- namaste friends
- Sep 18, 2004
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by Smythe
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Did you guys read the article Cultural Imperial posted? China is doing another round of mini-stimulus package. I know alot of people in China are waiting for the property price drop so they can finally afford an apartment.
Yeah but do you think that's going to be enough? If the chinese economy is really in free fall, your friends are going to be playing catch-the-falling-knife.
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Jun 2, 2014 06:22
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- Adbot
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ADBOT LOVES YOU
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May 11, 2024 07:13
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- namaste friends
- Sep 18, 2004
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by Smythe
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http://mobile.reuters.com/article/idUSS7N0MG03P20140603?irpc=932
PMI is up to a four month high. Maybe China isn't sliding into oblivion.
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Jun 3, 2014 07:57
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- namaste friends
- Sep 18, 2004
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by Smythe
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http://www.bloomberg.com/news/2014-06-06/china-s-property-developers-face-record-wave-of-maturing-debt.html
quote:Chinese property developers face a record surge in maturing debt next year, as the country’s banking regulator says it’s monitoring risks from the cooling real-estate market.
The amount of dollar-denominated bonds that must be repaid in 2015 will jump to $2.83 billion, the most in data compiled by Bloomberg going back to 1993. Most Chinese builders listed on the mainland or in Hong Kong are behind fiscal-year sales targets and achieved less than 33 percent of their target in the first four months, analysis based on Bloomberg data show.
The China Banking Regulatory Commission will monitor the financial and cash-flow conditions of developers, and will support first-time homebuyers’ borrowing needs, Vice Chairman Wang Zhaoxing said at a briefing in Beijing today. Moody’s Investors Service revised its credit outlook for Chinese builders to negative in May after home sales slumped 10 percent in the first four months.
Chinese Premier Li Keqiang must balance efforts to staunch off-balance sheet lending known as shadow banking, which has been a key source of funding for many smaller property firms, while preventing widespread debt defaults. The March collapse of closely held developer Zhejiang Xingrun Real Estate Co. fueled speculation a shakeout among the nation’s almost 90,000 real estate companies could follow.
While the large, top-rated developers will be able to cope with their refinancing needs, smaller peers with ratings below B3 or Caa will face greater pressure, Franco Leung, an analyst with Moody’s, said in an interview yesterday.
“Smaller developers that have weak access to onshore bank loan financing and high trust-loan exposure, they would be most vulnerable,” he said.
Chinese builders raised 49 percent less through trusts last quarter as the collapse of Zhejiang Xingrun highlighted default risks.
Issuance of property-related trusts, which target wealthy investors, slid to 50.7 billion yuan ($8.1 billion) in the first quarter from 99.7 billion yuan in the fourth quarter, data compiled by Use Trust show.
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Jun 9, 2014 14:51
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- namaste friends
- Sep 18, 2004
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by Smythe
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Are you guys following this?
http://www.ft.com/intl/cms/s/0/85f594a8-f210-11e3-9015-00144feabdc0.html#axzz34RQHxJ2s
quote:
The port city in northeastern China is famous for its Tsingtao brewery that was founded more than a century ago with 400,000 Mexican silver dollars as capital. But in recent years, Qingdao – the beer’s name is an older spelling – has been attracting other types of metal. As Chinese traders’ appetite for cheap forex funding has increased, piles of copper and aluminium used as loan collateral have accumulated in dockside warehouses.
But at the end of May, Qingdao’s metal stacks started to wobble. Local authorities began investigating whether a Chinese company had pledged the same lots of material to several banks – the equivalent of a homeowner taking out multiple mortgages on a house while telling each lender they were the only one. With potential losses running into hundreds of millions of dollars, banks and traders scrambled to assess their positions. Standard Bank and Standard Chartered Bank said they were investigating their exposure, while China’s CITIC Resources, asked courts in Qingdao to secure its metal held at Qingdao Port.
“Everybody has been going through their receipts with magnifying glasses and heading to warehouses to look for their metal,” says Vivienne Lloyd, an analyst at Macquarie.
The ripples quickly spread far beyond Qingdao. The London Metal Exchange price of three-month copper, already down 5 per cent for the year, has dropped 4 per cent since the start of last week, to $6,650 a tonne on Thursday. New financing deals for copper and other metals in China have dried up.
Commodity traders, banks, financiers and analysts were left pondering a number of questions. Was this alleged financial fraud an isolated case or are other Chinese companies and ports also involved? Will the market be flooded with copper exiting warehouses, putting further pressure on prices? And what might the long-term effect be for Chinese metals financing deals, an important part of the shadow banking sector in the country?
Two weeks on, and the investigation at Qingdao still appears to centre on a single group of companies owned by Dezheng Resources, which operates aluminium smelters, power plants and coal mines. Dezheng is reported to own up to 20,000 tonnes of copper and 100,000 tonnes of alumina at Dagang, an older docking area within Qingdao Port.
“The market is still uncertain [about the Qingdao implications],” David Lilley, co-founder of Red Kite, a metals-focused hedge fund and trader, said at a derivatives conference in London this week. “I am somewhat reassured by the fact that . . . no other area, no other problem has been uncovered.”
Qingdao has not traditionally been a hub for metals financing, but stocks built up rapidly this year. By the end of May, nearly 100,000 tonnes of copper – about 60 per cent of the copper inventories in London Metal Exchange sheds globally – was stockpiled in Qingdao, according to Macquarie. Even so, stocks elsewhere in China are much higher, with bonded warehouse districts in Shanghai holding around 800,000 tonnes of copper. Traders say that facilities at Shanghai and at other Chinese ports are organised and operated to global standards, often by international logistics companies.
For this reason, Macquarie says it “doubts that many more, if any, scandals will be uncovered”. Bank of America Merrill Lynch was less sure, noting that issuing multiple warehouse receipts for the same tonne of metal was a known issue in China, though it concluded that “copper’s Waterloo is not in Qingdao”. Meanwhile, Doug King, chief investment officer of RCMA Capital, which runs a commodity fund, said this week that he expected the Chinese financing probe to be extended to iron ore and soyabeans.
Fund managers and analysts agree that the Qingdao investigation will have an effect on commodity financing deals in the short term. Goldman Sachs said it expected foreign banks to continue scaling back its collateralised lending businesses in China. As a result, less metals will flow into bonded warehouses, and some of the stocks already there will be shifted.
Macquarie estimates that, due to the lending squeeze, around 290,000 tonnes of copper in Chinese bonded warehouses will be moved, mostly to LME warehouses, either on or off-exchange. But it expects a floor of about 600,000 tonnes of copper to remain in bonded facilities, as part of the established metal-financing transit trade run that is run by large importers and eventually feeds local factories.
“These schemes have been an integral part of the Chinese copper market for some time,” says Nic Brown, head of commodities research at Natixis. “As long as there’s no more double pledging of collateral, financing should continue in the future.”
Dezheng could not be reached for comment.
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Jun 12, 2014 19:56
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- namaste friends
- Sep 18, 2004
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by Smythe
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http://www.ft.com/intl/cms/s/0/75da...l#axzz34iadzndm
quote:
High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email ftsales.support@ft.com to buy additional rights. http://www.ft.com/cms/s/0/75da79f8-f2c4-11e3-a3f8-00144feabdc0.html#ixzz34iapcua3
The pressure on Beijing to boost economic growth with additional heavy-handed stimulus measures was partially relieved on Friday with data pointing to a stabilising economy.
Retail sales, often a volatile measure, grew 12.5 per cent year-on-year from January to May, beating expectations and up from 11.9 per cent in the year to April. Fixed-asset investment rose 17.2 per cent in the first five months, up from 17.1 per cent in the year to April and industrial output grew by 8.8 per cent, up from 8.7 per cent.
“The slight improvement in activity data in May was mainly due to the mini-stimulus as Beijing introduced a slew of measures including targeted [required reserve ratio] cuts and central bank relending in the past couple of months,” Ting Lu, China economist for Bank of America in Hong Kong, said in a note.
The economy remains heavily reliant on investment in infrastructure, real estate, and factory equipment, so fixed-asset investment is closely correlated with overall economic performance. Manufacture of basic materials such as steel, cement and non-ferrous metals, reflected in industrial production data, is another key driver.
The latest figures suggest that policy makers have achieved some success in preventing a collapse in these traditional growth pillars, allowing them some breathing room to pursue structural reforms aimed at boosting consumption.
“These data point to either 7.4 per cent or 7.5 per cent year-on-year GDP growth in [the second quarter of] 2014,” Mr Lu wrote.
Real estate remained a soft spot for investment, after house prices fell on a month-on-month basis in May for the first time since 2012. Real estate investment rose by 14.7 per cent for the year to May, down from 16.4 per cent growth in the first four months. The decline in real estate sales volume also accelerated, both in value and floorspace terms.
“The broader picture is that the property sector is still putting downwards pressure on the economy but this appears to have been largely offset by infrastructure spending and other targeted measures, which have shored up other areas of the economy,” Julian Evans-Pritchard, China economist at Capital Economics in Singapore, said in a note.
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Jun 15, 2014 15:29
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- namaste friends
- Sep 18, 2004
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by Smythe
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http://www.earth-policy.org/plan_b_updates/2014/update121
quote:
Can the World Feed China?
Lester R. Brown
Overnight, China has become a leading world grain importer, set to buy a staggering 22 million tons in the 2013–14 trade year, according to the latest U.S. Department of Agriculture projections. As recently as 2006—just eight years ago—China had a grain surplus and was exporting 10 million tons. What caused this dramatic shift?
It wasn’t until 20 years ago, after I wrote an article entitled “Who Will Feed China?”, that I began to fully appreciate what a sensitive political issue food security was to the Chinese. The country’s leaders were all survivors of the Great Famine of 1959–61, when some 36 million people starved to death. Yet while the Chinese government was publicly critical of my questioning the country’s ability to feed itself, it began quietly reforming its agriculture. Among other things, Beijing adopted a policy of grain self-sufficiency, an initiative that is now faltering.
Since 2006, China’s grain use has been climbing by 17 million tons per year. (See data.) For perspective, this compares with Australia’s annual wheat harvest of 24 million tons. With population growth slowing, this rise in grain use is largely the result of China’s huge population moving up the food chain and consuming more grain-based meat, milk, and eggs.
In 2013, the world consumed an estimated 107 million tons of pork—half of which was eaten in China. China’s 1.4 billion people now consume six times as much pork as the United States does. Even with its recent surge in pork, however, China’s overall meat intake per person still totals only 120 pounds per year, scarcely half the 235 pounds in the United States. But, the Chinese, like so many others around the globe, aspire to an American lifestyle. To consume meat like Americans do, China would need to roughly double its annual meat supply from 80 million tons to 160 million tons. Using the rule of thumb of three to four pounds of grain to produce one pound of pork, an additional 80 million tons of pork would require at least 240 million tons of feedgrain.
Where will this grain come from? Farmers in China are losing irrigation water as aquifers are depleted. The water table under the North China Plain, an area that produces half of the country’s wheat and a third of its corn, is falling fast, by over 10 feet per year in some areas. Meanwhile, water supplies are being diverted to nonfarm uses and cropland is being lost to urban and industrial construction. With China’s grain yield already among the highest in the world, the potential for China to increase production within its own borders is limited.
The 2013 purchase by a Chinese conglomerate of the American firm Smithfield Foods Inc., the world’s largest pig-growing and pork-processing company, was really a pork security move. So, too, is China’s deal with Ukraine to provide $3 billion in loans in exchange for corn, as well as negotiations with Ukrainian companies for access to land. Such moves by China exemplify the new geopolitics of food scarcity that affects us all.
China is not alone in the scramble for food. An estimated 2 billion people in other countries are also moving up the food chain, consuming more grain-intensive livestock products. The combination of population growth, rising affluence, and the conversion of one third of the U.S. grain harvest into ethanol to fuel cars is expanding the world demand for grain by a record 43 million tons per year, double the annual growth of a decade ago.
The world’s farmers are struggling to keep pace. When grain supplies tightened in times past, prices rose and farmers responded by producing more. Now the situation is far more complex. Water shortages, soil erosion, plateauing crop yields in agriculturally advanced countries, and climate change pose mounting threats to production.
As China imports increasing quantities of grain, it is competing directly with scores of other grain-importing countries, such as Japan, Mexico, and Egypt. The result will be a worldwide rise in food prices. Those living on the lower rungs of the global economic ladder—people who are already struggling just to survive—will find it even more difficult to get by. Low-income families trapped by food price inflation will be unable to afford enough food to eat every day.
The world is transitioning from an era of abundance to one dominated by scarcity. China’s turn to the outside world for massive quantities of grain is forcing us to recognize that we are in trouble on the food front. Can we reverse the trends that are tightening food supplies, or is the world moving toward a future of rising food prices and political unrest?
Strategic pork reserve.
