America's bloated trade deficits probably wouldn't be helped by China revamping its currency system as the Bush administration has been pressing Beijing to do, Federal Reserve Chairman Alan Greenspan said Friday.

Greenspan's comments, during a question-and-answer session following a speech he delivered to the Economic Club of New York, come as the administration over the past week has increased pressure on China to change its currency and trade practices.

The United States' trade deficit ballooned to a record $617 billion last year, including a $162 billion deficit just with China, the highest ever with a single country.

A move by China to revalue its currency "does not follow that that will lower our overall trade balance," Greenspan said. "Indeed, it's probably quite unlikely."

That's because companies are likely to turn to other countries, such as Thailand or Malaysia for goods, rather than U.S. producers. "So essentially what we will find is we're importing from a different area, but we will be importing the same goods," Greenspan said.

For two years, the administration has been prodding China to stop linking its currency, the yuan, to the U.S. dollar, and instead move to a more flexible currency system.

But under pressure from Democratic and Republicans lawmakers in Congress, U.S. manufacturers and others, the administration has hardened its stance over the last week.

It announced new limits on the amount of clothing that China can ship to the United States. It threatened to brand China as a currency manipulator unless it changed its currency policies. And, the government appointed a special envoy to work with China on the these issues.

Greenspan said that at some point China will let the yuan rise against the U.S. dollar because its current system represents an increasing threat, including higher inflation, to the Chinese economy. In pushing for China to make a change, the administration has laid out a similar case.

"China's rigid currency regime has become highly distortionary," Treasury Secretary John Snow said earlier this week. "It poses risks to the health of the Chinese economy" by sowing the seeds for inflation and poses risks to the global economy at large, Snow said.

American manufacturers contend that China's system is hurting U.S. exports and contributing to job losses at U.S. factories. Manufacturers say the yuan is undervalued by as much as 40 percent. The weaker yuan makes Chinese goods cheaper in the United States and American products more expensive in China.

Letting the yuan move higher against the dollar would increase prices American shoppers pay for Chinese goods in the United States, Greenspan said. "The effect will be a rise in domestic price in the United States," he said.

The Chinese, who have bristled at pressure from Washington, say they are making progress on changing their currency system. They say they need more time to shore up their banking system so it can withstand the volatility resulting from a flexible currency.

On Friday, China announced new tariffs on its surging textile exports, a concession aimed at easing a clash with the United States and Europe over a flood of Chinese goods pouring into their markets.

The move didn't appear to change the administration's mind about imposing quotas on the amount of some Chinese clothing shipped to the United States.

Consultations between the United States and China on the U.S. limits "will be undertaken by the end of May," said Commerce Department spokesman Dan Nelson. "The consultations represent an opportunity for discussion with the Chinese government of the measures just announced."

On other issues, Greenspan said he didn't believe the housing market was in danger of a "national bubble" that could pop. Home prices, which have been sharply rising over the last several year, are "going to soon simmer down," he predicted.

Sources: Associated Press

"Zhongguancun" doesn't roll off the Western tongue easily, but it will soon be an address that technology investors must learn. For 25 years, locales from Singapore to the south of France have tried to create their own Silicon Valleys, but the original's remarkable spirit has never been duplicated. China, however, is putting the finishing touches on its own Silicon Valley - and this time, they may have found the recipe.

The Zhongguancun district is in the dusty northwest corner of Beijing not far from the old Chinese emperors' Summer Palace. It is already populated by thousands of high-tech companies ¡ª local firms large and small, as well as international outposts of companies ranging from Microsoft and Sun to Siemens and NEC. But now, in the heart of Zhongguancun, sleek new buildings are rising around prestigious Tsinghua University, creating what will be a world-class technology incubator.

In Beijing last month I met with Meng Mei, a Tsinghua University professor and the managing director of the Tsinghua Science Park. As we stood at a tenth-floor window that looked out over hundreds of acres under development, Meng explained that the Science Park facilities weren't just for research. Tsinghua is building an entire infrastructure of business support, from venture capital to legal services to property management. There are even support groups for entrepreneurs.

"We need a culture," says Meng, "that gives small companies the confidence to succeed."

That, of course, is part of Silicon Valley's secret sauce ¡ª an entrepreneurial infrastructure that can take a company from napkin doodle to business cards and a health plan in a week.

The other ingredient is a strong academic institution. Silicon Valley was born at Stanford and some of its first companies were launched in an industrial park that Stanford built in the early 1950s. Tsinghua University is arguably China's single most prestigious school: out of the 7 million Chinese students who qualify for college each year, only two thousand are admitted to Tsinghua. And while Tsinghua is best-known for science and engineering, like Stanford it also offers a top-drawer business school. And, just as does Stanford, Tsinghua not only allows but encourages its professors and students to start companies.

