Tuesday, July 10, 2012

560 Chinese spending Trade Surplus on real estate in West. World Bank report on China would wreck its economy

Chinese spending Trade Surplus on real estate in West. World Bank report
on China would wreck its economy

(1) World Bank report on China would wreck it, as 1991 Study of the
Soviet Economy wrecked Russia - John Ross
(2) Chinese spending Trade Surplus on real estate in West. Pettis on
Capital A/c cf Current A/c
(3) How PBoC sterilizes "passive money supply" caused by increase in
foreign-exchange reserves - Fan Gang (2010)
(4) How PBoC deals with capital outflows - alsosprachanalyst (Aug 2012)
(5) Foreign companies using Yuan to settle trade deals
(6) China "no longer Socialist"
(7) The scramble for power in China's Communist Party
(8) Chinese workers on diplomatic visas build new embassy in Canberra,
dodging OHS green-tape
(9) Japanese firms plan China shutdown amid protests (Sept 2012)

(1) World Bank report on China would wreck it, as 1991 Study of the
Soviet Economy wrecked Russia - John Ross


Fundamental errors of the World Bank report on China

John Ross

18 September 2012

The World Bank's report China 2030 has, unsurprisingly, provoked major
criticism and protest. I have read World Bank reports on China for more
than 20 years and this is undoubtedly the worst. So glaring are its
factual errors, and economic non-sequiturs, that it is difficult to
believe it was intended as an objective analysis of China's economy. It
appears to be driven by the political objective of supporting current US
policies, embodied in proposals such as the Trans-Pacific Partnership.

Listing merely the factual errors in the report, of both commission and
omission, as well as the elementary economic howlers, would take up more
column inches than are available to me. So what follows is just a small
selection, leaving space to consider the possible purpose of such a
strange report.

The report has no serious factual analysis of the present stage of
China's economic development. On the one hand it is behind the times and
"pessimistic", saying China may become "the world's largest economy
before 2030". This is extremely peculiar as, by the most elementary
economic calculations, (the Economist magazine now even provides a ready
reckoner!) China will become the world's largest economy before 2020.

On the other hand, the report greatly exaggerates the rate at which
China will enter the highest form of value added production. As such,
the report calls for various changes in China, and bases its calls on
the rationale of "when a developing country reaches the technology
frontier'. But China's economy, unfortunately, is not yet approaching
the international technology frontier, except in specialized
defence-related areas. Even when China's GDP equals that of the US,
China's per capita GDP, a good measure of technology's spread across its
economy, will be less than one quarter of the US's. Even making
optimistic assumptions, China's per capita GDP will not equal the US's
until around 2040, by which time China's economy would be more than four
times the size of the US's! Put another way, China will not reach the
technology frontier, in a generalized way, for around three decades, so
this rationale can't be used to justify changes now.

The report appears to envisage China's development path differing from
that of every other country on the planet. It claims that in China "the
continued accumulation of capital… will inevitably contribute less to
growth". But one of the most established trends of economic development,
first outlined by Adam Smith and econometrically confirmed to the
present day, is that capital's contribution to growth increases with
development. Deng Xiaoping certainly argued that economic policy must
have "Chinese characteristics", i.e. be adapted to China's specific
conditions. However, he never argued that China was exempt from economic
laws, which is what this report appears to envisage!

The report makes elementary economic mistakes, such as confusing the
consequences of high export shares with trade surpluses. It argues: "If
China's current export growth persists, its projected global market
share could rise to 20 percent by 2030, which is almost double the peak
of Japan's global market share in the mid-1980s when it faced fierce
protectionist sentiments… China's current trajectory… could cause
unmanageable trade frictions." But if China increases its import share
at the same rate as exports, this would not create major trade
frictions. Japan's problem was trade surpluses, not export share.

It is almost impossible to believe, given such elementary mistakes, that
this report was intended as a serious objective analysis of China's
economy. What, then, is its goal? , The report spells out its goal
clearly enough in calling for China to abandon the policies launched by
Deng Xiaoping which brought such success. It says: "Reforms that
launched China on its current growth trajectory were inspired by Deng
Xiaoping… China has reached another turning point in its development
path when a second strategic, and no less fundamental, shift is called for."

What is this new "non-Dengite" economic policy? Deng Xiaoping's most
famous economic statement was "it doesn't matter whether a cat is black
or white provided it catches mice". Effectively, this means, in economic
terms, that a company should not be judged by whether it is private or
state owned but by how it performs. The proposed new economic policy
overturns Deng's dictum by saying: "Reintroduce judging cats by colour,
promote the private sector cat."

The consequences of this are clearly seen in the report's financial
proposals. During the international financial crisis, China was
protected by its state-owned banking system. The US and European
privately-owned banks simultaneously created the financial crisis and
were flattened by it, throwing their economies into crisis. China,
however, suffered no significant setback.

The reasons for the US and European banking crisis are well understood.
Modern banks are necessarily very large, both in order to undertake
international operations and because of the inherent risk of large
investment projects. They are literally "too large to fail", as the
failure of any large bank creates an unacceptable economic crisis. This
theoretical point was rammed home by the devastating consequences of
Lehman's collapse, following which no government will allow a large bank
to fail.

