US Financial Crisis/Bailout, China's Role

Buying U.S. bonds will depend on nation's need
2009-02-02 08:44:57 Print

Special Report: Global Financial Crisis

BEIJING, Feb. 2 -- Future purchases of United States Treasuries by China will depend on its need to protect the value of its foreign investments, Premier Wen Jiabao said on Saturday.

China is the single biggest foreign investor in U.S. Treasuries, with 681.9 billion U.S. dollars as of November, according to U.S. data.

"This is a very sensitive question and a question that President Barack Obama will want to ask," Wen said in London in response to a query over Chinese demand for U.S. government bonds.

"In recent years, our foreign reserves have been growing very fast. We are trying to bring more diversification to the holdings of the foreign exchange reserves. Buying US Treasury bonds is a major part of it," Wen said.

"Whether we will buy more U.S. Treasury bonds, and if so by how much, we should take that decision in accordance with China's own need and also our aim to keep the security of our foreign reserves and the value of them," he said.

Wen also stressed the importance of a stable yuan. "In the financial crisis, it is all the more important to maintain the stability of the yuan exchange rate in a reasonable and balanced level, this is not only in the interests of China but also in the interest of the world economy."

Wen is in London for talks with British Prime Minister Gordon Brown ahead of a G20 London financial crisis summit in April.

(Source: Shanghai Daily)

Reuters reports that fake products are going to rise in popularity as the downturn means less Chinese will be able to afford the genuine article. Personally I think the odd fake product in consumer products can be a bit of fun, if one is prepared to take it for what it is, its dangerous when it starts creeping into the more serious aspects of life such as machine parts and medicines.

Official: China not to practice "Buy China"
2009-02-09 11:00:06 Print

Special Report: Global Financial Crisis

BEIJING, Feb. 9 (Xinhua) -- China won't resort to trade protectionism with a plan similar to the "Buy America" provision that bans foreign products in domestic stimulus projects, said a Ministry of Commerce (MOC) official here Monday.

"We won't practice 'Buy China'," said Vice Commerce Minister Jiang Zengwei at a press conference. "We'll treat domestic and foreign products equally as long as they are needed."

The U.S. Senate last week voted to soften, not remove, the provision included in its roughly 900 billion-U.S. dollar stimulus plan that requires all public works projects funded by stimulus dollars to use only U.S.-made iron and steel.

"It's impossible to meet a country's market demand with only domestic products amid world economic integration ... Why should we turn to trade protectionism under the current situation (of global financial crisis)?" said Jiang.

He urged all countries to further promote international trade, noting that about 20 percent of commodities in China need to be purchased from international markets, such as industrial raw materials, farm produce and luxury items.

The "Buy America" provision has invited concerns from major trading partners of the U.S., including Europe, Canada and Japan. Economists warned it could trigger trade wars to the detriment of the already faltering world economy.

China must be wary of signs for a possible protectionist comeback, said Zhang Xiaoji, a foreign economic relations researcher at the Development Research Center of the State Council, a think tank under the Cabinet.

China, which relies heavily on it's exports, will suffer a heavy blow if trade protectionism gains influence in the face of the deepening global crisis, said Zhang.

He told Xinhua China's own massive stimulus package will "certainly give a shot in the arm to the country's imports."

"We should not only oppose trade protectionism in other countries but also support global trade ourselves," said Zhang, suggesting better opening up China's domestic market as the country's trade surplus remains large.

China unveiled a 4 trillion-yuan (586 U.S. dollars) stimulus plan in November to boost domestic demand and prop up growth. Most of the investment was directed at infrastructure.

:china::china::china:

China wants IMF to be tougher with rich states
Module body

Mon Feb 9, 8:15 AM

What's this
By Alan Wheatley, China Economics Editor

BEIJING (Reuters) - China, setting out its stall for the next global financial summit, wants the International Monetary Fund to get tougher with developed countries that let their economies run off the rails.

