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Chinese Fund Managers Sentenced to Death after Cheating Investors out of 1 Billion USD

HANGZHOU – Two brothers and their father were sentenced to death on Monday for cheating 15,000 investors out of over $1.1 billion in east China’s Zhejiang province. Ji Wenhua, president of the Yintai Real Estate and Investment Group, was sentenced to death for the crime

Gold at $7,000 article goes viral in Chinese media

Dan Collins CMR “Gold going to $7,000″, an article today in the Chinese media is going viral and one of the most viewed articles in the financial press. The article references American Jim Rickards and his concept of comparing inflation-adjusted gold prices. Most Chinese economists

Western paper markets manipulate gold prices lower as China takes the real stuff off the market.

It’s not uncommon for the large Wall Street banks to combine in shorting an entire years supply of minded silver in a single day.The same goes for all commodities. Endless paper printing getting funneled to Wall Street has destroyed all real price discovery. Capitalism fails

Chanos is back….This is getting sad

Chanos is back! His short China thesis is very long in the tooth but as it goes with most ego maniacs he cannot accept failure or that fact that he might be wrong. Being wrong on an entire country where you have never visited and

“American Collapse Theory” Gaining Ground in China

Dan Collins CMR When I moved to China back in 1998 I was surprised to learn how highly the Chinese thought of America. Of course China was a much poorer place back then but coming from the Detroit area I couldn’t fathom where was all

China Car Sales Up 22.6% -The Chinese economy is collapsing?

You have to laugh at the whole “China will collapse crowd” on CNBC and even respected sites like Zero Hedge. Personally, I love the Zerohedge stuff. They understand the ponzi-financial fraud-money printing-welfare state economy that now envelops the West. But China is a real economy,

Cloud Computing in China booming as American giants are pushed out

D.Collins CMR China’s cloud computing market is expected to be worth 37.2 billion yuan (US$6 billion) in 2017 as demand for the service grows, the Chinese-language China Securities Journal reported on Friday. Some American tech companies are watching the largest and fastest I.T. market in

Oil rig dispute could see repeat of Sino-Vietnamese War: report

Breaking News today that a Chinese vessel as rammed and sunk a Vietnamese fishing boat. All countries in the South China Sea and East China Sea are using fishing boats in a game of cat-and-mouse to challenge each other on their respective areas. This time

France relents to China, Chinese police to help patrol Paris streets

Scared of losing the Chinese tourist dollar, France has relented to China and will allow Chinese police on the streets of Paris. More signs of the benefits of third-world immigration into the West to the point where cultural breakdown has occurred and law and order

People’s Bank of China will take down global gold price manipulation

Gold has been flowing East for a decade. When the West wakes up to the fact that their gold is gone, they will no longer have sound money with which to back a currency. The world has only been off a gold standard since 1971

China to lower reserve requirement ratio

From the China Daily… BEIJING – China will lower banks’ reserve requirement ratio (RRR) by 0.5 percentage points starting May 18, the country’s central bank announced Saturday. The cut, the second of its kind this year, will drop the RRR for the country’s large financial

Chinese Officials Falsify Data To Mask Slowdown, NYT Says

Is China tweaking its numbers on GDP? Probably. For twenty years Chinese GDP roughy came in right on the governments target. This would be an almost magical performance record considering economists in the West can predict absolutely nothing. For years, China most likely lowered GDP

Japan Learning the Hard Way, Destroying your Currency is Not an Economic Strategy

Japan will learn the hard way that destroying your currency is not an viable economic strategy. Shanghai Daily JAPAN posted a record 1.63 trillion yen (US$17.4 billion) trade deficit in January as rising exports trailed surging imports of crude oil and gas due to rising

American GDP: The Fantastic Fiction of American Economic Strength

American GDP: The Fantastic Fiction of American Economic Strength By Dan Collins Is the U.S. economy still the most powerful in the world? That is what we are told as the United States does have by far the world’s largest Gross Domestic Product (GDP). In

Government tells Huawei that they are not allowed to spy on Americans. Only they can do that.

Youtube, Facebook, and Twitter are all blocked in China. They have algorithms in place to disrupt Google service as well which makes it very annoying even using Google here. You get many dead links when the algo’s are working. Despite blocking American companies in China,

US admiral says China ‘creating a great wall of sand’ in sea

AP
ROD McGUIRK

CANBERRA, Australia (AP) — China is “creating a great wall of sand” through land reclamation in the South China Sea, causing serious concerns about its territorial intentions, the commander of the U.S. Pacific Fleet said Tuesday

Admiral Harry Harris Jr. told a naval conference in Australia that competing territorial claims by several nations in the South China Sea are “increasing regional tensions and the potential for miscalculation.”

“But what’s really drawing a lot of concern in the here and now is the unprecedented land reclamation currently being conducted by China,” he said.

“China is building artificial land by pumping sand on to live coral reefs — some of them submerged — and paving over them with concrete. China has now created over 4 square kilometers (1.5 square miles) of artificial landmass,” he said.

Harris said the region is known for its beautiful natural islands, but “in sharp contrast, China is creating a great wall of sand with dredges and bulldozers over the course of months.”
China claims virtually all of the South China Sea. The Philippines and other countries which have territorial disputes with China in the busy sea have been particularly concerned by the land reclamation projects, which have turned a number of previously submerged reefs in the Spratlys archipelago into artificial islands with buildings, runways and wharves. The islands could be used for military and other facilities to bolster China’s territorial claims.

Harris said the pace of China’s construction of artificial islands “raises serious questions about Chinese intentions.”