But a situation in which the state is blocking the bankruptcy of a large
bank, whose profits are being privately retained, creates disastrous
risk. If large private banks are state guaranteed against crippling
losses, but retain profits, they are incentivized to undertake
potentially profitable but highly risky operations. The disastrous
results of this scenario were seen during the financial crisis.

Extraordinarily, this report proposes that China abandon the financial
system which brought it successfully through the financial crisis and
instead adopt the one which led the US and Europe to disaster. This is
the real significance of "privatization would be the best way to make
SFIs [State Financial Institutions] more commercially oriented".

This ties in with US TransPacific Partnership pressure for the
elimination of China's state-owned companies, which are seen as giving
China a completive advantage over the US. The US, of course, does not
possess such companies. If the US is worried about the competitive
disadvantage created by not having state-owned companies, it should
create some, not call for China to abandon its own.

The last World Bank report of this type was published in February 1991
and its Study of the Soviet Economy provided the basis for Russia's
economic policies of the 1990s.

The result was that Russia suffered the greatest peacetime economic
disaster to befall any country. GDP declined by more than half. Russian
male life expectancy fell by four years and we saw the beginning of a
population decline, which continues to this day. The USSR subsequently
disintegrated, in what Vladimir Putin called the greatest geopolitical
catastrophe of the 20th century. Russia has not recovered.

This type of economic program is therefore not simply a "theoretical"
model. It has been thoroughly and demonstrably discredited on account of
the catastrophes it has produced. Russia was ill advised enough to adopt
this type of economic program. It is to be hoped, then, that China does
not follow the same course

(2) Chinese spending Trade Surplus on real estate in West. Pettis on
Capital A/c cf Current A/c


Pettis: Chinese want less commodities, more houses

Posted by Houses and Holes in China Economy, Featured Articleon

November 16, 2012

Exclusively from Michael Pettis’ newsletter.

For those who are interested in this sort of thing (and I confess I most
certainly am), transcripts of the Bretton Woods conference in 1944 have
recently been discovered and are being published on Kindle. I think a
paper book will come out in 2013.

I have just finished reading through a selection of the debates sent to
me by Gao Ming, my former PKU student, now at Harvard, and one part of
the debates that I found especially interesting was a debate on workers’
remittances. The USSR had insisted during the meetings that workers
remittances be included in the capital account, and so subject to
capital controls. Several other countries, led by China, were opposed.
The latter won the debate, and today, of course, workers’ remittances
are included in the current account.

Among other things this shows just how wobbly some of the capital
account/current account distinctions are. I think from a political point
of view workers’ remittances should certainly not be subject to capital
controls, but otherwise I think conceptually they really belong in the
capital account, although because they tend to be countercyclical there
certainly are good reasons for suggesting that they should be treated
differently from other items in the capital account. I would also argue
that interest payments and dividends, which are today part of the
current account, should be part of the capital account although again,
because they are nominally fixed and not subject to changes in investor
sentiment, perhaps they don’t fit wholly comfortably in the capital account.

Finally when it comes to defining the balance of payments components I
don’t think all commodity imports should be treated equally. Commodities
that are imported for use or for working inventory should certainly show
up in the current account, as they do. Commodities that are imported for
speculative purposes or for stockpiles, however, should be included in
the capital account, since they really are a form of external investment
more than a form of domestic consumption.

This is how they would recorded, for example, if rather than import
physical commodity for storage a local speculator purchased a
commodity-linked note from abroad. There is no real economic distinction
between the two transactions, but the former would be treated as a
current account import while the latter would be treated, correctly, as
a capital account export.

This matters because the numbers can be significant, and so heavily
distort the balance of payments numbers. Here, on the subject of cotton,
for example, is an article from Bloomberg:

Cotton stockpiles in China, the world’s biggest importer, are set to
climb to about 9 million metric tons this season, enough to cover the
country’s deficit for the next six years, according to Allenberg Cotton Co.

Inventories are rising as the government boosts purchases to support
domestic prices and lift farmer incomes, Joe Nicosia, chief executive
officer of world’s largest cotton trader, said at a conference in Hong
Kong today. The country may buy 5 million tons for reserves this year,
up from 3.2 million tons a year earlier, he said. “As long as China
maintains this regime to subsidize cotton farmers, the world will be
prone to overproduction,” he said. “Can you imagine a world without
China importing any cotton for six years? They hold all the cards.”

…Global stockpiles may total 79.11 million bales on July 31, up 14
percent from a year earlier, the U.S. Department of Agriculture said
Oct. 11. China will import 11 million bales, down 55 percent from last
year, as its inventories climb 21 percent to 36.61 million bales, the
agency said.

When you have stockpiled enough cotton to cover the next six years of
imports, it seems to me, most of your stockpile represents a speculative
bet on cotton prices. It should be treated no differently than any other
speculative bet, and the fact that it warehoused domestically rather
than off-shore is largely irrelevant.

It is not just cotton, of course, for which large speculative positions
distort the balance of payments numbers. FT Alphaville quotes a Goldman
report on copper:

Over-importing owing in large part to ‘financing deals’: Chinese refined
copper net imports rose by 73% yoy ytd September, averaging 265ktpm,
moving well above average requirements of c.225kt per month. As such,
Chinese copper inventories have risen sharply this year (primarily at
bonded warehouses), despite a negative Chinese copper import arbitrage
(Exhibit 2). Since the import arbitrage is not attracting extra metal
(over and above requirements), financing deals, which depend on the
positive differential between domestic and foreign interest rates, are
the likely culprit (in line with anecdotal evidence).

