What landing? It's cruising along
you were one of China's top leaders, what would keep you from
a sound sleep at night?
was the unexpected topic of a roundtable luncheon attended by
two dozen Hong Kong business leaders yesterday when, officially,
it was meant to be a debate on the overheating of the nation's
Chen, president and chair professor of economics at Lingnan University
of Hong Kong, was so optimistic that he felt most people have
been "misreading China." He brushed off the notion of
"soft landing," "hard landing" or "crash
landing" as irrelevant. "The economy is going to cruise
quite nicely," said the keynote speaker.
back up his argument, he compared the current situation with that
of the early 1990s. At that time, inflation was running at a 15
to 20 per cent clip, while now the April number, which is a seven-year
high, was a mere 3.8 per cent.
is another sign that Professor Chen scrutinized. In the early
1990s, the growth rate was running anywhere from 4 to 14 per cent,
but if you look back at the past several years it has been quite
consistent at about 8 to 9 per cent, which is the average rate
for the past two decades. This, according to Chen, proves that
there is no cyclical movement in the economy.
offered his analysis about the currency: during the Asian financial
crisis, people expected the RMB to devalue, wondering how it could
sustain its exchange rate when currencies of neighbouring countries
were sliding at alarming rates. Now the pressure is on the RMB
to revalue upwards. But Chen did not see a revaluation of the
yuan any time soon.
reason, as he pointed out, is in trade balance. True, China has
a US$40-50 billion trade surplus with the US, but overall, China
is running a trade deficit, especially with other Asian countries.
The money China is making from selling to the US is also being
spent on buying from its neighbours. In terms of bilateral trade,
there is a lot of imbalance, but from a multilateral perspective
it is quite balanced. The US has a policy of supporting each ASEAN
economy, said Chen, "and it is still doing that by "recycling
money through China."
more fundamental reason, argued Professor Chen, is the discrepancy
in the national saving rate. "Americans save almost nothing,
but Chinese have a rate of 30-40 per cent, similar to that of
Japan in the 1970s." Unless that changes, he did not see
any real pressure on the currency.
Chen further tackled the spectre of inflation by getting down
to the components of the consumer price index. Much of the recent
price rise, he said, comes from food. If you take away food and
energy, inflation has a barely noticeable upward tick of 0.5 per
cent, but grain has risen a whopping 40 per cent, and the wholesale
price in April rose 10 per cent across the board. Commodities
like energy, copper and timber have seen the sharpest upsurge.
measures to cool down some of the torrid sectors have been working,
said Wilfred Wong, vice chairman of Shui On Holdings Ltd. With
steel going up 40 per cent in price, some of his contractors for
his mainland projects simply quit unless their contracts were
renegotiated to take into account the price hike. But lately,
with prices easing, they have been offering reimbursement for
whose company invests in the Shanghai property market, has seen
sharp rises in that city. But he noticed that last year what was
built was all sold, signifying an equilibrium in supply and demand.
"I feel a 10 to 15 per cent growth rate is healthy and sustainable
for Shanghai," he concluded.
Chen said that he did not see any hidden danger in the economy
or any cyclical problems, but acknowledged that there are long-term
problems, which are mostly shortages in natural resources. "All
the increases in the world production of aluminium have been 100
per cent absorbed by China," he said. "China is the
world's fifth largest oil producer, yet it is far from being self-sufficient."
demand on the world commodity market will only increase, he said,
paraphrasing the saying: "When China sneezes, the whole world
will not just catch a cold, but will catch SARS."
Hoer, managing director of Asian Industries Division, Conti Group
Companies, pinpointed the rural economy as where the threat lies.
The problem is, the rural economy is not as hot as the urban economy
because of the reduction of arable land.
cited the example of a golf course in Beijing. "Beijing has
30-plus courses, but only one is said to have all the required
permits for construction. The one I visited recently was submitted
as an environmental greening project."
did not see much problem with government policy, but rather, it
was implementation on a local level that worried him. "Local
officials tend to do things on their own," he said.
Tam, chairman and CEO of Meiya Power, agreed that agriculture
is the No 1 issue facing China, but "energy is a close second".
With prices going sky high across the board, from gas to coal,
the ripple effect is going to be far and wide.
example, telecommunications does not seem to be an energy-dependent
industry. "China has just reached a milestone in the number
of cellphone subscribers. It now has 296 million, surpassing the
total population of the US. But that is only a 20 per cent penetration
rate. However, with power down, none of our equipment can function,"
said William Lo, executive director and vice president of China
of government policy, Stephen Wong, president of Greater China
Gas Marketing, ExxonMobile Energy, touched on the strategic reserves
of oil. "Given the significantly increasing demand, what
policy will the government set? It will certainly affect every
aspect of the industry, from exploration upstream to widening
was generally agreed that China should build up its infrastructure,
especially the energy sector.
the trick is how to time market needs.
Wang, senior director of Asia region of Boeing's aircraft finance
department, admitted that the lead time for aircraft manufacturing
is so long that it makes her job extremely hard.
the wisdom and insight of decision-makers like these will hopefully
take some of the uncertainty out of the economy. The bubble may
be exaggerated or sector-specific, but a vision from the central
government as well as concerted efforts by all parties will help
guarantee that the giant ship that is the economy of China will
be able to weather whatever storm that comes its way.