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					                                                                                                                                                                                                                       ARAB TIMES, WEDNESDAY, JULY 6, 2011
    BUSINESS                                                                                                                                                                                                                                                         39

                     Australia holds rates steady                                                            Philippine inflation up 4.6%                                                                     WTO rules against China

   Australia kept official interest rates      Resumption of coal exports fol-              Philippine inflation hit a 26-month        The average for the first six                 The World Trade Organization ruled       such as coke, bauxite and zinc by
   steady at 4.75 percent Tuesday,          lowing the summer’s damaging                    high of 4.6 percent year-on-year in     months of the year was 4.3 per-                  Tuesday that China was unfairly          setting export duties and quotas on
   citing slower global growth due to       floods and cyclones was proceed-                June, the government said               cent.                                            protecting its domestic manufactur-      them. The panel rebuffed China’s
   Japan’s        March       earthquake,   ing “more slowly than initially                 Tuesday, a month after the central         The central bank, in a statement,             ers by limiting the export of nine raw   argument that its export limits were
   European debt problems and surg-         expected”, while consumer caution               bank said pressure on price             blamed the higher inflation on                   materials that are used widely in        needed to protect its environment,
   ing commodity prices.                    and the strong exchange rate was                increases was easing.                   increases in the prices of electricity,          steel, aluminum and chemical             and said those export restrictions
      The Reserve Bank of Australia         dampening activity, the RBA said.                  The figure is up from May’s 4.5      gas and other fuels brought on by                industries.                              should be removed.
   left the official cash rate unchanged       Globally, the bank said head-
   for the seventh time since               winds had grown, with banking                   percent and represents the quick-       rising global oil prices.                           A WTO panel sided with the               WTO judges concluded that
   November — the last time they were       and sovereign debt problems in                  est rate of annual price increases         However the inflation rate was                United States, European Union and        “China’s export duties were incon-
   raised — saying it now believed          Europe stoking uncertainty and                  since the 4.8 percent recorded in       still within the central bank’s fore-            Mexico, which had each filed com-        sistent with the commitments that
   domestic growth was “unlikely to be      volatility and conditions seen as               April 2009, National Statistics         cast of 4.6 to 5.5 percent for the               plaints saying China was driving up      China had agreed to” when it joined
   as strong as earlier forecast.”          “challenging”. (AFP)                            Office data showed.                     month, it added. (AFP)                           the prices they pay for raw materials    the trade organization in 2001. (AP)

                                                                         Unclear guidelines fueling uncertainty among expats, employers

Foreigners to bolster China’s social insurance coffers
BEIJING, July 5, (RTRS): China has          Clarke, a fund management expert            safety net a priority, partly because       Beijing, foreigners will be docked              Foreign companies are more con-           more like policies in many EU coun-
enacted a social insurance law that         with the EU-China Social Security           insufficient pension and healthcare         about 11 percent on the first 12,000         cerned about the uncertainty associat-       tries, where citizens and foreigners
requires foreigners to pay into med-        Reform cooperation project.                 benefits are regarded as reasons for        yuan of their monthly pay, or about          ed with timing and implementation            alike pay into the system.
ical, pension and unemployment                But questions remain about how            high saving and low consumption             $200 a month.                                than the financial costs, said Rainer           The government has been taking a
funds for the first time, but unclear       foreigners can reclaim pension contri-      rates.                                         Earnings above that threshold will        Schmitz, the chair of the human              step-by-step approach in providing
implementation guidelines are fuel-         butions after leaving China and even if        State media said on Tuesday that the     not be taxed, though employers will          resources forum of the European              social security benefits to the coun-
ing uncertainty among expatriates           they will be entitled to unemployment       government had kicked off a week-           be required to contribute more to the        Union Chamber of Commerce in                 try’s 1.34 billion people, hesitant to
and their employers about the true          benefits at all.                            long campaign promoting the law,            country’s pension, medical, unem-            China.                                       over commit to a system that could
costs.                                        “Social insurance is said to be a         which also aims to lift restrictions on     ployment and injury insurance                   “The challenge will be implementa-        drain the government’s coffers.