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Jun 26, 2014 03:29
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- namaste friends
- Sep 18, 2004
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by Smythe
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http://www.sharenet.co.za/news/China_property_primed_for_shakeup_as_downturn_drains_cash/09576c9de6c03c5667c68824c79a0b5c
quote:
China property primed for shake-up as downturn drains cash
* Developers' short-term-debt ratios at two-year lows
* EBITDA margins thinnest since 2011
* Consolidation tipped as prices fall, credit dries up
By Umesh Desai and Clare Jim
HONG KONG, June 25 (Reuters) - An oversupply of residential property and a market slowdown have left Chinese developers with their worst cash crunch in more than two years, revealing the extent of China's real estate downturn and paving the way for further consolidation in the sector.
A Reuters study of more than 80 China-listed developers that have declared March quarterly earnings showed cash to short-term-debt ratios at two-year lows amid a steady decline in margins since 2011.
That was the year the government moved to rein in the overheating housing market through measures including higher mortgage rates and limits on how many homes each family can buy.
But the government crackdown is only part of the story. A downturn in property prices, pressure to pay for last year's record land purchases, and a tighter credit market have combined to put severe strains on developers' liquidity.
The mounting pressure could lead to sales of assets such as land banks and completed projects as the government presses for consolidation in the highly fragmented sector, analysts and investors said.
Even without further government curbs this year, developers' financials will feel the pinch of subdued house prices, which fell for the first time in two years in May.
"The situation is quite severe now. Mid-sized developers are facing pressure as interest rates for trust loans are high, the impact will emerge eventually. The size of developers affected are getting larger," Hong Kong-based property agent Midland Realty COO Samuel Wong said.
"H2 will be worse than H1 when problems surface, unless there is more easing in policy or liquidity."
Caught between having to cut prices or raise capital, some developers are holding off for the moment, either using stop-gap measures or waiting for a bank rescue, according to industry insiders.
"The market isn't favourable. We haven't decided whether to cut prices," said an official at unlisted Shenzhen-based developer Guang Group, one of China's top 100 developers.
"We're in restructuring (mode) now, such as introducing financial partners and consolidating projects."
Last month, the company said it had failed to deliver some properties to homebuyers on time because of financial pressures.
MARGINS HURT, LIQUIDITY DRYING
The deterioration in developers' financials has been felt on two levels.
Firstly, competition both for land banks and apartment sales has squeezed margins. Margins on earnings before interest, taxes, depreciation, and amortisation are now in the low teens compared with nearly 20 percent at one point in 2011.
Meanwhile, the median cash to short-term debt ratio of the companies studied by Reuters has fallen to 0.77 from 1.11 at the end of 2012. A ratio below 1.0 is a red flag meaning cash is insufficient to cover debt coming due in a year.
Winsan Shanghai Industrial Corp Ltd saw its cash to short-term debt ratio decline to 0.07 in the March quarter from 0.83 in end-2011. In that same period the company saw its EBITDA margin turn negative from 18.8 percent. The company did not respond to emailed questions.
London-based fund manager Yerlan Syzdykov at Pioneer Investments, which owns bonds in China property, said the deterioration in developers' financial positions was likely to trigger a long-overdue shake-up in the industry.
"We see more consolidation in the sector. They are leveraged and have lower cash balances because of land acquisitions - they need banks to step in and provide more liquidity," he said.
In a recent sign of such consolidation, Sunac China Holdings Ltd last month bought a 24 percent stake in peer Greentown China Holdings Ltd for HK$6.3 billion ($807 million).
Moody's said at a conference last month it expected to see more such moves as developers tried to scale up to win cheaper loans from banks.
DON'T PANIC
Volatile as the sector may be, few expect China's property market to suffer a collapse like the sub-prime mortgage crisis that hit the United States.
"People are watching carefully but we're not worried yet," Pioneer Investments' Syzdykov said.
High downpayments, low household debt and expectations of continuing government support are commonly cited by experts forecasting the downturn will be short-lived, with prices expected to recover as economic growth steadies in the second half of the year.
Furthermore, a repeat of events that brought Zhejiang Xingrun Real Estate Co to the brink of bankruptcy is unlikely. The developer is estimated to owe 15 domestic banks 2.4 billion yuan and individual investors another 1.1 billion, with only 3 billion yuan of assets on hand.
"Full-blown defaults in this sector are rare as developers own assets which are worth something," said Thomas Kwan, head of fixed income at Harvest Global Investments Ltd in Hong Kong.
"The smaller developers can sell their projects or land in times of difficulty." (Additional reporting by Patturaja Murugaboopathy; Editing by Stephen Coates)
2014-06-24 23:00:02
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Jun 26, 2014 03:40
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- namaste friends
- Sep 18, 2004
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by Smythe
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quote:environmental considerations have not yet been taken into account
lol
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Jun 30, 2014 14:52
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- namaste friends
- Sep 18, 2004
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by Smythe
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Whoa whoa whoa
http://www.ft.com/intl/cms/s/0/2084...l#axzz36BBVagy6
quote:
The anti-corruption campaign launched by Xi Jinping, China’s president, has brought down its most powerful figure so far, after the ruling Communist party expelled a former military leader and accused him of handing out promotions in exchange for bribes.
The case against General Xu Caihou, once one of the most senior generals in the People’s Liberation Army, will be referred to prosecutors, China’s official Xinhua news agency reported on Monday, citing an announcement by the party’s Central Committee.
More
Mr Xu’s prosecution, agreed on Monday at a meeting of the politburo, is the latest development in an anti-corruption drive established shortly after Mr Xi came to power in 2012, in which he pledged to take on “tigers” -- members of China’s elite – as well as low-level bureaucrats or “flies”.
No military figure of Mr Xu’s stature has been felled by corruption allegations in recent memory. The general sat on the politburo and was a vice-chairman of the Central Military Commission.
“He’ll be the highest military official to face trial . . . in more than 30 years,” said Chris Johnson, head of China studies at the Center for Strategic and International Studies in Washington.
The last time such a shake-up occurred in the military top brass was when former Chinese leader Deng Xiaoping dismissed Yang Shangkun and his half brother Yang Baibing in 1992. Neither of the Yang brothers, who had built powerful factions within the army, was accused of corruption or any other legal offence.
Monday’s announcement was the first official confirmation that Gen Xu, who is reportedly battling cancer, is facing corruption charges.
A statement issued after the politburo meeting said: “Investigations revealed that Xu Caihou had used his position to help others secure promotions, and had taken bribery directly and through his family members,” according to Xinhua. “His case is serious and leaves a vile impact,” the statement added.
Mr Johnson said: “They could have laid it all at the door of personal failings, as they usually do. But they are suggesting instead that he was creating his own power base in the military through patronage, by allowing people to
pay bribes for these positions.”
Local media have reported that one of the suspects in the case, accused of bribing Gen Xu, was Gen Gu Junshan, the former deputy head of logistics of the PLA, who was arrested on March 31. Gen Gu was the subject of lurid TV reports showing his palatial house in Henan province.
Gen Gu was suspected of having paid Gen Xu Rmb35m (about $5.6m), according to a report by the South China Morning Post in March. The paper also reported that Gen Xu had been dragged from his hospital bed when he was detained by 20 policemen on March 15.
Mr Xi has repeatedly vowed to stamp out entrenched corruption in the military, seeking to transform it from an politicised hangover from the Mao era into a professional fighting force capable of projecting power all the way into the western Pacific.
He has also pledged to reform the service by getting rid of non combat roles, abolishing some of China’s seven military regions, and moving to a joint command system.
Analysts said the campaign against military graft can be viewed as part of the wider reform effort and simultaneously designed to intimidate senior officers into not opposing the plans by making examples out of some.
Two other prominent officials were also expelled from the party on Monday – Jiang Jiemin, the former head of the state assets regulator, and Li Dongsheng, the former public security vice-minister.
Mr Jiang, who once ran China National Petroleum Corp, was a close ally of Zhou Yongkang. Mr Zhou, a former member of the party’s most powerful body, the Politburo Standing Committee, is widely reported to be the subject of a long-running corruption investigation. However, this has not been officially acknowledged by Beijing.
The expulsion of another individual associated with Mr Zhou’s clique, the former CNPC vice-president Wang Yongchun, was also announced on Monday.
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Jul 1, 2014 03:21
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- namaste friends
- Sep 18, 2004
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by Smythe
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I guess things aren't that bad.
http://on.ft.com/VBfrBa
quote:
HSBC's monthly survey of China's manufacturing sector confirmed that conditions at the world's workshop improved markedly in June.
The HSBC measure, derived from asking questions at 420 companies, gave a final reading of 50.7, up from 49.4 in May (but slightly below the 50.8 "flash estimate" a week ago).
A level above 50 indicates growth. June marks the first month above that level since December.
The forward looking new orders component saw the strongest rate of growth in 15 months.
The trend largely supports China's larger, state-sponsored survey of 3,000 companies, which earlier on Tuesday moved up from 50.8 to 51, the highest level since December.
Hongbin Qu, economist at HSBC, said the survey "confirms the trend of stronger demand and faster destocking."
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Jul 1, 2014 03:31
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- namaste friends
- Sep 18, 2004
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by Smythe
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http://www.forbes.com/sites/gordonchang/2014/06/29/chinas-wanxiang-challenges-tesla-for-dominance-of-global-electrics-market/
quote:
China's Alibaba And Tencent Gobbling Up Everything In Sight
Comment Now Follow Comments
Jack Ma, the leading light behind Alibaba Group, was drunk when he agreed to take a stake in Guangzhou Evergrande Football Club, at least according to Hui Ka Yan, the seller. And Ma did not bother too much with the details of his 1.2 billion yuan ($192 million) buy on behalf of Alibaba. “We finished it in 15 minutes,” said Hui, referring to the negotiations.
So Hangzhou-based Alibaba, which will list next month on the New York Stock Exchange, is now a half owner of a soccer team in the capital of Guangdong province. But that is not the only purchase Ma’s company has made in recent days. So far this year, Alibaba has spent more than $4.5 billion on acquisitions.
Ma is not the only online mogul cutting checks at a furious pace. China’s internet companies have gone on buying binges this year, resulting in an “unprecedented wave of consolidation” according to Doug Young of the South China Morning Post. “No one pays much attention anymore to anything worth less than $1 billion,” he writes.
Maybe so, but a number of the smallish deals have great significance. Ma started the frenzy in April of last year with his purchase of 18% of microblogging platform Weibo for $586 million. And he has continued the dealmaking. For instance, this March Alibaba agreed to plunk down $692 million for about 35% of Hong Kong-listed Intime Retail Group, which operates supermarkets and department stores in China. Mr. Ma is apparently diving into bricks-and-mortar retailing, starting at the high end.
Alibaba not only wants to sell you things, it wants to deliver them to your front door. In May, the company agreed to pay $249 million for 10.4% of Singapore Post, Singapore’s main postal service, a prelude to cooperation on logistics. The deal followed December’s announcement of what is essentially a purchase of 9.9% of Goodaymart, the logistics business of Haier Electronics, the white goods maker (Alibaba also bought bonds convertible into Haier stock). The acquisitions come at a time when Alibaba has entered into other logistics arrangements, most notably with China’s postal service, China Post.
Tencent Holdings, the company that could ultimately dethrone Alibaba, is on the acquisition trail too. For instance, last September the social media giant announced it would pay $448 million for 36.5% of the Sogou search engine, also taking an option for 3.5% more of the Sohu.com unit.
And Tencent’s moves continued this year. At the end of last month, the Hong Kong-listed company announced a $736 million acquisition of 19.9% of Beijing-based 58.com, the largest of the Craigslist-like sites in China. Analysts say the deal will be good for Tencent’s Tenpay, which in Q1 captured 18.9% of China’s third-party online payment market. That’s well behind Alipay, the Alibaba affiliate with a whopping 47.6% share.
Yet the 58.com deal will also help WeChat, Tencent’s mobile-messaging service. Tencent will integrate 58.com services on WeChat, which had 396 million active users in Q1. “We believe 58.com may develop some tailor-made products and services specifically to fit the WeChat user base,” Alicia Yap of Barclays notes.
The 58.com deal takes on added significance because it followed Tencent taking a strategic position in NASDAQ-listed JD.com, China’s second-biggest e-commerce site. In March, the Shenzhen-based Tencent agreed to pay $214.7 million and transfer some of its struggling businesses in return for a 15% stake.
And in January, Tencent agreed to pay $193 million for 9.9% of China South Sea City Holdings, a warehouse and logistics business in China. Tencent, in short, is putting together the elements of an e-commerce business, which will be fed by its social media properties.
