Monday, July 28, 2014

New tools for China´s central bankers - Sara Hsu

Sara Hsu
+Sara Hsu 
One of the reforms in China have changed the way it´s central bank is operating, writes financial analyst Sara Hsu in the Diplomat. A new set of tools allow the bankers to be more creative.

Sara Hsu:
China also has some new tools to add to the traditional monetary policy system. The People’s Bank of China introduced a standing lending facility in 2013, which provides funds to banks facing a liquidity squeeze. The standing lending facility was expanded in January of this year to lend to small and midsize banks in 10 provinces and cities. In addition, relending has been used historically and again today to provide incentives for banks to lower financing costs when lending to targeted sectors. Recently, the central bank has added a new tool, called pledged supplementary lending to help banks target borrowers with collateral. Pledged supplementary lending targets medium-term interest rates and, like relending, avoids the blanket changes to the monetary system that are associated with traditional tools. 
Some analysts feel that the targeted tools go too far, into the realm of fiscal policy. In particular, the practice of relending and the new pledged supplementary lending tool give preference to specific sectors. However, these tools counteract a long-standing complaint that monetary policy is a blunt instrument. Targeting particular segments of the economy sharpens the policy. And why shouldn’t the central bank go further? After all, it is not independent of the government. Government bodies in China are expected to follow policy mandates, and the central bank is no exception. 
Perhaps a more salient question is whether these creative monetary tools will allow market forces to emerge, or whether they will perpetuate a financial regime of policy-led lending. One major problem with China’s banks, recognized by analysts for decades now, is that financing is constrained since banks tend to lend to particular enterprises, mainly large and state-owned enterprises. With new, directed lending, market forces continue to be left out of the picture. Less efficient and less profitable enterprises may receive funding while more efficient and more profitable enterprises may be unable to secure a bank loan. In this case, the latter are forced to turn to the shadow banking system to obtain funding. 
The shadow banking system is, well, shadowy – it may face challenges in controlling for risks, especially since shadow banking loans often come at higher interest rates. This gives rise to adverse selection, in which borrowers who are willing to pay higher interest rates are often riskier firms. An expanding shadow banking system (with the exception of informal finance, in which borrowers and lenders have preexisting relationships) may therefore pose economic risks that banks would be able to control. 
Doubtless the People’s Bank of China has a difficult task, particularly in a less buoyant economy. The leadership wants to maintain a stable economic growth rate, and this poses a challenge since market forces would otherwise most likely act to pull economic growth down. The central bank is currently playing a major role in balancing the economy. Ironically, to meet long-term financial reform goals that entail opening up to market forces, the central bank must be less involved in targeting individual sectors. The impact of less directed lending will be more financial capital available to other enterprises, hopefully those that are efficient enough to remain strong during the next economic downturn.
More in the Diplomat. 

Sara Hsu is a speaker at the China Speakers Bureau. Do you need her at your meeting or conference? Do get in touch or fill in our speakers´ request form. Are you looking for more financial experts at the China Speakers Bureau? Do check out this recent list. 

Friday, July 25, 2014

The sad state of Hong Kong accounting - Paul Gillis

Paul Gillis
+Paul Gillis 
After long delays the Hong Kong accounting regulator at last announced penalties for accounting firm Ernst & Young and its former senior partner Anthony Wu. Too little, too late, writes Beida professor Paul Gillis at his weblog. Hong Kong needs an independent regulator.

Paul Gillis:

The case against Wu was a slam dunk. He signed checks for an EY audit client.  His defense was laughable – he only did it when other signatories were unavail-able and had approved the payments. He also served as an advisor to the com-pany, and was involved in loans to the company. Wu’s only credible defense was that, by taking 20 years to prosecute him, his defense was undermined. But he and EY had been told to preserve documents and had not done so. EY was found guilty of not supervising Wu.
EY’s management committee had been informed of what Wu was doing and did not stop him. Neither did the audit partner, Catherine Yen, who was found guilty of violating independence rules as well for signing despite Wu’s activities impairing EY’s independence.
Independence is at the heart of the CPA profession. Wu, EY and Yen have vio-lated the most sacred principle for auditors.
The disciplinary committee found the breaches were persistent, flagrant and inexcusable...
The case illustrates the sad state of accounting regulation in Hong Kong. Taking 20 years to resolve the issue is unfair to all involved. Issuing fines that are insig-nificant to the parties is not going to serve as a deterrent to similar behavior in the future. Wu should have been banned for life. Yen and EY should have faced much more biting penalties. EY collected a fee of $100,000 per month for many years for Wu’s illegal services, as well as audit fees. They are not even being required to pay those back.
Hong Kong is in the early stages of reforming its governance of accounting. This case is the only reason they need to take it away from the HKICPAs and create a serious independent audit regulator.

