March 2, 2007

A BAD INVESTMENT:

China's debtors not paying up (Olivia Chung, 3/02/07, Asia Times)

[F]or Chinese exporters, the reality might be less rosy than what the figures indicate, as they earn much less than booked, facing overdue or default payment of their overseas receivable accounts.

Although the exact amount of overdue accounts receivable overseas is not known, Han Jiaping, director of the credit-management department under the research institute of the Ministry of Commerce, estimated that China has about $100 billion of accounts receivable overseas and the figure is growing by $15 billion a year.

Chinese companies' bad-loan ratio is between 5% and 30%, while the average in developed countries is about 0.25-0.5%, according to the People's Daily Online.

Geographically, overdue accounts receivable, which have been concentrated in coastal cities and special economic zones, are now seen more and more in inland provinces, small and medium-sized cities and areas lacking experience in foreign trade.


China Syndrome: How Scary? (Maria Bartiromo, 3/02/07, Business Week)
When stock markets in China took a major hit on Feb. 27, I rang up Don Straszheim, vice-chairman of investment bank Roth Capital Partners in Los Angeles, for some answers. Straszheim was chief economist at Merrill Lynch (MER ) for a dozen years and is an expert on investment in China.


How sound are the underlying values of the Chinese shares?

I'm a skeptic about many of the equities on the Shanghai and Shenzhen markets. First, about two-thirds of those companies remain state-owned. And those markets are dominated by retail investors, not institutional investors--exactly the opposite of the States, Europe, Japan, and other developed economies. Return on equity, price-earnings ratio, book value--these concepts have not yet entered the consciousness of the average Chinese equity investor. The Shanghai and the Shenzhen markets are still highly vulnerable, with enormous inherent risk to Western investors.

Does the market still have room to go down? Beijing analysts say it could safely drop 10% more.

This is now really a matter of investor psychology. The decline may be over, or there could be another 25% or 40% drop.

Do you think the banking crisis could derail China's economy?

China's financial sector is clearly its weakest link. The banks are state-owned, and loans are made more on the basis of nonmarket considerations. The result is that China doesn't have effective tools to carefully manage its economy.


And folks wonder why they buy up our securities?

MORE:
The New New World Order (Daniel Drezner, 3/02/07, Real Clear Politics)

Throughout the twentieth century, the list of the world's great powers was predictably short: the United States, the Soviet Union, Japan, and northwestern Europe. The twenty-first century will be different. China and India are emerging as economic and political heavyweights: China holds over a trillion dollars in hard currency reserves, India's high-tech sector is growing by leaps and bounds, and both countries, already recognized nuclear powers, are developing blue-water navies. The National Intelligence Council, a U.S. government think tank, projects that by 2025, China and India will have the world's second- and fourth-largest economies, respectively. Such growth is opening the way for a multipolar era in world politics.

This tectonic shift will pose a challenge to the U.S.-dominated global institutions that have been in place since the 1940s. At the behest of Washington, these multilateral regimes have promoted trade liberalization, open capital markets, and nuclear nonproliferation, ensuring relative peace and prosperity for six decades -- and untold benefits for the United States. But unless rising powers such as China and India are incorporated into this framework, the future of these international regimes will be uncomfortably uncertain.


Not as uncertain as the future of China and India.

Posted by Orrin Judd at March 2, 2007 8:00 AM
Comments

State run banks. The state is the Party. Bank mangement answers to the Party rather than shareholders. Communist parties are notorius for relying on questionable numbers rather than real world economic results. Letters of crdedit were required by Hong Kong exporters before shipments were made. The idea that Chinese exporters are not being paid says something about what drives them and it's not bottom line results, it's promotion through the bureaucracy of the Party and all of the benefits that accrue to higher-ups. It is a recipe for corruption and failure.

Posted by: at March 2, 2007 11:08 AM
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