Chinese imports hit record high as trade surplus narrows

China has been trying to rebalance its export dependent economy to sustain growth

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Taken directly from BBC reporting:


China's imports hit a record monthly high in August, indicating a strong domestic demand despite concerns of a global economic slowdown.

Imports surged by 30.2% from a year earlier to $155.6bn (£98bn), government data released over the weekend showed.

Exports rose by 24.5% resulting in a trade surplus of $17.8bn, down from $31.5bn in the previous month.

The data comes at a time when China has been trying to boost domestic demand in a bid to rebalance its economy.

"August's export and import data showed China's economic growth is driven by domestic demand, not external demand and its growth is still very strong," said Li-Gang Liu of ANZ.

Growing demand

China's economic expansion in recent years has seen the rise of a more affluent middle class, with higher disposable incomes.

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“Start Quote

I expect Chinese export growth to be below 10% in the fourth quarter”

Shen JianguangMizuho Securities Asia

That has led to a growth in domestic demand, which has translated into higher import numbers.

"Growth of the Chinese middle class is well documented and it is something that will continue to drive growth," Kelvin Tay of UBS told the BBC.

Analysts said the recent appreciation in the Chinese currency had also played its part as the purchasing power of consumers had gone up.

The yuan has gained more than 5% against the US dollar in the last 12 months.

"If you had 100 yuan a year ago, you could buy X amount of things, today it is X-plus," he explained.

Global concerns

China's push to boost domestic demand has been driven not only by efforts to rebalance its economy but also by fears that demand from its key markets may dip in the wake of a global slowdown.

While its exports registered robust growth in August, analysts said that things are likely to get tougher.

"The European debt crisis and slowing US growth will be reflected in China's export data in the next few months," said Shen Jianguang of Mizuho Securities Asia.

China has said that keeping consumer price growth in check is its top priority

"I expect Chinese export growth to be below 10% in the fourth quarter," he added.

However, some analysts argued that a slowdown in the global economy may fuel a jump in Chinese exports.

They said China's biggest strength in manufacturing has been its low prices and in times of a slowdown, consumers are looking for more affordable goods which could prompt a surge in demand.

"Not many countries can make it as cheap as the Chinese," said UBS' Mr Tay.

Increased lending

Along with a rise in imports and exports, bank lending in China also quickened in August.

Chinese banks lent out 548.5bn yuan ($86bn; £54bn) during the month, more than forecast, despite government efforts to curb credit growth in the country.

China's central bank has raised interest rates five times since October last year and also increased the bank's reserve ratio requirement nine times during the same period in a bid to quell prices.

Data out last week showed the rate of inflation in China eased to 6.2% in August from 6.5% in the previous month.

Analysts said the latest numbers showed that not only were the government's efforts to control inflation working, they were not having the negative impact on growth that many people had worried about.

"All the talk of demand being dented due to credit tightening is far-fetched," Mr Tay said.

However, Mr Tay warned the combination of an increase in lending and a rise in domestic demand may see the central bank raise the cost of borrowing again in a bid to keep price growth in check.

"Based on the numbers that we are seeing, it will be premature to rule out a rate hike," Mr Tay told the BBC.

China has 5 Billion on-line stores!

In 2010, China's online shopping industry had a turnover of $80bn, and grew 87% year-on-year.

Taobao is owned by Chinese e-commerce giant Alibaba and the brainchild of founder Jack Ma. It is a free-to-use online marketplace with some 800 million product lines - from food to clothes to technology. 

It boasts 50 million unique visitors a day and is the top destination for three quarters of the country's online shoppers.

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"Of course it's quite competitive, because there are hundreds of new stores opening every day on Taobao," says Ms Zhang.

"Considering that I haven't been doing this for that long a time, I need to gain experience and grow my own business step by step."

China's 420 million internet users spend around a billion hours each day online - and last year, 185 million made at least one online purchase.

Across China, online companies large and small are learning how to be effective e-commerce players - or fail like US goliath eBay, which was trounced by upstart Taobao back in 2006.

