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Crafty_Dog

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Re: China, Xi Jinping vs Jack Ma, Financial Times
« Reply #754 on: January 13, 2021, 05:44:21 AM »
What is the role of private commerce and investment in a totalitarian country, when THIS happens?

https://www.ft.com/content/751c2500-f50d-47c9-8f04-a28ad62285fd?63bac0e6-3d28-36b1-7417-423982f60790

Financial Times

Jack Ma vs Xi Jinping: the future of private business in China
The crackdown on Alibaba and Ant Group amounts to an unprecedented squeeze on a ubiquitous ecommerce empire
© FT montage; AFP/Getty Images | Jack Ma has not been seen in public since October

Four years ago, when Ant Group’s premier money market fund was racing to a peak of more than $260bn worth of assets under management, many of China’s state-owned banks and their regulators started to get agitated. In a series of calls and meetings with Jack Ma, Ant’s founder, bank executives and regulatory officials demanded that its Yu’E Bao fund be reined in.

“Yu’E Bao was pulling a lot of money from the banks,” says one person familiar with the discussions. “The banks were worried about the impact on liquidity and wanted Ant to take measures to minimise the impact. The conversations were pretty tense.”

In the end, Mr Ma had to back down and Yu’E Bao imposed caps on how much people could deposit. Between March and December of 2018, its funds under management fell by a third to $168bn and stood at $183bn last September.

The showdown would prove to be a prelude to the much bigger confrontation that now pits the Chinese Communist party and President Xi Jinping against not just Ant but also Alibaba, the ecommerce group founded by Mr Ma.

The stand-off, which has sparked rampant speculation about Mr Ma’s whereabouts, could become a defining moment for the future of private business in Mr Xi’s China.

On December 24, China’s market regulator announced it was launching an antitrust probe into Alibaba and sent investigators to its headquarters in the eastern Chinese city of Hangzhou, Mr Ma’s hometown. The announcement came just two weeks after the party’s politburo said it would target monopoly businesses to prevent the “disorderly expansion of capital”.

Jack Ma holds the gavel at the New York Stock Exchange in 2014. Mr Ma has not been seen in public since October last year © New York Times/Redux/eyevine

The move on Alibaba also came two months after financial regulators dramatically cancelled Ant’s planned $37bn initial public offering, which would have been the world’s largest.

Taken together, the measures amount to an unprecedented squeeze on a business empire whose ubiquitous services are central to the functioning of China’s pioneering online economy. Ant says Alipay, its payment app, is regularly used by 700m people — half of China’s total population — and 80m merchants, processing payments worth Rmb118tn ($18.2tn) in the group’s last financial year.

Alibaba’s shares have fallen by almost 30 per cent since the regulatory showdown began in late October, putting a big dent in the net worth of Mr Ma, who has not been seen in public since then. Over the same period his fortune has declined from $62bn to $49bn, according to Bloomberg data. The Hurun China Rich List estimated that Mr Ma had been the country’s richest man as recently as October 20 but would now rank fourth, his top slot taken by a bottled water tycoon, Zhong Shanshan.

The results of the showdown will say a lot about the sort of economy that China is developing. If Ant and Alibaba are crippled by regulators — or its founder is personally targeted by investigators — it will go down as a landmark moment in the party’s fickle relationship with China’s private sector even though Mr Ma is, ironically, a party member himself.

Since Deng Xiaoping launched the “reform and opening” era 40 years ago, the party has become ever more dependent on private sector companies for economic growth, job creation and tax revenues. But the party’s fixation with control, especially since Mr Xi came to power almost a decade ago, also triggers periodic crackdowns on the sector and prominent entrepreneurs.

Yet there is another potential outcome that would indicate a less fraught relationship between the party-state and business. The investigations into Ant and Alibaba could lead to the sort of settlements that are not dissimilar to those pursued in the US and EU against large finance and technology groups. That would leave Mr Ma’s two flagship companies humbled but still formidable and highly profitable national champions. Even then, a strong political message would have been sent.

“Chinese internet magnates can still enjoy thriving businesses and enormous fortunes if they are able to convince the top leadership of their loyalty,” says Chen Long at Plenum, a Beijing-based consultancy. “The top leadership wants to ensure that neither Ma nor anyone else ever crosses the red line of trying to exert personal influence over government policies again — at least not publicly. The government will support them on the condition that they serve the national interest first.”

Fintech revolution
Mr Ma has not appeared in public since October 24, when he gave a high-profile speech critical of the same state-owned banks he clashed with over Yu’E Bao’s rapid growth, as well as regulators who he said often sacrifice innovation on the altar of stability. According to people involved in the listing, the speech angered Mr Xi, who made the final decision to halt the Ant IPO.

A woman views a QR Code at an Ant Group stall in Shanghai. The move against Alibaba came two months after Chinese financial regulators cancelled Ant’s planned $37bn flotation © Feature China/Barcroft Media/Getty

Jack Ma with the winners of his 'Africa’s Business Heroes' TV competition in 2019. The usually high-profile Mr Ma missed the November final of last year's contest © africabusinessheroes.org
“To innovate without taking risks is to strangle innovation,” Mr Ma said. “There is no such thing as riskless innovation in the world. Very often, an attempt to minimise risk to zero is the biggest risk itself.”

