pldragon's Comments RSS Syndication from SeekingAlpha.com http://seekingalpha.comuser/221862/comments http://seekingalpha.com/article/90332-china-ppi-inflation-and-trade-surplus-higher-than-expected?source=feed#comment-228284 228284 Hi Michael,
The trade surplus rose sharply ONLY in July. I am not a fortune-teller, but this weird increase in my opinion can be attributed only to the fear of the western buyers about the potential big mess on shipments for Xmas, starting in August and September.
I have read some similar views on some other blogs such as "All roads leadto China" and the excellent "China Law blog"...
After the debacle of the visas policy for businessmen unable to come perform factories visits and orders inspections, after the tightening of Beijibg area about goods circulation, etc, and without talking about other factors (terrorist threats, exporters forex controls....), I think it is fair to think that many exporters have shipped their Xmas goods much earlier than last year.
Now we have to see what numbers will come out in September.... If they are strong too, well, then I am a dumb guy. ^__^]]> Mon, 11 Aug 2008 20:01:06 -0400 Hi Michael,
The trade surplus rose sharply ONLY in July. I am not a fortune-teller, but this weird increase in my opinion can be attributed only to the fear of the western buyers about the potential big mess on shipments for Xmas, starting in August and September.
I have read some similar views on some other blogs such as "All roads leadto China" and the excellent "China Law blog"...
After the debacle of the visas policy for businessmen unable to come perform factories visits and orders inspections, after the tightening of Beijibg area about goods circulation, etc, and without talking about other factors (terrorist threats, exporters forex controls....), I think it is fair to think that many exporters have shipped their Xmas goods much earlier than last year.
Now we have to see what numbers will come out in September.... If they are strong too, well, then I am a dumb guy. ^__^]]> http://seekingalpha.com/article/87389-people-s-bank-of-china-falls-in-line?source=feed#comment-218090 218090
Just a small note regarding the shift in policy-making.
Today through a friend in Ningbo, I had the chance to read a very interesting article in Stratfor
www.stratfor.com/weekl...

Worth reading, because it points out to a lot of inconsistencies in recent past regarding government policies and the general uneasy "feeling" since the beginning of this year.
Like I said in a previous post few weeks ago,I think we are entering a very dangerous time for China]]> Wed, 30 Jul 2008 07:12:03 -0400
Just a small note regarding the shift in policy-making.
Today through a friend in Ningbo, I had the chance to read a very interesting article in Stratfor
www.stratfor.com/weekl...

Worth reading, because it points out to a lot of inconsistencies in recent past regarding government policies and the general uneasy "feeling" since the beginning of this year.
Like I said in a previous post few weeks ago,I think we are entering a very dangerous time for China]]> http://seekingalpha.com/article/85976-in-china-housing-is-still-up-but-rationing-is-spreading?source=feed#comment-210736 210736 About the real estate sector, there is another interesting article on chinastakes.com entitled " Chinese Developers Lobby the Government to “Save the Housing Market”
www.chinastakes.com/st...

Of course , 2 of the China biggest developers preach for their parish, asking for loosening rules.
The writer points correctly to the fact that the Chinese government is torn between its tightened policy since last year (increase of loan limits, specially from the second purchase of property..etc...) and its fear that all banks will be saddled with inextricable defaults problems if suddenly the houses drop everywhere as it was the case in Shenzhen...
On the other hand, one could argue that if prices were more in phase with avarage incomes, there would be more buyers than investors, but there would be buyers nevertheless

in the same website, I read again another great article written after the Sichuan earthquake, which relies more on psychology...
Since landlords own only the buildings in China, and never the land, and since no any domestic insurance company accepts to insure any damage against earthquakes, people have suddenly come to realize that real estate investment is not rock-solid (no pun intended).... and then , it is probably one of the reasons why people now delay purchases.
www.chinastakes.com/st...

Between 2 evils, which one the Chinese government will prioritize?? Probably same logic as developed in your explanation today about inflation and slow economy.... But then, why did they let the SSE plunge 50% ??]]> Mon, 21 Jul 2008 12:48:32 -0400 About the real estate sector, there is another interesting article on chinastakes.com entitled " Chinese Developers Lobby the Government to “Save the Housing Market”
www.chinastakes.com/st...

