China Readings for October 12th

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  • Caijing-Private Lending Woes in Wenzhou Stirs Fears of a Debt Crisis- The city of Wenzhou has recently been plagued with rumors of an impending collapse of the private lending market after over 60 local business owners fled the city to escape hundreds of millions of yuan in company debt. The crisis, during which two business owners leapt to their deaths, prompted a response from the central government.The regional crisis stems from a lack of effective supervision, which led to the entanglement of bank funds and private loans. The sticking-point is the price distortion of capital and “double-track system” in official and private lending rates under interest rate control.
  • Caijing-Wenzhou Official Says Capital Chain Disruptions Affect 21 Banks While Clarifying Rumors – preliminary survey shows that 21 banks have been affected by the fall-out of capital chain disruptions that are grappling many small and medium-sized enterprises (SMEs) in Wenzhou, the Guangzhou Daily reported, quoting head of the city’s banking regulator Monday.
  • China: a bullish call in the gloom | beyondbrics – FT.com-Kroeber’s call- A year in global economic forecasting, it turns out, is a long time. It was only last year that everyone thought China was destined to take over the world. Now the consensus among sceptical investors is that China’s economy is heading for a crash – everything from the runaway lending in shadow banking to the scores of cranes on building sites is seen as a sign of imminent collapse.Gavekal Dragonomics, the respected Beijing research company, argues in a recent report that these “fashionably bearish stories…do not stand up to scrutiny.”

    Gavekal says the concerns about China over-investing is overdone; the country has just 7 per cent of the physical stock per head of the US and Japan.

    It also makes the point that concerns about the middle income trap for China are based on GDP growth slowing as Thailand and Malaysia’s did at a similar level of development.

  • 搜狗市场份额首超谷歌中国 收入仍存在差距 _谷歌(GOOG) _i美股 – sohu search search engine sogou’s search market share surprasses google china’s for first time
  • Asia Unbound » Adam Segal » Giant Sucking Sound: China and IPR Theft – That phrase is of course associated with presidential candidate Ross Perot and what he believed would be the massive loss of jobs to Mexico after the signing of the North American Free Trade Agreement. Now it may best summarize the emerging view of congressional leaders about China and intellectual property.
    Last week, in his opening statement, House Permanent Select Committee on Intelligence Chairman Mike Rogers called out Chinese economic cyber espionage: “A massive and sustained intelligence effort by a government to blatantly steal commercial data and intellectual property.”  As Ellen Nakashima pointed out in the Washington Post, that Chinese hackers are behind the massive theft of intellectual property is widely assumed. People just don’t say it so directly very often.
    At almost the same time, Senator Jim Webb was introducing legislation that is supposed to stop the transfer of technology funded by the U.S.  government to China and other countries that “by law, practice, or policy require proprietary technology transfers as a matter of doing business.”
  • Red Tape – Move to China for a job? Unemployed cope by leaving US- For years, American jobs have been exported overseas, to places like China or India.  Now we’re exporting our people there, too.”I just got tired of how the economy was going back home. I just figured things had to better somewhere else,” said Francine, a former real estate agent in Las Vegas who recently moved to Xi’an, in central China, for work.

    She has two jobs, but says her standard of living is a little bit better than when she left Nevada. “It’s kind of ironic — the middle class in China is growing while the middle class in America is shrinking.”