Online shopping now accounts for more than 5% of China's retail sales, and Taobao's sellers are behind 70% of the country's online transactions.

According to Boston Consulting Group, the volume is expected to increase fourfold by 2015.

In Chinese retail, trust is a rare commodity. There are plenty of fakes online, and buyers are often cursed by scams or shoddy goods. Still, consumer faith in e-commerce stores is remarkably robust.

E-commerce is changing the way Chinese consumers think about shopping: online, it is more social than a hard sell. It's a new engaging experience to savour.

China's consumers have the upper hand like never before - and it's not just because there are more traders at their fingertips than in the local High Street.

That's because, apart from its convenience, online shopping has shifted the balance of power from sellers to buyers.

Yang Jie built HanHan World through social marketing

Social commerce

HanHan's World sells what one might call chintzy Iphone covers. At its small office the team of three is busy chatting with potential customers via the site's instant messenger application, which also comes with video chat.

Customers can check how much HanHan's World sells and at what cost.

New sites on Taobao that want to compete with HanHan's World and move up the rankings have prove their worth by shifting volume and get good buyer feedback.

"In the beginning we promoted ourselves through product forums," explains Yang Jie, HanHan World's manager. "Due to good quality and our low prices, with barely any profits, we developed rapidly in a short time."

Online shopping in China is more than clicking on the "buy" button. The experience includes exchanging tips with other shoppers, discussing trends, and rating both products and service.

The interaction and communication generates trust.

"The ability of social networking combined with e-commerce or social commerce as I like to call it - where people are able to rate their providers, provide information to other purchasers - that level of experience is really overcoming the big weaknesses," says Duncan Clark, Chairman of BDA (China), an expert on China's e-commerce industry.

"Basically, there is a one-to-one connection being established. And that's breaking through the mistrust barrier if you will. So I think we can learn, actually - the West can learn from some of the developments happening in the Chinese e-commerce sector," says Mr Clark.

DangDang's Peggy Yu bets on the "latecomer's advantage

Latecomers' advantage

That said, even China's big e-commerce retailers, like Amazon look-alike DangDang, don't profess to be great technology innovators.

At its massive warehouse south of Beijing, most of the work is lifting, sorting, stacking, labelling, scanning, boxing, taping - before the trucks arrive to deliver 100,000 packages a day.

In China, the competition is about focusing on how to put the technology to work. This often means duplicating or tweaking existing ideas to get an edge in the market, cheaply and quickly.

"We should take latecomers' advantage," says Peggy Yu, chairwoman of DangDang. "To me that means, taking apart other success business stories and see how business can be conducted more effectively."

In this rapidly expanding, huge market of 600 cities, much of the focus now is on finance and management, and on solving the puzzle of how to deliver a fast reliable service to the regions far away from the eastern seaboard - and then grow market share.

In December 2010, DangDang - China's largest book seller - raised $272m by listing on Wall Street's Nasdaq stock exchange. The money was used to fund an expansion of its product range and establish regional warehousing.

DangDang's biggest problem is getting the supply chain to connect with its warehouses

But a big headache remains that is beyond the company's control: "I think the supply chain weakness is the biggest bottleneck to e-commerce in China," says Ms. Yu.

"Manufacturers in China are typically local businesses. And their distribution capacity is restricted to a very small region. But DangDang requires suppliers to deliver to our distribution centres throughout the country - so that we can ship to every single customer in the whole of China. And that is a real challenge for suppliers."

It's a fundamental offline problem for e-commerce in China.

Still, investors see China's scale and potential.

Another Amazon-styled mass market retailer, 360.buy, raised $1.5bn in April during a funding round - on top of a $500m investment round last December, that saw US retail giant Wal-Mart taking a stake.

What now, Taobao?

E-commerce in China is growing rapidly

At rival Taobao, these moves raised eyebrows.

Faced with a rapidly changing marketplace and freshly financed challengers with more focused product lines, in June parent company Alibaba split Taobao into three separate companies:

• eTao, a shopping search engine, to help drive customers;
• Taobao Mall, a fee-earning "online showroom" for some 70,000 companies, including many leading foreign brands; and, of course,
• the Taobao marketplace for small sellers like Zhang Qiaoli to grow her fledgling Kitty Lover business - a platform that is free for users, although Taobao earns from adverts.

