Saturday, January 24, 2009
Princelings in the Limelight
I have noticed a trend in the People's Daily website since the 17th Party Congress--princelings, the children of Chinese leaders, are increasingly bandying their "blood" credentials in various stories. You see interviews with princelings recounting their memories of their fathers displayed prominently on the website. Even Mao Xinyu, the grandson of Chairman Mao (left), is trotted out frequently. The latest item goes too far, I think. First of all, instead of "princelings," they are now called "red descendants." Eh, doesn't that sound a bit like the "blood line theory," which dominated early Red Guard discourse back in the Cultural Revolution (slogan: father a hero, son good man; father reactionary, son turtle's egg). These "red descendants" are collectively wishing the Chinese people happy new year. Great! So now it's officially okay to admit that "red descendants" is a coherent social group, one that is to be admired by the people.
Although this may sound trivial, but Deng Xiaoping would never, ever have allowed this. Back in the 80s, strict rules were observed to hide the identities of princelings and to disregard any personal ties between fathers and off springs. Of course, people still used connections to get their children plum jobs. However, princeling status had no legitimacy or social standing. Princelings used to hide their own identities to all but the closest friends. Now all of these ties are bandied about casually and endorsed officially in the press as "red descendants." Even Bo Xicheng, Bo Xilai's elusive brother, makes an appearance. Look, this looks suspiciously like the princelings' play at building up more legitimacy for themselves in preparation of Xi Jinping's takeover. It is sad to see because Chen Yun and even Xi Zhongxun himself would never have allowed such abuse of these ties in the public discourse. Where is Song Ping when you need him?
毛泽东之孙：毛新宇 周恩来侄女：周秉德 刘少奇之女:刘亭 朱德嫡孙：朱和平
任弼时嫡孙：任继宁 彭德怀侄女:彭钢 贺龙之女：贺晓明 陈赓之子：陈知建
sounds like good old imperial houses to me.like orwell wrote in animal farm.
do these "red descendants" have to pass exams before becoming govt officials?
or is that also "kow tim" via $$$ and bloodline?
Wednesday, January 21, 2009
Well guys, despite rather sympathetic coverage by the Legal Daily, perhaps the product of a thick envelope from lawyer, former Vice Mayor of Beijing Liu Zhihua will get a suspended death sentence due to "well grounded, sufficient" evidence. At least he won't be carted to the executed ground immediately like Cheng Kejie. In two years, perhaps for "humanitarian" reason he will be moved to the general prison population.
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Monday, January 19, 2009
A piece on today's People's Daily confirms my previous observations that Wen now ONLY cares about maintaining growth. I especially like the phrase "issue loans as soon as possible." Sure, there were some pleasantries at the end to "in the end preserve the healthy functioning of banks." But "in the end," we are all dead...
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However, in reading that book, my impression was that the conflict between the "technocrats" and the "populists" was a *good* thing, as it maintained a balance between competing and conflicting economic objectives, whereas I seemed to get the impression that you thought the technocrats were right and the populists were wrong.
The reason I think the populist-technocrat balance is a good thing comes from the current situation. If the technocrats stay in charge, then I think that there is a good chance of a deflationary spiral followed my massive social unrest leading to a general institutional breakdown of the type that killed Russian or Latin American economic growth. On the other hand, if the technocrats weren't in control over the last few years, then we wouldn't have gotten the NPL's from the early-1990's down to managable size so that the banks can open up the vaults now.
And the fact that each has to live with the other group means that there has to be some tolerance of disagreement within the political system, which means that you get some of the dynamics of multi-party democracy within a one party framework.
Li Keqiang (as premier) then gets a clear run against Xi Jinping?
Sunday, January 18, 2009
Without even a nice note to public share holders, Chinese banks are in the process of reversing years of progress and is reverting back to state banks in a planned economy. Granted, socialism is the economic system of our time. However, unlike elsewhere, the Chinese government, which is the majority shareholder of most of China's banks, is directly ordering banks to finance a large part of the economic stimulus. The interest of minority shareholders, who care about profit, is increasingly taking a backseat. Shareholders at the very least deserve some clarification on how the promises from a few years ago that Chinese banks will commercialize are being systematically undermined. A note should look something like this...
