China “shadow banking” growing fast, having risen nearly 70 per cent over the past two years and now total more than half the size of the world’s second-largest economy

China “shadow banking” growing fast

POSTED: 13 May 2013 7:36 PM

AFP/fl
China’s shadow banking activities have risen nearly 70 per cent over the past two years and now total more than half the size of the world’s second-largest economy.

BEIJING: China’s shadow banking activities have risen nearly 70 per cent over the past two years and now total more than half the size of the world’s second-largest economy, ratings agency Moody’s said on Monday. Shadow banking includes private lending, off-balance-sheet vehicles and trusts, and allows borrowers to circumvent banks’ formal underwriting standards, as well as official regulation. Such lending has surged 67 per cent since the end of 2010, Moody’s said in a report, reaching an estimated total of 29 trillion yuan (US$4.7 trillion) at the end of last year, or 55 per cent of China’s GDP. The rapid growth was partly due to some borrowers having difficulties obtaining regular bank loans, according to the report, and threatened the health of the banking system and the overall economy. “Shadow banking may encourage excessive financial leverage in the broad economy and add to credit bubble concerns,” Moody’s said. “Given the substantial scale and growth of shadow banking activities in China, we are doubtful of the banks’ ability to isolate themselves from a significant increase in defaults in the shadow banking domain.” China’s banking regulator has sought to rein in non-transparent lending activities and in March ordered banks to step up checks on wealth management products as part of a bid to boost risk control and openness. But Moody’s said: “The impact from shadow banking on banks will depend on the amount and timing of losses and how they are allocated, variables that are difficult to assess at this point, given the lack of transparency and fast-evolving nature of shadow banking in China.”

Everyone Will Be Debating The WSJ Story About The Fed Considering Ways To End QE

Everyone Will Be Debating The WSJ Story About The Fed Considering Ways To End QE

Joe Weisenthal | May 12, 2013, 7:22 PM | 2,992 | 16

Futures are down modestly in early Sunday trading, and one possibility for that is the story that came out after the bell on Friday in the Wall Street Journal from Fed whisperer Jon Hilsnerath titled Fed Maps Exit From Stimulus. The gist: The Fed is seriously thinking about how it might begin the QE wind-down process. Given the widespread belief that Fed stimulus is a major tailwind for the market, talk of QE wind-down is invariably something of a negative. In tonight’s “Closing Print” note, Mike O’Rourke from JonesTrading thinks the article’s existence is pretty significant.

He writes:

The WSJ’s Jon Hilsenrath published a story Friday evening titled “Fed Maps Exit From Stimulus – Timing of Wind-Down Is Uncertain, but Focus Is on Managing Unpredictable Market Expectations.”  We suspect the twitter taper caper on Thursday opened the window for the FOMC to provide some clarity as to where policy stands.  Here are some key questions.  Is this story important?  Can it be taken at face value and should markets move?  The answer is yes, yes and yes.  The WSJ placed the article prominently on the cover of the Saturday edition, so they believe they have an important story.  It is a Hilsenrath story, and in the post-recession QE era the Fed has used him to foreshadow almost every major monetary policy move. Finally, in a tape where QE is the dominant theme, any indication of policy slowing or reversing course is meaningful.  Read more of this post

China’s Data Manipulation In One Chart, And Why The Real Data Implies Weakest GDP Growth In Over 20 Years

China’s Data Manipulation In One Chart, And Why The Real Data Implies Weakest GDP Growth In Over 20 Years

Tyler Durden on 05/12/2013 13:31 -0400

By definition, exports from country A have to equal imports from country B. Unless country A is China. Then, central planning magic happens, as can be seen in the chart below showing the misreporting of Chinese exports to HK compared to HK’s reported imports from China, which is just the latest nail in the coffin of Chinese economic data “integrity.” The issue, however, is that since China manipulates its data “upward”, as does the rest of the civilized, “unmanipulating” world, none of the ‘very serious people‘ have any incentive in calling China out – because suddenly all the world’s growth data may fall under the microscope, as perhaps it should – after all it was less than two years ago that we observed that the entire world was exporting over $300 billion more than it was importing (numbers which should net to zero), leading us to wonder if it was aliens that were importing all the excess Louis Vuitton bags… So for those actually interested, here is Sean Corrigan of Diapason breaking down the true numbers behind China’s economy, who using real export and import data ex-manipulation and fudging, that China’s reported 7.7% GDP would translate into a 5.5% Q1 GDP growth, the lowest rate of growth in 20 years! Read more of this post

China Officials Seek Career Shortcut With Feng Shui

May 10, 2013

China Officials Seek Career Shortcut With Feng Shui

By DAN LEVIN

In Hunan Province, a boulder was placed outside a government building to create better feng shui for superstitious civil servants.