"I think, Alibaba is going through some growth pains right now," says Duncan Clark. "It's become so large, so fast with Taobao that it's having to seek ways to adjust. And it's not entirely clear yet how they'll emerge."

Some analysts go further and warn that the split could be disruptive.

Alibaba's top managers are not used to criticism. But the group lost a lot of long-held goodwill during what one could describe as founder Jack Ma's "annus horribilis".

First, staff of Alibaba's international business-to-business online market place were caught up in a $6m fraud.

Then came widespread criticism of the transfer of Alibaba's valuable online payment company Alipay to a firm owned by Jack Ma himself. Foreign investors like US firm Yahoo and Japan's Softbank were furious.

Both matters have been resolved, but a bitter taste remains - despite Jack Ma's insistence that he shunted Alipay from Alibaba to comply with new Chinese regulations that bar foreign ownership of any payment company on the Chinese mainland.

Show on Canadian TV

Indian Democracy, Chinese Autocracy
Tiger vs dragon: China opened its economy to the world in the 1970s. India didn't follow suit until the 1990s. Despite China's 30-year head start, India's economy is quickly gaining ground, ready to overtake the Chinese economy. Who will win? And what does it mean to the North American economy?
Gordon Chang, columnist at Forbes.com, and author of The Coming Collapse of China.
Sarah Kutulakos, executive director and chief operating officer of the Canada China Business Council.
Gregory Chin, associate professor of political science at York University.
Partha Mohanram, associate professor at the Rotman School of Management, University of Toronto.
Douglas Goold, director, National Conversation on Asia & senior editor Asia Pacific Foundation of Canada.
Join the discussion on The Inside Agenda blog » India versus me
All episodes of The Agenda with Steve Paikin are available on-demand in streaming video and audio & video podcasts at: tvo.org/theagenda.

China will not use force

China 'will not use force' in South China Sea disputes

Vietnam staged live-fire drills in the South China Sea on Monday amid rising tensions with China

China has said it will not resort to the use of force to resolve maritime border disputes in the South China Sea.

Several Asian nations claim territory in the South China Sea, which includes important shipping routes and may contain oil and gas deposits.
On Monday, Vietnam staged live-fire drills after weeks of rising tensions between the two nations.
Vietnam has also issued a decree specifying who would be exempt from military call-up in a time of war.
"We will not resort to the use of force or the threat of force," Chinese foreign ministry spokesman Hong Lei said.
He condemned any action that would exacerbate the dispute, and urged those involved to "do more that is beneficial to regional peace and stability".
As well as Vietnam, the Philippines, Malaysia, Brunei and Taiwan also have rival claims in the area.
As chair of the regional grouping Asean last year, Hanoi actively promoted a multilateral approach to the problem. However, Beijing says it prefers to negotiate with individual states separately.
Responsibility
In an apparent message to China that Vietnam is willing to stand its ground, the Vietnamese government issued a decree earlier specifying which people would be exempt from military service during a time of war.
The decree lists eight examples where Vietnamese citizens would not be obliged to join a military call-up. They include people holding senior positions in state organisations and those providing essential services such as lighthouse operators.
The BBC's South East Asia correspondent Rachel Harvey says the significance lies not in the exemptions themselves but in the timing of the decree.
The news comes a day after the Vietnamese navy conducted exercises it described as routine, but which at least one Chinese newspaper interpreted as a deliberate show of force.
Vietnam is engaged in a renewed row with China over sovereignty of two groups of islands in the South China Sea; the Spratly and Paracel islands.
Tensions have escalated following two separate confrontations involving Vietnamese and Chinese boats in recent weeks.
In a thinly veiled reference to Hanoi, Mr Hong implied Vietnam was to blame for the recent row.
"Some country took unilateral actions to impair China's sovereignty and maritime rights and interests, and released groundless and irresponsible remarks with the attempt to expand and complicate the issue of the South China Seas," Mr Hong said.
"This is where the problem lies."
The US has also expressed concern about China's rising naval ambitions in the region.
On Sunday, the Japan-based carrier USS George Washington left port for deployment in the region, which is almost certain to include the South China Sea.

