Posts tagged ‘Hong Kong’

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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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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10/04/2014

Chinese Exports Plummeted Last Month. Puzzled? We Have You Covered – China Real Time Report – WSJ

China’s exports were down 6.6% on year in March, confounding economists, many of whom expected growth of over 4%.

What’s going on?

First, it’s important to remember that China’s trade statistics in the first quarter are often skewed by the Chinese Lunar New Year holidays, when activity slows down in much of East Asia.

But economists expected exports to show signs of a pickup in March, the first month not affected by the holidays, which this year fell in late January and early February.

One explanation is the March data was warped by over-invoicing. This is a practice by which Chinese companies dodge capital controls by using fake export invoices to get money into the country to benefit from relatively high onshore interest rates.

Beijing cracked down on the practice last spring, but over-invoicing was still prevalent in March 2013. Since then it has decreased because of tighter regulatory controls. The government’s efforts to guide the yuan currency lower this year also has diminished the attraction of such a carry trade.

That could mean the year-ago comparison was artificially boosted, making March 2014’s numbers look poor by comparison.

“Do not worry about the export data,” wrote Louis Kuijs, an economist at RBS in Hong Kong, in a note to clients.

RBS estimates year-on-year export growth in March 2013 was inflated by 11.8 percentage points due to over-invoicing. The bank also thinks export growth on-year in March this was 5.2% adjusting for over-invoicing.

“The competitiveness of China’s manufacturing sector is still solid, allowing its export sector to benefit from global demand growth,” Mr. Kuijs wrote.

Andrew Tilton, an economist at Goldman Sachs in Asia, agreed with this assessment.

“The main reason is that the over-invoicing distortions were peaking last year around this time,” he said. Now, “the increased currency volatility and deprecation is discouraging that activity from a financial incentive perspective.”

via Chinese Exports Plummeted Last Month. Puzzled? We Have You Covered – China Real Time Report – WSJ.

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30/03/2014

Americans Must Adjust to a World Dominated by China – Fed’s Bullard – China Real Time Report – WSJ

This post originally appeared on Real Time Economics.

It won’t be long until the U.S. is eclipsed economically by China—and Americans need to start thinking about how to adjust to such a world.

That’s according to Federal Reserve Board of St. Louis President James Bullard, who spoke to the Wall Street Journal on the sidelines of a conference during a recent visit to Hong Kong.

“Attitudes in the U.S. are going to have to change, because the U.S. will not permanently be the global leader,” Mr. Bullard said.

China is already the largest economy in the world after the United States, and is growing much faster than the U.S. Not too far in the future — estimates range from as soon as 2016 to as “distant” as 2028 — it will surpass the American economy in size.

Most likely, China will eventually match the U.S. in per capita income terms as well. With a population about four times as large as America’s, that would imply a massive shift in the global balance of power.

In that case, “the U.S. would be playing a role to China similar to the role the U.K. plays to the U.S. today,” Mr. Bullard said. “People think it’s 50-75 years away but it’s probably only 25 or 20 years away, something like that.”

China’s economy currently is a little more than half the size of America’s, IMF data show, clocking in at $8.9 trillion in 2013 versus $16.7 trillion for the U.S.

But China’s economy is growing much more quickly, targeting growth of about 7.5% this year. In contrast, the U.S. economy will be lucky to grow by 3%.

Then there’s India, another economy of a billion-plus people that’s also growing quickly. Eventually, Mr. Bullard said, he can foresee a tri-polar world in which China and India are the major economic powers, counterbalanced by a bloc of the United States, Europe and Japan, whose populations together will total about one billion people.

“We’ve said the U.S. is a superpower, an economic superpower. But these are giants, they’re bigger than a superpower,” he said. “What would that world be like, both economically and politically? I think that’s really hard to understand. How much would the Western bloc be willing to cooperate politically to be a counterbalance to China and India?”

