Elite Chinese Politics and Political Economy

Something pretty bizarre appeared on the People's Daily website. An article called "The expressions of Wang Qishan" popped up, showing various pictures of Wang. What is going on here? This really reminds me of the cult of Zhu Rongji that pervaded the media a few years back. Perhaps the media is making another push to make Wang into a Zhu-like figure. Anyway, enjoy some of these pictures

So, the political pressure was too much to bear, so the NDRC raised wholesale gasoline price to by 1000RMB per ton. Wow, a series of subsidies was also rolled out to help farmers and cab drivers. This means more budgetary burden for the government. In the mean time, this means more inflationary pressure all around. It was weird, but the price hike was the first thing my cab driver told me this afternoon...


发展改革委宣布调整成品油和电价
http://www.sina.com.cn 2008年06月19日 22:33 新华网

　　新华网北京6月19日电(记者江国成)国家发展和改革委员会19日宣布，自6月20日起将汽油、柴油价格每吨提高1000元，航空煤油价格每吨提高1500元；

　　自7月1日起，将全国销售电价平均每千瓦时提高2.5分钱。液化气、天然气价格不作调整。

　　发展改革委指出，近一段时期以来，国际市场油价持续大幅度攀升，特别是今年2月中旬以来涨速加快。国内成品油与原油价格倒挂矛盾加剧，企业加工和进口亏损严重，大部分地方炼厂处于停产、半停产状态，供求矛盾突出。为逐步理顺价格关系，保证国内成品油供应，促进石油资源节约，决定适当提高成品油价格。

　　发展改革委表示，为减少调价对群众生活的影响，控制调价连锁反应，对此次成品油调价增加的支出，采取以下综合配套措施：(一)对种粮农民、渔业 (含远洋渔业)、林业实行财政补贴。其中，对种粮农民在今年已增加的农资综合直补的基础上，财政每亩再增加5元补贴；(二)对城市公交、农村道路客运(含岛际和农村水路客运)实行财政补贴，运输价格不提高；(三)从7月份起，城市低保人口每人每月增加补助15元，农村增加10元；(四)成品油价格调整对出租车行业的影响，通过增加财政补贴、进一步清理不合理负担解决，价格暂不调整；(五)液化气、天然气、铁路客运价格不作调整。各项补贴资金中央财政即日下拨各地。

　　发展改革委同时明确，此次电价调整，对城乡居民用电和农业、化肥生产用电价格不作调整，四川、陕西、甘肃三省受地震灾害影响严重的县(市)用电价格也不作调整。

　　发展改革委还指出，目前煤炭价格水平较高，为防止煤、电价格轮番上涨，自即日起至2008年12月31日，对全国发电用煤实施临时价格干预措施。在临时价格干预期间，全国煤炭生产企业供发电用煤的出矿价，不得超过2008年6月19日实际结算价格。

　　发展改革委要求有关石油、电力、煤炭企业严格执行国家价格政策，加强生产和调运，确保市场供应。各级价格主管部门要采取多种措施，严格控制成品油和电力价格调整对市场的影响，加强成品油、煤炭、电力价格执行情况和市场价格的监督检查，防止搭车涨价；严厉打击不执行国家价格政策，以及造谣惑众、囤积居奇等扰乱市场价格秩序的行为，维护市场稳定。

The PBOC increases reserve requirement by 100 basis points! This will take 430 billion RMB out of lending pool in June! No matter how much hot money tries to flow in, I don't think it will match the nearly 70 billion USD decrease in money supply. There will be bankruptcies, especially in the real estate sector, which is already very strapped for cash.

Bravo Stephen! Stephen Green of Standard Chartered has written a great piece urging some kind of action by the PBOC in the face of rising inflation. PBOC's inaction in the face of rising inflation is perhaps more shameful than Feds inaction in the face of a falling dollar. The problem is that real estate developers are lobbying very hard against further tightening because housing prices are already falling in major markets. They warn that further tightening would lead to a great collapse of asset prices. At the same time, exporters are lobbying against revaluation. Finally, the Olympics is almost upon us, so "stability before everything else"!

