The Adventures of CSE Students!

Monday, March 31, 2008

extracted from: http://sg.biz.yahoo.com/071128/1/4d12q.html

China and Europe confronted each other over their long-running trade dispute here Wednesday, with the EU calling for a level playing field and Chinese Premier Wen Jiabao insisting on gradual reform.

"The EU exports less to China than to Switzerland, a country of seven million people," European Commission President Jose Manuel Barroso told business forum on the sidelines of annual summit between the two sides.

"Our ultimate goal is to create a level playing field for both sides."

EU Trade Commissioner Peter Mandelson spoke out at the same forum about China's trade surplus, which has put the focus on the Chinese currency, the yuan, with critics arguing it is being kept artificially weak.

"Our trading relationship with China started as we know in a balanced way," Mandelson said, with Wen in the audience.

"Now it is less balanced. Indeed in my time in China these last five days, it has grown by over two billion euro," he said, referring to Beijing's trade surplus.

In closed-door talks with Barroso earlier Wednesday, Chinese President Hu Jintao pledged to do more to cut the surplus, according to an EU official.

"I don't favour a sizable trade surplus with the EU. We are ready to work with you to reduce our surplus," Hu said, according to the official, who asked not to be named.

Meanwhile, Wen told the audience of European and Chinese business chiefs that China would continue with its policy of gradual reform of the yuan, also known as the renminbi or RMB.

"China will continue to reform the RMB exchange rate regime in a gradual, proactive and manageable manner," he said, while insisting the Chinese currency was not the only reason for their trade dispute.

"The exchange rate is a cause to some extent, but not the sole decisive factor behind the trade deficit."

The weakening US dollar was the main reason the euro was strengthening, Wen later told journalists, adding that Brussels would be better off bringing up the issue with Washington.
"I propose that the best way to address this problem is to take it up with the American financial authorities," Wen said as Barroso looked on.

However, during talks both sides agreed to set up a high level "mechanism" to address trade issues, including the trade deficit, market access in China and Beijing's intellectual property rights regime, Barroso said.

The joint mechanism would hold its first meeting in March next year, he added.

While the Chinese currency has risen against the US dollar for more than two years, it has fallen against the euro, making Chinese products cheaper and more competitive in Europe.

"They have to consider that not all adjustments should be focusing on the relationship between the dollar and the yuan," EU Economic Affairs Commissioner Joaquin Almunia told reporters in Beijing.

"They must think about the evolution of the exchange rate toward the euro," he said.

Amid the dispute, European representatives said they wanted to avoid protectionist measures.

"We... need to identify a solution to solve this question, and I hope that it is a cooperative one," Serge Abou, the EU's ambassador to China, said in an opinion piece in the China Daily newspaper published Wednesday.

"Protectionism is not a winning option. So let us unite our efforts to resist protectionist trends."

The EU, China's largest export market, ran a trade deficit of 128 billion euros (175 billion dollars) with China last year -- which is likely to balloon to 170 billion euros in 2007, according to EU statistics.

The European delegation headed by Barroso also met with Li Keqiang, a member of the ruling Communist Party's nine-member Politburo Standing Committee.

"Since 1975, this relationship has come a long way," said Li, widely considered a rising political star among the next generation of leaders slated to assume power in five years.

"I particularly want to mention our fast growing business ties," Li told the European visitors.

Labels: amanda (07A102), international relations, trade with the EU

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extracted from: http://news.nationalgeographic.com/news/pf/67860047.html
Stefan Lovgrenfor National Geographic News
May 16, 2005

China's spectacular economic boom may be inflicting a terrible toll onthe global environment, a new study warns.

According to Vital Signs 2005—a new report by the Worldwatch Institute, a Washington, D.C.-based environmental nonprofit—China is now driving the consumption and production of almost everything, threatening to deplete the world's resources.

"China is becoming the sucking force, taking raw materials from across the planet, because it alone doesn't have the resources it needs to sustain its growth," said Lisa Mastny, the project director of the new study.

It remains to be see what long-term effects the Chinese boom will have on the world's raw materials. But it is clear that China's own natural resources—its air, land, and water—are already suffering terribly.

China is in the middle of the largest rural migration in human history, with millions of its people leaving for mushrooming cities. With factories multiplying and car ownership surging, the cities' air quality has plummeted.

Sixteen of the 20 most polluted cities in the world are in China. The country is the second largest emitter of carbon dioxide after the United States.

