FACTBOX-Key political risks to watch in China
01 Mar 2010 10:23:27 GMT
Source: Reuters
BEIJING, March 1 (Reuters) - China weathered the global economic downturn with robust growth, but the key political risks facing the nation in 2010 reflect worries that trade imbalances and economic overheating could erode that success.
Following is a summary of the key risks for China:
* TRADE AND CURRENCY DISPUTES
Friction with the United States, the European Union and other major economies over trade imbalances and the level of the yuan has the potential to expand into sharper confrontation that could unsettle capital markets. With China's exports rising and foreign exchange reserves expanding, Beijing faces international pressure to let the yuan appreciate. Chinese officials say recovery remains fragile and they will not make any big moves on the exchange rate. [ID:nBJB003689]
Rising disquiet about Chinese trade policy in the United States could be magnified by broader tensions over Tibet and Taiwan and by U.S. Congressional elections later this year. Washington is also likely to press more anti-dumping complaints against goods made in China in 2010. [ID:nN07201061]
Most analysts believe China and other major economies have too much to lose to risk a major escalation of these disputes. But markets are sensitive to any sign, however speculative, that the strains are reducing China's appetite for U.S. Treasuries.
The latest data show Japan topped China as the biggest foreign owner of U.S. Treasury debt at the end of December, as China pared back its holdings. Officials and investors said this reflected fluctuations that do not mark a big policy shift. But continued reductions in China's holdings of U.S. Treasury debt could raise market jitters. [ID:nN16216274]
What to watch:
-- The rhetoric on trade from Washington and Beijing. Both sides want to avoid any serious economic dispute but also protect domestic industry and maintain popular support at home. Watch for signs that positions are hardening, that the U.S. Congress is increasing pressure that could shift policy, or that tit-for-tat trade measures could expand. [ID:nLDE60Q21F]
-- Hints of a change in China's currency policy. Most analysts expect China to keep the currency on a tight rein until at least mid-2010 to cement economic recovery. Offshore one-year dollar/yuan NDFs imply a 2.57 percent appreciation of the yuan in the next 12 months.
* THE INTERNET AND FALLOUT FROM THE GOOGLE DISPUTE
Google Inc has threatened to pull back from China if its concerns about censorship and hacking are not resolved, and its complaint has exposed broader disquiet among companies and governments about Beijing's business and investment policies. So far, other hi-tech multinationals have avoided following Google's public challenge to the Chinese government. [ID:nN20159275]
China has said it does not want the dispute to hurt broader commercial ties, adding that Google and other companies remain welcome as long as they accept the country's laws and policies.
But with Washington pressing Beijing over Internet censorship, and Beijing countering with harsh press criticism of U.S. policy, Western firms, especially in sensitive sectors such as the Internet, media and telecommunications, face uncertainty.
What to watch:
-- Beijing could strengthen enforcement of rules intended to ensure international Internet companies obey censorship controls and other policy restrictions. [ID:nTOE60E05Q]
-- Chinese media's harsh criticism of U.S. Internet policy could embolden some officials to protect domestic companies or sectors against foreign competition. Watch out for reports of foreign business deals in China that are slowed or shelved.
* SOCIAL STABILITY
China's Communist Party has so far maintained general authority and control despite some fears that the global crisis could spark unrest among laid-off workers. Outbreaks of discontent have remained brief and localised.
But with the Party and global markets treating social stability as a crucial issue, even limited challenges to the Party's control can produce outsize policy reactions.
Ethnic tensions in Tibet and Xinjiang have distracted the central government and drawn international concern, but have not seriously threatened national stability. [ID:nSGE60306K]
What to watch:
-- Emergence of any regional- or national-level protest movements. So far, protests in China tended to be directed at local officials. Strict controls make it difficult for any organised movements to form beyond the local level.
-- Signs that urban public concerns about inflation and housing costs are congealing into broader discontent. That is unlikely to turn into mass protest, but it could spur faster moves to cool economic overheating. [ID:nSGE60O00K]
* THE ENVIRONMENT
During the Copenhagen conference on climate change in late 2009, China's position on greenhouse gas emissions emerged as a key factor shaping the negotiations. Some Western politicians said Beijing was combative and inflexible in the final, tense days of the conference, undermining hopes for a stronger deal.
