Mingtiandi » Economy

Muddy Waters Yurun Rumor Proves That China Fears Run Wild

Michael Cole — Wed, 29 Jun 2011 02:45:03 +0000

Is Muddy Waters Really Leading Yurun to Slaughter?

For the past few months I have both been tracking the rise of Carson Block’s muck-raking research firm, Muddy Waters, and the rise of the China fraud story cycle and today it appears the two have collided as fears of a report on Yurun Food Group by Muddy Waters have caused a drop in the stock before any report has appeared.

For those of you unfamiliar, Muddy Waters is a research firm with a sideline in shorting stocks which has exposed several cases of shady dealing by publicly listed Chinese firms in the last few months, including China MediaExpress, Orient Paper Inc, and Sino-Forest Corporation. Following the reports, each of these companies have seen their share prices plummet in the face of apparent evidence of corporate malfeasance.

During the same period as Muddy Waters has been on the rise, the China news cycle has turned undeniably bearish, with many cases of fraud suddenly being exposed and articles appearing such as “10 Ways to Short China,” and “Why China is Headed for a Hard-Landing.” These stories go viral on the Internet because as China’s growth tapers off and the worldwide business climate is becoming more uncertain, many investors and other observers are waiting for something bad to happen.

Having lived through the euphoria and crash of Southeast Asia in the 90s, the dot-com bubble a few years later, and now the last nine years (yeah, I’ve been in on all those deals for bettor and worse), I tend to think that the story is seldom as good as people believe it to be when the market is on the downswing, nor as bad as people say it is when markets are coming crashing down.

But rational thinking is bad for hysteria, and when a company can be brought down just on the rumour of an upcoming report from a small research company, then it’s time to certify that panic has officially set in.

Even if you don’t really want to short China, maybe now would be a good time to start going with the flow.

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China Tops US in Manufacturing: Study

carol — Mon, 21 Mar 2011 13:32:05 +0000

WASHINGTON — China topped the United States as the world’s largest manufacturer for the first time last year, according to a study Monday by economic research firm IHS Global Insight.

China accounted for 19.8 percent of global manufacturing in 2010, compared with 19.4 percent for the US — $1.995 trillion worth, compared with $1.952 trillion, according to IHS.

But by measures of productivity, China remained far behind the United States, with US manufacturing workers generating more than eight times the value per person than China’s.

“In other words, the US manufacturing sector is producing roughly the same amount of output in 2010 with 11.5 million workers as opposed to its Chinese counterpart with around 100 million workers,” IHS said.

Japan remained a distant third last year, generating $1.027 trillion by manufacturing, followed by Germany, with $618 billion.

But the most telling indicators were the pace of growth: over 2008-2010, China’s manufacturing sector grew at a pace of 20.2 percent per year, while the United States grew at 1.8 percent and Japan at 4.25 percent.

Germany and fifth-ranked South Korea both contracted, and sixth-ranked India grew at 7.3 percent annually.

IHS pointed out that at one-third of the total economy, China’s manufacturing sector is far larger as a portion of output than any other country. In the United States, by comparison, the share is just 13 percent of all production; in the other top-ranked countries, it is 15-20 percent.

From: AFP

Chinese PMI dips, but Still Showing Growth

carol — Wed, 02 Mar 2011 14:26:19 +0000

The Chinese industrial economy kept growing a bit faster than economists had expected in February, although the impact of recent interest rate hikes curbed activity somewhat.

According to the official Federation of Logistics and Purchasing, the Chinese purchasing managers index (PMI) dipped to 52.2 from a January reading of 52.9. Economists had steeled the market to expect a slightly deeper dip to 52.1, but in any event the reading of above 50 indicates that Chinese factories are still ramping up new activity.

While many hope that slowing growth in China will curb local inflationary pressure, so far the progress has been sluggish. Input prices climbed to 70.1, indicating that if anything, local wholesale inflation is accelerating. This is likely a factor of commodity and power costs, and given the recent oil spike is almost certain to remain in the picture for some time to come.