So what’s the story behind all the tie-ups? For one thing, Alibaba is changing its focus, largely because O2O—online to offline—is seen as crucial to the expansion of Chinese retailing. Yet Jack Ma’s purchases have come under scrutiny because they are occurring while Alibaba is trying, through acquisition, to expand into other areas, namely media, finance, and entertainment. Not all of Alibaba’s deals take it out of its core business—the purchase of the remaining portion of UCWeb, a mobile browser developer, last month is certainly a good move—but Jack Ma’s company could become unrecognizable in a few years.
Alibaba looks attractive now because it has an 80% share of China’s white hot e-commerce market, but Jack Ma is blurring the company’s focus, moving into areas where it may not have a competitive advantage and where profits are certainly not as rich.
The Intime purchase is especially illuminating. Analysts liked the deal—Alibaba platforms can offer the convenience of picking up purchases around the corner, Intime’s inventory can be offered online, and Alipay can expand its penetration—but these advantages could largely have been obtained without the equity purchase. Moreover, the broader implications of the acquisition are disturbing.
What Ma is essentially saying with the Intime move is that the future of e-commerce in China is tied to physical stores. Running physical stores, however, will dilute margins, degrade ratios, and multiply management burdens in Hangzhou. And there will be complications. Intime has competitors that now have reason to go after Alibaba, perhaps by joining forces with archrival Tencent.
At the archrival, the acquisition strategy looks much more disciplined. Tencent is invading Alibaba’s e-commerce turf with deals that, unlike Jack Ma’s, are easily explainable.
Tencent, in short, has a laser-like focus while Alibaba is moving—splurging—in many directions at once. Not all of Ma’s visionary strategies have to pan out, but some of them have the potential of bringing Alibaba down to earth.
With a big head start and more cash to burn, it is Alibaba’s game to lose. But Jack Ma is now beginning to act like a rock star, and the purchase of half of the Evergrande Football Club, which is wrong on so many levels, is probably not the worst step he is making at the moment.
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Jul 7, 2014 00:24
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- namaste friends
- Sep 18, 2004
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by Smythe
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http://www.ft.com/intl/cms/s/0/71a9e156-fafe-11e3-8959-00144feab7de.html#axzz36oFtfULS
quote:
The Chinese property sector is in a recession. Market optimists insist it is going through an “adjustment” similar to previous property downturns.
A more sober view, however, is that because of unprecedented overbuilding, and leverage nurtured by the eruption of shadow banking, this downturn is both more serious and systemic. China is probably in the first stage of a denouement of the property- and construction investment-led growth model of the past 15 years. Financial markets are having trouble pricing the implications.
Property accounts for about 25 per cent of capital investment, and roughly 13 per cent of gross domestic product. Incorporating associated industries, such as steel, cement, and construction machinery and materials, would raise the investment share of GDP to about 16 per cent.
If this leading edge of China’s growth model saw a fall in investment growth from 20 per cent to 10 per cent, economic growth would slide by roughly 2 per cent, taking into account secondary effects. The stream of downward revisions to economic growth is not over yet.
Despite structural oversupply, the decline in property starts, sales and prices has not yet been extraordinary. Property and land prices have been declining since the end of 2013, and have further to go, but they may not collapse as a result of forced sales by households. Household leverage and mortgage loan-to-value ratios are low, and homeowners are subject to large downpayments on first and second homes.
Chronic oversupply
Yet there is no masking chronic oversupply. Urban housing completion rates remain far in excess of the effective demand by the population with urban “hukou”, that is, urban registration. Across-the-board falls in construction indicator volumes and values have been accompanied by a sharp rise in inventories of unsold homes, and a surge to about 20 per cent in the aggregate vacancy rate.
While weaker trends have permeated the largest cities, they are most acute in so-called Tier 3 and 4 cities, which account for almost 70 per cent of homes under construction and home sales, and almost 60 per cent of housing investment. Inventories have risen to about 15-30 months of sales in many of these cities.
This downturn will not be over until we have had several quarters of declines in the ratio of credit to GDP and in property sales and transactions, non-financial sector deleveraging, and more defaults
Further, the intricate connections between residential and commercial property, shadow banking and vigorous credit creation raise financial instability risks. Direct commercial bank property loans form about a fifth of bank assets, but perhaps half of all bank loans are collateralised by property and land.
Banks are protected from sudden liquidity shocks by captive household deposits, but they will face problems over asset quality. Debt service risks loom large for construction-related companies, indebted state-owned enterprises with significant property financing and local governments.
Banks are also the principal sponsors of and agents in shadow banking, which has been encouraged by traditional bank lending restrictions, and grown in a few years into a near Rmb40tn ($6tn) industry, or half of GDP. The property and heavy industry sectors, such as coal and steel, have been leading borrowers, and consumers have gained from wealth management products, which pay much higher interest rates than controlled deposit rates.
Shadow banking has beaten a path towards the government’s stated aim of financial liberalisation, and yet regulators have become concerned about the eruption of risks to stability arising from excessive credit creation, rising borrower stress, and a building wave of defaults, mostly bailed out so far, as coal and property asset values fall.
Stealth stimulus
In spite of rhetoric that market forces should be allowed a greater role, the authorities have resorted to administrative stimulus by stealth as the property downturn has gathered pace.
Announced initiatives include two rounds of lower targeted reserve requirement ratios, actions to hold down interbank interest rates and ease property purchase and development conditions, and accelerated fiscal spending, and shantytown and railway investment. While these measures are helping to stabilise the economy at midyear, the harder the property downturn is resisted now, the bigger the economic and financial risks will become.
Financial markets have not yet priced for the end of China’s long-running property boom. With or without short-term palliatives, construction will support but no longer lead GDP growth, and the sector will have to work off oversupply and leverage, while adjusting to new legal restrictions affecting land clearance, resettlement of people, and agricultural land preservation.
At the very least, this downturn will not be over until we have had several quarters of declines in the ratio of credit to GDP and in property sales and transactions, non-financial sector deleveraging, and more defaults. You can see why the process has barely begun.
George Magnus is an independent economic adviser to UBS
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Jul 7, 2014 19:48
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- namaste friends
- Sep 18, 2004
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by Smythe
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http://www.scmp.com/business/china-business/article/1548282/bankruptcies-rock-loan-guarantors-china
quote:
Mainland loan guarantors have found themselves ensnared in the woes of the underground banking sector following a fresh wave of bankruptcies around the country.
Creaking under the weight of bad debts, hundreds of guarantee groups would be unable to bear even more, although their services are critical for the economic system and the millions of small firms that provide the majority of the mainland's jobs.
"It is by all means a risky business," said Wang Xiao, a Zhejiang entrepreneur who invests in a loan guarantee business. "An increasing number of loan defaults will soon force us to close down the business."
In Wenzhou, nearly 90 per cent of loan guarantors have failed since the start of the credit crisis arising from the underground banking system, according to the media.
The city, dubbed the capital of China's private businesses, had pinned hopes on the companies offering capital guarantee services to bail out troubled small companies when Beijing allowed it to legalise the underground banks.
"It could become the last straw that breaks the camel's back," said Yan Yipan, the head of law firm Zhejiang Panyuan, which mainly deals with cases related to financing. "Without the loan guarantee services, it will be more difficult for small companies to do business."
Rampant loan-shark schemes in Wenzhou resulted in the collapse of the city's economy, with dozens of underground banking operators and investors either committing suicide or fleeing the country.
The government felt loan guarantors could bridge the gap between cash-hungry businesses and financial institutions. Borrowers without enough collateral could use loan guarantee services to access much-needed funds. The guarantors normally charge 3 per cent of the loan amount as fees.
"Three per cent fee looks good, but a loan default would be equivalent to the total profits made from dozens of deals," Wang said.
At the end of last year, there were more than 8,000 licensed loan guarantors, with most of them focusing on serving small enterprises. The companies had a combined registered capital of 880 billion yuan (HK$1.1 trillion), according to the China Banking Regulatory Commission.
Online consultancy Forward said financing demands from the small firms topped 16 trillion yuan in 2012. Indeed, thousands of illegal loan guarantors have been offering guarantee services for the underground banks in the past decade. In April, a bank run in Sheyang, Jiangsu province, was sparked by the collapse of illegal loan guarantors.
In Guangdong, the financial authorities said more than 30 loan guarantors had failed so far this year, while in Sichuan, the provincial government revoked 12 loan guarantee licences. The problems with loan guarantors would weigh further on a mainland leadership already buffeted by complaints about the way government treats small firms.
"Without the privately owned small businesses, China's economy won't have a future," said Song Weiping, the chairman of developer Greentown China. "They are the babies and they should be looked after carefully."
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Jul 8, 2014 05:40
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- namaste friends
- Sep 18, 2004
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by Smythe
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http://www.ft.com/intl/cms/s/0/491e...l#axzz37N2ov7CR
quote:
Shoppers taking the bus to the centre of China’s scenic city of Hangzhou last weekend paid no attention to the man in the white T-shirt until he suddenly spilled a can of paint thinner, crouched down and lit it.
A surveillance camera recorded passengers trying to escape as flames filled the aisle and licked at the seats. Passing drivers doused the burning vehicle with fire extinguishers as smoke billowed through the street.
More
For all the horror of that summer day in Hangzhou, it was not the first such event. The month before, two high schoolers were injured wrestling a machete away from an attacker on a bus. In February, a four-month-old baby was among six killed when a jealous husband set fire to a bus in southwestern China.
In the past decade, almost 100 Chinese have died after fellow passengers deliberately burnt or blew up buses. Some 300 more suffered severe burns or other injuries, including 29 people last weekend.
“Everyone’s shook up. It feels like terrorism,” said Mrs Zhu, an office worker in Hangzhou. “When it happened in other cities, I never worried. But this wasn’t some bus in the outskirts; this was a central line we all took.”
Chinese who kill random strangers en masse are guaranteed one reward – a moment when attention must be paid to them, after a lifetime of bitter anonymity.
“He told others that he wanted to follow other examples and create malignant incidents to make a name for himself,” the police report on last weekend’s attack concluded.
Police identified the attacker as Bao Laixu, an 34-year-old man so badly burnt that “it’s not possible to get his oral confession by interrogation”. Mr Bao left the terraced fields of Gansu province in central China in his mid-teens to seek work in the factories of Guangdong more than 2,000km south but contracted tuberculosis. After a brief return home in 2008, he drifted east looking for jobs, making few friends and never contacting his family.
More than half China’s 1.4bn people live in cities, compared with about 10 per cent a generation ago. Rapid urbanisation has split families and destroyed villages and neighbourhoods. The gap between rich and poor is one of the widest in the world.
Many feel they have failed to grasp the success they see celebrated around them, or had their spirit broken by repeated setbacks.
“He might not have thought too clearly about whether he hurt other people. Everything would have been black in his eyes,” said Hu Cheng, a city dweller who also knows despair. Mr Hu once tried to blow himself up outside a courthouse after failing to stop the demolition of his home. Guards pinned him to the ground before he could light his petrol-soaked clothes.
Chinese media have uncovered family disputes, illness, debt and unemployment behind attacks by Han Chinese, an ethnic group native to east Asia. Suicide bombers often target police stations or local government bureaux in retribution for land grabs or other slights.
We are in a unique time now in China. We are unable to see some deep problems. What we see is just some waves, but what is under the water, we can’t see
- Beijing criminologist
In contrast, Chinese journalists have little freedom to investigate attacks by Uighurs, a Muslim, Turkic people native to the frontier region of Xinjiang. Overseas human rights groups claim similar land and housing disputes or police mistreatment as well as religious and employment discrimination lie behind attacks there, whereas Beijing almost always attributes those to terrorism or separatism.
“We don’t target a specific ethnicity,” said Chinese terrorism expert Li Wei, who works for a state-backed research institute. He said attacks such as bus bombings might be political in the sense that they showed people were upset with the government, but “most of them are not planned by a certain group or organisation, and there is no terrorist ideology behind their acts”.
Chinese authorities said eight Uighurs who stabbed to death 33 people at a southwestern train station in March, and another group who ploughed two cars through a morning market in the Xinjiang capital Urumqi in May, killing 43, wanted to commit jihad.
In 2008, the Turkistan Islamic Party claimed responsibility for bus explosions in Shanghai and Kunming, but the Kunming bombs later turned out to be the work of a Chinese ex-convict, who died trying to bomb an expat bar on Christmas Eve that year.
Many Chinese believe sympathetic coverage of disgruntled attackers’ problems encourages copycats as in 2010, when six killers hacked schoolchildren to death. At dawn on Friday, a migrant worker attempted to set a city bus alight in the southern city of Changsha.
The morning of the Hangzhou attack, the accused Mr Bao left Yiwu, a trading city that produces most of the world’s zippers. He travelled through the green hills to Hangzhou then rode the Number 7 bus for nearly an hour before lighting his fire.
Journalists, who tracked down Mr Bao’s parents, were shocked at how impoverished his village was and were told by neighbours they had thought he had been a success because he had made it to the big city.