Dear Chinese Banks Shareholders,
We wish you a prosperous new year of the ox! First of all, thank you for having so much confidence in our ability to transform ourselves into commercial entities. We really worked hard at it! The multiple bailouts we received from our majority shareholder, the Chinese government, helped a lot, but we have also restructured credit approval process and trained our managers in risk management in the past decade. Non-performing loan ratio fell to a historical low of less than 3% at the end of December last year. We wish we could say that we are continuing down this path, but we have some bad news.
As you know, the world economy and China are facing hard time. Export from China dropped for two months in a row, and our majority shareholder, the Chinese government, is worried about unemployment and social instability. So, they told us to forget about risk and profit and to focus on pumping money into the economy. Even our really tough regulator, the CBRC, has hold us to not worry so much about non-performing loans and profit. Well, they are the bosses, so we really don't have any choice but to follow their directions. We hope you understand our predicament.
You have probably heard of the 4 trillion RMB stimulus package launched by the central government. We are going to finance about half of it. By the way, the central government has ordered us to provide 1 trillion RMB of it before the end of February because they want the money out there as soon as possible. As you can understand, even if we don't sleep for the next two months, we won't have time to conduct careful risk evaluation on these projects in such a short time! Well, we don't have to look too carefully since these projects will be guaranteed by the central government. We will place these projects on a "green passage" for quick approvals and just cross our fingers and hope that these loans will not default.
That's not all though. Local governments all over China are clamoring for loans from our branches. They want us to help them finance over 20 trillion RMB worth of local projects. Yes, we know that most local governments run annual deficits and would have a hard time paying back loans. We are trying very hard to say no to them. But you know, our majority shareholder, the central government, has told us not to say no all the time because it would be selfish to do so. Well, we will say yes to most of the requests from provincial and major municipal governments. Even if we have doubts about their proposed projects, we are pretty sure that the central government will bail out provinces if they run into major financial trouble--we are hoping at least. We know this is not what you want to hear, but again, we have little choice in the matter.
Then, a couple of weeks ago, we got a strange order from our regulator the CBRC. Before, they were very tough on us and were constantly telling us to be very careful about risky borrowers. However, it seems they changed their minds completely. In the decree, they told us to lend to firms which are in financial trouble due to the global recession. We couldn't quite believe what we were reading, but our regulator is now telling us to find firms in trouble and give them loans. We got a bit confused because we had been told to only lend to healthy firms with good balance sheets and cash flow. Things must be really changing.
The property sector is also not doing very well. Because we got a bit greedy in 2007 and gave real estate developers and speculators willing to pay higher interests many loans, we are a bit worried that they will stop paying us back. In fact, many of them have done so already, and many of us have had to increase provisioning to deal with rising defaults. Sorry, this means less profit into the forseeable future. Relatedly, the central government has urged us to automatically refinance all of our mortgage assets at 30% lower interest rates. Of course, they want to boost consumption and possibly decrease delinquencies. But you see, this will mean less profit for us and for you, we are sorry to report.
If you haven't sold our shares yet, you are probably thinking about it. We don't blame you because we have really taken some large steps backward. Here is maybe some good news. Our majority shareholder, the central government, does not want to see our share prices go into a free fall. So, they are using their giant foreign exchange reserve to buy up bank shares to support their prices, albeit at a pretty low level. Share prices may be maintained, but we foresee declining profit and possibly significant losses for some of us in the medium future. Our majority shareholder will just buy up more and more public shares, we suppose. Pretty soon, maybe we won't need to write this note to our public shareholders any more.
Listed Chinese Banks
P.S.: If you don't like what we are doing then you can kindly buy shares of a Western bank, who are in worse shape than we are, and are going to be forced over the next few months by their governments to be doing exactly what we are being forced to do right now.
We know that we have had our difficulties in the past, but your experience as a minority shareholder in a state-run nationalized bank will no doubt come in handy when Western governments start nationalizing their banks and turning them into state-run entities.
That is of course assuming that there is any shareholder equity left in any of their banks once all of the losses come out, or that when Western government nationalize their banks, they don't end up massively diluting if not totally eliminating the value of the shares you bought before the nationalization.
To be fair, anyone who bought shares of these banks should have knowm that this could happen. I don't know what exactly they tell them in the small print of the contracts, but it was obvious that these banks (like most of the large Chinese companies) wil do exactly what the government tells them to do.
