Yukon Huang: Break Up China’s ‘Big Four’
The former WB China Chief is spot on in this commentary.
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What is the problem with China’s banks?
Governance is the issue in a state-dominated activity that provides the glue for much of China’s economy. The incentives for prudent risk taking and adherence to commercial objectives are weak for these banks given their near monopoly position and government interventions. In this environment, admonitions for improved management can only go so far.
The challenge is to introduce more competition in a system that politically will continue to be dominated by the state and where vested interests are exceptionally strong. Given this reality, there are nevertheless actions that could help improve performance. One would be liberalising entry of foreign banks whose presence in China is miniscule at present. This would spur competition and innovation and, contrary to what is believed in China, strengthen rather than weaken the performance of state-owned banks.
A more radical action would be to confront China’s own version of the west’s problem of their banks being “too big to fail”. The counterpart for China is that the big four state-owned banks are “too big to manage”. Breaking them up into three regional banks each would be a powerful means to foster competition and improve governance. This has been a process that has worked well before when China split its national airline into numerous regional entities which then subjected to market pressures resulted in a manageable number of more efficient but still state-owned companies.
These split-up banks would be headquartered in various provinces rather than in Beijing and thus less influenced by politically driven mandates but more by the real needs in their localities. They would not be restricted to operating only in their originating regions but could expand elsewhere and eventually develop a national presence. But they would need to become more commercially oriented and efficient to survive. In this process, some of them would be motivated to seek external partners, as has happened with the airlines, and this would help open the door for increased foreign participation and provide support for further liberalisation.
The author is senior associate at the Carnegie Endowment and a former World Bank country director for China
For entire commentary, see: http://blogs.ft.com/the-a-list/2013/01/29/chinas-banks-have-become-too-big-to-manage/?ftcamp=crm/email/2013129/nbe/ExclusiveComment/product#axzz2JPmiEGoH
Japanese Ex-Ambassador to China: Japan Erred in Diaoyu Row
The devil behind Japan’s provocative actions is of course Ishihara Shintaro, the combative anti-China icon of the Japanese extreme Right. He’s the tail that wagged the dog. Former Ambassador Niwa displays refreshing frankness on the issue.
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Japan’s former envoy to China says his country erred in choosing to buy islands claimed by both Japan and China last fall, infuriating Beijing, and now both sides have no choice but to allow the issue to cool.
Uichiro Niwa, a former trading house executive who served as ambassador to Beijing from mid-2010 until late last year, told reporters on Monday that the purchase of the uninhabited islands in the East China Sea by Japan’s central government was poorly timed and seemed driven by factors he could not explain.
“They may have had access to information that I didn’t know,” Niwa said at the Foreign Correspondents’ Club of Japan. “But from my personal point of view the timing was bad.”
Niwa, the first private sector figure to be chosen as ambassador to China, found himself at odds with the Japanese government, especially after then-Prime Minister Yoshihiko Noda pushed ahead with a plan to buy several of the islands from their private owner.
The purchase was apparently aimed at pre-empting a plan by outspoken Tokyo Gov. Shintaro Ishihara to not only buy the islands but develop them, but Beijing was outraged. The islands, known as the Diaoyu in China and the Senkakus in Japan, have been under Japanese control for decades, but Beijing says they have been Chinese territory for centuries. Taiwan also claims them.
The purchase prompted sometimes violent anti-Japanese protests in China and hammered exports to Japan’s biggest overseas market.
“The Japanese government should have taken into account the possibility that this may have been a point of contention,” Niwa said. At the very least, he said, Japan needed to provide “a better explanation to China and to the international community.”
Niwa, whose former company Itochu Corp. has extensive interests in China, faced criticism from some in Japan for not being tough enough toward China regarding the disputed islands, which are surrounded by rich fishing grounds and a potential wealth of gas, oil and other undersea resources.
The first envoy named to replace Niwa, Shinichi Nishimiya, died before he could take up his position in Beijing, which was later filled by veteran diplomat Masato Kitera.
Apart from confrontations between Chinese and Japanese vessels near the islands, both sides have scrambled fighter jets to trail each other’s planes, raising the risk of missteps that could lead to a clash.
