Very often you hear or read of people talking about Dow/Nasdaq futures early in the day. These people have absolutely no idea about the futures market.
I don't really care too much about the US futures until London opens. For anyone who knows anything about futures will know that the volume traded during the day is very thin. This thin volume is easily manipulated by the big boys in Hong Kong.
It used to be a case where they used up very little money to push up the US futures around lunch time so that they could distribute their shares after lunch. And the stupid retailers would rush in to buy when they saw the futures moving up.
SHANGHAI - NEARLY 1,000 Chinese shoemakers have gone bankrupt in southern China, unable to make ends meet due to tough business conditions.
Anti-dumping measures, a stronger local currency, increased labour and material costs, and a rolling back of export tax breaks were some of the reasons behind their closure, the state-run China Business newspaper reported.
It cited a report from the Asia Shoe Industry Association which said that 1,000 smaller and medium footwear and accessory producers had shut down in Guangdong province this year.
Up to 500 companies closed their doors in the last three months as Guangdong's shoe industry faces competition that was 10 times stiffer than in the 1990s, the paper quoted the association's secretary Li Peng as saying.
Guangdong is a shoe manufacturing hub for China and the world, with 7,000 to 8,000 shoe factories, said the China Leather Association.
These smaller companies, which rely on cheap pricing strategies and often have weak management practices, are increasingly unable to compete against larger, better operated companies, Mr Li said.
However, the closure of these weaker firms would weed out substandard manufacturers, thus improving the development of the industry as a whole. 'For firms with high-added value, it could provide a better environment for competition,' he added.
China's shoe industry is under huge pressure after the European Union last year and Taiwan this year enacted anti-dumping tariffs.
Mounting concern over country's food supply as grain prices surge
BEIJING - BEIJING has launched a survey into how much land it can afford to use for biofuel crops amid worries over food supply fuelled by surges in international grain prices.
China, the world's third-largest ethanol producer after the United States and Brazil, has already stopped building new biofuel plants, which use food crops such as corn or wheat, in the past year.
The move reflects mounting concern in the government, which has promoted the growing of power crops, such as cassava, on marginal or saline or alkaline land as years of urbanisation reduce the country's arable land.
'We will moderately develop power crops by using marginal land and uncultivated mountains,' Mr Zhang Fengtong, a director at the Agricultural Ministry, told a press conference.
'We are investigating how much land there is, and development of power crops has to follow China's own situation.'
China, with per capita land at one third of the world average, has to ensure that power crops do not take land away from grains, he said.
Mr Zhang did not say when the survey would be completed, but industry officials said the country would face raw-material shortages in its first non-grain ethanol plant, due to come on-stream this month.
The 200,000-tonnes-a-year ethanol plant in the south-western region of Guangxi, built by China Agri-Industries Holdings, a listed arm of state-owned agricultural group Cofco, will have to import from neighbouring Vietnam and Thailand.
'Cassavas are used in starch-making in Guangxi, and if used for ethanol there will be a shortage in the area,' said Mr Wang Zhongying, a researcher with the Energy Research Institute of the powerful National Development and Reform Commission.
'Nobody knows how much marginal land China has. Farmers have already utilised every piece of land they can cultivate, even on mountains,' he told an energy conference last week.
Raw materials have become crucial for China's future ethanol plants, particularly as the second-generation technology to convert agricultural wastes into ethanol will not be commercially viable within four years.
Cofco was also studying using sweet sorghum for ethanol production, said Mr Lin Hailong, a manager at its biochemical and bioenergy department.
'Cassava is the only choice right now...but we have to import,' he said last week on the sidelines of the conference.
On Tuesday, the Chinese Academy of Sciences' Institute of Botany signed a pact with Singapore's Temasek Life Sciences Laboratory - which is affiliated with the National University of Singapore and Nanyang Technological University - to set up a new Beijing-based laboratory for sweet sorghum to obtain biofuels more efficiently.
China also signed an agreement with the United States during high-level economic talks in Beijing this week to accelerate the use of biofuels such as ethanol and biodiesel, which could help reduce the countries' dependence on fossil fuels.
HONG KONG, Dec 14 (Reuters) - Hong Kong stocks are expected to rebound on Friday, tracking a firmer Wall Street, with bargain hunting likely to emerge following two straight sessions of losses.
"It's time for a technical rebounds after a decline of some 1,500 points in the last two sessions," said Francis Lun, general manager of Fulbright Securities.
"We expect to see some 500 points upside."
The benchmark Hang Seng Index slid 2.7 percent, or 776.61 points, to a two-week closing low on Thursday to 27,744.45. The China Enterprises Index of H shares, or Hong Kong-listed shares in mainland companies, fell 3.72 percent to 16,332.08.
"The market has been overreacting to the credit crisis and has been oversold," Lun said. "There was no surprise from Yam's comments. We already knew that."
The Hong Kong Monetary Authority's (HKMA) Chief Executive Joseph Yam warned in Beijing on Thursday that the worst of U.S. subprime crisis had not yet been seen and individual banks in Hong Kong could face losses this year due to their exposure to related products.
China's vice minister of commerce, Chen Deming, said a weakening US dollar was a bigger global economic concern than the value of the yuan. Vice Premier Wu Yi, also told the United States bluntly to fix its own problems rather than complain about China.
"Obviously, to resort to trade protectionism and blame another country for the structural problems in the US economy is the wrong approach which would only harm the interest of the United States itself," Wu said.
China Factory Spending Growth Slows on Lending Curbs
Dec. 14 (Bloomberg) -- China’s factory and property spending growth slowed, another sign that government lending curbs may be starting to cool the world’s fastest-growing major economy.
Fixed-asset investment in urban areas rose 26.8 percent in the first 11 months from a year earlier, the statistics bureau said today, after gaining 26.9 percent through October. Economists calculated November’s increase at about 26 percent, down from October’s 30.7 percent.
