Current Event #4:Foxconn and Labor Laws

Foxconn's iPhone factories have recently been receiving a lot of attention based on working conditions.  Apple hired the Fair Labor Association to investigate the factories and there was an ABC documentary on factories and the working conditions there.  While many of the workers in these factories are living better lives than they would be without factory jobs and living in villages, the working conditions in China as a whole are still sub par.  

Because many people believe that the factories have poor working conditions, they argue that out sourced products should be sent to countries South Korea, Taiwan, or Japan which all have better enforced laws.  This is a faulty argument that would actually further hurt Chinese factory workers however.  It would be impossible to avoid importing tons of things from China, so instead of thinking of how to avoid supporting their poorly enforced labor laws, companies should try to change them.  Companies that outsource their labor would be in a position of power to force Chinese factories to improve working conditions to a satisfactory level.  

As information is more easily accessible, the preference for free trade and good working conditions are more important to consumers.   Often it would also be in keeping with brand images like Apple's image.  Increasing openness in the Chinese factories and their conditions would help to guarantee better working conditions which would help all parties involved from workers to consumers. 

http://www.economist.com/blogs/2012/02/foxconn-and-labour-laws

Current Event #3: China's Surplus is Shrinking

China has recently been condemned for its large trade surplus which is believed to be a result of it's currency being undervalued.  One calculation for the yuan by the International Monetary Fund (IMF) suggests that it is undervalued by about 23%.  While IMF has not given specific guidelines for what the norm of a country's currency should be, it is suggested to be about 2.9% of GDP.  Large account surpluses go hand in hand with cheap currency.  However in 2011, China's surplus shrank to 2.8% of GDP which is the smallest surplus relative to economic size since 2002.  

The future of China's surplus is in question.  Some predict that China's surplus could grow again if there is a recovery of export markets and prices for commodities fall.  Others believe that it may fall within1% next year and could be negative within two years.  Even with their economic imbalances seeming to straighten out China's economy is not totally stable.  The narrower surplus suggests that there has been more investment as opposed to consumption as a portion of the GDP which would be impossible to sustain in the long term so there could still be a large internal imbalance. 

This may prompt the Chinese government to rebalance the economy.  Private consumption has been increasing at a rate slower than the economy in general, but this also could be a result of improper calculations of figures by including things that are not typically counted in measurements.  Given the shear size of China's economy the balance and magnitude of growth and surpluses can have agreat impact.  Moving forward, this should be given extra attention.

http://www.economist.com/node/21547826

Current Event #2: China Objects to European Proposal to Limit Pollution from Airplanes

China recently objected to the European Union's proposed plan to reduce environmentally harmful emissions from airplanes.  Their plan went into effect for many countries on January 1st and requires all airlines flying into the EU to buy tradable carbon credits.  Many countries are not happy with this new policy, but this week China banned its airlines from participating without approval from the government.  This seems to be an escalation especially when EU officials are meeting in China next week, and there is a meeting scheduled for February 21st with 26 other countries who have not been in accordance with the new policy.  

Airplane emissions account for about 3% of the total pollution yearly, but their emissions have been rising.  The EU has stepped up to address the pollution where the International Civil Aviation Organization was meant to take steps in 2004.  In 2010, the ICAO it announced that it would begin a global framework to control pollution from airlines.  The EU seemed skeptical of the ICAO's actions and officially made efforts to control airline pollution a part of law. 

The only way to avoid it is by avoiding the EU or starting a comparable national initiative.   Countries that disagree with the EU actions believe that it applies to flight miles outside of the EU's jurisdiction and limits their sovereignty.  China believes that this initiative infringes on UN environmental and climate change agreements.  There is still time for negotiations however because billing would not occur until 2013 and even then it would be a minimal part of the total payment. the ICAO may end up making a solution which could ease global trade tensions.  

Beyond the environmental and global trade issues that this initiative brought up ground pollution from airplanes is also a big issue in developing countries.  Airplanes emit nitrous oxides and sulfur oxides which can combine with ammonia and other chemicals in dense factory settings like in China.  An estimated 3,000 to 8,000 people in China and India die early because of lung damaging fine particles that result from the combination of chemicals described above.  As air travel continues to grow, this problem will likely worsen. 

http://www.economist.com/node/21547283

Property Tax in China

Last year China imposed property taxes on large single-family homes, luxury flats, and second luxury apartments.  While property taxes are extremely common in other countries in the world, even the imposition of taxes on these select properties is rare.  Economists argue that expanding the use of property taxes could help alleviate problems with speculation in the housing market and debt troubles in local governments.  

In 2010 local government accounted for 80% of public spending but only collected 45% of the tax revenues which left a $600 billion gap.  To handle this gap, the central government provides much in handouts and charges land-use rights.  Charging for land use is an effective way to make money but causes divisions because urban land is state owned while rural land is collectively owned. This means that rural areas on the edges of urban areas can get removed because of the hazy definitions which leads to civil unrest.  In attempts to calm unrest, displaced rural villagers have been given better compensation but this will make it harder for local governments to repay debts.  Thus a new source of revenue must be found.

Current property taxes only cover the buying and selling of homes with little regard for the value of homes. The Chinese government suggested adding a full property tax as early as 2003, but logistical issues in deciding the fair value of land and ownership have arisen.  Political issues also stand in the way as many party officials own one or more homes so it would not benefit them to pay additional taxes.  Cities seem resistant to the issue however wavering land sales may push them to be more receptive to the idea.

While property taxes are not good for individual citizens, economically property taxes could be very helpful collectively.  It would take a considerable amount of effort to draw up all of the land and property ownership could help by reducing the haziness between government and personal ownership.  The additional revenue from taxes  could also support the economy further and potentially provide a way to expand services to citizens.

http://www.economist.com/node/21546040