Prime Minister Shinzo Abe, who took office a month ago following a landslide parliamentary election victory by the Liberal Democratic Party, appears to be seeking to cool tensions. Last week, a senior envoy conveyed a letter from Abe to Chinese leader Xi Jinping that struck a cordial tone and noted the two sides’ “shared responsibility for peace and prosperity” in the region. Former Japanese Prime Minister Tomiichi Murayama arrived in China on Monday in the latest effort to use diplomatic backchannels to improve ties. Former prime minister Yukio Hatoyama also recently visited. Both senior leaders are considered friendly to China.
Niwa said that based on his many meetings with top communist party officials, he believed Beijing would not want the territorial tensions to veer into armed conflict. But he said he believed the Chinese side viewed Tokyo’s actions as a violation of an unstated agreement to avoid raising the dispute.
“There was a feeling on the Chinese side that Japan violated a relationship of trust,” he said. Coming shortly after a meeting between Noda and Chinese President Hu Jintao, it was viewed in Beijing as an “insult.” “It is unfortunate the Japanese side misread the situation,” he said.
– AP
Shanghai’s Pudong Applies for a FTZ
The competition between the Shanghai led Yangtze River Delta, the Guangzhou-Shenzhen led Pearl River Delta, and north China’s Beijing-Tianjin-Hebei corridor is heating up. If Pudong gets the FTZ, expect the other two mega-areas to follow suit.
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China has announced plans to set up a pilot free trade zone (FTZ) this year in Shanghai’s Pudong New Area, the booming city’s financial and commercial hub.
Shanghai has applied for a permit to build the FTZ on the basis of its existing comprehensive bonded zones.
If the application is approved, the FTZ would become the first free trade zone in the Chinese mainland, said sources with the government of Pudong New Area, state-run Xinhua news agency reported.
Building the FTZ is one of the Shanghai municipal government’s major tasks in 2013, according to a report on government work delivered by Yang Xiong, acting mayor of Shanghai, at the first session of the 14th municipal People’s Congress.
It will take about three years to build up an FTZ up to international standards, said Wan Zengwei, director of the Pudong Academy of Reform and Development in Shanghai.
FTZ is an area within which goods may be landed, handled, manufactured or reconfigured, and reexported without the intervention of customs authorities.
Analysts said Shanghai has advantageous conditions for setting up an FTZ on the basis of the existing comprehensive bonded zones — Waigaoqiao Free Trade Zone, Yangshan Free Trade Port Area, and Pudong Airport Comprehensive Free Trade Zone.
The trade volume of Shanghai’s comprehensive bonded zones in 2012 totaled over USD 100 billion, the highest in the Chinese mainland.
China sees establishing FTZs as opportunities to boost its trade with surrounding economies and contribute to world trade volume, said Zhou Hanmin, vice chairman of the Shanghai Municipal Committee of the Chinese People’s Political Consultative Conference.
The FTZ will help Shanghai to cut the costs of trade and improve the trade efficiency, Wan said.
Besides, the FTZ will demand some supporting financial services such as cross-border financing businesses and international trade settlement, which will be conducive to deepening China’s financial reform, the official added.
Analysts believe that the FTZ to be built in Shanghai will serve as an important engine for China’s cause of deepening reform and opening up in the next five to 10 years, the Xinhua report said.
– Economic Times (of India)
MacLean’s: China’s Green Revolution
There have been several posts on China’s growing investment in renewables and cleantech on this blog but here’s an in-depth MacLean’s article. Also featured is an interview with a MacLean’s editor on China’s leadership in clean energy and what it means for the West and Canadian cleantech companies. China is not only the world’s largest market for environmentally-friendly technologies that will expand massively as China cleans up and urbanizes but in the not so distant future, she will emerge as a major exporter of home grown cleantech.
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China’s ongoing struggles with pollution have been a blight on the country’s international reputation. The world’s image of China is that of an industrial behemoth fuelled by the dirtiest of energies, coal. On the surface, the reputation is well deserved. No country pumps out as much CO2 as China (not even the U.S. comes close). But behind the smog, China’s environmental woes have become an unexpected boon to the global renewable energy industry. Last week’s air quality emergency sent Chinese green energy stocks soaring on the hope that the political fallout will prompt the Communist party to offer up more public money for the country’s burgeoning environmental protection sector.
Investors are counting on it. Even as it remains the scourge of environmentalists for being the largest emitter on the planet, China is also emerging as the world’s biggest spender on green energy.
Globally, green energy investment fell 11 per cent last year, according to a recent Bloomberg New Energy Finance report. Indebted European countries slashed subsidies, India cut its spending by more than 40 per cent and the U.S. witnessed a string of solar power manufacturer bankruptcies. China’s investment in renewable energy, meanwhile, was a bright spot. It rose 20 per cent to nearly $68 billion, or a full quarter of the $269 billion global total.