China and other big developing countries say rich nations were at fault for not offering bigger greenhouse gas emissions cuts of their own and not giving enough help to poor nations. Talks on a binding international climate change pact continue in 2010, putting China's positions on emissions and environmental governance under international scrutiny. [ID:nLDE5BI03P]
China's rapid growth causes many environmental problems, and citizens are concerned about health problems caused by pollution.
What to watch:
-- China's position on emissions and fighting climate change. Beijing is unlikely to offer steeper reductions on greenhouse gas emissions growth than those it announced last year. Carbon market investors will look for flexibility on other contentious issues, like international verification and funding for poor countries.
-- Moves to set a "carbon intensity" target for China's next five-year plan, running 2011-2015, are likely to speed up, increasing clean tech opportunities and raising the possibility of pilot emissions-trading projects.
-- Increasing environmental activism and stricter enforcement of standards could force some industrial projects to be halted.
* FALLOUT FROM A HOUSING BUBBLE
China's property market is looking bubbly and the government has been taking steps to deflate it. So far, so good, with price rises slowing early in 2010 and investment increasing at a more sustainable pace than last year's credit-fuelled boom.
But two broad political issues should be on investors' radar screens. First, housing is increasingly unaffordable for most ordinary Chinese, a potential source of social discontent.
Second, sharp falls in housing prices would cause immense pain not just for banks but also for the many Chinese who have bought homes with their savings. The stock markets' 70 percent tumble in 2008 from its peak did not cause any social ructions, but Chinese have much more to lose from a housing crash.
What to watch:
-- Monthly housing price data published by the government is flawed but offers the best indication of market trends. An easing in month-on-month price rises in January is grounds for optimism, but there is too much cash in the economy after last year's lending boom, enough to fuel a bigger and more dangerous bubble.
-- The government has been trying to gradually take the fizz out of the market by cracking down on speculators through loan controls, while simultaneously expanding the supply of affordable housing to tackle popular discontent. There is ample scope for policy missteps, especially a repeat of over-tightening seen in 2007, a major factor in the economy's subsequent slowdown.
(Reporting by Chris Buckley, Simon Rabinovitch, Ben Blanchard and Emma Graham-Harrison; Editing by Andrew Marshall)
01 Mar 2010 10:23:27 GMT
Source: Reuters
BEIJING, March 1 (Reuters) - China weathered the global economic downturn with robust growth, but the key political risks facing the nation in 2010 reflect worries that trade imbalances and economic overheating could erode that success.
Following is a summary of the key risks for China:
* TRADE AND CURRENCY DISPUTES
Friction with the United States, the European Union and other major economies over trade imbalances and the level of the yuan
Rising disquiet about Chinese trade policy in the United States could be magnified by broader tensions over Tibet and Taiwan and by U.S. Congressional elections later this year. Washington is also likely to press more anti-dumping complaints against goods made in China in 2010. [ID:nN07201061]
Most analysts believe China and other major economies have too much to lose to risk a major escalation of these disputes. But markets are sensitive to any sign, however speculative, that the strains are reducing China's appetite for U.S. Treasuries.
The latest data show Japan topped China as the biggest foreign owner of U.S. Treasury debt at the end of December, as China pared back its holdings. Officials and investors said this reflected fluctuations that do not mark a big policy shift. But continued reductions in China's holdings of U.S. Treasury debt could raise market jitters. [ID:nN16216274]
What to watch:
-- The rhetoric on trade from Washington and Beijing. Both sides want to avoid any serious economic dispute but also protect domestic industry and maintain popular support at home. Watch for signs that positions are hardening, that the U.S. Congress is increasing pressure that could shift policy, or that tit-for-tat trade measures could expand. [ID:nLDE60Q21F]
-- Hints of a change in China's currency policy. Most analysts expect China to keep the currency on a tight rein until at least mid-2010 to cement economic recovery. Offshore one-year dollar/yuan NDFs
* THE INTERNET AND FALLOUT FROM THE GOOGLE DISPUTE
Google Inc
China has said it does not want the dispute to hurt broader commercial ties, adding that Google and other companies remain welcome as long as they accept the country's laws and policies.
