Last week’s column concluded with the comment that a resolution to the Chinese-Japanese dispute over the Diaoyu/Senkaku Islands seems far away despite hopeful talk about the possibility of a summit meeting between Xi Jinping and Shinzo Abe.
Statements in recent days by the Japanese Prime Minister will not bring a solution closer. Mr. Abe told a Japanese legislator that “he would consider permanently basing civil servants†on the islands. In comments that were prominently reported in Chinese media, Mr. Abealso stated in a speech to Japan’s Self-Defense Forces that he “will take the lead to stand up against the present danger and protect the people’s lives and asset, as well as our land, the seas and the air at all costs.†The air may already be under attack, as the smog produced in China is blown eastward to Japan.
Stock markets in Japan and China seem unconcerned about the risk of escalation. The Nikkei 225 has rallied for 12 consecutive weeks, gaining about 25 percent in its best weekly run since 1959. The Shanghai Composite Index is at a nine-month high.
Relatively positive economic data over the last several days has helped the Shanghai stock market. The Purchasing Managers’ Index, or P.M.I., for the services sector grew for the fourth consecutive month in January while both the official and unofficial gauges of manufacturing P.M.I, indicated expansion in January, albeit with some divergence between the two. Capital Economics explained the manufacturing data in a note Friday:
China’s official P.M.I. slumped last month, but this index is often choppy around Chinese New Year. We would put more weight on the continued rise in the alternative P.M.I. from HSBC and Markit, as well as our own China Activity Proxy.
We continue to believe that China’s economic rebound will run out of steam in a few months from now. But, with the more reliable HSBC/Markit P.M.I. (and our own China Activity Proxy) still rising, we do not believe the weaker official P.M.I. signals that this slowdown is happening just yet.
The data for January and February will be skewed by the Chinese New Year holiday. Given the January bank loan numbers we should not expect a slowdown any time soon. According to Caijing magazine, Chinese banks will probably extend more than 1 trillion renminbi in new loans in January.
China’s annual Spring Festival migration by hundreds of millions of people is underway. On Sunday 88 million passengers were expected to travel by bus and nearly 6 million by ! train! . Several dozen travelers have died so far in accidents, including the spectacular explosion of an overloaded truck carrying fireworks that brought down part of a highway bridge in Henan Province and prompted questions online about the quality of the bridge construction.
Those who say China has too many railways and roads should travel in the country this week.
But is China building the right kind of transportation infrastructure, and how can it efficiently build that infrastructure when it has to plan for such tremendous surges in passenger demand
Tsinghua University Professor Patrick Chovanec explained to me that:
The problem is that China’s infrastructure â€" and particularly its rail system â€" is oriented toward moving people (mirants) to where goods are produced, rather than moving goods to where people are. In the former, there is a value-add loop, in the former, just shuffling back and forth. Actually, I think China needs massive investment in railroad infrastructure, but the less sexy kind that facilitates freight movement via containerization. High-speed rail, while desirable and viable along certain routes, just compounds the pattern of moving people (faster, more expensively) instead of goods.
Chinese New Year is traditionally a time of entertaining and gift giving. Xi Jinping and the frugality and anti-corruption campaigns he has begun are dampening some of the holiday spirit. Luxury hotels are reporting a sharp slowdown in busi! ness,! diners are ordering less to comply with the “empty plate†campaign and office workers are taking to the Internet to complain about meager year-end office parties. Some officials are resisting as Xinhua, China’s state news agency, reported in an article that found a “cohort of pussyfooters who rack their brains to keep their corrupt working practices and lifestyles while maintaining good repute.â€
FOOD WASTE IS A SERIOUS ISSUE in China and one expert estimates that:
If good results are achievedin China’s frugality campaign, the import of grain and edible oil can be saved for 100 million people each year.
Have the global soft commodities markets factored in the potential impact of a successful campaign
Last week several U.S. media organizations including The New York Times said that they had been hacked by China. The Obama Administration is considering action while China rejected the charges. A commentary in Monday’s People’s Daily stated that:
America keeps labeling China as hackers, simply playing up the rhetoric of the ‘China threat’ in cyberspace, providing new justification for America’s strategy of containing China.
Google‘s chairman, Eric Schmidt, has written a new book with Jared Cohen in which they harshly criticize China as the “the most sophisticated and prolific†hacker of foreign companies. It is a good thing for Google shareholders that the company does not need success in China for its stock price to hit an all-time high, as it did Friday.
New Secretary of State John Kerry may find China to be his most difficult foreign policy challenge.
