China Politics Stall Overhaul for Economy – New York Times 09-26-12

Salient to Investors:

Ho-Fung Hung at Johns Hopkins University said the central government appears to be paralyzed and the situation is looking increasingly dire.

Direct foreign investment has fallen for 9 months out of the past 10, and industrial output is rising at the slowest rate in three years. FedEx warned that China’s faltering exports point to a weakening global economy in the coming year.

China’s political system has increasingly operated through consensus involving men who negotiate in secrecy, dimming the prospect of significant political or economic change.

Zhao Xijun at Renmin University said implementation faces many constraints.

Analysts say Prime Minister Jiabao lacks the political capital to undertake a more ambitious overhaul of the economy, particularly anything undercutting the favored position of state monopolies.

China’s growth is still robust enough to prevent unemployment from rising significantly, but unrest is increasing.

Alistair Thornton at IHS Global Insight said the system is so opaque and the new guys so unknown that no one really knows what to expect.

Li Zuojun said that when the bubble bursts, it would be good for the new leadership because they could blame their predecessors.

China has a budget surplus of $158 billion.

Mao Yushi  said local governments are using the people’s money for investment, but when they can’t repay the banks, the financial system will snap.

Liao Jinzhong at Hunan University said that given that the whole system is oriented toward bolstering the careers of officialdom, he doesn’t see things changing any time soon.

Read the full article at http://www.nytimes.com/2012/09/27/world/asia/chinas-politics-hinder-effort-to-shore-up-economy.html?nl=todaysheadlines&emc=edit_th_20120927