ZOUMAJIE, China — Outraged peasants protesting land grabs. Jilted mistresses plotting revenge. Provincial investigators seeking out graft.

For top officials at the local land resources bureau beleaguered by these and other headaches, there could only be one explanation for the miasma of misfortune they believed was threatening their careers last year: the pair of ferocious stone lions that guarded the state-owned China Tobacco building across the street from their offices.

An official confided that the secret weapon the land bureau used was feng shui, the ancient practice of arranging objects and designing architecture to improve one’s health, prosperity and luck. For proof, he nodded toward a stone wall in the parking lot that was built to block the feline statues’ harmful qi, or energy.

“Our bureau wasn’t doing so well until we erected the barrier last year,” said the official, who gave only his last name, Chen. “Now things are a lot better.” Read more of this post

The Son also Rises: nepotism doesn’t disappear in China, it just gets a promotion

The Son also Rises: nepotism doesn’t disappear in China, it just gets a promotion

Monday, 13 May, 2013, 12:00am

News›China

CHINA BRIEFING

Wang Xiangwei xiangwei.wang@scmp.com

The history of graft in China has come full circle amid reports of children of powerful officials stepping into their parents’ shoes

Throughout Chinese history, the expression ya nei originally meant palace guards but later referred generally to children of government officials. In traditional Chinese opera and drama, they are immortalised as the worst of the worst – vile, violent and corrupt. Dressed in silk and drooped in gold, ya nei roamed the streets, beating people for no particular reason or kidnapping young girls and forcing them to become concubines. They usually escape punishment thanks to their powerful fathers and relatives. Today, such characters may go by a different name, guan er dai – the second-generation government officials, or princelings, particularly those of top mainland leaders. While they may no longer go around beating people or abducting girls, they invariably take advantage of their parents’ power and influence to enrich themselves or their families. Judging by the rising number of reports in state media, the guan er dai are now using their nepotistic connections for what is termed “riding a rocket” – being promoted rapidly through government or party ranks to fill positions that, usually, have been vacated by their parents. Read more of this post

Ancient Buddhist temple in China bogged down by fake monks and debt

Ancient Buddhist temple in China bogged down by fake monks and debt

Sunday, 12 May, 2013, 7:31pm

Patrick Boehler

A provincial city’s ambitious plans for turning an ancient Buddhist temple near Xian into the world capital of Buddhism and listing it on a stock exchange have stagnated, leaving the temple surrounded by fake monks and sham Buddha statues.

Famen Temple houses a Buddhist relic. Photo: AP[1]In an investigative report [2], the Guangzhou-based Southern Weekly documents how the project involving the 1,700-year-old Famen Temple in Shaanxi province – which boasts the ownership of Buddha’s finger bone – went horribly wrong.

Now, fake monks from Hubei province roam a nearby scenic park that opened in 2009 and that tourists and pilgrims mistaken as part of the temple. The impostors get commission for collecting donations to the Shaanxi Famen Charitable Foundation. But clueless visitors do not know the foundation is a front for the operating company of the park, Shaanxi Famen Temple Scenic Park Cultural Industrial Group, and is not related to the temple, the weekly reported last week. Read more of this post

European companies wrote off a record €350bn in bad debt last year, more than the annual GDP of Austria, Denmark or Finland.

May 12, 2013 11:03 pm

European groups write off record €350bn in bad debt

By Richard Milne, Nordic Correspondent

European companies wrote off a record €350bn in bad debt last year, more than the annual GDP of Austria, Denmark or Finland.

The amount of write offs increased 7 per cent in the past year and 27 out of the 31 countries surveyed by Intrum Justitia, a Swedish credit management company, saw either a worsening in credit conditions, or no change. The debt amounts to 3 per cent of all outstanding invoices in European companies.

