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China’s growth rate is slowing but it is still a good investment for a long-term play. Jim McCaughan, CEO of Principal Global Investors, tells Deborah Kan investors should look to the U.S. for the near term.

After keeping its currency tightly linked to the US dollar for years, China in July 2005 revalued its currency by 2 % against the US dollar and moved to an exchange rate system that references a basket of currencies.

In 2006, China announced that by 2010 it would decrease energy intensity 20% from 2005 levels.

China is the world’s fastest-growing major economy, with an average growth rate of 10% for the past 30 years.

Nevertheless, key bottlenecks continue to constrain growth.

The disparities between the two sectors have combined to form an economic-cultural-social gap between the rural and urban areas, which is a major division in Chinese society.

China has acquired some highly sophisticated production facilities through trade and also has built a number of advanced engineering plants capable of manufacturing an increasing range of sophisticated equipment, including nuclear weapons and satellites, but most of its industrial output still comes from relatively ill-equipped factories.

The market-oriented reforms China has implemented over the past two decades have unleashed individual initiative and entrepreneurship, whilst retaining state domination of the economy.

The ministry made the announcements during a press conference held in Xiamen on the upcoming United Nations Conference on Trade and Development (UNCTAD) World Investment Forum and the 14th China International Fair for Investment and Trade.

In this period the average annual growth rate stood at more than 50 percent.

It also aims to sell more than 15 million of the most fuel-efficient vehicles in the world each year by then.

China’s challenge in the early 21st century will be to balance its highly centralized political system with an increasingly decentralized economic system.

Despite initial gains in farmers’ incomes in the early 1980s, taxes and fees have increasingly made farming an unprofitable occupation, and because the state owns all land farmers have at times been easily evicted when croplands are sought by developers.

Except for the oasis farming in Xinjiang and Qinghai, some irrigated areas in Inner Mongolia and Gansu, and sheltered valleys in Tibet, agricultural production is restricted to the east.

Horses, donkeys, and mules are work animals in the north, while oxen and water buffalo are used for plowing chiefly in the south.

There are also extensive iron-ore deposits; the largest mines are at Anshan and Benxi, in Liaoning province.

There are also deposits of vanadium, magnetite, copper, fluorite, nickel, asbestos, phosphate rock, pyrite, and sulfur.

China’s exploitation of its high-sulfur coal resources has resulted in massive pollution.

Other leading ports are rail termini, such as Lüshun (formerly Port Arthur, the port of Dalian), on the South Manchuria RR; and Qingdao, on the line from Jinan.

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Investor: Take U.S. for Near Term, China for Long Term

China’s real estate scene is reminiscent of the 2007 US market: developers are slashing prices and infuriating owners who paid top yuan for properties. Problems in the real estate market are extending into steel, banking, mining and other sectors. Vacant developments are numerous because wealthy Chinese savers have few alternatives for investing growing wealth. “Beijing’s response to the global financial crisis added jet fuel to the fire,” writes Patrick Chovanec for Foreign Affairs, arguing that investors, not urban residents contributed to the bubble. “To maintain GDP growth of nearly ten percent during a massive downturn in global demand, China’s leaders engineered a lending boom that expanded the country’s money supply by roughly two-thirds.” Developers, after ignoring warnings to ease up on capacity, have urged the government to lift restrictions on owning multiple homes. By letting the bubble pop, the government could instantly create affordable housing for less affluent Chinese. – YaleGlobal Speculation, excess inventory, vacant developments, price reductions – a host of factors are set to undermine China’s real estate market and economic growth Patrick Chovanec Foreign Affairs, 26 December 2011 Rights:Copyright © 2002-2011 by the Council on Foreign Relations, Inc.

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China’s Real Estate Bubble May Have Just Popped

A list of what The Wall Street Journal’s reporters in China are reading and watching online. (NOTE: WSJ has not verified items in the ‘News’ section and doesn’t vouch for their accuracy.)

News:

* The former CCTV official blamed for a deadly and costly fire almost three years ago gets more years added to his term. (Xinhua)

* China plans new taxes on vehicles (China Daily)

* China should reduce reliance on overseas credit-rating companies by pushing its own, PBOC Gov. Zhou Xiaochuan said. (Bloomberg)

* Sudan’s unrest represents a minefield for oil-thirsty Beijing. (Washington Post)

Analysis and Commentary:

* Mao’s past mistakes show the need for an open government. (Global Times. Yes, that Global Times.)

