CER: The year in review

China Economic Review looks back at a year of reportage on the world’s most dynamic economy.

Hukou reform: Beijing abolishes “agricultural” residence class, but rural-urban split remains

New migration guidelines from the State Council and abolition of the “agricultural” residence class are less impressive in light of the policy and population shifts of recent decades, which lessened the importance of the urban-rural split on paper, but reinforced it in reality as the central government handed over hukou decision-making to cities themselves. And while many urban residents rode China’s real estate boom to riches, land policy regulating farmers’ plots remained a collectively-owned holdover from the country’s pre-Deng days. The result is an urban underclass in China’s top-tier cities, but not of them. That still seems unlikely to change.

By Hudson Lockett (@KangHexin)

Why do official statistics show a record drop in highway shipping?

While 2013 saw a fairly typical Spring Festival dip of 519 million tons, in 2014 highway freight appeared to have fallen a staggering 1.812 billion tons according to official statistics. It has seemingly yet to fully recover. The more likely explanation is that the government changed definition of what freight is, and with it the scope of what is being measured. No official explanation has been offered, nor have previous measurements been adjusted to take this change into account. This is all standard practice, but it leaves outside observers to puzzle out for themselves the real state of China’s highways, or something close to it.

By Hudson Lockett (@KangHexin)

How marketing and market forces created a China boom for formula and disposable diapers

To create demand in China for milk powder and disposable diapers where there was none, Western companies deployed tactics tried if not necessarily true, nor particularly brand-new, to convince parents here that both are sina qua non for raising a healthy child. This was accomplished in part by taking advantage of the common fear among recent generations of mothers in China that their child is at risk of falling behind immediately after it slips from the womb. Whether the China market will always be quite so kind to global purveyors of milk powder and disposable diapers is a question of politics, marketing, culture and demographics. At the nexus of all these issues sit China’s newest generation of parents.

By Hudson Lockett (@KangHexin)

Demographics and downturn combine to spark a spike in strikes across China

Strikes have broadened geographically and across industry sectors throughout China – particularly construction, where workers face increasing arrears thanks to the country’s ongoing property-led downturn. The rise in protest frequency and broader distribution reflect major changes in Chinese labor that will reverberate throughout the global economy for years to come. The domestic labor pool continues to shrink and wages continue to rise as investment and provincial policies shift in reaction to a changing economy that needs serious readjustment. Whether China proves up to that task will depend in no small part on how mobile, networked and rights-aware its current cohort of workers is, and on how willing authorities are to allow labor to slip, even slightly, from their grip.

By Hudson Lockett (@KangHexin)

Photo gallery: Faces of Yunnan 

China Unheard, a new bilingual social media project based out of Yunnan, aims to encourage cross-cultural communication by sharing stories and portraits of individuals in China. To view more profiles or contribute to a growing online gallery, visit ChinaUnheard.com or find the group on Facebook and Sina Weibo.

Why health hazards continue to spring from China’s poisoned soil

Soil pollution, both directly and through its poisoning of crops and water supplies, has contributed to a plethora of negative health effects, most notably high rates of cancer. The World Health Organization’s most recent World Cancer Report ranked China number one globally in both cancer cases diagnosed and cancer-related deaths annually, and with a new study indicating a cancer survival rate of only 30.9% nation-wide (21.8% for rural patients), the increase in pollution-related illness is pushing the government toward at least appearing to take stronger action. However, while waves of record-breaking smog draw global attention to China’s air pollution crisis, the abiding danger of contaminated soil may ultimately prove just as chronic and costly, if not more so. 

By Wade Strub

The booming business of the Buddhist “life release” ceremony

The resurgence of Buddhism on the mainland in recent decades has prompted a widespread return of the life release ceremony, and of religious organizations dedicated to freeing creatures destined for dinner plates, throughout China. The Buddhist animal release ceremony, commonly held to originate from India and practiced in China for centuries, has become a regular business for many here looking to make a quick yuan, and Buddhist groups can individually spend over US$1 million a year buying animals for release. But the economic, ecological and epidemiological consequences of releasing wild animals from a globalized supply chain into China’s fields, forests and lakes may be far greater than one man selling turtles out of buckets suggests.

By Hudson Lockett (@KangHexin)

For China’s top banks, a Tier 1 bond bonanza

2014 saw Chinese banks raise a staggering US$110 billion as willing investors lined up to pitch in despite doom and gloom from the property sector and the myriad knock-on effects that continue to be felt throughout the economy. A hefty chunk of this has come in the form of preference shares, a new option opened to banks in 2014, and one of the key qualities of preference shares is their status as Tier 1 capital. What exactly that means often receives little attention, but these shares are a linchpin of global financial reform—and pose a possible risk to ordinary shareholders.