China is different

The China doubters are back in force. They seem to come in waves - every few years, or so. Yet, year in and year out, China has defied the naysayers and stayed the course, perpetuating the most spectacular development miracle of modern times. That seems likely to continue.
Today's feverish hand-wringing reflects a confluence of worries - especially concerns about inflation, excess investment, soaring wages, and bad bank loans. Prominent academics warn that China could fall victim to the dreaded "middle-income trap", which has derailed many a developing nation.
There is a kernel of truth to many of the concerns cited above, especially with respect to the current inflation problem. But they stem largely from misplaced generalisations. Here are ten reasons why it doesn't pay to diagnose the Chinese economy by drawing inferences from the experiences of others:
Strategy
Since 1953, China has framed its macro objectives in the context of five-year plans, with clearly defined targets and policy initiatives designed to hit those targets. The recently enacted 12th Five-Year Plan could well be a strategic turning point - ushering in a shift from the highly successful producer model of the past 30 years to a flourishing consumer society.
Commitment
Seared by memories of turmoil, reinforced by the Cultural Revolution of the 1970s, China's leadership places the highest priority on stability. Such a commitment served China extremely well in avoiding collateral damage from the crisis of 2008-2009. It stands to play an equally important role in driving the fight against inflation, asset bubbles, and deteriorating loan quality.
Wherewithal to deliverChina's commitment to stability has teeth. More than 30 years of reform have unlocked its economic dynamism. Enterprise and financial market reforms have been key, and many more reforms are coming. Moreover, China has shown itself to be a good learner from past crises, and shifts course when necessary.
SavingA domestic saving rate in excess of 50 per cent has served China well. It funded the investment imperatives of economic development and boosted the cushion of foreign exchange reserves that has shielded China from external shocks. China now stands ready to absorb some of that surplus saving to promote a shift toward internal demand.
Rural-urban migrationOver the past 30 years, the urban share of the Chinese population has risen from 20 per cent to 46 per cent. According to OECD estimates, another 316 million people should move from the countryside to China's cities over the next 20 years. Such an unprecedented wave of urbanisation provides solid support for infrastructure investment and commercial and residential construction activity. Fears of excess investment and "ghost cities" fixate on the supply side, without giving due weight to burgeoning demand.
Low-hanging fruit: ConsumptionPrivate consumption accounts for only about 37 per cent of China's GDP - the smallest share of any major economy. By focusing on job creation, wage increases, and the social safety net, the 12th Five-Year Plan could spark a major increase in discretionary consumer purchasing power. That could lead to as much as a five per cent point increase in China's consumption share by 2015.
Low-hanging fruit: ServicesServices account for just 43 per cent of Chinese GDP - well below global norms. Services are an important piece of China's pro-consumption strategy - especially large-scale transactions-based industries such as distribution (wholesale and retail), domestic transportation, supply-chain logistics, and hospitality and leisure. Over the next five years, the services share of Chinese GDP could rise above the currently targeted four per cent point increase. This is a labour-intensive, resource-efficient, environmentally friendly growth recipe - precisely what China needs in the next phase of its development.
Foreign direct investmentModern China has long been a magnet for global multinational corporations seeking both efficiency and a toehold in the world's most populous market. Such investments provide China with access to modern technologies and management systems - a catalyst to economic development. China's upcoming pro-consumption rebalancing implies a potential shift in foreign direct investment - away from manufacturing toward services - that could propel growth further.
EducationChina has taken enormous strides in building human capital. The adult literacy rate is now almost 95 per cent, and secondary school enrolment rates are up to 80 per cent. Shanghai's 15-year-old students were recently ranked first globally in mathematics and reading as per the standardised PISA metric. Chinese universities now graduate more than 1.5 million engineers and scientists annually. The country is well on its way to a knowledge-based economy.
InnovationIn 2009, about 280,000 domestic patent applications were filed in China, placing it third globally, behind Japan and the United States. China is fourth and rising in terms of international patent applications. At the same time, China is targeting a research-and-development share of GDP of 2.2 per cent by 2015 - double the ratio in 2002. This fits with the 12th Five-Year Plan's new focus on innovation-based "strategic emerging industries" - energy conservation, new-generation information technology, biotechnology, high-end equipment manufacturing, renewable energy, alternative materials, and autos running on alternative fuels. Currently, these seven industries account for three per cent of Chinese GDP; the government is targeting a 15 per cent share by 2020, a significant move up the value chain.
Yale historian Jonathan Spence has long cautioned that the West tends to view China through the same lens as it sees itself. Today's cottage industry of China doubters is a case in point. Yes, by our standards, China's imbalances are unstable and unsustainable. Chinese Premier Wen Jiabao has, in fact, gone public with a similar critique.
But that's why China is so different. It actually takes these concerns seriously. Unlike the West, where the very concept of strategy has become an oxymoron, China has embraced a transitional framework aimed at resolving its sustainability constraints. Moreover, unlike the West, which is trapped in a dysfunctional political quagmire, China has both the commitment and the wherewithal to deliver on that strategy. This is not a time to bet against China.
Stephen S Roach, a member of the faculty at Yale University, is Non-Executive Chairman of Morgan Stanley Asia and author of The Next Asia.

