Most Chinese Cities Don’t Need And Can’t Afford The Subway Systems They’re Building: The Economist

Most Chinese Cities Don’t Need And Can’t Afford The Subway Systems They’re Building

The Economist | Apr. 29, 2013, 10:30 AM | 1,604 | 7

NOT many global cities of nearly 9m people lack an underground line, but until the end of last year the eastern city of Hangzhou was one of them. Now city slickers and rural migrants squeeze together inside shiny new carriages, checking their smartphones and reading free newspapers like commuters the world over. There is standing-room only in the rush hour and, with tickets at less than a dollar, the metro is revolutionising the way people travel across town. Two other Chinese cities—Suzhou and Kunming—have also opened their first underground lines in the past year, and the north-eastern city of Harbin is preparing to open one too. Four more cities have just added a new line to their existing systems. At least seven others have begun building their first lines.

If all the metros approved by central officials are built, 38 cities will have at least one line by the end of the decade, with more than 6,200km (3,850 miles) of track (London has nearly 400km.) As with many infrastructure projects in China, including the high-speed rail network above ground, questions abound about the wisdom and potential wastefulness of such ambitions. Many of the underground systems are needed, but some are being built in cities that are too small to justify the exorbitant expense. By some estimates the total bill could approach $1 trillion, not including the cost of operation. Zhao Jian of Beijing Jiaotong University reckons that metros in fewer than 20 of the 38 designated cities make sense. He says that perhaps ten of those could be replaced with cheaper light rail, which runs above ground. The minimum core urban population that can qualify a city for an underground system is 3m people, but even a place that big may find the operating costs crippling. Mr Zhao says the systems in Harbin and Kunming are unnecessary. Read more of this post

Hong Kong-based Richland Capital is shutting down its hedge funds despite outperforming peers, an unexpected move for a successful operator in an Asian industry which is struggling to raise assets

Hong Kong-based Richland to shut hedge funds in surprise move

Mon, Apr 29 2013

By Nishant Kumar

HONG KONG (Reuters) – Hong Kong-based Richland Capital Management Ltd is shutting down its hedge funds despite outperforming peers, four sources said, an unexpected move for a successful operator in an Asian industry which is struggling to raise assets. Richland is one of Asia’s best-known hedge funds. It manages $100 million between two funds and advises on an additional $150 million for wealthy clients, according to a fund information document obtained by Reuters. The hedge fund, founded in 2006 by former HSBC Holdings Plc (HSBA.L: Quote, Profile, Research, Stock Buzz) trader Alex Au with Eva Lo, who earlier worked at Credit Suisse Group AG (CSGN.VX: Quote, Profile,Research, Stock Buzz), has made money for its main Richland Asia Absolute Return Fund each year since launch, including a 5.3 percent gain in 2008. An e-mail to Lo and Au remained unanswered. The sources, who have direct knowledge of the matter, declined to be named as they were not authorized to speak on the matter. It was not immediately clear why Richland was closing. Typically, hedge funds shut down in response to poor performance or clients withdrawing large amounts of money, but Richland has suffered from neither. “Today is the day when funds are winding down,” one of the sources said. Launched in December 2006 with $10 million, the Richland Asia Absolute Return Fund managed about $75 million in February this year, the fund document showed. The fund gained 14.1 percent in 2012 and was up about 6 percent in the first quarter of 2013, according to fund performance data seen by Reuters, outperforming a 10 percent gain in the benchmark Eurekahedge Asia index last year and 5.8 percent in the March quarter. The second fund, Richland Emerging Opportunities Fund, returned 13.1 percent last year and was up about 18 percent in the first quarter of 2013. So far, 23 hedge funds have shut down in Asia, compared with 18 launches, according to data from Eurekahedge. Last year, 169 hedge funds closed in Asia, exceeding 139 launches.

