Concerns mount regarding Chinese economy

David Ignatius is one of the more balanced commentators you’ll find, so when he write a piece stressing “warning signs” in China, it’s worth a read.

The government in China is trying to address the staggering amount of corruption, yet this effort seems to be having a destabilizing effect. Also, there are tons of bad loans in China and what appears to be a massive real estate bubble.

All of this spells trouble, and recent real estate sell-offs and bond sale cancellations have observers worried.

China pushes its economic leverage

Chinese woman working on laptop

The rise of China and its impact on economies all over the world isn’t a new story, but this overview in the New York Times is worth reading. The tone is one of looking at the downside of China’s economic empire and the unwillingness of desperate partners like European nations to assert themselves. But there is an upside, as China can provide much needed capital to struggling countries, and this also gives China a huge stake in stability around the world. There are certainly concerns on issues like the environment and human rights, but one needs to look at the big picture as well. Fortunately, President Obama’s foreign policy is aimed at engaging but also containing China, and he has been willing to use our own leverage in this relationship.

Challenges for shale gas in China

drilling rig at sunset

The shale gas fracking boom in the United States has been a game-changer for the US economy and energy needs. Now other countries are looking to exploit this potential in their own country, and the potential in China is huge. That said, there are also many challenges to making this a reality in China.

In China there’s a giddy feeling that the next energy gold rush is about to begin. Beneath the mountains of Sichuan province, the deserts of Xinjiang, and elsewhere, China contains twice the shale- gas reserves as the U.S., says the U.S. Energy Information Administration. China’s national planners enthusiastically back boosting natural gas production, which accounts for just 4 percent of the country’s total energy mix now. The government wants to double that share by 2015. “There’s a lot of exuberance,” says Zhou Xizhou, who leads the research firm IHS Cera’s China Energy practice. “In Beijing, if you work in energy, you probably receive a shale-gas conference notice every week.”

The impact of a shale-gas boom in China will be enormous, with the potential benefits and likely environmental costs perhaps even greater than in the U.S. So far, though, the output in China has been a trickle because of the challenging geography and the monopolistic structure of China’s oil and gas sector. While about 200,000 of the horizontal wells used in fracking have been drilled in the U.S., China has about 60. China has 1,275 trillion cubic feet of shale-gas reserves, compared with 637 trillion cubic feet for the U.S.

The U.S. shale-gas revolution was launched largely on the flatlands of Texas, North Dakota, Pennsylvania, and other accessible areas. In China’s mountainous Sichuan basin, “the formations seem to be more faulted and folded, which makes it more difficult and less economic to drill long horizontal well bores,” says Briana Mordick, an Oil & Gas Science Fellow at the Natural Resources Defense Council and formerly a geologist at Anadarko Petroleum.

It will be interesting to see how this develops. Some environmentalists hate the fracking boom, while others acknowledge that new natural gas tends to replace the much dirtier coal as an energy source, which is a huge plus for the environment. China’s future coal plans have terrified the rest of the world. If they can figure out fracking, perhaps the net gains in carbon emissions can be mitigated.

Caterpillar gets duped in China deal

Well, this is embarrassing.

Caterpillar, based in Peoria, Ill., disclosed on Jan. 18 that it had uncovered “deliberate accounting misconduct” at Zhengzhou Siwei Mechanical & Electrical Manufacturing Co., a maker of roof-support equipment for underground coal mines that it had acquired last June. Siwei is a subsidiary of ERA Mining Machinery, a Hong Kong-listed firm controlled by a shell company whose principals are two American entrepreneurs in China. Caterpillar paid about $700 million for ERA but said earlier this month it was writing down the value of that company by $580 million. “It’s disappointing,” Oberhelman said. “But how we respond defines us.”

Of course this stuff doesn’t only happen in China. Fraud occurs everywhere. But you would think that a company like Caterpillar would be a little more careful here.

Gambling revenues continue to grow in Macau

China’s march towards a modern economy continues unabated, even with reports of a recent slowdown. While the country is still held back by the restrictive policies of the government, censorship and corruption, many changes are afoot that will transform the culture over time. While Internet access is somewhat restricted, Chinese citizens can find information and entertainment if they are determined to do so. They can communicate through social networking, play online games or track poker on Party Poker Television. There’s only so much the government can do to hold back the desires of the Chinese people. They want the brands we have and want to play the games we play. Consumerism is a very powerful force, as people around the world want access to what Western citizens have. With the Internet, they can see what others have, and that influences behavior. Just look at the Middle East and see what social media and online access can do to a restrictive culture.

With gambling, the government has actually accelerated the cultural shift with the support of the massive growth in Macau. Gambling revenues continue to grow rapidly even with a slowdown looming in the overall Chinese economy. Given the size of Macau’s gambling presence this is still impressive growth. The casinos in Las Vegas aren’t happy about it, as the Asian high rollers no longer have Vegas as their primary destination. Macau is closer and bigger.

This isn’t lost on the Chinese people, who now have their own glittering destination for gambling. Naturally, this helps fuel the growth of games like poker in China. The poker popularity explosion is around 15 years old in the United States, but can you imagine the growth of this game as over a billion Chinese people become exposed to the game with the hype surrounding Macau and access to online gaming sites?

Things like this might seem trivial, but small things like poker and gambling can have a huge impact on culture. People demand the right to enjoy entertainment options once they are exposed to them. You can’t put that genie back in the box.

