Euro Cina business - Issue 15

8/6/2019 Euro Cina business - Issue 15

1/76

L i n k i n g C h i n a w i t h E u r o p e

January-February 2011

RMB 30 US$ 6.00HK$ 45 EURO 4.00

HAPPY NEW YEAR

THE TEN MOST POWERFULIN THE WORLD

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8 9 10

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ISSN 1792-0027

President of People's Republic of ChinaHu Jintao

President of United States of AmeriaBarack Obama

King of Saudi ArabiaKing Abdullah Prime Minister of Russia

Vladimir Putin

Pope of Roman Catholic ChurchPope Benedict XVI

Chancellor of Germany Angela Merkel

Prime Minister of United KingdomDavid Cameron

Chairman of US Federal ReserveBen Bernanke

President of India National CongressSonia Gandhi

Co-chair of Bill & Melinda Gates FoundationBill Gates

INTERVIEWSONG ZHEChina's Ambassa


2/76EURO CHINA BUSINESS



EDITORIAL

STAVROS NIKOLAKOPOULOS Executive Editor /

A new decade of promise and hope!

The first ten years of the 21st century have passedinto history branded by many as "decade of hell".Time magazine branded i t "The Worst DecadeEver".It was really a hellish decade or a troubled decade.However,the past ten years has been a decade of

progress for many coun tries.China since joined the WTO in 2001,has become astalwart supporter of the multilateral trade systemand a leading contibutor to global economic growth.It is important to note that in 2009,when the worldwas struggling and the United States and Europewere faced wi th a ser ious f inancial cr is is , the

bo omin g ch ines e ec on om y ac co un te d fo r ov er 50 percen t o f g lobal economic growth. Now that China has become the greatest exportingand the biggest manufacturing country in the world,with foreign reserves approaching the 3 trillionmark,is called and is willing to help the Eurozoneto come out of its doldrums.You need your opponent and compet i tor to be

strong not weak.China strongly believes in the future of euro and theeurozone and that is why will help countries likeGreece,Ireland,Portugal and Spain to come out of their big financial debt.Further:* the North-South gap is narrowing* South-South cooperation is booming* international relations are undergoing fundmentalshifts

* h e g e m o n y i s n o l o n g e r o m n i p o t e n t a n dunilateralism is destined for an ash heap of history*multilateralism will steer the world int a moreequitable and democratic futureA more fundamental lesson from the past ten yearsis that the different nations sharing the same worldare able to enjoy peaceful coexistence and commondevelopment.The path of the future is yet to be trod but the

beacons a re alr eady l it:modernization is not Westernaization,operation

outweighs confrontation and hunan civilizationis heading for a more harmonious wor ld wi thdifferent nations coexisting in peace and prosperity.

HAPPY NEW YEAR

21

2001

200950%

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STAVROS NIKOLAKOPOULOS / Executive Editor /



Under the auspices ofEuro Chinese Center of Research & Development

With the support of:China Briefing

EUPIC

Our international licence: ISSN 1792 0027, listed in theInternational Catalogue of Publications in Paris FRANCE.

Executive Editor: Stavros NikolakopoulosCreative Editor: Alexios Nikolakopoulos

Chief PhotographerAssistant to Editor:Rose MaoChief Designer: Guo Yonghai

Layout: Lei JiaxingSpecial Advisor: Li Chenggui

Legal Advisor: Jason JiangWeb Designer: Kevin Liu

Published by: Eurasian Link International Consultant(Beijing) Co., Ltd.

Address: L24, Tower 3, China Central Place77 Jianguo Road, Chaoyang District

Beijing 100025, ChinaTel 86 10 8587 2470Fax 86 10 8587 2471

e-mail:[email protected]: www.eurochinabusiness.com

www.eurochinabusiness.com.cn

China Briefing

ISSN 1792 0027

:

77 3 2486 10 8587 247086 10 8587 2471

eurasianlink@126.comwww.eurochinabusiness.comwww.eurochinabusiness.com.cn


EUROCHINA BUSINESS


2009 - 4JU LY- A U G U ST

GREEK PRIME MINISTER KARAMANLIS WELCOMES HE GUOQIANG AT THE OPENING OF NEW ACROPOLIS MUSEUM

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G4 China - Brazil - Russia - Indiaa platform but not a mechanism to combat

the world's financial crisis

Jos Manuel Barroso President

European Commission(most likely to be re-elected

next September)

Fredrik ReinfeldtSweden's Prime MinisterPresident of European Union(1st July - 31st December 2009)

(2009 7 14 ~2009 12 31 )

COVER STORYEconomiccrisis: 'accelerates reform'

OPINIONPhantomof stagflation could be back

INTERVIEWLord Mayor

of London

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P12

P32

I M

P A C T

T h e N e w

A c r o

p o l i s

M u s e u

m


2009 - 5SE PT E MBE R- O CT O BE R

George PAPANDREOUNew Prime Minister of Greece

With plan & vision for the future

COVER STORY: Turning goodintentions into joint actions

INTERVIEW: China's enginesof growth

OPINION: Helping small firmsis key to recovery

P4

P16

P28

I M P A

C T

D o i n g

B u s i n

e s s w i

t h P o r

t u g a l

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Papandreou asPresident ofSocialist InternationalmeetsHu Jintao

Jos Manuel BARROSOPresident of European Commission2009-2014A new era in EU-China relations

2009-2014


2009-6November-December

HAPPY NEW YEAR!

PavlosGeroulanosGreekMinister ofCulture& Tourism

Angela GerekouGreekDep.Minister for Tourism

HermanVan Rompuy new President ofEUBaronessAshton ForeignA airsChief

Anew andmoreeffectivecultural&tourismpolicy, topromotethe treasuresandnatural beautiesof Greece


2010-1January - F ebruary SpecialFeature

ThePhenomenon of DubaiFINANCIAL CENTRE

TOURISM HUB

REAL ESTATE BOOM

P28

P30

P32

Leaders to watch in 2010

wenjiabao(China)1

BarackObama(US)

2 Ichiro Ozawa(Japan)

3 DavidCameron(UK)

4

Luiz Inacio Lula da Silva(Brazil)

5 Ali AkbarHashemiRafsanjani(Iran)

6 AshfaqKayani(Pakistan)

7

VladimirPutin(Russia)

8 Sheikh Khalifa binZayedalNahyan (UAE)

9 Olli Rehn(EU)

10

EXCLUSIVE INTERVIEWGEORGE PAPANDREOU

THEGREENPRIMEMINISTER OFGREECE

.--


May-2010

CHINA GREECE

Anewdeal to combattheGreek fnancial crisis

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C T

IMPACTJames Jao,the famous American-Chinesearchitect andcity planner, is building aGreekvillagein China!

GreekWine

Theelixir ofOlympusGods

SPECI AL SUPPLEMENT

The Greek Wine

SPECIAL SUPPLEMENT

TheGreekWine

Hu Jintao Weng JiabaoGeorgePapandreou


S eptember-2010 ANDREAS POTAMIANOS

Ambassador of Friendship

ofChina

Shipowner

*the kingofcruises

Contest of the centuryChina v India

CHINA TO SAVE GREECE Wen Jiabao's visit to Greece

opens new ways and opportunitiesfor tourism,investment and finance(port facilities & modern railways)

GeorgePapandreouPrimeMinisterof Greece

WenJiabaoPrimeMinisterof China

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ISSN 1792-0027


November-2010

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ISSN 1792-0027

Wen Jiabao& GeorgePapandreouPrimeMinisters ofChina &GreeceattheParthenon on thesacredrock ofAcropolisattaining thefuturewith con dence!

