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has once again done an excellent job in pointing out the many problems that currently impact the Chinese mainland. While I hesitate to make comments in unchartered, international waters, the poor quality of many different types of Chinese goods is something that has impacted me, all of my businesses, and the businesses of my many peers.

Clearly, it is high time to apply the same quality, American standards to China's home grown electronic, computer and consumer products. These standards should be met by the producers and industrialists who maintain plants in China.

The article “A Lot To Be Angry About” graphically depicts the political, environmental, and economic impact of major pollution throughout China. The fact that China is unable to deal with it's pollution problems is one of the many problems resulting from it's “hodge-podge” of Communist/Imperialist/Capitalistic tendencies. It is a mixed metaphor that leads to spotty government oversight of any sort.

In “Economic Focus - An Aberrant Abacus,” THE ECONOMIST is taking China to task for its untrustworthy economic numbers. Investors beware! If you plan to invest in any Chinese companies, be sure to read this article first. You will be in for a surprise.

What’s an American consumer to do:

· Tread carefully before you buy any Chinese products. Investigate the quality of any consumer product produced in China.

· Ask your investment adviser why he is putting you into the latest Chinese investment in view of the reporting issues described in the enclosed article.

· Invest in American companies and buy American consumer products in order to assist the United States out of this recession. --Ed Klein


THE plain-clothes police are always there, watching Xu Jiehua. When she goes out, two of them follow by motorcycle. Sometimes an unmarked car joins them, tailing her closely on the narrow road winding past the factories and wheat fields around her village.

Ms Xu is used to the attention. Her husband, Wu Lihong, was arrested in April last year and sentenced four months later to three years in prison for fraud and blackmail. For her, the police harassment is proof that the charges were false, and that Mr Wu's only crime was to anger local officials with his tireless campaigning against pollution around nearby Tai Lake, China's third-biggest freshwater body. It is also a warning that she too should keep quiet.

Last year nature appeared to vindicate Mr Wu. Soon after his arrest, the lake was choked by toxic algae fed by the phosphates from the human and industrial waste that had been poured into the water and its tributaries. For more than a week, the stinking growth disrupted the water supply of 2m people living on its shores. It was one of China's biggest environmental scandals since the Communist Party came to power. In Wuxi, the city closest to Mr Wu's home in Fenshui village, residents queued to buy bottled water. The Yangzi River was diverted to flush the algae out.

Amid an internet-fuelled uproar, officials promised to close down polluting factories and clean up an area once legendary for its beauty. But in late March blue-green blooms were again found along the southern shore. Such growths are rare so early in the year. Officials admit that despite their clean-up efforts the water remains at the lowest grade in China's water-quality scale, unfit for human contact, and that another “big bloom” is possible this year.

A repeat of the algae catastrophe on Tai Lake would be a huge embarrassment to both local officials and the central government. As they look nervously at protests around the country fuelled by an upsurge of anti-Western nationalism, the authorities are ever mindful that the anger could readily turn upon them too. Nationalist fervour may be helping to divert public attention away from the party's mishandling of Tibet—a remote problem in the minds of many Chinese. But it will do little to pacify citizens angered by official corruption, incompetence and negligence.

There are many such people. Officials rarely give figures, but they have said that the number of “mass incidents”—an ill-defined term—rose from 10,000 in 1994 to 74,000 in 2004. Suspiciously, the government reported a 22% decrease in the first nine months of 2006, but from a much lower base than previously announced figures had suggested. This may reflect underreporting by officials under pressure to show that their departments are achieving the goal of establishing a “harmonious society”, which the party has vowed to build by 2020.

The same internet and mobile-telephone technology that is helping China's angry young nationalists organise protests and boycotts is also helping other aggrieved citizens to unite. The past year has seen the first large-scale, middle-class protests in China over environmental issues: in the southern coastal city of Xiamen in June over the construction of a chemical factory, and in January this year in Shanghai over plans to extend a magnetic levitation train line.

For all the central government's green talk, a complex web of local interests sometimes linked with powerful figures in Beijing often frustrates efforts to deal with the problems that lead to such unrest. Wu Lihong's campaigning around Tai Lake threatened factories, the governments that depend on them for revenues and the jobs the factories provide. The anger of laid-off workers has long been one of officialdom's biggest worries. A factory where Ms Xu worked was among those Mr Wu helped force to stop production.

In 2002, after peasants blocked a road in protest over pollution in their fields, Mr Wu was jailed for 15 days for allegedly inciting them. He tried to launch an environmental NGO but officials turned down his request to register it (Wuxi already had one, they said, and that was enough). The police summoned him several times to warn him to cease his activities. But Mr Wu, ignoring his wife's remonstrations, persisted. He spent the family's savings on work such as gathering pollution data and lobbying the domestic and foreign press.

The official press—at least organs beyond the control of the local bureaucracy—reported on his efforts glowingly. His living-room is adorned with tributes: an award in 2005 from the central government naming him one of the year's ten “outstanding environmental-protection personalities”; a photograph of him receiving an honour for his environmental work in 2006 from the Ford Motor company.

But local officials were not impressed. One evening in April last year, when Mr Wu and his wife were watching television in their bedroom upstairs, police climbed up a ladder, through a window and took him away. They then smashed into his study and seized papers. Ms Xu still has the pile of cigarette stubs they left on the floor.

Mr Wu, who is 40, was found guilty in August of extorting money from an environmental-equipment manufacturer by threatening to inform the authorities that products supplied to a steel company were substandard. The court also ruled that he had cheated the company by claiming to represent the equipment-maker and seeking payment for the sale. The amount involved was 45,000 yuan ($5,940). Mr Wu denied the charges and told the court that his confession had been extracted by torture. Ms Xu says journalists were barred from the proceedings and no witnesses were produced for cross-examination.

