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

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.”

Give a man a coalmine, make him rich, and what does he do? He goes and tells everybody he’s not your mate. The costs of corruption will weigh on NSW for years to come. A decade of deals can hardly be unwound now

Mateship, it is obvious, can come at a high price

May 11, 2013, Michael West


‘If he was me mate, he would have showed up.” Former union boss John Maitland tells the Independent Commission Against Corruption this week former New South Wales mining minister Ian Macdonald was not his mate because he didn’t show up at his farewell dinner. Crikey, that’s hurtful. Give a man a coalmine, make him rich, and what does he do? He goes and tells everybody he’s not your mate. It’s fair dinkum un-Australian! Granted, the union boss did concede in testimony before ICAC this week, that he and the minister may have had a ”close working friendship”. Yes, struck the deal over a magnum of pinot noir at Catalina Restaurant. Yes, there had been no tender – come on, it was only a ”training mine”. Yes, the training mine somehow become a real mine and found its way into a stockmarket company NuCoal. And yes, John’s $165,000 investment happened to turn into $14 million. After all that goodwill from Macca, one can only surmise that John attaches exceedingly rigorous performance hurdles to his mateships. In the same year that Macca approved the Hunter Valley licence for John, he also opened up tracts of land in the Bylong Valley. That’s the spot where, by sheer providence, Labor powerbroker Eddie Obeid had bought a property whose value was soon to rise fourfold. Eddie Obeid had stewardship of the mines portfolio in NSW from April 1999 to April 2003. Macca came later. A pall has been cast over any mining deal struck by the NSW government in the past 14 years, including those with mining leviathan Newcrest, which operates Cadia, the country’s largest gold mine, near Orange. Gold and Copper Resources – an explorer led by Brian Locke and backed by former Rio Tinto boss Leigh Clifford, founder of Barlow Jonker Jeremy Barlow, former Glencore and Xstrata chairman Willy Strothotte, and venture capitalist Mark Carnegie – is contesting the validity of Newcrest’s licences. They await judgment on the first of five court actions over the Cadia licences. It’s a mess, though there is the odd winner from ICAC: the Coalition, we in the media and, of course, Ian Macdonald’s dentist to name three (love that smile). But the costs of corruption will weigh on NSW for years to come. A decade of deals can hardly be unwound now.

‘All in the Family’: Earnings Management Through Non-Listed Subsidiaries

‘All in the Family’: Earnings Management Through Non-Listed Subsidiaries

Massimiliano Bonacchi University of Naples “Parthenope”; New York University (NYU) – Leonard N. Stern School of Business; City University of New York, CUNY Baruch College, Zicklin School of Business

Fabrizio Cipollini Universita di Firenze, Dipartimento di Statistica

Paul Zarowin New York University (NYU) – Department of Accounting, Taxation & Business Law

May 7, 2013

We find evidence consistent with the hypothesis that non-listed subsidiaries engage in accrual and real earnings management when their listed parent is reporting small annual profits. Our evidence is important, because it shows that business groups manage earnings differently from single firms. In particular, to avoid reporting annual losses, the parent company drives earnings management of the subsidiary. Cross-sectional analysis reveals that Big4 auditors mitigate accrual earnings management at the subsidiary level, and that family-owned firms are more likely to use earning management through non-listed subsidiaries to avoid losses.

Extraordinary Acquirers

Extraordinary Acquirers

Alfred Yawson City University London – Sir John Cass Business School; University of Adelaide Business School

Huizhong Jodie Zhang University of Adelaide – Business School

May 3, 2013

We examine acquirers that persistently generate positive announcement returns in takeovers (extraordinary acquirers). Extraordinary acquirers constitute 14.9 percent of US acquiring firms during the period 1990-2011. The probability of observing an extraordinary acquirer from a takeover announcement is 2.41%. Extraordinary acquirers prefer subsidiary targets and cash deals but avoid using stocks to finance acquisitions. Further, we find strong evidence that the attainment and preservation of extraordinary acquirer status depend on top management team tenure and tenure heterogeneity. Compensation heterogeneity does not change after the transaction suggesting top team members contribute more equally to the acquisition success. Further we show that extraordinary acquirers possess strong negotiation skills which enable them to appropriate a larger share of the synergy gain.

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

The Ingenious Enterprise: Competing Amid Rising Complexity

The Ingenious Enterprise: Competing Amid Rising Complexity

by Martin Reeves and Jussi Lehtinen

MAY 07, 2013


“Creating a great culture, finding the right people, managing them to do great things, and solving problems creatively and systematically are challenges faced by all organizations. What differentiates [organizations] is how they approach these challenges.”

Ray Dalio, Founder, President, and CIO, Bridgewater Associates

Business, at its heart, is about solving problems. Problem solving is performed both explicitly by analysts and computers and implicitly by your organization as a whole. And the way your organization is designed—the structure, processes, communication policies, incentives, training, and talent management you have in place—shapes the way your problems are approached and solved. Many organizations, however, lack explicit strategies for problem solving. This has come at little cost to these organizations historically, given that many of the problems they faced could be solved using straightforward, well-known methods. But today’s business environment, characterized by sharply rising complexity and hence increasingly complicated problems, is putting a rising premium on more sophisticated approaches to problem solving.

The rise in complexity—defined as the number of calculation steps required to reach a solution—is being driven by the rapid growth of three variables: data, interconnectedness, and the speed of change. Read more of this post

Graduate-turned-butcher shares experience with alma mater

Graduate-turned-butcher shares experience with alma mater


Lu Buxuan (right) helps his brother Lu Buning in the family butcher’s shop.

Zhang Yue, China Daily/Asia News Network

Monday, May 13, 2013

CHINA – It was the first time in 24 years that Lu Buxuan was speaking at his alma mater, Peking University, and the scene was emotional. His career choice of selling pork for a living after graduation in 1989 – at a time when college education was accessible only to a few in the society – has brought him to public attention for the past decade. In April, Lu was invited to return to the university. This time as a speaker, providing advice to his juniors. “I am very excited to stand here,” Lu says. “I understand that only the elites of our society can stand here and give a speech to the students.” “I, on the other hand,” he choked, and his face turned red, “brought shame to my alma mater.” Lu graduated from Peking University in 1989, majoring in Chinese language and literature, and was assigned to a factory job in his hometown in Shaanxi province. “It was definitely not the job I liked. But most students were assigned jobs at that time.” Lu says his tough and stubborn personality made his career in the State-owned factory increasingly harder. “I didn’t talk much,” says 47-year-old Lu. “And because I was too quiet and did not cultivate good relationships with people around me, I was ostracized.” Lu quit his low-paying factory job in 1999 and was planning to start a small business of his own. Setting up a stall in a food market was one of the easiest options. Read more of this post

%d bloggers like this: