Monthly Archives: April 2010
This article is from Reuters.
China has issued definitions of what constitutes commercial secrets for its hundreds of state-owned firms, in line with a draft law that also requires telecommunications and Internet operators to give authorities access to information sent through their networks.
The draft is part of an effort to codify what is a secret in China, after a trial of four Rio Tinto employees drew international attention to the country’s vague secrets laws. Those laws have long concern human rights advocates.
Regulations on commercial secrets issued by the State-Owned Assets Supervision and Administration Commission were dated March 25, the day after the trial of Rio Tinto’s Shanghai-based iron ore managers. They were published late on Monday.
The Rio employees’ detentions and trial alarmed both Chinese and foreign investors because of the lack of definition in China of what makes up state or commercial secrets.
The issue is of particular concern to business because state-owned enterprises, which dominate many industrial sectors, are both competitive listed entities and an integral part of the state-directed economic model China imported from the Soviet Union.
Negotiations with those firms can therefore easily touch on matters that the Chinese state deems of national interest.
Commercial secrets for state-owned firms include information related to strategic plans, management, mergers, equity trades, stock market listings, reserves, production, procurement and sales strategy, financing and finances, negotiations, joint venture investments and technology transfers, according to the notice posted on SASAC’s website late on Monday.
The regulations prevent information from being secret forever by requiring the company to set a time limit when it classifies information as either “core commercial secret” or “standard commercial secret”.
“National security”
SASAC published its regulations after China’s legislature reviewed for a third time an amendment to the Law on Guarding State Secrets, which China has been updating to include information sent through modern communication networks.
Legal and rights advocates contend the ruling Communist Party uses secrets laws to prosecute critics and people who reveal information embarrassing to the party or powerful individuals.
“According to the draft, a State secret is defined as information concerning national security and interests that, if released, would harm the country’s security and interests,” the China Daily said on Tuesday.
The requirement for communications and Internet firms to reveal information applies to Chinese and foreign firms, it said.
The four Rio employees, including Australian citizen Stern Hu, were jailed for accepting bribes and infringing commercial secrets during tense negotiations over iron ore prices in 2009.
Rio Tinto promptly fired the four for “deplorable behaviour” but cleared itself in an internal audit of any wrongdoing.
The commercial secrets portion of the trial was closed, even to Australian diplomats, despite consular agreements, and defence lawyers were reluctant to talk about it.
According to a text of the Rio Tinto verdict, published by a News Ltd newspaper, the commercial secrets obtained by the four included discussions at meetings of the China Iron and Steel Association attended by numerous steel mill executives, and production cuts by Shougang Corp in Beijing which the defence countered had been published in Chinese newspapers.
The following article appeared in the Financial Times, but it is probably running on news wires around the business world.
The US launched a probe into Chinese exports of aluminium products on Wednesday night but postponed a decision on whether to include the country’s exchange rate policy in its inquiry.
The investigation, announced by the commerce department, will unfold over the next few months, with an initial determination scheduled for May 17. It threatens to reignite tensions between the US and China over the value of the renminbi after a period of relative calm between the two countries on the issue.
The US said the probe would centre on aluminium “extrusions”, which are used in the construction and car industries to make components of windows and doors, as well as furniture and solar panels.
Investigators at the International Trade Commission, an independent agency, and the commerce department will be conducting an anti-dumping inquiry, looking into whether Chinese exports were sold below their value, as well as a countervailing duty inquiry, examining whether the exports were benefiting from unfair government subsidies.
If the ITC finds that American producers have been damaged, the US could impose stiff penalties on the products.
Companies pressing for the inquiry, including a number of US steel and aluminium producers, have urged Washington to include the undervaluation of the renminbi in its calculations, which it has resisted in similar cases.
But the commerce department on Wednesday decided not to bring currency initially into the aluminium case, although it did not rule it out as the investigation progresses.
“The department is taking additional time to carefully examine the currency manipulation allegation in this petition. The department’s decision will be made at a later date,” it said.
“Today’s announcement is solely based on whether or not the petitions met the statutory requirements for initiation under US trade laws.”
The initial determination by the ITC in May will be followed by an initial determination by the commerce department in late June.
The value of Chinese exports of aluminium extrusions increased sharply between 2007 and 2009, rising from $369m to $514m, as the volume of goods rose from 101,000 metric tons to 192,000 metric tons.
