January 18, 2010
Chinese hunt for bargains in Dubai

By Patti Waldmeir in Shanghai and Simeon Kerr in Dubai

Published: January 18 2010 07:09 | Last updated: January 18 2010 07:09

Chinese investors, who have trawled the world for distressed car brands and cheap commodity assets since the beginning of the global financial crisis, will now take a shopping trip to Dubai to look for property bargains.

Investors from Wenzhou, known for their global bargain-hunting for distressed property assets, have been lured to Dubai by prices that look cheap by comparison with the rapidly rising Chinese property market.

A trip to the UK in the second half of the year may also be on the cards for the merchants of Wenzhou, famed as a city of millionaire entrepreneurs.

Zhou Dewen, head of the Wenzhou SME (small and medium-sized enterprises) Business Development and Promotion Association, says more than 20 Wenzhou companies, from real estate groups to investment firms and manufacturing companies, will visit Dubai towards the end of next month.

They have been attracted to the city-state by reports that property prices there have fallen further since the local debt crisis erupted in November, and signs that Dubai’s economy may have bottomed out and begun to recover.

Investors have been circling Dubai for months seeking distressed property sales – with some small deals completed. Real estate agents say property values are stabilising after falling as much as 50 per cent from their 2008 peaks.

But brokers in the emirate say many owners, including government-owned companies, have been reluctant to reduce prices in spite of mounting debt woes, a lack of bank funding and a poor outlook given an upcoming glut of supply and forecasts that any recovery from last year’s recession is likely to be moderate.

“There are many groups here but they generally can’t invest reasonable amounts of funds at reasonable prices,” says one agent representing foreign investors. “But eventually the realisation will have to come that they have to liquidate at prices the market can bear.”

Wenzhou entrepreneurs usually take two to three such shopping sprees to global real estate markets each year, says Mr Zhou, noting that investors from this eastern Chinese city visited France, Germany and the US last year, looking for property bargains from the financial crisis.

Wenzhou already has strong links with Dubai. Of about 150,000 Chinese citizens living in Dubai, nearly 20,000 are merchants from Wenzhou, Mr Zhou says. They run small businesses and have invested in real estate, including at least Rmb5bn ($732m) worth of properties hit hard by the debt crisis. These investments have so far produced losses of Rmb1bn, he says, but notes this is a small amount compared to what Wenzhou’s millionaires have earned there.

Compared to eastern China, Dubai properties are a steal. “In Wenzhou, residential properties are priced at Rmb60,000 per square metre, but a single square metre in [Burj Khalifa], the world’s tallest building, costs only Rmb70,000 at the moment. Why not buy them when they are still cheap?” Mr Zhou says.

An article posted on the Chinese Ministry of Commerce website says one Wenzhou entrepreneur, Hu Bin of Shanghai Zhongzhou International Group, invested $28m to buy an artificial island in Dubai in 2007, but construction on the island has been suspended due to the global financial crisis.

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China is expending its country area in some new ways.

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(Notes: 1)
  
Filed under: ft china re 
January 14, 2010
China dismisses Google’s threat to exit

One of China’s top censors on Thursday reaffirmed the state’s commitment to monitoring the internet, showing no signs of compromising in the face of Google’s threat to quit the country.

Wang Chen, head of the State Council Information Office and deputy head of the Communist party’s propaganda department, said internet media “must live up to their responsibility of maintaining internet security”, including censoring content.

“We must do our best to intensify self-discipline among internet media to guarantee internet security,” he said.

China’s government demands self-censorship – which it calls “self-discipline” – from internet companies. Although Mr Wang did not mention Google by name, his remarks were being seen as Beijing’s first response to the US internet company’s threat to exit the country.

Google said on Tuesday that an attack by hackers out of China on its corporate systems and attempts by the Chinese government to tighten internet censorship over the past year had led it to reconsider its activities in the country, and it was prepared to pull out if it was not permitted to run its local service without further censoring.

In a lengthy statement published on a government website, Mr Wang said China was facing new challenges in regulating the internet as, among other factors, in the Web 2.0 era internet users were no longer just recipients but also creators of information.

In response, internet media were required to guard online news even more actively, he said. “Online media must treat the creation of a positive mainstream opinion environment as an important duty,” he said.

Mr Wang’s statement also served to explain some of the government’s censorship moves over the past year, one reason that led Google to conclude that the operating environment in China had become untenable.