Industrial output grew at the year’s slowest pace in November, outstanding loans rose the least in eight months and export growth stayed at reduced levels. Those signs may do little to ease central bank concern the economy is overheating after inflation surged to an 11-year high and the trade surplus swelled.
“It’s a slight moderation in connection with the tightening efforts but growth is still very strong,” said David Cohen, an economist at Action Economics in Singapore. “Another interest-rate increase before the end of the year would be consistent with avoiding overheating.”
The yuan traded at 7.3712 at 12:07 p.m. after closing at 7.3692 yesterday. The yield on a 15-year bond was little changed at 4.72 percent.
The median estimate of 18 economists surveyed by Bloomberg News was for a 26.6 percent increase in 11-month investment.
Nuclear Reactors
Investment in the oil and natural-gas industries rose 9.6 percent through November, a slower pace than the 12.3 percent gain in the first 10 months. Railways and transportation also had weaker growth.
Spending in the first 11 months rose to 10.1 trillion yuan ($1.4 trillion), more than the size of Canada’s gross domestic product last year. China’s projects include plans to become the world’s biggest producer of nuclear reactors, building about 30 of them by 2020.
“It’s too early to call it a slowdown -- we need three months of data,” said Stephen Green, senior economist at Standard Chartered Bank Plc in Shanghai. He predicts three interest-rate increases next year, more investment controls, and a faster pace of yuan appreciation that will slow inflows of cash from exports.
Investment accounted for 42.5 percent of China’s gross domestic product in 2006, compared with 24 percent in Japan, 20 percent in the U.S. and 17 percent in Germany. The number of new projects rose by 24,124 from a year earlier to 211,127 in the first 11 months, the National Bureau of Statistics said today.
Exports, Industrial Production
More than two-thirds of Chinese enterprises say their industries have overcapacity, the state-run Xinhua News Agency reported Nov. 11, citing a government survey. Textile, pharmaceutical and equipment manufacturing were cited as examples.
Industrial output grew 17.3 percent in November from a year earlier. Outstanding local-currency loans climbed 17 percent.
Export growth slowed to 22.6 percent for the past four months from the 29 percent pace through July because of cuts to tax incentives, weaker U.S. demand, and higher prices due to currency gains and production costs.
Spending on fixed assets is “too rapid” and has “become a prominent problem,” the State Council, or cabinet, said last month. The pace of growth has rebounded this year from the 24.5 percent increase in 2006 and means that new factories may come on stream just as global growth slows, leaving overcapacity, falling profits and bad loans.
The government is targeting inflation that surged to 6.9 percent last month and overheating as the biggest threats to an expansion that has been the biggest contributor to global economic growth in 2007.
China has raised the key one-year lending rate to a nine- year high of 7.29 percent, clamped down on bank lending, tightened project approvals, imposed environmental restrictions and limited land use to curb investment.
China Completes Bond Sale for Sovereign Wealth Fund
Dec. 14 (Bloomberg) -- China’s finance ministry sold 26.35 billion yuan ($3.6 billion) of 10-year notes, completing this year’s so-called special bond issue to raise money for the country’s sovereign wealth fund.
The debt was sold at a yield of 4.41 percent, according to traders at China Construction Bank Corp. and the Agricultural Bank of China, primary dealers obliged to bid at government auctions. The coupon compares with the 4.49 percent in a sale of similar-maturity debt last month.
China’s lawmakers approved a plan in June to sell 1.55 trillion yuan in bonds to finance China Investment Corp., set up in September to help boost returns on the country’s $1.46 trillion of currency reserves. China Investment this week sought applications for global asset management companies to help invest its funds in global equities.
‘‘The government may sell special bonds again next year to raise money for the sovereign wealth fund to invest globally,’’ said Nie Shuguang, a fixed-income trader at Industrial Bank Co. in Shanghai.
The yield on the benchmark 10-year government bond fell 2 basis points, or 0.02 percentage point, to 4.49 percent at 11:30 a.m. in Shanghai, according to the China Interbank Bond Market
The government has now sold about 200 billion yuan of 10- and 15-year debt to interbank market dealers and 1.35 trillion yuan to the central bank. The People’s Bank of China has used the treasuries it holds to help control money supply through its open market operations, after inflation reached the fastest in almost 11 years.
The bonds were sold at par value for 100 yuan face amount and dealers bid on the coupon rate.
China’s local currency bonds have slumped 2.41 percent this year, the worst performers among 10 Asian local-currency debt indexes compiled by HSBC Holdings Plc.
[Dow Jones] STOCK CALL: Goldman Sachs'' reported move to divest DBS building to unnamed buyer marks sign of "toppish" office cycle, with spot rents in range of S$18/square foot, CLSA says. Notes follows several major office transactions among landlords with increased participation from foreign funds from Europe, Middle East over past six months. Says, however, government move last week to potentially add up 2.8 million square feet of commercial space over next few years should put lid on blistering growth of capital values year-to-date; keeps FY08 rent assumption of S$15/square foot. Says prefers REITs over developers; tips top REIT picks as Ascendas REIT (A17U.SG), Ascott Residence Trust (A07.SG), Cambridge Industrial Trust (J91U.SG).
BEIJING (AFP) — China's urban fixed asset investments posted a robust rise in the first 11 months, the government said Friday, suggesting it was still a long way away from reining in Asia's second-largest economy.
Spending on fixed assets in the cities rose 26.8 percent in the period from January to November compared with a year earlier, the National Bureau of Statistics said.
"There looks to be little sign of a cooling on the mainland, meaning it was business as usual on the growth front," said David Melser, an analyst with Moody's Economy.com.
Overall urban fixed assets investment -- a key measure of spending on items such as plants, equipment and infrastructure -- for the period was 10.1 trillion yuan (1.4 trillion dollars), the bureau said in a statement.
No figure for November alone was given. However, the full 11-month data indicated no major change during the month, as the first 10 months had seen an increase of 26.9 percent.
"In our view, the underlying growth momentum... remains robust, which is consistent with the strong import data," investment bank Goldman Sachs said in a research note.