* China is too big to support continued heady growth through exports, Gordon Chang argues. (Forbes)

* The Wukan revolt: A harbinger of things to come? (New York Times)

Just Because

Marilyn Monroe plans an appearance in Harbin. (Xinhua)

The restructuring of the economy and resulting efficiency gains have contributed to a more than tenfold increase in GDP since 1978.

The government vowed to continue reforming the economy and emphasized the need to increase domestic consumption in order to make China less dependent on foreign exports for GDP growth in the future.

China has emphasized raising personal income and consumption and introducing new management systems to help increase productivity.

Some economists believe that Chinese economic growth has been in fact understated during much of the 1990s and early 2000s, failing to fully factor in the growth driven by the private sector and that the extent at which China is dependent on exports is exaggerated.

Its mineral resources are probably among the richest in the world but are only partially developed.

China has acquired some highly sophisticated production facilities through trade and also has built a number of advanced engineering plants capable of manufacturing an increasing range of sophisticated equipment, including nuclear weapons and satellites, but most of its industrial output still comes from relatively ill-equipped factories.

By the early 1990s these subsidies began to be eliminated, in large part due to China’s admission into the World Trade Organization (WTO) in 2001, which carried with it requirements for further economic liberalization and deregulation.

The ministry made the announcements during a press conference held in Xiamen on the upcoming United Nations Conference on Trade and Development (UNCTAD) World Investment Forum and the 14th China International Fair for Investment and Trade.

“China is now the fifth largest investing nation worldwide, and the largest among the developing nations,” said Shen Danyang, vice-director of the ministry’s press department.

China is expected to have 200 million cars on the road by 2020, increasing pressure on energy security and the environment, government officials said yesterday.

In large part as a result of economic liberalization policies, the GDP quadrupled between 1978 and 1998, and foreign investment soared during the 1990s.

Despite initial gains in farmers’ incomes in the early 1980s, taxes and fees have increasingly made farming an unprofitable occupation, and because the state owns all land farmers have at times been easily evicted when croplands are sought by developers.

In terms of cash crops, China ranks first in cotton and tobacco and is an important producer of oilseeds, silk, tea, ramie, jute, hemp, sugarcane, and sugar beets.

Sheep, cattle, and goats are the most common types of livestock.

China is one of the world’s major mineral-producing countries.

China is among the world’s four top producers of antimony, magnesium, tin, tungsten, and zinc, and ranks second (after the United States) in the production of salt, sixth in gold, and eighth in lead ore.

The largest completed project, Gezhouba Dam, on the Chang (Yangtze) River, opened in 1981; the Three Gorges Dam, the world’s largest engineering project, on the lower Chang, is scheduled for completion in 2009.
Beginning in the late 1970s, changes in economic policy, including decentralization of control and the creation of special economic zones to attract foreign investment, led to considerable industrial growth, especially in light industries that produce consumer goods.

The iron and steel industry is organized around several major centers (including Anshan, one of the world’s largest), but thousands of small iron and steel plants have also been established throughout the country.

Read more here:
China Watch: CCTV Sentence, Car Taxes Planned, Marilyn Monroe at Harbin

Thailand Business News –

The Thanachart Bank Thailand Property Awards were first held in 2006. Now in their sixth year, the awards aim to promote, reward and showcase the best in Thailand’s real estate industry.

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Winners of Thailand Property Awards 2011 Announced

While focusing on different products, detached houses and townhomes in greater Bangkok, the company spent much of last year improving its key financial ratios.

Several factors have contributed to the strong and rapid rebound.

The mid to high-end segment boomed this year in Thailand as demand was wide and remained strong. The high-end will recover in the third or fourth quarter. But supply in this segment is very limited due to scarcity of land for new developments. Around 80% of the new launch in this segment was taken up. New supply in the high-end segment, now quoted at 150,000 to 200,000 baht a square metre, will be provided by developers with a strong financial status, experienced teams and products that match demand.
Currently, the MahaNakhon project is the only new high-end project in the pipeline. The Sukhothai Residence project on Sathorn Road, which is 70% sold, has frozen sales until demand can sustain the desired prices.

Thailand Business News –

This year’s floods have had a vast impact on the property market, with sectors affected across the board. But the impact varies from sector to sector,from residential to industrial.