He was speaking at the same forum where Wang Qishan, Mr Xi’s powerful vice-president and former anti-corruption tsar, had earlier emphasised the paramount importance of financial system stability. “Efforts should be made to prevent and lower financial risks . . . security always ranks first,” Mr Wang said. “While new financial technologies have improved efficiency and brought convenience, financial risks have been heightened.”

In an unprecedented public rebuke of Ant two months later, on December 26 China’s central bank criticised Ant for being too cavalier about financial risk and taking advantage of regulatory loopholes. But as frustrated as regulators are with Ant, they cannot ignore the beneficial effects of the financial revolution it has led in China.

“Ant Group,” People’s Bank of China vice-governor Pan Gongsheng admitted in his otherwise critical comments, “has played an innovative role in developing financial technology and improving the efficiency and inclusiveness of financial services”. The central bank, he added in a nod to jittery entrepreneurs, was also “unshakeable” in its commitment to “protect property rights and promote entrepreneurship”.

Mr Ma has long enjoyed support from officials in a range of State Council ministries, as well as the lead financial regulators, who appreciate the contributions of Ant, Alibaba and their rivals, all of whom have transformed China’s economy and made its online services sector a global leader. When his status as a party member was first confirmed only two years ago, it was in the context of an award he was receiving from the party’s Central Committee for “making China a leading player in the international ecommerce industry, internet finance and cloud computing”.

Alibaba and Ant’s ecommerce and online payment services were even more critical at the height of China’s successful battle to contain coronavirus, providing essential services to the hundreds of millions of people caught in draconian lockdowns.

“There are different lines of thought within the regulators,” Mr Chen says. “Until Jack Ma’s speech the pro-growth people had the upper hand. But Xi thought the speech was too much and a second [risk-averse] group took the lead. If his speech hadn’t happened, everything would have been fine.”

Disappearing acts are unusual for Mr Ma, who also missed the November finale of his African reality TV show — Africa’s Business Heroes. He routinely gives flamboyant musical performances at Alibaba events and hobnobs with heads of state and government leaders.

People’s Bank of China vice-governor Pan Gongsheng tried to calm jittery entrepreneurs when he said the central bank was 'unshakeable' in its commitment to 'protect property rights and promote entrepreneurship' © VCG/Getty

China's president Xi Jinping with other world leaders at the G20 summit in Hangzhou in 2016. Mr Xi was said to be irked that some guests sought meetings with Jack Ma during the event © Sergei Guneyev/TASS/Getty
As China’s most successful private entrepreneur, Mr Ma enjoys unique status in China — and overseas. His fluent English has made him a huge celebrity on the international conference circuit, with a star quality unmatched by any of his private or state-sector peers.

When Mr Xi hosted the G20 leaders summit in Hangzhou in 2016, some of his guests also visited Mr Ma — something that irked the Chinese president, according to one diplomat involved and other people familiar with the matter. Mr Ma’s VIP callers included Indonesian president Joko Widodo, Canadian prime minister Justin Trudeau and the then Italian premier, Matteo Renzi. Foreign leaders were offered limited time slots and the Chinese foreign ministry was mostly cut out of the process.

Over the past week rumours about Mr Ma’s whereabouts have abounded on China’s carefully monitored social media channels, while domestic media outlets have received strict instructions from censors about the stories they can and cannot run on Ant and Alibaba’s regulatory troubles.

Many of Mr Ma’s friends and colleagues strongly dispute suggestions that he is personally in any sort of legal jeopardy, let alone on the run. “He is in China and not travelling because of Covid, not anything else. He’s lying low,” says one friend of Mr Ma.

Another friend who communicates with Mr Ma regularly adds: “Everyone is asking me if he’s in danger, but he’s doing fine. He responds [to messages and calls] quickly and seems like he’s in good spirits. Discussions with regulators are still very much in process so he just has to stay quiet until they are resolved.”

Leadership missteps
Friends add that while Mr Ma may now regret the consequences of his October 24 speech, he meant what he said and still believes passionately in what he sees as Ant’s mission to transform the provision of financial services in the world’s second-largest economy.

Yu’E Bao, which translates as “account balance treasure”, was started in 2013 and allowed anyone in China, from restaurant staff to the urban yuppies they serve, to deposit as little as Rmb1 ($0.15) in a money-market fund and earn more interest than they could in a Chinese savings deposit account. Just four years later it became the world’s largest money market fund, surpassing JPMorgan’s US government money market fund.

The fund’s success was a dramatic demonstration of Ant’s potential. But it was also a threat to one of China’s most powerful vested interest groups — state banks and the officials who regulate them. The central bank was also concerned. In its annual financial stability report published in late 2018, the PBoC said it would “strengthen regulation of systematically important money market funds”, without mentioning Yu’E Bao by name.