More at the ChinaAccountingBlog.

Paul Gillis is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers´request form.

Are you interested in previous articles by Paul Gillis. Have a look at our regularly updated list. 

Thursday, July 24, 2014

Being rich is getting more expensive - Rupert Hoogewerf

Rupert Hoogewerf
Rupert Hoogewerf
The costs of luxury goods are becoming more expensive, faster than the inflation rate, is one of the conclusions by the newest Hurun Luxury Consumer Price Index. Quality is taking over from quantity, suggests Hurun founder Rupert Hoogewerf in the Shanghai Daily.

The Shanghai Daily:
Rupert Hoogewerf, chief researcher at the Hurun Research Institute, said the buzzword "tuhao" — those with deep pockets but poor taste — has made China's rich aware that the most expensive thing is not necessarily the best. And that put pressure on brands targeting high net worth individuals.
The biggest winners of this year's luxury consumer price index were properties, yachts and jets, and even education.
Last year, luxury travel, accessories and skin-care products, automobiles and lifestyle were the big thing for the rich.
Luxury life begins with buying a house, the institute said. The overall price increase of 12.6 percent this year came along with the popularity of villas due to the rich's increasing love for golf. The membership fee for the Shanghai Sheshan Golf Club, for example, rose from 2.3 million yuan last year to 2.7 million yuan this year, up 17 percent.
Prices for yachts and jets was up by 6.5 percent, up for the second straight year, while education rose 5.6 percent, 3.1 percentage points higher than last year.
More in the Shanghai Daily.

Rupert Hoogewerf is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers´request form.

Are you looking for more luxury goods experts at the China Speakers Bureau. Check out our latest list. 

Wednesday, July 23, 2014

Tuesday, July 22, 2014

McDonald´s and Yum hit by new meat scandal - Ben Cavender

Ben Cavender
+Benjamin Cavender 
An all-American meat scandal has hit Shanghai, as McDonald´s and Yum´s KFC banned their Chicago-owned supplier after authorities found out it used out-dated meat. Retail analyst Ben Cavender expects a long-term damage to both restaurant chains, he tells in the China Daily.

The China Daily:
Ben Cavender, an analyst at Shanghai-based China Market Research, said the new allegation is going to have a lasting impact on both brands despite their responses to make consumers feel better.
But Yum will take more of a hit due to food safety problems in the past, which indicates the company is less likely to control its suppliers well, he said.
Even if they were only indirectly responsible, in the eyes of consumers their brands are going to be hurt, said Cavender.
The allegations have once again reminded consumers of recent food scandals including baby formula laced with melamine and fox DNA found in donkey meat.
"In China, food safety concerns are so strong, even more than other markets," he said.
More in the China Daily.

Ben Cavender is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers´request form.

Risk management is paramount in China. Are you interested in more experts on risk management at the China Speakers Bureau? Do have a look at our recently updated list. 

Corporate bond market might default before it matures - Sara Hsu

Sara Hsu
Sara Hsu
Hailed as an alternative way to raise funds, China´s corporate bond market faces a potentially fatal end as its second default is looming, writes financial analyst Sara Hsu in the Diplomat. Defaults were seen as way to discipline the market, but the opposite might happen.

Sara Hsu:
China’s corporate bond market is relatively underdeveloped. China’s overall corporate debt is higher than that in the United States, but only a relatively small proportion of this debt resides in corporate bonds. The ratio of corporate bonds to GDP in China is only 14 percent, which is below that of Singapore, at 31 percent, and Hong Kong, also at 31 percent. China’s corporate bond market is associated with insufficient market control: issuance of corporate bonds requires excessive administrative procedures, while bonds are subject to insufficient scrutiny by ratings agencies. This is evidenced by the fact that, while Chaori Solar’s credit rating was downgraded to CCC close to one year in advance of its default, Huatong Road’s rating agency underestimated the company’s creditworthiness until only recently when the company announced a potential default.
Compounding the problem, the current economic slowdown has reduced liquidity in the financial sector, making it more difficult to lend and borrow smoothly. When economic growth began to slow, the People’s Bank of China reduced the corporate yield spread to increase corporate borrowing. Additional yield over sovereign notes that AAA-rated companies pay to sell their bonds has declined since March 31, but it has recently widened again due to the potential Huatong Road default. In addition, weakness in the financial economy and bankruptcies of smaller firms continue to present a challenge to firms seeking to obtain loans.
How to interpret the corporate bond defaults is unclear. On the one hand, it is widely believed that corporate bond defaults discipline the market. However, the trend in defaults, with a second bond payment default coming soon after the first, may bode ill for the market’s wellbeing. The default of Chaori Solar was seen as gauging investors’ risk awareness in the corporate bond market. But a second corporate bond default just four months after the first may put investors off this still-nascent market.
More in the Diplomat.

