Bamboo Innovator

Lies, Damned Lies, and Chinese Statistics; Who’s cooking Beijing’s books? Ingrained belief that boosting morale through exaggerated claims was more important than reporting reality

Lies, Damned Lies, and Chinese Statistics

Who’s cooking Beijing’s books?

BY TOM ORLIK | MARCH 20, 2013

On Wednesday, U.S. Treasury Secretary Jack Lew met with China’s Premier Li Keqiang, a crucial first meeting between new representatives of the world’s two biggest economic powers. Lew’s interlocutor sits at the top of the world’s second-largest economy — a country whose GDP reachedapproximately $8.3 trillion in 2012. But how accurate are the statistics that illuminate China’s growth? Even Li himself has said (as quoted in a U.S. State Department cable published by WikiLeaks) that China’s GDP figures are “man-made” and therefore unreliable. In this excerpt from his book, Understanding China’s Economic Indicators, Wall Street Journal China reporter Tom Orlik explains how to get to grips with China’s data. Read more of this post

What Should China Do with 18 Mln Pigs Carcasses Every Year?

03.21.2013 19:40

Closer Look: What Should China Do with 18 Mln Pigs Carcasses Every Year?

The appearance of thousands of carcasses in a Shanghai river shows how much work the government has to do on a major public health issue

By staff reporter Gong Jing

More than 10,000 dead pigs have been pulled out of a Shanghai river that provides drinking water to 23 million people over two weeks, raising health concerns. Even worse, there have been reports that many dead pigs were processed and sent to people’s dining tables.

Behind all of this is the issue of disposing of pigs that dies from disease, an area that regulators have long neglected.

Yu Kangzhen, an expert from the Ministry of Agriculture, said that an investigation has not found an epidemic at farms in Jiaxing, a city in Zhejiang Province believed to be the source of the animals found in Shanghai’s Huangpu River.

Information from other sources backs Yu. There has been no significant rise in pig deaths in Jiaxing this year. As a major pig farming city, Jiaxing raised about 4 million of the animals every year. If a normal death rate from disease is used, about 3 percent, this means the city has to handle about 120,000 dead pigs per year.

China raises more pigs than any other country in the world. Rough statistics show that it had nearly 700 million pigs in 2012. That means, about 18 million pigs died of disease every year.

How does China handle such a large number? The ministry says pigs that die from disease are usually buried or burned. But in reality, many farmers illegally sell them or simply dump the carcasses. Read more of this post

As Pollution Worsens in China, Solutions Succumb to Infighting

March 21, 2013

As Pollution Worsens in China, Solutions Succumb to Infighting

By EDWARD WONG

Smog veiled the China Central Television Building in Beijing last week. Air pollution hit record levels in north China last month.

BEIJING — China’s state leadership transition took place this month against an ominous backdrop. More than 13,000 dead pigs were found floating in a river that provides drinking water to Shanghai. A haze akin to volcanic fumes cloaked the capital, causing convulsive coughing and obscuring the portrait ofMao Zedong on the gate to the Forbidden City.

So severe are China’s environmental woes, especially the noxious air, that top government officials have been forced to openly acknowledge them. Fu Ying, the spokeswoman for the National People’s Congress, said she checked for smog every morning after opening her curtains and kept at home face masks for her daughter and herself. Li Keqiang, the new prime minister, said the air pollution had made him “quite upset” and vowed to “show even greater resolve and make more vigorous efforts” to clean it up.

What the leaders neglect to say is that infighting within the government bureaucracy is one of the biggest obstacles to enacting stronger environmental policies. Even as some officials push for tighter restrictions on pollutants, state-owned enterprises — especially China’s oil and power companies — have been putting profits ahead of health in working to outflank new rules, according to government data and interviews with people involved in policy negotiations. Read more of this post

LME copper inventories at 10-year high; Level is the highest since China’s industrialisation was in its infancy

March 21, 2013 8:02 pm

LME copper inventories at 10-year high

By Jack Farchy in London

Copper inventories on the London Metal Exchange have risen to their highest level since 2003, in the latest sign of the copper market’s shift into oversupply.

LME copper stocks have risen 165 per cent since October, amid an increase global mine production and slower purchases from China, which has seen a rapid build-up of copper stocks in recent years.

On Thursday stocks on the LME rose 6,625 tonnes to 557,450 – the highest since October 2003, when the commodities supercycle driven by China’s industrialisation was still in its infancy.

Although LME stocks only represent one chunk of global inventories, they are closely watched by traders and analysts as an indication of the amount of surplus metal that is readily available to deliver into the market. Read more of this post

Offshore Marine Boom? Oil rig engineering specialist Lamprell posts $110m loss on cost overruns

March 21, 2013 4:31 pm

Lamprell posts $110m loss on cost overruns

By Michael Kavanagh

Lamprell, the specialist engineering group, set out plans for a return to break-even on trading this year after delivering a $110m loss prompted by cost overruns and penalties on key projects.

