Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : World Outlook -- Ignore unavailable to you. Want to Upgrade?

To: Don Green who wrote (1304)	2/12/2003 3:24:08 PM
From: Don Green	Read Replies (1) \| Respond to of 50888

China in rush to urbanize millions Diane Francis Financial Post Tuesday, February 11, 2003 China is the much-vaunted winner in the world, economically speaking. But two decades ago Japan was supposedly on its way to becoming richer than the United States until certain cultural impediments, and political mistakes, reversed the process. Cheng Siwei is one of China's 12 most powerful men and in a recent interview in Europe he outlined the challenges, cultural and political, facing his fast-growing nation. He's an American-educated chemical engineer and the father of venture capital in China. He is also a member of the economic inner circle, author of 15 books and serves as Vice Chair of the standing committee of the National People's Congress. His committee is drafting all of the reforms required by World Trade Organization membership and will be in charge of ongoing regulation. In addition, he is the Chairman of the pro-business Democratic Party, one of eight parties legally allowed by Beijing. "There are several challenges," he said. "About 64% of our population live in the rural areas; deflationary pressures; the weakest link, which is our financial sector; and the lack of social security systems for the private sector." China's performance is impressive. GDP grew 8% last year; foreign direct investment was up 24% to US$52-billion and trade increased by 21%. The country's success will depend on how quickly, and ably, it urbanizes the 900 million Chinese that live in the countryside. "The goal is that only 30% of the people will live in the rural areas," said Mr. Cheng. That would represent a migration of 450 million persons --equivalent in size to 45 New Yorks or 30 Mexico Cities. It took Britain 300 years to urbanize and the United States, 100 years. Urbanization is not just a policy imperative. The country's 400 million urbanized citizens earn six to seven times more than the 900 million who live on farms. Such income disparity threatens to drive a political wedge through the population and has already caused 94 million young workers to bolt for the cities to seek their fortunes, bunking in with relatives, family or in makeshift hostels. Their assimilation, if mishandled, can ruin China's cities with slums, cause unrest and create pockets of criminal activity. In the past, the control-and-command communist system kept people on their farms through the use of implied force or the rice ration, a food distribution system which required persons to be in their villages once a week in order to get their food allotment. But there's no holding these workers back from the coast region, nor does Beijing seem to want to. "We are looking at urbanization on three levels," said Mr. Cheng. "There are the super cities like New York or Shanghai; the core cities which are capitals of regions; and the townships or smaller cities. We also have a township enterprises policy to keep people on their farms but increase their incomes." Another challenge is that by 2020 the population will peak at 1.6 billion before falling and estimates are that there will be 200 million surplus males in China due to the one-child-per-couple law and preference for male offspring. "The law forbids sex selection of the child and will be enforced," he said. "Some people are beginning to realize that with a daughter when they grow up you get half a son too." Deflationary pressures in China are similar to those in Japan, he said. They are caused by the inordinately high propensity to save money and to spend it frugally, thus driving down prices. For instance, he said there's affordable housing units available in crowded Shanghai but a 10% vacancy rate. This mattress-mentality is also linked to the lack of a financial sector. An estimate of US$1-trillion in savings exists in China, equivalent to 100% of its GDP, but there is no efficient venture capital, stock market or consumer lending mechanism to put that money to work. It's currently hidden or put into illegal loan schemes or mutual funds, said Mr. Cheng. Foreign banks can only lend to foreigners and Chinese banks are stuck with 24% non-performing loans, thanks to unviable state-owned enterprises. But consumer loans and commercial lending in China is "five years away," he said. So are other reforms. "We are looking at three categories of laws: those that regulate the behaviour of market entrants; those that regulate the relationship between players in terms of contract laws and trustee laws; and those that regulate competition such as dumping, anti-dumping and antitrust. We are drafting these laws for next year," he said. Private property laws, including intellectual and fixed assets, are also going to be protected; real estate will be kept by the state but leased for 50 to 70 years; labour laws will require minimum wages and union laws will require a full-time union leader on the payroll of any company with more than 20 workers. "We still have a long way to go," he said. "What's remarkable is the smooth transition of [political] power that took place. Next year, we will have village elections. What we need is democracy in reality, not in form." dfrancis@nationalpost.com

To: Don Green who wrote (1304)	2/12/2003 4:00:15 PM
From: RealMuLan	Read Replies (1) \| Respond to of 50888

>>Normally, productivity gains should lead to a rise in wages because firms tend to pay productive workers more. But labour supply in China is so abundant that this is not happening. << I am wondering what is the proof for this claim? All I hear, see, and know is that the wage in China (big cities) is raising fast, and in some cases very fast, in the recent couple of years, must faster than mine.