ChinaWatch: Win-Win Envisioned

Welcome to ChinaWatch, WMB’s weekly digest of news from the country with the world’s second largest economy. More info on the topic is available by following the link.

Building Partnership

China seeks a win-win partnership featuring equality and mutual trust with the United States, as the two countries' interests are deeply correlated in the era of globalization, Chinese Foreign Minister Yang Jiechi says.

"Relations between China and the United States should be cooperative and win-win and not a zero-sum game," Yang says.

Applauding the two countries' consensus to build a positive, cooperative and comprehensive bilateral relationship in the 21st century, Yang says China and America should boost mutual understanding and learn to trust and respect one another.

Mutual understanding is the basis for cooperation and a precondition for avoiding misjudgments, Yang says, adding that China's peaceful development is not only in the interests of the Chinese people but also for the whole world.

Wild Over Wine

With its explosive economic growth, China is tapping many of the world's major commodities such as metals and minerals and — perhaps most surprising — red wine.

Traditionally, the Chinese are not wine drinkers. But as the middle classes earn more money, it seems they are developing a taste for Bordeaux, reports NPR.

At a recent Christie's wine auction in Hong Kong, a case of 12 bottles of Chateau Lafite 1982 sold for roughly $90,000. Auctioneer David Elswood says the same case would have sold for about $10,000 just five years ago.

Surging Inflation

China’s consumer price index rose to its highest level in 28 months, the government says, reinforcing the need for more monetary tightening.

The consumer price index (CPI), a key measure of inflation, rose 5.1 percent last month from a year earlier, up from 4.4 percent growth in October, according to the National Bureau of Statistics. The on-year rise was higher than market estimates, which averaged 4.8 percent.

The inflation was driven by an 11.7 percent surge in food prices, which accounts for one third of the basket of goods used to calculate China’s CPI. The year-on-year increase in food prices grew from rises of 10.1 percent in October, 8 percent in September and 7.5 percent in August.

According to the bureau, the producer price index, a barometer of future consumer inflation, rose 6.1 percent in November from a year earlier, accelerating from a 5.0 percent advance in October.

The numbers were released as the Chinese government has started to move toward tightening its monetary policy in order to fight the country’s overheated asset markets and inflation risks, and are expected to put more pressure on the world’s second-largest economy.

Taxman Cometh

China aims to introduce a U.S.-style property tax in the future through reform of the existing real estate tax system, says Jia Kang, director of the fiscal science institute under the Ministry of Finance.

Jia, speaking to Dow Jones Newswires on the sidelines of an economic forum, also suggests local governments in China's central and eastern regions should make property taxes a major source of income in the future, and local governments in western China should try to make resource taxes a major source of income.

Analysts have raised concerns that local governments in China are too dependent on land sales for revenue. Jia didn't give any more details on China's planned tax reforms.

Unlike a U.S.-style property tax, which is based on a property's updated market value, China's tax on commercial real estate is based on the original purchase price.

New From WMB: ChinaWatch

To our readers: We’ve noticed posts involving China draw higher viewer interest. In response, WMB will provide a weekly digest of business and consumer-related news, ChinaWatch, culled from reliable websites. As always, please share the post and comment if you like. Enjoy – Ken.

Food Prices Jump

Annual food price inflation hit 10.1 per cent in October compared with a year earlier - a level not seen in China since mid-2007 - deepening concerns that the economy is now starting to overheat after two years of stimulus.

Many ordinary people feel the official inflation figures underestimate the true rises.

''Ten per cent? That's a joke,'' says Li Mingwei, a shopkeeper at Beijing's largest wholesale food market. ''The price of leeks has doubled from last year; cooking oil is up by 25 per cent since the summer and rice by even more. Everything is going up.''

This kind of disgruntlement makes China's leaders very nervous. In the past, inflation has been a catalyst for social unrest, including in 1989, the year of the Tiananmen Square massacre, and it remains a sensitive political pressure point.

Investing In Green

China invested 200 billion yuan ($30.12 billion) to boost energy conservation and curb greenhouse gas emissions in the past five years, according to the Xinhua news agency.

He Bingguang - a senior official of the department of resource conservation and environmental protection at the National Development and Reform Commission, the country's central planning agency - made the statement to reporters in Beijing at a clean-technology conference.

The announcement comes two weeks before Chinese officials head to Cancun, Mexico, for climate pact talks, which aim to fix a new framework for tackling global warming.

China, the world's biggest emitter of greenhouse gases from human activity, has made a domestic vow to reduce "carbon intensity," the amount of carbon dioxide emitted for each dollar of economic growth, by 40-45 percent by 2020 compared to 2005.

GM Venture Debuts

General Motors Corp.'s commercial micro-van joint venture in China started producing its first Baojun brand passenger vehicle at a plant in southern China, the U.S. auto maker says.

The Baojun 630 sedan, which is the first model to be produced under the soon-to-be-launched Baojun brand name, rolled off the production line in Guangxi province's Liuzhou city on Monday, GM says in a statement.