This, of course, is an old story, and it is not hard to figure out what
the consequences of this kind of thing are likely to be. Here is an
article from China Daily:

China’s steel industry is a big cause for concern in the fourth quarter
due to shrinking demand and heavy losses, according to an industry
official. The fears were outlined by Huang Libin, an official from the
Ministry of Industry and Information Technology, in an interview with
China National Radio.

“The steel sector’s performance has been bad since the beginning of the
year,” Huang said. “Their revenues are falling and demand remains weak.”
The entire steel sector is now operating at a loss and struggling with
problems of oversupply and a broader economic slowdown, he said. MIIT
data show that 45 percent of the country’s steel companies suffered
losses in the first nine months of 2012.

Clearly there has been too much stockpiling of a wide range of
commodities, and just as I have warned for many years, Chinese
stockpiling of commodities is a very dangerous balance sheet management
given the positive relationship between Chinese growth and commodity
prices. It was just a matter of time before a slowdown in Chinese growth
would cause a collapse in commodity prices, saddling already-struggling
Chinese producers with soaring inventory losses. This seems already to
be happening, and of course there is a lot more to come.

Understanding the Balance of Payments

But balance sheet management implications aside, the point is that our
understanding of the risks and conditions in the Chinese economy would
be significantly enhanced by distinguishing between commodity imports as
a current account import item and commodity imports as a capital account
export item. The problem with this kind of differential treatment of
commodity imports, of course, is that it might simply encourage
countries to lie even more about commodity purchases in order to
manipulate the numbers. What’s more, if after some period of time a
local speculator sells to a local user, the transaction would have to be
treated simultaneously as a capital account import balance by a current
account import, which might be hard to do as a practical matter.

We are probably stuck with this very distorted way of recording
commodity purchases in the balance of payments, and there is not much we
can do to change it. It does suggest however that rather than accept the
commonly accepted definitions of the balance of payments – or of other
things, like GDP, and whether housing must be classified as consumption
or as investment – as if they were fundamentally meaningful, we should
constantly remind ourselves why exactly we need the information and then
adjust the numbers accordingly.

In the case of China, this means that to the extent there has been an
increase in commodity imports held for speculative or investment
purposes, we should reduce imports and increase the current account
surplus correspondingly, in our private calculations. We should also
increase our estimates of capital account exports.

The other big adjustment to the current account should reflect the
extent to which speculative inflows or flight capital is being disguised
as goods and services imports or exports. On Saturday Chen Long in my
central bank seminar pointed out that since there is substantial
evidence that China was a net recipient of hot money until roughly
around the third quarter of 2011, and since then has become a new
exporter of hot money, we should consider that China’s current account
surpluses were probably lower than reported before the third quarter or
2011, and probably higher than reported since then. This makes sense to me.

The other implication he pointed out is that while the PBoC has been
recycling the current account surplus, there are two major adjustments
over time that we should consider. Before the third quarter of 2011,
China’s recycling of capital included a shift from private sector
recycling to PBoC recycling – in other words Chinese institutions were
on average liquidating foreign assets (or borrowing abroad) while the
PBoC simultaneous accumulated more foreign assets (mostly dollar and
euro government bonds) than can be explained simply by the recycling of
the current account surplus.

Since the third quarter of 2011, however, there has been a shift in the
way China as a whole recycles the current account surplus. The PBoC is
liquidating reserves (relative to the current account surplus at first
but now in nominal terms too) while other Chinese institutions are
acquiring foreign assets.

One way to think of it is that in the past China shifted out of whatever
foreign assets Chinese owned abroad (or borrowed privately) into US and
European government bonds. Now China is shifting out of US and European
government bonds into whatever assets wealthy Chinese are acquiring
abroad as they flee the country. The numbers are pretty big, especially
if the current account surplus is understated, which it almost certainly
is, and so the effect of these various shifts should show up in relative

What are Chinese currently buying? They are buying homes and real estate
in a number of countries, especially Australia, Canada, the United
States, and, to the extent that they can get around newly imposed
restrictions, Singapore and Hong Kong. They are also buying commodities
and commodity-related companies. They seem also to buying a lot of
unrelated businesses in places like Australia, which is good for
Australian asset prices but perhaps bad for Australian manufacturers.

This has at least one implication. Real estate and commodity prices have
been dropping, but this has come in spite of a massive program by
Chinese effectively to swap out of US and European government bonds and
into commodities and real estate. Where would prices have been absent
this Chinese swap? Probably much lower, right?

So what will happen next? The demand for real estate may or may not
abate at some point in the future, given the size of Chinese demand to
hold assets in a safe place – a demand which is not likely to drop with
slower Chinese growth but rather to speed up. The demand for
commodities, however, will certainly do so once Chinese long positions,
combined with much slower growth, make them excessive.

This can’t be positive for commodity prices. My point more generally is
that growth in China is likely to be negatively correlated with Chinese
demand for foreign real estate and positively correlated with Chinese
demand for commodities. It will also affect other things for which China
has effectively been swapping US and European government bonds, after
many years of doing the opposite.