  • Burma’s suspended Myitsone dam and lessons for Chinese dam builders | chinadialogue.net – Though painful for China’s investors, the suspension of a multibillion-dollar dam in Myanmar could teach those wanting to do business abroad an important lesson in political risk, writes Liao Ruo.
  • Myanmar Said To Compensate China For Myitsone Dam Suspension | China Bystander – We understand that Myanmar has agreed to compensate Beijing through further natural-resources concessions, including giving China an increased share of its revenues from the $2.5 billion oil and gas pipeline being built through central and northeastern Myanmar by state-owned China National Petroleum Corp to connect Yunnan to terminals it is building on the Indian Ocean. This will be done under the guise of repaying the loan agreement between China and Myanmar’s former military rulers to fund Myitsone, most of whose electricity is intended to be exported to China.
  • Hacked! – Magazine – The Atlantic-James Fallows – As email, documents, and almost every aspect of our professional and personal lives moves onto the “cloud”—remote servers we rely on to store, guard, and make available all of our data whenever and from wherever we want them, all the time and into eternity—a brush with disaster reminds the author and his wife just how vulnerable those data can be. A trip to the inner fortress of Gmail, where Google developers recovered six years’ worth of hacked and deleted e‑mail, provides specific advice on protecting and backing up data now—and gives a picture both consoling and unsettling of the vulnerabilities we can all expect to face in the future.
  • Pilot Project to Adjust China’s Family Planning Policy Suspended-Caijing- Regarding the latest development of a pilot project that allows couples to have a second child as long as one spouse is an “only child,” a source close to policymakers stated in August 2011 that “As of now, it is still unclear as to which provinces would be among the first to conduct the experiment and when the experiment would begin.”Moreover, there are signals that despite years of brewing, the “most prudent adjustment” to the country’s family planning policy, which is a basic state policy in China, is still on hold, despite little controversy over China’s demographic condition.
  • Huijin’s Head-Fake « Patrick Chovanec- excellent post. wish folks looking at how china’s government intervenes with put in perspective by looking at what us fed, treasury and europe are doing. the world more and more seems like one big state intervened market these days//Yesterday, Central Huijin Investment, the domestic arm of China’s sovereign wealth fund China Investment Corp. (CIC), announced that it would begin buying shares in China’s “big four” state banks in order to support their share prices, which have been languishing due to growing worries over potential losses from overly aggressive lending.  Today, Huijin backed up its words with action, buying 14.6 million shares in ICBC, 7.38 million shares of China Construction Bank (CCB), 3.5 million shares in Bank of China (BOC), and 39.1 million shares in Agricultural Bank of China (AgBank), at a total estimated cost of $31 million.  As a result, ICBC’s stock surged by 8.9%, CCB’s by 9.1%, BOC’s by 9.8%, and AgBank’s by an all-time record of 12%.
  • Meat, Dairy, and the Chinese Nutrition Divide | Asia Healthcare Blog – There’s a fundamental imbalance in China’s nutritional landscape. On the one hand, malnutrition plagues rural China and the migrant populations in major cities.  Anemia alone affects 25% of rural kids on average,  and 35% of the 270,000 deaths for children under 5 in China are associated with malnutrition.  On the other side, obesity is skyrocketing in China’s cities, especially among young people.
  • Marc Faber To America: “Listen You Lazy Bugger, You Need To Tighten Your Belts, You Need To Work More For Lower Salaries” | ZeroHedge – truth hurts, hard to compete with the chinese, harder to drop living standards?
  • Jim Chanos Mocks Latest Chinese Attempt To Support Its Stock Market, Sees It As Confirmation Of Deterioration | ZeroHedge- what are chanos’ returns this year?//“The fact that people are even talking about the government stepping in to shore up the banks, when two months ago people thought there was nothing wrong with the Chinese banks, should tell you just how seriously this situation is deteriorating,”
  • As Expected, Alternative DNS Systems Sprouting Up To Ignore US Censorship | Techdirt- we’re already seeing alternative DNS systems showing up, advertising that they should be used to route around US government censorship of such websites. The one getting attention these days is called BlockAid.me.What’s just as stunning as the fact that supporters of PROTECT IP still can’t figure out how this is really, really bad, is that they also don’t realize how this pretty much destroys any argument the US makes around the globe in trying to protest political censorship. Some claim it’s entirely different, but it’s not. Both involve a government entity deciding that websites cannot be reached without a trial. This makes the US look ridiculous in the eyes of the world, but I guess as long as it makes sure that Universal and Warner Bros. can prop up their profits for a few more years… it’s all good.
  • The Wilson Quarterly: Book Reviews: China’s Great Leader by J. Stapleton Roy – j. stapleton reviews vogel’s biography of deng xiaoping
  • What Putin wants from China – CSMonitor.com- The main item still under negotiation: a potential $1 trillion contract to export Siberian natural gas to China’s industrial heartland, which would see Russia providing a third of China’s energy needs by the end of this decade.Though the main substance of the burgeoning Russia-China relationship remains trade – Chinese cash and consumer goods for Russian arms, hydrocarbons, and engineering products – the strategic dimension is becoming more important, experts say
  • China: Mercedes decelerates | beyondbrics | News and views on emerging markets from the Financial Times – FT.com- mercedes not an indicator of sales in china. brand is damaged in china, no longer considered premium enough//Take one fact about the China car market – that most people buy cars with cash. Add a second trend: that auto market growth in China this year has slowed markedly from last year; and a third one, that Chinese people are getting more choosy about their luxury cars. The end result? A sharp slowdown in sales of Mercedes-Benz in China.

