Why $3.4tn in foreign reserves is not China’s escape hatch

Why $3.4tn in foreign reserves is not China’s escape hatch

Guest writer | Aug 28 08:40 | 5 comments | Share

By Paul J. Davies, the FT’s Asia financial correspondent.

After trying to work out how big China’s bad debt problem might be, many people still turn round and point to the country’s mammoth foreign exchange reserves as its great get-out clause. The idea is seductive. On a deliberately gross calculation using the 20 per cent non-performing loan rate found at China’s big banks in the late 1990s, total bad debts would amount to Rmb21tn. A more sensible stab might put the level at roughly half that, or Rmb10tn. These are painfully large numbers – but hang on, China’s central bank has foreign exchange assets of $3.4tn, or Rmb20tn. Perfect – what’s the problem? Read more of this post

Beijing land values surpass US annual GDP

Beijing land values surpass US annual GDP

Staff Reporter

2013-08-28

Transaction prices in China’s urban housing market have touched new highs in 2013, such as Beijing, Shanghai, Guangzhou and Hangzhou. In Sunhe, located in the Zhaoyang district in Beijing, Cofco Property, spent 2.36 billion yuan (US$385 million) on July 23 this year to buy an HIJ plot, measuring 33,000 square meters. The floor area was priced at 44,000 yuan (US$7000) per square meter, making it the most expensive plot of land in the capital. On Aug 16, China Resources won the bid for a plot of land in Qianhai, Shenzhen for 10.9 billion yuan (US$1.7 billion), which broke the record for the highest price quoted for a single land transaction. Read more of this post

“China has made too many mistakes, and urbanization in several places is not even real”

Urbanization in parts of China slower than Vietnam

Staff Reporter

2013-08-28

Ren Zhiqiang, right, attends a meeting in Hainan. (Photo/Xinhua)

Until China solves its problems of household registration and land issues, urbanization in certain parts of the country will still be slower than those found in Vietnam, said a Beijing party official. “China has made too many mistakes, and urbanization in several places is not even real,” said Ren Zhiqiang, who also doubles as the chairman of Huayuan, a real estate company based in Beijing. Ren suggested that China allows people to have access to all the resources related to urbanization. “First, the industry has to become a free market. Second, the government should give people the right to change their residence,” he said. “Many in China blame real estate companies for resources being unequally allocated. But the government is actually the one to be blamed, because it caused the country’s urbanization to be slower than other Asian countries, Vietnam for example,” he said.

CBRC Tells Banks to Limit Investment in Local Government Bonds

CBRC Tells Banks to Limit Investment in Local Government Bonds

China’s banking regulator told lenders to be “cautious” when investing in bonds issued by local government financing vehicles as policy makers seek to rein in local borrowing. The China Banking Regulatory Commission has capped at end-2012 levels LGFV loans by banks, which are banned from providing guarantees to the entities’ bonds, Cao Guoqiang, Vice President of China Citic Bank Corp. (998), said at a teleconference. Read more of this post

China to Place Consumption Tax on More Luxury Goods, Xinhua Says

China to Place Consumption Tax on More Luxury Goods, Xinhua Says

China will widen the scope of its consumption tax to include more luxury goods, the official Xinhua News Agency reported, a sign that some high-end brands may become more expensive for purchasers on the mainland. The Asian nation is also targeting goods that cause heavy pollution or use excessive levels of energy for consumption tax adjustments, Xinhua said on its official microblog today. The news agency cited a report by China’s finance minister Lou Jiwei to the Standing Committee of the National People’s Congress. Read more of this post

China Urban Migrants’ Cost Seen at Least $6.8 Trillion

China Urban Migrants’ Cost Seen at Least $6.8 Trillion: Economy

China must spend at least 41.6 trillion yuan ($6.8 trillion) over two decades to integrate rural workers living in cities and towns so the country realizes benefits of urbanization, a United Nations report said. Spending may exceed 75 trillion yuan in a scenario with a higher rate of investment to improve living conditions and housing quality, according to the report released yesterday in Beijing. The study’s baseline assumptions are for the urban population to rise to 976 million in 2030 from 666 million in 2010 and integrate about 210 million migrant workers. The report quantifies the urbanization challenges faced by Communist Party leaders as they prepare for a November meeting to discuss deepening policy reforms amid an economic slowdown. Officials are considering changes to the hukou residence-registration system that excludes migrant workers from taking advantage of schools and pension benefits in cities. Read more of this post

