EconoChina

A blog on Chinese economy & society

Archive for the ‘Industries & Companies’ Category

Chinese labor saga continues

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Local HK media is reporting that 300 workers at the Beijing factory of Korea’s Lotte Group have been striking for 3 days over wages, shutting down production completely.

The workers allege that Lotte, while officially pays them Rmb1,700 a month, deducts many “fees” from their paycheck, resulting in real monthly pay of only Rmb900, which is lower than Beijing’s minimum wage.

The strikes at Honda etc.had received wide publicity and tacit governmental support. Although this newest episode of labor dispute is different in that it happens in the nerve center of China, I expect it to be resolved in favor of the workers, as their quest is inline with the government’s goal of rebalancing the Chinese economy.

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Written by Cindy Luk

August 19, 2010 at 2:41 am

Posted in China, Industries & Companies

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Bad debts galore?

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A slew of Chinese banks are reporting half year results, and most have reported lower bad debts ratios. Good news? Wait. Due to an explosion of property related loans in the H1, total bad debts had actually gone up.

China has a prudent down-payment policy, in the range of 20% to 60% (!). As such mortgages are actually prime assets of the banks. The weak link is loans to the property developers. Huaxia Bank, listed in Shanghai and known ninja loan maker, reported a 14.5% increase in bad debts to the developers. Citic Bank’s bad debts to property developers were up 10%. China Minsheng Banking Corp., one of the better managed ones (and perhaps more transparent?), actually surged by 78%!

In terms of bad debts ratios, all banks are still within the comfort zone. But with the tightening policies only kicking in mid-April, one has to wonder whether the bad debts situation will deteriorate, perhaps dramatically, in H2.

Written by Cindy Luk

August 17, 2010 at 12:03 am

When labor is not labor

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Naked Capitalism has highlighted a piece on the NYT  about protesting ex-bank workers. The article itself wasn’t too bad by NYT standard despite snides about poor divorced protester moving to Beijing to be “closer to the country’s leaders” and other useless commentaries. The interpretation by Yves Smith, though, is completely off by suggesting “the futility of labor action against entities near and dear to the officialdom”.

Yes, Honda and Foxconn are foreign-owned (btw, the Chinese do not see Taiwanese as foreign), and strikes against them had subtle governmental support. But could there be other reasons behind this difference in tolerance? Things like:

  1. The southern manufacturers with “approved” strikes are mainly exporters, while the banks focus on domestic market.
  2. Workers at the southern manufacturers are mostly young, unskilled country migrants while the ex-bank employees are middle-aged, effectively unskilled, officially city dwellers.
  3. Raising the wages of the unskilled migrants force the exporters to be more competitive while the banks need to reduce their bloated headcounts to be efficient.
  4. Raising wages for migrants helps rebalancing the Chinese economy and builds a middle class, while rehiring the ex-bank employees will…hmm…make their lives better.

Whatever you think of firing these middle-aged people with no real marketable skills, the fact remains that there is economic rationale behind stonewalling their efforts and supporting the cause of the migrant strikers. Whether national policy should be determined solely by economic considerations is another issue though.

Written by Cindy Luk

August 16, 2010 at 7:42 pm

Posted in China, Industries & Companies, Media

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Battle lines hardened in the Chinese property market

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With the CBRC, China’s powerful banking regulator, banning 3rd mortgages and tightening other banking operations like securitization, it seems like the Chinese government, the central government at least, has hardened its resolve in pricking the property bubble.

However, the push back from the property lobby is forceful as well, especially now it seems that government is serious and the tightening measures might last a while. An economist from TsingHua University had calculated earlier on that if the tightening measures last for more than a year, more than 45% of Chinese property companies will encounter solvency problem.

A strong and faithful ally to the property lobby is China’s local governments. Yes, China is not all synchronized and monolithic, and there is indeed internal politics. Many ocal governments absolutely live on land sales. Due to the tightening measures, land sales had been way below budget during the first half of the year. In Hangzhou, a prosperous coastal city, the government sold only 22% of land budged for 2010. Shanghai, China’s money center, sold 29% of its annual plan during the same period.

So in order to secure more revenue, the local governments will definitely push for more loosening, especially now that the economy has weakened. One can only hope that the sane mandarins, who have been calling for “tolerance for a new lower growth rate”, will prevail, but somehow I’m not particularly optimistic.

Written by Cindy Luk

August 13, 2010 at 5:01 am

China to ban 3rd mortgages in key cities

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The Shanghai and other Asian markets have been choppy lately, mainly on the prospect of the Chinese government backing off from regulating the property market. So much so that property sales doubled last week in Beijing. Some other cities have even racked up price increases.

To prove that it’s indeed serious about pricking the property bubble, the powerful China Banking Regulatory Commission is now banning 3rd mortgages in Beijing, Shanghai, Shenzhen, and Hangzhou all together. Taking out 3rd mortgages in other cities, while still legal for now, will require 60% down payment and almost 200bp over prime rate.

Of course the central government worries about economic slowdown, but failing to regulate the property market risk serious popular discontent. With most full year GDP forecasts still in the 9%+ range, the tightening measures seem to be in place, for now.

As a side note, the 21 Century Business Herald has a follow up story on the stress test that raised so many eyebrows. Assuming a 30% drop in housing prices and 108bp  interest rate hike, the property portfolios of  sample banks would have registered 2.2 percentage point increase in their bad debts, and taking 20% hit to pretax profit.

Yes, painful, and would have been excruciatingly more so with a 60% fall in housing prices, but the system will not collapse. With the hindsight, it seems that the 60% fall stress test was ordered partly as a way to advertise to all speculators that the government is indeed serious and won’t be taken hostage by the property market. However, I expect the economy to slow dramatically in Q4, so it might have to sing a different tune by then.

Written by Cindy Luk

August 6, 2010 at 1:56 am

Electricity usage expected to plummet in H2

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I think by now it’s pretty much consensus that China is going to slow down in H2 this year. However, most of the forecasts are  either pretty benign or belong to the “sky’s falling” category. The 21st Century Business Herald had an interview with the association of China’s power plants which expects dramatic fall in electricity usage in H2. Since about 70% of China’s electricity goes towards industrial production, analysts have long use it as a proxy for economic growth.

While the association recored 21.6% growth in H1, it now expects only 5% (!!!) growth in H2. Of course, a major factor behind low growth in H2 is simply higher base for comparison, as the Chinese stimulus only started to show results in H2/09.  The government’s drive to weed out less energy efficient companies is also expected to bear fruit in H2 this year, further depressing electricity demand. But still, the cliff-diving is dramatic to say the least.

Written by Cindy Luk

August 4, 2010 at 4:03 am

Vacant homes in China

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How severe is the Chinese property bubble is one of the most heated debate these days. An earlier report from the South China Morning Post about 64.5mn vacant homes, enough to accommodate 200mn people has everybody (as in here, and here) talking.

The problem with these seemingly shocking figures is that China had only completed 577mn sq m of residential housing in 2009 (National Bureau of Statistics), the highest amount in 10 years. Even assuming a conservative 70 sq m (753 sf) per home, it still comes up to only about 8mn homes.  To have 64.5mn vacant homes would imply that every unit built in the past 10 years is vacant!

So what is the true vacancy rate? The developers insist that it’s only in the single digit (yeah right!) while the doomsayers would have you believe it’s closer to 30%. No, I don’t know what the true number is. But reports like this only serve to illustrate that most in the media have already made up their mind on the state of Chinese property market, and as such any writeup they offer may simply be propaganda from either side of the debate.

Written by Cindy Luk

August 1, 2010 at 2:24 am

Posted in China, Industries & Companies

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