By Francis Zhao, Wade Strub, Ryan Henderson

China’s animation industry tries to find its feet

With thousands of animation companies and hundreds of thousands employed the industry is becoming notable simply by nature of its size. But not all of that numerical might is put to good use, and for most studios quality storytelling remains elusive. As major corporations begin to throw their weight behind studios they hope will become Chinese Disneys and Pixars, domestic viewers remain skeptical.

By Hudson Lockett (@KangHexin)

2014: The year China’s film industry got more industrial

The growing number of theaters in smaller cities throughout the country is changing the makeup of the movie-going public, who in turn are upending the foundations of Chinese cinema itself. A film landscape dense with domestic cultural touchstones and strict government regulation remain serious obstacles to mainland films’ appeal abroad and often at home, but improvements to copyright law enforcement, the emergence of mobile online video as its own format and introduction of more dynamic sources of funding and production now promise to further industrialize and revolutionize Chinese cinema—for better and worse. 

By Hudson Lockett (@KangHexin)

CER series: China’s carbon emissions could save the world—or doom it

While it is true Beijing has become more receptive to discussion and collaboration addressing climate change than before, it has yet to actually make any concrete, measurable promises to curb its own emissions. And though carbon-intensive coal will almost certainly continue to shrink in its overall share of China’s energy resources thanks to an impressive dedication to building up renewable energy resources like wind and solar, policy analysts and energy industry sources agree that the absolute amount burnt in the next one to two decades will continue to grow. Calculations by China Economic Review based on scientific studies show that by 2035, China could plausibly burn up 42-47% of the entire world’s remaining carbon budget for now till mid-century. Yet the price of failing to shrink humanity’s carbon footprint is too great to ignore—and China may face some of the steepest costs.

By Hudson Lockett (@KangHexin)

China’s grain self-sufficiency policy lives on after its official demise

Officials recognize that China’s grains sector is subject to policies that encourage overproduction, inefficiency, wasted stockpiles, elevated prices and, perversely, mounting imports of the same crops the country already has too much of as prices abroad fall. They also remain hamstrung by political tradition, fear of over-dependence on imports, systemic momentum and the often contradictory interests of the country’s rural and urban regions.The result is regular tides of conflicting policy overtures, muddled further by jargon and arcane categories that obscure what “self-sufficiency” actually means. Despite loud calls for modernization, government insistence on continued supply without regard for demand could prove unsustainable.

By Hudson Lockett (@KangHexin)

Antibiotics abuse makes China’s pork industry a hotbed for drug-resistant bugs

As Chinese agriculture scales up, key features of industrial farming – including antibiotics overuse, large-scale farms and breeding practices – could prime the pump for drug-resistant disease to take a serious toll on the country’s porcine population. Meanwhile, the size of China’s pork-hungry populace means a major loss in domestic swine stocks would have serious ramifications for the global meat market and undermine Beijing’s efforts to secure an adequate domest
ic supply. Also potentially troubling is the possibility of such resistance spreading in a way that could pose a direct threat to human populations. Accurately gauging the likelihood and potential severity of these outcomes would require extensive industry data that scientists and policymakers don’t yet have but urgently need.

By Hudson Lockett (@KangHexin)

Promising protection plan comes late in the game for China’s drying, degraded waters

Recent policy announcements like the potentially landmark Water Action Plan show that China’s leaders recognize the need to rein in water consumption and pollution in the key areas of agriculture and industry. Savings in just one of these areas will not be enough, and currently despoiled water resources will need time to recover; opportunities to conserve water must also be balanced against possible resulting pollution and climate-warming CO2 releases that could exacerbate water sources’ unreliability. If coordinated conservation policies that balance food and energy security are not deployed, it will be hard to avoid further expansion of the already over-budget, much-criticized and possibly unsustainable South-North Water Diversion Project into China’s western territories.

By Hudson Lockett (@KangHexin)

China’s retail investors don’t care what you think about their stock market

As far as Shanghai and Shenzhen are concerned, market fundamentals couldn’t be less important thanks in large part to the investment approach adopted by the droves of individual investors driving the current rally. These so-called retail traders, often stereotyped as inexperienced gamblers and hailing from every age bracket, aren’t concerned with traditional investment metrics like price-to-earnings ratios. Instead they’re keeping an eye on policy announcements and banking on further easing measures like bank reserve requirement cuts and stimulus rollouts commonly viewed as good for listed companies, regardless of whether they help China’s flagging economy. In fact, the worse the economy gets, the more government support expands, and China’s individual investors have thus far responded by plowing yet more money into stocks, driving prices even higher.

