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Thursday, November 29, 2007




Hu Jintao is now consolidating power in the capital. With Mayor Wang Qishan, who was a compromise candidate after Meng Xuenong's departure, Hu did not quite have complete grasp over Beijing, especially with Liu Qi still being the party secretary. Now that Wang is being promoted into the State Council, Guo Jinlong, who worked closely with Hu in Tibet, will oversee Beijing for Hu. It is almost certain that within a couple of years, Liu Qi will be rotated to a ceremonial post, and Guo will take over the party secretary position. This further fortifies Hu's increasing hold over Beijing. Recently, Wang Anshun, a known Hu partisan, was rotated from Shanghai to Beijing to serve as vice-secretary. Wang may then become the mayor, while Guo becomes the party secretary.


晨报讯 (京报集团记者 汤一原徐飞鹏)昨天下午,市委常委会召开扩大会议,传达中央关于北京市政府主要领导职务调整的决定。中央组织部常务副部长沈跃跃受中央委派宣布中央决定:王岐山同志不再兼任北京市委副书记、常委、委员职务,郭金龙同志任北京市委委员、常委、副书记。中央同意王岐山同志不再担任北京市市长职务,提名郭金龙同志为北京市市长候选人,按有关法律规定办理。中共中央政治局委员、市委书记刘淇主持会议并讲话;中共中央政治局委员王岐山,市委副书记郭金龙出席会议并讲话。

  沈跃跃讲话说,中央对北京市的领导班子建设一直十分重视,这次市政府主要领导的调整变动,是中央从全党、全国工作大局出发,充分考虑北京市的特殊地位和领导班子建设的实际,根据工作需要,经过反复酝酿、慎重研究决定的。近年来,北京市委、市政府在党中央、国务院的领导下,高举中国特色社会主义伟大旗帜,坚持以邓小平理论和“
三个代表” 重要思想为指导,深入贯彻落实科学发展观,团结带领全市人民围绕实现“新北京、新奥运”战略构想,紧紧抓住奥运筹办机遇,求真务实,开拓奋进,开创了首都经济建设、政治建设、文化建设、社会建设和党的建设的新局面。首都经济实现又好又快发展,统筹城乡建设管理取得新成效,精神文明和民主法制建设不断推进,文化事业不断焕发新的活力,和谐社会建设使人民群众普遍得到了实惠。全市上下呈现出人心思进、团结奋进、开拓前进的良好氛围。

  沈跃跃说,王岐山同志是2003年抗击“非典”的关键时期调任北京市长的。近5年时间里,在以刘淇同志为班长的市委班子领导下,王岐山同志团结带领市政府一班人,为北京的改革发展和各项事业的进步殚精竭虑,辛勤工作,贡献了全部的智慧和力量,倾注了大量的心血和汗水,同北京的广大干部群众结下了深厚感情。在党的十七届一中全会上,王岐山同志当选为中央政治局委员,根据工作需要,不再兼任北京市长职务。

  沈跃跃说,郭金龙同志是江苏南京人,1947年7月出生,大学毕业后长期在西部地区工作,在四川工作23年,在西藏工作11年。先后担任四川乐山市委书记、省委常委、省委副书记,西藏自治区党委副书记、常务副书记、党委书记,2004年12月调任安徽省委书记,是十五届中央候补委员,十六届、十七届中央委员。他政治上坚定,政治敏锐性和政治鉴别力强,政策理论水平比较高,在大是大非问题上头脑清醒,旗帜鲜明,与党中央保持高度一致,深入贯彻落实科学发展观,认真贯彻执行党的路线方针政策。熟悉党务和经济工作,领导经验丰富,工作有魄力,驾驭全局能力和处理复杂问题能力强,有强烈的事业心和责任感,工作充满激情,勤奋务实,在干部群众中有较高威信。中央认为,郭金龙同志担任北京市长是合适的,相信他一定会在党中央、国务院和北京市委的正确领导下,团结带领市政府一班人,紧紧依靠全市广大干部群众,开拓进取,求真务实,扎实工作,推动北京市经济建设和社会各项事业不断取得新的成绩。