“It is the highest level of bad debt losses so far, and the forecast is bleak. Three per cent of all receivables; think of the net profit margin of companies in Europe and that is a big part of it,” Lars Wollung, Intrum Justitia’s chief executive, told the Financial Times. Read more of this post

Valuable as Art, but Priceless as a Tool to Launder Money

May 12, 2013

Valuable as Art, but Priceless as a Tool to Launder Money

By PATRICIA COHEN

According to the air bill slapped on the crate that arrived at Kennedy International Airport from London, an unnamed painting worth $100 was inside. Only later did federal investigators discover that it was by the American artist Jean-Michel Basquiatand worth $8 million. This painting, known as “Hannibal” after a word scribbled on its surface, was brought into the United States in 2007 as part of a Brazilian embezzler’s elaborate effort to launder money, the authorities say. It was later seized at a Manhattan warehouse by federal investigators who are now preparing to return it to Brazil at the behest of law enforcement officials there. The painting’s seizure was a victory in the economy-rattling, billion-dollar fraud and money laundering case of Edemar Cid Ferreira, a former Brazilian banker who converted some of his loot into a 12,000-piece art collection. Read more of this post

Student Debt and the Crushing of the American Dream

MAY 12, 2013, 9:09 PM

Student Debt and the Crushing of the American Dream

A CERTAIN drama has become familiar in the United States (and some other advanced industrialized countries): Bankers encourage people to borrow beyond their means, preying especially on those who are financially unsophisticated. They use their political influence to get favorable treatment of one form or another. Debts mount. Journalists record the human toll. Then comes bewilderment: How could we let this happen again? Officials promise to fix things. Something is done about the most egregious abuses. People move on, reassured that the crisis has abated, but suspecting that it will recur soon.

The crisis that is about to break out involves student debt and how we finance higher education. Like the housing crisis that preceded it, this crisis is intimately connected to America’s soaring inequality, and how, as Americans on the bottom rungs of the ladder strive to climb up, they are inevitably pulled down — some to a point even lower than where they began. Read more of this post

Coal barons see assets fade as prices slump in China; Heavy Industry’s Reverberating Slump

Coal barons see assets fade as prices slump in China

Staff Reporter

2013-05-12

The assets of Chinese coal mine owners are gradually diminishing as coal prices slump, a trend which has also resulted in their company’s stock prices declining, reports the Shenzhen-based New Fortune monthly. Many coal millionaires have attracted attention for the public flaunting of their wealth. A notable example was when Xing Libin, chairman of Liansheng Energy Group, spent 70 million yuan (US$11.3 million) to stage a lavish wedding party for his daughter in March last year. The wedding party caused a public outcry in Shanxi province, the largest coal-producing region in China where the average income is only 5,807 yuan (US$950) a year, said the report. The golden days for mine owners seem to be numbered as the government began streamlining the industry in 2008, and cut the number of firms from 2,200 to just 130 through incorporations and mergers, and brought 70% of them under the control of state enterprises. It was reported that private owners,whose mines were taken over by big state enterprises were compensated to the tune of 600 billion to 1 trillion yuan (US$97-$161 billion) in total. Many smaller business owners have little expertise outside of the coal industry. They are expected to quickly spend their newly gained wealth and fade from the nation’s business circles because they will likely not invest their wealth wisely, said the magazine. Only the big coal companies with advanced technology and abundant capital could survive in the reshaped industry, said the report.

Heavy Industry’s Reverberating Slump

By Yu Huapeng (于华鹏)  
Issue 617, April 29, 2013

After two days in Qingdao, Hong Daoqing (洪道清) failed to persuade Qingdao Iron & Steel Company to order any coking coal from him.
Just as he was feeling completely frustrated, Hong’s telephone rang with more bad news from Manager Ma at Laiwu Iron & Steel Company. Ma told him that his company had shut off four blast furnaces and the rest were just working at half capacity.  Read more of this post

Electric car development could be sidelined in China; Chinese carmakers have spent lots of money developing electric cars — development that may have been a waste of resources

