China Economic News

[Behappyalways]

China is uncomfortably close to a deflationary trap. Factory gate prices fell 4.3pc in January, a sign of excess capacity across the economy. The PBOC admitted on Wednesday for the first time that it is probing the deflation threat.


China is no longer buying US Treasuries and global bonds. It has become a net seller, stepping in to offset accelerating outflows of capital. The capital deficit reached a record $91bn in the fourth quarter.

There is another twist to this. The PBOC's reserve body, SAFE, was still buying $30bn a month of global bonds a year ago. It is now selling an estimated $10bn a month. This a $40bn a month shift in central bank intervention in the asset markets, a lot more than the extra $15bn a month that the Bank of Japan has been buying since October.

Or put another way, Asia is "tapering" at a pace of $25bn a month. You could argue that this neutralises half the quantitative easing soon to come from the European Central Bank.

Mrs Choyleva says China's true growth rate fell to 4.4pc last year, and to just 1.7pc in the fourth quarter. "Beijing needs to support growth and its only viable option is a weaker yuan," she said.


Liquidity evaporates in China as 'fiscal cliff' nears
http://www.telegraph.co.uk/finance/comme...nears.html

[specuvestor]

RMB is internationalising and becoming a reserve currency. China will keep RMB rather than USD. This -ve capital trend will continue for some time.

[Tiggerbee]

http://www.aastocks.com/tc/stocks/analys...=21&catg=2

(兩會)總理報告:大力發展旅游、健康、養老、創意設計服務業

大智慧阿思達克通訊社3月5日訊,周四上午李克強總理作報告時,就協調推動經濟穩定增長和結構優化關系時稱兩者“相輔相成”,強調加快培育消費增長點,鼓勵大眾消費,要大力發展旅游、健康、養老、創意設計等生活和生產服務業。

李克強總理作報告時稱,服務業就業容量大,發展前景廣。要深化服務業改革開放,落實財稅、土地、價格等支持政策以及帶薪休假等制度,大力發展旅游、健康、養老、創意設計等生活和生產服務業。深化流通體制改革,加強大型農產品批發、倉儲和冷鏈等現代物流設施建設,努力大幅降低流通成本。

報告稱,將加快培育消費增長點。鼓勵大眾消費,控制“三公”消費;促進養老家政健康消費,壯大信息消費,提升旅游休閑消費,推動綠色消費,穩定住房消費,擴大教育文化體育消費;全面推進“三網”融合,加快建設光纖網絡,大幅提升寬帶網絡速率,發展物流快遞,把以互聯網為載體、線上線下互動的新興消費搞得紅紅火火;建立健全消費品質量安全監管、追溯、召回制度,嚴肅查處制售假冒偽劣行為,保護消費者合法權益。擴大消費要匯小溪成大河,讓億萬群眾的消費潛力成為拉動經濟增長的強勁動力。

[greengiraffe]

China warns of hurdles in growth: 7pc target
THE AUSTRALIAN MARCH 06, 2015 12:00AM

Scott Murdoch

China Correspondent
Beijing

China's lower growth future

CHINESE Premier Li Keqiang has warned that the country’s economy faces substantial hurdles to meet its 7 per cent growth rate target this year, but hopes a fresh round of financial market reform will help drive development plans.

The Work Report, delivered at the Great Hall of the People in Beijing on the first day of the National People’s Congress yesterday, also reduced China’s inflation rate target from 3.5 per cent to 3 per cent.

A majority of economists predicted the 7 per cent growth target after China’s economy grew by 7.4 per cent in 2014, the slowest rate since 1990.

In his speech, Mr Li said China was now confronting a “new normal” in terms of growth but that the government was determined that development would be more stable than the rapid double-digit expansions that occurred over the past decade.

The government has set the target of creating 10 million new jobs in both urban and regional areas across China.

The local market was unmoved by the news, with the S&P/ASX 200 closing largely flat at 5904.2.

“A growth rate of approximately 7 per cent will ensure ample employment,” Mr Li said.

“This target is both aligned with our goal of finishing building a moderately prosperous society in all respects and is appropriate in terms of the need to grow and upgrade our economy.

“It is also in keeping with the objective laws of development as well as conditions in China. If China’s economy can grow at this rate for a relatively long time we will secure a more solid material foundation for modernisation.”