A higher municipal court rejected Mr Wu's appeal last November. Last month Ms Xu submitted an appeal to a court in Nanjing, the capital of their province, Jiangsu. But she says she has no hope of success. The polluting companies her husband campaigned against remain open and the authorities have closed only unprofitable ones, she says. She shows visitors one alleged offender, a new lakeside resort complex. Since last year's disaster, the then Jiangsu party chief, Li Yuanchao, has been promoted to the ruling Politburo.

Ms Xu believes the national media have been quietly ordered to avoid mention of her husband. The police stopped an attempt by relatives to circulate a petition for his release (more than 100 people signed it before the police seized it, she says). Officials have warned Ms Xu not to talk to the press. A senior environmental-protection official said this month that the battle against Tai Lake's algae problem would be a protracted one. So too will efforts to silence whistle-blowers.

Copyright The Economist 2008


AS CHINA'S importance in the global economy increases, investors are paying more attention to its economic numbers. Yet the country's official statistics are notoriously ropy. Some commentators accuse China's government of overstating GDP growth for political reasons, others complain that the official inflation rate is fraudulently low. So which data can you trust?

One reason to be suspicious of GDP figures is that China is always one of the first countries to report them, usually only two weeks after the end of each quarter. Most developed economies take between four and six weeks to produce them.

Amazingly, most economists reckon that China has understated its growth in recent years. The country's National Bureau of Statistics (NBS) has recently revised China's GDP growth up by half a percentage point for both 2006 and 2007, to 11.6% and 11.9% respectively, thanks to stronger growth in services, which government statisticians find harder to count than industry. Yet even these revised numbers may be conservative.

Chinese provinces independently report GDP, and a weighted average of their figures consistently gives higher rates of output and growth than those reported by the central government (see chart). True, local officials have an incentive to inflate growth numbers because promotion depends upon economic performance; however, experience suggests that number crunchers in local government are more accurate than Beijing's. For instance, the figures first published for 2004 showed that the sum of the provincial GDPs was 19% bigger than the reported national figure. Lo and behold, in 2005, after a national economic census picked up more services, the NBS revised its GDP up by 17%; it also lifted the annual growth rate over the previous decade.

Stephen Green, an economist at Standard Chartered, calculates that in 2007 the combined output of the provinces was 10% more than that reported by Beijing. Their average growth rate of 13.1% was also still 1.2 percentage points higher than the revised national growth rate, although the gap has narrowed from almost three points in 2005. Perhaps, suggests Mr Green, central NBS folk have decided that they should trust their local counterparts more. But just as local officials have an incentive to inflate numbers, so Beijing has had reason recently to understate them: it wants to slow the red-hot economy. China's true GDP growth may therefore be higher still—which may appear to add to fears of overheating.

Distrust of GDP has led many China-watchers to track alternative monthly measures of growth. Jonathan Anderson at UBS uses one based on production (eg, industry, electricity and construction) and another based on expenditure (retail sales, fixed investment and net exports). Neither gauge shows the same sharp acceleration since 2004-05 as does GDP. One explanation is that the reported jump in GDP growth may be an attempt to correct previously understated growth figures; if so, this could ease overheating concerns.

The government also smoothes quarterly GDP growth; other less politically sensitive indicators, such as industrial production, are much more volatile. For instance, despite severe snow storms and weaker net exports, first-quarter GDP growth slowed by less than expected and by much less than did industrial production. The government may well have made the figures look stronger to avoid criticism of its tighter credit policy.

What does-and does not-add up

The right-hand chart ranks the reliability of other Chinese statistics, based on an analysis by Goldman Sachs. The closely watched figures for fixed-asset investment are among the least reliable. They include purchases of land, which only reflect changes in ownership, not an increase in capacity or value added. Rising land prices in recent years have therefore led to a big overstatement of the level and the growth of investment. In contrast, consumer spending is almost certainly much higher and growing faster than official figures suggest. Retail sales are often used as a proxy for private consumption, but they exclude services, the fastest-growing slice of households' budgets.

China's true inflation rate is probably higher than the consumer-price index (CPI) reports. One problem is that the CPI appears to be based on the prices of state-provided health, transport and education while ignoring their increasingly important private counterparts. Data for 36 cities collected by the National Development and Reform Commission show that inflation for medical care and education has been running at 5-10% since 2001, well above the 1-2% reported in the CPI. However, even if the official measure understates inflation, the changes in it may still be a fair gauge over time. Goldman Sachs therefore ranks it relatively high in terms of reliability.

Foreign trade is perhaps the most accurate economic indicator. Critics accuse China of fiddling its trade figures, because the value of its exports as measured by the importing country is always much bigger than what the Chinese report. This discrepancy reflects the fact that China's bilateral trade figures exclude goods shipped to Hong Kong before being re-exported. But this should not affect total export figures and detailed Hong Kong data are available to adjust bilateral trade flows.

The prize for the dodgiest figures goes to the labour market. The quarterly urban unemployment rate is meaningless because it excludes workers laid off by state-owned firms as well as large numbers of migrant workers, who normally live in urban areas but are not registered. Wage figures are also lousy. There has recently been much concern about the faster pace of increase in average urban earnings. But this series does not cover private firms, which are where most jobs have been created in recent years.

Now that China is such an engine of global growth, it urgently needs to improve its economic data. Only a madman would drive a juggernaut at full speed with a faulty speedometer, a cracked rear-view mirror and a misty windscreen.

Copyright The Economist 2008





By: Brian J. Markowitz
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By: Brian J. Markowitz
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