Read the original here:
Floods Won’t Affect Thai Property Market in the Long Term
Thailand’s property sector is showing signs of an early recovery, as selective investors return to purchasing real estate stocks and actual property.

Some of the credit goes to a one-year government stimulus package that reduces the Special Business Tax from 3.3% to 0.11%, extends the reduction on transfer taxes from 2% to 0.01% and mortgage registration fees and provides a tax deduction on mortgage principal and interest.
Thailand’s property indicators show:

1.The Stock Exchange of Thailand (SET) index began rebounding in April 2009, and property stocks – while the first to fall in H2/08 – were amongst the first to recover
2. The Bank of Thailand (BoT) has lowered its policy interest rate four times since December 2008, prompting banks to reduce the minimum lending rate (MLR) from 7.25% to 6.25%
3. A continued drop in sales of durable goods due to uncertainty surrounding the economy is highlighted consumer confidence index (CCI) to a historic low of 72.8 in Q1/09 and New housing registrations in Bangkok and surrounding areas fell 43.8% in Q1/09

Recognising that sales would slow, forward-thinking companies took the opportunity to focus on their fundamentals and improve their balance sheets. This was the strategy of Hubert Viriot, CEO of the luxury developer Raimon Land, who was appointed in the midst of the crisis.

Second, Thailand’s banking system is much healthier than its Western counterparts. There are no toxic assets on local banks’ balance sheets. This benefits both the supply and demand side.

But a stable political environment in Thailand would likely see interest rates rise by half a percentage point. And oil prices will float at about US$85 to $95 a barrel. Construction costs will rise when oil prices and interest rates are in an upward trend. Overall housing supply has dropped over the past two years with a decrease in the number of construction permits. Many small-sized developers went bust after failing to access loans from local financial institutions.

A list of what The Wall Street Journal’s reporters in China are reading and watching online. (NOTE: WSJ has not verified items in the ‘News’ section and doesn’t vouch for their accuracy.)

News:

* Sina Corp. dropped 5.4% in U.S. trading following rumors that short-seller Muddy Waters LLC would target it. Muddy Waters denied them. Observers said they stemmed from an opinion piece on Chinese Internet companies on the WSJ’s Chinese-language website, though it didn’t say Muddy Waters planned to target Sina. Shares of Sina have already been under pressure amid increasing investor skepticism of Chinese Internet stocks. (CWSJ/Business Insider/Forbes)

* Chinese police question Ai Weiwei’s wife (Guardian)

* The ordination of a Vatican-approved bishop could be in question due to the expected presence of an ex-communicated bishop. (Shanghaiist)

* China’s first aircraft carrier makes its second run. (China.org.cn)

Commentary:

* America is back in the Pacific and will uphold the rules – Tom Donilon (Financial Times)

* Is it China’s turn to pivot? How China needs to make nice with its neighbors. (The Diplomat)

Just Because:

* Bad passwords with Chinese characteristics (Penn Olson)

* Why “metal underwear” was a popular search term on Tuesday. (Baidu Beat)

China’s economy during the past 30 years has changed from a centrally planned system that was largely closed to international trade to a more market-oriented economy that has a rapidly growing private sector and is a major player in the global economy.

In 2009, the global economic downturn reduced foreign demand for Chinese exports for the first time in many years.

The government has also focused on foreign trade as a major vehicle for economic growth.

Nevertheless, key bottlenecks continue to constrain growth.

The two sectors have differed in many respects.

China has acquired some highly sophisticated production facilities through trade and also has built a number of advanced engineering plants capable of manufacturing an increasing range of sophisticated equipment, including nuclear weapons and satellites, but most of its industrial output still comes from relatively ill-equipped factories.

Over the years, large subsidies were built into the price structure, and these subsidies grew substantially in the late 1970s and 1980s.

China now ranks as the fifth largest global investor in outbound direct investment (ODI) with a total volume of $56.5 billion, compared to a ranking of 12th in 2008, the Ministry of Commerce said on Sunday.

“The growth rate (for ODI) in the next few years will be much higher than previous years,” Shen said, without elaborating.

China is expected to have 200 million cars on the road by 2020, increasing pressure on energy security and the environment, government officials said yesterday.

Although China is still a developing country with a relatively low per capita income, it has experienced tremendous economic growth since the late 1970s.

Despite initial gains in farmers’ incomes in the early 1980s, taxes and fees have increasingly made farming an unprofitable occupation, and because the state owns all land farmers have at times been easily evicted when croplands are sought by developers.

