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While China’s National People’s Congress in a rubberstamp legislature, its annual plenary session – which kicks off Friday – offers a good window into the thinking of the nontransparent Chinese Communist Party elite.

This year’s theme is the economy.  That in itself isn’t news, but the economic focus is shifting.  While the 2009 NPC harped on attaining an 8% growth, the priority for this year’s session is to ensure a more equitable distribution of national income.  In a talk with China’s netizens last week, Premier Wen Jiabao said “while it is the government’s responsibility to expand the ‘pie’ of national wealth, it is the government’s conscience to distribute it in adequate manner.”  Mr Wen warned that “if wealth in a society is concentrated in a minority of people, this society will be neither just nor stable.”

The use of the word “stable” is significant.  Apparently the Party is starting to worry that if income inequality grows too wide it could lead to greater disaffection with Party rule.  So while Beijing has talked about distributive justice since the mid-2000’s, the leadership under President Hu Jintao seems motivated by a higher sense of urgency this time.  In a recent speech , Mr Hu used the phrase “speed up” 50 times as he urged cadres to move faster on issues such as going up the technological chain, encouraging consumer spending and buttressing the income of workers and peasants.

Wall Street Journal – 3 March 2010

Chinese automobile dealer Zhongsheng Group Holdings Ltd has shelved its planned US$1 billion Hong Kong initial public offering due to volatile market conditions, a person familiar with the situation said Tuesday.

The switch is the latest blow to the Hong Kong market, which has seen a number of weak IPOs in recent weeks due to market saturation and – in some cases – uncertainty about the economic situation in the Chinese mainland.

Zhongsheng’s shelved offering would have been the largest IPO in Hong Kong since Russian aluminium company UC Rusal Ltd’s US$2.55 billion share sale in January.

The company, which focuses on luxury and mid-to-high-end automobile brandslike Mercedes-Benz, Lexus, Audi and Toyota was origonally scheduled to kick off order taking this week and likely to list at the end of the month, said the person familiar with the matter.  Company officials weren’t available for comment.

Wall Street Journal – 3 March 2010

China will target a higher budget deficit this year of more than one trillion yuan (S$205 billion), a senior lawmaker said yesterday.

Yin Zhongqinq, deputy head of the financial and economic committee of the National People’s Congress, China’s largely ceremonial parliament, also said that Beijing would again permit provincail governments to issue their own bonds this year.

The sum would be similar to the 200 billion yuan issued in 2009, Mr Yin told a forum.

China undershot its 2009 budget deficit target of 950 billion yuan.  The actual shortfall was about 740 billion yuan, or about 2.2 per cent of gross domestic product, according to Ministry of Finance figures.

“The fiscal deficit this year will be larger than last year, and will probably exceed one trillion yuan.”

Turning to the yuan, mr Yin said that China needed to change expections that the currency can head only higher.  He did not say how this could be done.

“So many years of one-way upward expectations have set China in a dilema in its foreign exchange policy, with very limited flexibility.” Mr Yin said.

Beijing has in effect re-pegged the yuan around 6.83 per US dollar since mid-2008 when the global financial crisis intensified.

The Business Times – 3rd March 2010

Diageo PLC’s bid to buy a larger share in the maker of China’s Shui Jing Fang brand white liquor may provide the world’s largest alcoholic beverage maker with a major new influence over a leading Chinese consumer brand.

But Diageo will likely have only a minority stake, a fact that also highlights how foreign investors remain heavily constrained in one of the largest cash-generating sectors of the global drinks market.

Diageo – producer of Guiness beer, Smirnoff vodka and Johnnie Walker whisky – announced Monday it has agreed to become, indirectly, the largest single shareholder in the liquor brand Shui Jing Fang.

In the complex deal, Diageo will pay about $21 million to lift its stake to 53% from 49% in Sichuan Chengdu Quanxing Group, a holding company that owns about 40% in Shanghai-listed Sichuan Swellfun Co., which makes Shui Jing Fang.

Diageo said it will gain greater influence in China’s large market for baijiu, a white spirit that Diageo said accounts for about half the nation’s alcoholic-beverage consumption by volume.

Shui Jing Fang is the fourth-largest producer of premium baiju in China, with reported net sales of about $171 million in 2008.

