BEIJING: China’s growth is strong, its currency is rising and a huge stash of foreign reserves insulates the economy from the sort of external payments crisis that rocked Asia a decade ago.
But that is not keeping economists from playing "what if?"
What if China’s export engine suddenly seized up? What if the resulting overcapacity exposed a new crop of bad bank loans? What if share and property prices plunged, sapping confidence and triggering capital flight that rattled banks and hit the yuan?
Unlikely, yes. Impossible, no.
Stephen Jennings, head of Russian investment bank Renaissance Capital, told Reuters in Moscow that China’s double-digit growth and soaring equities could drop so hard that it would make the 1998 emerging markets crisis look like a storm in a teacup.
"The 8.5 earthquake on the Richter scale that will affect all of us -- to me it’s China," Jennings said in a recent interview.
China has long defied the sceptics, but economists agree that the longer imbalances and liquidity build up because of the yuan’s semi-fixed exchange rate, the greater the risks.
Nouriel Roubini, head of Roubini Global Economics and a New York University economics professor, pointed to a hard landing in the United States as a trigger for a possible China crisis.
The ensuing slowdown in China’s growth could lead to a surge in bad loans, while a slump in share and real estate prices could wipe out enough wealth to dent residential construction.
"The risks are that these things at some point -- not in the very short term -- get out of hand and then become a serious macro and financial problem to manage," Roubini told Reuters.
China has spent as much as $500 billion since 1998 beefing up its banks, and its public finances are strong enough to rescue them again.
"Of course fiscal resources could be used to help the banks," Roubini said during a recent visit to Beijing.
"But at that point the risk is you get a credit crunch that has negative effects on the financial system and on the real economy regardless of the ability of the government to bail out the banks."
Eswar Prasad, a professor at Cornell University in Ithaca, New York, argued that an "explosive crisis" was unlikely but said he was concerned that China’s "dysfunctional" financial system might not be robust enough to withstand a big shock.
Prasad, a former International Monetary Fund researcher, identified a sudden reversal of capital inflows -- caused perhaps by a loss of confidence in the banking system or social instability generated by rising inequality -- as a vulnerability.
Monetary policy is a country’s first line of defence in the event of an economic shock. But China’s dollar-linked exchange rate robs it of an independent monetary policy, Prasad said.
So if, say, Chinese households withdrew 10 percent of their bank deposits -- about $200 billion -- at a time of contracting economic demand, the resulting instability in financial markets could feed on itself unchecked.
"It’s a potential risk. One wouldn’t want to overstate the case, but, in terms of thinking of scenarios, it’s illustrative of the fact that even a small change in people’s preference for holding banking deposits could, because of the fragilities of the system, become something much larger," Prasad told Reuters.
Amy Auster, head of international economics at ANZ Bank, said China was right to worry about capital flight, even though money is pouring in right now in anticipation of a stronger yuan.
"Should these expectations reverse -- as they did when Australia floated its currency in the 1980s -- the outflows of funds could prove too big for the banking system to bear."
The policy priority then is to make the banking system as watertight as it needs to be for capital to flow freely in and out of China, Auster said in a recent report.
"The longer this process takes, the greater the risk of vast leakages in the capital account that force greater volatility into interest rates and asset prices, and eventually an abrupt currency adjustment. This, in our view, is the greatest medium-term risk to growth in China," she said.
There is no shortage of other culprits that could derail China’s economy, or at least force a radical retooling of its resource-intensive growth model.
One Beijing economist worries about the impact of a big spill of dangerous chemicals; others fear growing water shortages.
Yet not everyone is wallowing in doom and gloom.
Qing Wang and Denise Yam at Morgan Stanley name protectionism as the biggest threat, but they see only a small chance of a major policy-induced slowdown in the next few years.
"We expect the fundamental forces -- including efficiency gains from structural reform, globalisation, urbanisation and industrialisation -- that have underpinned the strong secular trend growth in China over the past two decades will continue to drive robust growth for years to come.
"We are thus bullish on China," they said in a report.
For more than a decade, China’s State Administration of Foreign Exchange (Safe) has maintained outposts in Hong Kong, Singapore, London and New York to help manage the nation’s rapidly expanding foreign exchange reserves.
These subsidiaries have largely avoided public scrutiny and until now have concentrated on investing the nation’s foreign exchange reserves in safe and liquid assets such as US Treasury bonds.
But a series of small equity investments by Safe’s Hong Kong subsidiary in three of Australia’s largest banks - Australia and New Zealand Bank, Commonwealth Bank of Australia and National Australia Bank - in the past two months has raised new questions over the transparency of Chinese investments.
It also comes at a time when Chinese state-owned companies’ increasing presence overseas and the creation of government bodies such as China Investment Corp, a new $200bn sovereign wealth fund, are causing angst in some quarters over the power China is beginning to wield in global markets.
Located in downtown Hong Kong, Safe Investment Company is one of the largest customers for local Treasury bond trading desks at banks such as Morgan Stanley and yet almost nobody in the wider financial community has heard of it.
It is a direct subsidiary of Safe, the government department that regulates foreign exchange transactions and also manages China’s nearly $1,500bn in foreign exchange reserves.
But the entity is so secret that Safe repeatedly refused to acknowledge its existence to the FT, until it was confronted with incontrovertible evidence.
China’s central bank, which ultimately controls Safe, told the FT that Safe Investments was set up just one month before the hand-over of Hong Kong from Great Britain to China in 1997 to "support and promote the development of Hong Kong’s financial market" and served a crucial role in defending the value of the Renminbi and Hong Kong’s peg to the US dollar against international speculators.
According to people familiar with Safe Investment’s operations, it served largely as a minor outpost for Safe in the years following the Asian financial crisis, with only about $20bn in funds under management.
But the amount under management at Safe outposts has increased substantially, according to one person familiar with its operations.
"Safe’s subsidiaries around the world have until now been responsible for running Safe’s book over the various time zones and have basically replicated the portfolio of head office in Beijing but that appears to be changing with the Hong Kong subsidiary taking more risk in managing reserves," the person said.
Safe’s main office in Beijing manages portfolios of fixed income securities such as Treasury bonds, currencies and commodities, according to a person familiar with its operations, who said it is common for Safe to execute trades of up to $1bn at a time.
Analysts say internal politics may account for Safe diversifying away from its previous mandate of low-risk liquid securities, albeit on a relatively small and carefully concealed scale.
"This shows characteristics of a Chinese bureaucratic rivalry," according to Arthur Kroeber, managing director of Dragonomics, an independent research firm. "It might be that, having been forced to surrender control of Huijin to CIC, Safe and the central bank are now lobbying for authority to make alternative investments on their own account."
CIC was established last September to make better returns on a portion of the country’s foreign exchange reserves through riskier investments.
Although a Ministry-level entity, CIC was set up under the auspices of the Ministry of Finance, long seen as a rival to the central bank when it comes to controlling the country’s financial assets, including its largest banks.
Huijin was set up a few years ago, under the control of Safe, as the government’s holding company for state-owned banks and securities firms but CIC spent about a third of its initial $200bn acquiring Huijin, snatching control of the banks away from the central bank.
CIC officials have stressed they will make global investments in the most transparent way possible.
But Mr Kroeber says: "Even if CIC honours its pledge . . . there are a lot of other Chinese state entities investing a lot of money abroad in a much less transparent manner."
Travel through most Asian airports these days and you are invariably greeted by advertising extolling the prowess of that city as a cutting-edge financial centre.
Cities from Mumbai in the west to Sydney in the east - and all points between - project plans to become a "hub" or a "gateway". The rivalry intensifies every year as financial centres across the region seek to attract investment dollars.
Driving the rivalry among the cities is a recognition that while Asia’s advanced economies today rely heavily on manufacturing, they will steadily lose their competitiveness in this area as living standards and wages increase.
To compensate, economists say the countries must transform themselves into western-style service-based economies, in which financial services play a large role.
Hence the attempt to adjust tax and regulatory policy to attract international investment banks, private equity firms, hedge funds and scores of professionals such as accountants and lawyers needed to service financial activity.
So which centres are leading the race to be Asia’s premier financial centres and can they sustain their competitive positions?
Hong Kong and Singapore are regularly cited by academic studies as Asia’s leading cities for finance.
Far from being eclipsed by mainland cities, Hong Kong has thrived in the decade since the end of British rule and served as an essential centre for Chinese companies to raise international capital. This was graphically illustrated last October when Industrial and Commercial Bank of China, the nation’s largest lender, listed in Hong Kong in an offering that raised a world record $21.9bn.
But analysts still fret over Hong Kong’s future. Some officials in Shanghai are intent on restoring the city’s pre-1949 position as Asia’s premier financial centre.
China’s largest companies are now encouraged to list in Shanghai and not overseas, a call heeded recently by the likes of PetroChina that raised $9bn when it joined the bourse this month.
However, even on the mainland there is rivalry. Authorities are building up Tianjin, a city near Beijing, as an alternative centre of commerce and finance.
Beijing itself is emerging as a financial centre. Financial Street, a district that houses the headquarters of the biggest commercial banks and bureaucratic decision-makers, has recently been developed.
Investment decisions made by the country’s fledgling sovereign wealth funds are approved in the Chinese capital.
Bankers remain confident that Hong Kong will retain a leading role.
Rodney Ward, honorary president of UBS Investment Bank Asia, says: "Hong Kong will continue to play an important role for China and capital raising."
Mr Ward believes that the programme that allows for mainland institutions to invest in overseas jurisdictions will benefit Hong Kong’s markets significantly as China’s capital account restrictions are lifted in the coming years.
Singapore, too, has established itself as a home to growing numbers of hedge funds and as the region’s leading centre for private banking, not to mention a niche for shipping and listed real estate companies.
Mr Ward adds: "Singapore can benefit from Hong Kong’s focus on China and it has successfully forged business links with India and south-east Asia."
Seoul, too, this summer introduced a "big bang" restructuring to encourage competition, consolidation and creativity in an effort to become a world-class centre.
Tokyo, meanwhile, is trying to shed its image as primarily a domestic market.
Various working parties are studying how to alter regulations to attract foreign listings back to Japan: only four overseas companies have listed on the Tokyo exchange since 2004. Singapore bagged more than 40 last year alone.
Australia is also plotting how best to grab a slice of the pie, in particular in the area of asset management. Thanks to a compulsory pension system, the country is on course over the next decade to be home to a pensions pool of $2,000bn.
Paul Calello, outgoing CEO of Credit Suisse Asia Pacific, is one of many who believe that several centres in the region can prosper. He says: "Asia is an enormous region and there are huge opportunities for capital formation in several financial hubs."
He adds: "Each financial centre can offer a niche reason for attracting business such as listings. HK remains important for Chinese companies, and is a gateway in to China. Singapore has developed a niche in property listings and could develop in to a bourse for Vietnamese companies."
Mr Calello says that Asian companies will not just look to local markets to list.
He says: "Nasdaq will still offer strong advantages for Asia’s technology companies, while a listing on the NYSE offers a valuable currency for acquisitions."
SHANGHAI: To pay attention in China is to be aware of the proliferation of the astoundingly wooden language that suffuses public life.
Long gone are the days of earthy men like Mao and Deng Xiaoping, who smoked and spat and frequently spoke their mind. Yes, there were countless slogans in their eras, too - who can forget capitalist roaders and imperialist running dogs? - but the leaders exhibited identifiable personalities, and it usually didn't take a divining rod to figure out their politics, either.
Today most are happy to dispense with the tobacco and the spittoons, and one suspects that most Chinese, too, feel more comfortable about a system that doesn't concentrate so much power in the hands of a single individual, if for no other reason than to avoid the self-inflicted catastrophes of the recent past.
But few places could be farther from Iowa - where the governed expect to look into the eyes of those who would govern them, to get to know them - than today's China. This era's breed of Chinese politicians give away so little about themselves, and about their true thoughts on vital matters, that they unwittingly foster entirely new kinds of anxiety.
What bigger riddle could there be in China today, for example, than the meaning of President Hu Jintao's signature slogan, "harmonious society"?
Certainly, no clear explanation has been given of the concept, as anodyne as it is inherently and, one suspects, deliberately vague.
Catch phrases like these are invoked so slavishly by sycophantic minions aiming to give a quick gloss to their decisions as to further the impression of meaninglessness. And yet there is a nagging sense that to surrender to this impression would be to miss something big.
