SPOTLIGHT ON CHINA

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CULTURE

CONFESSIONS FROM THE CULTURAL REVOLUTION

Clarissa Sebag-Montefiore | Latitude | International Herald Tribune

Individual confessions like Liu’s are still rare, but they have multiplied in recent years. In 2010, a former Red Guard wrote an article for the magazine Yanhuang Chunqiu revealing that as a teenager he had beaten to death a boy from a rival Red Guard faction. A Beijing-based lawyer has disclosed that as a teenager he recommended that his own mother be executed for defacing posters of Mao (she was shot at a public trial). Most recently, a retired cadre divulged in a letter to the outspoken newspaper Southern Weekly that he had once denounced and humiliated a mentor. He also enjoined other Chinese of his generation, “Friends, if you once hurt someone else, let’s apologize and confess, not only for our inner peace, but also for facing our children and history with courage.”

In March, Zhang Hongbing, the lawyer whose tip against his mother led to her execution, sent me an unpublished confession of more than 14,000 words. (He has asked me not to quote from it.) He said he had written it during a single sleepless night and that he was outing himself for fear that once again children might turn on their parents and students on their teachers if the truth about the past were not addressed.

Zhu Xueqin, a history professor at Shanghai University, is also worried about history repeating itself. He fears that the country is “falling backward,” with “more and more Cultural Revolution-style behavior.” He cited the case of the nationalist academic Han Deqiang, who slapped an elderly man for insulting Mao during an anti-Japanese demonstration last year.

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PHOTOJOURNALISM

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SLIDESHOW: THE LAST DAYS OF KAIXIAN

ZHANG XIAO | The Caravan

ON 4 NOVEMBER 2008, water rose over Kaixian, China, ending its history of nearly 2000 years. Located on the Yangtze River, around 290 kilometres upstream from the Three Gorges Dam—the largest water-control project ever built—Kaixian was the final town submerged by the dam’s reservoir. By that day, the reservoir had claimed more than 150 cities and towns, and 1,300 villages, displacing an estimated 1.3 million people. Some 1,300 archaeological sites, many of which were thousands of years old, were lost under the water. Most of the residents of Kaixian had been relocated to higher ground a short distance away, to a new city taking the name of the submerged one. The buildings of the old town had been demolished to prevent underwater hazards; everything of value had been removed or scavenged.

Zhang Xiao, a photographer then working for a newspaper in nearby Chongqing, documented the town’s final dismantling. In these photographs—as in his other projects picturing China’s rapidly changing coastal cities and young, working class Chinese struggling to find their identity—Zhang examines the price of his country’s economic development.

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ECONOMICS

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HITTING CHINA’S WALL

Paul Krugman | The New York Times

. . . It’s all very peculiar by our standards, but it worked for several decades. Now, however, China has hit the “Lewis point” — to put it crudely, it’s running out of surplus peasants.

That should be a good thing. Wages are rising; finally, ordinary Chinese are starting to share in the fruits of growth. But it also means that the Chinese economy is suddenly faced with the need for drastic “rebalancing” — the jargon phrase of the moment. Investment is now running into sharply diminishing returns and is going to drop drastically no matter what the government does; consumer spending must rise dramatically to take its place. The question is whether this can happen fast enough to avoid a nasty slump.

And the answer, increasingly, seems to be no. The need for rebalancing has been obvious for years, but China just kept putting off the necessary changes, instead boosting the economy by keeping the currency undervalued and flooding it with cheap credit. (Since someone is going to raise this issue: no, this bears very little resemblance to the Federal Reserve’s policies here.) These measures postponed the day of reckoning, but also ensured that this day would be even harder when it finally came. And now it has arrived.

MIDDLING KINGDOM

Graphic Detail | The Economist

CHINA’S significance to the world economy is easy to see but hard to quantify. So in 2010 The Economist introduced the first Sinodependency Index, as a rough gauge of China’s influence on the fortunes of American multinationals. The index tries to show whether their exposure to the Middle Kingdom is reflected in the performance of their shares.

The latest version of the index, which we discuss in an article this week, includes all of the members of America’s S&P 500 that provide a usable geographical breakdown of their revenues. This now amounts to 133 firms. Each firm’s weight in the index reflects their market capitalisation multiplied by China’s share of their revenues. So a company worth $100 billion that derives 10% of its revenues from China has the same weight in the index as one worth $20 billion deriving half of its revenues from China.

Below is a screengrab of the interactive on The Economist site.
china dependency

TWO CHEERS FOR REFORM

The Economist

ADVOCATES of financial liberalisation in China will remember July 20th as a special day. The People’s Bank of China (PBOC), the country’s central bank, announced that it will immediately end all restrictions on lending interest rates. In other words, China’s banks are now allowed to set those rates as they see fit. Many analysts did not expect the PBOC to go this far this fast. A few weeks ago its clumsy attempt at reining in dodgier sorts of bank lending led to a credit squeeze and market panic. And yet, it is willing to take a bold step shortly after that debacle.

By removing the floor on commercial lending rates, previously set at 70% of the PBOC’s benchmark lending rate, officials hope to increase competition among banks and spur lending to the corporate sector. With economic growth slowing down, private firms in particular could use greater access to credit. This is good news, but it is only the first—and a relatively easy—step in a difficult journey. The bigger prize for reformers is the liberalisation of interest rates paid on bank deposits. Those rates, the PBOC made clear in its announcement, will remain under tight control for the time being.

GET READY FOR THE NEXT CHINA

Stephen Roach | Yale Global

The message from this new approach to Chinese macroeconomic stabilization policy is clear: Gone are the days of open-ended hyper growth. Significantly, this message has been reinforced by an important political overlay. Xi’s rather cryptic emphasis on a “mass line” education campaign aimed at addressing problems arising from the “four winds” of formalism, bureaucracy, hedonism and extravagance underscores a new sense of political discipline directed at the Chinese Communist Party. The CCP is being urged to realign itself with the core interests of citizens and their need for fair and stable economic underpinnings.

This new mindset works only if China changes its growth model. A services-led growth dynamic, one of the pillars for a consumer-led Chinese economy, is consistent with a marked downshift in trend GDP growth. That’s because services generate about 30 percent more jobs per unit of Chinese output than do manufacturing and construction – allowing China to hit its all-important labor absorption and social stability goals with economic growth in the 7 to 8 percent range rather than 10 percent as before. Similarly, a more disciplined and market-based allocation of credit tempers the excesses of uneconomic investments, necessary if China is to begin absorbing its surplus saving to spur consumer demand.

BY THE WAY, CHINA ISN’T REBALANCING

Kate MacKenzie | Alphaville | The Financial Times

The WSJ’s China Realtime blog points out that other proxies for rebalancing don’t look much better.

Retail sales in the first half rose 12.7 percent year-on-year, a slower rate than the 14.4 per cent for the first six months of 2012.

Disposable income growth for urban households slowed to 6.5 per cent in the first half compared with 2012, down from 9.7 per cent growth in the first half of 2012. Stephen Green of Standard Chartered points out that this measure actually improved significantly in the second quarter after contracting in the first quarter — which is kind of, maybe, reassuring? Okay, so it’s improved recently. But it’s rare to see growth rates turn negative in China.

In any case, we’d say it is way too early to make a call on what the new leadership will do regarding rebalancing. There are some promising signs for sure, such as refraining from stimulus, declaring war on corruption, and tentative moves to relax energy price controls. It’s far from clear whether they are willing or able to do everything that’s needed, such as tackling the power of the SOEs.

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