At present, China’s cap-and-trade systems do not address price distortions in the nation’s socialist economy. Electricity prices continue to be controlled, encouraging electricity consumption. What is more, allocation based on grandfathering has resulted in higher standards for newer firms. Double-counting of emission allowances for both consumers and producers has produced an inefficient supply of allowances, and most allowances are currently free rather than sold at auction. China’s cap-and-trade system is also relatively nontransparent in terms of giving out allowances and monitoring the effectiveness of the cap-and-trade schemes.
These issues presented in China’s pilot cap-and-trade programs must be addressed in the national program. The National Development and Reform Commission has made a general statement that it will attempt to improve the regulations surrounding carbon trading schemes.
It should also be kept in mind that a cap-and-trade program cannot be considered a standalone policy in the war against climate change. Cap-and-trade programs have limitations, since not all emissions are easily monitored; they come from various sources and cannot be evaluated and “capped.” Programs that place an emphasis on moving to renewable energy, reducing household use of fossil fuels, improving mass transit, and enhancing energy efficiency must complement any cap-and-trade scheme.
Despite producing the world’s largest volume of emissions, China has been a leader in the use of renewable energy. China’s carbon-curbing plan and the effectiveness of its proposed emissions targets will among the important topics of discussion at the UN climate talks in Paris later this year.More in the Diplomat.
But transforming Baoding will be a challenge. The region is relatively poor, with few natural economic advantages beyond coal mining. That has led to the development of the world’s biggest concentration of heavily polluting coking and steel factories. Even though Baoding itself has no heavy industries, pollution from nearby cities has given it the worst air in China.The risks of such down-market economic development are also apparent in nearby Tianjin, which became a center for dirty chemical industriesrejected in many other parts of China. Last month, a massive chemical firedestroyed part of Tianjin’s Binhai New Area port, one of the pillars of the Jing-Jin-Ji plan.
The effort to redeem Baoding has echoes in the past. It was once the capital of Zhili Province, made up of today’s Hebei Province and Tianjin. A key military and political stronghold in imperial China, Baoding was famed for its dates, persimmons and sesame oil. (The donkey burgers came later.) But this agricultural focus did not sit well with the Communists, who took power in 1949 and favored heavy industry...
Now, planners hope to fix Baoding’s economic deficits by fiat. Their solution is to use infrastructure and powerful administrative structures to push industry out of Beijing and into surrounding cities like Baoding. A key step came in May when China’s cabinet, the State Council, approved Baoding’s expansion from 120 square miles to 850 square miles, or nearly three times the size of New York City.
Ian Johnson is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers´ request form.When the issue of expansion was raised last year, it caused an increase in Baoding’s real estate prices, with speculators hoping that the government would move some ministries or bureaus here.
Successive allegations of fraud led to tighter rules in 2011, marking the beginning the end of the boom. The arrest last month of one of the prime movers behind the reverse mergers for Chinese firms, mainland-born Benjamin Wey, signalled the endgame.
"Benjamin Wey was legendary in the field … But the market is over and now they are just searching for the guilty," said Paul Gillis, an accounting expert and professor at Peking University's Guanghua School of Management.
He said the reverse merger was used primarily as a way to get around the processes involved in initial public offerings.
"So a company could come to market very quickly without audited financial statements and without the due diligence that lawyers and investment bankers would do in advance of an IPO."...
A lack of clarity over many of the companies, concerns about Chinese auditing practises, and critical analyst and media reports led US regulators to tighten reverse merger rules for foreign firms in November 2011.
Among the rule changes, overseas firms had to actively trade in the small-cap over-the-counter market for at least a year before advancing to one of the larger listing boards. That way, US regulators reasoned, investors and regulators could see how a firm's track record held up.
More than 100 Chinese reverse merger firms had been attacked by short sellers, said Gillis, referring to traders who take positions that pay out when a firm's share price tumbles.
From their peak until July 2011, the 122 Chinese reverse-merger stocks tracked in a Reuters' study cumulatively lost US$18 billion in market value...
