Chinese Economic News

[ModE98]

Progress made in trade talks between China and the U.S. China and the U.S. made some progress on key issues such as export controls and foreign investment during trade talks this week, according to officials. As part of the wrapup, both sides say the economies of the two superpowers are "interdependent and inseparable," making it even more crucial that thorny issues get worked out. Beyond the rhetoric, China vowed to tighten protection of intellectual property rights while the U.S. pledged to treat Chinese companies fairly with their investments.

[The Virginian]

OK, Yes I believe you China !

[damnotagain]

Recent article about china said that the Chinese plan to add "300 million more to their ever growing middle class in the next 10 years." With 350 million already considered middle class US labor is very much at risk. As our standard of living is being lowered by higher taxes , more job losses and increased government spending.
Considering the fact that the Chinese middle class income is between $6000 to $15,000 a year. China will continue to grow we will slow.

[ModE98]

Chinese PMI expansion accelerates. China's HSBC PMI grew at the fastest speed in 19 months in December, increasing to a final reading of 51.5 from 50.5 in November and coming in higher than the preliminary figure of 50.9. "Momentum is likely to be sustained in the coming months when infrastructure construction runs into full speed and property market conditions stabilize," says HSBC's Qu Hongbin. The PMI data helped Chinese shares close sharply higher on the day and record their first annual gain in three years.

[ModE98]

Chinese stocks surge on hopes of increased foreign investment. China could boost quotas for foreign investment in its capital markets by 9-10 times, Guo Shuqing, the chairman of the China Securities Regulatory Commission, said. Such action would add to efforts last year to draw in more long-term foreign investors, including pension funds. Guo's remarks buoyed Chinese shares and helped the Shanghai Composite Index end +3.1% to 2,311, its highest finish since June.

[The Virginian]

Dozens of Chinese companies go private, end disclosures

* Suspect accounting ruins chances for raising money

* Regulatory standoff further clouds future for firms

By Dena Aubin and Olivia Oran

NEW YORK, Jan 14 (Reuters) - Chinese companies are deserting U.S. stock markets in record numbers as regulatory scrutiny mounts and the advantages of a U.S. listing slip away.

U.S. government investigations of suspect financial reports and battered share prices have for many Chinese companies wrecked the chances of raising new money in the United States and given them little reason so stay, China experts said.

"There's very little in way of new capital flows to those companies, their valuations are low and they're encountering significant headwinds in terms of regulatory oversight," said James Feltman, a senior managing director at Mesirow Financial Consulting.

Twenty-seven China-based companies with U.S. listings announced plans to go private through buy-outs in 2012, up from 16 in 2011 and just six in 2010, according to investment bank Roth Capital Partners. Before 2010, only one to two privatizations a year were typically done by China-based companies, Roth said.

In addition, about 50 mostly small Chinese companies "went dark," or deregistered with the U.S. Securities and Exchange Commission, ending their requirements for public disclosures. That was up from about 40 in 2011 and the most since at least 1994, when the SEC's records start.

Companies with a limited number of shareholders can voluntarily go dark and rid themselves of the cost of public filings without buying out investors, but those investors often suffer as the value of their shares falls.


SHARES TAKE DOUBLE-DIGIT DIVE

"It's just another black eye for U.S.-listed companies," said James O'Neill, managing director of Jin Niu Investment Management Co, a Beijing-based firm.

Meanwhile, just three Chinese companies successfully went public on U.S. exchanges in 2012, down from 12 in 2011 and 41 in 2010.

About 300 China-based companies still have shares trading in the United States on exchanges or "over-the-counter" between individual dealers.

Bankers are aggressively pitching the idea of companies pulling out of the United States and relisting elsewhere, saying they can get a better share price in Hong Kong or mainland China, according to lawyers who work on going-private deals.

"The idea is that the markets here understand the China story better and will therefore hopefully assign a higher valuation to the stocks," said Mark Lehmkuhler, a partner at Davis Polk in Hong Kong.

U.S.-listed Chinese companies in the consumer staples sector, for example, were trading recently at a 67 percent discount to comparable Chinese companies on the Hong Kong Exchange, according to investment bank Morgan Joseph.


REGULATORS IN HIGH-STAKES STANDOFF

A failure by U.S. regulators to reach an agreement soon with China on accounting oversight may push more Chinese companies to abandon their U.S. listings, bankers and lawyers said.

The United States has been trying to get access to audit records and permission to inspect Chinese audit firms to combat a rash of accounting scandals. China has balked, leaving the future of U.S. listings for Chinese companies in doubt.

"I expect everyone is making alternative arrangements" in case U.S. and Chinese regulators do not reach a deal, said Paul Gillis, an accounting professor at Peking University in Beijing.

