Europe’s struggling emissions trading scheme holds valuable lessons for China

Carbon copies?

Tuesday, April 23, 2013

Europe’s struggling emissions trading scheme holds valuable lessons for China

In Europe, the privilege of emitting a ton of carbon dioxide now costs about the same as a hamburger. That was one painful takeaway from a recent New York Times article on the crisis in Europe’s market for carbon allowances, which has now gone into a noisy free fall. Already-cheap carbon prices sank to record lows last week, after the European Parliament voted on April 16 against a proposal to shore up prices by reducing the number of allowances in the Emissions Trading Scheme (ETS). It was just the latest plunge in a volatile market that has seen the price of a ton of carbon dioxide fluctuate from $0 to $40 in the last few years. Europe launched its emissions trading scheme in 2005 in an effort to raise the cost of emitting greenhouse gases and incentivize industrial polluters to switch to cleaner alternatives, such as wind, solar and natural gas. European governments convinced their companies to spend billions on investing in renewable energy projects to gain credits to offset pollution elsewhere, and many people hailed the market as a success.

But then an oversupply of carbon allowances and Europe’s terrible economic fortunes combined to drag on the market. Analysts say the price of carbon is currently too low to influence corporate behaviors, and Europe is actually seeing increasing investment in coal-fired power plants. As prices have fallen and liquidity dried up, financiers have lost interest in what once seemed to be a promising market. Analysts are debating what effect Europe’s recent failures will have on nascent cap-and-trade schemes around the world. More than a dozen governments are developing their own programs, including Australia, South Korea, California and China. Read more of this post

Paris Hit by Property Freeze as Taxes Deter Buyers

Paris Hit by Property Freeze as Taxes Deter Buyers

At least one in four Paris apartments listed by realtor Agence Etoile can’t be sold, even with mortgage rates at record lows, as buyers and sellers fail to agree on price, the company’s director said.

“I have some inventory that’s too expensive and sellers don’t want to lower prices,” Christine Perrissel said in an interview. “Buyers are just much more selective.”

Across France, an economy that’s stalled for two years, joblessness at a 15-year high, property prices near record highs and new taxes have made households reluctant to borrow to buy homes. While Europe’s debt crisis prompted banks to tighten credit, since the start of this year they’ve offered more attractive terms to lure customers and meet lending targets, after borrowing plunged in 2012.

The average home-loan rate fell 0.8 percentage point from a year ago to a record low 3.34 percent in the first two months of the year. Still, new mortgages granted in the 12 months through February slid 27 percent from a year earlier to 98.4 billion euros ($129 billion), according to the Bank of France.

New home sales plunged 18 percent in 2012 to 77,900. Existing home sales declined 12 percent to 709,000, with the drop worsening to 22 percent in the year to February. The average housing investment funded with loans represented 3.73 years of the buyer’s income in March, the lowest since January 2010, a study by lender Credit Logement SA and polling firm CSA shows. Read more of this post

Look to Japan’s ageing industrial sprawl for roadblock to Abenomics; S&P says more than one-third chance of Japan downgrade, cites risks to Abenomics

S&P says more than one-third chance of Japan downgrade, cites risks to Abenomics

Mon, Apr 22 2013

TOKYO (Reuters) – Rating agency Standard & Poor’s said on Tuesday it saw more than a one-third chance that it would downgrade Japan’s sovereign ratings because of uncertainty about whether the government’s push to revive growth and end deflation will succeed. “The continuing prospect of a downgrade arises from risks associated with recent government initiatives and uncertainty of their success,” S&P said in a report. “Japanese Prime Minister Shinzo Abe’s plan to lift Japan out of deflation and spur economic expansion–known as “Abenomics”–has three pillars: bold monetary easing, fiscal efforts to spur growth, and a strategy to induce private sector investment,” it said. “Of the three engines that Mr. Abe foresees reinvigorating the nation’s economy, so far only one, monetary easing, has kicked into full gear. The others remain idle.” S&P has an AA- long-term rating on Japan’s sovereign debt.