“We are in a unique time now in China. We are unable to see some deep problems,” said a criminologist in Beijing, who did not want to be identified for fear of appearing sympathetic to the attacker. “What we see is just some waves, but what is under the water, we can’t see.”
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Jul 13, 2014 18:32
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- namaste friends
- Sep 18, 2004
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by Smythe
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How much are public suicides actually a barometer of underlying economic problems? I can see them being related but it seems like it might be a pretty coarse grained canary in the coal-mine to look at these things.
Man, if China kept records and conducted studies on this, I'd say it would herald a new era in human rights in China.
In other words, no one in China gives a poo poo.
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Jul 13, 2014 18:59
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- namaste friends
- Sep 18, 2004
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by Smythe
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Hyperbolic but amusing Gordon Chang post:
http://www.forbes.com/sites/gordonchang/2014/07/13/attack-on-bank-of-china-for-money-laundering-screams-infighting-in-beijing/
quote:
On Wednesday morning, China Central Television, the state broadcaster, accused Bank of China of “blatantly offering money laundering services.”
CCTV footage, some of it recorded by an undercover reporter, detailed how a bank employee in Guangdong province coached the journalist on how to transfer large sums offshore in an apparent violation of China’s capital control rules. Those regulations allow individuals to send no more than the equivalent of $50,000 a year.
The CCTV report alleged that the bank, one of China’s “Big Four,” fabricated information through its Youhuitong—“preferential money transfer”—platform. BOC, as the bank is sometimes called, also joined forces with immigration businesses to hide the source of money and send it outside the country. “Regardless of where and how you get your money, we can help you get it out,” CCTV quoted a bank employee.
One branch in Guangdong had already transferred six billion yuan this year, according to CCTV, and several branches in Beijing also provided the same service.
The report, nearly 20 minutes in length, caused a sensation, and the bank issued a denial on the same day the attack aired, insisting Youhuitong was legal. CCTV, according to BOC, “deviated from the facts” and had a “biased understanding” of the funds transfer program. Then the bank, intriguingly, took down its own statement and reposted another that did not include the words “CCTV” or “regulators.” Next, the bank filed a statement with the Hong Kong stock exchange charging “media reports” were “not consistent with the actual situation.”
CCTV has since purged the accusatory report from its website, but controversy continues. Said an unnamed spokesman for the People’s Bank of China, the central bank: “We have noticed the media report about a commercial bank’s cross-border renminbi business and are verifying related facts.”
The facts are not that hard to verify. The Guangzhou branch of the People’s Bank of China, to help Beijing internationalize the renminbi, issued pilot licenses for Youhuitong-type services in late 2011 to Bank of China and late 2012 to Citic Bank. The BOC service was supposed to be localized, but as a practical matter bank units across the country referred customers to the Guangzhou branch, effectively making Youhuitong a nationwide business.
We should not be surprised that Bank of China, China’s primary foreign exchange banking institution, has been involved in a questionable expansion of that program. The Chinese people, after all, have for some time wanted to put assets offshore. They became richer over the course of decades, and so naturally wanted to diversify. Recently, foreign assets began to look attractively cheap. During the last year or so, there has also been a noticeable drop in confidence in their own economy.
As a result, the demand for offshore transfers has skyrocketed. Patrick Chovanec of Silvercrest Asset Management estimates capital flight at $250 billion annually, and the amount may even be higher than that. As Li Youhuan of the Development & Research Center of Guangdong Social Sciences, wrote last week, the sums transferred out of the country are “gigantic.”
Bank of China, naturally, had competition helping the Chinese put their money offshore. Said an employee of a major state bank speaking anonymously to the South China Morning Post, “BOC is not the only bank providing these kinds of services. All major banks do.” A Swiss banker called the involvement of the big Chinese institutions “an open secret.”
In these circumstances, it was inevitable that Beijing would do something about the flouting of its exchange control rules. What was not inevitable, however, is that CCTV would take on Bank of China in public. CCTV, mostly during its annual March 15 telecasts, has aired investigations of foreign companies, such as Apple, McDonald’s, Carrefour, and Volkswagen. The broadcaster has even gone after domestic concerns, most notably developers such as China Vanke, Soho China, and Agile Property Holdings, yet it has never aired such a sensational charge against a state institution with the stature of Bank of China.
Why did CCTV do so? In an era of increasing control of the media—last month the State General Administration of Press, Publication, Radio, Film and Television issued an order banning critical reports of major government organs without approval—CCTV could not have aired the investigation without authorization from a senior political figure. That figure, in all probability, was an opponent of officials responsible for Bank of China or perhaps all state banks. CCTV’s public attack on the bank, therefore, suggests infighting among top leaders because officials knew they could punish adversaries for violations of capital control rules.
A sure sign of weakness in a political system is a purge, and in China there have been many of them recently. General Secretary Xi Jinping’s serial purges—under the guise of an anti-corruption campaign—have not been leading to political consolidation, as most analysts think, but to continuing instability. If the system were stable, there would be no further bloodletting.
In China’s highly factionalized political system, senior leaders are always engaged in some form of struggle, but for the last two decades the struggles have been contained and mostly kept out of view. Under the ambitious and wilful Xi, however, the infighting has escalated and become public. The significance of CCTV’s attack on Bank of China is that struggles among senior leaders have broken out into a new arena.
The Communist Party, which looked so sturdy in recent times, is beginning to come apart. Now, personal struggles are tarring the image of the critical institutions of the one-party state. This cannot be a good sign for Chinese stability.
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Jul 13, 2014 20:39
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- namaste friends
- Sep 18, 2004
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by Smythe
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cross postin'
http://www.bloomberg.com/news/2014-07-14/secret-path-revealed-for-chinese-billions-overseas.html
quote:
For years, wealthy Chinese have been transferring billions worth of their money overseas, snapping up pricey real estate in markets including New York, Sydney and Vancouver despite their country’s currency restrictions.
Now, one way they could be doing it is clearer. Last week, when China Central Television leveled money-laundering allegations against Bank of China Ltd., the state-run broadcaster’s report prompted the revelation of a previously unannounced government program that enables individuals to transfer their yuan and convert it into dollars or other currencies overseas.
Offered by some banks in the southern province of Guangdong, across the border from Hong Kong, the trial program was introduced in 2011 for overseas property purchases and emigration and doesn’t constitute money laundering, Bank of China said in a July 9 statement. The transfers were allowed by regulators and reported to them, the bank said.
“What it shows is the government has been trying to internationalize the renminbi for a lot longer than we thought,” Jim Antos, a Hong Kong-based analyst at Mizuho Securities Ltd., said by phone, using the official name for China’s currency and referring to policy makers’ long-stated goal of allowing the yuan to become freely convertible with other currencies. “I’m rather encouraged by this news because this is the way they need to go.”
Currency Controls
China’s foreign-exchange rules cap the maximum amount of yuan that individuals are allowed to convert at $50,000 each year and ban them from transferring the currency abroad directly. Policy makers have taken steps in recent years, including allowing freer movements of capital in and out of China, as they seek to boost the global stature of the not-yet-fully convertible yuan.
“There’s a silver lining in this incident as it may force the regulators to address the issue in a more open and transparent way,” Zhou Hao, a Shanghai-based economist at Australia & New Zealand Banking Group Ltd., said by phone. “This is an irreversible trend.”
The issue came to light after CCTV said Bank of China helped customers transfer unlimited amounts of yuan abroad through a product called Youhuitong, which means “superior foreign-exchange channel.”
Positives, Negatives
The program is another sign that China is testing methods to allow outward yuan flows before full convertibility, May Yan, a Hong Kong-based analyst at Barclays Plc, said by phone. The goal has been announced by policy makers since the 1990s, and is a step toward stated plans to make Shanghai a global financial capital by 2020.
“For an experiment, you want to see if there’s any positives or negatives,” Yan said. “When the bank or the regulators can accumulate that experience, then they will decide if they want to move forward, or broaden it or shut it down.”
The central bank in February unveiled rules to make it easier for companies with operations in Shanghai’s free-trade zone to move yuan in and out of the country, a further loosening of controls on currency flows. The yuan surpassed the euro as the world’s second most-popular currency in trade finance in 2013, according to the Society for Worldwide Interbank Financial Telecommunication.
The Guangdong branch of China’s currency regulator, the State Administration of Foreign Exchange, picked Bank of China, China Citic Bank Corp. (998) and a foreign lender to let individuals transfer yuan abroad in a trial the banks were told not to promote, Time Weekly reported in April 2013. A Beijing-based Citic Bank press officer declined to comment on the program.
$3.2 Billion Estimate
While Bank of China didn’t provide figures, the 21st Century Business Herald estimated the lender has moved about 20 billion yuan ($3.2 billion) abroad through Youhuitong, citing people with knowledge of the trial program. “Many commercial banks” in Guangdong offer a similar service, Bank of China said in its statement, without naming them.
Today, a link on CCTV’s website for the report on Bank of China led only to advertisements. A spokeswoman for CCTV’s international relations department, which handles foreign media inquiries, didn’t immediately respond to an e-mailed request for comment on why the story appeared to no longer be available.
The People’s Bank of China and SAFE didn’t reply to requests for comment. The central bank is “verifying” facts related to media reports of bank money-laundering, the official Xinhua News Agency reported July 10, citing a PBOC spokesman.
Youhuitong Suspended
Youhuitong has been suspended while the PBOC and its anti-money laundering bureau request records of all previous transactions, according to a person familiar with the product, who asked not to be identified because he wasn’t authorized to speak publicly.
Transfer approval for Youhuitong customers usually takes several weeks to a month, the person said. They need to provide documents showing how the money to be transferred was obtained, such as tax-payment receipts and proof of income, as well as a property-purchase agreement or proof of emigration, he said.
Youhuitong customers would typically deposit yuan with Bank of China (3988) at least two weeks before the transfer, the person said. Once approved, the customer and the bank agree on an exchange rate before the funds are moved to an overseas account designated by the customer, he said. Money destined for real estate would go directly to the property seller’s account to ensure the cash won’t be misused, he said.
A Beijing-based press officer for Bank of China declined to comment. Industrial & Commercial Bank of China Ltd. and China Construction Bank Corp. (939), the nation’s two largest banks, declined to comment on whether they offer similar products.
Another Way
HSBC Holdings Plc (5), which runs the largest branch network among foreign banks in China, offers its Chinese clients another way to access offshore mortgages while avoiding the cap on foreign-exchange conversion, according to a person familiar with the mechanism, who asked not to be identified without having authorization to speak publicly.
Customers deposit yuan with HSBC’s mainland unit or purchase its wealth-management products, and the bank’s overseas branch then issues a foreign-currency denominated mortgage using the China deposits as collateral, the person said.
“We seek to abide by the rules and laws of the jurisdictions and geographies in which we operate,” said Gareth Hewett, a Hong Kong-based HSBC spokesman.
Affluent Chinese have been moving money overseas in search of greater investment returns. China’s benchmark stock index has tumbled 66 percent from its 2007 record, while the government has clamped down on property lending to rein in rising prices.
U.S. Purchases
Chinese buyers, including people from Hong Kong and Taiwan, spent $22 billion on U.S. homes in the year through March, up 72 percent from the same period in 2013 and more than any other nationality, the National Association of Realtors said in its annual report on foreign home purchases.
“Clearly the property market wouldn’t nearly be so robust as it is today without mainland money,” Mizuho’s Antos said. “How did they do it? With Bank of China’s help. There has been a tremendous amount of mainland money flowing offshore and it couldn’t have happened without” official approval.
Chinese have become the biggest investors in Australia’s commercial and residential property, with purchases surging 42 percent to A$5.9 billion ($5.6 billion) in the year to June 2013, according to the country’s Foreign Investment Review Board.
Vancouver Property
Vancouver’s real estate market has also seen the impact, having been “fueled tremendously in the last couple of years by high-end wealthy Chinese and Hong Kong buyers,” according to real estate agent Malcolm Hasman.
China needed to improve its oversight of capital flows after $2.7 trillion in unexplained funds moved overseas in the decade prior to 2012, Anthony Neoh, a former government adviser who helped the country open up to foreign money managers, said last year, citing data from Integrity International. Those funds fueled property bubbles in cities such as Hong Kong instead of being invested in domestic assets, he said.
“We know the demand to move abroad is there,” said ANZ’s Zhou. “Even if you impose various restrictions, the money will find its way out of the country, via underground banks and other means.”
So is this money clean?
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Jul 14, 2014 06:56
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- namaste friends
- Sep 18, 2004
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by Smythe
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China is probably ok.
http://www.ft.com/intl/cms/s/0/04c5...l#axzz37VpTy4hg
quote:
China’s second-quarter GDP report is due for release on Wednesday.
Has Beijing been successful in meeting its annual growth target of more than 7 per cent?
Most expect so. And given quite a few investors see equity markets as “priced for perfection” a disappointing GDP print could cause some severe global ructions.
