North Korean soldiers patrol next to the border fence near the town of Sinuiju across from the Chinese border town of Dandong on Feb. 10, 2016. (JOHANNES Eisele / AFP / Getty Images)North Korean soldiers patrol next to the border fence near the town of Sinuiju across from the Chinese border town of Dandong on Feb. 10, 2016. (JOHANNES Eisele / AFP / Getty Images)

BEIJING/HONG KONG — China‘s central bank has told banks to strictly implement United Nations sanctions against North Korea, four sources told Reuters, amid U.S. concerns that Beijing has not been tough enough over Pyongyang’s repeated nuclear tests.

Tensions between the United States and North Korea have ratcheted up after the sixth and most powerful nuclear test conducted by Pyongyang on Sept. 3 prompted the United Nations Security Council to impose further sanctions last week.

Chinese banks have come under scrutiny for their role as a conduit for funds flowing to and from China‘s increasingly isolated neighbor.

The sources said banks were told to stop providing financial services to new North Korean customers and to wind down loans with existing customers, following tighter sanctions against Pyongyang by the United Nations.

US Ambassador to the United Nations Nikki Haley (R) speaks with China’s Ambassador to the United Nations Liu Jieyi before voting on a US-drafted resolution toughening sanctions on North Korea, at the United Nations Headquarters in New York, el ago. 5, 2017. (EDUARDO MUNOZ ALVAREZ/AFP/Getty Images)

The sources said lenders were asked to fully implement United Nations sanctions against North Korea and were warned of the economic losses and reputational risks if they did not do so.

Chinese banks received the document on Monday, the sources said.

China‘s central bank did not immediately respond to a request for comment.

“At present, management of North Korea-related business has become an issue of national-level politics and national security,” according to the document seen by the sources.

The document directed banks to explain to any North Korean customers that “our bank is fulfilling our international obligations and implementing United Nations sanctions against North Korea. As such, we refuse to handle any individual loans connected to North Korea.”

The document did not specify whether existing North Korean account holders could still deposit or remove money from their accounts.

Frustrated that China had not done more to rein in North Korea, the Trump administration considered new sanctions in July on small Chinese banks and other firms doing business with Pyongyang, two senior U.S. officials told Reuters.

China‘s Big Four state-owned banks have stopped providing financial services to new North Korean clients, Reuters reported last week, with some measures beginning as early as the end of last year.

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United States Trade Representative Robert Lighthizer said on Monday that China’s manipulative trade practices and economic model represent an “unprecedented threat’. (Paul Huang / La Gran Época)United States Trade Representative Robert Lighthizer said on Monday that China’s manipulative trade practices and economic model represent an “unprecedented threat’. (Paul Huang / La Gran Época)

China’s manipulative trade practices and economic model represent an “unprecedented threat” to the world’s market-based economy and U.S. interests, said the incumbent United States Trade Representative Robert Lighthizer in a speech on Monday.

It was the first major public speech given by Lighthizer, a long term critic of China’s trade practices against the United States. Lighthizer told a crowd of over a hundred at the Center for Strategic and International Studies that China represents the one challenge facing the administration that is “substantially more difficult than those faced in the past.”

“The sheer scale of their coordinated efforts to develop their economy, to subsidize, to create ‘National Champions,’ to force technology transfers, and to destroy market, in China and throughout the world, is a threat to world trading system that is unprecedented,” said Lighthizer.

Lighthizer was referring to the hundreds if not thousands of Chinese state-owned enterprises (SOE) that are institutionally protected and promoted by the Chinese regime, hence known as the “national champions” of the Chinese economy.

Not only do Chinese state-owned enterprises receive extensive protection from the Chinese regime against foreign competition, they are also often the culprits in stealing technology and other intellectual properties from foreign companies. Large number of American companies have fallen victim to such abusive tactics by the Chinese, which has resulted in massive job losses on the part of American workers, according to Lighthizer and many other critics of China’s trade practices.

“Unfortunately the World Trade Organization is not equipped to deal with this problem,” Lighthizer said, “WTO and its predecessors, the General Agreement on Tariffs and Trade (GATT), were not designed to successfully manage mercantilism on this scale.”

“We must find other ways to defend our companies, trabajadores, farmers, and indeed, our economic system,” said Lighthizer, “We must find ways to ensure our market-based economy prevails.”

Cargo ships berth at a port in Qingdao, east China's Shandong Province on June 8, 2016. (STR / AFP / Getty Images)

Abusive trade practices by the Chinese state-owned enterprises have inflicted significant harm on American companies and will be dealt with by the Trump administration, according to U.S. Trade Representative Robert Lighthizer. Photo showing cargo ships berthed at a port in Qingdao, China. (STR / AFP / Getty Images)

Lighthizer did not reveal specifics of the ongoing investigation regarding China’s alleged theft of intellectual property, a process that was started by President Trump on Aug. 14. He revealed, sin embargo, that the investigators receive “an awful lot of complaints” from executives of American companies that were hurt by the abusive practices of the Chinese, with many complaining that they were forced to give up their technology and corporate secrets to their Chinese competitors.

Trump Continues Hawkish Stance

Lighthizer’s comment on Monday represents the latest signal that Trump’s campaign pledge of a hardline trade policy against China remains steadfast, despite the departure on Aug. 19 of White House Chief Strategist Steve Bannon, who was widely thought to be the administration’s primary advocate of a hawkish stance against China.

Lighthizer is not the only “trade hawk” inside Trump’s administration. Peter Navarro, an economist who is also known for outspoken criticism of the Chinese regime and of China’s trade practices against the United States, was selected by President Donald Trump to head the newly created National Trade Council and is believed to be playing a key role in forming the Trump administration’s trade policies.

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TORONTO-El documental “The Hustle de China,”Que se estrenó recientemente en el Festival Internacional de Cine de Toronto, muestra cómo cientos de empresas chinas que cotizan en las bolsas de valores de América del Norte pueden causar mil millones de pérdidas para los inversores debido a la falta de supervisión adecuada.

Estas firmas chinas entran en la U.S. mercado de valores a través de adquisiciones inversas con empresas estadounidenses y los ingresos de informe y activos que no tienen una base de la realidad, inflar tanto valor de las acciones de las empresas.

Hacer una historia sobre las transacciones financieras complejas para el espectador todos los días era uno de los mayores desafíos que enfrentan los Jed Rothstein, director de “The China prisa.”

“Los delitos financieros son por su naturaleza muy compleja; su complejidad es lo que permite el fraude,”Dijo Rothstein, el productor / director detrás de “Antes de la primavera después de la caída” y “Killing in the Name”.

“Tratamos de hacerlo lo más fácil de entender como sea posible sin dejar de hacer seguro de que es preciso. ... Así que ese es el desafío,”Dijo el realizador en una entrevista.

Jed Rothstein, el director de “The China Hustle”, se sienta para una entrevista con La Gran Época de sept. 9, 2017 durante el Festival Internacional de Cine de Toronto. (Becky Zhou / La Gran Época)

Entre los participantes en el mercado aparecen en el documental es Carson Block, fundador de la firma de investigación de inversiones Muddy Waters, el cual jugó un papel decisivo en el colapso de las EET-enumerado Sino-Forest, una empresa forestal con demandas de operaciones masivas en China.

En julio, la Comisión de Valores de Ontario dictaminó que Sino-Forest y varios de sus ejecutivos defraudó a los inversores y engañó a los investigadores.

Bloquear y otros investigadores aparecen en el documental utilizado equipos de investigación para la creación de cámaras e incluso realizar visitas a las instalaciones secretas de operaciones de las empresas chinas que cotizan en la Bolsa de Nueva York, a menudo con gran riesgo para los miembros del equipo.

Uno de los investigadores, Chino-canadiense Kun Huang, fue encarcelado durante dos años en China después de la firma trabajó para cuestionado las afirmaciones de producción de SILVERCORP Metals Inc., una empresa con sede en Vancouver, con operaciones en China. Huang ha puesto en marcha una demanda contra SILVERCORP, alegando que en connivencia con las autoridades locales en China para que lo arresten.

“Creo que hay una gran cantidad de oportunidades para invertir y ganar dinero en todo el mundo, pero cuando las reglas de los mercados no pueden traducirse a través de las mismas fronteras que el dinero puede, crea oportunidades de fraude, como vimos en la película de la ‘China Hustle’,”Dijo Rothstein.

Con la presentación de informes por Becky Zhou

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En esta foto de archivo de un barco chino se abre camino hacia el puente de puerta de los leones en el puerto de Vancouver,  una de las pasarelas más importantes de América del Norte a Asia.(CP Foto / Chuck Stoody)En esta foto de archivo de un barco chino se abre camino hacia el puente de puerta de los leones en el puerto de Vancouver,  una de las pasarelas más importantes de América del Norte a Asia.(CP Foto / Chuck Stoody)

ANÁLISIS DE NOTICIAS

Como TLC negociaciones con Estados Unidos muestran un progreso lento, un nueva encuesta muestra que más canadienses quieren aumentar las relaciones comerciales más allá de los Estados Unidos, con Europa y el Reino Unido-jurisdicciones con las instituciones democráticas similares como Canadá y tomando los primeros lugares.

China toma el cuarto lugar como socio comercial de elección, un hallazgo similar a las encuestas periódicas en los últimos años muestran una disminución en el interés de los canadienses en el libre comercio con China.

El gobierno federal sigue adelante con las conversaciones de libre comercio con China, sin embargo, con una decisión sobre el posible acuerdo con el gigante asiático se espera este otoño, según The National Post.

La Gran Época contactó Asuntos Globales Canadá para una actualización sobre las negociaciones de libre comercio entre Canadá y China, pero las respuestas a preguntas que no fueron proporcionados por cierre de esta edición. fase de consulta pública del gobierno sobre la propuesta de acuerdo se cerró en junio.

Como U.S. Presidente Donald Trump juega duro en las negociaciones del TLC, la búsqueda de un acuerdo de libre comercio con China de Canadá ha sido citado por algunos como un intento de enviar una señal a su vecino del sur que Canadá no está limitado en la elección cuando se trata de los socios comerciales.

Sin embargo, el gobierno liberal comenzó las negociaciones sobre un posible acuerdo de libre comercio con China inmediatamente después de su llegada al poder en el otoño de 2015. Eso fue mucho antes del triunfo, entonces candidato presidencial republicano, criticado términos del TLCAN por ser demasiado a favor de Canadá como presidente de los Estados Unidos.

La encuesta Angus Reid publicado la semana pasada pidió a los canadienses en los que su gobierno debe buscar desarrollar lazos comerciales más estrechas. Alrededor 45 por ciento eligió los EE.UU., seguido de cerca por los Estados Unidos en torno 40 por ciento. El tercer lugar con 30 por ciento asistió al Reino Unido, que está en el medio de salir de la UE y será por sí misma en ningún conversaciones comerciales. China, con cerca 25 por ciento, llegó en cuarto.