"China's economic boom is dramatically changing [its] environmental landscape—polluting the water and air, desertifying the land, and diminishing the country's natural resources at terrifying rates," said Elizabeth Economy, the director of Asia Studies at the New York City-based Council of Foreign Relations.

But there is some hope, experts say. Recognizing the escalating costs of pollution, the Chinese government has, for example, introduced strict fuel-economy standards for new cars. It has also enacted a renewable-energy law that sets ambitious targets for using wind and solar energy.

Consumer Nation
The world economy expanded in 2004 at a rate of 5 percent. According to the report, China's economy grew by a staggering 9 percent.

Economic reforms have undoubtedly benefited hundreds of millions of Chinese people, providing them with a better standard of life. The boom has also turned China into a huge market for companies worldwide.

China is still a manufacturing giant. It now produces 27 percent of the world's steel, an essential input in industrial infrastructure. Steel production has increased by one-third in the last five years.

But China is now also one of the world's largest consumers, straining already limited resources and pushing prices up. China increased oil consumption by 11 percent in 2004 and is now the second largest oil consumer after the United States.

Mastny says some 240 million Chinese people are now in the consumer class, buying the type of goods and services that most people in Western nations purchase. While that number is the same as in the United States, it represents only 19 percent of the total Chinese population.

"The potential number of Chinese people who could become consumers in the future is enormous," Mastny said. "Think about what that means in terms of availability of resources and the environmental impact.

"Take cars, for example. In the 1980s there were virtually no private cars in China. In 2003 there were 14 million. In 2015 China will have an estimated 150 million cars.

"This is unsustainable," Mastny said. "We're not blaming China. It's just that if all the countries that are entering the consumer society try to emulate the patterns of the United States and other countries, clearly there is not going to be enough [resources] to go around."

Acid Rains
China's economic boom has come at a steep cost to its environment. Land needed for industrial development is quickly being gobbled up. China has about 20 percent of the world's population, but only 7 percent of the world's farmable land. At least a fifth of the country is already desert.

Scores of rivers have dried up in northern China over the past 20 years. More than 75 percent of river waters are not suitable for drinking or fishing.

China's cities are an environmental disaster, since urban infrastructure has not kept up with the influx of people. Many cities face serious sanitation problems, with sewage and wastewater going straight into rivers.

Large cities, including Beijing, are smothered in smog. Old and weak people are often warned to stay indoors. Between 2001 and 2020 almost 600,000 people in China are expected to suffer premature death every year due to urban air pollution.

Much of the air pollution stems from China's overwhelming reliance on low-quality, high-sulfur coal as its main source of energy. Coal makes up almost three-quarters of the country's energy needs. Acid rains that fall on 30 percent of China's cities are blamed on the burning of coal.

"Public health, social stability, and continued economic growth are all at risk as China continues to pollute its way to prosperity," said Elizabeth Economy, of the Council of Foreign Relations. Economy is the author of The River Runs Black: The Environmental Challenge to China's Future.

China also has a significant impact on the regional and global environment. The burning of coal is responsible for about half of the world's sulfur dioxide emissions and causes acid rains throughout East Asia.

"We even see huge brown clouds of sulfur making their way across the ocean," Mastny, the
Worldwatch Institute project director, said. "The haze in L.A. is not just from L.A. anymore."

Amanda's Commentary:

This is also another article talking about how has China's economic development affect the environment as well as the natural resources of the world. This article has shown how China's development has caused pollution in their quality of air, water and also other countries such as L.A. This article has also shown the 'consumption paradox' that most developing countries are facing. As most countries aim to have sustainable development, it is diffcult when it has to consumed a lot of resources and even though they have measures to curb the pollution, the fact still remains that the earth's natural resources are still depleting. Other thing to note is that China's international relations with other countries if their pollution problem still continues. This might affect their trade with countries as they might face condemnation as with their human rights issues. This issue would be especially significant with the upcoming Olympics in August as the world watches how China deals with issues and events happening in the country.

Amanda (07A102)

Labels: amanda (07A102), Environment, Politics

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extracted from: http://www.chinadaily.com.cn/china/2008-02/04/content_6441527.htm
By Dong Zhixin and Li Hong (chinadaily.com.cn)
Updated: 2008-02-04 15:55

China's policy makers are finding themselves slipping into a difficult alley as the Chinese New Year of the Mouse begins amid a likely global economic slowdown, and unexpected havoc caused by an enveloping snowstorm in the country's southern powerhouse, and rising domestic inflationary pressure, which the recent blizzards could make worse.