   The law, which took effect on July       benefit. If you can’t access it, then you   pension transfers between urban and         pools.                                       tion, but the foreign contribution will         “They are very wary about getting
1, will raise as much as $1.5 billion a     really shouldn’t pay,” said Clarke,         rural areas and reduce misuse of social        Despite that added burden, the extra      not hinder foreign investment or for-        into long-term commitments, because
year from foreign employees and             who predicts that it could be months        security funds.                             personnel costs are not likely to be a       eigners coming to China,” he said.           if the rate of economic growth falls
companies once the implementation           before the guidelines are finalised.           Fees will vary according to the aver-    large deterrent on hiring foreign talent        The efforts to include foreigners in      back, they would struggle to finance
rules are finalised, estimates Grayson        China has made expanding its social       age salary in each region of China. In      in China.                                    the nation-wide scheme will make it          the system,” said Clarke.

                 More cos likely to get caught

   Resources sector ‘hit’
                                                                                        ‘China’s local govt debt may be
   by China stocks scam                                                                 $540 bln larger than estimated’
   HONG KONG, July 5, (RTRS):               investigation into another forestry
   The accounting troubles and short-
   seller attacks plaguing Chinese
                                            company, Carlyle Group-backed
                                            China Forestry Holdings Co Ltd
                                                                                                                             Banks credit outlook may turn negative: Moody’s
   companies have spared few indus-         after the Chinese company said its
   tries, though one sector appears to      auditors identified possible irregu-        BEIJING, July 5, (RTRS): China’s local government debt                               Yvonne Zhang, a Moody’s analyst, said in a statement.
   be a common target.                      larities in the audit process of its                                                                                                Unless China comes up with a “clear master plan” to clean up the problem, the cred-
      The natural resources sector is a     2010 financial year.                        may be 3.5 trillion yuan ($540 billion) larger than auditors                         it outlook for Chinese banks could turn negative, Moody’s said.
   space prone to loose accounting and         The regulator also started court         estimated, potentially putting banks on the hook for deeper                             Moody’s debt tally is near the midpoint of various estimates from Chinese authori-
   one at the center of the recent stock    proceedings against the company’s                                                                                                ties, which used different definitions and accounting methods to compute their debt
   scandals. In China, the industry is      CEO and trading in the company’s            losses that could threaten their credit ratings, Moody’s said                        totals. The varying figures have led to confusion about just how serious the problem
   especially open to such practices.       shares remains suspended.                   on Tuesday.                                                                          could become if heavily indebted local governments default, saddling banks with large
      If the bearish investors who             In the US more than 20 Chinese              China’s mountain of local government debt has long been seen as a major loan losses.
   recently sunk their teeth into U.S.-     companies have been delisted or                                                                                                     Moody’s said it was                                   taken on the most
                                                                                        risk by investors. The worry is that slower growth in the world’s second- ment debt, but Bank ofhard to judge which banks had were among those local had lent
                                                                                                                                                                                                       China and China Citic Bank                         that
   listed Chinese companies turn their      halted amid allegations of account-         biggest economy could set off a wave of loan defaults and hobble its banking more aggressively than their peers during China’s bank lending spree in 2009.
   attention to an exchange such as         ing fraud so far this year. The SEC
   Hong Kong, natural resources is          has also censured a number of audi-         system.                                                                                 China’s state auditor reported last week that local governments had chalked up 10.7
   expected to be an area they seize        tors for inadequately assessing                “Banks’ exposure to local government borrowers is greater than we anticipated,”   trillion yuan of debt, about half of it amassed during a stimulus spending binge as
   upon.                                    Chinese companies’ financial posi-                                                                                                                                              Beijing sought to cushion the blow of a
      Investing in Chinese forestry,        tions.                                                                                                                                                                          global recession.