RMB 30 US$ 6.00HK$ 45 EURO 4.00


January-2011

RMB 30 US$ 6.00HK$ 45 EURO 4.00

HAPPY NEW YEAR

THE TEN MOST POWERFULIN THE WORLD

1

2 3 4

5 6 7

8 9 10

9 7 71 7 9 2 0 0 2 00 8 10

ISSN 1792-0027

President of People's Republic of ChinaHuJintao

President of UnitedStates of AmeriaBarack Obama

Kingof SaudiArabiaKingAbdullah PrimeMinisterof Russia

VladimirPutin

Popeof RomanCatholic ChurchPopeBenedict XVI

Chancellorof Germany AngelaMerkel

PrimeMinisterof UnitedKingdomDavidCameron

Chairmanof US FederalReserveBenBernanke

President of IndiaNationalCongressSoniaGandhi

Co-chairof Bill& MelindaGates FoundationBillGates

INTERVIEWSONGZHEChina'sAmbassador toEU



32

cover story

7 Tacking Europe's debt's crisis11Exclusive interview

on Sino-EU relationship

14 G20 Summit

China Economy

18 Flexible measures needed

22 China set to lead the rest of theeconomies

24 Economy to expand by 10 per cent in 2011

25 China Mainland among mostimproved

27 Painting true portrait of a country

29 Two-track global economyEU-China relations

31Mutual bene cial relations

32 Stronger China-EU ties vital

33 Fresh to EU-China relations

40 Made in China

44 China-France

46 China-Britain

Climate change

48 Cancun climate deal holds out hope

50 Seeing Redd on climate change

Life style

52 The mighty & the rich

Tourism

57 Beijing is seeking world-city role intourism60 Hong Kong panorama

62 Macao panorama

64 Focus:EUPIC

69 Greek city to take shape in Miyun

70 Focus:Zhengzhou

Shao QiweiChairman of China National Tourism Administration

BEIJING is seekingworld-city role in tourism

Painting true portrait of a country



Deng Xiaoping famously,through perhapsapocryphally announced on his Southern Tour in1992that "the Middle East has oil (but) China has rareearths."It is not the catchiest of catch-phrasesin either English or Chinese ,but it has beenwidely quoted in recent months as rare earthmetals-elements like neodymium,gadoliniuma n d l a n t h a n u m u s e d i n l a s e r s , c o mp u t e r memories,batteriesand electric motors-have seizedthe new cycle.It is of course misleading.While China commands95% of the world's production of rare earths,itis home to just 37% of global reserves.Incomparison,the Middle East contains about 80%of easily exploitable global crude oil reserves.China's dominance in rare earths is not a strokeof geological fate and neither it is an accidentof history.Recognising the importance of the rareearth industry early on,Beijing aggressivelydeveloped it ,undercutting pricesof foreign

producers and ultimatelypushing most countries tosuspend production.Most estimates now suggest that even if the USand Australia were to restart rare earth production,it would not be feasible on a commercial level for ve to ten years.China Economic Review

China's rare earth policies



he International Monetary Fundestimates that the crisis-induced

net cost of nancial-sector supportprovided by G20 countries in 2009amounted to 1.7 percent of GDP($905 billion), while discretionary fiscal st imulus amounted to 2percent of GDP in 2009 and 2010both. All the eurozone countries,except Luxembourg and Finland,reported fiscal deficits in excess of

3 percent of GDP in 2009, whileGreece, Spain and Ireland randeficits of more than 10 percent.

Within a single year, eurozonegovernments' general debt increasedby almost 10 percentage points (78.7percent of GDP in 2009, compared

with 69.3 percent in 2008).

As for Germany, the 2010 federalbudget features a record-high de cit

of well above 50 billion ($66.50billion). Public-sector debt willsurpass 1.7 trillion, approaching 80percent of GDP. Interest payments,

which consume more than 10percent of Ger many 's federalbudget, will grow along with themounting debt burden - and evenfaster if interest rates rise.

Ye t the fi na nc ia l cr is is an d theensuing recession go only so fartoward explaining these high levels of indebtedness. The truth is that many European and G20 countries havelived far beyond their means - including Germany, despite its reputation as aparagon of scal rectitude.

Even in good times, governmentshave for too long been spending more than they received. Perhaps

worse, some also spent more thanthey could easily repay, given theireconomies' declining long-termgrowth potential because of theaging of their populations. Suchprofligacy has led to levels of debtthat will become unsustainable if wedo not act.

This is why Ger many decidedin 2009 to enshrine strict fiscalru les in i t s cons t i tu t ion . TheSchuldenbremse, or "debt brake",requires the federal government torun a structural deficit of no morethan 0.35 percent of GDP by 2016,

wh il e Ge rmany 's Ln der (f ed eralstates) will be banned from running structural deficits at all as of 2020.

The current federal government will certainly abide by these rules, which implies reducing the structuralde cit to about 10 billion by 2016 -a reduction of about 7 billion a year.

Welfare benefits account for morethan half of Germany's federalspending this year. So there is littlechoice but to cut welfare spending,at least moderately. But this sort of scal consolidation can be achievedonly if a majority perceives it asbeing socially equitable. Recipientsof social and corporate welfare alike,as well as civil servants, must sharethe sacri ce.

T h u s , G e r m a n c o r p o r a t i o n s wi ll have to co nt ribu te to fi sca lconsolidation through reductionsin subsidies and additional taxes onmajor energy companies, airlines,and financial institutions. Similarly,civil servants must forego promisedpay increases, and the government

Tackling Europe's deb

Wolfgang Schuble

cover story

By Wolfgang Schuble



is looking for annual savings in thefederal armed forces of up to 3billion through structural reforms.

Germany's binding fiscal rulesset a positive example for othereurozone countries. But all eurozonegovernments need to demonstratetheir own commitment to fiscalconsolidation in order to restore

the con dence of markets - and of their own citizens. Recent studiesshow that once a government'sdebt burden reaches a thresholdperceived to be unsustainable, moredebt will only stunt, not stimulate,economic growth.

Greece's debt crisis was a clear warning that European policymakersmust not allow public debt to pile

up indefinitely. The EuropeanUnion was right to react decisively to ensure the euro's stability by providing short-term assistanceto Greece and establishing theEuropean Financial StabilizationM e c h a n i s m . B u t , w h i l e t h eEuropean Financial Stability Facility is a necessary step toward restoring confidence, the Greek crisis has

revealed structural weaknesses of the European Monetary Union's(EMU) scal-policy framework thatcannot, and should not, be xed by routinely throwing other countries'money at the problem.

Indeed, I consider the EuropeanFinancial Stability Facility to be astopgap measure while we remedy the fundamental shortcomings

of the Stability and Growth Pact whose fiscal rules lack substantivand formal bite both. This is why

we need a more effect ive cr is isprevention and crisis-resolutiof ramework fo r the eu rozoneone that strengthens the pact'spreventive and corrective provisionsSanctions for eurozone countriesthat seriously infringe EMU ruleshould take effect more quickly an

with less polit ical discretion, analso should be tougher.

Germany and France have proposedstricter rules on borrowing ands p e n d i n g , b a c k e d b y t o u g hsemi -au tomat ic sanc t ions fogovernments that do not complyCountries that repeatedly ignorrecommendations for reducingexcessive deficits - and those thamanipulate of cial statistics - shouldhave their EU funds frozen andtheir voting rights suspended.

Monetary union was intended tobe neither a panacea for eurozonecountries nor a get-rich schemfor financial speculators. No

was it mean t to be a sy st em ofredistribution from richer to poorercountries via cheaper borrowing fogovernments by means of commonEurobonds o r ou t r igh t f i scatransfers. It won't succeed if somcountries persistently run deficitand weaken their competitiveness athe expense of the euro's stability.

EMU was designed to encourags t ru c t u r a l r e fo rm. P ro f l i g a tmembers were supposed to beforced by the Stability and GrowthPact, as well as by their peers, tlive within their means and thustrengthen their competitivenessInstead, Germany's former socialdemocratic government weakenet h e p ac t w h en d o i n g s o w apolitically convenient, while lecompetitive eurozone countrieallowed wages to rise and the publisector to become bloated, and then

cover story


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Song, who took his current job sixmonths before the global financialturmoil unfolded in 2008, saidbilateral trade has gradually shakenoff the adverse influence of theinternational financial crisis andexceeded the pre-crisis level.

The fol lowing is h is exclus iveinterview:

First, what impresses me most arerobust bilateral trade and investment,frequent high-ranking visits andmore people-to-people exchangesthis year, which have already boostedBeijing-Brussels relations to a recordlevel of amity.

R e c a p p i n g t h e i m p r e s s i v eachievements, I'm encouraged to seethat China-EU relations are at theirbest moment.

I estimate that the bilateral tradeis likely to total $470 billion (357billion euros) this year after it hit$433.8 billion during the first 11months, increasing by 33.1 percent

year-on-year.

Europe remains China's largesttrading partner and export market.China is the second-largest andfastest-growing export marketamong the EU's top five exportdestinations. From January toOctober, the EU had invested $5.5billion in China, 10.5 percent higherthan the previous year.

More European companies areshifting their investment frommanufacturing to the service sectorand more mergers, acquisitions andrisk investments have been carriedout.

Chinese enterprises have also begunto invest in Europe on a large scale.Song said that in the first threequarters, Chinese direct investmentto Europe grew more than vefoldand created thousands of jobs forEuropean countries.

These investments have broughth o p e t o a l o t of E u r o p e an

enterprises faced with difficulties.Many European economists andmedia agree that China's soaring demand for mechanical equipmentand luxury goods have also becomean important driving force forthe economic recovery of many European countries.

Some people may take a simplisticapproach to interpret the tradeimbalance between China andEurope as China gains more fromcooperation while Europe suffers.But if we take a comprehensiveperspective to analyze both tradeand investment, we will find thatChina-EU business ties are balanced,

win-win and mutually bene cial.

The fast-growing Chinese market hasprovided European companies withimpressive investment returns. Song cited some scholars from Europe

who calculated that fro m 2004to 2008, EU investment in Chinarecorded an average 10.1 percentprofit ratio annually, higher than its6 percent annual investment return

EXCLUSIVE INTERVIEW

SONG ZHEAmbassador ofChto EUOn Sino-EUrelation



ratio in Organization for EconomicCooperation and Developmentcountries.