Of course , 2 of the China biggest developers preach for their parish, asking for loosening rules.
The writer points correctly to the fact that the Chinese government is torn between its tightened policy since last year (increase of loan limits, specially from the second purchase of property..etc...) and its fear that all banks will be saddled with inextricable defaults problems if suddenly the houses drop everywhere as it was the case in Shenzhen...
On the other hand, one could argue that if prices were more in phase with avarage incomes, there would be more buyers than investors, but there would be buyers nevertheless

in the same website, I read again another great article written after the Sichuan earthquake, which relies more on psychology...
Since landlords own only the buildings in China, and never the land, and since no any domestic insurance company accepts to insure any damage against earthquakes, people have suddenly come to realize that real estate investment is not rock-solid (no pun intended).... and then , it is probably one of the reasons why people now delay purchases.
www.chinastakes.com/st...

Between 2 evils, which one the Chinese government will prioritize?? Probably same logic as developed in your explanation today about inflation and slow economy.... But then, why did they let the SSE plunge 50% ??]]> http://seekingalpha.com/article/85680-is-there-tightness-in-china-s-money-market?source=feed#comment-209627 209627 Sun, 20 Jul 2008 03:14:50 -0400 http://seekingalpha.com/article/85680-is-there-tightness-in-china-s-money-market?source=feed#comment-208931 208931 I also believe there will be numerous defaults before the end of 2008.
Well, since they affect "private banking", the government can pretend that it is not its business...
But because usually, private banking involves thousands of lenders, the risk of social and polititcal instability is greatly increased.

The second story is truly astounding for me: I don't doubt for a second that it is true, but I have a question: All of the big 4 banks are quasi-national banks, I mean not private ones: In case of liquidity crunch like the one mentionned, the government would not step in ?

Sure, I do understand that interventionism would run counter to their desire to reduce the volume of money available for credit , and therefore to the fight against inflation and hot money...
But what about the confidence of the public in banks? or will chinese people soon start to buy gold frantically like in Vietnam ?
]]> Fri, 18 Jul 2008 14:49:52 -0400 I also believe there will be numerous defaults before the end of 2008.
Well, since they affect "private banking", the government can pretend that it is not its business...
But because usually, private banking involves thousands of lenders, the risk of social and polititcal instability is greatly increased.

The second story is truly astounding for me: I don't doubt for a second that it is true, but I have a question: All of the big 4 banks are quasi-national banks, I mean not private ones: In case of liquidity crunch like the one mentionned, the government would not step in ?

Sure, I do understand that interventionism would run counter to their desire to reduce the volume of money available for credit , and therefore to the fight against inflation and hot money...
But what about the confidence of the public in banks? or will chinese people soon start to buy gold frantically like in Vietnam ?
]]> http://seekingalpha.com/article/84756-in-china-money-is-way-to-loose-not-tight?source=feed#comment-206670 206670
Today, Looking for some infos about real estate market in China, I stumbled upon a very interested blog/website...
You will be surely intrested by this article (well, maybe you already knew...but it is total news for me...)

www.chinastakes.com/st...

" Government Moves To Legitimize Underground Lending in Zhejiang
July 14,2008





by CSC staff


In Zhejiang Province, with the most developed private companies and private capital in China, the government is trying to legitimize private capital, and set up small-sum loan companies to connect private capital with capital-hungry private companies.


The tight credit policy has driven many small and medium enterprises into hardship and even bankruptcy in coastal provinces like Zhejiang Province. Normally, formal banks, especially the state-owned banks, are reluctant to lend to private companies.


However, Zhejiang is also famous for its so-called underground banking, or back-alley banks as some analysts put it. The government has never issued lending licenses to them....."

Just like we used to say few weeks ago...
]]> Wed, 16 Jul 2008 06:45:42 -0400
Today, Looking for some infos about real estate market in China, I stumbled upon a very interested blog/website...
You will be surely intrested by this article (well, maybe you already knew...but it is total news for me...)

www.chinastakes.com/st...

" Government Moves To Legitimize Underground Lending in Zhejiang
July 14,2008





by CSC staff


In Zhejiang Province, with the most developed private companies and private capital in China, the government is trying to legitimize private capital, and set up small-sum loan companies to connect private capital with capital-hungry private companies.


The tight credit policy has driven many small and medium enterprises into hardship and even bankruptcy in coastal provinces like Zhejiang Province. Normally, formal banks, especially the state-owned banks, are reluctant to lend to private companies.


However, Zhejiang is also famous for its so-called underground banking, or back-alley banks as some analysts put it. The government has never issued lending licenses to them....."

Just like we used to say few weeks ago...
]]> http://seekingalpha.com/article/84631-china-lower-export-growth-may-lead-to-policy-mistakes?source=feed#comment-204954 204954 To support what I was saying yesterday...
Have a look at this article today in Taipei times
www.taipeitimes.com/Ne...