   agricultural, mining and oil compa-         In China, the government told                                                                                                                                                   Moody’s said the auditor’s report
                                                                                                                                                                                                                            excluded some bank-funded loans
   nies is a high-risk game. The enor-      companies last month to stick to a                                                                                                                                              because they were not deemed to be “real
   mous scale and rapid growth of           list of state-approved auditors. But                                                                                                                                            claims” on local governments. But the
   China’s natural resources industry       cross-border co-operation has been                                                                                                                                              ratings agency said those loans posed the
   means that assets span from the          limited.                                                                                                                                                                        greatest risk of delinquency, and banks
   Sahara to Siberia and some may be           The SEC has struggled to get                                                                                                                                                 may face losses.
   thousands of metres underground.         access to witnesses and information                                                                                                                                                Warning
      Some of the recent accounting         in China to help with its inquiries,                                                                                                                                               The warning weighed on Chinese bank
   scandals involve “some companies         while audit watchdog the Public                                                                                                                                                 shares, which were the biggest drag on
   or people claiming they have cer-        Company Accounting Oversight                                                                                                                                                    the Hang Seng index on Tuesday.
   tain acres of land for whatever pur-     Board, is unable to inspect auditors                                                                                                                                            However, the share declines were modest
   poses and nobody actually does the       working for U.S.-listed companies                                                                                                                                               and analysts expressed confidence that
   proper due diligence to determine        on the mainland.                                                                                                                                                                banks could withstand loan losses.
   under what legal conditions the                         Diligence                                                                                                                                                           “Even if the worst-case scenario hap-
   land does not belong to them,” said                                                                                                                                                                                      pened, it’s not going to be fatal,” said
   Dane Chamorro, a regional director          Oliver Ramsbottom, a Shanghai-                                                                                                                                               Victor Feng, an equity strategist at
   for risk consultancy Control Risks       based partner at McKinsey & Co,                                                                                                                                                 Everbright Securities in Shanghai.
   in Singapore.                            which does due diligence work for                                                                                                                                                  “Profits may drop but banks will not
      The accounting problems that          global private equity firms, says                                                                                                                                               go bankrupt.”
   have ensnared Chinese companies          understanding the audit trail is vital                                                                                                                                             The ratings agency said a jump in local
   listed overseas in the last year         to preventing losses when it comes                                                                                                                                              government loan defaults could push the
   involved at least eight in the           to companies in the natural                                                                                                                                                     non-performing loan (NPL) ratio for
   resources sector spanning agricul-       resources sector.                                                                                                                                                               Chinese banks as high as 12 percent, well
   tural, forestry and mining indus-           “The company you invest in may                                                                                                                                               above its base-case scenario that envi-
   tries.                                   have the mining license, but further                                                                                                                                            sions losses in the range of 5 percent to 8
                                            down the road you could find that                                                                                                                                               percent.
                    Liability               licence is not valid because the                                                                                                                                                   Government figures show the average
      The spectre that China’s              exploration licence that went                                                                                                                                                   NPL was 1.1 percent at the end of March.
   resources companies can be nation-       before it wasn’t valid,” said                                                                                                                                                      Moody’s outlined three scenarios for
   alised by the government hovers in       Ramsbottom.                                                                                                                                                                     resolving the debt problem. Most like-
   the background as well and a                It is well known in China’s finan-                                                                                                                                           ly, Beijing would work on a case-by-
   Chinese fondness for multiple sets       cial industry that some Chinese                                                                                                                                                 case basis, helping local governments
   of company books remains a dis-          companies often maintain multiple           A prototype Australian-built Joss super car is displayed at the Australian International Motor Show in Melbourne on July
                                                                                                                                                                                                                            to get funding. China may ask banks to
   tinct liability.                         sets of books — those they show to          5. The car, with a top speed of 320 kph that will reach 100 kph in three seconds, is to be released next year with a                absorb losses on loans for which local
      That makes due diligence diffi-       tax authorities, the numbers they           price tag around Au$600,000 ($643,000). The show which runs from July 1-10 features around 400 vehicles. (AFP)                      governments are not liable. Moody’s
                                                                                                                                                                                                                            said this scenario would probably
   cult and the sector more susceptible     show to investors and the numbers                                                                                                                                               involve a fair amount of debt restruc-
   to accounting fraud compared to          management and owners see.                                                                                                                                                      turing by banks.
   other industries.