Look to Japan’s ageing industrial sprawl for roadblock to Abenomics

Mon, Apr 22 2013

By Yoko Kubota

TOKYO (Reuters) – For a close-up view of where Japanese Prime Minister Shinzo Abe’s economic policies could falter, skip across Tokyo Bay to the sprawling Kimitsu steelworks, once a must-see icon of Japan’s export boom. By the early 1970s, Kimitsu in Chiba had become the hub of the world’s largest steel operation. It provided the sheet metal for the first wave of Japanese cars sold overseas and the beams to build the first skyscrapers in Tokyo’s Shinjuku district, inspiring Chinese leader Deng Xiaoping on a 1978 visit to build a copycat mill in China. But last month Nippon Steel & Sumitomo Metal Corp, (5401.T: Quote, Profile, Research, Stock Buzz) fresh off a merger that created the world’s second-biggest steelmaker, announced it would shut down Kimitsu’s No. 3 blast furnace, part of a sweeping restructuring meant to shed overcapacity at home in the face of unrelenting competition from China and South Korea. “It makes no sense to revive it,” the Kimitsu plant manager, Ichiro Sato, told reporters on a tour last week. “We want to operate without bringing it back.” That same caution is echoed by Japanese manufacturers in industries from autos to electronics.

Read more of this post

Indonesia warns multinationals not to be greedy over resources

Indonesia warns multinationals not to be greedy over resources

5:24am EDT

By Dayan Candappa and Jonathan Thatcher

SINGAPORE (Reuters) – Indonesia’s president told major investors in his country’s natural resources not to be greedy, comments that suggest he is in no mood to row back on policies that foreign mining and energy firms have called a deterrent.

But Susilo Bambang Yudhoyono sounded more accommodative in remarks over a long-delayed $7.2 billion bank takeover by Singapore’s DBS Group and on the thorny issue of reducing state fuel subsidies, which are eating up a growing chunk of the government’s budget.

“My criticism to the world is that many multinational corporations take too much and do not leave behind enough for the people of those countries,” Yudhoyono told a Thomson Reuters Newsmaker event in Singapore on Tuesday. Read more of this post

Malaysia Needs to Get Off the Road to Mediocrity

Malaysia Needs to Get Off the Road to Mediocrity

In his bid for re-election, Malaysian Prime Minister Najib Razak has dispensed with all shame. Vote for me, he has essentially declared, or Malaysia will suffer “catastrophic ruin” and an “Arab Winter” of the kind that has undone economies from Egypt to Libya.

Both warnings are ludicrous — signs of how worried Najib’s National Front coalition is of losing power for the first time since 1957. They speak to the desperation of a government that has come to serve itself, not Malaysia’s 29 million people. And they are emblematic of a leader whose talk of bold change hasn’t been matched by action.

Najib’s claim is this: Giving the opposition, led by former Finance Minister Anwar Ibrahim, a chance to lead on May 5 would reverse all the gains Malaysia has made since the 2008 financial crisis. The economy would crater, stocks and the currency would plunge, and chaos would reign.

Change through the ballot box in a democracy should never be disruptive or chaotic, and rhetoric suggesting otherwise is disingenuous. Najib likes to say: “The time has come for Malaysians to make a decision.” Actually, the time has come for Malaysia’s government to grow up.

Najib’s scaremongering, some of which came out of an April 17 Bloomberg News interview, smacks of the re-election campaign run almost a decade ago by then U.S. President George W. Bush. Instead of this vote-for-me-or-you’re-in-danger appeal, Najib should scare up some headline-grabbing reforms that leave Malaysia better off in the future. Read more of this post

Borrowers in Asia dangle rebates as bait to get wealthy individual investors to buy their dollar-denominated bonds as returns dwindle to an 18-month low

Asia Banks Offer Bond Perks as Returns Dwindle: Credit Markets

Borrowers in Asia have stepped up the use of rebates to get wealthy individual investors to buy their dollar-denominated bonds, underscoring weakness in the market as returns dwindle to an 18-month low.

At least 24 percent of the deals in the region last quarter provided a monetary incentive for private banks whose clients bought the offerings, more than double the same period of 2011, according to FIL Ltd., a global fund manager known as Fidelity Worldwide Investment that oversees $248.2 billion. While the practice is legal, it’s only common in Asia, lawyers say. Read more of this post

Chinese Investors Are Reportedly Having Big Money Trouble In North Korea; As many as 100 Chinese businessmen have reportedly holed up in hotels in downtown Pyongyang waiting to recover money invested in the country

Chinese Investors Are Reportedly Having Big Money Trouble In North Korea

Geoffrey Ingersoll | Apr. 22, 2013, 5:11 PM | 2,408 | 3

As many as 100 Chinese businessmen have reportedly holed up in hotels in downtown Pyongyang, North Korea, waiting to recover money invested in the country.

Some of these businessmen may have even been deported, the Chosun Ilbo reports citing the Chongqing Daily.

This is just the most recent case of long running risky-business in the Hermit Kingdom. A Chinese beer business in the country went belly up just last week, and just last year mineral producer Xiyang Group reportedly lost 240 million yuan ($3.8 million) in a North Korean iron mine.

