Thursday, June 28, 2007

Well, the NPC approved the 1.55 trillion RMB float of bonds to buy 200 billion USD from the foreign exchange reserve for investment, the first of which--the Blackstone share acquisition-- is already making a huge nominal profit. However, the challenge to make the forex fund profitable will be quite formidable in the future. Bond yield is currently 4.4%, and this large float might push it up toward 5%. At the same time, the RMB is revaluating at an annual rate of between 3-5% vis a vis the dollar. This means that if the fund is to make money, it would have to generate net profit of between 7.4% and 9.4%. I am no investment expert, but it sounds like a tough thing to do when you are managing 200 billion dollars. But then, if the fund loses a few billions here and there, I don't think the Chinese government would bat an eye.

China Plans Bonds for New Agency

June 28, 2007

BEIJING -- China plans to capitalize its new foreign-exchange-investment agency by issuing a local-currency bond valued at more than $200 billion, clearing a key hurdle for the sovereign-investment fund that will be formally established in coming months.

Chinese Finance Minister Jin Renqing said the fund will invest in overseas industries and financial products.

The issue, which equals about a third of total outstanding government treasury debt, will also help China absorb liquidity in its financial system and help it develop a longer-term yield curve, said Mr. Jin, according to the official Xinhua news agency.

China's Finance Ministry plans to issue 1.55 trillion yuan ($203.5 billion) in tradable bonds with maturities of at least 10 years in order to buy about $200 billion in foreign exchange, the official Xinhua news agency said. The Standing Committee of the National People's Congress began reviewing the proposal yesterday and is likely to approve the plan this week.

Economists have said the massive bond issue will boost liquidity in long-term government bonds and build a better yield curve for traders to price debt, helping the country develop its nascent bond market. The new bonds could also serve another useful purpose for China -- draining liquidity from a financial system awash with funds.

The plan was set "in accordance with the trend of growth in foreign-exchange reserves and the need to carry out monetary policy," Mr. Jin told legislators, according to Xinhua. He added that China still has excess liquidity, which exerts some inflationary pressure.

"The Finance Ministry's special bond issuance for buying forex could drain money from the money market, while providing the People's Bank of China with an effective monetary policy tool," Xinhua cited him as saying. "It would help ease pressure on the PBOC for sterilization, and ease the problem of excess liquidity. Sterilization is a process in which the central bank issues bills to absorb liquidity from the interbank market.

Mr. Jin also said the longer maturity period for the special bonds would help build a better yield curve and "deep-freeze" excess liquidity.

HSBC Chief China Economist Qu Hongbin estimates that if the entire amount of bonds were issued directly to markets, it would withdraw the same amount of liquidity as 10 increases in banks' reserve ratio requirements by 0.5 percentage point.

On the fund's investments, Mr. Jin said: "The rate of returns must be higher than the interest on the special bonds." He didn't say in the Xinhua reports if the fund's industrial investment would involve buying commodities, such as oil, or stakes in companies.

Economists said they expect Beijing to try to temper most of the issue's macroeconomic impact by having the central bank retire shorter maturity bonds and having the Finance Ministry replace them with longer-term bonds.

"In the short term, this has to be incredibly well coordinated for it to work," said Stephen Green, a senior economist at Standard Chartered Bank in Shanghai.

Yields on the Finance Ministry's bonds will be "set flexibly according to market conditions," Xinhua said.

The capitalization plan brings the agency, which doesn't yet have its own office, closer to becoming a legally established entity and making further investments.

The foreign-exchange-investment agency, tentatively called the State Investment Company, began taking shape in February, with a mandate to earn a higher return on a portion of China's $1.2 trillion in foreign-exchange reserves.

Lou Jiwei, a former vice finance minister heading the agency, has already made a bold step by taking a $3 billion stake in U.S. private-equity firm Blackstone Group's initial public offering.

--Terence Poon and Wang Ming contributed to this article

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Thursday, June 21, 2007

We have some rotations in the banking sector. I am beginning to detect a pattern where middle level and senior regulators and officials get to rotate to a commercial bank, where they enjoy a few years of high salary. Then, they can either choose to stay or return to poverty. If this can reduce corruption, I think that would be a pretty good system. So, Tang Shuangning, the vice chair of CBRC, will rotate to head the Everbright Group, while Xiang Jinbo, the vice governor of the PBOC and the head of the PBOC Shanghai branch, will head the Agricultural Bank of China. This repeats the rotation of a well-known technocrat(Guo Shuqing) to a crucial bank reform case (CCB). The ABC restructuring is running into some problems, and Xiang was picked as the person to deal with the conflicting demands between the policy burden of financing rural development and bank commercialization and listing. Meanwhile, Citibank will have to contend with Xu Feng, a CBRC official who will head the Shanghai Pudong Development Bank, in which Citibank has ownership. I am glad that these technocrats get to earn some money for their kids'college tuition! Someone else will have to take care of those expensive boarding school fees......