The four-door sedan is the first of a series of passenger cars the joint venture, SAIC-GM-Wuling Automobile Co., expects to launch over the next few years under the Baojun brand name. GM says the Baojun 630 will go on sale in early 2011 through a new network of dedicated Baojun dealers.

The new brand was created to address growing demand for affordable passenger cars in China and is aimed at competing with the country's home-grown auto brands including Zhejiang Geely Holding Group Co. and BYD Co., GM says.

Food For Thought Drives Markets

Everyone eats food to survive; billions of people around the globe work in agriculture and its related industries. Food prices are important for everyone and, in some cases, they’re a matter of life and death.

There are many variables and conditions affecting food prices. Patrick Westhoff recently published a book: The Economics of Food: How Feeding And Fueling The Planet Affects Food Prices.


He explains in the book many of the complex factors influencing food prices.

Westhoff notes the prices we pay at the supermarket depend on everything from the weather to the cost of oil and the types of fuel we put in our cars. Population explosion in regions of the world, such as Africa, China and India, also affect prices we pay here in the United States. He believes these dynamics should be used by our legislators and food producers to set prices and determine how best to feed the planet.

For years, food prices did not get much attention. From 1991 to 2006, U.S. consumer prices increased 2.5 percent per year, slightly less than half the inflation rate, according to government reports. Crop and livestock prices also varied but without real change.

Things changed in 2007 and 2008, when food prices took center stage. Front page headlines and published reports offered gloom-and-doom and the end of cheap food as we knew it. The Economist published “The End of Cheap Food” as one of its cover stories.

The U.S. Consumer Price Index rose 4 percent in 2007, the largest increase since 1990. In 2008, the food inflation rate increased a whopping 5.5 percent, according to the U.S. Food and Drug Administration.
The surge in basic crops, such as corn and wheat, soared and was even more dramatic. Corn prices more than tripled between late 2005 and 2008. Prices for wheat, rice, soybeans, and many other foods also spiked.

This rise in food prices was a concern in the United States but a crisis for many Third World developing countries. The average family of four spent $8,671 for food in 2007, according to the U.S. Bureau of Labor Statistics. Rising food prices made it harder for families to make ends meet.

Average families in poorer countries may spend more than half of their disposable income on food. This forced many families to choose between eating less healthy foods or sacrificing other necessities.
The Food and Agriculture Organization of the United Nations estimates that millions of people were added to the hunger rolls between 2007 and 2008, leaving 915 million people malnourished around the world. Current economic conditions surely pushed that number to over a billion people by the end of 2009.

Just as many people began fretting about higher food prices and the possibility of permanence, prices moved downward. Hedge funds and speculation had a lot to do with this sudden drop. Traders from around the world used futures to make or hedge bets about future food prices and other commodities.

Wheat future price reached a peak by March 2008, corn in June, and soybeans in July. By October 2008, wheat and corn futures had declined by 50 percent, and soybeans had dropped nearly the same amount, according to the FDA. After peaking in June 2008, the price index fell by a third within the next six months, according to officials.

So what happened? After years of stagnation, why did food prices explode and then suddenly collapse? Was this a short-lived crisis or would higher food prices and their consequences be the norm of the future?

Journalists, politicians, and economists have tried to explain these rapid changes in food prices. Some have produced well-reasoned analysis that carefully identify and weigh contributing factors involved in this complex model. Others have tried to reduce the situation to a small sound-bite, often to make a biased or political point. A lot of information is available, but it’s not easy to sort it out and be objective.

Part of the reason is that increasing amounts of corn, sugar, vegetable oils, and animal fats are used to make biofuels which can be used to power automobiles and trucks. The role of biofuels as a contributor to increasing food prices has been highly controversial.

Some have laid some or most of the blame for higher food prices on the growth of biofuel production. The more grain, vegetable, and animal products used to produce biofuels, the less is available to feed people. This phenomenon has often been quoted by World Food Bank economists who suggested biofuel production accounted for between 70 percent and 75 percent of food price increases.

On the other side of the argument, biofuel defenders point out that rising cost of foods is not related or minimal. They note the percentage of crops to produce fuels is very small, and farmers can easily increase production to make up the difference.

Former U.S. Secretary of Agriculture Ed Schafer noted that increased corn-based ethanol production only
accounted for about 3 percent in the increase in global food prices. The actual impact of biofuels on food prices was almost certainly higher than biofuel proponents would like to acknowledge, but less than biofuel opponents claim.

There’s no getting around the fact that food production in this country and around the world, for that matter, is controlled by big business, lobbyists, and government. The extent to which external factors, like weather and even oil production, affect food pricing remains highly debated.

But one point is certain: The United States is the bread basket of the world.

We believe our government officials and farmers should take whatever steps are necessary to reduce our dependency on oil. In the long run, we believe increasing agricultural production will help improve our geopolitical position and economic standing.

This post is courtesy of TechMan who tracks trends and issues across many areas affecting business, industry and technology.