China will raise its budget deficit to 2.3 per cent of gross domestic product for 2015, up from last year’s target of 2.1 per cent.

The growth rate is expected to come under renewed pressure this year as a result of the government’s anti-corruption measures and pressure to help fix the country’s pollution crisis.

China’s reforms matter on a global level, and especially to Australia, with China being our biggest trading partner.

If China ends up favouring short-term growth over restructuring this year, this could give a boost to a world economy that is suffering from Europe’s malaise and an unsteady recovery in the US. But it could also raise questions about China’s long-term role as a global economic growth engine.

Mr Li said uncertain global economic growth could also hinder growth projections this year.

“The world economy is undergoing profound adjustment ... the influence of geopolitics is increasing and there are a greater number of uncertainties at play,” he said. “Promoting growth, creating jobs and making structural adjustments have become common goals for the international community.

“With downward pressure on China’s economy building and deep-seated problems in development surfacing, the difficulties that we are to encounter in the year ahead may be even more formidable than those of last year.”

Mr Li said the government would this year press ahead with its financial market reforms that it had been working on for the past two years. It plans to allow greater private investment in the domestic financial services groups in a bid to safeguard the nation’s banking sector.

The government has also flagged that the next step of its interest rate liberalisation plan would be the introduction of a deposit insurance scheme. The People’s Bank of China has been given greater regulatory powers to implement the plans this year.

Citic Securities chief economist Zhu Jianfang said the 7 per cent growth target was a realistic aim for the government this year that should help its job creation scheme.

“It is appropriate, it is within a reasonable range and requires a lower limit of government control,” Mr Zhu said.

“In the long run it can help with the goal of doubling the GDP by 2020. And in the short term, if we can keep to 7 per cent growth then newly created employment can be absorbed and there will not be any obvious new unemployment.

“Another very important factor is that maintaining 7 per cent growth could help avoid a debt crisis.”

Nomura chief China economist Yang Zhao said the lower target would also help the government implement more ambitious reforms.

“The lower growth target, in our opinion, reflects the government’s awareness of an economic ‘new normal’ of slower growth and the urgent need for structural reform,” he said.

“The adjustment of the growth targets also reflects the government’s resolution to restructure the economy.”

Additional reporting: Wang Yuanyuan.

[greengiraffe]

Here comes China 2.0
2081 words
7 Mar 2015
The Australian Financial Review
AFNR
English
Copyright 2015. Fairfax Media Management Pty Limited.

Economy Beijing is putting its industrial-driven past behind it, creating victims and victors along the way, write Angus Grigg and Lisa Murray.

A Maserati Quattroporte drove into Jianxi Province last summer just as China's credit crunch started to bite. Its destination was the central city of Xiyu, where a loan shark waited. The driver, like many of his contemporaries running trading companies, was in a tight spot. He needed cash, and quickly.

Such haste meant the deep-blue, four-door sedan with its black grill and silver trident was exchanged for 800,000 yuan ($166,000), or half its purchase price just three months earlier.

The terms were simple. The driver had four months to repay the loan at a monthly interest rate of 3 per cent or forfeit the Italian sports car.

For the driver, it was a bet on the Chinese economy - a high-stakes wager the country would return to its super-charged growth of the past two decades as it had so many times before.

The optimistic assumption was based on a belief the government would provide more credit to banks and those trading steel, cement and other finished goods would be flush once again.

The economy would be reinflated and the game would begin anew.

But that bounce-back never did come and the driver lost his prized Maserati, allowing the loan shark, who asked not to be named, to turn an easy profit of 400,000 yuan, he told AFR Weekend.

"Business is pretty good," he says.

That anyone, even the most leveraged trader could fall over in an economy that grew at 7.4 per cent last year would seem perverse. But it's not the actual number that is important.

It's about where it has come from.

In China's case, that number was 10.4 per cent just four years ago and on Thursday, China's Premier Li Keqiang, said it would be about 7 per cent this year - the slowest growth rate in 24 years and the country's so called "new normal".

The question, therefore, must be: what does 7 per cent growth look like for the world's second biggest economy and its major trading partners?

In coal towns and steel cities across central and northern China the outlook is grim.

"My main clients are in the steel, mining and the property sector these days," says the loan shark, who notes there has been a spike in the number of clients forfeiting their property recently after failing to repay loans.

They are victims of what is being labelled "peak China" or perhaps a better description is "old China".