The Dubai-based contractor, which specialises in oil and gas rig construction and repair and the building of vessels used to install wind turbines, was on Monday fined £2.4m by the Financial Services Authority for failing to update the market properly on its worsening financial position in early 2012. Read more of this post

China’s rail reform skirts big question: Who pays? China’s massive high-speed rail expansion is likely to cost over $100 billion a year. The funding for it has been pure folly.

China’s rail reform skirts big question: Who pays?

March 21, 2013: 12:36 PM ET

China’s massive high-speed rail expansion is likely to cost over $100 billion a year. The funding for it has been pure folly.

By John Foley, Reuters Breakingviews

FORTUNE — China’s massive rail expansion is good for the economy. Burying it under $420 billion of debt isn’t. The long awaited dismantling of China’s sprawling Ministry of Railways and creation of a new rail company, announced on March 10, is a good moment to change track.

A grand plan to double track length to 120,000 kilometres between 2010 and 2015 is likely to cost over $100 billion a year. It’s worth it. As well as comfort, prestige and low emissions, rail is the ticket to better urbanization. A recent World Bank report calculated that the benefits to a city of better connectivity from high-speed rail could be almost as large as those from saving passengers time and operating costs.

The funding, though, has been pure folly. Projects depend on borrowing from Chinese state banks and issuing bonds — which in turn are mostly bought by the banks. The resulting debt, on a notional 6% interest rate, would require $25 billion a year of interest payments. Passengers aren’t rich enough to cover that cost. Read more of this post

IMF: borrowing is back to pre-crisis levels; Meier didn’t actually invite listeners to read between the lines of all the numbers he was presenting, but the meaning was clear to the veterans in the auditorium.

IMF: borrowing is back to pre-crisis levels

22 March 2013

Author: Simon Osborne

Are we meant to cheer, or boo? Borrowing is back to where it was in 2007. In Asia, gearing ratios are back at 96%, the same level as they were pre-crisis. Is that good or bad? Was it not borrowing that got us into this fine mess? “It might be ok now, but given a few years of that trend, that view might change,” says Andre Meier, the International Monetary Fund’s resident representative in Hong Kong, at the Private Equity International Asia Forum. He adds the Chinese are gearing up, last year recording 17% bank loan growth, 80% for Trust loans, 40% for corporate bonds and 30% for entrusted loans. He looked mellow about the bank loan growth, but was that a flicker of a conservative frown for the other three? “These markets are yet to be tested in strained scenarios. For example, there has been no default yet in Chinese domestic corporate bonds.” He pointed a stern finger at a slide with vertiginous lines showing that Dim Sum Bond issuance was $25bn in 2011, $250bn now, and QFII was $75bn in 2011, $140bn now. “The average ratio of credit to GDP is higher now than it was in 1997, the boom is striking.” All those in the audience who were in high school in 1997 smiled. Yes, yes, this is all good news of boom and prosperity……….isn’t it? Capital flows in funds are rushing back to Asia at a rate of $1.75bn per week this year, compared to outflows in 2011. That money is chasing the 7.5% GDP growth that the IMF predicts for Asia in each of the next two years. However, if some “reversal” took place, (could he mean a once-in-a-century crisis that-nobody-sees-coming that now seems to happen every other year), then Asia is vulnerable, as money could be pulled out again. Non-resident holdings of Indonesian, Malaysian and Thai government debt are at 35%, 30% and 25%. Would foreigners whisk their money out of Asia if something goes wrong? Tick, that sounds plausible. He sees less tail risk in Europe, thanks to the ECB medicine in 2012, and growth being shored up elsewhere, and a slump being prevented – by the Bank of England quadrupling the size of its balance sheet, and the Fed multiplying its by 3.5x. Meier didn’t actually invite listeners to read between the lines of all the numbers he was presenting, but the meaning was clear to the veterans in the auditorium.

Because of bias and ignorance, Western companies in Singapore have failed to build up local leadership and talent in their management

PUBLISHED MARCH 22, 2013

Western firms don’t build up local talent: study

Their competitive edge in Asia may be hurt in long haul if such practices stay

BY CHUANG PECK MINGPRINT |EMAIL THIS ARTICLE

[SINGAPORE] Because of bias and ignorance, Western companies in Singapore have failed to build up local leadership and talent in their management, says a study backed by the Tripartite Alliance for Fair Employment. And it warns that this may blunt the competitive edge of these multinational corporations in Asia in the long haul. “Our research shows that Singaporean talent brings unique strengths to leadership and organisational success, yet we observe that local employees often do not rise up through organisations to secure leadership positions,” says Kate Verson, a co-author of the study titled “Adopting an Asian lens to talent development – a Singapore study”. “There is a concern that approaches towards talent development may not be truly inclusive and that companies are potentially overlooking key local talent in the pipeline,” she adds.