A period of relative peace over the value of the renminbi was ushered in by a US decision this month to delay a report that might have labelled China a currency “manipulator” before a bilateral meeting between Barack Obama and Hu Jintao, his Chinese counterpart.
The following article comes from Associated Press.
China’s economic growth surged to 11.9 per cent in the first quarter of 2010, but inflation was lower than expected, easing pressure on Beijing to hike interest rates and slow the economy’s rapid recovery from the global slump.
Consumer prices rose 2.2 per cent compared with a year earlier, the National Bureau of Statistics said on Thursday, well below the government’s ceiling of 3 per cent for the year.
The data suggested Chinese leaders are succeeding in their effort to keep stimulus-fuelled growth high while preventing inflation from spiking up. Analysts were closely watching today’s data to see whether interest rate hikes or more drastic action was required to prevent overheating.
The surge in economic expansion was up from just over 6 per cent in the same quarter a year ago and 10.7 per cent in the final quarter of 2009. It was supported by a 19.6 per cent rise in industrial output over a year earlier and a nearly 26 per cent rise in investment in factories and other fixed assets.
Chinese leaders face a challenge in checking inflation and curbing reckless, stimulus-fuelled spending on unneeded factories and other assets that could leave a mountain of bad debts.
Beijing raised fuel prices Wednesday in a show of confidence about its ability to keep inflation in check.
Inflation rose to 2.7 per cent in February compared with a year earlier, adding to expectations prices may be getting out of hand. The statistics bureau said March inflation eased slightly to 2.4 per cent.
On Wednesday, the government reported housing prices in 70 major cities rose 11.7 per cent in March from a year earlier - adding to alarm over a potentially dangerous bubble in real estate prices.
‘‘We believe Beijing now needs to take another small step to exit from its stimulus policies,’’ said Stephen Green, an economist for Standard Chartered Bank in Shanghai. ‘‘There are a number of reasons to be concerned that a nastier bout of inflation is in the works.’’
Beijing reported its first monthly trade deficit in six years for March as imports surged, reflecting China’s faster recovery from the global crisis than its key trading partners.
Lending by Chinese banks fell 43 per cent in the first quarter from a year earlier as the government tightened credit controls while trying to wind down its stimulus.
Also helping to cool inflation, prices for farm produce have fallen for seven weeks, suggesting food costs would ease.
Regulators have renewed efforts to assess risks from loans and each day brings fresh reports of projects found to be unprofitable or ill-conceived.
This article comes from Australia’s Fairfax newspapers. I do not agree with this man’s fears. China has a long way to go yet.
Edward Chancellor, a member of the asset allocation team for Boston-based GMO and, interestingly, the author of a recent Financial Times piece on Australian property, is a financial historian and bubble expert.
His 1999 book, Devil Take the Hindmost: A History of Financial Speculation, examined past speculative manias. Perhaps you’ve read articles comparing the tech boom and 1990s’ bull market to tulipmania in 1630s’ Holland.
The difference is that Chancellor was making that comparison before the tech bubble burst, some years before Alan Greenspan claimed it was futile trying to predict bubbles at all.
Chancellor’s timing may have been fortuitous. To accurately predict something once might mean little. To repeat the feat perhaps means something more.
His next major piece - Crunch time for credit: An enquiry into the state of the credit system in the United States and Great Britain - included this prescient paragraph:
”The growth of credit has created an illusory prosperity while producing profound imbalances in the British and American economies…When credit ceases to grow, the weakened state of these economies will become apparent.”
That report was written in 2005, years before the credit bubble burst. Chalk two up to Chancellor.
Third time lucky?
He’s now turned his attention to China, a fertile ground for his fertile mind. Released last week on the GMO website, China’s Red Flags is split into two parts.
Crisis checklist
Section one identifies speculative manias and financial crises, offering a checklist for those trying to identify bubbles in advance of their bursting. Chancellor offers 10 criteria for what he calls ”great investment debacles” over the past 300 years (the report explains each in far more detail);
1. A compelling growth story;
2. A blind faith in the competence of authorities;
3. A general increase in investment;
4. A surge in corruption;
5. Strong growth in money supply;
6. Fixed currency regimes, often producing inappropriately low interest rates;
7. Rampant credit growth;
8. Moral hazard;
9. Precarious financial structures;
10. Rapidly rising property prices;
Although all these criteria need not be present in order for a bubble to be present, you can see where Chancellor’s heading: not-so-subtly steering readers towards his own conclusion. In section two he takes each factor and applies it to the case of China.