Jinji Lake Rural Microcredit Wins Two National Awards

carol — Sun, 20 Feb 2011 11:36:47 +0000

At the 1st National Joint Conference of China Microcredit Institutions in Beijing on January 6, Suzhou Jinji Lake Rural Microcredit Co., Ltd. won the award of China’s Highest Potential Microcredit 2010 and the honorary title of Top 100 Microfinance Organizations in China 2010 among a total of 2,384 competitors.

After opening for business in July 2009, the company has granted over RMB 1.5 billion in loans and leveraged its investment capital by more than seven times. Of the loans made by the company, more than half went to individuals and small businesses located in Suzhou Industrial Park (SIP), among which 60% were secured loans with the unit balance of three million yuan, providing financing solutions to farmers of rural towns and individual businesses in SIP.

From:http://www.sipac.gov.cn/english/news/201102/t20110216_83608.htm

Ningbo, Zhoushan to Cooperate on Port Development

Floria — Sun, 13 Feb 2011 06:17:07 +0000

A governmental delegation from Zhoushan headed by Mr. Liang Liming, party secretary of the CPC Zhoushan committee arrived in Ningbo on Jan.25th to discuss cooperation on creation of a new maritime industrial centre in northern Zhejiang province.

The delegation from Zhoushan was received by Mr. Wang Huizhong and Mr. Li Qi of the Ningbo government, and the two sides discussed the benefits of creating a joint Ningbo-Zhoushan Port.

In addressing the group, Wang Huizhong expressed the hope that the two sides could further cooperation in port development, transportation, water and power supply, economy, tourism, sci-tech, education and culture.

The two sides agreed to cooperate in developing northern Zhejiang’s maritime economy.

From Ningbo.gov.cn

HSBC and China Issue Rival Manufacturing Data

Michael Cole — Wed, 02 Feb 2011 08:37:11 +0000

The ongoing fight against inflation got more interesting this week when a Chinese government body issued a purchasing managers index (PMI) showing prices dropping, while HSBC issued their own PMI for China showing prices continuing to rise.

For observers concerned about the reliability of official statistics in China and the difficulties of getting a clear picture of the economy in an environment where all information can be politicised, the competing indexes are just another sign of China’s opacity.

The PMI from the China Federation of Logistics and Purchasing, a government-associated industry organisation, showed manufacturing activity slipping to a still-robust 52.9 in January from 53.9 in December. HSBC’s seasonally adjusted numbers, indicated China’s manufacturing activity in January rose to 54.5 from 54.4 in December.

As the PMI is considered an early indicator of inflation, and the central government in China has made inflation control one of their primary priorities for 2011, and charged government departments with ensuring that price growth starts to cool off, the difference between the two measurements raises the possibility that reality may be under pressure from political objectives.

In December, China’s National Development and Reform Commission was quick to claim victory against inflation based on a reduction in the official consumer price index (CPI). However, problems abound with the CPI as well.

Many key commodities in China are still subject to price controls — for instance fuel, and this has a profound impact on keeping the CPI stable without showing the impact these price controls have elsewhere in the economy. Also the measurements involved in the CPI are outdated and non-transparent. The CPI basket is updated only every five years, and the weights of different elements are not disclosed. This leaves the numbers open for political manipulation.

More information on the differing PMI data is available here, and the difficulties of relying on China’s CPI were recently documented by the New York Times.

In some months time, when the state of the economy is already apparent, we will have some feel for how accurate these numbers are. In the meantime, the current numbers only add to an atmosphere of uncertainty in 2011.

Is Search Now A Strategic Industry in China?

Michael Cole — Tue, 17 Aug 2010 00:54:31 +0000

After not too much time observing China’s economy it becomes clear that the government likes to arrange organised competition in industries it considers strategic. Thus the country gets three major airlines – China Eastern, China Southern and Air China, as well as three major mobile phone networks in China Mobile, China Unicom and China Telecom.

Now, with the announcement last week of two major new search engine companies, it appears that search is joining transportation, phone networks and Internet service providers as a strategic industry to be managed more directly by the government. And maybe China will soon have three search giants to match up with its telephone and airline triplets.

The first search engine deal announced last week was an alliance between ecommerce giant Alibaba and online portal Sohu to upgrade Sohu’s existing search product, Sogou.com. In a statement on Monday the 9^th, Sohu announced that Alibaba and Yunfeng, an investment fund cofounded by Alibaba’s chairman, Jack Ma would be buying 16 percent of Sogou.