That was a China reliant on the construction of apartments, roads and rail lines for its growth - a growth that required ever greater amounts of the coking coal and iron ore.

But surging corporate and government debt, chronic overcapacity in the manufacturing sector and an estimated 40 million empty apartments forced policymakers to change gears.

They are reducing China's reliance on investment-led growth, while attempting to shut down inefficient steel mills and high-polluting factories.

As a result of this new found discipline and a push towards a greener China, iron ore and coking coal prices have halved over the past year.

No one is brave enough to forecast a rebound and after the Chinese Premier delivered his annual speech to Parliament, iron ore futures dropped 3 per cent to below $US60 a tonne on the weak outlook for growth.

But this is the "old China" - a China the government is looking to put behind it. In the wealthier coastal provinces and some parts of the country's fast-growing west, China 2.0 is emerging.

Here the people are richer than ever.

Like Australia three years ago, China is now experiencing a two-speed economy.

While steel demand barely grew last year, consumer-led real consumption grew at 10.9 per cent.

"China is still the world's best consumption story," says Andy Rothman, a long-time China bull and economist with fund manager Matthews Asia.

A look at the raw numbers shows the wealth effect from two decades of rapid growth. Over the past decade, real urban and rural incomes have more than doubled.

That in turn has created big opportunities for countries like Australia to sell beef, milk and holidays to China's growing number of middle-class consumers.

While China's growth rate is most certainly slowing, it is still becoming a much bigger economy with a bigger footprint in the global market.

According to Danny Quah, a professor at the London School of Economics, a growth rate of 7 per cent this year will result in additional economic output 2.6 times greater than that produced by 12 per cent growth 10 years ago. In dollar terms, Quah says, 7 per cent growth should see China add $US790 billion in output over the next 12 months, in nominal terms at market exchange rates.

That compares with $US274 billion of extra output produced by 12 per cent growth in 2005.

To put these figures into context, China's additional output this year is bigger than the entire Turkish economy.

"If China's growth slows from having switched to greater reliance on domestic consumption, then export opportunities for the rest of the world will be correspondingly larger," Quah wrote in a paper published by the Brookings Institute.

That said, challenges do exist to China's consumer story.

As Premier Li noted in his speech, "the number of new areas of strong consumer activity is limited".

This appears to be a reference to the bottom 40 per cent of Chinese households accounting for just 17.5 per cent of spending, a figure that has barely changed over the past 14 years.

The rosy outlook for Chinese consumption is also contingent on the country continuing to muddle through, without a systemic crisis brought on by the twin evils of a credit bubble and oversupply in the housing market.

Muddling through is no sure thing, especially after a senior government official likened the current economic conditions in China to the months before the 1998 Asian financial crisis.

The counterpoint to this argument is the government's $US3.8 trillion ($4.8 trillion) in foreign currency reserves, which are more than adequate to ward off a sharp devaluation of the yuan as capital leaves the country.

Barring a major external shock, this should ensure the government's rhetoric around the economy being "stable" remains the case.

That means the likes of Shanghai tennis coach Henry Chen will continue to consume, take overseas holidays and enjoy a life that only one generation ago was beyond comprehension.

Driving through the city's old French Concession, in his new Hyundai Sonata, the 34-year-old is hardly troubled by China's slowing economy. His gold iPhone 6 is on the charger and there's an IKEA catalogue on the dashboard. He's talking about his trip to Australia during last month's Chinese New Year holiday.

Chen, his wife and five-year-old daughter spent $15,000 travelling to Cairns, the Gold Coast and Sydney. They ate out every night, took a helicopter ride over Fitzroy Island, stayed in five-star hotels and couldn't believe how cheap a steak was - an observation few Australians would make.

"We've now been to Japan, Korea, Singapore and Thailand," he says.

Chen's parents, however, have never been outside greater China.

"My wife love bags," he says between tennis lessons. "She buys too many bags. Coach, Gucci, Louis Vuitton and Prada."

Not that she added to her collection in Australia, as all their excess baggage was taken up with 20 kilograms of milk powder for their daughter.

By Chinese standards, the Chens, with an annual family income of about $100,000, are beyond middle class.

While Chen sharpens the ground strokes of wealthy Chinese entrepreneurs and expatriates on the tennis court, his wife manages a clothing factory for a Spanish fashion label. As a result, they earn more than a group McKinsey and Company defines as upper middle class.