He said the United States continues to urge all claimants to conform to the 2002 China-ASEAN Declaration of Conduct, in which the parties committed to “exercise self-restraint in the conduct of activities that would complicate or escalate disputes and affect peace and stability.”

“How China proceeds will be a key indicator of whether the region is heading toward confrontation or cooperation,” he said.

The U.S. says it has a national interest in the peaceful resolution of the disputes in a region crucial for world trade. China says its territorial claims have a historical basis and objects to what it considers U.S. meddling.

Harris said the United States is on track to reposition 60 percent of its navy to the Pacific Fleet by 2020.

“By maintaining a capable and credible forward presence in the region, we’re able to improve our ability to maintain stability and security,” he said. “If any crisis does break out, we’re better positioned to quickly respond.”

Chinese invasion of Myanmar imminent?

Want China Times
China must increase its “soft control” of Myanmar to fulfill its dream of building a new Pacific Fleet and an Indian Ocean Fleet, according to a commentary from the Beijing-based Sina Military.

According to China’s state broadcaster CCTV, the 14th Army Corps of the People’s Liberation Army recently began a large-scale military exercise in the western region of southwest China’s Yunnan province, near the China-Myanmar border. The exercise comes amid increasing tensions between the two countries due to the escalating violence between the Myanmar government and ethnic rebel forces, which has already spilled into China after a stray shell flattened a house and a wayward bomb killed four Yunnan farmers earlier this month.

Sina Military believes Beijing is sending a message to Naypyidaw — which began a renewed assault on the rebels’ Myanmar Nationalities Democratic Alliance Army in the self-administered Kokang region on March 27 — through the exercise and also by leaking reports that it is tightening border restrictions and placing artillery units and air defense troops on standby.

For China, increasing its long-term “soft control” of Myanmar is important for both economic and military reasons. Unlike neighbors such as Vietnam, Cambodia, Nepal and Bhutan, Myanmar offers a key route to the Indian Ocean, which is why China aims to eventually rent land from Myanmar to build a PLA naval base there, the report added.

To this end, China needs to develop some kind of military alliance with Myanmar, perhaps beginning with assistance in non-military aid missions, Sina Military said. China also needs to speed up the development of oil and gas pipelines between the two countries so that it can become Myanmar’s largest oil industry partner. Additionally, China should boost its investment in Myanmar’s transport, port development, urban infrastructure development, medical, telecommunications and energy sectors so that the people of Myanmar can sense the positive benefits of increased Chinese influence, the report added.

If China can secure a permanent port to the Indian Ocean in Myanmar in the future, the PLA Navy’s “far sea fleet” can be split into a Pacific Fleet and an Indian Ocean Fleet, the report said. The Pacific Fleet will be in charge of the first island chain — a line through the Kurile Islands, Japan, the Ryukyu Islands, Taiwan, the Philippines, and Indonesia — and the second island chain — a north-south line from the Kuriles through Japan, the Bonins, the Marianas, the Carolines, and Indonesia. The Indian Ocean Fleet will be responsible for the region from the Strait of Malacca in the South China Sea through to the north Indian Ocean. The operational regions of the two fleets can use the south of Taiwan and the Philippines as a boundary, with each being able to cross over to assist the other when necessary, the report added.

China, Kazakhstan Sign $23 Billion in Deals

http://thediplomat.com

China expands its economic ties with an important partner for its Silk Road Economic Belt project.

If China and Russia are warring for influence in Kazakhstan, as Arthur Guschin argued in a recent piece, then China just upped the ante. With Kazakh Prime Minister Karim Masimov in China in advance of the Boao Forum, he and Chinese Premier Li Keqiang oversaw the signing of 33 deals worth a whopping $23.6 billion.

According to Xinhua, the deals include projects in the “steel, non-ferrous metals, sheet glass, oil refining, hydropower and automobile” industries. Li praised the deals as a sign of the complementary nature of the Chinese and Kazakh economies.

During his meeting with Masimov, Chinese President Xi Jinping called for the countries to enhance cooperation on the Silk Road Economic Belt, a Chinese initiative to create a vast trade network linked East, Central, and South Asia to the Middle East and Europe. To entice potential partners, China is offering funding for infrastructure development through both the newly-created Asian Infrastructure Investment Bank and the separate Silk Road Fund. Together, those two initiatives will eventually provide $140 billion in funding for infrastructure projects.

Kazakhstan has its own plan for building up infrastructure and jump-starting the economy, dubbed “Bright Road” in a November 2014 speech by President Nursultan Nazarbayev. The new policy is in part driven by the need to decrease economic reliance on Russia, particularly as the Russian economy suffers under Western sanctions.

Xi was quick to point out how complementary the “Bright Road” project is with the Silk Road Economic Belt. Indeed, both projects place a major emphasis on infrastructure development, a sector where Chinese companies are particularly active. Nazarbayev pledged last year that Kazakhstan would fund $3 billion worth of infrastructure projects each year for up to three years.

As the deals signed today indicate, however, China-Kazakhstan economic cooperation is not limited to infrastructure projects. Chinese companies are making a bid to become the driving force in Kazakhstan’s industrialization; Beijing is encouraging Chinese firms (particularly those based in neighboring Xinjiang) to invest in Kazakhstan. Meanwhile, Kazakhstan’s government also plans to devote $477 million to joint projects with China, particularly the trans-border free trade zone centered on Xinjiang’s Khorgos city.

For China, increased economic cooperation with Kazakhstan (and other countries along the Silk Road Economic Belt) is seen as the key to promoting economic development in Xinjiang. Beijing believes increased economic opportunities in its far western province will lead to increased stability in a region frequently rocked by violence. At the same time, China is eager to access natural resources in Kazakhstan and beyond.