After mega-LBO boom, a massive private equity cleanup

After mega-LBO boom, a massive private equity cleanup

3:31am EDT

By Greg Roumeliotis

NEW YORK (Reuters) – According to Blackstone Group LP’s (BX.N: Quote, Profile, Research, Stock Buzz) books, the private equity firm’s investment in Hilton Worldwide Inc was worth 50 percent more this year than when it took the international hotel chain private in 2007. While that might not seem like much compared to private equity’s historical record of doubling or tripling its investments, it is a remarkable turnaround for a $26.7 billion deal that has come to epitomize the leveraged buyout boom and bust of the past decade. Hilton is one of many cleanup acts that have been quietly going on in the world of private equity, as the industry atones for a debt binge in the years before the financial crisis. Many of the largest buyouts from 2005 to 2008 were based on revenue and profit expectations that proved too optimistic when the recession hit. Companies such as casino operator Caesars Entertainment Corp (CZR.O: Quote, Profile, Research, Stock Buzz) and Texas utility Energy Future Holdings were saddled with huge piles of debt and had difficulty meeting interest payments when business declined. Read more of this post

Suntech Directors Quit Saying Solar Maker Has No Business Plan

Suntech Directors Quit Saying Solar Maker Has No Business Plan

Suntech Power Holdings Co. (STP), the Chinese solar manufacturer whose main unit was pulled into bankruptcy earlier this year, said three directors including the former chairwoman quit saying the company had no business plan. Susan Wang, Julian Worley and Zhizhong Qiu resigned on Aug. 21, saying they weren’t provided with information they needed to fulfill their responsibilities, the Wuxi, China-based company said today in a statement. Michael Nacson replaced Wang as chair, who took the post in March, Suntech said. The resignations highlight the divisions that have plagued the company’s management and come less than six months after Suntech founder Shi Zhengrong was ousted as chairman. Nacson was appointed to the board last month by Suntech’s bondholders. Read more of this post

China companies feel the investment hangover

Last updated: August 27, 2013 5:10 pm

China companies feel the investment hangover

By Simon Rabinovitch in Qujing

Wooden carvings of two elephants and an eagle, meant to symbolise wisdom and prosperity, flank the entrance to the Chinese chemical producer Yunwei. Today, they suggest a very different interpretation: a lumbering debt load and scavengers picking over the company’s scraps. “Lots of Chinese companies rushed to expand, to be the biggest in the world. This was a source of great pride. Now we see it as a headache,” says a soft-spoken Yunwei executive, back from a business trip where he was trying to sell more of the hard black coking coal piled high in the company’s storage facility in Qujing in the southwestern province of Yunnan. Read more of this post

Bulging bad debts give China a new banking dilemma; If China is to rebalance, savers cannot foot the bill

August 27, 2013 5:15 pm

Bulging bad debts give China a new banking dilemma

By Paul J Davies

If China is to rebalance, savers cannot foot the bill

There are two pieces of received wisdom that open and close almost any conversation about China’s banks. Firstly, they face a looming bad debt problem that will make the 2008 US banking bust seem like a bugle before a foghorn. Secondly, this doesn’t matter because the Chinese do things differently – any bad debts can be simply magicked away. China has form on this front. In the late 1990s a piece of apparently costless circular financing took a big chunk of bad debts from the four largest banks and parked them at their original value in four specially created bad banks, or “asset management companies”. These were funded in full mostly by the banks themselves via the Ministry of Finance. Read more of this post

If the Billabong brand is worth nothing, which brand will be next?

Michael Bleby Reporter

If the Billabong brand is worth nothing, which brand will be next?

