False Start: Urbanization Drive Fails to Meet Expectations in China

False Start: Urbanization Drive Fails to Meet Expectations – Economic Observer Online – In-depth and Independent

By Kang Yi, Jiang Yunzhang, Zhang Xiaodong and Xiao Wei (康怡,降蕴彰, 张向东 ,肖薇)

Issue 615, April 15, 2013

After a period of optimism spurred on by high hopes for rapid urbanization, the steel industry is now wistfully watching customers change the way they buy steel in order to capitalize on falling prices. Ge Xin (葛昕), a researcher with the Beijing Lange Steel Information Research Center, reports that he heard of this trend recently at an industry meeting. He says in the past companies might book 10,000 tons of steel from a trader two months before construction and pay the entire cost upfront. Now however, they might divide shipment of that 10,000 tons over eight weeks and pay whatever the market price of the steel is at the time of delivery. Lower cash availability among these companies is one reason for delaying purchases, but it has more to do with a desire to take advantage of falling steel prices.

“At the end of last year and especially in January this year, people all felt steel had a bright future,” Ge said. “It appeared that the steel market was booming. After Chinese New Year almost all steel factories increased production, and these increases were quite large.” However, in March, the price for reinforcing steel (rebar) dropped more than 200 yuan per ton. The steel industry over the past three months has been described as a “roller coaster” and producers now feel they were overly optimistic. Read more of this post

What Happens When Asia’s Water Tower Dries Up? Drought in the Yunnan province of China affects most of the major rivers of Asia

What Happens When Asia’s Water Tower Dries Up?

Drought in the Yunnan province of China affects most of the major rivers of Asia

By Coco Liu and ClimateWire  | Tuesday, April 16, 2013 | 11

Lijiang Old City, Black Dragon Park. The whole region repeatedly suffers from drought. Recently, they have become more frequent.Image: Flickr/Winston Smith

LIJIANG, China — After photographing Black Dragon Lake here for eight years, He Jiaxin knows of more places where he can get the lake to mirror the majesty of its surrounding mountains than anyone else. But this year, he has a problem: The lake has disappeared.

Since its springs dried up last year, no water has flowed into Black Dragon Lake for more than 400 days. At the same time, hot weather caused a high evaporation rate, turning a large part of the lake into a play yard for children.

“I’ve never seen such a dry-up before,” He, a 36-year-old local photographer, said while staring at the parched lake bed. “It hasn’t rained in Lijiang for a really long time.”

Lijiang is hardly alone. Similar situations are happening across other parts of Yunnan province, which usually has more rain than half of China’s regions. But it has experienced extremely low rainfall for the past three years. Read more of this post

TIPS Investors Rush for Exit

April 16, 2013, 8:48 p.m. ET

TIPS Investors Rush for Exit

Treasury Inflation-Protected Securities Lose Favor as Fears of Rising Prices Ease

By CAROLYN CUI

A surprise drop in gasoline prices has jolted a corner of the bond market, easing investors’ inflation fears and triggering an exodus from a popular form of Treasury securities.

Bond investors have been pouring into the $883 billion market for Treasury inflation-protected securities, or TIPS, over the past year, in a bid to protect their purchasing power in case of rising prices. TIPS holders receive adjustments to the principal value of their bonds tied to the rate of inflation, protecting their holdings from being eroded by rising price levels. Read more of this post

A senior Chinese auditor has warned that local government debt is “out of control” and could spark a bigger financial crisis than the US housing market crash.

Last updated: April 16, 2013 5:32 pm

China local authority debt ‘out of control’

By Simon Rabinovitch in Beijing

A senior Chinese auditor has warned that local government debt is “out of control” and could spark a bigger financial crisis than the US housing market crash.

Zhang Ke said his accounting firm, ShineWing, had all but stopped signing off on bond sales by local governments as a result of his concerns.

“We audited some local government bond issues and found them very dangerous, so we pulled out,” said Mr Zhang, who is also vice-chairman of China’s accounting association. “Most don’t have strong debt servicing abilities. Things could become very serious.”

The International Monetary Fund, rating agencies and investment banks have all raised concerns about Chinese government debt. But it is rare for a figure as established in the Chinese financial industry as Mr Zhang to issue such a stark warning.

“It is already out of control,” Mr Zhang said. “A crisis is possible. But since the debt is being rolled over and is long-term, the timing of its explosion is uncertain.” Read more of this post

Quality concerns over China’s bottled water

Quality concerns over China’s bottled water

Wednesday, Apr 17, 2013
China Daily/Asia News Network
By Wang Zhenghua and Yan Yiqi

CHINA – A debate over the production standards adopted by bottled water giant Nongfu Spring has aroused safety concerns.