Ali Ba Ba launches secretive Big Data department called “Heaven Lake”

Want China Times

Chinese e-commerce giant Alibaba has recently launched a competition that challenges young contestants’ capability to apply big data to some of the company’s current business areas. The winning team will be awarded 1 million yuan (US$160,000) and career opportunities.

Behind the initiative, dubbed “Tianchi” or Heaven Lake, is the Institute of Data Science and Technologies (IDST), led by the company’s vice president Jack Tu, a former Silicon Valley IT expert and the author of The Big Data Revolution.

The new department consists of 150 employees, mostly scientists, in Hangzhou, Beijing, Silicon Valley and Seattle. Less known to the public, its importance and connections to all other business units are indisputable.

“IDST does what everyone else in Alibaba won’t do and can’t do,” said CTO Wang Jian, quoted in Shanghai’s China Business News.

Similar to Google X, which is dedicated to making major technological advancements, IDST is devoted to data analysis and developing advanced technology among other research-based tasks, by which company CEO Jack Ma aspires to “drive the future.”

While IT scientists and experts in data computing form the root of technology development in the world’s strongest internet companies, Tu believes that like himself, leading experts have been more willing to devote themselves to China-based firms.

Last year, former Google X researcher Wu Enda left Silicon Valley for a title at the research department at China’s internet search giant Baidu. Chi Yuan and Jing Rong, the other two leaders of IDST, are professors at Purdue University and Michigan State University respectively.

In terms of big data and cloud computing, China is galloping almost right behind the US, Tu told China Business News. China now accounts for 14% of the world’s data, and the figure is estimated to grow to 21% by 2020, while the current application of the data is under 0.4%. This indicates the vast potential of commercialized data, said Tu.

To explore new talents and draw fresh blood flowing into the business, Alibaba held a T-Mall computing contest last year. A team of six college students proved that their method was 16.9% more efficient than T-Mall engineers and won the first prize of 1 million yuan.

“Iron Rose” Chinese sex workers protest in Paris

For anyone who has not been to China and assumes that its a stuffy,
morally upright Communist dictatorship the real truth is that it is
a socially out-of-control Wild West when it comes to sex. There are
brothels on virtually every corner in the country. Most of them are
disguised as haircut places or spa’s. I learned this back in the
late 90’s when I stumbled into a barbershop. At first I noticed the
hairstylist girls seemed quite attractive. When I asked for a haircut
they all looked at each other in wonderment like a deer caught in the
headlights. They then went on to search all of the cabinets for a
pair of scissors but they couldn’t find one. I’m sure they were
thinking this stupid foreigner actually wants a haircut.

Want China Times

Hundreds of foreign sex workers in France, the majority of them illegal Chinese immigrants, rallied in the Place Pigalle in Paris on March 28 to fight for their right of survival in their country of adoption, reports our Chinese-language sister paper Want Daily.

Some of the Chinese sex workers, calling themselves “The Iron Roses,” have signed a petition to urge the French government to cancel a motion that sanctions those who buy sex services, their clients. Over 240 Chinese sex workers rallied.

A Chinese sex worker known as Ai Ying interviewed by Radio France International (RFI) said punishing clients will hurt their earnings and they will be exposed to greater dangers and problems. Ai Ying said the new law will not help them change their line of work, because they are not likely to get a job without a residency permit.

RFI reported that the French government plans to eradicate prostitution by punishing those who buy sexual services, an approach already adopted by Sweden. Local associations said they were dubious as to whether the new law would have any positive effect.

Tim Laster, a spokesperson for Doctors of the World, said sex workers are constantly exposed to violence and health risks. All existing laws expose them to danger and force them to live in hazardous conditions, Laster told Agence-France Presse.

A debate on the motion to sanction both sex workers and their clients will be debated in the Senate on March 30.

sexworker-174518_copy1

Blackrock, Fidelity and other pros get burned by China debt pricing

Peter Fuhrman
China First Capital
www.chinafirstcapital.com/blog

For all the media ink spilled recently, you’d think the ongoing fight in Hong Kong between severely-troubled Hong Kong-listed Chinese real estate developer Kaisa Group and its creditors was the biggest, nastiest, most portentous blood feud the capital markets have ever seen. It’s none of that. It’s a reasonably small deal ($2.5 billion in total Hong Kong bond debt that may prove worthless) involving a Chinese company of no great significance and a group of unnamed bond-holders who are screaming bloody murder about being asked to take a 50% haircut on the face value of the bonds. The creditors have brought in high-priced legal talent to argue their case, both in court and in the media. Me thinks they doth protest too much.

Nothing wrong with creditors fighting to get back all the money they loaned and interest they were promised. But, what goes unspoken in this whole dispute is the core question of what in heaven’s name were bond investors thinking when they bought these bonds to begin with. Kaisa was, if not a train wreck waiting to happen, then clearly the kind of borrower that should be made to pay interest rates sufficiently high to compensate investors for the manifold risks. Instead, just the opposite went down. The six different Kaisa bond issues were sold without problem by Hong Kong-based global securities houses including Citigroup, Credit Suisse and UBS to some of the world’s most sophisticated investors including Fidelity and Blackrock by offering average interest rates of around 8%. If Kaisa were trying to raise loans on its home territory in China, rather than Hong Kong, there is likely no way anyone would have loaned such sums to them, with the conditions attached, for anything less than 16%-20% a year, probably even higher. Kaisa’s Hong Kong bonds were entirely mispriced at their offering.