"I blame everybody who was involved in these things. The promoters, the professionals brought with them, the investors who were stupid enough to buy into these things, and the companies that thought there was free money available," Gillis said.More in the South China Morning Post.
In addition to the increase in debt, China's missteps this year in the stock market intervention and shock currency devaluation raise questions on the leaders' ability to steer the economy towards growth.
"They have all the ingredients to execute a successful transition," said Arthur Kroeber, head of research at Gavekal Dragonomics. "The question is whoever is making decisions, does he know what he is doing? Leadership wants to execute this in a highly centralized way and we just don't know if that can be done."More at CNBC.
Notwithstanding the indications in support of a tightening job market, many economists doubt the reliability of China's official unemployment data, with some claiming the country's real jobless rate could be as high as 10 to 12 percent.
Sara Hsu, an assistant professor and expert on Chinese economy at the State University of New York at New Paltz, says the official statistics cannot be relied upon since they focus mainly on the total number of people who are registered as unemployed.
"But not everyone who is unemployed registers at the local employment service agencies, since benefits are insufficient," she told DW, adding that "we do not even know the labor force participation rate, which is essential in calculating the unemployment rate."More at the Deutsche Welle.
And there are signs that even Apple, which has stayed above the fray, trading on its reputation for innovative software, is facing tougher challenges.
"I do get the impression that the Apple effect has faded a little,” said Rupert Hoogewerf, CEO of Hurun Report, which specializes in trends among China’s wealthy consumers and last year named Apple for the first time as the country’s most valued luxury brand for gifting.
“I’ve seen lots of leading Chinese entrepreneurs carrying Huaweis recently -- I’d say between 10 and 20 percent have them now,” he added.More in the International Business Times.
|William Bao Bean|
The report, released jointly by Taikang Life Insurance Co, an insurance firm in China, and the Hurun Report, a business and luxury lifestyle media company, found the majority of HNWIs (individuals worth $1 million or more) are interested in high-end retirement communities with professional healthcare facilities.
Among 1,119 Chinese HNWIs surveyed, 70 percent said they wanted to know more about high-end retirement communities, and they ranked professional healthcare as the most important feature of such establishments, the report found.
With an increasing number of wealthy Chinese individuals and a growing concern among them over healthcare and life after retirement, there is a great opportunity for business, said Rupert Hoogewerf, chairman and chief researcher of the Hurun Report.
According to the report, there were 1.21 million Chinese individuals with personal wealth of 10 million yuan ($1.567 million) or more as of May, which represented a year-on-year increase of 11 percent.
The total assets of HNWIs in the Chinese mainland reached $9.5 trillion.
The report said that there is growing concern among Chinese HNWIs over healthcare after retirement, which explains their high enthusiasm toward medium and high-end retirement communities with healthcare facilities, a natural environment and other lavish features.More at the Global Times.
“For Xi, in terms of protocol, this trip is more targeted toward the domestic audience, and so I expect protocol to be very rigorously traditional,” said Tom Doctoroff, author of “What Chinese Want” and Asia chief executive of the J. Walter Thompson advertising agency.
“I do think Xi has inner cool, and if he were able to go a little off-script, there’s an opportunity to bond with the American people. ... But I think he’s going to miss the opportunity. He’s so concerned with power projection back home that he’s going to miss the chance to relax and meet the American people.”...
Westerners and Chinese also often have a disconnect when it comes to ceremonial style. To a Western eye, Chinese-style signing ceremonies and other events seem “extremely formalized, very soulless, very scripted,” Doctoroff said.
“There is not a naturalness, a spontaneity that we [Westerners] naturally associate with self-possessed and evolved individuals," he said. "Instead, they are seen as fake. And they are, if you take a look from the angle of originality or creativity.”
Westerners who eye-roll at such formalities or regard them as wastes of time do so at their own peril, Doctoroff said. For the Chinese, he explained, the rituals are rooted in Confucian traditions that encourage people to project their status -- within a framework that is ritualized and not individualistic.
