Economists Worry China's Economy Will Overheat

Beijing Bling
Economists Worry China's Economy Will Overheat

By SCOTT McDONALD
The Associated Press

BEIJING

The signs of a surging economy are everywhere: flashy luxury cars, glitzy shopping malls, expensive restaurants and construction cranes in many neighborhoods.

For most Chinese, this is a good thing. It means more jobs, higher incomes and rising affluence. But China's leaders, fearful of accelerating inflation and the risk that all this investment could collapse in a debt crisis if borrowers go bankrupt, are trying to apply the brakes.

How well they succeed is taking on an increasing global importance, as a slide in stock prices in Asia and then Europe on Thursday demonstrated. The reaction came after Beijing reported its economy expanded in the first quarter a sizzling 11.1 percent from the same quarter a year ago and that inflation was the highest in two years.

Stocks later stabilized in the United States - unlike the panic selling on Feb. 27 that sent the Dow Jones industrial average plunging 416 points in the worst one-day rout since the Sept. 11 attacks. But the "China effect" on investors around the world remains palpable, due in large part to just how important trade with China has become for most nations.

On Thursday, the State Council in China vowed that it would take steps to keep the economy from overheating. It has said the same thing several times in the past year, to little avail. The economy keeps exceeding growth expectations even though interest rates have been increased three times in the last year and curbs have been imposed on investments in real estate, the auto industry and other fields.

The latest evidence that the restrictions haven't taken hold: Beijing reported Thursday that fixed-asset investment countrywide grew a stunning 23.7 percent during March.

But the real shocker for investors was the news that the consumer price index in March rose 3.3 percent, its highest since hitting 3.9 percent in February 2005. China has said it wants to keep inflation less than 3 percent for the whole year after it increased 1.5 percent in 2006.

It has Chinese economic officials worried.

"If this type of fast growth continues, there is the possibility of shifting from fast growth to overheating. There is that risk," Li Xiaochao, spokesman for the National Bureau of Statistics, said at a news conference.

China's Cabinet also quickly stepped in after the announcements. A statement posted on the council's Web site following a meeting chaired by Premier Wen Jiabao said the government will work to "reduce the country's large trade surplus, limit rapid growth in house prices and maintain basic price stability."

While China's leaders want rapid growth to reduce poverty, they also are trying to slow an investment boom in real estate and other industries where they worry that overspending on unneeded factories and other assets could ignite inflation or a debt crisis.

The news comes amid increased trade tension between Beijing and Washington, with the U.S. threatening to impose punitive tariffs on Chinese goods if it doesn't end currency controls blamed for contributing to the trade gap. Last year, the United States reported a record $232.5 billion trade deficit with China.

Asian markets fell ahead of the report in anticipation that the numbers would be stronger than expected and prompt Beijing to raise interest rates or take other measures to slow growth in China, a major regional trading power.

The nervousness was increased because Beijing delayed the release of the figures by five hours without an explanation.

As it turned out, quarterly gross domestic product did beat forecasts for 10.3 percent growth, according a poll of economists by Dow Jones Newswires. It was the highest growth rate since the second quarter of last year, when growth reached 11.5 percent, the fastest in a decade.

Shanghai's benchmark index - which had set records for most of the last two weeks - tumbled 4.5 percent, while stocks in Japan fell 1.7 percent and those in Hong Kong dropped 2.3 percent. European markets also opened lower.

Economists projected that another rate hike is coming soon.

No forecasts for the full year were given by the statistics bureau, but Stephen Green, chief economist at Standard Chartered Bank in Shanghai, wrote in a report that first-quarter growth was higher than his "bullish expectations" and that he had raised his forecast for 2007 GDP growth to 10.6 percent from 9.6 percent.

The statistics bureau said urban disposable incomes climbed 19.5 percent in the first quarter, while rural incomes went up 15.2 percent, the biggest increase in a decade.

The state-run Xinhua News Agency announced last week that China's foreign reserves, already the world's largest, had climbed past $1.2 trillion, and Li said first-quarter growth in the value of exports was up 27.8 percent, compared with an increase of 18.2 percent in the value of imports.

Beijing plans to use ‘huge umbrella’ to keep athletes dry

BEIJING: Beijing will use aircraft, missiles and cannon in what could amount to a huge umbrella over the city to keep athletes dry during next year's Olympics, state media reported yesterday.