China feels credit squeeze as expansion slows

China factories feel credit squeeze as expansion slows

The manufacturing sector been one of the biggest drivers of growth in the Chinese economy

China's manufacturers have started to feel the effects of the government's policy to reduce credit-fuelled growth in the country.

China's official purchasing manager's index (PMI) fell to a nine-month low, the latest figures showed.
The PMI, an indicator of conditions in the manufacturing sector, fell to 52 in May from 52.9 in the previous month.
Manufacturing is a key contributor to growth in China's economy.
Even though the figure remained above the threshold level of 50, indicating expansion in the sector, the drop from the previous month shows that expansion is slowing down.
"The continued fall in PMI in May, after the drop in April, shows the rising possibility of a slowdown in economic growth," analyst Zhang Liqun said in the report.
Credit squeeze

"There has been a strain on the ability of manufacturers to raise capital”  Michael Pettis Peking University

China has witnessed robust growth in the past few years, in the process going on to become the world's second-largest economy.

However, concerns of overheating and rising consumer prices have seen the government implement measures to slow down growth.
One of those measures has been to tighten the supply of credit.
Analysts say the move is starting to affect growth in the sector.
"There has been a strain on the ability of manufacturers to raise capital," said Michael Pettis of Peking University.
"The majority of the funds that are available in the market are being channelled towards infrastructure development or real estate development in the country," he added

China working toward fewer executions

China orders suspension of death sentences

By Michael Bristow BBC News, Beijing

China has apparently introduced new standards to reduce the number of criminals it executes.

The Supreme People's Court - the highest in China - has told lower courts to suspend death sentences for two years.
But this should only happen in cases where there is no need for "immediate execution", the court said.
China has introduced a number of measures over recent years to cut down the number of executions.
This latest development appeared in the annual report of the supreme court.
"Suspend the death sentence for two years for all cases that don't require immediate execution," read the report.
The court does not say why some cases might need to be carried out immediately, although in the past the government has instructed judges to be more severe in cases that involved crimes it was targeting.
Those benefiting from the changes will probably never be executed.
Criminals given a suspended death penalty usually have their sentences commuted to life imprisonment.
China does not reveal the number of executions it carries out each year, but it is thought to kill more people than any other country.
Four years ago the Supreme People's Court took back the right to review every death sentence handed out by lower courts.
The result has been fewer executions.
Earlier this year China reduced the number of crimes that carry the death penalty by 13 to 55.
"Strictly control and unify standards relating to the death penalty, and ensure that it only applies to a very small minority of criminals committing extremely serious crimes," read one section of the supreme court's report.