It may strain mercy, therefore, to feel much sympathy for investors who lose money on this deal. Start with the fact Kaisa, based where I am in Shenzhen, is a PRC company that sought a stock market listing and issued debt in Hong Kong, rather than at home. Not always, but often, this is itself a big red flag. Hong Kong’s stock exchange had laxer listing rules than those on the mainland. As a result, a significant number of PRC companies that would never get approval to IPO in China because of dodgy finances and laughable corporate governance managed to go public in Hong Kong. Kaisa looks like one of these. It has a corporate structure, which since 2009 has been basically illegal, that used to allow PRC companies to slip an offshore holding company at the top of its capital structure.

The bigger issue, though, was that bond buyers clearly didn’t understand, or price in, the now-obvious-to-all fact that offshore creditors (meaning anyone holding the Hong Kong issued debt of a PRC domestic company) would get treated less generously in a default situation than creditors in the PRC itself. The collateral is basically all in China. Hong Kong debt holders are effectively junior to Chinese secured creditors. True to form, in the Kaisa case, the domestic creditors, including Chinese banks, are likely to get a better deal in Kaisa’s restructuring than the folks in Hong Kong.

This fact alone should have mandated Kaisa would need to promise much sweeter returns and more protections to Hong Kong investors in order to get the $2.5 billion. Investors piled in all the same, and are now enraged to discover that the IOUs and collateral aren’t worth nearly as much as they expected. Kaisa bonds were, in effect, junk sold successfully as something close to investment grade. As long as the company didn’t pull a fast one with its disclosure – an issue still in dispute – it’s fair to conclude that bond-buyers really have no one to blame but themselves.

At this point, it’s probable many of the original owners of the Kaisa bonds, including Fidelity and Blackrock, have sold their Kaisa bonds at a loss. Kaisa’s bonds are trading now at about half their face value, suggesting that for all the creditors’ grousing, they will end up swallowing the restructuring terms put forward by Kaisa. If the creditors don’t agree, well then the whole thing will head to court in Hong Kong. If that happens, Kaisa has threatened to default, which would probably leave these Hong Kong bondholders with little or nothing. Indeed, Deloitte Touche Tohmatsu has calculated that offshore creditors in a liquidation would receive just 2.4% of what they are owed. The collateral Kaisa pledged in Hong Kong may be worth more than the paper it was printed on, but not much.

The real story here is the systematic mispricing of PRC company debt issued in Hong Kong. It’s still possible, believe it or not, for other Chinese property developers with similar structure and offering similar protections as Kaisa to sell bonds bearing interest rates of under 9%. Meantime, as discussed here, Chinese property companies in some trouble but not lucky enough to have a holding company outside China are now forced to borrow from Chinese investors, both individuals and institutions, at 2%-3% a month.

It’s a situation rarely seen – investors in a foreign domain provide money much more cheaply against shakier collateral than the locals will. Kaisa’s current woes are part-and-parcel of at least some of the real estate development industry in China. It seems to have engaged in corrupt practices to acquire land at concessionary prices. Kaisa got punished by the Shenzhen government. It was forbidden to sell newly-built apartment units in Shenzhen. No sales means no cash flow which means no money to pay debt-holders. Kaisa is far from the first Chinese real estate developer to run into problems like this. And yet, again, none of this, the “politico-existential” risk many real estate development companies face in China, seems to have made much of an imprint on the minds of international investors who lined up to buy the 8% bonds originally. After all, the interest rate on offer from Kaisa was a few points higher than for bonds issued by Hong Kong’s own property developers.

Global institutional investors like Blackrock and Fidelity might control more capital and have far more experience pricing debt than Chinese ones. But, in this case at least, they showed they are far more willing to be taken for a ride than those on the mainland.

China will relax rules for foreign investors

Reuters
China will relax rules for foreign investors for trading on its Shanghai-based interbank market, including making it easier to obtain quotas for such investments, two sources with direct knowledge of the matter told Reuters on Wednesday.

Participants in the Chinese mainland’s capital market investment schemes for foreigners – the Qualified Foreign Institutional Investor (QFII) scheme and its renminbi-denominated version (RQFII) – will in the future use a registration system that eliminates the need to apply for regulatory approval for quotas in the interbank market, the sources said.

The QFII program was started in 2002 to allow foreign investment in Chinese securities using foreign currencies and RQFII was approved in 2011 by the mainland authorities.

Foreign investors will also be permitted to invest in more products traded in the interbank market, such as banks’ certificates of deposits (CDs), bond repurchase agreements (repos) and swaps, including interest rate swaps, the sources said.

Qualified foreign investors are currently confined mainly to trading spot bonds and conducting lending and borrowing in the money market.

No firm date has been set for the reforms, but it is possible they could be implemented as early as May, the sources said.

The People’s Bank of China, the country’s central bank, and foreign exchange regulators declined to make any immediate comment on the moves.

China oil storage capacity is completely full

The China Money Report

China is the world’s largest oil importer and in 2014 took advantage
of a 50% price drop in crude to import a record amount to fill the
national strategic reserves. How could the world’s largest oil
importer import a record amount of oil and still see the global price
collapse? You will have to check the derivative trading accounts at
the Fed controlled banks for that. I’m sure it had nothing to do with
a government coordinated plan combined with global banks and Middle
East oil producers to put pressure on Russia while at the same time
putting the country under sanctions.

As with all government plans, its now time for the blowback portion of
before said plan. Sinopec has now warned that storage capacity is at
full capacity which will cause oil imports this year into China to be
flat or even decline.

China has filled up 91m barrels of storage capacity in four different
locations . They are building a second and third phase of strategic oil
reserve capacity but it is not clear when these locations would be ready
to accept crude storage.

