1. Economist: Multinationals - China loses its allure (cover)
Life is getting tougher for foreign companies. Those that want to stay will have to adjust. According to the late Roberto Goizueta, a former boss of The Coca-Cola Company, April
15th 1981 was “one of the most important days
…in the history of the world.” That date marked the opening of the first Coke bottling plant to be built in China since the Communist revolution. The claim was over the top, but not absurd. Mao Zedong’s disastrous policies had left the economy in tatters. The height of popular aspiration was the “four things that go round”: bicycles, sewing machines, fans and watches. The welcome that Deng Xiaoping, China’s then leader, gave to foreign firms was part of a series of changes that turned China into one of the biggest and fastest-growing markets in the world. For the past three decades, multinationals have poured in. After the financial crisis, many companies looked to China for salvation. Now it looks as though the gold rush may be over. In some ways, China’s market is still the world’s most enticing. Although it accounts for only around 8% of private consumption in the world, it contributed more than any other country to the growth of consumption in 2011-13. Firms like GM and Apple have made fat profits there. But for many foreign companies, things are getting harder. That is partly because growth is flagging, while costs are rising. Talented young workers are getting harder to find, and pay is soaring.
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2. AP: US stocks fall on worries over Chinese economy
U.S.
stocks fell broadly Thursday after a report from China added to growing signs that the world’s second-largest economy is slowing. The selling spared few companies, even those reporting solid earnings. “It’s pretty ugly,” said Randy Frederick, a managing director of active trading and derivatives at Charles Schwab. “When you’ve got a market that’s near record highs
... people are looking for any excuse to take profits.”
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3. WSJ: Manufacturing activity slips in China
A disappointing performance from China's factories in recent weeks shows the country's manufacturing sector could weigh on a broader economy already facing challenges. The data released Thursday—which showed an unexpected shrinking of China's factory activity so far this month—isn't normally so closely scrutinized. But economists are looking for signs of whether growth in the world's No. 2
economy will continue the
slowdown it showed in the fourth quarter of last year. China's manufacturing sector faces still-sluggish demand from traditional markets such as the U.S.
and Europe, currency-market moves that make its products less competitive overseas and rising labor costs.
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4. WSJ: Investors flee developing countries
nvestors dumped currencies in emerging markets, underscoring growing anxiety about the ability of developing nations to prop up their economies as they face uneven growth. The Argentinian peso tumbled more than 15% against the dollar in early trading as the South American nation's central bank stepped back from its efforts to protect the currency, forcing the bank to reverse course to stem the slide. The Turkish lira sank to a record low against the dollar for a ninth straight day. The Russian ruble and South African
rand hit multiyear lows. U.S.
stocks tumbled as well, reflecting the world-wide
pullback from riskier assets and continuing a
weekslong struggle to regain the upward momentum seen at the end of 2013. The Dow Jones Industrial Average slid 175.99 points, or 1.1%, to 16197.35, the lowest close since Dec. 19. Asian markets fell in early trading Friday, with Japan down 1.5% and South Korea off 0.7%.
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5. Reuters: U.S. sees hurdles to China joining Pacific trade pact
Washington wants progress on an investment treaty with Beijing before it considers expanding an eventual Pacific-region trade pact to include China, a top U.S.
official said on Thursday. U.S. Trade Representative Michael Froman said the United States was open to other countries joining the Trans-Pacific Partnership (TPP) being negotiated by Washington and 11 other nations. However, before China can be considered, Washington wants movement on a bilateral investment treaty. "We'll want to see whether we can make progress there first," Froman said during the World Economic Forum in Davos, Switzerland.
said in May it would consider joining the TPP, which would establish a free-trade bloc stretching from Vietnam to Chile and Japan, encompassing about 800 million people and almost 40 percent of the global economy. Other countries, including South Korea, have also expressed interest in joining, although Washington has said they would have to wait until the current negotiators reach a deal. Washington had hoped for a deal by the end of 2013, but that did not happen in part because of differences over farm tariffs between the United States and Japan.
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6. FT: US to probe solar panel dumping claims
The US is reigniting a trade battle over solar panels by launching a probe into allegations that Chinese manufacturers have tried to evade anti-dumping duties by making products in Taiwan. The US government said on Thursday that it would investigate a complaint that Chinese producers were exploiting a loophole in measures to stop the sale of panels at illegally low prices in the US. Fights over solar panels have been the most bitter in a flurry of trade protection battles prompted by the rapid growth of the renewable energy business in recent years
.The complaint that prompted the US move – announced by the Department of Commerce – came from SolarWorld, a German company that owns North America’s largest solar manufacturing plant, in Oregon. It said in December that Chinese manufacturers were avoiding duties by assembling panels
from solar cells manufactured in third countries – and named Taiwan in its complaint.