  王岐山讲话说,在以刘淇同志为班长的市委领导下,我与同志们合作共事、共同奋斗、努力工作,深切体会到北京是一座伟大的城市,发展前景十分广阔,深切体会到北京的干部队伍是一支整体素质高、有战斗力的队伍,北京的各项工作基础扎实,我从心底里感谢全体市民和广大干部的信任和支持,从心底里感谢同志们的关心和帮助。

  王岐山说,当前,北京正处于工业化、城市化、国际化的加速期,奥运筹办工作也进入最后的冲刺阶段,首都改革开放和现代化建设的任务更加繁重、艰巨而光荣。我们要深入学习贯彻党的十七大精神,更加紧密地团结在以胡锦涛同志为总书记的党中央周围,高举中国特色社会主义伟大旗帜,继续坚定不移地贯彻落实科学发展观,不断增强责任感和使命感,以更加昂扬的斗志和蓬勃向上的精神面貌投入到工作中去,努力维护全市安定团结的大好局面,保持全市经济社会发展的良好势头,在新的历史起点上增创发展新优势,推动首都各项工作走在全国前列。我相信,在全市干部群众的共同努力下,“有特色、高水平”的奥运会一定会圆满成功,“新北京、新奥运”战略构想一定会早日实现,繁荣、文明、和谐、宜居的首善之区一定会如期建成。我一定不辜负中央和同志们的信任,加强学习,努力工作,勤政廉政,继续关心和支持北京的工作,衷心祝愿北京的明天更美好。

  郭金龙讲话说,到首都工作,对我是一个新的岗位、新的使命,更是新的责任。我决心学习首都人民、服务首都人民,尽心尽力做好新工作,尽职尽责完成新任务,不辜负中央的信任,不辜负首都人民的期望。在工作中,要深入学习宣传贯彻党的十七大精神,高举中国特色社会主义伟大旗帜,深入贯彻落实科学发展观,始终与以胡锦涛同志为总书记的党中央保持高度一致,讲政治、讲大局,认真贯彻党的路线方针政策,坚决落实中央对北京工作的指示精神,确保中央政令在北京畅通。要深入贯彻落实北京市第十次党代会精神,在以刘淇同志为班长的市委坚强领导下,围绕实施“新北京、新奥运”战略构想,全力办好奥运会,着力推动科学发展,大力促进社会和谐,切实解决民生问题,认真推进“十一五”规划,在新的历史起点上全面推进首都社会主义现代化建设。要深入开展学习实践科学发展观活动,继续解放思想,不断提高对首都工作规律和特点的认识,增强首都意识、服务意识、机遇意识和忧患意识,坚持改革开放,坚持“四个服务”,创造性地开展工作,着力建设服务型政府,努力开创工作新局面。要坚持加强学习、坚持搞好团结、坚持执政为民、坚持廉洁奉公。

  市人大常委会主任杜德印、市政协主席阳安江、市委副书记王安顺讲话表示坚决拥护中央的决定。他们高度评价王岐山同志对北京市改革发展做出的贡献,表示要全力支持、配合好郭金龙同志的工作,为巩固和发展首都又好又快发展的大好局面,办好“有特色、高水平”的奥运会,建设繁荣、文明、和谐、宜居的首善之区而努力奋斗。

  刘淇代表北京市委、市人大、市政府、市政协领导班子表示坚决拥护中央的决定。他指出,中央关于调整北京市政府主要领导同志的决定,充分体现了中央对北京市工作、对北京市领导班子建设的高度重视和关心支持,全市各级领导干部要坚决拥护中央决定,讲政治、讲大局、讲党性、讲纪律,切实把思想和行动统一到中央精神上来,确保市政府主要领导的顺利交接和平稳过渡,共同维护好首都改革发展稳定的大局。

  刘淇说,近五年时间里,在市委的领导下,王岐山同志团结带领市政府一班人,为北京的改革开放和各项事业的进步殚精竭虑,辛勤工作,贡献了全部的智慧和力量,倾注了大量的心血和汗水,同北京的广大干部群众结下了深厚感情。王岐山同志所做的工作,首都人民永远不会忘记。中央决定调郭金龙同志到北京市工作,这是加强北京市领导班子建设的重要决策。相信郭金龙同志到北京工作后,一定能够团结带领市政府一班人,紧紧依靠全市广大干部群众,共同把北京市的各项工作做得更好。