    Earlier today, at the same time that the China Association of Automobile Manufacturers downgraded its forecast for overall auto market growth to under 5 per cent for this year, Mercedes-Benz proudly announced 38 per cent growth in the first three quarters of this year over last. What the company did not mention is that sales last year during the same period grew at more than three times that rate.

  • Fast Enough? China’s Currency Record – China Real Time Report – WSJ- As the Senate ponders a measure to punish China for undervaluing its currency, it’s useful to take a look at China’s currency record, compared to other countries.Since July 2005, when China first allowed its currency to rise somewhat, the yuan has gained 30% against the dollar. While that isn’t as much as the yen’s 44% gain during that time, it’s well ahead of the euro’s 10% advance. The British pound, meanwhile, has fallen 12% against the dollar since July 2005.
  • Goldman Previews Today’s “Anti-Chinese Currency Manipulation” Bill | ZeroHedge- From Goldman SachsCongress is once again considering legislation to penalize the imports of countries that it considers to have intentionally undervalued currencies; China is its clear focus. Last week the currency bill offered by Senator Brown (D-OH) and a number of his colleagues overcame a key procedural hurdle in the Senate and final passage appears likely on October 11. The Brown bill is similar to proposals Congress has considered over the last few years and would make three important modifications to the way US trade law treats currency valuation:
  • The Kind of Chinese Currency Manipulation the U.S. Likes – China Real Time Report – WSJ- In recent days, the Chinese central bank has been intervening in currency markets to drive up the value of the yuan against the dollar while other currencies have been falling against the dollar. This is the kind of currency “manipulation,” that the U.S. Treasury likes — and has taken note of privately. But it’s wary of patting the Chinese on the back. That’s because the only safe political position in Washington on Chinese currency issues is that Beijing isn’t doing enough.Indeed, expect to see speech after speech on the Senate floor lambasting the Chinese for keeping the currency undervalued when the Senate considers a bill to penalize China for currency manipulation, which now has a more politically neutral name, “currency misalignment.”
  • China’s debt spree returns to haunt – Telegraph- uber bear ambrose evans-pritchard//Bail-outs are coming thick and fast in China. In less than a week the authorities have had to step in to prop up the banks, rescue the insolvent railway system and save the near bankrupt city of Wenzhou from a spectacular debt crash.
  • China: Mercedes decelerates | beyondbrics | News and views on emerging markets from the Financial Times – FT.com- mercedes not an indicator of sales in china. brand is damaged in china, no longer considered premium enough//Take one fact about the China car market – that most people buy cars with cash. Add a second trend: that auto market growth in China this year has slowed markedly from last year; and a third one, that Chinese people are getting more choosy about their luxury cars. The end result? A sharp slowdown in sales of Mercedes-Benz in China.

    Earlier today, at the same time that the China Association of Automobile Manufacturers downgraded its forecast for overall auto market growth to under 5 per cent for this year, Mercedes-Benz proudly announced 38 per cent growth in the first three quarters of this year over last. What the company did not mention is that sales last year during the same period grew at more than three times that rate.