Imports increased at a faster rate than exports in November, rising 25.3 percent from a year earlier to 91.3 billion dollars, earlier customs data showed, suggesting strong demand derived from investment.
The fixed asset data came at the end of a week of statistics releases in China that indicated to varying degrees continued strong growth.
The most salient figure was a 6.9-percent rise in the consumer price index, marking the highest inflation figure since December 1996.
"The likelihood of a near-term interest rate move remains high," said Grace Ng, Hong Kong-based economist of JPMorgan Chase Bank.
"This is so, especially considering the upside surprise in November... inflation and the authorities' target to correct the negative real deposit rate condition."
China has already hiked the interest rate five times this year, while raising the amount banks must keep in reserve 10 times.
These measures are all aimed at containing credit growth, which in turn is crucial in boosting investment.
Investment spending is a key engine of growth, and along with net exports it is the main reason why China's economy is likely to expand by about 11.5 percent in 2007, marking the fifth consecutive year of double-digit growth.
Policy makers led by Premier Wen Jiabao have struggled to rein in investment spending -- apparently with limited success.
The data published Friday gave an indication of why this might be the case, showing that projects approved by local governments accounted for 90 percent of total investment spending in the first 11 months.
It is widely believed that Beijing has difficulties reining in growth because local officials tend to easily approve investment projects, as they are concerned about unemployment and the potential for social unrest.
Fears have especially been mounting about a speculative bubble in the real estate sector, and Friday's figures may reinforce these concerns, showing a 31.8 percent rise in investment in property.
However, some economists suggested that China's policy makers may gradually see some results from all their efforts.
"Since credit policy will be kept on a tightening path in the coming months, the strength in domestic investment is likely to wane as well," Goldman Sachs said.
A plan to establish a fund to prevent banks' potential losses on structured investment vehicles, or SIVs, appears to be losing steam, The Wall Street Journal reported Thursday. The so-called super-SIV fund was conceived by Citigroup Inc., Bank of America Corp., and J.P. Morgan Chase & Co. with the backing of the U.S. Treasury to head off fire sales and SIV losses.
The eurozone’s 21 largest banks hold €244bn (£175bn, $359bn) in off-balance sheet assets that may have to be brought back on to their balance sheets and could trigger a credit squeeze in the wider economy, the European Central Bank warned on Wednesday. Fears that banks could be forced to take these assets on to their books have fuelled the liquidity squeeze.
Interest rates on loans in euros stayed at a seven-year high, a day after central banks in Europe and North America teamed up in an attempt to end gridlock in money markets. Three-month borrowing costs held at 4.95 percent, the British Bankers' Association said today. That's 95 basis points, or 0.95 percentage point, more than the European Central Bank's benchmark interest rate, compared with 57 basis points a month ago. It averaged 25 basis points in the first half of the year, before U.S. subprime-mortgage losses contaminated money markets.
The interest rates banks charge each other for short-term loans in Europe failed to decline from the highest levels in seven years a day after central banks joined forces to break a logjam in money markets. The cost to borrow for three months remained at 4.95 percent, the British Bankers' Association said today. That's 95 basis points, or 0.95 percentage point, more than the European Central Bank's benchmark interest rate, compared with 57 basis points a month ago. The difference averaged 25 basis points in the first half of the year, before losses on securities linked to U.S. subprime mortgages contaminated credit markets.
Singapore Shares End Down; Market Subdued On Lack Of Leads
2007/12/14
SINGAPORE (Dow Jones)--Singapore''s benchmark Straits Times Index ended lower for the third straight session Friday on enduring concerns over the U.S. economy, mirroring falls in the rest of Asia.
"People are unwilling to take positions," a local analyst said. "The market is very susceptible to sudden changes in mood."
Another analyst said: "People just want to go on holiday. Their minds are not really on the market now."
The STI lost 12.93 points, or 0.4%, to close at 3466.38, down from Thursday''s 3479.31.
"There''s no reason to be brave," one local trader said. "People will be trading cautiously as there are few leads right now."
Trading volumes were moderate at 2.1 billion shares, compared with 1.6 billion shares traded Thursday.
In the broad market, decliners again outnumbered gainers 507 to 227.
Of the 47 component STI stocks, 15 rose, 11 remained flat and 21 fell.
Singapore property companies were down again on fears of slowing price appreciation. City Developments fell 2.1% to S$13.70, CapitaLand fell 1.5% to S$6.60, and Wing Tai fell 0.4% to S$2.72.
Offshore and marine companies were also down on profit-taking.
Keppel Corp. fell 2.3% to S$12.80, and SembCorp Industries fell 1.8% to S$5.60, though a CIMB report forecasting strong 2008 earnings driven by high long-term oil prices means they could represent a good buying opportunity.
Singapore''s two largest banks continued their retreat, DBS falling 1% to S$20.40 and UOB dropping 0.5% to S$19.70.
A local analyst expects the financial sector to continue to struggle in coming sessions.
"Investors are not convinced the worst of the credit crisis is over," the analyst said.
Oil In Contango But Too Early For Refiners To Stock Up
2007/12/14
SINGAPORE (Dow Jones)--The relative weakness at the front end of the Nymex crude oil price curve this week has touched off speculation that refiners may be ready to hoard cargoes that will be worth more in coming months, a situation that, in theory, could lead to a price collapse later on.
However, while there''s plenty of storage capacity available, oil traders and analysts say refining economics go far beyond just relative price differences alone: for contango to work in refiners'' favor, it also has to cover a range of costs.
"You''ll need to see helluva contango before (the stockpiling) kicks in," a senior official with a North Asian refinery said Friday in Singapore.
Refiners also need to consider "storage costs plus incidentals such as wharfage," he said.
Currency movements may also factor in, given that some storage-terminal operators charge rates in local currencies.
On the New York Mercantile Exchange this week, front-month crude futures for January delivery slipped to a discount to the next month for the first time since August.
This was despite the contract - which takes its reference from light, low-suflur, West Texas Intermediate crude - spiking midweek to nearly $95 a barrel.