Taiwanese firms face tough China
IMMEDIATE CONCERN: An expert in Chinese affairs predicted that 20 percent of Taiwanese companies in China could close down by the end of next month

By Elizabeth Tchii
STAFF REPORTER, WITH CNA
Monday, Jul 14, 2008, Page 12

Despite a common perception that Taiwan is well positioned to capitalize on China’s success because of a degree of shared Chinese heritage and culture, one-fifth of the Taiwanese companies operating in China could close down by the end of next month because of the harsher investment climate there, an expert in China affairs predicted yesterday.

Wei Ai (魏艾), an associate professor at National Chengchi University’s Institute of Southeast Asia studies, said that many Taiwanese companies operating in China, particularly those involved in labor-intensive manufacturing, were unlikely to sustain their operations after next month because of newly implemented labor contract laws, higher corporate income taxes and a soaring Chinese yuan.

Since last year, the corporate income tax for businesses located in China’s coastal cities has risen to 25 percent from the 15 percent preferential tax that was previously in place for foreign-invested companies.

In addition, Wei said, the yuan has appreciated 18 percent since July 2005, when the Chinese authorities reformed statutes governing currency exchanges.

“These factors have increasingly pushed Taiwanese companies to cut corners as their operating costs in China have continuously increased,” Wei said.]]> Mon, 14 Jul 2008 07:13:57 -0400 To support what I was saying yesterday...
Have a look at this article today in Taipei times
www.taipeitimes.com/Ne...


Taiwanese firms face tough China
IMMEDIATE CONCERN: An expert in Chinese affairs predicted that 20 percent of Taiwanese companies in China could close down by the end of next month

By Elizabeth Tchii
STAFF REPORTER, WITH CNA
Monday, Jul 14, 2008, Page 12

Despite a common perception that Taiwan is well positioned to capitalize on China’s success because of a degree of shared Chinese heritage and culture, one-fifth of the Taiwanese companies operating in China could close down by the end of next month because of the harsher investment climate there, an expert in China affairs predicted yesterday.

Wei Ai (魏艾), an associate professor at National Chengchi University’s Institute of Southeast Asia studies, said that many Taiwanese companies operating in China, particularly those involved in labor-intensive manufacturing, were unlikely to sustain their operations after next month because of newly implemented labor contract laws, higher corporate income taxes and a soaring Chinese yuan.

Since last year, the corporate income tax for businesses located in China’s coastal cities has risen to 25 percent from the 15 percent preferential tax that was previously in place for foreign-invested companies.

In addition, Wei said, the yuan has appreciated 18 percent since July 2005, when the Chinese authorities reformed statutes governing currency exchanges.

