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Chinese’ Companies Default Problems

On December 6, Epoch Times’ YouTube Channel “Crossroads of the World”  had a discussion on companies in China that are defaulting on their debt.

Host Tang Hao listed the following recent default cases in China:

  • October 24, Xiwang Group Company Limited, China’s largest corn oil producer, was unable to pay back its 1 billion yuan (US $140 million) short-term bond.
  • November 11, Guirenniao, a Chinese sneaker company could not pay its 500 million yuan bond.
  • November 19, Dongxu Optoelectronic Technology Co Ltd, China’s largest LCD glass substrate manufacturer, couldn’t pay its 2 billion yuan debt.
  • November 27, Xiwang Group couldn’t pay another debt of 861 million yuan.
  • December 2, The Beijing University Founder Group, the largest college-owned enterprise in China, defaulted on a 2 billion short-term bond. The company had 370 billion yuan in assets.
  • December 3, Guirenniao defaulted again, on a 647 million yuan debt.

Tang Hao gave three reasons for these defaults: One, many companies followed the government to take on excessive debts to seek high-expansion. Two, the trade war with the U.S. hurt China’s economy. Three, the owners of the companies, who have low moral values, do not feel any social obligation to pay back their company’s loans. They may just spend the money lavishly or put the borrowed money into their own pockets.

As a result, companies’ credit problems have also dragged down the banks:

  • In May, Baoshang Bank Co., Ltd. had a severe credit risk and the People’s Bank of China and the Banking Regulatory Commission took it over.
  • In July, the Bank of Jinzhou had a high cash risk and the Industrial and Commercial Bank of China had to infuse it with money.
  • In August, Hengfeng Bank in Shandong Province had a cash crisis and the Shandong government took it over.
  • In October, Yichuan Rural Commercial Bank in Luoyang City, Henan Province suffered a bank run that lasted three days.
  • In November, Yingkou Coastal Bank in Liaoning Province suffered a bank run.
  • In November, the government took over Harbin Bank in Heilongjiang Province.

Source: YouTube, December 6, 2019

Huawei’s “Wolf Culture” in Canada

Chinese people recently have been using the term “wolf culture” to describe a company or a person who behaves like a wolf, who is willing to take any measure to win, and who ignores human nature and morality.

Epoch Times interviewed some former employees of Huawei’s subsidiary in Toronto who took the opportunity to expose Huawei’s “wolf culture” in Canada.

1. Taking down Nortel: Huawei offered prices 40 percent below market so it could quickly grab the global telecom market. It was able to do so because of the Chinese government’s subsidies and the People’s Liberation Army’s “gift contracts.” In addition, from 2004 to 2009, the Chinese Communist Party’s (CCP’s) hackers had been consistently hacking into Nortel’s system to steal its secrets. Nortel filed for bankruptcy in 2009. Huawei was able to hire all of Nortel’s top five 5G experts and make them work for Huawei.

2. Operations in Canada: Huawei maintains a tight central control over its financial operations. It is the Chinese Headquarters in Shenzhen that makes the calls on major financial decisions for its overseas branches. The Shenzhen Headquarters must review all overseas branches’ pricing of equipment proposals and solutions. The Shenzhen headquarters has over 10,000 staff member managing its financial operations globally.

3. Discrimination on “Chinese Faces”: A former Huawei employee said that Huawei Canada has been discriminating against employees because of their race and age. This was the company’s culture in China.

Huawei’s CFO Meng Wanzhou visited Huawei Canada in Toronto in 2016. She was reported to be unhappy when she saw so many “Chinese faces” in the office there.

A former employee said, “(Huawei) prefers non-Chinese people for non-technical positions, such as the public relations positions,” so that the company can appear more “Westernized.”

A former Huawei employee recalled that a high-ranking executive did not like the high labor cost and said that he expected the salary of employees of Chinese origin to be much lower.

4. Discrimination on age: A high-ranking executive sent from China to Huawei Canada in 2016 launched a policy to “make employees younger.” Meng Wanzhou further strengthened this policy.

Chinese media have widely reported Huawei’s “age of 35” policy: If an employee reaches the age of 35 and has not become a manager, Huawei puts that person in a human resource database at the Headquarters in China; if no department wants the person, Huawei will let that person go.

“We often heard that so and so was fired for age,” a former employee said, “Though there is no written evidence, people have been discussing it.”

Another employee who was diagnosed with cancer and took sick leave was let go due to her age. Another employee, in her 50s, was let go too, despite the fact that she maintained a high performance rating. She complained to Huawei management that their action was age discrimination. Huawei denied discrimination but increased her severance pay. She protested again. Huawei increased severance pay again, but still didn’t offer to bring her back. She is considering taking legal action.

5. Communist Study: About 10 percent of the people at Huawei Canada’s Headquarters are from the Shenzhen Headquarters. They must participate in the CCP study every Saturday morning.

6. “Wolf Culture”: All employees, including those hired in Canada or sent from China, must follow the “wolf culture” that Huawei’s Founder Ren Zhenfei has promoted: employees must have the hungry wolf’s nature of being fearless and blood-loving, and must keep fighting in a tough team environment. “There are instructions (about ‘wolf culture’) on Huawei’s internal site for everyone to read and follow. Their idea is that, no matter what, you must fight for success, even if it means to step on your fellow coworkers. They asked us to read the ‘wolf culture’ articles and write learning reports to send to China’s Headquarters.”

“Employees work an average of 10 hours a day. It is normal for people to resume work after dinner. There is no overtime pay. Occasionally you hear a story that someone complained about it and was then fired. The company didn’t give a reason for the firing, but everyone knew why.”

