Doom and Gloom of China's Economy

Discussion in 'China' started by Daredevil, Oct 4, 2011.

  1. Armand2REP

    Armand2REP CHINI EXPERT Veteran Member

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    Chinese solar companies shed tens of thousands of jobs

    Staff Reporter 2012-09-15

    The recent announcement by China's Trina Solar that it will lay off staff to cut costs highlights the pressure on the Chinese solar industry due to trade disputes and the falling market prices of solar products, Guangzhou's 21st Century Business Herald reports.

    In addition to cutting staff, Trina Solar said in its Sept. 12 announcement that it would spin off its components and system departments, with CEO Gao Jigan adding that further cost-cutting measures are expected.

    The announcement comes after Trina Solar reported a drop in annual revenue of 40.3% and a net loss of US$92.1 million during the second quarter.

    A solar energy company executive said Trina Solar was taking the initiative under pressure from the United States' ruling against China in antidumping and antisubsidy cases on solar products earlier this year and the European Union's recently announced antidumping investigation.

    Trina Solar, whose shipments of components of solar products in 2011 were the world's fourth-largest according to market research agency IMS Research, saw prices of its products fall 50% in the past 12 months, with the trend expected to continue during the second half of this year.

    Since most companies in the industry are earning no profits, major Chinese companies such as Suntech Solar and LDK Solar have already begun laying off workers, with one-third of them suspending all or part of their production.

    LDK announced that it was cutting 5,554 jobs or 22% of its workforce in May, while Suntech's total headcount has dropped to around 10,000 from nearly 20,000 during its heyday, according to the newspaper.

    American investment bank Maxim Group's recent report said the combined debts of China's top 10 solar energy companies had reached US$17.5 billion, indicating that the industry is on the brink of bankruptcy, the newspaper said.

    Chinese solar companies begin job cuts amid trade disputes|Companies|Business|WantChinaTimes.com
     
  2. Armand2REP

    Armand2REP CHINI EXPERT Veteran Member

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    Home Depot closes its last big store in China

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    Home Depot is closing its last big stores in China due to slowing consumer demand. (Internet Photo)

    The largest U.S. home-improvement retailer Home Depot is closing its seven remaining big box stores in China due to its poor returns amid slow growth in the Chinese economy. The retailer said it will maintain two specialty stores and an online business in China, reports Taiwan-based Commercial Times.

    The retailer still failed to generate its expected profits even after a 35% reduction and operational fixes, according to its CEO Carol Tome. The retailer, which has opened 12 stores in China since 2006, will face a US$160 million after-tax charge in the third quarter and affect 850 employees, who will receive severance packages and job placement assistance.

    Home Depot closes its last big box stores in China|Companies|Business|WantChinaTimes.com
     
  3. Armand2REP

    Armand2REP CHINI EXPERT Veteran Member

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    Chinese contract manufacturers moving overseas

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    China's role as the world's factory is quickly proving to be a passing dream, and those who still buy into the model will soon fade along with it. (Photo/Xinhua)

    Due to the dwindling number of orders from their clients, China's contract manufacturers are at crucial crossroads where they must decide whether to transform themselves or struggle to survive by moving their production lines to other countries.

    The online version of 21st Century Business Herald said that amidst the global economic slowdown, many international retail giants had ended their cooperation with contract manufacturers in China, dealing a blow to these manufacturers.

    The contract manufacturing industry originated in Europe and the United States, before spreading to Japan, South Korea, Hong Kong, Taiwan and mainland China. Later, it expanded to Southeast Asian countries, including India, Vietnam and Cambodia.

    As the industry transformed, 8% of its enterprises were shut down, about twice the rate of closure seen in the past.

    Chen Ji, director of the Center for Industrial Economics at the Beijing Technology and Business University, said it was necessary for contract manufacturers of consumer products to close down. "With dwindling orders and soaring labor costs, many foreign and Chinese enterprises are moving overseas," he noted.

    Chinese contract manufacturers: adapt or perish|Economy|In-depth|WantChinaTimes.com
     
  4. Armand2REP

    Armand2REP CHINI EXPERT Veteran Member

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    China August Oil Imports Down 15.7%: 22 month low

    China's crude-oil imports fell to a 22-month low in August as its economy slowed and refiners, facing weaker demand and steeper losses, cut throughput targets.

    China's demand for crude oil is an important gauge of the health of the world's second-largest economy and of global demand for the commodity. The decline in crude-oil imports came as growth in the nation's value-added industrial output fell to its slowest pace in more than three years, sapping downstream demand for oil products.

    China imported 18.4 million metric tons of crude oil in August, or around 4.35 million barrels a day, the lowest volume since October 2010, preliminary data from the General Administration of Customs showed Monday.
    The figure represented declines of 15.7% from July and 12.5% from August 2011.

    Industrial demand for oil products weakened as growth in value-added industrial output slowed to 8.9% in August from a year earlier, the slowest growth since May 2009. It fell from a 9.2% on-year increase in July.

    Refiners' margins, already negative, also worsened in August due to higher global prices for crude oil, leading them to cut operating rates. State-owned refineries operated at around 68% of capacity in August compared with a 2012 average of 78%. State-run refiners account for more than 90% of China's total refinery operations, according to Chem99.

    Both China Petroleum & Chemical Corp. (SNP), or Sinopec Corp., and PetroChina Co. (PTR) have cut their throughput rates for the third quarter, C1's Ms. Sun said. Sinopec's refining loss in the first half of the year widened to 18.5 billion yuan ($2.9 billion), while PetroChina booked a refining loss of 23 billion yuan, data from UOB KayHian showed.


    Read more: OIL DATA: China August Crude Imports at 22-Month Low | Fox Business
     
  5. Armand2REP

    Armand2REP CHINI EXPERT Veteran Member

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    China’s rail cargo volume declined further in August

    One of the preferred gauges of economic activities by our dear vice premier Li Keqiang continues to show weakening of economic activities.

    Rail cargo volume growth fell further from -8.2% yoy in July to -9.2% yoy in August, worst since the financial crisis. Cargo volume transported by the railways amounted to 304 million tonnes in August 2012, slightly below 305 million tonnes in July.

    [​IMG]

    China’s rail cargo volume declined further in August

    Ohhh... can you say double dip recession? :shocked:
     
  6. Armand2REP

    Armand2REP CHINI EXPERT Veteran Member

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    China's Highways Continue Debt Spiral


    On September 25, 2012, People’s Daily published an article related to the nation's highways asking, “How can highways survive with over one hundred billion yuan in highway liabilities?” The liabilities of the 19 listed highway companies amounted to 124.79 billion yuan (US$19.8 billion) for the first half-year of 2012, compared to 105.33 billion yuan (US$16.72 billion) for the same period last year.

    On August 2, 2012, China's State Council announced a plan to lift road tolls for passenger cars taking the highways during major Chinese holidays in order to promote tourism and related industries. At present, the listed highway companies are affected because they have little other income except toll revenue. They have entered into a cycle of “over charge tolls, build more highways, borrow more money, and build more highways.”