Things are changing in China, and not just the kind of surface change of rapid growth and omnipresent construction, which can bowl over even habitués of the country. Politics are changing, too, as a result of a hard-to-quantify combination of tinkering at the top and effervescent bottom-up civic growth, and as inept as they sound, the guess here is that many of the wooden official slogans are attempting to come to grips with this change.
It is an open question how far China will travel down the road of political reform, or, for that matter, how fast. It is overwhelmingly clear that the pace that the leadership has in mind is the political equivalent of plate tectonics. For risk-averse Beijing, even democracy for rich and stable Hong Kong is a scalding potato.
For now, Chinese citizens may have no alternative vessel for their aspirations beyond the conservative Communist Party, but they have aspirations nonetheless. And like a lighter-than-air gas in a creaky container, they seek their expression through little cracks and fissures in the system, some of which have been created by the government itself.
Perhaps the latest example of this came recently in the southern city of Xiamen, where citizens who were outraged over plans to build a $10 billion chemical plant in an urban area took to the streets last June in protest.
Demonstrations have become commonplace in China, but what has happened since then in Xiamen is anything but ordinary.
Last month, the government consented to a public hearing about the plant, and, predictably, it was roundly opposed by public opinion.
The plant has not yet been officially canceled, but plans for its construction in Xiamen are widely understood to have been stopped.
Hearings were held, at least in part, because citizens became aware of provisions in recently enacted laws calling for "public participation" in the vetting of big projects, and they demanded their right be respected.
No one in Beijing or in the Xiamen government, for that matter, is saying that plans for the plant were changed because of this rare process of a public hearing. But this is where the game under way in China becomes interesting.
The constantly invoked idea of creating a "harmonious society" means, according to some interpretations, allowing citizens to let off steam inside the system, rather than standing on the outside, throwing rocks. According to this conception of the grand thinking in Beijing, the government is not conceding anything vital, certainly not the right to decide what does or doesn't get built or done in today's China.
This theory holds that Beijing and, by extension, places like Xiamen are buffing their own images as being close to the people and more open-minded than the exclusively top-down regimes of the past. There were abundant echoes of this in press coverage, like this gushing account, which appeared in Southern Weekend: "If the project is finally relocated, the Xiamen government will no doubt regain the public's heart and could leave a classical example for China's environment history, of interaction between the government and the public. The open-mindedness of the government is totally different since the PX turmoil in June."
In fact, it is widely believed that Beijing had already decided to kill the chemical plant before any voices were heard, and to play doubly safe, all along, it was clear that the hearings were in no way binding.
But by conceding so little, there is a risk that exercises like this will quickly come to be seen as empty. For the government, events like the Xiamen hearing, if they are mostly hollow PR stunts, potentially carry an even greater risk than this.
What if Chinese people begin to take all of this talk of harmonious society seriously - not as something merely handed down from the government, but rather something that requires the rulers to sacrifice some of their power?
What if people in other provinces seize upon the Xiamen affair as a precedent for resolving their own local grievances, mistaking a more-or-less empty exercise for something real?
What if, here and there, Chinese people begin to demand to have public hearings? Is the system ready for people who insist on being meaningfully heard?
Cotton farms in western China are the latest agricultural businesses to receive financial support now that international banks are being encouraged to enter rural China.
By staff reporter Wang Zhen
A major bank and a global manufacturer of cotton shirts are teaming up to provide financing for cotton farmers as part of a new focus on foreign bank services in rural China.
Britain’s Standard Chartered Bank (China) Ltd. will work with Esquel Cotton Investment Ltd. and Akesu Esquel Agricultural Development Co. Ltd. to provide complete microfinance lending to cotton farmers in the Urumqi region, western China.
The program, to be launched in Baishiairike village in Xinjiang Uygur Autonomous Region, will provide credit policy, credit assessment and loan management services.
Local cotton farmers will be able to obtain loans with no required guarantee through an entrusted loan arrangement with the local Awati Credit Cooperative. Standard Chartered Bank CEO Katherine Tsang said the program will help cotton farmers finance their operations by providing working capital.
The bank already has experience with rural finance in 13 markets including India, Nepal, Bangladesh and Pakistan. Ninety percent of Standard Chartered’s profits come from largely agrarian markets in Asia, Africa and the Middle East.
Esquel, founded in 1978, is a leading maker of cotton shirts with annual revenues of US＄ 550 million. The company uses cotton grown in Xinjiang to supply spinning, weaving and knitting operations in other parts of China. The firm supplies U.S., European and Japanese markets.
The China Banking Regulatory Commission relaxed its policies in late 2006 to let financial institutions enter the country’s rural markets. Since then, 23 rural institutions have opened in six of 36 experimental districts across the country. These include 11 rural banks, four lend-lease companies, and eight rural finance cooperatives. These institutions have a combined 324 million yuan in assets, 120 million yuan in loan reserves and 193 million yuan in deposit reserves.
Another bank that’s part of the trend is HSBC, which in mid-December became the first international bank to offer rural financing in China by opening HSBC Rural Bank in central China’s Hubei Province. The bank is operating in the city of Suizhou’s Cengdu District, an area of about 6,900 square kilometers with 2 million people.
In its early stages, HSBC Rural Bank plans to lend to agriculture-related businesses, as well as provide regular deposit and transaction services to companies and individuals. The bank has 22 staffers and initial capital of 10 million yuan.
Horizon Towers minority owners appeal against Strata board ruling
Estates like Finland Gardens, Regent Court are caught in similar legal battles
By Joyce Teo Jan 5, 2008
JUST as the long-running saga over the Horizon Towers collective sale looked about to end, another chapter is unfolding - and other similar disputes are looming.
The minority owners opposing the $500 million collective sale have appealed to the High Court against a ruling last month by the Strata Titles Board (STB), which had permitted the deal to go ahead.
Now, it has emerged that Horizon Towers is not the only condominium caught in a legal battle over a collective sale.
Owners at other estates such as Finland Gardens are also embroiled in similar tangles. The majority owners of the 48-unit estate in Siglap have filed an appeal on the instructions of buyer Sing Holdings - after the STB threw out the $49.5 million sale application in late November.
Another case, that of Phoenix Court, may go to the Court of Appeal, said an industry source who declined to be named. The STB tribunal that heard the Horizon Towers case said it had been guided by the Phoenix Court case. An objecting couple appealed against an STB decision to approve the Phoenix Court sale. The High Court upheld the STB order on Nov 9.
Over in Serangoon Road, Regent Court owners are preparing to file an appeal in the High Court against an STB decision to grant the $34 million sale, sources said.
Also, owners at Airview Towers in St Thomas Walk have filed an appeal in the High Court against an STB decision to reject its collective sale on a technicality.
The sale of Horizon Towers at Leonie Hill was finally approved by the STB - which had earlier thrown out the sale - on Dec 7 after a lengthy hearing, much sweat and tears, and nearly a year after the deal was inked.
The transaction hit a snag after some owners felt the $500 million price, which works out to $810 to $820 per sq ft (psf) on average, was not enough in a fast-rising market. Neighbouring The Grangeford was sold en bloc last June for just over $1,800 psf.
The dispute descended into acrimony and the STB then threw the sale out on a technicality before an earlier High Court appeal which resulted in a fresh STB hearing.
Horizon Towers became the first collective sale where majority owners were slapped with a lawsuit for alleged breach of contract. The suit was lodged by the buyers: Hotel Properties, Morgan Stanley Real Estate and Qatar Investment Authority.
Over the past two days, three sets of minority owners or objectors filed appeals with the High Court. The owners had a month after the STB ruling to appeal, and yesterday was the final day. They now await a hearing date - expected within three months.
One minority owner said even if the High Court appeal failed, he would take the case to the Court of Appeal. If this happens, the deal could be delayed by another three months. 'My chances of winning may not be high but I will exhaust all legal means to protect my home,' said the owner, Mr K.K. Then, 53.
The retiree said he and his wife have been drawn unwillingly into the sale process. He said he never had the intention to sell his home as it is something money cannot buy.
The objectors are believed to be aggrieved by the STB decision as they feel the hearing was not fair.
At the STB hearing late last year, a key point of contention was that the sale committee sold the estate at the reserve price even though it knew the market had already moved up.
The reserve price of The Grangeford was revised higher before the Horizon Towers deal was inked. But the sale committee stuck with the $500 million price, which was a reserve price set in 2006.
President Bush said he was considering the possibility of offering a fiscal stimulus package to help boost the economy but said he has not made a decision yet.
"In terms of any stimulus package, we're considering all options and I probably won't make up my mind as to whether or not I lay one out until the State of the Union," Bush said in an interview with Reuters at the White House, referring to his State of the Union address to Congress Jan. 28.
A growing number of private economists are worried that a surge in oil prices -- which hit $100 a barrel this week -- and the ripple effects from a sharp housing downturn and subprime mortgage crisis could tip the economy into recession.
"We are listening to a lot of good ideas from different people," Bush said. "We've got our people out there carefully -- not only monitoring this situation -- but listening to ... possible remedies."
Bush will meet Friday with Federal Reserve Chairman Ben Bernanke, Treasury Secretary Henry Paulson and top financial regulators as he prepares for Monday remarks on the health of the economy, the White House said.
The meeting with the Treasury-led President's Working Group on Financial Markets comes amid weakening economic data and growing concerns about a housing-led recession that have led some lawmakers to discuss possible fiscal stimulus moves.
Bush said that while he was concerned about the impact of high oil prices on Americans' pocketbooks, the run-up in prices was not the type of emergency that warranted tapping the U.S. emergency stockpile known as the Strategic Petroleum Reserve.
Bush, who attributed the rise in the cost of oil to demand from fast-growing economies abroad, said the stockpile should be reserved for emergencies, such as "terrorist attacks (or) massive dislocations."
"Hundred-dollar oil is a reflection of supply and demand," Bush said. "It certainly creates difficulty but no, it's not the kind of emergency that would define the use of the SPR as far as I am concerned."
The combined effects of the housing slump and the credit crunch that has followed a spike in mortgage foreclosures appear to have sharply slowed U.S. economic growth in the final months of 2007, raising the chances of recession.
A gauge of factory activity released Wednesday showed U.S. manufacturing contracted last month, adding to recession fears. The report and oil's brush with $100 a barrel knocked the Dow Jones industrial average down 1.7 percent in its first day of trading in 2008.
With the bursting of the housing bubble, mortgage delinquencies and home foreclosures have jumped, prompting the Bush administration to broker a mortgage industry plan to temporarily freeze rates on some mortgages facing resets to sharply higher rates in coming years. Most of the problems in mortgage markets are among loans made to borrowers with blemished credit histories, referred to as subprime loans. The U.S. Federal Reserve has lowered its key interest rate by a full-percentage point to 4.25 percent since mid-September in a bid to buffer the economy. At the same time, higher oil prices have stirred fears that inflation could tie the central bank's hands in its efforts to give the economy a boost.
In the interview, Bush underscored the Fed's independence from the White House in navigating economic risks.
"I do have all the confidence in Chairman Ben Bernanke's ability to analyze the situation," he said. "I know he's paying very close attention to it. His response will be independent from the White House."
A number of prominent economists, from former U.S. Treasury Secretary Larry Summers on the left to Harvard University professor Martin Feldstein on the right, have urged the government to give the economy a fiscal boost and lawmakers from both parties have begun to consider what might be done.
With presidential and congressional elections looming in November, Republicans could find themselves on the defensive if the economy takes a substantial turn for the worse.
Bush made clear he would oppose any attempts to reverse some of the tax cuts his administration has put into place.
"I'm going to make darn sure Congress doesn't raise taxes," he said.
Households and businesses face a "debt famine" this year, experts warned last night after the Bank of England reported a sharp drop in banks' willingness to lend cash.
The Bank's closely-watched new Credit Conditions survey showed that lenders had embarked on a dramatic clampdown on borrowers in both the household and the corporate sectors after turmoil in money markets across the world.
This will make it increasingly difficult to secure debt over the coming year, causing a rise in both personal and corporate insolvencies, the Bank said.
The worrying news "significantly" raises the likelihood of the Bank's Monetary Policy Committee cutting interest rates to 5.25pc as soon as next week in an effort to prevent economic growth sliding into negative territory, economists said. It also underlines the gloomy fate facing the housing market, where prices are already falling.
The Bank's report showed that 31.2pc more lenders said the amount of mortgage debt available to households had dropped in the final three quarters of the year than those who thought it had stayed the same or improved.
Meanwhile, the balance of those reporting a worsening in credit availability in the corporate sector more than doubled to 51.8pc. In both cases, the lenders said they anticipated the situation would get even tighter in the first three months of 2008.
