May 21, 2015 |
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21st Century China Opinion
How long can China kick the debt can down the road?  
From the source

"China's central bank is considering lending to policy banks through a new tool so they can buy bonds issued by local governments, a person close to the regulator says. 


The loans would have a maturity of at least 10 years, the source said. Other details of how this would work remain unclear, but the tool will be unlike anything the bank has used before, he said."

Our take

Make no mistake, quantitative easing (QE) has arrived in China in a big way. 

To be sure, the U.S., Europe and Japan all had their central banks lend to banks, local governments and firms to stabilize the financial markets and to generate growth. In all of these cases, this led to a competitive devaluation of their currencies. China is now joining the fray. 

Here is how QE is working in China for now: local government financing vehicles (LGFVs) in China owe somewhere between RMB 20-30 trillion in debt, and RMB 2-3 trillion of which will come due this year. Given that these entities have a very low cash flow, they would go bankrupt without any government assistance. The Ministry of Finance has announced a RMB 1 trillion local debt issuance plan to help roll over some of the debt that is coming due this year. In essence, the proceeds from the new local debt will be used to repay existing LGFV debt, thus kicking the can down the road at lower interest. However, the first tranche failed to attract any interest due to low yields of these notes. This debt replacement plan was on the verge of failure. 

In comes the central bank to the rescue. The People's Bank of China (PBOC) first accelerated the pace of lending to commercial banks (i.e. printing money), which drove down interest rates. In February, PBOC loans to banks rose by RMB 700 billion in a single month. There is more. The bank will print billions more and lend it to the China Development Bank (CDB), a policy bank controlled by the Ministry of Finance and the bank, so the CDB can purchase a large amount of local debt. The central bank law prevents the PBOC from buying these securities directly, so it is doing so indirectly. 
If this plan proves successful, we will see the bank print trillions upon trillions of RMB to help kick the local debt can down the road.

Field Notes from China:
Selections from
Chinese-language Media

Made in China 2025
工业和信息化部部长: "中国制造2025"可简单概括为"一二三四五五十"

SummaryA new report entitled "Made in China 2025" was recently unveiled by the PRC State Council, outlining a 10-year plan to boost China's manufacturing capability. Based on a two-year research project undertaken by the Chinese Academy of Engineering and the Ministry of Industry and Information Technology, the report proposes a three step strategy of transforming China into a leading manufacturing power by 2049, the 100th anniversary the PRC's founding. The following is an excerpt from an interview with Miao Wei, the Minister of Industry and Information Technology, that was carried on the PRC State Council website.   


Excerpt from the story: "Industrialization and an emphasis on information in logistics will be deeply integrated to promote the development of the whole manufacturing industry, which was proposed at the 18th National Congress of the Communist Party of China. This will be a task we must fulfill in implementing the 'Made in China 2025 plan.' It is also a new high ground that we must conquer." 

"Germany's economy is developing from 3.0 to 4.0, while our Chinese industrial enterprises have to upgrade from 2.0 to 3.0 and then continue onto 4.0. So Germany and China are at different stages. Therefore, we must pay attention to China's actual conditions and the reality facing Chinese enterprises. This will help us choose the right path of development and embark upon a better, faster and healthier road to development." 

"The best and biggest opportunity lies in the application of Internet technology in manufacturing. It will become the biggest catalyst and engine to accelerate this round of development. It will promote manufacturing from being electrification-based directly into being intelligence-based."


Source: PRC Central Government

Foreign NGOs in the crosshairs
境外非政府组织 管理立法影响的不仅仅是NGO


SummaryThe Chinese legislature NPC Standing Committee recently has released draft legislation on the regulation of foreign NGOs in China. This controversial piece of legislation is likely to have a profound impact on the kind of NGOs allowed in China and the scope and nature of their operations. This article reports a range of opinions on revising the draft legislation during the public comment period from May 5 to June 4.


Excerpt from the story: "Some NGO representatives question why (foreign NGOs) are not allowed to fundraise or accept philanthropic gifts inside China. This provision violates the principle of fairness. Jia Xijin remarks, 'If this law is to be followed strictly, then the question is no longer simply about national security. The law would not only affect philanthropy, or the society as a whole, but it will impact the openness of Chinese society and the overall development of China's economy. It will influence the relations between China and the rest of the world.' Liao Hongtao says emphatically, 'China will face a difficult road ahead in opening up to the world if it lacks the participation of NGOs, especially foreign NGOs. So we must actively assert the following, that is, foreign NGOs cannot only contribute to China internally, but they can help Chinese enterprises, and resolve issues that the government may not be able to handle diplomatically. International NGOs can become constructive partners in many areas.'"


Source: 公益时报

China Talk: Interviews, Lectures and Events
Myths of Intellectual Property Protection in China
Mark Cohen
Mark Cohen, senior council at the U.S. Patent and Trade Office (USPTO), gave remarks on some of the myths of intellectual property protection in China at the May 19, 2015 conference titled "New Perspectives on Innovation and Intellectual Property Policy in China: What Does the Evidence Say?" It was sponsored by the USPTO and UC San Diego (GPS, 21st Century China Program and the UC Institute on Global Conflict and Cooperation). Click on the image to launch the audio.


School of Global Policy and Strategy
(formerly School of International Relations and Pacific Studies)
21st Century China Program
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The opinions expressed here do not necessarily reflect the position of the 21st Century China Program.