  刘淇指出,当前首都的发展已经进入了一个关键阶段。深入学习贯彻落实党的十七大精神,办好2008年奥运会,做好首都的各项工作,任务十分艰巨。我们要认真学习贯彻党的十七大精神。把智慧和力量凝聚到落实党的十七大提出的重大战略部署和各项重大任务上来,奋力拼搏、锐意进取、扎实工作,全面推进首都的各项工作,不断开创首都工作的新局面。要全力以赴、高水平地做好奥运会、残奥会各项筹办工作。以科学发展观为指导,紧紧围绕办一届有特色、高水平的奥运会这个目标,认真落实三大理念,在奥运会、残奥会筹办工作中突出以人为本,大力弘扬在筹办奥运过程中形成的“五种精神”,精益求精地做好奥运场馆及相关配套设施建设、火炬传递、开闭幕式、竞赛组织、志愿者队伍建设、对外宣传、安全保卫等各项工作,为举办一届有特色、高水平的奥运会、残奥会打下坚实的基础。要在新的起点上推动科学发展、促进社会和谐,推动首都经济社会又好又快发展。要牢牢把握城市定位,切实履行好“四个服务”的职责,全面建设繁荣、文明、和谐、宜居的首善之区。要进一步推动产业结构优化升级,积极推动高新技术产业的发展,着力推动改革开放,以改善民生为重点加强社会建设,健全公共服务体系,切实解决好广大群众普遍关注的民生问题,努力构建和谐社会的首善之区。要以改革创新精神全面加强党的建设,围绕着加强党的执政能力建设和先进性建设这个主线,着力加强各级党组织的思想建设,加强基层党建工作创新,加强作风建设,形成党风廉政建设的合力。

  刘淇最后强调,让我们紧密团结在以胡锦涛同志为总书记的党中央周围,全面贯彻落实党的十七大精神,锐意进取,扎实工作,圆满完成2008年奥运会的各项筹备任务,全力做好北京市的各项工作,让中央放心,让全市人民放心。

  王岐山同志简历

  王岐山,男,汉族,1948年7月生,山西天镇人,1983年2月入党,1969年1月参加工作,西北大学历史系历史专业毕业,大学普通班学历,高级经济师。

  现任中央政治局委员,北京市委副书记、市长,北京奥运会组委会执行主席、党组副书记。

  1969-1971年 陕西省延安县冯庄公社知青

  1971-1973年 陕西省博物馆工作

  1973-1976年 西北大学历史系历史专业学习

  1976-1979年 陕西省博物馆工作

  1979-1982年 中国社会科学院近代历史研究所实习研究员

  1982-1986年 中央书记处农村政策研究室、国务院农村发展研究中心处长、副局级研究员、联络室副主任

  1986-1988年 中央书记处农村政策研究室正局级研究员、国务院农村发展研究中心联络室主任兼全国农村改革试验区办公室主任、国务院农村发展研究中心发展研究所代所长、所长

  1988-1989年 中国农村信托投资公司总经理、党委书记

  1989-1993年 中国人民建设银行副行长、党组成员(其间:1992年9月-11月中央党校省部级干部进修班学习)

