China Starts Investing Globally

Hawkish Chinese buying spree, watch out! I guess as long as you keep those middle-to-upper class in check, there is no worry of an all out revolution to topple this authoritarian government.

February 21, 2009
China Starts Investing Globally
By DAVID BARBOZA

SHANGHAI — China is taking advantage of the economic downturn to go on a major shopping spree, investing in energy and other natural resources that could give it an economic advantage it has never had before.

Some economic analysts say they believe that China’s investments pose a threat to competitors like the United States. In the last move, Beijing said on Friday that one of its big state-owned banks, the China Development Bank, would lend the Brazilian oil giant Petrobras $10 billion in exchange for a long-term commitment to send oil to China.

China signed similar deals this week with Russia and Venezuela, bringing Beijing’s total oil investments this month to $41 billion. They represent an important investment. Supplies of commodities like oil are likely to tighten again once global growth picks up, and China will have a toehold it lacked during the recent boom, when it grew phenomenally even with limited access to resources.

But some analysts say China’s recent investments are welcome because they will help finance much-needed development, increasing the global supply of oil and natural resources at a time when many of the world’s biggest banks are reluctant to lend.

“It’s a good thing because a lot of projects have been postponed,” said Prof. Philip Andrews-Speed, director of the energy policy center at the University of Dundee in Scotland. “Oil companies may now have the money to produce oil.”

It is not just oil. This month, China’s biggest aluminum producer also agreed to invest $19.5 billion in Rio Tinto, an Australian mining company that is one of the world’s biggest. On Monday, China Minmetals bid $1.7 billion to acquire OZ Minerals, also of Australia, a huge zinc mining company.

China is flush with cash — thanks to trillions of dollars from decades of selling goods to the West — at a time when credit markets are tight and collapsing commodity prices have left energy and natural resource companies desperate for cash. For many of these companies, China has gone from pariah to lender of first resort.

“This is heavy energy diplomacy,” Professor Andrews-Speed said. “If you need money, you go to where the money is, and today, China’s the place.”

President Hu Jintao of China traveled this week on his “Friendship and Cooperation Tour” in Africa, where China has huge interests in resources and mining. The vice president, Xi Jinping, visited South America, met with the leaders of Brazil and Venezuela and signed cooperation agreements on oil and minerals.

Venezuela borrowed $6 billion from China and agreed to increase its oil exports to China, bringing China’s total investment in the country to $12 billion. In Brazil, China signed a $10 billion “loan-for-oil” deal that guarantees the country up to 160,000 barrels a day at market prices.

And in Beijing this week, Prime Minister Wen Jiabao met his Russian counterpart after China agreed to lend Russia’s struggling oil giant Rosneft and Russia’s oil pipeline company, Transneft, $25 billion in exchange for 15 million tons of crude oil a year for 20 years.

The investments are China’s biggest moves since 2005, when a Chinese state-owned oil company made an unsuccessful bid for Unocal, the American oil company, prompting worries about whether fast-growing China was seeking to tie up global resources.

But the world has changed drastically since then. Commodity prices have fallen sharply in recent months, after a long bull market that was partly fueled by China’s voracious demand for energy and resources. And China has built up nearly $2 trillion in foreign currency reserves, giving the country easy access to capital.

“What’s changed for China is that their key competitive strength has increased, and that’s capital,” said Andrew Driscoll, a resources analyst at CLSA, an investment bank. “A lot of companies are begging for capital.”

China wants reliable supplies of crude oil to fuel its growing transport sector; it needs iron ore for steel production, and copper and aluminum to build homes and consumer goods.

Analysts say there are still worries about whether China will compete with other nations, like the United States and India, for oil and other natural resources.

Analysts say China could continue to make deals this year for small oil and gas companies, mineral producers and mining firms.

This week, for instance, shares of the Fortescue Metals Group, an Australian mining company, rose after reports the company was in talks with China over a big investment to help the company expand operations.

In many cases, China has struck deals in countries that have access to large supplies of oil and minerals but where American and European countries are not well positioned, like parts of Africa and the Middle East. In one of the deals struck this week, China made an alliance with the government of Hugo Chávez, the president of Venezuela, who has denounced American leadership. While the oil deals announced this week vary in terms, analysts say they ensure China a steady supply of oil for decades to come, sometimes at favorable prices.

