Thursday, October 18, 2012

The Battle for China's Most Powerful Office

A well written insight into China. The takeaway is that we are all human with strength’s and weakness’s regardless of race color or religion. Aivars Lode

The United States has the White House, Russia the Kremlin, France the Elysée Palace and Germany the Federal Chancellery, but what the People's Republic of China has is a secret.
High, red walls shield the country's leaders in this mysterious place, armed security personnel are posted in front of heavily guarded buildings with poetic names like the "Hall of Purple Light," and hidden cameras monitor every step taken in the direction of China's inner sanctum. The complex, covering about one square kilometer (roughly 250 acres) near Tiananmen Square in the Beijing city center, is called Zhongnanhai. The buildings, set in landscaped grounds, are both the headquarters of the Communist Party and the seat of government.

If China has a heart, this is where it beats. But if there is one thing at work in Zhongnanhai, it's the country's brain. And while the traffic rages outside on nearby Chang'an Jie, a ceremonial avenue, insiders report that a ghostly quiet prevails inside the mysterious complex, almost like the silence in the eye of a typhoon -- and just as dangerous, as is now becoming evident in the dramatic struggle for power in this enormous country of 1.35 billion people.
The grounds were once part of the Forbidden City, where emperors, concubines and eunuchs spun their court intrigues. Some of the buildings stem from China's feudal days, while a number of gray, functional buildings were added after the Communist victory and proclamation of the People's Republic in 1949. Revolutionary leader Mao Zedong was conscious of the symbolic importance of the place, and it took months before he felt at home there. Sleeping in the bedrooms where emperors once slept meant donning the cloak of absolute power and claiming the Mandate of Heaven. It was as enticing as it was dangerous.
China's Ascent Undisputed
To this day, the party hasn't dared to engage in an open discussion of excesses, like the Cultural Revolution in 1966 and the 1989 Tiananmen Square massacre, or even to attempt a re-evaluation of the events of the day. Civil rights activists who openly deplored the government's lack of action in this respect ended up in prison. Politically speaking, there is little evidence of liberalization.
On the other hand, China's phenomenal economic ascent is undisputed. Its gross domestic product has increased by about 30-fold in the last three decades, and the Chinese economy has already surpassed Germany and Japan and will soon overtake the United States. "Never before in history has so much wealth been created in such a short time," says Roderick MacFarquhar, an expert on China who teaches at Harvard University.
And no other country has accumulated anything even close to China's foreign-currency reserves. If Beijing wanted to, it could buy up all the firms listed on Germany's DAX index of blue chip companies, and to do so it would only have to spend about one-third of its reserves of $3 trillion (€2.28 trillion).
But China's rulers want more than that. They want to see their country acknowledged as a model, and as an alternative to the Western form of government. And indeed, politicians in Africa and Latin America (as well as many business leaders in Europe) have warmed to the idea of unfettered capitalism without elections and devoid of other, democratic elements that supposedly stand in the way of planning certainty. In essence, what the Chinese model offers is that of a mild dictatorship with one-party rule, in which the best managers prevail, but only after productive and sometimes contentious discussions over the best approach.
A 'Consensus System'
According to United States diplomats whose classified reports from Beijing were published through WikiLeaks, a "consensus system in which members can exercise veto power" but then feel committed to the joint decision prevails in the Politburo, which consists of 24 men and one woman. There is nothing the party fears more thanluan, or chaos, and nothing it preaches more staunchly than hexie shehui, or harmonious society. The body that is primarily responsible for achieving hexie shehui is the Central Politiburo Standing Committee, which meets in the southern part of the Zhongnanhai sanctuary. The nine-member committee is China's most powerful political entity, and both the president and the premier are recruited from its ranks.
Once a decade, the party feels obligated to change its leadership and rejuvenate itself. That point has now been reached once again as both President and General Secretary Hu Jintao, 69, and Premier Wen Jiabao, 70, withdraw from the top echelon. Their goal is to make room for younger leaders and, in the process, to show their people and the rest of the world that the People's Republic is a model country that can successfully complete a harmonious transition. In 2012, this transition coincides with a critical decision on the country's future direction, important to both China and the rest of the world: Should the economy, which has lost some steam in recent months, continue to be privatized while the overall system is democratized? Or will the Communist Party opt for more of the same, and even the flexing of its military muscle and possibly an armed conflict with Japan? And in light of recent scandals, is China increasingly being run like a business with mafia-like structures?
In the eye of the storm are two of China's best-known politicians, both of them highly respected Politburo members and recognized internationally as future leaders of the global power: Bo Xilai and Xi Jinping.
For the two men, the steep path to the top seemed all but certain in early 2012. They were standing at the last station before ascending to the summit of power, and everything else was merely a formality. Bo, 63, was seen as a possible new member of the Standing Committee, while Xi, 59, was expected to assume the highest offices in the country and party. Theirs were storybook careers, as uncannily similar as their life stories. Both men were so-called "princelings," whose fathers had already held top spots in the Communist Party hierarchy. Each man had been divorced and then married a second wife who was known throughout the country. Both men sent their children to Harvard. And both are from families that have amassed astonishingly large fortunes worth hundreds of millions of dollars.
But their respective fates have diverged widely since the spring of 2012, when Bo was stripped of his official positions and ejected from the party. Today he is being held in a secret location to await his criminal trial. Xi, on the other hand, will in all probability be appointed to the top positions at the highly anticipated party congress in early November.
But Xi's triumph will be overshadowed by a scandal that, like so many others, speaks volumes about corruption in the inner circle. It wasn't long ago, in December 2010, that Xi paid a visit to Bo, the then party leader in the southwestern city of Chongqing, where he praised his unconventional approach in the megacity as "outstanding." And although all images and quotes from the meeting have since been deleted by the government media, they appear in blogs everywhere.
Will Xi, the master tactician, address the scandal at the center of power in his speech? What sort of language will the new top dog use to distance himself from the offences of his former fellow party member, a man as colorful as he was popular, without harming the Communist Party? And could Bo, like his wife, face execution? Or will some of his offences be swept under the rug, because of the risk of exposing the failings of the power elite?
The lives of both Xi and Bo symbolize the rise and fall of political fortunes in China. They are two lives that dramatically illustrate the wide disparity that still exists today between pretense and reality in a country that's become an economic miracle. And they also demonstrate how thin the glue is that holds China together, and how difficult it will be to govern this country in difficult times of declining growth, social tensions and an aging population.