Electric car development could be sidelined in China

Staff Reporter

2013-05-12

Carmakers could sideline electric cars to make way for the promotion of hybrid cars in China’s automobile industry, reports Guangzhou’s 21st Century Business Herald, citing executives at last week’s Shanghai International Car Show. At this year’s biennial show, only the venture between BYD and Daimler, Mercedes-Benz, Shanghai Volkswagen, and Dongfeng Nissan introduced pure electric cars, while the majority introduced new hybrid car models, according to the paper. According to official figures, carmakers sold 12,791 new-energy cars in China last year, including 11,375 electric cars, a rise of 98.8% from the previous year and 1,416 hybrid cards, up by 103.9% due to a low base last year. China’s electric car market is reportedly losing money, however, and its true scale is currently unknown, said independent automobile commentator Zhong Shi, adding that Chinese carmakers have spent lots of money developing electric cars — development that may have been a waste of resources. Read more of this post

Why the Chinese government is choosing to let its debt crisis continue to spiral out of control

Why the Chinese government is choosing to let its debt crisis continue to spiral out of control

By Gwynn Guilford @sinoceros 6 hours ago

For around a year now, the Chinese government has been trying to curb “shadow banking,” as lending to local government investment proxies and other insolvent vehicles through difficult-to-trace channels is known. Shadow banking is now thought to be as big as 36 trillion yuan ($5.8 trillion), according to JP Morgan. There’s been more shaking this last week. The government rolled out two new policies directed in most part at limiting the creation of wealth management products (WMPs), which securitize a good deal of shadow banking financing, selling the products on to retail investors. As of the end of March, WMPs had securitized debt worth of 8.2 trillion yuan. Will this have more effect than the measures taken so far? Not necessarily, says Patrick Chovanec, chief strategist at Silvercrest Asset Management and expert on China’s economy. “[The government has been saying] ‘We need to crack down on risks in interbank and shadow lending.’ Obviously there’s a growing awareness of risks,” he tells Quartz. “But if you look at what has happened since [the new administration effectively took over] in October, there’s been a renewed credit boom to try to prop up investment. That’s what policy has been in practical terms with almost no control over expansion of shadow credit.” Read more of this post

Bullish yuan herd leaves China fundamentals in the dust

Bullish yuan herd leaves China fundamentals in the dust

Sun, May 12 2013

By Gabriel Wildau

SHANGHAI (Reuters) – Investors convinced China’s currency is once again a one-way bet upward should think again: signs of slowing economic growth could cut short the yuan’s rally. Investors and companies have been pouring funds into China in recent months, helping send the yuan to a series of record highs. But with evidence of a slowdown mounting, investors thinking of joining the rush into yuan would do well to remember 2011 and 2012, when fears of a Chinese hard landing sent the yuan, or renminbi, tumbling. Read more of this post

Hong Kong has world’s most expensive retail space; Rents were 50% higher than for similar districts such as upper Fifth Avenue in Manhattan and more than four times the rate in similar areas in London and Paris

Hong Kong has world’s most expensive retail space: report

12:06am EDT

By Ilaina Jonas

NEW YORK (Reuters) – There’s expensive and then there’s Hong Kong.

The Asian shopping haven in the first quarter kept its crown as having the world’s highest rent for prime retail properties, at nearly 50 percent more than for similar districts such as upper Fifth Avenue in Manhattan. Rents were more than four times the rate in similar areas in London and Paris, according to a report by global property advisor CBRE Group Inc. The 10 most expensive cities for retailers benefit from strong demand and modest new supply, a recipe for stable record-high prime rental rates, the report released on Sunday showed. In some markets, such as Hong Kong and London, the sky-high rents have prompted some newcomers to look nearby. For example, in London, Mayfair has benefited from those priced out of Bond Street. Annual retail rent in high-end shopping areas in Hong Kong averaged $4,328 per square foot (36,351 euros per square meter). Read more of this post

Indonesia to Big Chains: Share the Wealth; under the new rules, any convenience store or other retailer with more than 150 stores and any restaurant or café with more than 250 outlets will have to bring in additional Indonesian partners