By the way, and as a humorous aside, there has also seemed to be a
noticeable China-based shift in recent years from US and European
government bonds into outrageously expensive Swiss watches (the blingier
and more ostentatious, the better, especially if it comes in a large box
and with a price tag that is difficult to remove). This accumulation of
expensive and loud watches however has become such a scandal in China
that perhaps it is time to look for the next big thing in the way of

(3) How PBoC sterilizes "passive money supply" caused by capital inflows
- Fan Gang (2010)


China's monetary sterilization

December 20, 2010

By Fan Gang

BEIJING: Not long after the United States Federal Reserve Board
announced its second round of "quantitative easing" (known as QE2), the
People's Bank of China (PBC), China's central bank, announced two
increases of 0.5 percentage points in the required reserve ratio (RRR)
of bank deposits. The RRR now stands at 18.5 percent, a historic high,
even in global terms.

While the Fed is planning to pump more money into the US economy, the
PBC is trying to reduce the amount of money in circulation in China.
Money used by commercial banks to satisfy the RRR, which is held in
accounts at the PBC, can no longer be extended as loans. As a result,
more money than ever is now frozen or inactive in China.

It is understandable that the Fed wants to boost demand as long as the
US economy remains depressed. But why has the PBC tightened monetary
policy so much? The Chinese economy is not over-heating. Growth is still
high, at about 10 percent per year, but has started to moderate. And,
while inflation is a concern — having risen to 4.4 percent year on year
in October, from 3.6 pecent in September — this cannot explain why the
PBC raised the RRR three times earlier this year, when inflation was lower.

Instead, the PBC's policy is preemptive: sterilize over-liquidity and
get the money supply under control in order to prevent inflation or
over-heating. At the beginning of the year, the RRR increases could be
regarded as part of efforts to correct the over-supply of money that
arose from the anti-crisis stimulus package. But the most recent RRR
increases serve mainly to sterilize the "passive money supply" caused by
the increase in foreign-exchange reserves.

Indeed, in September alone, China's foreign-currency reserves increased
by almost $100 billion compared to August. With the global economy
recovering, China's trade surplus began to grow. Moreover, capital
inflows increased significantly, owing to real investment opportunities
in the high-growth economy and the expectation of renminbi revaluation.

But rapid growth in foreign-exchange reserves means an increase in the
domestic money supply, because the PBC issues RMB6.64 (down 3 percent
since June) for every dollar it receives. That means that money supply
increase by nearly RMB700 billion in September. The two 50-basis-point
RRR increases just locked up the same amount of liquidity.

{ie PBC creates new RMB to buy $}

A country with current-account and capital-account surpluses and
increasing foreign-exchange reserves normally sees an excessive money
supply and high inflation. But, while excessive money supply is a
reality for China — the PBC now holds more than $2.6 trillion in foreign
reserves — inflation has been quite moderate so far, thanks to the
sterilization policy.

The RRR is only one example of a textbook sterilization instrument.
Another is to sell off government bonds held by the central bank in
order to take money out of circulation — again, just the opposite of
what the Fed is now doing. Because China's government does not owe much
debt to the public, the PBC sold out its holdings of government bonds in
2005. So it had to create something else to sell.

It created so-called "Central Bank Bills," which commercial banks are
supposed to buy voluntarily. When they do, the money they pay is also
locked up in the PBC's accounts. To date, up to 5-6 percent of total
liquidity has been returned to the central bank in this way.

Furthermore, the PBC uses unconventional instruments from time to time,
such as "credit ceilings" or "credit quotas" imposed on commercial
banks. This may result in "extra reserves," which commercial banks
cannot use to extend their credit lines. Credit quotas imposed early
this year have left Chinese commercial banks with 2-3 percent of extra

Adding up the impact of the PBC's sterilization efforts, roughly
one-quarter of China's total monetary base is illiquid. Thus, although
China's total money supply seems excessive, with the M2-to-GDP ratio now
at about 190 percent, the real monetary base is actually much smaller
than it appears. As a result, China's inflation, as well as asset
prices, remain under control.

For how long will this sterilization continue, and how far will it go?
At what point will higher RRR levels cause Chinese commercial banks to
begin running losses?

There may be room for further sterilization. First, unlike in some other
countries, Chinese commercial banks are paid reasonable interest rates
on required reserves, except for the "extra reserves" that they hold. So
they do not lose much, if anything, from the PBC's sterilization policies.

Second, China's central bank still controls interest rates by enforcing
a roughly three-percentage-point spread between deposit rates and
lending rates. As a result, Chinese commercial banks can operate longer
with a higher RRR than their counterparts elsewhere.

One key issue facing China is how to reduce the current- and
capital-account surpluses in order to reduce foreign-exchange holdings.
Yes, further revaluation of the exchange rate is needed, but this can
play only a secondary role. The most important task for China is to
reduce the saving rate, which equaled 52 percent of GDP in 2009. A
number of fiscal, social-security, and tax reforms should be a priority
for this purpose.

But it seems that both revaluation and reform will take time. Meanwhile,
the causes of global imbalance on the US side also seem unlikely to
disappear any time soon. And now, with the Fed's QE2 on the table,
conditions may worsen before they improve. The PBC may have to continue
its sterilization for some time in the foreseeable future.

Fan Gang is Professor of Economics at Beijing University and the Chinese
Academy of Social Sciences, Director of China's National Economic
Research Institute, Secretary-General of the China Reform Foundation,
and a former member of the Monetary Policy Committee of the People's
Bank of China. This commentary is published by Daily News Egypt in
collaboration with Project Syndicate, www.project-syndicate.org.