Angus Reid señala que el interés de los canadienses para el desarrollo de vínculos comerciales más estrechos con China ha estado en declive desde la empresa de investigación empezó por primera vez su sondeo periódico sobre el tema en 2014.

Incluso entre propia base de apoyo de los liberales, es decir. los que votaron en el liberal 2015 elección federal, apoyo para un acuerdo de libre comercio es inferior a dos de cada cinco.

Imperio de la ley

Los liberales iniciativas “conexión humana” y “intercambios de pueblo a pueblo” entre China y Canadá en los últimos años fueron citados como un intento de revertir las tendencias negativas de votación de puntos de vista de los canadienses sobre China, pero parece que no han tenido éxito en la fabricación de los canadienses más receptivos a las relaciones comerciales más estrechas.

Tal vez sea porque no son los representantes elegidos por el pueblo chino que supervisan los asuntos de su país, pero una sola entidad no elegido que controla todas las ramas del poder, incluyendo el poder judicial, en un sistema de partido único.

El control estatal manifiesta en China es algo que preocupa a Dean Allison, recién nombrado crítico de comercio internacional de los conservadores, si un acuerdo de libre comercio entre Canadá y China siga adelante.

“Desde luego, no le importa hacer ofertas con el pueblo chino. Es cuando se tiene el estado involucrada en una forma tan grande que nos da algunos grandes preocupaciones,", Dijo en una entrevista.

Esa es la lección Amy Chang espera que los canadienses que quieran hacer negocios en China aprender. Los padres de Chang, John Chang y Allison Lu, Los ciudadanos canadienses que son dueños de bodegas de B.C. y Ontario, Actualmente se encuentran detenidos por las autoridades chinas en Shanghai sobre una supuesta disputa valoración en aduana.

Según Chang, las autoridades chinas han penalizado una disputa comercial en el caso de sus padres.

“Si esto es un problema con respecto a la subvaloración, entonces pueden hágamelo saber y podemos hacer frente a esta diplomáticamente. No hay necesidad de tener ciudadanos canadienses detenidos y encarcelados en el extranjero,”Chang dijo a The Canadian Press en la primavera pasada, cuando visitó Ottawa para pedir a los políticos federales de ayuda para conseguir que sus padres publicado el.

"[Beijing] Realmente es un gobierno que no juega por las reglas, no se basa en reglas,”Dijo Allison. "[En China] tenemos violaciónes claras del estado de derecho, ya que existiría aquí en Canadá “.

Esto significa que cuando se trata de un acuerdo de libre comercio con China, no hay garantía de la igualdad de condiciones, él dijo.

“Si usted y yo están tomando decisiones en Canadá sobre la base de los negocios y el interés personal y cómo funciona la economía de mercado, eso es una cosa, pero estamos compitiendo con una operación estatal organizado y controlado de forma sistemática. Creo que sesga la igualdad de condiciones,”Dijo Allison.

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los trabajadores de entrega ordenar paquetes para sus clientes en Beijing, China “escoge día,”Un día de fiesta que se ha convertido en el día más activo del mundo para el comercio electrónico, Nov. 11, 2016. (Foto AP / Andy Wong)los trabajadores de entrega ordenar paquetes para sus clientes en Beijing, China “escoge día,”Un día de fiesta que se ha convertido en el día más activo del mundo para el comercio electrónico, Nov. 11, 2016. (Foto AP / Andy Wong)

ANÁLISIS DE NOTICIAS

China, el mayor mercado de comercio electrónico del mundo, cuenta con más de 400 millones de compradores en línea, incluso como la mitad del país permanece sin conexión, pero las empresas canadienses deseosos enfrentan a obstáculos significativos para ganar cuota de mercado.

gigantes de comercio electrónico chino Alibaba y JD.com están haciendo un gran esfuerzo en Canadá tratando de llegar a más empresas canadienses a unirse a sus plataformas y vender a los chinos.

multimillonario presidente de Alibaba, Jack Ma, hará su terreno de juego para los negocios junto primer ministro canadiense canadiense Justin Trudeau-en un evento en Toronto llamado “Gateway 17” de sept. 25.

La Junta Toronto Región de Comercio organizó JD.com en julio para una rueda de negocios con más de 50 Las empresas canadienses.

productos canadienses tienen una excelente reputación en China. La creciente clase media china es recelosos de productos chinos baratos y valora la calidad de la fabricación de Canadá y el ambiente prístino de productos agroalimentarios.

Mas ampliamente, China está experimentando una larga transformación de una economía orientada a la inversión a una basada en el consumo de una sola lejos de la industria pesada y hacia el sector de servicios. El comercio electrónico tiene un papel vital que desempeñar en la estrategia del gobierno chino.

“Las plataformas de comercio electrónico están realmente ayudando a normalizar el acceso al mercado en China para las personas de todos los grupos de ingresos, que es una prioridad importante en China,”Dijo Jan De Silva, presidente y CEO de la Junta de Comercio de Toronto Región, en una entrevista telefónica.

Motivos de preocupación

El comercio electrónico podría simplificar ciertos aspectos de hacer negocios en China, pero los retos generalizados como la falta de estado de derecho y la propiedad intelectual (IP) violaciónes no son más que un par de las dificultades que enfrentan las empresas extranjeras.

NOS. Presidente Donald Trump inició una sonda en robo de propiedad intelectual de China, el cual se estima que es responsable de entre el 50 y 80 por ciento de todas las violaciónes de propiedad intelectual que dañan el U.S. economía, de acuerdo con la Informe de la Comisión IP. Los Estados Unidos. Cámara de Comercio estima 86 por ciento de todos los productos falsificados provienen de China y Hong Kong.

Botellas de vino de Bodegas Clear Lake, una operación de exportación de vinos de Ontario a China. (Cortesía María Whittle)

Botellas de vino de Bodegas Clear Lake, una operación de exportación de vinos de Ontario a China. (Cortesía María Whittle)

“Una gran cantidad de productos en Alibaba es una falsificación. Los consumidores saben que también,”Dijo Mary Whittle en una entrevista telefónica. Ella es el CEO de Clear Lake Bodegas, una empresa de gestión familiar que exporta vinos de Ontario a China.

sin embargo, China está tomando medidas enérgicas contra violaciónes de propiedad intelectual por una buena razón. Se da cuenta de que algunas de sus empresas pueden ser campeones mundiales siempre y otras empresas no apoderarse de sus IP. Por lo que deben ser protegidos. El número de asentamientos en los últimos años se constituyen aproximadamente el cuádruple bajo el marco jurídico más fuerte, De Silva dice.

violaciónes de propiedad intelectual no se limitan a productos falsificados. Ellos pueden hacer fracasar un negocio cuando una empresa sin escrúpulos se entera del nombre legal de un negocio legítimo y se convierte en el primero en registrar o utilizar ese nombre en China. A continuación, presenta una demanda contra el verdadero negocio cuando se trata de registrarse o utilizar el nombre en China.

El Servicio de Delegados Comerciales de Canadá (CTCS) advierte que las patentes y marcas registradas en Canadá o en otros países no suelen estar protegidos en China y que la aplicación reglamentaria todavía puede ser insatisfactoria. La página web CTCS incluso tiene una sección extensa sobre los riesgos de negocio relacionados con la corrupción en China.

Una gran cantidad de productos en Alibaba es una falsificación. Los consumidores saben que también.

- Mary Whittle, CEO, Clear Lake Bodegas

Otra advertencia de los CTC, en una sección titulada “Una introducción al comercio electrónico en China,”estados: “Las políticas gubernamentales que regulan el mercado son densos, Complicado, y propenso a cambios sin previo aviso “.

Un ejemplo extremo de aplicación de la reglamentación opaca de China es el caso de John Chang y Allison Lu, propietarios de Lulu Island bodega con sede en aC, que se enfrentan a un mínimo de 10 años-y posiblemente toda la vida en prisión por supuesto contrabando de vino a China. La bodega dijo que creía que había seguido todas las leyes aplicables, sin embargo, Chang ya ha estado sirviendo a la cárcel.

“La detención del Sr.. Chang y Ms. Lu por una violación de las costumbres fabricado es un asalto a sus derechos básicos, un incumplimiento de las obligaciones comerciales internacionales de China, y las propias leyes aduaneras de China,”Dijo conservador crítico de comercio internacional, Gerry Ritz, según lo informado por la CBC En Mayo.

En un correo electrónico a La Gran Época, Brianne Maxwell, portavoz de Asuntos Globales de Canadá dijo: "Estamos siguiendo el caso del Sr.. Chang y Ms. Lu estrechamente. Las autoridades canadienses están en contacto con las autoridades pertinentes de China y están proporcionando asistencia consular al Sr.. Chang, Sra. Lu y su familia. representantes canadienses han planteado el caso con las autoridades chinas en niveles altos. Para proteger la privacidad de las personas afectadas, más detalles sobre este caso no pueden ser liberados."

El estado de derecho es necesario para que los negocios prosperen de manera legítima. Está claro que todavía tiene un largo camino por recorrer en China.

Los gigantes de comercio electrónico chinos son básicamente mecanismos de facilitación y entrega. Pero hacer negocios en China es mucho más que llenar una orden. El consumidor chino es bombardeado con opciones y una variedad de esquemas de comercialización. La realidad es que muchos países están tratando de vender a los chinos, lo que hace que los esfuerzos de marketing para distinguir productos costosos. La competencia es intensa.

Whittle dice que fue informado por JD.com que una empresa puede gastar $400,000 en una campaña de comercialización de un mes y no hay garantía el mensaje registraría con los consumidores.

“Es un mercado muy difícil de penetrar y se puede hacer muchas cosas bien y todavía es difícil, muy difícil de romper a través del ruido, compitiendo contra todos los demás países y todos los demás productos,”Dijo Whittle.

Los gigantes de comercio electrónico pueden estar tratando de poner signos de dólar en la cabeza de las empresas canadienses, pero hay muchos factores para el éxito que están fuera de su control.

Siga Rahul en Twitter @RV_ETBiz

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Yao Gang.Yao Gang.

The former high-flying vice chairman of China’s top body for regulating stocks has been brought down, an action experts believe is preparation for the pivotal 19th Party Congress in October.

Yao Gang, 55, was targeted in November 2015, five months after the mid-year stock crash. He is one of the highest-ranking officials disciplined for alleged stock manipulation.

In mid-June of 2015, the stock market that had seen a long bull run lost nearly a third of its value in three weeks. Shanghai and Shenzhen stock indexes plummeted more than 40 percent during the summer.

The procuratorate stated that Yao was subject to “coercive measures,” but did not spell out the details. In an earlier statement issued by the Central Commission for Discipline Inspection, China’s topmost anti-graft agency, Yao was accused of “resisting investigation,” “disrupting the order of the capital market,” and “sabotaging political ecologies in the security regulation department.”