Since late 2008, Beijing has been cracking down on online content in a campaign it says is aimed at erasing pornographic “and other harmful” content.

Over this period, thousands of websites and blogs, including many featuring criticism of the government rather than pornographic material, were closed and thousands arrested. Several Chinese social media sites were shut and foreign ones such as YouTube, Facebook and Twitter blocked.

“The importance different countries attach to internet security is different,” Mr Wang said. “We must …, from the angle of national security, information security and cultural security, actively respond to the challenges in internet security and … find a path of internet development with Chinese characteristics.”

The information chief also addressed concerns over cyberattacks but depicted China as a victim rather than a perpetrator as alleged by Google.

“China is a victim of hackers and resolutely opposes hacking,” he said. “To maintain internet security, we need international cooperation and close co-ordination.”

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(Notes: 3)
  
Filed under: google china ft politics 
January 4, 2010
China and India lead Asian recovery

By Kevin Brown in Singapore

Published: January 4 2010 03:47 | Last updated: January 4 2010 07:51

Asia’s rapid recovery from last year’s recession appeared to be confirmed on Monday by a slew of positive reports on industrial production that suggested economic growth is powering steadily ahead, led by China and India.

Even a worse-than-expected fourth-quarter contraction in Singapore’s gross domestic product failed to dampen the optimistic mood, with economists writing off the setback in the city-state as a consequence of pharmaceutical industry volatility.

Purchasing managers’ index reports for China, South Korea, Taiwan and India appeared to confirm that a robust and widespread recovery continues to be under way. Figures for Australia were expected later on Monday.

The China Manufacturing PMI, produced by HSBC and Markit Economics, rose to 56.1 in December, up from 55.7 a month earlier – the second fastest rise yet recorded by the survey, which dates back to 2004. The average rise for the fourth quarter of 2009 as a whole was also the fastest yet recorded.

The closely watched survey pointed to a ninth consecutive monthly expansion in new order volume, with companies reporting buoyant demand in both domestic and export markets. The growth in export orders was the fastest since March 2005, reinforcing a positive trend that began in the second half of last year.

The HSBC index confirmed the strong trend suggested by the official PMI numbers, released on January 1, which showed manufacturing activity expanding in December at the fastest pace for 20 months. The two series are not directly comparable because they use different methodology.

However, the HSBC date also signalled that prices charged by Chinese manufacturers were rising at the fastest rate since July 2008, buoyed by rising raw material costs as well as strong demand.

Grace Ng, economist at JPMorgan in Hong Kong, said the two PMI series taken together suggested that China’s manufacturing sector was experiencing a strong recovery, supported by broad-based demand growth.

“The manufacturing order to inventory ratio continued to stay at about the highest level since April 2008, suggesting that, with further steady recovery in final demand conditions, solid sequential trend growth in the manufacturing sector will continue in the coming months,” she said.

The India Manufacturing PMI, compiled by HSBC and Markit, rose from 53 to 55.6, its highest level since May, when it hit 55.7, the strongest performance of 2009. The positive result was helped by a big rise in the sub-index for new orders, which rose to 60.1, the highest for the year, from 54.6 in November.

The India PMI has now been above the neutral level of 50 for nine consecutive months, indicating a sustained period of expansion, following a five-month period when it suggested that output was contracting.

HSBC said the detailed December survey data suggested that growth was the strongest for 15 months, driven by better economic conditions and business investment. Demand from both domestic and foreign buyers was higher than in November, although the home market remained the principal driver of new business expansion.

The data will ease concerns that India’s manufacturing sector might have been slowing, although HSBC said many companies remained cautious about the durability of the country’s economic recovery.

The South Korea manufacturing PMI, also produced by HSBC, edged up slightly in December to 52.8 from 52.6 in November, indicating a continued expansion of the economy, although the pace appeared to be slowing.

The sub-index for total new orders fell from 54.1 to 52.9, and the index for new export orders declined from 52.4 to 50.7. However, both remain in positive territory. Any figure above 50 indicates growth in the index, with any figure below 50 indicating a decline.

In Taiwan, the manufacturing PMI, produced by HSBC and Markit, moved upwards for the ninth successive month, reaching 58.7 from 58.4 in November. The index showed strong demand in both export and domestic markets, although the rate of increase in new orders edged downwards.