(4) How PBoC deals with capital outflows - alsosprachanalyst (Aug 2012)


On China’s second half recovery, or the lack of it

2 August, 2012, 18:14. Posted by Zarathustra

There are a few things to keep in mind when consider the willingness,
ability and effectiveness of policy easing.

First or all, the role of capita flows on China’s monetary condition is
not well-understood. The balance of payments deficits (reserve account
excluded) shows that China is losing foreign exchange reserve. But that
has not got a lot of attention. As we have reiterated many times,
China’s own excessive liquidity problem in the past is very much created
by foreign exchange intervention that forced central bank to create too
much money. Now this problem is gone, at least for the moment as
capital is no longer flowing into the country. If this is the moment
for the dramatic shift of capital flow where the central bank does not
need to create as much money as they used to be, easing monetary
condition could be difficult.

To better illustrate the point, let us assume that the People’s Bank of
China would like to keep exchange rate unchanged, and someone decided to
convert his RMB-denominated assets into US$ (say US$10 billion worth of
it). If no one else is willing to buy up all those RMB being sold at
the market exchange rate, the PBOC will end up be buying US$10 billion
worth of RMB while selling US$10 billion worth of foreign exchange
reserve (effectively propping up RMB). That US$10 billion worth of RMB
has disappeared from the Chinese banking system. In other worse,
monetary condition has been tightened. Cutting RRR in an environment as
China is in now does not necessarily ease monetary condition. Rather,
it offsets the tightening effect arising from capital outflow.

(5) Foreign companies using Yuan to settle trade deals

More foreign companies using yuan

Updated: 2012-11-13 02:46

By DIAO YING in London and WANG XIAOTIAN in Beijing ( China Daily)

The number of foreign companies using the yuan as their currency of
choice has surged after rules introduced earlier this year allowed yuan
settlements for Chinese traders.

The number of French companies paying in yuan increased by 30 percent in
the second quarter from the previous quarter.

Australian companies closely followed that example with a rise of 25
percent in the same period, according to Western Union, a global payment

The People's Bank of China allowed Chinese importers and exporters to
settle trade using the yuan in March.

"In a very short period of time we have seen a marked increase in the
number, and value, of payments companies are sending to China through
the renminbi," said Gareth Heald, regional finance director of Western
Union Business Solutions.

Western Union saw a sharp rise in British organizations, such as
universities, law firms and pension funds opening their accounts in yuan.

China started testing cross-border renminbi trade among 365 companies in
July 2009. The program later expanded nationally to 60,000 companies.
The regulation in March finally allowed all companies to price, invoice
and settle business in yuan.

For foreign companies, using the renminbi means they can avoid foreign
exchange risks and reduce costs. They also find it easier to negotiate
with Chinese companies in their own currency. ...

In recent years, China has been promoting direct transactions between
the yuan and other currencies to facilitate global use of the yuan and
reduce dependence on the greenback.

Greater flexibility and the recent appreciation of the yuan will also
increase willingness to sell dollars and hold more yuan, said Guo
Tianyong, a professor of finance at the Central University of Finance
and Economics.

The yuan has appreciated 1 percent this year, reversing a depreciation
of as much as 1.6 percent in the year by late July, according to data
compiled by Reuters.

Contact the writers at diaoying@chinadaily.com.cn and

(6) China "no longer Socialist"

From: Kersasp Shekhdar <kersasp_public@yahoo.com.au> Subject: Re: China
Date: Fri, 23 Nov 2012 13:24:42 +0500

Peter, Have replied below with K-> in three places.

On 23 Nov 2012, at 03:02, Peter Myers wrote:


But much of China's economy is state-owned, eg the big banks and
petroleum companies. So it's still socialist.

K-> Strictly speaking, what you've written is true. You mentioned
Hitler's regime, below. Compare who gets the lion's share of the
PROFITS AND BENEFITS from those so-called "state-owned" companies in
China versus Hitler's Germany. How does China have multimillionaires
and billionaires if it's a 'socialist' country? Check out China's Gini
coefficient today and compare it down the years. You'll find the
'socialist' label is an illusion that one shouldn't fall for. The
conclusion will be the 'kleptocratic' part I had written as the
party-connected Han elite capture the spoils from these "state-owned"
companies. Also keep in mind that -- unlike America, etc. -- their
financials are not audited and published for the world to see and are
totally opaque.

As for the perils the workers face, this situation happened under Mao's
Communist period too.

K-> Upheaval, long marches, food scarcity -- yes. Serfdom, deliberate
razing of accomodations, parching of farmland, deliberate exploitation
and so forth -- no. People could then live off the land; the present
regime has destroyed that lifestyle to get more workers into the
sardine-box dorms of their free-trade zones. Whatever went wrong
under Mao, one can scarcely doubt his motives. We cannot say the same
about the 'Deng-ist' regimes. Under Mao, there was a genuine respect
and appreciation for the 'worker' class -- indeed, almost everyone was
supposed to be in the 'worker' class; the hierarchy was very flat. And
I don't think any mature Mao (or Maoist) regime would have allowed these
horrible organ factories and transplant tours. Conclusion: On the one
side it was incompetence; on the other, an uber-'Victorian' caste/class
based outlook.