In terms of cash crops, China ranks first in cotton and tobacco and is an important producer of oilseeds, silk, tea, ramie, jute, hemp, sugarcane, and sugar beets.

Horses, donkeys, and mules are work animals in the north, while oxen and water buffalo are used for plowing chiefly in the south.

Offshore exploration has become important to meeting domestic needs; massive deposits off the coasts are believed to exceed all the world’s known oil reserves.

There are large deposits of uranium in the northwest, especially in Xinjiang; there are also mines in Jiangxi and Guangdong provs.

China also has extensive hydroelectric energy potential, notably in Yunnan, W Sichuan, and E Tibet, although hydroelectric power accounts for only 5% of the country’s total energy production.

Since the 1980s China has undertaken a major highway construction program.

See original here:
China Watch: Sina’s Sharp Drop, Ai’s Wife Questioned

Thailand Business News –

AIA Group (“AIA” or “the Group”) today announced that it is investing THB10.5 billion in Thailand through two large-scale real estate projects, underscoring its long term commitment to the country.

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AIA Group Announces THB10.5 billion Property Investments in Bangkok

Recognising that sales would slow, forward-thinking companies took the opportunity to focus on their fundamentals and improve their balance sheets. This was the strategy of Hubert Viriot, CEO of the luxury developer Raimon Land, who was appointed in the midst of the crisis.

Like Raimon Land, Prinsiri did not lower its prices : it was not all bad news, however, as the recovery soon took hold in the second half and by the fourth quarter GDP posted 5.8% growth and many developers reached their annual sales targets.

But if the government invests in mass transit routes, adding one or two new lines in the future, new residential and commercial areas will be created. Property tax incentives implemented by the government of Thailand to stimulate the sluggish market expired on May 30 as it was no longer a need for the tax breaks as the economy was recovering, the property sector had grown by 10% over the past year, and developers’ margins were improving. Governments have used tax incentives to stimulate the property market during most economic slumps since the 1997 Asian financial crisis.

Thailand Business News – Growth in the CBRE Asia Pacific Logistics Rental Index accelerated to 2.0% q-o-q in the third quarter compared to 1.4% q-o-q in the second quarter. This was largely due to the strong performance of key Greater China markets, where retailers competed to secure quality logistics space in prime areas in anticipation of peak retail consumption during the Lunar New Year in January. Logistics rents in the Pacific held firm, although some markets recorded significant fluctuations.

More here:
China and India drive Logistics Rental Growth in Asia Pacific
Thailand’s property sector is showing signs of an early recovery, as selective investors return to purchasing real estate stocks and actual property.

Some of the credit goes to a one-year government stimulus package that reduces the Special Business Tax from 3.3% to 0.11%, extends the reduction on transfer taxes from 2% to 0.01% and mortgage registration fees and provides a tax deduction on mortgage principal and interest.
Thailand’s property indicators show:

1.The Stock Exchange of Thailand (SET) index began rebounding in April 2009, and property stocks – while the first to fall in H2/08 – were amongst the first to recover
2. The Bank of Thailand (BoT) has lowered its policy interest rate four times since December 2008, prompting banks to reduce the minimum lending rate (MLR) from 7.25% to 6.25%
3. A continued drop in sales of durable goods due to uncertainty surrounding the economy is highlighted consumer confidence index (CCI) to a historic low of 72.8 in Q1/09 and New housing registrations in Bangkok and surrounding areas fell 43.8% in Q1/09

Thai property developers, despite being some of the first local companies to get hit by the global financial crisis, have shown resilience and delivered strong results for investors.

These cultural changes are evidenced in the type of housing recently launched. On the lower- to mid-end side, Supalai and LPN have launched projects in Ratchayothin and Ratchada with units ranging from 28 to 55 square meters and prices from 1.5-3 million baht, reflecting demand among single professionals and young families. On the higher end side, where prices are at or above 100,000 baht per sq m, the Sukhumvit and CBD areas remain the preferred location. The common point between all this? Easy access to BTS and MRT lines.

The tax breaks was initially introduced on March 2008, when the special business tax was reduced from 3% to 0.1%, and the transfer and mortgage fees cut from 2% and 1% respectively to 0.01%. These incentives were due to end on December 2, 2008, but have effectively been extended until the current May 30 deadline.