Reuters Investigates

Intrigue in China’s U.S. Treasury buying

A Reuters exclusive today describes a method China used recently to hide some of its U.S. Treasury purchases – “US caught China buying more Treasuries than disclosed.”

Treasury officials said they were simply modernizing outdated procedures two years ago when they revamped the rules for participating in government bond auctions.

The real reason for the change, a Reuters investigation has found, was more serious: The Treasury concluded that China was buying much more in U.S. debt than was being disclosed, potentially in violation of auction rules, and it wanted to bring those purchases into the open – all without ruffling feathers in Beijing.

Stephen Culp, Reuters graphics editor, came up with a handy visual explanation for the practice that allowed China to mask billions of dollars worth of U.S. debt purchases at auctions. China placed its bids informally through primary dealers, who then placed their bids at Treasury auctions without naming China as a customer. The Treasury outlawed the practice in June, 2009, but kept the reason for the rule-change under wraps.

Read the story in PDF format here.

Do you want the NSA to be the cyber-police?

Today’s special report looks at what the U.S. government is and is not doing to fight cyber attacks. Read it in multimedia PDF format here.

It seems every day brings news of another data breach, from defense firms to banks and even the U.S. Senate.

Among the questions raised in the report is about the role of the National Security Agency, the Pentagon’s top secret intelligence outfit.

A central conundrum is that the Pentagon’s National Security Agency, which specializes in electronic eavesdropping, has personnel with the best cyber skills, but has been until recently mostly shut out of protecting domestic networks. That’s due to the highly classified nature of the NSA’s work, and fears that it will stray into domestic spying.

Another complicating factor: the 1878 Posse Comitatus Act, which generally bars federal military personnel from acting in a law-enforcement capacity within the United States, except where expressly authorized by Congress.

“NSA has a long history in cyber security, on both the offensive and the defensive sides. It has great resources and expertise. But it makes privacy advocates nervous,” said Stewart Baker, a former DHS official now at the law firm Steptoe and Johnson LLP.

Should the NSA take the lead? What about the privacy of American citizens? Tell us what you think.

With Chinese small caps, it’s buyer beware

Today’s special report “Chinese stock scams are the latest U.S. import” shows again that when it comes to a bargain, it’s buyer beware. In this case, when a small-cap Chinese stock seems to promise outlandish growth, it might be worth finding out more before you buy.

Some of the questionable companies made their way onto U.S. exchanges via reverse mergers — a private company buys enough shares of a public firm to essentially become publicly traded.

NYSE and Nasdaq have delisted several companies and have a veritable “skid row” of more than a dozen firms that have been halted for weeks or months pending requests for information about accounting problems and late regulatory filings. (For an up-to-date list, see: http://www.nasdaqtrader.com/Trader.aspx?id=Tradehalts)

Of the more than 600 companies that obtained entry to U.S. exchanges via reverse mergers between January 2007 and March 2010, a total of 159 were from the China region, according to the Public Company Accounting Oversight Board (PCAOB). While many are legitimate, some turn out to be outright pump-and-dump schemes and other scams.

To read the story in PDF format, click here.

Here’s what happened to the share price of one company in the story:

The big chill in U.S.-China M+A

Today’s special report looks at U.S.-China M&A activity – or rather the lack of it. Drawing on previously unpublished State Department cables, the report examines how the failed Unocal bid and other high profile aborted transactions made it difficult for companies in China and the United States to do deals with one another.

Last year, U.S. companies in China struck dozens of small deals but they were collectively worth just $3.2 billion, while Chinese companies spent only $3 billion on U.S. acquisitions, Thomson Reuters data shows. That is a remarkably trivial amount given the two nation’s deepening economic relations: China is one of America’s top creditors and the U.S. is by far China’s largest export market. 

Last week, China’s biggest metals trading firm, Minmetals Resources, said it had offered more than all those deals put together — $6.5 billion — to buy one company, but it wasn’t American. It was the Sydney and Toronto-listed African copper producer Equinox Minerals.

See the special report “The U.S. and China start an M&A Cold War” in multimedia PDF format here.

This graphic tells the story:

from MediaFile:

Tencent, De Wolfe among interested buyers for Myspace

De Wolfe and Murdoch in happier times (Photo: Reuters)

Chinese Internet holding company Tencent, Myspace founder Chris De Wolfe and Myspace's current management team are among the 20 odd names kicking the tires at the once might social network to see whether it's worth buying outright or partnering in some sort of spin-out with current owner News Corp.

Tencent has previously said it is interested in possible US acquisitions.