Stepping up pressure, the SEC has deregistered about 50 China-based companies over the past two years. Last month, it charged the Chinese arms of five top accounting firms with securities violations for failing to turn over documents, raising tensions in its standoff with China..

While most of the recent going-private transactions have been management-led buy-outs, cheap share prices have also led to several deals from large private equity firms.

A Carlyle Group LP-led consortium last month agreed to buy display advertising company Focus Media Holding Ltd for about $3.7 billion in the largest-ever private equity deal in China. The success of that deal may prompt others, lawyers said.

"As long as you've got financing available, you're likely to continue to see new deals being announced," said Jesse Sheley, a partner at Kirkland & Ellis who worked on the Focus Media deal.

Despite the billions being poured into the private markets, it may take longer for U.S. stock investors to feel comfortable investing in Chinese public companies again.

Investors are saying, "'What can I trust about these companies at all?'" said O'Neill at Jin Niu. "It's not a matter of good company versus bad company. The market has just turned against you


www.reuters.com/article/2013/01/14/china-accounting-idUSL2N0AJ24120130114?feedType=RSS&feedName=privateEquity&rpc=76

[ModE98]

Mr. V >>> It's tough to hang on, but will do so anyway. If there is a private buyout above my low cost, so be it. It will be a profit, if so. Will take the money and run. Drop out of U.S. market and relist in HK will work for me, I can still hold and hope for a long term profit. I know it is "far out on the tree limb risk". Hope when the bough breaks, I will not be too largely injured as I hit the ground. Probably should change ID from ModE to "Dratted Fool".

Glad nobody else is so involved with the small cap Chinese U.S. listed RTOs.

[ModE98]

Chinese economy re-accelerates. China's GDP rose 7.9% on year in Q4, slightly beating forecasts and topping Q3 growth of 7.4%. The re-acceleration confirms that the government's stimulus policies and a boost in trade have started to pull the economy out of its slowdown, although the full-year growth of 7.8% was the lowest since 1999. Still, stronger-than-expected industrial production and retail sales in December suggest that the economy is decently positioned for 2013.

[Deleted]

Well you did say when you started playing with these that they were a "wild hair" idea of yours, and you have smacked yourself publicly several times for doing them...

But, you have run them with a Long term Mindset - and now they might just pay off after all..

[ModE98]

Exactly, (only 3 CGA, CMFO & TPI) on which I took huge write offs earlier last year, then bought back on the cheap (bottom fishing). CGA and TPI are indicating "promise" and CMFO is just floundering for now. Yes, just a mere shot at "vindication" in the long term.

Target 2014-2016. If the "pipe dreams" work out (very high risk), will get an eventual return of my losses plus interest.
 
Addendum:  Of course, I am also "gambling" on my age and ability to stay healthy a few more years.  Philosophy:  If I do not make it, will not have to mess with it anymore.  So there is one heck of "if's and and's" associated with my involvement here.

[ModE98]

Chinese PMI rises to two-year high. China's January HSBC Flash PMI increased to 51.9 from 51.5 in December, representing the 5th consecutive rise for the index and taking it to its highest level in two years. "Despite still-tepid external demand," HSBC says, "the domestic-driven restocking process is likely to add steam to China's ongoing recovery."

[ModE98]

Chinese Stocks enter bull market. The Shanghai Composite rose 0.5% overnight, bringing its gains since December 3 to 20%, a threshold signaling bull market to some. Helping stocks has been not just the idea that the slide in economic growth has bottomed, but Beijing's efforts to funnel investment dollars - both domestic and overseas - into common stocks. The latest is a Taiwan media report suggesting individual Taiwanese will be allowed to invest in Chinese shares.

[The Virginian]

 

<SPAN class="articleLocatio

n">Jan 29 (Reuters) - China's largest auto parts  maker won U.S. government approval to buy A123 Systems Inc, a bankrupt maker of electric car batteries that was funded with U.S. government money, a source familiar with the situation said on Tuesday.</P></SPAN>

A U.S. government committee on foreign investment approved the sale of the lithium-ion battery maker to Wanxiang Group, according to the source, who asked not to be identified because they were not authorized to speak publicly.

A123 filed for bankruptcy last year and was sold at an auction supervised by the U.S. Bankruptcy Court in Delaware. Some members of the U.S. Congress said that the sale to Wanxiang would transfer sensitive technology to China and urged the foreign investment committee to block it.

www.reuters.com/article/2013/01/29/a123-wanxiang-approval-idUSL1N0AXA5Y20130129?feedType=RSS&feedName=mergersNews&rpc=76

</SPAN>

[ModE98]

Chinese PMI readings show diverging paths. China's HSBC PMI, which focuses on smaller and privately owned firms, rose to 52.3 from 51.5 in December. However, the official PMI, which concentrates on larger state-owned enterprises, slowed to 50.4 from 50.6 and missed expectations. "We see increasing signals of a sustained growth recovery in the coming months," HSBC says.