Unlike Silicon Valley, however, Tsinghua is starting with another strong advantage: "sea turtles." That's the local nickname for the native-born Chinese who receive educations in the United States and return to start companies in China. Ahmad Bahai, chief technologist for National Semiconductor and also a professor at Stanford and Berkeley, says: "Recently I've had some very good Chinese students whom I offer jobs at National. But instead they want to return home."

One reason is that it's much cheaper to start a company in China than in Silicon Valley. The classic sea-turtle is Charles Zhang, who graduated from MIT in 1994 and returned to China to launch Sohu.com with a few hundred thousand dollars; the Internet portal is now worth half a billion dollars. I met one sea-turtle at last month's Asian Technology Roundtable in Beijing who explained his departure from Silicon Valley very simply: "Chinese engineers work harder for less."

At this point, skeptics may recall that similar fears about a new global competitor rose in the 1980s, when it appeared that Japan might gain an insurmountable technology lead. Japan built plenty of science parks and even imported Americans to teach Silicon Valley ways. The American press issued grave warnings about the future of the U.S. technology lead, but in the end Japan never became a global technology innovator. So what's different about this new Chinese initiative?

The first difference, according to Joe Schoendorf, a long-time Silicon Valley venture capitalist, is simple: "The Chinese are born entrepreneurs." Even in the 1980s, when private enterprise was only tentatively sanctioned, the entrepreneurial spirit was everywhere. Although it wasn't clear what was permissible, roadside vendors appeared in droves, opening tiny market stalls right under the rifles of the Red Guard. By now, Chinese entrepreneurship is unstoppable. Last month I was walking beside a big apartment building in Beijing, idly looking at the iron grills installed over the ground floor window-wells. One window-well, however, had been completely boarded up, with only a small square opening. When I peered in, a weathered Chinese face looked back at me, in front of a tiny shelf of soda bottles, matches and soap. The proprietor had turned a three by five foot window-well into her own little market.

Another striking difference between Japan and China is the Chinese success in learning English. One of the eternal mysteries of Japan is why, in a country where the post-war constitution mandates English study, so few speak it well without overseas study. By contrast, lots of Chinese who have never left the mainland speak excellent English. In fact, it's a national obsession. During my last visit to China, the second annual English Speaker competition was just ending: a nationwide event in which 6 million students compete to be finalists on a national primetime television special to choose the best English speaker in China. (Hey, we've got "American Idol.") But the drive for English is not just to chat with Americans ¡ª it's because English is now the worldwide language of business.

Additionally, the Chinese track record for innovation dwarfs that of Japan. As Robert Templeton's book "The Genius of China" sets out in detail, the country was centuries ahead of Europe in inventions ranging from the wheelbarrow and cast iron to matches, paper and the rocket. Chinese physicists developed a nuclear reactor in 1958, an atomic bomb in 1964, a long-range missile in 1966, and in 1970 orbited a satellite. Between 1991 and 2001, Chinese expenditures on research and development tripled, and that number continues to climb. The biggest investments are being made in such key areas such as advanced chip design, biotechnology and nanotechnology.

Finally, China brings an element to the table that few other nations can match: a sufficiently large domestic market such that it can actually create its own standards for technology ¡ª and make them stick. Traditionally, Europe, Japan and the United States have always created technology standards ¡ª how television or cell phone signals are broadcast, for example, or the formats for CDs and DVDs. But China is now developing its own standards for technologies such as digitized video and next-generation cell phones. Foreign manufacturers will have to adopt those standards if they wish to sell to the Chinese. Sooner or later, one of those home-grown standards may go international, giving Chinese companies even more power.

It's hard to spend much time among the enthusiastic entrepreneurs at Zhongguancun and Tsinghua without worrying about how the U.S. will measure up in years to come. While the number of U.S. science and engineering graduates declines, year after year, China's numbers are surging. China already graduates more English-speaking electrical engineers than does the U.S. Last month the U.S. came in 17th in an annual international collegiate programming contest; a team from a Shanghai university came in first. And U.S. middle school math and science scores continue to lag behind those of other developed nations ¡ª even as school boards debate how to teach evolution.

Optimists and flag-wavers can offer counter-arguments to those worrisome statistics, ranging from the pluralistic nature of American education to the extreme emphasis that emerging nations put on events like international programming contests. But the fact remains that this country's blithe assumption that it will always be the world's primary technologic innovator is about to encounter a severe challenge from China. Only twenty years ago, Asians came to the United States to see the future. Now, to see the future of technologies like broadband or wireless, one must visit Asia. It's hard not to wonder what will be next.

Source: MSNBC

China is expected to consume 2.2 billion tons of coal a year by 2010, resulting in a shortage of 330 million tons a year, a state-run newspaper reported Wednesday.

