Monthly Archives: December 2009

China Executes Former Securities Trader

While Britain and the U.S. vacillate over punishing bankers for their alleged misdeeds that brought on the global financial crisis, China has a direct deterrent to economic crimes: execution. Yang Yanming, a former trader at  China Galaxy Securities convicted in 2005 on charges of embezzlement and misappropriating 94.5 million yuan ($14 million) over five years, was put do death Dec 8th, according to Xinhua. The 51-year-old Yang had used the money to invest in real estate and futures. The money has apparently not been recovered.

Last year China executed more convicted people than the rest of the world combined, according to Amnesty International, though Iran has a higher per capita capital punishment rate. Amnesty counted 1, 718 publicly announced executions and said it thought the true number to be higher. By world standards, China “acts fast, acts hard” when it comes to executions with death sentences carried out within two years of conviction.

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Filed under Politics & Society

China’s Economy in 2010: Steady And Uneasily As She Goes

This year’s Economic Work Conference, the annual top-level economic policy meeting, was as much about politics as economics, though that can be said most years. Creating socially stabilizing jobs was the focus, not that China is alone in that, and particularly rural jobs to absorb the migrant labor left jobless by the slump in the export manufacturing sector.

Few concrete policy details have emerged from the closed door meeting yet; they rarely do immediately but there was a broad commitment to keep the stimulus going in what will be the final year of the current five-year plan and last full year of the Hu-Wen leadership. Monetary policy will be kept loose, despite the central bank having being gently reining that in for some months. Fiscal policy will be “proactive”, which presumably means an extension of tax breaks that have been so beneficial to industries such as car making and to a lesser extent export manufacturers. In particular, more public money will be pumped into the countryside to raise demand there and thus the need for local jobs.

But as a sign of the fragility of the reaccelerating of growth seen this year, industries suffering from overcapacity will continue to see excess production capacity stripped out, under the guise of modernization and consolidation, much as we have been seeing with energy intensive and polluting industries over the past several years. New industrial investment will be kept “moderate”, according to Xinhua‘s post-meeting report.

If anything, industrial overcapacity is getting worse, especially in steel and cement making. That is not what should be being seen if recovery was on a solidly sustainable footing. And it goes to the heart of the problem China faces in growing its way out of a slowdown through investment spending, the central planner’s go-to policy response.

It is unsustainable and becomes an increasingly inefficient way to grow. Other countries might end up building bridges to nowhere, but in China state spending flows through state-controlled banks to state-owned enterprises and thus potentially deflationary industrial overcapacity.

Switching spending from investment to consumption, as we have noted before, is no easy task. Joblessness is one of the political costs of not being able to do so. Next year will see more expensive tending to the symptons and not enough curing of the underlying disease. Investors haven’t priced that into equities yet, but they will, possibly the hard way.

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Filed under Economy

Taiwan’s Opposition DPP Recovers Ground

The gains made by the pro-independence opposition Democratic Progressive Party in Taiwan’s local elections at the weekend were an eye-opener for President Ma Ying-jeou’s governing Kuomintang. Its policy of pursuing closer ties with Beijing were an issue with voters. They worry that it will make the island too dependent on China and that opening up to cross-Straits investment and trade risks local job losses, especially in small businesses. The KMT’s handling of Typhoon Morakot also harmed its vote.

Ma himself will face voters in the 2012 presidential election. The weekend’s results boost the DPP’s leader, Tsai Ing-wen, as an increasingly likely candidate to run against him and confirm her party has put its heavy defeats in the 2007 legislative and 2008 presidential elections under disgraced Chen Shui-ban behind it..

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Filed under China-Taiwan

Shanghai Automotive Embraces General Motors

What’s good for GM is good for…China. The old saw needs amending following not just November when GM sold more cars in China than it did in its alleged home market but also since GM is to hand over majority control of its thriving Chinese car business to its partner Shanghai Automotive (SAIC) as the pair launch a new joint venture to crack the Indian market for small cars and micro commercial vehicles now dominated by the Japanese. The two already have a JV in South Korea.

While the switch in control of the Chinese JV, Shanghai GM, is being presented as an accounting move to let SAIC consolidate the JV’s earnings (it will buy a 1% stake in the jv for $85 million to give it a 51% stake), China’s carmakers seem to be picking Detroit apart piece by piece. Beijing Automotive Industry is considering bidding outright for GM’s Saab unit, now the Koenigsegg consortium bid, of which it was a part, has collapsed. Bank of China is reported to have set up a $3 billion line of credit for BAIC to finance a possible bid. GM’s Hummer division is being bought by Sichuan Tengzhong. Privately-owned Geely is reported to have lined up the financing for a bid for Ford’s Volvo car business.

The SAIC move is interesting because it is not just buying its way into foreign markets through acquiring distressed assets, but taking GM along with it to teach it the ropes. And nor does it have its eyes on the slow-growing developed markets but the rich promise of emerging ones.

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Filed under Industry, Uncategorized