Mr. Bullard offered few specifics of what such a world would look like, but did acknowledge that it might require some adjustment on the part of ordinary Americans like those he serves in the heartland.

via Americans Must Adjust to a World Dominated by China – Fed’s Bullard – China Real Time Report – WSJ.

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26/03/2014

Foreign Brands Shift Focus to China’s Second-Tier Cities – Businessweek

On March 15, luxury retailer Lane Crawford held a soft launch for its new store in Chengdu, a fast-growing metropolis in southwestern China. A few years ago, major fashion brands were concentrating on China’s leading first-tier cities: Beijing, Shanghai, Guangzhou, and Shenzhen. But today many are focusing on China’s second-tier and third-tier cities—which McKinsey Global Institute predicts will be home to 45 percent of China’s middle-class and high-income earners by 2022.

Chunxi Road shopping street in Chengdu

Hong Kong-based Lane Crawford is in good company in Chengdu. In 2010 the spacious Yanlord Landmark mall opened there; its current tenants include Burberry (BRBY:LN), Dior (CDI:FP), and Louis Vuitton (MC:FP). Of its 47 stores in mainland China, Louis Vuitton has already opened 36 in second-tier and third-tier cities. Tommy Hilfiger even has outlets in the western territories of Xinjiang and Tibet. Estée Lauder (EL) has more than 100 counters in more than 40 Chinese cities.

Domestic luxury brands looking to establish themselves as national chains are also focusing on second-tier cities. Guangzhou-based fashion label Nisiss, which sells breezy trousers and $900 cocktail dresses, opened two stores last year in Chengdu. This year it plans to open stores in Qingdao, Dalian, and Suzhou, among other cities.

via Foreign Brands Shift Focus to China’s Second-Tier Cities – Businessweek.

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21/03/2014

China Wants Its People in the Cities – Reuters

From: http://www.businessweek.com/articles/2014-03-20/china-wants-its-people-in-the-cities

Thirty-five years ago, when paramount leader Deng Xiaoping launched gaige kaifang, or “reform and opening,” China was a much more agricultural country, with less than a fifth of its people living in cities. Since then hundreds of millions of rural residents have left the countryside, many seeking jobs in the export-oriented factories and construction sites that Deng’s policy promoted.

Commercial and residential buildings stand in the Luohu district of Shenzhen, China, on Dec. 18, 2013 In 1978 there were no Chinese cities with more than 10 million people and only two with 5 million to 10 million; by 2010, six cities had more than 10 million and 10 had from 5 million to 10 million. By the following year, a majority of Chinese were living in urban areas for the first time in the country’s history.

Now urbanization has been designated a national priority and is expected to occur even more rapidly. On March 16, Premier Li Keqiang’s State Council and the central committee of the Communist Party released the “National New-type Urbanization Plan (2014-2020),” which sets clear targets: By 2020 the country will have 60 percent of its people living in cities, up from 53.7 percent now.

What’s the ultimate aim of creating a much more urban country? Simply put, all those new, more free-spending urbanites are expected to help drive a more vibrant economy, helping wean China off its present reliance on unsustainable investment-heavy growth. “Domestic demand is the fundamental impetus for China’s development, and the greatest potential for expanding domestic demand lies in urbanization,” the plan says.

To get there, China’s policymakers know they have to loosen the restrictive hukou, the household registration policy that today keeps many Chinese migrants second-class urban residents. China will ensure that the proportion of those who live in the cities with full urban hukou, which provides better access to education, health care, and pensions, will rise from last year’s level of 35.7 percent of city dwellers to 45 percent by 2020. That means 100 million rural migrant workers, out of a total 270 million today, will have to be given urban household registration.

To prepare for the new masses, China knows it must vastly expand urban infrastructure. The plan calls for ensuring that expressways and railways link all cities with more than 200,000 people by 2020; high-speed rail is expected to link cities with more than a half million by then. Civil aviation will expand to be available to 90 percent of the population.