China now produces about 1.67 billion tons of coal a year, the state-run newspaper China Daily quoted Wang Xianzheng, a vice director of the State Administration of Work Safety, as saying.

By 2010, output is expected to rise to 1.87 billion tons a year, far below the projected level of consumption, he said.

"The present size and scale of China's coal industry are far from being able to meet the country's future market demand. Insufficient supply will continue to be a major problem," Wang was quoted as telling an energy conference in Beijing.

Wang said China was seeking to diversify its energy supplies to rely more on other resources. Coal presently accounts for more than two-thirds of energy consumption.

Meanwhile, an energy expert forecast that China will depend heavily on foreign oil and gas in the future, as domestic production increasingly lags behind soaring demand.

By 2020, China will consume 3.1 billion barrels of crude oil and 7 trillion cubic feet of natural gas a year, and about half of its oil will come from imports, the official Xinhua News Agency quoted Wang Gongli, president of the China Oil and Natural Gas Designing Institute, as saying.

China produced 1.2 billion barrels of crude oil in 2004. Its maximum annual output will not exceed 1.4 billion barrels in the future, Wang said.

China now produces 1.4 trillion cubic feet of natural gas a year. The gap between domestic demand and supply would reach 283 billion cubic feet by 2020, he said.

Massive demand for coal is driving managers to ignore safety, making China's mines the world's deadliest with more than 5,000 fatalities each year.

Only about 1.2 billion tons of coal produced last year was done so under acceptable safety standards, Wang said.

The report is in line with a recent projection by the U.S.-based Rand Corp. that China will depend on imports for 60 percent of its oil supply and 30 percent of its natural gas by 2020.

China is the world's second largest importer of crude oil after the United States. In 2004, Chinese imports soared 35 percent on-year to 854 million barrels.

Total demand for petroleum is forecast to rise about 10 percent in 2005 to 2.5 billion barrels, according to state media reports.
 
Source: Associated Press

China's State Administration of Foreign Exchange (SAFE) has warned of large influx of foreign capital into the country's real estate market, promising to conduct a joint investigation on the problem and deal with any irregularities by working together with other administrative departments of the state.

In 2004, many overseas individuals bought houses in China, but not, in many cases, for the purpose of using the properties themselves. Rather, their purchases were clearly made in the expectation of realizing a capital gain on the property - ie, speculation. This large flow of speculative capital has exerted a substantial impact on China's real estate and property market, exacerbating the rapid rise in home prices. This situation has created a big risk for local financial institutions, enterprises and even residents, who stand to realize great losses if the resulting real estate bubble pops, and SAFE officials have expressed great concern over the speculation problem.

In some coastal cities, foreign buyers have purchased dozens or even more than 100 apartments, clearly suggesting speculative intent. The trend is especially pronounced in cities with rapidly rising housing prices, including coastal cities such as Shanghai. According to a survey research report issued by the Shanghai Branch of the People's Bank of China, China's central bank, foreign capital has flowed into several areas of the Shanghai real estate sector, which currently has almost no restrictions on remittances.

Comparing foreign exchange purchases of housing with yuan purchases, the proportion of foreign capital (including foreign exchange loans and inflow of foreign capital) jumped from 9.6% in 2003 to 16.8% in Shanghai in the first five months of 2004. The proportion of overseas funds directly flowing into real estate rose from 16.1% to 25.4% in 2001-2003, and further increased to 32.6% in the first five months of 2004. This mammoth market share of foreign funds in the Shanghai real estate market has exerted a strong influence on the market.

An official with a small foreign bank disclosed that although his bank has undertaken strict lending controls, there has still been a large amount of mortgage loans approved for people from overseas this year, averaging about 80 million yuan (US$9.7 million) each month. Compared with last year, the strong influx of foreign funds has not weakened but continued strongly in 2005. The bank's monthly issuance of mortgage loans increased by about 50 million yuan in the fourth quarter last year.

At present, the participation of foreign real estate investment funds in China takes basically four forms, namely, the direct purchase of houses; project cooperation; direct share purchases in real estate companies; and participation in company operations.

Direct housing purchases mainly target high- and medium-grade office buildings and residential houses. Project cooperation generally operates in the following manner: the foreign capital enterprise first selects a real estate project which it is interested in, then develops it in a cooperative way with a Chinese enterprise, and the foreign capital enterprise can make investment by direct investment or lending from shareholders.

For real estate development enterprises with foreign direct investment or cooperation, the portion of capital funds injected by foreign companies can be converted into yuan for investment, and overseas loans of foreign-invested enterprises can be converted into investment which shall not exceed the difference between the total investment and the registered capital. The profits of such foreign-invested real estate enterprises can be remitted abroad by following the procedures required for ordinary foreign-funded enterprises. As long as these enterprises can provide relevant documents such as financial auditing reports, tax certificates and decisions on dividends by the board of directors, they can remit their profits abroad after examination and approval by the SAFE. This policy has made China's real estate sector quite open to transnational capital.

