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Craig Stephen's This Week in China
Oct. 3, 2010, 9:04 p.m. EDT · Recommend (3) · Post:
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By Craig Stephen
HONG KONG (MarketWatch) "â? October begins with a mandated week's National Day holiday in China, with markets closed until Oct. 8. That might sound like a generous autumn break, but this is a vacation with Chinese characteristics: Only three days are gifted holidays, and the rest have to be made up over weekends before and after.
That might not be to everyone's liking, but that's the way it is. It is also a reminder of the type of state intervention and regulation that exist everyday in China's quasi-market economy. The idea is to prod China's workers to loosen the purse strings and spend that salary. At least there is no ambivalence among Hong Kong retailers, who can expect up to 760,000 free-spending mainland tourists this week, 30% up on last year.
While estimates are that 210 million mainland Chinese are travelling this week, party chiefs will be busy indoors mapping out grand plans for the economy. This month will see preparation of China's next Five-Year Plan, meaning policy clues will be watched closely.
Five-Year Plans have been in place since China's Communist beginnings and the Great Leap Forward, although the country today little resembles the socialist nation of those days, when planners in Beijing directed everything.
For one thing, the growth of the private sector means Beijing is less able to control the economy to the same degree it once could. Still, given that planners are now steering the course of the world's second-largest economy, the plan will be widely watched.
This comes at a time when recurring tensions over China's unbalanced growth and trade surplus have ratcheted up to new levels. While shopkeepers in Hong Kong might only delight in China's growth, many others are unhappy. U.S. lawmakers last week prepared trade measures against China's alleged currency manipulation that is blamed for its huge trade surplus.
What many want to see is China redressing this trade surplus by boosting domestic consumption as a driver of the economy. To this end, China can be expected to reaffirm in broad terms its general objectives of "scientific development,"? "harmonious society"? and "economic rebalancing"? in its next Five-Year Plan.
The execution will also go a long way to determining how China copes with the myriad external pressures of its growth. Currently, China is taking fire on a list of complaints from lost Western manufacturing jobs, the "colonizing"? of commodity-rich nations, overly aggressive territorial expansion, and the unfair treatment of foreign companies trading in China, while at the same time being an undeserved recipient of billions of foreign aid.
Clearly the challenge is for China and its giant economy to seek a harmonious society and balanced growth, not just domestically but also as it finds its place on the world stage.
First though, Beijing's attention is likely to be on fixing its most pressing internal problems. Over the weekend, Premier Wen Jiabao reiterated that China will focus on "structural problems"? in its economy, including steps to spur domestic demand.
Many believe this will be the most effective way to also resolve the trade surplus and get China's risk-adverse consumers spending more and saving less. According to research from Macquarie Equities, two specific sets of reforms will appear in the 12th Five-Year Plan that can boost consumption: reform to factor prices, and reform to the nexus of land, hukou (registration), and government finances.
The first would boost consumption at the expense of other sectors. According to Macquarie, the cost of labor, land and utilities are widely believed to be too low and must rise. Or put simply the share of wages in the economy must rise.
Reform of the hukou system "â? in which all Chinese are registered in a particular locality and generally confined to working there "â? is also seen as key to promoting further urbanization, also a driver for consumption.
Macquarie argues that, before China can scale up its farming, it must provide incentives and the ability for small farmers to move to the cities.
The hukou system, which prevents rural residents accessing social services in urban areas, is viewed as a major impediment. Local governments, meanwhile, are reluctant to liberalize these household-registration rules due to fears increased migration will further strain their finances.
The divisive problem of hukou system was highlighted with the recent Foxconn /quotes/comstock/22h!e:2038 (HK:2038 5.77, +0.07, +1.23%) /quotes/comstock/11i!fxcnf (FXCNF 0.72, +0.04, +5.88%) factory suicide controversy in Shenzhen, where workers' inability to access local schooling, health and welfare services was recognized as a big factor in dissatisfaction.
Here we have a situation where local governments might get rich, and where China can afford to put on a grand Olympics in Beijing and an Expo in Shanghai, but where many Chinese are kept as second-class citizens in their own country. The problem is well recognized, and solving it will be crucial to the longevity of the one-party state. The bad taste of taxation without representation is likely to be universal.
Reform here, the argument goes, would help to turn China's workers into consumers and full members of society, and not just factory fodder. It might also bring down the trade deficit too and make mandatory holidays more enjoyable.
The AIA IPO stumble comes at a critical time for AIG which has agreed with the Treasury Department on a plan that would allow for a payback of taxpayer funds.
10:02 a.m. Today10:02 a.m. Oct. 4, 2010 | Comments: 2
- madtrucker | 10:59 p.m. Oct. 3, 2010
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