Tuesday, January 29, 2008

Well, it's official, former PBOC governor Dai Xianglong will end his career as the head of the National Social Security Fund, replacing former minister of finance Xiang Huaicheng. I heard that NSSF backed out of some of its securities positions a couple of months ago. I hope that is indeed true, else Dai will come into a mess. Either way though, I would think that he is quite happy with this assignment. Now we see what Wu Xiaoling gets. I am sure she is far from ready to retire at this point.

http://www.sina.com.cn 2008年01月30日11:38 中国政府网





BEIJING, Feb. 15 (Xinhua) -- Non-performing loans (NPL) among the five major Chinese state-owned banks hit 1.11 trillion yuan (about 155.3 billion U.S. dollars) in 2007, up 35.13 billion yuan from the third quarter.

For the five banks, the NPL ratio hit 8.05 percent, 0.22 percentage points higher than the third quarter, the China Banking Regulatory Commission (CBRC) said here on Friday.

The five lenders refer to the Bank of China, China Construction Bank, the Industrial and Commercial Bank of China, the Agricultural Bank of China and the Bank of Communications.

Analysts explained the NPL rebound in the five banks might result from the sub-prime loan crisis in the United States, especially for the Bank of China and the Industrial and Commercial Bank of China.

The crisis has had little effect on other Chinese banks who have little overseas business.

With outstanding NPL standing at 86.04 billion yuan, 12 Chinese joint-stock commercial banks reported a 2.15 percent ratio of NPL last year, a drop of 0.26 percentage points from the third quarter, the CBRC said.

The NPL ratio of city commercial banks declined to 3.04 percent in 2007 from 3.67 percent in the third quarter.
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Ah, Premier Wen finally acknowledges the rock and the hard place that the Chinese economy is trapped in. Granted, it will still grow at at least 8% this year, but asset prices may suffer tremendously. When the market tanks in the US, Bernanke can decrease Fed Funds rates since inflation is relatively low. With a building monetary over-hang from the past few years, inflation is high in China, so even if Premier Wen ever changes his mind about wanting to depress housing and stock prices, OOPS, he can't do it because of inflation! With inflation, he would also have to control prices, which creates shortage and black-outs, thus further harming the export economy.

Wen warns of toughest year for economy

SCMP, Denise Tsang , Jan 29, 2008

Premier Wen Jiabao has warned for the first time that this will be a "most difficult year" for the mainland economy, which is caught between global economic uncertainties and crises at home.

In an unusually direct warning, Mr Wen told a State Council meeting that the rapidly growing nation faced strong headwinds that warranted "scientific democratic policies".

His comments were made last Thursday but released yesterday on the central government's website.

Although Mr Wen did not elaborate, some economists attributed his warning to a looming recession in the United States , the biggest consumer of Chinese exports; a 4.8 per cent jump in the mainland's inflation last year, the sharpest rise in 11 years; and the growing strength of the yuan against the US dollar.

Even natural disasters are plaguing the country at an inauspicious time. Severe snowstorms are sweeping across central and southern China , wreaking havoc on electrical supplies, coal and food, and leaving hundreds of thousands of workers stranded at train stations as they try to make their way home for the Lunar New Year.

"As we [State Council leaders] often discuss, we fear that 2008 will be the most difficult year for the economy," Mr Wen said in a tone that reflected deep concern.

"There are uncertainties in international circumstances and the economic environment, and there are new difficulties and contradictions in the domestic economy."

JP Morgan chief China economist Frank Gong said Mr Wen's comments signalled a change in policy in which the government was expected to spur domestic demand instead of curbing growth.

"They (state leaders) realise they have underestimated the impact of the external slowdown," Mr Gong said.

"This probably will lead to a change of policy from tightening to stimulating the economy."

He expected that Beijing would introduce measures to stimulate consumer spending.

"It was a mistake to say at the end of last year that the [2008] tightening had to be biased towards monetary tightening because the external market deteriorated quickly, obviously much faster than they had thought," he said. "The central government should have given themselves more policy flexibility."