      The Chinese government’s iron
                                               “If you go and buy a licence you
                                            don’t want to just look at that
                                                                                                       Russia consortium to control 36 pct, Peabody 24 pct                                                                     In the worst-case scenario, Beijing
                                                                                                                                                                                                                            would leave banks and local governments
   grip on the resources sector means       licence paper. You want to go and                                                                                                                                               to thrash out the issue on their own. This
   investors buying into non-state
   Chinese resources firms routinely
   face ownership disputes.
      “Particularly for forestry and
                                            speak to people in the mining com-
                                            panies and in the ministry of
                                            resources to get a sense of how
                                            defensible is this. Is there a history
                                                                                        Shenhua to own most Tavan project                                                                                                   could hurt investor confidence in China
                                                                                                                                                                                                                            as there would be no clarity around
                                                                                                                                                                                                                            China’s debt problems and loan disputes
                                                                                                                                                                                                                            could drag on, thereby worsening losses.
   agricultural business, one of the        behind this licence?” Ramsbottom            SHANGHAI/ULAN BATOR, July lars in revenue for the companies it, including a non-refundable $500                                        The best case would involve Beijing
   issues is the asset base. A lot of the   added.                                      5, (RTRS): A venture led by China involved and add tens of millions million.                                                        stepping in to supply local governments
   asset base revolves around land.            Howard Wang, head of Greater             Shenhua Energy Co Ltd will hold a of tonnes of increasingly rare cok-                                                                                  take on some of their
                                                                                                                                                                                The Tavan Tolgoi coal deposit, in with funding orMoody’s acknowledged
   Land in China and access to it, as       China       at     JPMorgan        Asset                                                                                                                                        debt, although
   you know, are highly politicised,”       Management pointed out a number             40 percent stake in the western ing coal used by steel makers.                       Mongolia’s south Gobi region, has that this would raise “moral hazard”
   Chamorro said. “When those               of situations that raise red flags.         Tsankhi block of Mongolia’s Tavan           China, Japan and South Korea estimated reserves of 6 billion issues of banks assuming excessive risk
   assets are land-based, the state is         These include comments from              Tolgoi coal project, giving it the are snapping up iron ore and coking tonnes of coal, including the knowing the government would always
   always going to have the first           rival companies about how they are          biggest share of one of the world’s coal mines globally to diversify world’s largest untapped deposit of come to their rescue.
   claim.”                                  unable to model the high margins            biggest coking coal deposit.              from heavyweight suppliers such as steelmaking coking coal.                                  Reuters reported on May 31 that
      Companies that have been caught       presented by competitors using                                                                                                                                                  China’s regulators planned to shift 2 tril-
                                                                                           A Russian-led consortium would BHP Billiton and Rio Tinto.                           The western Tsankhi block holds lion to 3 trillion yuan of debt off of local
   up in the accounting problems            their known market share and sud-           control 36 percent of the project,          The focus has shifted to undevel- around 1.2 billion tonnes of governments to try to ease the default
   include Puda Coal , a coking coal        den unexplained changes of chief            while US miner Peabody Energy oped Mongolia, which some ana- reserves, 65 percent of which is threat.