    CHINASCOPE - “China’s Huge Highway Liabilities Relate to Years of ‘Great Leap Forward’ Development”
     
  7. blank_quest

    blank_quest Senior Member Senior Member

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    Sep. 27, 2012 3:40 AM ET
    Asia's budget airline boom bypasses China​


    By KELVIN CHAN
    HONG KONG (AP) — When businesswoman Ren Hong flew home after a recent trip to Beijing on state-owned Air China, she was hoping for a decent inflight meal to tide her over until she got back to the spicy cuisine of her native Sichuan province.
    The airline's meager offering, which was little more than "just bread," was a galling experience for Ren who wondered why the carrier didn't cut both the pretense of full service and the price of the ticket.
    Her gripe highlights how Chinese travelers have been left out of the massive budget airline boom that has swept Asia. From almost none a decade ago, the region now has more than 50 low cost carriers. The fast growth of no-frills airlines such as AirAsia and the slew of recent start-ups including Singapore's Scoot and AirAsia Japan underline surging demand in the region for affordable air travel. The rise of budget carriers in Asia follows similar expansion in Europe and North America in previous decades.
    But in China, where the government still keeps tight control of the rapidly growing airline industry, three big state-owned carriers dominate. Aviation authorities' efforts to shield them, as well as keep the industry from growing too rapidly and compromising safety, mean travelers like Ren pay up to twice as much.
    "I've found that flight tickets domestically sometimes are more expensive than the international ones due to monopolization and less competition," :sad: said Ren, a 37-year-old who runs an export business and also blogs about her travels in her spare time. Even for tickets on Shanghai-based Spring Airlines, considered China's only discount carrier, "their price is just as same as the big airlines" during high season, she said.
    While Chinese travelers are benefiting from foreign budget airlines flying to some Chinese cities, analysts and consultants say government policy measures are preventing the domestic aviation market from opening up too quickly. China's domestic market is one of the biggest prizes in Asia's travel industry, with 264 million passengers last year, according to the Civil Aviation Authority of China, which forecasts the number will grow about six-fold by 2030.
    "The domestic market in China has more or less remained a fortress," Xiaowen Fu, an aviation expert at Hong Kong Polytechnic University, said at a recent conference in Macau organized by the Sydney-based CAPA-Center for Aviation.
    Like other essential industries in China, the policy measures are aimed at protecting the chosen few national champions from too much competition. China's three major state-owned airlines, Beijing-based Air China Ltd., Shanghai-based China Eastern Airlines Corp. and Guangzhou-based China Southern Airlines Ltd., carried 191 million passengers among them in 2011. But in the first half of 2012 their profits collapsed because of higher fuel prices and foreign currency losses. The rest of the market is divided between smaller state carriers — some owned by the big three — and a handful of private operators.
    An unsurprising outcome of the cossetted state airline industry is a perpetual sense of grievance among travelers at poor service and lack of choice.
    "The food on Chinese airlines is worse and more basic than it is on the international airlines," :shocked: said 25-year-old Li Peng, who recently quit his job in Beijing to travel overseas for a year.
    "And when the flight is delayed, I never get any feedback after my complaints. Many flights are delayed more than two hours" he said. "I do wish there were more budget airlines, especially in China," he said.
    China's civil aviation policy hinders the country's budget airline industry in two ways, according to experts. First, it makes it almost impossible for a private company to start a new airline. Second, the policy limits growth by existing airlines, including state-run carriers, through measures including requiring approvals for new airplanes and routes.
    For airlines operating in China, "they've got constraints whether it be on operating strategy, or what they're allowed to do at the airports, or how they're allowed to recruit pilots, or what the airport charges," said Con Korfiatis, director of Flight Ideas Consulting. "So the low-cost carrier explosion in China is still being constrained."
    In contrast, discount airlines continue to spread their wings elsewhere in Asia. Three started flying in Japan this year, including Peach Aviation and local ventures from Malaysia's AirAsia and Australia's Jetstar. Also taking flight in 2012 were Singapore Airlines' Scoot, Thai Airways International's Thai Smile and AirAsia Philippines. Next year, Indonesia's Lion Air plans to start flights on Malindo Airways, a low-cost Malaysia operation, the company said earlier this month.
    Even China Eastern Airlines Co. is joining in, although its low-cost carrier is a joint venture with Qantas subsidiary Jetstar that will be based in Hong Kong rather than mainland China.
    The Civil Aviation Authority of China hinted in July that it would support budget airlines by loosening price controls. But director Li Jiaxiang stopped short of announcing any major policy reforms.
    The measures aren't just aimed at China's private or discount carriers — they also apply to China's state-owned carriers. Analysts say policies are designed to prevent unfettered growth. Authorities clamped down following a spell of supercharged growth during which the number of passengers expanded by 40 percent in 2003-2004. Such red-hot growth puts tremendous strain on pilots and infrastructure such as air traffic control and airports, especially on heavily congested air routes between major Chinese cities including Beijing, Shanghai and Guangzhou.
    "The market is already growing at 11-16 percent domestically at average fares," said Mario Hardy, a vice president at research firm UBM Aviation. "Imagine if an AirAsia or a Spring was able tomorrow to lower that price by half. How many more people would be travelling?"
    Hardy and other experts and industry insiders believe that Chinese authorities will allow the aviation market to open up gradually so that there's enough time to build up the required infrastructure. China is building 82 new airports and renovating 101 others in a five-year plan that runs until 2015.
    "Otherwise it will be a mess," Hardy said. "It would be chaos."
    Until then, travelers like Ren, the businesswoman and travel blogger, will have to put up with higher prices. Ren is thinking of going to India on her next trip but is disappointed with the limited options. She could fly with Air China at a cost of 4,000-5,000 yuan ($$635-$790) round trip. Or she could pay 2,000 yuan ($320) on AirAsia — but she would need to change planes at AirAsia's home base in Malaysia.
    "It's annoying," said Ren. But "life is not perfect and I have no choice. I could not ask for the flight to be both cheap and offer the perfect route."
    ______:confused:
    Researcher Fu Ting in Shanghai contributed to this report
    Follow Kelvin Chan at twitter.com/chanman
     
  8. Armand2REP

    Armand2REP CHINI EXPERT Veteran Member

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    Russia military to ban textiles from China
    Staff Reporter 2012-09-30

    [​IMG]

    Russia is proposing a ban on the purchase of textiles and light industrial products for the needs of its military from foreign manufacturers in a bid to save its local textile industry, a move which will undoubtedly affect its largest foreign supplier China, reports the Global Times, a newspaper published under the auspices of the Chinese Communist Party.

    A report by Russian newspaper Vjesnik on Monday said according to the country's Ministry for Economic Development, all textile purchases for the national defense department should come from domestic companies, and the military should ban the purchase of cotton, wool, linen and sewing cotton from foreign companies. The ban includes uniforms, leisure wear, underwear, bedclothes, hats, socks, pillows and shoes.

    The ban is an emergency measure to turn around the fortunes of Russia's light industry sector, which faces collapse for being woefully uncompetitive compared with other countries.

    A report on the Russian news website Ria Novosti said on Monday that the country's military announced at the end of last year that it is prepared to prohibit the use of imported fabric for uniforms. About 50% of its uniforms are made with material from China.

    A number of Russian manufacturers of military uniforms complained to the government that they face great pressure from their competitors in China. "The cheap and poor-quality fabric made by China has edged out domestic goods," a boss of a Russian textile company told the website.

    According to Russian law, it is forbidden to export cloth printed with military logos, but the military is allowed to import foreign cloth to make uniforms. It is a flaw in the law, a local textile businessperson said.

    Dmitry Rogozin, the deputy prime minister who oversees the defense industry, said on his Facebook page that "we can make everything for ourselves."

    Experts are concerned that promising a future for Russian companies will bring a rise in prices of domestic textiles. In addition, domestic production may prove to be insufficient, meaning imports will be necessary in any case. A simple ban may lead to disastrous results, the Global Times said.

    An official in charge of procurements for the defense ministry said the ministry will only buy foreign goods if domestic companies do not produce similar products.

    Russia military to ban textiles from China|Policy|Business|WantChinaTimes.com
     
  9. Daredevil

    Daredevil On Vacation! Administrator

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    China manufacturing activity shrinks again in September

    30 September 2012 Last updated at 23:44 ET
    The last time manufacturing contracted for two straight months was during the 2008-2009 global financial crisis
    Manufacturing in China has contracted for a second month, another sign of economic slowdown in the world's second largest economy.

    The Purchasing Managers' Index (PMI) rose to 49.8 in September, government data showed. That comes after a reading of 49.2 in August.

    A reading below 50 indicates a contraction in activity, while a reading above 50 indicates expansion.

    Weak external and domestic demand has weighed on Chinese manufacturers.

    Seasonal uptick

    Although the reading was below 50, it was an increase from the August figure.

    Many analysts said the PMI reading tends to improve in September for seasonal reasons, however the improvement was less than expected this year.