Chinese-oil

Long bottled up, China’s wealth is flooding the world

This article first appeared in Nikkei Asia Review

China’s “new normal” is not only about accepting slower growth. Structural changes transforming the country’s economy are accelerating another new reality: the outflow of money. Wealth that has been building up at home over decades is being redirected overseas, and the trend is gaining momentum.

That shift is illustrated by Chinese real estate investment flows in 2014. According to Jones Lang LaSalle, a U.S. real estate services company, outbound commercial property investment from mainland China last year totaled $16.5 billion, up 46% from 2013 and surpassing domestic spending for the first time. Although the figure accounted for just 2% of total global commercial real estate investment that year, the growth put observers on notice.
Referring to the Chinese outbound property investment, Alistair Meadows, head of JLL’s International Capital Group for the Asia-Pacific, told the Nikkei Asian Review that “this is not cyclical, but a structural shift.”

New York state of mind

Chinese property developers, insurance companies and wealthy individuals are displaying a strong appetite for buildings and land in major cities in the U.S., Europe and elsewhere. Meadows said, “There is a lot of momentum in outward [investment] activities and we don’t see that stopping.”

Symbolic of this hunger is the $1.95 billion purchase last October of the iconic Waldorf Astoria New York hotel in Manhattan by Beijing-based Anbang Insurance Group. Along with a general Chinese push to “go global” amid the shifting international landscape, Meadows said another driver of the overseas expansion is the “slowdown of the Chinese economy and its own domestic business activities.”

Property is not the only asset class being gobbled up. According to data compiled by Dealogic, China’s overseas corporate takeover activity almost doubled in 2014 to $70.7 billion from 2009, when the figure was pushed down by the Lehman Brothers collapse.

China’s biggest such deal last year was the $7 billion purchase of Peruvian copper mine of the Las Bambas copper mine from Glencore Xstrata by China Minmetals Group, Guoxin International Investment and Citic Group. Although that is far less than the more than $18 billion in deal value that state oil giant CNOOC paid for Canadian oil and gas company Nexen announced in 2012, the sheer number of takeovers in 2014 was enough to set a new record.

Will McLane, head of ASEAN corporate and investment banking and Asia Pacific financial institution at Citigroup, said, “The [overseas corporate expansion] trend is quite clear.” He said more Chinese companies are aspiring to be global, and policy changes at home are making it easier than ever for them to do so. With businesses there amassing greater levels of wealth, “more diversification is taking place,” McLane added.

It is not just companies and wealthy individuals that are taking their money to foreign shores. Ordinary Chinese, too, are traveling and spending abroad like never before. Some 110 million mainland Chinese traveled overseas in 2014, helping push the country’s travel account deficit up by 48% to $113.6 billion. That figure easily dwarfs outbound commercial real estate investment and overseas corporate takeovers — combined.

According to Hong Kong brokerage CLSA, a subsidiary of mainland company Citic Securties, China overtook Germany as the country with the most outbound travelers in 2013. By 2020, the annual figure is forecast to almost double to 200 million, far outstripping the rest of the world.

The outflow of all this money has some observers on edge. China is still running a current-account surplus — at $213.8 billion in 2014 — but its capital and financial account slipped into the red to the tune of $91.2 billion in the fourth quarter of 2014. That topped the previous record deficit, logged in the third quarter of 2012. The full-year deficit for 2014 swelled to $96 billion. It is not just the size of the figure that is drawing attention, but the momentum behind it: There have now been three straight quarters of net capital outflow. Dong Tao, chief economist for Credit Suisse in Hong Kong, called “consumption” the big theme for China for the coming decade and said “we are just in the beginning of China’s consumption boom.”

Yuan jitters

Kevin Lai, chief economist at Daiwa Capital Markets in Hong Kong, says the trend is putting pressure on the Chinese currency.

“I am extremely worried because of how the market is positioned in terms of yuan,” Lai said. He estimates that about $1 trillion was brought into the Chinese economy through carry trade, in which investors borrow cheap and abundant U.S. dollars and take a long position in yuan. But with China’s growth prospects waning and the U.S. Federal Reserve preparing to raise interest rates, the notion that yuan appreciation is an easy bet is rapidly crumbling.

Lai’s base-case scenario is that China will somehow muddle through with the help of such measures as continued liquidity injections by the People’s Bank of China to facilitate an orderly deleveraging process. But he also sees a more chilling possibility: the outbreak of a credit or currency crisis, or both. Should any of these crises emerge, China could fall into a recession, and the river of money flowing out of the country would start to dry up.
Another area of concern is the discontent brewing in Hong Kong about the increasing mainland presence there. The territory saw over 47 million mainland visitors last year, nearly seven times the local population. Anti-mainland demonstrations have become more frequent, and in some cases tourists and shoppers suspected of being mainlanders have been attacked.

“One day it will [also] happen in Japan, in France, in Australia, in Thailand,” Tao of Credit Suisse predicts. He said China’s massive population and growing purchasing power mean the country could swarm its regional neighbors and hoard daily necessities, as is happening in Hong Kong. “Nonetheless,” said Tao, “this is the new norm.”

IBM taking U.S. Defense Department Funded Technologies to China

IBM is a dying company. They have spent years muddling through stock buy-backs
to keep the companies tock price afloat. Critics accuse the company of becoming
more a financial engineering company than a real engineering company.
The once American icon has long ago sold off their real manufacturing
businesses to Lenovo and others to focus on “services”. Of course, without
over-paid defense contracts this would have been an even bigger mistake that it
has been.