  • Fast Enough? China’s Currency Record – China Real Time Report – WSJ- As the Senate ponders a measure to punish China for undervaluing its currency, it’s useful to take a look at China’s currency record, compared to other countries.Since July 2005, when China first allowed its currency to rise somewhat, the yuan has gained 30% against the dollar. While that isn’t as much as the yen’s 44% gain during that time, it’s well ahead of the euro’s 10% advance. The British pound, meanwhile, has fallen 12% against the dollar since July 2005.
  • Goldman Previews Today’s “Anti-Chinese Currency Manipulation” Bill | ZeroHedge- From Goldman SachsCongress is once again considering legislation to penalize the imports of countries that it considers to have intentionally undervalued currencies; China is its clear focus. Last week the currency bill offered by Senator Brown (D-OH) and a number of his colleagues overcame a key procedural hurdle in the Senate and final passage appears likely on October 11. The Brown bill is similar to proposals Congress has considered over the last few years and would make three important modifications to the way US trade law treats currency valuation:
  • The Kind of Chinese Currency Manipulation the U.S. Likes – China Real Time Report – WSJ- In recent days, the Chinese central bank has been intervening in currency markets to drive up the value of the yuan against the dollar while other currencies have been falling against the dollar. This is the kind of currency “manipulation,” that the U.S. Treasury likes — and has taken note of privately. But it’s wary of patting the Chinese on the back. That’s because the only safe political position in Washington on Chinese currency issues is that Beijing isn’t doing enough.Indeed, expect to see speech after speech on the Senate floor lambasting the Chinese for keeping the currency undervalued when the Senate considers a bill to penalize China for currency manipulation, which now has a more politically neutral name, “currency misalignment.”
  • China’s debt spree returns to haunt – Telegraph- uber bear ambrose evans-pritchard//Bail-outs are coming thick and fast in China. In less than a week the authorities have had to step in to prop up the banks, rescue the insolvent railway system and save the near bankrupt city of Wenzhou from a spectacular debt crash.
  • 高清:华西村现山寨天安门城楼和长城_新闻_腾讯网 – huaxi village not only has skyscraper but also replicas of tian’anmen gate and the great wall. pictures
  • Worst of China Lending Panic May Be Over: UBS – Bloomberg- The worst of the “panic and hysteria” over informal lending in China may be over as the city of Wenzhou works with businesses and the central government to stabilize credit, UBS AG said.“The size of informal lending is relatively small and the concerns about the direct impact on the formal banking sector and the economy are exaggerated,” Hong Kong-based economist Wang Tao said in a note today. The “bigger risks are credit withdrawal in both the formal and informal lending market and contagion,” she said.

    Media “hype” surrounding reports of Wenzhou factory owners fleeing after failing to pay their debts have unnerved investors concerned about Chinese banks’ asset quality and a slowdown in the property market, according to Wang. Lenders rallied today after state-run Central Huijin Investment Ltd. began buying shares of the biggest four banks to boost valuations that have fallen below levels reached during the global financial crisis.

  • China’s Rail Ministry Gets the Signals Right – China Real Time Report – WSJ- so much for the mooted collapse of the rail ministry. chinese government still has far more economic tools left than bears give them credit for//Shortly before the National Day holiday, the rail ministry had been scheduled to issue 20 billion yuan in bonds. But at the last minute it put the brakes on those plans. There was no official explanation, but market analysts suggested the decision was an adept shift in the ministry’s financial gears, avoiding a pre-holiday spike in interest rates as other borrowers rushed to raise funds.

    But perhaps there was more to the unexplained move, with the ministry able to see a little bit further down the track than other market participants.

    On Monday, the Ministry of Finance helpfully announced a plan to cut in half the tax rate on interest on some types of bonds issued by the rail ministry through 2013. That made railway bonds suddenly more attractive to investors — and no doubt less costly to the ministry. Today, the ministry has said it will offer 10 billion yuan of seven-year bonds and 10 billion yuan of 20-year paper on Wednesday.

  • Photos: China’s playboys’ supercar club gives Dubai a run for its money | Ministry of Tofu 豆腐部 – SIC Club Challenge at Shanghai International Circuit is the single biggest supercar gathering in China. Among all cars and racers that show up at the annual event, “Sports Car Club” (SCC) is a tight-knit, elite automotive enthusiast group of 500 registered members, almost all of whom are either corporate heads or the rich second generation.
  • America’s Pacific Century – By Hillary Clinton | Foreign Policy – The future of politics will be decided in Asia, not Afghanistan or Iraq, and the United States will be right at the center of the action.
  • Huntsman Warns of “Trade War” with China – Washington Wire – WSJ- Jon Huntsman, the presidential candidate and former Utah governor, said Monday that he opposes placing tariffs on Chinese goods in order to combat perceived currency manipulation.Congress is considering a bill that would penalize “nonmarket” economies believed to be manipulating their currencies for an advantage in world trade. The implied target is China.

    “That in practice would be bad; it would result in a trade war,” said Mr. Huntsman, a former U.S. ambassador to China. “The last thing you need between the two top economies in the world is a trade war, particularly during a recession, for heaven’s sake.”

    That’s a shade different from when Mr. Huntsman appeared on Fox News on Sept. 28. “I would sign it, simply because you need to keep pressure on China,” he said at the time. The former governor added that the bill would carry very little meaning, and he believes the country is already working to devalue its currency. Still, he said the law could be used to gain leverage in negotiations with China.