    "September PMI readings are normally fairly strong, and we don't see that this month is that much better than last month," said Prakash Sakpal of ING.

    China's top leaders have warned that growth may slow further before rebounding.

    Demand woes
    The data from the National bureau of Statistics showed that demand for refined metals, steel and other materials used for building remains subdued.

    China's real estate sector has seen a slowdown in recent months mainly due to government curbs to bring down sky-rocketing prices.

    The government has recently announced spending on infrastructure projects, seen by many as a stimulus measure to boost growth.

    China's economy grew at its slowest pace in three year in the second quarter.

    iReader
     
  10. Daredevil

    Daredevil On Vacation! Administrator

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    The Coming Collapse Of Consumption In China

    Chinese shoppers walk past a store in the Wangfujing shopping street of Beijing on January 8, 2012. (Image credit: AFP/Getty Images via @daylife)

    On Friday, Nike shares declined 1.1%, largely on China concerns. The world’s largest sporting goods company reported that Chinese orders were down 6% when analysts had expected them to rise 1.2%.

    The only real surprise is that almost no one saw this coming. Rahul Sharma, founder of Neev Capital, maintains investors overreacted to Nike’s China problems, saying they should have been paying attention. It’s no secret Nike has been carrying excess inventory in China, and this had led to discounting that in turn hurt sales of new products.

    Company after company is reporting softening Chinese consumer demand. Most notably, Burberry’s Chief Financial Officer Stacey Cartwright blamed China as her company released discouraging guidance earlier this month. Its stock dived 21%, the worst one-day loss since the retailer went public in 2002.

    Investors still believe consumption will carry the Chinese economy past its current difficulties. And on the surface, China’s shoppers appear resilient. The National Bureau of Statistics reported that retail sales increased 13.2% in August year-on-year. Moreover, the People’s Bank of China is apparently expecting a stellar National Day. Days ago, the central bank completed the biggest weekly net injection of cash in China’s history—365 billion yuan—to meet expected demand during the week-long holiday.

    Yet even official statistics are starting to reveal the slowdown in consumption. For one thing, the current retail-sales figures represent a deterioration from the second half of last year, when growth ranged from a low of 17.0% in August to a high of 18.1% in December. Moreover, current growth rates are also below those in the beginning of this year: the aggregated January-February period clocked in at a still-healthy 14.7%, and March posted a 15.2% gain.

    The downward trend in the figures becomes even more worrying when you strip out of them inflation and exclude government procurement and store inventory, which are inexplicably included. The growth of “retail sales” in China, at least as we think of the term, is probably in the low single digits at the moment.

    Problems in the retail sector are highlighted in the most recent China Beige Book, which is based on a survey conducted by New York-based CBB International from August 9 to September 3. It both confirms a slowing of Q3 retail growth and shows retailers less optimistic than they were three months earlier. That’s because the closely watched survey, modeled on the one by the U.S. Federal Reserve, reveals a decrease in the number of companies hiring and an increase in those cutting staff. The number of businesses cutting wages more than doubled from the previous survey, and there has been an increase in store inventories.

    Retail is heading even lower as take-home pay and investment income fall. “We should be on the cusp of a jump in industrial unemployment,” states J Capital Research’s Anne Stevenson-Yang in her September 29 e-mail alert from Beijing.

    She has to be right. Foreign enterprises are starting to ditch staff. China is the nation hardest hit by the layoffs at the Motorola “mobility” division after its acquisition by Google: 1,400 employees out of 4,000 worldwide. The company let go staff in Shanghai, Nanjing, Hangzhou, Tianjin, and Beijing. Adidas shut its last wholly-owned factory, and Panasonic, Nokia, and Denmark’s Vestas are cutting staff.

    Even large state enterprises are throwing in the towel. This month, Baosteel Group, China’s biggest steelmaker, announced the closure of a mill in Shanghai due to falling demand for steel plate. The enterprise was the first to shutter a steel plant. Other operators tolerate low capacity because they receive low-interest loans and subsidies from local governments, but soon they will have to close facilities too.

    And as goes steel, so goes China. Other industries—think solar panel makers—are in worse shape and will eventually have to cut operations as well. Already, there are protests as employees demand payment of back wages. The country’s economic slowdown is beginning to affect social stability, and this in turn further undermines the overall economy.

    Stevenson-Yang notes that the purchasing managers’ indexes are the best way to forecast the demand for employment. The HSBC new orders sub index has been dropping at a time when companies are gearing up for Christmas. No surprise then that a recent J Capital survey indicates that large manufacturers are getting ready to shed workers.

    Don’t expect to see an increase in joblessness in the country’s official figures, however. Beijing’s Ministry of Human Resources and Social Security reported that the urban unemployment rate at end of this year’s second quarter was 4.1%, unchanged from the middle of 2010. In fact, the sensitive jobless rate, which is well below this year’s national target of 4.6%, has barely moved a tenth of a percentage point since 2003.

    Nobody believes the accuracy of the unemployment number. The Chinese Academy of Social Sciences released an 8.7% unemployment figure in 2008, but the prestigious institution has been silent since.

    Beijing’s jobless statistics do not count migrant workers, who number as many as 250 million. Also left out are women over 45 and men over 50 as they are considered retired, graduates out of school for six months or less, laid-off state workers still receiving payments from their former employers—perhaps 40.5 million in this category—and those not registered for unemployment. Unemployment, in fact, is high, somewhere in the teens. Disposable income is therefore taking a hit. And an apparent fall off in investment income is not encouraging the Chinese to shop either.

    Naturally, many analysts see the solution to faltering consumption in a general pickup in the economy. As Zhu Haibin of JPMorgan Chase in Hong Kong says, “if policy efforts can boost corporate sector investment and profitability, consumption may come naturally.”

    There’s a measure of truth in Zhu’s comment, of course, but we have to remember that, as central government technocrats implemented their stimulus program beginning in 2008, they unbalanced the economy even further with massive amounts of state investment. Retail spending increased in absolute size in the resulting recovery, but it plummeted as a percentage of gross domestic product. Today, no nation has a more unbalanced economy.

    The ultimate answer is to increase the percentage of household consumption from the current 34% or so. As Premier Wen Jiabao in March declared, “Expanding domestic demand, particularly consumer demand, which is essential to ensuring China’s long-term, steady, and robust economic development, is the focus of our economic work this year.”

    That task is difficult in the best of circumstances, but it cannot be accomplished in a downturn. And in any event, it takes years for any strategy to succeed. China’s investment-led, export-heavy growth model is, by its nature, anti-consumption.

    And Chinese leaders are beginning to understand they cannot change the model. This month, the official Xinhua News Agency issued a story with this headline: “China Plans Slower Growth in Domestic Consumption.” No, Beijing’s leaders are not planning a smaller contribution of consumption to GDP, but, yes, that is what is in fact happening.

    Technocrats can see what is about to occur: Chinese consumption is now on the verge of collapsing.
     
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  11. Apollyon

    Apollyon Führer Senior Member

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    Sun Sets on China's Solar Industry

    On Friday, shares of Trina Solar closed at $4.62, down $0.18 for the day. The stock has been falling for a long time, declining more than 85% in the last three years. That’s not bad, however, considering Trina is a Chinese solar company. Rival Suntech Power has seen its shares, also listed on the Big Board, drop. They are at about 2% of their 2007 values. And Yingli Green Energy plunged 7.3% on Friday in New York, and it is now trading close to its five-year low.

    In last two years, shares of Chinese solar cell producers have fallen by about half, and more price declines are on the way. The prospects for these manufacturers are poor.

    More important, the seemingly intractable problems of the sector highlight the limits—and impending failure—of the country’s industrial policy. It’s not that Chinese technocrats did not accomplish their ambitious goals. They set out to create an industry that would dominate the world, and they succeeded. They aided solar cell manufacturers with easy credit from state banks—perhaps as much as $18 billion of cheap loans—and, some say, subsidies. As a result of central and local government support, Chinese manufacturers began to expand rapidly. Chinese competitors now own 70% of the world’s wafer-producing capacity.