  1993-1994年 中国
人民银行副行长、党组成员

  1994-1996年 中国人民建设银行行长、党组书记

  1996-1997年 中国建设银行行长、党组书记

  1997-1998年 广东省委常委

  1998-2000年 广东省委常委、副省长

  2000-2002年 国务院经济体制改革办公室主任、党组书记

  2002-2003年 海南省委书记、省人大常委会主任

  2003-2004年 北京市委副书记、代市长,北京奥运会组委会执行主席、党组副书记

  2004-2007年 北京市委副书记、市长,北京奥运会组委会执行主席、党组副书记

  2007- 中央政治局委员,北京市委副书记、市长,北京奥运会组委会执行主席、党组副书记

  第十五届中央候补委员,十六届、十七届中央委员,十七届中央政治局委员。

  郭金龙同志简历

  中共安徽省委书记,安徽省人大常委会主任。

  1947年7月生,江苏南京人。1969年9月毕业于南京大学物理系。1979年4月加入中国共产党。

  1969年至1973年任四川忠县水电局电力股干部、技术员。1973年至1979年任忠县体委教练。1979年至1980年任忠县县委宣传部理论教员。1980至1981年任忠县文教局副局长。1981年至1983年任忠县文化局局长。1983年至1985年任中共忠县县委副书记、县长。 1985至1987年任省委农研室副主任,省农经委副主任。1987年至1990年任中共乐山市委副书记。1990年至1992年任中共乐山市委书记。 1992年10月任中共四川省委常委。1993年4月在中共四川省委第六届一次会议上当选为中共四川省委副书记(1993年12月免),同年12月调任中共西藏自治区党委副书记。1995年8月在中共西藏自治区委第五届一次全会上当选为中共西藏自治区委副书记。2000年10月任中共西藏自治区党委书记。 2004年12月,中共中央决定郭金龙任安徽省委委员、常委、书记,不再担任西藏自治区党委书记、常委、委员职务。2005年1月,安徽省十届人大会议上郭金龙当选安徽人大常委会主任。 2006年10月,在中共安徽省第八届委员会第一次全体会议上当选中共安徽省委书记。

  是中共十五届中央候补委员,十六届、十七届中央委员。(来源:北京晨报)

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Wednesday, November 28, 2007

Forwarded to me from a colleague. The sad part is that this Wall Street delegation will meet with Wu Xiaoling, who will definitely retire in a few months, and Liu Mingkang, who will likely get a new post in the coming months. Sun Xiaoxia is a relatively low level official. Honestly, I have talked with Chinese officials who are involved in SED on the Chinese side. Frankly, when Paulson first proposed the idea, the Chinese side was completely unprepared for it and thought that it was a waste of time. They totally did not prepare for the first meeting until the last minute by rounding up a few folks from the academia to write a few quick briefs. The Chinese side completely believes that SED is just a political ruse that Paulson cooked up to placate whatever interests he has to placate, so they are playing along, but internally, it has had nearly zero impact (that's not to say that Paulson's own lobbying has had no impact). To open up the financial market, the best thing to do is for firms to keep hiring princelings, the children of the leaders themselves. A call home to mom and dad is infinitely more influential than 100 delegations from ACLI or whatever.

The Hill

Wall St. lobbies Beijing



By Jessica Holzer

November 28, 2007

Lobbyists for the financial services industry are in Beijing this week urging China’s No. 2 central banker and other top regulators to open the country’s banking, securities and insurance sectors to more foreign competition.

The discussions, which will span three days beginning on Wednesday, will coincide with separate meetings between Chinese officials and a handful of Republican and Democratic staff from the House Financial Services Committee.

The lobbyists said they would strike a collegial tone in the meetings by arguing that China stands to gain from allowing greater market access for U.S. firms because it needs foreign expertise to grow its financial sector.

“We are in the position of being on the side of the angels here. If you look at economic history, there’s literally no developing country that was able to make the transition to developed status without creating an advanced capital market,” argued Nick Ronalds, the executive director of the Asia branch of the Futures Industry Association, one of five trade groups that will attend the meetings.

The lobbyists will meet with the vice minister of the People’s Bank of China, Wu Xiao Ling, and the chairman of the Chinese banking regulatory commission, Liu Mingkang. They will also meet with Sun Xiao Xia, the director general of the Ministry of Finance.

The trip is timed ahead of Treasury Secretary Henry Paulson’s and other cabinet members’ visit to Beijing next month for high-level talks on a range of economic issues.

Aside from the futures industry group, representatives from the Financial Services Forum, the Financial Services Roundtable, the American Council of Life Insurers (ACLI) and the Securities Industry and Financial Markets Association (SIFMA), Wall Street’s main lobby in Washington, will participate. The Forum, which represents 20 chief executives from the financial industry, took the lead in organizing the trip.

The lobbyists’ first goal is to convince the regulators to lift the foreign ownership caps in the Chinese financial sector. At present, a foreign firm can own only up to a 20 percent stake in a Chinese bank, and there are similar limits on ownership of Chinese securities and insurance firms.

They will also urge regulators to allow more input from the private sector in the regulatory process and to ease restrictions on setting up new branches and licensing products.

The meetings of the Capitol Hill staff were planned to allow the aides to learn firsthand from Chinese officials about the currency and trade issues straining the U.S.-China relationship, according to a spokesman for the Financial Services Committee.

