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Thursday, March 31, 2011
China Lays Out Vision for Military
BEIJING — The Chinese military said Thursday that while the security situation in Asia and the Pacific was generally stable, it was becoming “more intricate and volatile,” with no clear solutions for tension points like the divided Korean Peninsula and with the United States increasing its involvement in regional security issues.
The military’s vision was laid out in a national defense white paper, a document published every two years since 1998. The paper tries to walk a line between trumpeting the modernization efforts of the Chinese military and assuaging fears by foreign governments and analysts that the fast-growing People’s Liberation Army will be used for expansionist purposes or regional dominance.
The paper stressed that China’s military buildup is purely defensive in nature, a line that Chinese leaders have long espoused. The paper had more detail than previous editions on China’s attempts to establish confidence-building measures with foreign militaries. In the past year, perceptions by foreign countries of China’s military growth and of a more assertive Chinese foreign policy have resulted in diplomatic discord and discomfort, particularly between China and the United States.
“China attaches importance to its military relationship with the United States and has made ongoing efforts towards building a sound military relationship,” Sr. Col. Geng Yansheng said at a news conference on Thursday, reading from a text. “The Chinese military is now taking steps to advance exchanges with the U.S. military this year.”
But “there’s no denying that in developing military relations, we still face difficulties and challenges,” he added.
The white paper observed that in the Asia-Pacific region, “relevant major powers are increasing their strategic investment.”
“The United States is reinforcing its regional military alliances, and increasing its involvement in regional security affairs,” it added.
Colonel Geng said that the army’s Chief of General Staff, Gen. Chen Bingde, would visit the United States in May. Robert M. Gates, the United States defense secretary, flew to Beijing in January to smooth over military-to-military relations that had been frozen after the Obama administration announced arms sales to Taiwan in January 2010. In June, Mr. Gates got into a prickly dispute with Gen. Ma Xiaotian at a security summit meeting in Singapore, an episode that revealed the deep fissures in the military relationship.
Mr. Gates had to navigate yet another tricky diplomatic situation here when the Chinese military tested a J-20 stealth fighter jet in Sichuan Province while he met in the Chinese capital with President Hu Jintao.
In December, Adm. Robert F. Willard, the commander of United States Pacific Command, told a Japanese newspaper that China had a working design for an antiship ballistic missile that could strike at aircraft carriers and could soon be ready for deployment. The missile, known as a “carrier killer,” has become a symbol in Western military circles of the Chinese army’s technological advances.
The weapon “is not science fiction,” Andrew S. Erickson, a professor at the United States Naval War College, said in an e-mail interview earlier this year. “It is not a ‘smoke and mirrors’ bluff," he wrote. "It is not an aspirational capability that the U.S. can ignore until some point in the future.”
Of equal or greater import is China’s plan to soon deploy an aircraft carrier known to be under construction. But the white paper, while ostensibly aimed at making China’s military development more transparent, did not discuss the carrier project. Colonel Geng dodged a question about it at the news conference.
The paper noted that China still faced challenges from “separatists” striving for the independence of the restive western regions of Tibet and Xinjiang and the self-governing island of Taiwan.
“Pressure builds up in preserving China’s territorial integrity and maritime rights and interests,” it said. “Nontraditional security concerns, such as existing terrorism threats, energy, resources, finance, information and natural disasters, are on the rise. Suspicion about China, interference and countering moves against China from the outside are on the increase.”
The Chinese government has announced that the military budget for 2011 is about $92 billion, up 12.7 percent from 2010. The previous announced annual increase was 7.5 percent, the first time in years that the reported growth had dipped below double digits.
“China pursues a national defense policy which is defensive in nature,” the white paper said. “China will never seek hegemony, nor will it adopt the approach of military expansion now or in the future, no matter how its economy develops.”
China Hedges Over Whether South China Sea Is a ‘Core Interest’ Worth War
BEIJING — When President Hu Jintao of China dropped in on Washington this winter, one hot-button topic was notably absent from the agenda: the South China Sea. Nor will Chinese officials be keen to discuss it during a summit meeting between the countries planned for May in Washington.