In a position paper prepared for the April 2 meeting in London of the Group of 20, China calls for more power for developing countries in the IMF and World Bank and issues a warning against investment protection.

On financial regulation, the memo says accounting standards and credit ratings should be adjusted to contain the "pro-cyclical" bias of financial institutions to ramp up lending and investment when times are good, leading to excessive risks.

The paper, seen by Reuters, also calls for hedge funds to be regulated and for excessive leverage and pay to be curbed.

Although it is the world's third-largest economy, China has kept a relatively low profile in the debate on what reforms are needed to avert a repeat of the current credit crunch, which has plunged much of the world into recession.

The bulk of the paper, which the government circulated last month to diplomats, is uncontroversial, dwelling on the need for greater information sharing and policy coordination.

But the section on the IMF touches a raw nerve because of China's belief that the Fund spends too much time lecturing developing countries on how to run their economies.

According to this line of thought, the Washington-based fund could have tempered the present crisis by sounding the alarm earlier and louder about the economic imbalances building up in rich countries, notably the United States, whose voting share gives it the power to veto the most important IMF decisions.

"The IMF should strengthen oversight over macroeconomic policies of all parties, particularly the major reserve currency economies, and provide oversight information and improvement recommendations to its members on a regular basis..." the paper says.

CURRENCY ROW
Diplomats say China has still not forgiven the fund for introducing new currency surveillance rules in June 2007, at Washington's behest, that make it easier for it to determine whether a country is keeping its exchange rate fundamentally misaligned to boost exports.

Beijing objected to the rulebook, regarding it as a U.S. ploy to enlist the fund in its campaign for a stronger yuan.

The dispute flared up again last month when incoming U.S. Treasury Secretary Timothy Geithner charged China with "manipulating" its exchange rate. Beijing rejected the claim.

"It is probably not the right time to focus on the Chinese exchange rate given that it is not a central element of the world crisis," IMF chief economist Olivier Blanchard said on January 28.

Still, controversy over the yuan has delayed completion of the IMF's 2007 and 2008 reports on its regular economic consultations with China.

China has also conspicuously failed to take up a suggestion that it use its $2 trillion of foreign exchange reserves to ease the IMF's financial strains.

Japan, by contrast, has said it will lend the Fund $100 billion so it has enough cash on hand to bail out countries felled by the credit crisis.

In its G20 position paper, China says voting power in the IMF and World Bank should reflect changing weights in the global economy so that developing countries have a louder voice.

On this score at least, Beijing sees eye to eye with Washington.

"We need to send a strong signal that we are ready to give developing countries a voice within the IMF that is commensurate with their importance to the world economy," Geithner said last month.

China said it favored inviting regional organizations such as the African Union to the London meeting of the G20, a group of developed and emerging economies whose leaders held their first financial crisis summit in Washington in November.

(Editing by Neil Fullick)

Consider bankers renumeration and payments are a bone of contention among many people, the Economist suggests a new approch