Several traders estimated that refiners will need to see a front-month WTI discount of more than $1 a barrel before they''ll step in to buy more crude than they need.
So far, the delta has been modest at best: no more than 30 cents a barrel.
Other crude benchmarks are also holding steady in backwardation, the reverse situation that doesn''t encourage stockpiling.
January Brent crude on London''s ICE Futures exchange, to which the bulk of oil traded in Europe and Africa is pegged, is trading more than 30 cents over the next month at about $93 a barrel.
Dubai crude, the high-sulfur benchmark used in the Middle East and Asia, is clinging on to a single-digit backwardation, with February swaps changing hands near $88 a barrel, brokers said.
Strength, Not Weakness
While the front-month WTI price weakness may prompt some pundits to predict a looming stockpiling wave, the pricing structure still hints at a bullish market, possibly after the northern winter.
Oil producers have been concerned the lull period between the winter demand peak and the start of the summer driving season could leave global inventories bloated and prices falling.
This is widely recognized as a reason why the Organization of Petroleum Exporting Countries, which supplies nearly 40% of the world''s crude, has been reluctant to pump more.
At a policy meeting last week in Abu Dhabi, the 13-member group opted to stand pat on output.
"The message is a simple one: market participants are looking past the short term and placing greater emphasis on long-term structural changes in commodity supply, demand and costs, than on the current uncertain economic environment," analysts at Barclays Capital, led by Kevin Norrish, said of the price trends.
In a research report late Thursday, they noted similarities in base metals and soft commodities markets, where far-out futures contracts were setting record highs.
Meantime, the U.S. crude market isn''t oversupplied heading into the winter, implying the prompt market may not stay soft for long.
The country''s commercially held inventories - at 304.5 million barrels - are just 0.4% above the five-year average level.
This means the WTI contango may be merely a sign of price dislocations as a result of the seasonal trading lull.
Market activity has slowed in recent weeks as large speculators such as hedge funds "window-dress" their accounts by booking profits before the year ends; price movements tend to be exaggerated by a lack of trading liquidity.
"From a pure fundamental vantage point, we feel that this week''s price advance has represented a huge mismatch against fundamental developments," Jim Ritterbusch at trading advisory firm Ritterbusch and Associates said in a note to clients.
"We would caution against attempting to pick a top to this rally and would also advise selectivity in approaching the sell side," he said.
On Wednesday, the Federal Reserve announced plans to lend $40 billion to banks. By my count, it’s the fourth high-profile attempt to rescue the financial system since things started falling apart about five months ago. Maybe this one will do the trick, but I wouldn’t count on it.
In past financial crises — the stock market crash of 1987, the aftermath of Russia’s default in 1998 — the Fed has been able to wave its magic wand and make market turmoil disappear. But this time the magic isn’t working.
Why not? Because the problem with the markets isn’t just a lack of liquidity — there’s also a fundamental problem of solvency.
Let me explain the difference with a hypothetical example.
Suppose that there’s a nasty rumor about the First Bank of Pottersville: people say that the bank made a huge loan to the president’s brother-in-law, who squandered the money on a failed business venture.
Even if the rumor is false, it can break the bank. If everyone, believing that the bank is about to go bust, demands their money out at the same time, the bank would have to raise cash by selling off assets at fire-sale prices — and it may indeed go bust even though it didn’t really make that bum loan.
And because loss of confidence can be a self-fulfilling prophecy, even depositors who don’t believe the rumor would join in the bank run, trying to get their money out while they can.
But the Fed can come to the rescue. If the rumor is false, the bank has enough assets to cover its debts; all it lacks is liquidity — the ability to raise cash on short notice. And the Fed can solve that problem by giving the bank a temporary loan, tiding it over until things calm down.
Matters are very different, however, if the rumor is true: the bank really did make a big bad loan. Then the problem isn’t how to restore confidence; it’s how to deal with the fact that the bank is really, truly insolvent, that is, busted.
My story about a basically sound bank beset by a crisis of confidence, which can be rescued with a temporary loan from the Fed, is more or less what happened to the financial system as a whole in 1998. Russia’s default led to the collapse of the giant hedge fund Long Term Capital Management, and for a few weeks there was panic in the markets.
But when all was said and done, not that much money had been lost; a temporary expansion of credit by the Fed gave everyone time to regain their nerve, and the crisis soon passed.
In August, the Fed tried again to do what it did in 1998, and at first it seemed to work. But then the crisis of confidence came back, worse than ever. And the reason is that this time the financial system — both banks and, probably even more important, nonbank financial institutions — made a lot of loans that are likely to go very, very bad.
It’s easy to get lost in the details of subprime mortgages, resets, collateralized debt obligations, and so on. But there are two important facts that may give you a sense of just how big the problem is.
First, we had an enormous housing bubble in the middle of this decade. To restore a historically normal ratio of housing prices to rents or incomes, average home prices would have to fall about 30 percent from their current levels.
Second, there was a tremendous amount of borrowing into the bubble, as new home buyers purchased houses with little or no money down, and as people who already owned houses refinanced their mortgages as a way of converting rising home prices into cash.
As home prices come back down to earth, many of these borrowers will find themselves with negative equity — owing more than their houses are worth. Negative equity, in turn, often leads to foreclosures and big losses for lenders.
And the numbers are huge. The financial blog Calculated Risk, using data from First American CoreLogic, estimates that if home prices fall 20 percent there will be 13.7 million homeowners with negative equity. If prices fall 30 percent, that number would rise to more than 20 million.
That translates into a lot of losses, and explains why liquidity has dried up. What’s going on in the markets isn’t an irrational panic. It’s a wholly rational panic, because there’s a lot of bad debt out there, and you don’t know how much of that bad debt is held by the guy who wants to borrow your money.
How will it all end? Markets won’t start functioning normally until investors are reasonably sure that they know where the bodies — I mean, the bad debts — are buried. And that probably won’t happen until house prices have finished falling and financial institutions have come clean about all their losses. All of this will probably take years.