[The Virginian]

China's undercover banking crisis

Off-balance-sheet lending has exploded in China, and deep problems are starting to turn up. Who will make good when loans go bad is a great unknown that could sting the global economy.

China's banking crisis continues to worsen. But because this is a banking crisis that doesn't -- on paper-- involve China's banks, it's hard to say what the extent of the fallout will be.

To see the crisis, you have to look past the official balance sheets of China's banks to the gray areas of China's financial industry, because what's hiding there could have a broad economic consequences.

In January, China's four big state-owned banks issued a combined 370 billion yuan (about $59 billion)  in loans. That was a huge increase in lending from the 163 billion yuan total in January and puts China's banks on an unsustainable pace.

China's big four banks account for about 30% to 40% of lending in a typical year, so January's activity puts China's banks on a pace for somewhere between 11 trillion yuan ($1.7 trillion) and 15 trillion yuan ($2.4 trillion) in lending for 2013. Lending always surges in the weeks before the Lunar New Year holiday (which was Sunday), however, as businesses stock up on cash. The People's Bank hasn't set a lending target yet for 2013, but it's expected to be in the vicinity of 9 trillion yuan ($1.4 trillion) as the Chinese government works to -- modestly -- stimulate the economy.

That would still be a big increase from the 7.5 trillion yuan target in 2011, when the Chinese government was tightening credit to slow the economy, or from the 8.3 trillion yuan banks lent in 2012.

But although these data on bank loans and bank lending are still among the most followed indicators of government policy on economic growth and People's Bank intentions on expanding or contracting the money supply, they capture less and less of the Chinese market for loans. China's "total social financing" indicator shows bank loans hitting a record low of 52.1% of total lending in 2012. Ten years ago, bank lending made up 92% of total social financing. Estimates are that bank lending will drop below 50% in 2013.

It's not that bank lending has collapsed -- in fact, it has been remarkably stable within the up-and-down channel set by government policy. Instead, there's been explosive growth in "trust loans" (a sixfold increase in 10 years) and in bond offerings (up 64%).

Jim Jubak

And that's the shadow hanging over China's recovery and the global economy, which is why investors here need to keep an eye on it.

Beyond China's banks

What are trust loans and what's behind their explosive growth? Trust loans are essentially off-the-balance-sheet bank loans. While the interest rate that banks pay depositors -- currently 3.25% -- is set by government regulators, banks and savers can get around the restrictions by using wealth-management accounts that move money collected by banks off bank balance sheets and onto the balance sheets of trust companies and securities firms.

In a typical arrangement, the bank contracts with a trust or securities company. The trust or securities company uses the money from the bank to buy notes issued by the bank (backed by bank loans, for instance) or to buy other assets (loans from financial companies attached to local governments, for example). The trust or securities company is paid a fee -- 0.3% on average at the beginning of 2012 -- by the bank. Savers get a higher interest rate -- 4.5% to 5% -- than they'd get from a regulated account at a bank. (With the government's inflation target at 4%, the difference between regulated yields of 3.25% and wealth-management yields of 4.5% could be the difference between losing ground to or keeping ahead of inflation.) Banks are able to keep customers happy and to move loans off their balance sheets and onto those of trust companies and securities companies. (Bank loans sold to trusts and securities companies don't count against a bank's lending quota.)

 

As you might expect, the advantages of this system of higher rates for savers, fees for trust companies and off-balance-sheet lending for banks has led to an explosive growth in the assets at trust and securities companies. Each of the four big state-owned banks handles an average of 2 trillion yuan a year in off-balance-sheet business -- roughly equal to the bank sector's formal government lending quota. Efforts by government regulators to limit the percentage of assets that trusts could take from bank wealth-management accounts have worked to push these off-balance-sheet yuan to less-regulated securities companies. Assets under management by Chinese securities companies rose to 1.2 trillion yuan at the end of December, up from 280 billion yuan at the beginning of 2012, according to data from the Securities Association of China. About 80% to 90% of that total, according to estimates put together by Bloomberg, was tied to banks and wealth-management accounts. Estimates are that up to 30 trillion of the 66 trillion yuan in credit extended to all formal borrowers in China lies outside the banking system.

The two big risks

There are two big dangers in this situation.