Hong Kong exporters owning factories in Guangdong province have felt the pain of weak US consumer confidence, a stronger yuan, rising production costs and the havoc caused by the snowstorm.

Simon Shi Kai-biu, who runs motor-system manufacturer Sun Motor International in Shenzhen , said there were now three days of blackouts a week in Dongguan, up from two.

This has forced the company into a costly and polluting alternative - diesel-fuelled power generation - to avoid disrupting production.

"Generating our own electricity adds an extra 5 per cent to costs," Mr Shi said. "This is on top of extra costs for providing meals for workers who are not able to get home for the Lunar New Year."

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Tuesday, January 15, 2008

Well, well, just months after the completion of Citibank's acquisition of Guangdong Development Bank, the table has turned, and Citi is going to the Chinese begging for money. Once again, the State Council squashed the deal, further confirming our suspicion that deals above 1 billion USD (and possibly less) needs State Council approval. Well, are we surprised? No, not really. The reason is many. The most important perhaps is that Wen realized that such an acquisition would expose China too much to the badly damaged US financial sector. Of secondary importance, Citibank is definitely lacking in the guanxi department, having been a relatively late comer to China. Losing Wei Christianson to Morgan did not help. Certainly it lacks the extensive network of guanxi that Goldman and Morgan have in China. Once again, Citi might have (once again) underestimated the importance of having a wide network of guanxi throughout the Chinese government beyond just guanxi with the potential partner. Sigh....why can't Citibank learn their lesson?

Wall Street Journal

Barriers to Entry
Blockbuster Investments by Government Funds Lead to Backlash
January 15, 2008

The powerful government-run investment funds of Asia and the Middle East -- which have been gobbling up global assets recently -- are hitting new resistance.

Some obstacles are political in nature. But others center on bottom-line questions about whether investments like these are solid business moves.

The latest example: China's government has apparently squashed a multibillion-dollar investment in Citigroup Inc. by state-owned China Development Bank. The move suggests there is discord in Beijing over how best to deploy China's money pile. A few previous China investments like these have fared poorly so far financially.

In the West, the newfound assertiveness of these pools of government money -- known as sovereign-wealth funds -- is reinvigorating the debate over possible restrictions amid the realization that the West's share of the world economy is shrinking, and with it, control over the ground rules of globalization.

Germany has been looking into new laws to block takeovers by state-owned foreign companies and investment funds. And last week, French President Nicolas Sarkozy vowed to use France's state pension fund to defend French industries "in the face of a rise in the power of extremely aggressive" state-owned investment funds from abroad.

One irony is that "there haven't been any significant investments by sovereign-wealth funds in Germany or France," says Stephen Jen, an economist at Morgan Stanley in London. Nevertheless, the growing size of sovereign-wealth funds in China, Singapore and Saudi Arabia, among other places, means they are potentially in a position to buy major corporations in Europe's leading economies.

Asian and Middle Eastern investors have snapped up significant assets including stakes in Wall Street giants Citigroup and Morgan Stanley as well as the global port operator Peninsular & Oriental Steam Navigation Co. and the iconic Madame Tussaud's Group PLC, operator of wax museums.

It hasn't been without controversy. In 2006, the port deal, in which Dubai Ports World would have acquired U.S. container-port operations, among other assets, raised a political firestorm in the U.S.

The newness of government-controlled investment funds on the global financial stage is sparking worries about their intentions. In Switzerland, activist shareholders in UBS AG, the giant bank, are questioning a planned 11 billion Swiss franc ($9.98 billion) acquisition of a 9% stake by the Government of Singapore Investment Corp. That investment would rank GIC as the single largest investor in UBS.

One concern centers on whether foreign investments like these are sizable enough to "effectively block certain decisions through an informal veto right," says Dominique Biedermann, a director of Ethos, a Swiss activist investment fund. The fund fears that poor turnout at shareholder meetings could artificially inflate GIC's influence.