   processor; China Integrated Energy,      financial officers or a company’s
   an oil distributor and biodiesel         auditors.                                   Corp would own the remaining 24 lysts say could be one of the coking coal. It has an estimated                                         Many investors have long eyed
   maker and Duoyuan Water, a water            “We, generally speaking, will            percent, according to a draft pro- fastest-growing economies of the production life of more than 30 China’s mountain of local government
                                                                                        posal to be submitted to the next decade because of its vast years at 15 million tonnes a year.                                     debt as a major risk. The worry is that
   treatment equipment supplier.            think twice or three times before                                                                                                                                               slower growth in the world’s second-
      Other companies include Hong          investing in one of the situations,         Mongolian         parliament        on quantities of untapped mineral                   The government also plans an up biggest economy could set off a wave of
   Kong-listed Real Gold Mining Ltd ,       regardless of how good the num-             Wednesday, the government said in wealth.                                            to $5 billion initial public offering loan defaults and hobble its banking sys-
   an Inner Mongolian company, that         bers look and regardless of how             a statement.                                Lau said Hong Kong-listed for Erdenes-Tavan Tolgoi, the tem.
   halted trading in its shares on May      many ‘buy’ reports the brokers                 “This is a big win for Shenhua Winsway Coking Coal Holdings, state-owned company in charge of                                       About half of the debt dates back to the
   27 after a newspaper report said the     issue,” said Wang.
   miner had filed one set of accounts         But with profit-driven and pub-          and will give a significant boost to which has a joint venture with the eastern Tsankhi block. 2008 financial crisis when Beijing
   with the Hong Kong stock                 licly listed stock exchanges com-           its long-term growth prospects,” Peabody in China, would also ben- Goldman Sachs Group Inc, unveiled that trillion yuan fiscal stimulus
                                                                                                                                                                                                                                           compelled local authorities
   exchange and a much different one        peting to lure listings regardless of       said Helen Lau, a senior commodi- efit from more coal transportation Deutsche Bank AG, BNP Paribas to spend their way back to economic
   with China’s central government.         their quality, it is likely short-sellers   ties analyst with UOB-Kay Hian in to China.                                          SA and Macquarie Group Ltd have health.
   The stock has been suspended from        like Muddy Waters will dig up               Hong Kong.                                  Bai Xuefei, Shenhua’s investor been short-listed to manage the                             But the legacy of the massive spending
   trading since.                           more dirt on Chinese resource com-             Tuesday’s statement confirmed a relations director, said he had no IPO.                                                          is now catching up with China as maturi-
      Also among the victims was            panies.                                     Reuters exclusive that Peabody, a information on the issue and could-                   Members of the Japanese- ty dates for the loans, many of which are
   Sino-Forest , a Toronto-listed com-         “There is a conflict there because       venture between Shenhua and n’t confirm it. Shenhua’s board sec- Korean-Russian                                   consortium due in 2013, draw closer. used to build
                                                                                                                                                                                                                               While most loans were
   mercial forestry operator in China,      exchanges want to list as many
   whose shares have plunged 80 per-        companies as they can. They are in          Japan’s Mitsui & Co, and a retary Huang Qing couldn’t be include POSCO, utility firm roads and other infrastructure that some
   cent since short-seller Carson           competition with each other,”               Russian-led consortium were cho- reached for comment.                                KEPCO,          trading      firm      LG analysts argue China needs, it has also
   Block and his firm, Muddy Waters,        Control Risks’ Chamorro said.               sen in the bid.                             Shenhua shares were up 2.2 per- International                  and        Daewoo generated some wasteful spending.
   said Sino-Forest fraudulently exag-      “There is an inherent conflict there,          The project, which may require cent by 0750 GMT in a flat Hong International, state-owned Russian                                   Peter Elston, a strategist with
   gerated its Chinese forestry assets.     right, basically between the                initial investment of more than $7 Kong market.                                                                                     Aberdeen Asset Management Asia, said
                                                                                                                                                                             Railways and Japanese trading the episode served as a reminder that
      Four months ago, Hong Kong’s          exchanges and listings, unless you          billion, is seen as vital to kick-start     As part of the Mongolian govern- houses Itochu Corp, Sumitomo Chinese banks can be used as instruments
   securities regulator launched an         have really strong safeguards.”             the land-locked nation’s economy. ment’s proposal, the companies Corp, Marubeni Corp and Sojitz of the state, making them less attractive
                                                                                        It will also generate billions of dol- will make a $1 billion payment to Corp.                                                      as investment options.

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