Posts tagged ‘China’

17/04/2014

Why China Needs to Let More Companies Go Bankrupt – China Real Time Report – WSJ

China needs to let more companies go bust.

That was the message from several executives at a real-estate conference in Shanghai on Thursday, as the latest string of loan defaults among real-estate developers and a small construction firm have some people talking about bankruptcy more freely.

It’s crazy that China hasn’t had a major bankruptcy in recent years, said Ronnie Chan, chairman of Hong Kong-listed property developer Hang Lung Group.

Although the country has a bankruptcy code somewhat similar to that in the U.S., it’s rarely used. Borrowers sometimes flee rather than try to work out problems under bankruptcy law, and there are few judges, administrators or lawyers who specialize in the field.

Last month, property developer Zhejiang Xingrun Real Estate Co. couldn’t repay nearly $600 million of loans. Local officials in Fenghua, the eastern city where the developer is based, are worried that a bankruptcy could hurt the city’s reputation and have said they’ve set up a task force to deal with the outstanding debt and remaining land assets.

On Wednesday, a Shenzhen-listed shipbuilder said property firm Nanjing Fudi Property Developing Co. has failed to repay 105.4 million yuan ($16.9 million) loan, including interest.

While China has seen developers default before, government officials have arranged bailouts for troubled firms that allow their underlying financial problems to fester. On Thursday, analysts argued that authorities have to be willing to address the other option: Let the companies go broke, and send a warning to markets, even if it leads to some financial turmoil in the near term.

Mr. Chan argues that real-estate firms declaring bankruptcy isn’t a social problem. “Another firm takes over the land or project, and no one has to be fired.”

Developers and government officials must be “forced to accept reality,” he said.

To be sure, the developer isn’t saying massive waves of bankruptcies are the way to go either. This is acceptable as long as not too many companies go broke at the same time and doesn’t result too much disruption, Mr. Chan added. In other words, they don’t want a “Lehman Brothers” moment.

“That’s why we prune trees,” said John Allen, chief executive officer of private investment firm Greater China Corporation in a later speech. “Bankruptcy is one of the healthiest things around. You want to get rid of the weak players.”

via Why China Needs to Let More Companies Go Bankrupt – China Real Time Report – WSJ.

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16/04/2014

A Green Group Sees Hope in ‘The End of China’s Coal Boom’ – NYTimes.com – NYTimes.com

A report from Greenpeace charts slowing growth in China’s coal use.

Through much of its history, Greenpeace has been big on what I call “woe is me, shame on you” messaging on the environment. As I explained at a TEDx event in Portland, Ore., over the weekend, fingerpointing (including Greenpeace’s) is appropriate in many instances, but doesn’t work well with human-driven global warming. The blame game too often ends up resembling a circular firing squad.

This is why “The End of China’s Coal Boom,” a valuable new report from Greenpeace’s East Asia office, is so refreshing and worth exploring. I was led to it by a Twitter item from the group’s outgoing director, Phil Radford, that focused on a telling graphic:

View image on Twitter

via A Green Group Sees Hope in ‘The End of China’s Coal Boom’ – NYTimes.com – NYTimes.com.

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15/04/2014

China in numbers: beans means trouble as commodity markets highlight rising credit risks | The Times

500,000 . . . is the total tonnage of soya bean cargoes on which Chinese importers have defaulted recently, unsettling markets already nervous about the world’s second biggest economy.

Soya bean meal is unloaded at Fangchenggang

Those defaults look alarming. Commodity markets can provide livid symptoms of an economic malaise and the numbers seem to offer evidence of rising credit risk in China. The country’s first corporate bond default earlier in the year merely sharpened sensitiv-ity to any sign of contagion.

Shipping industry sources in Singapore and Tokyo believe that there are six soya bean cargoes at Chinese ports that cannot be unloaded and the same number still at sea. Their total value is somewhere around £180 million, which makes this China’s highest-stakes soya bean default since 2004. This in a country that imports nearly two thirds of all the soya beans traded worldwide.

Explanations are focused on China’s tightening credit markets and the inability of soya bean buyers to secure the necessary letters of credit from banks. It does not take much of a leap to wonder what that type of credit contraction is having on an economy that has been fuelled lately by an epic creation of new credit.

