U.S. CURRENCY BELLIGERENCE MAY BE COUNTERPRODUCTIVE

China RealTime Report, February 9, 2010

It may seem like the stars are aligning for China to let its currency rise, but recent tough talk from the U.S. may make such a move less, rather than more, likely.

U.S. President Barack Obama’s talk last week of monitoring exchange-rate policies may be welcome in Washington, but counterproductive in Beijing. Rather than encourage China to let the yuan, or renminbi, rise against the U.S. dollar, Obama’s tough stance may discourage China from budging, especially when ties with the U.S. are worsening over Google, Taiwan and Tibet.

As Credit Suisse economist Tao Dong put it Friday in a research note, “movement in the RMB exchange ultimately is a political decision, and the Chinese leaders will want to avoid being seen domestically as bowing to foreign pressure.” ING Financial Markets economist Tim Condon said Thursday the government “tends to freeze economic policies when political tension increases, which we think reduces the likelihood of any move on the renminbi in the current environment of elevated US-China political tension.”

The reasons for exiting the policy of keeping the yuan steady versus the U.S. dollar–one in place since July 2008–have become more solid in the past few months: Exports rose in December from a year earlier, after dropping for 13 months, and likely rose further last month; economic growth soared above 10% in the last three months of last year; and Beijing still wants to rely more on domestic demand for growth, which an appreciation of the yuan would encourage.

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INDIA GROWTH MAY ACCELERATE FOR FIRST TIME SINCE 2007

Kartik Goyal

Bloomberg, February 8, 2010

India’s economic growth may accelerate this year for the first time since 2007, giving Finance Minister Pranab Mukherjee room to withdraw fiscal stimulus.

Asia’s third-largest economy will probably expand 7.2 percent in the year ending March 31 from a year earlier after growing 6.7 percent in the previous 12 months, the Central Statistical Organisation said in a statement in New Delhi today.

Mukherjee is under pressure from the central bank to raise taxes in the budget on Feb. 26 to check inflation in the world’s fastest-growing major economy after China. Companies including Hero Honda Motors Ltd., India’s biggest motorcycle maker, and Videocon Industries Ltd., a refrigerator maker, resist removal of tax support, saying demand hasn’t strengthened sufficiently.

“Stimulus measures should continue,” said Ravi Sud, chief financial officer at Hero Honda. “My sense is that the finance minister may partially withdraw stimulus as inflation and fiscal deficit become prime concerns.”

Manufacturing output may rise 8.9 percent in the year through March after a 3.2 percent gain in the previous year, according to today’s report. Banking and insurance services may grow 9.9 percent, mining may gain 8.7 percent while electricity production will probably rise 8.2 percent, the report showed. Farm output may decline 0.2 percent.

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DAZZLED BY ASIA
When will China lead the world? Don’t hold your breath.

Joshua Kurlantzick

The Boston Globe, February 7, 2010

During his trip to Asia in November, Barack Obama seemed strangely mute. Unlike Bill Clinton, who criticized China’s human rights record in front of then-president Jiang Zemin, Obama largely avoided the topic of rights. In Singapore, despite pressure from human rights activists, the president deferred to pressure to not release a statement calling for the freeing of Burmese opposition leader Aung San Suu Kyi. In Japan, the president worked valiantly to massage local sentiments, bowing deeply to Emperor Akihito - and drawing flak back in the United States from conservative critics for appearing weak.

More than any recent American president, Obama displayed deep deference to his Asian counterparts. He did so, in part, because, like many Americans, he has become convinced that this will be Asia’s century, and that the United States must begin to accommodate itself to this stark new geopolitical fact. A recent report by the US National Intelligence Council concluded that the world is witnessing the rise of “major global players similar to the advent of a united Germany in the 19th century and a powerful United States in the early 20th century...[and they] will transform the geopolitical landscape.” Major media outlets covered the president as if he was some kind of Dickensian vagrant, appealing to his increasingly powerful creditors in China for leniency. “Obama’s trip reveals a relationship with a strangely lopsided quality to it,” wrote longtime China specialist Jonathan Fenby, in one typical example of the coverage.

Over the past two years, some of the most important foreign policy thinkers have chronicled America’s decline, and argued that Asia is rising to preeminence. Parag Khanna’s “The Second World: Empires and Influence in the New Global Order” landed on the cover of The New York Times Magazine, while Fareed Zakaria’s “The Post-American World” became a bestseller. Meanwhile, the influential former Singaporean ambassador Kishore Mahbubani, who helped spark the “Asian values” debate of the 1990s, released “The New Asian Hemisphere: The Irresistible Shift of Global Power to the East.” Martin Jacques, a prominent columnist for The Guardian, took the idea one step further. In his book “When China Rules the World,” he contends that China’s rise will have a greater impact on the globe than the emergence of the United States as an international power in the 20th century.