CEO Pay 1,795-to-1 Multiple of Wages Skirts U.S. Law

CEO Pay 1,795-to-1 Multiple of Wages Skirts U.S. Law

Former fashion jewelry saleswoman Rebecca Gonzales and former Chief Executive Officer Ron Johnson have one thing in common: J.C. Penney Co. (JCP) no longer employs either. The similarity ends there. Johnson, 54, got a compensation package worth 1,795 times the average wage and benefits of a U.S. department store worker when he was hired in November 2011, according to data compiled by Bloomberg. Gonzales’s hourly wage was $8.30 that year. Across the Standard & Poor’s 500 Index of companies, the average multiple of CEO compensation to that of rank-and-file workers is 204, up 20 percent since 2009, the data show. The numbers are based on industry-specific estimates for worker compensation. Almost three years after Congress ordered public companies to reveal actual CEO-to-worker pay ratios under the Dodd-Frank law, the numbers remain unknown. As the Occupy Wall Street movement and 2012 election made income inequality a social flashpoint, mandatory disclosure of the ratios remained bottled up at the Securities and Exchange Commission, which hasn’t yet drawn up the rules to implement it. Some of America’s biggest companies are lobbying against the requirement.

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Why the China Dream Might Be a Mirage; Will the vested interests getting obscenely rich in Beijing let President Xi rewrite China’s model?

Why the China Dream Might Be a Mirage

If global economists are distraught over the gloomy numbers coming out of China, imagine how Xi Jinping must feel. China’s president, officially in the post for barely a month, is still consolidating his power. At home, he confronts a widening rich-poor gap and endemic pollution, not to mention bird flu and rivers overrun with dead pigs. Abroad, China’s erstwhile ally North Korea is looking increasingly unhinged. Now Xi faces intense pressure to retool the Chinese economy if he wants to build on gains the Communist Party has delivered over the last 30 years. Xi could be excused for feeling a tad bitter. He’s in this awkward position largely because of the failings of his predecessor, Hu Jintao. That may sound like an odd way to characterize Hu’s tenure. During his decade in office, China grew at rates of more than 10 percent, surpassed Japan to become the world’s No. 2 economy and matured into a key diplomatic actor. Hu and his premier, Wen Jiabao, should have used this time to wean the Chinese economy off its obsessive reliance on exports and investment. Yet too many well-placed figures were getting too rich. Modestly paid politicians mysteriously became multimillionaires. Local governments amassed mountains of debt for boondoggle projects. Hu and Wen presided over a robber-baron era that would have made Cornelius Vanderbilt and J.P. Morgan blush.

By contrast, Xi has been saying all the right things about revamping the economy so that domestic demand, not sweatshop labor, drives growth. He talks about the need to attack chronic graft and to preserve the environment. He has made noises about increasing spending on research and development, and has promised to institute a more inclusive urbanization strategy. One of the most tantalizing questions in economics is whether Xi has the courage to oversee such an ambitious rewriting of China’s model. Yet the real question is this: Will the vested interests getting obscenely rich in Beijing let him? Read more of this post

Japan’s “Abenomics” detractors brace for “I told you so” moment

Japan’s “Abenomics” detractors brace for “I told you so” moment

Mon, Apr 29 2013

By Tomasz Janowski and Chikako Mogi

TOKYO (Reuters) – In the shadows of Prime Minister Shinzo Abe’s formidable PR machine, a small, tenacious group of “Abenomics” detractors is battling to be heard and waiting for their “I told you so” moment. Being a contrarian in a society that values consensus and conformity is hard enough, but it is even harder for academics, commentators and investors who are attacking Abe’s economic revival plan as misguided and potentially dangerous. The plan relies so much on changing attitudes formed during years of decline that critical voices are more than just part of the political debate. Criticism could undermine Abe’s efforts and there are many skeptics reluctant to openly challenge policies that are giving Japan long-forgotten optimism and hope.