In 2012, this group - earning between $22,000 and $48,000 a year, numbered just 14 per cent of urban households.

But the consulting firm estimates the segment will grow to 54 per cent of urban households by 2020. That's around 350 million people, more than the entire population of the United States.

These are the people that buy imported food, might join a gym and can afford the occasional overseas holiday.

It is this group Australians are increasingly seeing at major sights around the country. According to federal government figures, 124,000 tourist visas for Chinese nationals were processed in the six weeks leading up to the Lunar New Year holiday, a 23 per cent increase from the previous year.

For Australia, this meant full hotels and crowded restaurants, but this group coming to Australia made up just 2.4 per cent of an estimated 5 million Chinese people who travelled overseas during the holiday.

The problem for Australia is the lift this gives to tourism and other sectors such as education and food will never make up for the economic dent of falling coal and iron ore prices.

The trade statistics make this point. In the year to June 30, 2014 iron ore was Australia's top export, valued at $57 billion followed by coal at $9.3 billion. Education-related travel ranked fourth at $4.1 billion, followed by personal travel at $1.9 billion. Agriculture was worth $8.7 billion.

The issue is that Australia can't feed, educate and provide holidays to China in the same way as the country delivered raw materials to build its infrastructure, due to capacity constraints.

There's simply not enough hotel rooms, agricultural land or university places. It means as China moves beyond its infrastructure building phase to an economy more reliant on consumption, Australia is not well equipped make the same shift.

The government's own fact sheet on last year's China free-trade agreement unintentionally made this point.

It killed off the idea of Australian being the "food bowl of Asia" saying the "delicatessen of Asia" was a better label. Australia's place was to provide "niche sales in premium markets", the government said.

While this is a more realistic approach, niche markets will not balance the federal budget or raise overall living standards. Australia, for all its prosperity over the past decade, was tapped into the old Chinese economy.

And few Australians may realise just how much this old China is hurting, as the days of growth at any cost to the environment and the long-term health of the banking system quickly fade. It's far broader than simply a trader who lost his Maserati.

For the province of Inner Mongolia, coal production declined by 41 per cent in January compared with a year earlier, according to the local government.

Overall, China's coal production and consumption fell for the first time in 14 years in 2014, due to the slowing economy and a switch to cleaner fuel sources. "The question is not whether peak coal is going to happen," says Li Shuo, a senior climate analyst with Greenpeace East Asia. "It's whether peak coal has already happened.

The Premier hinted at this in his speech, saying China would "strive for zero-growth in the consumption of coal in key areas of the country" this year.

In iron ore, the chief information officer at MySteel, Xu Xiangchun, said the lower growth target would see China's iron ore consumption decline between 2 per cent and 3 per cent this year. This compares with a rise of 1 per cent last year.

Australia's low-cost producers will be largely immune from this fall in overall demand, as they grab market share from high-cost Chinese miners.

But they will still feel the pain of lower prices, with the World Bank saying during the week the current supply glut was likely to last for the next two years.

It leads to an acute, if painful observation, from one Australian who has been a long-time observer of China.

"Australia is more leveraged to the old China than most Chinese people," he says.

Henry Chen, hitting tennis balls and joking about his wife's obsession with handbags, certainly gives this impression.


Fairfax Media Management Pty Limited

Document AFNR000020150306eb370000x

[greengiraffe]

The Chinese crack-up is coming
DAVID SHAMBAUGH THE WALL STREET JOURNAL MARCH 09, 2015 8:11AM

ON Thursday, the National People’s Congress convened in Beijing in what has become a familiar annual ritual. Some 3,000 “elected” delegates from all over the country — ranging from colourfully clad ethnic minorities to urbane billionaires — will meet for a week to discuss the state of the nation and to engage in the pretence of political participation.

Some see this impressive gathering as a sign of the strength of the Chinese political system — but it masks serious weaknesses. Chinese politics has always had a theatrical veneer, with staged events like the congress intended to project the power and stability of the Chinese Communist Party, or CCP. Officials and citizens alike know that they are supposed to conform to these rituals, participating cheerfully and parroting back official slogans. This behaviour is known in Chinese as biaotai, “declaring where one stands,” but it is little more than an act of symbolic compliance.