The trade groups did not organize the staffers’ meetings or fund their travel. The lobbyists said they briefed lawmakers and top administration officials of their trip but did not coordinate with them in any substantial way.

The trade groups argue that allowing greater market access for foreign firms will help China achieve its own goal of spurring more domestic consumption.

Chinese households currently save between 35 and 50 percent of their income. But with more access to insurance, mortgage and banking products, they might consume more and save less, helping to lessen China’s reliance on export-driven growth, the lobbyist argued. That, in turn, could ease tensions with the U.S. over the two countries’ huge trade gap and Beijing’s currency policy.

“One point we will make is that as they modernize the marketplace, that will help the trade imbalance and the currency,” Rob Nichols, the Forum’s president, said.

He added, “We want to be helpful, we want to be a colleague.”

The Chinese market presents a huge opportunity for U.S. financial firms. China lags behind the West in the array of financial and retirement products available to consumers. Chinese firms also lack access to many of the sophisticated derivatives and hedging instruments available in developed countries.

As a result, there is about $2 trillion in “mattress money” in China, estimates David Strongin, managing director at SIFMA, who will participate in the meetings. “We’d like to unleash that capital,” he said.

The lobbyists cited China’s reluctance to introduce more foreign competition in their financial sector as the biggest obstacle. “Domestic participants aren’t necessarily eager to face additional competition,” Ronalds said.

Ben Carliner, the director of research at the Economic Strategy Institute in Washington, said that the Chinese would benefit from more sophistication in their financial sector but warned that the pace of any reforms would be slow.

Internal forces, rather than prodding by foreigners, would spur the changes.

“They’re happy to talk to the Americans who are going there and, if they have something they want, they’ll take it. But they’ll do it because of their own domestic pressures,” he said.

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Tuesday, November 27, 2007

Naughty, naughty, someone has been investing in the Hang Seng stock index futures....like SAFE head Hu Xiaolian, who recently revealed that individual investment abroad should be allowed "in an orderly, controlled, and appropriate manner." This is the kind of comment, in combination to the rally on Wall St. today, that will probably generate a bull run in HK today.....at least some of us hope.

胡晓炼:有序可控适度放宽个人对外投资
2007-11-27 记者:张莫 来源:经济参考报
  本报讯 中国人民银行副行长、国家外汇管理局局长胡晓炼日前在广东省调研时指出,要继