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Goldman Sachs Jim O’Neill’s Farewell Letter

Jim O’Neill’s Farewell Letter

Tyler Durden on 04/29/2013 12:03 -0400

Over the years, Jim O’Neill, former Chairman of GSAM, rose to fame for pegging the BRIC acronym (no such luck for the guy who came up with the far more applicable and accurate PIIGS, or STUPIDS, monikers, but that’s neither here nor there). O’Neill was correct in suggesting, about a decade ago, that the rise of the middle class in these countries and their purchasing power would prove to be a major driving force in the world economy. O’Neill was wrong in his conclusion as to what the ultimate driver of said purchasing power would be: as it has become all too clear with the entire world drowning in debt (and recently China), it was simply debt, which moved from the funding developed world consumption to handing out credit cards to consumers in the developing world. O’Neill was horribly wrong after the Great Financial Crisis when he suggested that it would be the BRIC nation that would push the world out of depression. To the contrary, not only is the world not out of depression as the fourth consecutive year of deteriorating economic data confirms (long since disconnected with the actual capital markets), but it is the wanton money (and bad debt) creation by the central banks of the developed world (as every instance of easing by China has led to an immediate surge of inflation in the domestic market) that has so far allowed the day of reckoning, and waterfall debt liquidations, to take place (and certainly don’t look at the stock index performance of China, Brazil, India or Russia). Despite his errors, he has been a good chap having taken much of the abuse piled upon him here at Zero Hedge somewhat stoically, as well as a fervent ManU supporter, certainly at least somewhat of a redeeming quality. Attached please find his final, farewell letter as Chairman of the Goldman Asset Management division, as he moves on to less tentacular pastures.

From Jim O’Neill

The World.

For my last Viewpoint, I have chosen to focus on the world. Attached is the opening presentation I gave at the 2013 GSAM Growth Markets Summit last Thursday in New York. It was a brilliant event and I wanted to thank all our guests who joined us as speakers, panellists, and in particular our clients who attended. The main theme was the growth that has taken place in the evolving world and the challenges that go with it.

Trillion-Dollar Student Loan Bubble Cracks With Pulled Sallie Mae Bond Deal

Student Loan Bubble Cracks With Pulled Sallie Mae Bond Deal

Tyler Durden on 04/29/2013 08:19 -0400

In 2007 a small number of French hedge funds imploded over sudden losses stemming from highly leveraged bets made on the unstoppable subprime mortgage market. At the time, a few saw the writing on the wall; but many simply wrote it off as just another over-levered hedge fund and the subprime mortgage market was ‘fine’. Fast forward six years and as we have discussed numerous times (most recently here and here) there is a bubble, potentially far bigger than subprime, in student loan debt. As one of the last remaining outlets for state-sanction credit creation, this is a big deal; but, of course, the popping of the bubble (or even a slight leak) is eschewed since there is so much ‘reach for yield’ and the Fed’s got your back. That is until this week. As WSJ reports, Sallie Mae (SLM), the nation’s largest non-government student lender just cancelled a $225 million debt offering as investors  decided they simply were not getting paid enough for risk – amid rising student loan defaults. Simply put, there’s a limit to what investors will tolerate. SLM was offering a stunningly low 3.5% interest on the deal and investors snubbed it, “There are certain limits that can’t, or shouldn’t, be crossed if you’re an investor,” adding that, “we’re beginning to see what the tolerances are.” This is a significant shift since SLM and other issuers of debt backed by student loans sold $7.8 billion worth of securities this year through last week, up from $5.7 billion in the same period of 2012. With the portion of student borrowers who are late on their debt payments by 90 days or more climbing to 31% in 2012, from 24% in 2008; we wonder if this is the tipping point for the student debt in 2013 that was generally ignored in subprime in 2007, until it was too late.

Updated April 25, 2013, 7:23 p.m. ET

Investors Say No to Sallie Mae Bond Deal

Poor Demand for Security Backed Only by Excess Cash Flows Shows Limits to Appetite for Risk

By AL YOON

There’s a limit to how much risk investors will tolerate.