Jobless, restless China: 20 million and growing

From G&M, thanks to North Americans shutting off their wallets. I guess the Chinese government has never thought of how to deal with this kind of contingency, but with their trillions spending on military might, it may be time to divert some to job creation and sustainable development, not always relying on export and a pegging of currency. If the CCP doesn't learn to adopt maybe it'll be too late before a rude awakening. But, then again, dealing with civil unrest has always been its the forte, is it?

Jobless, restless China: 20 million and growing

MARK MACKINNON

From Saturday's Globe and Mail

February 20, 2009 at 11:46 PM EST

YUANSHAN, China — If future historians try to identify the day the global economic crisis reached the tipping point, they might want to consider Nov. 15 of last year.

That was the day, after years of slowly battling their way out of poverty as China's economy rapidly expanded, that 39 villagers decided there was no more money to be made in the once-booming factory cities on the Pacific Coast. So they packed themselves into 16 rickety three-wheeled tuk-tuks and began a slow, two-week journey home from booming Guangdong province to this speck of a place in the country's southwest.

Call it the Long Ride, a modernized and peaceful version of the Long March retreat staged by Mao Zedong's Communist army 75 years ago. Only the current retreat is being staged by China's army of suddenly jobless migrant workers — an estimated 20 million of them and counting, a number larger than the combined populations of Ontario, Alberta and British Columbia. For years they were the fuel that fed China's booming economy, but this restless mass now poses a huge challenge for Beijing, which is openly fretting about the possibility of wide-scale unrest.

Pu Qingsheng and his neighbours were in the vanguard of the movement. Driving 17 hours a day for two weeks, in an open vehicle that couldn't exceed 20 kilometres an hour, Mr. Pu drove his motorized rickshaw in convoy with his neighbours from the port city of Shantou back to this mountain village in Sichuan province.
Laid-off factory worker Wang Gang hoists a poster advertising his skills as a CHECK amid a crowd of other recently unemployed men at a jobs market in the city of Chongqing.

Laid-off factory worker Wang Gang hoists a poster advertising his skills amid a crowd of other recently unemployed men at a jobs market in the city of Chongqing. His wife and two teenage children spent the arduous journey packed in the back along with their meagre belongings. They endured the exhaust-choked highways and potholed back roads while crammed three across onto a metal bench that looks designed for two. They paused once a day for a meal of instant noodles mixed with borrowed tap water.

The Pu family felt they had no choice but to return to Yuanshan. As the garment and toy factories that are the economic heart of Shantou shut down last fall, largely because of slumping demand from North America, fewer people were willing to pay even the small fee for a ride in Mr. Pu's tuk-tuk. His wife and children, who all had low-paying jobs collecting plastics for recycling plants, were told in October their services were no longer needed.

"When the bosses started closing down the factories, our earnings couldn't cover our expenses any more," Mr. Pu explained grimly. "Before the crisis, a normal day's business would bring in between 50 and 60 yuan [$9 to $11] a day. In October, it suddenly dropped to 30 or 40 yuan [$5 to $7] a day. Sometimes, it was only 10 or 20 [$1 to $3]. Nobody wanted to take a cab if they could walk instead and save the money."

The math was the same for everyone from Yuanshan. The 39 villagers had come to Guangdong together at a time when it looked like China's economic miracle would go on forever. Now, back home together in this village that has neither paved roads nor a sewage system, they're trying to understand what to do next.

In addition to the estimated 20 million, another 5 or 6 million migrant workers could lose their jobs in the month to come. Some argue that even those numbers underestimate the scope of what is happening.

As the months go by and the number of jobless mounts, there are rising concerns that desperation could turn into anger. Scarcely a day has gone by recently without a new warning from the government in Beijing about the possibility of growing social unrest.

In the short term, organized action seems unlikely, largely because independent trade unions are banned in China, leaving workers with nothing to rally around in these hard times. While workers are involved every year in tens of thousands of "mass incidents" (the official terminology for strikes and protests; there were 87,000 in 2005, the last year they were reported), nearly all have been isolated incidents that were quickly brought under control by authorities.

For now, many migrants, such as Mr. Pu and his family, have returned to their homes in the countryside, hoping to scrape by farming their tiny state-assigned plots of land, just as they did before the boom times. But with the Chinese New Year festival over, many more have returned to the cities impatiently waiting for new jobs to materialize to replace the ones they lost.