In 2009, European enterprises inChina earned $341.3 billion in sales.

This is 1.4 times of Chinese exportsto Europe and 2.7 times Europeanexports to China.

D u r i n g t h e f i n a n c i a l c r i s i s ,investment returns in China alsobecame the fundamental supportfor many European multinationalsto stay in the black or simply to stay a oat.

The story of Volkswagen as atypical example. The Chinese automarket absorbed 14 percent of thecompany's total global sales butcontributed 80 percent of its totalpro t in 2009.

What I want to emphasize is thatChina always supports mutually beneficial and win-win businessrelations. We will never sacri ce theinterest of others for our own good.

However, misconceptions among the European public toward Chinaremain.

I still feel there is a "dark cloud"hanging over the prospect of China-EU relations, though he said he isindeed impressed by the sustainedand steady progress the two sideshave made so far.

It is unsettling to find that theEuropean publ ic seems to beincreas ingly in teres ted in thedifferences and disputes betweenChina and Europe.

For these problems, competing interests are a factor, but moreoften than not, I find troubledperceptions the most fundamentalcause.

I attributed the misperceptionsof the European public to thedifferences in history, culture,development stage, and to the socialsystems and ideologies of Chinaand the EU.

As for development, China still ha150 million people who make lesthan $1 every day - which is a UniteNations benchmark of poverty.

T h a t ' s m o r e t h a n t h e t o t a

population of Germany and Francecombined.

Due to harsh natural conditions, alow level of economic developmenand a fragile ecological environmenmany people in the central and

western parts of China are living ipoverty.

Similarly, more than 10 millioChinese people still do not hav

access to electricity. And the pecapita GDP of Shanghai is eightimes that of Guizhou province.

I think the Chinese people are inthe best position to understandthe complications of our ownchallenges and problems, citing survey suggesting that 80 percenof Chinese people do not think ofChina as a strong power.



50.5 10.5

5

The two sides should continue todeepen political mutual trust.

Next year, China will begin toimplement its 12th Five-Year Plan(2011-2015) and the EU will follow

through the EU 2020 Strategy.O u r s i m i l a r i t i e s a n d b e s tpractices in social and economicd e v e l o p m e n t c o u l d o f f e r u senormous opportunities to deepencooperation.

In the next five years, the Chinesegovernment will also work hardto build an energy-saving andenvironmentally-friendly society,and efforts will be made to addressclimate change, conserve resourcesand protect the environment.

It is estimated that 3 trillion yuan(341 billion euros) will be spent inChina for environmental protectionbetween 2011 and 2015, accounting for 1.5 percent of total GDP.

There is no doubt that Europe's world-renowned clean energy andenvironment protection companies

wil l find themselves a substantialmarket in China.


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The G 0 Seoul Summit and Ashoka, a working community of social entrepreneurs, introduced 1 innovativefinance models dedicated to unleashing the potential of small and medium-sized enterprises (SMEs) inemerging markets. Ashoka Vice President Bill Carter said the impact of the finance models covers a wide range of strategiesincluding training, risk management, visibility and access to new markets during the summit.80 percent of SMEs in low income economies are caught in a nance trap and their needs to grow exceed thecapability of most micro nance institutions. At the same time, these SMEs are not yet signi cant enough to access major nancing from commercial banks.Carter said the G 0, through the Rockefeller foundation, asked Ashoka to seek solutions to this challenge byusing their open- source and transparent online platform.The 14 winning nance models were selected through independent judges from over 300 candidates in morethan 0 countries in the world.Carter pointed out, there are many insights and useful examples in the work of these 14 winners. Theirsolutions are on track to direct billions and billions of dollars to small enterprises in low income economiesaround the world.They offer new ways of linking enterprises to prospective investors, changing the rules to simplify andstandardize loans, and new ways to evaluate the ongoing ability of the enterprise to service a loan.The SME sector is vital to the world economy and the role of SME businesses is increasingly viewed as that ofa powerhouse of employment, innovation and entrepreneurial spirit, as well as a large source of investment,particularly in emerging markets, according to a discussion report on "nurturing SME sector" for the G 0Business Summit.The G20 summit was launched two years ago in the wake of the nancial crisis with an aim to save the worldfrom falling into a prolonged recession and preventing a recurrence of worldwide downturns in the future.

G20 Summitpromotesinnovative

financemodels forSMEs

1 EURO CHINA BUSINESS


15/76

Mechanism is becoming increasingly important for the advancement of international relations and worldeconomy

In the post-crisis period full of complexity and uncertainty, theGroup of 20 (G20) can undoubtedly serve as a key to understanding thetransition and development of the

world economic pattern.Since the outbreak of the globalfinancial crisis, there have beenfour successful meetings of the

G20 heads of government , in which leaders not only positively coordinated stimulus measures andpolicies in dealing with the crisis,but also reached a comprehensiveconsensus on issues including sustained economic growth inthe fu tu re and re fo rm of theinternational financial system. TheG20 has become a major platformfor global macroeconomic policy coordination.

The G20 Seoul Summit in theRepublic of Korea (ROK), the rstever in a non-G8 nation, was of great significance to the rebalanceof the decision-making power inthe world economy, and is alsoan important opportunity for thepromotion of Sino-ROK ties.

As i t is becoming the world 'smacroeconomic coord ina t ion

mechanism, the G20 is of greatsigni cance for the advancement of international relations and the worldeconomy. The outbreak of theglobal financial crisis indicated thatthe current West-led internationalsystem has limitations and is unableto re ect the demands of emerging economies.

The development of the G20 wouldhelp balance the over-centralized

world economic power structure. The evo lution of the G20 has

b e n e f i t e d f r o m t h r e e m a j o rdriving forces: The first being theinternational financial crisis. In theface of the financial turmoil, theresponse of both the United States-led G8 and the United Nations

was barely satisfactory. Thanks toits policy-making efficiency andmore balanced representation, theG20 quickly emerged as the leading forum to cope with the crisis.

The second factor is the changing

world economic pattern.

During the pas t two decades ,emerging economies, with thoseof BRIC (Brazil, Russia, Indiaand China) at the forefront, havebecome important forces in helping the world weather the crisis, whichin turn highlighted the status of theG20.

The G 0's role irreplaceableBy Jin Canrong and Liu Shiqiang

BRIC

Jin Canrong Liu Shiqiang

EURO CHINA BUSINESS 1



The third driving force comes frommajor powers, especially the US.In view of the inherent drawbacksof other international governancemechanisms, the G20 became

Washington's preference whenseeking international cooperation.

The growing openness and exibility of the G20 could have a complexinfluence on the internationalrelations.

H o w e v e r , t h e i n t e r n a t i o n a lcommunity has not yet reached aconsensus on whether the G20mechanism will become permanent.

There is still a long way to go fora genuine reordering of the globalorder. In this sense, the SeoulSummit is an important window to

observe the participants' efforts toinstitutionalize the G20.

Furthermore, the future prospectsof the G20 depend on it resolving three problems.

The first is whether it can balancethe in uence between the developed

world and emerging economies. The US, Japan an d th e EU wi llendure long-term feeble growth,

with gradually weakening superiority over a long period. The relatively fas t economic g rowth o f theemerging economies will continueto reduce the gap between them anddeveloped countries. Whether the

West-dominated world economicstructure can realize a smoothtransformation will be a major testfor the future development of theG20.

The second problem is whether itcan properly manage its relationship

with the UN. Fo r the present,economic issues remain the focus of the G20, while the UN still focuseson political and security affairs, withboth global mechanisms coexisting and complementing the other. Butany progress will inevitably meanthat the G20 will cover more issues,such as global climate change andsea-route security, and this mightcause dif culties between the two.

The third problem is whether it can

properly handle its relationship withnon-G20 countries. Among morethan 200 states and regions thatengage in global economic activities,the G20 member countries only account for 10 percent. So, theG20 needs to properly handle itsrelationship with other countries,listen to their claims and respecttheir interest demands.

China has been keeping a positivea t t i tude on the evo lu t ion o f t h e G 2 0 , p a r t l y b ecau s e t h e

G20's growing status has raiseChina's voice and influence iinternational economic affairand it provides another importantplatform for Beijing to participati n t h e fo rmu l a t io n o f g l o b aeconomic rules. In the future

while st rengthening effor ts tinstitutionalize the G20, China capromote progressive adjustment ofthe international economic order.

The summit will also be a chancfor China and the ROK to restoreties and promote cooperation afterthe Cheonan incident.

The G20 Seoul Summit provides animportant platform for China andthe ROK to conduct cooperation onbilateral, regional and global level

Leaders from both states can takeadvantage of the multilateral arento exchange views on problems ofcommon concern, enhance mutuaunderstanding and build up politicamutual trust.