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7. Bloomberg: China auditors barred for six months for blocking SEC
Chinese affiliates of the four largest accounting firms were barred for six months from leading audits of U
.S
.-listed companies after failing to comply with Securities and Exchange Commission orders for documents at the heart of a series of accounting fraud probes. The decision by U.S. Administrative Law Judge Cameron Elliot, if finalized, would force more than 200 Chinese companies traded in the U.S.
to find new auditors, while multinationals with significant operations in China, like General Motors Co., would also have to bring in new firms to check those units, said Jason Flemmons, a former SEC accountant who is now a senior managing director at FTI Consulting Inc. “This is a big deal,” said Lynn Turner, a former SEC chief accountant. “For those companies that have an audit report to be done, finding another auditor in China might be a bit difficult.”
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8. WSJ: What’s next for big four audit firms in China?
A judge’s ruling sanctioning the Chinese units of the Big Four accounting firms moves the U.S.
and China one step closer to what could be a stark choice. The issue: Will the U.S.
and China be able to reach agreement on how much
oversight U.S. regulators should have over companies inside China, or will Chinese companies end up being barred from trading on U.S.
markets? Wednesday’s ruling by a Securities and Exchange Commission administrative law judge to suspend the Big Four’s China-based affiliates from auditing U
.S
.-traded companies for six months won’t immediately hurt the firms or the companies they audit. The decision came after the firms refused to give the SEC documents about some of their Chinese clients to aid the commission in investigating those companies for possible fraud. The firms say they can’t cooperate with the SEC because strict Chinese laws prevent them from doing so. The suspension could affect the audits of dozens of Chinese companies and some U
.S
.-based multinationals with significant operations in China, but not right away. The suspension might not take effect for months or years. The firms have 21 days to appeal Judge Cameron Elliot’s ruling to the five-member commission itself before it takes effect, and they’ve indicated they plan to do so.
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9. FT: China’s rebalancing requires more investment of the right kind
For nearly a
decade there has been almost unanimous consensus among economists and even senior Communist
party officials that China needs to transform what Beijing calls its “unbalanced, uncoordinated and unsustainable” growth model. The simple prescription for what ails the world’s second-largest economy has been a big dose of household consumption and a cutback on its supposedly unhealthy penchant for investment. Household consumption makes up only around 35 per cent of China’s overall gross domestic product, about half the level of developed countries like the US, while investment accounts for about half of GDP, an extraordinarily high level even
for developing countries. The party’s current five-year plan, which covers 2011 to 2015, made this
rebalancing a top
priority but, after a couple of hopeful years of slightly higher consumption and slightly lower investment, figures released this week show the trend has gone into reverse. Consumption accounted for 50 per cent of GDP growth in 2013 while investment accounted for 54.4
per cent of growth, meaning investment rose faster than consumption and increased its overall share of the economy last year. The rounding error came from net
exports making a negative contribution to growth.
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10. FT - Editorial: End drift to war in the East China Sea
Tokyo and Beijing must defuse rhetoric before it is too late.
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11. WP: China’s repression of activists continues unabated
China's Communist leaders ought to regard activists like Xu Zhiyong as allies in their effort to reform the country’s economy, root out corruption and create a more representative and sustainable political system. Instead, the 40-year-old lawyer was put on trial Wednesday in Beijing, and at least six of his followers were due in court on Thursday and Friday. Far from regarding Mr. Xu’s New Citizens’ Movement as constructive, the regime of Xi Jinping is “terrified” of it, as Mr. Xu told a court from which journalists and Western diplomats had been barred. The repression is contemptible on human rights grounds, but it also ought to be worrying to all — starting with the Obama administration — who hope Mr. Xi will succeed in addressing China’s accumulating economic, environmental and social ills. That can’t happen without a freer civil society and media that can document abuses and support reforms. Mr. Xu’s New Citizens’ Movement aimed to work within the Chinese constitution; it hoped to be accepted by the new leadership. By crushing the movement, Mr. Xu said in his court statement, the regime is attempting to “block China’s road to democratic constitutional government through peaceful reform.” It
also is ensuring that its effort to restructure China’s economy and strengthen the Communist Party’s rule will fail.