http://www.sina.com.cn 2007年06月21日 03:40 中国证券网-上海证券报

  ⊙本报记者 苗燕







I was just browsing around and found your blog. I read last post and I am not sure if I got it right. But if I did, are you sure that rotation of managers to better positins can prevent them from corruption just for the sake of getting better payment - I am not so sure about it.
Hi, on the contrary, I am suggesting that not even bank president's salary in China can satisfy the cash cravings of these guys. A stint as a bank president may be enough to pay for college tuition, but these guys all want to send their kids of expensive private schools in the US or the UK. So, in come the I-bankers and hedgefund managers to pay for all that....well at least according to all the rumors.
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Wednesday, June 20, 2007

Another excellent piece from Ben Lim at Reuters--this time on Yu Zhengsheng, current Politburo member and party secretary of Hubei. I agree with everything that is said in the article, including Yu's excellent chance of gaining a promotion into the PSC. Essentially, since both Hu and Zeng need the support of the Deng family, Yu will almost for certain gain a promotion. But what will he do? The article suggests a Vice Premier job, but there are a limited number of those.

Of all the vice premier positions, Huang Ju, Wu Yi, and Zeng Peiyan's seats are all up for grab. The former is available because he is, well, dead, while the latter two are opened because they will be 69 by the time the 2008 NPC rolls around. Wu Yi may get a year or two of reprieve, but I think they are both essentially up for retirement. Additionally, they can create another vice premier position for Chen Zhili's portfolio on education. The most intuitive thing to do is to give Yu Chen Zhili's portfolio on education since he has little experience with economic planning (Zeng Peiyan's porfolio), finance (Huang Ju), or foreign trade (Wu Yi). Perhaps Wu Yi's health porfolio can also be given to Yu. Of course, health and education are considered the "weak" portfolios, so Yu is probably asking for more. But what? I think much of the Western world is rooting for Zhou Xiaochuan to take over Huang Ju's position, but if Huang Ju can take charge of finance, so can Yu Zhengsheng. I also see a possibility that Hu Jintao and Wen Jiabao would rather have Yu in the foreign trade portfolio than Bo Xilai. After all, Yu was once the laoban of a "trading company" (Kanghua), which did engage in foreign trade-- mainly import though, so good for reducing the trade surplus! Again, if Bo Xilai can be minister of foreign trade, so too can Yu Zhengsheng take over Wu Yi's portfolio.......Politics trumps expertise, again.

FEATURE-China princeling emerges from defection scandal

By Benjamin Kang Lim

WUHAN, China, June 20 (Reuters) - With an impeccable
Communist pedigree, Yu Zhengsheng was a rising star in the
mid-1980s until his brother, a senior Chinese intelligence
official, defected to the United States.

His wings clipped by the scandal, Yu spent years biding his
time in ministerial-level posts. Now, two decades later, he has
emerged as a candidate to join the all-powerful Politburo
Standing Committee at a Party congress slated for the autumn,
sources with ties to the leadership said.

The resurgence of Yu, currently Party boss in the central
province of Hubei, shows that even in modern-day, market-driven
China, political staying power can depend largely on
old-fashioned Party connections. His close ties are with the
family of late paramount leader Deng Xiaoping.

"I wouldn't be surprised if Yu Zhengsheng enters the
Politburo Standing Committee ... He's very competent," one source
told Reuters, requesting anonymity.

Yu, 62, is also likely to be promoted to vice premier next
March at the annual session of parliament, the sources said.
Details of a reshuffle of the top ranks of both Party and
government were expected to be hammered out at an informal
leadership meeting in late summer.

In a country where people were commonly purged for the faults
of relatives during the chaotic 1966-76 Cultural Revolution, the
1985 defection of Yu Qiangsheng could easily have scuttled his
brother's political career.


The defector exposed a retired analyst for the Central
Intelligence Agency, Larry Wu-tai Chin, who committed suicide in
his cell in Virginia in 1986, days before a U.S. court was to
sentence him for spying for China for about 30 years.

Thanks to his close ties to Deng Pufang, the wheelchair-bound
eldest son of Deng Xiaoping, Yu Zhengsheng was spared the full
political repercussions but fell off the fast track.

"Yu Zhengsheng had very close personal relations with Deng
Pufang," said Ho Pin, New York-based co-author of a book on
"Princelings" -- the sons and daughters of China's incumbent,
retired or late leaders.

Deng Pufang was embroiled in a financial scandal in the late
1980s when Kang Hua, the trading empire he founded, was accused
of abusing tax exemption privileges granted it for its donations
to his welfare fund for the disabled.

Troubleshooting for the younger Deng, Yu closed down Kang Hua
as part of an anti-corruption drive ordered by Deng Xiaoping
while avoiding wider political damage.

"Yu Zhengsheng is the Deng family's representative in
politics," a businesswoman with ties to the Deng family said.

After his brother's defection, Yu spent 12 years in the
eastern coastal province of Shandong. Serving successively as
vice mayor, mayor and then Party boss of Qingdao city from 1989
to 1997, he helped make Tsingtao beer and Haier household
appliances China's best-known brands abroad.


