CHINA FACES OBSTACLES IN BID TO REBALANCE ITS ECONOMY

[To cope with the global downturn in 2008, the central government pumped $586 billion of stimulus money into the economy and loosened lending by state banks. Companies set up by local governments borrowed heavily. Victor Shih, a Northwestern University professor, said that based on official figures released this summer, total local government debt across China is $2.4 trillion to $3.1 trillion. The upper estimate is equal to half of China’s G.D.P. in 2010. Interest payments on the debt amount to more than $150 billion per year.]

By Edward Wong

CHENGDU, China — A casual glance out the window is all it takes to witness the blistering growth that has become the signature feature of this provincial capital and of other cities in the vast Chinese interior. A phalanx of half-finished office and apartment towers flanked by yellow cranes rises above the brown waters of the Jinjiang River.

China has vowed repeatedly, most recently during the just-concluded visit by Vice President Joseph R. Biden Jr., who met in this city with Vice President Xi Jinping, to overhaul its state-directed growth model and empower its consumers to spend more on their own, something that would make its economy more sustainable and help the sluggish world economy as well. But leaders in Beijing and places like Chengdu are finding it difficult to steer China away from growth that relies largely on infrastructure projects, construction and export manufacturing, economists and financial analysts say.

“China’s leaders are committed to altering their country’s macroeconomic landscape,” Evan A. Feigenbaum, a China analyst at Eurasia Group, a global consulting firm, said in a statement attached to a report released Aug. 17. “But the country’s political economy will not change as fundamentally as many in China and abroad hope. And the next decade is likely to be more fraught than conventional wisdom suspects.”

China has incentives to change its model: its economic policies contribute to wasted resources, vast social inequality and a soaring inflation, which leaders fear will fuel social instability. The consumer price index went up 6.4 percent year-on-year in June, the biggest jump in three years. The 12th Five-Year Plan, a blueprint for development from 2011-15, gives an outline for better distributing economic growth across the country, and thus giving households more spending power.

Yao Yang, an economist at Peking University, said Chinese leaders knew that the domestic economy put too much money in the hands of corporations and the government. They agree that they have to increase social welfare to encourage domestic consumption and dampen mass discontent.

But there are obstacles that limit the ability of leaders to shift direction. For one thing, China continues to empower its large state-owned enterprises at the expense of private entrepreneurs, which results in market inefficiencies on where and how capital should be allocated, analysts say. Those large enterprises have enormous influence on policy makers. State banks also tend to favor government-backed projects, which are often capital-intensive endeavors like infrastructure building.

At the provincial and lower levels, one reason officials support capital-intensive projects arises from the way such officials are measured by the central government in annual reports. The rate of local G.D.P. growth is a top criterion by which the officials are judged. Their careers depend on it, and capital-intensive projects give short-term lifts to growth numbers. Another reason officials promote such projects is corruption: it is relatively easy to take bribes or skim money from large state investment projects.

To cope with the global downturn in 2008, the central government pumped $586 billion of stimulus money into the economy and loosened lending by state banks. Companies set up by local governments borrowed heavily. Victor Shih, a Northwestern University professor, said that based on official figures released this summer, total local government debt across China is $2.4 trillion to $3.1 trillion. The upper estimate is equal to half of China’s G.D.P. in 2010. Interest payments on the debt amount to more than $150 billion per year.

“Right now, the banks are encouraged to ‘restructure’ all of this debt such that little of it will become nonperforming loans,” Mr. Shih said in an e-mail. “However, there might be a problem if inflation is high or if deposits continue to leave the banks’ balance sheets.”

In the first half of 2011, even Chengdu, whose 15 million residents have a reputation as laid-back, tea-drinking, spicy-food-loving sybarites, had an impressive 15.1 percent real growth rate that was significantly higher than the national average, according to an official report. Such rapid growth in an interior city can help with economic rebalancing. It redistributes wealth and shifts consumer spending away from the much wealthier coast. But it raises questions about the local economic model.

Critics point to Wuhan, whose growth rate matches that of Chengdu, and the piles of debt it has accumulated through investment in fixed assets like factories, roads and bridges. State banks have been lending liberally to companies created by local officials that make these investments. This kind of lending does not show up on Wuhan’s balance sheets.

“Investment is growing too fast and too strong, and that leads to a deterioration in the quality and efficiency of the investments,” said Bai Chong-en, vice dean of the School of Economics and Management at Tsinghua University in Beijing. “It will be very difficult to improve both of them in the short term.”

On the issue of exports, Mr. Biden and other American officials have been pressing China to let its currency, the renminbi, appreciate so that Chinese goods do not have an unfair advantage in the global marketplace. The renminbi has risen 7 percent since June 2010, which American officials say is not enough, though there are conflicting reports by Western economists on whether greater appreciation would have any real benefit for American industries. The currency has been appreciating at a slightly faster rate recently, perhaps partly because raising the value of the renminbi makes imported goods less expensive in China, and that helps tamp down inflation.

Mr. Yao, of Peking University, also said the aging of China’s 1.3 billion people, and the dwindling of its pool of young, cheap labor, “naturally means more domestic consumption and less exports, therefore going towards a more balanced economy.”

The debate over rebalancing China’s economy comes at a particularly tense time in the nation’s political life, so there is little political will to push ahead with economic reforms, analysts say. A leadership transition is expected to take place in late 2012, and jockeying is under way for positions in the Politburo and its elite Standing Committee. So senior officials will gravitate toward maintaining the status quo and supporting conservative policies.

Even though Mr. Xi is almost certain to get the top leadership job, he may forfeit his chance if he makes a severe misstep.