As with other vulnerable sectors in China, the companies that process soya beans have been making losses: suddenly the banks are unprepared to take risks on them and the cargoes have been stranded.

The defaults have highlighted other market distortions that go far beyond the inability of an oilseed processor to turn a profit from a hill of beans. Trading companies have routinely used soya bean cargoes, in common with shipments of copper and other commodities, as collateral to secure cheap financing for potentially more lucrative deals and businesses. Because the interest payable on letters of credit is low and the payment terms generous, some have sold the product itself at a loss simply to get their hands on the cash.

The reality of these defaults, though, is that they are probably a good thing — or at least part of a well-intentioned plan. Beijing has been uncharacteristically relaxed about these defaults for the same reason that it has been uncharacteristically relaxed about internet giants such as Alibaba infuriating the banks by introducing innovative financial products. Beijing knows it has to reform the financial sector, realises that it will face huge resistance and is looking for leverage. Creating a series of micro crises forces China’s banks to become better at what they are supposed to do. Defaults (on soya beans and bonds) have been noisily paraded in state media to show the banks that they are expected to start pricing risk accurately and coldly.

via China in numbers: beans means trouble as commodity markets highlight rising credit risks | The Times.

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15/04/2014

As Growth Slows in India, Rural Workers Have Fewer Incentives to Move to Cities – WSJ.com

As a teenager, Ram Singh left this remote rural village and moved to fast-growing New Delhi to chase the spoils of his country’s economic boom.

For 14 years, he toiled in tiny, primitive factories making everything from auto parts to components for light switches. His wages barely kept pace with the cost of living and eventually he gave up on city life.

Today, he is back on the farm, scratching out a living from a small plot of land near his birthplace where he grows corn, wheat, potatoes and mustard.

“Whenever someone leaves his village for the city, he thinks, ‘I will earn money,’” says Mr. Singh, who isn’t certain of his age but says he is around 30 years old. “Everyone has dreams, but it’s not always in their power to turn them into reality.”

Just a few years after India was hailed as a rising economic titan poised to rival China—even surpass it—growth in gross domestic product has slowed to a pace not seen in a decade. The Indian economy expanded at an annual rate of 4.7% in the last quarter of 2013. That may be sizzling by Western standards, but it is a serious comedown for a country whose GDP growth peaked at 11.4% in 2010. Inflation is high, workers aren’t finding jobs, and industrialization and urbanization are stalling.

via As Growth Slows in India, Rural Workers Have Fewer Incentives to Move to Cities – WSJ.com.

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15/04/2014

How a Chinese Company Built 10 Homes in 24 Hours – China Real Time Report – WSJ

Chinese companies have been known to build major real-estate projects very quickly. Now, one company is taking it to a new extreme.

Suzhou-based construction-materials firm Winsun New Materials says it has built 10 200-square-meter homes using a gigantic 3-D printer that it spent 20 million yuan ($3.2 million) and 12 years developing.

Such 3-D printers have been around for several years and are commonly used to make models, prototypes, plane parts and even such small items as jewelry. The printing involves an additive process, where successive layers of material are stacked on top of one another to create a finished product.

Winsun’s 3-D printer is 6.6 meters (22 feet) tall, 10 meters wide and 150 meters long, the firm said, and the “ink” it uses is created from a combination of cement and glass fibers. In a nod to China’s green agenda, Winsun said in the future it plans to use scrap material left over from construction and mining sites to make its 3-D buildings.

Winsun says it estimates the cost of printing these homes is about half that of building them the traditional way. And although the technology seems efficient, it’s unlikely to be widely used to build homes any time soon because of regulatory hurdles, Mr. Chen said.

The Chinese firm isn’t the first to experiment with printing homes. Architects in Amsterdam are building a house with 13 rooms, with plans to print even the furniture. The Dutch architect in charge of the project said on the project’s website it would probably take less than three years to complete.

via How a Chinese Company Built 10 Homes in 24 Hours – China Real Time Report – WSJ.