ISN’T it funny/How they never make any money/When everyone in the racket/Cleans up such a packet.” That Basil Boothroyd poem was originally written about the movies, but it could just as well apply to banking.
In its last three years, Bear Stearns paid $11.3 billion in employee compensation and benefits. According to its 2007 annual report, Lehman Brothers shelled out $21.6 billion in the three years before, while Merrill Lynch paid staff over $45 billion during the three years to 2007.
And what have shareholders got from all this? Lehman’s got nothing (the company went bust). Investors in Bear Stearns received around $1.4 billion of JPMorgan Chase stock, now worth just half that after the fall in the acquirer’s share price. Merrill Lynch’s shareholders got shares in Bank of America (BofA) which are now worth just $9.6 billion, less than a fifth of the original offer value. Meanwhile, Citigroup paid $34.4 billion to its employees in 2007 and is now valued by the stockmarket at just $18.1 billion.
All this has reinforced the idea that banking is simply a gravy train for employees. The row over the early payment of bonuses at Merrill Lynch shows yet again that insiders’ interests come first (those to BofA staff, however, are likely to shrivel).
The case against banks goes something like this. Over the past 25 years, the cost of finance has been low and asset prices have generally been rising. That has encouraged banks to use more leverage in order to earn high returns on equity. The process of lending money against the security of assets, or trading assets with the banks’ capital, helped to push asset prices even higher. A sizeable proportion of the profits that resulted from all this activity was then handed out to employees in the form of wages and bonuses.
But when asset prices started to fall, the whole system unravelled. Banks were forced to cut the amounts that they had borrowed, putting further downward pressure on prices. The “shadow banking system”, which relied on bank finance, started to default. The result was losses that outweighed the profits built up in the good years; Merrill Lynch lost $15.3 billion in the fourth quarter of 2008 alone, compared with the $12.6 billion of post-tax profits it earned in 2005 and 2006 combined.
In effect, executives and employees were given a call option on the markets by the banking system. They took most of the profits when the market was booming and shareholders bore the bulk of the losses during the bust.
What about the efforts made to align the incentives of employees, executives and shareholders? Employees were often paid in restricted stock and thus suffered heavily when their firms collapsed; Dick Fuld, the boss of Lehman Brothers, was a prominent example. Why then were bankers not more cautious, given the risks to their own wealth?
There were two main reasons. First, their base packages (pay and cash bonuses) were sufficiently large to make them feel financially secure. That gave bankers a licence to gamble in the hope of earning the humungous payouts that would take them into the ranks of the über-wealthy. The second reason was that the bankers simply did not recognise the risks they were taking. Like most commentators (including central bankers), they thought that the economic outlook was stable and that the financial system was doing a good job of spreading risk.
Henceforth two things need to be done. The first is that the trigger for incentives (as well as the payments themselves) need to be longer-term in nature. Bonuses could still be paid annually but based on the average performance over several years; if bankers are rewarded for increasing the size of the loan book, their pay-off should be delayed until the borrower has established a sound payment record. The effect would be to claw back profits earned by excessive risk-taking.
The second is that the banks’ capital has to be properly allocated. If traders are given licence to use leverage to buy into rising asset markets, then the trading division should be charged a cost of capital high enough to reflect the risks involved.
Impossible, the banks might say: our star employees will never tolerate such restrictions. But if there is ever going to be a time to reorganise the incentive structure now must be it. A threat to quit will be pretty hollow, given the state of investment banking. And few traders will have the clout to set up their own hedge funds in today’s market conditions. In any case, the greediest employees may be the ones most likely to usher in the next banking crisis. Better to wave them goodbye and wish good luck to their next employer.

:china::china::china:

China ‘Will Not Tolerate’ U.S. Exchange Rate Threats: The China Daily, People’s Republic of China
February 10th, 2009
By WILLIAM KERN

Is a trade war about to brake out between the United States and the People’s Republic of China? U.S. talk of Chinese currency manipulation has raised hackles in Beijing, and they have responded. This article from China’s strictly-controlled China Daily might be summarized this way: “You [the U.S.] had better not start a trade war - but if you do, America will be hurt more than China will.” Or in the words of Deng Yuwen, the author of this article:

“China will not tolerate American intervention in its exchange rate policy-making, which is within the jurisdiction of the nation’s sovereignty. … As the largest American creditor, China is estimated to hold 35.4 percent of all U.S. government bonds. Even now, when its own economy is suffering severe hardship and a serious lack of fluidity, China has chosen to refrain from selling U.S. national debt. … the exclusion of Chinese products from the U.S. market wouldn’t severely impact the foundation of the Chinese economy, since the U.S. only accounts for 20 percent of the Chinese export volume. Meanwhile, China is trying to develop a more domestically-driven economy.”