Wednesday, October 17, 2012

Global economy: When China sneezes

The pace of articles on the slowdown in china are picking up. So we first had a crisis in the USA then Europe next up the bricks. Continued bad news, however there is much good news if you are not focused on growth but partnering with customers and consumers to reduce costs and drive efficiency. Aivars Lode

To this day, Chinese people of a certain age can recite a slogan from Mao Zedong’s Great Leap Forward campaign that exhorted the masses to “overtake Britain and match America” in steel production.
That disastrous attempt to industrialise in the late 1950s led to the worst man-made famine in history – one that few outside the country knew about because China was so isolated from the rest of the world.

While still fast by the standards of most developed countries, this would represent a significant slowdown for an economy that was growing at nearly 12 per cent as recently as the start of 2010.
More than 50 years later, China is so integrated into the global economy that even relatively minor shifts in its domestic production or spending can have a big impact on the other side of the world.
“China can transmit real shocks widely,” the International Monetary Fund said in a recent report, “whether these originate domestically or elsewhere.”
Beijing is scheduled to publish quarterly figures today that are likely to show the economy slowed for the seventh consecutive quarter. Many expect growth of less than 7.5 per cent from the same period a year earlier.
China’s deceleration has affected a diverse range of industries and trading partners to varying degrees – and, in recent months, its economic prospects have become almost as big a concern for global investors as the fate of crisis-hit Europe and the trudging US economy.
Given how rapidly China has come to dominate many global commodities markets, particularly in the past decade, these have been the most obvious victims.
To cite a statistic that would have warmed Mao’s heart, China now produces seven times more steel than the UK and the US combined, and accounts for nearly half of global output of the metal. The country’s share of global imports of iron ore, a crucial steelmaking ingredient, has increased from less than 10 per cent in the early 1990s to about 65 per cent now.
But in response to slowing demand from China, prices of commodities such as iron ore, copper and coal have fallen dramatically this year. This is already having an impact on the economies of Australia, Brazil, Indonesia, parts of Africa and other exporters.
Ric Deverell of Credit Suisse says the prices of iron ore and other commodities could fall in the long run below their current levels. “The ingredients are building for a train wreck. I think [iron ore prices] are more likely to be $70 in 2015 than $150.”
China is increasingly important to a broad range of other industries and exporters, too. The IMF says it is now the first- or second-largest trading partner of 78 countries, which account for 55 per cent of global gross domestic product. In 2000, it was the first- or second-largest trading partner of just 13 countries, accounting for 15 per cent of global GDP.
The Chinese slowdown has so far been gradual, but the fall in investment and infrastructure spending has affected demand for the types of machinery and capital goods in which producers such as Japan and Germany are particularly strong.
Consumer-oriented sectors, such as electronic components and luxury goods, have proved more resilient, although here too some weaker brands are suffering.
The rapid integration that has made China a driver of the global economy also means that a fall in the breakneck pace of growth will have a profound effect on the rest of us. Just half a century ago, 36m people died in the country and few outsiders heard about it. Today, when China’s nouveaux riches buy fewer cars and handbags, the rest of the world pays attention.
Jamil Anderlini
. . .
From Australia to Brazil, from Jakarta to Cape Town, economies that have boomed thanks to China’s hunger for resources have been hit hard by its slowdown.
For most of the past decade, China’s growth has driven a commodities “supercycle”. Never in the history of the modern global economy have prices risen so much and stayed as high for so long. In the past decade, Chinese demand for steel has grown by 15 or 20 per cent most years. This year, however, demand is expected to expand at between 2 and 4 per cent.
The prices of steelmaking ingredients have plummeted accordingly. Iron ore, which accounts for the bulk of profits of miners such as Brazil’s Vale and London-listed Rio Tinto, fell 40 per cent from its April high to its September low, although it has since rebounded.
Economies such as Australia, which sends a quarter of its exports to China, most of which are iron ore, have felt the slowdown acutely. Last week the central bank lowered interest rates after concluding the peak in resource investment would occur sooner, and at a lower level, than expected. Falling commodities prices have also caused leading miners to axe large projects in Australia, including BHP Billiton’s planned $20bn expansion of its Olympic dam copper and uranium mine.