The names come up in Reuters' Special Report on 'How News Corp got lost in Myspace',  a behind the scenes tale on how the focused Facebook beat the partying Myspace. (We have the story in a handy PDF format here)

In the story, we highlight some of the key problems Myspace faced,  some well-known and some not often mentioned:

- It was built on a poor technology base which couldn't keep up with the fast-evolving Web 2.0 environment

The Macau Connection

We teamed up with Matt Isaacs and the Investigative Reporting Program at U.C. Berkeley for a special report last week on the murky world of Macau casinos.

“The Macau Connection” focused on Las Vegas Sands, which is being sued by the former CEO of its China division.

The sums involved are huge — more money is made in Macau than in Las Vegas and Atlantic City combined.

To read the special report in multimedia PDF format, click here.

Have you driven an F3 lately?

By Ben Berkowitz

Diplomats, consultants and analysts have plenty of questions about Chinese car maker BYD and its growth tactics, but there’s one thing no one can question: BYD shares have made a lot of people a lot of money in recent years.

Since Warren Buffett invested in the company at the depths of the financial crisis in September 2008, BYD shares are up nearly 300 percent. (And that’s after a sharp decline over the last 16 months, as the company delayed its American debut and experienced sliding sales domestically). Compare that with Ford, up about 170 percent over the same period – and Toyota, which has lost more than a fifth of its value. At one point, BYD shares were so strong that its chairman, Wang Chuanfu, was China’s richest man.

See our special report “Warren Buffett’s China car deal could backfire” for more on BYD, or read it in multimedia PDF format here.

China’s U.S. debt holdings make it a powerful negotiator

Worrying about the power China has over the U.S. as America’s largest foreign creditor has become a national pastime. It’s a bipartisan issue in Congress and a favorite subject among pundits lamenting the decline in U.S. influence around the world. But could China really use its Treasury purchases to shape U.S. policy? Diplomatic cables released by WikiLeaks and obtained by Reuters suggest that has already happened.

Emily Flitter’s special report outlines a diplomatic flare-up between the two superpowers following the U.S. financial crisis. Chinese officials said they were worried about the safety of their U.S. investments. U.S. diplomats worked hard to ease the tensions, but the conflict ultimately led to the request of a personal favor by a top Chinese money manager in a meeting with U.S. Treasury Secretary Timothy Geithner.

Vietnam’s Capitalist Roaders

A woman dressed in the traditional Vietnamese “ao dai”costume serves tea to Prime Minister Nguyen Tan Dung (front R) during the opening ceremony of the 11th Party Congress in Hanoi January 12, 2011

Vietnam’s ruling communists  opened an eight-day party congress on Wednesday with a candid  admission the fast-growing economy had become unstable, as  delegates began the process of reshuffling leaders and  charting new policies.     As leaders sang the national anthem to begin the  five-yearly event, streets in the chilly capital Hanoi were  festooned with red and yellow banners, some bearing the iconic  hammer and sickle. Propaganda posters bore the smiling  likeness of revolutionary leader Ho Chi Minh or of proud,  uniformed workers.     The economic backdrop is less festive. Inflation surged to  a 22-month high in December, the government is struggling to  bring down a hefty fiscal deficit, the currency has been  depreciating for three years and the trade deficit remains  stubbornly high.  

A Reuters Special Report takes a close look at Vietnam’s new breed of captitalists, as the country of 90 million takes a page out of China’s Communist Party playbook and promotes a more consumption-led economy. This is a development path divergent from that of its East Asian neighbours, whose economies became Tigers or Dragons (as the case may be) on the back of exports not consumers.

In contrast to most emerging markets, Vietnam has been a sell — up until recently, anyway. The Vietnam stock index is down 59 percent from its March 2007 peak and lost more than 3 percent last year, compared to gains of more than 40 percent in Thailand and Indonesia.

But the situation could reverse this year. The lone ETF tracking the country, Market Vectors Vietnam, has gained 10 percent over the past three months, handily outpacing the iShares NSCI Emerging Markets Index Fund.  

Solar energy vs wildlife

Sarah McBride reports on brewing battles between environmentalists in her special report: “With solar power, it’s Green vs. Green.”

It turns out the perfect place to build a big solar plant is often also the perfect place for a tortoise or a fox to live. This means developers of large-scale solar plants are running into legal challenges from people who one would expect to be natural allies of alternative energy providers.

Here’s a map of some of the more contentious projects.

One local resident of the Panoche Valley, Sallie Calhoun, had this to say:

“I am passionate about preserving open space,” she says, adding she believes the solar plant achieves that goal. “The idea that we’re going to protect every lizard, every drainage, seems counterproductive.”