In the past year, it has been one of the most delicate diplomatic issues between China and the United States. Perhaps no other point of tension has been as revealing of the difficulties American officials have reading and responding to Chinese foreign policy. But in recent months, Chinese leaders have apparently been happy to let the issue quiet down, perhaps for the sake of smoothing over relations with the Obama administration.
China, Taiwan and four Southeast Asian nations have been wrangling for years over territorial claims to the South China Sea. Then last July, amid heightening tensions in the waters, Secretary of State Hillary Rodham Clinton rallied with Southeast Asian nations to speak out against China. She bluntly said in Hanoi that the United States had a “national interest” in the area, and that China and other countries should abide by a 2002 agreement guaranteeing a resolution of the sovereignty disputes by “peaceful means.”
Chinese officials were shocked that the United States was getting involved, analysts say. A public debate erupted in China over this question: Should China officially upgrade the South China Sea to a “core interest,” placing it on par with other sovereignty issues like Tibet, Taiwan and Xinjiang that could justify military intervention?
Some Chinese officials appeared to have floated that idea in early 2010 in private conversations with their American counterparts. Several American officials told reporters in Beijing and Washington last year that one or more Chinese officials had labeled the South China Sea a “core interest.” But despite those remarks and the public debate that came later, Chinese leaders have not explicitly come out with a policy statement describing the South China Sea as such — nor have they denied it.
“It’s not Chinese policy to declare the South China Sea as a core interest,” said Zhu Feng, a professor of politics and international relations at Peking University. “But the problem is that a public denial will be some sort of chicken action on the part of Chinese leaders. So the government also doesn’t want to inflame the Chinese people.”
The Foreign Ministry and the State Council, China’s cabinet, did not answer questions on the issue, despite repeated requests.
Michael Swaine, an analyst at the Carnegie Endowment for Peace, has published a paper with the China Leadership Monitor looking at China’s growing use of the term “core interest.” Since 2004, Chinese officials, scholars and news organizations have increasingly used the term to refer to sovereignty issues. Initial references were to Taiwan, but the term now also encompasses Tibet and Xinjiang, the restive western region. After examining numerous Chinese print sources, Mr. Swaine concluded that China had not officially identified the South China Sea as a “core interest.” Some “unofficial differences in viewpoint, along with the likely dilemma involved in confirming whether the South China Sea is a core interest, together suggest the possibility of disagreement among the Chinese leadership on this matter,” Mr. Swaine wrote.
That is not to say that China has refrained from asserting its sovereignty claims. On March 24, a Foreign Ministry spokeswoman, Jiang Yu, said at a news conference that China held “indisputable sovereignty” over the Spratly Islands.
By spring 2010, it seemed to some American officials that Chinese officials were pushing beyond the standard sovereignty claims, calling the South China Sea a “core interest.” In a November interview with The Australian, Mrs. Clinton said Dai Bingguo, the senior foreign policy official in the Chinese government, told her that at a summit meeting in May 2010.
“I immediately responded and said, ‘We don’t agree with that,’ ” Mrs. Clinton said, though some scholars in the United States and China question whether Mr. Dai made the remark. Then in July 2010, at a meeting of the Association of Southeast Asian Nations in Hanoi, Mrs. Clinton made the statements that enraged the Chinese. M. Taylor Fravel, a professor at the Massachusetts Institute of Technology who studies China’s territorial issues, said Mrs. Clinton’s move was in reaction to a long series of episodes in the South China Sea that American officials believed reflected greater assertiveness by China.
After Mrs. Clinton’s statements, the English-language edition of Global Times, a populist Chinese newspaper, published an angry editorial that linked the South China Sea to China’s core interests — “China will never waive its right to protect its core interest with military means,” it said. Senior military officers weighed in on both sides. Han Xudong, an army colonel and a professor at National Defense University, wrote in Outlook, a policy magazine, that “China’s comprehensive national strength, especially in military capabilities, is not yet enough to safeguard all of the core national interests. In this case, it’s not a good idea to reveal the core national interests.”