Meanwhile, anyone who expects the Fed or anyone else to come up with a plan that makes this financial crisis just go away will be sorely disappointed.
13 comments:
Very often you hear or read of people talking about Dow/Nasdaq futures early in the day. These people have absolutely no idea about the futures market.
I don't really care too much about the US futures until London opens. For anyone who knows anything about futures will know that the volume traded during the day is very thin. This thin volume is easily manipulated by the big boys in Hong Kong.
It used to be a case where they used up very little money to push up the US futures around lunch time so that they could distribute their shares after lunch. And the stupid retailers would rush in to buy when they saw the futures moving up.
Shoemakers in Guangdong close down
SHANGHAI - NEARLY 1,000 Chinese shoemakers have gone bankrupt in southern China, unable to make ends meet due to tough business conditions.
Anti-dumping measures, a stronger local currency, increased labour and material costs, and a rolling back of export tax breaks were some of the reasons behind their closure, the state-run China Business newspaper reported.
It cited a report from the Asia Shoe Industry Association which said that 1,000 smaller and medium footwear and accessory producers had shut down in Guangdong province this year.
Up to 500 companies closed their doors in the last three months as Guangdong's shoe industry faces competition that was 10 times stiffer than in the 1990s, the paper quoted the association's secretary Li Peng as saying.
Guangdong is a shoe manufacturing hub for China and the world, with 7,000 to 8,000 shoe factories, said the China Leather Association.
These smaller companies, which rely on cheap pricing strategies and often have weak management practices, are increasingly unable to compete against larger, better operated companies, Mr Li said.
However, the closure of these weaker firms would weed out substandard manufacturers, thus improving the development of the industry as a whole. 'For firms with high-added value, it could provide a better environment for competition,' he added.
China's shoe industry is under huge pressure after the European Union last year and Taiwan this year enacted anti-dumping tariffs.
AGENCE FRANCE-PRESSE
China wary about use of land for biofuel crops
Mounting concern over country's food supply as grain prices surge
BEIJING - BEIJING has launched a survey into how much land it can afford to use for biofuel crops amid worries over food supply fuelled by surges in international grain prices.
China, the world's third-largest ethanol producer after the United States and Brazil, has already stopped building new biofuel plants, which use food crops such as corn or wheat, in the past year.
The move reflects mounting concern in the government, which has promoted the growing of power crops, such as cassava, on marginal or saline or alkaline land as years of urbanisation reduce the country's arable land.
'We will moderately develop power crops by using marginal land and uncultivated mountains,' Mr Zhang Fengtong, a director at the Agricultural Ministry, told a press conference.
'We are investigating how much land there is, and development of power crops has to follow China's own situation.'
China, with per capita land at one third of the world average, has to ensure that power crops do not take land away from grains, he said.
Mr Zhang did not say when the survey would be completed, but industry officials said the country would face raw-material shortages in its first non-grain ethanol plant, due to come on-stream this month.
The 200,000-tonnes-a-year ethanol plant in the south-western region of Guangxi, built by China Agri-Industries Holdings, a listed arm of state-owned agricultural group Cofco, will have to import from neighbouring Vietnam and Thailand.
'Cassavas are used in starch-making in Guangxi, and if used for ethanol there will be a shortage in the area,' said Mr Wang Zhongying, a researcher with the Energy Research Institute of the powerful National Development and Reform Commission.
'Nobody knows how much marginal land China has. Farmers have already utilised every piece of land they can cultivate, even on mountains,' he told an energy conference last week.
Raw materials have become crucial for China's future ethanol plants, particularly as the second-generation technology to convert agricultural wastes into ethanol will not be commercially viable within four years.
Cofco was also studying using sweet sorghum for ethanol production, said Mr Lin Hailong, a manager at its biochemical and bioenergy department.
'Cassava is the only choice right now...but we have to import,' he said last week on the sidelines of the conference.
On Tuesday, the Chinese Academy of Sciences' Institute of Botany signed a pact with Singapore's Temasek Life Sciences Laboratory - which is affiliated with the National University of Singapore and Nanyang Technological University - to set up a new Beijing-based laboratory for sweet sorghum to obtain biofuels more efficiently.
China also signed an agreement with the United States during high-level economic talks in Beijing this week to accelerate the use of biofuels such as ethanol and biodiesel, which could help reduce the countries' dependence on fossil fuels.
REUTERS
HONG KONG, Dec 14 (Reuters) - Hong Kong stocks are expected to rebound on Friday, tracking a firmer Wall Street, with bargain hunting likely to emerge following two straight sessions of losses.
"It's time for a technical rebounds after a decline of some 1,500 points in the last two sessions," said Francis Lun, general manager of Fulbright Securities.
"We expect to see some 500 points upside."
The benchmark Hang Seng Index slid 2.7 percent, or 776.61 points, to a two-week closing low on Thursday to 27,744.45. The China Enterprises Index of H shares, or Hong Kong-listed shares in mainland companies, fell 3.72 percent to 16,332.08.
"The market has been overreacting to the credit crisis and has been oversold," Lun said. "There was no surprise from Yam's comments. We already knew that."
The Hong Kong Monetary Authority's (HKMA) Chief Executive Joseph Yam warned in Beijing on Thursday that the worst of U.S. subprime crisis had not yet been seen and individual banks in Hong Kong could face losses this year due to their exposure to related products.
China's vice minister of commerce, Chen Deming, said a weakening US dollar was a bigger global economic concern than the value of the yuan. Vice Premier Wu Yi, also told the United States bluntly to fix its own problems rather than complain about China.
"Obviously, to resort to trade protectionism and blame another country for the structural problems in the US economy is the wrong approach which would only harm the interest of the United States itself," Wu said.
China Factory Spending Growth Slows on Lending Curbs
Dec. 14 (Bloomberg) -- China’s factory and property spending growth slowed, another sign that government lending curbs may be starting to cool the world’s fastest-growing major economy.