Current shareholders argue that the investment is structured in a way that dilutes their own holdings. GIC has said publicly that it doesn't seek to control UBS's business and views itself as strictly a financial investor. UBS spokesman Christoph Meier said UBS plans to address Ethos's questions no later than Feb. 27, when UBS shareholders are scheduled to vote on the capital infusion.

China's decision to halt a planned $2 billion investment in Citigroup comes after China's government fund, China Investment Corp., pumped $5 billion into Morgan Stanley in December. Citigroup had hoped to sell its stake to China Development Bank to improve its books in the wake of losses from the U.S. subprime lending as well as Citi's decision to fold off-balance-sheet investments into its accounts.

People familiar with the situation say China's senior leadership decided against backing the investment plan, which had been in the works for weeks.

Citigroup hopes to announce a cash infusion from government funds and other investors today when it is due to report its fourth-quarter earnings. In late November, a Middle Eastern state-controlled fund, Abu Dhabi Investment Authority, invested $7.5 billion in the New York financial-services company.

It wasn't clear why Chinese leaders scrapped the Citigroup investment. Yang Hua, director of China Development Bank's news department, says she is unaware of any plans for the bank to invest in Citigroup, or any government opposition to any such investment.

China's blockbuster investments so far in Blackstone Group LP and Barclays PLC have fared poorly. A $3 billion stake in U.S. money manager Blackstone triggered sometimes angry Chinese public criticism of China Investment Corp., the state fund set up last year to invest a $200 billion pile of China's money. The value of China Investment Corp.'s stake has fallen 31%.

China's government holds controlling stakes or full ownership in almost all its large financial institutions.

Senior Chinese leaders don't necessarily coordinate the operations of firms like these, instead retaining veto power over major moves.

Unlike some other sovereign investors, China is quite new at doing big deals. Only in the past few years has the country's trade surplus exploded, giving it foreign reserves now valued at more than $1.5 trillion.

"Four years ago they could not imagine that they would be in this position," says Arthur Kroeber, managing director of Dragonomics, an economic research firm in Beijing.

In the Mideast, there are few signs so far of unease over the large investments regional players are making abroad. But officials and fund managers say they still worry about the potential for political backlash in foreign countries, along with high regulatory hurdles and a softening economy in the West.

Dubai International Capital, a government-owned investment fund, has in recent years snapped up big stakes in British bank HSBC Group Holdings. But its last big deal was for a stake in Sony Corp.

DIC's chief executive, Sameer Al Ansari, said he is looking more at Asia than the U.S. and Europe these days. That is partly to diversify geographically, he said late last year. But it also reflects worry about U.S. economic and regulatory conditions.

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Monday, January 14, 2008

Well, Li Yuanchao has been a busy boy, vowing to shake up the Central Organization Department. In an editorial in the People's Daily, the author "central organization writer" promised that "honest people will not lose out." We'll see how far this "honesty" push goes!

2008年01月11日07:10 来源:人民网-《人民日报》

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How much sincerity do you think he has; and how much success do you think he will have?
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Thursday, January 10, 2008

Dear All,

Here is a new review of my book, Factions and Finance in China, from Bradley Gardner at the China International Business Magazine blog called The Yuan Also Rises. He did a great job summarizing my argument, and the review is quite kind. And yes, there is a soap opera aspect to elite Chinese politics, but that is why we love it!

Factions and Finance in China: Elite Conflict and Inflation
January 8, 2008 – 8:25 pm

Victor Shih tries to answer the elusive question: how does Chinese monetary policy work?

Factions and Finance in China, though an academic work both in price (USD 85) and structure (it was based on Northwestern University professor Victor Shih’s doctoral dissertation), reads like a soap opera.
Shih argues that the peculiar nature of inflationary cycles in China, which feature sudden run-away inflation followed by quick returns to normalcy along with the absence of credible monetary policy, is a result of conflict and cooperation between two segments of the ruling Chinese Communist Party (CCP) – the leading generalist faction and economic technocrats. The interaction between these two groups, Shih argues, is key to China’s continued economic and political stability.