Against this backdrop, even the best central bankers would scratch their heads hard. To fight inflation, People's Bank of China, the central bank, needs to phase in a tightened monetary policy. But in order to prevent the economy from following the heels of an imminent American slump, or to stand up as a global significant economic engine or star, as widely hoped for, Beijing needs to keep the major world developing machine well-oiled and going up, and up.

Some have advocated that a relatively loose monetary policy be maintained to avert a possible slowdown, which won't bode well for China's nascent property and stock market, and may bring real trouble to China's banks and a fragile financial system, and even endanger job security and social stability.

However, the rising cost of living as a matter of fact, also calls for more reining-in of credit. Back in December, regulators decided to shift the country's decade-old "prudent" monetary policy to a "tight" one to address two of the biggest threats: economic overheating and rising inflation. Last year, China's gross domestic product expanded 11.4 percent year-on-year, while the consumer price index, a major gauge of inflation, jumped to the highest level in more than a decade.

However, sometimes things do change in a glimpse.

The first negative news came from the other side of the Pacific. The economy of the United States started sliding into a possible recession. A recent survey among top American economists puts the likelihood of an American recession at 50-50, up from 30 percent four months ago. The American housing debacle has deteriorated, eating away billions of dollars in mortgage investments and leading to a slew of American heavyweight banks reporting big write-downs and crying for cash. Wall Street is in jitters. Though Bush and Congress rushed up to help with a hastened economic stimulus plan, no one can now be sure to see the ray of light at the end of tunnel.

Merrill Lynch forecasts the world's largest economy, growing a tiny 0.6 percent in the last quarter of 2007, this could contract by 0.5 percent during the first three months of 2008. A slump in the American economy will create big challenges to China's economic well-being, as the two economies are closely intertwined. Any economic woes will spread worldwide, eroding the market of consumption for Chinese goods. Citigroup research estimates that for each one percent slowdown in the US economy will shave 1.3 percent off China's growth.

The other bad news comes from the home turf: a blizzard at a scale not seen since 1951 pummeled the southern economic powerhouse of China, paralyzing transportation, crippling power supply and making millions of people suffer in extreme cold. The result was a halt of production in many factories -- an unwelcome way of cooling-off in the economy.
Some in China and elsewhere anticipate that the blizzards may drag down China's GDP in January by one percent. As the snow and icy rain continue till after the Spring Festival weekly holidays, as predicted by the weather forecasters, economic growth in February and the first quarter will feel the impact.

Consequentially, it seems improper for Beijing to stick to a "tight" monetary policy, by announcing more interest rate rises, in contrast to US Federal Reserve's incessant rate cuts during the past two months. In fact, the People's Bank of China issued a directive late January, asking commercial banks to give more credit to firms in the southern affected regions to help arrest the disaster. That was interpreted as a policy revision.

Another sign of possible credit ease came from President Hu Jintao. Policy makers should have a clear understanding of current global economic trends, their influences on the home economy especially, and prepare for a fast-changing and complicated situation in 2008, Hu was quoted as saying at a meeting of top Chinese leaders on January 27.

"We have to have a good control over the pace and strength of macro-control, so as to prolong steady, relatively fast economic growth as long as possible," President Hu said. Many analysts saw that as an indication of a prompt policy readjustment in keeping to changes at home and abroad.

However, any ease in monetary policy will be a tough call, as the country is facing the wrath of a climbing inflation not seen in more than a decade. Some newspaper commentators in China have asked for more interest rate hikes. As a matter of fact, to curb the prices of food from rising is the key to fight inflation. Chinese officials have said that the supply of grain, meat, eggs, fruits and edible oil will improve after the spring season, which may keep CPI at bay.

At times like this, there is always criticism of the central bank and other top regulators -- for moving too fast or too slowly, for doing too much or too little. The Chinese economy is so big and complex, and the data so contradictory at turbulent times such as this that even the best economists would disagree sharply.

The side effects of further monetary tightening are obvious. It will make small and medium-sized businesses -- key employers of newly added workers -- hard to get loans, endangering their survival. Any more tightening measures will not be instrumental in generating productivity, which is needed after a terrible storm.

