By Arthur Kroeber

Is China turning into Russia? After last month’s arrest of the head of Rio Tinto’s iron ore business in China, reportedly on suspicion of spying, one could be forgiven for thinking so.

By Russia, we mean a country in which ordinary commercial negotiations are routinely subject to interference by state security forces, where foreign companies face constant risk of arbitrary abrogation of contracts and expropriation of assets, and business executives quite rationally fear for their liberty and occasionally their lives.

Fortunately, it appears that a lot of people within the Chinese government were asking exactly the same question, and desperately trying to convince their superiors that the correct answer ought to be “No.”

By Arthur Kroeber

“China’s spirit”, opined the People’s Daily in a recent editorial, is a “Great Wall” built to ward off global crisis.

In purple prose heralding China’s recent heroic successes, the editorial extols the Communist Party for leading China back from the global economic abyss after the country recorded 7.9 per cent growth in the second quarter of this year.

“This situation in China is in sharp contrast with Western developed nations, where the economic growth has kept sliding,” it concludes.

The nauseating tone of the editorial reminds us of a famous quotation by the Roman historian Livy, explaining why the Carthaginian commander Hannibal failed to destroy the Roman Empire.

“Capua was Hannibal’s Cannae,” Livy wrote. It is a judgment that China’s leadership (and smug editorial writers) would do well to heed today.

Dragonbeat is on a trip through the tea plantations of northern Hunan and will be off for two weeks, but will return with some thoughts on Tuesday August 11.

By Tom Miller

And lo, did Beijing wave its magic wand, and there was much rejoicing!

China’s economy grew 7.9 per cent faster in the second quarter of this year than it did during the same period last year. That means GDP expanded by 7.1 per cent in the first half and is now set to hit the government’s magic 8 per cent target for the year.

Beijing’s massive fiscal and monetary stimulus appears a roaring success. The combination of central government deficit spending and a tsunami of bank loans mean that the total amount of extra cash pumped into the economy above a business-as-usual scenario could be in the order of US$1,000bn this year alone.

But paying for stimulus projects is putting strain on local finances. Only around 30 per cent of the stimulus cash will come from central coffers, with the rest provided by local governments and companies, largely paid for by bank loans and bond issuances.

By Kam Wing Chan

Kam Wing Chan, professor of geography at the University of Washington, is an expert on Chinese population statistics and is a guest contributor to the Dragonbeat blog this week.

How big are Chinese cities? That depends on how you measure them.

Back in 2005, Time magazine proclaimed that Chongqing had become “the largest city not only in China but in the world”, with a population in excess of 30m.

But any Chinese citizen will tell you that Beijing and Shanghai, both with real urban populations below 15m, are larger than their supposed competitor in China’s southwest.

Common confusion over the true population size of Chongqing and other Chinese cities reflects the fact that China has highly complex and confusing urban and city statistical data.

By Tom Miller

Beijing and Shanghai are currently the only two Chinese cities that have unquestionable “megacity” status, with populations well in excess of 10m.

But over the next 15 years, 60 new cities with populations of 1.5m-5m are likely to sprout in China, including six new cities – Tianjin, Guangzhou, Shenzhen, Chongqing, Chengdu and Wuhan – with real urban populations exceeding 10m.

Managing this vast migration in a sustainable manner will require more than steel and cement: creating patterns of urban growth that use resources efficiently and avoid irreversible urban sprawl will determine whether the country’s cities become livable economic centres or urban dystopias fugged up with exhaust fumes.

Most important, creating a viable social welfare system may determine whether these mega-cities are paved with gold or strewn with beggars.

By Tom Miller and Will Freeman

Beijingers call the hot and sticky months of July and August the “sauna” season. On muggy summer evenings, sensible locals sweat it out in the capital’s old lanes with sticks of fatty lamb kebabs and cold bottles of Yanjing beer.

But real men roll up their T-shirts under their armpits, ditch the pansy lager, and instead glug down the local firewater known as baijiu – a potent mash of sorghum, rice, unhusked barley and other grains.

For foreign businessmen forced to drink the stuff at countless banquets, baijiu provides an infamous challenge for the unconditioned palate. But this white spirit – generally 40-60 per cent alcohol by volume, but sometimes 70 per cent plus – is a mainstay of Chinese culture, first popularised during the Xia dynasty 4,000 years ago.

Baijiu, the world’s largest spirits category by volume, traditionally dominated the domestic booze market. But in recent years, sales volumes of China’s national liquor declined as beer, a foreign upstart, gulped up market share.

Now baijiu makers are fighting back with a proliferation of new luxury varieties designed to appeal to the country’s growing band of big spenders. Revenues are shooting up at major distilleries and baijiu is giving beer a run for its money.

By Arthur Kroeber

Since 2006, financial reforms in China have been stuck in a rut. But for a number of reasons – most simply because Beijing now has little choice – we are now convinced that financial reform is going to be a far bigger part of the China story over the next three years.

The basic reason for this belief is not the intentions of regulators but brute economic reality.

By Arthur Kroeber

We had the somewhat qualified pleasure last week of attending the spring meeting of the International Institute of Finance — the assemblage of the great and the good of the world banking industry— which this year was held in Beijing.

Although as usual for such events there was a certain amount of high-level pabulum, two clear messages emerged from the cogent presentations by Chinese speakers.

By Tom Miller

When the global financial crisis began to batter China’s exports, some Chinese officials saw it as a useful opportunity to dispense a large dose of bitter, but necessary, medicine.

Wang Yang, the Communist Party boss of Guangdong province and a confidant of China’s president Hu Jintao, clearly relished the chance to fulfill the province’s long-held ambition to replace low-end manufacturing with something bigger, more advanced and more “modern”.

“Without the current serious economic situation, it would be much more difficult for Guangdong to accomplish economic restructuring,” Mr Wang informed the local press.

Mr Wang called the plan to dump labour-intensive manufacturers and replace them with higher-value heavy industry and services “emptying the bird cage for new birds to settle down”. It sounded like a fine idea – so long as the new birds were ready.

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