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Waves of Bankruptcies Emerging in Ten Industries

On September 30, Chinese Business Wisdom published a commentary saying that bankruptcies in 10 industries have been on the rise and that waves of bankruptcies are probably not far away. 

1) Shipbuilding. For example, China Rongsheng Heavy Industries Group Holdings Ltd, a leading shipbuilding company, saw its 2012 revenues slashed by 50 percent. 
2) The iron and steel industry. As banks are short of cash to pay their depositors, small steel mills will most likely be the hardest hit.
3) The LED Industry. The downfall of the Junduoli Enterprise Group in 2011 touched off the bankruptcies of several LED companies. In the next couple of years, as many as 60 percent of the remaining several thousand LED companies may not survive. 
4) The Furniture Industry. Orient Homes, once the largest home improvement companies in China, has applied for bankruptcy to close down its stores. 
5) Small to mid-size Real Estate Developers. In the next three years, at least one-third of the real estate developers will close their doors. Estimates are that the number of companies will drop from 50,000 to 35,000. 
6) The Cargo Shipping Business. In 2012, three companies that are listed on the stock exchange were up to 14 billion yuan in the red. This followed a 10.4 billion yuan loss in 2011. 
7) Trust and Financial Institutions. In less than 6 years, trusts have grown substantially. The number of financial trades they conduct is now second only to banks. Since the beginning of this year, several trusts petitioned to extend the due dates of their loans and were rejected. 
8) Financial Management Companies. They have been under pressure from their competitors, the trusts. Unless they receive funds from private equity or an injection of funds from their shareholders, up to 600 financial management companies may fail. 
9) Private Equity. Private equity has gained a negative reputation because many of its investors ended up involved in Ponzi schemes. It is estimated that 90 percent of all private equity investment firms will close in 2013. 
10) Group-buying. In March 2010, group buying went viral. As of the end of the first half of 2013, 4,570 group buying websites had closed down. The figure represents nearly 75 percent of the total of 6,218 in the group buying industry. 
Source: Chinese Business Wisdom, September 30, 2013 
http://www.bwchinese.com/article/1047225.html
Briefings | | |   Economy/Resources

Totalitarian State Has Caused an Economic Crisis in China

Niu Dao, a popular commentator on real estate and finance in China, stated in a blog at sina.com that the totalitarian Communist regime is bringing about an unprecedented economic crisis in China and that the five year real estate bubble will burst soon. 

 “In totalitarian economy countries … as long as the economy has few problems, the government will find ways to cover things up so that the crisis will not break out. The government’s mentality is that they do not want the economic crisis to spread and become a social crisis. So large bubbles mask small bubbles, and, due to such a cover-up, small problems grow into big conflicts that cannot be resolved. Finally the situation evolves into a full crisis, leading to the disintegration of the government or the dictator stepping down.” Niu cited the examples of former Soviet Union, Romania, Albania, Khmer Rouge, and East Germany. He stated that the upcoming crisis in China will be an unprecedented crisis in history. 
To support his analysis, Niu discussed several factors, including the following: 
In the past three consecutive years, investment accounted for 40 percent of China’s GDP. Investments and exports combined accounted for over 70 percent of China’s GDP. The government has created the housing bubble. Once the bubble bursts, a massive number of developers will go bankrupt. 
The drastic appreciation of the Chinese yuan in a short period of time is extremely rare in history. The real purchasing power of one million yuan today is less than that of 10,000 yuan 30 years ago, and has decreased by 300% compared to 5 years ago. The current housing market does not reflect the true market price; it represents what the government created only to wipe out the wealth of several social levels. 
The current value of real estate in China exceeds 40 percent of the GDP. Further, the number of vacant housing units has reached an astronomical figure. Take Beijing for example. It alone has over 3.80 million vacant housing units, and Shanghai has over 5 million units standing idle. Shenzhen and Guangzhou have even more. 
Source: Blog at sina.com, September 29, 2013 
http://dl.house.sina.com.cn/news/2013-09-29/08082435329.shtml
Briefings | | |   Economy/Resources

State Audit: Local Government Debt Almost Doubled in Two Years

According to Economic Information, a publication under Xinhua, China’s National Audit Office conducted an investigation into local government debt. It found that local government debt almost doubled since the 2011 audit. The nationwide investigation started in August and is nearing completion. 

The officials from the National Audit Office indicated that the increase is largely the result of the build and transfer financing strategy (BT) in which the local government establishes a project and then authorizes construction companies to finance and build it and then transfer it back to the government. Since local governments are not authorized to issue bonds, financing platform companies, set up by local governments, have been instrumental in obtaining financing or issuing bonds to the public. In some cases, the interest rate has reached 14 percent. 
The 2011 national audit showed that, as of the end of 2010, local government debt exceeded 10 trillion yuan (US$1.63 trillion). Most financing platform companies were set up by provincial and municipal governments in the developed regions. However, the ongoing investigation showed that almost every country government now has its own financing platform. “It is literally the ATM of the central bank,” said an official of the National Audit Office. These financing platform companies hold assets of very low market liquidity and have no ability to pay off these debts. Many of them are in the red. 
Source: Economic Information reprinted by China Daily, September 27, 2013 http://www.chinadaily.com.cn/hqgj/jryw/2013-09-27/content_10207613.html
Briefings | | |   Economy/Resources

Xinhua: The China Dream is not a Dream for Hegemony

On September 26, Xinhua published a commentary saying the China Dream is not a dream for hegemony. “Internationally, there are always some people who concoct and present different versions of the ‘China Threat Theory,’ to label the China Dream ‘neo-imperialism.’ Such remarks are completely without merit.” 