With the economic situation in freefall, many are predicting a jump in crime. A top police official in Guangdong province told reporters this week that he expected the public-security situation in the factory cities would be "grim" as a result of the lost jobs.

"There will be more thieves, more crime. Everyone needs to eat and live," said Zhou Litai, a lawyer famous in China for representing migrant workers in disputes with their factory bosses over pay and working conditions. Mr. Zhou has seen his own caseload drop to just 10 a month from nearly 200, as his client base was sent home without severance pay or, he says, even their final paycheques.

Lost jobs, lost confidence

A six-hour drive southeast of Yuanshan, in a makeshift job centre deep in a warren of backstreets in the chaotic Yangtze River port of Chongqing, several thousand jobless migrants gather each day hoping to hear that the economic crisis is over and the factories are hiring again.

The sight of a foreigner entering the room sends a jolt of desperate hope through the crowd, most of them young men in dirty and tattered clothing, who rush forward.

"What do you need, laoban?" a man in a threadbare grey sweater asked, addressing me with the Mandarin word for "boss." His unwashed hair was stuck to his forehead and he was clutching a hand-made sign advertising his credentials as a cook. Another sweaty man in a red jacket pushed through the crowd to take the would-be chef's place in front of me; he said he could work as a driver.

Others shoved him aside, offering their services as waiters, security guards, whatever was needed. Until the middle of last year, most of the men worked in the east coast factory cities.

Even when I explained that I was a journalist rather than a tycoon looking to open a factory, some wouldn't give up on the idea that I was there to help them.

"We could go to Canada with you," one persisted, drawing laughter from the others. "You could be our laoban."

These workers fit the profile of China's migrant population. According to a soon-to-be-published study by the University of Chongqing, 60 per cent of migrant workers are male and 80 per cent are between the ages of 20 and 45.

They went east for purely financial reasons. Despite often appalling working conditions and lack of legal status in the cities where they worked, migrants could often make 10 or 20 times more money in the factories than in the villages. The money made everything else tolerable.

That trade-off is gone now, but for many migrants, going home, like Mr. Pu did, isn't an option. Some have been away so long that they gave their farm plots away to their neighbours. Others say they don't even remember where their land is, or how to farm it if they did.

Many of the men in the Chongqing job market have visited the centre every day for months, surviving on one meal a day and spending nights sleeping in nearby hostels that offer beds at less than a dollar a night. Though local restaurateurs came by from time to time looking for help, none of the migrants reported landing a job that lasted more than a few weeks.

"Originally, I thought of going back to the coastal areas, but I saw on TV [that the factories are not reopening] and they warned us not to just go back there blindly," said Huo Liu, a neatly dressed 28-year-old father of one who worked in a textile factory in the trading port of Ningbo until last September. Since then, he's been trying to take advantage of Chongqing's reputation as a centre for spicy Sichuan cuisine and reinvent himself as a cook. But despite coming to the job centre every day for the past five months, he has yet to find work.

"I really don't know what I'll do now. I have no confidence in the future at all. I'll just come here every day and keep looking."

While Mr. Huo seemed resigned to the winds of fate, others in his situation are starting to find focus for their mounting ire. One popular target is the urban Chinese, whom they see as looking down on poorly educated migrants from the provinces. And there's also growing discontent with the authoritarian government in Beijing.

"They put up signs saying there are jobs, but this is a show for the foreigners — there are no jobs," one worker shouted, perhaps referring to a red banner slung from the ceiling that teasingly welcomed migrant workers from the coastal cities back to Chongqing. "We welcome the migrant workers who return to their home town to work here and start a business."

"We demand that Premier Wen Jiabao give us some money!" another worker shouted, to hoots of derision. But no one wanted to put their name to that statement.

Watching and waiting

What Beijing apparently fears is that the anger will manifest somehow into a political force. Sun Chunlan, vice-chairman of the government-backed All-China Federation of Trade Unions, claimed this week that police task forces had been "rushed" to China's regions to ensure stability. "Hostile forces within and outside China [are] using the difficulties of some enterprises to infiltrate and bring trouble to rural migrant workers," he charged.