Sara Hsu is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers´request form.

Managing risks is important when doing business with China. Are you interested in more experts on risk management in China at the China Speakers Bureau? Have a look at this recent list. 

Monday, July 21, 2014

The Boeing hacking charges - Wendell Minnick

Wendell Minnick
Wendell Minnick
The FBI accused three Chinese citizens, including Su Bin (Stephen Su), owner of Lode-Technology, last month of hacking into US military projects. Defense analyst Wendell Minnick had a look at the FBI-document detailing the accusations for Defense News.

Wendell Minnick:
Details of other aircraft and US companies are sketchy. Su is alleged to have obtained F-35 test plans and “blueprints” that would “allow us [China] to catch up rapidly with US levels ... [and] stand easily on the giant’s shoulders,” according to Su’s emails.
A former US government counterintelligence analyst on China said the case is a “close parallel” to other cases involving Chinese businessmen “taking government information to ensure long-term success of [their] business.” He also said that Canada and Hong Kong were still popular technical transfer shipment points for Chinese industrial and military espionage.
According to the complaint, one of Su’s emails states that his team “secured the authority to control the website of the ... missile developed jointly by India and Russia and that they would ‘await the opportunity to conduct internal penetration.’ ”
Su also allegedly focused on military technology in Taiwan and files held by various Chinese “democracy” groups and the “Tibetan Independence Movement.” On Taiwan, the intelligence collected was focused on military maneuvers, military construction, warfare operation plans, strategic targets and espionage activities. According to one of the several emails, “we still have control on American companies like [identifying US companies] and etc. and the focus is mainly on those American enterprises which belong to the top 50 arms companies in the world.”
One attachment listed 32 US military projects and another listed 80 engineers and program personnel working on a “military development project.” Another lists the names and email addresses for four people at a “European company that develops military navigation, guidance and control systems.”
Cyber intrusions into Boeing and other companies were sophisticated. According to one of Su’s emails, they had control of an unidentified defense company’s file transfer protocol server. Jump servers, also known as “hop points,” were set up in France, Japan, Hong Kong, Singapore, South Korea and the US. According to emails, these were set up to avoid “diplomatic and legal” difficulties for China.
More in Defense News.

Wendell Minnick is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers´request form.

Are you interested in earlier stories by Wendell Minnick? Do have a look at this regularly updated list. 

Estimation: in 50 years, 20 million Chinese in Africa - Howard French

Howard French
+Howard French 
How many Chinese will there be in Africa in 50 year´s time? How will the state-to-state relations develop? After dozens of interviews with author Howard French on his book China's Second Continent: How a Million Migrants Are Building a New Empire in Africa, The Shanghaiist found some uncovered areas.

The Shanghaiist:
If I could ask you to look into the future, where do you see the Chinese population in Africa in 50 years' time? Will most of the million there now stay? Will African countries have to acknowledge their second, third, or fourth-generation ethnic Chinese citizens? Will the Chinese there hold themselves apart as much as they have done so far?
If I am forced to go out on a limb, I would guess there might be 20 million Chinese people in Africa by mid-century, maybe more. They will be concentrated in African cities, which exhibit some of the highest growth rates in the world. Second and third generation Chinese will very often have African citizenship, and a great many of them will live in an integrated fashion, deeply socialized and networked within their societies of adoption.
You mention in your recent New York Times op-ed that China's foreign policy has historically been focused on state-to-state relations. Do you see any signs of improvement in this regard? Does the Chinese government now recognize the need to deal with more than just state institutions?
The Chinese state's preference for state-to-state relations stems from the way China itself functions, with the state arrogating tremendous power for itself even, as has been alluded to here, to decide such matters as "correct" history. The Chinese state is wary of independent authority at home, unwilling to see the emergence of much real pluralism. This makes the Chinese state far less willing and able to interact nimbly and constructively with independent civil society forces in other countries. I think that Beijing sees the need for it to be able to relate better to such forces abroad, but doing so is inherently difficult, and I don't see that changing much in the near to medium term.
More in the Shanghaiist.

Howard French is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers´ request form.

Are you interested in earlier interviews with Howard French? Do have a look at this regularly updated list.