For many other commodities, although China’s imports have not fallen outright this year, they have slowed sharply from the double-digit growth once taken for granted. In August, coal imports were up 5 per cent from the previous year compared with 27 per cent year-on-year growth in August 2011.
Leslie Hook and Neil Hume
. . .
Amid a bitter territorial dispute between Tokyo and Beijing, Japan’s carmakers received a painful reminder of the risks of growing dependence on China. Patriotic Chinese drivers turned against Japanese brands. Sales of Toyotas, Nissans and Hondas in the country plunged by between a third and a half.
Nissan sold one in four of its cars in China in the quarter to June; Toyota one in 10. Goldman Sachs responded to the anti-Japanese furore by cutting estimates of the main Japanese carmakers’ full-year earnings per share by between 2.4 and 9.5 per cent.
It will come as cold comfort to Japanese car company executives but, in terms of falling Chinese sales, they are merely catching up with some other industries as the pace of China’s economic growth falters.
Demand for excavators used in mining and construction is weakening. Sales have fallen since mid-2011 and were down by a quarter in July compared with a year earlier.
Caterpillar, the world’s largest maker of construction and mining equipment, has 18 plants in China but, due to a shortage in orders, has begun exporting to the Middle East and Africa. Komatsu, the industry number two, has seen China sales fall by about half this fiscal year. Data show sharp drops in Chinese demand for many goods, from chemicals to turbines.
European and South Korean car producers have benefited from Japanese groups’ woes but here too there are signs of a broader industry slowdown. Goldman expects growth in passenger car sales to decelerate from an estimated 13.9 per cent this year to 7.8 per cent next year.
Jonathan Soble
. . .
Sony Bravia LED 3D televisions©ImagineChina
The race by Foxconn and other Asian suppliers to meet record demand for Apple’s new iPhone suggests that the technology sector is not suffering unduly from China’s slowdown.
While slowing Chinese consumer demand has weighed on electronics sales, high-profile launches including the iPhone 5 and a new version of Windows have kept technology companies busy.
“This product launch cycle is actually taking a life of its own now,” says Waiho Leong, an economist at Barclays. “Foxconn’s factories in China are going full swing.”
Still, demand from Chinese consumers has worried some. Taiwan’s Synnex, a distributor of IT goods in mainland China, says its sales fell 9 per cent last month. Nomura analysts say macroeconomic uncertainty is pushing Japanese electronic companies to rein in production.
But a more important problem for the sector, analysts say, is the falling global demand for new PCs – an area where Chinese consumption has remained stronger than that of US and Europe.
China’s PC market grew sluggishly last quarter but sales in the US and the rest of Asia fell more than expected.
Like Foxconn, Korean companies have done well in China recently, notably Samsung with its Galaxy smartphones.
Exports to China from Taiwan, home to key semiconductor manufacturers, rebounded last month to increase 11.9 per cent year-on-year after falling 7.5 per cent in August. A growth in electronics exports played a particularly important role.
Many such exports are meant for assembly in China and are then re-exported to Europe and the US.
Sarah Mishkin
. . .
It appears to take more than a fall in the Chinese economy to dent the appetite of the Chinese for luxury.
Burberry grabbed headlines last month when it issued a profit warning, raising fears that the mainland economic slowdown had begun to depress Chinese luxury sales. But it seems, with hindsight, that Burberry was affected more than most – and its problems on the mainland could herald a larger shift in Chinese spending patterns away from logo-driven luxury brands, such as Burberry and Louis Vuitton, and towards more niche brands and exclusive products.
“At the top end, consumers are still spending on luxury in China, even if the overall luxury market has slowed. The super wealthy prefer Bottega Veneta and Hermès and they tend to avoid Burberry and Louis Vuitton, which are considered not as exclusive,” says Shaun Rein, managing director of China Market Research in Shanghai.
Sales also remain robust for Diageo’s top whiskies, rising 40 to 50 per cent year-on-year for the past eight quarters in China. “I see very strong evidence of domestic demand still going strong,” says Gilbert Ghostine, president of Diageo Asia Pacific.
Burberry says sales in China over the past three months have slowed but “remain positive”. Spending in China has also been hit by a downturn in gift- giving ahead of the upcoming change in the Chinese leadership. “Gifting is part of the Chinese culture of giving to people in authority,” says Stacey Cartwright, Burberry’s finance director. “Until you know how things settle down, who are you [giving gifts] to?”