“Moments that enable you to conform to the received wisdom of protocol, but also leverage that convention to project your own status, are treasured” in China, he said. These high-protocol moments, he added, provide “a fundamental ritual of mutual ‘face’ exchange.”
Apple is a good example. In 2009, the company made just 2 percent of its revenue from China. Today, a quarter of the company's global revenue — more than $46 billion — comes from its business in China. That’s why Apple's Tim Cook will be among a group of CEOs who will meet president Xi Jinping in Seattle.
But there will be a lot of forced smiles around the table. "It puts a lot of American CEOs in a difficult position because they’re almost like supplicants," says Shaun Rein, author of The End of Cheap China. "They’re all flying to Seattle to meet with president Xi as if he’s an emperor, and it’s clear that he’s going to dictate to them what opportunities exist for them in China."
Rein says the business environment for U.S. tech companies in China is the worst he’s seen in 20 years, and the Obama administration has done little to improve the situation. But that may change later this week, when the presidents of the world’s two largest economies meet face-to-face.More in Market Place.
In a meeting with American business leaders in Beijing last week, Mr. Xi appeared self-assured, exuding confidence that, despite China’s recent economic turbulence, his government holds the upper hand, an American with knowledge of the event said, speaking on the condition of anonymity to discuss a closed meeting.
American corporate executives have complained that a new national security law in China and proposed laws on cybersecurity and counterterrorism will restrict their operations by subjecting them to unnecessary scrutiny from China’s ever more powerful domestic security apparatus. But Mr. Xi offered a robust defense of the legislation in the meeting, according to the American with knowledge of the meeting.
More in the New York Times.“The evidence seems to be accumulating that Xi is a leader whose vision is mainly about centralizing power and asserting China’s greatness,” saidArthur Kroeber, a managing director of Gavekal Dragonomics, a research firm, and a longtime analyst of the Chinese economy. “When forced to choose between giving market forces more play in the name of efficiency and sustainable growth, or reasserting the primacy of the state regardless of the long-run economic cost,” Mr. Xi seems more likely to choose the latter, he added.
China’s sectors most closed to foreign direct investment include agriculture, fishing, transportation, media, telecommunications, and financial services. Opening some Chinese sectors would remove a major hurdle for American businesses. The BIT may also address merger proposals by foreign firms in China, which have incurred significant conditionality in proceeding with merger events, and competition policy, in order to ensure a more level playing field between Chinese and U.S. firms in China.
China’s perception of the investment process in the U.S. is that much of it is subject to the opaque approval process of the Committee on Foreign Investment in the U.S. Justification for the imposition of barriers to Chinese investment in the U.S. have been made on the grounds of national security. A BIT would hopefully provide more transparency in the investment process and reduce hurdles to investment.
The U.S.-China BIT represents two trends – one in the international arena toward increasing global trade and investment ties, and one in China of expanding outbound investment under its “Go Out” policy. Global trade and investment ties that are new or under negotiation include the Trans Pacific Partnership, the Asian Infrastructure Investment Bank, the BRICS or New Development Bank, the Australia-China Free Trade Agreement, and the Regional Comprehensive Economic Partnership, among others. As part of China’s “Go Out” policy started in 1999, Chinese investment abroad has expanded in recent years to outbound direct investment.
BITs are generally conducive to increasing direct investment abroad, since they protect firms going abroad against expropriation by a foreign government. Caveats may exist for developing countries that would otherwise benefit from the protection of nascent industries or more equal compensation for land expropriation between domestic and foreign firms. As China has more industries closed to foreign investment and is continuing to develop, the country has potentially more to lose from signing the treaty.
Still, if a balanced BIT can be concluded, both nations stand to gain. The U.S. would encounter more profit opportunities in China, while China would further its agenda to “Go Out” and promote maturation of its economy. Many analysts have anticipated that the treaty would be concluded this month; we will watch for signs of this during Xi’s Washington visit next week.More in the Diplomat.