    Make that overcapacity. “Massive subsidies and state intervention have stimulated overcapacity more than 20 times total Chinese consumption and close to double total global demand,” said Milan Nitzschke, president of EU ProSun, in a statement released late last month. The company alleges that 90% of Chinese production had to be exported and that Beijing used subsidies to keep its manufacturers in business.

    EU ProSun, a subsidiary of SolarWorld of Germany, has filed a complaint with the European Commission alleging China’s subsidies were illegal. The Commission is already investigating charges that Chinese producers have been dumping production in Europe. In July, ProSun filed an anti-dumping complaint with the Commission. European solar panel makers say Chinese companies have been selling at 80% below their cost.

    Chinese producers are clearly worried about the investigations in Brussels. Europe, the world’s largest solar market, accounted for $27 billion of their sales last year. That was about a third of their production and 7% of all Chinese exports to the European Union.

    The U.S., on the other hand, takes around 7% of China solar exports, and what is left of the American industry is filing trade actions against Chinese producers as well.

    U.S. manufacturers, led by SolarWorld, have already won preliminary relief. An initial Commerce Department decision in May of this year imposed countervailing duties of between 2.90% to 4.73%, to make up for Chinese subsidies, and anti-dumping duties of about 31%. On Wednesday, Commerce issues its final decision, and producers are hoping those tariffs will be increased.

    The International Trade Commission is expected to make its announcement in November. Last year, the Commission voted 6-0 in favor of American producers. Just about no analyst expects a reversal.

    Chinese producers are already bracing for the imposition of stiff penalties on both sides of the Atlantic. As a first step, they are using components manufactured elsewhere. That maneuver technically avoids the U.S. duties, at least for the moment. U.S. manufacturers want the Commerce Department to broaden the tariffs to cover this stratagem.

    In any event, Chinese manufacturers know they will have to come up with more permanent solutions to avoid crippling trade penalties. Their latest tactic is to buy European competitors. Guangdong Aiko Solar Energy this summer purchased Scheuten Solar of the Netherlands, and Hanwha SolarOne Co. recently announced plans to acquire Germany’s Q-Cells, a move Hanwha said was designed to avoid European trade sanctions.

    The only problem is that locating manufacturing to Europe won’t work due to the high costs—40% higher than China. There are, of course, alternatives. China Sunenergy Co. said it would move panel assembly lines to Turkey this year, and analysts expect Chinese companies will shift production to Thailand, India, and Sri Lanka as well as Taiwan. Yet costs of production will still rise for Chinese producers. In Taiwan, for instance, costs are still 15% above those across the strait in China.

    Costs, of course, are crucial. Even with all the advantages of manufacturing in China, the country’s largest solar panel makers suffer losses of one yuan for every three yuan of sales.

    The industry-wide unprofitability means that Chinese technocrats have to throw their world-dominating industry a lifeline. In the last week of September, the China Securities Journal reported that the state-run China Development Bank, which is specifically tasked with implementing Beijing’s policies, would be giving priority to 12 of China’s largest solar companies.

    More lending to an industry that gorged on credit is only a short-term tactic at best.

    The only real solution is closing production lines to get capacity in line with demand. Suntech Power is shutting down about a quarter of its capacity to manufacture solar cells, and it appears that Trina Solar will also slim down its operations in coming months.

    Moreover, Beijing technocrats will force other producers to do the same thing. The powerful National Development and Reform Commission wants to see two-thirds of panel makers go out of business. Only the largest producers, which are presently unviable, will survive.

    In short, central government technocrats, to salvage their industrial policy, will now have to destroy what they worked so hard to create.


    Sun Sets on China's Solar Industry - Forbes

    :O
     
  12. Armand2REP

    Armand2REP CHINI EXPERT Veteran Member

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    China's ZTE forecasts huge losses, damage from US probes

    Chinese telecom giant ZTE Corporation said Sunday it expects huge net losses in the third quarter due to falling revenues and profit margin, while noting a negative impact of US probes on its business with Iran.

    The company forecast 1.9 billion yuan (US$300 million) to 2 billion yuan of net losses in the third quarter of the year, compared with net profits of 299 million yuan (US$47.7 million) in the same period of 2011 and 245 million yuan in the first half.

    Delayed progress in some international projects and low gross profit margins of contracts in Europe and Asia including China reduced revenues and the total profit margin in the third quarter, ZTE said in a statement to the Shenzhen Stock Exchange, where it is listed.

    As a result of ongoing probes by US Department of Commerce and Department of Justice on ZTE's business with Iran, the company's performance in Iran made a negative impact on the third-quarter results, according to the statement.

    China's Ministry of Commerce has called on the United States to fairly resolve the case it brought against ZTE over allegations that the company sold banned US telecom products to Iran.

    China has kept normal, open and transparent economic and trade relations with Iran, not violating any UN Security Council resolution, and should not have to endure groundless criticism, MOC spokesman Shen Danyang said in July.

    ZTE, together with another leading Chinese telecom firm Huawei, also faced accusations raised by a US Congress committee last week for posing possible threats to US national security.

    For the first three quarters of the year, ZTE is expected to report 1.65 billion yuan (US$263 million) to 1.75 billion yuan of net losses in total, the company said.

    China's ZTE forecasts huge quarterly losses, damage from US probes|Companies|Business|WantChinaTimes.com
     
  13. Armand2REP

    Armand2REP CHINI EXPERT Veteran Member

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    Dirty money cost China $3.8 trillion 2000-2011

    Dirty money cost China $3.8 trillion 2000-2011: report

    Thu Oct 25, 2012 7:51pm EDT
    WASHINGTON, Oct 25 (TrustLaw) - China has lost $3.79 trillion over the past decade in money smuggled out of the country, a massive amount that could weaken its economy and create instability, according to a new report.

    And the outflow - much of it from corruption, crime or tax evasion - is accelerating. China lost $472 billion in 2011, equivalent to 8.3 percent of its gross domestic product, up from $204.7 billion in 2000, Global Financial Integrity, a research and advocacy group that campaigns to limit illegal flows, said in a report on Thursday.

    "The magnitude of illicit money flowing out of China is astonishing," said GFI director Raymond Baker. "There is no other developing or emerging country that comes even close to suffering as much in illicit financial flows."

    The lost funds between 2000 and 2011 significantly exceeded the amount of money flowing into China as foreign direct investment. The International Monetary Fund calculated FDI inflows at roughly $310 billion between 1998 and 2011.

    Illicit capital flows rob a government of tax revenues and potential investment funds. Capital flight on this scale can be politically destabilizing by allowing the rich to get richer through tax evasion, GFI said.

    China has a low level of tax collection given the size of its economy, according to the IMF. Beijing has recognized that corruption and bribery is a significant problem, an issue brought into sharp focus recently by the Bo Xilai scandal. The country has announced a major crackdown as it prepares for its once in a decade leadership transition.

    GFI calculates how much money leaks out of a country unchecked by analyzing discrepancies in data filed with the IMF on import and export prices between trade partners and calculating discrepancies in a country's balance sheet.

    The developing world overall lost $903 billion in illicit outflows in 2009, with China, Mexico, Russia and Saudi Arabia in that order showing the largest losses, it said.

    Trade mispricing was the major method of smuggling money out of China, accounting for 86.2 percent of lost funds, the GFI report found. This scheme involves importers reporting inflated prices for goods or services purchased. The payments are transferred out and the excess amounts are deposited into overseas bank accounts.

    Trade mispricing is most common for nuclear reactors, boilers, machinery and electrical equipment, the report said.

    The bulk of the money ends up in tax havens - on average, 52.4 percent between 2005 and 2011. Much of this money eventually makes its way back to China as foreign direct investment for a double hit to the economy.

    FDI benefits from special tax breaks and subsidies, essentially setting up an elaborate form of money laundering for Chinese businesses, GFI added.