The August 8-24 sporting extravaganza will happen during normally arid Beijing's rainy season when hail as well as water is often seen, the Beijing Times said.

But the weather bureau plans to use advanced techniques to force rain clouds to unload as far away as 90km from the capital, the paper said.

Zhang Qiang, the head of the city's artificial weather management office, told the newspaper that five aircraft and several batteries of cannon and rockets will be used during the Olympics.

The system will be tested this year to ensure that it can work next August when rain is expected to fall once every three days, he said.

No details were released on exactly how the plan will work but artificial rain is normally created by seeding clouds with chemicals such as silver iodide spread by rockets and planes.

China claims a successful record of influencing the weather by artificial means. Earlier this year official media reported that snowfalls had been artificially generated by cloud seeding in the north of the country. – AFP

APEC meeting opens in Beijing

BEIJING April 19 (UPI) -- Aviation safety and satellite navigation were the focus of talks Monday at the Asia-Pacific Economic Cooperation Transportation Working Group in Beijing.
Experts also discussed liberalization and strengthening regional cooperation, the official Xinhua news agency reported.

U.S. National Highway Traffic Safety Administrator Jeffrey Runge told the meeting the goal of Asia-Pacific Economic Cooperation organization in the transportation field is to build an integrated, safe, efficient and environment-friendly transportation system among all economies.

He said such a system would strengthen cooperation and promote economic prosperity between China and other Asia-Pacific nations.

Founded in 1991, APEC's Transportation Working Group aims to promote liberalization and economic cooperation.

Gates offers $3 software for students

By Andrew London and Liu Baijia (China Dialy)
Updated: 2007-04-20 07:14

Bill Gates Thursday promised to offer a $3 Microsoft software package to poor students both in developing and developed countries.

Microsoft Chairman Bill Gates delivers a speech during The Microsoft Government Leaders Forum in Beijing April 19, 2007. [Reuters]
 
Addressing the Microsoft Government Leader Forum in Beijing, he said the world's largest software company aims to increase the number of people with access to computers from the one billion today to two billion by 2015. This, he said, is part of the US Millennium Development goals.

"Education is the most important investment for the future," Gates said on his 10th visit to China. His pledge comes five months after Intel Chairman Craig Barrett said during his China visit that the global giant would start selling computer chips for $300 in the country from this year. Like Gates, Barret's aim, too, is to help poor people access IT.

Starting from the second half of this year, the world's largest software firm will provide its software, including Windows XP Starter, Microsoft Office Home and Student 2007, Microsoft Math 3.0, Learning Essentials 2.0 for Microsoft Office and Windows Live Mail desktop for $3.

Countries interested in the program, however, will have to pay at least half of the cost of the computers for the students.

The program does not include only developing countries, but also developed ones that want IT access for their poor students, Microsoft Vice-President Will Poole said.

Professor Mohammed Yunus, founder of the famous micro-credit organization, Grameen Bank (Rural Bank) in Bangladesh, and 2006 Nobel Peace Prize winner, agrees that IT plays a key role in alleviating poverty.

Speaking at Tsinghua University, where he received an honorary doctorate, Gates said:"Software isn't just for a few but really about empowering everyone" - whether they are displaced or migrant workers or the visually impaired trying to use a computer.

Contrary to Russian cosmonaut Fyodor Yurchikhin's claim, Gates said he has no intention of venturing into space. Instead, the world's richest man wants China's poorest to one day enjoy the benefits of the digital revolution.

"We want to make sure digital advances are available to all," Gates said, referring to Microsoft's links in China, specifically Beijing-based Microsoft Research Asia (MRA), a creative research lab that focuses on cutting edge advancement in computer technology.

"We've only just scratched the surface of the digital revolution," he said. One day, people should be able to enjoy all TV programs online, and a digital tablet, connected without a wire to the Internet, could replace classroom textbooks, Gates said.

Tsinghua University has been one of the talent breeding grounds for the MRA since 1998. It was set up after Gates visited China and was impressed by the "talent, enthusiasm and creativity" of Chinese university students.

Gates also announced a new joint venture between the university and the MRA: the Tsinghua-Microsoft Special Pilot CS Class, a faculty exchange program.

Microsoft's Bill Gates says China to remain largest broadband market

BEIJING (XFN-ASIA) - China is set to remain the world's largest broadband market after recently overtaking the US, Bill Gates, chairman and co-founder of Microsoft Corp, said at an innovation forum here.