续推进改革,与时俱进,满足境内机构和居民合理的持汇用汇需求,有序可控适度地放宽个人对

外投资。
  8月20日,国家外汇管理局批准我国境内个人直接对外证券投资业务试点,居民个人可在试

点地区通过相关渠道,以自有外汇或人民币购汇直接对外证券投资,初期首选香港。但三个月过

去,港股直通车仍尚未驶出,外界猜测的声音一直不绝于耳。中国人民银行副行长吴晓灵日前曾

表示,港股直通车必定落实,但须先理顺部分措施。
  广东省外汇管理部门与公安部门联合行动,近年来加大了打击地下钱庄和非法买卖外汇的力

度,打掉了多个地下钱庄和黑窝点。胡晓炼对此表示,对地下钱庄的活动空间要具体分析,区分

不同情况,有针对性地采取措施,疏堵并举。对通过地下钱庄进行赌博、走私、逃骗税、洗钱等

非法活动的,要继续加强与公安部门的协作,坚决打击。
  除了坚决打击非法活动,胡晓炼指出,要切实提高正规金融服务的质量和水平,增强其在业

务手续费、时效性等方面的竞争力。要继续推进改革,与时俱进,满足境内机构和居民合理的持

汇用汇需求,有序可控适度地放宽个人对外投资。要加强宣传教育,提高境内机构和居民守法意

识,自觉通过正规金融机构办理外汇业务。
  胡晓炼同时强调,我国现行外汇管理主要是通过外汇指定银行履行代位监管职责,银行在为

客户提供优质服务的同时,也要执行好相关的外汇管理规定,正确处理好管理、竞争和盈利的关

系,为保证国家经济金融安全做出贡献。

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Well, macroeconomic policy is in the air. Caijing just reported on a lending freeze being imposed on a few state-owned banks, including the generous State Development Bank. Goldman Sachs economist Hong Liang reasons that lending freeze is necessary because the 3% "safety zone" interest rate spread between the US and China is being breached by recent US rate cuts and Chinese rate increases. This provides strong incentive for hot money to flow in and thus, requires strong measures like lending freeze. I don't think this is exactly right. The government is using lending freeze because IT IS THE ONLY THING THAT WORKS in China during over-heating. THIS IS WHAT THEY HAVE ALWAYS USED. In fact, monetary instruments like interest rates and reserve requirements HAVE NEVER BEEN EFFECTIVE until arguably the 2004 monetary cycle. Even then, the government had to resort to lending freeze and political blackmail. I include excerpts from my book FACTIONS AND FINANCE IN CHINA explaining the dynamics of lending freeze in the 1994 inflationary cycle.

From Factions and Finance in China: Elite Conflict and Inflation
Victor C Shih
Cambridge University Press

Former Prime Minister Zhu Rongji "...began to reveal his anti- inflationary preference in the spring of 1993. The break came when Li Peng suffered a heart attack and was hospitalized in April, which made Zhu the acting premier. At the end of May, Chen Yun returned to Beijing to coordinate retrenchment one last time (Document Research Center of the CCP CC 2000). With Li Peng in convalescence and Yao Yilin gravely ill, Chen relied on Zhu to carry out the retrenchment. Soon after Chen’s return, Zhu Rongji held an emergency meeting on the economy at the Fengtai Hotel in Beijing, where he invited numerous veteran state planners to provide him political support (Brahm 2002: 17). To the astonishment of his audience of central and local officials, Zhu first announced that the current PBOC governor Li Guixian – a Li Peng loyalist – would be removed from his post, replaced by Zhu himself. Second, Zhu issued the “Sixteen Measures” (shiliu tiao) to constrain inflationary pressure, anchored by strict limits on fixed asset investment, real estate development, lending, the flow of foreign exchange, and the issuance of securities (CCP Central Committee and State Council 1999; Li 1994b). The Sixteen Measures also called for a crackdown on illegal financial institutions and the re-centralization of relending authorities to the PBOC headquarters (Chen 2000b: 553). Most astonishingly, Zhu ordered bank managers to forcefully recall all “irregular loans” to enterprises and 50% of such loans to non-bank financial institutions by 15 August, barely two months from the time of the meeting (Zhu 1999). If Zhu’s centralizing tendency had been in doubt, the Fengtai meeting conclusively put these doubts to rest."

My book also points out that lending freezes don't work all the time; it really depends on the political clout of the lead technocrat:

"Given the mixed signals emanating from the central leadership, it was not surprising that the Sixteen Measures were met with stiff local resistance. In July 1993, the State Council sent out seven work teams to determine the amount of irregular loans in twenty provinces and to ensure that local banks were earnestly recalling these loans before the 15 August deadline. However, the work teams had to contend with recalcitrant local officials in many places. In one case, the local government shut down all the banks, causing depositors to stage large-scale protests, which forced Zhu to give additional liquidity to the province to preserve social stability (Chen 2005: 277). In other cases, work-teams could not find the provincial leadership, who were “out on inspection,” which paralyzed the work teams’ progress (Chen 2005:277). Furthermore, even after the issuance of the 16 Measures, local governments continued to pressure banks for generous loans (Zhu 1999). Strong-arm tactics had allowed Zhu to solve the triangular debt problem quickly in 1991. Nonetheless, Zhu’s earlier effort with triangular debt had enjoyed Deng’s support; these retrenchment measures were subverted by Jiang. According to the Hong Kong press, the PBOC was only able to collect 1/3 of all irregular loans by mid August. Guangdong only recovered 40 percent of the loans, while Hainan collected 50 percent (Lam 1995). "

Work teams, sounds familiar? Wen Jiabao is sending out these work teams to inspect real estate development--good luck!