“These factors have increasingly pushed Taiwanese companies to cut corners as their operating costs in China have continuously increased,” Wei said.]]> http://seekingalpha.com/article/84631-china-lower-export-growth-may-lead-to-policy-mistakes?source=feed#comment-204225 204225 It depends which industry you are looking for: for all labor-intensive industries, the trend is already reversed for few years now: most taiwanese shoes manufacturers have left for Vietnam and Indonesia...More alarming, Hon Hai (the biggest computer parts maker in the world) , but also Compal, Asustek..etc..are all planning to split at least 50% of their operations from south China to Vietnam...
It is a headache too that the vietnamese economy is showing high inflation rate, but the wages start to grow from the level they were in china 10 years ago...
I should say that most Taiwanese huge investors have always been at the forefront to spot the right combination of cheap labor, export growth potential and land availability....and right now, these 3 ingredients are disappearing at lightspeed from china business environment.
Honestly speaking, without cheap labor, nobody would have ever invested so much in China: the productivity level is abysmally low, the quality of products is often dubious, the tax incentives for foreign companies are gone since early this year,and now the authorities have added a rigid labor law (good for the sake of the employees) but which is scaring the employers.
The chinese government has long hoped that their Plan B i.e develop the domestic market , would offset the decrease of growth brought by the export boom of the years 1995~2006, but considering the strain of the inflation on the everyday lives of average people, I dont think it is going to happen at all...
I still believe we are entering a very dangerous timefor China as a whole , not just for financial markets...]]> Sun, 13 Jul 2008 10:32:54 -0400 It depends which industry you are looking for: for all labor-intensive industries, the trend is already reversed for few years now: most taiwanese shoes manufacturers have left for Vietnam and Indonesia...More alarming, Hon Hai (the biggest computer parts maker in the world) , but also Compal, Asustek..etc..are all planning to split at least 50% of their operations from south China to Vietnam...
It is a headache too that the vietnamese economy is showing high inflation rate, but the wages start to grow from the level they were in china 10 years ago...
I should say that most Taiwanese huge investors have always been at the forefront to spot the right combination of cheap labor, export growth potential and land availability....and right now, these 3 ingredients are disappearing at lightspeed from china business environment.
Honestly speaking, without cheap labor, nobody would have ever invested so much in China: the productivity level is abysmally low, the quality of products is often dubious, the tax incentives for foreign companies are gone since early this year,and now the authorities have added a rigid labor law (good for the sake of the employees) but which is scaring the employers.
The chinese government has long hoped that their Plan B i.e develop the domestic market , would offset the decrease of growth brought by the export boom of the years 1995~2006, but considering the strain of the inflation on the everyday lives of average people, I dont think it is going to happen at all...
I still believe we are entering a very dangerous timefor China as a whole , not just for financial markets...]]> http://seekingalpha.com/article/84519-good-time-to-buy-chinese-currency-follow-the-hot-money?source=feed#comment-204094 204094 in the East part of China, the Wenzhou underground "bankers" are among the most famous, and the most aggressive.
Also, to reply to the last line of the author of the article, it is not just how to bring in your US$ or Can$ that you need worry about...
For this, you could do like most Chinese and Overseas chinese do: use multiple benerficiaries accounts ...Since legally, each personal account is limited to us$ 50,000/ year...
The most difficult part will be to take your money out, the day hot money will not be hot anymore..and when everybody will be fleeing for the escape door at the same time.]]> Sun, 13 Jul 2008 07:03:55 -0400 in the East part of China, the Wenzhou underground "bankers" are among the most famous, and the most aggressive.
Also, to reply to the last line of the author of the article, it is not just how to bring in your US$ or Can$ that you need worry about...
For this, you could do like most Chinese and Overseas chinese do: use multiple benerficiaries accounts ...Since legally, each personal account is limited to us$ 50,000/ year...
The most difficult part will be to take your money out, the day hot money will not be hot anymore..and when everybody will be fleeing for the escape door at the same time.]]> http://seekingalpha.com/article/84278-is-shanghai-discounting-the-fight-against-inflation?source=feed#comment-202056 202056 Regarding the over-invoicing on chinese exports, based on my own experience, I would say that it is closer to 5% of total chinese exports; but of course, maybe it is just that I deal with trickier and smarter exporters.
Some are even asking for total amount to be paid in full in HK accounts.
As long as the foreign buyers trust the chinese manufacturers/exporter... enough to wire the money in another place than China to pay for their purchases, I dont see how the chinese authorities can detect this ongoing system, of course even harder to curb it...As long as the exported goods show a declared value 10% more or less close to the national average for the same kind of goods, over-invoicing (as well as under-invoicing when it comes to try to decrease the import duties and VAT on imports) is virtually untraceable.
Another interesting thing is that until now, chinese authorities have placed a much serious emphasis on controlling the outflows of money than inflows: according to my experience, it is very difficult (and controlled) to exchange RMB into US$ if you want move this money out of china, while it is much easier to bring in foreign curencies and exchange for RMB (I know: with the limit of US$ 50,000 per year but a large chinese "family" can easily turn around)

Regarding the chinese stocks "crisis valuations", I am far from being an expert on chinese stocks, but having seen in chinese banks the queues of average chinese people in august-september 2007 withdrawing their savings and jumping on the train of stocks, just by word-of-mouth, I would say that now is quite a fair level of valuation. Once all the small investors got squeezed and dried up of their money, what is left is quite the actual value of the chinese companies....
In the boom days, when a chinese company was showing actual negative financial results, often its stock would go even higher....The stock market in China (like in Taiwan) has never been realistic , because it is composed of too many small investors, who act based on rumours, guesses and even fortune-telling...
The only real problem for the chinese government now is the fear of a general social unrest if the market drops more...
I think we are going to witness interesting events starting from september-october 2008, once the Olympic fervor will have died down]]> Thu, 10 Jul 2008 08:18:12 -0400 Regarding the over-invoicing on chinese exports, based on my own experience, I would say that it is closer to 5% of total chinese exports; but of course, maybe it is just that I deal with trickier and smarter exporters.
Some are even asking for total amount to be paid in full in HK accounts.
As long as the foreign buyers trust the chinese manufacturers/exporter... enough to wire the money in another place than China to pay for their purchases, I dont see how the chinese authorities can detect this ongoing system, of course even harder to curb it...As long as the exported goods show a declared value 10% more or less close to the national average for the same kind of goods, over-invoicing (as well as under-invoicing when it comes to try to decrease the import duties and VAT on imports) is virtually untraceable.
Another interesting thing is that until now, chinese authorities have placed a much serious emphasis on controlling the outflows of money than inflows: according to my experience, it is very difficult (and controlled) to exchange RMB into US$ if you want move this money out of china, while it is much easier to bring in foreign curencies and exchange for RMB (I know: with the limit of US$ 50,000 per year but a large chinese "family" can easily turn around)