Yao was expelled from the party and dismissed from office on July 20, 2017. en agosto. 31, the Supreme People’s Procuratorate announced he has been placed under investigation for taking bribes.

‘King of IPOs’

Known as the “King of IPOs” at China’s Securities Regulatory Commission (CRSC), Yao had been in charge of public offerings of A shares—stocks of mainland-based companies—since 2002.

Yao enjoyed a lengthy and cushy career in the security regulation sector. He had been the vice director in the futures administration department in 1993, and ended up presiding over the China Securities Commission as deputy director in 2008. In Nov. 2015, he was investigated on suspicion of “serious breaches of Party discipline,” a phrase commonly used for bribery probes in China.

Chinese news portal Tencent suggested that Yao might be connected to Ling Jihua, a former top aide to the previous Party leader Hu Jintao. The CRSC office over which Yao presided approved six requests for public listings from Ling’s fugitive brother Ling Wancheng, including one for the little known company LeTV.

Huijin Lifang Capital, a private equity firm controlled by Ling Wancheng, amassed 1.4 mil millones de yuanes ($225 millón) from an initial public offering, according to Caixin. Ling Jihua was arrested for corruption on July 2015, and given a life sentence the following year.

Following Yao’s downfall in July, some Chinese media have criticized him by calling him a “stock traitor” who “colluded with domestic and foreign forces to short the Chinese stock market.” Ifeng reports that some high officials in CSRC transferred a large amount of capital to Hong Kong and Singapore during the rescue of the market, citing Hong Kong media. At least seven of Yao’s associates in the security regulation system have been placed under investigation, de acuerdo a Xinhua.

A Warning

The same day that Yao was put under investigation, Beijing also confirmed the date of the 19th Party Congress. Some analysts believed that making the two announcements on the same day was a subtle hint that Xi’s corruption campaign might be focusing on the financial sector.

“Xi’s biggest concern is the financial sector that has been secretly doing sabotage,” the political commentator Tang Jingyuan told The Epoch Times. “By striking a blow at the tycoons and punishing tigers in the financial sector like Yao Gang, Xi Jinping is giving a warning to those bigwigs and corruption groups who still have strength to challenge him.”

“Everyone understands that the economy is the biggest pillar of the Chinese government’s legitimacy to govern and win over popular sentiment,” Chen Jieren, a Beijing-based political commentator, told The New York Times in a 2015 entrevista.

Chen said that a declining economy would put more pressure on the leadership. “If the economy falters, the political power of the Chinese Communist Party will be confronted with more real challenges…and Xi Jinping’s administration will suffer even more criticism.”

Yao was one of the five officials disciplined over the past month in the latest anti-corruption probe of China’s financial sector. Zhang Yujun, the former assistant head of the China security watchdog; and Yang Jiacai, the ex-assistant chairman of China Banking Regulatory Commission, were placed under investigation on July 21 and Aug. 1 respectivamente.

According to Beijing News, China has ousted over 60 officials and senior managers in the financial sector since President Xi Jinping came to power in 2012.

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A worker checks the production in the packaging section of the newly opened Lego factory in Jiaxing, Zhejiang Province, China, el nov. 24, 2016. (JOHANNES Eisele / AFP / Getty Images)A worker checks the production in the packaging section of the newly opened Lego factory in Jiaxing, Zhejiang Province, China, el nov. 24, 2016. (JOHANNES Eisele / AFP / Getty Images)

The Chinese economy is strange in many ways. Not only is it a hybrid between private capital and state control, but very few people directly invest in the mainland — and yet everybody is interested in how the second largest economy in the world is going to develop.

That’s because Chinese demand determines the prices of world commodities, and the operations of multinational companies in China impact earnings. When the yuan falls, markets across the world get jittery.

China watchers accept the fact that official Chinese data is severely flawed, and often simply fabricated, yet they still use it to analyze the Chinese economy and markets because there are few alternatives.

One alternative, sin embargo, is the China Beige Book International (CBB), a research service that interviews thousands of companies and hundreds of bankers on the ground in China each quarter. They collect data and perform in-depth interviews with Chinese executives.

Leland Miller, president of China Beige Book International.

Leland Miller, president of China Beige Book International.

Leland Miller, the founder of CBB, spoke with La Gran Época about which investors and companies are interested in China, the latest developments in the currency, U.S.-China relations, overcapacity problems, and the One Belt One Road Initiative.

La Gran Época: Who are the investors and companies interested in China and your services?

Leland Miller: There’s people who play the share roulette or people who have a specific company in mind. We see a lot of this in the retail space and they want to get more information from us. They invest in something where they think there is this untapped market either in China or as China goes abroad.

You’ve got macro firms who may not care about the day-to-day in China but want to make sure they understand the dynamics of China demand, of China credit, of China currency, so that they don’t get caught out.

Commodities are in incredibly high demand. We spend a lot of our time dealing with commodities firms now because we have all this data that’s not typically available. Things like net capacity, and a lot of firms have said, "Bien, we have no way of checking government numbers…. If they say they’re cutting capacity, we have to believe them.” Well, we don’t believe them, we do it ourselves and what we found is that the opposite is happening across commodities, across time.

So you have all these different types of firms, but I think there is one uniting factor: whether they’re doing China micro, they’re doing China macro, or some niche element of the economy. If they don’t get China right, there are going to be repercussions in their portfolio.

So even people now who have absolutely nothing to do with China are clients of ours because as they keep abreast of what’s going on, they need to understand this and not get knocked from the side off their feet when they weren’t expecting it.

An increasing share of our clients are people who just want to understand China at the 30,000-feet level. Our early clients are people who want to understand at the 30-feet level. And we have everything in between, but also the corporates. The corporates have a very different mind-set: they need to know different things than, say, a hedge fund or other asset manager, who is simply trying to find a good trade.

La Gran Época: How do you see the Chinese currency developing?

Señor. Miller: They took a very risky strategy on the currency dating back to last fall, and it worked. But it didn’t have to work and it may not have worked, and I think it’s worth looking back at this chronology because this could have been a very different year had some of this not worked out. Back in September 2016, the Chinese started to understand that there was a very real chance that the Federal Reserve (Fed) was going to hike in December, and they needed to prepare the currency and prepare themselves for a rate hike.

They started doing that and they weakened the currency. And then when President Trump was elected, they said, “Okay, bien, we got to do this even more. We have to weaken right up until he gets elected so that we can come back and say we’re going to strengthen it once he gets elected.” Now it’s a very cynical strategy that happened to work, but what’s interesting is that there was an enormous amount of commentary late in 2016, early 2017, about how — and we see this all the time — now that China is pegged to a basket, it’s not pegged to the dollar, and that the Chinese have made this move.

That is just not correct. They had not switched, there has not been this back-and-forth. The yuan is essentially pegged to the dollar. The seven handle on this, the seven yuan to the dollar is extremely important for a lot of reasons, most importantly the politics around this, the politics with Congress, the politics with Trump, the politics with the Chinese leadership.

And the idea of them creeping closer and closer to 7 was a real major problem. They understood that this was a politically charged number and they got real close to it and they timed it well and they backed off it, and it had been strengthening ever since which has been supported by the fact that the dollar has been in a weakening trend.

But the interesting thing here is they figured out, “We’re going to give Trump little rationale for letting him say we are a currency manipulator. But right up until that point, we’re going to keep weakening, and we’re going to hope that nothing bad happens.”

Shockingly, they got up to 6.9 — it was approaching a danger point where I think markets would have started caring, and they backed off at the right time. So they have had the 2017 best case scenario, they haven’t had these interruptions, they haven’t had a super strong dollar that a lot of people thought was going to happen six months ago.

So the yuan is not on the top of people’s worry list right now but it’s just a matter of time before they have to deal with these dynamics again, unless the dollar is in a long term weakening trend.

La Gran Época: How do you see U.S.-China relations in the future?

Señor. Miller: The administration understood that China’s a radioactive word if you use it politically, so we’re going to fight back on China, we’re going to save American workers from the tyranny of Chinese goods. That was the calling card for a while. And then of course President Xi and President Trump met at Mar-a-Lago and had this beautiful chat and everything turned around.

President Trump was convinced to give the Chinese some amount of time to fix the trade problem and fix North Korea and a whole bunch of other things. A lot of really smart China watchers have been saying recently that the President is angry that the Chinese have not done what he wanted them to do on the trade side of North Korea and he’s flipped and you’re about to see the repercussions.

I would actually push back against that. I think that what you’re seeing right now is a gradual dissatisfaction with this. But the real tea leaf here will be the South China Sea. Los Estados Unidos. position in the South China Sea has just been invisible for the most part. quiero decir, they talk about a few spy ops but they have been mostly invisible for the past six, seven months.

And when the President, the White House, the administration makes this turn and decides: “Alright, China is not going to help us out, we now need a stick and we need a big stick,” you’re going to start seeing developments in the South China Sea. The fact that there has been some push back on trade, the fact that we’re talking a little bit about steel, it’s totally misunderstood.

The steel measures being talked about are not anti-China, although they’ll be sold as that. So I think we need to stop jumping the gun on the idea that the president has turned hostile on China. This hasn’t happened. Do we think it will happen? Sí. I think it’s a 2018 thing. But I don’t think that there has been a major shift in policy.

Chinese blacksmiths at a steel furnace in Nuanquan, China, el feb. 23, 2015. A booming property sector and monetary stimulus provided support for battered steel companies in 2017. (PHOTO BY GETTY IMAGES)

Chinese blacksmiths at a steel furnace in Nuanquan, China, el feb. 23, 2015. A booming property sector and monetary stimulus provided support for battered steel companies in 2017. (PHOTO BY GETTY IMAGES)

La Gran Época: Are the Chinese really tackling the overcapacity problem?

Señor. Miller: There are two stories here. The first is what our data is saying and the second is the mistake I think a lot of investors make in seeing commodities as monolithic in China.

People usually think that they’re either going to cut capacity across the board or they’re not going to cut capacity at all. So what we have been seeing is not cutting capacity. When prices have gone up, a lot of investors said, “Look, the Chinese government is making good on their pledges to cut capacity. Look at prices are going up, imports are going up.” Anecdotally, that suggests they’re cutting capacity.

Ahora, they are cutting gross capacity, but total capacity added has gone up every quarter and it’s gone up in almost every sub-sector every quarter. They are adding capacity, and this is very intuitive if you think about it. There are all these industries who used to laugh about the economic reports we used to get from these firms quarter after quarter after quarter of higher inventories, worse revenue, no profits, more capacity — it was just a joke.

Now all of a sudden they’re getting this good economic scenario and they are not about to cut back. It makes sense that they’re not cutting back, but the narrative on this is that the Chinese government is hard at work cutting capacity, and it’s totally a mistaken narrative. Ahora, we tracked this very closely across coal, aluminium, acero, and copper, and there is a very clear dynamic there and it’s been clear for the last year plus. They are not cutting net capacity.