S i n o - R O K c o o p e r a t i o n w i lalso favor the raising of Asia

voices and influence in the G20Meanwhile, their support in thinstitutionalization of the G20 andcontribution to global economicrecovery and sustained growtare of vital importance. So, bothstates should seize the opportunityconform to the trend of the timesand jointly promote Sino-ROKstrategic partnership to a new andhigher level.

The authors are researchers at theSchool of International StudiesRenmin University of China.



G 0 summit agrees on trade, currencies

he G20 countries agreed at the Seoul Summit they would enhance multilateral cooperation to promote externalsustainility and pursue policies conducive to reducing trade imbalances and maintaining trade imbalances atsustainable level.

The G20 countries agreed to develop indicative guidelines composed of a range of indicators, which would serve asa mechanism to facilitate identi cation of large imbalances that required preventive and corrective actions, it said.

Under the G20 leadership, wouldbe responsible for developing these indicative guidelines, withprogress to be discussed by G20finance ministers and central bank governors in the rst half of 2011.

The G20 countries have also agreedto move toward more market-determined exchange rate systemsand enhance exchange rate exibility,according to the joint communique.

The G20 countries agreed also torefrain from competitive devaluationof currencies.

According to a joint communiqu: when G20 countries are facing undueburden of adjustment, policy responsesin emerging market economies withadequate reserves and increasingly overvalued flexible exchange rates may also include carefully designed macro-

prudential measures. Ad vanced econ omies, in cl ud in g those with reserve currencies, will be

vigilant against excess volatility anddisorderly movements in exchangerates. Together these actions willhelp mitigate the risk of excessive

volatility in capital ows facing someemerging market economies.

Over the monetary and exchanger a t e p o l i c i e s , w e a f f i r m t h e

impor tance o f cen t ra l banks 'commitment to price stability,thereby contributing to the recovery and sustainable growth.

T h e G 2 0 S e o u l S u m m i t h a sconfirmed the 6-percent shift of quota shares to emerging economiesin the International Monetary Fund.

They welcomed the ambit iousach ievements by the F inanceM i n i s t e r s a n d C e n t r a l B a n k

Governors at the Gyeongju Meeting and subsequent decision by the IMF,on a comprehensive package of IMFquota and governance reforms.

The reform are an important steptoward a more legitimate, credibleand effective IMF, by ensuring that quotas and Executive Boardcomposition are more reflective of new global economic realities.

The IMF reform, would continuethe dynamic process aimed atenhancing the voice and representing of emerging market and developing countries, including the poorest,through a review of the quotaformula by January 2013.

The next general review of quotas would be co mp le ted by January 2014.

Leaders of the G20 countries pose during a family photo session at the G20 Summit in Seoul

G20 summit


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Flexible measures

By Xiao Gang

China economy



19/76

There has been much chatter about bank loans to localgovernments' financing vehicles, widely regarded asone of the main risks facing the Chinese economy.Set up by local governments to borrow money forinfrastructure investments, these vehicles are ratherlike Western companies' special purpose vehicles.

They have played an important role in stimulating theChinese economy and helping it to recover from theglobal financial crisis. But they face a problem, too:

The bank loans they have received have increasedextraordinarily.

Local governments at all levels have set up theirinvestment companies, some of which are directly controlled by the leaders responsible for fundraising for their pet projects. These companies take a variety of forms depending on the industries and sectors they belong to.

There are thousands of such companies across thecountry, which sometimes are even irregular. Some of them, particularly those operating at the county-level,

will not be able to service their debts.I t i s t h u sreasonable to bealarmed. But itis still too early to say that thelevel of non-p e r f o r m i n g b a n k l o a n s

w i l l i n cr eas edrastically eveni f we canno te s t i m a t e t h eprecise numbera n d a m o u n to f l o a n sgiven to localgovernmentsuntil the formalassessment iscompleted atthe end of thisyear.

To generalize the special vehicles' business model wehave to go back in history.

Local governments' financing vehicles started in the1980s and became popular in the 1990s. After theChinese government began reforming the xed assetinvestment and taxation systems, local governmentstook the responsibil i ty of constructing some

infrastructure.Local governments have accumulated outsizedeconomic resources - land, equities in State-ownedenterprises and local banks, licenses for exploring natural resources, and influence in the allocation of economic resources among other things. Most of these "assets", operating or non-operating, cannotbe translated into cash immediately. And the currentBudget Law prohibits local governments from issuing bonds, cutting off the channel for direct fundraising.

This business model is unique. The local governments' vehicles borrow money from banks and invest it ininfrastructure and public utilities, and nally repay thedebt from the revenue generated by the transfer of land-rights use.

Bank loans are used as a substitute for scal spending,enabling the local governments to access tomorrow'smoney today. This model has been operating quitesmoothly over the past few years. The ratio of non-performing loans to the total loans to the vehicles hasusually been less than 1 percent on the banks' balancesheets, which means there is little possibility of

defaults on the loans.

The banks have beenen thus ias t i c abou tacquiring such goodassets by marketing to and establishing strategic partnerships

w i t h t h e l o c a lgovernments . Thecompetition among b a n k s i s i n t e n s e ,because by entering th i s bus iness they can capitalize on aneven wider range of opportunities and tapinto other profitableprojects, fee-basedbusinesses and fiscaldeposits, all of which

bring about a lot of comprehensive benefits to thebanks.

In a way, this model looks like giving large "mortgage"loans, but only to local governments, not individuals.In China, mortgage loans extended to individuals are

very good assets. Banks not only hold the homes ascollateral, but also have recourse to the future incomeof the borrowers even after default.

The nancing vehicle of a province or a city is usually

Local governments borrowingmoney for infrastucture investments

have played an important rolein stimulating the chinese economy

and helping to recover from theglobal financial crisis

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a big company with the governor or mayor as itsCEO. Unlike average CEOs, such leaders are almostalways powerful enough to cope with difficulties,and the government as a whole assumes de factounlimited responsibilities for their debt.Obviously, the repayment of these loans is not mainly based on the cash ow of the infrastructure projectsin question, but on the rapid growth of transfer of land-use rights and scal revenue.Last year, the local governments raised 1.59 trillionyuan ($239.92 billion) through transfer of land-userights, accounting for 4.7 percent of GDP, the majority of which was not included in fiscal budgets. Apartfrom receiving 2.46 trillion yuan in tax revenue, thelocal governments also got 2.9 trillion yuan throughtransfer of funds from the central government.

The central government has a healthy and strong scal capability. It is true that its debt-to-GDP ratiocould be much higher than the official figures, if alot of hidden liabilities, such as the loans to the localgovernment-backed vehicles, were included. But thedebt-to-GDP ratio is well below the international

warning level.

Many people complain about the local government'sopacity in liabilities. In practice, surprisingly, they ownsigni cant amounts of valuable assets, both tangible

and intangible, which they obtained pretty cheaplyand they have always had much room to work ondifferent solutions to nancial dif culties.Some measures taken by the local governments to

vir tually guarantee loans from the banking sectorseem to be really effective. Several local governmentleave a sum of scal revenue as an unallocated item,or set up a debt service reserve account, sometimesapproved by the local people congress, to makepreparations for repay their debt.

Th ere is a heat ed deba te on wh et he r th e lo ca lgovernments should be allowed to issue bonds. If local governments are allowed to issue bonds, it maybe an option to replace some of new bank loans orswap some old loans with bonds, a move which maymitigate the fear of defaults further.

As some readers have no doubt guessed, real estateproperty prices are the key issue. It has been reportedthat the money some local governments earned recordsums from the transfer of land-use rights in the steight months of this year. The measures launched bythe central government recently might cool the realestate property market, but there is little possibility ofit curbing the transfer of land-use rights.

The governments should take a series of steps toimprove its debt management. The local governmentshave begun to re-clarify and re-evaluate thei

liabilities and assets in order to creatreal consolidated balance sheets. Otheactive measures would be welcomeSome local governments have reined indebt according to the conservative fiscarevenue expectations, rather than over-relying on revenue from future land-sales. Some have also improved their debtransparency.

The local governments' nancing vehiclesneed a soft landing. Any harsh measuresor "one-size-fits-all" policies will harmrapid urbanization, economic growth andthe banking sector.

Such complex situations cannot be solvedovernight. The problem could be solvedgradually, but for that we need a exibleand considerate plan.

Time is precious, and sometimes time isthe best way out of problems. So we canbe con dent of overcoming the problem.

The author is chairman of the Board of Directors of Bank of China.

China economy



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In the past, developing countriesdepended on the growth of theadvanced economies. Today, they depend on the growth of China.

Threats to China's growth are alsothreats to the developing world, therise of Asia and the global recovery.

The global financial crisis has seen Asia emerge as a global economicpowerhouse. In another half adecade, Asia's economy could be aslarge as that of the United Statesand the European Union combined.

The rise of Asia is predicated on thesustained growth of China, which ishelping support growth and poverty reduction in much of the developing

world, as well as the fragile globalrecovery in the advanced world. Butnothing in economic developmentis inevitable. The growth of Chinadepends on a stable and peacefulinternational environment.