Despite appearances, China’s political system is badly broken, and nobody knows it better than the Communist Party itself. China’s strongman leader, Xi Jinping, is hoping that a crackdown on dissent and corruption will shore up the party’s rule. He is determined to avoid becoming the Mikhail Gorbachev of China, presiding over the party’s collapse. But instead of being the antithesis of Mr. Gorbachev, Mr. Xi may well wind up having the same effect. His despotism is severely stressing China’s system and society — and bringing it closer to a breaking point.

Predicting the demise of authoritarian regimes is a risky business. Few Western experts forecast the collapse of the Soviet Union before it occurred in 1991; the CIA missed it entirely. The downfall of Eastern Europe’s communist states two years earlier was similarly scorned as the wishful thinking of anti-communists — until it happened. The post-Soviet “colour revolutions” in Georgia, Ukraine and Kyrgyzstan from 2003 to 2005, as well as the 2011 Arab Spring uprisings, all burst forth unanticipated.

China-watchers have been on high alert for telltale signs of regime decay and decline ever since the regime’s near-death experience in Tiananmen Square in 1989. Since then, several seasoned Sinologists have risked their professional reputations by asserting that the collapse of CCP rule was inevitable. Others were more cautious — myself included. But times change in China, and so must our analyses.

The endgame of Chinese communist rule has now begun, I believe, and it has progressed further than many think. We don’t know what the pathway from now until the end will look like, of course. It will probably be highly unstable and unsettled. But until the system begins to unravel in some obvious way, those inside of it will play along — thus contributing to the facade of stability.

Communist rule in China is unlikely to end quietly. A single event is unlikely to trigger a peaceful implosion of the regime. Its demise is likely to be protracted, messy and violent. I wouldn’t rule out the possibility that Mr. Xi will be deposed in a power struggle or coup d’état. With his aggressive anticorruption campaign — a focus of this week’s National People’s Congress — he is overplaying a weak hand and deeply aggravating key party, state, military and commercial constituencies.

The Chinese have a proverb, waiying, neiruan — hard on the outside, soft on the inside. Mr. Xi is a genuinely tough ruler. He exudes conviction and personal confidence. But this hard personality belies a party and political system that is extremely fragile on the inside.

Consider five telling indications of the regime’s vulnerability and the party’s systemic weaknesses.

First, China’s economic elites have one foot out the door, and they are ready to flee en masse if the system really begins to crumble. In 2014, Shanghai’s Hurun Research Institute, which studies China’s wealthy, found that 64% of the “high net worth individuals” whom it polled — 393 millionaires and billionaires — were either emigrating or planning to do so. Rich Chinese are sending their children to study abroad in record numbers (in itself, an indictment of the quality of the Chinese higher-education system).

Just this week, the Journal reported, federal agents searched several southern California locations that US authorities allege are linked to “multimillion-dollar birth-tourism businesses that enabled thousands of Chinese women to travel here and return home with infants born as U.S. citizens.” Wealthy Chinese are also buying property abroad at record levels and prices, and they are parking their financial assets overseas, often in well-shielded tax havens and shell companies.

Meanwhile, Beijing is trying to extradite back to China a large number of alleged financial fugitives living abroad. When a country’s elites — many of them party members — flee in such large numbers, it is a telling sign of lack of confidence in the regime and the country’s future.

Second, since taking office in 2012, Mr. Xi has greatly intensified the political repression that has blanketed China since 2009. The targets include the press, social media, film, arts and literature, religious groups, the internet, intellectuals, Tibetans and Uighurs, dissidents, lawyers, NGOs, university students and textbooks. The Central Committee sent a draconian order known as Document No. 9 down through the party hierarchy in 2013, ordering all units to ferret out any seeming endorsement of the West’s “universal values” — including constitutional democracy, civil society, a free press and neoliberal economics.

A more secure and confident government would not institute such a severe crackdown. It is a symptom of the party leadership’s deep anxiety and insecurity.

Third, even many regime loyalists are just going through the motions. It is hard to miss the theatre of false pretence that has permeated the Chinese body politic for the past few years. Last summer, I was one of a handful of foreigners (and the only American) who attended a conference about the “China Dream,” Mr. Xi’s signature concept, at a party-affiliated think tank in Beijing. We sat through two days of mind-numbing, non-stop presentations by two dozen party scholars — but their faces were frozen, their body language was wooden, and their boredom was palpable. They feigned compliance with the party and their leader’s latest mantra. But it was evident that the propaganda had lost its power, and the emperor had no clothes.