Tightening in the form of rising interest rates, will also force Chinese homeowners to pay higher mortgages, increasing the risk of default. Property developers -- a heavy borrower from banks -- might also fail to make their payment to the lenders. Both scenarios will spell trouble for Chinese banks.

Starve the economy of credit, and it withers. Overfeed it, and it overheats with inflation. Giving the uncertainties surrounding the economy after domestic and global factors are taken into account, it now seems better for the central bank to keep its position, leave the interest rate intact, and the bank reserve requirement on hold for a couple of months, and monitor the latest developments closely before deciding what to do next.

Labels: amanda (07A102), Economy, problems faced and policies

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Sunday, March 30, 2008

extracted from: http://www.economist.com/specialreports/PrinterFriendly.cfm?story_id=10795813
Mar 13th 2008From The Economist print edition
Rapid growth is exacting a heavy environmental price

CHINA will not continue to grow at the same pace as it has done recently, or suck in as many raw materials, if its leaders get their way. The 11th Five-Year Plan, which lays out their main economic goals for the period from 2006 to 2010, calls for growth to slow to 7.5% a year from its current double-digit pace and for consumption of energy—a good proxy for resources in general—to decelerate even more.

The government has several motives for stepping on the brakes. One is simply to allow its bureaucrats time to plan for and direct growth. Its chief aim is to redress the growing inequality between the prosperous coastal provinces and the poorer interior ones, and between cities and the countryside. But slower, more carefully orchestrated growth might also avoid wasteful and disruptive bottlenecks.

In 2003, for example, electricity consumption surged so unexpectedly that China began suffering from repeated brownouts as the grid ran short of power. That prompted millions to buy diesel generators, which in turn led to a 10% jump in oil imports in 2004. Since then electricity companies have been building power stations with gay abandon. In 2005 and 2006 they added more generating capacity than France has in total. That has boosted demand for coal, since most of the new plants are coal-fired. But most of China's coal comes from the country's interior and must be transported to coastal power stations by train. That is using up a lot of diesel (on which the trains run) and clogging up the rail network. So power stations have begun shipping in coal from overseas, turning China into a net importer in the first half of 2007 and prompting the huge queues of freighters outside coal ports such as Newcastle, Australia. These lurches in demand for different resources have added to the jitters in commodity markets and helped to amplify price rises.

The government is also worried about security of supplies. Senior figures still daydream about self-sufficiency, looking back to Maoist doctrine and to the terrible man-made famine of the late 1950s. They fret, too, that foreigners might attempt to blockade the country in the event of a war over Taiwan. In particular, the government is anxious about its oil imports from the Middle East and Africa, all of which pass through the narrow Singapore Strait. So it has been pushing for alternative routes, such as a pipeline from Kazakhstan, which opened in 2006, and another one from Russia, which has been under discussion for the past decade. The government has also created, and started filling, a strategic reserve, which should eventually hold 30 days' worth of imports, says the IEA.

The environmental fallout from China's burgeoning demand for natural resources is another source of concern. Processing iron ore, timber or oil requires electricity, and 80% of China's electricity comes from coal. But the sulphur that spews from the smokestacks of coal-fired power stations causes acid rain and the soot generates smog. In many Chinese cities, a thick shroud of pollution literally blots out the sun much of the time. Acid rain, meanwhile, reduces agricultural yields and eats away at buildings and infrastructure. The OECD cites a finding that air pollution alone reduces the country's output by between 3% and 7% a year, mainly because of respiratory ailments that keep workers at home.

A dry subject
China's water supply, too, is in a parlous state, thanks to ever-increasing industrial and agricultural use. The amount of water available per head of population is only a quarter of the global average. In the arid north and west of the country that figure falls to a tenth. Two in three cities already suffer from shortages. Groundwater is being pumped out much faster than it is being replenished.

Not even Beijing treats all its sewage; other cities treat none at all. Famous beauty spots, such as Taihu Lake near Shanghai, are often afflicted by hideous algal blooms, while effluent from polluted rivers has contaminated 160,000 square kilometres of ocean off China's shores, officials say. Over half the water in the seven biggest river basins is unfit for consumption, according to a recent report from the World Bank. The resulting health problems reduce rural output by 2%, it found, and the costs to industry and agriculture of dirty and scarce water sap GDP by another percentage point.

