Opinion

The Great Debate

China’s bailout of Taiwan is good for the region

wei-gu.jpg– Wei Gu is a Reuters columnist. The opinions expressed are her own —

If market performance is anything to go by, Taiwan is the biggest beneficiary of China’s economic stimulus.

Because of Taiwan’s heavy dependence on exports to Western consumers, it was assumed there was little Beijing could do about its downturn. But Beijing has gone out of its way to take care of the recession-hit island. This year, it sent several procurement missions to Taiwan to buy billions of dollars of goods, even though Taiwan’s trade surplus with China is already approaching as much as a fifth of its economy.

China might be pursuing its unification agenda. After all, it has vowed to bring the island under its rule, by force if necessary. But money is a lot better than missiles. The whole point of inter-dependency is that there will be less chance of confrontation. Taiwan could use more investment, particularly in properties and infrastructure, while China is looking for new areas in which to invest its excess liquidity.

In the short run, increased purchases from Taiwan may come at Korea and Japan’s expense. For example, computer maker Lenovo <0992.HK> is increasing its orders from Taiwan companies, probably also because Taiwanese firms are happy to stay as contract manufacturers.

Market plunge makes Beijing’s exit harder

wei-gu.jpg– Wei Gu is a Reuters columnist. The opinions expressed are her own —

The Chinese leaders have a dream. The banks pump trillions of yuan into the market, which props up asset prices, creates new demand, and gets the economic engine roaring again. Then, just before inflation starts to surge, the money is drained out of the system.

Others, from U.S. Federal Reserve Chairman Ben Bernanke to Bank of England Governor Mervyn King, share the dream but the Chinese economy, still largely driven by the state, should make it easier to realise. Unfortunately, investors in Shanghai’s stock market have their own ideas — the mere suggestion of credit tightening caused the index to plunge 20 percent in just two weeks to Wednesday’s close before bouncing slightly.

China cuts Treasury holding to fund foreign deals

wei-gu.jpg– Wei Gu is a Reuters columnist. The opinions expressed are her own —

Please don’t call it a liquidity crunch, but it rather looks as though China might have had to sell a sliver of its vast hoard of U.S. Treasury paper to fund its private sector’s big overseas foray.

China’s holding passed $800 billion in May, sparking speculation that it could reach $1 trillion within a year, but the net June figure, published on Monday, showed a 3.1 percent drop to $776.4 billion, the biggest percentage fall in nearly nine years.

China’s banks, running hard to stand still

wei-gu.jpg– Wei Gu is a Reuters columnist. The opinions expressed are her own —

Chinese banks are like enthusiastic runners on an accelerating treadmill. The weakening economy means poor lending decisions are threatening to catch up with them, but the banks are sprinting ahead by expanding their loan books ever faster. They cannot keep this up for ever.

For now things still look fine. China Banking Regulatory Commission (CBRC) this week claimed that Chinese banks were managing credit risk sagely, pointing to record low non-performing loan ratios. Given the massive increase in the number of loans outstanding — up 24 percent since the start of the year — it’s not surprising that the proportion of them that are non-performing at large commercial banks, which accounts for 60 percent of the lending, has declined from 2.4 percent to 1.8 percent in the past six months.

Rebalance China’s two financing legs

Wei Gu– Wei Gu is a Reuters columnist. The opinions expressed are her own —

Chairman Mao believed the economy needs to run on two legs, but when it comes to corporate financing, China is advancing in a series of giant hops. Its banks are flooding the market with credit, while equity markets actually supply less capital as a proportion of the whole.

Chinese banks lent out a whopping 7 trillion yuan ($1 trillion) during the first half of this year, tripling the amount during the same period last year. In comparison, new capital raised through the stock market was merely 10 million yuan ($1.46 million), down 50 percent from last year.

Bet on small firms to lead China global foray

Wei Gu–Wei Gu is a Reuters columnist. The opinions expressed are her own–

Chairman Mao used to say the truth is always kept by the minority.

A little-known private Chinese machinery company’s bid for a GM marque has been sneered at by even the patriotic Chinese media, but the deal could succeed where mightier plays like Chinalco’s for Rio Tinto have failed.

True that private sector firms face an uphill battle in China against more dominant state-backed firms, but it seems like double standards when Western observers, who extol the virtues of the private sector taking the driver’s seat, praise Chinalco’s deal but dismiss Tengzhong’s bid for Hummer.

Chinese media’s disapproval of Sichuan Tengzhong Heavy Industrial Machinery’s move has tempered concerns about technology and job transfers to China, as well as questions whether China’s military was behind the bid.

China’s U.S. debt overhang needs Chinese cure

Wei Gu — Wei Gu is a Reuters columnist. The opinions expressed are her own. —

When U.S. Treasury Secretary Timothy Geithner told students at Peking University that China’s holdings of U.S. Treasury bonds were safe, his answer drew loud laughter from the audience.

Even economist and columnist Paul Krugman, who is often critical of U.S. economic policy, found himself defending America when he was repeatedly asked the same questions in China recently: Will you (U.S.) underwrite the value of China’s holdings of U.S. government debt? Will you be prepared to pay a much higher rate of interest against the risk of high inflation and dollar depreciation?

Time for China to act on foreign listings

wei_gu_debate– Wei Gu is a Reuters columnist. The opinions expressed are her own –

China has talked about plans to allow foreign companies to float on its domestic stock markets for at least a decade, but that’s all there has been: talk.

Now would be a good time to convert some of that talk into action. Beijing has been struggling with its own investment strategies: the state gets feeble returns on the U.S. Treasury bonds it owns, and its equity stakes in foreign financial firms are well under water.

Economic stimulus Beijing-style: I treat, you pay

wei_gu_debate– Wei Gu is a Reuters columnist. The opinions expressed are her own. –

Beijing may criticize American consumers for spending money they do not have, but the truth is Chinese leaders do the same, they just make sure it doesn’t end up on their account.

In its $585 billion economic stimulus package, the central government is contributing just a quarter of the funds needed, leaving the rest of the tab to banks, local governments and the private sector.

China Inc. takes stock after overseas buying spree

wei_gu_debate– Wei Gu is a Reuters columnist. The opinions expressed are her own –

Abundant liquidity, government support and a strong yuan fueled Chinese companies’ overseas buying spree.

But since they went out at the peak of the market and did not have a clear strategy for acquisitions, it should come as no surprise that most of those deals have turned sour. Once bitten, twice shy.

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