Several bottled water retailers in eastern China approached by China Daily said they have yet to see a major setback in sales of Nongfu Spring’s bottled water, but some consumers remain sceptical about the quality of its products. Read more of this post

IMF: Financial instability shifting from banks to pensions

Financial instability shifting from banks to pensions

17 April 2013

Author: Rachel Fixsen

Financial sector risk may be shifting to pension funds and other institutions as a result of global central banks’ exceptionally easy monetary policy – including bond-buying programmes – according to a new report from the International Monetary Fund (IMF).  Read more of this post

Moves to curb house prices trigger fake divorces in Shanghai

Moves to curb house prices trigger fake divorces in Shanghai

Staff Reporter, 2013-04-16

China’s recent attempts to cool the country’s overheated housing market have triggered a wave of phony divorces in Shanghai, with critics questioning the long-term effectiveness of government attempts to hold down soaring prices.

Jiahegongcheng, a Chinese non-profit offering marriage consultancy, said it had recently provided services to many couples staging a fake divorce in order to sidestep restrictions and purchase an additional home. The trend began after the Shanghai government limited families to buying only one additional new home among other measures started in 2010.

There were 43,964 couples in Shanghai which filed for divorce in 2012 and 8,068 of them later remarried, according to statistics.

Fake divorce has become a common way to avoid the law, and the government should not allow the trend to continue, said Hu Zonggen, a real estate consultant based in Shanghai. He suggested during a conference in March that the city should address the issue by banning new home purchases to people in their first year after a divorce. Read more of this post

FAW-Volkswagen Car chairman resigns amid corruption scandals; 10 billion yuan (US$1.6 billion) had evaporated from the group’s real estate business

FAW Car chairman resigns amid corruption scandals

Staff Reporter, 2013-04-17

First Automobile Works Group chairman Xu Jianyi has resigned as chairman and as member of the board at the group’s subsidiary FAW Car. The development has fueled speculation that his exit is a result of the series of corruption scandals within the state-owned enterprise.

FAW Car released a statement on Friday saying Xu’s resignation was due to work demands and he will not be taking up any other posts at the subsidiary. Xu will however remain as chairman of the group.

The statement came a day after reports that 10 billion yuan (US$1.6 billion) had evaporated from the group’s real estate business and that 200 senior managers had been whisked away by investigators for questioning. Read more of this post

LDK Delinquency Flags Chance of Another Solar Bust: China Credit

LDK Delinquency Flags Chance of Another Solar Bust: China Credit

LDK Solar Ltd. (LDK)’s failure to fully pay notes this week has raised the prospect of China’s second solar-industry failure this year as the company needs to repay a loan 10 times larger by June.

The world’s second-biggest maker of wafers that convert sunlight into power couldn’t repay all of the $23.8 million of dollar-denominated convertible bonds that matured on April 15, according to a company statement yesterday. Before the delinquency, its 2014 yuan notes dropped below 50 yuan per 100 yuan face value, according to data compiled by Bloomberg. The yield reached a six-month high of 125 percent last week, compared with the 79 percent for Bonn-based Solarworld AG. (SWV)

LDK, which will probably report a second year of losses tomorrow, must repay a $240 million loan unless it spins off its polysilicon unit by June 3, according to regulatory filings. Suntech Power Holdings Co. (STP), once the world’s largest panel maker, was dragged into insolvency days after it defaulted on a $541 million bond repayment on March 15.

LDK failed to repay about $7 million of bonds for which it could not reach a settlement, and may receive a notice of default, said Edward Guinness, a fund manager at Guinness Atkinson Funds in London who oversees about $800 million, including a “tiny” position in LDK.

“It’s out of LDK’s hands,” he said in an interview yesterday. “The lenders can choose to give them an extension. It’s up to them to push LDK into bankruptcy.” Read more of this post

If Gold < $1175, Then Cyprus Out Of Eurozone?

If Gold < $1175, Then Cyprus Out Of Eurozone?

Tyler Durden on 04/16/2013 12:16 -0400

One of the unexpected consequences of the recent plunge in the price of gold (for whatever reason, and there are many proposed explanations for why gold has tumbled, none of them completely accurate or comprehensive) is that when the European Commission set the precedent with the forced sale of Cypriot sale for a total of €400 million “to cover ELA losses” as Mario Draghi dictated to the aptly named head of the Cyprus Central Bank, Panicos, he set a line in the sand especially when it comes to German expectations. Because while the size of the Cypriot bailout will likely keep expanding, the one fixed component is the €10 billion loan that Merkel has still to get approval for in parliament. This number is set in stone, and any additional bailout “funding” will have to come from either further depositor impairment (until eventually even the insured depositors become impaired, again) or as the case may be, the country is forced to sell all of its sovereign hard assets, like its gold. Which means that no matter what, Cyprus will have to sell enough gold to cover a €400MM shortfall, as point 29 of the Debt Sustainability Analysis demanded.

And therein lies the rub.

While a week ago, when gold was $1600/ounce the self-funded component (read “gold sale”) of the Cypriot bailout amounted to just over 10 tons of gold, as of today’s price and EURUSD rate, Cyprus would now have to sell 12 tons of gold to cover the gap, if it were to hit the sell button today (assuming a price of $1385/ounce and a 1.315 EURUSD exchange rate). As far as we know, Cyprus hasn’t sold one ounce yet. But what if gold keeps tumbling as it has in the past three days? Well, the problem as most know, is that as of March based on IMF data, Cyprus only has 13.9 metric tons of “excess” (as the EC defined it) gold.