The three generalist factions that feature prominently in Shih’s narrative are those led by Deng Xiaoping, Jiang Zemin and Hu Jintao. The support base for these factions largely comes from provincial leaders, who require high rates of growth in order to advance their careers. Shih argues that it is not only preferable, but a political necessity, that the leaders of generalist factions push resources towards their provincial followers in order to shore up support. The decentralized monetary policy quickly leads to expansion of the money supply and high inflation, which can only be solved by the technocrat factions.

The technocrat factions, led by Chen Yun, Zhu Rongji and Wen Jiabao, advocate centralization of monetary policy, because they need large financial resources in order to accomplish the major economic goals which are necessary for their advancement. According to Shih, when inflation is taking over the economy and creating a political risk for the leading generalist faction, they hand over control of monetary policy to the technocrats, who are not powerful enough to wrest political control of the country out of the hands of the generalists, but are more effective than the generalists at stopping competing factions from excess spending. Once the crisis is over, this cooperation stops as well, as the generalists fight once more to wrest control of the economy from the technocrats.

Shih renders the dynamic between the two groups dramatically: when Deng Xiaoping is calling for faster growth at one point, Chen Yun snipes from the sidelines “five percent growth is neither small nor simple;” Deng follower Zhao Ziyang at one point calls Brazilian-style inflation (over 100% yearly) “acceptable;” Chen Yun makes ample use of corruption investigations to increase his political strength, and the technocrats let the generalists run the economy to the brink of economic collapse in order to gain full control over monetary policy. Three of the nine chapters are completely dedicated to describing the melodrama that is Chinese monetary policy, and provide more inside information on the decision making processes of the Chinese government than you will find almost anywhere else. The book will help anyone who has been struggling to understand how Chinese monetary policy with only a knowledge of conventional central banking.

Though Shih seems to have a grudging respect for the way CCP infighting has succeeded in controlling runaway inflation, he warns that it has wreaked havoc on the banking system and is largely unsustainable. Both the generalists and the technocrats have used the banking system for their own political purposes, leading to a continual problem with non-performing loans. Shih is not optimistic either about successful reform in the coming years, arguing that control over the banks will most likely only leave state hands in the case of a severe economic shock.

Though the thesis is convincing, and Shih provides overwhelming evidence that the political dynamic he describes has existed in the past and has reason to exist in the future, the time period under investigation is too short to provide enough evidence to fully support his largely pessimistic conclusions. Shih admits that thus far Hu Jintao and Wen Jiabao have cooperated rather extensively, as Hu needs to protect his position from the followers of Jiang Zemin, which leaves the only evidence for the consistency of this dynamic Jiang’s switch from a more moderate position to a strong supporter of decentralization once he needed to consolidate his power in the regions. Shih argues that Hu and Wen will replicate the pattern of the previous two generations (Deng vs. Chen, Jiang vs. Zhu), and his model strongly supports this argument, but there are plenty of reasons to suppose Hu and Wen would find a reason to continue cooperating (such as a continued threat from Jiang), and likewise continued hope that leadership would see the benefit of continued economic reform.

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Wednesday, January 09, 2008

Well, first Q inflation will continue to be robust, and the State Council has rolled out another series of price freezes. This is not going to work, since such price freezes usually result in a spade of "scheduled maintenance" at refineries operated by Sinopec and Petro China, which causes shortage. I think we will gain see truck lines in Guangdong next to gas stations. Also, this shows again how unsuccessful macroeconomic control has been. Facing Wen and the State Council is an increasingly powerful real estate investment lobby that cautions against overly restrictive macro policies. I am not sure who is behind this lobby, but they are powerful. For one, while Wen said that real estate prices were on the top of his agenda in Singapore, the central economic conference right afterward did not mention inflated asset prices as a top worry for the regime. Someone is probably singing a different tune in the Politburo. If I had to take a wild guess....the princelings.