The survey also revealed that lenders were already making their credit scoring schemes - by which they decide whether to loan money to households - far stricter.
"This certainly is a case of going from feast to famine," said Michael Saunders, chief UK economist at Citigroup.
"That doesn't mean that there won't be any lending at all - just that the conditions surrounding it will be far tougher. And this doesn't just have knock-on effects for the housing market. The survey is showing there will be wider fees and wider spreads in every part of the spectrum."
Banks are cutting back their lending to households and businesses as they face difficulty in selling on - or securitising - the mortgage debt to other investors.
They have also been beset by the recent shutdown in the interbank lending market. Although interbank rates have recovered after concerted action by the world's major central banks to pump extra cash into the worst-hit parts of the system, spreads have still not returned to normal, and many banks are still struggling to find finance.
The Bank's report warned that the drop in lending would cause insolvencies to mount in the coming months.
"In the three months to December, lenders reported that there had been a significant increase in spreads on secured lending across all types of products," it said.
Malcolm Barr, UK economist at JPMorgan, said the news "significantly raises the likelihood of a cut at next week's MPC meeting".
Soybeans Gain to 34-Year High as Oil Costs Boost Biofuel Demand
By Jae Hur
Jan. 4 (Bloomberg) -- Soybean futures in Chicago rose for a third day to a 34-year high on speculation record energy costs and the dollar's decline will increase demand for the crop. Corn and wheat futures also gained.
Crude oil reached $100.09 a barrel yesterday. The dollar fell 8.3 percent against a basket of six currencies last year, declining for a second year. Higher oil prices increase demand for biofuels, and the dollar's decline cuts costs for buyers of soybeans holding other currencies.
``Rising oil prices are the key driver for soybeans and corn,'' Kenji Kobayashi, an analyst at Kanetsu Asset Management Co. in Tokyo. ``With the dollar's weakness, this has helped investment funds increase their bets on soybeans and grains.''
Soybeans for March delivery gained as much as 10.5 cents, or 0.8 percent, to $12.78 a bushel, the highest for a most-active contract since June 1973. The contract stood at $12.64 in after- hours electronic trading on the Chicago Board of Trade at 12:36 p.m. London time.
Futures gained a record 78 percent in 2007 after U.S. farmers planted the smallest acreage in 12 years to sow the most corn since 1944.
July soybean futures gained as much as 10.5 cents, or 0.8 percent, to $13.015 a bushel, exceeding the previous record of $12.90 for any contract, set June 5, 1973.
China, the world's biggest soybean importer, may slow down overseas purchases as processors report an increase in inventory, the state-owned China National Grain and Oils Information Center said.
An index measuring the strength of demand in China for major agricultural products this week ranked soybeans 50 on a scale of 0-100, compared with 51.3 last week, the center said in a report today, citing an industry survey it did this week.
Corn, Wheat
Corn for March delivery fell 2 cents, or 0.4 percent, to $4.64 a bushel as of 12:38 p.m. in London. The contract reached $4.695 on Jan. 2, the highest since June 1996. The price rose 17 percent last year after gaining a record 81 percent in 2006 on surging demand to produce ethanol and feed.
Crude oil for February delivery traded at $98.89 a barrel, down 29 cents, in after-hours electronic trading on the New York Mercantile Exchange.
Wheat for March delivery fell 2.25 cents, or 0.2 percent, to $9.4275 a bushel as of 12:39 p.m. London time.
The contract rose the limit of 30 cents in each of the previous two days as investors bet prices will climb because of shrinking stockpiles and growing global demand. The total 6.8 percent gain was the biggest two-day increase since Sept. 5.
Iraq Imports
Iraq plans to import 4.5 million metric tons of wheat this year, with Australia being one of the ``major'' suppliers, Reuters reported, citing an interview with Trade Minister Abdul Falah al-Sudani. Iraq imported 2.5 million tons of wheat last year, mostly from the U.S. and Canada, the newswire said yesterday.
Global inventories of the grain are expected to fall to 110.1 million tons by the end of the marketing year on May 31, an 11 percent drop from the previous year, the U.S. Department of Agriculture said Dec. 11. Wheat importers snapped up supplies earlier this marketing year, partly on concern farmers wouldn't produce enough to meet their needs.
Economy and geopolitics decide where oil goes next By Clifford Krauss Published:
January 4, 2008
NOW that the price of crude oil has crossed the $100-a-barrel threshold, and then retreated slightly, what direction will it take now?
Many experts say it will go up, then down, and then maybe up again. That, anyway, has been the pattern of the last several years of volatile prices.
The arguments for even higher oil prices are well known. The economies of China and India are booming and hungry for energy. Oil fields in Mexico, the United States and several other oil producers are drying up, tightening world supplies. President Hugo Chávez of Venezuela is using oil as a political weapon. Rebels in Nigeria are creating havoc in some of Africa's most productive oil fields.
The war in Iraq rages on. The dollar is weakening, causing hedge funds and traders to flee to oil and other commodities as a safe haven.
But all those factors were in play last summer when the price fell to about $60 a barrel, before it rallied at the end of the year. The price touched $100 on Wednesday and surpassed that briefly on Thursday before retreating after the government reported higher-than-expected heating oil and gasoline supplies. The price settled at $99.18 a barrel, down 44 cents.
"Predicting oil prices continually demonstrates the perils of prophecy, because oil prices are the derivative of what happens in the global economy and global geopolitics," said Daniel Yergin, chairman of Cambridge Energy Research Associates. Yergin said he could foresee oil prices surging as high as $150 in the next few years or falling as low as $40.
John Richels, president of the Devon Energy Corporation, an international oil and gas company based in Oklahoma City, said $150 a barrel was possible, but so was $55. "We have to make investments based on our outlook over a long period of time," he said. "It is tough."
Central to the question of where oil prices will go is the effect of high prices on the consumption and development of alternative fuels.
Large amounts of public and private investment are going into solar, wind and biofuel development, but so far they are making only a slight contribution to energy supplies. Scientific and engineering leaps, like developing the atomic bomb or sending a man to the moon, can be made relatively quickly, but they are still measured in years.
Until now, most economists have been surprised that the rise in oil prices — from as low as $11 less than a decade ago — has not had a greater effect on American consumers. But with oil prices rising at an increasingly rapid rate over the last few months in conjunction with the housing market slump and credit squeeze, many economists now wonder whether oil prices could tip the economy into a recession.
A recession, of course, would curb oil demand. That would push oil prices right back down again, or so the theory goes, as fewer consumers drive to the mall, companies produce and ship less and world trade slows.
"If we are slowing down, we will not be buying as much goods from China and services from India," said Addison Armstrong, director for market research at Tradition Energy, an energy broker that deals with banks and hedge funds. "My forecast for 2008 is that crude prices will average $75 a barrel, and that is based on a scenario of a slowing economy in the United States."
But Armstrong and other experts cautioned that a protracted insurgency in Nigeria, a punishing hurricane season or other unpredictable events could take oil prices up even more.
So why are oil prices going up now? The military situation in Iraq is arguably improving, and Iraqi oil exports are beginning to flow again. Tensions with Iran have eased a bit. There are forecasts for a mild late winter in the United States, which should help bolster oil and gasoline inventories going into the spring and summer driving season.
Many experts say the answer lies in the investment decisions of traders and hedge funds. With the markets in equities, housing, credit and currency shaky in the United States, traders are betting on oil and other commodities as a perceived safe haven.
Phil Flynn, a vice president and market analyst with the Alaron Trading Corporation in Chicago, said the recent interest rate cuts by the Federal Reserve had underscored for traders the depths of the country's economic risks and led them to buy oil futures.
Flynn said he thought that oil prices were more likely to fall than rise, "because I think the factors that drove us to today are unlikely to repeat in 2008." He added that he thinks the dollar will find a bottom in 2008 and that the problems in housing are already priced into the markets.
But most experts say that if oil prices do go down, they will probably not go down very far or for very long.
Richels of Devon Energy said that consumers in Europe and Japan were not feeling the same pressure as Americans because their currencies have been strengthening and not weakening.
"There is still a lot of demand that is outside of the United States," Richels said. "There is increasing oil consumption, particularly in the developing nations, and oil is getting more difficult to find."
China to Take More Steps to Cool Economy, Inflation
Jan. 4 (Bloomberg) -- China’s central bank said it will take more steps this year to cool inflation and prevent the world’s fastest growing major economy from overheating.
A ‘‘tighter monetary policy’’ will ‘‘help prevent the economy from overheating and prevent price increases from spreading,’’ the central bank said in a statement on its Web site today after concluding a two-day annual work meeting in Beijing. It didn’t specify measures it would take.
Top government leaders last month agreed the two key risks facing the economy in 2008 are overheating and inflation, which probably grew at the fastest pace in 11 years in 2007. The People’s Bank of China last year raised its benchmark one-year lending rate to a nine-year high and the amount banks must set aside as reserves to the most since at least 1998.
‘‘China needs to continue to tighten monetary policy in 2008,’’ said Wang Tao, head of economics and strategy for Greater China at Bank of America Corp. in Beijing.
The central bank is trying to grapple with money flooding the economy from a record trade surplus. The nation’s foreign- exchange reserves, the world’s biggest, swelled to $1.46 trillion at the end of October.
House prices in 70 major cities jumped 10.5 percent in November from a year earlier. The CSI 300 Index climbed 162 percent last year.
Currency Convertibility
Today’s statement omitted any specific policy plans for the yuan, apart from a line that the central bank will ‘‘deepen the foreign-exchange management system and steadily push ahead’’ with plans to gradually allow the yuan to be convertible into other currencies for investment, not just trade.
Su Ning, a central vice governor, said yesterday that the bank will increase the flexibility of the exchange rate in 2008 to allow it to play a bigger role in cooling inflation and easing trade imbalances, according to 21st Century Business Herald, a Guangzhou-based newspaper.
China’s yuan today climbed to near the strongest since its link to the dollar was scrapped in July 2005.
The yuan gained 0.43 percent this week to 7.2730 per dollar at the 5:30 p.m. close in Shanghai. The currency yesterday touched 7.2721, the strongest since the peg was abandoned.
Interest Rates
Higher interest rates add pressure for the currency to appreciate by making it more attractive as central banks in the U.S., Europe and elsewhere cut or keep borrowing costs on hold because of credit-market turmoil and the U.S. housing recession.
Consumer prices probably climbed 4.7 percent in 2007, according to the country’s top economic planning agency, the National Development and Reform Commission. Food prices contributed the most to last year’s price gains.
A stronger currency would help cool inflation by lowering import costs and slowing the inflow of money from exports. China’s trade surplus surged 52 percent in the 11 months through November to $238.1 billion.
''Flexibility of China’s exchange rate has increased notably, and companies have gradually adjusted to market changes,’’ the central bank said today, summarizing its past work.
China’s Wealth Fund Gets More Than 100 Applicants, Person Says
Jan. 4 (Bloomberg) -- China Investment Corp., the nation’s $200 billion sovereign wealth fund, has received more than 100 applications from money managers to help it invest in global equity markets, a person involved in the selection process said.
Beijing-based CIC, Asia’s largest sovereign fund, is taking applications until Jan. 15. It will notify institutions directly after the deadline expires about whether they’ve been selected, the person said, declining to be identified before a public announcement.
‘‘The potential for global fund managers is huge since CIC has a lot of appetite for foreign expertise,’’ said Anny Wong, who helps run institutional sales at BOCI-Prudential Asset Management, which oversees about $5 billion and has submitted an application to CIC. ‘‘We’re looking for CIC to be one of our most important clients.’’
CIC spent more than $8 billion last year purchasing stakes in Morgan Stanley, the second-biggest U.S. securities firm, and Blackstone Group LP, manager of the world’s largest buyout fund. The four-month-old fund may step up overseas investments this year as China encourages capital outflows to limit domestic asset price bubbles and inflation.
The Government of Singapore Investment Corp., which manages more than $100 billion of that nation’s reserves, hires outside firms to run some of its funds. Temasek Holdings Pte, which oversees an additional $112 billion on behalf of the city-state, uses only its own fund managers.
‘Conservative Approach’
Bai Xiaoqing, an official at CIC’s communications office in Beijing, declined to comment.
Firms were invited in December to apply for the chance to invest CIC assets in stocks on the MSCI All Country Index, MSCI EAFE Index, MSCI Emerging Markets Index and in Asia ex-Japan equities. They must have at least $5 billion of assets under management to be eligible, the sovereign fund said in a Dec. 12 statement.