A screen at a shopping event in Hangzhou shows Alibaba's number of delivery orders last year. The company's shares have fallen by almost 30% since the regulatory showdown against it began in late October © Wang Gang/China News Service/Getty
“When a taxi driver can deposit one renminbi in a money-market fund and get interest, that’s a big breakthrough,” says a former Alibaba executive. “Jack feels what Ant is doing is good for society.”

Mr Ma’s companies have rebounded strongly from regulatory disputes before, although Ant and Alibaba never faced scrutiny as intense as they now do. Ant’s run-in with banks and regulators over Yu’E Bao, for example, did little to hinder its overall business or influence.

Ant’s credit business grew so large that it now facilitates about one-tenth of all of China’s non-mortgage consumer loans.

The group also aligned its interests with those of powerful investors. Ant’s first fundraising in 2015 brought in a slew of well-connected shareholders, all of whom were set to be rewarded handsomely in the IPO. The Chinese government’s social security fund and a group of state-owned insurers held stakes in Ant valued at, respectively, Rmb48bn and Rmb45bn at the IPO price.

Shares belonging to an investment vehicle put together by Boyu Capital, whose executives have included the grandson of former Chinese president Jiang Zemin, were valued at Rmb15bn. Even China Central Television, the country’s state broadcaster, held Ant shares worth Rmb3bn.

“Financial regulators have been very concerned about Ant’s growing power and ability to push back against any attempts to bring it under control,” says one Chinese government adviser. “Previous attempts to bring Ant under more control were not really working because it was so big and so powerful. There is now clearly a very dramatic shift.”

Jack Ma in 2018 at a ceremony in Beijing to mark the 40th anniversary of China's opening up. Mr Ma fell foul of the authorities after giving a speech in which he was critical of state-owned banks and regulators in October last year © Mark Schiefelbein/AP
Bill Deng, a former Ant executive and co-founder of XTransfer, a cross-border payments platform, says Mr Ma may have become too confident.

“For a long time, regulators let Ant expand and I think [management] became a bit too complacent,” he says. “If there are hundreds of people praising you, you can get overly optimistic. Financial deleveraging policies have been a trend for several years now and the government is extremely careful when it comes to finance.”

Healthy growth
The cancellation of Ant’s IPO triggered a cascade of official and state media criticism of the fintech group. Regulators have also made clear they want the group to shift many of its businesses — including payments, lending, insurance and wealth management — into a new, more tightly regulated holding vehicle. This will increase Ant’s capital requirements and lower its valuation.

Authorities see the holding company model as a way to rein in large financial conglomerates while increasing their transparency. They also want Ant to share its vast trove of consumer data with the central bank — something it has refused to do before.

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China plots ‘rectification’ drive to bring Jack Ma’s Ant Group to heel
Having to wait for a smaller return than they almost locked in a few months ago will be disappointing for Ant’s investors, but there are worse alternatives. “The Chinese government does not want to kill Ant, but to make sure it grows in a healthy way,” says Mr Deng. “Ant can surpass its current obstacles. If they have patience, they will be able to rise again.”

As for the antitrust investigation into Alibaba, a manageable outcome for the group would include an end to exclusivity arrangements that restrict merchants from selling on rival platforms. Alibaba could also potentially face a large fine — the maximum allowed would be 10 per cent of its previous year’s revenues — if it is deemed to have violated China’s anti-monopoly law.

“Debates about exclusivity have been going on for years, it’s a competitive market,” says the former Alibaba executive. “I don’t think Alibaba is going to get broken up. It’s just that the methods by which they fight for the market are going to be more regulated.”
« Last Edit: January 13, 2021, 06:15:54 AM by DougMacG »



Crafty_Dog

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D1: Chinese Demographics
« Reply #757 on: February 09, 2021, 12:32:18 PM »
China’s population problem. The number of newborns formally registered in China’s household registration system, known as hukou, fell around 15 percent in 2020, from 11.79 million in 2019. The damage to China’s demographic outlook done by tight population controls has been immense – and it may take several generations for the country to recover.

DougMacG

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Re: D1: Chinese Demographics
« Reply #758 on: February 09, 2021, 04:18:54 PM »
China’s population problem. The number of newborns formally registered in China’s household registration system, known as hukou, fell around 15 percent in 2020, from 11.79 million in 2019. The damage to China’s demographic outlook done by tight population controls has been immense – and it may take several generations for the country to recover.

It looks to me like the death rate projections are headed to 20 million per year, nearly twice the birth rate reported above.
https://www.macrotrends.net/countries/CHN/china/death-rate
https://www.worldometers.info/world-population/china-population/

That's plenty of people but countries with aging and declining populations take on demographic problems like finding workers and supporting their retirees. 

G M

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Moutai
« Reply #759 on: February 09, 2021, 10:26:14 PM »
https://video.sina.cn/finance/2021-02-08/detail-ikftssap4844421.d.html?p&p

https://www.zerohedge.com/markets/us-has-fang-china-has-booze-company

I learned about Moutai many years ago during Spring Festival. My wife's (wife now, we weren't married back then) extended family tried the Chinese drinking game on me (Ritual toasts and doing Moutai shots, you keep drinking, they switch out). I drank them under the table and staggered back to my hotel room chanting "USA! USA!"