Access to affordable housing projects funded by the government is also expected to rise substantially. The target is to provide social housing (roughly analogous to public housing in the U.S.) to 23 percent of the urban populace by 2020; that’s up from an estimated 14.3 percent last year, according to Tao Wang, China economist at UBS Securities (UBS) in Hong Kong. That means providing social housing for an additional 90 million people, amounting to about 30 million units, over the next seven years, Wang writes in a March 18 report.

The urbanization plan appears to face several big challenges. First, the government wants to maintain restrictions on migration to China’s biggest cities, which also happen to be its most popular. Instead, the plan calls for liberalizing migration to small and midsize cities, or those with less than 5 million. Whether migrants will willingly flock to designated smaller cities, rather than the megacities including Beijing, Shanghai, Guangzhou, and Shenzhen, is an unanswered question.

Another obstacle to faster urbanization is that the plan doesn’t propose how to reform China’s decades-old land tenure system. Changing the system could allow farmers more freedom to mortgage, rent, or sell their land.

Finally, one of the most daunting problems is figuring out how to pay for implementing the ambitious urbanization targets. The cost of rolling out a much more extensive social welfare network will be substantial (today, most Chinese in the countryside have far lower levels of medical and pension coverage, as well as far inferior schools); building the new urban infrastructure will also be expensive.

 

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25/02/2014

Property remains top wealth driver in China-Hurun list | Reuters

Real estate remained the most lucrative road to riches in China last year, according to the Hurun Global Rich List, despite Beijing’s repeated efforts to cool red-hot property prices.

A labourer works at a construction site in Beijing, January 20, 2014. REUTERS/Kim Kyung-Hoon

Six of world’s 10 top real estate tycoons are now from China and Hong Kong, according to Hurun Report Inc, which released its Global Rich list on Tuesday.

Hong Kong property tycoon Li Kai-shing claimed the top spot in the Greater China area with his fortune rising 3 percent to 200 billion yuan ($32.80 billion).

Wang Jianlin, chairman of China’s largest commercial property developer, Dalian Wanda Group, and Lui Che-Woo, founder of casino operator, Galaxy Entertainment Group Ltd (0027.HK), were the runners-up with personal wealth of 150 billion yuan ($24.60 billion) each.

Wang’s fortune doubled last year, while Lui’s wealth jumped 108 percent, the report said.

Wang bought UK luxury yacht maker Sunseeker for $1.6 billion and is planning billion-dollar luxury hotel developments in London and New York.

Home prices in many Chinese cities continued to set records last year despite a four-year government campaign to cool the housing market, official data showed.

via Property remains top wealth driver in China-Hurun list | Reuters.

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21/02/2014

* Local-government debt: Bridging the fiscal chasm | The Economist

This article provides support for the views of Charlene Chu, expert on China’s shadow debt – http://www.ft.com/cms/s/0/ffcabcec-7900-11e3-b381-00144feabdc0.html#axzz2tsNdwlvq.  She was one of the key interviewees in Robert Peston‘s recent BBC2 show on “How China Fooled the World”. - http://www.bbc.co.uk/programmes/b03w7gxt

“CHINA’S provincial administrations are often referred to as “local” governments. But the phrase does not do them justice. The province of Guangdong, for example, boasts more than 105m people and a GDP worth more than $1 trillion. Only 11 countries (including China itself) have a bigger population and only 15 have a larger economy.

Equally impressive is the scale of provincial debts. At the end of 2013 China’s national auditor revealed that the liabilities of local governments had grown to 10.9 trillion yuan ($1.8 trillion) by the middle of last year, or 17.9 trillion yuan if various debt guarantees were added. That was equivalent to about a third of China’s GDP. These “local” debts, in other words, had grown fast enough to become a national burden and an international concern.

The audit documented the size of the problem, but revealed little about its location. The debts were all discussed at an aggregate, countrywide level. No provinces were singled out for blame or praise. In the past few weeks, however, almost all of the provincial-level governments have published audits of their own. As well as shedding light on the problem, this information may help to solve it. In principle, the least provident governments are now exposed to public scrutiny. Fiscal shame may help prevent a fiscal fright.