I'm confused as to why the CCP thinks this strategy will work for them when it didn't work for the US.
What happens next depends on the specific projects that the new credit is directed to. If people just build luxury condos and infrastructure, this is bad. However, if the credit is directed at small and medium enterprises and ruraldevelopment, this may be a good thing, even if it increases the NPL rate, provided that there are enough reserves and government guarantees to absorb the NPL's.
A lot depends on what one thinks the US did wrong. Personally, I think that the US was correct in 2001-2002 in expanding the economy, but the mistake was a) a hands off policy that caused credit to be directed at mortgage construction and b) not having sufficient reserves to absorb the NPL's.
At this point in the game, there is going to be an increase in NPL's unless someone comes up with some other idea to provide stimulus and avoid unemployment. "Let the workers riot" is not a politically acceptable option. So if there is going to be an increase in NPL's, we just need to bite the bullet and try to manage that increase, and mitigate the consequences of NPL's.
The other thing is that we really are in the wilderness. Up until mid-2008, "do what the US is doing" was an option, but it isn't now since the US has exactly the same dilemma. If the banks don't loan, then the economy will contract. If the banks do loan, then they will end up with non-performing loans that will kill already weak balance sheets.
My prediction is that the US will find itself in a few months forced to do what China is doing now, but I'd be interested if it tries something different.
The one good thing about Chinese banks is that there has been so much progress at dealing with the NPL issue, that they have some room to maneuver.
The NBC pundits are dead wrong again. This is not the bottom of the recession. Its not the beginning of a true recovery. Its only a brief period of optimism or the beginning of that short and shallow revival. There will be some positive signs over the next year or so amoung the negative. But they will not lead to a true recovery. Our leaders may claim to end the recession in 2010. If that claim is made, it will be based only on that short and shallow (printed) revival. It absolutely will not last. I stand by my predictions made earlier this year. Obama's efforts are revolutionary but they are too little too late. He will have no choice but to acknowledge a severe US depression by the end of his first term or shortly thereafter. Every major economy in the world will be in depression by 2015.
The NBC pundits (Chatzky and Wong) are bound and determined (paid) to plug their coorporate sponsors and perpetuate the 'multiple credit card' lifestyle. Their claim is that you need more than one to build reasonable credit, finance a home, and be relatively secure financially. THAT IS ANOTHER FLAT-OUT LIE. The industry is simply too corrupt and predatory to deal with. It has been for at least 20 years. The use of 'multiple credit cards' is simply too risky, addictive, complicated (check that fine print), and ultimately expensive. In the vast, overwhelming majority of cases, the 'multiple credit card' user has ended up further in debt year after year after year. Their credit was built to some extent on a temporary basis and their ability to repay loans was diminished gradually right along with their bottom line. They ended up paying as much or more in finance charges as they did on principal. That is OBSCENE. Now, their net worth is way down. Their ability to get out of debt f#$&@#. That 'credit' didn't get them anything but F#$#@#. Still, those NBC pundits (liars) have the nerve to perpetuate that 'multiple credit card' lifestyle as if it were ever legit or necessary to begin with. It wasn't. Until two years ago, one could have built reasonable credit with a stable income, a checking account, a savings account, one secured credit card, one loan for a used car, one loan for a new car, and a reasonable downpayment. Until recently, that was enough credit to get a first home loan. Now, the economic boom is OVER. The majority are F#$&@#. Its only going to get worse. A LOT WORSE. The window for ordinary (decent) people to stake their rightful claim is closing fast. They better get out of debt soon and well prepared for the comming US/global depression. It will be catastrophic. Under these circumstances, it is downright reckless and irresponsible to promote more use of credit cards. Only a calculated PIG with an ulterior motive would have the nerve. The 'multiple credit card' lifestyle wasn't the only cause of this economic crisis but it was a contributing factor. Another vehicle amoung many to transfer wealth from poor to rich. Which again, is the single greatest underlying cause. IT WILL BE OUR DOWNFALL.