Now the other issue here is the differences between sub-sectors. When you look at coal and when you look at steel, there’s a different long term concern about the two of them. With all these Chinese commodities, there’s potential overcapacity issues, but coal kills people and coal turns people’s lungs black.

China Beige Book International (CBB) is an independent research firm that collects data from thousands of Chinese firms every quarter, including in-depth interviews with local executives. A pesar de la CBB no da cifras de crecimiento definitivos, it logs how many companies increased their revenues, how many laid off workers, and many more datapoints.

China Beige Book International (CBB) is an independent research firm that collects data from thousands of Chinese firms every quarter, including in-depth interviews with local executives. A pesar de la CBB no da cifras de crecimiento definitivos, it logs how many companies increased their revenues, how many laid off workers, and many more datapoints.

And so the idea that the Chinese can continue to crank out coal the same way they can crank out steel, with the same repercussions, it’s not there. So over time I think we will see a pullback on the coal side. It’s an open question as to whether we’ll see it in steel and aluminum; a lot of this might be affected by the trade actions coming out of the United States, but right now the major story here is that investors are guessing.

They’re guessing based on prices and they’re getting this wrong more often than not. They don’t understand the degree to which these sub-sectors are cutting back. De hecho, they increasing capacity, they’re bringing more capacity online. They take the old ones and take them offline or the ones that aren’t being used, but they’ll activate others or they’ll build others or they’ll upgrade others. So the overall dynamic is that more capacity is being brought online but then make a very big show of what they take offline or what they blow up.

They used to put TNT into giant iron plants and blow them up to show that the government was doing something. This is the equivalent of this in 2017. But net net, they’re not cutting back right now. They’re trying to take advantage of a good market for their goods and so this is going to shock people. It’s already surprised people; that’s why you see these enormous 5 por ciento, 8 percent moves in a day on these commodity markets. But it’s going to shock people more going forward when they understand the totality of what has happened over the past year.

La Gran Época: What are your thoughts on the One Belt One Road (RAMA) initiative?

Señor. Miller: What is the real goal for this? The goal is to exert Chinese influence abroad, it’s to recycle surpluses in goods and services abroad to some degree because of oversupply. It will accomplish certain things but is it a worthwhile project? Is it going to do what everyone thinks it’s going to do? No, of course not.

But there are things being done. It is a project large in scope, it will attract headlines for many years, but at the end of the day is this a game changer for China? No. Have the Chinese ever in any context found a sustainable ability to get returns, to get an actual return on their investment? No. And they’re going into a situation where they’re irritating a lot of these states who think that they were going to be able to use their own labor, but the Chinese are using Chinese firms who are doing quite well so far, and having them do the labor.

There are political problems that brings up. They also have a different situation right now than they did three years ago when you talk about the Forex reserves in the capital accounts. So the idea that they had too much and had to figure out ways of dumping Chinese capital in other places, that problem has reversed itself. Now we are not at any kind of problematic point at around $3 billones, people have the opposite concerns. I think that if this were not a President Xi initiative that he has attached his name to, this would have been deescalated far more dramatically.

They’re going to have to build it up, it still plays a role, it’s still worth watching, but the idea that this is a real game changer similar to the Asian Infrastructure and Investment Bank which was a political upheaval about a year ago, two years ago, whenever it was, these are not game changers. These are Chinese inefficiencies at work abroad.

Interview edited for brevity and clarity

Gorjeo: @vxschmid

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People pedal past a building shaped as a Chinese ancient coin on April 21, 2007 in Shenyang of Liaoning Province, China. (China Photos / Getty Images)People pedal past a building shaped as a Chinese ancient coin on April 21, 2007 in Shenyang of Liaoning Province, China. (China Photos / Getty Images)

After a record amount of capital outflows from China in 2016, Beijing is looking to reverse course this year.

Chinese authorities’ efforts to restrict capital outflows appear to be working. Foreign exchange reserves rose for four consecutive months through May, as inflows finally exceeded outflows. Outbound direct investment dropped almost 46 percent during the first six months of 2017 compared to the same period last year, according to official data.

Beijing is using a multipronged approach to stem the money flow. Regulators have restricted fundraising activities of insurance companies, a main source of recent foreign acquisitions. The China Banking Regulatory Commission (CBRC) in late June asked banks to check their exposure to several conglomerates with activities abroad, including the Dalian Wanda Group. And most recently, regulators are applying stricter standards before approving foreign investments and using state-controlled media to root out offenders.

China is especially targeting so-called “asset transfers,” or purchases of foreign assets with little to no potential economic returns. Such purchases, regulators believe, are purely used to shift or launder funds abroad.

“China will continue to encourage only genuine and rule-abiding outbound investments by financially competent companies,” said Wang Chunying, a spokesperson at the State Administration of Foreign Exchange (SEGURO), according to Caixin, a mainland business magazine. SAFE is China’s foreign-exchange regulator.

Reading between the lines, it’s clear that regulators believe some recent high-profile foreign acquisitions were backed by dubious financing, and the quality of such assets raises questions.

Leveraging Media

Beijing has also utilized the state-controlled media to step up criticism of the recent string of high-profile overseas acquisitions by Chinese companies, where academic and business experts publicly question the motivation behind such deals.

During a July 18 segment shown on state-owned China Central Television (CCTV), the host asked why a little-known Chinese appliance retailer would buy the Italian soccer club Internazionale, also known as Inter Milan, given that the company had been losing money for the last five years.

“Some companies are already highly indebted at home, yet they spend lavishly with bank loans abroad. … I think many overseas acquisition deals have a low chance of generating cash flow, and I cannot exclude the possibility of money laundering,” said Yin Zhongli, a researcher with the Chinese Academy of Social Sciences, during the CCTV segment, de acuerdo a el South China Morning Post. The Chinese Academy of Social Sciences is a think tank affiliated with the State Council, China’s cabinet.

Publicly traded shares of Suning, the appliance retailer that bought Inter Milan, immediately fell intraday following the CCTV segment. Yin Zhongli, the academic researcher, later clarified that he did not intend to call out Suning in particular, but was commenting in general about Chinese firms buying assets abroad.

I cannot exclude the possibility of money laundering.

— Yin Zhongli, researcher, Chinese Academy of Social Sciences

Curbing Dealmakers

SAFE spokeswoman Wang said the regulator would focus its attention on cross-border deals in real estate, hotels, entertainment, cinemas, and sports clubs.

The industries cited by SAFE are not coincidental—such companies were main targets of China’s dealmakers during the recent acquisition frenzy.

China’s banking regulator recently asked banks to look into their exposures to several Chinese conglomerates, including Anbang Insurance Group Co., Dalian Wanda Group Co., HNA Group Co., Fosun International Ltd., and Rossoneri Sport Investment Lux, which acquired Italy’s AC Milan soccer team in April.

Foreign real estate and hotels are frequent targets of insurer Anbang and conglomerate HNA, while Hollywood movie studios and cinemas have received heavy investment from commercial developer Wanda.

Ownership of foreign sports clubs has also drawn Chinese regulatory scrutiny. Rossoneri’s original proposal to buy AC Milan almost fell apart after it was postponed several times, due to Beijing’s refusal to sign off on certain funds leaving China. The deal finally concluded in April after billionaire investor Paul Singer’s hedge fund Elliott Management stepped in to provide partial financing. Besides the two Italian clubs, Chinese companies also have ownership stakes in English club Aston Villa, Spanish club Atletico Madrid, and French club OGC Nice.

HNA may be finding itself shunned by leading Wall Street banks and advisers.

Anbang chairman Wu Xiaohui was detained by Chinese authorities in June. Anbang had been one of the most active foreign dealmakers over the last three years. It owns the Waldorf Astoria hotel in Midtown Manhattan—currently closed for renovation—and Chicago-based Strategic Hotels & Resorts. En 2016, Anbang famously launched a failed bid to acquire Starwood Hotels & Resorts Worldwide.

Wu is believed to be a close ally of an influential political faction, dirigido por el ex líder del Partido Jiang Zemin, that is in opposition to the Xi leadership. Jiang was head of the CCP for more than a dozen years (1989–2002) and continued holding sway over the Chinese regime through a network of cronies for another 10 años (2002–2012). Since entering office in 2012, Xi has waged a battle to uproot the influence of Jiang and his faction.

Sources close to Zhongnanhai, the central headquarters of the CCP, told The Epoch Times in June that Wu is one of the key “white gloves,” or money launderers, for the Jiang political faction and the family of Zeng Qinghong, the former Chinese vice premier and longtime Jiang confidant.

HNA and U.S. Banks

Another active foreign acquirer, HNA may be finding itself shunned by leading Wall Street banks and advisers.

Last week, Bank of America Corp. told its bankers to stop working with HNA Group and its affiliated entities on future transactions, due to concerns about the group’s debt levels and opaque ownership structure, de acuerdo a un Bloomberg report. The report also stated that other banks, including Morgan Stanley and Citigroup Inc., gave similar directives to their staff.

A source at a major Wall Street bank confirmed the Bloomberg report.

Actualmente, HNA is closing on the purchase of a majority stake into hedge fund SkyBridge Capital LLC. SkyBridge’s founder and co-managing partner is Anthony Scaramucci, President Donald Trump’s new communications director.

Approvals are required from banks’ compliance departments before bankers can conduct business with potential clients, a process known as KYC (know your client), which scrutinizes a potential client’s credit-worthiness, track record, and ownership. Citigroup and Morgan Stanley struggled to obtain sufficient clarity on HNA’s sources of funding and its ownership structure, según el informe.

Similar to other Chinese conglomerates, HNA has a Hong Kong publicly listed arm, HNA Holding Group Co. Limitado., which is owned by a parent company with obscure ownership identities.

HNA’s ultimate structure is a complex web of investment trusts, provincial and local government agencies, and small-business ventures.

Thirteen individuals ultimately control 76 percent of the company through intermediary companies. Chen Feng, the public face of the company, controls 15 percent of HNA and has connections with former presidential candidate Jeb Bush and American investor George Soros. HNA’s biggest owner, Guan Jun (with a 29 por ciento de participación), doesn’t work for the company and is a relative unknown. Listed addresses for Guan through various public filings and records include a side street beauty salon in western Beijing, a shabby Beijing office building, and a nondescript apartment building in southwest Beijing, de acuerdo a el Financial Times.

HNA is also highly indebted. Al final de 2014, HNA had a combined debt of 196.9 mil millones de yuanes ($29.5 millones) on its balance sheet, compared to only 73.2 mil millones de yuanes ($10.9 millones) of equity, according to prospectuses filed with the Irish securities regulators in connection with a 2015 $1 billion bond offering of one of its subsidiaries.

While actions of individual U.S. banks may have little to do with Chinese politics or regulatory desires, the path forward for Chinese companies looking to acquire foreign assets is becoming more and more difficult.