After a stint as construction minister in Beijing, Yu became
Hubei party boss and made it to the Party's 24-member
decision-making Politburo in 2002.

As top official in Hubei, Yu departed from tradition by
plucking auto executive Miao Wei from political obscurity in 2005
to make him Party boss in the provincial capital, Wuhan.

With Yu's backing, Miao consolidated Hubei's auto industry,
putting a stop to cut-throat competition between large and small
carmakers. He also made sure Hubei automakers bought components
from local state-owned enterprises instead of importing them.

Dispensing with the top official's usual panoply of police
escorts, bodyguards and aides, Yu often ventures into the
countryside to check out the work of local officials.

"The people are full of praise for him ... There has been
construction everywhere since he came to Hubei," a local
businessmen named Xiong said of him.

Under Yu's watch, Hubei's GDP now ranks 12th among the
country's 31 provinces. Per capita income of farmers rose 10.3
percent to more than 3,400 yuan ($450) in 2006.


Born into a prominent family in Shaoxing, in the eastern
coastal province of Zhejiang, and trained as a missile engineer,
Yu is a political blue blood.

His father Yu Qiwei, a Communist underground militant who
changed his name to Huang Jing to avoid arrest by Kuomintang
troops, was a former husband of Jiang Qing, who went on to marry
Party Chairman Mao Zedong.

Later, after the 1949 Communist takeover, Huang was to become
the first Party boss of the northern port city of Tianjin.

For Yao Lifa, an activist known nationally for his dogged
advocacy of elections free of Communist Party control, Yu is a
princeling who will not compromise the Party's interests.

Yu visited Yao's home city late last year and "instructed the
city government that independent candidates should not be elected
to the local people's congress", the activist said.

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Wednesday, June 13, 2007

I read the following article, which is excellent, in great amusement. This is another case of the Chinese government making a pretense to slow down something when in reality its action will have little impact. With GDP growing at a breakneck pace and the number of the rich and upper-middle class growing at an even higher pace, do you think that banning explicit mentioning of gambling will have dramatic impact on people's awareness of Macau? If one person in a township has been there, words will spread that it is a fabulous place (in the visual sense). You can also bet that tour operators are finding innumerable ways to get words out about Macau. Also, there are a lot of rich people in the backwaters of China (those mining bosses....) with nothing better to do with their money. Trust me, I just returned from Guiyang....The only question really is overall growth. As long as it is maintained, nothing can stop Macau (well, besides another Macau, but that will take time to build up). BTW, I finally get to put a picture of Tony Leung on this blog. He is my favorite HK actor besides Chow Yun-fat, who is also doing an ad for a casino.

With Gambling Ads Banned,
Attracting Casino Customers
Can Be a Roll of the Dice

MACAU -- How does a company market a product it can't mention?

That's the challenge for the flurry of new casinos opening here. Macau is the only place in China where casinos are legal; advertising gambling, however, is still forbidden.

The solution, so far: wink at consumers and roll the dice in the hope censors aren't offended.

The Grand Lisboa, the newest casino from local tycoon Stanley Ho, uses TV ads featuring a troupe of Chinese martial artists to tout the company's local roots. The troupe isn't shown in or even near a casino. The Wynn Macau doesn't advertise on TV, but did hoist a giant neon sign on Hong Kong harbor that looks like Wynn Resorts Ltd. Chairman Steve Wynn is writing his signature in lights all night long. And Las Vegas Sands Corp.'s Sands Macau blasts a text message to all Macau visitors who use their cellphones with certain local carriers, inviting them to check out its latest promotions.

The regulations on ad content in China aren't codified, and even the indirect approach can go awry with China's sometimes prudish censors. In April, Melco PBL Entertainment's Crown Macau launched an expensive TV "mini-movie" featuring the actor Chow Yun-fat. While never explicitly mentioning gambling, the ad suggests it by showing Mr. Chow in a series of mysterious encounters at the Crown's high-end facilities. During one scene, Mr. Chow throws a pair of dice -- which turn into ice cubes. In another scene, he flips a poker chip while talking with a butler about his unusual evening. The ad lasted only a few days before it was pulled from many stations by officials in China's Guangdong province, an important source of Macau's mainland Chinese visitors.

"Everybody is getting much more conscious about keeping within the boundary," says Felix Ling, the general manager for marketing at Macau newcomer Galaxy Entertainment Group. Ads for Galaxy's StarWorld resort, which opened last fall, employed champagne-sipping Chinese movie star Tony Leung to promise StarWorld is the "most exciting place to be in Macau," without explaining exactly why.

Once, Las Vegas resorts were also forbidden to advertise gambling. "We learned to differentiate ourselves with attitude or the environment where the games are played," says Randy Snow, the executive vice president of R&R partners, the U.S. agency behind the "What happens in Vegas stays in Vegas" campaign. After the laws changed, about 15 years ago, some Vegas casinos started running ads linked to specific gambling promotions. Most still keep their messages focused on their other offerings.

