

His predictions are summarized as follows in Next Big Future, a science and technology website, at  http://nextbigfuture.com/2011/08/professor-michael-pettis-makes.html

* BRICS and other developing countries have not decoupled in any meaningful sense, and once the current liquidity-driven investment boom subsides the developing world will be hit hard by the gloMichabal crisis.

* Over the next two years Chinese household consumption will continue declining as a share of GDP.

* Chinese debt levels will continue to rise quickly over the rest of this year and next.

* Chinese growth will begin to slow sharply by 2013-14 and will hit an average of 3% well before the end of the decade.

* Any decline in GDP growth will disproportionately affect investment and so the demand for non-food commodities.

* If the PBoC resists interest rate cuts as inflation declines, China may even begin slowing in 2012.

* Much slower growth in China will not lead to social unrest if China meaningfully rebalances.

* Within three years Beijing will be seriously examining large-scale privatization as part of its adjustment policy.

* European politics will continue to deteriorate rapidly and the major political parties will either become increasingly radicalized or marginalized.

* Spain and several countries, perhaps even Italy (but probably not France) will be forced to leave the euro and restructure their debt with significant debt forgiveness.

* Germany will stubbornly (and foolishly) refuse to bear its share of the burden of the European adjustment, and the subsequent retaliation by the deficit countries will cause German growth to drop to zero or negative for many years.

* Trade protection sentiment in the US will rise inexorably and unemployment stays high for a few more years.

I will confine my comments to China. With great respect to the learned Professor, I have the followig observations:

(a) It is true that China is set to slow down. But this is out of choice to change to a more balanced, sustainable, and hopefully more equitable economic model. As I write, the economy is still growing at around 9% p.a. Inflation is likely to peak and property prices are being reined in. But this is very different from an involuntary slide into a 3% growth territory. The reason is in (b).

(b) China currently needs more than 10 million new jobs a year to absorb the still large excess labour pool pouring into the cities from the countryside. Until the whole economy is totally transformed, this level of job creation can only be sustained with a growth rate in excess of 7% p.a. A 3% annual growth is more charcteristic of more mature and advanced economies. It is unlikely that China would have achieved sufficient ''meaningful rebalances'' by the end of this decade to live with a 3% growth scenario without major social instability.

(c) Should any slide in growth happens to be problematic, China is well placed to mobilize her $3.2 trillion reserve to pump-prime investments and job creation. Indeed, what China needs is not under-investment but possibly over-investment as China is creating 221 new cities and growing 320 more urbanites by 2025, according to the McKinsey Global Institute, Preparing for China's Urban Billion, February 2009. Download MGI Preparing for China's Urban Billion

(d) The suggestion that "Over the next two years Chinese household consumption will continue declining as a share of GDP" is perplexing to say the least. China is slated to increase consumption as % of GDP by an average of 1% p.a. over the next decade or so, according to Stephen Roach, Chairman of Morgan Stanley Asia and author of "The Next Asia", John Wiley and Sons, Inc., 2009.

(e) According to McKinsey Quarterly, China's "global affluent' with annual household income over RMB 200,000 ($80,000, adjusted for purchasing power parity) reached 1.6 m in 2008. Even with the global economic slowdown, China's wealthy households are likely to grow 16 % p.a. for the next 5-7 years.

(f) According to World Luxury Association's 2010-2011 annual report, China now accounts for 27 % of the global luxury market, ahead of US at 14 % and right behind Japan at 29 %. The report says China will be the world's largest luxury market in 2012.

(g) More anecdotal evidence is coming to the fore. Yum! Brands opened 500 new restaurants in China in 2010 including one new KFC every single day.

(h) According to Standard Chartered Bank's Chief Economist,"America's drowning, Europe's imploding, Asia's cooling" (August 2011). In a fully globalized world, ''de-coupling" is the wrong word. But clearly there is significant divergence in the growth rates between the BRICS countries and the West.