Desp i t e the s low and f rag i l eeconomic recovery, the globalnancial system remains in a periodof signi cant uncertainty. Advancedeconomies are facing the difficultchallenge of managing a smoothtransition to self-sustaining growth,

while stabil izing debt burdensunder low and uncertain economicprospects.

In contrast, emerging economieshave proven resilient to recentturbulences, but are vulnerable toa slowdown in mature markets andface risks in managing sizable andpotentially volatile capital in ows.

As the leading economies in theadvanced world are drifting intoa "liquidity trap", many centralbanks are opting for new rounds of quantitative easing (QE). But sinceincreased liquidity seeks for highreturns, QE will drive "hot money"(short-term portfolio flows) intothe high-yield emerging economies,

which can inf late dangerous assetbubbles in the emerging Asia andelsewhere.

Despite the "strong dollar" rhetoricin the US, the dollar fell by one-thirdagainst major currencies betweenearly 2002 and this summer. During the two months before the FederalReserve's (Fed) QE decision, thedollar dropped an additional 7percent.

For all practical purposes, new waves of QE would mean furtherdecline in the dollar's value, which

would penalize the major holders of US Treasury securities. As a result,massive US debts would be in ated.In contrast to the developed world,recovery has proved relatively solid in the emerging world. While

the leading advanced economieshave exhausted the traditionalinstruments of monetary policy, themajor emerging economies are only beginning to use them.

Recently, People's Bank of China(PBOC) raised its one-year depositand lending rates to 2.5 percent and5.56 percent. The Reserve Bank of India raised its benchmark short-term interest rate to 6.25 percent.Brazil's interest rates are already close to 11 percent.

Soon PBOC will raise the depositreserve requirement ratio for banks

by 50 basis points - the fifth suchincrease this year and the seconthis month.

Today, a deepening global div idsets the slow-growing US another advanced economies againsmany emerging economies ancommodity producing nations. Theformer are coping with de ation; thelatter are struggling with inflation

The worldwide impact of the QEis only aggravating the chasm, aindicated by Germany's critique oUS monetary policies and other riftamong the G20 nations.

After their gains in the US midtermelection, leading Republicans havexpressed "deep concerns" ovethe Fed's moves to stimulate theeconomy. The European Union isstruggling to contain the debt crisiand sustain the euro. In Japan, publicdebt already accounts for more than200 percent of GDP.

Only a decade ago, the advanceeconomies of North America

Western Europe and Japan drovethe global growth. Today, theG7 nations are navigating intunchar t e red waters , w i th thpotential of unpredictable outcomeand unpreceden ted co l l a t e radamage.

I n t h e 1 9 9 0 s , e m e rg i n g a ndeveloping economies were stidependent on the growth of theG7 economies. Global growth

wa s pr edi cat ed on the grow inprosperity of the leading Westernnations. In the past decade, thirelationship went through a reversa

Today, the developing countries ardependent on the growth of Chinathat, along with a handful of othelarge emerging economies, driveglobal growth.

Consequently, the emerging and ev e l o p i n g eco n o mi es - anespecially those that have lowe

China setto lead the

rest of theeconomies

China economy



export similarities with China -have a vested interest in the gradualevolution of China's exchangerate, as noted by the Organizationfor Economic Cooperation andDevelopment.

It is not in the interest of thedeve lop ing wor ld tha t Ch ina

would be pushed into a disruptive,de ationary currency appreciation -

which is what happened to Japan.

Between 1971 and the mid-1980s,the yen more than quadrupledrelative to the US dollar. Then, theleading advanced economies agreedto allow the US dollar to depreciatein relation to the Japanese yen by

intervening in the currency markets. A few year s la te r, Japan dr if tedinto a long deflationary slump, anear-zero interest rate and heavily impaired bank balance sheets. Itis still struggling to overcome theliquidity trap.

Such a future is not in the interest of China, or in the interest of the poor-income countries, which have greatly benefited from China as an engineof their recent growth. If anything,the decline of China's growth wouldsignificantly undermine poverty reduction in the emerging world.

The bes t way China can helpsupport the world economy is

through efforts to strengthen itsown sustained growth. What is atstake in China's growth is not justnational prosperity, but the future of poverty reduction in the developing

world and the continued well-being in the advanced world.

The rest of the world of the world will take the same road that Chinatakes.

The author is research director of International Business at the India,China and America Institute (US)and visiting fellow at ShanghaiInstitutes for International Studies.

China economy



China Academy of Social Sciencespredicts double-digit increase, and a'moderate' in ation rate

BEIJING - China's economy willexpand by 10 percent in 2011, andinflation will remain moderate withthe consumer price index (CPI)rising 3.3 percent, a top think tank predicted on Tuesday.

The Chinese Academy of SocialSciences (CASS) said in its annualBlue Book of China's Economy report that the economy will grow by 9.9 percent in 2010 and willretain relatively rapid growth, withthe GDP growth rate reaching 10percent in 2011.

The think tank also said that theintens i ty of the government ' smacroeconomic policies will remainstable, while the country's fixed-asset investment growth is likely toslow to 20 percent in 2011 froman estimated 23.5 percent pace thisyear.

However, some economists disputedthe conclusions of the CASS report,predicting that the national economy may face a modest deceleration next

year while inflation is likely to risefaster than expected.

"Th e g ro w t h r a t e o f Ch i n a' seconomy in 2011 will probably slow to 9.6 percent," said Liu Yuanchun,d e p u t y d i r e ct o r o f R e nm i nUniversity's School of Economics.

The World Bank in November saidthat China's economic growth may slow to 8.7 percent next year, and

will see further easing in the mediumterm.

Some analysts said that the Chineseeconomy may face headwindsnext year due to the likely policy tightening measures to curb in ationand asset bubbles. But the risk of asignificant growth downturn fromthe policy is limited.

"The impact of policy tightening on growth wi l l l ikely s tar t toemerge in March 2011 and becomemore pronounced in the secondquarter of 2011," Goldman Sachseconomists, Helen Qiao and YuSong, said in a report.

They expected the government 'stightening measures to expand inscale and intensify in implementationin the coming months to help cool

growth. But they ruled out thedownside risk of a policy overshootriggering a hard landing with thannual GDP growth rate coming inbelow 6 percent.

Goldman Sachs has forecast that thenation's inflation rate will grow 4.percent next year, higher than the 3.3percent predicted by CASS.

China shifted its monetary policstance from a moderately loose oneto a prudent one last week amidthe central government's effort tocontain in ation.

The country 's consumer pr iceindex rose 4.4 percent year-onyear in October, well above thgovernment's full-year target of percent.

The People's Bank of China hikedthe benchmark interest rate by 25basis points in October for the rsttime in nearly three years. It alstwice told banks to set aside mordeposits as reserves to limit theicapacity to lend.

Economy toexpand by10 percent

in 20112011

10

,

( CASS)

2010 9.92011

10

201123.5

20

China economy



Economy stays in top 15 with helpfrom regulatory changes: Report

Acc ord ing to a report rele asedby the In te rna t iona l F inance

Corporation (IFC) and the WorldBank (WB) the Chinese mainlandhas been one of the 15 most-improved economies in the past veyears for local companies to conductbusiness.

Fourteen regulatory changes havebeen introduced to make it easier toconduct business on the mainland,according to the report Doing Business 2011: Making a Difference

for Entrepreneurs.

According to Karim Belayachi, co-author of the report, China's overallranking in the report slid to 79thfrom 78th because of the relatively bet ter improvements in o thereconomies.

China has made improvements inthe indicator of paying taxes. But

many countries are reforming andin East Asia and the Pacific area75 percent of the countries haveimproved.

The report analyzes regulations thatapply to an economy's businessesduring their life circle, including start-up and operations, trading

across borders, paying taxes, andclosing a business. It does notmeasure security, macroeconomicstability, corruption, the skill levels,or the strength of nancial systems.

The results were mainly based onnine indicators - starting a business,paying taxes, trading across borders,registering property, dealing withcons t ruc t ion permi t s , ge t t ing credit, closing a business, enforcing contracts and protecting investors.

From June 2009 to June 2010, Chinamade it easier for companies to pay taxes by clarifying the calculation

of taxable income for corporateincome tax purposes. The time fortax compliance was also cut by morethan 20 percent from 504 to 398hours per year.

Chinas uni ed criteria for corporateincome tax deduction and shiftedfrom a production-oriented value-added system to a consumption-oriented one, the IFC said in the

ChinaMainland

among 'most

improved'

Workers at a medium-sized textile company in Nantong, Jiangsu province.

China economy



report.

But the process of s tar t ing abusiness in the mainland has someroom for improvement.

Countries around the world are

establishing one-stop shops in which they are taking away burdenson potential owners of small andmedium-sized enterprises so thatthey can set up companies moreeasily.

China ranked 151th globally interms of the ease of starting abusiness, with 14 procedures foran entrepreneur to undergo withgovernment agencies, 4.5 percent of income per capita as cost and 118.3percent of income per capita asminimum capital.