Wednesday, January 14, 2009
来源：南方都市报 2009-01-15 07:50:27 作者：
2004年2月，米冬洪从技校毕业，到深圳进入的第一家公司，便是韩企三星集团。在这里，米冬洪用一年的时间，从一名普工“晋升”为叉车工。 2006月，他胜利跳槽至名气更大的沃尔玛公司，薪水从原来的1400元猛增至1800多元。工作几个月后，又一次机遇向他招手。公司8个叉车工联合，打算到深圳技能培训中心学塔吊。“在盐田港，一个塔吊工一个月至少拿4500元，多的有600元。”米冬洪那时觉得，实现留城的梦想其实并不是遥不可及，“ 只要能吃苦，只要能抓住机会”。由于没有机械实际操作学习，塔吊最终没有学成；但这把火给米冬洪燃起的希望越发烧得旺了起来；直至有一天，他最终不得不突然离开深圳。
采写：本报记者 周松柏 张艳芬 涂峰 肖海坤
Monday, January 12, 2009
China to Tolerate Increase in Bad Loans, Relax Lending Rules
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By Philip Lagerkranser
Jan. 12 (Bloomberg) -- China will tolerate an increase in bad debt this year as it eases rules governing bank lending to prop up an economy that’s slowing faster than expected, the nation’s banking regulator said.
The China Banking Regulatory Commission will drop its target of reducing the balance and ratio of bad loans after five years of declines, and instead aim to prevent a “massive and rapid rebound” in soured debts, Chairman Liu Mingkang said in Beijing today. A transcript of his speech was obtained by Bloomberg News.
Looser requirements may fuel concerns about a surge in bad loans, four years after China finished a cleanup of its banking system that cost more than $500 billion. Lenders will likely face weakening asset quality, rising defaults and “significant” constraints on profits in 2009, Standard & Poor’s said Jan. 7.
“What we’re concerned about is whether banks will, under government interference, boost lending without properly recognizing the risks,” said Liao Qiang, the rating company’s Beijing-based analyst, in an interview. “Governments tend to relax prudential regulatory requirements in difficult times. The key is how banks” react.
Measures to boost credit include allowing banks to lend to businesses afflicted by “temporary” financial woes due to the global recession but with sound fundamentals, Liu said. Lenders can also “restructure” loans and “scientifically” adjust the types and maturities of debt, and the regulator will support the sale and securitization of loans, he said without elaborating.
Industrial & Commercial Bank of China Ltd., the world’s largest bank by market value, and competitors have said they’ll increase lending as part of the government’s $590 billion stimulus package, announced in November. China’s biggest banks are all state-controlled.
Chinese banks extended 740 billion yuan ($108 billion) of new loans in December, the most since January 2008, the Shanghai Securities News reported today, citing unidentified people.
The CBRC encourages lending to fund small and medium-sized businesses, mergers and acquisitions among large companies, as well as credit for automobile and home appliance purchases, according to the transcript.
“The downside risk to the Chinese economy is even worse than anticipated,” Liu, 62, said in the speech. “The 8 percent growth target is of great importance, but an exceptionally arduous task.” Liu last month said expansion of 7 percent or less could trigger social instability.
China’s economy will expand 7.5 percent this year, the slowest pace in almost two decades, as the global financial crisis worsens, the World Bank predicts. Exports probably fell the most in a decade in December even after the government increased rebates, pledged more export loans and stalled currency gains, according to economists surveyed by Bloomberg News.
The regulator will have “reasonable tolerance” for rising bad loans, Liu said. Shrinking corporate profits and interference by local governments have “seriously” reduced borrowers’ willingness to repay debts, he added. Banks cut their average bad-loan ratio to 5.49 percent at the end of September, from 6.3 percent six months earlier.
Still, the CBRC will “strictly” ban companies from taking up new project loans to repay existing ones, and prohibit bundling of non-performing assets into securities, according to the transcript. Banks aren’t allowed lend to production projects before the investors get relevant approvals, Liu said.
The regulator will also broaden the channels for banks to boost capital and urge them to increase provisions, Liu said without being more specific.
The banking regulator on Jan. 10 said it would “allow qualified small and medium-sized banks to moderately exceed the loan-to-deposit requirement.” Chinese lenders are required to keep outstanding loans below 75 percent of their deposits.
Friday, January 09, 2009
"Will job losses lead to social unrest?"
