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Reuters blog archive
from Breakingviews:
CDB highlights China’s dysfunctional finance
By John Foley
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
China Development Bank is on a roll. The policy lender raised 1.2 trillion yuan ($193 billion) in net domestic funds in 2012, according to Reuters data. The proceeds funded high-profile foreign takeovers, allowed U.S.-listed Chinese companies to go private, and helped Indian billionaire Anil Ambani refinance bonds. Such activities have less to do with development than with China’s financial dysfunction.
Unlike other big banks, CDB’s funding comes not from deposits but bonds that China’s big lenders have an unofficial mandate to buy. Because their loans are capped, most banks have abundant excess deposits that need to be parked somewhere. CDB’s one-year bonds yield around 50 basis points more than one-year deposits, so banks make money on the trade. CDB also has tremendous influence – chairman Chen Yuan is the son of a revolutionary war hero.
With steady funding and good connections, CDB has effectively grown into two banks. The bulk of its $888 billion loan book funds projects that promote China’s development, often using a kind of vendor financing to help Chinese companies sell products and services overseas, from Ghana to Uzbekistan. That helps China keep employment up, and subsidise favoured industries.
from Global Investing:
Weekly Radar: From fiscal cliff to fiscal tiff…
The new year starts with a markets 'whoosh', thanks to some form of detente in DC -- though this one was already motoring in 2012. The New Year’s Eve rally was the biggest final day gain in the S&P500 since 1974, for what it's worth. And for investment almanac obsessives, Wednesday's 2%+ gains are a good start to so-called “five-day-rule”, where net gains in the S&P500 over the first five trading days of the year have led to a positive year for equity year overall on 87 percent of 62 years since 1950.
So do we have a fiscal green light stateside for global investors? Or does it just lead us all to another precipice in two months time? Well, markets seem to have voted loudly for the former so far. And to the extent that at least some bi-partisan progress reduces the risk of policy accident and renewed recession, then that's justified. And Wall St's relief went global and viral, with eurostocks up almost 3% and emerging markets up over 2% on Wednesday. Even the febrile bond markets sat up and took notice, with core US and German yields jumping higher while riskier Italian and Spanish yields skidded to their lowest in several months.
from Stories I’d like to see:
How far can the Chinese firewall stretch?
1. Media tug of war in China:
Last week, my daughter sent me this amazing Bloomberg.com story, accompanied by graphics and clickable family trees, that unraveled how the “princeling” ancestors of China’s “Eight Immortals” – the generals and party leaders who built the communist superpower – now control the country’s leading industrial and financial conglomerates. The New York Times has also been on the case, detailing in articles like this one and this one how those controlling China’s national and regional governments have showered favors on their entrepreneurial relatives.
Then, last Friday the Times added a report describing heightened Internet blocking measures that Chinese authorities are taking to keep these kinds of stories about Chinese crony capitalism and other scandals from being seen online in China. The new efforts to firewall information that would embarrass the ruling class even include trying to block offending content from reaching the virtual private networks (VPNs) used by corporations to ensure the privacy and security of the information their employees transmit around the world.
from Breakingviews:
Calamity likely to be postponed again in 2013
By Edward Hadas
The author is a Reuters Breakingviews columnist. The opinions expressed are his own
The gloom-and-doom brigade has had a second-class crisis. For four years, prognosticators of calamity have eagerly awaited the end. They expected the financial mess and draining recession to become a disaster which would shake the modern global economy to its foundations. It hasn't turned out that way.
from Mark Leonard:
In 2013, the great global unraveling
The disparate prospects of each continent have little in common. To the extent that they can be linked by a single theme in 2013, however, it is the idea of the unraveling of the global economy and the political integration that supported it. After two decades of globalization, this year will see each of the big political theaters re-erecting barriers and focusing more on domestic repairs than on global expansion. The unraveling has its roots in longer-term trends, but it is set to step up in the next year.
There has been a remarkable stabilization within the euro zone since European Central Bank President Mario Draghi’s intervention in the summer of 2012. But even as the euro zone integrates, the politics and economics of the wider European Union are likely to diverge. In practice, the measures toward an integrated banking union, increased parliamentary accountability and more incentives for reform could go hand in hand with the de facto economic and political disintegration of the EU. Economically, as Sebastian Dullien argues in a paper, “Why the euro crisis threatens the EU single market,” there is a significant risk of a gradual unraveling of the EU’s single-market system. A full euro zone breakup would shatter the euro, while a great leap toward political union could see shrinkage of the single market, as countries such as the United Kingdom withdraw from the heart of Europe.
from The Edgy Optimist:
The bright side of the fiscal cliff
As 2012 sputters to a close, it wraps up with a yawning gap between widespread economic pessimism and the actual state of economic affairs.
Though consumer sentiment rebounded in the fall, it fell in December, amid relentless coverage of the impending fiscal cliff. Holiday spending was muted. Businesses, meanwhile, cite the unresolved negotiations in Washington as evidence of continued uncertainty and many have put new spending, hiring or investment on hold. The media counts the days (and on some cable news channels, the minutes and the seconds) till we descend the fiscal cliff – adding to the general agitation.
from Breakingviews:
Review: China’s red capitalism needs retooling
By Wei Gu
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
China’s authoritarian capitalism may be a victim of its own success. It is getting harder to satisfy a population that is devoid of ideology and which demands non-stop lifestyle improvements. Powerful state-owned companies are consuming the fruits of reform. Moreover, the system’s lack of checks and balances has led to widespread corruption. For China to thrive, it needs change its one-of-a-kind development model. That is the persuasive argument made by journalist-turned businessman James McGregor in his new book, “No Ancient Wisdom, No Followers”.
from Breakingviews:
China’s hukou belongs on history’s scrapheap
By John Foley
The author is a Reuters Breakingviews columnist. The opinions expressed are his own
China's future lies in building bigger, better cities - then giving everyone a fair chance to live in them. For over 50 years the "hukou" system of household registration has prevented free movement, and controlled where and how people live. This inhumane system is changing, but too slowly. It belongs on history's scrapheap.
from Breakingviews:
Weibo should tap the financial network in 2013
By John Foley
The author is a Reuters Breakingviews columnist. The opinions expressed are his own
Weibo is changing Chinese society, but can it change investors' minds? The rambunctious social media site, where over 400 million of the country's web users post, follow, share and criticise, could be worth multiples of what the market currently suggests. A partial spin off in 2013 could be a good way to unlock Weibo's charms.
from Ian Bremmer:
The three 2012 themes that matter most
2012 - the year of the primary, the election, the Diamond Jubilee, the superstorm, the flying dictator, the escaped dissident, the embassy attack, the empty chair, the tech protest, the Olympics, and dozens of other stories already forgotten. It was a busy year and a terribly volatile one, too. Which of these stories will actually matter five years from now? By my count, three:
1) China rising
2) The Middle East in turmoil
3) Europe muddling along
They’re the good, the bad, and the ugly of 2012.
The Good: For the sake of our listless global economy, thank goodness for China’s rise. The country’s Commerce Minister is promising that China will hit its GDP growth target of 7.5 percent for the year. (In the first three quarters of 2012, it grew 7.7 percent.) China’s ability to power through the financial crisis provided global markets with much-needed energy, and its momentum, despite the crisis in the Eurozone, a key trade partner, has helped limit the damage. If it wasn’t for the resilience of the world’s second-largest economy, we’d all be a lot worse off.