All told, the World Bank put the price tag for China's air and water pollution at $100 billion a year, or about 5.8% of GDP. It is said that the same report originally put the number of deaths caused by the two scourges at 750,000 a year—until the Chinese government complained and asked for the figure to be removed. Pan Yue, a deputy minister at the State Environmental Protection Administration (SEPA), China's paramount environmental regulator, estimates the annual cost of environmental damage at 8-13% of GDP—much the same as the overall economic growth rate. If it continues like this, he expects levels of pollution to double over the next 15 years.

Then there is global warming, which is already exacerbating China's environmental problems. The latest report from the Intergovernmental Panel on Climate Change notes that temperatures in China are rising and extreme weather, including cyclones, droughts and floods, is on the increase. Worse, the Himalayan glaciers that feed China's biggest rivers (and account for a large portion of flows during dry spells) are melting. “If the present rate continues,” the report says, “the likelihood of them disappearing by the year 2035 and perhaps sooner is very high.”
Among other things, this will make life even more difficult for China's farmers. Northern China, which lost some 36,000 square kilometres to desertification between 1990 and 2000, will become even more arid. Its water supply, the IPCC predicts, will fall 30% below requirements. Moreover, rice yields will drop by 10% for every degree the temperature increases. Rising sea levels and the associated intrusion of salt water are likely to reduce the amount of arable land even further.

As it is, in villages like Beihuadan, in Hebei province, just a few hours' drive from Beijing, the water table is already falling rapidly. A shuffling farmer in a flat cap and worn woollen sweater pumps furiously at the well in the courtyard of his house to show that it has run dry. It is only 19 metres deep, he explains, but there is no water these days for at least 70 metres, and often not for 100 metres or more. A few houses away a group of old men interrupt a game of cards to point out another dry well. For five years, they say, there has been no water in the Beijuma river, which runs past the edge of the village, and the authorities do not provide adequate alternatives supplies through the local irrigation network.

The government is planning to invest billions in a system of canals, pipelines and aqueducts to divert water from the soggy south to the parched north. But the scheme is only a temporary fix, and is just the sort of grandiose engineering project that tends to cause environmental problems of its own. Many NGOs and hydrologists are adamantly opposed.

As it is, the environment is the second most frequent subject of public protests after disputes over land, according to Mr Pan. In 2005 the authorities recorded 50,000 such protests, he says, and that was a 30% increase on the year before. Last year 10,000 people turned out to demonstrate against a planned chemical plant in the city of Xiamen. Earlier this year hundreds of Shanghainese protested against a proposed extension to the city's maglev train, worried about health risks. Such protests are particularly unnerving for the authorities because they involve educated, articulate and well-organised urbanites, not the country folk who normally suffer most from abuse by officials.

The best response to all these worries is to encourage more sparing use of resources, and that is what the government is trying to do. The current five-year plan, which contains few other numerical targets, envisages a 10% reduction in concentrations of the worst air pollutants and a 20% increase in energy efficiency over the period. The central government has assigned specific energy-efficiency goals to each of China's 1,000 biggest enterprises and encouraged lower levels of government to do the equivalent.

The government has set relatively stringent fuel-economy standards for cars, as well as minimum energy-efficiency requirements for all manner of appliances. On average, cars in China are about 50% more efficient than in America. Subsidies on energy consumption have also been falling steadily. The IEA calculates that their total value in 2006 was roughly $11 billion, less than half the amount for 2005. That is all the more remarkable given that international oil, coal and natural-gas prices were rising rapidly at the time. Petrol prices, for example, have been going up even faster for Chinese drivers than they have for Americans or Europeans, although they remain low in absolute terms.

To discourage energy- and import-intensive metals-processing, the government raised export duties on iron, steel and related alloys to 25% in December. It also abolished all duty on imports of copper, in the hope that higher imports of finished metal might displace some domestic smelting. And on two previous occasions it has reduced the level of tax rebates that exporters of energy-intensive goods can claim, in some cases down to zero.

There is also a move to diversify away from coal. In big cities (especially Beijing, in preparation for the Olympics), coal-fired heating and power plants are having to be modified to run on natural gas. In the Beijing suburb of Fengtai, where the switch has already taken place, residents recall how the constant dusting of soot from the power plant used to stop them drying clothes outdoors or even opening their windows. Now they can hang out their washing without fear, and sometimes even sit outside.