At the same time, China has almost no restrictions on foreign-funded enterprises engaging in real estate development with respect to registration in industrial and commercial administrative departments. The right to examine and approve foreign capital enterprises investing in real estate has been handed to local commissions of foreign economic relations and trade, and after these approvals, foreign-funded enterprises obtain registration in the industrial and commercial administration departments.

The different standards on foreign exchange controls for Chinese and foreign banks have also sped up the separation of foreign exchange business between Chinese and foreign banks. Taking personal mortgage loans as an example, Chinese banks must register each foreign exchange loan transaction in foreign exchange administration departments, and go through verification and cancellation procedures after each monthly installment payment of the mortgage loans. The procedures for foreign banks are much simpler, by contrast; they do not need to go through the registration, verification and cancellation steps.

According to statistics of the Shanghai Municipal Banking Regulatory Bureau, the foreign exchange loans of Chinese financial institutions dropped significantly in Shanghai in 2004. The outstanding sum of various types of foreign exchange loans issued by Chinese financial institutions in Shanghai reached $13.2 billion by the end of 2004, an increase of $1.43 billion over the beginning of the year, but $2.87 billion less than the same period of the previous year. Of this, short-term loans increased $500 million as compared with the early of the year, and long- and middle-term loans increased by $1.28 billion. At the same time, foreign exchange loans issued by foreign financial institutions hit a new high in recent years.

The outstanding foreign exchange loans issued by foreign financial institutions in Shanghai reached $12.5 billion by the end of 2004, an increase of $4.47 billion over the early half of the year, and a surge of $2.89 billion year on year. Some $1.5 billion of this increase was recorded in the second half of last year, accounting for 33.6% of the total increase in foreign exchange loans for the entire year.

According to experts, the high growth of foreign exchange business of foreign banks recently is mainly the result of an increase in loans issued to the real estate sector. This trend is expected to continue into 2005. However, the phenomenon has aroused great concern within relevant government departments in China. SAFE has recently carried out research on speculative behavior by institutions and individuals with respect to housing purchases, and SAFE officials disclosed that based on the results of this research, it will soon readjust policies concerning foreign exchange controls with the intention of restricting speculative purchase of housing.
  
Sources: Asia Pulsa/XIC

Economists agreed Tuesday that the widening gap between the rich and poor is a major problem confronting the world and that both developing and developed nations should work together to deal with it.

"Some experts estimated the 21st century is Asia's century, and we should take the opportunities and confront the challenges as well, especially the wealth and knowledge gaps," said Cheng Siwei, vice chairman of the Standing Committee of the Chinese National People's Congress and a well-known economist, who is attending the 2005 Fortune Global Forum.

"The allocation of wealth is crucial in shortening the gap of wealth," he said, clarifying that the first level allocation should pay attention to efficiency, and make the knowledgeable and hard-working people rich.

The second allocation should pay attention to equality, and the government should help underprivileged groups using tax revenues, and establish a comprehensive, systematic, equal and effective security system in both cities and villages covering retirement, unemployment, medical care, and accidents, Chen said.

He noted the third allocation should take social responsibility as a priority, and the rich should help the poor to improve living standards, education and medical care.

"The gaps of wealth and knowledge are the two challenges in the new Asian century," said Chen.

The time of knowledge is coming, and it characterizes a large proportion of the knowledge cost in products and services, he said. "We should improve our creativity and promote education if we don't want to become nations without 'brains'."

Prof. C. K. Prahalad from the University of Michigan put forward an "equality" mechanism to resolve the disparity between the rich and the poor.

According to Prahalad, the mechanism should consist of four aspects, including equal market access opportunity, equal payment, creativity and protection of ownership.

Stephen Roach, chief economist of Morgan Stanley, said what worried him most was the developed countries' advocacy of trade protectionism, which contradicts free trade.

He mentioned a proposal passed by the US senate in early April saying it will increase tariffs if China doesn't increase the value of RMB. A political decision could have a bad result, he said.

The 2005 Fortune Global Forum, a prestigious world business summit, opened Monday in Beijing. It was the third time in seven years for the high-profile business forum, initiated in 1995 by the US-based Fortune Magazine, to come to China, with the previous two hosted by Shanghai in 1999 and Hong Kong in 2001.

During the three-day forum, featuring the theme "China and the New Asian Century," participants are expected to exchange views on hot issues like corporate governance reform, intellectual property rights, capital markets, auto industry development, technical innovation, energy saving, and the 2008 Beijing Olympic Games.
 
Sources: Xinhua News Agency