As for the imperialism, "national socialist" regimes eg Hitler's and
Israel today, have not been averse to that.

K-> Hitler's regime was not imperialist per se, it was *irredentist*,
and then Hitler attacked Russia, suspecting Stalin. If you call
Hitler's regime 'imperlialist', you'd have to coin new words to describe
Great Britain, France, Netherlands, etc. Yes, Israel is 'national
socialist' for only its Jewish population (as you know, others are
treated rather differently) and it is also imperialistic in terms of its
neighbouring countries/territories/peoples. But that doesn't rebut what
I wrote about China, does it? I never said a country can't be both
National-Socialist and also Imperialist (though the only one I know is
the one you named, Israel, and that too isn't properly National Socialist).

Comment (Peter M.):

Hitler's plan to colonize the Ukraine cannot be called "irredentist".
The Ukraine had been the "Aryan Homeland" about 5,000 years previously,
but Hitler deemed the Ukrainians and other Slavs - who were as "Aryan"
as the Germans - "subhuman". This was a vestige of German anti-Slav
propaganda during World World I, much as the British depicted the
Germans as baby-eating Huns. Similarly, the Arabs are "Semites" - as
much as or more than the Jews - but Likudnik Jews depict them as

China's economic development in the last 30 years is a mix of the "Japan
Model" and the Stalin Model. Stalin rapidly developed the Soviet economy
by using Western contractors. China has similarly used Western know-how,
while retaining control. The poor suffered in both cases; but this does
not mean that China is purely Capitalist. Its mix of Capitalist and
Communist features qualifies it as "Socialist".

(7) The scramble for power in China's Communist Party

The scramble for power in China

David Whitehouse examines the crises that have rocked China's Communist

The Socialist Worker

{American Trotskyist paper - organ of the International Socialist
Organization (ISO)}

September 19, 2012


WITH 80 million members implanted in key positions in government, the
military, business and the media, China's Communist Party (CCP) strives
to exert tighter control over events--and the perception of events--than
any other national ruling group. Yet the past year has provided
reminders that the party is often trying to catch up with developments
beyond its control.

The CCP, for example, has tried to make the choice of new party
leadership into a tightly scripted affair, brokered by various factions,
with important appointments decided long in advance. Party elders
decided five years ago that Xi Jinping, a protégé of former president
Xiang Zemin, would become party secretary this fall, heading up the
crucial Standing Committee of the CCP's Politburo.

But the ouster in March of Chongqing's popular party secretary Bo Xilai,
who seemed destined to join the Standing Committee, cast doubt upon who
would end up on the body, while raising fears that the purge could start
a factional war inside the party.

Party leaders have worked for months in secret to establish a new
consensus on personnel questions, but even if the elevation of a new
standing committee comes off without a hitch in October, the party faces
daunting economic challenges in the short and long term, as well as
sharpening conflicts with regional neighbors over the control of
offshore islands.

China's increasingly aggressive assertion of sovereignty over islands
also claimed by Vietnam, the Philippines and Japan is a sign of China's
development as a rising power. Aside from the possible benefits of
exploiting underseas resources, China's offshore push is also an
implicit challenge to the power that really exerts naval control over
the area's shipping lanes--the United States.

At the same time, the current escalation of a conflict over the Diaoyu
Islands, which the Japanese call the Senkakus, may go farther than the
Chinese intended just now. The timing isn't perfect for a leadership
that's been navigating an internal conflict or for Xi Jinping, the
president-to-be, who disappeared from sight for two weeks with an
"exercise-related back injury."

For about a year, Chinese leaders have tried to outdo each other with
tough nationalist rhetoric as the leadership transition approaches.
What's more, as the Financial Times noted in August, a turnover in
military leadership coincides with the party transition. Generals and
military think tanks have competed, like the politicians, to go on
record as super-nationalists.

So if the conflict over the Diaoyus/Senkakus does escalate beyond the
control of China's rulers, it's partly the unintended consequence of
their own competition for career advancement. - - - -

CONSIDERING THE CCP's tight connection to Chinese business, you might
think that the economy would be one thing that Xi Jinping could succeed
in controlling. After all, the state does control the "commanding
heights" of the economy--the banks, utilities, telecommunication,
mining, steel production, etc.

The party hires and fires the executives of state enterprises, and party
committees are set up to influence the major privately held companies.
The heads of CCP factions represent not only the peaks of political
power, but also control billions of dollars of capital--gained through
the party's intimate connection with private and state enterprises.

Nevertheless, China's export-led growth has depended on foreign demand,
which is clearly not under Beijing's control. By the mid-2000s, the
current President Hu Jintao recognized the need rebalance the economy
and base future economic growth more on the domestic market and less on
exports--a plan that would direct more of China's total product toward
boosting Chinese living standards and less toward reinvestment in ever
more productive capacity.

His "scientific development" plan would thus promote a "harmonious
society" that narrowed a widening income gap and bought off rising
workers' and peasants' struggles with the promise of higher wages and
generous social benefits.

Despite the rhetoric, the economy under Hu produced an explosion of
exports, an orgy of overinvestment, a still-widening gap between rich
and poor, and a surge of strikes, riots and demonstrations that now
number in the neighborhood of 200,000 per year.