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Thursday, November 22, 2007


Dear Readers, as some of you may know, my book is on the cusp of publication. I just got advanced copies today, and you can now pre-order it at barnesandnoble.com or amazon.com. The book will ship on December 1st (amazon has the wrong info.) What is the book about? Here is a synopsis:

Factions and Finance in China: Elite Conflict and Inflation
Victor C. Shih
Cambridge University Press

The contemporary Chinese financial system encapsulates two possible futures for China’s economy. On the one hand, extremely rapid financial deepening accompanied by relatively stable prices are both manifestations of a vigorous growth trajectory that will one day make China the world’s largest economy. On the other hand, the colossal store of non-performing loans in the banking sector augurs a troubling future. Factions and Finance in China inquires how elite factional politics has given rise to both of these outcomes since the reform in 1978. The competition between generalists in the Chinese Communist Party and politically engaged technocrats over monetary policies has time and time again prevented inflation from spinning out of control. Nonetheless, elite politicians, whether party generalists or technocrats, continue to see the banking sector as a ready means of political capital, thus continuing government intervention in the banking sector and slowing down reform. Shih shows that elite politics has exerted a profound impact on monetary policies and banking institutions in contemporary China.

Stay tune for a review of the book and excerpts in the coming days!

Comments:
How is it possible that Rick Carew seems to have gotten a copy before you do?(and praised it profusely in the Oct. 2007 issue of FEER)http://www.feer.com/forum/?p=36
 
well, we sent him a proof of it. It did come out too early...
 
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Monday, November 19, 2007

Great article from the WSJ on the new slate of macroeconomic measures: loan freeze. I think there will be non-compliance, especially among local financial institutions.

China Freezes Lending to Curb Investing Frenzy
By James T. Areddy
1457 words
19 November 2007
The Wall Street Journal
A1
English
(Copyright (c) 2007, Dow Jones & Company, Inc.)

SHANGHAI -- Chinese authorities are slamming the brakes on bank lending, in their latest attempt to curb the runaway investment threatening to overheat what is soon to be the world's third-largest economy.

In recent weeks, regulators have quietly ordered China's commercial banks to freeze lending through the end of the year, according to bankers in several cities. The bankers say that to comply, they are canceling loans and credit lines with businesses and individuals.

A China Banking Regulatory Commission official here confirmed that local and Chinese subsidiaries of foreign banks have been asked to ensure that loans at the end of the year don't exceed the total outstanding on Oct. 31. The official described the request as "guidance aimed at supporting the macro-control measures being implemented."

Over the past few years, Chinese authorities have repeatedly sought to rein in investment in sectors such as property development, where they deemed it was becoming excessive. But even in China a blanket edict to halt lending growth is unusual.

Curbing lending by raising interest rates, as China already has done four times this year, would be more in keeping with Beijing's increasingly market-oriented approach to business. But the lending freeze shows how the slowing U.S. economy may be complicating Chinese policy making. Lower interest rates in the U.S. give Beijing less room to push up rates without creating a ripple effect.

By raising rates further China could risk boosting the value of its currency, the yuan, too much for the comfort of its exporters, a critical part of the Chinese economy. A stronger yuan would make Chinese exports less competitive in world markets.

Bankers say they will honor the lending edict, partly because it comes with threats of financial penalties for noncompliance. "Which commercial bank would dare not obey this?" says Liu Haibin, chairman of the supervisory committee of Shanghai Pudong Development Bank Co.

A Bank of China Ltd. official in Suzhou said over the weekend his branch is pushing big corporate loans into next year. An official of the same bank in central Henan province said the new measure in effect extends existing lending controls on property developers and power producers across the board to all banking clients. The measure could pose a particular challenge for the Chinese units of foreign banks, which have less flexibility than their larger local peers.

How much lasting impact the measure has could depend on whether it is extended in some form in January, bankers say.

Even a temporary lending freeze, however, could cast a chill on important segments of the Chinese economy, including the stock market, whose steep run-up over the past year has given rise to fears of a speculative bubble. Though off their highs, Chinese share prices have nearly doubled since late 2006.

The lending freeze doesn't appear directly related to concerns about a stock bubble. Still, it could weaken the earnings of banks and other listed companies and leave less cash for investors to plow into stocks. In recent weeks, stocks have tumbled 15% or so from their record highs on concern China's central bank would lift interest rates or take other steps to cool the economy. China's benchmark one-year lending rate is currently 7.02%.

Less lending also could rein in China's resurgent housing market or hurt consumer confidence. Some companies operating in China, particularly smaller ones, may be hard put to find basic working capital to pay staff or buy materials at year end, bankers say.