Since the 2008 crisis and the shedding of real productive products, IBM has
been fighting it out suckling on the government tit even recently suing the
government of an award of a $600m dollar cloud-computing contract for Amazon.
IBM has received millions of dollars from DARPA, the Defense Advanced Research
Projects group. There latest quest has been receiving over $50m alone for research
into artificial intelligence. Now, that some technologies are ready to be spun off
of course where are they heading? To the country that has the money to pay for
them, China.

Want China Times

IBM and China’s Beijing Teamsun Technology recently announced their partnership allowing the latter to develop and sell domestic innovation products based on IBM’s technologies — a move seen as disturbing for the US government, Shanghai-based outlet the Paper reports.

The Obama administration has been wary of the information security component in the draft of China’s anti-terrorism law, and IBM’s cooperation with a Chinese enterprise in handing over source codes will make the US government even more unhappy.

IBM will be open to Chinese enterprises, not only to share its designs with them but also to help them carry out design work on next-generation microchips, said Wang Yang, IBM senior vice president and general manager of its China Development Center, on March 21.

A day earlier, IBM and Teamsun jointly announced their cooperation program, with Teamsun agreeing to develop domestic innovation products based on IBM’s technologies.

Last November, the two sides reached an agreement on data banks, with IBM authorizing Teamsun to use Informix software source codes.

According to foreign media reports, US trade bodies led by the American Chamber of Commerce in the past filed letters to the Chinese and the US governments respectively, calling for Beijing to postpone implementation of network supervisory rules and asking the US government to respond to the Chinese government on related rules.

On March 2, President Obama said in an interview with Reuters that the new rules crafted by Beijing would be unfavorable to US tech companies and called for China to change its policy.

IBM said its move is not intended in response to the new Chinese government policy; it said it is seeking a win-win situation allowing more people to understand and apply IBM’s technologies.

Wang said IBM’s opening is fully market-oriented, focusing on Chinese enterprises as China has the demand and a massive market. IBM also wishes to establish an industry ecosystem so that the cooperation will accelerate related development.

Beijing has cited the Edward Snowden revelations of US government surveillance as leverage to present foreign tech companies as potential threats to information security and to emphasize the domestic production of IT equipment. However, China trails behind in developing domestic operating systems, middleware, and high-end servers.

2014 Asian Fund Assets up 21% in Landmark Year

2014 Asian Fund Assets up 21% in Landmark Year
Mar 23 2015 | 1:04pm ET
The Asia Pacific region experienced strong growth in hedge fund assets last year, according to new data published by HedgeFund Intelligence’s AsiaHedge.
In what is being termed a landmark year, the regional Asia-Pacific hedge fund industry booked growth in assets of 21% during 2014, reaching a record level of $193 billion. The tally exceeds the region’s pre-financial crisis level of $192 billion set in 2007.
Aradhna Dayal, editor of AsiaHedge and head of Asia for HedgeFund Intelligence, attributed the growth to solid outperformance of Asian hedge funds in 2013 and 2014, according to media reports.
The survey found China-focused strategies were the largest segment within the regional industry last year, commanding assets of $32.88 billion. Significantly, some 86%, or $167 billion, of the industry’s regional AUM is now being managed out of Asia itself, signaling growth in indigenous asset management capability. As much as $68 billion is being run from Hong Kong alone, the survey found.

‘One Belt One Road’ to be central to China’s 13th five-year plan

Want China Times
In a departure from the past practice dividing the nation into the four major economic blocs of eastern, central, western, and northeastern China, the 13th five-year national development plan for 2016-2020 will revolve around the concept of economic belts and economic zones, including the Silk Road Economic Belt, the 21st Century Maritime Silk Road, the Beijing-Tianjin-Hebei coordinated development zone, and the Yangtze river economic belt, according to Beijing-based Economic Information.

The plan may also encompass a number of other economic belts for priority development, including the Zhu River-Xijing economic belt, the southeastern coastal economic belt, the northeastern economic belt, and the Great Wall economic belt.

A source stated that via pinpointing these economic zones and belts, the new plan envisions accelerating the coordinated development of the nation’s major economic areas which have formed following decades of rapid development.

The arrangement will facilitate the formulation of precision development policies, in the same vein as the strategic planning for the Silk Road Economic Belt, the 21st Century Maritime Silk Road, the Beijing-Tianjin-Hebei coordinated development plan, the Yangtze River economic belt, and the China (Shanghai) Pilot Free Trade Zone.

The economic zone and belt concept complies with the spread of the nation’s economic development from coastal to inland areas in recent years, as evidenced by the moving of manufacturing operations from the Yangtze River delta to mid and upstream areas of the Yangtze River, including Anhui province, Sichuan province, and Chongqing.

“The economic-belt concept will speed up industrial relocation to central and western China and the economic upgrading of eastern China,” said Sun Jiuwen, director of the Regional and Urban Economic Research Institute at Renmin University of China, according to the website.

Chinese stock market booms

Only 3% of Chinese household assets are in the stock market.

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Debt: China vs U.S.

china debt

BREAKING: Germany, Italy, France to join Chinese Bank

China has just usurped global credit.

Goodnight World Bank…Hello Asian Infrastructure Bank.

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China’s money magnet pulls in US allies

Gideon Rachman
FT.com

The story of the Asian Infrastructure Investment Bank is turning into a diplomatic debacle for the US. By setting up and then losing a power struggle with China, Washington has sent an unintended signal about the drift of power and influence in the 21st century.

As soon as China made clear, back in 2013, that it intended to establish the bank, the US set about persuading its allies to boycott the new institution. The Americans argued that the new Beijing-backed bank might follow less scrupulous lending standards than the World Bank on issues such as clean government and environmental standards.