But with Washington pressing Beijing over Internet censorship, and Beijing countering with harsh press criticism of U.S. policy, Western firms, especially in sensitive sectors such as the Internet, media and telecommunications, face uncertainty.
What to watch:
-- Beijing could strengthen enforcement of rules intended to ensure international Internet companies obey censorship controls and other policy restrictions. [ID:nTOE60E05Q]
-- Chinese media's harsh criticism of U.S. Internet policy could embolden some officials to protect domestic companies or sectors against foreign competition. Watch out for reports of foreign business deals in China that are slowed or shelved.
* SOCIAL STABILITY
China's Communist Party has so far maintained general authority and control despite some fears that the global crisis could spark unrest among laid-off workers. Outbreaks of discontent have remained brief and localised.
But with the Party and global markets treating social stability as a crucial issue, even limited challenges to the Party's control can produce outsize policy reactions.
Ethnic tensions in Tibet and Xinjiang have distracted the central government and drawn international concern, but have not seriously threatened national stability. [ID:nSGE60306K]
What to watch:
-- Emergence of any regional- or national-level protest movements. So far, protests in China tended to be directed at local officials. Strict controls make it difficult for any organised movements to form beyond the local level.
-- Signs that urban public concerns about inflation and housing costs are congealing into broader discontent. That is unlikely to turn into mass protest, but it could spur faster moves to cool economic overheating. [ID:nSGE60O00K]
* THE ENVIRONMENT
During the Copenhagen conference on climate change in late 2009, China's position on greenhouse gas emissions emerged as a key factor shaping the negotiations. Some Western politicians said Beijing was combative and inflexible in the final, tense days of the conference, undermining hopes for a stronger deal.
China and other big developing countries say rich nations were at fault for not offering bigger greenhouse gas emissions cuts of their own and not giving enough help to poor nations. Talks on a binding international climate change pact continue in 2010, putting China's positions on emissions and environmental governance under international scrutiny. [ID:nLDE5BI03P]
China's rapid growth causes many environmental problems, and citizens are concerned about health problems caused by pollution.
What to watch:
-- China's position on emissions and fighting climate change. Beijing is unlikely to offer steeper reductions on greenhouse gas emissions growth than those it announced last year. Carbon market investors will look for flexibility on other contentious issues, like international verification and funding for poor countries.
-- Moves to set a "carbon intensity" target for China's next five-year plan, running 2011-2015, are likely to speed up, increasing clean tech opportunities and raising the possibility of pilot emissions-trading projects.
-- Increasing environmental activism and stricter enforcement of standards could force some industrial projects to be halted.
* FALLOUT FROM A HOUSING BUBBLE
China's property market is looking bubbly and the government has been taking steps to deflate it. So far, so good, with price rises slowing early in 2010 and investment increasing at a more sustainable pace than last year's credit-fuelled boom.
But two broad political issues should be on investors' radar screens. First, housing is increasingly unaffordable for most ordinary Chinese, a potential source of social discontent.
Second, sharp falls in housing prices would cause immense pain not just for banks but also for the many Chinese who have bought homes with their savings. The stock markets' 70 percent tumble in 2008 from its peak did not cause any social ructions, but Chinese have much more to lose from a housing crash.
What to watch:
-- Monthly housing price data published by the government is flawed but offers the best indication of market trends. An easing in month-on-month price rises in January is grounds for optimism, but there is too much cash in the economy after last year's lending boom, enough to fuel a bigger and more dangerous bubble.
-- The government has been trying to gradually take the fizz out of the market by cracking down on speculators through loan controls, while simultaneously expanding the supply of affordable housing to tackle popular discontent. There is ample scope for policy missteps, especially a repeat of over-tightening seen in 2007, a major factor in the economy's subsequent slowdown.
(Reporting by Chris Buckley, Simon Rabinovitch, Ben Blanchard and Emma Graham-Harrison; Editing by Andrew Marshall)