Crafty_Dog

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China's Potemkin Village
« Reply #760 on: April 09, 2021, 07:26:57 PM »


Crafty_Dog

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China's financial brinksmanship
« Reply #762 on: April 26, 2021, 06:39:48 AM »
April 26, 2021
View On Website
Open as PDF

    
China’s Financial Brinksmanship
Beijing is embarking on its biggest game of market meltdown chicken to date.
By: Phillip Orchard

It’s becoming something of a semi-annual tradition in China: A major bank or company misses an earnings report or bond repayment, or finds some other way to hint that it may be in dire need of a bailout. Regulators remain conspicuously silent as panic ripples through the Chinese financial system, so much of which runs on widespread assumptions that the state, obsessed as it is with stability, will rescue just about any ailing institution to make sure it contains the spread.
Regulators let market anxieties mount seemingly to the breaking point, the implied message to investors being: “The days of risk-free, state-guaranteed financial returns are over. Do your own due diligence before blindly throwing money around and making this our problem, please.” Eventually, they issue a bland, technocratic statement, and everything calms down as the state starts brokering some sort of solution behind the scenes. Often someone goes to jail, or worse.

There have been several variations of this story in China in recent years, particularly since 2013, when Beijing first began tepidly addressing the moral hazard endemic to its $54 trillion financial industry. And it's basically what's been happening over the past month with China Huarong Asset Management Co., a massive, debt-plagued state-owned financial asset management company whose former chairman was executed in January on corruption charges. Huarong missed an earnings report at the end of March, sending bond markets into a tizzy amid rumors that it was headed for a painful restructuring, at best. But several things about Huarong – chief among them, the fact that the company was originally set up by the Ministry of Finance to metabolize other banks' toxic assets – make it Beijing's biggest, most complicated, most fraught game of market meltdown chicken to date.

What Makes Chinese Finance Unique

The Chinese government wants many conflicting things. It wants economic dynamism, which requires support for entrepreneurship and innovation, free flows of information, an impartial judiciary and at times a light regulatory touch – all operating in a financial system that allocates capital efficiently and prices risk accurately. It also wants control and stability, which means preventing market forces from creating surges of unemployment and social unrest. It also means restricting capital flows in and out of the country to head off a meltdown. It means preventing the accumulation of wealth by China's business titans from leading to the accumulation of political power. It means relying heavily on a sclerotic, incestuous network of state-owned enterprises and state banks to soak up excess employment and channel capital to party priorities.

Every government navigates these sorts of contradictory desires to some extent. The difference in China is the government's extreme intolerance for instability of any sort – even forms that, over the longer term, improve the system overall. So it props up inefficient companies, preserves or even bolsters the state sector, cracks down on information flows, suppresses protests and inserts party committees into private sector conglomerates. Beijing tries where possible to have the best of both worlds. But when forced to choose between dynamism and control, Beijing almost always opts for the latter.

There are many costs to this approach, especially when it comes to financial risk. For example, the domination of the financial system by state banks, which have heavy incentives to prioritize lending to state-owned enterprises and firms with hard assets available for collateral, forces others to rely on alternative, often less transparent or less-easily regulated sources of funding. Capital controls limit access to foreign financing. Perhaps most problematic, though, it generates widespread moral hazard. Put simply, because of Beijing’s existential fear of unemployment and social unrest, lenders and investors understandably just assume that the state will more often than not come to the rescue if things go sideways and pose any degree of systemic risk. Such assumptions are particularly common in the state sector, but increasingly they've extended into any part of the investment landscape. This was illustrated in 2018-19 with the rise of unregulated peer-to-peer lending platforms. Many borrowers defaulted, leading to protests by lenders who expected Beijing to make them whole despite the government never making implicit promises to do so.

The risks of moral hazard contributing to a broad financial crisis have increased as debt levels across the Chinese economy have soared since 2008 – and as it’s become more and more difficult for the Chinese economy to simply grow its way out of its debt problems. No country in history has amassed so much debt so quickly as China has without succumbing to a financial meltdown, according to the World Bank. Predictably, the sense of urgency in Beijing to address moral hazard has surged as well.

The most ruthless way to do so, of course, is to simply let people get burned a few times – to let poorly run banks or firms go bust and to let investors and lenders lose their shirts. But China can't tolerate the costs of such an approach, given just how central implicit state guarantees are to the entire Chinese financial system. To avoid triggering an uncontainable market panic – or simply to avoid inadvertently creating a credit crunch that grinds economic growth to a halt – Beijing has had to move at a seemingly glacial pace and find ways to instill market discipline over time.

Addressing Moral Hazard Head-On

China has been attacking the problem from several angles. On one level, it's been trying to make moral hazard matter less by pushing through an ambitious slate of reforms aimed at whipping banks and state-owned enterprises into shape before they reach a breaking point. It's also installed a much more muscular regulatory apparatus, pairing it with anti-graft authorities tasked with punishing wayward officials and tycoons and hammering local and provincial governments and banks to clean up their books and eschew “shadow lending” practices. What the system lacks in market incentives to act prudently, Beijing has been able to offset somewhat by the fear of President Xi Jinping.