Still, the Shanghai stock market started the week in good fettle, closing Monday at a near one-month high.
And arguably better guides of China’s economic health have also been delivering promising signals of late.
Iron ore prices have risen four weeks in a row, up about 9 per cent since dropping to a near two-year low of $89 a tonne, according to Reuters.
Steel rebar futures, which last month fell to record contract lows, have climbed to the highest level in more than six weeks.
Some of these price gains are based on reduced fears of oversupply but they are also the result, particularly with regard to rebar, of government moves to boost infrastructure spending, notably in railway construction.
Chartists may also like to note that the Hang Seng index – which moves mainly under the gravitational pull of the mainland and Wall Street – is at the top of a “bullish” long-term triangle.
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Jul 16, 2014 02:49
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- namaste friends
- Sep 18, 2004
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by Smythe
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I hear that official reports should be taken with a grain of salt. Should we take this with a grain of salt?
Yep.
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Jul 16, 2014 03:12
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- namaste friends
- Sep 18, 2004
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by Smythe
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http://www.bloomberg.com/news/2014-07-16/huatong-road-bridge-may-miss-400-million-yuan-debt.html
quote:
China faces what would be the second default in the nation’s onshore bond market after a builder said it may fail to make a payment next week, the latest sign of stress in the world’s biggest corporate debtload.
Huatong Road & Bridge Group Co., based in the northern province of Shanxi, said it may miss a 400 million yuan ($64.5 million) note payment due July 23, according to a statement to the Shanghai Clearing House yesterday. Chairman Wang Guorui is assisting authorities with an official investigation, it said, without elaborating. Wang was removed from the Chinese People’s Political Consultative Conference Shanxi Committee on July 9 for suspected violations of the law, according to an official statement and media report last week.
Shanghai Chaori Solar Energy Science & Technology Co. (002506) marked China’s first onshore corporate bond default in March when it missed a coupon payment. Huatong Road would be the first to fail to pay both interest and principal, and would also be the first default in the interbank note market, the nation’s biggest bond bourse. Chinese firms have the most debt globally after increasing borrowings to $14.2 trillion as of Dec. 31, surpassing the U.S.’s $13.1 trillion, Standard & Poor’s said in a June 15 report.
“It’s very likely the company will default,” said Xu Hanfei, a bond analyst at Guotai Junan Securities Co., the nation’s third-biggest brokerage. “If it does, the event will have a big impact on investors’ risk sentiment.”
Debt Due
An operator who answered the main line of Huatong Road today wouldn’t comment on the issues and declined to transfer the call to related people.
China Lianhe Credit Rating Co. cut the company’s rating to BB+ from AA- to reflect the builder’s high default risks, according to a statement from the risk assessor today.
“The central bank, which regulates the interbank market, may permit defaults to help develop the corporate bond market by lowering moral hazards,” said Li Ning, a bond analyst in Shanghai at Haitong Securities Co., the nation’s second-largest brokerage.
Huatong Road said in its statement yesterday that it’s exploring various channels to raise funds to pay off the one-year bond, according to the statement. It owes 429.2 million yuan in interest and principal by the due date, it said. The builder, which was set up in 1998, had 5.8 billion yuan of debt and 10.7 billion yuan of assets as of March 31, according to a separate statement in April on the Chinamoney website. It reported a profit of 62.7 million yuan for the first quarter.
Overcapacity
“The possible default of Huatong Road is another sign of increasing default risk among small and weak bond issuers in China as slower growth hits companies in sectors that are struggling with overcapacity and tougher financing conditions,” said Christopher Lee, Hong Kong-based managing director of corporate ratings at Standard & Poor’s. “Builders are vulnerable as the property downturn has curtailed construction investment which weakens their order book and revenues.”
Companies in China are facing tougher operating conditions as growth looks set to cool to 7.4 percent this year, the slowest in more than two decades, according to a median estimate of economists surveyed by Bloomberg. The March implosion of closely held developer Zhejiang Xingrun Real Estate Co. also fueled concern that defaults could spread, particularly among companies connected to the cooling property market.
‘More Defaults’
“Possibility of government intervention is low. Since last year, the new administration has been taking a more market-oriented approach,” said Ivan Chung, Hong Kong-based senior vice president at Moody’s Investors Service. “Regulators realize that if they provide support by intervening, it will also create more moral hazards, which is not good for the market.”
Chung said more defaults may occur in sectors that are facing overcapacity, such as construction, steel and commodities.
Huatong Road’s businesses include bridge and highway construction, real estate, coal, eco-friendly construction materials and agriculture-related projects, according to its website.
The Huatong and Chaori cases add to speculation that the world’s second-biggest economy is moving more toward a system in which troubled borrowers can no longer count on government help to pay off debts.
“More defaults will come,” said Haitong Securities’ Li.
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Jul 17, 2014 15:57
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- namaste friends
- Sep 18, 2004
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by Smythe
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http://online.wsj.com/articles/chinese-developers-profit-warnings-drive-shares-lower-1405335978
quote:SHANGHAI—Recent profit warnings from two Chinese property developers have stoked more investor concern than usual.
While investors typically shrug off warnings borne of tactics like delayed profit bookings and changing project values to sculpt results, some fear that China's weakening property market has left developers with insufficient cash flow to complete their projects.
Shares of property developer China Overseas Grand Oceans Group Ltd. 0081.HK -0.96% fell sharply on Monday after the company issued a profit warning about its first-half earnings after the close of trading Friday. State-backed property developer Greenland Hong Kong Holdings Ltd. 0337.HK +1.48% made a similar announcement late Thursday, followed by a 5% drop in the company's shares during Friday's session.
COGO, which ended down 4.8% to HK$5.13 on Monday, said in a stock exchange statement late last week that it expects a profit shortfall of 30% for the first half of this year compared with the same period of 2013. The company, a unit of state-owned China Overseas Land & Investment Ltd. 0688.HK -0.48% , blamed its forecast on slower gains in the values of its investment properties and weakness in the Chinese economy.
Greenland Hong Kong, a unit of Shanghai-based state-owned conglomerate Greenland Holding Group, also said it expected to record "a material decline" in income over the first half of 2014, citing fewer properties delivered in the first half of 2013.
Greenland's shares staged a modest recovery Monday, rising 1.8% to close at HK$3.45, on some short-covering demand.
Chinese property developers typically report monthly contract sales when home buyers sign contracts, but only book revenue when the homes are delivered a year or so later. Thus, profit warnings can signal that projects face construction delays.
So far, smaller property developers have been squeezed hardest as home buyers gravitate toward bigger players they deem more reliable. The warnings from two Hong Kong-listed firms hint that even larger players aren't immune. China has more than 85,000 property developers, only a small percentage of which are listed.
Though COGO's warning may be related to assessing new values on existing projects and profit booking, it is nonetheless "an alarming sign for other developers," said Jefferies analysts in a research note.
The severity of COGO's profit warning took investors by surprise, as contracted sales in the first half this year fell by a mere 2.7% from the same period a year earlier. Chinese property developers typically report monthly contract sales when buyers sign contracts to purchase homes, but revenue is booked only when the homes are finally delivered a year or so later.
Unlike COGO, Greenland's profit warning wasn't a surprise given a pattern of weak sales in early 2013 and before, said Franco Leung, a vice president at ratings firm Moody's Investors Service. He added that he expects Greenland Hong Kong to record declines in revenues and net profits for the full-year 2014 considering the company's project-delivery schedule.
Some home buyers, especially in the smaller cities in China, have voiced concerns about runaway property developers who burn through their cash and can't complete construction. Because of this, many prefer homes that are already completed, which puts more pressure on developers who need to raise money to build the homes rather than use the proceeds from presales.
China's residential property sales fell 10.2% in the first five months of this year and June's data is due Wednesday. Some investors hope the recent slew of property launches would boost sales, but high inventories in second- and third-tier Chinese cities is likely to keep a lid on earnings.
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Jul 21, 2014 06:38
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- namaste friends
- Sep 18, 2004
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by Smythe
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http://www.ft.com/intl/fastft?post=186862&siteedition=intl
quote:
Investors are now obviously bored of that impending-China-crisis narrative.
A gauge of Chinese shares traded in Hong Kong has entered a bull market as investors continued to look beyond concerns about China's financial system.
The Hang Seng China Enterprises Index has risen as much as 0.6 per cent to 11057 points, meaning it has gained 20 per cent since its 2014 low on March 20. A bull market is understood as a 20 per cent increase within a recent trading period.
The Hang Seng Index is also up 0.6 per cent and the Shanghai Composite added 1.7 per cent.
Investors are turning to Chinese equities because worries over the Chinese economy may have caused them to overlook quality Chinese companies, Jefferies analyst Sean Darby wrote.
A recent study by Standard Chartered bank estimated that China's total debt load is now equivalent to more than 2.5 times GDP, up from less than than 1.5 times in 2008.
Still, Jefferies has "turned bullish" on Chinese A shares after being bearish for two years, Darby wrote, because a growing number of companies have reduced borrowings and raised their dividends.
He wrote:
Although the economy faces challenges and there is ongoing concerns over the financial system, the fact that so many companies have been disregarded suggests that the market might at some time re-rate this growing pool of candidates.
fastFT reported last week on a survey by Nomura that found the majority of European investors had turned positive on Chinese stocks.
That is partly due to the high dividend yields and low valuations still on offer, in an era where ample global liquidity has pushed down investment returns across asset classes.
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Jul 28, 2014 04:19
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- namaste friends
- Sep 18, 2004
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by Smythe
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http://www.bloomberg.com/news/2014-07-28/china-trade-numbers-still-don-t-add-up-post-fake-exports.html
quote:
China’s trade numbers still don’t add up.
A discrepancy between Hong Kong and Chinese figures for bilateral trade remains even after a crackdown last year on Chinese companies’ use of fake export-invoicing to evade limits on importing foreign currency. China recorded $1.31 of exports to Hong Kong in June for every $1 in imports Hong Kong tallied from China, for a $6.4 billion difference, based on government data compiled by Bloomberg News.
Analysts offered at least three possible explanations for the gap, including differences in how China and Hong Kong record trade in goods that pass through the city, as well as a persistence in fraud at a lower level. Any discrepancies make it tougher to gauge the impact of global demand on a Chinese economy that’s projected for the slowest growth in 24 years.
“It’s still a bit of a mystery,” said Stephen Green, head of Greater China research at Standard Chartered Plc in Hong Kong. Regarding fraudulent invoices, “the fact that the ratio is like that would suggest that some of that is still going on,” he said.
Distortions in China’s trade data have abated since the State Administration of Foreign Exchange started a campaign in May 2013 to curb money flows disguised as trade payments.
While the China-Hong Kong data ratio is below the $2.35 at the peak of distortions from fraud in March 2013, it compares with an average $1.23 in 2011, $1.10 in 2010 and $1.03 in 2009.
Boost Scrutiny
The initial crackdown may have failed to eliminate deception. SAFE said in December that it would boost scrutiny of trade financing and that banks should prevent companies from getting financing based on fabricated trade. The State Administration of Taxation said earlier this month that it found instances of fraudulent exports used to obtain tax rebates by some companies.
“You can’t exclude the possibility that capital flows are being disguised as exports” in the China-Hong Kong figures, said Yao Wei, China economist at Societe Generale SA in Paris. “As the capital account becomes more open, the flows will show up in the places they should.”
While there isn’t a “big problem with the quality of trade data” any more, more time is needed to judge if the gap between China and Hong Kong figures is structural, Yao said. “Usually it’s good enough if the year-on-year growth data are in the same direction.”
Annual Change
Those figures may be drawing closer together. China’s data show a 6.5 percent increase in exports to Hong Kong in June from a year earlier, while Hong Kong’s numbers indicate a 7.8 percent jump in imports from China. In April, Hong Kong’s imports from China fell 1.7 percent and China’s exports to Hong Kong dropped 31.4 percent, as inflated figures from 2013 distorted the comparison.
More broadly, China’s exports worldwide expanded 7.2 percent in June from a year earlier, trailing the 10.4 percent median estimate of analysts, data showed July 10.
China’s General Administration of Customs, which publishes the trade data, didn’t respond to questions faxed July 25.
Hong Kong’s Census and Statistics Department said in an e-mail that because its compilation method and law on trade declarations are different from China’s, the two sets of data can’t be directly compared. Goods in transit through Hong Kong are excluded from the city’s statistics, the department said.
The disparity between China and Hong Kong figures has persisted as the yuan has weakened about 2.1 percent this year against the dollar, the worst performance among 11 major Asian currencies tracked by Bloomberg. The currency rose 0.7 percent in June, the most since April 2013.
Shipping Prices
Another possible explanation is in different methods of pricing shipping costs, according to Yao and Xu Gao, chief economist at Everbright Securities Co. in Beijing. “A lot of things can explain” the disparity, said Xu, who formerly worked at the World Bank.