By Deng Yuwen*

Yangtze River Delta road trip - Day Two – Huaxi

Chinas richest village laughs off financial crisis

Perhaps someone who knows this area might be able to come up with some photos
And paste it in the Photos China daily life thread

"Ah, the financial crisis. I saw it on the television, but what do I know about it? My pension has just gone up by 20pc," said 60-year-old Ge Xiufan, standing outside her enormous villa.
On the second day of our Yangtze River Delta roadtrip we visited Mrs Ge in Huaxi, which claims to be the richest village in China and a triumph of collectivist communism. Under the guidance of "Old Wu", the village's octagenarian Party Secretary, the 30,000 people who live in Huaxi enjoy an astounding quality of life, including being given a free villa and a free car.
Mrs Ge's house, complete with conservatory, 42-inch television, leather sofas and a piano, sits by the side of a lake in a development which looks eerily like one of those upmarket suburbs in Florida.
Just a few years ago, Mrs Ge and her husband were farmers in Yancheng, Jiangsu, and their whole family earned 10,000 yuan (£1,000) a year between them. After their son persuaded the authorities to let him become a resident in Huaxi, however, the family is pulling in more than a million yuan, an astronomical sum in rural China.
Gavin Wu, the grandson of Old Wu, disingenuously said the town was a "simple farming village". It's not. It's actually one giant industrial conglomerate, Huaxi Group, with interests in steel, textiles, real estate and logistics. Every resident gets a share of the profits (hence the collectivism) and the minimum salary is 80,000 yuan a year, more than ten times the average in the region.
In a show of Old Wu's ambitions, this tiny village is currently hard at work building a 1,100-ft skyscraper, which will be the world's 15th-tallest building (and the same height as the Dubai International Financial Centre). The village's hospital has one of the most advanced CAT-scan machines in China. There are only two others, one in Shanghai and one in Beijing.
Even though there are reports that Huaxi has lost a fortune in the downturn, its inhabitants are carefully insulated from bad news. "I've never heard of it," said Zhang Manmei, a 35-year-old migrant who helps make the uniforms for China Telecom.
Above her was an ominous banner: "System is merciless, management is ruthless, enterprise is amiable." Nevertheless, her line manager said there was no crisis at their plant, even though exports have fallen. "We are expanding the factory by 20 per cent," he boasted.
The secret, it seems, is Old Wu. "Our leader was far-sighted enough to see the crisis coming last March," said a spokesman. "He told us to sell down our stocks and reduce our orders. We have not been affected as a result." A portrait of Old Wu as a young man in revolutionary garb was on sale behind him.
The secret of Huaxi is impossible to divine. I heard that one journalist was recently arrested for asking too many questions. The inhabitants were keen to stress that collectivism and hard work were the keys, but then couldn't explain why such suburban bliss was unavailable elsewhere in China. Is Old Wu really a visionary, or does he have good guanxi (connections)? Or is the whole shiny place funded by the local government as proof of the success of communism?



More CHINESE VILLAGES SHOULD FOLLOW THIS MODEL

Rising China said:

:china::china::china:

China ‘Will Not Tolerate’ U.S. Exchange Rate Threats: The China Daily, People’s Republic of China
February 10th, 2009
By WILLIAM KERN

Is a trade war about to brake out between the United States and the People’s Republic of China? U.S. talk of Chinese currency manipulation has raised hackles in Beijing, and they have responded. This article from China’s strictly-controlled China Daily might be summarized this way: “You [the U.S.] had better not start a trade war - but if you do, America will be hurt more than China will.” Or in the words of Deng Yuwen, the author of this article:

“China will not tolerate American intervention in its exchange rate policy-making, which is within the jurisdiction of the nation’s sovereignty. … As the largest American creditor, China is estimated to hold 35.4 percent of all U.S. government bonds. Even now, when its own economy is suffering severe hardship and a serious lack of fluidity, China has chosen to refrain from selling U.S. national debt. … the exclusion of Chinese products from the U.S. market wouldn’t severely impact the foundation of the Chinese economy, since the U.S. only accounts for 20 percent of the Chinese export volume. Meanwhile, China is trying to develop a more domestically-driven economy.”

