CHINA'S ECONOMY ON KNIFE'S EDGE (fwd)

[Robert Weissman <rob@essential.org>]

The Vancouver Sun  				Thursday, November 5,1998

CHINA'S ECONOMY ON KNIFE'S EDGE

	Jonathan Manthorpe

	There are about 100 million people unemployed 
	in China and all over the country there are daily 
	incidents of confrontation with the authorities, 
	many of which turn violent.

HONG KONG — When Premier Glen Clark toured the cavernous wonders of the
Guangzhou trade fair, which brings a much needed $30 billion Cdn a year
into China's dusty coffers, an increasingly common drama was being staged
on the streets outside.
	For years city officials have been shaking down cab drivers during the
twice yearly trade fair by demanding an extra "licence" for them to serve
the tens of thousands who flood in from all over the world.
	It's a fairly ordinary piece of official corruption the likes of which
most of China's 1.2 billion people have to confront in their daily lives.
	But this year the taxi drivers rebelled against the protection racket.
They organized and told the city fathers they would strike unless the
corrupt practice was ended.
	The prospects of a walkout disrupting the fair was nothing short of
calamitous for city officials and, indeed, the government in the capital,
Beijing.
	This is the world's largest trade fair and China's premier industrial
showcase which brings sellers from all over the country hawking everything
from high tech gizmos to the plastic Mounties on sale at almost every
Canadian tourist spot.
	Chaos at the Guangzhou trade fair would have had a knock on effect for
industry all over China at a time when the country needs every dollar it
can get.
	City officials gulped and backed down. The cab drivers were spared having
to give the bureaucrats their cut this year.
	The strike that didn't happen well illustrates the knife edge on which the
Chinese economy appears to be balancing with increasing uncertainty.
	Many strikes are happening daily as employees complain about not being
paid. In Beijing last week there was the unusual sight of hundreds of
people demonstrating in the streets after being sacked.
	There have been a number of reports of outraged citizens taking to the
streets after being cheated out of their savings in pyramid selling
schemes. Marches against official corruption are common.
	There are about 100 million people unemployed in China and all over the
country there are daily incidents of confrontation with the authorities,
many of which turn violent.
	At the moment the level of unrest is containable, but China is going to be
hard pressed this year to achieve the eight per cent growth in the economy
which Beijing says is necessary to keep the unemployment rate at the
current level.
	Beijing's confidence that it can keep the economy at an acceptable level
of growth must have suffered in the last few weeks after a spat of bad news.
	Until now the country seemed to have avoided infection by the Asian
regional economic firestorm sparked by the devaluation of Thailand's
currency, the baht, on July 2 last year. That now appears less certain.
	The experience of one of the businessmen in Clark's trade mission was
illuminating.
	Dennis Wong, president of Polynova Industries in Richmond, has for years
bought from Chinese suppliers the raw materials for his packaging
manufacturing business.
	Wong said his suppliers are now offering him discounts of about five per
cent of existing contracts to discourage him from shopping around elsewhere
in Asia where currency devaluations have made the products cheaper than in
China.
	In effect, Chinese businesses are devaluing their currency to keep business.
	Devaluation to save jobs remains the big question facing the central
government. Premier Zhu Rongji, formerly the country's chief economic
planner, has promised there will be no devaluation of the Chinese yuan this
year.
	But the New Year is only just over 60 days away and the sentiment among
businesspeople here in Hong Kong is that it may be a close run thing.
	A major crack appeared in China's immune system on Oct. 6 when one of the
premier investment institutions, the Guangdong International Trade and
Investment Corp. (GITIC), folded unable to meet its repayment commitments
on some $3.7 billion in foreign debt.
	The southern province of Guangdong bordering Hong Kong has been the
starter turbine of China's soar away economic development since the former
paramount leader, Deng Xiaoping, scrapped centrally planned Marxist
economics more than 20 years ago.
	In that two decades Guangdong has achieved average annual growth rates of
24 per cent. But provincial governor Lu Ruihua told premier Clark last week
this year's target is 20 per cent.
	The GITIC experience suggests this may be optimistic.
	Certainly the American credit rating agency Moody's Investors Service
seems to think so. Last week it cut the credit rating of five other
regional investment corporations, the so called "Itics," in Fujian,
Shandong, Shanghai, Shenzben and Tianji.
	Moody's also placed on watch the grand national Itic, the China
International Trust and Investment Corp.
	The view in Hong Kong is the collapse of GITIC will shatter foreign
confidence in the financial strength of these fund raising arms of the
various mainland jurisdictions and even in Hong Kong based state owned
listed companies.
	Adding to the gloom last week China's State Administration of Foreign
Exchange announced that foreign debt jumped sharply in the first six months
of this year. The official figures show the debt rising year on year by
16.3 per cent to $213.35 billion.
	That would be worrying enough, but it is generally believed there is a
hidden lake of unregistered foreign debt which has been notched up by
Chinese companies and institutions.
	"Not even the government has any due as to the amount of unregistered
foreign debts, let alone outsiders," said Liao Qun, senior economist with
Standard Chartered Bank. Those debts could range from $30 billion and $50
billion he said.
	The situation worries Premier Zhu. In a visit to the coastal city of
Beihai during a tour of Guangdong and Guangxi provinces 10 days ago he
warned officials that the central government has no obligation to meet
unregistered foreign debts.
	A Hong Kong publication which watches bank activities, Basis Point, says
it has noticed a trend in the way foreign banks are lending into China.
	No longer are they happy to put up money for major infrastructure
projects, such as the power projects the country desperately needs to
maintain growth, because of the difficulty of seizing and liquidating
assets if things go sour.
	Instead the banks are looking for safe loans in their China business,
things such as aircraft and ships which can be easily repossessed.
	A surer sense of how the markets feel about China may come on Friday.
That's when Credit Suisse First Boston is going to offer a $300 million
fund raising loan for the shipping giant, China Ocean Shipping Group Co.
	How eagerly the offer is taken up will be a reasonable indicator of how
banks feel about lending into China in the wake of the GITIC collapse.