ARAB TIMES, WEDNESDAY, JULY 6, 2011
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.
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.