    (Reporting By Stella Dawson. Editing by Andre Grenon)

    Dirty money cost China $3.8 trillion 2000-2011: report | Reuters
     
  14. Daredevil

    Daredevil On Vacation! Administrator

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    China's in big trouble - should U.S. worry? - SFGate

    Sales of Swiss watches to China have fallen by almost 30 percent in recent months, and jewelry sales are plummeting, too. So there can be little doubt the country is in deep trouble.

    As the American presidential campaign grinds toward its inglorious end, President Obama and Mitt Romney are both trying to show how tough they will be on China, infuriating Beijing. At the same time, Obama is "pivoting" the military toward Asia, away from the Middle East, obviously worried about China.

    But when you look at what's actually happening there, you have to begin wondering: Should the United States really be so concerned? China's situation is grave.

    The growth of China's gross domestic product has continued to slow every quarter since late 2010, and that's just one of many problems. In fact, when Xi Jinping is chosen to be China's new president this month, he will inherit a state of affairs far worse than Obama's when he became president almost four years ago. And how Xi handles that will have a significant impact on the United States.

    For example, Cummins, a major American engine manufacturer, says it must lay off up to 1,500 people by year's end because of soft demand from China, whose problems are ricocheting through the American economy.

    But China's troubles at home are even more daunting - economic, political, social. And as the government transition approaches, all of it seems to be coming to a head. Some salient examples: Money is flowing out of the state at an alarming rate. Wealthy Chinese have no faith in their state.

    Of course, China does not make public any figures. But reliable estimates from journalists and economists published in October place the amount leaving the country at between $225 billion and $300 billion over the last year - 3 to 4 percent of China's economic output for the period. That is so even though moving significant amounts out of the country is strictly illegal. The outflow is growing larger every year, just as the GDP continues to fall - not a coincidence.

    At the same time, the Chinese people are in open revolt over corruption, poor product quality, land seizures, environmental abuse and so much more - nearly 500 public demonstrations are staged every day.

    Judging from what they're saying on Weibo, China's social-media site, Chinese seem most angry about rampant corruption. So last week, when the New York Times reported that Premier Wen Jiabao's extended family - school teachers and pig farmers, primarily - was inexplicably worth $2.7 billion, government censors immediately blocked Web access to the Times. The government also has been trying to censor discussion of the story on Weibo.

    The situation is growing so bad that Strategy and Reform, one of China's own think tanks, warned publicly that "China is confronting a perilous jump, one it can neither hide from nor avoid, no matter what. There's a potential crisis in China's model of economic growth."

    Wu Jinglian, a prominent economist writing in Caijing, a business magazine, said: "China's economic and social contradictions seem to be nearing a threshold."

    Xi knows all this. Senior people all around him are urging him to set out reforms, Chinese and Western media are reporting. In fact, Xi just sent a team of officials to Singapore. They're looking at that city-state as a possible model. Singapore is a deeply authoritarian but prosperous state that does allow free elections for subordinate positions. Still, many social liberties like freedom of the press and assembly are limited.

    Most China analysts agree that the country's financial problems should be the government's most significant concern. After all, for decades the Chinese have lived with a well-known but unspoken pact: The people will accept authoritarian leadership as long as the government makes it possible for them to grow ever more prosperous. Beijing obviously isn't keeping its part of the bargain.

    In fact, right now the mega-wealthy, including many government officials, are still doing quite well. Yacht and big-diamond sales are soaring, but sales of less-expensive luxury goods are not. The Burberry coat and Hennessy cognac companies have issued profit warnings because of plummeting sales in China.

    The question is, even if he wants to reform, can Xi pull it off? So many government officials are growing exceedingly wealthy under the current system, won't they resist significant change? After all, the Chinese legislature's 70 richest members accrued more wealth last year than the combined net worth of all 535 members of the U.S. Congress, the president and his Cabinet.

    All of this is a monstrous, looming problem for China's new leader. So how worried should Washington really be?

    China's in big trouble - should U.S. worry? - SFGate
     
  15. Daredevil

    Daredevil On Vacation! Administrator

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    Why China is worse off than it was a decade ago

    by Derek Scissors and Dean Cheng

    Hu Jintao, Wu Bangguo and Wen Jiabao will step down from the top of the Chinese Communist Party this week. Four months later, or thereabouts, they will surrender their (less important) places at the top of the Chinese government.

    And not a moment too soon. Their decade leading the People’s Republic of China should be viewed largely as one of lost opportunities, even failure. Bad decisions made early put China in its current, unnecessarily weak position—a position that will not improve for the next several years.

    Hu and friends will be remembered for transitioning China from a regional to a global power. But they actually deserve little credit for that; it was going to happen no matter who was at the helm of the country.


    China is in many ways worse off today than it was in 2002, when the last leadership transition happened. PIB

    China in 2002 – its last political transition – was already a member of the UN Security Council and the WTO, was already second in global GDP corrected for purchasing power, beginning to modernise its military, and a diplomatic heavyweight in the Asia-Pacific. And the trend looked very positive on all fronts, as it had for the previous 20 years or so.

    Now the PRC is second in global GDP on conventional measures, its military modernisation has reached new heights, and it is a diplomatic heavyweight globally. This is not at all surprising.

    What is surprising is that, in important ways, China is worse off than it was in 2002. Back then, it was seen as a desirable economic partner, not as a dangerous political or military neighbor. States vied to establish economic ties with the panda, while not fearing that there would be bared dragon’s claws or teeth.

    Hu, Wu and Wen cost China dearly in the economic realm. In 2002, China boasted sustainable growth above 8 percent. Investment and consumption were balanced, so continued growth did not require a wrenching change in the development model. Income equalities at least appeared quite manageable. The banking system had been strengthened throughout the previous five years. Coal consumption was barely higher than 1998, for example, and the same for many other natural resources.

    In 2012, Chinese GDP growth will be lower than it was in 2002, which is perhaps unavoidable. But that’s not the problem.

    The problem is the economy is now massively unbalanced and will require painful rebalancing to continue to prosper, a shift that should not be necessary. The problem is that income inequality, especially in the form of extreme wealth for top Party cadre and their families, has become politically and socially destabilising. The problem is that progress in banking was undone by the 2009 lending splurge. The problem is that coal, water, and other resources have been used in gigantic and wasteful amounts that made only minor contributions to growth. All this is due in large part to the policies of the Hu regime.

    In the security realm, China’s foreign policy position is arguably also weaker, as its neighbors take measures to balance against it. From South Korea and Japan, along the entire first island chain, and westwards to India, China is increasingly seen as an antagonist and potential adversary, even as states continue to trade with it. In particular, recent riots against Japanese ventures, as well as the 2010 rare earths embargo and this year’s decision to downgrade participation in an IMF meeting (held in Japan),raise questions about China’s reliability as an economic, as well as diplomatic, partner.

    This is the legacy of Hu, Wu and Wen: a weaker economy and unhappier neighbours.

    Derek Scissors is Senior Research Fellow in Asia Economic Policy and Dean Cheng is Research Fellow in Chinese Political and Security Affairs in the Asian Studies Center at The Heritage Foundation.
     
    ersakthivel likes this.
  16. ersakthivel

    ersakthivel Brilliance Senior Member

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    The aggressive chinese approach towards india by arming PAK with nuclear tech,ballistic missile tech is a very short sighted old fashioned policy,forever estranging india.

    It doesnot contribute to china's security either as pakistani state machinery condones all splinter muslim terrorists group including the ones in XINXIANG chinese muslim majority province bordering pakistan.

    If the chinese estimate that pakistani state machinery will be forever capable of controlling these dangerous elements ,as it controls it's own populace then these estimates are hugely ambitious.

    The result will be indian alignment with US,japan,europe,vietnam,australia in containing china and restive muslim populations in it's bordering districts with pakistan.

    A sagacious realignment of it's hostile policy towards india would be beneficial in long term by not strenghtening the above alliance.

    But with moves like frequent border incursions, stapled visas for residents of arunachal and kashmir,keeping the easily reslovable border dispute on the boil,china is caging itself in asia.