Student-loan company Sallie Mae SLM +0.24% canceled a $225 million bond offering on Thursday after about two weeks on the market, according to people familiar with the deal. The move may mark a line in the sand: Investors whose thirst for yield has revived all manner of riskier asset classes decided they weren’t getting paid enough to buy at the offered price amid rising student-loan defaults. Read more of this post

Switzerland Shorn of Bankers Proves Industrial Juggernaut; “Switzerland is like a Silicon Valley for the manufacturing industry. It would be a mistake to move to a pure service economy.”

Switzerland Shorn of Bankers Proves Industrial Juggernaut

Behind the headline-grabbing job reductions at Switzerland’s biggest banks is a manufacturing boom that is keeping the economy ahead of the rest of Europe.

Even after 10,000 Swiss job losses at banks led by UBS AG (UBSN) and Credit Suisse Group AG (CSGN) in the past five years, the nation’s unemployment rate has fallen to 3.1 percent, the lowest of Europe’s 10 biggest economies and less than the rate a decade ago. The nation of 8 million is adding workers in factories that make electrical equipment, airline seating, toilets and drugs.

“People think that precision engineering, watchmaking and the medical industry are minor, but collectively added up, they are quite sizeable in Switzerland,” said Hubertus Von Gruenberg, chairman of Zurich-based ABB Ltd. (ABBN), the world’s largest maker of power transformers. Banks are “overemphasized” in the public perception as there’s a big finance industry relative to the size of the country, he said, adding that the industrial base is “powerful and important.”

Banks and insurers had 152,000 full-time employees last year, compared with 588,000 who work for industrial companies. The banking industry’s share of domestic economic output fell to 6.2 percent in 2011 from 8.7 percent in 2007, according to the most recent data from the Swiss Bankers Association.

“Switzerland is like a Silicon Valley for the manufacturing industry,” said Markus Koch, a partner at Deloitte AG in Zurich. Given the higher cost base, no Swiss manufacturer would survive if it’s not world leading or top quality, he said. Read more of this post

GM’s China Bet Mimics Toyota’s Bet on U.S. Last Century

GM’s China Bet Mimics Toyota’s Bet on U.S. Last Century

General Motors Co. (GM), the largest carmaker in the U.S., is shifting its center of gravity to China, where it sells more cars and now invests more money. GM’s announcement at the Shanghai auto show this month that it is spending $11 billion by 2016 on new plants, products and people in China demonstrates a change in priorities. GM is investing $1.5 billion in North America this year, where it has a more modest factory footprint. GM’s focus on China parallels the strategy Toyota Motor Corp. (7203) employed in the last century, when the Japanese automaker poured investment in the U.S. market, where it saw its greatest growth potential. Now, Detroit-based GM is taking the lead in the world’s largest auto market by building four new assembly plants in China to boost its factory capacity to 5 million vehicles annually, twice what it sold in the U.S. last year.

“This is what the Japanese did in the ’70s when the U.S. became their most important market,” said Rebecca Lindland, an automotive consultant with Rebel Three Media & Consultants in Cos Cob, Connecticut. “What GM is doing is really smart because it’s proactively investing in a market that, for the foreseeable future, is going to be the world’s largest.” GM rose to a 52-week high of $30.71 last week. It fell 0.7 percent April 26 to $30.50. It has gained 5.8 percent so far this year compared with an 11 percent increase in the Standard & Poor’s 500 Index. The company will announce quarterly results later this week. Read more of this post

China’s Military Says No Plates for Porsches in Corruption Crackdown

China’s Military Says No Plates for Porsches in Crackdown

China will ban the use of military number plates on luxury cars, including Porsche and Bentley, in a crackdown on abuse of vehicle management within the armed forces amid President Xi Jinping’s campaign against corruption.

The change was ordered by the Central Military Commission, headed by Xi, and is part of the military’s effort to reinforce discipline and protect its image, the PLA Daily, the armed forces’ official newspaper, said in a report yesterday.

A new license system will go into force on May 1 to clamp down on the sale and use of legal and counterfeit military plates in order to “maintain social harmony, stability and the reputation of the military,” the paper said. Existing plates for all military vehicles will be canceled, it said.