Regarding the chinese stocks "crisis valuations", I am far from being an expert on chinese stocks, but having seen in chinese banks the queues of average chinese people in august-september 2007 withdrawing their savings and jumping on the train of stocks, just by word-of-mouth, I would say that now is quite a fair level of valuation. Once all the small investors got squeezed and dried up of their money, what is left is quite the actual value of the chinese companies....
In the boom days, when a chinese company was showing actual negative financial results, often its stock would go even higher....The stock market in China (like in Taiwan) has never been realistic , because it is composed of too many small investors, who act based on rumours, guesses and even fortune-telling...
The only real problem for the chinese government now is the fear of a general social unrest if the market drops more...
I think we are going to witness interesting events starting from september-october 2008, once the Olympic fervor will have died down]]> http://seekingalpha.com/article/83743-hot-money-in-china?source=feed#comment-198359 198359 I like to read your posts.... I wish I could be one of your students... ^__^ Plain man common sense, compared to some "arcane" sel-labelled experts on this website...
Talking about hot money...There is an article today in the Taipei times www.taipeitimes.com/Ne...
title : Beijing to launch foreign exchange monitoring system

"China will launch a foreign exchange monitoring system to scrutinize checks on the authenticity of export transactions, the government said, in its latest move to crack down on speculative capital inflows...."
Most people in the West think about hot money as coming out from USA or Europe, funds eager to benefit from a potential steep appreciation of the RMB...
But being a buyer and exporter of China-made goods and living permanently half in Shanghai and half in Taipei, I have seen first-hand that a lot of this hot money is actually "chinese money"... So many chinese businessmen are "over-invoicing" to get their money in HK or other places outside China...
First, it decrease the tax income for the chinese government, then this "blackmoney" will go back as you say, to feed the underground banks, shadow real-estate purchases...
It is not something new...except that now it is totally out of control...
I have seen anecdotal evidences too in HK newspapers and around my business friends: a metal factory owner from wenzhou driving up to Beijing with 2 hummers , one carrying him and his 3 bodyguards, and the second "truck" carrying dozens of rice bags filled with 100 rmb banknotes...to go buy real estate in Beijing
My feeling is that the authorities finally start to tighten all screws, not matter with chinese nationals or with foreigners working in china with tourist or visitor visas...everything seems to confirm a will to increase the net of taxes collection, and control over the flow of money..
Just my 2 cents
]]> Fri, 04 Jul 2008 00:55:22 -0400 I like to read your posts.... I wish I could be one of your students... ^__^ Plain man common sense, compared to some "arcane" sel-labelled experts on this website...
Talking about hot money...There is an article today in the Taipei times www.taipeitimes.com/Ne...
title : Beijing to launch foreign exchange monitoring system

"China will launch a foreign exchange monitoring system to scrutinize checks on the authenticity of export transactions, the government said, in its latest move to crack down on speculative capital inflows...."
Most people in the West think about hot money as coming out from USA or Europe, funds eager to benefit from a potential steep appreciation of the RMB...
But being a buyer and exporter of China-made goods and living permanently half in Shanghai and half in Taipei, I have seen first-hand that a lot of this hot money is actually "chinese money"... So many chinese businessmen are "over-invoicing" to get their money in HK or other places outside China...
First, it decrease the tax income for the chinese government, then this "blackmoney" will go back as you say, to feed the underground banks, shadow real-estate purchases...
It is not something new...except that now it is totally out of control...
I have seen anecdotal evidences too in HK newspapers and around my business friends: a metal factory owner from wenzhou driving up to Beijing with 2 hummers , one carrying him and his 3 bodyguards, and the second "truck" carrying dozens of rice bags filled with 100 rmb banknotes...to go buy real estate in Beijing
My feeling is that the authorities finally start to tighten all screws, not matter with chinese nationals or with foreigners working in china with tourist or visitor visas...everything seems to confirm a will to increase the net of taxes collection, and control over the flow of money..
Just my 2 cents
]]>