Friday, September 10, 2004

I've been busy with several things, so haven't had a chance to update. Anyway, I will make up for lost time. The big news recently is undoubtedly the NYT piece suggesting that Jiang might retire at the 4th plenum. First, I think this is a ploy by Jiang to get a better bargaining position for Zeng. Basically, it is a false offer of retirement to put Hu on the defensive. Jiang knows that the Politburo, where he has a majority, would not actually vote on his retirement without his personal consent, so he is not worried about Hu forcing him into retirement. At the same time, he can appear as the reasonable party in this negotiation because he has "given up a step" (rangbu). Needless to say, there is little chance that he will actually retire without Zeng gaining an important position in the Central military Commission.

Jiang's manuvering is not completely without cost, however. There are signs of gathering pressure on him to retire, even from Chi Haotian, whom Jiang elevated to the Minister of Defence position. In Chi's reminescence of Deng Xiaoping, which was published in Qiu Shi last month, Chi praised Deng for saying "bye bye" to his post at the CMC. Praising Deng's resolution to retire has become a marker of latent criticism against Jiang. Incidentally, Chi's article also suggests that his promotion was at Deng's behest more so than at Jiang's, which makes Chi less of a Jiang crony than analysts thought. In any event, Chi's article is yet another in a series of articles and commentaries by veteran cadres and Deng followers to call for Jiang's retirement. Though Jiang's followers are in powerful positions today, complete violation of party norm might do his faction serious harm. Thus, Jiang now hopes to get Zeng a secure position of power to maintain the long-term viability of the faction. Also, to ensure that his son is not investigated for corruption......

Okay, back to the economy. There are signs that Wen's retrenchment program is cracking. Industrial output is back up to over 15%, but the main indicator will be the fixed asset investment figures released next week. In July, FAI grew by over 30% from the same period last year, and I will bet money that FAI surge is at least 25%, if not more, for August. Basically, rumors that Wen was criticized by Chen Liangyu during a Politburo meeting for cracking down too hard on lending undermine Wen's retrenchment programs. Local governments are undoubtedly continuing to put pressure on local banks to lend to firms and construction projects. Things will get very interesting economically and politically if FAI increases by over 30% and if inflation starts to creep up above 5%. Those of you into steel and cement future, get on it (I have no stake in it, since I am a poor, indebted professor). Please see the Reuters piece below:

China’s output rises for first time in 6 monthsBEIJING (Reuters) - Sept 10, 2004

China’s industrial output growth for August quickened to 15.9 percent from 15.5 percent a month earlier, accelerating for the first time in six months in a sign that the impact of economic cooling measures may be fading.

Growth was higher than expected. The median forecast of eight economists surveyed by Reuters was for a rise of 15.2 percent compared over the previous August.
“This is going to raise fears that relaxation of the previous measures was premature and that the economy is again starting to overheat,” said Tim Condon, an economist with ING Financial Markets in Singapore
“This number sets us up for an upside surprise: an unpleasantly strong fixed asset investment number next week,” said Condon, who had expected industrial output to rise 15 percent.
Government curbs on lending and investment have caused industrial growth to slow since it peaked at 23.2 percent in the 12 months to February.
But with officials claiming initial success in taming the heated economy, debate has sharpened over whether the measures should be rolled back or tightened further, perhaps through the first rise in interest rates in nine years.
The central bank has said it needs to carefully study the August data before making a decision on whether more tightening is needed.
“As for the effects of macro-economic controls, we need to look as other indicators, such as inflation,” said Song Guoqing, an economist at the China Stock Exchange Executive Council in Beijing.
China is to release other economic indicators, such as the consumer price index and fixed-asset investment, next week.
Beijing’s cooling measures have been aimed at red-hot industries such as steel, cement and automobiles, and the August numbers showed mixed results.
Cement output in August was up 9.4 percent from a year earlier, slower than July’s rise of 11 percent. But steel production jumped 22.9 percent, continuing to accelerate after an 18.5 percent rise in July and 17.3 percent rise in June.
Car production was 386,000 vehicles in the month, up just 3.6 percent from a year earlier, and down from the 5.4 percent growth for July and 20.4 percent growth for June.
Industrial output from January to August was 17.1 percent higher than in the same period of 2003, the State Statistical Bureau said in a statement.
Others said the August production figures showed the world’s seventh-biggest economy was so far avoiding a hard landing.
“To me that’s a good sign. We don’t want to see industrial production decelerate too much. Around 15 percent is about right,” said Chris Leung, an economist with DBS Bank in Hong Kong.

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