But there's been no avoiding the need to address moral hazard head-on. Its first attempt, made in 2013, went extremely poorly. After a technical default between two small banks sent interbank lending rates soaring, Beijing initially refused to inject liquidity into the market. Within days, interbank lending ground to a halt, sparking a liquidity crisis that began to spread into the rest of the economy. It was the closest China has come to having its own Lehman Brothers moment. Beijing capitulated by the end of the month, intervening more forcefully to keep interbank lending rates stable.

The episode effectively deepened the problem of moral hazard for the next few years. But a string of near-failures by small banks in 2019 forced Beijing to try again. This time, it was more successful. In each case, the government ultimately intervened, but for the first time, it forced at least some bondholders to take losses, while the banks themselves were forced to restructure in painful ways that put them on more solid footing going forward. The move didn't spark a broader meltdown. Emboldened, Beijing then allowed a string of defaults among SOEs last fall totaling some $12.2 billion worth of local bonds. The share of onshore payment failures rose to 57 percent compared to 8.5. percent the previous year, according to Fitch.

Even so, Huarong is different. For one, it's bigger than any of the previous cases. In terms of asset size, the two main banks rescued in 2019 are half that of Huarong. For another, much more of its debt (an estimated $22 billion or more) is held in offshore dollar bonds, which makes the problem more difficult and expensive for the government to manage.

Most important, Huarong was set up in 1999 as one of four “distressed asset managers” with the specific task of metabolizing other banks' bad debts. These “bad banks” were largely considered successful in helping China avoid the fates suffered by South Korea and several other emerging markets in Southeast Asia following the 1997 Asian Financial Crisis. And Huarong's problems seem to stem primarily from its expansion over the past decade or so into other financial services, including shadow banking. It's unlikely, in other words, that its problems indicate that the Chinese system is so overwhelmed with toxic assets that even the bad banks can no longer cope. Still, perception matters more than reality in financial crises. If enough people believe that Huarong's problems reveal widespread systemic fragility – and a rise in speculation about problems some of the other distressed asset managers suggests such perceptions may be taking root – then things could get ugly fast.

There's another critical difference, though, that suggests Beijing is acting with a renewed sense of confidence in its ability to avoid triggering a panic: the fact that Huarong is owned directly by the Finance Ministry. This matters because, in previous cases, there were questions about how much regulators were caught unaware of the banks' problems, a factor that fueled potentially destabilizing speculation that authorities really had no idea how deep and wide the problems in the banking system truly were. Given its ownership, and given the fact that Huarong has been under close scrutiny for some time (its chairman came under investigation for corruption charges in 2018 and was executed in January), it's highly unlikely that its debt problems caught anyone off guard. And given its systemic importance, along with the fact that Beijing will have zero tolerance for any kind of financial chaos ahead of the 100th anniversary of the founding of the Chinese Communist Party this summer, there's little reason to think Beijing would even allow Huarong's problems to be made public, much less concerns to proliferate about Huarong going belly up, if it didn't think it was useful to do so.

By letting Huarong twist in the wind for a few months while saying just enough reassuring things (and leaking plans for a potential restructuring) to mitigate panic, Beijing is likely just taking its next step forward in its long, calculated fight against what it sees as an existential problem. That's the charitable view, at least. The other possibility – that Beijing is at once overmatched and overconfident and heading for an inevitable financial reckoning – may be unlikely, but staggering in consequence should it come to pass.

G M

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Re: China's financial brinksmanship
« Reply #763 on: April 26, 2021, 01:49:14 PM »
A desperate China is a very dangerous China.


April 26, 2021
View On Website
Open as PDF

    
China’s Financial Brinksmanship
Beijing is embarking on its biggest game of market meltdown chicken to date.
By: Phillip Orchard

It’s becoming something of a semi-annual tradition in China: A major bank or company misses an earnings report or bond repayment, or finds some other way to hint that it may be in dire need of a bailout. Regulators remain conspicuously silent as panic ripples through the Chinese financial system, so much of which runs on widespread assumptions that the state, obsessed as it is with stability, will rescue just about any ailing institution to make sure it contains the spread.
Regulators let market anxieties mount seemingly to the breaking point, the implied message to investors being: “The days of risk-free, state-guaranteed financial returns are over. Do your own due diligence before blindly throwing money around and making this our problem, please.” Eventually, they issue a bland, technocratic statement, and everything calms down as the state starts brokering some sort of solution behind the scenes. Often someone goes to jail, or worse.

There have been several variations of this story in China in recent years, particularly since 2013, when Beijing first began tepidly addressing the moral hazard endemic to its $54 trillion financial industry. And it's basically what's been happening over the past month with China Huarong Asset Management Co., a massive, debt-plagued state-owned financial asset management company whose former chairman was executed in January on corruption charges. Huarong missed an earnings report at the end of March, sending bond markets into a tizzy amid rumors that it was headed for a painful restructuring, at best. But several things about Huarong – chief among them, the fact that the company was originally set up by the Ministry of Finance to metabolize other banks' toxic assets – make it Beijing's biggest, most complicated, most fraught game of market meltdown chicken to date.