  • Microblog Marketing Becoming a Dubious Business in China? | Tech in Asia- Today Chinese blogger Wang Hero revealed a rate card from a certain “microblog marketing company.” There are some very interesting items on the list. Among them are:Create and verify an official microblog account, and add up to 5,000 followers (5000 RMB per company)
    Add a huge horde of zombie followers (10,000 followers per 200 RMB)
    Add a small heap of real followers (1,000 followers per 100 RMB)
    Paid retweets (1,000 retweets per 100 RMB, from different accounts)
    Retweet to specified microblog users (1,000 target users per 200 RMB)
    Management of official microblog account, with guaranteed 2 updates posted per day and at least 3,000 new followers per month (3000 RMB per month)
    Retweet or endorsement by popular microblog users with 100 to 800 thousands of followers (500 RMB per retweet, 550 RMB per endorsed tweet)
    In terms of marketing efficiency, all these services might easily sum up to a grand-looking heap of nothingness.
  • Something’s Fishy About Chinese Hairy Crabs : NPR- the serial numbers and tool free numbers dont work. serious counterfeiters work with the local telecoms to have “real” service reps confirm authenticity//Fake products permeate nearly every corner of China’s economy. Earlier this year, the trend seemed to reach a new low when phony Apple stores were exposed in southwestern China.

    Each fall, the fakery even extends to the world of seafood and East China’s Yangcheng Lake, which is just a short train ride from Shanghai. Yangcheng is home to what are reputed to be China’s tastiest and most expensive hairy crabs.

    The trick is finding a real one. The market in counterfeit Yangcheng hairy crabs is 10 times the market in real ones, according to the Yangcheng Lake Hairy Crab Association.

    Local crab wholesalers have fought counterfeiters for years with various tactics. They’ve used lasers to etch the Yangcheng name on crab shells. This year, the crab association distributed 15 million plastic tags to certify their crabs were the real thing.

    The tags even have a serial number and a toll-free phone number consumers can call to check.

  • China Record Boosts Confidence This Is No Bubble: Daniel Arbess – Bloomberg- There is plenty to dislike about China’s state capitalism, but its strong external accounts and tight control of policy levers give it huge practical advantages relative to the politically divided, overleveraged democracies of the developed world. Balancing growth, solvency and inflation while simultaneously overhauling China’s economic engine from investment to consumption will require considerable policy skill. But the track record of the past 30 years should earn Chinese policy makers the benefit of the doubt. The rest of us should view bearish criticism with skepticism and table the counterproductive protectionist resolutions in Congress. It should be clear by now that China’s success will be ours, too.(Daniel J. Arbess is a partner of Perella Weinberg Partners LP and portfolio manager of the Xerion investment strategy. The opinions expressed are his own.)
  • Rein: Get Ready for a US-China Trade War – CNBC- but more needs to be done to force china to open its markets and to push back on its mercantilism//The key to America’s economic recovery is building confidence back up by reducing debt and restructuring the economy for the nation to maintain its innovative edge and create jobs. The pain Americans feel is terrible but it is a natural evolution of economic systems and economic cycles. The way to stay ahead is to evolve and not by trying to put up tariffs and barriers to trade.

    There are simply no easy solutions to America’s economic problems. The ab use by politicians, financial institutions and everyday Americans wanting to live well beyond their means went on for far too long. The worst thing America can do right now is enter into a trade war with China. My guess is there is a 90 percent chance China will signal its displeasure with Congress by signing more deals with European companies like Airbus over Boeing[BA  64.03    2.22  (+3.59%)   ].

    A rising China is not a zero sum game as so many seem to believe now.  A strong China will create more jobs for Americans by creating a consumer class that wants to buy products from Apple[AAPL  388.81    19.01  (+5.14%)   ] Starbucks [SBUX  40.92    1.66  (+4.23%)   ], and Ralph Lauren[RL  144.82    3.77  (+2.67%)   ].  My firm has interviewed large multinationals, many of which are getting 15 percent of their global revenue from China now. The majority responded they do not want the yuan to appreciate too much but as one president of a well-known consumer products’ company told me, “I cannot say that publicly because I am worried about the backlash from Congress and angry consumers.”

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