In a bid to reverse the country's economic slowdown — and head off labour trouble — the government in November announced a $585-billion (U.S.) economic stimulus package and recently instructed firms to do whatever necessary, including slashing salaries, to avoid further layoffs. The state-sponsored trade union plans to offer vocational training and small loans to jobless migrant workers, and the government has been furiously working to restore a national social-insurance program that has been gutted since China's still nominally Communist government began moving toward a free-market economy in the 1980s.

While the overall numbers don't look bad when stacked up against the gloom in Western economies — the Chinese economy is expected to grow between 6 and 8 per cent this year — they still represent a significant slowdown for a country used to double-digit growth.

Worse news may be yet to come: Exports, the country's economic lifeblood, plunged 17.5 per cent in January. The crisis puts in peril the government's efforts to lift hundreds of millions of peasants out of poverty and to close the staggering gap between the country's urban rich and rural poor.

What makes the layoffs so difficult to accept for China's migrant labourers is that they have almost nothing to fall back on. Few Chinese have unemployment insurance, health insurance or a pension of any kind. For migrant workers, their social safety net was supposed to be their farmland, though many are finding it hard to readjust to their old life.

"It does create some problems, some conflicts when they come back to their villages from the urban areas. Because of the financial crisis, they cannot foresee when they will go back to their original jobs and the people who are using their houses and farmlands will not quickly move out," said Zhang Zongyi, vice-president of Chongqing University and one of the authors of the migrant labour study.

Ironically, one reason why the predicted unrest hasn't materialized so far is the same Chinese trait often cursed in the West as a key factor in the recent global collapse — this country's propensity to save the money they earn rather than spend it. China's savings rate last year was a whopping 50 per cent, compared with about 3 per cent in the United States.

Whatever damage it did or didn't do to the global economy, the fact that most Chinese have a store of saving for precisely such a moment means that the situation, however grim, can be tolerated for a short while longer.

"Right now, migrant workers are still watching and waiting. They still have savings to last for February and March," said Mr. Zhou, the labour lawyer. That gives the government programs less than two months to kick in and get the economy turned around, he said.

However, Mr. Zhou isn't confident that a rebound will happen in time.

"In 2009, the unemployment crisis will definitely affect public security," he predicted.

Taiwan's Low Profile May Aid Its Goals

Let's hope the low profile is not too low so such that it may jeopardize Taiwan's voice in the international area.

February 13, 2009
Taiwan’s Low Profile May Aid Its Goals
By KEITH BRADSHER

TAIPEI, Taiwan — America’s new secretary of state is preparing to visit Beijing with an agenda that barely mentions Taiwan — and that is fine with the president of Taiwan.

President Ma Ying-jeou said here on Thursday that he was glad to have reduced tensions with mainland China and that he was not concerned that Taiwan was low on Secretary of State Hillary Rodham Clinton’s list of priorities.

The lessening of tensions with the mainland “is good news for everyone, we are not dissatisfied with the fact they did not mention Taiwan,” President Ma said in an hourlong interview at the presidential palace.

Asked what Mrs. Clinton could do on relations between mainland China and Taiwan, long a top priority for Beijing, Mr. Ma asked for little help. “America can play a constructive role in encouraging the status quo,” he said.

But having largely removed relations between Taiwan and the mainland as a potential flash point since he took office last May, Mr. Ma mapped out changes that he wanted from Washington. A free-trade agreement between Taiwan and the United States topped the list, followed by visa-free access for Taiwanese travelers to the United States and a bilateral extradition treaty.

Beijing officials have viewed Taiwan as a renegade province ever since the Nationalists retreated to the island upon losing China’s civil war to the Communists in 1949. The reunification of mainland China and Taiwan has long been the mainland’s top goal in relations with the United States, Taiwan’s closest ally.

But senior administration officials have signaled that Mrs. Clinton’s priorities for the Beijing leg of her Asia trip next week involve climate change, energy, North Korea, Tibet, Iran and economic issues.

Mr. Ma also said he planned to push further this year for close economic relations with mainland China, even while acknowledging disappointment with the number of mainland tourists who have been allowed by Beijing to visit Taiwan. The Taiwanese government has set a limit of 3,000 a day, but actual arrivals have been closer to 500 or 600 a day.