‘‘CIC will likely focus on index funds and investments with quantitative strategies,’’ said Howard Wang, who oversees $14 billion at JF Asset Management Ltd. in Hong Kong. ‘‘It’ll take a conservative approach to save powder for other government goals, such as injecting money into Chinese banks.’’
Wang declined to say whether his firm has applied to CIC.
CIC will inject $20 billion into China Development Bank, which funds the country’s public works projects, as the government nears the end of its decade-long restructuring of the banking industry. Li Yong, China’s vice finance minister, said in November that CIC will invest a combined $67 billion in China Development and the Agricultural Bank of China, which serves the nation’s farmers.
Inflationary Pressure
Ballooning trade surpluses have swelled China’s foreign exchange reserves to $1.46 trillion, the highest ever in any nation. That’s helped drive inflation to an 11-year high, and contributed to a 162 percent surge in the benchmark CSI 300 Index last year.
Premier Wen Jiabao has encouraged capital outflows, seeking to cool inflationary pressures. As part of that effort, China last year expanded the scope for domestic fund managers, banks and insurers to invest more overseas.
PetroChina Is a ‘Buy’ After Declines, Goldman Says
Jan. 4 (Bloomberg) -- PetroChina Co. had its stock rating raised by Goldman Sachs & Co. after recent declines in Hong Kong trading increased the attractiveness of buying shares in the nation’s biggest oil company.
PetroChina was upgraded to ‘‘buy’’ from ‘‘neutral,’’ with the target price for its Hong Kong-traded, or H shares, unchanged at HK$17, Goldman Sachs analysts including Kelvin Koh wrote in a research note today.
‘‘We believe PetroChina’s H shares are attractively valued versus its Chinese oil peers on most measures,’’ the analysts said. ‘‘Its current valuation premium versus global peers is warranted by its more sustainable earnings outlook, solid execution track record and potential asset injection upside.’’
PetroChina declined 34 percent from a record close of HK$19.9 on Nov. 1 before the start of trade today. The world’s largest company by market value trades at about 16 times earnings in Hong Kong, compared with 14 times for Exxon Mobil Corp. and Royal Dutch Shell Plc’s 10 times.
Macquarie Securities Ltd. raised its rating on PetroChina to ‘‘neutral’’ from ‘‘underperform,’’ analysts David Johnson and Vivian Wong wrote in a research note today. The company, China’s second-largest refiner, will benefit from wider margins on processing crude into fuels, they said.
PetroChina rose 7.4 percent, the biggest gain since Oct. 15, to HK$14.18 at the Hong Kong market’s 4 p.m. close.
China Petroleum & Chemical Corp., the nation’s biggest refiner, had its stock upgraded to ‘‘outperform’’ from ‘‘neutral’’ at Macquarie as ‘‘returns in the refining sector in China are likely to improve substantially over the next one to two years,’’ Johnson and Wong said.
Sinopec, as the refiner is known, rose 5 percent to HK$11.66 at the close.
Cnooc Ltd., China’s third-biggest oil producer, was upgraded to ‘‘neutral’’ from ‘‘underperform’’ because of higher oil prices in 2007, the Macquarie analysts said. Cnooc gained 5.6 percent, the biggest gain in more than a month, to HK$13.86.
LITTLE more than 18 months ago Australian banks such as the market leader Commonwealth Bank and the ANZ were aggressively expanding into China and being welcomed as significant investors in the country's relatively young though fast-developing financial institutions.
Yesterday one of the offshoots of a sector that has access to $US1.46 trillion ($1.7 trillion) of foreign exchange reserves showed there were two sides to an investment "partnership" by popping up as a shareholder in Australia's three largest banks. Industry sources confirmed a report by the Financial Times in London that China's State Administration of Foreign Exchange had acquired through a Hong Kong subsidiary, SAFE Investment Company, small parcels of shares in ANZ, Commonwealth and National Australia Bank.
It is understood SAFE has invested the equivalent of several hundred million of Australian dollars purchasing stakes of less than 1 per cent of each of the bank's share capital as it seeks to get a better return on its money as opposed to what it could make on local currency markets.
In the case of the ANZ, the most active and biggest investor of the domestic banks in the Chinese financial services industry, it is believed that SAFE recently bought $200 million shares - about 0.3 per cent of the issued stock.
ANZ is capitalised at more than $52.4 billion, so SAFE's investment is tiny compared with the shareholdings of the big institutions and superannuation funds that make up a significant proportion of the bank's register.
As for the Commonwealth and NAB, which are valued at $76 billion and $60 billion respectively, SAFE's share buying has been on a proportionally smaller scale, although the Chinese company is not obliged to publicly disclose the size of its investment until it exceeds 3 per cent.
None of the banks were in a position to comment yesterday on the identity of their new shareholder, or the precise scale of its investments.
However, the recently appointed ANZ chief executive Michael Smith, a well-known banker in Asian business circles through his previous employer HSBC, revealed a few weeks ago that the bank had gained its first ever mainland Chinese shareholder. Mr Smith did not disclose the name of the new investor.
Shane Oliver, who helps manage the equivalent of $113 billion at AMP Capital Investors in Sydney, said: "We've seen these reports for a while now, and there maybe some credence to them, given that we know China is actively promoting a policy of overseas investment. It seems to be more of a portfolio stake rather than a strategic move to influence the businesses of these companies."
Monkey business: Male chimps 'pay for sex' by grooming their mates
3rd January 2008
Male macaque monkeys "pay" for sex with females by grooming them, scientists believe.
In areas where there are fewer females, males are forced to groom their partners for up to twice as long before they are able to have sex, the research found.
Sexual activity among a 50-strong group of long-tailed macaques in Kalimantan Tengah, Indonesia, increased after bouts of male-to-female grooming, according to findings published in Animal Behaviour journal and reported in New Scientist.
On average, females had sex 1.5 times an hour, but it jumped to 3.5 times an hour immediately after the female monkey was groomed by their male partner.
The females were also less likely to look elsewhere for sex after being groomed.
The monkey version of the "world's oldest profession" is also a rare example of market forces acting in nature, with the availability of females affecting the "price" of mating.
Michael Gumert of Nanyang Technological University, Singapore, said unlike examples of "reciprocal altruism" - in which one organism provides a service to another in return for getting something back at a later date - the value of sex fluctuated like any other economic commodity.
When there were several females in the area, the male monkeys would only have to do eight minutes of grooming before being able to mate.
But if there were fewer females than males around, a male would have to groom his partner for up to 16 minutes before sex, the research found.
Dr Gumert said: "When the opportunity arises, male macaque monkeys groom females to 'pay' for sex."
The macaques' behaviour is thought to be an example of a "biological market", a theory developed by Ronald Noe of the University of Strasbourg, France, and Peter Hammerstein of Humboldt University, Berlin.
Prof Noe said market forces had a strong influence on behaviour - in both animals and humans.
"There is a very well-known mix of economic and mating markets in the human species itself.
"There are many examples of rich old men getting young attractive ladies," he said.
18 comments:
What if China weighs up the risks to growth?
By Alan Wheatley
Reuters
Friday, January 4, 2008
BEIJING: China’s growth is strong, its currency is rising and a huge stash of foreign reserves insulates the economy from the sort of external payments crisis that rocked Asia a decade ago.
But that is not keeping economists from playing "what if?"
What if China’s export engine suddenly seized up? What if the resulting overcapacity exposed a new crop of bad bank loans? What if share and property prices plunged, sapping confidence and triggering capital flight that rattled banks and hit the yuan?
Unlikely, yes. Impossible, no.
Stephen Jennings, head of Russian investment bank Renaissance Capital, told Reuters in Moscow that China’s double-digit growth and soaring equities could drop so hard that it would make the 1998 emerging markets crisis look like a storm in a teacup.
"The 8.5 earthquake on the Richter scale that will affect all of us -- to me it’s China," Jennings said in a recent interview.
China has long defied the sceptics, but economists agree that the longer imbalances and liquidity build up because of the yuan’s semi-fixed exchange rate, the greater the risks.
Nouriel Roubini, head of Roubini Global Economics and a New York University economics professor, pointed to a hard landing in the United States as a trigger for a possible China crisis.
The ensuing slowdown in China’s growth could lead to a surge in bad loans, while a slump in share and real estate prices could wipe out enough wealth to dent residential construction.
"The risks are that these things at some point -- not in the very short term -- get out of hand and then become a serious macro and financial problem to manage," Roubini told Reuters.
China has spent as much as $500 billion since 1998 beefing up its banks, and its public finances are strong enough to rescue them again.
"Of course fiscal resources could be used to help the banks," Roubini said during a recent visit to Beijing.
"But at that point the risk is you get a credit crunch that has negative effects on the financial system and on the real economy regardless of the ability of the government to bail out the banks."
Eswar Prasad, a professor at Cornell University in Ithaca, New York, argued that an "explosive crisis" was unlikely but said he was concerned that China’s "dysfunctional" financial system might not be robust enough to withstand a big shock.
Prasad, a former International Monetary Fund researcher, identified a sudden reversal of capital inflows -- caused perhaps by a loss of confidence in the banking system or social instability generated by rising inequality -- as a vulnerability.
Monetary policy is a country’s first line of defence in the event of an economic shock. But China’s dollar-linked exchange rate robs it of an independent monetary policy, Prasad said.
So if, say, Chinese households withdrew 10 percent of their bank deposits -- about $200 billion -- at a time of contracting economic demand, the resulting instability in financial markets could feed on itself unchecked.
"It’s a potential risk. One wouldn’t want to overstate the case, but, in terms of thinking of scenarios, it’s illustrative of the fact that even a small change in people’s preference for holding banking deposits could, because of the fragilities of the system, become something much larger," Prasad told Reuters.
Amy Auster, head of international economics at ANZ Bank, said China was right to worry about capital flight, even though money is pouring in right now in anticipation of a stronger yuan.
"Should these expectations reverse -- as they did when Australia floated its currency in the 1980s -- the outflows of funds could prove too big for the banking system to bear."
The policy priority then is to make the banking system as watertight as it needs to be for capital to flow freely in and out of China, Auster said in a recent report.
"The longer this process takes, the greater the risk of vast leakages in the capital account that force greater volatility into interest rates and asset prices, and eventually an abrupt currency adjustment. This, in our view, is the greatest medium-term risk to growth in China," she said.
There is no shortage of other culprits that could derail China’s economy, or at least force a radical retooling of its resource-intensive growth model.
One Beijing economist worries about the impact of a big spill of dangerous chemicals; others fear growing water shortages.
Yet not everyone is wallowing in doom and gloom.
Qing Wang and Denise Yam at Morgan Stanley name protectionism as the biggest threat, but they see only a small chance of a major policy-induced slowdown in the next few years.
"We expect the fundamental forces -- including efficiency gains from structural reform, globalisation, urbanisation and industrialisation -- that have underpinned the strong secular trend growth in China over the past two decades will continue to drive robust growth for years to come.
"We are thus bullish on China," they said in a report.
China investment arm emerges from shadows
By Jamil Anderlini
5 January 2008
For more than a decade, China’s State Administration of Foreign Exchange (Safe) has maintained outposts in Hong Kong, Singapore, London and New York to help manage the nation’s rapidly expanding foreign exchange reserves.
These subsidiaries have largely avoided public scrutiny and until now have concentrated on investing the nation’s foreign exchange reserves in safe and liquid assets such as US Treasury bonds.
But a series of small equity investments by Safe’s Hong Kong subsidiary in three of Australia’s largest banks - Australia and New Zealand Bank, Commonwealth Bank of Australia and National Australia Bank - in the past two months has raised new questions over the transparency of Chinese investments.
It also comes at a time when Chinese state-owned companies’ increasing presence overseas and the creation of government bodies such as China Investment Corp, a new $200bn sovereign wealth fund, are causing angst in some quarters over the power China is beginning to wield in global markets.
Located in downtown Hong Kong, Safe Investment Company is one of the largest customers for local Treasury bond trading desks at banks such as Morgan Stanley and yet almost nobody in the wider financial community has heard of it.
It is a direct subsidiary of Safe, the government department that regulates foreign exchange transactions and also manages China’s nearly $1,500bn in foreign exchange reserves.
But the entity is so secret that Safe repeatedly refused to acknowledge its existence to the FT, until it was confronted with incontrovertible evidence.
China’s central bank, which ultimately controls Safe, told the FT that Safe Investments was set up just one month before the hand-over of Hong Kong from Great Britain to China in 1997 to "support and promote the development of Hong Kong’s financial market" and served a crucial role in defending the value of the Renminbi and Hong Kong’s peg to the US dollar against international speculators.