Citic Securities is one of the brokerages whose margin lending fueled a spectacular stock market rally earlier this year that the state-controlled media cheered on. By singling out Citic Securities, said Paul Gillis, a finance professor at Peking University, the government has found a way to deflect public anger over the stock market collapse.
“In the past there has been little evidence of enforcement against market malfeasance and this sudden clampdown is just a knee-jerk reaction to a political crisis,” says Gillis.
“Regulators are looking for someone to blame for the meltdown though insider trading is not what caused the market bubble.”More at Bloomberg.
This Sunday, I went on a boxer rebellion walking tour to the old Legation Quarter – where the embassies used to be. The boxer Rebellion, an anti-imperialist uprising by a group of mythical rebels, took place during the end of the Qing Dynasty. In the dreadful summer of1900, the legation quarter was under siege for 55 days by the boxers, armed with swords (they believed that they were invulnerable to foreign weapons!) and Qing troops. Some 4000 foreigners, missionaries, diplomats and business people and their families as well as Chinese Christians, all gathered here. Danish sinologist Lars Ulrick from Beijing Postcards Thom led the tour. He explained the background, the aggression of the foreign powers, the growing anti-foreign sentiments and the drought as we walked past the tree-lined former embassy land where some colonial buildings still stand and he vividly recounted – sometimes acted out – some of the colorful stories: the murder of the German ambassador, the bombing of the French embassy; and how 200,000 bullets flew into the air without hitting one target and how some westerners ate their horses, washed down by plenty of alcohol – the only food item abundance.
The impact of the Boxer Rebellion was profound. It sped up the collapse of the Qing Dynasty and pushed China into a modern world.
I personally found the Boxer Rebellion fascinating as it is one of the historical events that got dramatically different interpretations. At school, we learnt it was a patriotic movement while many western academics regarded it as a barbaric uprising: many missionaries were brutally murdered. Well, it all depends on who’s point of view. The truth may lie somewhere in between.More (including pictures) at Zhang Lijia's weblog.
Ai Weiwei, journalists often ask you about politics. Are you fed up with these sorts of questions?
Ai: No, they help me consider issues, because these questions don’t normally occur to me. I am not someone who usually considers such questions. But if there are those questions, I try my to talk about my feelings, my personal feelings. I think contemporary art, or contemporary culture, the most useful part has a relation with considering the current situation.
Your family was tightly tied up with politics.
Ai: I grew up in the so-called Mao Zedong Era. Our era was known as one where “politics was the soul.”
And your father was a famous poet.
Ai: If you don’t understand politics you are a victim of politics. So he was baffled by everything. But those who participated in politics were even more miserable. For example Hu Feng [the Chinese writer and literary theorist who criticized Mao’s theory of art and was imprisoned for twenty-four years], or a lot of people like that, they basically were drowned and finished. Because this political party does not permit dissent to the extent that you can’t make a sound. It doesn’t allow you to exist. [we switch to English]
When you’re interviewed, is there an expectation that you’ll say certain things?
Ai: Yes, there is a very very strong expectation. Sometimes they are more patient to what I’m saying and sometimes they just jump and say, “Oh, how could you do that?” But I’m a person who’s been “in there.” I’ve been beaten, I’ve been locked up. I’ve been under high pressure. But still, I have to really think beyond that. I have to put my personal suffering separate from the larger picture of the nation, of one country with a billion people and even the existing system—what is possible, what is not so possible, all those kinds of issues. It requires a longer discussion on a deeper level.
What do you think of think of the modernization theory—that when people get to a certain standard of living, when people are no longer just concerned with food or shelter, they start to demand things. We could see that historically in South Korea, or Taiwan, say thirty years ago. Does that have any relevance to China today?
Ai: It does, very obviously. If you see those young kids, they’re better off than their parents. They’ve been sent to study abroad. They can travel more freely. They get on the internet. They get iPhones and iPads and video games.
Are the Chinese authorities aware of it?