OPINION

Inflating China
By STEPHEN GREEN
FROM TODAY'S WALL STREET JOURNAL ASIA
June 3, 2008

Many people in China right now call these the country's Golden Years. But after a fantastic run of double-digit growth, bigger pay packets, low inflation and growing international influence, clouds are now forming over China's economy. Most obviously the dark weather of the snowstorms earlier in the year and the terrible earthquake in Sichuan have rocked the country's confidence. Less tangibly, but more importantly for the economy, stronger inflation is emerging. And there is a danger that the hard decisions needed to break it will not be made while there's still time to do so relatively easily.

[Inflating China]

In part, this is because policy makers are only gradually grasping the magnitude of the inflation threat. On the surface it looks like inflation as measured by China's official consumer price index has been driven by food, primarily pork and edible oil. CPI has exceeded 8% year-on-year in recent months (but looks set to fall below 8% in May). Exclude food items, and prices overall only rose 1.8% in the year to April.

But few people believe this is an accurate reflection of price trends on the street. Higher service-sector prices in health and education are likely not adequately reflected in the index, while the basket of goods surveyed is updated only once every five years. The GDP deflator – an overall measure of inflation also calculated by the government – was up to over 8% year-on-year in the first three months of this year.

Energy costs are particularly bad. Crude oil is up 35% since November 2007, when government-controlled gasoline and diesel prices were last hiked. Lines are forming again at gasoline and diesel stations as refiners suffer. The still-dominant thinking in Beijing is that all these price hikes reflect a series of supply-side problems. But it is becoming harder to find any falling prices at all – a red flag that this inflation is a monetary phenomenon rather than an unfortunately timed series of supply shocks.

Beijing's bigger problem, however, is that policy makers aren't especially eager to take the hard steps necessary to solve the problem, such as raising interest rates or allowing further appreciation of the yuan. At the best of times, these policies would slow economic growth. And now isn't the best of times, since the economy may be slowing already. While the first quarter still saw export growth of 21% year-on-year, export growth to the United States is down to zero and exports to Europe also look weak. There are reports of export factories closing in Guangdong province on the heels of a slowing global economy and a rising yuan that makes Chinese goods appear more expensive abroad.

Adding to Beijing's reluctance to act on interest rates is its fear that increasing rates would spur more "hot money" flows of speculative cash into China. Beijing is on watch for such short-term flows – worried about the potential destabilizing effects of it all leaving. Indeed, the money is flowing in. Total foreign exchange inflows could have been as large as $200 billion in the first quarter alone, although again the official numbers are not that easy to interpret. At least half of that total might be "hot" money, though.

Beijing is taking some administrative measures to discourage these inflows, such as reportedly stepping up regulatory scrutiny of yuan accounts held by nonresidents in border areas like Shenzhen. Additional controls in other parts of the capital account are likely. Currency policy is also up for debate again. Although the yuan has increased 16% against the dollar since the reform in July 2005, it has lost 6.5% against the euro. Last year the yuan gained only 4% on a real effective basis. Given the concern over exports and hot money, some believe now that Beijing has decided to slow down yuan appreciation. While it moved 4% against the dollar in the first three months of this year, it barely budged in April-mid-May. This pushed the offshore market to move from expecting a 12% appreciation over the next 12 months to just some 3%. That is probably a low estimate – and the effective exchange rate is still appreciating – but it is still a close debate.

If interest-rate increases and currency appreciation are off the table, there are few effective tools left for fighting inflation. For now, Beijing has decided to stop raising rates and to constrain bank loan growth directly. This is certainly causing frustration as companies with big investment plans cannot find financing – and some cash-constrained small- and medium-sized enterprises struggle to survive. But at the same time, loan growth is still running at 14% year-on-year, real loan rates have fallen to zero, and foreign currency loan growth has exploded. It's hard to call this a "tight" monetary policy.