In December, I was back in Beijing for a conference at the Central Party School, the party’s highest institution of doctrinal instruction, and once again, the country’s top officials and foreign policy experts recited their stock slogans verbatim. During lunch one day, I went to the campus bookstore — always an important stop so that I can update myself on what China’s leading cadres are being taught. Tomes on the store’s shelves ranged from Lenin’s “Selected Works” to Condoleezza Rice’s memoirs, and a table at the entrance was piled high with copies of a pamphlet by Mr. Xi on his campaign to promote the “mass line” — that is, the party’s connection to the masses. “How is this selling?” I asked the clerk. “Oh, it’s not,” she replied. “We give it away.” The size of the stack suggested it was hardly a hot item.

Fourth, the corruption that riddles the party-state and the military also pervades Chinese society as a whole. Mr. Xi’s anticorruption campaign is more sustained and severe than any previous one, but no campaign can eliminate the problem. It is stubbornly rooted in the single-party system, patron-client networks, an economy utterly lacking in transparency, a state-controlled media and the absence of the rule of law.

Moreover, Mr. Xi’s campaign is turning out to be at least as much a selective purge as an antigraft campaign. Many of its targets to date have been political clients and allies of former Chinese leader Jiang Zemin. Now 88, Mr. Jiang is still the godfather figure of Chinese politics. Going after Mr. Jiang’s patronage network while he is still alive is highly risky for Mr. Xi, particularly since Mr. Xi doesn’t seem to have brought along his own coterie of loyal clients to promote into positions of power. Another problem: Mr. Xi, a child of China’s first-generation revolutionary elites, is one of the party’s “princelings,” and his political ties largely extend to other princelings. This silver-spoon generation is widely reviled in Chinese society at large.

Finally, China’s economy — for all the Western views of it as an unstoppable juggernaut — is stuck in a series of systemic traps from which there is no easy exit. In November 2013, Mr. Xi presided over the party’s Third Plenum, which unveiled a huge package of proposed economic reforms, but so far, they are sputtering on the launch pad. Yes, consumer spending has been rising, red tape has been reduced, and some fiscal reforms have been introduced, but overall, Mr. Xi’s ambitious goals have been stillborn. The reform package challenges powerful, deeply entrenched interest groups — such as state-owned enterprises and local party cadres — and they are plainly blocking its implementation.

These five increasingly evident cracks in the regime’s control can be fixed only through political reform. Until and unless China relaxes its draconian political controls, it will never become an innovative society and a “knowledge economy” — a main goal of the Third Plenum reforms. The political system has become the primary impediment to China’s needed social and economic reforms. If Mr. Xi and party leaders don’t relax their grip, they may be summoning precisely the fate they hope to avoid.

In the decades since the collapse of the Soviet Union, the upper reaches of China’s leadership have been obsessed with the fall of its fellow communist giant. Hundreds of Chinese post-mortem analyses have dissected the causes of the Soviet disintegration.

Mr. Xi’s real “China Dream” has been to avoid the Soviet nightmare. Just a few months into his tenure, he gave a telling internal speech ruing the Soviet Union’s demise and bemoaning Mr. Gorbachev’s betrayals, arguing that Moscow had lacked a “real man” to stand up to its reformist last leader. Mr. Xi’s wave of repression today is meant to be the opposite of Mr. Gorbachev’s perestroika and glasnost. Instead of opening up, Mr. Xi is doubling down on controls over dissenters, the economy and even rivals within the party.

But reaction and repression aren’t Mr. Xi’s only option. His predecessors, Jiang Zemin and Hu Jintao, drew very different lessons from the Soviet collapse. From 2000 to 2008, they instituted policies intended to open up the system with carefully limited political reforms.

They strengthened local party committees and experimented with voting for multicandidate party secretaries. They recruited more businesspeople and intellectuals into the party. They expanded party consultation with non-party groups and made the Politburo’s proceedings more transparent. They improved feedback mechanisms within the party, implemented more meritocratic criteria for evaluation and promotion, and created a system of mandatory midcareer training for all 45 million state and party cadres. They enforced retirement requirements and rotated officials and military officers between job assignments every couple of years.