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15/04/2014

Massive China shoe factory strike rolls on as offer falls flat | Reuters

Thousands of workers at a giant Chinese shoe factory shrugged off an offer for improved social benefits on Tuesday, prolonging one of the largest strikes in China in recent years amid signs of increased labor activism as the economy slows.

Yue Yuen Industrial Holdings

Yue Yuen Industrial Holdings (Photo credit: Wikipedia)

The industrial unrest at Yue Yuen Industrial (Holdings), now stretching to around ten days and sparking sporadic scuffles with police, has centered on issues including unpaid social insurance, improper labor contracts and low wages. Workers have demanded improved social insurance payments, a pay rise and more equitable contracts.

“The factory has been tricking us for 10 years,” said a female worker inside a giant industrial campus in Gaobu town run by Yue Yuen in the southern factory hub of Dongguan in the Pearl River Delta. “The Gaobu government, labor bureau, social security bureau and the company were all tricking us together.”

A spokesman for Yue Yuen said the firm, which makes shoes for the likes of Nike, Adidas, Reebok, Asics and Converse with a market capitalization of some $5.59 billion, had agreed to an improved “social benefit plan” on Monday, while stressing the business impact had been “mild” so far.

“Basically, the terms that we announced yesterday was after a very thorough internal analysis and calculation and considering all the factors including the affordability from the factory perspective,” the spokesman told Reuters by phone.

via Massive China shoe factory strike rolls on as offer falls flat | Reuters.

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11/04/2014

All you need to know about business in China | McKinsey & Company

A lot of people view China business as mysterious. Relax. Consumers behave pretty much the same everywhere. Competition is pretty much the same everywhere. You just need to ignore the hype and focus on the basic fact that in China today, there are six big trends (exhibit). That’s it. Six trends shape most of the country’s industries and drive much of China’s impact on the Western world. They are like tectonic plates moving underneath the surface. If you can understand them, the chaotic flurry of activity on the surface becomes a lot more understandable—and even predictable.

Coauthors Jeffrey Towson and Jonathan Woetzel discuss China’s six megatrends with Nick Leung, the managing partner of McKinsey’s Greater China office.

These trends move businesses on a daily basis. They’re revenue or cost drivers that show up in income statements. Deals, newspaper headlines, political statements, and the rising and falling wealth of companies are mostly manifestations of these six trends, which aren’t typically studied by economists and political analysts. In fact, we happen to think that Chinese politics or political economics are wildly overemphasized by some Westerners in China. So let’s tell a story about each of these megatrends, with some important caveats. They’re not necessarily good things. They’re not necessarily sustainable. For every one of them, we can argue a bull and a bear case. Most lead to profits or at least revenue. Some may be stable. Some lead to bubbles that may or may not collapse. We are only arguing that they are big, they are driving economic activity on a very large scale, and understanding them is critical to understanding China and where it’s headed.

via All you need to know about business in China | McKinsey & Company.

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11/04/2014

Chinese civil society: Beneath the glacier | The Economist

AGAINST a powerful alliance of factory bosses and Communist Party chiefs, Zeng Feiyang cuts a frail figure. Mr Zeng, who is 39, works from a windowless office in Panyu, on the edge of the southern city of Guangzhou, where he runs a non-governmental organisation (NGO) called the Panyu Migrant Workers’ Service Centre. For more than a decade his organisation has battled against the odds to defend the rights of workers in the factories of Guangdong province. For his troubles, Mr Zeng has been evicted from various premises, had his water and electricity cut off, and been constantly harassed by local officials and their thugs. Then last autumn he received a call from one such official. “The man asked if I wanted to register the NGO,” he says. “I was very surprised.”

Over the past three years other activists at unregistered NGOs have received similar phone calls from the authorities about the sensitive issue of registration, an apparently mundane bit of administrative box-ticking which in fact represents real change. China has over 500,000 NGOs already registered with the state. The number comes with a big caveat. Many NGOs are quasi-official or mere shell entities attempting to get government money. Of those genuine groups that do seek to improve the common lot, nearly all carry out politically uncontentious activities. But perhaps 1.5m more are not registered, and some of these, like Mr Zeng’s, pursue activism in areas which officials have often found worrying.