I t r a n k e d 1 5 t h i n e n f o r c i n g contracts, 38th in trading acrossborders, 114th in paying taxes and181st for dealing with constructionpermits.

Singapore, Hong Kong and New Zealand lead the world in the easeof doing business for local rmsd.Globally, conducting businessremains easiest in the high-incomeeconomies of the Organizationfor Economic Cooperation andDevelopment.

For the rst time in the eight yearsof the Doing Business reports,economies in East Asia and thePaci c were among the most activein making it easier for local rms todo business, the report said.

Entrepreneurs in Sub-Saharan Africaand South Asia have it hardest andproperty protection was weakestacross the nine areas of businessregulations that were considered inthis year's ranking.

15( IFC)

( WB)5

5

15

151

14

4.5118.3

15

38114

181

China economy



Six mill ion census takers havefanned out across China to conductthe country's sixth national census,the world's largest. For the rst time,foreigners who live and work inChina, as well as the populations of Hong Kong, Macao and Taiwan, willbe included in the count. The lastcensus, conducted in 2000, reporteda total population of 1 .3 billionpeople.

Other countries such as the UnitedStates have also conducted a censusthis year, while Canada, the UnitedKingdom and Australia will conducttheir next census in 2011. Since

China continues its rise as a worldpower, it is not surprising that itscensus has attracted media attentionaround the world. In Canada, hometo a signi cant number of residents

who are of Chinese descent or wereborn in China, the national mediahave published a series of articles onChina's latest census initiative.

A major change in China's currentcensus is that, for the first time,the population will be countedon the basis of where people liverather than on their hukou (houseregistration), or registration, status.

The census will collect information

China's Census

Painting trueportrait of acountry

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on the size, geographic locationand socioeconomic characteristicsof China's population, including their education, family history,employment and resident status.

Although there are other nationalsurveys and local sources of data onthe Chinese population, the census isunique in that it provides completeand comparable data for all parts of China, and the data will be availableat the local neighborhood, orcommunity, level.

At a time of rapid economic growthand social change, the census willprovide a much needed, up-to-date portrait of China's diversepopulation and how it is changing.

An accurate and complete count willprovide a benchmark for measuring change over t ime using futurecensuses.

Census information is very usefulto all segments of a society. Firstand foremost, it provides citizens

with a portrait of their country andhow it is evolving during a time of rapid social and economic change.Data will be useful to the national,regional and local governments asthey plan for new health and socialservice programs and infrastructureprojects or modify existing ones.

For example, census informationprovides detailed data on the sizeand location of the child populationto help determine the need fornew schools and other educationalfacilities.

Data also will be available on therapidly aging Chinese population tosupport the development of seniorservices for this population group.Updated information on workers

wi ll su pp or t it s rapi d economicexpansion.

N a t i o n a l a n d i n t e r n a t i o n a lbusinesses , too , wi l l be eager

t o s t u d y t h e Ch i n es e cen s u sdata. These companies need tounderstand the size, geographicallocation and socio-demographicmake-up of the Chinese populationin order to decide where to locatefacilities and how to deliver goodsand services.

Finally, census data can be usedas an educational tool, allowing students to compare their localcommunities with others in theircountry and with other parts of the

world.

Census data Although census data are ve ry useful for a modern society, allcountries, including China, facemajor challenges when conducting a modern-day census. In additionto the logistical planning for whatin many countries is their largestp eace t i me mo bi l i z a t i o n o f atemporary workforce, a successfulcensus depends on the cooperationof every household to providecomplete and accurate information.

One challenge is simply to findpeople at home who will providethe required information. This may be a particular challenge in largeChinese urban areas where, in somecases, citizens may be reluctant toprovide certain information for fearit might be used against them.

China's census is also complicatedbecause of the presence of migrant

workers - those tens of mill ionsof undocumented workers whohave left the countryside for jobsin urban areas and now live onthe outskirts of large cities. Thisinformation is very sensitive becauseof the traditional hukou system andthe implications it has for residents'entitlement to services.

China's family planning policy mightbe another point of concern forthose families reporting more than

one child. Although these issues ar very sensitive from a respondent 'point of view, it's crucial to obtaian accurate count of the migranpopulation and number of childrenfor future planning purposes.

As with any countries ' censuefforts, China's statistical agencand government must stress thathe census information will be useat an aggregate level for researcpurposes only. They have to ensurethat personal information collectedin the census will not be used at theindividual level to track or questioan individual's circumstances.

The first results from the Chinesecensus are expected in April 2011

There is no doubt that the new dataon China's population will be ointerest to all parts of the world

Along with the business communitand demographic researchers, Theyawait the portrait of China tha

will emerge from this extraordinarundertaking.

EURO CHINA BUSINESS

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Politics will continue to stall recovery in both US and Europe in 2011 andquantitative easing may go againstthe Fed's goal

The global economy ends 2010 moredivided than it was at the beginning of the year. On one side, emerging-market countries like India, China,and the Southeast Asian economies,are experiencing robust growth.On the other side, Europe andthe United States face stagnation

- a Japanese-style malaise - andstubbornly high unemployment. Theproblem in the advanced countries isnot a jobless recovery, but an anemicrecovery - or worse, the possibility of a double-dip recession.

Two-track world poses some unusualrisks.

While Asia's economic output is toosmall to pull up growth in the restof the world, it may be enough to

push up commodity prices.Meanwhile, US efforts to stimulateits economy through the FederalReserve's policy of "quantitativeeasing" may backfire. After all, inglobalized financial markets, money looks for the best prospects aroundthe world, and these prospects arein Asia, not the US. So the money

won' t go where it 's needed , andmuch of it will wind up where

it's not wanted - causing furtherincreases in asset and commodity pr ices , especial ly in emerging markets.

Given the high levels of excesscapacity and unemployment inEurope and America, quantitativeeasing is unlikely to trigger a bout of in ation. It could, however, increaseanxieties about future inflation,leading to higher long-term interest

rates - precisely the opposite of theFed's goal.

This is not the only, or even themost important, downside risk facing the global economy. Thegravest threat comes from the waveof austerity sweeping the world, asgovernments, particularly in Europe,confront the large deficits broughton by the Great Recession, andas anxieties about some countries'ability to meet their debt paymentscontributes to financial-marketinstability.

The outcome of premature fiscalconsolidation is all but foretold:growth will slow, tax revenues willdiminish, and the reduction indeficits will be disappointing. And,in our globally integrated world, theslowdown in Europe will exacerbatethe slowdown in the US, and vice

versa.

A la rg e- sca le pu bl ic -i nves tmen tp r o g r a m w o u l d s t i m u l a t e semployment

Wit h the US abl e to bo rro w atrecord-low interest rates, and withthe promise of high returns onpublic investments after a decadeof neglect, it is clear what it shoulddo. A large-scale public-investment

p r o g r a m w o u l d s t i m u l a t e semployment in the short term, andgrowth in the long term, leading inthe end to a lower national debt.But financial markets demonstratedtheir shortsightedness in the yearspreceding the crisis, and are doing so once again, by applying pressurefor spending cuts, even if thatimplies reducing badly needed publicinvestments.

Moreover, political gridlock willensure that little is done about theother festering problems confronting t h e U S e c o n o m y : m o r t g a g eforeclosures are likely to continueunabated (legal complications aside);small and medium-sized enterprisesare likely to continue to be starvedof funds; and the small and medium-sized banks that traditionally providethem with credi t are l ikely tocontinue to struggle to survive.

In Europe, meanwhile, matters areunlikely to be any better. Europehas finally managed to come to therescue of Greece and Ireland. Inthe run up to the crisis, both weregoverned by right-wing governmentsmarked by crony capitalism or worse,demonstrating once again that free-market economics didn't work inEurope any better than it did in theUS.

Two-track global economyBy Joseph E. Stiglitz

In Greece, as in the US,a new government wasleft to clean up the mess.

The Irish governmentthat encouraged recklessbank lending and thecreation of a property bubble was, perhaps notsurprisingly, no moreadept in managing theeconomy after the crisisthan it was before.

EURO CHINA BUSINESS

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Politics aside, property bubbles leavein their wake a legacy of debt andexcess capacity in real estate that isnot easily recti ed - especially whenpolitically connected banks resistrestructuring mortgages.

To me, attempting to discern theeconomic prospects for 2011 is nota particularly interesting question:the answer is bleak, with little upsidepotential and a lot of downside risk.More interesting and important are:how long will it take Europe andthe US to recover, and can Asia'sseemingly export-led economiescontinue to grow if their historicalmarkets languish?

My best bet is that these countries will maintain rapid growth as they shift their economic focus to their

vast and untapped domestic markets. This wil l require considerablerestructuring of their economies, butChina and India are both dynamic,and proved their resilience in theirresponse to the Great Recession.