Hong Kong isn’t the only export market where China’s figures differ from those of the destination’s government.
The U.S. and China have issued joint reports on their bilateral discrepancy in trade data, saying in 2012 that the differences stem from the treatment of trade flows through Hong Kong and markups after export from China.
Interest rates in China and Hong Kong still differ by several percentage points, providing incentives to disguise trade as capital flows, said Li Xiaoyang, an economics and finance professor at Cheung Kong Graduate School of Business in Beijing.
“As long as the interest-rate gap exists, this arbitrage disguised as trade won’t disappear,” Li said.
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Jul 30, 2014 04:02
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- namaste friends
- Sep 18, 2004
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by Smythe
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This is pretty stunning.
http://www.earth-policy.org/plan_b_updates/2014/update121
quote:
Can the World Feed China?
Lester R. Brown
Overnight, China has become a leading world grain importer, set to buy a staggering 22 million tons in the 2013–14 trade year, according to the latest U.S. Department of Agriculture projections. As recently as 2006—just eight years ago—China had a grain surplus and was exporting 10 million tons. What caused this dramatic shift?
It wasn’t until 20 years ago, after I wrote an article entitled “Who Will Feed China?”, that I began to fully appreciate what a sensitive political issue food security was to the Chinese. The country’s leaders were all survivors of the Great Famine of 1959–61, when some 36 million people starved to death. Yet while the Chinese government was publicly critical of my questioning the country’s ability to feed itself, it began quietly reforming its agriculture. Among other things, Beijing adopted a policy of grain self-sufficiency, an initiative that is now faltering.
Since 2006, China’s grain use has been climbing by 17 million tons per year. (See data.) For perspective, this compares with Australia’s annual wheat harvest of 24 million tons. With population growth slowing, this rise in grain use is largely the result of China’s huge population moving up the food chain and consuming more grain-based meat, milk, and eggs.
quote:
In 2013, the world consumed an estimated 107 million tons of pork—half of which was eaten in China. China’s 1.4 billion people now consume six times as much pork as the United States does. Even with its recent surge in pork, however, China’s overall meat intake per person still totals only 120 pounds per year, scarcely half the 235 pounds in the United States. But, the Chinese, like so many others around the globe, aspire to an American lifestyle. To consume meat like Americans do, China would need to roughly double its annual meat supply from 80 million tons to 160 million tons. Using the rule of thumb of three to four pounds of grain to produce one pound of pork, an additional 80 million tons of pork would require at least 240 million tons of feedgrain.
Where will this grain come from? Farmers in China are losing irrigation water as aquifers are depleted. The water table under the North China Plain, an area that produces half of the country’s wheat and a third of its corn, is falling fast, by over 10 feet per year in some areas. Meanwhile, water supplies are being diverted to nonfarm uses and cropland is being lost to urban and industrial construction. With China’s grain yield already among the highest in the world, the potential for China to increase production within its own borders is limited.
The 2013 purchase by a Chinese conglomerate of the American firm Smithfield Foods Inc., the world’s largest pig-growing and pork-processing company, was really a pork security move. So, too, is China’s deal with Ukraine to provide $3 billion in loans in exchange for corn, as well as negotiations with Ukrainian companies for access to land. Such moves by China exemplify the new geopolitics of food scarcity that affects us all.
China is not alone in the scramble for food. An estimated 2 billion people in other countries are also moving up the food chain, consuming more grain-intensive livestock products. The combination of population growth, rising affluence, and the conversion of one third of the U.S. grain harvest into ethanol to fuel cars is expanding the world demand for grain by a record 43 million tons per year, double the annual growth of a decade ago.
The world’s farmers are struggling to keep pace. When grain supplies tightened in times past, prices rose and farmers responded by producing more. Now the situation is far more complex. Water shortages, soil erosion, plateauing crop yields in agriculturally advanced countries, and climate change pose mounting threats to production.
As China imports increasing quantities of grain, it is competing directly with scores of other grain-importing countries, such as Japan, Mexico, and Egypt. The result will be a worldwide rise in food prices. Those living on the lower rungs of the global economic ladder—people who are already struggling just to survive—will find it even more difficult to get by. Low-income families trapped by food price inflation will be unable to afford enough food to eat every day.
The world is transitioning from an era of abundance to one dominated by scarcity. China’s turn to the outside world for massive quantities of grain is forcing us to recognize that we are in trouble on the food front. Can we reverse the trends that are tightening food supplies, or is the world moving toward a future of rising food prices and political unrest?
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Aug 3, 2014 19:13
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- namaste friends
- Sep 18, 2004
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by Smythe
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Lets get this motherfucking default smorgasboard on.
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Aug 20, 2014 02:33
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- namaste friends
- Sep 18, 2004
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by Smythe
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Chinese housing market appears to be fuuuuuuuuuuuuuuuuuuuucked
http://www.ft.com/intl/cms/s/0/4bb4...k#axzz3BVUMEGGr
quote:
In the latest sign of Chinese developers’ desperation to unload inventory into a weak property market, China Vanke Co is offering discounts of up to $325,000 to homebuyers who shop on Alibaba’s Taobao, an e-commerce platform.
The country’s biggest developer will give discounts that match shoppers’ spending of up to Rmb2m ($325,000) on the eBay-like service. Homes in real estate developments in Beijing, Shanghai, Guangzhou and Chongqing, among other cities, will qualify, according to an advertisement on Taobao’s website.
Developers began cutting prices this year but have so far failed to revive flagging volumes. More than 30 cities have also removed purchase restrictions introduced in 2010 to restrain price growth amid public anger over high prices.
Residential property sales fell 9.4 per cent in floorspace terms in the first seven months of the year compared with the same period in 2013, according to government statistics.
Developers are increasingly resorting to creative sales tactics to drum up interest.
An office tower in Henan province offered car washes by bikini-clad models to people who referred a friend to the building’s account on WeChat, the instant messaging service run by Tencent Holdings. A residential developer in Wuhuan offered new iPhone 6s to potential buyers who showed up at the sales office.
While few would-be homebuyers could afford to spend millions of renminbi on Taobao in a single year, Vanke is offering a more modest discount of Rmb50,000 to those who have spent less than that on Taobao over the past year.
“Putting full effort into destocking has become the common choice of most developers. They’re still not optimistic about the market situation,” the China Real Estate Index System, a private data provider, said in a commentary last week.
Property bubble ‘major risk to China’
If a turning point in the property and construction market has indeed been reached, China’s property developers have yet to heed it, writes Jamil Anderlini
Unsold inventory reached an all-time high at the end of July across the 70 cities surveyed by the National Bureau of Statistics.
The downturn has exposed sharp differences in the financial strength and market sensitivity of China’s property developers.
Vanke and Poly Real Estate Group, the second-largest developer by market value, have weathered the storm relatively well. Both reported increases in net profits in the first half of the year.
Other developers have fared less well. Gemdale Corp, the sixth-largest, reported a 50 per cent decline in net profit, even as operating revenue rose 3 per cent, after falling prices hit profit margins. Profit at China Merchants Property, the eighth-largest, declined 30 per cent on flat revenues.
The inventory build-up may get worse before it gets better. Several developers noted in their recent half-year reports that September and November will be a peak period for new housing completions. That will add to the supply overhang and increase pressure on developers to cut prices.
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Aug 26, 2014 15:07
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- namaste friends
- Sep 18, 2004
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by Smythe
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So what you're saying is that building tons of office parks and buildings in order to create a supply of tenant businesses was an rear end-backwards idea?
Well when your supply far exceeds demand what do you think will happen? Take your time.
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Aug 30, 2014 06:26
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- namaste friends
- Sep 18, 2004
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by Smythe
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Jesus loving christ is everything fake in China?
http://www.ft.com/intl/cms/s/0/d72ec42a-2f87-11e4-83e4-00144feabdc0.html#axzz3BoXMoz00
quote:
‘Brushing’ casts doubt on Alibaba figures as $20bn IPO looms
After four years managing a private delivery company in the Chinese city of Ningbo, Chen Qian has acquired a new skill: he can tell which packets are fake even before he picks them up. Some are hollow boxes, some rattle with a piece of candy or a keychain. Recently, he says, merchants sending fake deliveries have started putting toilet paper rolls to give some heft.
Mr Chen says these account for about a quarter of the 4,000 packages his company handles every day. The phenomenon is widespread throughout China; a consequence of the country’s booming e-commerce industry and, specifically, a practice known as shuaxiaoliang, or literally – “sales brushing”. Online sellers are recruiting their friends, relatives and even professional fraudsters to make fake orders because shipping more goods would give them better placement – and therefore a better chance to garner more real sales – on websites such as Alibaba-owned Taobao.
In some category of goods, fake sales can account for between a 10th to a quarter of all online sales, according to a series of interviews with ecommerce vendors, logistics companies, and people who help fake internet traffic for e-commerce sellers.
This high proportion calls into question the key operational metrics published by Alibaba ahead of its expected New York listing this month, when it is likely to raise around $20bn and eclipse Facebook and Google to become the biggest ever internet IPO.
Since Alibaba’s Tmall and Taobao sites account for 80 per cent of the overall online retail volume in China, “brushing” also calls into doubt China’s official e-commerce statistics.
Alibaba said in a filing to the Securities and Exchanges Commission this week that it handled $296bn worth of goods, consisting of 14.5bn orders, in the year ended June 30. Ebay handled $81bn worth of goods over the same period.
Alibaba noted in the risk factors section of its prospectus that sellers on its site may “engage in fictitious or phantom transactions with themselves or collaborators in order to artificially inflate their own ratings on our marketplaces, reputation and search results rankings”.
The company declined to comment further due to a pre-IPO silent period, but Alibaba has been cracking down on brushing for the last three years. This has had some effect, according to sellers and others active on Taoboao, although the practice still flourishes as sellers stay ahead of Alibaba’s audit methodology.
Brushing highlights the headaches of policing third parties on e-commerce sites and applies not just to Alibaba but to all sites that have open supplier platforms, such as Ebay and Amazon. However, Alibaba is most affected due to its sheer size in the Chinese market, and because fierce competition and rising advertising rates charged by Alibaba mean that the vast majority of sellers on Taobao are now lossmaking. Ebay and Amazon declined to comment.
Zhang Yi, chief executive of iMedia Research, a mobile internet consulting group, said a private study by his group reckons that a very large number of shop owners on Alibaba’s flagship ecommerce site Taobao, which accounts for two-thirds of Alibaba’s total sales volume, “brushed” in the first half of 2014. “The great majority are brushing or have ‘brushed’ at some point” he said.
“We’ve only started brushing recently,” said one Taobao shop owner in Hangzhou which sells hats and traditional silk scarves, who asked not to be identified. “There is no other choice for us. A lot of the other shops have been doing this for years, and we realised that no matter how well we did in sales, we could not compete with those who brushed. The way I see it, it would be best for all of us if nobody brushed.”
BRUSHING: HOW IT WORKS
Brushing has generated a whole series of side industries in China, including businesses that thrive by artificially boosting online traffic to Taobao and Tmall shops.
“But the competition is so fierce, there is really no other way, all our competitors are doing it. If your sales aren’t high enough, you will get low placement and no sales”
There is some disagreement over the extent to which brushing affects Alibaba’s overall sales numbers. One person familiar with the company said Alibaba was aware of the problem but did not consider it material enough to impact overall sales.
However Anne Stevenson-Yang, head of J Capital Research, the Beijing based economic research group, drew attention to the 63 per cent jump in Alibaba’s gross merchandise value between the end of 2012 and end 2013, from $157bn to $248bn.
In that same period, she says, there was only a 6 per cent revenue growth for all retailers listed on the Shanghai, Shenzhen, and Hong Kong stock exchanges, not corrected for mergers and non-core investments.
“You can’t say this is channel migration, because a lot of the consumer/retail companies have very robust online sales, and those sales are growing more slowly than offline sales” she says. “Manufacturers of products sold online are seeing slow or negative growth. So where are all these online sales coming from?”
Over the past three years, Alibaba has improved its auditing procedures, which use algorithms to determine suspicious activity. Merchants caught brushing could be downgraded or even kicked off the website.
Mr Chen, of the delivery company, told the FT via telephone that the number of empty packages he handles has been reduced from half to one-quarter of the total in that time. However, the practice still flourishes as sellers stay ahead of Alibaba’s audit methodology. In chat rooms and blog forums, vendors discuss how not to get caught: do not have too high a conversion ratio of sales to internet traffic clicks, and do not “brush” from the same IP address too often.
Li Siyuan, who sells cut flowers online on Taobao from his Beijing flat, said he personally does not brush sales, however he knows many merchants who do, but the practice is declining. “The golden age of brushing was 2009 to 2011” he said. Nowadays he estimates that the total amount of fake sales in the online flower industry is 10 per cent or less. “Today the best way to get high sales is to offer a great product,” he adds.