    It was already understood that the policy of settled populations should not be displaced in border reallignments should be the cornerstone of INDO-CHINA long back.This diplomatic breakthrough was once celebrated as massive new dawn in INDO-CHINA relations.But by moves like frequent border incursions, stapled visas for residents of arunachal and kashmir the present chinese regime has already undermined the policy.

    The chinese slogan that india's friendship with US is aimed against it must be compared with it's alignment with capitalist US against communist USSR.People to people ties with india and US are always strong as they are both open free market capitalist democracies with no confrontation between them.

    the ugly chinese under hand dealing in trying to stall the nuclear exemptions given to india in NSG as a byproduct of INDO_US nuclear deal is a despicable attempt to stall india's economic progress by forever keeping it off the civilian nuclear energy market.

    It's superiority over india is hugely misplaced.

    Deng started reform in the 70s.Narashima RAO started reforms in 90s .That's the reason for the present economic gap between china and india.

    Like japan ,which was once slated to overtake US, explosive economic growth occurs in the first few decades of economic growth and it stabilizes to normal level of around 4 percent later.China is now in the maturing phase.

    India too will go through the inevitable cycle and reach much close to china in later decades.

    So any misplaced overconfidence by the chinese won't bring them world superiority.
     
    Last edited: Nov 11, 2012
  17. asianobserve

    asianobserve Elite Member Elite Member

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    Purple Palace Abandoned Shows China Shadow-Banking Risk
    By Bloomberg News - Nov 19, 2012


    [​IMG]

    Niu Dianqing stopped his motorbike at a construction site in China’s Inner Mongolia one morning last month. The front door was locked.

    “They said they will pay me this month, but it seems I’m fooled again,” said Niu, who supplied nets for protecting workers from falling off bamboo scaffolding at the half- completed Purple Palace, a development including a luxury hotel and three residential buildings in the city of Ordos. “The doorman was still here last week, but now even he’s gone.”

    The developer, Ordos Jin’ao Property Development Co., owes a lot more than the 10,000 yuan ($1,604) Niu is trying to collect, and it isn’t only suppliers who are out of the money. Dozens of investors nationwide have put 445 million yuan of savings into funding Purple Palace’s construction.

    The two-year investment vehicles they purchased, called trusts, promised an annual interest rate of at least 10 percent and return of principal in March 2013. With at least 1,000 similar projects having ground to a halt this year in Ordos, where over-investment has resulted in a building boom gone bust, tens of thousands of investors
    risk default.

    “The risks are significant there, and something must be done by the government to stop potential defaults of property trusts from spreading nationwide,” said Lian Ping, an economist at Shanghai-based Bank of Communications Co. “Trusts have become too large to fail.”

    Sorghum Liquor

    Trusts, targeting people with at least 1 million yuan to invest in alternatives to low-yielding bank accounts, are the fastest-growing segment of China’s nebulous world of shadow banking. They make up more than a quarter of the country’s estimated $3.35 trillion in non-bank lending, according to an Oct. 16 report by UBS AG chief China economist Tao Wang, or about 45 percent of the country’s gross domestic product.

    Shadow banking worldwide is a $67 trillion industry whose size “can create systemic risks,” the Financial Stability Board said in a Nov. 18 report. The business in China, which includes banks’ off-balance-sheet vehicles such as commercial bills and entrusted loans, as well as underground lending by individuals, flourishes because more than 90 percent of the nation’s 42 million small companies can’t get bank loans.

    China’s 64 trust firms, with sales offices in major cities, combine characteristics of commercial and investment banking, private equity and wealth management. They pool household savings to offer loans and invest in real estate, stocks, bonds, commodities, even bottles of sorghum liquor. No other financial firms operate across all these asset classes.

    Overtaking Insurance

    Trusts are set to overtake insurance by year-end as the nation’s second-largest financial business after banks, having expanded almost 16-fold since 2007, KPMG LLP said in a July report. Assets under management rose 47 percent in the 12 months through June, “a period during which the government supposedly clamped down on trusts,” UBS’s Wang wrote. Combined profit jumped 56 percent in the first nine months to 28.8 billion yuan after surging 88 percent in 2011, according to the China Trustee Association, a Beijing-based industry group.

    Unlike other shadow-banking financing, trusts are supervised by the China Banking Regulatory Commission, which has to approve every product. The regulator last year published 36 rules and notices to curb risk, according to KPMG. It requires trust companies to honor commitments to investors or their business licenses will be revoked, forcing issuers to dig into their own pockets or issue new products to pay off old ones when borrowers can’t repay.

    Repayment Risks

    “China’s non-banking financial institutions are under strict regulatory supervision, rather than free of regulation as in some countries,” Central bank Governor Zhou Xiaochuan said at a press conference in Beijing last week during the Communist Party congress that chose Xi Jinping as China’s next president.

    The party has pledged to promote freer movement of capital in and out of the country for investment purposes and to make the exchange rate more market-based.
    Competition for trust licenses among foreign and Chinese investors has intensified as the number of permits dropped to 64 this year from more than 1,000 in 2002.
    Barclays Plc, Morgan Stanley and JPMorgan Chase & Co. are among global banks that have bought stakes in at least 10 Chinese trust firms.

    Now, after plugging the capital shortfalls of developers amid a drop in real estate prices and a tightening of credit, trusts are facing repayment risks. As much as 15 percent of the nation’s 560 billion yuan of property-linked trusts that come due by the end of 2013 may default, according to brokerage China International Capital Corp.

    ‘Land Mines’

    “The heyday of trusts is gone, and now they’re left with quite a few land mines to navigate,” said Ivan Shi, a Shanghai- based analyst at consulting firm Z-Ben Advisors Ltd. “Surviving the peak of repayment next year is probably the biggest challenge as we know many projects are dodgy.”

    Trusts need to repay investors about 250 billion yuan in principal and return on property-linked investments this year, and an estimated 310 billion yuan more will come due in 2013, according to CICC. Issuers may be forced to extend payment deadlines, sell new trusts to pay off old ones or dispose of collateralized assets, the firm said.

    “Nobody knows exactly how much obligation the sector has accumulated, but we know for sure the debt must be paid one way or another,” Shi said, adding that trust firms will have to step in to honor those debts if borrowers including property developers fail to make payment.

    Silent Cranes

    Risks may be “artificially suppressed” by rolling over debts into new products or buyouts by stakeholders, the International Monetary Fund warned in its October Global Financial Stability Report. Such bailouts “may create a false sense of safety that induces overinvestment,” the IMF wrote, adding that some trust assets are loans extended to developers and local government investment vehicles that can’t access bank credit and may be squeezed in a liquidity crunch.

    “In the event of more severe credit problems in the trust sector, some financial losses might even spill over to banks, which often act as a marketing channel for trust products,” the IMF said in its report.

    One backer of Purple Palace is Chongqing-based New China Trust Co. When the firm updated investors in October, there was no mention that work had been halted or that cranes and cement structures had been abandoned for more than six months.

    Property Curbs

    New China Trust didn’t respond to three calls seeking comment, and a contact number for Ordos Jin’ao couldn’t be located. An official who declined to give his name at Ordos Jinshan Property Development Group, identified in the trust prospectus as a former shareholder of the project, confirmed that construction had been halted.

    Angie Tang, a Hong Kong-based spokeswoman for Barclays, said the London-based bank’s investment in New China Trust is “going very well.” A spokeswoman for JPMorgan in Beijing declined to comment on the company’s trust investments. Morgan Stanley didn’t respond to two e-mails seeking comment.

    More than 35 percent of trust assets in China were funding infrastructure and real estate construction as of Sept. 30, according to China Trustee Association data. Property-linked trusts accounted for 677 billion yuan, or 11 percent of the total, a decrease of 3.3 billion yuan from a year earlier.

    China’s policy makers have tried to curb the residential property market by raising down-payment and mortgage requirements and building affordable housing. The government also imposed property taxes in Shanghai and Chongqing, and placed home-purchase restrictions in about 40 cities. The result has been a 4 percent decline in home sales nationwide during the first nine months of the year and a price drop in October for new homes in 17 cities out of the 70 tracked by the government, according to the National Bureau of Statistics.