“The biggest mistake Xiyang Group made was to ignore the dangers of investing in North Korea,” Jiao Qiming, head of a Chinese trading company in Dandong, told the Chosun Ilbo, “Once a dispute occurs, it is impossible to beat the North Korean government.” Read more of this post

Deloitte Loses Bid to Delay SEC Suit Over China Documents of its fraudulent client Longtop Financial Technologies

Deloitte Loses Bid to Delay SEC Suit Over China Documents

Deloitte Touche Tohmatsu CPA Ltd. lost a bid to delay a lawsuit brought by the U.S. Securities and Exchange Commission seeking documents in an investigation of the auditor’s former client Longtop Financial Technologies Ltd.

U.S. District Judge Gladys Kessler in Washington today rejected Shanghai-based Deloitte’s argument that the case should be put on hold while an administrative judge considers a separate case the regulator brought against the China-based affiliates of the Big Four accounting firms.

“There is no significant burden placed on Deloitte by requiring it to litigate these two very different proceedings simultaneously,” Kessler said.

The decision may quicken the pace of litigation over the Chinese documents sought by the regulator more than 22 months ago.

The Deloitte case has been on hold since August when the U.S. sought a resolution from Chinese regulators. Chinese law bans the removal offshore of audit papers, and foreign regulators aren’t allowed to work inside the country. Read more of this post

Germany Joins Low-Speed Europe; When even Germany stops motoring, you know you have a problem

April 22, 2013, 1:24 p.m. ET

Germany Joins Low-Speed Europe

By ANDREW PEAPLE

When even Germany stops motoring, you know you have a problem.

The woes of Europe’s auto industry show no sign of abating: European Union auto sales were down 9.8% year on year in the first quarter. But within the data, there is an anomaly. In Germany, Europe’s supposed economic strongman, car sales fell 12.9% over the first quarter compared with 2012; in the moribund U.K., sales rose 7.4%. Unfortunately, Germany’s slowdown, not the U.K.’s acceleration, is the truer guide to the health of the European market.

The U.K.’s outperformance should be put in perspective. Car sales in 2012 were still 20% below their 2003 peak, despite rising 5% from 2011. The post-2007 sales slump is still affecting the market now, because it has restricted the supply of cars currently available in the second-hand market. Auction prices for cars sold in “part exchange”—when the old car is sold as part of the deal—for another rose 23% last year, according to Sanford C. Bernstein. Consumers might as well buy a new car instead of an increasingly pricey old one. With interest rates seemingly stuck at 0.5%, car sellers have been able to offer generous financing terms. Read more of this post

Misuse of collateral creates systemic risk

Last updated: April 22, 2013 1:14 pm

Markets Insight: Misuse of collateral creates systemic risk

By Satyajit Das

Rather than reducing risk, collateral just creates different risks

Five years after the global financial crisis, collateral arrangements remain central to financial markets. They provide security for loans, structured as repurchase agreements or as mortgages or pledges of real estate or financial assets. In derivative transactions, collateral is lodged to secure current mark-to-market exposure.

Rather than reducing risk, as theory would suggest, collateral in practice creates different risks, for a number of reasons.

First, it shifts the emphasis from the borrower or counterparty’s creditworthiness to the collateral. Parties normally ineligible to borrow or transact in the first place are able to enter into transactions. Rapid growth in debt levels, derivative contract volumes and the shadow banking system (hedge funds or structured investment vehicles) are dependent on the use and availability of collateral. Read more of this post

Consumer Meteor Strikes China’s State Dinosaurs

Updated April 22, 2013, 9:52 a.m. ET

Consumer Meteor Strikes China’s State Dinosaurs

By TOM ORLIK

A common worry about China’s economy is that vested interests in the state sector will block reforms needed to raise household income and consumption. State-owned enterprises are certainly influential. But new technologies and demanding consumers can make them look less like all-powerful giants, and more like ungainly dinosaurs.

In telecommunications, for instance, popular web-based messaging systems like Tencent’s WeChat are a major challenge to state-owned China Mobile. WeChat has more than 300 million users, sending voice and text messages over the web.

The U.S. experience suggests carriers can be big losers when the likes of WhatsApp takes hold. In the first quarter of 2013, China Mobile’s profits grew just 0.3% year on year; the company said new technologies are eating into the traditional communications business.

Something similar is going on in banking. In the past, China’s savers had little choice beyond bank deposit accounts that offered low returns. Now, the rapid growth of high-yield investments known as wealth-management products, or WMPs, means savers have options to move their money around. Read more of this post

China’s top general said that a fourth North Korean nuclear weapons test is a possibility that underscores the need for fresh talks between Pyongyang and other regional parties

China says new North Korea nuclear test possible

April 23, 2013

THE ASSOCIATED PRESS

BEIJING–China’s top general said on April 22 that a fourth North Korean nuclear weapons test is a possibility that underscores the need for fresh talks between Pyongyang and other regional parties.