Nuclear options
The government is planning to increase the country's nuclear generation capacity almost fivefold by 2020. It has ordered new reactors from two of the world's nuclear giants, Areva and Westinghouse, and is also building some of its own design. Power from wind turbines is meant to double by 2010 and grow by a factor of 12 by 2020. Hydropower is supposed almost to triple by the same date. Overall, renewable sources should account for 15% of energy consumption by 2020.

At the same time SEPA is trying to clean up China's coal-fired plants. All new ones are required to install filters in their smokestacks to remove sulphur dioxide, the main cause of acid rain. The biggest existing plants are supposed to retrofit such equipment. Roughly half of China's coal-fired generating capacity is now said to have installed this kind of technology. Between 2000 and 2005 SEPA tripled the fines on polluters. The government has also hired Veolia, a French conglomerate, to build and run model waste-water treatment plants in several big cities.

An open-and-shut case
As the big power plants, factories and coal mines raise their environmental standards, the small ones are meant to shut down altogether. Cyrille Ragoucy, the local head of Lafarge, a cement giant, says that the authorities have encouraged the firm to expand rapidly in the south-west of the country in order to replace the existing stock of old-fashioned, energy-intensive and polluting cement kilns. At the same time local governments have been ordered to close coal-fired power plants with a capacity of less than 25MW and to bar the construction of any new plants of less than 300MW. The larger scale, along with more modern technology, should improve efficiency dramatically. All told, the government plans to close 50,000MW-worth of small plants by 2010.

The biggest push concerns small coal mines, in which thousands of workers perish every year. They also tend to produce poor-quality coal which generates relatively high levels of pollution when burned. In addition, many of the mines contaminate local water supplies and produce unhealthy, smog-inducing dust in great quantities. So the central government has instructed local officials to shut down any small, dirty and unsafe mines. According to Xinhua, China's state-run news agency, 11,155 such facilities have been closed since the campaign started in 2005. The government wants to eliminate another 4,000 by the end of this year.

But a visit to the province of Shanxi, in the heart of China's coalbelt, reveals why such plans should be taken with a pinch of salt. The Jinhuagong mine, a spokesman explains, is something of a model. It produces 4m tonnes of high-quality coal a year, using the latest British and German machinery. There have been no fatal accidents for two years. The mine's managers are so proud of it that they have opened it up to tourists. Visitors can dress up in jumpsuits and hard hats and descend in a creaking elevator to the coalface 300 metres below the surface. There, a bone-jarring miniature train hauls them a few kilometres deeper into the mine, where they can look at an exhibition on the gradual improvements in safety standards over the years. All the mines in the area that did not comply with safety regulations, the spokesman explains, have been closed.
Yet a taxi driver hailed outside Jinhuagong's gates says he knows of plenty of mines that remain open in defiance of the central government's orders. Waving at Shanxi's bleak landscape of barren, eroded hillsides and jagged valleys, he says: “There's coal everywhere. Wherever there's a road, there's a coalmine.” Sure enough, a half-hour drive through the hills reveals several tiny operations where jerry-rigged conveyor belts carry coal to waiting lorries and workers scatter at the sight of an inquisitive foreigner.

The incentive to continue mining is overwhelming, locals explain. The same shortage of coal that is driving up imports has also pushed up the price. In January power companies had to shut several coal-fired plants because they did not have enough fuel to go round. The government has withdrawn all export credits on coal and imposed taxes instead, but supply continues to fall short of demand. Moreover, the officials who are responsible for closing mines are often shareholders in them too. And even if they have no financial interest in them, they still view economic growth and job creation as the chief gauge of their success.

The intentions are good
SEPA did come up with an alternative yardstick, dubbed “green GDP” and intended as a joint measure of both environmental and economic stewardship. But sceptical officials rebelled, so the central government quietly shelved the scheme. Regulators concede that poor enforcement is undermining most of their attempts to improve the state of the environment. SEPA has less than a tenth of the staff of its American equivalent to police a country with over four times the population. To enforce its rulings, it relies on local bureaucrats over whom it has no authority. “Overall, environmental efforts have lacked effectiveness and efficiency, largely as a result of an implementation gap,” as the OECD's report puts it.

That is why Jim Brock, a consultant to domestic and foreign energy firms in China, thinks it is unlikely that many small power plants are in fact being closed down. Even those plants that have the equipment to remove sulphur dioxide from their flue gas often do not bother, officials concede, because the process uses power and so reduces profits. At any rate, emissions are not yet falling fast enough to meet the government's targets.