I am not so bullish on Europe andthe US. In both cases, the underlying problem is insufficient aggregatedemand. The ultimate irony is thatthere are simultaneously excesscapacity and vast unmet needs - andpolicies that could restore growthby using the former to address thelatter.

Both the US and Europe, fori n s t an ce , mu s t r e t ro f i t t h e i reconomies to address the challengesof g lobal warming. There arefeasible policies that would work

within long-term budget constraints. The problem is politics: in the US,the Republican Party would rathersee President Barack Obama failthan the economy succeed. InEurope, 27 countries with differentinterests and perspectives are pulling in different directions, withoutenough solidarity to compensate.

The bailout packages are, in thislight, impressive achievements.In both Europe and the US, the

free-market ideology that alloweasset bubbles to grow unfettered- markets always know best, sgovernment must not intervene- now ties policymakers' hands idesigning effective responses to thcrisis. One might have thought thathe crisis itself would underminco n f i d en ce i n t h a t i d eo l o g yInstead, it has resurfaced to draggovernments and economies downthe sinkhole of austerity.

If politics is the problem in Europeand the US, only political changeare l ike ly to res to re them tgrowth. Or else they can wait untthe overhang of excess capacitdiminishes, capital goods becomobsolete, and the economy's internarestorative forces work their graduamagic. Either way, victory is noaround the corner.

The author is University Professoat Columbia University and a Nobelaureate in Economics.


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EU can bene t more by deepening cooperation with China because thetwo economies have many goals incommon

A g a i n s t t h e b a c k d r o p o f accelerating globalization, Chinaand the European Union (EU)have become more interdependent.

The 27-member EU is the world'slargest economic bloc and China,as a country, has the second largestGDP.

Bilateral trade and flow of fundsare the two major channels of interaction between China and theEU. The higher one side's growthrate, the more economic exchangesit will have with the other, and vice

versa. This is true of bilateral flow of funds, too.

China will lent a helping hand toGreece to overcome its sovereigndebt crisis. A similar crisis haserupted in Ireland, another EU

member state, even before Greececould emerge from its sovereigndebt. China is likely to offer ahelping hand to Ireland, too, if thelatter's crisis does not subside by end of 2011. But that will dependon whether the Chinese economy maintains its present strength tillthen.

China's economic growth rate isexpected to be 10 percent next year,a little below that of 2010, according to some economists. Such a highgrowth rate will undoubtedly helppull the world economy out of thelingering global financial crisis. Afast-growing China will also help theEU tackle its expanding sovereigndebt crisis.

The year 2011 will the first yearof China's 12th Five-Year Plan(2011-2015) for economic and

social development. For the nextfive years, the Chinese government

will focus more on transforming thecountry's economic developmentmodel. To facilitate the process, thegovernment has vowed to boostdomestic demand, promote scienti cand technological innovationsand take fur ther measures toconserve resources and protect theenvironment.

B o o s t i n g d o m e s t i c d e m a n d ,however, does not mean reducing

the country's imports. Instead,i t means China wi l l p romotecoordinated and simultaneousdevelopment of consumption,investments and exports, the "threechariots" of a country's economy.

The government has vowed to makegreater efforts to boost domesticdemand, which has long laggedbehind investments and exports.For this, the government will useits inherent economic advantagesto the full and continue to valuethe enormous purchasing power of the European market. It will alsocontinue to import capital goods,and intermediate and consumerproducts from global markets,including Europe's.

It is still not clear whether theEU will recognize China's marketeconomic status in 2011. But it isclear that the EU's non-recognition

has served as a double-edge sword,for it not only affects China's exportto Europe, but also compromisesthe bloc's foreign economic ties.

A c o u n t r y ' s s c i e n t i f i c a n dtechnological competitiveness,

wh ich is closely re la ted wi th it stechnological innovations, willdetermine its position in the fierceinternational market. In the 12thFive-Year Plan, Beijing has paid

more a t t en t ion to p romot ing s c i e n t i f i c a n d t e c h n o l o g i c a linnovation, a change that to someextent will create rare opportunitiesfor the EU to increase its high-techexports to China. The EU is a leaderin many high-tech elds and shouldnot let slip the chance of broadercooperation with a fast-growing China, an emerging market withenormous high-tech potential.

China and the EU will create broadercooperation prospects in their bid topush forward energy conservationand environmental protection. TheEU's huge technological advantagein energy conservation, emissionreduction and the fight againstclimate change is likely to facilitatebilateral cooperation in these fields.

At their 13th summit in Brusselsin early October, Chinese and EU

Mutually beneficial relationsBy Jiang Shixue

2011

102010


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leaders indeed agreed to make jointefforts to conserve energy, reduceemissions and develop low-carboneconomies.

Smooth China-EU cooperation inthese fields will not only benefitBeijing, but will also help Brusselsi mp l emen t i t s "Eu ro p e 2 0 2 0Strategy", a strategy for smart,sustainable and inclusive growth.Under the plan, the EU is committedt o d ev e l o p i n g an i n t e l l i g en teconomy, based on knowledge and

innovation, and raising its ef ciency in the use of energy to increaseits competitiveness and promotesustainable development. TheEU will make efforts to boost itsemployment rate and strengthensocial cohesiveness, too.

The many common elements in theEU's "Europe 2020 Strategy" andChina's 12th Five-Year Plan willcreate more room for cooperationbetween the two economies.Bu t wel l begun i s ha l f done .

The great importance China haattached to the 12th Five-Year Planis expected to help it maintain comparatively fast economic growth

That will benefit the EU greatly, iit takes concrete steps before othereconomies and carries out candidcooperation with a fast-growinChina.

The author is deputy director ofthe Institute of European Studiesaffiliated to the Chinese Academof Social Sciences.

Stronger China-EU ties vital: Mandelson

Lord Mandel son , fo rmer EUtrade commissioner and businesssecretary in the last UK Labourgovernment strongly believes thatChina and the European Union(EU ) n eed t o b eco me "ev enstronger partners for growth" in thecontext of a more unpredictable

world economic situation. A cco r d i n g t o Ma n d e l s o n h enew round of monetary easing in the United States will bring more uncertainties for the globaleconomy.

"I have a lot of sympathy over thisdecision (the US measures). Youcan't predict what the consequencesof such policies are going to be, not

only for the UniteStates, but externala s w e l l . We j ulive together in more unpredictabl

world," Mandelsosaid.

The US governmenhas unveiled plans tpump $600 billioi n t o i t s s l o w i ne c o n o m y . T hannouncement hasparked concerna m o n g o t h ecountries who se

their exchange rates rising againsthe US dollar.

Mandel son ca l l ed fo r g rea tecooperation among countries tomanage the hazards by coordinatingtheir macroeconomic policies

and working under internationainstitutions for the G20 summit.

Mandelson said China has playean "important and substantial role"in fighting the financial crisis, anEurope and the rest of the worldhave benefited from the country'srobust growth.

China's growth does not meanEurope is in decline or pose a threa

Lord Mandelson

Mandelson

2011 2015

---- Lord

Mandelson

Mandelson

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to the West, instead it will providemore opportunities as the country becomes the engine for globalgrowth.

The EU is now Ch in a's la rg es tpartner in trade and investment ,a h e a d o f t h e U S a n d J ap a n .President Hu Jintao signed $20billion worth of contracts withFrench President Nicolas Sarkozy inParis.

In the first nine months of 2010,China's exports to EU memberstates increased 35 percent to $349billion, while imports increased 33.4percent to $226 billion over thesame period, according to Customs

data. The fast-growing economies such asChina and others have a legitimateexpectation and entitlement tobenefit from globalization and theEU will reap the bene ts.

Mandelson said that he saw changesin China, such as a steady risein domestic demand rather thanexclusive reliance on export-ledgrowth, and a policy framework in which it is possible for China tomake currency moves smoothly.

As the Chinese gov ernment iscommitted to improving its welfareand anti-poverty policies in the12th Five-Year Plan (2011-2015),d o m e s t i c c o n s u m p t i o n w i l lincrease and people will save lessin the future, and that will bring huge opportunities for Europeancompanies.

More business opportunities willcome for European companies withadvanced technologies, as Chinadevelops its low-carbon economy and moves to the upper ladder of the value chain.

The coun t r y i s l ike ly to facedecreasing pressure for a change inthe value of its currency.

Chinese Vice-Premier Li Keqiang's visit to Europe from Jan 4 to 12 isimportant for several reasons. First,it demonstrates China's commitmentto the European Union (EU), itslargest trading partner. In 2009,China-EU trade reached about 300billion, and China's exports to theEU accounted for almost 20 percent

of its total. It is now seeking new investment opportunities across theEU.

Opportunity for a fresh start to EU-China relationsSecond, it provides an opportunity for a fresh start to EU-Chinarelations that passed through adif cult period in the recent past.

At the last EU-China summit in

October, there was no progress onkey Chinese demands for the EUto lift the arms embargo and grantit market economy status. Nor wasthere a meeting of minds on tradeand foreign policy issues.