Victor Shih | Jan 9, 2009
Today, there was a note written by Wang Tao at UBS with the above title. The question is a crucial one today because bullish sentiment for China depends almost entirely on the Chinese government's ability to prevent large scale social instability. The conclusion of the piece was that "large-scale unrest that threatens general social stability and overall investor confidence is unlikely." The arguments sound quite reasonable:
1. Job losses will only be about 15 million, or 3.5% of non-agricultural employment.
2. Migrant workers, who are hit the hardest, can't organize effectively anyway.
3. China weathered the last wave of unemployment, which saw unemployment level at around 35 million, with little difficulties in the late 90s. And, China had less money back then.
I have no issue with argument #3. Indeed, though ugly, China weathered the unemployment wave in the late 90s with only scattered protests in a smattering of cities in the northeast and the interior. All in all, not so bad (well, it was bad for the unemployed!).
However, I find the 15 million figure highly unlikely, even for now, much less for 2009. A Ministry of Labor and Social Security official revealed recently that some 10 million migrant workers have already been laid off and returned to the countryside. It seems extremely optimistic to say that total unemployed migrant workers in 2009 will be 15 million. Let's start the calculation again.
First, total migrant labor population in 2007 was about 140 million. I think global recession and partial rebalancing will impact at least 20% of the migrant labor population. This makes about 28 million migrant workers unemployed in 2009. On top of that, education officials revealed recently that only 70% of the 6 million or so college graduates found jobs in 2008. This leaves unemployed college graduate population at 1.8 million. In 2009, I expect things to be much worse, so at least 50% of college graduates will be unemployed, creating another 3 million or so college educated unemployed. For the Chinese government, this is the most dangerous ingredient since it was collective action by college students that led to systemic political trauma in 1989. To prevent recurrence, the central government will likely roll out a scheme to pay for the living expenses of almost all unemployed college graduates. I think my students at Northwestern would have wished for that policy too!
So, we are up to 33 million unemployed already, nearly the highs in the late 90s. If we add a couple million more from layoffs from urban private and FIEs, we would have an unemployed force of at least 35 million. I would not be surprise if at the end of 2009, we see an unemployed labor force of 50 million. To be sure, if we believe in the other arguments that Ms. Wang puts forth, we would not see a major problem. At the extreme, the central government would simply roll out subsidies that pay for the living expenses of every unemployed person. Even if the unemployed force reaches 50 million, the Chinese government would only have to pay (50 million*100dollar*12 months) 60 billion USD (408 billion RMB). That is a substantial sum, but China can surely handle it for two to three years, suffering perhaps slightly lower credit ratings. However, the notion that migrant workers have less ability to act collectively is unfounded based on everything that we know about unrests in China. All of the rebellions in Chinese history were led and carried out by peasants, including the one that put the current regime in power. Besides 1989, the largest domestic disturbance took place in rural Renshou County in the mid 90s, which saw the deployment of tens of thousands of troops. Furthermore, unlike the layoffs in the 90s, which mostly affected middle-age or elderly SOE workers, the current wave of layoffs affects a young and vibrant cohort most capable of carrying violent collective action against the state. Without any systematic triggers, we at least will see a spike in localized riots which necessitate the mobilization of People's Armed Police (PAP) units all over China. The central government would also be compelled to (and they are doing so already) roll out generous unemployment benefits for migrant workers and college graduates (to the tune of 300-400 billion RMB). If a systematic trigger occurs and instability spreads to a sizable city, we will see the large scale mobilization of both PAP and army units and possibly substantial bloodshed. In most scenarios, the CCP regime would still survive a large scale, cross regional rebellion. However, "overall investor confidence" will be lost.
What is the "systematic trigger" which I refer to? I don't know exactly what it would be. However, if we look back in history, it can be a wide range of events, including the death of a popular leader, a serious natural disaster, the spread of a deathly infectious disease, a small student demonstration turned violent, religious groups....etc. The point is that there is an interactive effect which is quite harmless when unemployment is low (as shown last year). However, when unemployment is high, a number of different shocks can interact with unemployment to create something explosive. I think the UBS note, besides getting some numbers and history wrong, vastly underestimates the possibility of this interactive effect.
As recently as 10 years ago in Beijing, private car ownership was fairly rare, the first Starbucks had just opened and the phenomenon of wealthy Chinese urbanites was not so "in-your-face". These days, the contrast between rich and poor, urban and rural are much more significant and much more obvious to all. Perhaps being laid off in the late 90s was not so bad when everyone else in your rust-belt town was suffering equally or when pay and working conditions were almost universally low.
