By Raymond Zhou
If you are one of China's business leaders or an executive in one of the "hot" sectors, what would keep you from a sound sleep at night? How much would you be worried about the economic overheating? Would the bubble, if there is one, burst, and how would it affect your company?
Some of Hong Kong's movers and shakers in the academic and business communities share their insight with China Daily on these topics, citing their own knowledge and experience.
Edward Chen, president and chair professor of economics at Lingnan University of Hong Kong, is so optimistic that he feels most people in the West have been "misreading China." He brushes off the notion of "soft landing," "hard landing" or "crash landing" as irrelevant.
"The economy is going to cruise quite nicely," says the professor.
To back up his argument, he compares the current situation with that of the early 1990s. At that time, inflation was running at a 15 to 20 per cent clip, while now the April number, which is a seven-year high, was a mere 3.8 per cent.
Fluctuation is another sign that Professor Chen scrutinizes.
In the early 1990s, the growth rate was running anywhere from 4 to 14 per cent, but if you look back at the past several years it has been quite consistent at about 8 to 9 per cent, which is the average rate for the past two decades.
This, according to Chen, proves that there is no cyclical movement in the economy.
He offers his analysis about the currency: during the Asian financial crisis, people expected the RMB to devalue, wondering how it could sustain its exchange rate when currencies of neighbouring countries were sliding at alarming rates.
Now the pressure is on the RMB to revalue upwards. But Chen does not see a revaluation of the yuan any time soon.
The reason, as he points out, is in trade balance.
True, China has a US$40-50 billion trade surplus with the US, but overall, China is running a trade deficit, especially with other Asian countries. The money China is making from selling to the US is also being spent on buying from its neighbours. In terms of bilateral trade, there is a lot of imbalance, but from a multilateral perspective it is quite balanced.
The US has a policy of supporting each ASEAN economy, says Chen, "and it is still doing that by recycling money through China."
The more fundamental reason, argues Professor Chen, is the discrepancy in the national saving rate.
"Americans save almost nothing, but Chinese have a rate of 30-40 per cent, similar to that of Japan in the 1970s." Unless that changes, he does not see any real pressure on the currency.
Professor Chen further tackles the spectre of inflation by getting down to the components of the consumer price index.
Much of the recent price rise, he says, comes from food. If you take away food and energy, inflation has a barely noticeable upward tick of 0.5 per cent, but grain has risen a whopping 40 per cent, and the wholesale price in April rose 10 per cent across the board. Commodities like energy, copper and timber have seen the sharpest upsurge.
Government measures to cool down some of the torrid sectors have been working, says Wilfred Wong, vice chairman of Shui On Holdings Ltd.
With steel going up 40 per cent in price, some of his contractors for his mainland projects simply quit unless their contracts were renegotiated to take into account the price hike. But lately, with prices easing, they have been offering reimbursement for overcharges.
Wong, whose company invests in the Shanghai property market, has seen sharp rises in that city. But he has noticed that last year what was built was all sold, signifying an equilibrium in supply and demand.
"I feel a 10 to 15 per cent growth rate is healthy and sustainable for Shanghai," he concludes.
Edward Chen says that he does not see any hidden danger in the economy or any cyclical problems, but acknowledges that there are long-term problems, which are mostly shortages in natural resources.
"All the increases in the world production of aluminium have been 100 per cent absorbed by China," he says. "China is the world's fifth largest oil producer, yet it is far from being self-sufficient."
China's demand on the world commodity market will only increase, he says, paraphrasing the saying: "When China sneezes, the whole world will not just catch a cold, but will catch SARS."
Michael Hoer, managing director of Asian Industries Division, Conti Group Companies, pinpoints the rural economy as where the threat lies. The problem is, the rural economy is not as hot as the urban economy because of the reduction of arable land.
He cites the example of a golf course in Beijing. "Beijing has 30-plus courses, but only one is said to have all the required permits for construction. The one I visited recently was submitted as an environmental greening project."
Hoer does not see much problem with government policy, but rather, it is implementation on a local level that worries him.
"Local officials tend to do things on their own," he says.
Colin Tam, chairman and CEO of Meiya Power, agrees that agriculture is the No 1 issue facing China, but "energy is a close second."
With prices going sky high across the board, from gas to coal, the ripple effect is going to be far and wide.
For example, telecommunications does not seem to be an energy-dependent industry.
"China has just reached a milestone in the number of cellphone subscribers. It now has 296 million, surpassing the total population of the US. But that is only a 20 per cent penetration rate. However, with power down, none of our equipment can function," says William Lo, executive director and vice-president of China Unicom.
Speaking of government policy, Stephen Wong, president of Greater China Gas Marketing, ExxonMobile Energy, touches on the strategic reserves of oil.
"Given the significantly increasing demand, what policy will the government set? It will certainly affect every aspect of the industry, from exploration upstream to widening brownouts."
It is generally agreed that China should build up its infrastructure, especially the energy sector.