The Chinese stimulus in response to the 2007-08 financial crisis only
cemented the economy's reliance on exports, accelerated the overbuilding
of infrastructure and precipitated major speculation in property. Since
then, the central government has reined in access to credit in an
attempt to cool down the economy and deflate the property bubble as
gently as possible.

The new administration will soon face another economic challenge, not
from the world economy but from its own officials. Beijing controls the
career paths of party chiefs at the provincial, municipal or lower
levels, but it does not directly control their economic decisions.

In fact, Beijing provides incentives for lower party officials to
overinvest, since advancement in the party hierarchy requires lower
officials to maximize economic growth. When a new generation of higher
officials takes office, so will a new generation of lower officials--who
are planning massive investments to put themselves in a good light.
According to the Financial Times:

{quote} Already, provincial and municipal governments have unveiled
spending plans that total more than $1.6 trillion...[E]ven if the exact
targets are not realized, the flurry of announcements highlights the
deeper political forces that are at work in China's economy, no matter
how much it has developed over the last three decades.

"It is like the central government is running a tournament among
the local governments based on their GDP figures. Whoever can deliver
the best GDP growth will get a promotion later on. So the incentive to
invest is definitely there," says Huang Haizhou, chief strategist
at...one of the country's top investment banks. {endquote}

The party's job-performance standards for lower officials could thus
thwart the current national goal of moderating growth--only one example
of a party machine that has so many "moving parts" that a touch of the
levers in Beijing often produces unexpected consequences. - - - -

XI JINPING'S control over events will also be limited because he will
inherit a Five Year Plan that was drawn up last year. This kind of
constraint on individual power is a deliberate attempt to consolidate
the party, or at least its top leadership, as a cohesive collective body.

Party analysts concluded in the 1990s that the personal sway of Mao
Zedong, or of his immediate successor, Deng Xiaoping, over party policy
constituted a danger to the stability of CCP rule. The immediate spur to
this conclusion was the collapse of the USSR and the Russian CP
following the rise of Mikhail Gorbachev, according David Shambaugh's
China's Communist Party: Atrophy and Adaptation.

Hu Jintao and Xi Jinping may seem colorless in comparison to their
predecessors--and hemmed in by responsibility to an anonymous top
collective--but that's by design.

In this light, we can see that the pretext for the fall of Bo Xilai may
be his ethical breaches, but the real reason was his breach of the
party's ethos of self-effacement.

Bo was flamboyant and popular, and he used his popularity as leverage
against officials who obstructed his policies and power. Since the
nightmare of China's Cultural Revolution (1966-1976) under Mao, party
officials have tried to keep struggles "inside the family" and avoid
appealing to the public over the heads of their peers.

Some commentators see the purge of Bo Xilai as a blow against his "left"
policies. As party secretary of Chongqing, a combined urban-rural
"municipality" of nearly 30 million, he did spend $15 billion on public
housing. He issued 3 million hukou, certificates of family registration
that allowed new urban residents access to social services. His ruthless
"smash black" campaign apparently cut down on street crime, and he
planted thousands of trees.

Bo could also turn a populist phrase. In a widely broadcast debate last
year with Wang Yang, the party secretary of Guangdong province, Wang
said about distribution of wealth: "One must bake a bigger cake first
before dividing it." Bo replied: "Some people think...that one must bake
a large cake before dividing it; but this is wrong in practice. If the
distribution of the cake is unfair, those who make the cake won't feel
motivated to bake it."

Bo's leftist credentials, however, are overstated. He presided over
Liaoning province when the first major post-Tiananmen workers' struggles
broke out in 2002. He moved to crush the demonstrations, arrested the
leaders and had them tortured in jail. Before that, he had made his
bones as a loyalist of Jiang Zemin when Jiang launched a brutal
crackdown on practitioners of Falun Gong meditation.

Even the "smash black" campaign against organized crime in Chongqing was
a selective operation that brought down business people and party
members who weren't connected to his own circle. Given the endemic
nature of corruption in the Chinese system, any prominent official is
vulnerable to prosecution, so "crime-fighting" in China is often simply
synonymous with faction fighting.

Bo used his popularity to back up his campaigns against business and
party rivals, going so far as to sponsor public sing-alongs of Cultural
Revolution "fight songs." Officials in Beijing had to wonder whether
he'd be doing the same thing to them and their friends once he got on
the standing committee. - - - -

THE BREAK in the case of Bo Xilai came when his police chief sought
refuge last February in the U.S. consulate in nearby Chengdu. When he
emerged into the custody of Chinese officials, the Chinese media
publicized his charge that Bo Xilai's wife, Gu Kailai, had murdered a
British businessman, Neil Heywood, in November and enlisted Wang in a

The international nature of the incident--involving Wang's appeal to
U.S. officials, plus the murder of a British citizen--forced the hand of
the CCP's top leadership. Their first act was to suspend Bo from his
party positions and take him and his wife into custody. Bo has not been
seen in public since March. Gu confessed to murder after being held
incognito for months, receiving a suspended death sentence in a one-day
trial last month. Wang goes on trial this week.

Beijing officials have so far sought to contain their investigations
within a narrow scope because the exposure of high officials damages the
party's legitimacy--and raises the danger that the accused will
retaliate with exposures of his prosecutors. Wang is rumored to have
bugged the phone calls of members of the standing committee.