The Web site of People’s Daily, the official mouthpiece of the Communist Party, posted a survey asking readers whether it was now necessary to label the South China Sea a “core interest.” As of January, 97 percent of nearly 4,300 respondents had said yes.
Muddying the whole issue has been the parallel use of “core interests” advanced by Mr. Dai. In 2009, he broadened the definition of the term by saying China had three core interests: maintaining its political system, defending its sovereignty claims and promoting its economic development. Some Chinese officials might now see the South China Sea and all other sovereignty disputes as falling under “core interests.”
The debate in the Chinese news media seemed to reflect a divide among Chinese officials. Then in the fall, news organizations were ordered to stop writing about it.
“Now I think they are backing away and downplaying the question because of the trouble it is causing with the U.S. and the ASEANs,” said Joseph Nye Jr., a professor of international relations at Harvard and a former Pentagon official.
Monitoring China’s actions in the South China Sea is a more reliable way of gleaning its intentions, said Lyle Goldstein, director of the China Maritime Studies Institute at the U.S. Naval War College. His research shows that in August, Modern Ships, a publication linked to the Chinese Navy, detailed how two civilian surveillance ships planted a Chinese flag in the southern part of the sea; Mr. Goldstein said the fact that the ships were unarmed showed that China was taking a cautious approach.
But “there has been an increase in hawkish declarations by Chinese naval leaders since last summer, reflecting a dangerous escalation of tensions,” Mr. Goldstein said. In November, Modern Ships quoted Admiral Hu Yanlin as saying that “international anti-China forces led by America” had stirred up discord in the region.
“We are peace-loving,” Admiral Hu said, “but we also need to make the appropriate plans and preparations.”
G-20 Officials Differ Over Monetary Goals
NANJING, China—Top officials at a meeting of the world's major developed and emerging economies offered starkly different views on exchange rates and other elements of the international monetary system, underlining the challenges facing efforts to find a new global financial architecture.
Highlighting the tensions overshadowing the one-day meeting of Group of 20 officials in the eastern Chinese city of Nanjing, U.S. Treasury Secretary Timothy Geithner emphasized the importance of flexible exchange rates in prepared remarks that were a thinly veiled criticism of China's currency policy—which Beijing had insisted shouldn't be discussed at the meeting.
Participants at the gathering voiced agreement that the International Monetary Fund's role should be larger, that capital controls can be useful in some circumstances, and that China's currency should eventually be included in the IMF's special drawing rights, or SDR, a synthetic currency that some see as an alternative to the dollar.
But the officials, who also included French President Nicolas Sarkozy and Chinese central-bank governor Zhou Xiaochuan, differed widely on the means and speed for achieving those goals, and on which elements of the global financial system most need change.
G-20 finance ministers will next meet in Washington on April 15, a day ahead of the IMF spring meeting. But the continuing disagreements raise questions about the effectiveness of the group in plotting common action after the fear of a global financial collapse has faded. G-20 critics have warned that the group could devolve into another international body that is long on talk but unable to produce concrete results.
Mr. Geithner didn't specifically mentioned the yuan—whose value China closely manages—but he argued that flexible exchange rates help countries better absorb shocks, and that the tension between flexible currencies and those that are "tightly managed" is "the most important problem to solve in the international monetary system today."
The Treasury secretary's remarks, on one of the thorniest issues dividing the world's two biggest economies, reflected disagreement that has clouded the Nanjing gathering since its inception. China reluctantly agreed to Mr. Sarkozy's request to co-host the meeting, a hybrid between an official meeting of the G-20 and an academic seminar that the French president hoped would further his country's agenda as head of the G-20 this year. But Beijing sought to minimize the gathering's importance, holding it far from Beijing, limiting it to a single day and insisting that its own widely criticized exchange-rate policies weren't up for discussion.
The U.S. and other governments have long complained that China unfairly keeps the yuan undervalued to benefit its exporters, and asserted that the policy aggravates global trade and capital imbalances. China has let the yuan rise just 4.2% against the dollar since ending its de facto peg in June—far slower than critics want.