May 12, 2013, 8:39 p.m. ET

Indonesia to Big Chains: Share the Wealth

By ERIC BELLMAN

JAKARTA, Indonesia—A jump in the number of chain stores in Indonesia has triggered a backlash from regulators and owners of small shops, concerned that homegrown entrepreneurs could get elbowed out of the country’s economic growth. For decades, Torikin did a brisk business selling batteries, cigarettes, cold drinks and instant coffee from his cart in central Jakarta. Then a brightly lighted store sprouted in the vacant lot where he had been setting up shop. He had never heard of 7-Eleven or its Slurpee frozen drinks. But in the past year he has watched almost all of his customers defect to the chain store, with its wide selection and low prices. “There is no way I can compete,” says Mr. Torikin, who, like many Indonesians, uses only one name. “Office workers that bought cigarettes from me for years, now just walk right past me on the way to that store. They say ‘Hello,’ but they don’t buy anything.” Mr. Torikin says his sales plunged to around $5 a day from roughly $100. Now he is looking for a new spot to set up, far from a Western-style convenience store.

Hoping to protect and enrich small-shop owners like Mr. Torikin, Indonesia has been implementing rules to force large chains to share their success. The new rules could change expansion plans for such chains as KFC, Starbucks SBUX +1.18% and 7-Eleven. Read more of this post

Doubts come to surface about ‘the decade of Latin America’

May 12, 2013 12:58 pm

Doubts come to surface about ‘the decade of Latin America’

By John Paul Rathbone, Latin America Editor

First, in March, an Argentine Pope; then, last week, a Brazilian appointed to lead the World Trade Organisation. Latin America, long associated with default, dictatorships and disgrace, seems to be riding high and enjoying its growing global clout.

Since 2003, the region’s $6tn economy has almost doubled its share of world economic output to 8 per cent. At the same time, the middle class has grown by 50m people while inequality has shrunk – a unique feat. For some, the region is now enjoying what Sir Martin Sorrell, head of advertising group WPP, hailed in 2010 as “the decade of Latin America”.

But now, in the fourth year of its decade, Latin America, lulled by recent success, risks taking its eye off the reform ball and losing its way. Read more of this post

The lust for Latino lucre: How American firms are chasing the elusive Hispanic dollar

The lust for Latino lucre: How American firms are chasing the elusive Hispanic dollar

May 11th 2013 | LOS ANGELES |From the print edition

ONE in six Americans is Hispanic. In politics, ignoring the Latino vote is suicidal, which is why the Republican Party is at last getting serious about immigration reform. In business, ignoring Latino tastes is equally daft, which is why American firms are at last getting serious about pursuing the Hispanic dollar. Read more of this post

All Signs Suggest The College Bubble Has Finally Burst

All Signs Suggest The College Bubble Has Finally Burst

Rob Wile | May 11, 2013, 7:04 PM | 5,492 | 17

This week, the Wall Street Journal’s Ruth Simon reported private colleges are now offering record financial assistance to keep classrooms full. Some schools are now seeing just 20% of the students they accepted actually enrolling, versus the usual rate of 33%. So they have increased the “tuition discount rate”— the price after grants and scholarships  —  to an all-time high of 45%. Meanwhile, the median sticker price increased just 3.9% last fall, the smallest gains in 12 years. And at public schools, the sticker price climbed just 4.8%, also a 12-year low. For the Washington Examiner’s Michael Barone, this makes it official: the college bubble has finally burst: Applicants are negotiating bigger discounts than they used to. Market competition has kicked in. What has happened is that in a recessionary and sluggish economy potential customers have been figuring out that a college diploma may not be a good investment — particularly if it entails six-figure college loan debt that cannot be discharged in bankruptcy. The Millennial Generation that voted so heavily for Barack Obama — 66 to 32 percent in 2008, 60 to 37 percent in 2012 — has had a hard time finding jobs, even with diplomas in hand. Especially if their degrees are in gender studies or similar fields beloved of academics. Moody’s Investors Service Managing Director John Nelson basically agrees, telling Simon,  “we have hit a tipping point on price.” It was a long time coming. Check out this chart from AEI’s Mark Perry showing the rising cost of tuition outpacing basically every other good in American society for nearly two decades: Barone goes a bit further than we would about the bust’s implications (he writes that administrators actively believed they were “above market forces” and could make investment decisions accordingly).