Keep flats simple and affordable: Ex-HDB chief Dr Liu Thai Ker; the man who played a pivotal role in Singapore’s successful public housing programme in the early years yesterday made the call to return to the basics.

Keep flats simple and affordable: Ex-HDB chief

SINGAPORE — As the debate rages on over the role and nature of public housing, following National Development Minister Khaw Boon Wan’s call earlier this month to relook the long-term direction, the man who played a pivotal role in the Republic’s successful public housing programme in the early years yesterday made the call to return to the basics.

BY NG JING YNG –

4 HOURS 52 MIN AGO

SINGAPORE — As the debate rages on over the role and nature of public housing, following National Development Minister Khaw Boon Wan’s call earlier this month to relook the long-term direction, the man who played a pivotal role in the Republic’s successful public housing programme in the early years yesterday made the call to return to the basics.

Forget the bells and the whistles, and build more flats than needed — the end goal is affordability, said Dr Liu Thai Ker, whose 20-year career in the Housing and Development Board (HDB) began in 1969 when he was the head of the Design and Research Section.

He rose through the ranks to become its Chief Architect and ultimately, the Chief Executive Officer, before he left in 1989 to become the CEO and Chief Planner of the Urban Redevelopment Authority.

And his call was backed by former Senior Minister of State and HDB Chairman Aline Wong, who reiterated that the purpose of public housing is to “provide a shelter over everybody’s heads”.

“The asset part comes along because … property appreciates over a long time. But that is not our primary objective. People make money, accumulate savings … but we cannot promise that they will not lose (value in their property), depending on the property cycle,” she said. Read more of this post

McDonald’s franchises in China need 5 years to break even

McDonald’s franchises in China need 5 years to break even

Staff Reporter

2013-03-21

McDonald’s franchises in China may need up to five years before they break even, according to the Shanghai-based First Financial Daily. Chinese investors interested in taking up a new McDonald’s franchise must pay an initial fee of 2 million yuan (US$320,000) and must also pay for the building itself, equipment and other additional costs, including monthly franchising operations and advertising fees. An outlet may need to operate for five years before it starts to see a profit, based on the current sales of a typical McDonald’s restaurant and the increasing cost of running a business in the country, analysts say. The US fast food giant is continuing to expand its China network, with new franchises licensed in Hunan province last September, and the Jiangsu Rongjin Group obtaining franchise rights last October. McDonald’s has also opened more outlets in Fujian and Sichuan provinces, according to sources familiar with the business.

McDonald’s is one of the world’s highest-grossing fast food chains and derives its profits from other channels in addition to its burgers, selling franchising and property as well as renting out its outlets. The company reported operating revenue of US$9.9 billion in 2011. Total business from its restaurants, franchising fees and rents accounted for 32%, 23% and 45% of operating revenue, respectively. However, the company has failed to successfully apply its standard business model in China. Rival KFC beat McDonald’s into China and has held the lead in terms of revenue and expanding its franchises over the past 20 years. McDonald’s hopes to expand its network in mainland China from 1,500 to 2,000 restaurants by the end of 2013 and 20%-30% of its restaurants will be franchise outlets by 2015. According to analysts, McDonald’s should work more closely with agents within China to better understand the local market.

Chart Of The Day: China PMI Vs Electricity Production

Chart Of The Day: China PMI Vs Electricity Production

Tyler Durden on 03/20/2013 22:13 -0400

HSBC’s China Flash PMI just printed above expectations at 51.7, disappointing those hoping for more stimulus but just Goldilocks enough to satisfy the world that China is firing on all cylinders… But, and there’s always a but, the following chart suggests that the diffusion-driven survey-based PMI data may be just a little different from the hard data on the ground. Of course, everything could have magically turned around in the last 3 weeks (aside from Copper demand and PBoC repo/rev. repo that is). For now, we tip our hat to the well planned PMI print as indicative that all is well in the smog-ridden pig-barren nation but scratch our chin at just what is powering all this growthiness… HSBC’s Flash PMI upticked more than expected but remains in that neverland zone… and here are the stunning sub-indices showing the ‘surges’ – hhmm – employment? pricing? even New Export Orders are in ‘fence-sitting’ mode… But when judged against the history of a relatively tight relationship to Electricity production… is it any wonder we call it the Chart of the Day… It seems we are about to witness a jump from -13% YoY decline (as we discussed here the largest ever) to a +10% YoY rise in the span of just one month…

China’s Hidden Debt Risk

China’s Hidden Debt Risk

20 March 2013

Zhang Monan. Zhang Monan is a fellow of the China Information Center, a fellow of the China Foundation for International Studies, and a researcher at the China Macroeconomic Research Platform.