According to people familiar with Safe Investment’s operations, it served largely as a minor outpost for Safe in the years following the Asian financial crisis, with only about $20bn in funds under management.
But the amount under management at Safe outposts has increased substantially, according to one person familiar with its operations.
"Safe’s subsidiaries around the world have until now been responsible for running Safe’s book over the various time zones and have basically replicated the portfolio of head office in Beijing but that appears to be changing with the Hong Kong subsidiary taking more risk in managing reserves," the person said.
Safe’s main office in Beijing manages portfolios of fixed income securities such as Treasury bonds, currencies and commodities, according to a person familiar with its operations, who said it is common for Safe to execute trades of up to $1bn at a time.
Analysts say internal politics may account for Safe diversifying away from its previous mandate of low-risk liquid securities, albeit on a relatively small and carefully concealed scale.
"This shows characteristics of a Chinese bureaucratic rivalry," according to Arthur Kroeber, managing director of Dragonomics, an independent research firm. "It might be that, having been forced to surrender control of Huijin to CIC, Safe and the central bank are now lobbying for authority to make alternative investments on their own account."
CIC was established last September to make better returns on a portion of the country’s foreign exchange reserves through riskier investments.
Although a Ministry-level entity, CIC was set up under the auspices of the Ministry of Finance, long seen as a rival to the central bank when it comes to controlling the country’s financial assets, including its largest banks.
Huijin was set up a few years ago, under the control of Safe, as the government’s holding company for state-owned banks and securities firms but CIC spent about a third of its initial $200bn acquiring Huijin, snatching control of the banks away from the central bank.
CIC officials have stressed they will make global investments in the most transparent way possible.
But Mr Kroeber says: "Even if CIC honours its pledge . . . there are a lot of other Chinese state entities investing a lot of money abroad in a much less transparent manner."
RIVALS TO HK AND SINGAPORE EMERGE
By Sundeep Tucker
19 November 2007
Travel through most Asian airports these days and you are invariably greeted by advertising extolling the prowess of that city as a cutting-edge financial centre.
Cities from Mumbai in the west to Sydney in the east - and all points between - project plans to become a "hub" or a "gateway". The rivalry intensifies every year as financial centres across the region seek to attract investment dollars.
Driving the rivalry among the cities is a recognition that while Asia’s advanced economies today rely heavily on manufacturing, they will steadily lose their competitiveness in this area as living standards and wages increase.
To compensate, economists say the countries must transform themselves into western-style service-based economies, in which financial services play a large role.
Hence the attempt to adjust tax and regulatory policy to attract international investment banks, private equity firms, hedge funds and scores of professionals such as accountants and lawyers needed to service financial activity.
So which centres are leading the race to be Asia’s premier financial centres and can they sustain their competitive positions?
Hong Kong and Singapore are regularly cited by academic studies as Asia’s leading cities for finance.
Far from being eclipsed by mainland cities, Hong Kong has thrived in the decade since the end of British rule and served as an essential centre for Chinese companies to raise international capital. This was graphically illustrated last October when Industrial and Commercial Bank of China, the nation’s largest lender, listed in Hong Kong in an offering that raised a world record $21.9bn.
But analysts still fret over Hong Kong’s future. Some officials in Shanghai are intent on restoring the city’s pre-1949 position as Asia’s premier financial centre.
China’s largest companies are now encouraged to list in Shanghai and not overseas, a call heeded recently by the likes of PetroChina that raised $9bn when it joined the bourse this month.
However, even on the mainland there is rivalry. Authorities are building up Tianjin, a city near Beijing, as an alternative centre of commerce and finance.
Beijing itself is emerging as a financial centre. Financial Street, a district that houses the headquarters of the biggest commercial banks and bureaucratic decision-makers, has recently been developed.
Investment decisions made by the country’s fledgling sovereign wealth funds are approved in the Chinese capital.
Bankers remain confident that Hong Kong will retain a leading role.
Rodney Ward, honorary president of UBS Investment Bank Asia, says: "Hong Kong will continue to play an important role for China and capital raising."
Mr Ward believes that the programme that allows for mainland institutions to invest in overseas jurisdictions will benefit Hong Kong’s markets significantly as China’s capital account restrictions are lifted in the coming years.
Singapore, too, has established itself as a home to growing numbers of hedge funds and as the region’s leading centre for private banking, not to mention a niche for shipping and listed real estate companies.
Mr Ward adds: "Singapore can benefit from Hong Kong’s focus on China and it has successfully forged business links with India and south-east Asia."
Seoul, too, this summer introduced a "big bang" restructuring to encourage competition, consolidation and creativity in an effort to become a world-class centre.
Tokyo, meanwhile, is trying to shed its image as primarily a domestic market.
Various working parties are studying how to alter regulations to attract foreign listings back to Japan: only four overseas companies have listed on the Tokyo exchange since 2004. Singapore bagged more than 40 last year alone.
Australia is also plotting how best to grab a slice of the pie, in particular in the area of asset management. Thanks to a compulsory pension system, the country is on course over the next decade to be home to a pensions pool of $2,000bn.
Paul Calello, outgoing CEO of Credit Suisse Asia Pacific, is one of many who believe that several centres in the region can prosper. He says: "Asia is an enormous region and there are huge opportunities for capital formation in several financial hubs."
He adds: "Each financial centre can offer a niche reason for attracting business such as listings. HK remains important for Chinese companies, and is a gateway in to China. Singapore has developed a niche in property listings and could develop in to a bourse for Vietnamese companies."
Mr Calello says that Asian companies will not just look to local markets to list.
He says: "Nasdaq will still offer strong advantages for Asia’s technology companies, while a listing on the NYSE offers a valuable currency for acquisitions."
A 'harmonious society' hearing different notes
By Howard French
January 4, 2008
SHANGHAI: To pay attention in China is to be aware of the proliferation of the astoundingly wooden language that suffuses public life.
Long gone are the days of earthy men like Mao and Deng Xiaoping, who smoked and spat and frequently spoke their mind. Yes, there were countless slogans in their eras, too - who can forget capitalist roaders and imperialist running dogs? - but the leaders exhibited identifiable personalities, and it usually didn't take a divining rod to figure out their politics, either.
Today most are happy to dispense with the tobacco and the spittoons, and one suspects that most Chinese, too, feel more comfortable about a system that doesn't concentrate so much power in the hands of a single individual, if for no other reason than to avoid the self-inflicted catastrophes of the recent past.
But few places could be farther from Iowa - where the governed expect to look into the eyes of those who would govern them, to get to know them - than today's China. This era's breed of Chinese politicians give away so little about themselves, and about their true thoughts on vital matters, that they unwittingly foster entirely new kinds of anxiety.
What bigger riddle could there be in China today, for example, than the meaning of President Hu Jintao's signature slogan, "harmonious society"?
Certainly, no clear explanation has been given of the concept, as anodyne as it is inherently and, one suspects, deliberately vague.
Catch phrases like these are invoked so slavishly by sycophantic minions aiming to give a quick gloss to their decisions as to further the impression of meaninglessness. And yet there is a nagging sense that to surrender to this impression would be to miss something big.
Things are changing in China, and not just the kind of surface change of rapid growth and omnipresent construction, which can bowl over even habitués of the country. Politics are changing, too, as a result of a hard-to-quantify combination of tinkering at the top and effervescent bottom-up civic growth, and as inept as they sound, the guess here is that many of the wooden official slogans are attempting to come to grips with this change.
It is an open question how far China will travel down the road of political reform, or, for that matter, how fast. It is overwhelmingly clear that the pace that the leadership has in mind is the political equivalent of plate tectonics. For risk-averse Beijing, even democracy for rich and stable Hong Kong is a scalding potato.
For now, Chinese citizens may have no alternative vessel for their aspirations beyond the conservative Communist Party, but they have aspirations nonetheless. And like a lighter-than-air gas in a creaky container, they seek their expression through little cracks and fissures in the system, some of which have been created by the government itself.
Perhaps the latest example of this came recently in the southern city of Xiamen, where citizens who were outraged over plans to build a $10 billion chemical plant in an urban area took to the streets last June in protest.
Demonstrations have become commonplace in China, but what has happened since then in Xiamen is anything but ordinary.
Last month, the government consented to a public hearing about the plant, and, predictably, it was roundly opposed by public opinion.
The plant has not yet been officially canceled, but plans for its construction in Xiamen are widely understood to have been stopped.
Hearings were held, at least in part, because citizens became aware of provisions in recently enacted laws calling for "public participation" in the vetting of big projects, and they demanded their right be respected.
No one in Beijing or in the Xiamen government, for that matter, is saying that plans for the plant were changed because of this rare process of a public hearing. But this is where the game under way in China becomes interesting.
The constantly invoked idea of creating a "harmonious society" means, according to some interpretations, allowing citizens to let off steam inside the system, rather than standing on the outside, throwing rocks. According to this conception of the grand thinking in Beijing, the government is not conceding anything vital, certainly not the right to decide what does or doesn't get built or done in today's China.
This theory holds that Beijing and, by extension, places like Xiamen are buffing their own images as being close to the people and more open-minded than the exclusively top-down regimes of the past. There were abundant echoes of this in press coverage, like this gushing account, which appeared in Southern Weekend: "If the project is finally relocated, the Xiamen government will no doubt regain the public's heart and could leave a classical example for China's environment history, of interaction between the government and the public. The open-mindedness of the government is totally different since the PX turmoil in June."
In fact, it is widely believed that Beijing had already decided to kill the chemical plant before any voices were heard, and to play doubly safe, all along, it was clear that the hearings were in no way binding.
But by conceding so little, there is a risk that exercises like this will quickly come to be seen as empty. For the government, events like the Xiamen hearing, if they are mostly hollow PR stunts, potentially carry an even greater risk than this.
What if Chinese people begin to take all of this talk of harmonious society seriously - not as something merely handed down from the government, but rather something that requires the rulers to sacrifice some of their power?
What if people in other provinces seize upon the Xiamen affair as a precedent for resolving their own local grievances, mistaking a more-or-less empty exercise for something real?
What if, here and there, Chinese people begin to demand to have public hearings? Is the system ready for people who insist on being meaningfully heard?
遇见
听见 冬天的离开
我在某年某月 醒过来
我想 我等 我期待
未来却不能因此安排
阴天 傍晚 车窗外
未来有一个人在等待
向左 向右 向前看
爱要拐几个弯才来
我遇见谁 会有怎样的对白
我等的人 他在多远的未来
我听见风来自地铁和人海
我排著队 拿著爱的号码牌
阴天 傍晚 车窗外
未来有一个人在等待
向左 向右 向前看
爱要拐几个弯才来
我遇见谁 会有怎样的对白
我等的人 他在多远的未来
我听见风来自地铁和人海
我排著队 拿著爱的号码牌
我往前飞 飞过一片时间海
我们也曾在爱情裏受伤害
我看著路梦的入口有点窄
我遇见你 是最美丽的意外
总有一天 我的谜底会解开
Foreign Banks Eye Rural Financing in China
Cotton farms in western China are the latest agricultural businesses to receive financial support now that international banks are being encouraged to enter rural China.
By staff reporter Wang Zhen
A major bank and a global manufacturer of cotton shirts are teaming up to provide financing for cotton farmers as part of a new focus on foreign bank services in rural China.
Britain’s Standard Chartered Bank (China) Ltd. will work with Esquel Cotton Investment Ltd. and Akesu Esquel Agricultural Development Co. Ltd. to provide complete microfinance lending to cotton farmers in the Urumqi region, western China.
The program, to be launched in Baishiairike village in Xinjiang Uygur Autonomous Region, will provide credit policy, credit assessment and loan management services.
Local cotton farmers will be able to obtain loans with no required guarantee through an entrusted loan arrangement with the local Awati Credit Cooperative. Standard Chartered Bank CEO Katherine Tsang said the program will help cotton farmers finance their operations by providing working capital.
The bank already has experience with rural finance in 13 markets including India, Nepal, Bangladesh and Pakistan. Ninety percent of Standard Chartered’s profits come from largely agrarian markets in Asia, Africa and the Middle East.
Esquel, founded in 1978, is a leading maker of cotton shirts with annual revenues of US＄ 550 million. The company uses cotton grown in Xinjiang to supply spinning, weaving and knitting operations in other parts of China. The firm supplies U.S., European and Japanese markets.