First, there's a good chance that in reaching for 5% yields (instead of 3.25%), investors and savers have taken on more risk than they realize and that this additional risk will rise up to bite them. The promise of the wealth-management accounts to savers is strikingly similar to that during the mortgage-backed asset/global financial crisis: We have figured out a way, the banks, the investment trusts and the securities companies are saying, to pay you higher yields without requiring you to take on more risk.

Think about it: How are banks, profitable with controlled payouts of 3.25%, able to pay 5% and make the same or greater return? (They wouldn't be so assiduously pursuing this wealth-management business if it paid less than their existing business.)

A big part of the answer is that the banks are using the money they take in from wealth-management accounts to make loans at 6%, 7% and even 8% by buying bonds sold by city governments. In the first nine months of 2012, China's Caixin magazine reports, urban bonds raised 471 billion yuan for 401 projects. That was more than the 425 billion yuan raised in all of 2011. Half of all urban bonds issued on secondary markets, Bloomberg estimates, were bought by banks with money from wealth-management accounts.

These bonds are supposed to be low risk. They're guaranteed by local governments, and the assumption is that the national government stands behind these urban bonds (as in the U.S., the mortgage market was assured about the paper issued by Fannie Mae and Freddie Mac). In another parallel with the global financial crisis, China's National Association of Financial Market Institutional Investors has raised questions about the high grades given by credit-rating companies to many of these bonds.

So far, the failure rate on these bonds has been extremely low -- near zero. But that's likely an artifact of the very recent surge in issuance, since many of these bonds haven't been around long enough to fail. The effects of a collapse in the real estate market in many Chinese cities in 2010 and 2011, which devastated finances for local governments and the projects they financed, haven't fully worked their way into the market for these bonds.

Second, it's unclear what parties are on the hook and for how much if these products go bad. (Again, this reminds me of the derivative markets in the United States and Europe in the financial crisis, where no one knew for sure what the net positions of the big players were.)

Until very recently, the assumption and practice has been that trust companies do not let trust products default on investors. The trust company doesn't have a legal obligation to pay investors in the case of a default, but, until recently, a trust company would make sure investors were repaid, even if a borrower could not pay the trust what it owed. In the competitive trust market, no trust company would risk its reputation by letting investors take a hit. Consequently no one in China has ever lost money on a trust investment. (The trust sector has assets of 7.4 trillion yuan.) Payments have been late, but they've always been made within the six-month grace period written into a trust contract -- even if the trust company had to dip into its own pockets to pay investors.

But this appears to be changing. In January, Citic Trust, China's largest trust company by asset value, refused to guarantee payment to investors when two trusts that it sold ran into problems. Instead, Citic has moved to sell the collateral put up by borrowers and has told investors that selling the assets of the borrower was the last hope that investors would get their money back. In one case, Citic has used a court order to put up for sale the land owned by property developer Shieldspear Group to recoup some of the 710 million yuan raised in 2010. In another, Citic has threatened to sell the collateral of a producer of steel coatings if the company can't bring its payments up to date.

[ModE98]

China sets conservative GDP goal, to boost spending. China has given itself a GDP growth target of 7.5% for 2013, which would be below last year's 7.8%. At the opening of the annual National People's Congress, the finance ministry said it plans to increase the country's budget deficit to 1.2T yuan ($192.8B), or about 2% of GDP from 1.6% in 2012. Much of the increased spending will go on social programs as China looks to shift the focus of its economy towards the consumer and away from exports and infrastructure.

Credit:  Seeking Alpha "Wall Street Breakfast" news.

[ModE98]

China appoints Li Keqiang as Premier. China's National People's Congress has rubber-stamped the appointment of Li Keqiang as the country's first ever premier with a doctorate in economics. The selection of Li, who replaces Wen Jiabao, follows the election of Xi Jinping yesterday as President. The legislature will complete China's once-a-decade transfer of power tomorrow with ministerial and other appointments.

China eases yuan limits for multinationals. China has further continued the internationalization of the yuan by setting up three pilot schemes that ease strict cross-border currency regulations for 13 multi-national corporations, including Caterpillar (CAT), Shell (RDS.A), Intel (INTC) and Samsung (SSNLF.PK), which estimates the scheme will save it $10M a year.

Source:  Seeking Alpha 3/15/13

[ModE98]

Chinese inflation falls sharply. Chinese CPI slowed to +2.1% on year in March from +3.2% in February - when New Year holiday demand affected prices - and came in below consensus of +2.4%. A softening of rises in food costs helped offset an increase in fuel expenses to bring overall inflation lower and give China's central bank more flexibility over monetary policy. The news helped boost equity markets across the globe.

Source: Seeking Alpha "Wall Street Breakfast" 4/9/13