By Hudson Lockett (@KangHexin)

Infographic series: China’s underappreciated indicators

Looking below the headline figure can help the would-be economist get a better understanding of the reality on the ground. Indeed, in China, it’s almost universally necessary. To this end, China Economic Review has compiled and illustrated some of China’s less-appreciated economic indicators to get a feel for how its 31 mainland administrative regions compare to one another in terms of per-capita GDP, non-working dependent populations and household savings. The results paint a much more nuanced picture than any single figure could hope to show.

By Hudson Lockett (@KangHexin)

China’s pension system still pits the country’s old against its young

Thinking beyond the short-term can be difficult for local governments under pressure. In response to growing budget shortfalls some had begun reallocating government funds to pay for pensioners’ benefits and could potentially sell off state assets to this end as well. That is understandable in light of the deficit faced by China’s individual pension accounts: RMB3 trillion (around US$484 billion), according to a January report from China Business Journal. Until the systemic issues that led to this deficit are dealt with, existing pensioners will continue to benefit at the expense of China’s current workers, with the pension contributions of the latter funding payouts to the former. How exactly such an unsustainable system came into being is a textbook case of stopgap reform and good intentions gone awry. Without a systemic overhaul, it will likely get worse.

By Hudson Lockett (@KangHexin)

How the collapse of China’s volatile stock market looked from the inside

It is just after 9 am on Monday, June 29 on the campus of Fudan University in northeastern Shanghai. Stray cats stalk across well-manicured lawns near a reflecting pool; passing showers fall from mottled gray clouds; a pigeon coos from its perch atop a towering statue of Mao Zedong. And Wan Long has forgotten his umbrella. The electrical engineering senior from Hubei province jogs over to meet a journalist and soon they arrive together at a 15th floor cafe overlooking the center of campus. Wan is a little wet, but otherwise very lucky—and he knows it. He cashed out of China’s stock market before it tanked last week, walking away with a total profit of RMB222,000 (US$35,700).

He does not yet realize he will get back into the market on Tuesday, or how fast and far share prices will fall on Thursday. And Friday.

By Hudson Lockett (@KangHexin)

How the children of China’s elite learned to (by)pass the gaokao

The opportunity to study abroad is a welcome change for many of the students who are able to sidestep a torturous educational experience at home. But the money needed to do so restricts the pool of potential applicants to a small (albeit growing) sliver of Chinese society. This divides the nation into the few who have the means to pursue a less strenuous education and the many who do not. If the Chinese government wants its education system to become globally competitive, it will first have to reconsider the rote learning requirements that now prompt many high-net income families to send their children abroad.

By Andrew Ross

Beijing’s latest round of SOE reforms on track to bolster China’s corporate colossi

Consolidation alone can’t eradicate corporate bloat, and may simply facilitate the flow of cheap financing from Beijing to a smaller number of corporate giants whose excess bulk goes largely untrimmed. Less competition for business abroad could also potentially give state firms an edge over foreign competitors that have to worry more about hard budget constraints. Moreover, the latest interventions in the mainland’s stock market seem to indicate the party wants the state to retain decisive control over market forces rather than the other way around. The market may yet play a larger role in some sectors, but profit is far from the sole aim of new reforms, and the state isn’t about to beat a retreat from business altogether. The government’s all-too-visible hand will continue to play a major role in broadly directing economic development. 

By Hudson Lockett (@KangHexin)

China’s consumers embrace credit cards as regulators rebuff new industry entrants

A sizable boost in credit card use seems to suggest the historic reluctance among Chinese consumers to borrow might soon become a thing of the past—a likely necessity if the country is going to transition away from export dependency and high savings toward a consumption-based growth model, per the current administration’s economic blueprint. But the most recent annual figures from the People’s Bank of China showed credit card payments overdue by six months or more had risen by almost 42% to RMB35.76 billion at the end of 2014, accounting for 1.53% of total outstanding credit.

By Hudson Lockett (@KangHexin)

China’s unregulated P2P lending sites are still spreading financial instability 

Peer-to-peer lending platforms – websites that match those seeking to invest extra funds directly with those in need of credit to start a business or make a major purchase – have exploded in China. Between January and June this year the number of mainland P2P websites increased from 1,627 to 2,028, according to data from Chinese P2P lending portal Wangdaizhijia. Most offer loans worth less than RMB100,000 (US$16,110) to individuals and small businesses. But as more platforms have crowded in, loan volume has grown, too. As of June, the total trading volume on P2P platforms topped RMB6.6 billion (US$1.063 billion), up 8% from May. But the same lack of industry-specific regulation and low cost of setting up a P2P platform that can attain an average 15% gross margin ratio have fostered substantial risks for everyone involved in the industry, whether they are aware of it or not.