These unregistered NGOs are growing in number and influence. They are a notable example of social forces bubbling up from below in a stubbornly top-down state. The organisations could be a way for the Communist Party to co-opt the energy and resources of civil society. They could also be a means by which that energy challenges the party’s power. And so their status has big implications. Guo Hong of the Sichuan Academy of Social Sciences in Chengdu calls the liberalisation of NGO registration laws “the partial realisation of freedom of association”. Just as economic liberalisation in the early 1980s had a profound material effect, so these latest moves could have a profound social one.

via Chinese civil society: Beneath the glacier | The Economist.

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11/04/2014

India Under Narendra Modi Could Be Japan’s Best Friend – Businessweek

The results of national elections in India, expected to be announced on May 12, could mean good news for Japan and not such good news for China. Narendra Modi, the leader of the Hindu nationalist opposition party, has long been a favorite of Japanese Prime Minister Shinzo Abe, who would like to foster military and economic ties with India. Modi, the front-runner in the contest to be India’s prime minister, and Abe also share an antagonism for China. Modi has criticized the government of Prime Minister Manmohan Singh for being too accommodating toward China and has pledged to take a tougher line on issues such as the border dispute between the two countries that has festered for decades.

A supporter of Narendra Modi dons a mask of the Hindu nationalist candidate

Abe has clashed with China in a dispute over the ownership of several islands in the East China Sea. When it comes to the Chinese, “the Japanese are extremely apprehensive,” says P.K. Ghosh, senior fellow at the Observer Research Foundation, a New Delhi think tank. “It doesn’t take a genius to say India can be the largest friend of the Japanese.”

Abe has long treated Modi as a kindred spirit. Even after the George W. Bush administration put Modi on a travel blacklist for his alleged role in the 2002 riots that killed about 1,100 people, mostly Muslims, in Gujarat state, Abe welcomed Modi to Japan. The Indian politician, who was exonerated by the Indian courts, visited in 2007 during Abe’s first term as prime minister and then again when Abe was opposition leader in 2012. “Japan has worked very hard to improve relations with India,” says retired Indian General Vinod Saighal, author of Revitalising Indian Democracy. With a Modi victory, he says, relations “will get a boost, certainly.”

via India Under Narendra Modi Could Be Japan’s Best Friend – Businessweek.

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11/04/2014

In China, Xi’s Anticorruption Drive Nabs Elite, Low Ranks Alike – Businessweek

Chinese President Xi Jinping’s anticorruption campaign has lasted longer, gone deeper, and struck higher than many analysts and academics had expected. Xi has been so zealous that since late last year retired Communist Party leaders including ex-President Jiang Zemin have cautioned him to take a more measured pace and not be too harsh, say Ding Xueliang, a professor of social science at the Hong Kong University of Science & Technology, and Willy Lam, an expert on elite politics at the Chinese University of Hong Kong.

Chinese President Xi Jinping in Berlin on March 28

Xi is cracking down on the army and the police at the same time, something no leader has done before, says Ding. Gu Junshan, a lieutenant general in charge of logistics for the People’s Liberation Army (PLA), has been charged with bribery, embezzlement, and abuse of power, the official Xinhua News Agency reported on March 31. He will be tried in military court.

China’s former top cop and security czar Zhou Yongkang is under investigation for corruption, say Ding and Lam. When asked at a March 2 press conference whether Zhou was under suspicion, a government spokesman avoided a direct answer, saying, “Anyone who violates the party’s discipline and the state law will be seriously investigated and punished, no matter who he is or how high ranking he is.” He added what seems to be a veiled confirmation: “I can only say so much so far. You know what I’m saying.”

More than 180,000 party officials were punished for corruption and abuse of power last year, according to the Central Commission for Discipline Inspection, the party’s watchdog. While most were low-level officials—or “flies,” as Xi has put it—they also included senior party members—“tigers,” in Xi’s words. Thirty-one senior officials were investigated by the commission last year: Eight had their graft cases handed over to prosecutors. The remaining 23 are still being investigated.

via In China, Xi’s Anticorruption Drive Nabs Elite, Low Ranks Alike – Businessweek.

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