But Mr Chen, of the delivery company, says it will be difficult to completely eradicate the practice. “Even though our employees can pretty much tell which ones are empty, the line is still rather blurry,” he says. “Our clients can insist that they just intend to send a pack tissue paper; or even harder still, if they send out a receipt in an envelope.”
It appears that brushing violates no laws and, arguably, benefits everyone – store owners get better listings, logistics and delivery companies get more sales, and Alibaba gets a boost in traffic.
“I don’t think I want to criticise the practice too much because we get so many sales,” says Mr Chen.
Brushing: how it works
‘Brushing’ essentially consists of creating fake orders – the merchant sends out an empty box or delivery envelope accordingly, but refunds the money paid by the ‘purchaser’.
The practice of shipping an empty box or entering a fake order code is necessary because Alibaba requires a unique delivery code to be entered with each order.
In practice, Chen Xujie, a man from Wenzhou who fakes internet traffic for ecommerce sellers on his website 668shua.com, says half of the fakery is done by shipping empty parcels, and half is done via a grey market in active order codes sold by logistics companies to vendors via specialised websites.
Brushing has generated a whole series of side industries in China. Mr Chen, for example, runs a thriving business in artificially boosting online traffic to Taobao and Tmall shops. Shop owners who brush but do not also fake their traffic numbers can get caught because they would appear to be too successful, which casts suspicion and can cause them to be automatically downgraded by Taobao.
Some sellers also use virtual private networks on computers to fake different IP addresses for order locations, he said.
Going by the online chat handle of “Stupid Jerk”, Mr Chen uses internet bots and software to fake traffic. “Nine out of every 10 sites on Taobao do it” he said via instant messenger.
He claims to make Rmb3,000 per month generating fake traffic for Taobao sellers, and says he got into the practice after owning a shop on Taobao selling Korean cosmetics. He left Taobao because he said “there was no hope”.
“I spent too much time brushing my sales and it still wasn’t enough”.
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Aug 30, 2014 06:31
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- namaste friends
- Sep 18, 2004
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by Smythe
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Except that it's doubtful it's really growing that much anymore.
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Aug 30, 2014 18:46
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- namaste friends
- Sep 18, 2004
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by Smythe
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http://www.ft.com/intl/cms/s/0/1440...l#axzz3Dy7nw5Ry
quote:
China risks ‘balance-sheet recession’ as stimulus impact wanes
China has launched a fresh effort to boost its flagging economy with cash injections by the central bank, but signs are mounting that monetary stimulus is losing its effectiveness as debt-ridden companies lose their appetite for borrowing even at low rates.
‘Mini-stimulus’ measures launched since April have focused on increasing the supply of money and credit. Last week the central bank moved to inject $81bn into the banking system via loans to the five biggest banks. That followed targeted cuts to the required reserve ratio for small banks and a loosening of the regulatory loan-to-deposit ratio that gave banks greater freedom to expand lending.
Authorities want banks to channel those funds into the real economy, but bankers and analysts say that weak credit creation in recent months is due more to lack of demand from borrowers than to constraints on bank lending.
That raises the spectre that China may slip into a so-called “balance-sheet recession”, the kind of economic slump in which monetary policy loses its effectiveness because highly indebted companies concentrate on paying down debt and remain unwilling to borrow even when interest rates fall. Weak demand for goods amid a slowing economy further depresses appetite for investment.
“Anyone who runs a company with high leverage is very sensitive to the prospects for final demand,” said Richard Koo, the Nomura economist who pioneered the concept of a balance-sheet recession in his analysis of Japan’s post-bubble stagnation in the 1990s.
More recently he has applied the same analysis to the post-crisis economies of the US, European Union, and the UK, where huge expansions of the base money by central banks have largely failed to spur bank lending to the real economy.
“If everyone is happy and spending big, then leverage isn’t a big issue,” said Mr Koo. “That was the way Japanese companies operated until the end of the 1980s. But once things reverse, they have to be super cautious. At least some Chinese companies are now acting the same way.”
Indeed, a central bank survey released on Friday showed that bankers saw declining demand for loans in the third quarter, while a separate survey showed that manufacturers are increasingly pessimistic about the economy.
The survey results help to explain data released earlier this month showing that bank loans outstanding rose by only 13.3 per cent year on year in August, the weakest pace since 2005.
Analysts still believe the Chinese government could spur credit and investment growth with aggressive monetary easing, including an interest-rate cut and so-called “window guidance” from regulators instructing banks to boost lending.
But bankers say that good lending opportunities have become increasingly scarce, even as regulators have relaxed the enforcement of rules like the maximum 75 per cent loan-to-deposit ratio, which has long served as a big constraint on bank lending.
“The LDR has been relaxed, and liquidity has increased, but it’s still hard to place loans. When the (stimulus) news broke, banks all rushed to buy bonds. The money hasn’t flowed into the real economy,” said an executive at a midsize commercial bank in Shanghai.
Rising debt is at least partly to blame for waning appetite for new borrowing. The massive stimulus that China’s economic managers launched in response to the financial crisis sent China’s overall debt-to-GDP ratio soaring to 251 per cent by the end June, from 147 per cent at the end of 2008, according to Standard Chartered estimates.
Mr Koo and others say a fully-fledged balance-sheet recession would require a much steeper fall in Chinese asset prices. Property prices have fallen for four straight months, but the magnitude of the fall is still far below the catastrophic collapses seen in Japan in 1990 or the US in 2008.
The theory of a balance-sheet recession implies that when impaired corporate balance sheets weaken the private sector’s appetite for borrowing and investment, the government must fill the gap with fiscal spending.
China dabbled in this approach earlier this year, as the fiscal deficit briefly spiked amid increased spending on rail and other areas. But if private spending weakens further, Chinese policy makers may be forced to overcome their traditional aversion to big fiscal deficits and adopt more muscular stimulus.
George Magnus, senior economic adviser for UBS, argues that China should welcome the fall in borrowing and accept the current growth slowdown as the inevitable cost of preventing a fully-fledged balance-sheet recession down the road.
“If the credit-creation/debt-accumulation model is permitted to continue for much longer, I think it’s increasingly probable that over-leverage in the non-financial company sector could precipitate an interest-rate insensitive slump in investment,” said Mr Magnus.
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Sep 21, 2014 17:38
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- namaste friends
- Sep 18, 2004
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by Smythe
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Granted, the question will the Chinese government expand the monetary supply through even more lending to state banks and local governments and simply flood the balance sheets like Japan did? It seems like that is for the most part their course of action so far.
That said, it is unclear if they would be any more successful than Japan was beyond maybe further increases in productivity.
http://online.wsj.com/articles/china-pboc-injects-81-billion-into-top-banks-1410914151
81 billion last week.
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Sep 22, 2014 20:12
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- namaste friends
- Sep 18, 2004
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by Smythe
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hahaha china is going to burn
http://www.ft.com/intl/cms/s/0/33b9...t#axzz3EIj1CLp7
quote:
Chinese crowds took to the streets in four northern cities this week after the collapse of an underground fundraising scheme in which they had invested, highlighting potential for social unrest as the country’s economic growth slows.
One of Beijing’s biggest fears is the failure of fundraising schemes could trigger street protests by upset middle-class investors that could destabilise the ruling Communist party’s grip on power.
Protesters carrying red banners marched in the Hebei cities of Zhangjiakou, Cangzhou, Langfang and Hengshui on Monday.
Hundreds thronged the streets in front of government offices in each city, demanding their money from the Huangjinjia group https://www.hjjgold.com which operated branches in cities throughout Hebei province.
Restrictions on normal bank credit to certain industries have allowed loan sharks and unregulated investment pools to flourish in provincial China.
But the slowing growth and a poor outlook for mining and real estate – the two sectors into which much of the money has flowed – have cause some funding schemes to freeze up.
Hebei province, which rings Beijing, has been ground-zero for central government efforts to shut the polluting heavy industries that are the primary local employers and taxpayers.
The provincial government attempted to graduate that campaign into greater fiscal support as the local economy reels. Its first-half economic growth ranked last among all the Chinese provinces, at 5.8 per cent.
International investors’ attention has been more focused on the high-interest wealth management products marketed to wealthy depositors by Chinese banks and trust companies, because of the systemic risks they pose to the banking system.
But especially in the provinces, pawn shops, auto loan companies and jewellery shops can all front for cash-raising operations to channel money into high-interest, black market loans, with even less regulation.
Huangjinjia produced a variety of products ranging from gold and silver bars, to Q-tips to cooking oil. The main attraction at its gold shops seemed to be wealth management products offering annual interest rates of 7.5 per cent to 11.6 per cent on one-month deposits.
Local media estimated that roughly $500m in deposits was missing.
Xiao Xue, Huangjinjia’s chief executive, travelled with the business delegation that accompanied Xi Jinping to the Netherlands this spring, as the representative of an agricultural firm that she also heads, according to the company website.
Her company’s demise is not the only sign of economic weakness in Hebei province. On Monday, Chinese media reported that real estate developers facing a collapse in housing prices had absconded after raising $1.5bn in Handan, a large industrial city in the south of Hebei.
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Sep 25, 2014 06:09
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- namaste friends
- Sep 18, 2004
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by Smythe
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http://www.bloomberg.com/news/2014-09-25/china-foreign-exchange-watchdog-finds-10-billion-in-fake-trade.html
quote:
China uncovered almost $10 billion in fraudulent trade nationwide as part of an investigation begun in April last year, including many irregularities in the port of Qingdao, the country’s currency regulator said today.
Companies “faked, forged and illegally re-used” documents for exports and imports, Wu Ruilin, a deputy head of the State Administration of Foreign Exchange’s inspection department, said at a briefing in Beijing. The trades have “increased pressure from hot money inflows and provided an illegal channel for criminals to move funds,” Wu said, adding that those involved in such fraud would be severely punished.
“Some companies used the trade channel to bring in hot money,” said Zhou Hao, a Shanghai-based economist at Australia & New Zealand Banking Group Ltd. SAFE’s investigation “will likely further cool down hot money inflows and commodity imports could slow as banks will likely conduct more careful checks on documentation.”
Industrial metals fell and the yuan weakened after the announcement. Copper slid as much as 0.5 percent and all main metals on the London Metal Exchange declined. Chinese banks have about 20 billion yuan ($3.3 billion) of exposure to companies caught up in a loan fraud probe in Qingdao, two government officials told Bloomberg in July.
SAFE identified the fake trade invoicing as part of a crackdown on the practice in 24 cities and provinces, Wu said. The news raised speculation that metals supplies may increase as stockpiles tied up in financing deals come back on the market.
Higher Rates
The People’s Bank of China has built up the world’s largest foreign-exchange reserves as it bought dollars to limit the yuan’s gains with the nation’s higher interest rates drawing inflows. China’s benchmark 10-year sovereign yield declined 51 basis points, or 0.51 percentage point, this year to 4.04 percent on Sept. 24. This compares with 2.56 percent for similar-maturity Treasuries.
After almost uninterrupted annual gains since 2005 that saw the yuan rise 33 percent versus the dollar, speculators had come to see China’s currency as a one-way trade, leaving the world’s second-largest economy vulnerable to a sudden shift in investor sentiment. The PBOC guided the currency 2.4 percent lower in the first half of this year to deter such bets. Yuan positions at Chinese financial institutions, which typically rise as the monetary authority sells yuan to limit gains, fell last month by 31.1 billion yuan.
Trade Surplus
The currency rose to 6.1283 per dollar on Sept. 10, the strongest level since March, days after the nation posted a record $49.84 billion trade excess for August. The yuan fell 0.13 percent to 6.1458 in offshore trading in Hong Kong today, while 12-month non-deliverable forwards dropped 0.2 percent to 6.2415. The spot rate in Shanghai lost 0.05 percent to 6.1375.
Inventories of copper in warehouses linked to exchanges such as the LME and Comex will rise over the next six months in part because of fewer financing deals in China, Goldman Sachs Group Inc. said in a Sept. 23 report. Banks, trading companies and warehouse operators have been checking their exposure to metals stored at Qingdao and lenders have reigned in commodity financing this year.
Copper for delivery in three months fell as much as $31 to $6,711 a ton on the London Metal Exchange. Aluminum was down 0.4 percent at $1,966 a ton.
“Qingdao is not over,” said Chae Un Soo, a metals trader at Korea Exchange Bank Futures Co. The news will “definitely” impact demand for metals tied up in financing deals, he said.
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Sep 25, 2014 16:17
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- namaste friends
- Sep 18, 2004
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by Smythe
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https://www.ft.com/intl/cms/s/0/79e...ion=intl#slide0
quote:
Macau’s high-rolling casinos suffer amid China anti-graft storm
When Xi Jinping visits Macau in December to celebrate the 15th anniversary of Portugal returning its colony to China, local officials will greet the Chinese leader with huge fanfare.