But the U.S. approach isn't an exact fit for Macau. Although the general entertainment and convention market might develop over time, most tourists today visit Macau for day trips filled with a lot of gambling and relatively little else. The Wynn Macau had tried to sell its exclusive night club Tryst by employing a model to sit behind a velvet rope in the resort's lobby. Tryst closed a few months ago.

Las Vegas resorts tend to assume that their gambling facilities aren't a point of distinction, because tables and slot machines are all carefully regulated for consistency. While they're regulated in Macau, too, serious Chinese gamblers still think there are important differences. For the gambler conscious of feng shui, an ancient art of maximizing good fortune through design, the luck of a casino can vary depending on its orientation, lighting, decorations, even the day it opened.

So Chinese credentials have become a point of differentiation for Macau casinos. Mr. Ho's company, which has operated casinos in Macau for decades, opened its newest resort touting the company's history and knowledge of Chinese culture. The ad features martial artists to imply that kung fu, like running a casino, takes experience. "Real success grows in step with time," says a voiceover.

Macau's most important marketing tool may be the members of the Chinese and Hong Kong press, many of whom are hungry for lifestyle and celebrity stories. Even before the concrete dried in its new stadium, the Venetian had announced it would be hosting two NBA tournament games with the Cleveland Cavaliers, the Orlando Magic, and the Chinese Men's National Team.

John Catt, vice president of the Grand Lisboa, which opened a casino and six restaurants in February, says avoiding pitching the main attraction "is a constant challenge, but not one that's insuperable." He adds: "The people who visit the Grand Lisboa come for the gaming experience. If they can enjoy the food while they're here, that's great. But it would be disingenuous to say they come here for the noodle bar."

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Saturday, June 09, 2007

A reader, Dave Schuler, sent in this interesting article in today's NYT. Yes, we are back in an inflationary era in China--and by extension the world--, I am afraid. They still have the means to control the prices of key commodities to a certain extent, but inflation today will hit urban residents much harder than say ten years ago, the last time there was high inflation, because urban residents are much more responsible for their own food and housing today than ten years ago. Also, those exorbitant mortgage payments......

Rise in China’s Pork Prices Signals End to Cheap Output
Chang W. Lee/The New York Times

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Published: June 8, 2007

GAOYAO, China, June 1 — Few things are as essential to the Chinese as their pigs.
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China's Pork Crisis

From pork spare ribs and mu shu pork to char siu bao — barbecued pork buns — pork is a staple of the Chinese diet. So in this Year of the Pig, an acute shortage of pork has been national news, as butchers raise prices almost daily and politicians scramble to respond.

Steep increases for pork loins and bacon are the most tangible sign that after a decade in which prices have fluctuated but not moved significantly upward, inflation is creeping back into China. In response to this pressure at home, Chinese companies are starting to raise prices for exports, removing what has been a brake on inflation in the West.

With the global economy expanding at a robust pace, and prices rising in fast-developing countries like India and Mexico, central bankers and investors are becoming concerned. Interest rates are inching up in the United States and Europe as lenders demand that borrowers pay more to offset the erosion of buying power over time.

Business executives say that with wages rising 10 percent or more a year in many Chinese cities, the country’s days are numbered as the world’s lowest-cost producer of many cheap labor-intensive products, like toys and shoes.

“People tend to underestimate the deflationary impact over the last 10 years” from Chinese exports, said Michael R. P. Smith, the chief executive of HSBC’s Asian operations. “It has got to the limit: you’ve had wage inflation, you’ve got rising natural resource prices. There’s just no more give.”

The crisis over pork prices in China, like the jolt many Americans feel when gasoline prices jump, offers one example of how prices can suddenly soar. The Chinese government is struggling to cope — including deliberating whether to sell a snuffling, smelly strategic reserve of hundreds of thousands of live pigs kept at special subsidized farms for precisely the shortage the country is now facing.

Chinese officials offer several reasons for the high pig prices. The cost of animal feed has risen by one-quarter in the last year, partly because more corn is being made into ethanol and partly because more prosperous workers are eating more meat, which requires more animal feed.

The cost of pig veterinary medicine has soared. Some pig farms, shut down because of low prices last year, were unprepared for strong demand this spring. And outbreaks of disease have killed many pigs, though no reliable estimates of how many are available.

The most recent statistics from the agriculture ministry show that prices for live pigs rose 71.3 percent in April from March, while pork prices climbed 29.3 percent. The price of pork followed pig prices higher in May as well, to the dismay of shoppers.

Some consumers showed irritation with pork prices on two recent afternoons at a busy street market in metropolitan Guangzhou, an area of perhaps 12 million in southeast China. A woman walked up to Zhang Hanbiao, a butcher standing behind an unrefrigerated counter of raw pork under the glare of two large light bulbs, and asked him the price of the dark red slab of pig liver.

Told the answer — 7.5 yuan a catty, or 89 U.S. cents a pound, up from 6 yuan a catty — she stalked off in silence without buying.

Her response angered Mr. Zhang, a butcher with a faint mustache who has followed a Chinese tradition of letting his nails grow long on the little finger of each hand.

“No business!” he exclaimed. “I’ve lost 1,000 yuan in three days because the meat goes bad before I can sell it.”