"If loan growth were to stop, that would seriously disrupt investment plans and would introduce a high degree of uncertainty regarding financing," says Stephen Green, an economist at Standard Chartered Bank in Shanghai.

It has been three years since Premier Wen Jiabao pledged to deal with "severe" problems associated with rampant credit growth. But despite repeated rate increases, economic data still point to risks that haphazard investment could make the Chinese economy spin out of control and possibly lead to hyperinflation or a spate of bad loans.

Just last week, the government said fixed-asset investment in factories and property expanded nearly 27% in the first 10 months of 2007 from a year earlier, one of the highest rates in recent years.

Gross-domestic-product growth, at 11.5% in the first nine months of 2007, is on pace this year for its fastest rate since the blowout years of the early 1990s, when growth peaked at more than 14%. Soaring food prices and rising fuel charges are sowing concerns about consumer-price inflation -- which in October stood at a decade high of 6.5% -- and risking social discontent.

It isn't easy to predict whether a pause in bank lending so late in the year might dent China's economy. Several bankers said the fourth quarter is generally quiet for lending anyway, and that many banks have already met or even exceeded year-end lending targets. In late 2005 and 2006, regulatory officials backed up rate increases by jawboning bankers to slow lending in the fourth quarter, but bankers say the end result was a rebound in lending in the first quarter of the following year.

Individuals may be less affected than businesses because smaller loans may not raise eyebrows like big corporate working-capital loans. But at least one property agency in Shanghai is advising clients to delay mortgage applications until January.

Meanwhile, a China Construction Bank Corp. official in Shanghai said he is for now rejecting loans for everyone but established clients.

Instead of trying to target lending levels, economists say China could try to damp credit expansion by pushing up interest rates and letting the yuan appreciate against the U.S. dollar, since both adjustments would make borrowers and lenders think twice before committing to projects. U.S. officials, including Treasury Secretary Henry Paulson, regularly deliver such a message, saying a more market-oriented financial system is in Beijing's own interests.

But after its four interest-rate increases this year, the People's Bank of China appeared to question that idea after the Federal Reserve cut U.S. interest rates in September to offset turmoil in the subprime-mortgage market.

Beijing's concern about the stability of the yuan may be the reason, since higher interest rates tend to attract more depositors, an unwelcome prospect for Chinese policy makers keen to minimize enthusiasm for the yuan. A stronger yuan could hurt exporters by making some goods more expensive for buyers paying in dollars or euros.

Beijing may still raise interest rates. It had been tolerating a moderate strengthening of the yuan for much of this year, giving the currency about a 10% gain since a revaluation in mid-2005. But bankers say in recent weeks authorities have nudged large Chinese banks to buy dollars and sell yuan, trades that pushed the yuan down 0.2% last week in Shanghai trading.

The loan freeze may have a particularly disruptive effect on foreign banks with subsidiaries incorporated in China. Foreign bankers occupy just a corner of China's financial system, and they say they are eager to remain on good terms with regulators.

Foreign banks in the important Shanghai market -- including Britain's HSBC Holdings PLC and Standard Chartered PLC, New York-based Citigroup Inc. and Hong Kong's Bank of East Asia Ltd. -- controlled 6.2% of industry deposits at the end of September and more than 16% of loans outstanding, according to official figures.

Because foreign banks have fewer deposits than their more entrenched Chinese counterparts and regulators are already pushing them to keep outstanding loans at 75% of deposits, they have very little financial flexibility. Their earnings could also take a hit if they need to borrow in local money markets or sell loans to comply with the freeze.

Beijing has a long history of dictating policy to banks, which until recently were all state-owned institutions. Regulators have pushed banks to address bad loans held over from government-ordered "policy" lending in the 1990s. Since 2004, authorities have leaned on bankers to curtail lending to particular industries deemed to be squandering investment, including aluminum smelters and small property developers, to avoid another upsurge in nonperforming loans.

In April 2004, the China Banking Regulatory Commission offered "guidance" to banks that they slow new loan approvals. But it quickly backed off when economists complained that the government should treat banks like commercial enterprises, and instead authorities later lifted interest rates for the first time in nine years.

---

Jason Leow in Beijing and Bai Lin and Ellen Zhu in Shanghai contributed to this article.

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