Chief of the General Staff Gen. Fang Fenghui said Beijing firmly opposes the North’s nuclear weapons program and wants to work with others on negotiations to end it. He said Beijing’s preference is for a return to long-stalled disarmament talks involving the two Koreas, China, Russia, Japan and the U.S.

“We ask all sides to work actively to work on the North Koreans to stop nuclear tests and stop producing nuclear weapons,” Fang told reporters. “We believe that dialogue should be the right solution.” Read more of this post

Why is Beijing cracking down on peaceful civil movements? By clamping down on these movements, the party’s security arm has not only turned against public interest, but also, paradoxically, against the ruling bloc itself.

Why is Beijing cracking down on peaceful civil movements?

Monday, 22 April, 2013, 8:56am

Xiao Shu

By clamping down on these movements, the party’s security arm has not only turned against public interest, but also, paradoxically, against the ruling bloc itself.

Xi Jinping’s administration is sending out very contradictory signals about its commitment to the rule of law and the fight against corruption. Since he became president in March, Xi has repeatedly called for ruling the country by its constitution and, in his own words, going after “both the tigers and the flies” of corrupt party officials.

However, barely a month after he took office, at least eight activists, including lawyer Ding Jiaxi, and activists Zhao Changqing and Li Wei, were detained for demanding transparency on government officials’ assets.

The police officers who rounded up these activists say they were suspected of “illegal public assembly”, referring to a public speech against corruption, delivered on March 31 by activist Hou Xin and three others in Beijing’s busy Xidan shopping district.  Read more of this post

China Hot Market Without Profit Seen in Pretty Lady Card; “Some may never earn a profit out of it, but they have to join the fight, as that’s the most efficient way of grabbing deposits and cross- selling other financial services.”

China Hot Market Without Profit Seen in Pretty Lady Card

By Bloomberg News – Apr 22, 2013

The website of China Citic Bank Corp.’s Ms. Magic card is displayed on a computer screen. Ms. Magic card has attracted more than three million users since August 2005, according to the Beijing-based company

Huaxia Bank Co. (600015)’s Pretty Lady credit card, co-issued with Deutsche Bank AG (DBK), entices women with triple points for cosmetics and fitness-club memberships. The Ms. Magic card from China Citic Bank Corp. (998) dotted with Swarovski crystals offers free beauty treatments and health insurance.

They’re part of a high-end competition being waged by banks for a spot in consumers’ wallets in the world’s fastest-growing market for credit cards, even as delinquencies have tripled in the past four years and profit remains elusive.

“Credit cards are the ultimate growth area and also the battlefield for banks in China,” said Rainy Yuan, an analyst in Shanghai for Taipei-based Masterlink Securities Corp. (2856) “Some may never earn a profit out of it, but they have to join the fight, as that’s the most efficient way of grabbing deposits and cross- selling other financial services.” Read more of this post

Bond Scam Uncovered in 2010 Apparently Resurfaces

04.22.2013 15:28

Bond Scam Uncovered in 2010 Apparently Resurfaces

Police arrest prominent financial executives for allegedly trading in inter-bank market through a type of account abused three years ago

By staff reporter Zhang Yuzhe

(Beijing) – Financial regulators have closed in on a number of suspects who apparently cheated in the bond market using a method that came to light in late 2010.

Police have arrested a number of prominent financial executives, including Yang Hui, managing director of the fixed-income department at CITIC Securities, China’s largest securities firm.

The scandal has attracted the attention of the highest levels of government. Vice Premier Wang Qishan, head of the Communist Party’s Central Discipline Inspection Commission, has told regulators to investigate all cases and punish the perpetrators.

The rule breakers were apparently using a tactic that involved a regulatory loophole in the bond market. The loophole was exposed by a 2010 investigation into Zhang Rui, then an official in the Ministry of Finance’s Department of Exchequer. Read more of this post

China Manufacturing Grows at Slower Pace as Recovery Falters “The government needs to help translate the easy liquidity conditions into real growth.”

China Manufacturing Grows at Slower Pace as Recovery Falters

By Bloomberg News – Apr 22, 2013

China’s manufacturing is expanding at a slower pace this month, fueling concern that the world’s second-biggest economy is faltering.

The preliminary reading of 50.5 for a Purchasing Managers’ Index (EC11CHPM) released by HSBC Holdings Plc and Markit Economics compared with a final 51.6 for March. The number was also below the median 51.5 estimate in a Bloomberg News survey of 11 analysts. A reading above 50 indicates expansion.