The China Banking Regulatory Commission relaxed its policies in late 2006 to let financial institutions enter the country’s rural markets. Since then, 23 rural institutions have opened in six of 36 experimental districts across the country. These include 11 rural banks, four lend-lease companies, and eight rural finance cooperatives. These institutions have a combined 324 million yuan in assets, 120 million yuan in loan reserves and 193 million yuan in deposit reserves.
Another bank that’s part of the trend is HSBC, which in mid-December became the first international bank to offer rural financing in China by opening HSBC Rural Bank in central China’s Hubei Province. The bank is operating in the city of Suizhou’s Cengdu District, an area of about 6,900 square kilometers with 2 million people.
In its early stages, HSBC Rural Bank plans to lend to agriculture-related businesses, as well as provide regular deposit and transaction services to companies and individuals. The bank has 22 staffers and initial capital of 10 million yuan.
Horizon Towers minority owners appeal against Strata board ruling
Estates like Finland Gardens, Regent Court are caught in similar legal battles
By Joyce Teo
Jan 5, 2008
JUST as the long-running saga over the Horizon Towers collective sale looked about to end, another chapter is unfolding - and other similar disputes are looming.
The minority owners opposing the $500 million collective sale have appealed to the High Court against a ruling last month by the Strata Titles Board (STB), which had permitted the deal to go ahead.
Now, it has emerged that Horizon Towers is not the only condominium caught in a legal battle over a collective sale.
Owners at other estates such as Finland Gardens are also embroiled in similar tangles. The majority owners of the 48-unit estate in Siglap have filed an appeal on the instructions of buyer Sing Holdings - after the STB threw out the $49.5 million sale application in late November.
Another case, that of Phoenix Court, may go to the Court of Appeal, said an industry source who declined to be named. The STB tribunal that heard the Horizon Towers case said it had been guided by the Phoenix Court case. An objecting couple appealed against an STB decision to approve the Phoenix Court sale. The High Court upheld the STB order on Nov 9.
Over in Serangoon Road, Regent Court owners are preparing to file an appeal in the High Court against an STB decision to grant the $34 million sale, sources said.
Also, owners at Airview Towers in St Thomas Walk have filed an appeal in the High Court against an STB decision to reject its collective sale on a technicality.
The sale of Horizon Towers at Leonie Hill was finally approved by the STB - which had earlier thrown out the sale - on Dec 7 after a lengthy hearing, much sweat and tears, and nearly a year after the deal was inked.
The transaction hit a snag after some owners felt the $500 million price, which works out to $810 to $820 per sq ft (psf) on average, was not enough in a fast-rising market. Neighbouring The Grangeford was sold en bloc last June for just over $1,800 psf.
The dispute descended into acrimony and the STB then threw the sale out on a technicality before an earlier High Court appeal which resulted in a fresh STB hearing.
Horizon Towers became the first collective sale where majority owners were slapped with a lawsuit for alleged breach of contract. The suit was lodged by the buyers: Hotel Properties, Morgan Stanley Real Estate and Qatar Investment Authority.
Over the past two days, three sets of minority owners or objectors filed appeals with the High Court. The owners had a month after the STB ruling to appeal, and yesterday was the final day. They now await a hearing date - expected within three months.
One minority owner said even if the High Court appeal failed, he would take the case to the Court of Appeal. If this happens, the deal could be delayed by another three months. 'My chances of winning may not be high but I will exhaust all legal means to protect my home,' said the owner, Mr K.K. Then, 53.
The retiree said he and his wife have been drawn unwillingly into the sale process. He said he never had the intention to sell his home as it is something money cannot buy.
The objectors are believed to be aggrieved by the STB decision as they feel the hearing was not fair.
At the STB hearing late last year, a key point of contention was that the sale committee sold the estate at the reserve price even though it knew the market had already moved up.
The reserve price of The Grangeford was revised higher before the Horizon Towers deal was inked. But the sale committee stuck with the $500 million price, which was a reserve price set in 2006.
President Bush said he was considering the possibility of offering a fiscal stimulus package to help boost the economy but said he has not made a decision yet.
"In terms of any stimulus package, we're considering all options and I probably won't make up my mind as to whether or not I lay one out until the State of the Union," Bush said in
an interview with Reuters at the White House, referring to his State of the Union address to Congress Jan. 28.
A growing number of private economists are worried that a surge in oil prices -- which hit $100 a barrel this week -- and the ripple effects from a sharp housing downturn and subprime mortgage crisis could tip the economy into recession.
"We are listening to a lot of good ideas from different people," Bush said. "We've got our people out there carefully -- not only monitoring this situation -- but listening to ... possible remedies."
Bush will meet Friday with Federal Reserve Chairman Ben Bernanke, Treasury Secretary Henry Paulson and top financial regulators as he prepares for Monday remarks on the health of the economy, the White House said.
The meeting with the Treasury-led President's Working Group on Financial Markets comes amid weakening economic data and growing concerns about a housing-led recession that have led some lawmakers to discuss possible fiscal stimulus moves.
Bush said that while he was concerned about the impact of high oil prices on Americans' pocketbooks, the run-up in prices was not the type of emergency that warranted tapping the U.S. emergency stockpile known as the Strategic Petroleum Reserve.
Bush, who attributed the rise in the cost of oil to demand from fast-growing economies abroad, said the stockpile should be reserved for emergencies, such as "terrorist attacks (or) massive dislocations."
"Hundred-dollar oil is a reflection of supply and demand," Bush said. "It certainly creates difficulty but no, it's not the kind of emergency that would define the use of the SPR as
far as I am concerned."
The combined effects of the housing slump and the credit crunch that has followed a spike in mortgage foreclosures appear to have sharply slowed U.S. economic growth in the final
months of 2007, raising the chances of recession.
A gauge of factory activity released Wednesday showed U.S. manufacturing contracted last month, adding to recession fears. The report and oil's brush with $100 a barrel knocked
the Dow Jones industrial average down 1.7 percent in its first day of trading in 2008.
With the bursting of the housing bubble, mortgage delinquencies and home foreclosures have jumped, prompting the Bush administration to broker a mortgage industry plan to temporarily freeze rates on some mortgages facing resets to sharply higher rates in coming years. Most of the problems in mortgage markets are among loans made to borrowers with blemished credit histories, referred to as subprime loans.
The U.S. Federal Reserve has lowered its key interest rate by a full-percentage point to 4.25 percent since mid-September in a bid to buffer the economy. At the same time, higher oil
prices have stirred fears that inflation could tie the central bank's hands in its efforts to give the economy a boost.
In the interview, Bush underscored the Fed's independence from the White House in navigating economic risks.
"I do have all the confidence in Chairman Ben Bernanke's ability to analyze the situation," he said. "I know he's paying very close attention to it. His response will be independent
from the White House."
A number of prominent economists, from former U.S. Treasury Secretary Larry Summers on the left to Harvard University professor Martin Feldstein on the right, have urged the government to give the economy a fiscal boost and lawmakers from both parties have begun to consider what might be done.
With presidential and congressional elections looming in November, Republicans could find themselves on the defensive if the economy takes a substantial turn for the worse.
Bush made clear he would oppose any attempts to reverse some of the tax cuts his administration has put into place.
"I'm going to make darn sure Congress doesn't raise taxes," he said.
Households and businesses face a "debt famine" this year, experts warned last night after the Bank of England reported a sharp drop in banks' willingness to lend cash.
The Bank's closely-watched new Credit Conditions survey showed that lenders had embarked on a dramatic clampdown on borrowers in both the household and the corporate sectors after turmoil in money markets across the world.
This will make it increasingly difficult to secure debt over the coming year, causing a rise in both personal and corporate insolvencies, the Bank said.
The worrying news "significantly" raises the likelihood of the Bank's Monetary Policy Committee cutting interest rates to 5.25pc as soon as next week in an effort to prevent economic growth sliding into negative territory, economists said. It also underlines the gloomy fate facing the housing market, where prices are already falling.
The Bank's report showed that 31.2pc more lenders said the amount of mortgage debt available to households had dropped in the final three quarters of the year than those who thought it had stayed the same or improved.
Meanwhile, the balance of those reporting a worsening in credit availability in the corporate sector more than doubled to 51.8pc. In both cases, the lenders said they anticipated the situation would get even tighter in the first three months of 2008.
The survey also revealed that lenders were already making their credit scoring schemes - by which they decide whether to loan money to households - far stricter.
"This certainly is a case of going from feast to famine," said Michael Saunders, chief UK economist at Citigroup.
"That doesn't mean that there won't be any lending at all - just that the conditions surrounding it will be far tougher. And this doesn't just have knock-on effects for the housing market. The survey is showing there will be wider fees and wider spreads in every part of the spectrum."
Banks are cutting back their lending to households and businesses as they face difficulty in selling on - or securitising - the mortgage debt to other investors.
They have also been beset by the recent shutdown in the interbank lending market. Although interbank rates have recovered after concerted action by the world's major central banks to pump extra cash into the worst-hit parts of the system, spreads have still not returned to normal, and many banks are still struggling to find finance.
The Bank's report warned that the drop in lending would cause insolvencies to mount in the coming months.
"In the three months to December, lenders reported that there had been a significant increase in spreads on secured lending across all types of products," it said.
Malcolm Barr, UK economist at JPMorgan, said the news "significantly raises the likelihood of a cut at next week's MPC meeting".
Soybeans Gain to 34-Year High as Oil Costs Boost Biofuel Demand
By Jae Hur
Jan. 4 (Bloomberg) -- Soybean futures in Chicago rose for a third day to a 34-year high on speculation record energy costs and the dollar's decline will increase demand for the crop. Corn and wheat futures also gained.
Crude oil reached $100.09 a barrel yesterday. The dollar fell 8.3 percent against a basket of six currencies last year, declining for a second year. Higher oil prices increase demand for biofuels, and the dollar's decline cuts costs for buyers of soybeans holding other currencies.
``Rising oil prices are the key driver for soybeans and corn,'' Kenji Kobayashi, an analyst at Kanetsu Asset Management Co. in Tokyo. ``With the dollar's weakness, this has helped investment funds increase their bets on soybeans and grains.''
Soybeans for March delivery gained as much as 10.5 cents, or 0.8 percent, to $12.78 a bushel, the highest for a most-active contract since June 1973. The contract stood at $12.64 in after- hours electronic trading on the Chicago Board of Trade at 12:36 p.m. London time.
Futures gained a record 78 percent in 2007 after U.S. farmers planted the smallest acreage in 12 years to sow the most corn since 1944.
July soybean futures gained as much as 10.5 cents, or 0.8 percent, to $13.015 a bushel, exceeding the previous record of $12.90 for any contract, set June 5, 1973.
China, the world's biggest soybean importer, may slow down overseas purchases as processors report an increase in inventory, the state-owned China National Grain and Oils Information Center said.
An index measuring the strength of demand in China for major agricultural products this week ranked soybeans 50 on a scale of 0-100, compared with 51.3 last week, the center said in a report today, citing an industry survey it did this week.
Corn, Wheat
Corn for March delivery fell 2 cents, or 0.4 percent, to $4.64 a bushel as of 12:38 p.m. in London. The contract reached $4.695 on Jan. 2, the highest since June 1996. The price rose 17 percent last year after gaining a record 81 percent in 2006 on surging demand to produce ethanol and feed.
Crude oil for February delivery traded at $98.89 a barrel, down 29 cents, in after-hours electronic trading on the New York Mercantile Exchange.
Wheat for March delivery fell 2.25 cents, or 0.2 percent, to $9.4275 a bushel as of 12:39 p.m. London time.
The contract rose the limit of 30 cents in each of the previous two days as investors bet prices will climb because of shrinking stockpiles and growing global demand. The total 6.8 percent gain was the biggest two-day increase since Sept. 5.
Iraq Imports
Iraq plans to import 4.5 million metric tons of wheat this year, with Australia being one of the ``major'' suppliers, Reuters reported, citing an interview with Trade Minister Abdul Falah al-Sudani. Iraq imported 2.5 million tons of wheat last year, mostly from the U.S. and Canada, the newswire said yesterday.
Global inventories of the grain are expected to fall to 110.1 million tons by the end of the marketing year on May 31, an 11 percent drop from the previous year, the U.S. Department of Agriculture said Dec. 11. Wheat importers snapped up supplies earlier this marketing year, partly on concern farmers wouldn't produce enough to meet their needs.
NEWS ANALYSIS
Economy and geopolitics decide where oil goes next
By Clifford Krauss Published:
January 4, 2008
NOW that the price of crude oil has crossed the $100-a-barrel threshold, and then retreated slightly, what direction will it take now?