A statement published by Swellfun, also know as Sichuan Shui Jing Fang Co., said the transaction reflects “wishes to further strengthen the cooperation between the joint venture partners in the Chinese white spirits industry.”

Completion of the deal is subject to approval by several Chinese agencies.  The Commerce Ministry didn’t respond to questions Tuesday.

China has permitted foreign ownership in a number of famous brands – Asahi Breweries Ltd and Anheuser-Busch InBev NV each own minority shares in brewer Tsingtao Brewery Co., for instance.

But the government has taken a dim view of full foreign takeovers of big-name consumer brands.

A year ago, Chinese authorities cited antimonopoly concerns in rejecting a $2.4 billion bid by Coca-Cola Co to buy all of a major Chinese soft drinks maker, privately owned Huiyan Juice Group Co.

The rejection was widely seen by many lawyers and analysts as a protectionist measure designed to keep a valuable Chinese brand out of foreign hands, although Chinese officials denied that.

Wall Street Journal – Feb 2010

King Stone Energy Group, a chemical and optical products maker diversifying into coal mining, plans to grow its coal output capacity fivefold by developing existing mines and through acquisitions.

The company aims to spend 452.9 million yuan (US$ 66.4 million) to raise the capacity of its first mine near Ordos, Inner Mongolia Autonomous Region, to 6.5 million tonnes by the end of next year from 1.2 million tonnes now and four million tonnes by the year’s end.

Chief executive Wang Dayong yesterday said that the company was constructing a second mine next to the first one, with an initial capacity of 1.2 million tonnes.

The planned addition of a third mine, with a capacity of 1.2 million tonnes, would raise the company’s capacity to nine million tonnes by the end of 2012, he added.

King Stone is in talks with the local government to acquire mining rights for the third mine.

The company plans to make mine acquisitions this year and next year with a view to raising its coal output capacity to 20 million tonnes in the longer term.  ”Inner Mongolia will be our first target for acquisition, but given our management and advisers’ background, we will also look for opportunities in Shanxi and Shaanxi provinces,” Wang said.

Initially focussing on power station coal, King Stone will try and expand Shanxi Coking Coal Group, the mainland’s largest coking coal producer.

South China Morning Post – 2nd March 2010

More than 2,000 assembly line workers in Dongguan staged a three-day strike after state newspapers reported that authorities were considering raising the manufacturing heartland’s minimum wage amid a labour shortage.

Workers at Lacquer Craft Manufacturing in Daling Mountain town complained their Taiwanese employer had refused to pay them a reasonable wage even though nearby factories had raised workers’ base salaries by nearly 20 per cent.

Most workers walked out of the factory, but some were forced to stay after supervisors locked the door, the Guangzhou Daily reported yesterday.  A spokesman for the factory told the South China Morning Post yesterday afternoon that many workers had returned to work.

Dongguan is facing a severe labour shortage.  Although overseas orders have risen since the 2008 global financial crisis, many migrant workers dissatisfied with the low salaries and high cost of living planned to seek opportunities elsewhere after the Lunar New Year holiday.  Manufacturers are reportedly offering up to 600 yuan (US$ 88) to middlemen for each migrant worker they recruit.

But Lacquer Craft insisted that a pay rise would harm the industry, which it said had already been hit by rising production costs and paper thin margins.  ”No (manager) should make a concession at this stage…..otherwise, the domino effect of a pay rise would undermine other manufacturers,” a senior manager told the South Metropolis News.

Authorities blamed the strike on the newspaper reports, published a day earlier, which said the city proposed raising the monthly minimum wage from 770 yuan (US$ 115) to 1,000 yuan (US$ 150).

South China Morning Post – 2nd March 2010

Premier Wen Jiabao should be more upbeat than a year ago when he delivers China’s version of the state of the union address at the opening of the legislature’s annual session on Friday and then faces the media at its close.

Wen’s annual report to the nearly 3,000 national People’s Congress deputies will spell out this year’s broad economic, social and foreign policy goals.

He is expected to declare that China has become the first major economy to recover from the global economic downturn after withstanding its toughest test since the Asian financial crisis that began in 1997.  Last year the world’s third largest economy registered the world’s fastest growth, expanding by 8.7 per cent – and outpacing Wen’s 8 per cent target – as most countries slowly struggled along the road to recovery.