In effect, for a while Mr. Jiang and Mr. Hu sought to manage change, not to resist it. But Mr. Xi wants none of this. Since 2009 (when even the heretofore open-minded Mr. Hu changed course and started to clamp down), an increasingly anxious regime has rolled back every single one of these political reforms (with the exception of the cadre-training system). These reforms were masterminded by Mr. Jiang’s political acolyte and former vice president, Zeng Qinghong, who retired in 2008 and is now under suspicion in Mr. Xi’s anticorruption campaign — another symbol of Mr. Xi’s hostility to the measures that might ease the ills of a crumbling system.

Some experts think that Mr. Xi’s harsh tactics may actually presage a more open and reformist direction later in his term. I don’t buy it. This leader and regime see politics in zero-sum terms: Relaxing control, in their view, is a sure step toward the demise of the system and their own downfall. They also take the conspiratorial view that the U.S. is actively working to subvert Communist Party rule. None of this suggests that sweeping reforms are just around the corner.

We cannot predict when Chinese communism will collapse, but it is hard not to conclude that we are witnessing its final phase. The CCP is the world’s second-longest ruling regime (behind only North Korea), and no party can rule forever.

Looking ahead, China-watchers should keep their eyes on the regime’s instruments of control and on those assigned to use those instruments. Large numbers of citizens and party members alike are already voting with their feet and leaving the country or displaying their insincerity by pretending to comply with party dictates.

We should watch for the day when the regime’s propaganda agents and its internal security apparatuses start becoming lax in enforcing the party’s writ — or when they begin to identify with dissidents, like the East German Stasi agent in the film “The Lives of Others” who came to sympathise with the targets of his spying. When human empathy starts to win out over ossified authority, the endgame of Chinese communism will really have begun.

The Wall St Journal

[CityFarmer]

SOEs are no longer the "safe" bet for banks...

DBS tightens lending rules for China state-backed firms

SHANGHAI/HONG KONG (March 9): Some banks are adopting stricter lending criteria for China's state-owned enterprises (SOEs), demanding collateral from some companies they used to deem as safe as government debt, as Beijing tries to reform its bloated firms and the economy slows.

Singapore's DBS Group ( Financial Dashboard), which recently suffered a loss on a bad loan to an SOE-related firm it had assessed as risk-free, plans to launch a 'decision grid' to assess the creditworthiness of SOEs, according to draft internal risk guidelines reviewed by Reuters.

A banker at Taiwan's Chang Hwa Commercial Bank said that from the beginning of this year his bank would only lend to state-owned Chinese companies that provide collateral, in recognition that SOEs were no longer risk free.

Such changes in policy suggest some foreign banks are preparing for a rise in defaults in the world's second-largest economy, which is growing at its slowest pace in a quarter of a century and where the government is trying to make the state sector more efficient.

DBS will now lend more conservatively to SOEs seen as receiving less government support, as China plans to prioritise SOEs in strategic sectors.
...
http://www.theedgemarkets.com/sg/article...cked-firms

[specuvestor]

The Chinese crack-up is coming
DAVID SHAMBAUGH THE WALL STREET JOURNAL MARCH 09, 2015 8:11AM

ON Thursday, the National People’s Congress convened in Beijing in what has become a familiar annual ritual. Some 3,000 “elected” delegates from all over the country — ranging from colourfully clad ethnic minorities to urbane billionaires — will meet for a week to discuss the state of the nation and to engage in the pretence of political participation.

This "ritual" has very deep rooted historic background. Because of feudal system in the past, going to see the emperor has very implicit connotations

It is no surprise that the purge of high level officials will coincides with all these Peking meetings when they are actually physically there.

China is a republic- hence PRC: the system is there but the essence is not because the party dominates. Singaporeans should be very familiar how it works and whether it has worked EFFECTIVELY. The draconian control, as in all things in China policies, from WTO to RMB internationalisation, will be loosened slowly and much slower than hopefuls expect.

And purely from observation, so far their execution has been much better than "big bangs" elsewhere.

With due respect to the WSJ author, I think CCP will probably still be around when China GDP matches US.

[FA+TA]

China takes lessons from Japan on economic history

[BlueKelah]

A little too late? Deleveraging from the credit boom in property and now stocks is gonna be UGLY. Coming soon...

Better learn to create quality products from the japs first..

Sent from my Galaxy Tab S