Another woman came to the counter, sniffed some pork suspiciously, then kept walking. “After it turns color, people won’t buy it,” Mr. Zhang said, adding that roadside snack vendors buy unsold meat at a discount each evening.

Wu Lijuan, a Guangzhou resident who bought a small plastic bag of lean pork from Mr. Zhang, said that she was eating less pork and more fish as pork prices rose. But prices for chicken, beef, fish and eggs are also increasing sharply this spring, along with the higher cost of animal and fish feed, although rising not quite as fast as pork prices.

In a move to head off any protests among sometimes volatile student populations, the education ministry has ordered colleges and universities to subsidize pork instead of raising prices on campus. The civil affairs ministry has instructed municipal governments to subsidize pork purchases by low-income families, while the railway ministry has given priority to pig shipments.

Prime Minister Wen Jiabao visited the pork counter at a supermarket in Xian in central China on May 26 and called for local governments to pay pig farmers to increase production. The commerce ministry has raised the possibility of distributing pork from China’s strategic pork reserves.

State-controlled television in Shandong Province in northeastern China carried a detailed report late last month on the reserves. The commerce ministry keeps a national reserve of frozen pork and live pigs, and local governments keep their own reserves as well, constantly selling older supplies and procuring fresh stock. Government agencies pay a pig subsidy to farmers to keep their animals in the program.

“The sties are very roomy, there is heat in the winter and fans in the summer,” the television program said, describing conditions very different from those endured by many other pigs in China, including those here in Gaoyao, 50 miles west of Guangzhou.

Yang Yuanji stood in sweltering heat next to his fetid, crudely built pigpens on a recent afternoon and contended that he needed high prices to pay for costly animal feed and medicine.

“Everyone says pork prices are high — I don’t think so,” he said.

One of his neighbors, Yang Ming, said he did not believe that farmers were withholding pigs from the market — as the state media occasionally hint — in hope that prices will keep rising. “I don’t wait, I sell a pig as soon as it reaches 180 catties,” or 200 pounds, he said.

Pork has been a cornerstone of the Chinese diet for centuries. Rows of 2,100-year-old terra cotta pigs were recently discovered near Xian, a city better known for terra cotta warriors. China’s 1.3 billion people eat more than 92 billion pounds of pork a year — a fifth of a pound a day for every man, woman and child.

And just as higher gasoline prices can lead to a political reaction in the United States, the Chinese government is particularly worried about soaring pork prices because of their impact on household budgets and the way they can exacerbate income inequality.

Pork is a critical source of protein for Chinese of all incomes, but particularly for low-income workers like those who keep American and European families well supplied with $49 DVD players and other popular consumer products.

Broader measures of consumer prices showed just 3 percent inflation in April, but Goldman Sachs now predicts that higher meat prices will help push this above 4 percent “very soon.”

Heavy investments in new factories, roads, rail lines and ports have helped limit inflation until now in manufactured goods, as productivity improvements mostly offset rising wages and higher prices for food, oil and metals. Economists and business executives say that manufacturers face growing pressure to raise prices as well, particularly with the torrent of money pouring into China, which has helped push up the prices of Chinese stocks and real estate.

But the price that many Chinese care about most these days is the price of pork. Not far from Mr. Zhang’s butcher counter is a small shop selling unrefrigerated barbecue. Cherry Zhou, a shop worker, said it had raised prices 25 percent in the last few days.

Blaming pork distributors, she added, “It’s more expensive by the week.”

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Friday, June 08, 2007

I am glad that the planned economy is alive and well. The National Development and Reform Commission (NDRC), formerly the State Planning Commission, will roll out a scheme whereby every county in China will be classified in one of the following four ways: "improvement development regions," "key-point development region," "limited development region," and "no (forbidden) development region." Essentially, state policies will do a lot to help the "key-point development" regions to develop, while they will highly discourage investment in the "forbidden" zones. Okay, there are so many things wrong with this that I don't really know where to start.....Perhaps readers can help me out here!

国家级主体功能区规划年内完成 将以县为单位
http://www.sina.com.cn 2007年06月08日 05:36 中国证券报

  本报记者 周明 北京报道









It is interesting to see this proposal coming to fruition. It is not a surprise as it was reportedly discussed at recent CPC Central Committee Plenums and is a big deal for Hu-Wen.
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Thursday, June 07, 2007

Below is a piece by a HK native who now teaches in Singapore. I am afraid that as another native of HK, I am almost equally pessimistic about the future of HK. I think Wu's claims are yet a bit immature, but in ten year's time, I have little doubt that the decline of HK will be obvious. Right now, HK still has the great advantage that China does not have free capital flow, but once that happens in fifteen to twenty year's time, much of the financial activities will migrate to Shanghai (I think Shenzhen is in trouble as well). At the same time, the rule of law advantage that HK once enjoyed is quickly being eroded and won't be very different from China in 10-15 years. All Hong Kong will have is a Disneyland and a large Buddha statue. Hong Kong will be a curious place that people pass through on their way to Macao, which has a great economic future.