BEIJING – In the last 200 years, there have been more than 250 cases of sovereign-debt default, and 68 cases of domestic-debt default. None of these was an isolated incident. Indeed, such defaults – combined with factors like large current-account or fiscal deficits, overvalued currencies, high public-sector debt, and insufficient foreign-exchange reserves – have always triggered financial crises, from the Mexican peso crisis in 1994 to the Russian ruble crisis in 1998 to the American subprime mortgage crisis in 2008.

Since China’s era of reform and opening up began, the country has experienced three instances of large-scale public-finance problems. In the late 1970’s, the country faced a debilitating fiscal deficit. In the 1990’s, its corporate sector was plagued by “triangular debts” (when a manufacturer that has not been paid for its product is unable to pay its suppliers, which in turn struggle to pay their suppliers). Later that decade, financial institutions were burdened by bad debts generated by state-owned enterprises.

Now China is experiencing a fourth instance of elevated debt risk, this time characterized by high levels of accumulated local-government and corporate debt. To be sure, China’s national balance sheet, which boasts positive net assets, has garnered significant attention in recent years. But, in order to assess China’s financial risk accurately, policymakers and economists must consider the risks that lie in the country’s asset structure – and the liabilities that are not included on its balance sheet. Read more of this post

Swedish business is being cast as a model for long-term stability and growth; the Swedish model of active ownership of companies – the distinctive way Sweden has placed corporate power not with management but with shareholders who are obliged to elect board directors and be involved in big strategic decisions

March 20, 2013 6:52 pm

Scandinavia: Model management

By Richard Milne

Swedish business is being cast as a model for long-term stability and growth

The two men joke, finish each other’s sentences and defend the other from attack. “You start!” jokes one when the subject turns sensitive.

But behind this veneer of camaraderie, the two are rivals: Börje Ekholm and Anders Nyrén are two of Sweden’s most important businessmen, heading the holding companies that together control more than half of Stockholm’s stock exchange.

For the first time in the 69 years that their two companies – Mr Ekholm’s Investorand Mr Nyrén’s Industrivärden – have existed side by side their chief executives have agreed to give a joint interview.

The subject that has brought them together is the Swedish model of active ownership of companies – the distinctive way Sweden has placed corporate power not with management but with shareholders who are obliged to elect board directors and be involved in big strategic decisions.

With a structure that promotes long-term thinking, the Swedish model is attracting interest worldwide from regulators and governments looking to head off financial crashes. Some think that adapting the model’s tenets could reduce the short-term thinking that can damage companies, while also boosting local industry. Read more of this post

Biggest Solar Collapse in China Imperils $1.28 Billion; China’s Solar Billionaire Undone as Banks Push Suntech to Brink

Biggest Solar Collapse in China Imperils $1.28 Billion: Energy

Investors stand to lose most of the $1.28 billion they put into Suntech Power Holdings Co. (STP) after the solar manufacturer said it wouldn’t resist a bankruptcy petition filed in China.

The company, based in Wuxi, outside Shanghai, had more than $2 billion in debt and defaulted on $541 million in bonds due on March 15, prompting eight Chinese banks to ask a local court to push Suntech’s main unit into insolvency.

“There’s a host of companies that have gone to Wall Street investors and gotten billions of dollars, and these investors are ultimately going to be on the hook and get nothing out of it,” Angelo Zino, an analyst at Standard & Poor’s Financial Services LLC in New York, said in an interview yesterday. Read more of this post

Easy money over for Asian junk bonds; 50% of January deals are now trading underwater

Easy money over for Asian junk bonds

Bankers and investors warn high-yield bonds from Asian issuers face headwinds due to compressed spreads.

By Jame DiBiasio | 21 March 2013

After a banner year of issuance, capped by a record $10.6 billion issued in January 2013, investors in Asian high-yield debt face a tougher environment.

“Income will dominate and capital appreciation will be limited,” says Bryan Collins, portfolio manager at Fidelity Worldwide Investments.

Tim Jagger, head of Asian fixed income at Aviva Investors, says that in contrast to the equity-like returns that investors enjoyed in 2012, this year they will only make money from the coupon of Asian high-yield bonds.

Julian Trott, head of debt syndication for Asia ex-Japan at Goldman Sachs, says 50% of those January deals are now trading underwater. He expects credit investors will return to high grade instruments. “There will be more discrimination of high yield by investors,” he says. Read more of this post