The Command Economy

[rffrydr]

Now we're talkin':

http://ftalphaville.ft.com/blog/2008/10/29/17571/china-presses-insurers-to-buy-shares/
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Today is the Tomorrow you worried about Yesterday!

[rffrydr]

RIO aside, China's expansion outward comes with it's own built in limits. Africa may be the exception that proves the rule.

Outward investment: Politics tangles with commerce

By Jamil Anderlini

Published: September 30 2009 15:44 | Last updated: September 30 2009 15:44

Instead of a moat and battlements, the eastern stretch of what was once the ancient city wall of Beijing is today lined with the shining towers of the country’s largest state-owned enterprises.

Referred to by some Beijing residents as the avenue of the giants, the real estate arrangements along this stretch of traffic-clogged expressway provide a visual aid to the tangled mix of politics and commerce that dominates modern China’s foreign policy agenda.

On four corners of the intersection where the ancient city’s “Sun-Facing Gate” once stood, four of the modern pillars of China’s foreign policy have been erected to replace it.

On one corner stands the foreign ministry, across from it is a Bank of China building and on the other two corners are the headquarters for two of China’s three state-owned energy giants – Sinopec and the China National Overseas Oil Corporation.

Some analysts joke that this geographical arrangement symbolises the power dynamic of the country’s foreign policy priorities – half natural resources, one quarter finance and one quarter politics.

A little further north along the avenue of the giants, two glass-encased tower complexes owned by the Poly Group, the giant defence industry conglomerate, are a reminder of another powerful voice in the mix.

All these various forces vying to influence the country’s explicitly stated policy of global corporate expansion ultimately answer to one power – the Communist party.

But despite this centralised control, there is often less co-ordination to global expansion than appears to those in places such as Africa, Latin America and Australia, where the country’s insatiable appetite for natural resources has led to a flurry of investments and acquisition attempts in recent years.

China’s outbound direct investment more than doubled last year from 2007, reaching $56bn according to the ministry of commerce. But Chatham House, the London-based think-tank, estimates it could have been double that figure.

China has gone from annual outward direct investment of just $140m in 2002 to being the sixth largest source of outward direct investment last year and most analysts expect the flow to continue growing strongly.

In countries where Chinese investment is concentrated, there is often a deep mistrust of what appears to be a secretive plan to secure supplies of natural resources using state-controlled enterprises. But in Beijing, these enterprises are often criticised for competing too fiercely with each other.

“This is a very complex group of actors in China interacting with a very complex group of factors abroad and, although the amounts involved are very big, the offshore investment is less directed than people think,” says Kerry Brown, a senior fellow at Chatham House.

While competing against each other in their overseas expansion drive, the country’s state enterprises have become adept at framing their investments in national interest terms when they present them to top leaders at home.

“In the future, it is inevitable that Chinese companies will continue to expand internationally and it is the patriotic duty [of Chinese banks] to fund this expansion,” says one senior Chinese banker.

As a rule, companies have been allowed to expand abroad as long as their investments meet some criteria set out by the central government.

China is the world’s largest consumer of zinc, copper, aluminium and other metals and the second-biggest consumer of oil. And as long as an offshore investment secures supply of natural resources, it will generally be approved.

Technology and intellectual property are highly prized and any companies that can show they are acquiring valuable foreign know-how stand a much higher chance of getting approval.

Even if a Chinese company manages to clear the hurdles of political opposition abroad and the possibility that Beijing or a rival enterprise will be able to block their overseas investment from home, it then faces the problem of trying to manage operations in a completely unfamiliar market and environment.

The lack of transparency, proper legal protections or a tradition of corporate governance means Chinese enterprises are usually ill-prepared for operating in overseas markets.

To counter these problems, and to mitigate foreign political opposition, Chinese companies have recently embarked on a strategy of co-investing with more experienced western partners. As they gain more experience, companies’ role in defining China’s foreign policy agenda will grow and their stature on the avenue of the giants will continue to rise.
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Today is the Tomorrow you worried about Yesterday!

[rffrydr]

Big Communist anniversary parades supposed to show the "power and prestige" of the new china. Just wonder if this doesn't register something else in the chinese investor: the control. Yes, it's still a "command economy."

http://bloomberg.com/apps/news?pid=20601170&sid=aKBDJbM5yWF4
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Today is the Tomorrow you worried about Yesterday!

[rffrydr]

China’s credit growth

Published: April 30 2009 09:24 | Last updated: April 30 2009 12:34


Oh, the joys of a bona fide command economy. Loan growth, the aim of pump-priming governments everywhere, is running at almost 25 per cent annual rate in China. Banks made $280bn of new loans in March alone. In the Eurozone, by contrast, credit is shrinking.

Clearly, when Beijing cracks the whip, banks – the largest of which are either state-owned or state-controlled – respond, although subtler monetary coercion has also been at work. With fewer decent-yielding securities available after the recent round of interest rate cuts, banks may have concluded that short-term corporate lending was as good a way as any to earn a turn. Then March threw up more convincing data. Three to 6-month commercial paper fell to maybe around a tenth of total bank lending, compared to over 30 cent in the first two months of the year, as term credit rose.

Still, this does not mean such levels of lending are sustainable, or even desirable. Indeed, official rhetoric has turned distinctly frosty in recent weeks. Officials fret increasingly about credit risk, and lending inspections have stepped up. Banks may even be pushing loans out the door while they can, given that lending has already almost hit Beijing’s desired $735bn minimum quota for the year. First quarter breakdowns are not yet available, but anecdotal evidence suggests manufacturers are joining the scrum to get money while they can.

Beijing is wise to temper this borrowing and lending splurge. With exports down 30 per cent, capacity utilisation rates are already low. Shiny new plants sprouting up everywhere are the last thing the world needs. Nor is an industrial sector that presided over a 37 per cent year-on-year drop in net profits in January and February best placed to embark on an investment frenzy.

For the moment, Chinese’s banks’ non-performing loans are falling, despite the cycle. The stock of bad debts dropped by some $2.5bn in the first two months of the year. But Beijing’s new wariness suggests concern about future blow-outs, as well as nascent inflationary pressures. Either way, those envious levels of credit growth will likely taper off soon. What Beijing wants, Beijing gets.
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Today is the Tomorrow you worried about Yesterday!

[rffrydr]

Glad tidings from the National People's Congress:

http://money.cnn.com/2009/03/04/news/international/china_economy/index.htm


Trend toward global deflation obvious
Uncertainty has increased
Excess production capacity is emerging
Central gov’t investment to be CNY 908 bln.
New lending target will be 5 trln
Enact policies to stabilize the labor market
GDP to be about 8% and CPI to be about 4%
Will cut corporate and household taxes later this year
Money supply growth to be 17%
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Today is the Tomorrow you worried about Yesterday!

[rffrydr]

Stimulus poo-pooed in West is taking effect:

http://www.bloomberg.com/apps/news?pid=20601087&sid=a_o7gJE8M0uM&refer=home

The "consume locally" programs pushed over the food inflationary days perhaps have set the groundwork for something of a bigger surprise here. Not buying it however. (Still spread long CFN/FXI)
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Today is the Tomorrow you worried about Yesterday!

[rffrydr]