What Makes Chinese Finance Unique

The Chinese government wants many conflicting things. It wants economic dynamism, which requires support for entrepreneurship and innovation, free flows of information, an impartial judiciary and at times a light regulatory touch – all operating in a financial system that allocates capital efficiently and prices risk accurately. It also wants control and stability, which means preventing market forces from creating surges of unemployment and social unrest. It also means restricting capital flows in and out of the country to head off a meltdown. It means preventing the accumulation of wealth by China's business titans from leading to the accumulation of political power. It means relying heavily on a sclerotic, incestuous network of state-owned enterprises and state banks to soak up excess employment and channel capital to party priorities.

Every government navigates these sorts of contradictory desires to some extent. The difference in China is the government's extreme intolerance for instability of any sort – even forms that, over the longer term, improve the system overall. So it props up inefficient companies, preserves or even bolsters the state sector, cracks down on information flows, suppresses protests and inserts party committees into private sector conglomerates. Beijing tries where possible to have the best of both worlds. But when forced to choose between dynamism and control, Beijing almost always opts for the latter.

There are many costs to this approach, especially when it comes to financial risk. For example, the domination of the financial system by state banks, which have heavy incentives to prioritize lending to state-owned enterprises and firms with hard assets available for collateral, forces others to rely on alternative, often less transparent or less-easily regulated sources of funding. Capital controls limit access to foreign financing. Perhaps most problematic, though, it generates widespread moral hazard. Put simply, because of Beijing’s existential fear of unemployment and social unrest, lenders and investors understandably just assume that the state will more often than not come to the rescue if things go sideways and pose any degree of systemic risk. Such assumptions are particularly common in the state sector, but increasingly they've extended into any part of the investment landscape. This was illustrated in 2018-19 with the rise of unregulated peer-to-peer lending platforms. Many borrowers defaulted, leading to protests by lenders who expected Beijing to make them whole despite the government never making implicit promises to do so.

The risks of moral hazard contributing to a broad financial crisis have increased as debt levels across the Chinese economy have soared since 2008 – and as it’s become more and more difficult for the Chinese economy to simply grow its way out of its debt problems. No country in history has amassed so much debt so quickly as China has without succumbing to a financial meltdown, according to the World Bank. Predictably, the sense of urgency in Beijing to address moral hazard has surged as well.

The most ruthless way to do so, of course, is to simply let people get burned a few times – to let poorly run banks or firms go bust and to let investors and lenders lose their shirts. But China can't tolerate the costs of such an approach, given just how central implicit state guarantees are to the entire Chinese financial system. To avoid triggering an uncontainable market panic – or simply to avoid inadvertently creating a credit crunch that grinds economic growth to a halt – Beijing has had to move at a seemingly glacial pace and find ways to instill market discipline over time.

Addressing Moral Hazard Head-On

China has been attacking the problem from several angles. On one level, it's been trying to make moral hazard matter less by pushing through an ambitious slate of reforms aimed at whipping banks and state-owned enterprises into shape before they reach a breaking point. It's also installed a much more muscular regulatory apparatus, pairing it with anti-graft authorities tasked with punishing wayward officials and tycoons and hammering local and provincial governments and banks to clean up their books and eschew “shadow lending” practices. What the system lacks in market incentives to act prudently, Beijing has been able to offset somewhat by the fear of President Xi Jinping.

But there's been no avoiding the need to address moral hazard head-on. Its first attempt, made in 2013, went extremely poorly. After a technical default between two small banks sent interbank lending rates soaring, Beijing initially refused to inject liquidity into the market. Within days, interbank lending ground to a halt, sparking a liquidity crisis that began to spread into the rest of the economy. It was the closest China has come to having its own Lehman Brothers moment. Beijing capitulated by the end of the month, intervening more forcefully to keep interbank lending rates stable.

The episode effectively deepened the problem of moral hazard for the next few years. But a string of near-failures by small banks in 2019 forced Beijing to try again. This time, it was more successful. In each case, the government ultimately intervened, but for the first time, it forced at least some bondholders to take losses, while the banks themselves were forced to restructure in painful ways that put them on more solid footing going forward. The move didn't spark a broader meltdown. Emboldened, Beijing then allowed a string of defaults among SOEs last fall totaling some $12.2 billion worth of local bonds. The share of onshore payment failures rose to 57 percent compared to 8.5. percent the previous year, according to Fitch.

Even so, Huarong is different. For one, it's bigger than any of the previous cases. In terms of asset size, the two main banks rescued in 2019 are half that of Huarong. For another, much more of its debt (an estimated $22 billion or more) is held in offshore dollar bonds, which makes the problem more difficult and expensive for the government to manage.

Most important, Huarong was set up in 1999 as one of four “distressed asset managers” with the specific task of metabolizing other banks' bad debts. These “bad banks” were largely considered successful in helping China avoid the fates suffered by South Korea and several other emerging markets in Southeast Asia following the 1997 Asian Financial Crisis. And Huarong's problems seem to stem primarily from its expansion over the past decade or so into other financial services, including shadow banking. It's unlikely, in other words, that its problems indicate that the Chinese system is so overwhelmed with toxic assets that even the bad banks can no longer cope. Still, perception matters more than reality in financial crises. If enough people believe that Huarong's problems reveal widespread systemic fragility – and a rise in speculation about problems some of the other distressed asset managers suggests such perceptions may be taking root – then things could get ugly fast.

