19 posts categorized "China's Economy" Feed

Chinese Local Governments do not Need to Pay back Loans to Big Banks

Chinese local banks received $1.7 trillion of loans from government-controled banks as part of the stimulas plan designed to cope with the financial crisis. As the loans are approaching their maturity in the next three years, the local governments are getting concerned because most of them are cash strapped, while the big banks becoming nervous that they have to write off significant amount of bad loans, which will make their balance sheet look terrible. Here comes to the good news. Guess what, the central government decides that the local government does not need to pay back the loans, which will make big banks' life much easier. For more details, please read Jim Jubak's blog " China Kicks the Can again". Read more →

FEW would deny that China has been the economic superstar of recent years. Thanks to its relentless double-digit annual growth, it has become the world’s second-largest economy and in many ways the most dynamic. Less obvious is quite what the secret of this success has been. It is often vaguely attributed to “capitalism with Chinese characteristics”–typically taken to mean that bureaucrats with heavy, visible hands have worked much of the magic. That, naturally, is a view that China’s government is happy to encourage. But is it true? Of course, the state’s activity has been vast and important. It has been effective in eradicating physical and technological obstacles: physical, through the construction of roads, power plants and bridges; technical, by facilitating (through means fair and foul) the transfer of foreign intellectual property. Yet China’s vigour owes much to what has been happening from the bottom up as well as from the top down. Just as Germany has its mighty Mittelstand, the backbone of its economy, so China has a multitude of vigorous, (very) private entrepreneurs: a fast-growing thicket of bamboo capitalism. These entrepreneurs often operate outside not only the powerful state-controlled companies, but outside the country’s laws. As a result, their... Read more →

China Passing Japan as the 2nd Largest Economy in the World

In the second quarter of 2010, China replaced Japan as the 2nd largest economy in the world, trailing the U.S. It is a historical moment. However, people in the West are more concerned or skeptical than happy about this milestone China has accomplished. One of the most turned-to argument is that China is not a consumption country, whose growth relies heavily on low-margin export, as a result, not sustainable. Just to point out a few facts: China has become luxury brands' most important market, such as LVMH, Hermes, Swatch, Mercedes, Ferrari; China unseated the U.S. as the largest car market in the world; Hong Kong, known as a Shopping Heaven, has benefited from all the shoppers from mainland China in the past decade. Traveling to China on a regular basis, I am dumbfounded to see how packed restaurants and shopping malls are, from first-tier to second-tier cities in China. To say that Chinese does not consume is generalization. The older generation, 60 years and up, tends to be "stingy". The memory of those poor and struggling old days is still fresh in their mind. However, those between 35-55 believe in hard work and saving some money, but they are not... Read more →

Is China's Growth Sustainable?

My answer is positive. First of all, let’s look back 20 years to see where the growth mostly came from.There have been many drivers that contributed to the fast growth of China’s GDP in the past two decades. If you want me to pick some, three of them stand out – they are exports, infrastructure development, and the private sector. By January 2010, China overtook Germany to become the largest exporter and its share of world’s exports was almost 10% vs. 3% in 1999. China’s export has seen a growth rate of 20-25% for years. In 2007 the net exports in China has represented 3% of China’s GDP growth. The second factor behind the fast growth was China’s increased investment in its infrastructure, including energy, transportation (including rail & airports), highways and telecommunication. In 1980s, the poor infrastructure became the bottle- neck to China’s growth. Starting in 90s, China invested 30-40% of its total domestic investment each year into infrastructure. Another remarkable driver of China’s economy is the private sector. In 1992, China was dominated by the State-owned enterprises with only 140,000 private companies. By the end of 2009, the number of private companies reached 8 million. Over 61% of... Read more →

Chinese Government Injects $23.7 mm into Chinese VC Firms to Support Technology Start-ups

The Chinese Ministry of Science & Technology (MOST) and the Ministry of Finance (MOF) recently signed an equity investment agreement with six Chinese local VC firms to invest a total of RMB159mm (US $23.7mm) seed capital into each of the six VC firms. The administrative entity of this project is Technology SMEs Innovation Fund Management Center under MOST. These six VC firms are Wuhan Huagong Venture Capital Co., Ltd. (HUSTVC), Shanghai Venture Capital Co., Ltd., China-Singapore Suzhou Industrial Park Development Co., Ltd., Jiangsu High-Tech Investment Group,Shandong High-tech Investment Corporation and Hefei Venture Capital Co., Ltd. The injection of capital to these firms ranges from RMBRMB16mm (US $2.4mm) to RMB55mm (US $8.4mm), which will account for 11.92% to 28.89% equity ownership by the government in these firms. After receiving the seed capital each firm is responsible for setting up a fund to invest exclusively in technology SMEs in their early development stage. Each VC firm will apply leverage no more than 1:10 and will raise more capital from more investors esp. those non-government entities. It is estimated that, with the leverage, the six firms can provide financing up to RMB1.04billion (US $156mm). This project is one of Chinese central government’s efforts... Read more →