Many experts say it will go up, then down, and then maybe up again. That, anyway, has been the pattern of the last several years of volatile prices.
The arguments for even higher oil prices are well known. The economies of China and India are booming and hungry for energy. Oil fields in Mexico, the United States and several other oil producers are drying up, tightening world supplies. President Hugo Chávez of Venezuela is using oil as a political weapon. Rebels in Nigeria are creating havoc in some of Africa's most productive oil fields.
The war in Iraq rages on. The dollar is weakening, causing hedge funds and traders to flee to oil and other commodities as a safe haven.
But all those factors were in play last summer when the price fell to about $60 a barrel, before it rallied at the end of the year. The price touched $100 on Wednesday and surpassed that briefly on Thursday before retreating after the government reported higher-than-expected heating oil and gasoline supplies. The price settled at $99.18 a barrel, down 44 cents.
"Predicting oil prices continually demonstrates the perils of prophecy, because oil prices are the derivative of what happens in the global economy and global geopolitics," said Daniel Yergin, chairman of Cambridge Energy Research Associates. Yergin said he could foresee oil prices surging as high as $150 in the next few years or falling as low as $40.
John Richels, president of the Devon Energy Corporation, an international oil and gas company based in Oklahoma City, said $150 a barrel was possible, but so was $55. "We have to make investments based on our outlook over a long period of time," he said. "It is tough."
Central to the question of where oil prices will go is the effect of high prices on the consumption and development of alternative fuels.
Large amounts of public and private investment are going into solar, wind and biofuel development, but so far they are making only a slight contribution to energy supplies. Scientific and engineering leaps, like developing the atomic bomb or sending a man to the moon, can be made relatively quickly, but they are still measured in years.
Until now, most economists have been surprised that the rise in oil prices — from as low as $11 less than a decade ago — has not had a greater effect on American consumers. But with oil prices rising at an increasingly rapid rate over the last few months in conjunction with the housing market slump and credit squeeze, many economists now wonder whether oil prices could tip the economy into a recession.
A recession, of course, would curb oil demand. That would push oil prices right back down again, or so the theory goes, as fewer consumers drive to the mall, companies produce and ship less and world trade slows.
"If we are slowing down, we will not be buying as much goods from China and services from India," said Addison Armstrong, director for market research at Tradition Energy, an energy broker that deals with banks and hedge funds. "My forecast for 2008 is that crude prices will average $75 a barrel, and that is based on a scenario of a slowing economy in the United States."
But Armstrong and other experts cautioned that a protracted insurgency in Nigeria, a punishing hurricane season or other unpredictable events could take oil prices up even more.
So why are oil prices going up now? The military situation in Iraq is arguably improving, and Iraqi oil exports are beginning to flow again. Tensions with Iran have eased a bit. There are forecasts for a mild late winter in the United States, which should help bolster oil and gasoline inventories going into the spring and summer driving season.
Many experts say the answer lies in the investment decisions of traders and hedge funds. With the markets in equities, housing, credit and currency shaky in the United States, traders are betting on oil and other commodities as a perceived safe haven.
Phil Flynn, a vice president and market analyst with the Alaron Trading Corporation in Chicago, said the recent interest rate cuts by the Federal Reserve had underscored for traders the depths of the country's economic risks and led them to buy oil futures.
Flynn said he thought that oil prices were more likely to fall than rise, "because I think the factors that drove us to today are unlikely to repeat in 2008." He added that he thinks the dollar will find a bottom in 2008 and that the problems in housing are already priced into the markets.
But most experts say that if oil prices do go down, they will probably not go down very far or for very long.
Richels of Devon Energy said that consumers in Europe and Japan were not feeling the same pressure as Americans because their currencies have been strengthening and not weakening.
"There is still a lot of demand that is outside of the United States," Richels said. "There is increasing oil consumption, particularly in the developing nations, and oil is getting more difficult to find."
央行年度会议定调"从紧"方略 苏宁直面五大挑战
来源： 21世纪经济报道
发布时间： 2008年01月04日 07:37
面临五大挑战
一是经济快速增长与结构失衡并存。
二是经济增长由偏快转为过热的趋势尚未有效缓解。经济快速发展有利于企业效益改善，企业发展意愿十分强烈。
三是物价由结构性上涨演变为明显通货膨胀的风险加大。
四是资产价格持续大幅度上涨导致资产泡沫不断累积。
五是货币信贷扩张压力加大。
近年来,由于我国国际收支持续双顺差，通过外汇占款渠道投放的货币不断增长,形成货币供应过快增长的巨大压力。同时，在流动性偏多的背景下,由于金融机构利润约束增强、信贷需求旺盛，信贷扩张动力强劲。这些新情况新问题,在很大程度上是我国基本国情和发展阶段特征的客观反映。
央行认为，今年要统筹兼顾好各项宏观调控目标之间、中央银行各项职责之间的关系。统筹兼顾好改善外部环境与加强自身建设的关系,做好人民银行各项工作。
1月3日，央行2008年度工作会议在北京华融大厦召开。这次会议上，央行行长周小川首先宣布了人事任免事项,任命马德伦、易纲为央行副行长，因年龄原因免去吴晓灵的副行长职务。随后副行长苏宁代表人民银行党委做了年度工作报告。
据参会人士透露，央行在以下几方面对今年的工作进行了总体部署：执行从紧货币政策；推进金融改革；构建金融稳定长效机制；推动金融市场创新；深化外汇管理体制改革；抓好金融基础设施建设。其中，央行对实施从紧的货币政策进行了详细论述，要求从总量上对货币供给和信贷投放实行更严格控制。
但与往年不同的是，央行并没有在会议上公布具体的年度货币信贷调控指标。
详解从紧货币政策
今年是实施从紧货币政策的第一年,如何从紧？紧到何种程度？业界对此充满期待。
苏宁在讲话中认为，落实从紧的货币政策，要求以全球视野，充分认识和把握国际经济金融形势和主要经济体货币政策变化对我国的影响，针对我国经济运行面临的过热和通货膨胀风险，维持货币政策紧缩的趋势，从总量上，对货币供给和信贷投放实行更严格控制，抑制总需求过度膨胀，防止固定资产投资反弹、贸易顺差继续扩大以及物价过快上涨。
据参会人士透露，央行将在以下五方面落实从紧的货币政策：
一是严格控制货币信贷增长。
在国际收支平衡未取得实质性进展前,继续通过上调存款准备金率和公开市场操作等方式，大力对冲流动性。加强窗口指导，引导商业银行控制信贷投放，抑制银行体系的货币创造能力。
二是继续增大汇率弹性。
要关注有效汇率的变化，进一步发展汇率在调节国际收支、引导结构调整、提升经济平衡增长能力及抑制物价上涨中的作用,增强货币政策的自主性和有效性。
三是合理运用利率杠杆。
在衡量实际利率水平时，应充分考虑当前我国消费物价指数偏高中的国际价格传递和资源价格改革等结构性因素,在利率政策上，要对这些特殊因素留出一定空间。在此基础上，尽可能发挥利率杠杆在防范经济过热和控制通货膨胀中的作用。同时，加强对公众通胀预期的引导。
四是充分发挥信贷政策在促进结构调整中的积极作用。
进一步加强信贷政策制度建设，改进信贷政策实施方式，引导金融机构优化信贷结构，促进经济发展方式转变。继续加强货币信贷政策与金融监管政策、财税政策、产业政策的协调配合，增强落实宏观调控任务的联动效应。
苏宁强调，最后也是最重要的一点是，需要尽快在平衡增长的治本方面取得新进展，推动实施扩大内需的一揽子结构性政策，促进国际收支趋于平衡。要利用好当前经济持续较快增长、财政?杖氪蠓黾拥暮檬被贫泄夭棵偶哟蠼峁垢母锪Χ龋硭彻谧试茨茉醇鄹?,加大环境保护执法力度，提高劳动报酬在初次分配中的份额，加快完善社会保障体系。
对于今年的货币信贷调控的具体指标，业界原本希望在这次会议上找到答案，但央行并没有给出具体的数值，这也是今年央行会议与以往最大的不同。
“或许今年货币信贷具体的数字还有争议，所以央行暂没有对外公布这些数据。”中国社科院金融所易宪容博士分析说，“信贷是央行货币调控的核心指标，抓住了这个指标央行的调控就抓住了重点。”
承认面临五大挑战
“央行正面临着日益复杂的外部环境，这就要求货币政策操作更加专业，更加精细。”国务院发展研究中心金融所所长夏斌说。
在这次会议上，央行承认，我国经济运行中长期积累的突出矛盾和问题并没有根本解决，同时还出现了一些值得注意的新情况，经济发展仍然面临不少挑战和潜在风险。
一是经济快速增长与结构失衡并存。
经济增长过度依赖投资和出口拉动，消费率过低、储蓄率过高的矛盾依然突出。经常项目顺差占GDP比重在大国中已处于最高水平，贸易摩擦日益加大。同时，资源和能源消耗过多，环境污染日趋严重，节能减排形势不容乐观。
二是经济增长由偏快转为过热的趋势尚未有效缓解。经济快速发展有利于企业效益改善，企业发展意愿十分强烈。
特别是在经济主体资本实力上升、负债能力显著增强、预期普遍乐观时，风险往往被低估，货币信贷扩张压力较大,容易形成投、融资行为之间相互强化的自我膨胀格局，未来投资反弹压力依然较大。
三是物价由结构性上涨演变为明显通货膨胀的风险加大。
近期物价上涨主要受食品价格上涨带动，具有结构性的特点。2008年，食品价格上行压力较大,劳动力成本有所提升，资源类产品价格可能进行必要调整，全球通货膨胀压力加大，通货膨胀预期也会增强,在这些因素的综合作用下，未来一段时期国内物价高位上行压力依然较大。
四是资产价格持续大幅度上涨导致资产泡沫不断累积。
近年来，我国房地产、股票市场发展很快，部分城市房地产价格涨幅过高，股票价格指数在高位震荡。资产价格上涨过快，导致资产泡沫集聚，潜在风险不断积累,增加了经济运行特别是金融运行的不稳定因素。
五是货币信贷扩张压力加大。
近年来,由于我国国际收支持续双顺差，通过外汇占款渠道投放的货币不断增长,形成货币供应过快增长的巨大压力。同时，在流动性偏多的背景下,由于金融机构利润约束增强、信贷需求旺盛，信贷扩张动力强劲。这些新情况新问题,在很大程度上是我国基本国情和发展阶段特征的客观反映。
央行认为，今年要统筹兼顾好各项宏观调控目标之间、中央银行各项职责之间的关系。统筹兼顾好改善外部环境与加强自身建设的关系,做好人民银行各项工作。
China to Take More Steps to Cool Economy, Inflation
Jan. 4 (Bloomberg) -- China’s central bank said it will take more steps this year to cool inflation and prevent the world’s fastest growing major economy from overheating.
A ‘‘tighter monetary policy’’ will ‘‘help prevent the economy from overheating and prevent price increases from spreading,’’ the central bank said in a statement on its Web site today after concluding a two-day annual work meeting in Beijing. It didn’t specify measures it would take.
Top government leaders last month agreed the two key risks facing the economy in 2008 are overheating and inflation, which probably grew at the fastest pace in 11 years in 2007. The People’s Bank of China last year raised its benchmark one-year lending rate to a nine-year high and the amount banks must set aside as reserves to the most since at least 1998.
‘‘China needs to continue to tighten monetary policy in 2008,’’ said Wang Tao, head of economics and strategy for Greater China at Bank of America Corp. in Beijing.
The central bank is trying to grapple with money flooding the economy from a record trade surplus. The nation’s foreign- exchange reserves, the world’s biggest, swelled to $1.46 trillion at the end of October.
House prices in 70 major cities jumped 10.5 percent in November from a year earlier. The CSI 300 Index climbed 162 percent last year.
Currency Convertibility
Today’s statement omitted any specific policy plans for the yuan, apart from a line that the central bank will ‘‘deepen the foreign-exchange management system and steadily push ahead’’ with plans to gradually allow the yuan to be convertible into other currencies for investment, not just trade.
Su Ning, a central vice governor, said yesterday that the bank will increase the flexibility of the exchange rate in 2008 to allow it to play a bigger role in cooling inflation and easing trade imbalances, according to 21st Century Business Herald, a Guangzhou-based newspaper.
China’s yuan today climbed to near the strongest since its link to the dollar was scrapped in July 2005.
The yuan gained 0.43 percent this week to 7.2730 per dollar at the 5:30 p.m. close in Shanghai. The currency yesterday touched 7.2721, the strongest since the peg was abandoned.