    Trust Default

    In May, repayments to a 200 million-yuan real estate trust issued by Jilin Province Trust Co. came eight days late, making it China’s first de facto trust default, China Securities Journal reported. The property developer failed to complete construction of a commercial building in Nanjing and generate enough cash flow from rentals, according to the report.

    China Huarong Asset Management Co., one of four state-owned asset managers established in 1999 to take over trillions of yuan of bad loans from the largest lenders, bailed out the trust by buying the project and returning all of the money to investors, according to China Securities Journal.

    Jilin Province is one of nine trusts borrowers were having difficulty repaying as of July 15, according to Benefit Wealth Co., a Chengdu-based data supplier that tracks China’s wealth- management market. The trusts had invested in natural resources, arts and properties.

    Gas, Cashmere

    Ordos, with a population of 1.9 million and rich in coal, natural gas and cashmere, is dotted with unfinished real estate projects as the drop in home prices and a collapse of private lending squeezed buyers and developers.

    Work at almost two-thirds of the city’s 2,000 construction sites has been halted, while at least 300,000 migrant workers who came to build the city may have left over the past year, according to contractor Zhu Yadong. Zhu said his company was owed 20 million yuan in labor and material costs after laying the foundation for Ordos’s
    “World Trade Center,” where construction also stopped this year.

    “The more we build, the more money we lose,” Zhu said as he watched two workers loading piles of rusty steel pipes onto a truck so they could be resold to reduce his losses. “This place was built on a bubble and needs a long time to get back on its feet. There are just too many properties and too few buyers.”

    Dim Showroom

    A few blocks from the Purple Palace, another developer’s plan to build a complex including two luxury hotels, a shopping center and office buildings funded by 1.1 billion yuan of trust investments also was put on hold.

    The trusts, promising a 10 percent annual interest rate and set to mature starting in July, according to a prospectus, haven’t generated much income, said Lu Yixuan, the project’s only remaining saleswoman. The developer stopped selling residential homes in the complex this year, Lu said, sitting in a dim showroom.

    Trusts have gone through the ups and downs of six periods of industry overhaul since the 1979 establishment of China International Trust & Investment Co. by the late Vice President Rong Yiren. Their functions have evolved from central and local governments’ borrowing arms to loan issuers and asset managers.

    Unpaid Bonds

    The 1998 collapse of Guangdong International Trust & Investment Corp., which borrowed domestically and overseas on behalf of southern China’s Guangdong province, was the most notorious. It left creditors including Germany’s Dresdner Bank AG and Chicago-based Bank One Corp., which later merged with JPMorgan, with $3 billion of unpaid bonds. The bankruptcy marked the first time Chinese authorities didn’t bail out a state-owned borrower. Only 50 of more than 240 trusts survived.

    Trusts took off again in 2010 as they helped banks move loans off their balance sheets and circumvent lending quotas amid monetary tightening. Developers had to rely on trust loans for working capital even as borrowing costs including interest and fees amounted to about 15 percent this year and almost 20 percent last year, according to Benefit Wealth. That compared with the benchmark one-year lending rate of 6 percent.

    When some loan requests were rejected by big banks because of repayment risks, they made their way to trust companies that offered financing at a higher cost, according to Zhou Hongliang, general manager of Agricultural Bank of China Ltd.’s private- banking unit, which competes with trust firms to manage assets for people with at least $1 million to invest.

    Millionaire Households

    China ranked third globally with 1.4 million millionaire households in 2011, following the U.S. and Japan, an increase of 16 percent from a year earlier, according to Boston Consulting Group. The world’s second-largest economy is set to dominate Asia’s wealth market, which Swiss bank Julius Baer Group Ltd. estimates may double by 2015 as the number of high-net-worth individuals increases to at least 2.8 million.

    Trust buyers are mostly small-business owners and senior corporate managers, with half of them controlling at least 10 million yuan of assets, according to a 2012 survey conducted by a unit of Ping An Insurance (Group) Co. (2318), China’s second-biggest insurer. Almost 77 percent of trust investors bought real estate-linked products, while 75 percent said they achieved annual returns of more than 9 percent, the survey found.

    The investments offer yields at least several times greater than bank deposits. China’s benchmark interest rate for savings accounts is 3 percent after two cuts since June.

    ‘Double-Edged Sword’

    “The popularity of trusts is a reflection of the growing high-net-worth-individual market and demand for diversified financial services, especially with the help of implicit guarantees on repayment,” Z-Ben’s Shi said. “But that has turned into a double-edged sword. What made the trusts prosper in the past few years is now threatening to bring them down.”

    Ke Kasheng, who until October oversaw trusts at the banking regulator, said in August that while some products face repayment risks the possibility of widespread defaults is limited. The amount of multi-investor real estate trust products that need to be repaid is 71 billion yuan this year and 184.2 billion yuan in 2013, he said.

    The regulator in May required the four biggest state-owned asset managers to seek approvals before buying distressed real estate trusts and asked issuers to have a bailout plan six months before maturity if they foresee any risk of default. Firms were told earlier to impose higher weightings on property and other risky assets when calculating net capital, inspect compliance and risks of loans to property developers and stop offering them loans for working capital or land purchases.

    Wenzhou Returns

    Not all trust issuers heeded the call. Shanghai AJ Trust & Investment Co. in September raised 300 million yuan for a trust to invest in a residential project in a province including the city of Wenzhou, promising a minimum annual return of 11 percent for the three-year investment. Individual investors needed at least 3 million yuan.

    The proceeds will help Zhejiang Kunlun Properties pay off its land purchase so the developer can start building. The annual return on investment can go as high as 17.4 percent if the selling price of the apartments reaches 12,100 yuan per square meter, according to the marketing document.

    Home prices in Wenzhou dropped 16 percent in September from a year earlier, the seventh consecutive monthly decline, according to the statistics bureau.
    ‘Worst-Case Scenario’

    Mao Zhen, a Shanghai-based sales manager of AJ Trust, said he spent hours on the phone fielding questions from potential clients suspicious of a return that’s almost four times the benchmark one-year deposit rate.

    “I can’t stress enough that the return is guaranteed, though you won’t see that on the contract,” Mao said. “We did our homework and made careful selections on projects. Even in the worst-case scenario, investors will get what they were promised with money from the company’s own pocket. We will do everything to protect our business license.”

    At least a quarter of trust buyers took such guarantees seriously and didn’t prepare for any losses, according to Ping An’s survey.

    Prospects for the business remain unclear. Trusts weren’t mentioned in the 12th five-year plan China’s top regulators drafted for the financial industry in September. The plan detailed development guidelines through 2015 for banks, brokerages, mutual funds, futures firms, insurers and fledgling informal lenders such as loan guarantors and pawn shops.

    “This speaks loudly of regulators’ concern about the unruly expansion of trusts and their sustainability,” said Fan Jie, a Chengdu-based analyst at Benefit Wealth. “The uniqueness and competitive edge of trusts as an all-inclusive asset manager will be undermined going forward as every other type of financial firm is encouraged to sharpen such skills.”

    ‘No Nothing’

    The China Securities Regulatory Commission in September allowed mutual funds to manage money from designated investors with at least 1 million yuan for investment in both listed and unlisted securities and debts, putting them in head-to-head competition with trust firms.

    At the Purple Palace in Ordos, Niu sees little chance of getting his money back.

    “I came here every four to five days just to check whether there’s anything magically going on,” Niu said. “But did you see anybody around here? No buyers, no nothing. If anybody wants to get money back, they can finish this building in their dreams first.”


    --Luo Jun and Bonnie Cao, with assistance from Alfred Cang in Shanghai. Editors: Sheridan Prasso, Robert Friedman


    Purple Palace Abandoned Shows China Shadow-Banking Risk - Bloomberg
     
  18. cir

    cir Senior Member Senior Member

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    doom and gloom?