The strength of the economy in China

Some of the numbers coming out of China lately have spooked economists and investors, and there’s a real debate as to the strength of the Chinese economy. This article in The Economist takes a more positive outlook.

CHINA’S weight in the global economy means that it commands the world’s attention. When its industrial production, house building and electricity output slow sharply, as they did in the year to April, the news weighs on global stockmarkets and commodity prices. When its central bank eases monetary policy, as it did this month, it creates almost as big a stir as a decision by America’s Federal Reserve. And when China’s prime minister, Wen Jiabao, stresses the need to maintain growth, as he did last weekend, his words carry more weight with the markets than similar homages to growth from Europe’s leaders. No previous industrial revolution has been so widely watched.

But rapid development can look messy close up, as our special report this week explains; and there is much that is going wrong with China’s economy. It is surprisingly inefficient, and it is not as fair as it should be. But outsiders’ principal concern—that its growth will collapse if it suffers a serious blow, such as the collapse of the euro—is not justified. For the moment, it is likely to prove more resilient than its detractors fear. Its difficulties, and they are considerable, will emerge later on.

Check out the entire argument presented in the article. This issue will be front and center as the world grapples with the problems in Europe. A real slowdown in China could be catastrophic.

Classic and Fast Can Mix in Your Pocket


Image Courtesy of Flickr

There is nothing like when a culture experiences a strong and sudden change. With China going through a revolution over the past generation that is larger than anything since Germany’s military ramping up prior to World War II, the world has to take notice. While there is nothing violent about this change, wise people notice when a hard working people begins to develop a whole new vision that changes their entire lifestyle.

Speed and classical design have begun to mix in China in a way that hasn’t been seen since the Japanese began modernizing in the 19th century. These types of changes do not come around very often, and the world can only ignore this powerhouse at its own risk.

The Speed

Few things have hit China or the world with quite the speed of the smart phone revolution. While the Blackberry Bold may not seem like a massive change from the old standard, its departure from the classical mold is downright striking when you take it in context. Few inventions or improvements of the past few generations can even come close to comparing to this technology, considering how it has changed life for so many people.

Consider that a generation or two ago, most Chinese people barely had what many westerners consider to be basic utilities in place. Nowadays, they not only have the utilities and infrastructure but the information access capacity that used to be the domain of extremely affluent and well established countries. It’s a whirlwind of change happening all at once.

The Classical Elements

It has been said that the perfect design is one that a person can easily and instinctively figure out how to use. If that is the case, modern smart phone technology has a nearly perfect hold on the minds of its users. When a person can figure out in mere moments how to access just about any information that exists, this is a victory that has few precursors. While the technology itself is very new, the purposes behind it are as old as humanity itself.

The classical appeal of something that contains massive amounts of information and allows you to communicate with others is the modern epitome of what it means to be human in the first place. In China and everywhere else, being able to connect with anyone and everyone is an incredible achievement for everyone. The fact that it’s accessible to anyone is a feat that could not have been performed in generations past.

Keeping Them Merged Seamlessly

It’s an interesting juxtaposition to merge the fast and the classic. When the quest for knowledge and the speed of its access come together, everyone wins in ways that most people could not have previously imagined. This ability to share communication and knowledge is a victory of human intention that was first tested in Europe, perfected in the United States and brought to China for its ultimate realization. As the Chinese learn and communicate more effectively than ever before, their wealth and freedom cannot help but grow exponentially.

More Apple audits in China

Apple is ramping up audits of factories in China.

Apple has told a prominent Chinese environmental activist that it will soon launch independent environmental audits of at least two suppliers’ factories in China, the activist said.

The audits come as Apple faces mounting criticism about toxic pollution and factory injuries at overseas suppliers’ factories. The environmental reviews would be separate from an independent probe of working conditions at the China factories of Apple suppliers, including Foxconn Technology, that began last week.

Ma Jun, founder of The Institute of Environmental and Public Affairs, told USA TODAY Monday in a phone interview that Apple agreed to the independent audits in late January in response to two reports that IPE and other environmental groups released last year documenting hazardous waste leaks and the use of toxic chemicals at suspected Apple suppliers.

Apple’s image has taken a beating with the problems at Foxconn, so let’s see if this is a new trend.

Brand promotion through music

A Chinese rock band hired by Puma, a leading sports lifestyle company, plays American music covers during a public marketing event at an international fashion mall in Beijing. Foreign companies hoping to do business in China often hire local musicians, celebrities and athletes to help promote their brand to the largest consumer market in the world.

Use of apps explodes in China

Not surprisingly, use of apps is growing fast in China.

China, represented by the red line, began the year ranked tenth in terms of app sessions, with 1.8% of all sessions tracked by Flurry. By April, China had climbed to fifth with 2.7% of all sessions, and, in July, overtook the United Kingdom to become the second largest country, with 5.4% of sessions. By the end of October, China had further grown to 7.3% of sessions. The U.S., which declined in sessoin-share over the year, finished in October with 47%. If both China and the U.S. were to continue along their respective trajectories, China could overtake the U.S. by the end of 2013, with both countries converging around 23% app session-share.

The implications here are huge. Of course from a business point of view, sellers of apps have a huge opportunity in China. But it’s also important from a cultural point of view. The Chinese government wants to control its population by controlling information, but mobile apps present yet another source of information. Like the despots in the Middle East, the dictators in China will have to face a more educated and informed citizenry, and that will cause them problems.

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