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julio 20, 2017

Chinese workers at a pier in Qingdao, China, En abril 13. The Belt and Road Initiative is supposed to boost trade both by land and by sea. (STR/AFP/GETTY IMAGES)Chinese workers at a pier in Qingdao, China, En abril 13. The Belt and Road Initiative is supposed to boost trade both by land and by sea. (STR/AFP/GETTY IMAGES)

The idea, at first, sounded good: Plow trillions of dollars into infrastructure projects in the barren wasteland that is most of central Asia, and trade will start to bloom, economies will prosper, and peace will reign. sin embargo, most experts believe real world problems will result in the whole idea turning into nothing but a pipe dream.

(VCG/VCG VIA GETTY IMAGES)

(VCG/VCG VIA GETTY IMAGES)

The concept is called the Belt and Road Initiative (BRI), also known as One Belt, Un camino, launched by Chinese regime leader Xi Jinping in March 2015. It has two elements: one landlocked route from China to Europe through Asia, called the Silk Road Economic Belt, and one seaborne route going from China to Europe past India and Africa, called the Maritime Silk Road.

Although estimates vary, China has called for up to $5 trillion in infrastructure investments over the next five years in the 65 countries along these routes. Ports in Sri Lanka, railways in Thailand, and massive roads and power plants in Pakistan are just a few examples of the planned investments.

Speaking at the Belt and Road Forum in Beijing in May this year, Xi said: “In pursuing the Belt and Road Initiative, we should focus on the fundamental issue of development, release the growth potential of various countries, and achieve economic integration and interconnected development, and deliver benefits to all.”

His statement sums up the problems with the multitrillion dollar project: It talks about desirable outcomes but is exceedingly vague on the details. This is just like the BRI’s official plans. They call for improving intergovernmental communication, coordinating infrastructure plans, developing soft infrastructure, and strengthening tourism and trade, but the specifics are shaded over.

“There are no concrete action items set out in the Chinese government’s action plan for what has become one of Xi’s most visible policy initiatives. The document contains a number of generic proposals interspersed with platitudes about cooperation and understanding,” research firm Geopolitical Futures states in a July report.

But despite the lack of concrete programs, the vast sums involved show that the BRI has garnered support from many countries. China-led institutions, like the Asian Infrastructure and Investment Bank, have also pledged $269 billion dollars for the project. Even Japanese Prime Minister Shinzo Abe voiced his support at the recent G20 meeting in Hamburg, Alemania.

It is completely overhyped. The numbers they published, $4 trillion to $5 billones, they are completely unrealistic.

- Christopher Balding, professor of economics, Universidad de Peking

Objectives Measured Against Reality

China’s objectives, explicit and implicit, need to be measured against reality. On this account, most experts think the project is not economically viable—but it will allow China to gain political influence.

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“It is completely overhyped. The numbers they published, $4 trillion to $5 billones, they are completely unrealistic,"Dijo Christopher Balding, professor of economics at Peking University.

Economically, it is mostly about investment and exports. “China has surplus capital and excess productive capacity, which is motivating this set of initiatives. With a high savings rate in China and a slowdown in industrial investment at home, they are looking for overseas projects that can be financed and a new outlet for Chinese exports,” said James Nolt, profesor de relaciones internacionales en la Universidad de Nueva York.

The result is the BRI, which would see China team up with countries along the routes to raise money for building infrastructure to facilitate trade. And Chinese companies would do the construction.

The Chinese Overseas Ports Holding Company has expanded the Gwadar Port in Pakistan and has an operating lease until 2059. This is just the first, small step in connecting the Silk Road Economic Belt with the Maritime Silk Road. Highways, pipelines, power plants, optical connections, and railways are planned for the China–Pakistan Economic Corridor, with a total investment of $62 millones.

Por supuesto, local and international companies are going to bid for these projects as well, but with China providing most of the funds, Chinese state owned enterprises (EPE) will get most of the contracts.

If Chinese companies got $5 trillion in contracts, this would indeed boost exports, but there are several problems with this notion even in theory.

primero, infrastructure projects are very resource intensive, and with few exceptions China simply doesn’t produce commodities. Much of the value-added, por lo tanto, will be absorbed by international commodity producers like Australia (though the Chinese steel industry will certainly get a boost).

Impossible to Finance

Then there is the question of financing these investments. The countries where the investments are going to take place, like Pakistan and Cambodia, don’t have the money to spend trillions and also can’t raise it in international financial markets. This leaves China to come up with a way to get the hard currency financing to achieve its economic goals.

At the beginning of the BRI, China still had almost $4 trillion in foreign exchange reserves, and it was looking to diversify. These have dropped to $3 billones de dólares en 2017, a threshold the central planners in Beijing have made clear they will not cross.

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“They have to tap international bond markets for that money, or they have to exhaust their foreign exchange reserves and even then go out and borrow. Even by global bond market standards, un $5 trillion bond sales program spread out over a couple of years is an enormous number. They are not going to shoulder that type of repayment risk and they are not going to deplete their reserves,” said Balding.

Research by investment bank Natixis estimates that such a borrowing binge would increase Chinese external debt from 12 por ciento a 50 por ciento del PIB. This would expose the country to exchange rate risks and put it in the same vulnerable position that the Asian tiger economies were in during the financial crisis of 1998.

Loans from China denominated in yuan from Chinese banks are not an option for two reasons. This “poses its own risks to the overly stretched balance sheets of Chinese banks. De hecho, their doubtful loans have done nothing but increase during the last few years, which is eating up the banks’ room to lend further,” especially for risky projects, wrote Natixis Chief Economist for the Asia Pacific Alicia García-Herrero, in a blog post.

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en adición, recipient countries could only pay back a loan in yuan by selling goods and services to China, thus procuring the Chinese currency. This would be directly counterproductive to the goal of promoting exports from China with construction contracts and eventually through improved trade infrastructure.

“How is Pakistan to repay a yuan loan? They are going to generate a trade surplus in yuan. So China has to run a trade deficit with all the countries it lends to. Even if they don’t do that, Pakistan is going to have to generate some type of trade surplus with another country to have enough capital to pay back China,” said Balding.

Given that most of the infrastructure will be built to facilitate trade with China, this is highly unlikely. Así que al final, China will be left to vendor finance these projects. The only way to achieve its economic objectives will be hard currency loans that are completely repaid, with interest—which China currently has no clear means of financing.

Bad Risks

All of the economic indicators regarding the most prominent BRI projects point against this repayment scenario.

There is a reason countries like Cambodia, Laos, Tailandia, Pakistan, and Mongolia don’t have good infrastructure. They have a generally poor macroeconomic framework, underdeveloped institutions, and a high degree of corruption. Building roads and railways will not change that.

Adicionalmente, “Central Asia, a patchwork of states whose borders were drawn to make the countries more easily controlled from Moscow during the Soviet era, is hardly a promising market for Chinese goods,” states the Geopolitical Futures report.

“People talk about [the BRI] as if China is giving away money. In almost every case, it’s the Chinese credit card company giving a credit card to a despotic dictator, like in Sri Lanka or Venezuela. None of that has ended well,” said Balding.

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The nature of the value proposition of the BRI leads to the worst countries needing the most infrastructure and the most financing. Economically stable and healthy countries like Malaysia and Vietnam need less investment than troubled states like the Kyrgyz Republic and civil war-torn Ukraine. These countries have an economic health ranking of 44 y 38.2, respectivamente, compared to Malaysia’s 66.8, according to a ranking by Oxford Economics.

“Where financial development is relatively weak and governments are heavily indebted, BRI financing will be crucial,” states the report by Oxford Economics. It is precisely these places that offer the lowest chance of repayment.

“While a new airport or railway can be built in just a few years, amassing the human and institutional capital needed for them to operate efficiently and contribute to economic and social progress is a slower process,” states a report by research firm TS Lombard.

Small Scope

Given the constraints in viable economic projects as well as available financing, the scope of the BRI will likely remain small, while China can still focus on its political objective to exert greater influence over the participating countries.

“What this leaves us with is a much more modest program of $15 millones de dólares para $30 billion a year,” commensurate with the $269 billion already pledged by the China-led institutions, Balding said. “I don’t want to say that it’s irrelevant, but it is irrelevant. The United States is spending $300 billion in direct investment every year overseas.”

One of the initiatives that makes sense but needs little infrastructure and investment is protecting ships from pirates. “The cooperation with Singapore to keep the sea-lanes safe is promising, and that would have happened either way,” said Nolt.

While Chinese propaganda is touting that the BRI will revive the spirit of the ancient Silk Road through central Asia to Europe, it may have missed the boat on that one.

Given advances in shipping technology, it is far easier and cheaper to transport goods by ship rather than by land. That’s why most of China’s and the world’s trade (80 por ciento) is done by sea.

En el final, keeping out pirates and building a few ports in Pakistan and East Africa is a worthwhile endeavor—but it’s one that falls far short of building trillions worth of landlocked infrastructure.

“The Silk Road was a constantly evolving marketplace that moved goods across a vast continent where they could be exchanged for other goods. And unlike today, Eurasia was the center of world civilization, home to the most important economies,” states the Geopolitical Futures report.

Hoy, the most important economy, also for China, is the United States, and it is best reached by sea through the Pacific Ocean, far away from the Maritime Silk Road and the One Belt.

CHINESE INFRASTRUCTURE PROJECTS IN ASIA

BOATS AT THE GWADAR PORT IN PAKISTAN ON THE ARABIAN SEA. China Overseas Ports Holding Company is leasing the port until 2059 and has already started expanding it. China has been looking to secure sea trading lanes along the so-called Maritime Silk Road, and the Pakistani port is an important piece in the puzzle. (J. PATRICK FISCHER/CC BY-SA)

BOATS AT THE GWADAR PORT IN PAKISTAN ON THE ARABIAN SEA. China Overseas Ports Holding Company is leasing the port until 2059 and has already started expanding it. China has been looking to secure sea trading lanes along the so-called Maritime Silk Road, and the Pakistani port is an important piece in the puzzle. (J. PATRICK FISCHER/CC BY-SA)

A SKY TRAIN IN BANGKOK ON MARCH 20, 2013. Thailand will borrow a total of $69.5 billion to fund high-speed railways and other transportation mega projects, with most of the money coming from China and Chinese companies providing the construction. Thailand's railways will form part of the Kunming– Singapore railway system. sin embargo, Thailand will repay the loans with rice and rubber exports, thus running a trade surplus with China and going against the objective to generate export growth. (NICOLAS ASFOURI/AFP/GETTY IMAGES)

A SKY TRAIN IN BANGKOK ON MARCH 20, 2013. Thailand will borrow a total of $69.5 billion to fund high-speed railways and other transportation mega projects, with most of the money coming from China and Chinese companies providing the construction. Thailand’s railways will form part of the Kunming– Singapore railway system. sin embargo, Thailand will repay the loans with rice and rubber exports, thus running a trade surplus with China and going against the objective to generate export growth. (NICOLAS ASFOURI/AFP/GETTY IMAGES)

THE BANKS OF THE IRRAWADDY RIVER IN BURMA ON OCT. 2, 2015. Although not officially part of the Belt and Road Initiative, el $3.6 billion Myitsone Dam project is an example of a Chinese infrastructure project in a very poor country that hasn't gone as planned. Construction has been suspended for six years, as both countries could not agree on how to proceed. (YE AUNG THU/AFP/GETTY IMAGES)

THE BANKS OF THE IRRAWADDY RIVER IN BURMA ON OCT. 2, 2015. Although not officially part of the Belt and Road Initiative, el $3.6 billion Myitsone Dam project is an example of a Chinese infrastructure project in a very poor country that hasn’t gone as planned. Construction has been suspended for six years, as both countries could not agree on how to proceed. (YE AUNG THU/AFP/GETTY IMAGES)
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Sailors with the Chinese navy stand on the deck of a missile frigate in Manila on April 13, 2010. The Chinese regime is building a military base in Djibouti that will extend its military reach. (Ted Aljibe/AFP/Getty Images)Sailors with the Chinese navy stand on the deck of a missile frigate in Manila on April 13, 2010. The Chinese regime is building a military base in Djibouti that will extend its military reach. (Ted Aljibe/AFP/Getty Images)

China’s first overseas military base—located at a critical choke point for global trade looking to navigate the Suez Canal—could be a geopolitical game changer, but it has less impact in military terms.