January 9, 2008

China, Fighting Inflation, Freezes Energy Prices

BEIJING — Prime Minister Wen Jiabao responded Wednesday to growing public anxiety about inflation by announcing that China would freeze energy prices in the near term, even as international crude oil futures have topped $100 a barrel.

The move to hold down prices came as inflation hit an 11-year high in China. A recent nationwide public opinion survey found that “rising prices of consumer goods” ranked as the top public concern, followed by income inequality and corruption.

The freezes, announced on the government’s main Web site, followed a meeting of the State Council led by Mr. Wen on Wednesday to revise policies on price controls.

Prices of oil products, natural gas and electricity will be frozen in the near term. Rates for public water bills will be frozen, as will the cost of public transportation tickets.

The edict also called for stabilizing prices on medical services and for certain agricultural fertilizers. It ordered local governments to closely monitor prices and warned that punishments would be strengthened for those who violate government price control policies.

Ben Simpfendorfer, an economist with the Royal Bank of Scotland in Hong Kong, said the announcement underscored how seriously the State Council regards public attitudes toward inflation.

“The State Council is worried about public sentiment,” he said. “They are worried that rising prices will have a negative impact.”

China raised gasoline prices by 10 percent in November after state-owned refineries, complaining that price controls were forcing them to accept higher world crude oil prices, cut production, causing long lines at fuel stations around the country.

But the November price increase helped drive consumer prices up 6.9 percent from a year earlier — a figure that represented an 11-year high.

“It was a shock,” said Mr. Simpfendorfer.

Now, oil futures have continued to rise on world markets and Chinese refiners are again raising the same concerns. Again, lines are forming at service stations, particularly for truckers in southern China.

Even Wednesday’s announcement hinted that domestic price increases might be inevitable later this year in response to world markets.

“Prices of crude oil, grains and other primary products are still rising on the international market, and China faces relatively large pressures of further price increases,” the announcement on the government Web site said.

For ordinary Chinese citizens, inflation has emerged as a major concern. Last year, food prices rose roughly 12 percent, eliciting an often angry public response. More recently, prices for eggs and pork have fallen, though flooding in farming regions of central China damaged vegetable production and kept those prices high, Mr. Simpfendorfer said.

Last week, the Chinese Academy of Social Sciences released a national survey that found 30.5 percent of respondents considered inflation the country’s top problem. Stories about the urban poor struggling with rising prices have become common in the Chinese media.

China’s rapid economic growth has been fueled by rising demand for oil, coal and other energy sources.

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Tuesday, January 08, 2008

Sigh...in Chinese politics, one day you are somebody, the next day you ain't. That's what happened to Forbes most powerful financial player in China, the vice governor of the PBOC Wu Xiaoling. Due entirely to age, she retired just a few days ago. The below article pays tribute to her, but also contains some interesting vignettes of Wu. For example, she was on the verge of giving birth in Inner Mongolia when the Red Guards came after her. I had no idea that she had a kid. Who is the father? She is a princeling? Well, regardless, she claims that she will keep her life "colorful" in the future. We'll see what awaits her.


















  1947年1月出生的吴晓灵,与其他很多同龄人一样,高中毕业后没有机会走进大学课堂,而是到内蒙古插队。但正如她在一次讲座上说的那样, “机会永远属于有准备的人”。上山下乡期间,吴晓灵没有放松学习。因此,在恢复高考的第一年,吴晓灵顺利考上了大学。1981年,她成为中国人民银行研究生部招收的第一批学生。











  成功奥秘: 勤奋+好学

  进入央行后,从履历上看,吴晓灵的路可谓顺风顺水:研究所应用理论研究室副主任,参与创办《金融时报》,并于1988年任副总编辑;历任金融体制改革司副司长、 政策研究室主任、国家外汇管理局副局长、局长、中国人民银行上海分行行长;2000年2月起,任央行副行长。