Does China Still Need Hong Kong?

Friedrich Wu*

Far Eastern Economic Review
1 June 2007

As the Hong Kong Special Administrative Region (HKSAR) reaches the 10th anniversary of the territory’s re-union with its sovereign in China in July this year, government and business leaders in the SAR will no doubt engage in many complacent self-congratulations to celebrate that, after all, their capitalist haven has not, as the Fortune magazine prematurely predicted in 1995, submerged into a “global backwater” under the weight of its communist motherland. On the contrary, according to the SAR government’s latest marketing hype, Hong Kong is destined to emerge as “Asia’s World City” which will continue to occupy the “unrivalled role as the gateway to China and the rest of the region.” While the bravado may serve as a morale booster for an economy that has recently recovered from some hard times during the first half of this decade, unwittingly it is also a reflection of the ostrich mentality of the HKSAR’s business and political elite, many of whom seem to be oblivious of the looming competitive threats that their territory must confront going forward. Recently unfolding trends indicate that, in the coming decade, Hong Kong’s self-proclaimed role may face the real and imminent danger of being usurped by its ambitious and aggressive “sister” cities in the mainland.

Seizing Back the Trans-Shipment Business

Take entrepot trade and the logistic business for example. For several decades since China’s opening-up in 1979, Hong Kong has had a stranglehold on this sector which has allowed the territory to develop into the premier trans-shipment center for exporters and importers in the mainland. According to the Hong Kong Trade Development Council, about a quarter of China’s US$1.8 trillion foreign trade goes through the territory’s port, while more than 60% of the SAR’s re-exports—which account for 96% of Hong Kong’s total exports—are either originated from or destined for the mainland. In the past few years, however, stubbornly high cost and energetic expansion of mainland ports have combined to erode Hong Kong’s hitherto preeminent position. Container terminal operators in the territory typically charge as much as 50% more than their counterparts in Shenzhen. Quoting by the Financial Times, the Hong Kong Container Terminal Operators’ Association has recently candidly admitted that “[t]he cost differential is making Hong Kong really not competitive.” It further warns that in the absence of remedial action to slash cost, “[throughput] growth in Hong Kong in the near future will be slow or zero.”

Meanwhile, ports in the mainland, especially in Shanghai and Shenzhen, have embarked on explosive enlargement plans with the undisguised aspiration to become China’s hubs for cargo-container traffic of ships heading to and from other countries. At the mouth of the Yangtze River Delta, a turbo-charged economic growth zone, the Shanghai municipal government has pressed hard to build its port into the largest in the world, let alone China, by constructing the gargantuan Yanshan Port. So impressive is the frenetic growth of the Shanghai port that in the first quarter of 2007, it established a milestone by displacing Hong Kong as the world’s second-busiest port behind Singapore. After having surged 28.0% to handle 5.88 million twenty-foot equivalent units (TEUs) against Hong Kong’s 2.3% rise to 5.5 million TEUs in the same period, industry analysts forecast that Shanghai will “remain ahead at the end of the year.” Likewise, with the unabashed aim to grab a slice of the international trans-shipment business in the Pearl River Delta, Shenzhen has launched its own major container-port expansion programs in Shekou, Chiwan and Da Chan Bay. With its combined throughput leaping by 8.2% to 4.26 million TEUs in the first quarter, the Hong Kong Shippers’ Council has pessimistically predicted that “Shenzhen will outstrip Hong Kong as the [world’s] third-largest port next year.”

Fund-Raising Goes to Shanghai and Shenzhen

In financial services, the Hong Kong Monetary Authority has tirelessly bragged about the SAR’s irreplaceable role as the paramount fund-raising center for mainland Chinese companies. This is by and large true until recently, even though in the past years Chinese enterprises have also increasingly fanned out to raise capital in other overseas stock exchanges such as New York, London and Singapore. Lately, however, with the resuscitation of the Shanghai and Shenzhen bourses after years in the doldrums and a deluge of liquidity gushing from household savings, the appeal of domestic markets for Chinese companies has shot up significantly. As a demonstration of the breakneck pace of their revival, on April 11, China’s twin stock markets notched up a significant milestone when the combined market capitalization of the Shanghai and Shenzhen exchanges, at US$1.81 trillion, surged to surpass Hong Kong’s US$1.79 trillion (hitherto the world’s sixth largest stock exchange) for the first time ever.