(i) Notwithstanding increasing adminstrative and policy restricitons, local authority debt remains a problem, but much of the local investment is in physical infrastructure. Interest burden and cash flows may seem threatening but do not appear to be a strangling albatross. Much of the burden can be relieved through land sales at rising prices as urbanization develops and in the last resort, the $3.2 trillion reserve is an insurance policy. However, the situation remains highly problematic and is drawing much closer attention of Beijing's leadership. This tallies with an official assessment "Local gov't debts differ from those in other countries, default unlikely: official" posted on the official website of the Communist Party of China on 30 August, 2011. Click here

(j) With rising uncertainbties around the globe, it will not be easy for China to navigate through the turbulent waters in the coming decade, particularly in the wake of a new leadership transition. So China is likely to keep a tight grip over the exchange rate of the RMB and over domestic interest rates, as both are powerful policy tools beyond the realm of economics and finance.

(k) As the country moves into a new economic model over the next decade, China will continue to lure foreign investment, expertise and technologies to help China to upgrade her industrial and economic structure. There is likely to be more M & As both inside and outside China. But a number of strategic areas will remain out of bounds. Morever, China is wary of too much "privatization" too soon, as evidenced by China's rejection of Coca-Cola's $2.4 billion bid for Huiyuan (a leading juice maker) in March 2009. Moreover, China is to set up a review board to screen foreign direct investments, in much the same way as CFIUS in the United States. Click here

In advancing his predictions, Professor Pettis draws on his Paper 'The Contentious Debate Over China's Economic Transition' published by the Carnegie Endowment for International Peace, 25 March 2011. Click here

The following arguments stand out -

(i) China's household income share of national GDP is not commensurate with workers productivity rises. It is suppressed by continuing predominance of investment, an artifically low RMB exchange rate, and low deposit interest rates.  This would not help lift consumption to meaningful levels, administrative measudres to boost consumption notwithstanding.

(ii) The capacity of Western countries to absorb China's excess capital will decline over time. To balance the economy, China will have no choice but to cut down investments leading to much slower growth.

(iii) China's service sector is still too under-developed to take up the slack.

(iv) There is a great deal of misallocation of capital especially at the local level. Many investments are extremely inefficient and wasteful. This represents massive wealth destruction.

While I agree that the good Professor has made a number of very valid points, they need to be looked at in the followg context -

(i) Even though workers and household income are not commensurate with productivity or investment growth, wage increases at all levels and rising household incomes across the country are real. According to the study "The Value of China's Emerging Middle Class" in the McKinsey Quarterly (2006 Special Edition), 77.3 % households were below the lower middle class income bracket of RMB 25,001 to 40,000. By 2015, this huge group will drastically shrink to only 9.7%. Instead, 79.2% of households will be in the lower and upper middle classes income range of  RMB 40,001 to 100,000. The “mass affluent” with annual household income of RMB100,001 to 200,000 ($80,000 adjusted for purchasing power parity) will jump from 9.8% of total in 2005 to 36.4% by 2025.

Download McKinsey Quarterly - The Value of China's Emerging Middle Class

(ii) Unless the West completely changes their debt-driven consumtpion economic model, China's surplus capital is more likely than not to be welcomed, especially in supporting US treasuries.

(iii) China's service sector is still below 50% of the economy. But it is growing steadily. In the new Five Year Plan (2011-15), service sector value-added output is to be boosted to 47 % of GDP, up 4 percentage points over the period.

(iv) It is very true that China's capital allocation efficiency leaves a lot to be desired. But this may hide at least part of the picture. In a June 2010 study on China, the Federal Reserve Bank of Minneapolis found that starting from a low base and thanks to a vibrant private sector, total factor productivity growth in China remained fairly high in the past decade while the rate of return in both the state-owned and the private sectors has increased substantially. Click here

Best regards,

Andrew

www.andrewleunginternationalconsultants.com