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12. SD: Industrial activity may be in contraction
China’s manufacturing activity may have contracted for the first time in six months in January, pointing to a weak start for the economy in a year that China expects to accelerate reform, a preliminary survey showed yesterday. The HSBC Flash China Manufacturing Purchasing Managers’ Index, the earliest available indicator of the industrial sector’s vitality, dropped to 49.6 in January from December’s final reading of 50.5, according to HSBC Holdings
plc and research firm Markit. A reading below 50 indicates contraction, and the latest figure indicated the fourth straight month of decline. Qu Hongbin, chief economist for China at HSBC, said it was mainly dragged by cooling domestic demand. “This implies softening growth momentum for manufacturing sectors, which has already weighed on employment growth,” Qu said.
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13. SD: Chinese audit units to appeal after suspension ruling in US
Chinese units of the Big Four auditing firms are to appeal a US ruling suspending them from practicing in the US for six months, according to a joint statement yesterday. The Chinese units of KPMG, Deloitte & Touche, PricewaterhouseCoopers and Ernst and Young were censured for “willfully” failing to provide the US securities regulator with the audit working papers of Chinese companies under investigation for accounting fraud. The ruling, by
Securities and Exchange Commission administrative law judge Cameron Elliot, will not take effect until reviewed and approved by the full SEC committee. In their statement, the auditing firms said: “It is regrettable that the SEC’s administrative law judge has recommended sanctions against the Big Four firms in China for failing to produce work papers to the SEC in circumstances where such production would have violated Chinese law and regulations. The firms intend to appeal and thereby initiate that review without delay.”
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14. SD: Yuan settlements remain popular
The yuan has been among the top 10 currencies used for payment for two straight months and remained in 8th place in December, the Society for Worldwide Interbank Financial Telecommunication (SWIFT) said in a report yesterday. Keeping its place as one of the top 10 most-used currencies for payment
by value in November and December was a symbolic milestone achieved by the yuan, Brussels-based SWIFT said. The yuan has overtaken 22 currencies over the past three years as the government accelerated the globalization of the Chinese currency. “A question is whether the yuan will continue its climb, or at least maintain its status as a ‘top 10’ currency for payments,” Franck
de Praetere, head of payments and trade markets at SWIFT for Asia Pacific, said in the report. “We might expect it to fall back during the first quarter in 2014 as a result of the Chinese New Year, as we have seen previously,” he said.
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15. Reuters: Special report - How Caterpillar got bulldozed in China
Asia's top mergers and acquisitions bankers gathered two years ago at the swanky Island Shangri La in Hong Kong to celebrate the top deals of 2012. As the transactions were being
toasted, one was unravelling. Advisers on Caterpillar Inc's $677 million purchase of ERA Mining Machinery Ltd picked up an award for cross-border deal of the year. The purchase was billed as a coup for Caterpillar, the world's top maker of tractors and excavators.
ERA was the holding company for Zhengzhou Siwei Mechanical & Electrical Equipment Manufacturing Co Ltd, one of China's biggest makers of hydraulic coal-mine roof supports.
Siwei would help Caterpillar gain traction in the world's largest coal industry. "
Siwei was going to be our Chinese business card," said a person with direct knowledge of Caterpillar's strategy.
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16. Bloomberg: China shouldn’t be ‘browbeaten’ over currency, Blankfein says
China’s national interests will converge with the rest of the world as its economy grows, and policy makers there shouldn’t be “browbeaten” for managing their currency in the meantime, Goldman Sachs Group Inc. Chief Executive Officer Lloyd C. Blankfein said. “Is China wrong for doing that? No,” Blankfein said today at a panel discussion at the World Economic Forum in Davos, Switzerland. “Are those other countries wrong to object? No. But it’s hard to reconcile.” The U.S.
Treasury Department said in October that the Chinese yuan is “significantly undervalued,” while also declining to name China a currency manipulator. The People’s Bank of China outlined plans in November to end daily currency intervention as China’s ruling Communist Party attempts to modernize the economy. Privatization efforts by China are vital as the nation becomes a larger part of the global economy, Blankfein, 59, said. For now, China’s “
exceptionality” will create difficult situations, he said. “The largest trader in the world has a managed currency,” Blankfein said. “That’s appropriate to the needs of China. And so the statement will come back, ‘Is it anybody’s
business whether China’s currency is managed?’ Well, it’s the business of those to whose currencies it’s managed against. And so things like that have to be sorted out.”