In an attempt to add more breadth and depth to the still relatively immature twin domestic bourses, the China Securities Regulatory Commission (CSRC) has since mid-April directed all but the largest potential initial-public-offering (IPO) issuers in the mainland to list on the Shanghai or Shenzhen exchange first before they can be granted approvals to issue H-shares in Hong Kong. While the intentions of the latest CSRC stance are to raise the number of quality stocks available to mainland investors and concurrently mop up excess liquidity in the home markets, rather than to undercut Hong Kong’s fund-raising clout, the policy is likely to reduce sharply the number of IPOs by mainland companies in the SAR. This is certainly bad news not just for the Hong Kong exchange, but also for the many international investment banks that rely on H-share listings for underwriting income. Last year, 59 companies raised US$41.5 billion in Hong Kong IPOs, of which US$38.6 billion (93%) was from 41 mainland companies. Already, CSRC’s move has claimed several Hong Kong listing casualties, including a US$600 million IPO by West Mining Co., a US$150 million listing by Tianjin Lishen Battery, and a US$200 million offering by Chongqing City Commercial Bank. All three are now switching to list in Shanghai instead this year. As listing casualties in Hong Kong are set to mount, PricewaterhouseCoopers has recently made the grim predictions that IPO proceeds raised in the SAR this year will fall precipitously by as much as 50% to US$20 billion, while the correspondent numbers on the mainland exchanges will surge 50% to reach US$25 billion. Commenting on the repercussions of this unfavorable development on Hong Kong, the Financial Times has pessimistically opined that “the shift in [CSRC’s] bias towards approving A-share listings is expected to hasten Hong Kong’s toppling as greater China’s leading centre for initial public offerings.”

Migration of MNC RHQs to China

Finally, but no less important, a third challenge that Hong Kong must tackle going forward is the inexorable erosion of its traditional competitive advantage as a location of choice for multinationals (MNCs) to base their regional headquarters (RHQs) to oversee their Greater China/Asia-Pacific business activities. Exorbitant operating costs which are easily more than double that in the mainland’s front-running metropolises, rising air pollution that is shooting toward the levels in Beijing and Shanghai, and aggressive campaigns by “sister” cities in China which doggedly push to grab a slice of this lucrative business segment are the three main threats that are now contesting Hong Kong’s hitherto hegemony as the preferred host for MNCs’ RHQs. High costs of doing business in the SAR including office rentals and wages have been consistently cited by foreign companies as the major impediment to operating in the territory. To this deterrent one must now add plunging air quality. The Financial Times has identified the latter as “a big risk for Hong Kong” as “pollution is threatening to drive foreign investment and executives away.” It further warns that as a host to MNCs’ RHQs, the SAR’s “advantages are being overshadowed by the haze.” Not unexpectedly, Hong Kong officials have tried hard to play down this negative aspect of their city. However, as Fortune magazine has quipped, given much lower costs in China, “if pollution is as bad in Hong Kong as it is on the mainland, why not just move to Beijing?”

The latest annual survey by Invest Hong Kong, the SAR’s official investment promotion agency, claims that there are more than 1200 foreign RHQs in the territory. The number is probably an exaggeration, as its annual surveys are based on voluntary, self-selected responses by participating companies rather than on some objective, quantitative yardsticks to measure the actual regional responsibilities of these entities. Notwithstanding the SAR’s seemingly awesome statistics, MNCs are increasingly lured by Beijing, Shanghai, and even Guangzhou to (re)locate their RHQs there, as all three cities—together with the Ministry of Commerce—have promulgated attractive RHQ schemes to offer generous incentives such as tax rebates/exemptions, special distribution and export/import rights, wider market access, and so on to MNCs. Alcatel-Lucent, General Electric and Unilever were among the first MNCs to have established Greater China/Asia-Pacific RHQs in Shanghai, followed by Exxon Mobil, Kodak, Honeywell, and Johnson & Johnson. According to the authoritative China Daily, the past few years have witnessed several MNCs—among others, AMD, American International Insurance, Fuji Xerox, General Motors, Goodyear, and UPS--uprooting their RHQs in Hong Kong or Singapore and relocating them to mainland cities. By the end of 2006, 154 MNCs had set up RHQs in Shanghai and 181 in Beijing. While as a starting trend these are still modest figures, they are set to grow rapidly as other aspiring Chinese cities such as Guangzhou, Nanjing and Tianjin join the fray—a development that no doubt will come at the expense of Hong Kong.

No Game Plan to Reverse Decline?

Do the political and business mandarins in Hong Kong possess the adroitness and ingenuity to help them avert the relative decline of their city vis-à-vis fierce rivals in the mainland which seem to have displayed more dynamism, aggressiveness, raw energy, and in some cases, even vision? Thus far, the SAR government and the cartel operators who dominate the local economy have opt to rely on catchy public-relations slogans than on the articulation of a credible counter-measure strategy. Donald Tsang, Chief Executive of the HKSAR government, has often boasted that the mission of his administration is to elevate “Hong Kong into a New York or London of the East Asia time zone.” However, our foregoing diagnosis suggests that on its current course, and in the absence of a coherent strategic roadmap to preserve Hong Kong’s premier brand, the title that Tsang so covets is likely to be out of reach. In response to past international criticisms, the SAR government has bragged that “it has always been a mistake to bet against Hong Kong.” That is just sheer hubris. On the contrary, our bet is that, between now and 2017, the usurpation of Hong Kong’s economic role as the uncontested interface between China and the rest of the world by some of mainland’s first-tier cities will be as inevitable as it is inexorable.