The commentary stated that the China Dream is a dream for prosperity, “but not one for hegemony.” It said that "China has no tradition of invading other countries. It has not occupied even an inch of others’ territories or taken any resources of other countries.” 
“This malicious distortion of the meaning of the China Dream boils down to the fact that some people cannot let go of the old world where there were haves and have-nots. It also reflects fear that the China Dream may disturb their own dream.” 
Source: Xinhua, September 26, 2013 
 http://news.xinhuanet.com/comments/2013-09/26/c_117512945.htm
Briefings | | |   Government/Politics

China’s Local Government Debts Result from the Government’s System

On September 24, 2013, Gao Peiyong, Director of Institute of Finance and Trade Economics of the Chinese Academy of Social Sciences (CASS) spoke at an economic forum in Beijing. At the forum, Gao stated that the ultimate risk that occurs as a result of local governments’ debts is not due to the size of the debts themselves, but to the nature of the government system.  

Gao indicated that it is because the local governments lack awareness of the standard of “living within their means” and recognizing an obligation to pay off their debts. “Only by improving local governments’ financial systems can local debt risks truly be resolved.” “The greater problem is that almost all of the local governments give little thought to and have no consideration for how to repay their debts.” Gao said that if a person never wants to pay back his debts or never wants to take his obligations seriously, that person’s actions result in the greatest risk, which is the system’s problem and its most fundamental problem. 

According to Gao, the reason why local governments are such debtors is directly linked to Communist China’s financial system. In the eyes of the central government, local governments are children that need to be controlled. They do not have a separate, sound personality for dealing with self-finance. 

Source: Xinhua, September 24, 2013 
http://news.xinhuanet.com/yzyd/local/20130924/c_117490452.htm
Briefings | | |   Economy/Resources

Datong’s Deep Debts Amount to 13 Billion Yuan

According to China Business, as of 2013, the City of Datong, Shanxi Province had accumulated debts exceeding 13 billion yuan. Datong paid off 2 billion in the first half of the year, with over 110 billion still outstanding. A few municipal construction projects have been suspended due to lack of funding. 

 A Datong city official indicated that the debts are reasonable as long as the local government can handle them. Last year Datong issued bonds in the amount of 600 million yuan. Bank loans make up the rest of the debts. In 2012 Datong had about 8 billion yuan of fiscal revenue. 
Datong is urgently looking for buyers or investors for its State-owned assets. These include more than 100 State-owned enterprises, 30,000 mu of reserve land, real properties held by financing platform companies, as well as tourist attractions such as the Yungang Grottoes. These assets are valued at 38 billion yuan. 
Source: China Business, September 18. 2013 
http://www.cb.com.cn/economy/2013_0918/1013726.html
Briefings | | |   Economy/Resources

Severe Air Pollution in Northern China

On September 18, 2013, six cities and regions in the northern part of China signed an agreement with the Ministry of Environmental Protection to control and prevent air pollution. The six cities and regions are Beijing, Tianjin, the provinces of Hebei, Shanxi, and Shandong, as well as the Inner Mongolia Autonomous Region – regions that are suffering from severe air pollution. 

“In recent years, frequent occurrences of fog and haze have become a shadow in hearts of the people of Beijing, Tianjin, and the surrounding areas. Data show that in August of this year, only 34.6 percent of the days in the month met the safety quality standard, while 65.4 percent did not meet the standard and 2.7 percent were in severe pollution.” 
Source: Xinhua, September 18. 2013 
http://news.xinhuanet.com/2013-09/19/c_117428247.htm
Briefings | | |   Economy/Resources

Government Think Tank: China’s Diplomacy for the China Dream

Qu Xing, President of the China Institute of International Studies, stated that China should not maintain stability at the cost of its sovereign rights and China’s safeguarding its rights should not put China and its neighbor into conflicts. Qu made these remarks during an interview with the state media, the International Herald Leader. 

According to Qu, the core of the “China Dream” has two “one hundred year” goals: to build China into a well-to-do society by the 100th anniversary of the Chinese Communist Party and to build China into a modern socialist country by the 100th anniversary of the new China. 
To make the China Dream a reality, China should first, handle well its relationship with major powers, particularly with the United States, mainly through bilateral cooperation; second, handle well the relationship with China’s neighboring countries through safeguarding sovereign rights and maintaining stability; third, proactively develop multilateral diplomacy through participation in U.N. affairs and in the G20 group; fourth, handle well the relationship with emerging countries in Asia, Africa, and Latin America; fifth, make special efforts in public diplomacy; and lastly, strengthen the protection of overseas Chinese and businesses. When asked about the balance between safeguarding sovereign rights and maintaining stability, Qu stated that maintaining stability should not be at the cost of sovereign rights, and that safeguarding sovereign rights should not put China and its neighboring countries into conflicts. 
Source: International Herald Leader, September 16, 2013 
http://ihl.cankaoxiaoxi.com/2013/0916/272722.shtml
Briefings | | |   Government/Politics