Ai: They are aware of it, but I don’t know to what degree, and I don’t know if they have the right measures. To understand the crisis you need a philosophical mind and the system never really had that kind of discussion—like the one we’re having now, and to openly discuss it. To openly discuss it means first you have a balanced view and you get every mind involved, so the solution will be more democratic rather than some authoritarian solution, which will just create more problems. All they care about are results, but life is about more than results. It’s about our involvement, our passive involvement in each individual’s mind, and that’s why we can say we love it or we hate it.More in the New York Review of Books.
Despite the news headlines in the West, I did not get a sense that the executives I spoke to were panicking about the state of the Chinese economy. What was intriguing, however, was the impact of current economic conditions on their overseas investment plans. In the past, I had most often heard from Chinese executives that they wanted to expand overseas to acquire advanced capabilities (i.e. technology, talent, management know-how) or get closer to international customers, but this past week I found that many of the executives I spoke to expressed “market diversification,” i.e. beginning to lessen their reliance on the single Chinese marketplace, as a key driver for why they were looking out.
More on LinkedIn.Consistent with the general trend that we have been seeing, executives from private companies were most interested in expanding their international footprint. For example, the CFO from a large private food and beverage company told me about her firm’s current plans to expand into Southeast Asia in order to reach new consumers. She said that the hyper-competitive domestic marketplace and slowing economic performance were two major reasons why they were looking out. On the other hand, the chairman of a major state-owned enterprise in the industrial space talked about his firm’s decision to enter markets in the Middle East as an outlet to compensate for overcapacity back home.While the executives I spoke with were not panicking about stock market fluctuations or currency devaluation, there was a clear sense that everyone recognized the days of double-digit economic growth are over, and the strategies that led to their firm’s initial success will not be effective in today’s operating environment—and certainly not tomorrow’s.
For the stock market to truly be stabilized, deeper reforms are needed. For one, the proportion of institutional to retail investors must rise, as the former tend to be long-run market participants, while the latter tend to trade with higher frequency and have less expertise in market fundamentals and other aspects. To address this, officials have allowed local government pension funds to participate in the stock market. Second, the stock market should become more representative of the economy, with a greater number of privately owned firms listed. Officials should refrain from frequently halting IPOs. While this will likely mean that volatility in the stock market will have a greater impact on the real economy than it does at present, it will also mean that stock market fluctuations should logically mirror broader economic indicators and therefore should be easier to interpret for retail investors. Third, complementary reforms in the financial system must be carried out to expand private credit. The banking system suffers from insufficient competition and dampened profitability due to the dominance of the Big Four state-owned banks. The corporate bond market is immature and underused. Reforms and expansion of private credit in banks and bond markets would theoretically reduce the cost of funding in the financial market as a whole, including in the stock market.
The circuit breaker proposal has made the government look active and concerned, although excessive market intervention (with poor results) has been blamed for reducing market confidence. The proposed action may not be overly impactful, since a circuit breaker is already in place. Moreover, deeper reforms must be carried out within China’s stock market and broader financial markets if Beijing is to root out inefficiencies, including irrational volatility.More in The Diplomat.
|William Bao Bean|
Inflated figures in China’s funding rounds are not uncommon, and it’s an issue known to many in the industry there. “China is a very competitive market,” William Bao Bean, managing director atChinaccelerator and a partner at SOSV, told VentureBeat in a phone interview. “So anything you can do to unsettle your competitors is fair game.”
SOSV is a Shanghai-based VC firm with a $250 million fund that focuses on accelerating over 120 startups each year. Bao Bean wished to make clear that he had no comment on the Ele.me case in particular.
“It scares the hell out of your competition if you raise more money than their entire valuation,” he added. “Often what happens is that on the amount raised, they add a zero… It’s psychological warfare, China-style.”
While the actual investment amounts eventually come to light when VCs do their own internal due diligence at follow-on rounds, often leaked funding news gets picked up by individual media outlets in China — and then goes viral with little fact-checking on the part of the journalists picking up the story second-hand.
“I think this is a problem that you see more often in China,” he said. “It’s less common outside of China because the consequences of misreporting fundraising are much more severe.”More at Venture Beat.
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