Beijing could, and should, do much more. China is still at the point where strong inflation-fighting would be painful but not catastrophic. With manufacturing wages still rising and many firms moving out of Guangdong province and into other parts of China, it's unclear how serious the job impact of a rising yuan will prove. China is still growing at a double-digit pace and so worries about a crash seem overblown. The key macroeconomic risk for China is not that the government will fight inflation too aggressively, but that it will not do so aggressively enough. Inflation is already in the system and a lack of resolute action now will cause it to become worse. The Golden Years are over, at least for the moment. The time for hard choices is here.

Mr. Green is head of China research at Standard Chartered Bank in Shanghai.

An excellent piece by Keith Bradsher, we will really have to watch what we do this summer! Well, I was going to do some kind of project with my students, but now we must be very careful!

New York Times

China Lists Do’s and Don’ts for Olympics-Bound Foreigners




By KEITH BRADSHER
Published: June 3, 2008

HONG KONG — Do not bring any printed materials critical of China. Do not plan on holding any rallies or demonstrations in China. Do not think that you are guaranteed an entry visa even if you hold tickets to an Olympic event. And do not even think about smuggling opium into China.

That is some of the eclectic advice issued by the Beijing Organizing Committee on Monday, in a document posing 57 questions that foreign visitors to the Olympic Games in August might have: “Does China have any regulation against insults to the flag or national emblems?“ “After eating or drinking at restaurants or hotels, if you have diarrhea or vomiting symptoms, how do you lodge a complaint?”

The advisory to foreigners, posted on the committee’s Web site, but only in Chinese, provides answers for each question in a deadpan style (burning or soiling the Chinese flag or emblems is a criminal offense; food poisoning symptoms are to be reported to the local medical health department). Some of the rules, like a ban on religious or political banners or slogans at Olympic sites, appear aimed at preventing protests of China’s crackdown in Tibet this spring and other Chinese policies.

The Beijing Organizing Committee took pains at the start of the document to say that all the answers are based on existing Chinese regulations. The International Olympic Committee had no immediate response on Monday to the rules. Its position on freedom of expression issues as they relate to the Olympics is not entirely clear.

“A person’s ability to express his or her opinion is a basic human right and as such does not need to have a specific clause in the Olympic Charter because its place is implicit,” said Jacques Rogge, the president of the International Olympic Committee, at a meeting in Beijing in April.

But Mr. Rogge also pointed out then that the International Olympic Committee has had a rule for more than half a century that, “no kind of demonstration or political, religious or racial propaganda is permitted in any Olympic sites, venues or areas.”

The advisory issued on Monday by the Beijing Organizing Committee includes a ban on bringing into China, “anything detrimental to China’s politics, economy, culture or moral standards, including printed material, film negatives, photos, records, movies, tape recordings, videotapes, optical discs and other items.” All rallies, demonstrations and marches, at athletic venues or anywhere else, are also banned during the Games unless approved in advance by public security agencies – a longstanding policy in China even when there are no Games or other big events being held.

China promised in 2001, before being awarded the Olympics, that it would improve its human rights record. But China and the International Olympic Committee have never released the text of their contract for the Olympic Games, in contrast with other cities that have been host to the event in recent years.

Nicholas Bequelin, the Hong Kong-based China researcher for Human Rights Watch, an advocacy group, said that China had chosen a very broad interpretation of the Olympic restriction on political and religious activity. “It is a slippery slope, and the Games in Beijing are testing the limit,” he said.

Jill Savitt, the executive director of Dream For Darfur, a group that wants China to put more pressure on the government of Sudan to bring peace to the Darfur region in western Sudan, said that the group had been considering ways to protest in Beijing during the Olympics. But Dream for Darfur was already reconsidering before the issuance of the latest advisory.

The group had been mulling tactics like having groups of visitors to the Games wear green armbands or green shirts, as green is associated with Sudan, Ms. Savitt said.

But the earthquake two weeks ago in Sichuan province, together with the controversy over sometimes violent protests by Tibet supporters during the Olympic torch relay, has prompted Dream for Darfur to reassess its plans and no decision has been made, she said.