Interest Rates
Higher interest rates add pressure for the currency to appreciate by making it more attractive as central banks in the U.S., Europe and elsewhere cut or keep borrowing costs on hold because of credit-market turmoil and the U.S. housing recession.
Consumer prices probably climbed 4.7 percent in 2007, according to the country’s top economic planning agency, the National Development and Reform Commission. Food prices contributed the most to last year’s price gains.
A stronger currency would help cool inflation by lowering import costs and slowing the inflow of money from exports. China’s trade surplus surged 52 percent in the 11 months through November to $238.1 billion.
''Flexibility of China’s exchange rate has increased notably, and companies have gradually adjusted to market changes,’’ the central bank said today, summarizing its past work.
China’s Wealth Fund Gets More Than 100 Applicants, Person Says
Jan. 4 (Bloomberg) -- China Investment Corp., the nation’s $200 billion sovereign wealth fund, has received more than 100 applications from money managers to help it invest in global equity markets, a person involved in the selection process said.
Beijing-based CIC, Asia’s largest sovereign fund, is taking applications until Jan. 15. It will notify institutions directly after the deadline expires about whether they’ve been selected, the person said, declining to be identified before a public announcement.
‘‘The potential for global fund managers is huge since CIC has a lot of appetite for foreign expertise,’’ said Anny Wong, who helps run institutional sales at BOCI-Prudential Asset Management, which oversees about $5 billion and has submitted an application to CIC. ‘‘We’re looking for CIC to be one of our most important clients.’’
CIC spent more than $8 billion last year purchasing stakes in Morgan Stanley, the second-biggest U.S. securities firm, and Blackstone Group LP, manager of the world’s largest buyout fund. The four-month-old fund may step up overseas investments this year as China encourages capital outflows to limit domestic asset price bubbles and inflation.
The Government of Singapore Investment Corp., which manages more than $100 billion of that nation’s reserves, hires outside firms to run some of its funds. Temasek Holdings Pte, which oversees an additional $112 billion on behalf of the city-state, uses only its own fund managers.
‘Conservative Approach’
Bai Xiaoqing, an official at CIC’s communications office in Beijing, declined to comment.
Firms were invited in December to apply for the chance to invest CIC assets in stocks on the MSCI All Country Index, MSCI EAFE Index, MSCI Emerging Markets Index and in Asia ex-Japan equities. They must have at least $5 billion of assets under management to be eligible, the sovereign fund said in a Dec. 12 statement.
‘‘CIC will likely focus on index funds and investments with quantitative strategies,’’ said Howard Wang, who oversees $14 billion at JF Asset Management Ltd. in Hong Kong. ‘‘It’ll take a conservative approach to save powder for other government goals, such as injecting money into Chinese banks.’’
Wang declined to say whether his firm has applied to CIC.
CIC will inject $20 billion into China Development Bank, which funds the country’s public works projects, as the government nears the end of its decade-long restructuring of the banking industry. Li Yong, China’s vice finance minister, said in November that CIC will invest a combined $67 billion in China Development and the Agricultural Bank of China, which serves the nation’s farmers.
Inflationary Pressure
Ballooning trade surpluses have swelled China’s foreign exchange reserves to $1.46 trillion, the highest ever in any nation. That’s helped drive inflation to an 11-year high, and contributed to a 162 percent surge in the benchmark CSI 300 Index last year.
Premier Wen Jiabao has encouraged capital outflows, seeking to cool inflationary pressures. As part of that effort, China last year expanded the scope for domestic fund managers, banks and insurers to invest more overseas.
PetroChina Is a ‘Buy’ After Declines, Goldman Says
Jan. 4 (Bloomberg) -- PetroChina Co. had its stock rating raised by Goldman Sachs & Co. after recent declines in Hong Kong trading increased the attractiveness of buying shares in the nation’s biggest oil company.
PetroChina was upgraded to ‘‘buy’’ from ‘‘neutral,’’ with the target price for its Hong Kong-traded, or H shares, unchanged at HK$17, Goldman Sachs analysts including Kelvin Koh wrote in a research note today.
‘‘We believe PetroChina’s H shares are attractively valued versus its Chinese oil peers on most measures,’’ the analysts said. ‘‘Its current valuation premium versus global peers is warranted by its more sustainable earnings outlook, solid execution track record and potential asset injection upside.’’
PetroChina declined 34 percent from a record close of HK$19.9 on Nov. 1 before the start of trade today. The world’s largest company by market value trades at about 16 times earnings in Hong Kong, compared with 14 times for Exxon Mobil Corp. and Royal Dutch Shell Plc’s 10 times.
Macquarie Securities Ltd. raised its rating on PetroChina to ‘‘neutral’’ from ‘‘underperform,’’ analysts David Johnson and Vivian Wong wrote in a research note today. The company, China’s second-largest refiner, will benefit from wider margins on processing crude into fuels, they said.
PetroChina rose 7.4 percent, the biggest gain since Oct. 15, to HK$14.18 at the Hong Kong market’s 4 p.m. close.
China Petroleum & Chemical Corp., the nation’s biggest refiner, had its stock upgraded to ‘‘outperform’’ from ‘‘neutral’’ at Macquarie as ‘‘returns in the refining sector in China are likely to improve substantially over the next one to two years,’’ Johnson and Wong said.
Sinopec, as the refiner is known, rose 5 percent to HK$11.66 at the close.
Cnooc Ltd., China’s third-biggest oil producer, was upgraded to ‘‘neutral’’ from ‘‘underperform’’ because of higher oil prices in 2007, the Macquarie analysts said. Cnooc gained 5.6 percent, the biggest gain in more than a month, to HK$13.86.
內地高物價惹民怨響警號
(星島) 01月 04日 星期五 05:30AM
(綜合報道)
(星島日報報道)中國社會科學院昨日發表O八年度《社會藍皮書》指出，物價上漲超越貪污腐敗，首次成為內地官員與民眾最關心的問題，如果未能協助低收入階層對抗通脹，將引起社會不穩。《藍皮書》預料，內地通脹壓力在奧運效應下還會增強，中央要加強宏調力度，以防經濟大起大落。本港「通脹年」亦受內地加風波及，市民怨聲四起。
《社會藍皮書》是社科院作為中國最高智囊機構每年發表的重要報告，分析中國社會發展趨勢。《藍皮書》指出，通過對在中共中央黨校學習的部分地級官員進行問卷調查，結果顯示「物價」、「居民收入差距」、「腐敗」依次成為官員心中最嚴重的社會問題。高達三成多的官員認為物價上漲問題最引起他們的關注。
社科院：嚴重更甚貪腐
《藍皮書》同時公布城鄉居民滿意調查，結果顯示九九年至○五年間，就業和社會保障問題一直是公眾關注的焦點，但○七年，城鄉居民普遍感受到物價上漲的壓力。
六成六的城鎮居民、五成七的農村居民均對物價上漲表示關注。感到最大壓力的依次是：樓價、肉類食品價格、醫療費、糧油蔬菜和教育開支等。
社科院社會學研究所所長李培林指，雖然○七全國城鎮人口收入平均增加百分之十三，農民收入亦增長百分之八，但由於物價尤其是住屋及食品支出急升，貧困家庭生活壓力仍然較大。以樓價為例，全國七十個大城市樓價去年增加了百分之七，而北京、深圳等地增幅更超過一成。
○七年以來，內地居民消費物價總水平（CPI）不斷上漲，去年十一月的CPI比往年同期增加百分之六點九，創十一年新高。人民銀行預料今年全年CPI增幅約百分之四點六。
同樣令人擔憂的是，內地消費差距繼續拉大，貧富懸殊加劇。《藍皮書》指出，城鄉高收入階層的可支配收入是全國平均水平的約二點三倍，人均消費水平是全國平均水平的約一點九倍，奢侈品成為他們的經常性消費。
「在人們生活普遍提高的情況下，如果一部分人看到自己生活水平不單不提高，反而下降，對社會的不滿程度就會提高。」李培林警告，如果未能改善民生，協助低收入階層對抗通脹，將增加社會不穩定因素。
奧運後經濟恐大落
他認為，去年物價上漲已超出調控目標，經濟趨向過熱，預料通脹壓力在今年奧運效應下會進一步增強，要警惕經濟增長在奧運後可能大幅回落，國際熱錢退出中國，影響經濟穩定。
另據內地傳媒報道，繼牛奶、食油加價後，內地多個知名啤酒商及代理商均表示，受到原材料價格上漲等因素影響，啤酒價格將全面上調，而且加幅不會少，本港副食品、奶粉及啤酒等亦要面臨加價壓力（見另文）。
不過，國家發展和改革委員會價格監測中心人員接受查詢時表示，目前未發現全國範圍啤酒價格上調。
本報中國組
China buys Australian bank stakes
Danny John
January 5, 2008
LITTLE more than 18 months ago Australian banks such as the market leader Commonwealth Bank and the ANZ were aggressively expanding into China and being welcomed as significant investors in the country's relatively young though fast-developing financial institutions.
Yesterday one of the offshoots of a sector that has access to $US1.46 trillion ($1.7 trillion) of foreign exchange reserves showed there were two sides to an investment "partnership" by popping up as a shareholder in Australia's three largest banks. Industry sources confirmed a report by the Financial Times in London that China's State Administration of Foreign Exchange had acquired through a Hong Kong subsidiary, SAFE Investment Company, small parcels of shares in ANZ, Commonwealth and National Australia Bank.
It is understood SAFE has invested the equivalent of several hundred million of Australian dollars purchasing stakes of less than 1 per cent of each of the bank's share capital as it seeks to get a better return on its money as opposed to what it could make on local currency markets.
In the case of the ANZ, the most active and biggest investor of the domestic banks in the Chinese financial services industry, it is believed that SAFE recently bought $200 million shares - about 0.3 per cent of the issued stock.
ANZ is capitalised at more than $52.4 billion, so SAFE's investment is tiny compared with the shareholdings of the big institutions and superannuation funds that make up a significant proportion of the bank's register.
As for the Commonwealth and NAB, which are valued at $76 billion and $60 billion respectively, SAFE's share buying has been on a proportionally smaller scale, although the Chinese company is not obliged to publicly disclose the size of its investment until it exceeds 3 per cent.
None of the banks were in a position to comment yesterday on the identity of their new shareholder, or the precise scale of its investments.
However, the recently appointed ANZ chief executive Michael Smith, a well-known banker in Asian business circles through his previous employer HSBC, revealed a few weeks ago that the bank had gained its first ever mainland Chinese shareholder. Mr Smith did not disclose the name of the new investor.
Shane Oliver, who helps manage the equivalent of $113 billion at AMP Capital Investors in Sydney, said: "We've seen these reports for a while now, and there maybe some credence to them, given that we know China is actively promoting a policy of overseas investment. It seems to be more of a portfolio stake rather than a strategic move to influence the businesses of these companies."
Monkey business: Male chimps 'pay for sex' by grooming their mates
3rd January 2008
Male macaque monkeys "pay" for sex with females by grooming them, scientists believe.
In areas where there are fewer females, males are forced to groom their partners for up to twice as long before they are able to have sex, the research found.
Sexual activity among a 50-strong group of long-tailed macaques in Kalimantan Tengah, Indonesia, increased after bouts of male-to-female grooming, according to findings published in Animal Behaviour journal and reported in New Scientist.
On average, females had sex 1.5 times an hour, but it jumped to 3.5 times an hour immediately after the female monkey was groomed by their male partner.
The females were also less likely to look elsewhere for sex after being groomed.
The monkey version of the "world's oldest profession" is also a rare example of market forces acting in nature, with the availability of females affecting the "price" of mating.
Michael Gumert of Nanyang Technological University, Singapore, said unlike examples of "reciprocal altruism" - in which one organism provides a service to another in return for getting something back at a later date - the value of sex fluctuated like any other economic commodity.
When there were several females in the area, the male monkeys would only have to do eight minutes of grooming before being able to mate.
But if there were fewer females than males around, a male would have to groom his partner for up to 16 minutes before sex, the research found.
Dr Gumert said: "When the opportunity arises, male macaque monkeys groom females to 'pay' for sex."
The macaques' behaviour is thought to be an example of a "biological market", a theory developed by Ronald Noe of the University of Strasbourg, France, and Peter Hammerstein of Humboldt University, Berlin.
Prof Noe said market forces had a strong influence on behaviour - in both animals and humans.
"There is a very well-known mix of economic and mating markets in the human species itself.
"There are many examples of rich old men getting young attractive ladies," he said.
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