However, the warm welcome will mask concerns about the impact that his anti-corruption campaign is having on the territory’s lifeblood: casinos.
Shares in the six big casino operators have plunged 27-38 per cent this year because of the slowing Chinese economy, tighter immigration rules and measures to tackle money laundering. But experts say the biggest factor has been the anti-corruption push that is forcing high-rolling Chinese “VIP” gamblers to stay at home.
“The ferocity of the anti-corruption drive has scared a lot of people,” says one top casino executive, adding that rich Chinese are nervous about flaunting their cash.
Over the past decade, the huge numbers of Chinese punters visiting Macau – the only place in China that allows casinos – have turned the territory into a gaming Mecca with seven times the revenues of Las Vegas.
The soaring growth helped the tiny 28 sq km enclave of 600,000 people overtake Switzerland last year to become the fourth richest territory per person in the world.
Until recently the only pause in the dizzying rise was briefly in 2009 after the global financial crisis.
But gaming revenues have fallen each month from June, a worrying sign for the six operators with casino licences – Sands China, Wynn Macau, Melco Crown, SJM, Galaxy and MGM China – who are planning big expansions in the next few years in an area called the Cotai strip.
Macau’s gaming revenues have risen by an average of 30 per cent annually over the past decade, transforming a place once known for triad warfare into a wealthy entertainment hub that hosts stars such as Justin Bieber and the Rolling Stones.
However, the territory is in danger of seeing the first annual fall in gaming revenues since it abandoned a monopoly system in 2002. CLSA, one of the most bullish brokers on Macau, expects 2014 revenues to fall 1 per cent year-on-year, as casinos brace themselves for the Chinese president’s visit.
“The big dogs in Beijing are coming to Macau and some people don’t like gambling when officials are around,” says CLSA’s Aaron Fischer, who thinks Macau will face a bumpy ride for six months.
The anti-corruption campaign has also hit “junket” operators who have traditionally facilitated the industry by bringing rich Chinese to Macau and providing the credit lines necessary to circumvent currency controls. One junket executive says Macau is facing “very major issues” and that the impact “will be long-term”.
Mr Xi’s anti-graft and austerity drives have targeted everything from pricey shark fin soup to top Communist party officials. Signs over the past year that he is aiming for Zhou Yongkang, a former member of the ruling Politburo Standing Committee, sent a signal that nobody was immune.
“The trickle-down effect is that some of the big players have decided that it is not going to be good to be seen playing in Macau,” says David Green, a Macau gaming expert at Newpage Consulting.
Macau is split into two main segments. VIP players generally have to buy HK$1m ($129,000) worth of chips to play baccarat – the favourite “game of fortune” in Macau – at the private high-roller rooms. The mass market is roughly split between “premium mass” where punters wager a minimum of HK$2,000 ($260) per hand, and the rest of the market where minimum bets range from HK$500 to HK$2,000.
Growth in the mass market has slowed because of the Chinese economy and rules that make it harder to abuse a visa-free system that allows Chinese to use Macau as a transit point. It has also been hit by a clampdown on using UnionPay, China’s biggest credit card company, to dodge currency controls.
But the pain has been much worse in the VIP market, which accounts for more than two-thirds of revenues. While all casinos are being hit, Mr Green says Stanley Ho’s SJM and Galaxy are the most exposed as they have 50 per cent of the VIP market.
Wynn Macau, the casino owned by Steve Wynn, relies more on VIP clients than its non-Chinese competitors – including Sheldon Adelson’s Sands China and James Packers’ Melco Crown – but Mr Green said it would suffer less than SJM and Galaxy as its gambling operations tend to be very profitable across tables.
In May, Mr Wynn said he was “sure the new president of China is going to make a very important impact on China . . . but right here in Macau, things seem the same”. Last week, he tweaked his tune, saying that VIP business revenues had shrunk. He said he was not concerned and refused to say whether 2014 would see a fall.
While the casinos try to respond to the fall in VIP business – which will accelerate a greater push into mass market gambling and entertainment favoured by the Macau government – signs of a slowdown have been emerging slowly.
Galaxy in June blamed a 7 per cent year-on-year fall in earnings before interest, tax, depreciation and amortisation at its StarWorld Macau casino on “the worst VIP luck quarter in history”. The casino executive says he stopped giving some Chinese gamblers credit three months ago, and adds that some big junkets pulled back from lending to rich Chinese even earlier.
The executive says the junkets are reluctant to lend to powerful Chinese tycoons because “you just don’t know who is next” to enter the anti-graft crosshairs.
Some brokers, such as Deutsche Bank, think that Macau could also face weaker mass market growth at a time when labour costs are rising. But the executive says China will remain a sound source of gamblers as the middle class grows. Macau government data show that even as VIPs abandon the enclave, the number of tourists has been increasing at an average monthly rate of 8 per cent.
“See the forest, not just the trees with the branches,” says the casino executive. “It will be mass leading VIP after it turns round.”
Falling number of VIP gamblers hits junket operators
While China’s anti-corruption campaign is hurting the Macau casino operators, the biggest losers are many of the so-called “junket” operators who help bring rich Chinese punters to the gambling haven.
Falling numbers of VIP gamblers – roughly defined as players who bet more than HK$1m ($128,000) in private rooms – are creating cash flow problems for many smaller junket operators in Macau. One casino executive said 30 of the more than 200 licensed junkets in the Chinese territory had gone bust over the past year.
The squeeze threatens to upend a business model that has existed in Macau in various forms for decades. According to a paper by two Macau experts, Wang Wuyi and the late William Eadington, in the 1930s, agents called jin ke – Chinese for “introduce guest” – scoured mainland China for potential gamblers who could help support a growing population of Chinese war refugees in Macau.
However, the jin ke have since been subsumed into a more sophisticated model where agents in China bring gamblers to junket operators – or VIP promoters – in Macau. In most cases, the casinos provide private rooms for the junket operators to run baccarat games under a profit-sharing arrangement.
One junket executive said the industry was being shaken out by a combination of the slowing Chinese economy and the anti-corruption campaign. He said the weak real estate market was hurting the junkets because they have tended to rely on property as collateral for extending credit to gamblers.
“Even though [punters] give good property, most junkets will not take them,” said the executive.
But he said the slowdown would be “good for Macau” because it would bankrupt less reputable operators with poor credit systems out of business. “People will be more cautious in how they give credit,” he said.
The casino executive said over the past year junkets were being asked by agents for twice the traditional 15-day period that gamblers have to pay their debts – as the slowing economy made people less able to cough up after losing in Macau.
Karen Tang of Deutsche Bank wrote recently that smaller junkets were shutting as tight cash flow meant they could not afford to give agents more time, which has resulted in the bigger junkets gaining market share.
Steve Vickers, chief executive of a business risk group, said the shrinking junket market was “not the end of Macau” but “the beginning of the end of the system where one per cent of the punters produce 80 per cent of the net profits”.
The US-owned casinos have long strived to distance themselves from suggestions that the junkets retain links to the triads – organised crime gangs who became notorious in the 1990s as they slugged it out on the Macau streets over VIP rooms.
“The larger junkets that remain will be acceptable to Beijing and have a potential collar on them to assist in capital control,” said Mr Vickers. “The bigger – US – casinos may decide the junket model has had its day.”
The casino executive said junkets were under orders from Beijing to not take physical assets as collateral, and that this and other pressures meant that there would be fewer than 10 junkets left in two years. “Junket is a dying trade,” he said.
Additional reporting by Julie Zhu
Twitter: @AsiaNewsDemetri
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namaste friends fucked around with this message at 18:51 on Sep 27, 2014
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Sep 27, 2014 18:44
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- Adbot
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ADBOT LOVES YOU
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May 11, 2024 07:13
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- namaste friends
- Sep 18, 2004
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by Smythe
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quote:Rumors Engulfing China's Central Bank Signal Beijing Turmoil
On Wednesday, the Wall Street Journal reported that Chinese leaders are considering replacing Zhou Xiaochuan, the highly respected governor of the People’s Bank of China, the country’s central bank. The move, according to the paper, would raise “questions over how quickly and deeply Beijing wants to remake the economy amid slowing growth.” The reporting, even if inaccurate, suggests that infighting in senior Communist Party circles is intensifying.
Zhou, the longest-serving chief of the central bank and “the face of the Chinese economy to markets globally,” has been the subject of various bouts of rumormongering during his tenure of almost 12 years. Despite passing the mandatory retirement age of 65 last year, he was awarded a third term, a sure sign of political strength then.
Nonetheless, persistent stories of his impending firing have circulated in Beijing in recent weeks. The Journal’s much-discussed article not only brought the matter out into the open but also seemed to confirm the suspicion that Zhou would be forced out soon. The paper, relying on unnamed “PBOC officials and advisers,” stated that Guo Shuqing “unexpectedly and unusually” attended a central bank monetary policy meeting on September 16. If true, Guo, once the country’s top securities regulator and now governor of Shandong province, looks to be the “top contender” to replace Zhou. Moreover, it appears from the Journal’s reporting that the replacement will occur soon, perhaps next month.
Just about everyone sees Zhou’s troubles as the result of regressive elements targeting a stronghold of economic reform. Cornell University’s Eswar Prasad, for instance, believes his departure “could suggest a subtle shift in the balance of power between reformist and reactionary forces, with the momentum for change being eroded by the loss of growth momentum in the economy.”
As Prasad suggests, China appears to be sliding into a period where anti-reformers have the upper hand. At the Party’s Third Plenum last November, Xi Jinping, the country’s newish ruler, unveiled an ambitious reform agenda. Since then, however, only a few elements of the plan have been implemented.
The failure to put in place his program calls Xi’s reformist credentials into question. Moreover, since the Third Plenum he has taken the country backward with his prolonged attack on foreign business, his excessive reliance on stimulus, and his increasing subsidization of state enterprises. On balance, therefore, Xi’s time at the top has been marked by the reversal of reform.
And in the last year, Zhou seems to have lost clout as Chinese leaders rejected his most important initiatives. For example, the State Council, to which Zhou reports, essentially spurned his call for the removal of caps on bank deposit rates. In both March and July of this year, Zhou predicted that the central government would remove the caps within two years, but the State Council in July would only say that the change will be “orderly,” in other words, only sometime in the indefinite future. Analysts correctly called this a public rebuke of the central bank chief.
Even when Zhou has been able to implement reforms since the Third Plenum, they have been inconsequential. Take, for instance, the widening of the trading band for the renminbi this March. The increase in the range from 1% from the daily reference midpoint to 2%, is meaningless because Zhou’s central bank each trading day fixes the midpoint and through various means ensures that the currency stays close to that mark. Long-term movements in the renminbi are still directed from top leaders, with political interference increasing this year to drive its value down.
Furthermore, Zhou seems to be on the losing end when it comes to what is certainly the most important issue of the day for him, monetary relaxation. To his great credit, Zhou has resisted even more accommodative policies, believing that bigger injections of cash into the economy would trigger a new round of speculation.
Yet Zhou’s restrictive stance has only been a holding action at best. In fact, the central bank in recent weeks has had to relent with, among other moves, the injection in the middle of this month of 500 billion yuan ($81.4 billion) into the country’s five largest banks. And with money supply and debt growing at double-digit rates while the economy is in fact expanding only in the low single digits, central bank policies cannot be called “tight.”
So in this environment it does not much matter whether Zhou goes or stays. His policy recommendations, unfortunately, are for the most part ignored.
The mystery, therefore, is why senior leaders would even think of replacing Zhou, thereby creating doubt at home and around the world in the soundness of Chinese economic policy. After all, any switch from Zhou to Guo would probably not have much practical effect. “If Guo were to replace him, I wouldn’t expect much change in Chinese policy,” said Nicholas Lardy of the Peterson Institute to Bloomberg. “Guo Shuqing has very similar strong reformist credentials as Governor Zhou.” And as the Economist pointed out, “If the Chinese government had suddenly gotten cold feet about financial reform, Mr. Guo would be an odd choice as Mr. Zhou’s replacement.”
The Wall Street Journal, citing “Party officials with knowledge of the plans,” notes that the “discussions” about Zhou’s fate “occur as Mr. Xi, now two years in office, tries to place more allies into top positions in the government, military and Communist Party.” Whether Xi is behind the movement to dump Zhou or not, the PBOC chief’s troubles point to worsening political turbulence in Beijing. Either Zhou is political roadkill or there is an organized campaign to dump him, and in either case internecine warfare erodes the ability of the Chinese government to function. As a result of the turmoil, long-needed—and long-delayed—reform initiatives will undoubtedly go unimplemented this year and maybe next.
Zhou’s removal would undermine the Chinese economy, but when ambitious figures struggle, such considerations become unimportant.
Say what you want about Gordon Chang but it's a pretty big deal to purge your central banker.
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Sep 28, 2014 23:37
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Jun 2, 2014 06:22