Recent moves to let mainland tourists stay up to 15 days instead of 10, and come in groups of as few as 5 people instead of 10, could help increase their numbers, Mr. Ma said. His administration has also opened up charter flights, shipping and investment, and he said Thursday that he wanted regularly scheduled flights to the mainland by the middle of this year as well.

He won elections last March by promising that closer relations with the mainland would secure Taiwan’s economic future. But the global economic downturn has led to a plunge in the island’s exports; many investment bank economists now predict that Taiwan’s economy will shrink this year, although the Taiwanese government still forecasts very slow growth.

Mr. Ma said the economy would grow if Taiwan’s main export markets recovered. In the meantime, the government has already distributed shopping vouchers worth $110 to each citizen and is rapidly stepping up spending on roads, bridges and schools and other infrastructure projects that Mr. Ma promised to build during his election campaign a year ago.

“This is high time to go fiscal — let’s get fiscal,” he said.

All three of Mr. Ma’s goals in relations with the United States face uncertain futures.

American and Taiwanese officials held detailed discussions last year on a possible trade and investment framework agreement, which would be considerably narrower than a free trade agreement.

Stephen M. Young, the director of the American Institute in Taiwan, which unofficially represents the United States government here in the absence of full diplomatic relations between the governments in Taipei and Washington, said in public remarks in November and December that policy makers were focusing on a trade and investment framework agreement, and there has been no sign of any change by the Obama administration.

Mr. Ma’s top aide for relations with mainland China, Lai Shin-yuan, who played a central role in talks in 2000 and 2001 that brought Taiwan and the mainland into the World Trade Organization, said there had been little detailed discussion on the Taiwanese side of a free trade agreement.

Ms. Lai added that in her opinion, there was little enthusiasm in Taiwan for the broad dismantling of Taiwanese restrictions on imports of American food that the United States would be likely to demand as part of any free trade agreement.

Mr. Ma also asked that the United States allow Taiwanese citizens to visit without obtaining visas first. Britain agreed this week to allow Taiwanese citizens to visit and stay for up to six months without a visa.

Mr. Young has said publicly that the United States has concerns about this because Taiwan has too few controls in place to prevent the issuance of genuine passports to people who are not citizens of the island.

Mr. Ma and Ms. Lai also said that they wanted an extradition treaty with the United States that would allow Taiwan’s authorities to pursue fugitives accused of financial crimes who have fled across the Pacific. The Bush administration did not take a position on this question, and neither has the Obama administration.

China's Unemployment Swells as Exports Falter

Another tantalizing article from NY Times.

February 6, 2009
China’s Unemployment Swells as Exports Falter
By KEITH BRADSHER

GUANGZHOU, China — Hundreds of thousands of migrant workers are returning here earlier than usual from their home villages after the Chinese New Year holiday. Lugging their belongings in plastic sacks and cardboard boxes, they are hoping to find increasingly scarce jobs. Many will fail.

Liu Yijiang, a 21-year-old worker from Guangxi Province, stopped his bicycle in front of a factory’s gate and explained that he had been unable to find work since he was laid off late last year by a ceiling lamp factory and went home to his village.

“I came back early to see if I can find a job,” he said. “A lot of my friends are out of work.”

A spokeswoman for the Guangdong Provincial Labor and Social Security Bureau said Thursday that 3 million of an expected 9.7 million migrant workers had returned to the province by Wednesday evening. Many have jobs waiting for them, but two million have no employment lined up and must look for work, she said.

Beijing authorities disclosed Monday that based on an agriculture ministry survey of villages just before the Chinese New Year holiday last week, about 20 million of the nation’s 130 million migrant workers are unemployed.

In the factory city of Dongguan, adjacent to Guangzhou, many plants have deferred reopening for up to three weeks for lack of orders from the United States and Europe, said Eddie Leung, the chairman of the Dongguan Association of Foreign Invested Enterprises.

At Fortunique, a manufacturer of hospital gowns and other protective wear on the southern outskirts of Guangzhou, about 50 men and women showed up early Thursday morning looking in vain for jobs. More came to the gate through the day.

“I haven’t seen that since the early 1990s,” when China’s economic boom was still in its early stages, said Charles Hubbs, the company’s owner.