China’s stocks slumped as the data added to an unexpected slowdown in economic growth, reported last week, that prompted banks including Goldman Sachs Group Inc. to cut full-year forecasts. In Washington, central bank Governor Zhou Xiaochuan said April 20 that a 7.7 percent first-quarter expansion was reasonable and “normal,” highlighting reduced expectations after 10 percent-plus rates during the past decade.

“This paints a picture of a continued painfully slow recovery for China’s manufacturing sector,” said Yao Wei, China economist at Societe Generale SA in Hong Kong. “The government needs to help translate the easy liquidity conditions into real growth.” Read more of this post

Sichuan quake: Chinese government was warned of disaster; researcher “shared the findings with many counterparts in Beijing and Sichuan but only a few people paid any attention”

Sichuan quake: Chinese government was warned of disaster

One of China’s leading seismologists warned that a devastating earthquake would strike the exact area where more than 200 people have now lost their lives.

By Malcolm Moore, Beijing

3:27PM BST 22 Apr 2013

Professor Chen Yuntai, twice president of China’s Seismological Society, warned in the wake of the 2008 Wenchuan earthquake that the same fault line was likely to rupture again in the coming years. The warning was reported to China’s top leaders in Reference News, a daily internal briefing for the Communist party, but was not acted upon. “We collected the data from the Wenchuan earthquake and we calculated that there would be another big quake around 60 miles to the south west, which is Baoxing county,” he said.

“We gave a seminar organised by the Chinese Academy of Sciences 10 days after the Wenchuan earthquake and a reporter for Xinhua (the state news agency) wrote it up for the Politburo. “I shared the findings with many counterparts in Beijing and Sichuan but only a few people paid any attention,” he said. “I was worried because I was sure that there would be this aftershock”. Read more of this post

Asia Gravitates to Cheap Chic

April 22, 2013, 2:29 p.m. ET

Asia Gravitates to Cheap Chic

By MARIKO SANCHANTA in Hong Kong and LAURIE BURKITT in Beijing

Move over, luxury brands. For the first time in Asia, inexpensive retailers such as Zara and Uniqlo chains are growing at a faster pace than their high-end counterparts, reflecting a shift in consumer tastes and the growing dominance of “fast fashion” globally.

As China’s middle class has grown, so too has the demand for brands and stores that reflect its budget. Chen Jing, a 20-year-old in Beijing who makes 3,000 yuan ($485) a month working at a restaurant, said she regularly shops at H&M and Inditex SA’s ITX.MC +0.05%Zara. “I shop for style and look for popular brands,” Ms. Chen said.

In terms of new entrants and brands to the retail market, midrange fashion retailers are now expanding at a faster rate in Asia than luxury brands, according to a report to be released this week by CBRE, a real-estate services firm.

“This is the first time this has happened,” said Sebastian Skiff, executive director of CBRE Retail in Asia. “It’s only natural that after being here for so long [the luxury retailers] are likely to grow at a slower pace.” Read more of this post

Eurozone picture dimming, no light at end of tunnel yet even for Germany

Tuesday April 23, 2013

Eurozone picture dimming, no light at end of tunnel yet even for Germany

LONDON: An early peek this week at how the eurozone economy performed in April could cement the case for the next instalment in an unprecedented campaign of monetary easing by the world’s major central banks. A preliminary survey of purchasing executives from the 17-country bloc is likely to furnish the new evidence of economic weakness that Jens Weidmann, the president of Germany’s hardline central bank, says is needed for the European Central Bank (ECB) to cut interest rates. The composite index derived from the survey by data providers Markit is likely to be unchanged at 46.5, well below the 50 threshold denoting expansion. The eurozone economy, in short, remains dead in the water. Read more of this post

A Visual History Of All Asset Bubbles

A Visual History Of All Asset Bubbles

Tyler Durden on 04/22/2013 19:45 -0400

Maybe not all, but certainly the vast majority of the most popular asset bubbles since before even the Tulip Mania of 1637 (including the Kipper and Wipper currency debasement of the German 30 years War, circa 1621, which is appropriately enough deja vu in contemporary retrospect, only the war is missing). While it may be worth noting that all the bubbles to the right of center have been central-bank induced (except for that amulet bubble of 2006, although even that is likely debatable), we will not note it as it is quite obvious even without us highlighting this simple fact. One can only imagine what would happen to asset prices – all of them – when the world’s central banks, which are now collectively and voluntarily “all in” on reflating the biggest asset bubble of all time across all asset classes, decide to close the liquidity spigots (if ever).