Fixed-asset investment in urban areas rose 26.8 percent in the first 11 months from a year earlier, the statistics bureau said today, after gaining 26.9 percent through October. Economists calculated November’s increase at about 26 percent, down from October’s 30.7 percent.
Industrial output grew at the year’s slowest pace in November, outstanding loans rose the least in eight months and export growth stayed at reduced levels. Those signs may do little to ease central bank concern the economy is overheating after inflation surged to an 11-year high and the trade surplus swelled.
“It’s a slight moderation in connection with the tightening efforts but growth is still very strong,” said David Cohen, an economist at Action Economics in Singapore. “Another interest-rate increase before the end of the year would be consistent with avoiding overheating.”
The yuan traded at 7.3712 at 12:07 p.m. after closing at 7.3692 yesterday. The yield on a 15-year bond was little changed at 4.72 percent.
The median estimate of 18 economists surveyed by Bloomberg News was for a 26.6 percent increase in 11-month investment.
Nuclear Reactors
Investment in the oil and natural-gas industries rose 9.6 percent through November, a slower pace than the 12.3 percent gain in the first 10 months. Railways and transportation also had weaker growth.
Spending in the first 11 months rose to 10.1 trillion yuan ($1.4 trillion), more than the size of Canada’s gross domestic product last year. China’s projects include plans to become the world’s biggest producer of nuclear reactors, building about 30 of them by 2020.
“It’s too early to call it a slowdown -- we need three months of data,” said Stephen Green, senior economist at Standard Chartered Bank Plc in Shanghai. He predicts three interest-rate increases next year, more investment controls, and a faster pace of yuan appreciation that will slow inflows of cash from exports.
Investment accounted for 42.5 percent of China’s gross domestic product in 2006, compared with 24 percent in Japan, 20 percent in the U.S. and 17 percent in Germany. The number of new projects rose by 24,124 from a year earlier to 211,127 in the first 11 months, the National Bureau of Statistics said today.
Exports, Industrial Production
More than two-thirds of Chinese enterprises say their industries have overcapacity, the state-run Xinhua News Agency reported Nov. 11, citing a government survey. Textile, pharmaceutical and equipment manufacturing were cited as examples.
Industrial output grew 17.3 percent in November from a year earlier. Outstanding local-currency loans climbed 17 percent.
Export growth slowed to 22.6 percent for the past four months from the 29 percent pace through July because of cuts to tax incentives, weaker U.S. demand, and higher prices due to currency gains and production costs.
Spending on fixed assets is “too rapid” and has “become a prominent problem,” the State Council, or cabinet, said last month. The pace of growth has rebounded this year from the 24.5 percent increase in 2006 and means that new factories may come on stream just as global growth slows, leaving overcapacity, falling profits and bad loans.
The government is targeting inflation that surged to 6.9 percent last month and overheating as the biggest threats to an expansion that has been the biggest contributor to global economic growth in 2007.
China has raised the key one-year lending rate to a nine- year high of 7.29 percent, clamped down on bank lending, tightened project approvals, imposed environmental restrictions and limited land use to curb investment.
China Completes Bond Sale for Sovereign Wealth Fund
Dec. 14 (Bloomberg) -- China’s finance ministry sold 26.35 billion yuan ($3.6 billion) of 10-year notes, completing this year’s so-called special bond issue to raise money for the country’s sovereign wealth fund.
The debt was sold at a yield of 4.41 percent, according to traders at China Construction Bank Corp. and the Agricultural Bank of China, primary dealers obliged to bid at government auctions. The coupon compares with the 4.49 percent in a sale of similar-maturity debt last month.
China’s lawmakers approved a plan in June to sell 1.55 trillion yuan in bonds to finance China Investment Corp., set up in September to help boost returns on the country’s $1.46 trillion of currency reserves. China Investment this week sought applications for global asset management companies to help invest its funds in global equities.
‘‘The government may sell special bonds again next year to raise money for the sovereign wealth fund to invest globally,’’ said Nie Shuguang, a fixed-income trader at Industrial Bank Co. in Shanghai.
The yield on the benchmark 10-year government bond fell 2 basis points, or 0.02 percentage point, to 4.49 percent at 11:30 a.m. in Shanghai, according to the China Interbank Bond Market
The government has now sold about 200 billion yuan of 10- and 15-year debt to interbank market dealers and 1.35 trillion yuan to the central bank. The People’s Bank of China has used the treasuries it holds to help control money supply through its open market operations, after inflation reached the fastest in almost 11 years.
The bonds were sold at par value for 100 yuan face amount and dealers bid on the coupon rate.
China’s local currency bonds have slumped 2.41 percent this year, the worst performers among 10 Asian local-currency debt indexes compiled by HSBC Holdings Plc.
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China's urban fixed asset investment posts robust rise
BEIJING (AFP) — China's urban fixed asset investments posted a robust rise in the first 11 months, the government said Friday, suggesting it was still a long way away from reining in Asia's second-largest economy.
Spending on fixed assets in the cities rose 26.8 percent in the period from January to November compared with a year earlier, the National Bureau of Statistics said.
"There looks to be little sign of a cooling on the mainland, meaning it was business as usual on the growth front," said David Melser, an analyst with Moody's Economy.com.
Overall urban fixed assets investment -- a key measure of spending on items such as plants, equipment and infrastructure -- for the period was 10.1 trillion yuan (1.4 trillion dollars), the bureau said in a statement.
No figure for November alone was given. However, the full 11-month data indicated no major change during the month, as the first 10 months had seen an increase of 26.9 percent.
"In our view, the underlying growth momentum... remains robust, which is consistent with the strong import data," investment bank Goldman Sachs said in a research note.
Imports increased at a faster rate than exports in November, rising 25.3 percent from a year earlier to 91.3 billion dollars, earlier customs data showed, suggesting strong demand derived from investment.
The fixed asset data came at the end of a week of statistics releases in China that indicated to varying degrees continued strong growth.