From having virtually no green energy infrastructure as recently as 2008, China has built 133 gigawatts of renewable energy—mainly wind turbines—enough to power as many as 53 million homes, or every household in Canada four times over. The International Energy Agency predicted that China would overtake Europe as the world’s top renewable energy growth market. It’s a market expected to be worth more than $470 billion by 2015, according to state-owned China Merchants Securities, or almost double what it was in 2009 and equal to about eight per cent of the country’s GDP.
That investment has caught the eye of clean-tech companies in Europe and North America, who are flocking to China in hopes of selling their technologies after seeing demand stagnate or collapse in their home markets. “All the key players are going to China these days,” says Changhua Wu, Greater China director of the Climate Group, a London-based agency that promotes green energy investment. “Everyone is trying to figure out what the potential for opportunity is, partly because everyone recognizes that China could potentially be the largest market for clean tech in the world.”
As China takes the lead, everyone will benefit from the technology that is developed and exported. China is saving itself, but might also be saving the world in the process.
While the Middle Kingdom’s smog problems have earned plenty of headlines, it has also been quietly attracting a host of very unlikely supporters, including praise from the Pew Charitable Trust and the World Wildlife Foundation, which gave its “climate solver” award this year to several Chinese companies that manufacture technology to capture and recycle wasted heat, water and chemical emissions to power everything from factories to refrigerators. Greenpeace predicted the country would be on track to install 400 gigawatts of wind energy by 2030 and could become the largest solar market in the world.
The argument that China is the world’s environmental bad guy “is increasingly difficult, if not impossible, to make given China’s recent policies,” wrote the authors of an October report for the Climate Institute, an Australian think tank. The country has closed more coal-fired power plants since 2006 than the entire capacity of Australia’s electrical grid, and exported more than $35-billion worth of renewable energy technology—equal to the total value of shoes exported from China that year. This year, China is rolling out pilot projects that could eventually lead to the world’s largest carbon trading system.
“The broad scheme of things is that China believes it wants to become a resource-conserving, environmentally friendly society and that’s the way they describe it, in those exact words,” says Arthur Hanson, one of Canada’s leading experts on sustainable development. The former founding director of Dalhousie University’s School for Resource and Environmental Studies, Hanson is in Beijing this week in his role as international chief adviser to the China Council for International Co-operation on Environment and Development.
For the entire article and the video, see: http://www2.macleans.ca/2013/01/27/business/
Freshfields: China to Continue Leading in M & As
China maintained its magnetism for international companies last year, attracting almost $35 billion of new inward investment, according to analysis by international law firm Freshfields Bruckhaus Deringer.
Despite political uncertainties caused by the leadership handover, a spate of accounting scandals and anxieties about economic growth, investment into China rose 3% compared to 2011, reaffirming the country’s position as “the prime investment hotspot among the world’s key growth markets” during 2012.
It’s the third time during the past five years that China has been the most sought after investment destination.
“2012 turned out to be a more encouraging year for deal making, especially in the high-growth markets in Asia where we saw several significant M&A transactions announced during the year,” said Freshfields’ Asia managing partner Robert Ashworth.
“Activity levels in China, in particular, rebounded well, with another solid increase to $35 billion in aggregate cross-border deal activity recorded,” he added.
After China came Mexico ($25.6 billion) — almost entirely due to a $20 billion acquisition by Anheuser-Busch InBev — then Russia ($18.6 billion), Brazil ($18.2 billion) and Indonesia ($13.7 billion).
By deal volume, China also took the top spot with 598 transactions, followed by Russia in second place with 384 deals.
The value of global M&A investments targeting the world’s key growth markets surged by 5% during 2012 (to $162.4 billion) compared to the previous 12 months. It followed a decline of almost 25% the previous year (2011 compared to 2010).
Activity was dominated by acquisitions in the banking, food and beverage, metals and mining, and insurance industries, accounting for almost 45% of total investments.
The US was the most acquisitive nation in the growth markets. In fact, it committed the most investment in these markets since 2007, an increase of almost 70% on the previous year to more than $13 billion.
It was followed by Belgium (because of the Anheuser-Busch InBev deal), Hong Kong and Singapore. By volume, Hong Kong ranked in second place with 324 transactions.
– FinanceAsia