    The Chinese economy is growing 50% faster than the Indian economy。

    The Chinese yuan is gaining against the US dollar while the Indian rupee has seen a huge decline vs the dollars。

    Chinese exports are growing at some 10% in the face of the worst external conditions since 2008 whilst Indian exports have collapsed。

    China enjoys huge trade surplus in contrast to India's mighty deficit。

    China has low inlfation at or about 2% compared with India's near 10%。

    China have the policy tools and the resources to stimulate its economy while India lacks both。

    The list goes on。

    Indians have the balls to talk about doom and gloom?:rofl:
     
  19. Sridhar

    Sridhar House keeper Moderator

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    China loses control of its Frankenstein economy

    How can anyone trust that China is growing at 7.7%, when crucial variables in its data tabulation are a mystery?

    Mystery Data
    How can anyone trust that China is growing at a rate of 7.7%, as the government claims, when crucial variables in its data tabulation are a mystery? Bank of America Corp. economist Lu Ting in Hong Kong risked China’s ire by alleging its trade surplus was 1/10 the $61 billion it reported as of mid-May. The nobody-knows character of China’s credit system—quantity, quality or excesses—is even more worrisome.
    The US shadow-banking system, with its off-balance-sheet vehicles and murky dealings, helped drive world markets off the rails in 2008. Imagine the damage an entire shadow economy could cause if it unravels.
    China’s leaders avoided bursting one bubble in 2008 by creating new ones. Yet China cannot forever delay its day of reckoning. Total credit may reach 200% of GDP this quarter, up from 130% in 2008. Mainland banks are currently adding assets at the rate of an entire U.S. banking system every five years.
    Traditionally, Beijing has viewed opacity as a powerful tool for policing the channeling of funds between banks and companies. That murkiness is now proving dangerous. The central bank needs to confirm it will rein in interbank liquidity, explain the means by which it plans to do so, and indicate what the endgame is. Its vague, boilerplate statements are only exacerbating distress in the markets.
    At the same time, Zhou is fundamentally helpless: He cannot be truly effective unless the country’s top political leadership decides that the Communist Party is going to get out of the banking business. China needs to allocate capital less recklessly and price it according to economic reality, not according to the dictates of officials who profit from the current arrangement. If the government really wants to reduce the role of state-run companies in China’s economy—as it should, because only a thriving private sector can increase innovation and competitiveness—it must privatize the banks first.

    China loses control of its Frankenstein economy - Livemint
     
  20. sorcerer

    sorcerer Senior Member Veteran Member Senior Member

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    The Implications of China’s Growth Slowdown

    Slowing Chinese growth could have repercussions that extend well beyond the economy.


    The once extraordinary rate of Chinese economic growth is slowing. In 2014, China’s GDP grew at an official rate of 7.4 percent, slightly less than the stated goal of 7.5 percent. Although more recently monthly data have been more robust, the trend towards slowing growth seems inexorable.

    A decelerating Chinese economy, coming at a time of global economic uncertainty (especially in the eurozone), could have dramatic economic implications throughout the world. However, the repercussions of a Chinese economic slowdown would not be limited to the economic sphere. Given the incredible importance of economic growth to political stability – both within China itself and East Asia in general – adapting to a dampened Chinese economy will be a pivotal challenge in the Asia-Pacific.

    While an official GDP growth rate of 7.4 percent would be the envy of most major economies, this figure represents China’s lowest economic growth since 1991. And of course, economic data from China’s National Bureau of Statistics is not completely trusted by all observers. Local officials (and the central government itself) have a vested interest in exaggerating their economic performance. Capital Economics, a London-based research group, monitors the Chinese economy by looking at the five factors of electricity output, freight shipmen, construction, passenger travel, and cargo volume. According to this China Activity Proxy, recent annual growth is closer to 5.7 percent.

    Regardless of the statistical specifics of the Chinese slowdown, this development poses some degree of political risk for the Chinese state. For more than two decades economic growth has been the major factor in ensuring political stability in China. Many Westerners forget that the massive protests that rocked Beijing and other Chinese cities in 1989 coincided with the biggest economic crisis of the post-Mao era, with annual inflation of 30 percent leading to panic buying throughout the country.

    Since 1990, China has been governed by a social contract in which the material lives of ordinary citizens improve dramatically while the Party keeps a monopoly on political power. Rising wages and standards of living helped ensure political stability. Historically most revolutions, including the recent upheavals in the Middle East, only reached critical mass when a majority of a country’s people lost hope in the economic capabilities of the governing political structure.

    Recent initiatives by the Chinese state can be understood in light of these economic concerns. Since coming in to power in 2013, the administration of President Xi Jinping has launched several populist measures. Posters throughout the country combine traditional Chinese themes with Communist Party slogans to promote the “Chinese Dream.” Xi’s campaigns against lavish banquets and other government waste led to a significant drop in the price of high-end liquor soon after his rise to power. Perhaps most important has been a massive anti-corruption campaign, which has netted thousands of corrupt officials, from minor bureaucrats to the massively powerful former head of internal security.

    The anti-corruption campaign in China has been so far-reaching that it is now having negative effects on the Chinese economy. These effects create something of a contradiction in the Chinese polity, because although the anti-corruption campaign enjoys widespread support, it appears to be having some detrimental effects on the main economic pillar of Chinese political stability. Besides dampening the high-end liquor market, the anti-graft and ant-waste campaigns have had deleterious effects on industries from tourism and gambling to real estate. Mao Daqing, deputy chief executive officer of the largest property developer in China, openly warned of the economic impacts of the political campaign: “For us developers, the impact of the anti-corruption campaign on the sales of high-end property is very serious.”

    China’s once-booming housing market is now deflating, with prices falling in a majority of cities. Prices appear to be dropping because the rapid increase in housing supply in recent years has outstripped demand. Problems in the real estate market are mirrored by other macroeconomic troubles. Much of the low-hanging economic fruit in China has been plucked. Rising wages in China have led many manufacturers to relocate to countries such as Vietnam or the Philippines. China’s historically strong international trade is also taking a hit, with exports down 3.3 percent from a year ago and imports dropping nearly 20 percent.

    In June 2014, Chinese Premier Li Keqiang pledged to maintain a robust growth rate: “China’s economy needs to grow at a proper rate, expected to be around 7.5 per cent this year… Despite considerable downward pressure, China’s economy is moving on a steady course. We will continue to make anticipatory and moderate adjustments when necessary. We are well prepared to defuse various risks.”

    Indeed, since this pledge and the subsequent slowdown, the central government has used macroeconomic tools to boost growth. The People’s Bank of China cut interest rates in November, and more recently lowered the reserve requirement ratio, freeing up $100 billion for lending. China has weathered previous economic predicaments, for example the 2008 global financial crisis, and emerged stronger. A hard landing is by no means a foregone conclusion, and China still has many macroeconomic advantages.

    However, for all the policy tools at Beijing’s disposal, China’s leaders cannot guarantee rapid economic growth forever. It may be necessary to lower economic expectations, while shoring up the state’s popular legitimacy through non-economic means. Back in 2013, Xi criticized the myopic focus on economic growth, saying “We should never judge a cadre simply by the growth of gross domestic product.” More recently an article in China’s NetEase quoted Fudan University Department of Finance professor Kong Aiguo as saying, “Since we are entering what is called the ‘new normal’, we should not worry about the speed of GDP, bur rather we should focus on livelihood issues, public welfare issues, entrepreneurship issues, and financial transparency issues.”

    Adapting to China’s “new normal” of lowered GDP growth will be an important challenge for leaders in China and around the world. China does more international trade than any other country on earth. Besides issues of trade, any problems in the Chinese financial system could have serious global impacts, especially coming at a time of relative global economic uncertainty.

    If China does face a prolonged period of economic difficulty, the political repercussions could be volatile. The Chinese state might be forced to look for alternative sources of popular support. China’s leaders could implement additional populist measures. It is also possible that increased nationalism could come in to play, especially in the unresolved territorial disputes in the East China Sea and the South China Sea. Regional and global powers would be wise to monitor China’s economic situation closely.

    Brendan P. O’Reilly is China-based writer and educator. His specialty is Chinese foreign policy.
     

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