John's Feed
Oct 8, 2012
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China’s telco suppliers can’t escape spying row

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By John Foley
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Earning the trust of Americans is proving a Sisyphean task for Huawei. The Chinese telecom supplier has consistently fought reports of too-close ties to the People’s Liberation Army and undue influence from Beijing. Now a panel of U.S. congressmen has publicly labelled the employee-owned group and its rival ZTE a security threat. True or not, the accusation is a serious blow.

Sep 28, 2012
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What’s the best gauge of China’s growth? You pick.

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What’s really going on in China’s economy? It depends where you look. Numbers abound, but good explanations are scarce. Take the country’s Gross Domestic Product: it showed year-on-year growth of 7.6 percent in the second quarter of 2012, a whisker above the official goal. Yet vice premier Li Keqiang famously referred to GDP as “man-made” and therefore unreliable, according to a cable published by Wikileaks. Many academics and economists agree.

To get a different perspective, Breakingviews has picked ten alternative indicators. Some, like bank lending and residential property, measure finance and investment. Steel output, rail freight and truck sales offer a gauge of industrial activity. Others are more subjective, like the quality of Beijing’s air, the share-price performance of Kweichow Moutai, a brewer of high-end liquor, and sales of Audis, the car beloved of Chinese officials. An increase in the last three suggests growth, but maybe not the right kind.

Sep 19, 2012
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Consumer boycotts won’t decide Sino-Japan fight

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By John Foley

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Are consumers China’s secret weapon? Not when it comes to winning its ongoing spat with Japan. Even if some Chinese shoppers are giving Uniqlo and Toyota a miss, history shows that consumer boycotts have at best a short-lived effect. Economic warfare looks reassuringly hard to wage.

Sep 13, 2012
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China’s big fiscal guns best left in the holster

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By John Foley

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

China’s fiscal guns are ready to fire. Premier Wen Jiabao reminded the world this week that government debt is low, and the country has scope to spend its way back to rapid growth. Investors believe it will: Shanghai’s stock market closed up on Sept.10, even as China showed August exports barely grew year on year.

Sep 12, 2012
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China’s absent princeling is a mystery not a crisis

By John Foley

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

China’s growth is slowing, and president-in-waiting Xi Jinping hasn’t been seen in public for two weeks. China-watchers are discussing little else. The former issue matters greatly to the world, while the latter is fascinating, but basically unimportant.

Sep 10, 2012
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China’s unbalanced path is still the right one

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By John Foley

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

So much for China’s rebalancing. President Hu Jintao has extolled the merits of infrastructure investment at an Asia-Pacific summit, even as the government approved some 1 trillion yuan of local projects, from subways to sewers. The goal of consumption rather than investment driving economic expansion has been put on hold. For now, that’s as it should be.

Sep 6, 2012
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China’s “guanxi” system may cost Wall Street dear

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By John Foley
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Do a favor, get a favor. That’s how China works, and banking is no different. In keeping with the country’s “guanxi” system of personal relations, Citi, UBS and Goldman Sachs all helped out troubled financial firms in the past and received privileges for it later. Rivals have not been so fortunate, however. And there’s the risk that one favor leads to demands for more.

Sep 6, 2012
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China’s “guanxi” system may cost Wall Street dear

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By John Foley

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Do a favour, get a favour. That’s how China works, and banking is no different. In keeping with the country’s “guanxi” system of personal relations, Citi, UBS and Goldman Sachs all helped out troubled financial firms in the past and received privileges for it later. Rivals have not been so fortunate, however. And there’s the risk that one favour leads to demands for more. Citi won goodwill by restructuring troubled Guangdong Development Bank in 2006. In return for such support, it now has 51 branches on the mainland – more than any other U.S. lender. Last month, it became the first global bank to issue its own credit cards in China. Goldman Sachs and UBS have also benefited. Goldman acquired the licenses of failed Hainan Securities in 2004, and was allowed to establish its own brokerage in a structure no competitor has since been allowed to mimic. UBS helped reform Beijing Securities, and got to take a direct stake in the brokerage – a format that also remains uncopied. There are other ways to earn guanxi. Lending banks like Standard Chartered and HSBC have grown in China thanks in part to concessions like running rural banking schemes, or opening branches in economically less attractive locations. HSBC, Goldman and UBS all bought stakes in Chinese banks and helped to transfer skills and technology. The system doesn’t always work smoothly. Nomura accepted Chinese trainees as far back as the 1980s, but is one of the few banks still without a mainland joint venture to issue domestic equities. HSBC recently bought shares in a private placement by partner Bank of Communications, just two years after pumping almost $1 billion in through a rights issue, yet a three-year old credit card venture between the two remains unapproved. Guanxi-based market access can also store up future problems. China’s lenders have doubled their loan books since 2009, and there are signs that overdue loans are now mounting. If small banks get into trouble again, Western banks that were helpful in the past may face demands for a new round of favours.

Aug 13, 2012
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Besieged StanChart needs governance booster

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By John Foley

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Standard Chartered needs a governance booster. The UK-based bank is under attack from a New York financial regulator over trades for Iranian clients that could see the bank landed with a huge fine, or worse. A stronger board wouldn’t have prevented the assault, but it might help the bank recover more quickly.

Aug 10, 2012
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Public investors lose in Mongol mining battle

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By John Foley

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Mongolia’s treatment of the Chinese bid for coal-producer SouthGobi shows that the state which birthed Genghis Khan has lost none of its warlike spirit. Politicians seem determined to spike an offer from China’s state-owned Aluminium Corp of China (Chalco), which also involves mega-miner Rio Tinto and China’s sovereign wealth fund. A truce is possible, but public investors look likely to lose out.