The most salient figure was a 6.9-percent rise in the consumer price index, marking the highest inflation figure since December 1996.
"The likelihood of a near-term interest rate move remains high," said Grace Ng, Hong Kong-based economist of JPMorgan Chase Bank.
"This is so, especially considering the upside surprise in November... inflation and the authorities' target to correct the negative real deposit rate condition."
China has already hiked the interest rate five times this year, while raising the amount banks must keep in reserve 10 times.
These measures are all aimed at containing credit growth, which in turn is crucial in boosting investment.
Investment spending is a key engine of growth, and along with net exports it is the main reason why China's economy is likely to expand by about 11.5 percent in 2007, marking the fifth consecutive year of double-digit growth.
Policy makers led by Premier Wen Jiabao have struggled to rein in investment spending -- apparently with limited success.
The data published Friday gave an indication of why this might be the case, showing that projects approved by local governments accounted for 90 percent of total investment spending in the first 11 months.
It is widely believed that Beijing has difficulties reining in growth because local officials tend to easily approve investment projects, as they are concerned about unemployment and the potential for social unrest.
Fears have especially been mounting about a speculative bubble in the real estate sector, and Friday's figures may reinforce these concerns, showing a 31.8 percent rise in investment in property.
However, some economists suggested that China's policy makers may gradually see some results from all their efforts.
"Since credit policy will be kept on a tightening path in the coming months, the strength in domestic investment is likely to wane as well," Goldman Sachs said.
Liquidity Squeeze...
A plan to establish a fund to prevent banks' potential losses on structured investment vehicles, or SIVs, appears to be losing steam, The Wall Street Journal reported Thursday. The so-called super-SIV fund was conceived by Citigroup Inc., Bank of America Corp., and J.P. Morgan Chase & Co. with the backing of the U.S. Treasury to head off fire sales and SIV losses.
The eurozone’s 21 largest banks hold €244bn (£175bn, $359bn) in off-balance sheet assets that may have to be brought back on to their balance sheets and could trigger a credit squeeze in the wider economy, the European Central Bank warned on Wednesday. Fears that banks could be forced to take these assets on to their books have fuelled the liquidity squeeze.
Interest rates on loans in euros stayed at a seven-year high, a day after central banks in Europe and North America teamed up in an attempt to end gridlock in money markets. Three-month borrowing costs held at 4.95 percent, the British Bankers' Association said today. That's 95 basis points, or 0.95 percentage point, more than the European Central Bank's benchmark interest rate, compared with 57 basis points a month ago. It averaged 25 basis points in the first half of the year, before U.S. subprime-mortgage losses contaminated money markets.
The interest rates banks charge each other for short-term loans in Europe failed to decline from the highest levels in seven years a day after central banks joined forces to break a logjam in money markets. The cost to borrow for three months remained at 4.95 percent, the British Bankers' Association said today. That's 95 basis points, or 0.95 percentage point, more than the European Central Bank's benchmark interest rate, compared with 57 basis points a month ago. The difference averaged 25 basis points in the first half of the year, before losses on securities linked to U.S. subprime mortgages contaminated credit markets.
Singapore Shares End Down; Market Subdued On Lack Of Leads
2007/12/14
SINGAPORE (Dow Jones)--Singapore''s benchmark Straits Times Index ended lower for the third straight session Friday on enduring concerns over the U.S. economy, mirroring falls in the rest of Asia.
"People are unwilling to take positions," a local analyst said. "The market is very susceptible to sudden changes in mood."
Another analyst said: "People just want to go on holiday. Their minds are not really on the market now."
The STI lost 12.93 points, or 0.4%, to close at 3466.38, down from Thursday''s 3479.31.
"There''s no reason to be brave," one local trader said. "People will be trading cautiously as there are few leads right now."
Trading volumes were moderate at 2.1 billion shares, compared with 1.6 billion shares traded Thursday.
In the broad market, decliners again outnumbered gainers 507 to 227.
Of the 47 component STI stocks, 15 rose, 11 remained flat and 21 fell.
Singapore property companies were down again on fears of slowing price appreciation. City Developments fell 2.1% to S$13.70, CapitaLand fell 1.5% to S$6.60, and Wing Tai fell 0.4% to S$2.72.
Offshore and marine companies were also down on profit-taking.
Keppel Corp. fell 2.3% to S$12.80, and SembCorp Industries fell 1.8% to S$5.60, though a CIMB report forecasting strong 2008 earnings driven by high long-term oil prices means they could represent a good buying opportunity.
Singapore''s two largest banks continued their retreat, DBS falling 1% to S$20.40 and UOB dropping 0.5% to S$19.70.
A local analyst expects the financial sector to continue to struggle in coming sessions.
"Investors are not convinced the worst of the credit crisis is over," the analyst said.
Oil In Contango But Too Early For Refiners To Stock Up
2007/12/14
SINGAPORE (Dow Jones)--The relative weakness at the front end of the Nymex crude oil price curve this week has touched off speculation that refiners may be ready to hoard cargoes that will be worth more in coming months, a situation that, in theory, could lead to a price collapse later on.
However, while there''s plenty of storage capacity available, oil traders and analysts say refining economics go far beyond just relative price differences alone: for contango to work in refiners'' favor, it also has to cover a range of costs.
"You''ll need to see helluva contango before (the stockpiling) kicks in," a senior official with a North Asian refinery said Friday in Singapore.
Refiners also need to consider "storage costs plus incidentals such as wharfage," he said.
Currency movements may also factor in, given that some storage-terminal operators charge rates in local currencies.
On the New York Mercantile Exchange this week, front-month crude futures for January delivery slipped to a discount to the next month for the first time since August.
This was despite the contract - which takes its reference from light, low-suflur, West Texas Intermediate crude - spiking midweek to nearly $95 a barrel.
Several traders estimated that refiners will need to see a front-month WTI discount of more than $1 a barrel before they''ll step in to buy more crude than they need.
So far, the delta has been modest at best: no more than 30 cents a barrel.