The situation is totally different today, where even the second and third tier cities are not for want of luxury cars, etc. There is also a whole group of "white collars" that didn't exist before. Many of them will be seeing the first hard times of their working lives (after spending the last few years hopping from company to company to meet ever increasing wage expectations). Many of them will find themselves unemployed for periods of time, particularly as more and more educated and qualified overseas Chinese flee the developed world for supposedly better opportunities in the homeland, crowding an already strained job market.
It is the expectations of this group that could prove the most difficult for the government to deal with. These people cannot simply be sent to the countryside or put to work building roads and bridges. And the fact that China has so much money doesn't make things easier, it will actually reinforce rising expectations. How do you tell the new middle class to go back to being poor after spending so much on the Olympics, launching men into space, world class airports, etc?
Social unrest may actually have been easier to control back when everyone was somewhat equal.
Rich Kuslan, Editor
Also the fact that Chinese society is more highly stratified I think vastly *decreases* the likelihood of systemic challenges to the political system. There is not much in the way of social connection between urban dwellers and rural migrants which means that coordinated action is very difficult as these two groups may have sharply different and conflicting interests. If you do have a situation in which the PAP has to go in to a major city to put down a demonstration by rural migrants, then I suspect that the urban dwellers are much, much more likely to side with the police than with the migrants. I also think that the migrants know this which means that they aren't going to push things too far.
The other major difference is that unlike 1989, there is no obvious ideology that you can use to unite the various groups. "Socialism" won't work, and neither will "democracy." The one ideology that might work is "nationalism" but that works in favor of the government rather than against it. This is a really big problem since in order to have a major challenge to the government, you need to find some alternative political and economic program, and so far at least, I haven't heard any one suggest that the government do anything other than what it is already doing, or explain how overthrowing the government is going to create jobs rather than lose them.
We can also look through the list of possible triggers. There aren't any popular leaders like Hu Yaobang that I can think of to rally around. Public cynicism around Chinese government officials actually works for the government. If they all are crooks, then none of them are worth fighting for.
Natural disasters and infectous disease have in the last few years *increased* the government's popularity, and during a national emergency it is very difficult to say anything bad about the government without turning popular opinion against you.
Students in China today are very different than the one's in 1989. For one thing, they are much more diverse and much more likely to be studying a field that requires social stability (like business or finance) than a field in which they can act as social conscience. My sense of the younger generation in China is that they are much, much more individualistic and career oriented than previous generations, and this makes political action difficult.
Of course, none of this matters if there is a sustained economic problem. If after a year or two it is obvious that the government is mishandling the situation, then everything changes, but at the very least, the government does have several months to deal with the problem.
Saturday, January 03, 2009
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Thursday, January 01, 2009
"a vice governor of the PBoC was interviewed on state radio last night and said the central bank was targetting new lending of 4.6 trillion yuan in 2009. Yet he also said that new lending in 2008 was 4.5 trillion yuan. So, that would mean the central bank is targetting only 100 bln yuan of extra bank lending in 2009 which seems odd given that the banks have been told to boost lending in the face of the economic slowdown."
He further notes that the original new loan target in 2008 was to be 3.6 trillion RMB. So why is the year end figure 4.5 trillion??
My reply: As far as I know, much of the huge boost in lending WAS a result of manic lending in the last quarter. I saw a figure which I used in the editorial which says November alone had 477 billion in lending. Lending is perhaps too precise; "credit" is perhaps more accurate to capture what banks provided in the last quarter. This vice governor (Yi Gang?) was giving a target on incremental loans, but usually we only know about what they do on the aggregate. That is, what is the percentage increase in loans outstanding. As far as I know, next year's target is something like 15-16%, which is higher than this year's 11-12%. That might work out to be 4.6 trillion in new loans (depends on how much loans come due next year...etc.).
Generally speaking, the PBOC tends not to be enthusiastic supporters of massive investment programs. However, they follow the same master as everyone else, so they will bow to pressure to increase lending. In any event, banks see which way the wind is blowing and will exceed the quota if they think Hu will be pleased with them. The Ag Bank has been specially tuned into political signals. I think Guo Shuqing had better follow suit if he wants to be the next governor of PBOC.