By Deng Yuwen*

Click to expand...

if this article speaks for the central government, its the most unequivocal threat China has made since they say they reserve the option to nuke the US and sell their treasury bonds LOL

bladerunner said:

Yangtze River Delta road trip - Day Two – Huaxi

Chinas richest village laughs off financial crisis

Perhaps someone who knows this area might be able to come up with some photos
And paste it in the Photos China daily life thread

"Ah, the financial crisis. I saw it on the television, but what do I know about it? My pension has just gone up by 20pc," said 60-year-old Ge Xiufan, standing outside her enormous villa.
On the second day of our Yangtze River Delta roadtrip we visited Mrs Ge in Huaxi, which claims to be the richest village in China and a triumph of collectivist communism. Under the guidance of "Old Wu", the village's octagenarian Party Secretary, the 30,000 people who live in Huaxi enjoy an astounding quality of life, including being given a free villa and a free car.
Mrs Ge's house, complete with conservatory, 42-inch television, leather sofas and a piano, sits by the side of a lake in a development which looks eerily like one of those upmarket suburbs in Florida.
Just a few years ago, Mrs Ge and her husband were farmers in Yancheng, Jiangsu, and their whole family earned 10,000 yuan (£1,000) a year between them. After their son persuaded the authorities to let him become a resident in Huaxi, however, the family is pulling in more than a million yuan, an astronomical sum in rural China.
Gavin Wu, the grandson of Old Wu, disingenuously said the town was a "simple farming village". It's not. It's actually one giant industrial conglomerate, Huaxi Group, with interests in steel, textiles, real estate and logistics. Every resident gets a share of the profits (hence the collectivism) and the minimum salary is 80,000 yuan a year, more than ten times the average in the region.
In a show of Old Wu's ambitions, this tiny village is currently hard at work building a 1,100-ft skyscraper, which will be the world's 15th-tallest building (and the same height as the Dubai International Financial Centre). The village's hospital has one of the most advanced CAT-scan machines in China. There are only two others, one in Shanghai and one in Beijing.
Even though there are reports that Huaxi has lost a fortune in the downturn, its inhabitants are carefully insulated from bad news. "I've never heard of it," said Zhang Manmei, a 35-year-old migrant who helps make the uniforms for China Telecom.
Above her was an ominous banner: "System is merciless, management is ruthless, enterprise is amiable." Nevertheless, her line manager said there was no crisis at their plant, even though exports have fallen. "We are expanding the factory by 20 per cent," he boasted.
The secret, it seems, is Old Wu. "Our leader was far-sighted enough to see the crisis coming last March," said a spokesman. "He told us to sell down our stocks and reduce our orders. We have not been affected as a result." A portrait of Old Wu as a young man in revolutionary garb was on sale behind him.
The secret of Huaxi is impossible to divine. I heard that one journalist was recently arrested for asking too many questions. The inhabitants were keen to stress that collectivism and hard work were the keys, but then couldn't explain why such suburban bliss was unavailable elsewhere in China. Is Old Wu really a visionary, or does he have good guanxi (connections)? Or is the whole shiny place funded by the local government as proof of the success of communism?

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More CHINESE VILLAGES SHOULD FOLLOW THIS MODEL

Click to expand...

i cant agree with that, that's like saying all the countries should follow the western model of development...

A system where the 30,000 villagers have seen their income, at a minimum rise to 8 times the national, income , and where they are given a free spacious villa plus car, with one of the most modern hospitals with equipment comparable to Shanghai and Peking cant be bad. IM sure even Deng would have approved and encouraged other villages along similar lines.
AS one of the comments made in response to this article, Nokia offered shares to the inhabitants of the village where it is situated, and subsequently that village now has 7000 millionares.
AS Deng said it doesnt matter if the cats black or white as long as it catches the mice.

THey wernt following a Western Model, the success was due to the commune doing it together.