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China: Government Announces New Stimulus Package; Foxconn Faces New Labor Controversy


Microsoft and Boeing also make the news.


MINYANVILLE ORIGINAL While investors in the US ponder whether the Fed will unleash another round of quantitative easing, the Chinese government this week announced a new round of stimulus spending meant to jolt its own sluggish economy.

China announced that it will spend $156 billion building new subways, highways, and other infrastructure projects to ramp up growth. Analysts welcomed the move, though some asserted that it might be too late to prevent a third-quarter halt in the economy.

"The decision for the Chinese government to intensively announce these projects over the past two days signals a significant change in its policy stance from the incremental and reactive approach to a more decisive and proactive approach," Zhiwei Zhang, chief China economist at Nomura in Hong Kong, said in a note.

Because this year's slowdown in the Chinese economy has been more gradual than the collapse of late 2008, the stimulus package, though big, is significantly smaller than the 4 trillion yuan ($631 billion) pumped into infrastructure spending between 2009 and 2010.

A slew of banks, including Bank of America and Goldman Sachs, have lowered their forecasts for Chinese GDP growth this year. Earlier today, UBS and ING, which previously forecast GDP growth for the year at 8.0% and 8.1% respectively, cut their estimates to 7.5%.

Here is this week's business news:

Apple (AAPL): With the debut of the iPhone 5 only days away, Apple products assembler Foxconn is embroiled in a new labor controversy. According to the state-run, several thousand Chinese students were taken out of school, bussed to Foxconn's factory in Jiangsu province, and forced to work on the production of the iPhone 5, because Foxconn could not find enough workers.

These students began work last Thursday and received a 1,550 yuan (US$243.97) a month salary for working six days a week, one of these workers alleged in a post on SINA's (SINA) microblog, Weibo, under the handle, mengniuIQ84.

The Verge states that Foxconn's Jiangsu factory handles component manufacturing and does not assemble finished products. As such, workers should not be able to know that they were handling parts of the iPhone 5, thereby casting doubt on the story.

For its part, Foxconn defend its practices, saying that students were free to leave the internship program whenever they wanted, and that interns made up only 2.7% of its China workforce.

Microsoft (MSFT): To compete with rivals Apple and Google (GOOG), Microsoft is planning to invest heavily in China. Over the next year, the Redmond, Washington-based company will hire 1,000 new employees and up its research and development spending in China by 15%, reports Reuters. Right now, Microsoft spends $500 million each year on R&D.

One sector Microsoft is looking to focus expansion on is cloud computing, with Ya-Qin Zhang, chairman of the company's Asia Pacific R&D division, saying that it will construct a massive cloud computing center in Shanghai that will hire approximately 600 staffers.

Microsoft currently has about 4,500 people on its payrolls in China. With the new hires, the staff size will edge closer to that of its unit in India, which has a workforce of 5,800.

Boeing (BA): On Wednesday, Boeing said that it projects China will need 5,260 new commercial jets, valued at $670 billion, over the next 20 years. Additionally, 75% of those new planes will be for growth, not for replacing old jets.

Of course, not all 5,260 jet orders will go to Boeing, The Chicago, Illinois-headquartered company expects fierce competition from long-time rival Airbus, as well as Chinese upstart COMAC, which has already received over 300 new plane orders, mostly from Chinese airlines. Nonetheless, the room for growth in the Chinese aerospace market is clearly huge.

Earlier, Boeing had forecast that the Asia-Pacific market will require 12,030 planes over the next 20 years. Globally, the demand for passenger jets and freighters will hit 34,000 in the same period, it estimates.

Facebook (FB): Investors, don't get your hopes up on China propelling user growth for Facebook. The social network's North Asia director Jayne Leung said that it still has no plans to enter the China market, notes The Next Web.

Here's what Facebook said about China in its IPO filing earlier in the year:

China is a large potential market for Facebook, but users are generally restricted from accessing Facebook from China. We do not know if we will be able to find an approach to managing content and information that will be acceptable to us and to the Chinese government.

The same question about Chinese censorship raised by Facebook in its IPO can apply to Instagram, too, now that it's been officially acquired by Mark Zuckerberg's company.

Chinese Stock Short Sellers: Short seller Citron Research found itself the target of criticism this week from a group of over 60 high-profile Chinese investors and business executives. In a letter, the group, comprised of former and current employees from Google, Microsoft, and other companies, slammed Citron and other Chinese short sellers for "targeting legitimate companies with either no problems or minimal problems," and producing reports that "boldly tell lies, knowing that their American readers have no way of verifying them."

The group asserts that the scrutiny of US-listed Chinese companies by short sellers like Citron is unfair and erroneous and has led to price declines in shares of companies such as SINA and Youku Tudou (YOKU), even causing many Chinese firms to delist from US exchanges.

"What Citron and other companies like it are doing is creating a prejudice that makes it difficult for companies we invest in to go public ... that's the agenda," said Kai-Fu Lee, former Google operations head in China, according to the Wall Street Journal.

For his part, Citron founder Andrew Left stood by his record, saying, "If what I wrote was false, then you wouldn't need a movement around it ... I am more than happy to defend [my statements] in a court of law."

Twitter: @sterlingwong

No positions in stocks mentioned.
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