Wen announces staggering decrease in military budget growth rate

According to a March 5 article from from The Economist, Chinese Prime Minister Wen Jiabao announced at the first day of the annual National People's Congress a mere 7.5% increase in military spending, down from 17.8% last year. Amid tensions due to recent arms sales to Taiwan by American manufacturers, this figure was quite unexpected, as most analysts were expecting an increase well above 10%. In fact, the Chinese government has not offered such a low increase in the military budget in the past 20 years. The rest of the world is left to ponder this sudden double take in the Chinese military budget: perhaps the government expects difficult times, despite China's relative success in the recession, perhaps the government sincerely is attempting to ameliorate its menacing image as a military threat. Pentagon analysts assert that China's military accounts have traditionally shortchanged the number of yuan spent on the military budget. For example, last year China declared a budget of $60 billion, while American estimates range from $105 to $150 billion. However, this year's shockingly low increase should not be cast aside. China could have easily declared a increase of as high as 20%, further reinforcing strained relations with neighboring countries such as Taiwan. The new figure also demonstrates a new air of caution that Beijing has taken in response to tell-tale signs of a possible housing crisis and the wearing off of stimulus cash. Either way, the reduced military estimate bodes well for foreign powers looking for a friendlier relationship with China.

This shift in economic measures demonstrates China's increasing insecurity about its future economic performance. Although China boasts a economic growth rate of 8+%, as Prime Minister Wen was only too quick to point out in his two hour speech, this withdrawal in military spending indicates that Chinese leaders are taking greater measures to preserve this economic prosperity by cutting down in the annual military fiscal increase. The lower rate of increase also shines a light on China's efforts to improve international relations. International figures have obviously had some effect on China's image, and Chinese leaders are clearly willing to work on their common perception as a major military threat. The question of legitimacy also arises when discussing whether these figures will be upheld, as in the past China's military estimates are much lower than their actual value. The Economist calls the Chinese budgets "opaque," emphasizing the lack of transparency when declaring military spending, calling the authenticity of the figures cited by the National People's Congress into question.



Photo source: Remko Tanis, http://www.flickr.com/photos/remkotanis/4408321612/



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Factory Labor Shortage in China

“You can walk into any factory and get a job."

This statement by a 22 year old plastics worker would not be true in the current American economic situtation. However, as reported in the New York Times yesterday by Keith Bradsher, China is facing an growing labor shortage for several reasons. Factory wages have risen by as much as 20% in recent months, telemarketers are spending their time cold-calling random people to offer them jobs instead of calling customers, and some manufacterors are closing down production lines because of a lack of workers. The main cause for this shortage is that China once drained its interior population to find workers for the blossoming factories in the coastal areas. Now, after a major stimulus from the Chinese government to create jobs in the interior, many workers are not returning to the coast after going home for the Lunar New Year. Two other impacting trends are the rapid exspansion of higher education -- which decreases the number of people looking for factory jobs -- and the One Child Policy.

This shortage has the potential to impact Americans because of the possiblity of higher priced imported goods from China, as the minimum wage might be increased and many bonuses are being offered. Unfortuntely, in the past, higher wages have resulted in inflation for the Chinese economy. The article also reveals a decreasing regional cleavage between the coastal and interior regions. Where the coastal regions were once the economic center, more and more jobs are being created in the interior, often due to government projects like rail and highway construction. Social cleavages are also briefly discussed in the article as those normally accustomed to "white-collar," desk jobs are being forced to participate in more hard labor. However, the Chinese labor shortage could also be a positive factor for the Obama Administration in the renminbi-dollar negotiations.

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Trade Disputes

In a recent Economist article titled "When Partners Attack," the reporter commented on the fact that China is now the leading exporter, beating out Germany in 2009, and was involved in exactly half of the disputes filed with the World Trade Organization.

China's complaints to the WTO have more than doubled in the last year, which coincides with an increase in disputes filed by developing countries. The US and EU used to initiate 50% of the disputes, but that statistic fell to 27.2%, of the disputes between 2001 and 2008.

Many countries are using the World Trade Organization instead of "the alternative—a series of escalating retaliations unconstrained by any rules." The organization has been gaining strength, and its newer system of dispute resolution works far better. The resolutions are much more powerful now because the WTO allows "the complainant to hit back," without the fear of restrictions on themselves. The organization, however, "limits the amount of retaliation."

This new system has led to 70% of the trade disputes filed with the World Trade Organization to be handled through negotiation alone. There has also been a decrease in the amount of trade barriers that would be challenged. Countries are now afraid of the WTO authorizing retaliation against them. However, there is still a problem for countries too small to retaliate effectively. There is also fear that China's lack of democracy may make it difficult for companies to stop politically motivated disputes, which are possible between the US, EU, and China. But, disputes between those three economies are unlikely because of low leverage for retaliation and the overall size and strength of the economies.

These dispute filing issues could cause China's companies with larger amounts of exports to push for democratization to protect their own interests. If this happens, the chinese people could benefit from an increase in ability to protest government decisions.

Dispute difficulties may also cause the Chinese government to make sure that it is not doing anything that will cause another country to file a dispute with it. This will help keep China more ethical, and may improve workers' rights, if another country makes a complaint. Only the threat of filing a dispute will cause any improvement, but there is at least the ability to motivate. The trade issues that may arise could have the ability to fix human rights issues, increase democratization within China, and increase the Chinese peoples' efficacy, which may reduce social cleavages. But these are all very big "ifs."

