The author made some good points, but almost all of them have been recognized by the central government and the central bank of China. And they are working on them as hard as they can. Yes, it is true that there are lots of problems in Chinese banking system, but this article seems a little too bearish<g>
Here is some of my comment.
>>However, in 2007 China must open up its banking sector to foreign financial institutions for RMB business, <<
This so-called “must” is conditional, just like the textile market in Europe and the US is supposed to open soon, but they may not. Just like the agricultural market should all open soon, if not already, and agricultural product should not be subsidized. As a matter of fact, every single developed country subsidizes their agriculture in billions, that China now is forced to do it too.
“WTO commitment” is a two way street. There is no way China will make all the commitment on their side while others drag their feet in doing so.
>>Domestic demand is slowing for many goods. This is hardly surprising after we learnt of the huge increase in household debt over the last five years. The Chinese Academy of Social Sciences, a government think-tank, has just reported that household debt to disposable income is at 155% in Shanghai, 122% in Beijing, 95% in Qingdao, 91% in Hangzchou, 85% in Shenzhen, 79% in Ningbo and 44% in Tianjin. Five years ago, household debt was virtually zero. This is a staggering change; it questions the rapid growth being assumed by so many analysts. <<
This above-mentioned research by the Chinese Academy of Social Sciences is pretty controversial. And it grossly exaggerated the debt of Chinese households, and it had not at all considered the grey income, which plays such a crucial part in urban residents’ income. Some friends of mine in Beijing earn times more of grey income than their official income. And some who have research funding can pretty much put all their living expense as research expense. So all their income, grey or official, go directly to their individual bank saving account<g>.
Car sale is down in China, but y-o-y growth for this year is still 15%, and the estimated rate of growth for next year is also 15%. Yes, they are considerably lower than 75% of increase in 2003, but hey, get over with it. That kind of neck-breaking growth rate is gone and will never be seen again<g>.
>> (car) Prices will fall sharply. China will become an important exporter of cars.<<
I have mentioned here many times before. Foreign auto makers have a profit margin of 5% in developed countries, but 20%-25% in China, due to the preferential treatment and policy of the Chinese gov and high tariff. So the price decrease is highly over-due, and even if now, the car price in China, for most models, still higher than the international standards, despite plenty of parts are made by using Chinese cheap labor. Those foreign car makers have made millions from China. For the past decade, a typical Japanese car, or VW car, or whatever brand car sold in China usually were older models (at least 1-2 years old if not more) but at higher price than the latest model sold on the market of developed countries.
Some other important reasons for car sale slows down in China are policy-related. Read here:
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As for China will become an exporter of cars, that is a joke. Yes, maybe some cars will be exported from China, but >90% of parts on it are made by other countries!
There is an article on the latest Economist talking about China's spreading wealth. I do not have subscription. The article is optimistic on China’s progress to shrink the gap bet. the rich and poor. This year, the farmers’ income will increase 10%, significantly higher than that of urban residents. And the latest income data show that the gene gap for China now is about the same as that of the US.
That article also talked about the export dependency of China’s economy. 30% of China’s GDP is generated from exports. This is high by the standard of the US or Japan, but it is normal compared to some European and Eastern Asian countries. And the article thinks China’s domestic consumption will pick up faster. The prosperity in those coastal cities will also spread toward inland of China.
>>The growth rate of mobile phones is slowing rapidly. <<
Just yesterday’s news said that the number of mobile phone subscribers in China reached a record 320 million at the end of October. This is a rise of 55.081 million over the end of last year. On the average, China has 5.5 million new mobile phone subscribers a month in the first ten months this year, said the ministry in its press release. At the end of October, there were 24.8 mobile phones for every one hundred Chinese. I would not call it “slowing rapidly”.
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As for the growth of broad band connection in Chinese residential market, it has just started, and the demand will be high for at least another couple of years.
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Plenty of the comparison the author based on was the third quarter numbers this year, it seems to me that he forgot that China deliberately slows down the neck-breaking growth rate from this June? Growth rates in plenty of sectors in 2003 were unsustainable which should not be compared with. They are called outliers in regression, which should be taken out of consideration when calculating the trend.
>>Growth in consumer expenditure will be constrained in future years for one simple, but, largely, unconsidered reason. The elders, aged 60 years or older, will increase from today’s 11% of the population, or some 140 million, to 15% in 2015, or around 200 million. <<
I beg to differ. The consumer spending is constrained in China by two biggest factors, one is the sky-rocketing cost of education (including the basic k-12 education), and the other is overcharging of the medical care. If the government can effectively control the cost in these two sectors, the consumer spending will recover a lot. Meanwhile, if the gov. continues what it is doing since this year, increasing the subsidies for agriculture and raise farmers’ income, then the consumption among million of farmers will increase, which will push the domestic consumption higher.
I have not read the rest of the article, so maybe will comment on it later. I have to go to work now. |