As the largest market for its exports,China has an enormous stake in thestability and prosperity of the EU.

The debt cris is that has plagued

Europe and affected the euro formost of the past 12 months hasforced governments in EU membercountries to announce strict austerity measures. But the governmentsfind it difficult to implement thesemeasures, mostly economic cuts,because of widespread protestsfrom Greece and Spain to Ireland

and Italy. The fi na nc ial sit uat ion re ma in sfragile as several countries still have

very high debt rat ios, which haveraised the cost of borrowing. At ameeting in December, EU leadersagreed to introduce a permanentstabilization mechanism for the euroas an amendment to the Lisbon

Treaty. This ref lected the leaders'political commitment to ensuring the stability of the euro. It remainsto be seen, however, how markets

will react if a nancial crisis breaksout in one or two more of the EUcountries.

The EU's external relations havebeen in uenced by the budget cuts,too, and the rise in the numberof anti-dumping cases against

Fresh start to EU-China relations

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China is a sign of the rising fear of unemployment in Europe. This isalso re ected in recent opinion polls,

which show more than 50 percentEuropeans are concerned about theimpact of Chinese trade policy on

jobs.China shows its willingness to helpEU countriesOn its part, China has already showsits willingness to help EU countriesemerge ou t o f the i r f inanc ia l

difficulties. After Chinese leadersmade this commitment to Greeceand Portugal, Vice-Premier Li

wrote in a commentary in a Spanishnewspaper tha t Ch ina wouldcontinue to buy Spain's treasury

debt. T h e E U i s b o g g e d d o w n i nnegotiations with China over anew strategic agreement, withtrade issues acting as the biggeststumbling block. Brussels saysBeijing is not ful lling World TradeOrganization commitments onprotection of intellectual property rights and criticizes China forcreat ing numerous non-tar i ff barriers that have made it difficultfor European companies to enterthe Chinese market. China accusesthe EU of being too ready to resortto anti-dumping measures. At astormy summit last October, thetwo sides disagreed not only on thearms embargo and market economy status, but also on the KoreaPeninsula, Iran, Africa and humanrights issues.

December, however, saw a usefulEU-China high-level dialogue,

which discussed economic and tradedisputes. Catherine Ashton, EUforeign policy chief, recognized theimportance of improving EU-Chinarelations in a report presented tothe December summit. She said thecontinued existence of the armsembargo was "a major impedimentfor developing stronger EU-Chinacooperation on foreign policy andsecurity matters", adding that EUlectures on democracy and humanrights were unlikely to be wellreceived in Beijing.

1 412

--2009

3

20

New EU Ambassador MarkuEderer confident that EU-Chinarelations would improveNew EU Ambassador MarkuEderer has arrived in Beijing. Htold the European Parliament lasmonth that he was confident thatEU-China relations would improvsteadily if both sides made greateefforts to understand each other.Li Keqiang's visit to the EU thucomes at an opportune moment,a t i m e w h e n b o t h s i d e s a rreassessing their domestic anexternal situations. If the EU doenot recover from its economicmalaise then there could be moreprotect ionism and more ant idumping cases . Bu t hopefu lthough uneven, signs of renewedeconomic growth can already bseen in Europe. The Organizationfor Economic Cooperation andDevelopment has forecast a 2.3percent growth for 2011, better thanthe 2010.

Perhaps the greatest contributionof Li's visit to EU-China relation

will be the improvement in mutua

understanding. For too long, theEU and China have talked paseach other. High-level visits such athe one by Li, during which he wimeet with Spanish Prime Ministe

Jo se Luis Ro driguez ZapateroGerman Chancellor Angela Merkeand British Prime Minister DaviCameron, can only lead to greateunderstanding. This is a key elemenof improved EU-China relations.

The author is a senior fellow at theHertie School of Governance inBerlin.

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President Hu Jintao shakes hands with French Ecology Minister Jean-Louis Borloo while FrenchPresident Nicolas Sarkozy looks on during an agreement signing ceremony in Paris

State visitgenerates

massive deals

Relations betweenChina, France

rebound to a newhigh

China - France



Biggest ever dealsChina and France inked their biggestever deals during President Hu

Jintao's visit, right after the nations'leaders pledged to cooperate closely as Paris prepares to take over theG20 presidency.

Hu, together wi th h is Frenchcounterpart , Nicolas Sarkozy,officiated at the signing ceremony for deals totaling 16 billion euros($22.8 billion) on Thursday at theElysee Palace.

The Airbus deal alone - which willsee three Chinese airlines buy 50model A320, six model A330 and10 model A350 airplanes from theEuropean consortium, in addition to36 planes ordered earlier - is wortharound $14 billion, according to thecompany's catalogue price.

China continues to choose Airbusaircraft for the further developmentof its fleet. The order for Airbus'eco-efficient aircraft underlinesC h i n a ' s a m b i t i o n t o g r o w sustainably.

The purchase is the most signi cantdeal since 2007 and the subsequentglobal financial crisis. The move isbelieved to meet the demand of theChinese aviation industry, which isgetting a boost by the country's fastrecovery from the global financialcrisis and rapidly expanding tourismindustry.

Airbus sold 150 aircraft to China in2005, and 170 in 2006, both recordtransactions in each year. In 2007,China purchased some 160 aircraft.In the first half of 2010, Francesuffered a trade deficit of $14.7bi l l ion . The new deals wouldundoubtedly boost the Frencheconomy.

Meanwhi le , loca l au thor i t i esannounced a new 500-million-euroFrench-Chinese business district inChateauroux, central France, that

wi ll create 4,000 jobs - most of them in France - when it opens in2012.

The French government describedthe contracts as "by far the mostimportant ever, either during visitsby Chinese leaders to Europe orEuropean leaders to China".

T he cou n t r i es ag reed i n t hes t a t e m e n t t o c o o r d i n a t e

macroeconomic policies, fight volatility in commodity markets andlook at reforming institutions suchas the International Monetary Fund.China supports France in its effortsto host a successful G20 summitin 2011 and aims to keep closecommunication and coordination

with France to prepare its success.

Paris has announced its G20 agendaof diversifying global currency reserves away from the US dollarand stabilizing commodity markets.Support from the world's No 2economy is very important toSarkozy who is ambitious aboutreshaping the global market.

Hu reaf rmed that the path of Sino-French ties shows that countries

with different ideologies, politicalinstitutions and cultural backgroundscan coexist and cooperate for mutualbene t as long as they respect eachother.

French and Chinese companiesi n k ed d ea l s w o r t h 1 6 b i l l i o neuros ($22.8 billion), including anagreement by Chinese companiesto buy 102 aircraft from Europeanconsortium Airbus.

The contracts includedthe purchase of 102aircraft from Airbus,1.18 billion euros of telecom equipmentand the sale of 20,000tons of uranium fromF r a n c e ' s A r e v a t oChina's GuangdongNuclear Power Corp.

Sarkozy rei teratedthat he wanted to"t ight ly associate"with China.China should not beseen as a threat, butan opportunity.

China - France



Premier Wen Jiabao accompanies British Prime Minister David Cameron as they review a guard of honor at awelcome ceremony in the Great Hall of the People in Beijing on Tuesday. [Wu Zhiyi / China Daily]

Cameron leadshigh-profle Britishdelegation in a bidto expand tradewith China.

Puttinggreat storein ties

China - Britain



P r i m e M i n i s t e r C a m e r o n ,accompanied by four ministers(Chancellor of the ExchequerGeorge Osborne, Business Secretary

Vince Cable, Secretary of State forEnergy and Climate Change ChrisHuhne and Education Secretary Michael Gove), was his first sincehe took of ce,and aims boost tradebetween the two nations.

The prime minist er has plans tomore than double British exports toChina over the next ve years fromtheir current level of 7.7 billionpounds to 18.5 billion pounds by 2015.

A number of deals had already been

announced, including measures toboost sales of Scotch whisky andallow the import of breeding pigsinto China. But the highlight on

Tuesday was a $1.2-billion tie-upinked by China Eastern Airlines andRolls-Royce for 16 Airbus 330-200jet engines.

The s igning was witnessed by Cameron, who met Premier Wen

Jiabao for afternoon talks at theGreat Hall of the People and discuss

ways to boost trade.Beijing is expecting London toexpand cooperation in the fieldso f h i g h - e n d m a n u f a c t u r i n g ,innovation industry, nance service,energy saving and environmentalprotection, said Wen during themeeting. He also urged Britain tofurther release the restrictions onhigh-tech exports to China, a movethat would be conducive to morebalanced and sustainable bilateraltrade growth.

The Chinese premier reaf rmed hisnation's commitment to intellectualproperty rights protection, vowing to provide a more transparent,r e g u l a t e d a n d c o n v e n i e n tenvironment for investment. Healso promised to encourage moreChinese investment in Britain,calling for a simple administrative

process, more targeted service andeasier visa application.

In response, Cameron said Britain views Chin

Euro Cina business - Issue 15

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