Ponzi scheme
His conclusion is alarming; The very factors that have allowed China to grow so rapidly over the past few years despite the global slowdown - an investment boom, a credit boom, massive increases in money supply, moral hazard and risky lending practices - are all factors that investors and the mainstream press feel they can safely ignore because China is growing so rapidly.
After the past few years, we should all understand the potential negative implications of such major imbalances. But there seems to be general agreement that a “build it and they will come” approach is warranted in China because it keeps growing rapidly. There’s a Ponzi-like element to the circularity.
Chancellor is concerned that China’s high GDP growth is no longer a function of impressive natural growth. Instead, growth is being engineered to achieve high GDP numbers. It’s producing a system that’s unsustainable and prone to collapse.
This, in essence, is Chancellor’s argument:
- Investors are adopting an uncritical attitude to China’s growth forecasts;
- Because of the way local officials are incentivised, it’s likely that migration of the population from country to city is much further along than the official numbers suggest. So when you hear of another 350 million internal migrants arriving in cities by 2025, many of them are actually already there;
- Hence, future productivity growth will be much more reliant on efficiency gains than urbanisation. China’s record in this area isn’t at all strong;
- Beijing imposes GDP growth targets on local governments. Thus, “GDP growth is no longer the outcome of an economic process, it has become the object”. `When the allocation of resources, whether at the corporate or national level, becomes all about “making the numbers” then poor outcomes are to be expected';
- In 2009, Chinese fixed asset investment contributed 90% of total economic growth (an incredible statistic and a natural consequence of the previous point);
- Significant overinvestment is present in many areas. For example, capital spending in the cement industry increased by two-thirds despite capacity utilisation running at an estimated 78%;
- The efficiency of investment (incremental GDP growth for each additional unit of investment) is trending downwards towards wasteful levels;
- Interest rates have been kept way too low for decades, sparking economic growth but also imbalances and bubbles;
- China’s enormous foreign exchange reserves are not necessarily a plus. As Michael Pettis pointed out recently, only two countries have previously accumulated such large foreign reserves relative to global GDP - the United States in 1929 and Japan in 1989. Oh dear;
- The Chinese stockmarket is in bubble territory. Last October, a new Nasdaq-style exchange opened in Shenzhen with 28 new listings. The minimum price rise (the laggard of the 28) rose 76% on the first day. Price/earnings ratios averaged 150;
- The residential property market also appears to be in a bubble. In Beijing, the house price to income ratio has climbed to more than 15 times, versus 9 times in Tokyo in 1990.
Source: Economic Times, India
India’s state-owned National Aluminium Co Ltd (NALCO) has produced 431,000 tonnes of aluminium in 2009-10, an increase of 19.4%, against 361,000 tonnes in 2008-09, the company said Saturday.
Its alumina refinery at Damanjodi in Koraput district has recorded the highest-ever production of 1.592 million tonnes of alumina hydrate against the previous best of 1.590 million tonnes in 2005-06, with capacity utilisation of 101.05%, NALCO said in a statement here.
The company’s bauxite mines at Panchpatmali Hills located near the refinery has produced 4.879 million tonnes of bauxite – its highest ever production- against the previous best of 4.854 million tonnes in 2005-06, with capacity utilisation of 101.64%, it said.
Despite acute coal shortage and severe power fluctuations, its captive power plant, which feeds the smelter plant at Angul, achieved the highest-ever power generation of 6,295 million units against the previous year’s 5,541 million units, up 13.6%.
NALCO also achieved the highest-ever domestic metal sale of 289,000 tonnes, surpassing the previous highest of 271,000 tonnes in 2008-09, with an increase of 6.5%, it said.
The company recorded the highest-ever metal export of 147,000 tonnes, up 78.5%, against the previous year’s export of 8.231 million tonnes.
Source: Benzinga
Alcoa, Inc. is cutting its stake in a planned aluminium complex in Saudi Arabia its partner announced today.
Maaden, the main stakeholder in the project, said Alcoa cut its stake to 25.1 percent from 40 percent in the joint venture. Last December Alcoa touted its venture with the Saudi Arabian company saying it would become the the world’s pre-eminent and lowest-cost supplier of primary aluminium.
The reduction lowers Alcoa’s investment to $2.71 billion from $4.32 billion. Maaden is government-run and will likely receive funds from the Saudi government.
An analyst said Alcoa may have been concerned that the money required to invest in the project would have damaged its credit rating. It is also possible that Alcoa is weighing investments in other regions.
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