Establishing the Djibouti base at the Horn of Africa signals the Chinese regime’s long-term strategic intentions, say experts. A Chinese Communist Party that once pledged to stay out of the affairs of other countries is now building military capacity far beyond its immediate border.

But the change is less important to China’s military capability than to its ability to directly intervene in global shipping. A principios de este año, the regime convinced Panama—home to the world’s other great shipping pass—to cut ties with Taiwan and fully back China’s claim on the island nation, which the regime describes as a breakaway province.

These moves follow a series of port deals that have given the regime the ability to ensure its critical shipping lanes.

Until now, sin embargo, none of those facilities have been for direct military use.

Establishing the Djibouti base reverses a long-standing military policy, said Gabe Collins, a researcher and co-founder of China Signpost.

“If you look at basic foreign policymaking throughout the vast majority of the PRC’s history, overseas bases are major redlines they weren’t willing to cross, and they pretty clearly crossed that now," él dijo. Collins co-authored a report on the base and its implications two years ago.

Territorial claims in the South China Sea. (VOA News)

Territorial claims in the South China Sea. (VOA News)

The change comes as the Chinese regime becomes increasingly bellicose in its expansive claim to a major swath of the South China Sea. The regime has also been vocal and threatening in its ongoing and multiple border disputes with India. Those disputes have reached an intensity not seen in decades.

La reforma militar

Personnel from China are now en route to build out the facility, carried on ships that are part of the regime’s rapidly modernizing military.

That military is being reformed to develop the capability to fight battles beyond its shores.

The People’s Liberation Army’s (PLA) aims to, entre otras cosas, “improve its ability to fight short-duration, high-intensity regional conflicts at greater distances from the Chinese mainland,” reads the secretary of defense’s 2017 report to Congress on Chinese military developments.

While the regime is most intent on potential conflict in the South and East China seas, Djibouti’s position on the northwestern edge of the Indian Ocean has fueled concern in strategic rival India that the PLA is gaining another position that could threaten Indian interests.

Limited military value

Fortunately for India, the actual military strategic value of the base is limited, said Collins. While it may be useful to launch attacks against much weaker foes in the Middle East or North Africa with limited attack capabilities, it is as much of a liability as it is an asset in a conflict with a greater power.

“I suspect that base would become a high explosive sponge fairly quickly. It’s a targeter’s dream because it’s built a way outside of the town," él dijo.

Using Djibouti as a base of operations to fight another great power would be like throwing stones from a house made of “very, very, very thin glass,” said Collins. The base wouldn’t last long, él dijo.

The base is more useful for power projection into regional conflicts, a refueling and resupply depot rather than a base of operations. The fact that the United States, France, and Japan have bases there reinforces the point. Hasta la fecha, China has used its commercial facility there for years in ongoing anti-piracy efforts and to evacuate 500 Chinese nationals from Yemen in 2015.

Those operations gave China the pretext to forward-deploy naval forces in the region. With its Djibouti foothold now being expanded for military use, the regime gains a base in a country that is relatively stable in a region rife with conflict. For an expansionist China looking to build geopolitical influence in Africa and with oil-rich Gulf states, it’s an important gain.

“If you have an amphibious ship with some armed helicopters on it, and you are dealing with insurgents in some countries in East Africa, or even Yemen or place like that, you just came to the table with a lot of currency and you can play all night long,” said Collins.

Even if India can have some confidence that the base has limited military value, the ability China gains to forward deploy its navy along a critical shipping lane has unsettling implications.

Pax Sinica

The Chinese regime has been working to secure its presence at the world’s most important chokepoints for shipping oil: the Strait of Malacca, the Suez Canal, the Strait of Hormuz, the Panama Canal, the Bab el-Mandeb Strait, and the Turkish Straits.

The Chinese reigme is working to gain influence at every major oil trade chokepoint. (época)

The Chinese reigme is working to gain influence at every major oil trade chokepoint. (época)

In doing so, the regime could play a major role securing or controlling world trade. That trade is now assured through the “Pax Americana,” a state of relative international peace overseen by the United States.

But a “Pax Sinica,” or “Chinese Peace,” could look very different, said Collins.

“One of the things you have to look at is the countries that are serving as security guarantor, you have to see what sort of mentality they bring to the table. Are they coming to this with a mercantilist mindset or much more with a globalist and trading oriented mindset,” asked Collin.

The United States has been an equal opportunity security provider, él dijo, basically indifferent to where oil was going, whether it be Europe or East Asia.

“We don’t discriminate at all in how we provide security based on the destination of the shipment and so I think that’s something that makes the Pax Americana unique," él dijo.

While China’s intentions are unclear, its aggressive claims in the South China Sea and habit of using PLA hackers to steal commercial technology for China’s state-owned companies and high-priority industries are just two of many examples fueling allegations that the regime takes the mercantilist approach to trade.

At the moment, China can do little more than fly its flag in Djibouti, said Collins. It naval assets are limited to the few warships and support vessels that have made a passing presence there.

But that could change, and China could take a tactic it has used successfully in the South China Sea—using “coercive tactics, such as the use of law enforcement vessels and its maritime militia, to enforce maritime claims and advance its interests in ways that are calculated to fall below the threshold of provoking conflict.”

From that perspective, even if the base has little value in an actual war, it could boost efforts to otherwise assert the interests of the Chinese regime.

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A woman walks past an electronic board showing Hong Kong share index outside a local bank in Hong Kong, lunes, Sept. 12, 2016. Regulators are looking into a mysterious group of companies known as 'The Enigma Network' after a sudden unexplained stock market crash. (AP Photo/Vincent Yu)A woman walks past an electronic board showing Hong Kong share index outside a local bank in Hong Kong, lunes, Sept. 12, 2016. Regulators are looking into a mysterious group of companies known as 'The Enigma Network' after a sudden unexplained stock market crash. (AP Photo/Vincent Yu)

A mysterious crash within an obscure corner of the Hong Kong Stock Exchange has elicited regulatory scrutiny, fanned rumors of conspiracy, and renewed calls for changes in the city’s financial markets.

Over a period of two days in June—June 27 and June 28—a handful of small-cap stocks fell dramatically, wiping out around $6 billion in market value. The hardest hit stock was down more than 90 percent intra-day, y 13 stocks fell at least 50 percent on June 27.

Although impact from the sudden crash was isolated, the decline has hit hard Hong Kong’s small-cap exchange Growth Enterprise Market (JOYA). As of July 7, the S&P/HKEX GEM index is down 21 por ciento desde enero. 1, y 11 percent since June 26.

The recent crash in Hong Kong small caps underscores the reputation for wild swings at the Hong Kong Stock Exchange (HKEX) and its subsidiary GEM. Although HKEX is producing solid returns this year—the Hang Seng Index is up 15 percent—some individual stocks have experienced high volatility. Por ejemplo, China Huishan Dairy Holdings Co., one of China’s biggest diary producers listed in Hong Kong, saw its stock drop more than 85 percent in one day in late March, prompting the exchange to suspend trading of its stock.

‘The Enigma Network’

But there’s something unsettling about the nature of the two-day market crash in late June.

A dozen of the stocks that experienced catastrophic crashes on June 26 y 27 were all part of a group of companies called out by Hong Kong-based independent stock analyst and gadfly investor David Webb.

Webb identified them as part of “The Enigma Network,” the name he gave a web of 50 Hong Kong-listed companies with significant cross-ownership. Webb, a former board member of HKEX, urged investors in May not to purchase stocks on the list due to their opaque structures and balance sheet disclosures.

The Engima Network

The Enigma Network: 50 stocks not to own. (webb-site.com)

Companies within “The Enigma Network” hold stakes in each other from less than 1 percent to more than 50 por ciento. The companies in the group span multiple industries across real estate, financiar, and consumer products, including umbrella maker China Jicheng Holdings Ltd. and GreaterChina Professional Services Ltd., the pending owner of English football club Hull City FC. Both Jicheng and GreaterChina saw their shares sink more than 90 percent during the June crash.

Webb, who has studied Hong Kong stocks extensively, first suspected the correlation and began to connect the dots after noticing balance sheet disclosures of “financial assets” with no additional detail at numerous companies.

The picture came into focus as the companies increased their financial disclosures after Webb “began filing complaints with the Stock Exchange that the for-profit regulator had failed to enforce a listing rule which requires annual and interim reports to disclose ‘significant investments held, their performance during the financial year, and their future prospects.’”

The cross-holding was confirmed after one of the “Enigma” companies, Amco United, a medical device maker, issued a profit warning en Junio 28 to investors that a “substantial loss” is expected in the first half of 2017 due to its ownership in other listed securities.

This has also caught the attention of regulators. De acuerdo con Bloomberg, Hong Kong’s Securities & Futures Commission (SFC) said the affected stocks “tended to have characteristics that can be conducive to extreme volatility and to market misconduct: multiple relationships between different companies and listed brokerage firms, high shareholding concentrations, thin turnover, and small public floats.”

The SFC did not confirm or deny whether there’s an investigation into the June crash.

Lerado Financial

A common thread among a few of the biggest decliners appeared to be Lerado Financial Group Co., a Hong Kong-based securities brokerage that’s currently under regulatory investigation. Lerado on June 27 disclosed that it had sold 1.48 billion shares of China Jicheng—no doubt contributing to Jicheng’s crash on the same day.