It's not clear whether Bo himself will face criminal charges beyond his
internal party punishments. Even if officials hold back on a public
trial for Bo, the interrogations of Gu and Wang are sure to have turned
up enough dirt on Bo to discourage him from ever trying to make a
comeback or counterattack.

Such was the fear of uncontrolled bloodletting inside the party that
President Hu Jintao declared last spring that investigations into Bo
Xilai's case would touch only Bo and his closest associates. The new
party secretary for Chongqing is a former lieutenant of Bo's. And Bo's
closest patron in the standing committee, Zhou Yongkang, is keeping his
job until the turnover.

What's more, the party sought to display its inner harmony by providing
public appearances for aging patriarchs of the various factions. These
including Li Peng, who presided over the crackdown in Tiananmen Square
in 1989 and was pushed aside in the mid-1990s, and Jiang Zemin, who was
president from 1992-2002 and a close associate of Bo Yibo, Bo Xilai's

(8) Chinese workers on diplomatic visas build new embassy in Canberra,
dodging OHS green-tape


Army of Chinese workers on diplomatic visas flown in to build new
embassy in Canberra

Steve Lewis

The Sunday Telegraph

November 03, 2012 11:30PM

CHINA has flown in a small army of workers on diplomatic visas for a
highly secretive project to build its new embassy in Canberra.

Immune from local laws, the builders are toiling away on the new mega
embassy behind high steel walls designed to keep out prying eyes.

The extraordinary project - a few blocks from Parliament House - ensures
the building will not be bugged as its consulate was when it was built
in the early 1980s.

There is talk of a tunnel linking the buildings, but Chinese and
Australian officials remained tight-lipped.

An embassy liaison officer, who gave his name as Dan, referred questions
to the Department of Foreign Affairs and Trade. "I can't tell you
anything regarding this project," he told The Sunday Telegraph. In an
hour on Friday morning, two vehicles - supplying cement and gas bottles
- entered the site, which is obscured from most sides.

Officials sought to film The Sunday Telegraph's visit.

Meanwhile, the project's secrecy has prompted concerns over worker
safety. Union and ACT government representatives are barred from the
site and there appears little they can do to ensure no one is injured or

There appears to be grounds for concerns. The Sunday Telegraph observed
six workers moving across a roof three levels high wearing no safety
harnesses for protection.

Steel fencing was hung near a public footpath before being bolted into
place, but prone to collapse in a gust of wind.

Dean Hall, ACT secretary of the Construction Forestry Mining and Energy
Union, has tried to enter the site.

He is worried the Chinese are routinely breaching safety standards and
is also concerned Australian workers who supply concrete and other
materials will not be covered in the event of an accident.

But DFAT had earlier told Mr Hall there would be no interaction between
Chinese and Australian workers.

Mr Hall is angry that he cannot check workplace safety because China has
struck a deal with the government.

"Every single worker on that site is a diplomat," he said. "When
(Australian) workers go on that site, we don't have any rights to
inspect."Mr Hall worries the embassy will not be built to Australian
standards and frets that "no one is checking it".

But a DFAT spokesman said China was required to comply with "Australian
occupational health and safety requirements". "A requirement to comply
with ACT building standards, inspections and occupancy certifications
has also been agreed," the spokesman told The Sunday Telegraph.

But the ACT's building inspector has also been frustrated in his efforts
to examine workplace safety drills and it is understood the matter has
been referred to the federal agency, Comcare.

Comcare did not reply to questions by deadline.

(9) Japanese firms plan China shutdown amid protests (Sept 2012)


Updated 18 September 2012, 18:38 AEST

Japanese firms, including Toyota and Yamaha, are shutting their doors in
China as anti-Japanese sentiment boils over in angry protests.

{photo} A protester carries a defaced Japanese flag with Chinese
characters reading: "Wipe out Japanese pirates, return our land."
(Credit: Reuters) {end}

Hundreds of Japanese businesses and the country's embassy have suspended
services in China, expecting violent protests over a territorial dispute
to continue.

Mitsubishi Motors says it will halt operations at one of its factories
in China. The plant is joint venture with the Guangzhou Automobile Group.

Yamaha also said that it will suspend operations at four plants.

A spokesman says the company will close its Zhuzhou motorcycle plant in
Hunan province and three factories in Jiangsu province.

China's worst outbreak of anti-Japan sentiment in decades led to
protests and attacks on Japanese companies, including car makers Toyota
and Honda, forcing them to halt operations and prompting Chinese state
media to warn that trade relations could deteriorate.

More protests are expected across China on Tuesday, which marks the
anniversary of Japan's 1931 occupation of parts of mainland China.

Arson attacks

Hundreds of protesters had gathered outside Japan's embassy again on
Tuesday, some throwing water bottles at the building, which was
protected by a heavy police presence, Reuters witnesses said.

China and Japan, which generated two-way trade of $345 billion last
year, are arguing over the uninhabited islets in the East China Sea, a
long-standing dispute that erupted last week when the Japanese
government decided to nationalise some of them, buying them from a
private Japanese owner.

The weekend protests mainly targeted Japanese diplomatic missions but
also shops, restaurants and car dealerships in at least five cities.

Toyota and Honda said arsonists had badly damaged their stores in the
eastern port city of Qingdao at the weekend.

Other major Japanese firms have announced similar shutdowns and urged
expatriates to stay indoors. ...

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