By Xin Yuan (@yyyuanxin)

How Disneyland Shanghai’s 2016 launch will change Disney—and China

Long in the coming though it may be, there are few safer bets than Shanghai Disneyland. There are also far more far-reaching ramifications to the Disney kingdom’s mainland debut than the castles of cash it will bring in. For Disney the new park will be a promotional tool as well as intelligence source, both a bastion and beachhead for the company’s intellectual property on the mainland. For China it represents a dynamic new rival for existing sophisticated park operators, imminent apocalypse for low-quality competitors and a new, higher standard to which the country’s burgeoning theme park industry will inevitably be held.

By Hudson Lockett (@KangHexin)

Infographic series: Rising seas lay siege to China’s booming coastal cities

A new study published in the peer-reviewed journal Atmospheric Chemistry and Physics estimates that global sea levels could rise far more quickly than expected: 10 feet within the next 50 years. To get a rough idea of how China’s coastline might look in 2065 if humanity fails to make major emissions cuts, China Economic Review has charted below how a sea-level rise of 3 meters (9.8 feet) would impact the China coast’s major cities and ports using Google Maps and an online tool for charting hypothetical changes in sea level. The results lend new urgency to the need for China (among others) to wean itself off of carbon-intensive coal. Drag your cursor over the maps to jump ahead 50 years.

By Hudson Lockett (@KangHexin)

Electricity use trends point to major gains in China’s energy efficiency

A slowdown in absolute economic growth is revealing impressive aggregate gains, as demonstrated by China’s electricity consumption figures for the first quarter of 2015: Overall electricity consumption grew only 0.8% year on year to 1.29 trillion kilowatt hours according to the National Bureau of Statistics. This represents a 4.6% drop from the same period the previous year. Part of the reason for such tepid growth was a drop in power consumption by the manufacturing industry, which fell by 0.7% in the first quarter. This reflects lower investment and industrial output as well as efforts by the central government to gradually transition the country away from high-polluting heavy industry. Growth in the service sector (7%) and residential electricity use (2.6%) offset this decline. As a whole, these figures suggest two key trends: The central government’s energy efficiency plans are proceeding as planned, and China’s economy has begun its slow, painful transition away from industry.

By Matthew Nitkoski (@MNitkoski)

Tibet’s prized parasitic fungus faces paradox of falling prices and shrinking harvests

Every year around April, the brown-tipped stalks of Yartsa gunbu start to sprout from the countless corpses of golden ghost moth caterpillars barely buried in the topsoil of the Tibetan Plateau. As summer warmth creeps west, more stalks of this parasitic fungus, Ophiocordyceps sinensis, worm their way up from their host of dead hosts to the surface, whence they bulge and pop. So spreads another swarm of caterpillar-killing spores, beginning the process anew. It’s the circle of life—or would be, were the young stalks not quickly spotted by sharp-eyed locals looking to turn a profit on centuries-old beliefs about these corpse-sprouts’ potent aphrodisiac powers. This despite little hard evidence to back up such claims, much less others ascribing miraculous healing powers to the caterpillar carcasses.

By Hudson Lockett (@KangHexin)

Beijing’s policy flops don’t spell doom for China’s real economy—just investor expectations

While the recent damage to Chinese officials’ previously sterling reputation is real enough, experts point out that there’s little evidence that top leaders have abandoned rebalancing altogether, and recent months have witnessed real reforms – like lifting a ceiling on interest rates for long-term deposits – alongside easing measures. Rather than justified apprehension, the current instability may be the result of misplaced market expectations that align less and less with reality as China moves forward with its economic transition away from credit and toward greater reliance on consumption.

By Hudson Lockett (@KangHexin)

Chinese e-commerce’s rush into online finance could put countless users’ data at risk

The back and forth between Alibaba and Tencent has become a fixture of China’s private enterprise landscape: Both companies use their deep pockets and deep reserves of user data to try and gain an edge in the latest nascent Internet-enabled sector, all with an eye toward unseating China’s financial establishment. But new user authentication requirements favoring brick-and-mortar banks don’t just fail to address existing data security and privacy issues in Chinese e-commerce; they could force users to provide Alibaba, Tencent and other online businesses with biometric data such as fingerprints which, once shared or stolen, could prove a problem for life.

By Hudson Lockett (@KangHexin)

♦