The use of military license plates on luxury cars “is at odds with our army’s glorious tradition and not conducive to building the military’s morals,” according to a commentary in the newspaper. Vehicle management is “a political task to maintain forever the nature, principle and true color of the armed forces,” it said. Read more of this post

Highest-Paid Workers Driving Shell Off Australian Shores

Highest-Paid Workers Driving Shell Off Australian Shores

Escalating costs to build liquefied natural gas plants on land in Australia, where energy workers earn the highest salaries in the world, are driving developers out to sea in search of billions of dollars in savings.

Exxon Mobil Corp. (XOM) plans to use the world’s largest ship to turn gas into liquid at an offshore field, eliminating the need for investment in pipelines and port facilities. Woodside Petroleum Ltd. (WPL) is studying sea-based technology since ditching plans this month for an onshore plant for its Browse project.

After starting work on $180 billion in LNG terminals on land, developers are considering about $85 billion in floating projects to keep Australia competitive with suppliers in North America and East Africa. The floating export terminals will be built in Asian shipyards where labor costs are lower, including South Korea, the world’s biggest shipbuilder after China. Read more of this post

“Indonesia was a hot market about seven to eight years ago. But the time of the low-hanging fruits is over. The whole environment has become too frothy.”

Symphony Shies From Frothy Prices in Indonesia: Southeast Asia

Symphony International Holdings Ltd. (SIHL) said it’s seeking private-equity deals in markets including Malaysia and Thailand as assets in Indonesia, where it has invested for more than two decades, have become overvalued. An increasing number of buyout firms seeking companies that serve the growing middle class in the world’s fourth-most populous nation has pushed prices of privately-owned businesses higher, Anil Thadani, director at Symphony, an Asia-Pacific private-equity firm founded in 1981. “Indonesia was a hot market about seven to eight years ago,” Thadani, who is chairman of Symphony’s investment manager, said in an interview on April 26. “But the time of the low-hanging fruits is over. The whole environment has become too frothy.” Buyout firms are counting on rising domestic consumption in Southeast Asia’s biggest economy to boost returns as a slowdown in global growth has weakened prices of commodities such as coal and palm oil. Private spending accounts for more than 60 percent of the economy, according to government data. “We invested in Indonesia in the ’80s, and we did very well,‘‘ said Thadani, 66. ‘‘So over the last couple of years, we stayed away as we always do when we see herd behavior. Private equity is a lot about buying at the right price. And at the moment, the price isn’t right in that country.’’ Read more of this post

Venture Capitalists Are Making Bigger Bets on Food Start-Ups

April 28, 2013

Venture Capitalists Are Making Bigger Bets on Food Start-Ups

By JENNA WORTHAM and CLAIRE CAIN MILLER

Unreal, a candy company based in Boston, says it uses 25 percent less sugar than other candy on the market.

What if the next big thing in tech does not arrive on your smartphone or in the cloud? What if it lands on your plate? That idea is enticing a wide group of venture capitalists in Silicon Valley into making big bets on food. In some cases, the goal is to connect restaurants with food purveyors, or to create on-demand delivery services from local farms, or ready-to-cook dinner kits. In others, the goal is to invent new foods, like creating cheese, meat and egg substitutes from plants. Since this is Silicon Valley money, though, the ultimate goal is often nothing short of grand: transforming the food industry.

“Part of the reason you’re seeing all these V.C.’s get interested in this is the food industry is not only is it massive, but like the energy industry, it is terribly broken in terms of its impact on the environment, health, animals,” said Josh Tetrick, founder and chief executive of Hampton Creek Foods, a start-up making egg alternatives. Some investors say food-related start-ups fit into their sustainability portfolios, alongside solar energy or electric cars, because they aim to reduce the toll on the environment of producing animal products. For others, they fit alongside health investments like fitness devices and heart rate monitoring apps. Still others are eager to tackle a real-world problem, instead of building virtual farming games or figuring out ways to get people to click on ads. Read more of this post