* A former Hong Kong resident, Dr. Friedrich Wu is Adjunct Associate Professor at the S. Rajaratnam School of International Studies of the Nanyang Technological University in Singapore. He is concurrently a (non-resident) Senior Research Associate at the East Asian Institute, National University of Singapore

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Tuesday, June 05, 2007

Indeed, this was a low key tribute to Huang Ju. "A loyal communist fighter long tested by experience" is certainly not the most lavish praise one can heap on a comrade. For those who don't believe in faction, notice that it was Zeng Qinghong and Hua Jianmin who escorted the body to the Babaoshan Cemetary. Not only were they colleagues of Huang in Shanghai, they were also identified as core members of the Jiang coterie. Wang Gang also escorted, but it is his job to do so as the chair of the central head office.

Of the people who attended the cremation in Babaoshan, beside the Standing Committee, which was all there, all the Politburo members working in Beijing were also there. Also Chen Zhili was there, since she is a State Councilor working in Beijing. But none of the provincial Politburo members or current Shanghai officials were reported to be there. I think there probably was an order sent out to Politburo members outside of Beijing to not attend this funeral. Otherwise, I find it odd that Zhang Dejiang or Yu Zhengsheng did not show up.

Among the retirees, Zhu Rongji and Li Ruihuan were there, but Li Peng, who is on a publishing roll, and Qiao Shi were not there. Some of the past Shanghai leaders, including rival Xu Kuangdi, also showed up.

BEIJING, June 5 (Xinhua) -- Late Chinese Vice Premier Huang Ju's remains were cremated here on Tuesday.

Huang, also a member of the Standing Committee of the Political Bureau of the Communist Party of China (CPC) Central Committee, died of illness at 02:03 a.m. June 2 in Beijing at the age of 69.

Top leaders Hu Jintao, Jiang Zemin, Wu Bangguo, Wen Jiabao, Jia Qinglin, Zeng Qinghong, Wu Guanzheng, Li Changchun and Luo Gan paid their final respects and bid farewell to Huang Tuesday morning at the Babaoshan Revolutionary Cemetery.

Wearing traditional white paper flower and black armbands, they walked slowly into an auditorium at the cemetery, bowed three times before the dead body, and expressed their deep condolences and sympathy to Yu Huiwen, Huang's wife, and other family members .

The auditorium was decorated with a photo of Huang, above which hung a black streamer with characters written in white reading "In remembrance of Comrade Huang Ju". Huang, covered with a CPC flag, lay in state amid fresh flowers and green cypress branches.

Top CPC and government officials including Hu Jintao, Jiang Zemin, Wu Bangguo, Wen Jiabao, Jia Qinglin, Zeng Qinghong, Wu Guanzheng, Li Changchun and Luo Gan had either visited Huang in hospital when he was seriously ill or expressed their deep condolences over his death and sympathy to Huang's family members by other means.

High-ranking officials of the party, the government and the military, friends and people from Huang's hometown were also present at the auditorium to bid farewell to the CPC leader.

An obituary issued earlier by the central authorities called Huang "an excellent member of the CPC, a long-tested and faithful Communist fighter and an outstanding leader of the Party and the state."

In a statement issued by the CPC's Central Committee on Tuesday, Huang was deemed "an important member of CPC leadership with Comrade Hu Jintao as General Secretary of the Central Committee."

"He has devoted all his wisdom and energy to the development of the Party and the country," the statement said.












  黄菊同志病重期间和逝世后,前往医院看望或以各种形式向其亲属表示慰问的还有:王乐泉、张立昌、张德江、俞正声、李鹏、万里、乔石、宋平、刘华清、丁石孙、成思危、蒋正华、盛华仁、路甬祥、肖扬、阿沛·阿旺晋美、帕巴拉·格列朗杰、李贵鲜、张思卿、丁光训、马万祺、罗豪才、周铁农、李蒙、董建华和李德生、肖克、张劲夫、黄华、彭冲、王芳、谷牧、吕正操、郑天翔、刘复之、姜春云、钱其琛、张震、倪志福、陈慕华、孙起孟、雷洁琼、李锡铭、王丙乾、铁木尔· 达瓦买提、吴阶平、周光召、吴学谦、钱学森、董寅初、叶选平、杨汝岱、钱伟长、钱正英、朱光亚、胡启立、赵南起、毛致用、经叔平、王文元、邓力群、张廷发、韩光,香港特别行政区行政长官曾荫权、澳门特别行政区行政长官何厚铧等。



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Friday, June 01, 2007

Well, we finally have official confirmation that Vice Premier Huang Ju has passed away. Here is the tragedy of the final period of his life. Although it became obvious that he needed to take a break from his official duties early this year, factional imperatives drove him to continue for another few months, which otherwise would have been totally unnecessary. Because he needed to continue to signal his power and to attend crucial meetings in the run-up to the 17th Party Congress, he was compelled to make appearances at various meetings and functions until just a month ago, when it became apparent that he was on the verge of dying. In the end, the Jiang-Zeng faction will lose a vote in the Standing Committee as crucial decisions are made in the next few months.


2007年06月02日06:56 来源:新华社

  中共中央 全国人大常委会 国务院 全国政协讣告


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