The G-20 has made "global rebalancing" a central goal—meaning trade-deficit countries like the U.S. save more and import less while trade-surplus countries like China do the opposite. But, in practice, that has meant the group has become the central forum for pressuring China to let its currency appreciate faster.
Beijing argues that U.S. policy—in particular the Federal Reserve's practice of buying Treasury debt to try to keep interest rates down, known as quantitative easing—has weakened the dollar and sent big capital flows into emerging markets that are fueling inflation.
Ahead of Thursday's meeting, a prominent Chinese government academic blasted the Fed's policy and the dollar's global dominance, saying they are the "significant problems" in the international monetary system. Xu Hongcai, a professor at the China Center for International Economic Exchanges—a state-run think tank that was a co-organizer of the Nanjing gathering—said dollar dominance has aggravated financial crises, and he blamed Fed policy for excess global liquidity and inflation.
Chinese officials speaking Thursday avoided addressing the currency issue directly, instead issuing relatively vague calls for gradual change to the global system.
Mr. Zhou, the People's Bank of China governor, said the international community shouldn't focus on quick fixes, in what appeared to be a dig at U.S. pressure for faster yuan appreciation. "China and emerging economies have a strong hope that we can look further than the short term, and use the medium- and long-term view to start to adjust the global economy," he said. Vice Premier Wang Qishan, the top Chinese official at the gathering, said Beijing will work with others toward "a more equitable global monetary system."
Mr. Sarkozy repeated calls for the G-20 to agree on a timetable for the inclusion of the yuan in the basket of currencies underlying special drawing rights, which France sees as a means to help wean the world off the dollar and to promote a stronger, more freely convertible yuan—a central goal for France's G-20 leadership.
Mr. Geithner said the U.S. supports changing the composition of SDRs to include "currencies of large economies heavily used in international trade and financial transactions." But he listed conditions that would make including the yuan impossible without deep reforms that China is unlikely to accept, saying countries whose currencies are included should have "flexible exchange rate systems, independent central banks, and permit the free movement of capital flows," Mr. Geithner said. The SDR basket is now made up of the dollar, the euro, the pound and the yen.
China's policy makers have said they will gradual increase the yuan's flexibility and open further to international capital flows, but China's central bank operates under the strict control of the Communist Party leadership, which has ultimate say over all key economic policies.
Mr. Zhou said Thursday that China isn't in a hurry to add the yuan to the SDR basket but that it will likely happen "sooner or later." Li Daokui, a Chinese economist and adviser to the People's Bank of China, said the international community shouldn't link yuan's convertibility to SDR changes.
Chinese officials seemed "a lot more circumspect about including the yuan in the SDR basket," said Eswar Prasad, former head of the IMF's China division, who participated in Thursday's discussions. "They seem to be worried it will put more pressure on them to move towards currency convertibility than they would like."
Several participants Thursday said there is growing consensus among G-20 members that countries should be able to use capital controls under certain circumstances.
"Today, we see them more as part of the toolkit, although only in specific circumstances and not, of course, as a substitute for good macroeconomic policies," said Dominique Strauss-Kahn, managing director of the IMF, which in the past has resolutely opposed capital controls.
Mr. Geithner called for the IMF to advise nations on "the appropriate use of prudential tools, rather than capital controls, to limit the risks that large capital inflows imperil domestic financial stability."
Mr. Sarkozy argued the IMF should have powers monitor members' capital accounts, which measure investment flows, and not just their current accounts, which mainly measure trade, as is the case now.
But developing countries—in particular, Brazil, according to one participant—expressed wariness of overly rigid rules for using capital controls, wanting to maintain a freer hand.
Rintaro Tamaki, Japan's vice finance minister for international affairs, said he had proposed giving the IMF a new mandate for financial stability. But he said there was "quite persistent opposition" to the idea of expanding the Fund's role as a global lender of last resort because of concerns that it would create moral hazard by making countries think they could take excessive risks and still be bailed out.
Mr. Geithner argued that the IMF should be given greater freedom to publish its analysis of countries' exchange rates and imbalances, something China has resisted.