What is more, the proliferation of coal-fired plants is swamping the growth in renewable power. Some 90% of the power plants built in 2006 run on coal, the IEA notes, against 70% of those built in 2000. And heavy industry such as steelmaking continues to grow, says Rui Susheng, the director of the China Coal Society, despite the government's attempts to curb it.

All this means that the government is falling short of its energy-efficiency targets. In 2006 China's energy intensity (the ratio of energy consumption to economic output) fell by 1.2%, well short of the government's goal of 4% a year until 2010. That was an improvement on the previous few years, when it actually rose. Yet the impression remains that the government is fighting a losing battle.

Amanda's comments:

First of all, it is good to know that China is finally stepping up efforts to curb their environmental pollution. The people are also now more aware and are protesting against certain measures taken by the government that actually pollute the air and water sources. As we have learnt from our previous lectures, environmental conservation has taken the backseat in place of economic growth, especially after the reform era. This neglect of the environment has come back to haunt the Chinese government as they have to create new economic policies to allow China's economy to have a sustainable development status. To ensure that the future generations would have enough resources to survive on. The reason why measures taken to curb pollution are often taken with a pinch of salt is link to the political will of the local officials. The personal desire to earn more revenue has cause them to disregard the environment, continuing with the mining activites despite orders from the central government to close them down. Lastly, with the upcoming Olympics in August, we have seen the governments taking extra measures to curb pollution, but the question i would like to ask is, would they continue to do so, long after the Olympics have come and gone.

Amanda (07A102)

Labels: amanda (07A102), Environment, Politics

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extracted from: http://www.time.com/time/magazine/article/0,9171,1724024,00.html
Thursday, Mar. 20, 2008
By Bill Powell

China's near-miraculous economic rise has been built on the smarts of men like Cheng Wei-lun and the sweat of the 800 workers he employs as chief executive of the Tianji Wooden Products Co. Based in Guangdong province in southern China, the company, which exports $10 million worth of toys and children's furniture annually, is like thousands of other small manufacturers that help form the backbone of the country's formidable export-manufacturing machine. But that frame is showing cracks, and all the brains and brawn in the world might not be enough rescue Tianji Wooden Products. Cheng's costs have gone up 30% in each of the past two years, but competition is so fierce he can't raise prices. "Our profits are gone," Cheng says. "If something doesn't change in the next few months, I will have to shut the factory."

Something is about to change — but almost certainly for the worse. Higher labor costs, a strengthening Chinese currency and soaring raw-materials prices are bad enough. Now, a slowdown in global growth and a likely full-blown recession in the U.S. are about to stress-test China's manufacturing sector like never before — and could result in the shuttering of thousands of factories and cost hundreds of thousands of workers their jobs. Makers of low-end goods are already suffering. The Guangdong city of Huidong was home to 3,000 shoe factories at the beginning of 2007, but as many as 500 of them have closed over the past 15 months, says Li Peng, secretary of the Asia Footwear Association in Hong Kong. One-sixth of 44,200 textile firms tracked by the China National Textile and Apparel Council lost money last year and two-thirds are just breaking even. "Manufacturers' profits are so low that when they hit the slightest snag, they have to close," says Li.

China's sweatshops have every reason to sweat. America buys about 19% of China's $90 billion in monthly exports. As the U.S. economy began to falter in late 2007, China's torrid export growth rate — for the last several years running at an annual rate of 20% or higher — was showing unmistakable signs of a slowdown. In February, it plummeted to just 6.5%, compared with nearly 20% growth expected by economists. Exporters suffered major disruptions from power outages and transportation delays caused by that month's heavy snowstorms, but sluggish U.S. demand was also to blame. In February, the value of U.S.-bound goods showed a rare year-over-year decline of 5.3%.

Although China is the world's second largest exporter, the country is not as dependant upon overseas trade as some. Exports accounted for 36.8% of China's GDP in 2006, compared with 43.2% in South Korea. But China may be unusually vulnerable to weaker international demand because the country has in recent years built too many new factories. With investment capital readily available and China's economy roaring ahead at double-digit growth rates, heavy industry expanded massively. The value of China's steel exports, for example, jumped tenfold between 2003 and 2007, from $5 billion to $50 billion.