If Huawei wants to fire someone, it creates a tough situation at work for that person, for example, increasing his workload and giving him a low rating, to force that person to leave.

Source: Epoch Times, December 7, 2019
http://www.epochtimes.com/gb/19/12/7/n11707767.htm

Chinese Household Debt Exceeds 60 Percent of GDP

Last week, the People’s Bank of China released data showing that, by the end of last year, China’s household debt accounted for more than 60 percent of GDP. Real estate mortgages accounted for 47 percent of household income, a year-on-year increase of 3.7 percent. Fitch Ratings estimates that the outstanding balance of credit card receivables reached 7.23 trillion yuan (US $1.03 trillion) in the first half of this year.

A Hong Kong based commentator Johnny Y.S. Lau told Radio Free Asia that, in recent years, the government has been encouraging people to invest in real estate. With the soaring housing prices, there has been an oversupply of real estate in many cities. As the US-China trade war continues to slow the economy, the property market and economy may face a crash at any time. Lau said, “In the past, 40 percent (of people’s income) was in bank savings. Now, a lot of money is invested in real estate. With the US-China trade war causing exports to stagnate, cash flow may become a problem, which makes the risk of a crash increasingly apparent. As the second and third tier cities have absorbed a large number of those in the rural populations, the housing prices have been pushed even higher. Now it depends on whether the people’s savings can keep up and on how the authorities regulate property prices.”

At the same time, China’s domestic consumption has weakened compared to previous years. In October of this year, retail sales increased by 7.2 percent year-on-year, the lowest growth in nearly 16 years. Weak consumer confidence has also led to a 10-month consecutive decline in car sales, down to a negative 4 percent growth in October.

Source: Radio Free Asia, December 5, 2019
https://www.rfa.org/mandarin/yataibaodao/jingmao/gf2-12052019085502.html

Deutsche Welle: The World Bank Terminated Its Controversial Loan to Xinjiang

Deutsche Welle reported that, on November 11, 2019, the World Bank decided to terminate its loan program and financial support to Xinjiang vocational schools amid questions of whether Beijing used the money to repress Uyghurs in Xinjiang.

The World Bank provided a US $50 million loan to the “Xinjiang Technical and Vocational Education and Training Project” in 2015.

In July, a World Bank employee wrote a lengthy email to an executive director on the bank’s board detailing concerns about the Xinjiang program. The employee listed numerous issues perceived as red flags and suggested that the program should be referred to an internal inspection committee for investigation to ensure that World Bank rules were being followed.

For example, according to a tender dated November 2018, Yarkand Technical School, which is managed by another school as part of the World Bank program, spent about $30,000 purchasing 30 tear gas launchers, 100 anti-riot batons, 400 sets of camouflage clothing, 100 sets of “stab-resistant clothing,” 60 pairs of “stab-resistant gloves,” 45 helmets, 12 metal detectors, 10 police batons, and barbed wire. It is not clear if this money came directly from the World Bank loan, or from other funding sources, but it points to a worrying cross-over between the camps and legitimate schools.

The employee’s concerns went unheeded.

On August 23, the U.S. Congressional Executive Commission on China issued a letter to World Bank President David Malpass expressing its concern.

On November 11, 2019, the World Bank decided to terminate the loan program. However, human rights organizations and experts were not satisfied since the World Bank didn’t release a thorough investigate result about how the money was used.

Source: Deutsche Welle, November 12, 2019
https://www.dw.com/zh/世银终止资助新疆职业学校-专家批治标不治本/a-51207170

Chinese Economist Predicted Lower Growth. Then His Speech Was Deleted

The chief economist of China’s Essence Securities, Gao Shanwen, delivered a speech at an internal annual strategy meeting on Wednesday (November 27). Gao predicted that China’s economic slowdown will last several years and that the average annual economic growth between 2020 and 2030 will stay below five percent. Gao was even concerned about whether GDP (gross domestic product) would grow above four percent. He expressed the belief that there are two contributing factors. The first  is the impact of the trade war. The second is the stagnation of China’s economic reform as featured by the phenomenon of the “advancement of the state enterprises and the retreat of the private sector.”

Gao added that the government has used strong counter-cyclical measures to prevent the economic downturn. These have barely supported the growth rate at about six percent. However, the stimulus policies are less and less effective. With a weak domestic market, the economy of 2020 doesn’t look good. Although his speech was widely circulated on the Internet, within one day, the content had been completely deleted.

Gao is a well-known economist in China, whose remarks attracted the attention of the Chinese institutional investors and the financial media. In 2016, Gao attended the Economic Situation and Entrepreneurs Forum that Chinese Premier Li Keqiang hosted. Earlier this year, Li Keqiang stated that the target for GDP growth this year was set at 6 percent to 6.5 percent.

Source: Radio Free Asia, December 4, 2019
https://www.rfa.org/cantonese/news/economy-12042019061940.html

Lianhe Zaobao: Chinese Industrial Companies Saw Sharp Profit Decline in October

Singapore’s primary Chinese language newspaper Lianhe Zaobao recently reported that, based on the data that the Chinese National Bureau of Statistics just released, China’s large-scale (officially classified as “Above Designated Size”) industrial companies’ total profits declined by 9.9 percent, year-over-year. The scale of the decline expanded by 4.6 percent from September’s total. The same number for the period of January to October declined by 2.9 percent, year-over-year. For the first ten month of the year, the profit of the private sector companies and the small-sized companies maintained a stable growth. However, experts expressed the belief that international demand may pick up in the near future.

Source: Lianhe Zaobao, November 27, 2019
https://www.zaobao.com.sg/realtime/china/story20191127-1008692