But identifying the most indebted province is not as easy as it sounds. The figures can be sliced and diced in a variety of ways. The coastal provinces of Jiangsu (just north of Shanghai) and Guangdong (just north of Hong Kong) owe the most, accounting for 14% of the total between them. But these two provinces also have the largest economies, generating over 19% of the country’s GDP.

Relative to the size of their economies, the poor western provinces of Yunnan, Qinghai and Gansu bear some of the heaviest burdens, along with the western municipality of Chongqing, which is renowned for its heavy public investment (see chart). The province with the biggest fiscal chasm to cross, however, is Guizhou (whose impressive Balinghe bridge is pictured above). It had liabilities in mid-2013 equivalent to over 80% of its GDP over the previous four quarters.

These figures include money China’s provincial governments have borrowed themselves and other institutions’ debts that they have guaranteed. Sometimes this debt is guaranteed explicitly. Often, the backing is implicit. By the end of 2012 Chongqing had explicitly guaranteed debts worth 18% of its GDP. Gansu, for its part, had implicitly backed borrowings worth 20%.”

via Local-government debt: Bridging the fiscal chasm | The Economist.

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21/02/2014

Behind China’s Labor Unrest: Factory Workers and Taxi Drivers – Businessweek

On top of the other article about pessimistic Chinese economists, this is worrying. See http://chindia-alert.org/2014/02/21/even-chinas-economists-are-singing-the-blues-china-real-time-report-wsj/

“What’s the state of dissent among China’s hundreds of millions of workers? They are increasingly aware of and demanding their rights, according to a new report by the China Labor Bulletin.

Workers sew blue jeans in a Chinese textile factory in 2012

There were 1,171 strikes and protests in China recorded by the Hong Kong-based labor advocacy group from June 2011 until the end of last year. Of those, 40 percent occurred among factory workers, as China’s exports suffered a slowdown and its overall economy cooled. “Many manufacturers in China sought to offset their reduced profits by cheating workers out of overtime and cutting back on bonuses and benefits, etc. These cost-cutting tactics proved to be a regular source of conflict with the workforce,” notes the report, “Searching for the Union: The workers’ movement in China 2011-13″ (pdf), which was published on Thursday.

Meanwhile, the report cites a large number of worker protests “caused by the downsizing, closure, relocation, sale or merger of businesses” spurred by the government’s declared policy of tenglong huanniao, or “changing the birds in the cage.” That’s when Beijing has encouraged the closure of factories engaged in lower-tech businesses, including shoes, textiles, and toys. All together, 57 percent of factory worker protests took place in Guangdong, home to the Pearl River Delta manufacturing region, followed by 9 percent in Jiangsu, home to many export factories in the Yangtze River Delta.”

via Behind China’s Labor Unrest: Factory Workers and Taxi Drivers – Businessweek.

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20/02/2014

China, UK discuss setting up yuan clearing bank in London – Osborne | Reuters

The British and Chinese governments are in active discussions about setting up a clearing bank in London for China’s currency, a milestone that will put the city in a leading position to offer yuan trade business in Europe.

British Chancellor of the Exchequer George Osborne listens to a question after his speech during a breakfast meeting held by the British Chamber of Commerce in Hong Kong February 20, 2014. REUTERS/Bobby Yip

Taking a leaf out of Hong Kong’s blueprint in being the leading offshore yuan hub after the establishment of Bank of China (Hong Kong) as a clearing bank, the authorities are pressing ahead with having one for the city of London.

The move will help expand the Chinese currency‘s footprint beyond Hong Kong, where more than 80 percent of yuan trade settlement transactions are handled and foster greater confidence among European companies to adopt the yuan, also known as the renminbi, as a currency for trade.

“The UK and Chinese governments are in active discussions now about the appointment of a RMB clearing bank in London, recognising London’s role as the Western centre of offshore RMB

via China, UK discuss setting up yuan clearing bank in London – Osborne | Reuters.

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