Another 16 percent of the company would be invested by a fund affiliated with Sohu chaiman Charles Zhang. And Sogou could use the help. In a search market dominated by Baidu with 70% share, and Google with 24.2%, Sogou currently ranks third, but has only 0.8% market share according to recent market research by third party analysts.

The second, and more surprising deal was a link up announced on Friday between Xinhua and China Mobile to start yet another search engine. Xinhua, a news agency belonging to the central government which also acts as a propaganda organ and sometimes intelligence gathering body and China largest cellular carrier seem like unusual partners for an Internet venture, and the exact terms of the transaction have yet to be announced. The New York Times on Friday described the deal as follows, “In an apparent bid to extend its control over the Internet and cash in on the rapid growth of mobile devices, China plans to create a government-controlled search engine.”

While these two new search engine ventures being announced in a single week, particularly so closely following the recent Google controversy, could be a coincidence, very few major transactions in an economy that is still largely government controlled happen in such a random way.

Although Baidu, Sohu and Alibaba are all private companies, and thus very different creatures from state-owned enterprises such as China Mobile or the airlines, in practice China’s government requires any large media enterprise to be closely aligned with the bureaucracy and these major firms often serve as unofficial market champions for the nation, particularly once they have gone public and become internationally recognisable symbols of the country’s media markets.

At the same time, the government is careful not to have any market dominated too much by a single company and it actively works to encourage (and organise) some competition among industry heavyweights. Thus the airline industry was split into three companies from a single parent, and part of the 3G market was set aside for the lesser cell phone players, China Unicom and China Telecom.

Now a similar scenario seems to be appearing in search and it most likely means that the government is taking search engines seriously as strategic national interest. (Bad news if you are Google). In a story that Xinhua published regarding its new joint venture with China Mobile, the news agency portrayed its search engine enterprise in a directly political manner. According to the report, the new search engine is intended to “better serve the work of the Party and the nation and to practically protect national interests…and to expand the reach and the ability in and outside China of the country’s mainstream media to guide public opinion.”

While that mission statement would seem to doom the new search product with consumers, the massive market penetration of China Mobile could give the new project a significant advantage with mobile users.

While it is too early to tell what will happen in China’s search market, if the moves last week were officially sanctioned measures to “harmonise” the market, there could be some moves in the pipeline to curb Baidu’s dominance and provide a boost to the new players. This could take the form of reserving parts of newly developing markets for the newcomers or through other measures designed to keep a what would be perceived to competitive balance in the market.

The other side of this equation is that if this recognition of search as a strategic industry is happening as speculated here, then opportunities for Google or other international companies to achieve gains in the market are likely to all but disappear.

While China welcomes foreign investment in most industries, it is still ambivalent about international involvement in the media sector, particularly with regard to consumer-facing products. Anything which smacks of mass media is likely to be all but closed off to foreign involvement, and search, with its ability to lead users to new information may be seen as too strategic to be left to the open market.

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More Than A Feeling

Michael Cole — Tue, 17 Nov 2009 03:21:06 +0000

From talking with Shanghai’s business cognescenti in the bars up and down Tongren Lu, the mood of late has been that business is getting back on its feet. And from the recent news in the China Daily (if this is a worthy source) the uptick in business is reflected in figures and not just sentiment.Â

According to the report,

China’s foreign direct investment (FDI) saw a third consecutive monthly increase in October, up 5.7 percent year-on-year, the Ministry of Commerce said Monday.

In October, China attracted $7.1 billion in FDI, compared with more than $6.7 billion in October 2008, said Yao Jian, spokesman of the Ministry of Commerce.

Of course, the figures for late 2009 were shockingly low following the collapse of a few old banks in New York and such, but this is still encouraging. In my opinion, however, we won’t start to see real movement towards a pickup in business until after Chinese New Year 2010 when all the new budgets are in place and real spending allocation is being implemented.

For now, those of us who operate on the Chinese fiscal year (the same as the calendar year) are getting our budgets for 2010 ready and dreaming of big new offices at bargain prices. More about that soon.

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