Published 28 August 2013 12:17, Updated 28 August 2013 13:25

Not quite washed up – but Billabong has some recovery work to do on its iconic brand. Photo: Glenn Hunt

Billabong is not the only Australian retail brand at risk of going under in an era when online and global competitors are circling the country’s traditional consumer businesses, as even iconic names need to support a business and make it profitable. The surfwear company’s much-reported $636 million writedown this week on the value of brands including Billabong and Element shows how far the business has fallen, even from as recently as May, when Billabong ranked at number #43 in a list of Australia’s 100 most valuable brands by consultancy Brand Finance. Read more of this post

BMW Owners Vent Anger at Months-Long Wait for Spare Parts

BMW Owners Vent Anger at Months-Long Wait for Spare Parts

South African Neels Kilian was as proud as any BMW owner could be when he got his new 3-Series in May. After getting into an accident a few weeks later and still waiting today for repairs, he’s reconsidering that sentiment. The resident of Gauteng, South Africa, needs a rear fender replaced before the car is driveable again. In the meantime, he’s still making a monthly payment of 8,000 rand ($770) and has to bear additional costs for work travel because he hasn’t been offered a loaner. Read more of this post

China SUV Maker Has Great Wall to Climb

August 27, 2013, 11:00 a.m. ET

China SUV Maker Has Great Wall to Climb

ABHEEK BHATTACHARYA

China can boast that it is home to the world’s most profitable car maker. But the company may soon run out of open road. Hong Kong-listed Great Wall Motor GWLLY +8.01% has the fattest margins in the auto world, says Sanford C. Bernstein’s Max Warburton. It posted an operating profit margin of 18.4% in the first half of 2013. That tops even Ferrari, which was at 14.9% in the same period. Great Wall’s secret sauce is that sport utility vehicles, which typically yield higher profits, account for half of the autos it sells. In contrast, SUVs on average make about a third of an auto maker’s volumes in North America, according to research firm LMC Automotive. That sector is about a fifth in China. Read more of this post

China’s Top Telecom Operators to Cut Fees with Upcoming Anti-Trust Probe

China’s Top Telecom Operators to Cut Fees with Upcoming Anti-Trust Probe

08-27 11:43 Caijing

The NDRC has delivered a combined fine of roughly 1.5 billion yuan so far this year in a string of anti-trust probes. China’s top telecom operators may further cut mobile and Internet service fees after the lucrative industry became one of the latest targets by the county’s economic planner in its antitrust campaigns. The National Development and Reform Commission (NDRC) will work together with the Ministry of Industry and Information Technology to push downward the country’s telecom charges in the rest months of the year, the Economic Information Daily reported. Read more of this post

Chinese entrepreneurs, unsettled, speak out for reform; Many business owners say they are forced to bribe local party officials to gain patronage and political protection

Chinese entrepreneurs, unsettled, speak out for reform

By Simon Denyer, Published: August 26

BEIJING — When Chinese property magnate Zeng Chengjie was executed for fraud in July, it sent a chill through the business community here. Zeng’s real misstep, according to associates and supporters, was not the crime he was charged with — defaulting on loans from ordinary citizens — but backing the wrong political horse: When his patron, a provincial governor, was jailed for corruption, Zeng found himself stranded, they say, a victim of China’s shifting political sands. Read more of this post

Everbright Accused of Insider Trading

Everbright Accused of Insider Trading

08-27 15:51 Caijing

The Everbright fat finger incident that occurred Aug. 16, which is a first since the inception of China’s capital market, will likely hinder business innovation by domestic dealers.

By staff reporters Qu Yanli and Liu Wenju

The Shanghai Composite Index jumped 5.96 percent in a matter of seconds at around 11 a.m. on Aug. 16, 2013. The unprecedented flash rally drove a number of blue-chip stocks from the banking and oil industries, which have been sluggish for a long time, up by their daily limit. Investors, hoping to get a piece of the action, rushed into the market, amid a series of rumors and speculation over the cause of the spike. Supervisory authorities were soon alerted to the incident. Read more of this post