From Volume 38, Issue 21 of EIR Online, Published May 27, 2011

Global Economic News

China Opposes Another European at IMF Top

May 20 (EIRNS)—The IMF leadership is in quite some disarray following the resignation of its director, Dominique Strauss-Kahn, who faces criminal sexual assault charges in New York. China's central bank chief said yesterday that "the make-up of top management should better reflect changes in the global economic structure and better represent emerging markets." He said G20 nations had "already decided that IMF leaders and high-level management must be elected through an open, transparent, and meritorious process."

Chinese officials also reminded the trans-Atlantic bloc that the promise given at the G20 summit last November, to reform the Fund's 24-member board of governors, giving emerging economies such as China a bigger say, has not been acted on yet. Europe agreed to give up two seats, and Brazil, Russia, India, and China were to be among the top 10 IMF "shareholders," with China moving up to become the third-largest shareholder.

People's Daily said May 19 that the new IMF boss should be Chinese. "One of the key jobs of the IMF is to monitor trade and provide capital assistance, which the rising China is good at," the Daily wrote in an online comment piece. It pointed to several Chinese who had taken pole positions in global finance, including Zhu Min, a former deputy governor of China's central bank. "It will be a great sign of respect for a rising China and a symbolic step of optimizing the international financial order if the 24 executive directors who hold shares of the IMF can see this clearly and elect a Chinese president of the IMF," the People's Daily said.

Stable Chinese Currency 'Last Anchor' for Manufacturing Prices

May 20 (EIRNS)—Persistent demands from the likes of U.S. Treasury Secretary Tim Geithner and Federal Reserve chairman Ben Bernanke, that China significantly up-value its currency, the renminbi, shows again that their only policy is hyperinflation. As one economist, Homi Kharas, pointed out yesterday at a Brookings Institution forum on the U.S. and China, the controlled, relatively low valuation of the RMB is the "only anchor" left maintaining stable prices on manufactured goods in the world economy. Were the RMB to be sharply up-valued, a shock wave of inflation would run through the global economy.

At issue is far more than just Chinese-produced or -finished consumer goods. China, for example, produces close to 50% of the world's steel—almost as much by itself, as the entire rest of the world produces altogether. China is also the biggest steel exporter, especially to developing-sector nations.

The United States and China could have a far more productive economic relationship than they currently do, said Jin Liqun, president of the advisory board of China Investment Corp., which is charged with investing some of Chinas vast pool of forex reserves. Jin emphasized that the United States urgently needs investment in infrastructure, including to improve U.S. manufacturing capabilities, and CIC would very much like to invest in such projects. China is very interested in expanding imports from the U.S., reducing its overall trade surplus and huge amount of forex, now over US$3 trillion, Jin told the forum.

One good investment sector would be high-speed rail, Jin Liqun said. He reported about a discussion with a counterpart in India, in which the Indian official said, "These Chinese are ferociously efficient builders of infrastructure." However, Jin said, concerns among some Americans that China would send a labor force to build the rail lines are unfounded. "We Chinese did a lot to build your railroads over 100 years ago, but this time, well just supply the money," Jin said.

China Needs Nuclear, as It Faces Severe Power Shortage

May 16 (EIRNS)—Rising coal prices and the worst drought in 50 years are cutting Chinese electricity production sharply, as the country enters the Summer period, when there is usually a power shortage due to increased demand. The China Electricity Council announced at the end of April that there will be a power shortfall of about 30 million kwh this Summer, and the gap between energy generation and demand will expand.

China's State Electricity Grid announced that power supply systems in the central provinces of Hunan, Hubei, Henan, Jiangxi, and Shanxi are under pressure, while Guangdong and other southern provinces are being hit because the lack of rainfall is cutting hydropower production, Xinhua reported today. Coal-fired plants account for 75% of China's total installed power capacity and 82% of generating capacity. But, due to efforts to lower extremely bad pollution, investment in new coal plants fell from 200 billion yuan ($33 million) in 2006 to 130 billion yuan ($20 billion) in 2010. Despite huge investments in wind power, solar power and other new energy industries, these industries have contributed very little to the growth of the country's installed power capacity, Xinhua reported.

On top of this, high coal prices are causing existing plants to slow production. Coal prices are at a 36-month high, and inventories at the lowest levels in six months. The government regulates energy prices strictly, and producers are not allowed to pass on the high prices. China's five major thermal power plants lost more than 60 billion yuan over the past three years. This past winter, huge floods cut coal production in Queensland, Australia, a major supplier for China.

Severe drought is cutting hydropower, which produces about 15% of Chinas electricity. Xinhua reported that rivers in Jiangxi province are at the lowest level on record, and hydropower production could be down by as much as 20%. The Three Gorges Dam, the world's largest hydropower project, has had to release water downstream because the drought is affecting shipping on the Yangtse River; if the situation continues, this could affect power production at the dam.

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