Moreover, powerful and wealthy interest groups like state-owned enterprises will work to prevent redistribution of capital and assets, analysts say.

The authors of the Eurasia Group report wrote that although Beijing would meet some of its goals, “ultimately, the country’s leaders lack the political stomach and sense of the moment to implement a comprehensive and ambitious rebalancing agenda.”

Li Bibo contributed research from Beijing.

@ The New York Times

ZOO MYSTERY: HOW DID APES AND BIRDS KNOW QUAKE WAS COMING?

[Orangutans, gorillas, flamingos and red-ruffed lemurs acted strangely before humans detected the historic magnitude-5.8 earthquake. Now the question hovering over the zoo is: What did the animals know, and when did they know it?]

By Joel Achenbach 

Her name is Iris, and with her straight, elegant, red-orange hair she is beyond dispute the prettiest orangutan at the National Zoo. She’s calm, quiet, unflappable. “Iris lives the life of a queen,” says great-ape keeper Amanda Bania.

On Tuesday afternoon, the queen lost her cool.

It happened a little before 2 p.m. Primate keeper K.C. Braesch was standing just a few feet away when Iris emitted a loud, guttural cry, known to scientists as belch-vocalizing. Iris then scrambled to the top of her enclosure.

Braesch stepped back and scanned the enclosure to see what might have agitated the ape. Was it Kiko, the male? Although generally a lump, Kiko can turn into a hothead and throw things. But no, Kiko was lounging.

Then — all this had happened within about five seconds — Braesch felt the earthquake.

“Animals seem to know,” she said Wednesday. “You always hear it anecdotally, but this is the first time I’ve seen it.”

Orangutans, gorillas, flamingos and red-ruffed lemurs acted strangely before humans detected the historic magnitude-5.8 earthquake. Now the question hovering over the zoo is: What did the animals know, and when did they know it?

Therein lies a scientific mystery, one in which hard facts and solid observations are entangled with lore and legend. There has been talk over the years about mysterious electromagnetic fields generated by rupturing faults. There has been speculation about sounds inaudible to humans, and subtle tilting in rock formations, and the release of vapors that people can’t smell.

But there also may be less to the mystery than meets the eye, with Tuesday’s zoo weirdness merely serving as a reminder that many wild animals are paying close attention to nature while humans are doing whatever it is that humans do.

The zoo documented a broad range of animal behavior before, during and after the tremor that began in central Virginia and shook much of the eastern United States. For example, a gorilla, Mandara, shrieked and grabbed her baby, Kibibi, racing to the top of a climbing structure just seconds before the ground began to shake dramatically. Two other apes — an orangutan, Kyle, and a gorilla, Kojo — already had dropped their food and skedaddled to higher turf.

The 64 flamingos seemed to sense the tumult a number of seconds in advance as well, clustering together in a nervous huddle before the quake hit. One of the zoo’s elephants made a low-pitched noise as if to communicate with two other elephants.

And red-ruffed lemurs emitted an alarm cry a full 15 minutes before the temblor, the zoo said.

During the quake, the zoo grounds were filled with howls and cries. The snakes, normally inert in the middle of the day, writhed and slithered. Beavers stood on their hind legs and then jumped into a pond. Murphy the Komodo dragon ran for cover. Lions resting outside suddenly stood up and stared at their building as the walls shook.

Damai, a Sumatran tiger, leaped as if startled but quickly settled down. Some animals remained agitated for the rest of the day, wouldn’t eat and didn’t go to sleep on their usual schedule.

“They’re more sensitive to the environment than we are,” said Brandie Smith, senior curator for mammals. “I’m not surprised at all that they’re able to intuit that these things are going on. That’s how they survive.”

Don Moore, associate director of animal care, said: “Elephants, we know from experimental studies, have an infrasonic ability. They can hear sounds underneath the level of sounds we can hear.”

The belief that strange animal behavior is a precursor to earthquakes goes back to antiquity. A recent scientific study suggested that toads fled to higher ground days before the 2009 earthquake in L’Aquila, Italy. In the most famous case of modern times, snakes and frogs emerged from their holes in 1975 in the dead of winter several weeks before a magnitude-7.3 earthquake in Haicheng, China (the odd animal behavior helped persuade officials to evacuate the city just before the tremor).

But scientists have struggled to convert anecdotal evidence into testable hypotheses and robust conclusions that can be published in peer-reviewed journals. Even the Haicheng case is squishy, because there were numerous foreshocks that may have rattled the snakes and inspired the public officials to take action.

Susan Hough, a U.S. Geological Survey seismologist who has researched earthquake predictions, said the simplest explanation for what happened at the zoo on Tuesday involves what scientists call the P wave.

An earthquake generates two types of seismic waves. The first is the relatively weak, fast-moving P wave, or primary wave. Then comes the more powerful S wave, or secondary wave, which lumbers along at a leisurely pace and heaves the ground up and down.

A back-of-the-envelope calculation by Hough suggests that the first P waves would have reached Washington about 15 seconds before the S waves. That may explain a lot: Iris and the other animals may have been responding to the P waves before humans noticed the ground shaking.

That leaves the mystery of the red-ruffed lemurs. They began hollering about 15 minutes — not seconds — before the earthquake. But that could be a coincidence, an outcry unrelated to the temblor. Hindsight can be misleading, as selective memory creates illusions of cause and effect.

All this remains an unresolved issue, and the possibility that animals are sensitive to terrestrial phenomena not discovered by humans can’t be ruled out.

As Hough put it, “There’s more going on in the Earth than we understand.”


@ The Washington Post