Other crude benchmarks are also holding steady in backwardation, the reverse situation that doesn''t encourage stockpiling.
January Brent crude on London''s ICE Futures exchange, to which the bulk of oil traded in Europe and Africa is pegged, is trading more than 30 cents over the next month at about $93 a barrel.
Dubai crude, the high-sulfur benchmark used in the Middle East and Asia, is clinging on to a single-digit backwardation, with February swaps changing hands near $88 a barrel, brokers said.
Strength, Not Weakness
While the front-month WTI price weakness may prompt some pundits to predict a looming stockpiling wave, the pricing structure still hints at a bullish market, possibly after the northern winter.
Oil producers have been concerned the lull period between the winter demand peak and the start of the summer driving season could leave global inventories bloated and prices falling.
This is widely recognized as a reason why the Organization of Petroleum Exporting Countries, which supplies nearly 40% of the world''s crude, has been reluctant to pump more.
At a policy meeting last week in Abu Dhabi, the 13-member group opted to stand pat on output.
"The message is a simple one: market participants are looking past the short term and placing greater emphasis on long-term structural changes in commodity supply, demand and costs, than on the current uncertain economic environment," analysts at Barclays Capital, led by Kevin Norrish, said of the price trends.
In a research report late Thursday, they noted similarities in base metals and soft commodities markets, where far-out futures contracts were setting record highs.
Meantime, the U.S. crude market isn''t oversupplied heading into the winter, implying the prompt market may not stay soft for long.
The country''s commercially held inventories - at 304.5 million barrels - are just 0.4% above the five-year average level.
This means the WTI contango may be merely a sign of price dislocations as a result of the seasonal trading lull.
Market activity has slowed in recent weeks as large speculators such as hedge funds "window-dress" their accounts by booking profits before the year ends; price movements tend to be exaggerated by a lack of trading liquidity.
"From a pure fundamental vantage point, we feel that this week''s price advance has represented a huge mismatch against fundamental developments," Jim Ritterbusch at trading advisory firm Ritterbusch and Associates said in a note to clients.
"We would caution against attempting to pick a top to this rally and would also advise selectivity in approaching the sell side," he said.
After the Money’s Gone
By PAUL KRUGMAN
December 14, 2007
On Wednesday, the Federal Reserve announced plans to lend $40 billion to banks. By my count, it’s the fourth high-profile attempt to rescue the financial system since things started falling apart about five months ago. Maybe this one will do the trick, but I wouldn’t count on it.
In past financial crises — the stock market crash of 1987, the aftermath of Russia’s default in 1998 — the Fed has been able to wave its magic wand and make market turmoil disappear. But this time the magic isn’t working.
Why not? Because the problem with the markets isn’t just a lack of liquidity — there’s also a fundamental problem of solvency.
Let me explain the difference with a hypothetical example.
Suppose that there’s a nasty rumor about the First Bank of Pottersville: people say that the bank made a huge loan to the president’s brother-in-law, who squandered the money on a failed business venture.
Even if the rumor is false, it can break the bank. If everyone, believing that the bank is about to go bust, demands their money out at the same time, the bank would have to raise cash by selling off assets at fire-sale prices — and it may indeed go bust even though it didn’t really make that bum loan.
And because loss of confidence can be a self-fulfilling prophecy, even depositors who don’t believe the rumor would join in the bank run, trying to get their money out while they can.
But the Fed can come to the rescue. If the rumor is false, the bank has enough assets to cover its debts; all it lacks is liquidity — the ability to raise cash on short notice. And the Fed can solve that problem by giving the bank a temporary loan, tiding it over until things calm down.
Matters are very different, however, if the rumor is true: the bank really did make a big bad loan. Then the problem isn’t how to restore confidence; it’s how to deal with the fact that the bank is really, truly insolvent, that is, busted.
My story about a basically sound bank beset by a crisis of confidence, which can be rescued with a temporary loan from the Fed, is more or less what happened to the financial system as a whole in 1998. Russia’s default led to the collapse of the giant hedge fund Long Term Capital Management, and for a few weeks there was panic in the markets.
But when all was said and done, not that much money had been lost; a temporary expansion of credit by the Fed gave everyone time to regain their nerve, and the crisis soon passed.
In August, the Fed tried again to do what it did in 1998, and at first it seemed to work. But then the crisis of confidence came back, worse than ever. And the reason is that this time the financial system — both banks and, probably even more important, nonbank financial institutions — made a lot of loans that are likely to go very, very bad.
It’s easy to get lost in the details of subprime mortgages, resets, collateralized debt obligations, and so on. But there are two important facts that may give you a sense of just how big the problem is.
First, we had an enormous housing bubble in the middle of this decade. To restore a historically normal ratio of housing prices to rents or incomes, average home prices would have to fall about 30 percent from their current levels.
Second, there was a tremendous amount of borrowing into the bubble, as new home buyers purchased houses with little or no money down, and as people who already owned houses refinanced their mortgages as a way of converting rising home prices into cash.
As home prices come back down to earth, many of these borrowers will find themselves with negative equity — owing more than their houses are worth. Negative equity, in turn, often leads to foreclosures and big losses for lenders.
And the numbers are huge. The financial blog Calculated Risk, using data from First American CoreLogic, estimates that if home prices fall 20 percent there will be 13.7 million homeowners with negative equity. If prices fall 30 percent, that number would rise to more than 20 million.
That translates into a lot of losses, and explains why liquidity has dried up. What’s going on in the markets isn’t an irrational panic. It’s a wholly rational panic, because there’s a lot of bad debt out there, and you don’t know how much of that bad debt is held by the guy who wants to borrow your money.
How will it all end? Markets won’t start functioning normally until investors are reasonably sure that they know where the bodies — I mean, the bad debts — are buried. And that probably won’t happen until house prices have finished falling and financial institutions have come clean about all their losses. All of this will probably take years.
Meanwhile, anyone who expects the Fed or anyone else to come up with a plan that makes this financial crisis just go away will be sorely disappointed.
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