'China has surpassed the US in the number of broadband users. And once this is the largest market, it will stay the largest market. There's an advantage to having 1.3 bln people,' Gates said.

He noted that price constraints for fast, reliable Internet access were falling by the wayside.

'The price of broadband has been a limiting factor, but competition is bringing the price down,' he said.

China, currently a global leader in hardware, would soon become a leader in software, he added.

'Innovation here is really growing at a rapid pace. I give a lot of credit here to the universities. China will be a leader ... it's already true for hardware, but it will also be true for software,' Gates said.

He added that Microsoft (nasdaq: MSFT - news - people ) had China's affection for mobile communications in mind when it recently signed a joint research deal with China's leading computer maker Lenovo.

'We are focusing with Lenovo on mobility,' Gates said.

Lenovo, the world's No.3 computer company, announced on Wednesday that it plans to set up a 50-50 multi-million-dollar joint research and development center in Beijing with Microsoft.

The partners will try to identify opportunities in the consumer and mobile markets such as digital photography, digital media and the Internet, Craig Mundie, chief research and strategy officer at Microsoft, was reported as saying.

Beijing sweats as economy nears red zone

April 20, 2007

By Robert Saiget

Beijing - Chinese Premier Wen Jiabao had called for steps to prevent fast growth from leading to an overheated economy, the government said yesterday, as first-quarter gross domestic product (GDP) growth came in at a blistering 11.1 percent.

"We must ... prevent the economy from changing from rather fast-paced [growth] to overheating, while also avoiding large ups and downs," the government quoted Wen as saying.

Wen called for measures to rein in excessively fast growth in the nation's trade surplus to reduce "unreasonable" preferential policies for the export sector. China's trade surplus totalled $46.4 billion (R327 billion) in the first three months of the year, about double the figure in the same period last year.

Earlier yesterday, the National Bureau of Statistics (NBS) said that the first three months of 2007 showed the fastest growth rate since the second quarter of last year, when the economy expanded 11.5 percent.

"If the fast growth continues for a certain period, there is a risk of shifting from fast growth to overheating," said Li Xiaochao, spokesperson for the bureau, stoking concerns that a series of measures to cool down the economy had failed.

"We must carefully carry out all policies of the central government and continue to strengthen and improve macro-economic control measures."

Chinese share prices fell 4.52 percent ahead of the figures as investors opted to take profits on recent record gains rather than risk being exposed to bad news, while regional markets were also down.

The losses were the biggest one-day fall since February 27, when a near 9 percent plunge in Shanghai stocks sparked turmoil on global equity markets.

Analysts said acceleration in the world's fourth-largest economy was likely to have been driven by the yawning trade surplus and massive fixed asset investment.

The economy grew 10.7 percent in 2006, but had eased to 10.4 percent in the three months to December.

Analysts had expected the first quarter to come in at about 11 percent, well above the government's forecast of 8 percent for 2007 as a whole.

The acceleration has come about despite cooling measures adopted by the government since early last year, including interest rate increases and cuts in tax incentives for exporters.

"Investment and credit are rising fast and the trade surplus is large," said Ma Qing, an analyst with Citic Securities in Beijing. "As a result, the macro-control measures introduced so far have not had a big impact."

Paul Cavey, an economist with Macquarie Securities, said the key driver, fixed asset investment, had bounced back faster than expected from last year's moderation. "We were expecting growth to bounce back ... in the second quarter," Cavey said.

Total fixed asset investment - both urban and rural spending - rose 23.7 percent in the first quarter, the NBS said. Fixed asset investment, the main indicator of state-funded spending on new productive capacity, is fuelled by the country's massive liquidity despite systematic efforts by the central bank to mop it up.

China's consumer price index rose 2.7 percent in the first quarter of 2007 from a year earlier and was up 3.3 percent in March alone, the NBS said.

The government has an inflation target of 3 percent so the March outcome will be of concern. Consumer inflation is one of the key measures that the central bank monitors for policy decisions.

Industrial output expanded 18.3 percent, boosted by massive investment in new plant and equipment in recent years, alongside booming exports.

This was just one of several unsolved problems outlined by Li, including "an imbalanced balance of payments, excessive liquidity, an irrational economic structure, and high pressure on energy conservation and pollutant emissions reduction". - AFP

Race is on to book Beijing hotel rooms

 BEIJING: More than a year before the first starter's pistol fires at the Beijing Olympics, competition is rife for what may be spectators' biggest prize – a comfortable hotel room within range of top sports venues. City tourism officials and Olympics organisers are confident Beijing's 700-plus star-rated hotels can absorb the onslaught of half a million foreign and domestic visitors expected each day for 17 days beginning Aug. 8, 2008.