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17. LAT: Chinese firm Lenovo to buy IBM's server business for $2.3 billion
Chinese computer maker Lenovo said it would pay $2.3 billion in cash and stock for IBM’s server business, a deal that comes nearly a decade after Lenovo bought IBM's ThinkPad unit that helped the Chinese firm eventually become the largest personal computer manufacturer in the world. The deal announced Thursday would be one of the biggest Chinese overseas acquisitions and reflects the steadily increasing flow of Chinese outward investments, particularly
to the U.S. With more than $14 billion directed to the American market last year, the U.S.
became the largest recipient of Chinese overseas investment in the last decade, according to Derek Scissors, a scholar at the American Enterprise Institute who has been tracking Chinese foreign investments for many years. For Lenovo, the agreement to buy IBM's so-called x86 server operations fulfills its long desire to build up its global market in that line of business. “With the right strategy, great execution, continued innovation and a clear commitment to the x86 industry, we are confident that we can grow this business successfully for the long-term, just as we have done with our worldwide PC business,” Yang Yuanqing, Lenovo's chairman and chief executive, said in a statement.
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18. Bloomberg: China installed a record 12 gigawatts of solar in 2013
Developers in China installed a record 12 gigawatts of solar panels in 2013, almost matching the total amount of solar power in operation in the U.S., and may exceed that in 2014, according to Bloomberg New Energy Finance. The power plants were built mostly in China’s sunny,
western provinces of Gansu, Xinjiang and Qinghai and make its state-owned power companies the world’s biggest owners of solar assets, the London-based research company said in a statement yesterday. China was the biggest solar market last year, surpassing longtime leader Germany. Chinese installation more than tripled from 3.6 gigawatts in 2012, and the nation expects to add 14 gigawatts of solar capacity this year, according to New Energy Finance. “The 2013 figures show the astonishing scale of the Chinese market,” Jenny Chase, lead solar analyst at New Energy Finance, said in the statement. “PV is becoming ever cheaper and simpler to install, and China’s government has been as surprised as European governments by how quickly it can be deployed in response to incentives.”
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19. Barron's: The wrath of the S.E.C.: Chinese ADRs are sold off
Chinese ADR’s are sold off this morning because of the late SEC ruling yesterday that banned the Big Four accounting firms’ Chinese joint ventures from auditing in the U.S.
for six months. This ban could eventually leave
U.S
.-listed Chinese companies with no auditor, unable to file financial statements and eventually led to de-listings. I wrote earlier this morning that this ban is unlikely to impact Chinese ADRs in the near-term. Click on the link to see the details. Regardless, all Chinese ADRs are sold off – big losses and heavy trading volumes. For example, at the time of the publication, Soufun (SFUN) was down 7%, short-seller targeted NQ Mobile (NQ) lost 6.6%, Trina Solar (TSL) slumped 8.4%, Youku-Tudou (YOKU) fell 2.9%, and Qihoo 360 (QIHU) retreated 5%.
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20. DealBook: Bristling interrupts amity in panel on U.S.-China-Europe ties
When asked whether China, the United States and Europe can all play nicely together, attendees of the World Economic Forum would be expected to be largely optimistic, even if they disagreed on a few particulars. But tensions briefly flared at a panel discussion on the topic here, as a Chinese billionaire took umbrage over invocations of the troubles over the South China Sea. One of the panelists, the Chinese mogul Wang Jianlin, said he was offended by what he described as efforts to inject politics into an economic discussion. Joseph S.
Nye Jr., a professor at the Harvard Kennedy School, had mentioned the dispute between China and Japan over the region as an example of countries needing to learn how to balance “hard” military power and “soft” economic and political power. Professor Nye cited comments by Hu Jintao, the former president of China, about the Chinese government’s need to increase its soft power. And he added that the United States had similarly struck a poor balance between the two types of power when it invaded Iraq in 2003. Europe, he said, had appeared to strike the best balance. But Mr. Wang still appeared unhappy with the broaching of the topic. “I’m not happy with what I’ve been hearing from the professor,” the mogul said through a translator. “You shouldn’t deviate into politics.”
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21. WSJ: Yuan continues its rise as a global payments currency
China's yuan spent its second consecutive month as one of the 10 most-used currencies for global payments in December, according to data from the Society for Worldwide Interbank Financial Telecommunication, or Swift. The yuan has been gradually gaining prominence in global transactions as China continues its effort to transform its currency into a major player in the $4-trillion-a-day foreign exchange market. The government has taken steps to make it easier to convert in and out of yuan, with an eye toward competing with the U.S.
dollar, which dominates global trade flows, as well as other widely circulated currencies such as the euro, British pound and yen.
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