This means one can extrapolate below what price Cyrpus is out of luck and the proposed European Commission bailout fails as one of the key self-funded elements simply will not have enough cash to fill the €400 MM hold.  That price for gold, once again assuming a 1.315 EURUSD, is roughly $1175/ounce. Read more of this post

Since Friday morning, the value of total above-ground stocks of gold bullion has fallen by more than $1 trillion, “could fall to $1,050”

Gold loses $1 trillion of total global value, “could fall to $1,050”

BY BEN TRAYNOR

April 16, 2013 • Reprints

Spot market gold prices fell to a fresh two-year low in Tuesday’s Asian trading, dropping to $1,322 per ounce, before rallying back above $1,386, as stock markets extended yesterday’s losses.

Silver dropped to its lowest level since September 2010 at $22.10 an ounce before it too recovered some ground. Oil was down on the day by lunchtime in London, while copper ticked slightly higher.

Since Friday morning, the value of total above-ground stocks of gold bullion, estimated by metals consultancy Thomson Reuters GFMS at around 174,000 tonnes, has fallen by more than $1 trillion. Read more of this post

Pension Funds Ignoring Kim Buy Cheapest Korea Stocks Since 2007

Pension Funds Ignoring Kim Buy Cheapest Korea Stocks Since 2007

South Korea’s biggest investors are buying more equities than ever at a time of worsening relations with North Korea, lured by the cheapest shares since 2007.

Domestic institutions bought a net 2.2 trillion won ($1.97 billion) of stocks in the two weeks after North Korea announced its highest combat level on March 26, the first among escalating threats from Kim Jong Un’s regime. The purchases were larger than those following seven previous flare-ups, from North Korea’s first nuclear test in 2006 to its detonation of a nuclear device in February, data compiled by Bloomberg show.

While the Kospi index has retreated 3.1 percent since March 26 amid 2.2 trillion won of net equity sales by foreigners, Korea Teachers Pension and Shinyoung Asset Management Co. added to holdings as valuations fell to the lowest level in six years relative to MSCI Inc.’s Asia Pacific Index. Investors who bought Kospi shares in the two weeks after previous bouts of tension were rewarded with three-month gains of 5 percent on average.

“There’s ample upside in the Kospi this year from the current level,” Young Soo Shim, the head of asset outsourcing team at Korea Teachers Pension, the nation’s second-largest public pension fund with the equivalent of $12.5 billion under management, said by phone on April 12. “We spent more than initially planned in March as we have flexibility in executing money, with North Korea continuing to ratchet up threats.” Read more of this post

Malaysian Poll Upset Would Pose Risk to Tycoons: Southeast Asia

Malaysian Poll Upset Would Pose Risk to Tycoons: Southeast Asia

Malaysian companies controlled by billionaires T. Ananda Krishnan and Syed Mokhtar Al-Bukhary face the risk of increased competition and government scrutiny should opposition parties win next month’s election.

Anwar Ibrahim’s three-party Pakatan Rakyat, or People’s Alliance, pledged in its manifesto to abolish monopolies in industries including pay television, which is dominated by Ananda’s Astro Malaysia Holdings Bhd. (ASTRO) Anwar said in a March 8 interview he will scrutinize government agreements made with Syed Mokhtar, whose DRB-Hicom Bhd. (DRB) bought a 32 percent stake in the national postal service in 2011.

Astro and DRB shares have fallen at least 5 percent this year, compared with the FTSE Bursa Malaysia KLCI Index (FBMKLCI)’s 0.7 percent gain. Polls show Pakatan Rakyat is poised to wrest more seats from Prime Minister Najib Razak’s Barisan Nasional coalition in elections due on May 5. Najib’s approval rating slipped in February to the lowest level in 18 months, according to a survey by the Merdeka Center for Opinion Research.

“Things seem to be shaping up to be a fairly close election,” Rahul Bajoria, regional economist for Asia at Barclays Plc, said by phone from Singapore on April 12. “There is some market concern generally that the PR coalition has indicated that they will be reviewing contracts.”

The opposition holds 75 seats in the 222-seat parliament, while Najib’s Barisan has 137 seats, according to data on the parliamentary website. Either side needs at least 112 seats to form a government. Barisan currently holds power by the slimmest margin since Malaysia’s independence from the British in 1957. Read more of this post

China slowdown shows struggle to channel money into real economy; Components of off-balance sheet financing soared

Analysis: China slowdown shows struggle to channel money into real economy

9:44am EDT

By Kevin Yao

BEIJING (Reuters) – A credit boom in China failed to keep economic recovery on track in the first quarter, suggesting the cash sloshing around the economy is not yielding the desired effect of stoking growth and could instead exacerbate property and inflationary risks.

A rapid rise in credit in recent months has been driven by the fast-growing shadow banking sector rather than formal bank lending, raising two major concerns.

One is that some of the new money is being used by debt-laden local governments to repay existing loans rather than being channeled into investment that might spur fresh economic activity.

The second is shadow banking has provided a lifeline to funding investment in the property sector, one area where the government is trying to restrict growth for fear that a house price boom could undermine the broader economy. Read more of this post