There's another critical difference, though, that suggests Beijing is acting with a renewed sense of confidence in its ability to avoid triggering a panic: the fact that Huarong is owned directly by the Finance Ministry. This matters because, in previous cases, there were questions about how much regulators were caught unaware of the banks' problems, a factor that fueled potentially destabilizing speculation that authorities really had no idea how deep and wide the problems in the banking system truly were. Given its ownership, and given the fact that Huarong has been under close scrutiny for some time (its chairman came under investigation for corruption charges in 2018 and was executed in January), it's highly unlikely that its debt problems caught anyone off guard. And given its systemic importance, along with the fact that Beijing will have zero tolerance for any kind of financial chaos ahead of the 100th anniversary of the founding of the Chinese Communist Party this summer, there's little reason to think Beijing would even allow Huarong's problems to be made public, much less concerns to proliferate about Huarong going belly up, if it didn't think it was useful to do so.

By letting Huarong twist in the wind for a few months while saying just enough reassuring things (and leaking plans for a potential restructuring) to mitigate panic, Beijing is likely just taking its next step forward in its long, calculated fight against what it sees as an existential problem. That's the charitable view, at least. The other possibility – that Beijing is at once overmatched and overconfident and heading for an inevitable financial reckoning – may be unlikely, but staggering in consequence should it come to pass.

DougMacG

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China new App for snitches
« Reply #764 on: April 28, 2021, 05:43:51 AM »
https://www.americanthinker.com/blog/2021/04/ccp_launches_new_app_to_restrict_free_speech.html

China is trying to catch up with the US thwarting anti regime free thought and speech. We should be attacking this repression of a God given right instead of leading on it.
« Last Edit: April 28, 2021, 06:58:26 AM by Crafty_Dog »

Crafty_Dog

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WSJ: Hong Kong
« Reply #765 on: May 18, 2021, 02:43:58 AM »



The powers that be in Hong Kong keep assuring the world that nothing has changed regarding its status as a financial center since the Chinese Communist Party imposed its national security law. Tell that to Jimmy Lai, the imprisoned media owner whose assets have now been frozen by the Hong Kong police.

The Hong Kong Security Bureau alerted Mr. Lai on Friday that his personal bank accounts and his 71% share in Next Digital, the company that publishes Apple Daily, have been frozen. The South China Morning Post says the value of the frozen assets is about $64.3 million. This is the first time we know of that the national security law has been invoked to deprive an owner of his equity in a publicly traded company in Hong Kong.

Hong Kong apologists will say that Mr. Lai is a special case because his media properties support economic and political freedom. Apple Daily continues to criticize the government even with Mr. Lai in jail. He is currently serving a 14-month sentence for his role in unapproved protests. He faces another trial in the coming months on three counts of violating national security laws that are a pretext to make the 72-year-old publisher an example of what happens if you challenge the Party.


But if the authorities can strip Mr. Lai of his assets based on a non-judicial order, then no private contract is safe. The asset seizure seems wholly arbitrary. Any shareholder in any Hong Kong-based company who offends Beijing on political grounds is vulnerable. Will the Hong Kong Stock Exchange file even a peep of protest?


The seizure won’t help Hong Kong’s eroding status as a global financial center. The political risk is high for a CEO or board of directors to float shares on the Hong Kong exchange, especially when alternatives are available. The decline of the once great entrepôt of economic freedom continues at an accelerating pace.


DougMacG

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Re: China Concentration Camps
« Reply #766 on: May 23, 2021, 06:13:39 AM »
https://www.dailymail.co.uk/news/article-9573113/Survivor-Chinas-modern-day-concentration-camps-reveals-horrors-walls.html

If we are not going in with our military to set these people free, the least we could do is boycott the Olympics in protest.

Why does China get a pass from the American and European Left?

G M

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Re: China Concentration Camps
« Reply #767 on: May 23, 2021, 12:30:13 PM »
https://www.dailymail.co.uk/news/article-9573113/Survivor-Chinas-modern-day-concentration-camps-reveals-horrors-walls.html

If we are not going in with our military to set these people free, the least we could do is boycott the Olympics in protest.

Why does China get a pass from the American and European Left?

Because they have been bought off by the PRC (the big guy gets 10%), and they admire the totalitarianism.

DougMacG

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Re: China Concentration Camps
« Reply #768 on: May 23, 2021, 01:14:27 PM »
quote author=G M
Because they have been bought off by the PRC (the big guy gets 10%), and they admire the totalitarianism.

   - Yes but they read polls and need 70 or 80 million people in support to stay in power.

G M

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Re: China Concentration Camps
« Reply #769 on: May 23, 2021, 01:20:27 PM »
quote author=G M
Because they have been bought off by the PRC (the big guy gets 10%), and they admire the totalitarianism.

   - Yes but they read polls and need 70 or 80 million people in support to stay in power.