Sarkozy Backs Broader Role for Yuan as Geithner Urges Flexibility at G-20
The U.S. and France signaled openness to a greater role for the yuan while stressing the importance of exchange-rate flexibility as Group of 20 officials met in China to discuss the international monetary system.
French President Nicolas Sarkozy said the yuan should be in the International Monetary Fund’s Special Drawing Rights, a unit of account derived from the value of the dollar, yen, pound and euro. U.S. Treasury Secretary Timothy F. Geithner said world powers’ currencies should be included “over time” so long as they have flexible exchange rates and free capital flows.
Chinese officials said that the yuan’s value wouldn’t be a topic at today’s seminar in Nanjing and Geithner didn’t refer to the currency directly in his prepared remarks. At the same time, he said the mismatch between flexible currencies and the “tightly managed” exchange rates of some emerging economies is the most important problem to solve in the international monetary system.
“China will continue to proceed with currency reform at its own pace” and regardless of Sarkozy and Geithner’s comments, said Shen Jianguang, a Hong Kong-based economist at Mizuho Securities Asia Ltd., who formerly worked for the International Monetary Fund and the European Central Bank.
The yuan touched 6.5488 per dollar in Shanghai today, the highest in 17 years. The U.S. describes the currency as still “substantially undervalued,” with American lawmakers arguing that gives China, the world’s biggest exporter, an unfair advantage in global trade.
‘Overwhelming’ Support
The Special Drawing Rights basket is reviewed every five years by the IMF’s executive board, and the most recent changes took effect in January. The next review will be in 2015, according to the Washington-based fund’s website.
Jim O’Neill, chairman of Goldman Sachs Asset Management, said the “overwhelming” view at today’s event seemed to be that the yuan should be included earlier than the IMF procedures may currently allow. His view is that the currency doesn’t need to be fully convertible and should be brought in “now.”
Sarkozy said that imbalances under existing monetary arrangements indicate the need for a “more flexible system” rather than a return to fixed or managed exchange rates.
G-20 finance chiefs, central bankers including the European Central Bank’s Jean-Claude Trichet and private economists are meeting for the one-day seminar that Sarkozy initiated on altering the monetary system to reduce the risk of a repeat global financial crisis.
IMF’s Role
The French president said that the IMF should have a bigger role in supervising nations’ balance of payments and reserves to help limit risks.
In October 2008, after the collapse of Lehman Brothers Holdings Inc., the volatility of the world’s major currencies rose to the highest level since at least 1992, according to a JPMorgan Chase & Co. index. Price swings also increased in May last year because of Europe’s debt turmoil and this month because of Japan’s earthquake.
The Group of Seven nations intervened to weaken Japan’s yen after the March 11 disaster. Sarkozy suggested today that a broader group should monitor currency markets.
Today’s meeting at the Purple Palace resort is being attended by economists including Nobel laureate Robert Mundell. It’s intended to lay the groundwork for an agreement at the G-20 summit in Cannes, France, in November that would lead to a more “stable and resilient” monetary order, Sarkozy said.
‘Financial Protectionism’
With France holding the presidency of the G-20 this year, Sarkozy has made the monetary system one of his priorities. He said today that without extra rules for foreign-exchange regimes, there is a risk of more conflict over currencies.
Sarkozy recalled the G-20’s unity at the height of the global financial crisis in 2009. Now, nations pursuing their own interests risk a “proliferation of unilateral measures during crises resulting in a new financial protectionism in which all economies suffer,” he said.
A gathering of G-20 finance ministers in February underscored the difficulties, with China resisting the inclusion of foreign-exchange reserves as a yardstick for gauging global imbalances. Sarkozy views China’s decision to host today’s event as a first step toward a more flexible yuan that should result in its inclusion in the IMF’s currency basket.
Created in 1969, Special Drawing Rights serve as international reserve assets and represent potential claims on usable currencies of IMF members. As of March 30, one SDR was the equivalent of $1.5797.