In Singapore, the Ministry of Trade and Industry said the economy contracted by 6.8 per cent in the fourth quarter on a seasonally adjusted annualised quarter-by-quarter basis. Compared with the fourth quarter of 2008, the economy grew by 3.5 per cent. It declined by 2.1 per cent for 2009 as a whole, in line with government and private sector expectations.

The MTI said the fourth-quarter setback was caused by a 38.4 per cent contraction in the manufacturing sector, on a quarter-by-quarter seasonally adjusted annualised basis, following an expansion of 29.6 per cent in the third quarter.

The ministry said the decline was mainly due to a contraction in the output of the biomedical and transport engineering industries. Electronics, chemicals and precision engineering posted positive growth.

Robert Prior-Wandesford, economist at HSBC in Singapore, said the numbers did not signal a return to recession, even though the quarter-by-quarter contraction was larger than consensus forecasts.

“Pharma production is notoriously volatile, as companies often shut temporarily to swap product lines, and is likely to bounce back strongly in early 2010. Production will also be boosted as a couple of new facilities are set to open during the year,” he said.

In Tokyo, Yukio Hatoyama, the Japanese prime minister, said his top priority was to stop the economy slipping back into recession by passing budget bills for the current financial year and the next.

“With the feeling that the economy must not be allowed to go into a double dip, that we will not allow it to do so … we compiled emergency measures and a second extra budget at the end of last year,” Mr Hatoyama told reporters.

“We want to bring this second extra budget into effect as soon as possible,” he said, adding that next year’s budget should also be dealt with quickly. Japan’s financial year runs to the end of March.

Bonus: EDITOR’S CHOICE

Biggest regional trade deal unveiled - Jan-01

Insight: China needs admirers to match ambitions - Jan-03

Opinion: Reforms to help China maintain growth - Dec-17

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Filed under: ft china economy crisis 
October 8, 2009
Q&A: World Bank’s Lin on Why China Stimulus Is More Effective

Justin Yifu Lin is a most unusual World Bank chief economist. He is the first to come from a developing country, China. And he got to China by defecting in 1979 when he was a 26-year-old Taiwanese officer. According to press accounts, he swam from an island under Taiwanese control to one owned by China. In China, he became a leading economist during that country’s reform years. He received a PhD from the University of Chicago in 1986.

During the World Bank’s annual meeting the 56-year-old economist sat down to talk with the Wall Street Journal’s Bob Davis. Below is an edited transcript:

First off, we have to ask you about your fascinating bio. Why did you swim to mainland China, which then was only starting to change from the Red Guard era?
Lin: Before I became an economist, my aspiration was to become a historian, so I studied historical trend. I had confidence in the changes
But was there a nationalist feeling that you wanted to be in the main part of China?
Lin: I did think about it. I thought that the way to contribute to China’s changes was to participate.
What did your parents think at the time of your defection?
Lin: My parents were very supportive. They trusted in me, believed in me.
Ok, on to economics. The recovery seems quite modest. Can Asia grow very rapidly if the U.S. doesn’t?
Lin: The advanced countries have such a large part of the global economy that for sustained growth the advanced economies are key. But the recovery varies from country to country. If emerging countries had strong fiscal positions and strong external positions, they could adopt fiscal stimulus. So even though their economies were hit by the global downturn, fiscal stimulus could compensate to a large extent and maintain relatively high growth rate. That’s what we observed in China, India and other emerging markets.
Why does fiscal stimulus seem to work so much better in China than the U.S.?
Lin: The difference is that the stimulus in China has a very large leverage effect. From January to now, the growth in investment is 30% higher than last year. If you look at the composition, part came from government fiscal stimulus, and a larger part came from expansion of bank lending. That is because China is a low-to-middle income country. China has a larger deficit in infrastructure. There is strong demand for those kinds of investments.
That also creates jobs. Income increased, household employment increased, consumption increased.
The U.S., though, is a high-income country so the scope of that type of investment is smaller. The fiscal stimulus does not come with large bank lending to support it, so the leverage effect in the U.S. is smaller
How difficult will it be for China to make a shift away from export-led growth? Won’t China return to its old pattern after the crisis fades?
Lin: Currently, infrastructure spending contributes to “rebalancing.” In the past, most of the investment was in the production sectors. When you make a huge investment in manufacturing, the domestic economy can’t consume that much, so China turned to exports.
This time, the investment is mainly in infrastructure. That doesn’t contribute directly to production capacity. You also need to increase imports in equipment and raw materials. So the imbalance in China is reduced.
For the longer run, the imbalance is mainly a result of structural issues in China. The reason China had such large investments was that it was supported by savings. The savings came from two sources: household savings and corporate savings. Household savings was about 20% to 25% of GDP in past decades. It was similar in India.
The other half came from corporate savings. That turned into exports.
Why did corporates save so much? Why are they so profitable?
In the financial sector, only big corporations and rich people have access to big banks and equity markets. Small agricultural households and small and medium-sized enterprises don’t get any financial services. (Without access to financial services, which could finance growth in these sectors) wage rates are depressed compared to the potential.
That turned into a strategy for companies. If their wage rate is lower, their costs are lower. Companies which have access to financial services, their [capital] cost is relatively low, so they get subsidies there too.
Common people put their money into the financial system and their earnings from it are relatively low. So they are subsidizing big corporations. That’s the reason why big corporations have such high profit. They are subsidized through lower wages and lower capital costs.
What’s your view of the International Monetary Fund proposal to turn itself into a kind of global central bank — a lender of last resort to encourage companies to hold fewer reserves?
Lin: Certainly, it’s a direction that deserves exploration
Would countries really trust such an institution?
Lin: It depends on how it is designed and how it insures itself from international political economy-type issues. It may not be a panacea. A country needs to reform its domestic economy and, have sound macro stability. That would reduce the need to have external insurance.