They do?

Crafty_Dog

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WSJ: Repression in HK
« Reply #770 on: May 30, 2021, 08:09:49 AM »
China wants to silence Hong Kongers even as it persecutes them. A court judgment released Friday shows that a judge penalized former pro-democracy lawmaker and journalist Claudia Mo for speaking to Western journalists, including our own Jillian Melchior.


Police arrested Ms. Mo, along with nearly the entire opposition movement, in January. She and 46 others are charged with conspiracy to commit subversion under the national security law for organizing or participating in an informal pro-democracy primary election last July. Judge Esther Toh denied Ms. Mo bail in April, and the world learned why on Friday.

The national security law prohibits “collusion” with vaguely defined foreign forces and states that defendants may not receive bail “unless the judge has sufficient grounds” to believe that they “will not continue to commit acts endangering national security.” As a reason to keep Ms. Mo behind bars, prosecutor Maggie Yang described Ms. Mo’s WhatsApp correspondence with these pages, the New York Times, Bloomberg and the BBC.

In a court filing explaining her denial of bail, Judge Toh quotes from an Oct. 1, 2020, conversation Ms. Mo had with Ms. Melchior about 12 Hong Kongers who were captured after they tried to escape to Taiwan by boat.


Ms. Mo told Ms. Melchior: “The detention and treatment of the 12 Hong Kong protesters serve as the ultimate warning and threat to Hongkongers about what one can face if you’re caught. The new security law and the spate of arrests have worked as a scare tactic, probably fairly successfully—at sending a persistent political chill around the city.” Every word of that is true, and it was hardly a secret.

As a lawmaker, Ms. Mo fought for the liberties that China guaranteed to Hong Kong in its 1984 treaty with Britain. Her Legislative Council office sat across from the Hong Kong garrison of the Chinese People’s Liberation Army, and she decorated her windows with pro-democracy posters. Under the national security law, Ms. Mo now faces up to life in prison.

The Communist Party fears Ms. Mo because in the November 2019 district council elections, Hong Kong’s pro-democracy camp won in a landslide. Hong Kong’s government then used Covid as an excuse to cancel elections for the Legislative Council.

Judge Toh wrote in Friday’s filing that “it is submitted” by the Hong Kong government “that had the Election not been postponed,” then the opposition’s “conspiracy would have been carried out to fruition.” Get it: A free election is a conspiracy in Hong Kong. This is a tacit admission that if Hong Kongers could freely choose their representatives, they’d elect lawmakers like Ms. Mo. Instead, the Communist Party is locking away the opposition and denying bail for the crime of messaging with the press. Live and work in Hong Kong at your peril.

As we’ve said before, jailed publisher Jimmy Lai and Hong Kong’s other brave democrats deserve the Nobel Peace Prize.

DougMacG

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China Lied, People Died, Planet-Wide
« Reply #771 on: June 01, 2021, 05:55:54 PM »
https://strategypage.com/on_point/2021052694935.aspx

China's Bio-Economic War on the World Has Begun to Backfire
by Austin Bay
May 26, 2021

"I hoped that wealth would create a Chinese middle class that demanded freedom and moderation and peace.

Wrong. Chinese economic prowess merely fed its communist totalitarian war machine."
...

"The historical background supports the global significance of this week's sobering news: the likelihood that the COVID-19 virus (the Communist Chinese Party virus is another name) escaped by accident or on purpose from a Chinese laboratory in the city of Wuhan and infected the entire planet.

The Wall Street Journal has published an in-depth analysis of the evidence.

In February 2020, Senator Tom Cotton, R-Ark., suggested the virus may have escaped a research lab in Wuhan. The major mainstream media narrative: Cotton was damned, snarked and ridiculed, from The New York Times to CNN to Xinhua (the Chinese "official" news agency).

Xinhua spews propaganda. You trust The New York Times and CNN? Perhaps it's time you woke. (Does woke satirize antifa and BLM lingo? You decide.)

Even Dr. Tony Fauci says that the possibility that the COVID-19 escaped from a lab in Wuhan "certainly exists" and he's "totally in favor of a full investigation of whether that could have happened."

In spring 2020, Fauci and his bureaucrat cadre (which includes the mainstream media dolts) dissed Cotton.

Fauci et al owe Cotton an apology.

China lied about the origins of the virus, and people died, planet-wide. Bumper sticker: China lied, people died, planet-wide.

In 2020, I wrote a column arguing that China's dictatorship hid critical information about the virus, for fear of being exposed as incompetent. Realizing the pandemic's threat, Beijing's communist thugs in charge apparently decided to export it to the rest of the world so China would not suffer alone.

That's an act of war on the world.

China's communist dictators decided to wage bioeconomic warfare on the world."

G M

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China's bioeconomic war on the world
« Reply #772 on: June 01, 2021, 06:06:40 PM »
"China's communist dictators decided to wage bioeconomic warfare on the world."


They had key allies in place here.

Crafty_Dog

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Re: China
« Reply #773 on: June 02, 2021, 06:11:52 AM »
This thread is for internal Chinese matters, not China vs the world or America.




Crafty_Dog

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