But it was also pretty clear that this was a power struggle. The World Bank is based in Washington and its president has always been an American. The AIIB, a potential rival, will be based in Shanghai and China is the leading shareholder.

Initially Japan, South Korea and Australia decided to stand aside from the AIIB, as did all the big European nations. But the news that Britain now intends to join the new bank as a founder member looks like opening a decisive crack in the anti-AIIB front.

I spent last week in South Korea and most analysts there believe it is only a matter of time before the Seoul government signs up. Australia is already reconsidering its position and other large EU states are likely to follow Britain’s lead. At that point, the only significant holdouts would be Japan and the US. That would look very bad for America. Rather than rallying its friends in a principled opposition to a flawed venture, the AIIB episode will make the US look isolated and petulant.

The story will be all the sweeter for China because it has had a bad couple of years in its developing struggle with America for power and influence in Asia. By taking an increasingly aggressive stance in territorial disputes with its neighbours, it had inadvertently managed to strengthen America’s position as a series of countries — including the Philippines, Japan, Australia and India — moved to bolster diplomatic and security ties with the US.

But China seems to have learnt from this experience. In recent months it has been less overtly confrontational towards its neighbours and instead stressed its desire to build economic ties — including a new Silk Road of trade and infrastructure through Central Asia, matched by a “maritime silk road” across the seas of Southeast Asia. The AIIB could play a big role in financing these initiatives.
The hope is to persuade Asian nations that, rather than facing a threat from the rise of China, they stand to benefit from its growing wealth. Most of China’s neighbours — as well as the British, who have their own hopes for attracting Chinese investment — seem to have concluded that it would be foolish to miss out.

The AIIB episode demonstrates that, in the struggle for influence in Asia, China’s strongest card is its growing economic power. America’s strongest card, by contrast, is its military might and its network of security treaties. The countries caught in between face a dilemma. Japan, Australia, the Philippines and South Korea all have security treaties with the US. But every one of them now does considerably more trade with China than the US.

South Korea, for example, relies on American power to ward off North Korea and perhaps, one day, as a hedge against China itself. But China now takes more than a quarter of South Korean exports compared with about 12 per cent that go to America.

As a result, the South Koreans are frequently pulled in two directions. The AIIB is one example. Another is a fierce debate in the country about whether to accede to a US request to install an anti-missile system that might be useful defending against the North — but which the Chinese see as a threat to their own security.
The AIIB episode will only increase American and Japanese incentives to conclude negotiations on the Trans-Pacific Partnership, a trade agreement that would bring together 12 Pacific nations, but which rather pointedly does not include China. Once again, the Americans argue that this is a question of maintaining standards of economic openness rather than any effort to build an anti-Chinese bloc. But even some of their allies do not wholly buy this argument and some mutter that it is a bit peculiar to build a new trade agreement that excludes China, the leading trading power in the Asia-Pacific region.

The big question in this Asian arm-wrestling match between the US and China, is whether America’s military muscle will ultimately matter more than China’s economic might. The answer will vary issue by issue. But, in general, the more a country feels threatened by China, the more it is likely to lean towards America. That is why Japan is likely to be the last big Asian holdout against the AIIB. By contrast, if China is sensible enough not to show its fists too often, it has a good chance of seeing its economic might gradually translate into increasing political and diplomatic weight — even with close allies of America.
There was a time when the world was said to bow down before the mighty dollar. But the story of the AIIB suggests that these days, even many of America’s closest allies, have renminbi signs in their eyes.

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Dalio warns Fed of 1937-style rate risk

FT
The US Federal Reserve risks causing a 1937-style stock market slump when it finally moves to raise interest rates, one of the world’s most powerful hedge fund managers has warned.

Ray Dalio, founder of the $165bn hedge fund group Bridgewater Associates, said in a note to clients and followers that he was avoiding large bets on the financial markets for fear that the Fed’s expected change of policy could have unintended consequences.

In Mr Dalio’s note, the stark tone of which has led it to be widely circulated around the industry, he and his co-author urge the Fed to proceed with caution and to set out a public plan B, in case monetary tightening goes wrong.

“We don’t know — nor does the Fed know — exactly how much tightening will knock over the apple cart,” Mr Dalio and Mark Dinner, his colleague, wrote. “What we do hope the Fed knows, which we don’t know, is how exactly it will fix things if it knocks it over. We hope that they know that before they make a move that could knock over the apple cart.”

“We are cautious about our exposures,” they added: “For the reasons explained, we do not want to have any concentrated bets, especially at this time.”

The note likens financial conditions today to those in 1937, eight years after the 1929 stock market crisis and at the end of four years of money printing that had led to surge in equity valuations. Premature tightening by the Fed led to a one-third slump in the Dow Jones Industrial Average in 1937 and the sell-off continued into the following year.

Moscow Exchange’s turnover in the Chinese Renminbi grew 700% in 2014

From 17 March the Moscow Exchange has started trading in a futures contract on the currency pair Chinese Renminbi — Russian rouble

The launch has been driven by a substantially increasing Renminbi turnover on the Exchange, growing volume
of settlement in the currency between Russia and China as well as newly arising demand for hedging of such transactions.

Andrey Shemetov, First Deputy CEO of Moscow Exchange, said:

“The launch of the CNY/RUB futures is the next step made by the Moscow Exchange to offer a full range of Renminbi instruments and hedging tools to participants. We expect that the new contract will be liquid
and in-demand as other Exchange’s derivatives, and facilitate the trade turnover between China and Russia”.