Despite concerns about the sustainabilty of the mainland recovery, louder voices hailed the country for overtaking the United States as the biggest car market, surpassing Germany as the No 1 exporter and potentially replacing Japan as the world’s second largest economy.

With the world dazed by banking and property collapses, China still has a purse full of money as the superlatives kept coming last year.  For the first time in history China has the richest banks in the world, the largest phone companies, the biggest internet population, the most nuclear power plants under construction and possibly the biggest middle class.

South China Morning Post – 2nd March 2010

A joint editorial in 13 mainland newspapers has called on the nation’s top legislative body to abolish the hukou system – strict population controls that have split the country into rural and urban areas for decades.

The editorial appeared in metropolitan newspapers from 11 provinces and areas yesterday on the eve of the annual meetings of the National People’s Congress beginning on Friday, and the Chinese People’s Political Consultative Conference, beginning tomorrow.

The papers include The Economic Observer in Beijing, the Chongqing Times, The Southern Metropolitan News in Guangdong, the Inner Mongolia Morning News, the Dahe Daily in Henan and the Southeast Express in Fujian.

The joint editorial said the hukou regulation was unconstitutional and a flagrant violation of human rights.

The hukou system was introduced in 1958 when the central government issued the first set of resident-registration regulations since the founding of the People’s Republic in 1949.  It put a lid on free migration flow, particularly from rural areas to cities.

But as the mainland has developed in recent decades, concerns have been expressed that the system may be doing more harm than good with the divide between the urban and rural populations growing into a chasm.

The editorial said the hukou system had led to unfair competition between urban and rural people and was a breeding ground for the corrupt sale of urban residence permits.

South China Morning Post – 2nd March

PLA officer urges Beijing to topple US as global champion, despite hopes of peaceful rise

China should build the world’s strongest military and move swiftly to topple the US as the global “champion”, a senior officer says in a new book reflecting swelling nationalist ambitions.

The call for China to ambandon modesty about it’s global goals and “sprint to become world No. 1″ comes from Senior Colonel Liu Mingfu of the People’s Liberation Army (PLA), who also warns that his nation’s ascent will alarm Washington, risking war despite Beijing’s hopes for a “peaceful rise”.

Colonel Liu writes in his Chinese-language book, the China Dreams: “If China in the 21st Century cannot become world No. 1, cannot become the top power, then inevitably it will become a straggler that is cast aside.

His 303-page just published bookstands out for its boldness even amid a recent chorus of Strident Chinese voices demanding a hard shove back against the United States over trade, Tibet, human rights as well as arms sales to Taiwan, the self-ruled island that Beijing claims as its own.

“As long as China seeks to rise to become world No. 1… then even if China is more capitalist than the US, the US will still be determined to contain it,” writes the professor at the elite National Defence University, which trains rising officers.

Rivalry between the two powers is a “competition to be the leading country, a conflict over who rises… to dominate the world”, writes Col Liu.  “To save itself, to save the world, China must prepare to become the (world’s) helmsman.

The China Dream, however, does not represent government policy, which has been far less strident about the nation’s goals.  Even in the military, it represents only the hawkish camp.

Straits Times – 2nd March

Both China and the United States need to work hard together to ease mounting trade tension to prevent an ‘unpeaceful year’ for bilateral economic ties, Chinese Premier Wen Jiabao said yesterday.

He is the most senior Chinese leader to have commented on the issue.

“We believe that trade frictions between the two countries should be solved through negotiations conducted with equality, not through sanctions,” said Mr Wen, in a wide-ranging online chat with Chinese netizens, in which he also pledged to tamp down inflationary pressure and surging property prices in China.

In recent months, Beijing and Washington have been locked in a series of tit-for-tat moves slapping tariffs on each other’s products making trade a key irritant in tense bilateral ties.

Last week US senators called on Washington to hit Chinese exporters with more levies to compensate for the unfair advantage they get from an undervalued yuan.

Avoiding the prickly topic of yuan revaluation, Mr Wen reiterated Beijing’s oft-made call for the US to ease restrictions on exports of technology products as a way to narrow China’s trade surplus.

Recalling a joke he made in a speech while on a US visit, he said: “I told them, ‘The US exports two things to us: soya beans and aeroplanes…but you can’t keep having Chinese eat soya beans on aeroplanes’.”

Mr Wen’s two-hour chat with netizens – webcast live on the government’s www.giv.cn and the state news agency Xinhua’s www.xinhuanet.com – comes just days before the annual session of China’s Parliament, the National People’s Congress.