But some of the best hotels are already fully booked, and 122 of the three-, four- and five-star hotels closest to the Olympic venues are at least 70 percent filled after Olympics officials, sponsors and media locked up 30,000 rooms. "No need to wait. Book it now, hurry up," suggested Xiong Yumei, deputy director of the Beijing Tourism Administration, in an interview with Reuters. Tens of thousands of rooms are still available, but free-wheeling capitalism is already pushing prices well over double normal rates. City officials say they will not restrict hotel profits, and standard rooms being cited by travel agents surpass $325 a night at some 3-star hotels to $500-$775 at luxury 5-star hotels. "My advice is: please make reservations in advance, as early as possible," said Xiong. But booking now is not so easy. Potential visitors will find online booking a frustrating tangle. For instance, online reservation sites of some luxury hotels prevent bookings more than a year in advance. Others say they are full or offer conflicting and confusing information. None of the sites in a random sampling stated precisely what the room rates would be.

Fruitless: Visits to several international hotels in Beijing were equally fruitless. Asked about Olympics period reservations, some hotel staff consulted supervisors and finally advised potential guests to check back later. At the 5-star Kempinski Hotel not far from the main Olympic site, a receptionist said a delegation of Germans had already booked all 526 rooms. Then the hotel's revenue manager, Graham Barlow, said the hotel was "in the midst of trying to secure bookings" and said potential guests were being put on a waiting list.

The hotel's online booking system gave the message: "unfortunately, the property is sold out". Hotels close to the sports venues are in high demand, allowing guests to minimise time in Beijing's notorious traffic. But do not even think about trying to book a room in the closest hotels, including the Beijing Continental Grand Hotel and the Crowne Plaza Park View Wuzhou Beijing hotel, both within minutes of the main Olympics site. More than 95 percent of their rooms were snapped up by the Beijing Olympics organising committee.

"Our choice of hotels was according to several factors: first of all is location, whether they are close to our competition venues," said Penny Xiang, deputy director of Games Services for the Beijing Organising Committee, which secured rooms for Olympics dignitaries, staff, sponsors as well as international media. Working through a travel agent may be easier, since some have relationships with networks of hotels. But prepare to pay the full tab three months ahead of the Games, they say. Hotels are also imposing other restrictions, like minimum stays and minimum beverage purchases, in one case up to $250 a day.

"At the moment, it's a seller's market. It's an opportunity for them to make good money," said Alfred Li, product manager at FCM Travel Solutions in Beijing, which just booked an entire 5-star hotel for an Australian company. "Now most hotels want to sell rooms in group packages of 18 to 30 days at a minimum. Six months before the Olympics, if there are still a lot of rooms, they'll have to become more flexible." Another unpredictable factor is how many of China's 1.3 billion people might converge on Beijing. Of the event's 7 million tickets, 75 percent are targeted for domestic visitors, but city officials expect fewer than 150,000 daily visitors from within China.

Overflow contingency plans include tapping hotels in surrounding suburbs and towns of Hebei province, even as far away as coastal Tianjin, some 115 kms (about 70 miles) to the east. "We have to estimate and calculate very carefully, and never make any giddy-headed decisions," said Xiong. "I am bearing some pressure, but not too heavy for me to lose sleep. I'm confident in Beijing." reuters

Beijing's taxi drivers given fashion tips

19 April 2007
Beijing is gearing up for an influx of tourists when the Olympic Games kick off in 2008 and officials are embarking on a mission to improve the behaviour and appearance of the city's taxi drivers.

State-run newspaper Beijing News reports that the city's transport management bureau is appealing to drivers to look the part and behave themselves during the games.

A request has been put out which asks them to be polite, avoid spitting and refrain from smoking and over charging.

In addition, officials want them to avoid dyeing their hair red and have asked that women do not wear excessive jewellery.

'Some drivers don't care about their appearance and this has a negative impact on the whole industry,' said Yao Kuo, vice director of the transport management bureau.

'A person's hairstyle and accessories are their personal business, but cab drivers must remember they are a window for China's capital.'

The bureau has revealed that drivers who do not use their meter or refuse to take passengers where they want to go will have their licence revoked.