The contract is cash-settled against the Moscow Exchange CNY/RUB fixing.

The contract’s expiry dates are every 15th day of March, June, September and December.

Metallinvestbank will act as the market maker for the contract.

Moscow Exchange’s turnover in the Chinese Renminbi grew 700% in 2014 to RUB 395 bln (CNY 48 bln).
The record average daily trading volume of CNY 541 mln was seen in October.

New US maritime strategy document highlights China’s rise

Want China Times

The latest update of America’s maritime strategy has highlighted Washington’s focus on the Asia-Pacific region and especially the continuing rise of China.

The Cooperative Strategy for 21st Century Seapower (CS21), last updated in 2007, said it is “imperative” for the US to maintain its global naval predominance to defend key American interests and prevent “our adversaries from leveraging the world’s oceans against us.”

To this end, the document stressed the importance for maintaining a fleet of at least 300 ships, including 11 carriers, 33 amphibious ships and 14 ballistic missile subs for the US Navy and Marine Corps. The US Navy, in particular, is aiming to have a forward presence of 120 ships by 2020, up from 97 today, and putting them “where it matters, when it matters.”

Where it matters appears to be the Indo-Asia-Pacific, as the document notes that the region’s “economic importance, strategic interests and geography…dictate a growing reliance on naval forces to protect US interests.”

CS21 confirms America’s plans to “rebalance” 60% of its naval and air forces to the Indo-Asia-Pacific region by 2020 by maintaining “a Carrier Strike Group, Carrier Airwing and Amphibious Ready Group in Japan; add an attack submarine to those already in Guam and… [increase] to four the number of Littoral Combat Ships forward-stationed in Singapore.” The US Navy’s “most advanced warfighting platforms,” including “multi-mission ballistic missile defence-capable ships; submarines; and intelligence surveillance, and reconnaissance aircraft,” will also be provided to the region, the document added.

China’s maritime rise was singled out as a key factor in the region, particularly as it continues to be engaged in several maritime disputes — with Japan in the East China Sea and with Vietnam and the Philippines in the South China Sea. The US has accused China of inflaming tensions through maritime patrols, naval drills and land reclamation activities, while China has accused the US of interfering in its dispute with Japan and cozying up to Vietnam and the Philippines.

The strategy document noted that while “China demonstrates its ability to embrace international norms, institutions, and standards of behavior commensurate with rising power status,” the country’s “naval expansion also presents challenges when it employs force or intimidation against other sovereign nations to assert territorial claims.”

“This behavior, along with a lack of transparency in its military intentions, contributes to tension and instability, potentially leading to miscalculation or even escalation,” CS21 warned.

To improve US positioning in the region, the document suggested strengthening alliances with Japan, Australia and South Korea while also striving to improve relations with India as well as Myanmar, where unrest rages on due to infighting between the government and ethnic rebels. For China, stability in Myanmar is viewed as crucial to sustaining its economic interests in the country and preserving a channel to the Indian Ocean, and it has been argued that the US has been intentionally muddying the waters in the hopes of stifling China and eventually driving Myanmar towards a democracy.

China was also placed in a list with Russia, Iran and North Korea as countries that present security challenges or threats that could impinge on US interests.

“The world has changed since 2007, when the last strategy was published, violent extremist organization like [the Islamic State] have grown. We have a continued threat from North Korea and Iran and you’ve seen the recent Russian aggression. There’s also the question of the rise of China,” William McQuilkin, director of the US Navy’s strategy and policy division, said in a news briefing about CS21 last week.

Key to America’s naval strategy will be the creation of a new essential function called All Domain Access, which aims to organize, train and equip US forces to maintain appropriate freedom of action in every key domain, including the sea, air, land, space, cyberstance and across the electromagnetic (EM) spectrum, the document said.

US Navy can be defeated by China, claims Global Times

Want China Times

In response to a New York Times pieces by Gregg Easterbrook on March 9, China’s nationalist tabloid Global Times wrote a commentary of its own, saying that China is capable of defeating the US Navy in the Western Pacific with anti-ship missiles built at low prices.

In Easterbrook’s article, he said that China currently possesses only one outdated, conventionally-powered aircraft carrier and is rumored to be constructing two others. However, neither of those two vessels are likely to be nuclear supercarriers, according to the author. Furthermore, Easterbrook questioned whether those two domestically built carriers have “blue water” or open ocean-going capabilities.

Easterbrook said that the US Navy is more powerful than all other navies in the world combined in terms of its aircraft carriers, nuclear submarines, naval aviation, surface firepower, assault ships, missiles and logistics. The author added that it is unnecessary for many US military experts to engage in fearmongering regarding China’s naval capability since “their carriers are modest compared with America’s; the submarines far less capable.”

The article also went on to say that there is no evidence that China has conducted realistic tests of its anti-ship missile. “China’s neighbors are unhappy that the growing Chinese Navy may back Beijing’s claims regarding the South China Sea,” Easterbrook wrote. “But Chinese naval expansion does not pose any direct threat to the national security of the United States, or to its dominance of the oceans.” He then stated that making the US Navy more powerful does not help to solve the dispute over the South China Sea peacefully.

The Global Times was unhappy about Easterbrook’s evaluation of Chinese naval power and said in its commentary that it is not necessary for China to build a strong and powerful navy to defeat the US in a regional conflict. With enough low cost anti-ship missiles, the People’s Liberation Army Navy is capable of paralyzing the US Navy’s freedom of navigation in the South China Sea, the paper said. Enough damage can be done to morale and equipment even if only one missile out of 1,000 hits an aircraft carrier.