Sunday Times – Feb 28th

With his wire-rim glasses and sombre suits, Mr Zhu Min looks more like a low key academic than a hot-shot banker who has just been admitted into the inner circle of the International Monetary Fund (IMF).

In fact, a common reaction from those who meet the private unassuming Mr Zhu for the first time is: “He doesn’t look like the deputy govenor of China’s central bank at all,” according to the Oriental Morning Post, a newspaper in Shanghai, where Mr Zhu was born in 1953.

Growing up during the Cultural Revolution (1966-1976), he had to forgo his studies for a few years to work as a truck driver and mover at a sugar factory.  He enrolled in Fudan University in 1982 to study finance.  He continued a brilliant academic career at Princeton University  and later at John Hopkins University in the United States where he received a doctorate in macro-economy and international finance.

After working from 1990 to 1996 at the World Bank, he decided to return to China.  “I needed my motherland,” he once told a Shanghai TV station in an interview.

He joined Bank of China in 1996 and has now capped his career with a new appointment as a “special adviser” to the IMF – a position some say may catapult him to the No.1 or No.2 post at the Fund next year.

Mr Zhu has been lauded as “a man worth listening to” by the Britsh paper the Guardian for being a lone voice of reason at the World Economic Conference in Davos, warning about the risks of massive asset bubbles in 2007, a year before the global credit crisis errupted.

While speaking on his pet topic of international finance at a major forum in 2007, he was reminded by the moderator that his time for speaking was up.  His answer in Mandarin raised chuckles from the audience: “This is an important topic to me, please allow me to be romantic and wax lyrical for a while more!”

Mr Zhu is also a doting father, who reportedly exchanges e-mail or telephone calls at least once a day with his only daughter who is studying in Princeton University.

Sunday Times – Feb 28th

As China’s current account surplus cooled last year, did its ardour for US Treasurys?

That is the headline story from the latest data on foreign ownership of US Government debt.  Mainland China’s holding fell to $755.4 billion at the end of December from a peak of $801.5 billion last May.  The country also shifted into longer-dated Treasurys.  Japan is, on paper, again the largest foreign holder of US government debt.

Behind those bare facts, however, the picture gets murkier.  in fact, it isn’t clear that China is shifting out of Treasurys at all, while firm conclusions over its preference for short or long term US debt are hard to reach.

How so?  The key is to look at US Treasury holdings in the UK and Hong Kong.  Both have at least doubled in the past year.  At the end of December, the UK holdings totalled $302.5 billion, and Hong Kong’s were $152.9 billion.  In the Treasury International Capital data analysts suspect a large portion of the holdings from those places – perhaps as much as half – in fact originate in China.  The problem arises because Treasurys are often held on behalf of clients in financial centres like Hong Kong or London.  For the data compliers it is hard to unearth the ultimate owners of the debt.

Wall Street Journal – 18 Feb 2010

When Mei Saichun hosts visitors to his handset factory, he has a surprise for them. After a tour of the decidely low-tech assembly lines, the general manager of Shenzhen Xinghuabao Electronics returns to his office and opens a door behind his desk. On the other side is a cleanroom where workers in white protective clothing are assembling handset displays behind windows and airlocks. The high-tec lab, which opened only in December, highlights a strategy shift. After years of competing on price only, Xinghuabao is trying to move upmarket. “We are legitimate set makers now. We are building our own brand,” says Jin Hongxiang, president of SOP, Xinghuabao’s parent company. “We are expanding upstream to have more control over the quality of our components.” The company’s move is part of a broader trend. As Shenzhen’s “bandit” handset makers have started flooding the global market, they are meeting increasing regulatory and cost issues that are forcing them to adapt. Financial Times – 17 Feb 2010

A consortium including China Unicom yesterday bid $2.5 bn for a majority stake in Nitel, Nigeria’s former state telecoms monopoly, in what would be one of the largest privatisations in Africa and rank among China’s biggest investments on the continent.

Officials in one of the world’s fastest-growing telecoms markets said the consortium, which also comprises Minerva of Dubai and GiCell, understood to be a small Nigerian telecom, has 10 days to pay 30 percent of the fee and a further 50 days to secure a 75 per cent holding in Nitel.

Financial Times – 17 Feb 2010