  “世界上没有第二个女人在中国财经界的影响力超过吴晓灵!” 2006年,美国《福布斯》公布的“2006年全球最有影响力的女性”排行榜,将吴晓灵位列第二,并如是评价。2005年,吴晓灵被《华尔街日报》评为“2005年度全球最受关注的50位商界女性”之一。






  1998年亚洲金融危机爆发后,人民币面临着巨大的贬值压力。身为国家外汇局第一任女局长,吴晓灵当时面临的挑战可想而知。在外汇大检查后,吴晓灵9月29日在国务院新闻办召开了一场新闻发布会。面对满场的中外记者,吴晓灵铿锵有力地强调,决不能放任外汇的非法流动,开展外汇大检查是必要的。 “我国资本项目实行严格管制,只要控制住资本项目下的资金流动,汇率稳定就有了保证。因此,采取措施保持资本项下资金合法流动,打击非法资金流动,从而保持人民币汇率稳定,不仅是中国也是全世界的根本利益所在。”





























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Thursday, January 03, 2008

As expected, PBOC vice governor Wu Xiaoling stepped down from her post. Unlike Wu Yi, who is also going to step down soon, Wu Xiaoling did not tell anyone to "forget about me." We will see where she ends up next. In her place, and also replacing Xiang Junbo (who departed for the Agricultural Bank of China), are Ma Delun (top) and Yi Gang (bottom). Of course, the most noteworthy aspect of these appointments is that Yi Gang is a "sea turtle" as he received his Ph.D. from the US (U of I Urbana Champagn) and was a tenure track professor (like myself!) at Indiana University before being persuaded to return to China. The latest development clearly shows that his decision was not regrettable. Whatever one may say about Zhou Xiaochuan and wherever he may end up, he certainly nurtured and in many instances protected "sea turtles" in the PBOC, and Yi is a testament of it. We are still awaiting to see if Zhou is going to be replaced. The word is that he will be replaced by Shang Fulin, a veteran central banker who has been lusting after the governorship for quite some time.

http://www.sina.com.cn 2008年01月03日 10:52 中国人民银行网站

















  男, 1958年出生,经济学博士。

















  马德伦:分散银行风险 扩大直接融资规模和比重









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Wednesday, January 02, 2008

Now we know the outcome of the last major provincial rotation. Current vice secretary of Guangdong Liu Yupu will now be the party secretary of Shenzhen, despite widespread rumor that former Wen Jiabao secretary Lin Xiong would serve in that role. Regardless, the outcome is the same. Liu is a Hu Jintao implant into the Guangdong party committee from the early 2000s. He was in the standing committee of the Communist Youth League and will keep Shenzhen under strict control of Hu, but will Hu and Wen necessarily cooperate fully on retrenchment?

http://www.sina.com.cn 2008年01月02日11:30 红网 (来源:奥一网)

  南方都市报记者和南方报业传媒记者王茔、张国栋等11点12分在现场发回报道 刘玉浦同志同时被提名为深圳市人大常委会主任人选。

  南方都市报记者和南方报业传媒记者王茔、张国栋等11点09分在现场发回报道 今天上午11点的深圳全市领导干部大会,广东省委常委、省委组织部长胡泽君宣读了中央和广东省委对刘玉浦同志的任命决定。

  奥一网1月2日快讯 在今天上午11点召开的深圳全市领导干部大会上,广东省委常委、省委组织部长胡泽君宣读了中央和广东省委对刘玉浦同志的任命决定,中央候补委员、广东省委副书记刘玉浦被任命为深圳市委书记。而前任深圳市委书记李鸿忠已经调往湖北出任湖北省代省长。

  在此之前,刘玉浦同志担任广东省委副书记、省委党校校长和省政法委书记。刘玉浦同志有长期的基层工作,并且在担任陕西省工作期间一 直主抓经济工作,还曾获得过中央党校研究生院世界经济专业硕士学位。





  男,汉族,1949年8月生,山东泰安人,1971年10月入党,1968年9月参加工作,中央党校研究生院世界经济专业毕业,中央党校研究生学历 。


















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