Security forces are taking precautions to prevent social unrest. Police officers were positioned every few feet along the walls and fences outside the main railway station here on Thursday. Endless throngs of arrivals poured out of the massive building, their faces haggard after journeys that can be 30 hours or more in rail cars that often offer standing room only.

At the nearby intercity bus station, loudspeakers tied with police tape to streetlamps told arrivals over and over again, “Do not loiter or stand at the station. Move on quickly. Do not sit or squat.”

One big question is where penniless migrant workers will sleep until they find jobs or return home. Factories here in the Pearl River delta region of Southeastern China, which accounts for nearly a third of China’s exports, typically provide dormitories for a majority of their workers.

The rest, particularly married workers, live in crowded nearby apartments.

But factories that have shut down have closed their dormitories. Unemployed workers seem to be staying with friends in local apartments for now, manufacturing and human resources managers said. The provincial labor bureau announced Tuesday that it was setting up free job fairs in the cities. But the bureau also said it would offer numerous subsidies for workers willing to leave the cities and go to rural areas — including free vocational classes, subsidized school fees for children and a waiver of government fees for the registration of new small businesses.

Guangdong Province accounts for nearly a third of China’s exports, making it especially vulnerable as Western retailers sharply reduce orders to focus on selling the inventory they already have.

Electric utility use was down nearly 8 percent in December from a year ago in Guangdong and across China. Electricity is an excellent barometer of the Chinese economy because most usage is industrial, said Jing Ulrich, the chairwoman of China equities at JPMorgan Chase.

But Guangdong’s actual decline in electricity use is much greater. At least one-fifth of all electricity generated in the province until the last few months was produced by tens of thousands of diesel generators in the backyards of factories, because the provincial grid, unable to keep pace with growth, imposed severe rationing.

This winter, all rationing has been lifted and factories have unlimited access to inexpensive electricity from the grid, so the backyard generators have been shut down.

Wage demands, another barometer of economic health, have plunged. Skilled workers who used to demand up to $430 a month are eagerly accepting jobs that pay half as much, managers here said.

“They just want a job — no demands on salary,” Mr. Hubbs, the Fortunique owner, said.

One big mystery is how many factories have closed permanently and how many are simply giving long holiday furloughs to their workers. Provincial and national statistics on businesses and factories are often contradictory. And government statistics on unemployment over all are not considered reliable.

Another big mystery is what effect unemployment will have on the number of strikes and other protests that occur here regularly. Some experts are worried.

“It’s more possible to cause social unrest if the workers cannot find jobs,” said Liu Kaiming, the executive director of the Institute for Contemporary Observation, an advocacy group for labor rights in Shenzhen, a factory city that abuts Dongguan and Hong Kong.

In the last two years, there was — on average — one strike a day involving 1,000 or more workers in the Pearl River delta, and many more strikes by smaller groups of workers, said Han Dongfang, the director of the China Labor Bulletin, an advocacy group in Hong Kong that wants to see independent labor unions and collective bargaining in mainland China.

He cautioned that the frequency of strikes in the region made it hard to tell whether a recent spate of strikes reported in the Hong Kong news media was the result of greater social friction, or simply more reporting in response to the global economic downturn.

Beijing authorities plan rapid increases in economic stimulus spending in Guangdong to offset the downturn in exports here. The focus will be on building more roads, bridges and rail lines in a region that already has some of China’s best infrastructure.

But even as government investment starts to accelerate, private investment is declining, which may endanger more jobs.

Preliminary results from a study just completed by the American Chamber of Commerce of South China, which looked at 551 mostly foreign companies, found that they planned to invest $6.5 billion this year. A similar study a year ago found plans to invest $11 billion in the next year.

“We’re seeing people investing more methodically and more cautiously,” said Harley Seyedin, the chamber’s president.

Separately, a national survey of Chinese purchasing managers, released Wednesday, showed that most expected the economy to continue to worsen, although the expected steepness of the decline had moderated somewhat.

Stanley Lau, the deputy chairman of the Federation of Hong Kong Industries, which represents the owners of the 60,000 factories in the region controlled by Hong Kong business officials, estimated that 10 percent of these factories had already closed in the last year because of more stringent government policies on labor, taxes and the environment.

Another 5 to 10 percent could close soon because of weaker export orders. “I’m sure there will be more to come,” he said.

Hilda Wang contributed reporting.