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CHINESE FM HIGHLIGHTS ROLE OF "A CHANGING CHINA IN A CHANGING WORLD"

Ban Wei, Zhang Wei

Xinhua, February 6, 2010

MUNICH, Germany, Feb. 5 (Xinhua) -- Chinese Foreign Minister Yang Jiechi delivered a major foreign policy speech at the Munich Security Conference on Friday, saying that while focusing on its own peaceful development, China is undertaking more international responsibilities in a transforming and closely-linked world.

Addressing the Munich gathering of senior diplomats and security officials, Yang said that it is a strategic choice that China has made to "seek a peaceful international environment to develop ourselves and at the same time contribute to the cause of world peace through our own development."

Stressing that China is committed to a path of peaceful development, Yang said that a more developed China is an opportunity rather than a threat to the world.

"The argument that a strong nation is bound to seek hegemony finds no supporting case in China's history and goes against the will of the Chinese people," he said.

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N.KOREA PURGES PARTY, MILITARY

The Chosun Ilbo, February 5, 2010

The North Korean regime is purging senior military and party officials. In the Workers' Party, the heads of the financial and economic sections have been sacked over the disastrous currency reform and international sanctions, and in the military, officers in their 70s and 80s from the era of North Korean founder Kim Il-sung are making way for younger military leaders in their 50s and 60s.

Party Purges

In the Workers' Party, three key economic figures have been replaced. Finance Director Pak Nami-gi was apparently axed on Jan 20, taking the fall for the failed currency revaluation late last year. "Room 39" bureau director Kim Tong-un was recently replaced by his deputy Jon Il-chun after having managed the regime's secret coffers for 36 years. A source says that Kim Tong-un was replaced because he was put under a personal travel ban by the EU in December last year and it was difficult for him to manage overseas funds for the North Korean leader.

Han Kwang-sang was apparently promoted from first deputy of the finance and accounting department to head, which has been vacant for a long time. The department is in charge of managing party funds. North Korean leader Kim Jong-il last month tapped Vice Foreign Minister Kim Yong-il, who is familiar with Chinese affairs and served as the chief negotiator to the six-way nuclear talks, as the head of the party's department for international affairs. An intelligence officer in Seoul says the appointment of Kim Yong-il is likely related to the international sanctions, which were imposed after the North conducted its second nuclear test.

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CHINA AND THE U.S.: TOO BIG TO FAIL

Jeffrey Wasserstrom

Time, February 4, 2010

Beijing has fervently denounced U.S. President Barack Obama's plan to sell more arms to Taiwan, and loudly demanded that he break his coming date with the Dalai Lama. Is this proof that China-U.S. relations have entered a radically new and deeply worrisome phase?

It's tempting to see it that way. There has been much talk of China ruling the world and the clash of civilizations this would prompt. Much has been made of the notion that Chinese leaders have been showing an unexpected cockiness vis-à-vis the U.S. of late, tightly controlling what Obama did when in China, refusing to follow American leads in Copenhagen and then lambasting Secretary of State Hillary Clinton for criticizing Beijing in a Jan. 21 speech on Internet freedom. But it's a temptation worth resisting.

China's long, slow return to great-power status is of historic importance and something that will lead to recalibrations of many diplomatic relationships, including that between Washington and Beijing. But as foolish as it would be to ignore this, it's equally foolish to see too much novelty in headline-grabbing stories that fit neatly within established patterns. Chinese officials have expressed outrage before about meetings between foreign leaders and the Dalai Lama. And the Taiwan arms tale follows an even more familiar script. There's nothing new about a U.S. Administration announcing, as Obama's just did, that it's going to sell military hardware to Taiwan. Nor is there anything new about Beijing treating this announcement as proof that the U.S. lacks respect for Chinese sovereignty and for the principles of the "one China" policy that, since the 1970s, has provided the groundwork for relations between the two.

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2009: WAS IT A VERY GOOD YEAR FOR THE ECONOMY?

ChinaRealTimeReport, February 3, 2009

More like a very strange one. New figures from the National Bureau of Statistics detail just how unusual the composition of China’s world-beating economic growth was last year.

Hit by the collapse in global demand and world trade, China’s exports fell outright in 2009 for the first time in more than two decades. As a result, the NBS says, net exports subtracted 3.9 percentage points from overall economic growth – the first time since 1993 that trade has been a drag on growth.

Given that the final GDP growth rate was 8.7%, that means the domestic part of the economy expanded 12.6% — the fastest growth in consumption and investment since, again, 1993. (China’s economy was smaller and much more volatile then, and the statistics are considered less reliable than for more recent years.)

That figure that goes some way to explaining why so many people are now worried about overheating in China: the domestic growth rate is well above the average in recent years of around 9%. It of course reflects the enormous stimulus effort the government unleashed to help counter the contraction in the export sector.

That surge in bank lending and public-works spending boosted investment to a nearly unprecedented degree: the NBS says capital formation contributed 92.3% of China’s economic growth in 2009, or 8 percentage points of the 8.7% overall growth rate. Final consumption contributed 4.6 percentage points.

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