China's central government recognized early on that an investment bubble was likely forming. In 2004, for both economic and environmental reasons, authorities in Beijing began pressuring provincial and local officials to curb spending on aluminum, steel and cement factories; state-owned banks were periodically told to stop lending for industrial projects. But local officials often ignored the stop signs. More factories meant more local jobs and more growth, which made them look good in the eyes of their political superiors. Not only that, local officials, who can seize land and issue permits for new projects, were often silent partners in new manufacturing ventures. Too many factories got built as a result.

This overabundance of production capacity means China's export machine is like a race car with no brakes. As long as the road remains smooth and straight, the car roars ahead. But throw in some potholes and a tight turn, and the wheels come off. Factories have been able to increase output in recent years because the global economy has been on a tear. The 2004-07 period saw the second strongest bout of global growth on record — which translated into strong demand for cheap Chinese-made products. But this era may be ending. Most economists are predicting a significant slowdown in worldwide GDP growth in 2008. This slowdown, predicts Lehman Brothers economist Sun Ming-chun, will prove to be the "unmasking of [manufacturing] overcapacity in China." Says Li of the Asia Footwear Association: "The cake is only so big, and when you have too many people trying to eat it, you will definitely have some go hungry."

Some are already starving. China's competitive advantage has been its armies of cheap workers, but that edge is getting dull. Labor costs have increased 50% in the past four years across southeastern provinces — an area of China sometimes called the "workshop of the world" — and a new labor law passed by Beijing will only add to the burden. Jonathan Anderson, an economist at UBS in Hong Kong, says that factory owners in southern China believe the new law will drive labor costs another 10-25% higher. Among other provisions, the new law entitles laid-off workers to one month of severance pay for every year of employment. "In a case where an export market is going down, if you want to reduce your number of workers, then you face a lot of problems," says Stanley Lau, vice chairman of the Federation of Hong Kong Industries. To lay people off, "you need to pay a huge amount in compensation." Nor is there any relief from surging raw-materials costs. And, slowly but surely, the renminbi, China's currency, continues to strengthen — it's now 12% higher versus the U.S. dollar than it was 18 months ago — making China's exports more expensive worldwide.

A major retrenchment could have serious consequences for China's economy and society. The specter of legions of laid-off migrant workers roaming the streets in search of jobs is bound to keep Beijing's economic policymakers, who fear the political consequences of widespread social unrest, up at night. Sun, the Lehman Brothers economist, says as manufacturers are pushed to the brink, China's stock markets could see sharp declines. Given that many large, listed Chinese companies pad their profits by investing in stocks themselves, "a big correction could bring [corporate earnings] even lower, and a vicious cycle could result," says Sun.

Then there are China's fragile banks, which could be hit by waves of defaulting loans as factories fold. Although Chinese banks during the current boom have been able to reduce their unusually high proportion of nonperforming loans carried on their books, declining corporate earnings will diminish borrowers' ability to repay their debts. While it's difficult to assess the overall exposure of banks to the manufacturing sector, it's easy to imagine lenders getting caught in a Chinese-style credit crisis if manufacturing contracts sharply.

Of course, worst-case scenarios don't always come true. Anderson, the UBS economist, isn't overly pessimistic. But he sees China's export growth rate falling from about 25% a year to single-digits by mid-2008. "2008 will likely be the year manufacturers [are] finally forced to take a general hit on profitability," he says. A soft landing for factories might even be beneficial for the country in the long term, because it would weed out inefficient operators and boost China's productivity. A period of "creative destruction" is an inevitable part of any business cycle. China's economic policymakers can only hope that the creative aspects of the coming shakeout outweigh the destruction.

Amanda's commentary:

This article sums up the lecture notes on the State-Owned enterprises that we have covered just a few months ago. It is intriguing to see that once in the history of China, she thought herself to be self-sufficient, closing her doors on the outsiders and deeeming them as barbarians and now in the 21st century, with her economy opened up for imports and exports hitting 36.8% of her GDP in 2006. This article covers the social, political and economic aspect of China's economy. It shows how the closure of SOEs has caused people to be retrenched, taking away the basic social cradle that they use to have. Other than the workers themselves that are affected, the employers,themselves have to pay much compensation to them although most could not afford to do so. The article has also shown how local officials driven by profits and trying to please their higher officials disregard orders to curb pollution and to stop producing, causing environmental degradtion and trade surpluses in China. All in all, I feel that this article adequately summarise that effects of China opening up her economy to the rest of the world, especially with her accession of into the WTO in 2001.

Amanda (07A102)

Labels: amanda (07A102), Economy, SOEs

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