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Filed under: wsj china bank 
October 7, 2009
China eyes N Korea’s mineral wealth - FTf

By Christian Oliver in Seoul

Published: October 6 2009 17:33 | Last updated: October 6 2009 17:33

Wen Jiabao, China’s premier, can hail his visit to North Korea as a bit of a diplomatic coup. Now the question is whether there is an economic dividend too.

After bear hugs with Kim Jong-il and co-operation deals, Mr Wen engin­eered the geopolitical compromise he wanted, with the North Korean leader on Tuesday announcing he might re­turn to inter­national talks on dismantling his nuclear weapons programme if he gets the kudos of direct talks with the US first.

Mr Kim’s announcement did not guarantee fresh six-party talks between Beijing, Seoul, Moscow, Tokyo, Pyongyang and Washington but restored political goodwill.

Yet if resource-hungry China hopes revived camaraderie will also grant it a large bite of North Korea’s massive untapped mineral wealth, analysts and diplomats warn, Beijing could be sorely disappointed.

North Korea’s mineral wealth is receiving close scrutiny, with South Kor­ea’s government this week valuing reserves at $6,000bn (€4,070bn, £3,670bn). Encouraged by data on metals, Goldman Sachs last month predicted the economy of a unified Korea could rival Japan’s by 2050.

Until the 1970s North Kor­ea was the wealthier half of the peninsula. Under communism it has supplied gold to the international bullion market. But poor technology and limited funds have in effect trapped most mineral re­serves, potential investors say.

Trade with China is growing, reaching $2.8bn last year from about $2bn in 2007. But military authorities in North Korea are perceived as hostile to the changes in society and infrastructure that foreign investment could bring.

“If the North opens its mineral resources to foreign countries, that is tantamount to taking a military, social and political gamble, jeopardising their security,” said Lim Eul-chul, of Seoul’s Institute of Far Eastern Studies.

A South Korean diplomat closely involved with nuc­lear talks doubted Pyong­yang would allow China to make big investments inside its border. “They cannot permit that kind of influence,” he said.

Although they were long communist allies, North Korea and China have a mutual mistrust, partly tied to territorial claims.

Still, limited foreign investment in the sector is not impossible. Colin McAskill, executive chairman of Koryo Asia, says he has signed a letter of intent and memorandum of understanding to invest in North Korean metals and argues his model would not interfere with sovereignty issues that concern Pyongyang.

Switzerland’s Quintermina has posted reports on its website saying it is looking to extract magnesite in North Korea.

Chinese investors are believed to have some metals interests and are also involved in coal mining.

“The Chinese companies that have tried to do business in North Korea complain a lot that the regulations change frequently and that the power supply is erratic,” said a Chinese academic in Beijing.

*Editor’s choice

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Filed under: ft china politics