Lerado itself has been under scrutiny. Its shares were suspended from trading beginning June 6, on allegations that a company circular dated Oct. 26, 2015 included “materially false, incomplete or misleading information," according to SFC, the Hong Kong securities regulator.

In Lerado’s 2015 document, the company disclosed fundraising plans to expand the margin lending business of its subsidiary Black Marble, which had planned to underwrite a share placement for GreaterChina Professional and an open offer for China Investment & Finance Group Ltd., according to TheStreet.com.

Shares of GreaterChina Professional fell more than 90 percent on June 27. China Investment & Finance shares dropped 52 percent on June 27 y 46 percent on June 28.

An obvious theory for the crash of these stocks is that the owner of Lerado—whose shares have been suspended from trading—needed to raise money to meet a margin call or some other obligation and the only way to do so was to dump the shares of Lerado’s underlying investment holdings.

Other theories abound. One hypothesis—proposed by a South China Morning Post columnist—suggests the crash was orchestrated by a pyramid schemes in mainland China linked to Hong Kong penny stocks.

Chinese Anti-Corruption Links

The HKEX and GEM market turbulence could be linked to ongoing regulatory overhaul within China’s financial sector. The activities of some of China’s biggest overseas acquirers have recently been curtailed, and a few influential financial y regulatory leaders were placed under investigation by anti-corruption watchdogs.

David Chung Wai Yip, chairman of GreaterChina Professional, was arrested on April 20 by Hong Kong Independent Commission Against Corruption according to a statement by the company.

Regulatory clampdowns on mainland Chinese stockbrokers could also have contributed to the Hong Kong volatility. “As capital was tightened up, some stock dealers might demand more money from clients because of limited supply. It ended up that one company didn’t get enough capital, resulting in a domino effect,” Zhiwei Zhang of Prudential Brokerage Ltd. told The Epoch Times.

Zhang also saw a connection between the investigation and Chinese leader Xi Jinping’s crackdown on outbound capital flows. “It could be that they want to tidy up the stock market before July 1… and also to crack down on the disloyal and corrupt guys; that’s another possibility.”

Small-Cap Governance

Recent HKEX and GEM volatility have renewed calls for greater regulatory oversight within Hong Kong’s financial markets—the world’s fourth largest.

En particular, small-cap exchanges such as Hong Kong-based GEM, U.S.-based OTC Markets, and London-based AIM have long been criticized for being a haven for unvetted, often fraudulent companies.

Por ejemplo, HKEX and GEM could use better rules to combat shell companies, whose stock could jump on expectations they will be acquired by Chinese firms for backdoor listing—acquiring an existing Hong Kong-listed entity to circumvent stringent filing and disclosure requirements. Such stock gains are purely speculative and not grounded in economic fundamentals.

There’s evidence authorities are about to take action. HKEX recently proposed a review of GEM and changes to stock listing requirements, according to a notice to seek public comment filed June 16.

The proposals, among other changes, seek to address critical issues related to “quality and performance of applicants to, and listed issuers, on GEM.”

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People walk past the building with the listed address of Tomorrow Holdings' Beijing office, China on Feb. 3, 2017.  (REUTERS/Thomas Peter)People walk past the building with the listed address of Tomorrow Holdings' Beijing office, China on Feb. 3, 2017.  (REUTERS/Thomas Peter)

HONG KONG—The financial empire of missing chino-born tycoon Xiao Jianhua has put billions of dollars of investments arriba para sale, including stakes in a life insurer, a trust and banking assets, three people involved in the process told Reuters.

A billionaire with links to China’s Communist Party elite, Xiao vanished earlier this year. He was last seen in the early hours of Jan. 27, leaving the Four Seasons Hotel in Hong Kong in a wheelchair with his head covered, accompanied by several people described in media reports as mainland chino agents.

Xiao’s whereabouts are not known but his dramatic disappearance sparked widespread speculation he had been caught arriba en Chinese leader Xi Jinping’s crackdown on corrarribation.

chino authorities have not commented on Xiao’s disappearance, and his family could not be reached for comment.

Two of the sources with knowledge of the process said that now chino authorities are pressing Tomorrow Holdings, Xiao’s conglomerate, to pare back its sprawling asset portfolio, which includes stakes in more than 30 domestic financial institutions.

los sale is part of Beijing’s broader efforts to rein in risky practices by financial services firms, the sources said. None of the three sources could be named as the sale plans are not public.

The same two sources said Tomorrow had set arriba an internal team to handle the sale, which will include stakes in Huaxia Life Insurance, New China Trust Co, Bank of Weifang and Baoshang Bank. The stakes are substantial, though the specific percentage levels have not been disclosed and it is unclear if Tomorrow controls all of the companies directly.

No external advisers have been mandated, the sources said, and they also did not give any indication of expected prices for individual assets.

“The process is at an early stage and informal feelers are being sent to some large insurers as well as private equity companies,” said a fourth person with knowledge of the plans.

People pass by the entrance to Four Seasons Hotel, where Chinese billionaire Xiao Jianhua was last seen on January 27, in Hong Kong, China on Feb. 1, 2017.(REUTERS/Bobby Yip)

People pass by the entrance to Four Seasons Hotel, where Chinese billionaire Xiao Jianhua was last seen on January 27, in Hong Kong, China on Feb. 1, 2017.(REUTERS/Bobby Yip)

According to one source with direct knowledge of the situation, Xiao’s wife Zhou Hongwen, who co-founded Tomorrow with him in 1999, is running the business in his absence, but it was unclear how much she was involved in the decision to put the assets arriba para sale and whether she is closely involved in the process.

Tomorrow and the four subsidiaries did not return phone calls, emails and messages seeking comment. China’s insurance and banking regulators did not respond to requests for comment.

The State Council’s information office also did not respond to a request for comment.

Insurance Play

Beijing has cracked down on other groarribas that, me gusta Tomorrow, have used cash from insurance products to invest aggressively in riskier deals in areas such as property and soccer.

El mes pasado, authorities detained Wu Xiaohui, chairman of Anbang Insurance Groarriba, one of China’s flashiest overseas dealmakers and owner of the Waldorf Astoria hotel in New York.

Anbang has said its chairman is temporarily unable to fulfill his duties and has not commented further.

Even a partial dismantling of Tomorrow‘s business empire, aunque, would take the aggressive government behavior a step further than previous warnings or punishments, and raise concerns for other tycoons and their companies.

Xiao, who is in his mid-40s and has close ties with some of China’s senior leaders and their families, was ranked 32nd on the 2016 Hurun China rich list, China’s equivalent of the Forbes list, with a net worth of $6 millones. His assets range from financial services to sugar and cement.

Xiao, who began his career selling imported computers, had lived for years in serviced apartments in Hong Kong.

Tomorrow‘s Huaxia Life grabbed headlines last year as China’s financial regulators cracked down on high-yield, short-term investment products like universal life insurance products, that are part insurance, part investment.

Huaxia’s universal life insurance division recorded 138 mil millones de yuanes ($20.3 millones) in premium income last year—75 percent of its total business, official data shows.

En diciembre, the China Insurance Regulatory Commission suspended the firm’s online insurance business and barred it from seeking approval for new products for three months. The regulator said the insurer had failed to fix problems concerning fake client information.

The fourth source said the insurance watchdog had demanded better oversight, but did not feel Huaxia had made progress and wanted to see it owned by someone other than Tomorrow.

Barclays bought a near-20 percent stake in another Tomorrow firm, New China Trust a decade ago, making it the first foreign bank to invest in a chino trust firm. Trusts are non-bank lenders that raise funds with high-yielding investments. Barclays’ stake has since been diluted to below 6 por ciento.

One of the sources said Barclays would sell part or all of its remaining shares. Barclays declined to comment on its stake.

Tomorrow will keep hold of affiliates including Harbin Bank, which lends to small businesses, brokerage Hengtai Securities and Tianan Life Insurance, maintaining licenses in the main financial sectors, the people said.

The affiliates did not respond to requests for comment.

By Julie Zhu

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Laborers renovate a roof of a residential lane house in Shanghai on Aug. 21, 2014. (JOHANNES Eisele / AFP / Getty Images)Laborers renovate a roof of a residential lane house in Shanghai on Aug. 21, 2014. (JOHANNES Eisele / AFP / Getty Images)

When the economy started to cool in the beginning of 2016, China opened up the debt spigots again to stimulate the economy. After the failed initiative with the stock market in 2015, Chinese central planners chose residential real estate again.

And it worked. As mortgages made up 40.5 percent of new bank loans in 2016, house prices were rising at more than 10 percent year over year for most of 2016 and the beginning of 2017. En general, they got so expensive that the average Chinese would have had to spend more than 160 times his annual income to purchase an average housing unit at the end of 2016.

Because housing uses a lot of human resources and raw material inputs, the economy also stabilized and has been doing rather well in 2017, according to both the official numbers and unofficial reports from organizations like the China Beige Book (CBB), which collects independent, on-the-ground data about the Chinese economy.

“China Beige Book’s new Q2 results show an economy that improved again, compared to both last quarter and a year ago, with retail and services each bouncing back from underwhelming Q1 performances,” states the most recent CBB report.

sin embargo, because Beijing’s central planners must walk a tightrope between stimulating the economy and exacerbating a financial bubble, they tightened housing regulations as well as lending in the beginning of 2017.

Has the Bubble Burst?

Research by TS Lombard now suggests the housing bubble may have burst for the second time after 2014.

“We expect the latest round of policy tightening in the property sector to drive down housing sales significantly over the next six months,” states the research firm, in its latest “China Watch” report.

One of the major reasons for the concern is increased regulation. Out of the 55 cities measured in the national property price index, 25 have increased regulation on housing purchases.

In Beijing, por ejemplo, some owners of residential real estate can no longer sell their apartments to private buyers—instead, they have to sell to businesses, because their apartment has been marked for business use by the authorities.

Other measures include higher down payments, price controls, and increasing the time until the unit can be sold again.

“First- and second-tier cities have enacted such draconian measures that it is nigh impossible to buy or sell a property,"Señala el informe.

Credit Tightening

Although the central bank left its benchmark mortgage lending rate unchanged at 4.9 por ciento, banks have increased the rates they charge on mortgages to as high as 6 percent and, in some cases, have stopped giving out mortgages altogether because they have used up their quotas set by regulators.

The People’s Bank of China wants to lower the share of mortgage lending to 30 percent of new loans, which should influence new demand for housing.

“Unlike 10 hace años que, when most Chinese households made a 50 a 70 percent down payment to buy a new apartment, mas que 80 percent of borrowers in the past two years have put down 30 percent or less. With reduced mortgage funding availability, we believe it is unlikely that households will be able to finance their purchase through savings,” states the TS Lombard report.

Hasta aquí, the slow down in larger cities has been offset by more activity in smaller cities, which haven’t implemented as many tightening measures.