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Shanghai pushes for financial dominance

The approaching 2010 Shanghai World Expo raises the question of the financial future of China's Special Economic Zone, according to a February 24 New York Times article. Shanghai investment firms have recently looked to improving infrastructure to attract greater foreign investment and also keep mainland Chinese financial workers from leaving for Hong Kong for jobs. The China State Council has officially appointed Shanghai as the financial capital of the country, and to put the city on the map as a fiscally influential city. The government has been quick to spend whatever needed to make Shanghai an attractive center of investment, leading up to the creation of the World Expo to be held later in this year. Among the changes to be put in place in Shanghai's financial community are a lessening of taxation and currency restrictions, both indicators of China's growing liberalization of the economy. Recent investment ventures by foreign investment group Blackstone Group included environmental and energy initiatives in and around Shanghai, demonstrating the joint involvement of domestic and foreign financial firms.

Shanghai's new economic initiatives most obviously serve as an example of trends of economic change. With China close to the second largest economy in the world, it would be natural for Beijing to loosen the governmental restrictions in Shanghai to promote foreign investment. By opening up Shanghai to the rest of the financial world, China has demonstrated a growing focus in the private sector. This shift towards economic liberalization has brought about several public policy changes in infrastructure, economic liberties (specifically applied to Shanghai as a Special Economic Zone), and social welfare to attract more financial workers, who often go overseas or to Hong Kong. By building up Shanghai's economic performance, the Chinese government is working towards promoting domestic interests while attracting foreign interests. The need for greater foreign investment shows the onset of globalization, especially in cases such as China's, an economic powerhouse that depends heavily on the fiscal participation of other nations. China's willingness to privatize sectors of the Shanghai economy illustrates the huge impact of foreign companies' needs in order to do business in China.


Photo source: "riggslau," www.flickr.com/photos/riggslau




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Davos spotlight on China's next premier?

Last week, Geoff Dyer of the Financial Times, wrote about Li Keqiang's upcoming speech. Li is considered to be China's next premier, despite the lack of transparency in China's high-level politics. He will speak at the World Economic Forum at Davos, some believe, in order to raise his international profile. According to David Shambaugh, a Chinese politics expert at George Washington University living in Beijing,  "There is a feeling among some people in China that he is quite weak and untested," and there has thus been an "obvious effort in state media to try to build him up" since last summer.

Click here to read the whole story.

Story Highlights courtesy CNN

• Li Keqiang, the man widely tipped to be China's next premier, will speak at Davos
• Political analysts said his trip to Davos was part of a strategy to raise his profile.
• The eventual outcome is uncertain in China's opaque political structure

 

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China GDP grows by 8.7 percent in 2009

According to CNN, China's economy grew by 8.7 percent in 2009, according to the National Bureau of Statistics and the fourth quarter growth alone surged to 10.7 percent on an annualized basis. However, there are concerns of a growing property bubble in China that are fueled by lending which has seen property prices grow 50 percent or more in some cities.





Source: "China GDP grows by 8.7 percent in 2009 - CNN.com." CNN.com International - Breaking, World, Business, Sports, Entertainment and Video News. Turner Broadcasting Company, 21 Jan. 2010. Web. 25 Jan. 2010.

China tackles conflict in Tibet through development

After the increase of Tibetan dissent in 2008, the Chinese government has turned to economic development to decrease conflict in not only the Tibetan Autonomous Region, but other heavily concentrated Tibetan communities in eastern China as well. Chinese president Hu Jintao called a Tibet planning conference to discuss the efforts that are to be made in the area. It seems clear that Beijing's tactic of economic development in Tibet is to enrich the lives of uprising Tibetans through material wealth. In the past, Tibet has resented the increasing presence of Han Chinese in Western China, and although the Chinese government has already allocated over $45 billion in Tibet since 2001, resentment seems to continue in the Tibetan region. The Tibet issue remains a bone of contention between the United States and China, as President Obama plans to meet with the Dalai Lama this year. To read more, click here.

This development in the conflict between Tibet demonstrates the relationship between political and economic change. China sees economic development as the key to smoothing over Tibet relations. It is easy to see how building up Tibetan wealth would reduce tensions with Beijing, however, the social cleavage between the Tibetans and the Han Chinese seem too deep to be solved through purely economic means. The cleavage that exists between the Tibetans and Han Chinese is ethnic, religious, and regional. As the Tibetans are one of the 57 ethnic groups living in China besides the Han Chinese, the case of Tibet shows the wide array of ethnic cleavages that exist in China even today. Religion also plays a big factor in this divide, as the Tibetans feel that their unique form of Buddhism is jeopardized by communist China's relative atheism. The Tibetans can be considered an independent nation as they have a unique cultural identity from that of the Han Chinese. Although Tibet is relatively independent in comparison with other regions in China, the country still desires greater autonomy. Many Americans see the issue in Tibet as a civil rights breach due to the influx of Han Chinese migrants in the region. Lastly, the case demonstrates domestic and international factors influencing policy-making and implementation, as American and other countries' sympathy for the Tibetans have influenced the Chinese government to take a path of economic development to stabilize the region.

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