“Overall revenues and profits plunged in Tier 1 ciudades, with the slowdown concentrated primarily in the Beijing and Shanghai regions. Hiring stagnated, while cash flow worsened across the board,” the China Beige Book says.

sin embargo, TS Lombard expects smaller cities to follow the bigger cities with more restrictive measures for property buying, which will ultimately lead to a decline in housing transactions, if not prices outright.

“Property sales will decelerate notably in [the second half of 2017], with the monthly number of new residential housing transactions set to drop by 10 percent year-on-year, compared with a year-on-year rise of 8.3 percent in May.”

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junio 27, 2017

A customer selects vegetables at a supermarket in Hangzhou, in eastern China's Zhejiang province on March 10, 2016. (STR / AFP / Getty Images)A customer selects vegetables at a supermarket in Hangzhou, in eastern China's Zhejiang province on March 10, 2016. (STR / AFP / Getty Images)

After severe jitters in 2015 y 2016, the Chinese economy and its foreign exchange rate have been mostly stable in 2017. Except for volatility in interest rates and the stock market, everything seems fine ahead of the important Party Congress to be held this fall. At the congress, the regime will confirm the next Party leadership.

Por supuesto, official figures, like the 6.9 percent annualized GDP growth rate released for the first quarter of 2017, are unreliable and merely a rough indicator of where the journey is going.

To provide a more accurate read on China’s economy, Leland Miller and his team at China Beige Book International (CBB) interview thousands of companies and hundreds of bankers on the ground in China each quarter. They collect data and perform in-depth interviews with Chinese executives.

The CBB’s recent report confirms the eerie stability of the Chinese economy.

“So far, 2017 has played out as a best-case scenario. … The remarkable absence of both domestic and foreign shocks has created the stable environment corporates need to outperform most expectations, including ours,” states a preview to the full Q2 2017 informe.

The retail, servicios, and manufacturing sectors all showed an increase in activity. Hiring was also better than in an already good first quarter. This is important for the Chinese regime, as unemployed workers are unhappy workers who often express their unhappiness in mass protests.

According to the official unemployment rate, this is hardly ever a concern, as it has been hovering between 3.97 percent and 4.3 percent for the last decade. sin embargo, when the real economy dipped in 2016, the China Labour Bulletin logged a total of 1,378 strikes and protests in the second half of last year.

Extend and Pretend

sin embargo, despite the overall positive response from the firms surveyed by CBB, there are a few traditionally Chinese “extend and pretend” caveats to the rosy picture.

Por ejemplo, every sector reported record inventories, which is positive for production and jobs, but not for sales. If the stocked products aren’t sold shortly, it will hit the companies’ bottom line.

“The same companies who report solid results on most indicators also continue to show cash flow in the red—corporate health has not yet responded to better growth,” states the CBB preview.

Then there is the credit market, a source of worry for China watchers since the end of last year. China’s bank borrowing rates have been creeping up from 3 percent to almost 4.5 percent since late 2016, and CBB notes that this is now affecting the bank’s corporate customers.

“In Q1 … credit tightening was limited to interbank markets. In Q2, it hit firms: Bond yields and rates at shadow banks touched the highest levels in the history of our survey, and bank rates their highest since 2014,” states the report.

De acuerdo con CBB, sin embargo, overall borrowing was relatively stable, despite higher costs and the fact that corporate bond issuance collapsed en 2017. Por qué? Because firms believe in the ability of the regime to keep things stable beyond 2017.

As the report puts it, “while borrowing did see a mild drop for the third straight quarter, companies’ six-month revenue expectations remain robust in every sector save property. Companies assume deleveraging is transient, likely because they are skeptical the Party will allow economic pain in 2017.”

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Chairman of China's Wanda Group Wang Jianlin delivers a speech during the Signing Ceremony for the Strategic Partnership between Wanda Group and The Abbott World Marathon Majors in Beijing on April 26       (Wang Zhao / AFP / Getty Images)Chairman of China's Wanda Group Wang Jianlin delivers a speech during the Signing Ceremony for the Strategic Partnership between Wanda Group and The Abbott World Marathon Majors in Beijing on April 26       (Wang Zhao / AFP / Getty Images)

China’s biggest foreign asset purchasers, including Wang Jianlin’s Wanda Group, are in the crosshairs of Chinese regulator amidst a Xi Jinping-led effort to root out corruption, reduce money laundering, and curb excessive risk-taking within China’s financial sector.

The China Banking Regulatory Commission (CBRC) last week asked state-controlled banks to assess their credit exposure to several Chinese companies involved in overseas acquisitions, according to Caixin, a respected mainland Chinese business magazine. A few banks reduced their holdings of bonds related to these companies.

Companies targeted by the regulator include Anbang Insurance Group Co., Dalian Wanda Group, HNA Group, Fosun International, and a unit of Zhejiang Luosen which acquired Italy’s AC Milan soccer team in April. The action caused a dramatic selloff of the stocks and bonds of the affected companies last week.

While results of this particular regulatory action are yet to be concluded, CBRC’s scrutiny of China’s biggest overseas acquirers is the latest in a string of crackdowns within the financial sector. Sources close to Zhongnanhai, el Partido Comunista de China (CCP)’s central headquarters, told The Epoch Times earlier this year that the Xi leadership is focusing on tackling corruption in the Chinese financial industry in 2017.

En febrero, Xiao Jianhua, influential billionaire investor and founder of Tomorrow Group, was brought from Hong Kong to Beijing for official questioning. En abril, the former head of China Insurance Regulatory Commission Xiang Junbo was placed under investigation. Earlier this month, Wu Xiaohui, chairman of Anbang Insurance Group, estaba detained by authorities en Beijing.

Voracious Acquirers

Anbang, Wanda, HNA, and Fosun are some of the most active and aggressive bidders for overseas assets.

Juntos, these four companies bought $56 billion in foreign companies over the past five years, according to analysis from the Financial Times. The massive capital flight as a result has contributed to devaluation of the Chinese currency—already pressured by a slowing Chinese economy—while increasing the balance sheets of overleveraged Chinese banks.

All four companies have something in common—they’re all privately owned.

Wang Jianlin, founder and chairman of real estate and entertainment conglomerate Wanda and one of China’s richest individuals, has bought Hollywood production studio Legendary Entertainment Group, cinema chain AMC Entertainment, and luxury hotels and residential developments across the UK, Australia, and United States. Wanda has extensive connections and influence in Hollywood and is a main conduit of China’s soft power projection.

Shanghai-based Fosun, whose co-owner Guo Guangchang models himself after investor Warren Buffett, owns Canadian entertainment group Cirque du Soleil, French vacation resort company Club Med, British hospitality firm Thomas Cook Group, and apparel and jewelry labels St John and Folli Follie.

Billionaire Chen Feng built HNA Group from a regional airline in the resort island of Hainan into one of the world’s most acquisitive conglomerates during the last few years. HNA has holdings across the aviation, tourism, logistics industries, and owns California-based technology distributor Ingram Micro Inc. HNA has large stakes in Hilton Hotels, cargo handler Swissport, and is also the biggest single shareholder (con 9.9 percent ownership) in Deutsche Bank AG, the German international banking giant.

Anbang Insurance, whose chairman Wu Xiaohui was detained by authorities earlier this month, owns the Waldorf-Astoria Hotel en Nueva York, and has several high-profile real estate holdings across the United States, Canadá, and Europe.

Opaque Ownership Structures and Capital Sources

All four companies have something in common—they’re all privately owned.

And some of the companies have complex and opaque ownership structures, as well as highly leveraged capital sources.

HNA’s ownership structure is a complex web of investment trusts, provincial and local government agencies, and small business ventures. Thirteen individuals ultimately control 76 percent of the company through intermediary companies. Chen Feng, the public face of the company, controls 15 percent of HNA and has connections with former presidential candidate Jeb Bush and American investor George Soros. HNA’s biggest owner, Guan Jun (with a 29 por ciento de participación), doesn’t work for the company and is a relative unknown. Listed addresses for Guan through various public filings and records include a side street beauty salon in western Beijing, a shabby Beijing office building, and a nondescript apartment building in southwest Beijing, de acuerdo a el Financial Times.

HNA is also highly indebted. Al final de 2014, HNA had a combined debt of 196.9 mil millones de yuanes ($29.5 millones) on its balance sheet, compared to only 73.2 mil millones de yuanes ($10.9 millones) of equity, according to prospectuses filed with the Irish securities regulators in connection with a 2015 $1 billion bond offering of one of its subsidiaries.

Anbang Insurance’s funds come from sales of controversial high-yield products called universal life policies, or risky wealth management products which combine bonds and life insurance policies. These products differ from typical annuities as they promise very high returns to investors, something typical insurance companies cannot justify given the conservative nature of their asset holdings. Sales of such products have been recently banned by the Chinese insurance regulator.

Anbang’s capital base suddenly swelled in 2014, with a number of mysterious investors injecting a total of 50 billion yuan into the company. Research by Caixin found that some of Anbang’s 39 investors are obscure outfits such as auto dealerships, real estate firms, and mine operators that sometimes use shared mailing addresses, many of which are connected to Wu. There’s also a trend of major state-level investors scaling back their ownership, with SAIC Motor and Sinopec decreasing their ownership levels from 20 percent each to 1.2 percent and 0.5 por ciento, respectivamente.

Intersection of Business and Politics

Business and politics in the Chinese regime have always been closely intertwined. And Anbang chairman Wu Xiaohui’s detention earlier this month appears to be partially politically motivated.

A source close to high-level discussions in Zhongnanhai told The Epoch Times that Wu has close ties to the family of Zeng Qinghong, the former Chinese vice chairman and right-hand man of former Communist Party boss Jiang Zemin.

Jiang headed the CCP for more than a dozen years (1989–2002) and continued holding sway over the Chinese regime through a network of cronies for another 10 años (2002–2012). Since entering office in 2012, Xi has sought to uproot the influence of Jiang and his faction, who oppose Xi, and consolidate his control over the Chinese regime.

The source said that Wu used financial transactions to funnel and launder funds abroad on behalf of the Jiang faction, while at the same time using his role as a business tycoon to spy on and influence foreign dignitaries.

Whether last week’s inquiry into China’s other major overseas asset acquirers is connected to the reining in of powerful Chinese financiers ahead of a CCP’s 19th National Congress, a key political conclave to be held at the end of the year, is still unclear. Por ahora, major Chinese state-controlled banks have declared no intention of ending relationships with or cutting credit to these companies.

Sin embargo, investors were rattled by the regulatory announcement.

HNA Holding Group stock fell 6 por ciento, while shares of Fosun International Ltd. fell almost 10 percent in Hong Kong on June 22. On the same day, Fosun Pharmaceutical, listed in Shanghai, fell around 8 por ciento, while the Shenzhen-listed Wanda Film dropped as much as 9.9 per cent in the morning and had to be temporarily halted from trading.

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