Capital Flows
“Currencies of large economies heavily used in international trade and financial transactions should become part of the SDR basket,” Geithner said. “To achieve this objective, the concerned countries should have flexible exchange-rate systems, independent central banks and permit the free movement of capital flows.”
An SDR system without the yuan would be “ridiculous” and lack legitimacy, People’s Bank of China adviser Li Daokui said in Nanjing.
Chinese President Hu Jintao told Sarkozy yesterday in Beijing that China views the internationalization of the yuan as inevitable, with only the pace of the move in question, a French official said.
Officials including French Finance Minister Christine Lagarde are discussing topics including “shortcomings in the international monetary system” and dealing with volatile capital flows, according to the schedule for the conference at Nanjing, a city on the Yangtze River, about 170 miles (270 kilometers) from Shanghai.
U.S. Monetary Policy
Nations including Brazil, China and South Korea have argued that U.S. monetary easing has added to the threat of inflows of capital fueling inflation and asset bubbles. Ahead of today’s meeting, Xu Hongcai, a Chinese state economist, revived complaints about U.S. monetary policy in a paper that said the world had fallen into a “dollar trap.” Xu is an official at the China Center for International Economic Exchanges, the co- host of the Nanjing event.
China has an extra stake in the U.S. maintaining the value of the dollar as the biggest foreign holder of Treasuries, owning more than $1.1 trillion of the securities. China’s build- up of a world-record $2.85 trillion of foreign-exchange holdings, driven by trade surpluses and limits on gains in the yuan, highlights imbalances blamed for contributing to the global financial crisis.
Family policy relaxed in Beijing for more couples
Beijing - China's capital city will make fewer couples subject to the fines charged to those who violate China's family planning policy by having a second child, according to the municipal commission of population and family planning.
Under the new guidelines, Beijing couples that are composed of two only children and that give birth to a second child will be charged fines only if both the mother is younger than 28 and the second child is born within four years after the first.
In the past, such couples had to pay a fifth of their annual income if they had a second child either when the mother was younger than 28 or did not wait at least four years after the birth of the first child.
Not all couples, though, will be exempted from the policy. Those in which one partner has a sibling -- or both partners do -- will still be discouraged from having a second child.
The change comes amid wide speculation that China is planning to relax its family planning policy. But some believe it will fail to satisfy the public's hopes.
Mu Guangzong, a professor of population research at Peking University, said the relaxed rules in Beijing are an improvement over the previous policy, but are not enough to help right China's population imbalances and raise fertility rates.
Mu called for a relaxation of the family planning policy throughout China and for every couple to be allowed to have two children. The family planning policy has been credited in the past 30 years with easing short-term population pressures, but has placed greater stresses on pension systems, led to there being fewer women than men in China and depleted the pool of able-bodied laborers.
The current average fertility rate in China is between 1.4 and 1.8, but should be maintained at 2.1 to ensure the replacement of the population over time, Mu said.
Yang Zhizhu, a former law professor in Beijing who sued local family planning authorities in January 2011 for having a second child and refusing to pay a fine of 240,642 yuan ($36,962), saw little reason to praise the relaxation of the rules in Beijing.
Fines on couples who have a second child, even if they are paid by fewer people, remain legally unjust, Yang told China Daily on Wednesday.
Meanwhile, the call for relaxing the one-child restriction is gaining momentum in other Chinese cities. Citing Zhang Feng, director of the provincial family planning commission, Guangzhou Daily reported earlier this month that Guangdong province would seek the central government's approval to try out allowing all couples to have a second child.
Wang Yuqing, deputy director of the Committee for Population, Resources and Environment under the Chinese People's Political Consultative Conference, said China may adjust its family planning policy during the 12th Five-Year Plan period (2011-2015).
Wang said birth rates in big cities like Beijing and Shanghai have been on the decline for years, and the size of the working-age population began to decrease since 2009.
A gradual relaxation of the policy, allowing couples to have a second child, will not lead to a sudden population increase, Wang said.
Wednesday, March 30, 2011
China builds higher fences over fears of instability in North Korea
China is reinforcing fences and has stepped up patrols along its border with North Korea as fears mount of a catastrophic famine in the secretive Stalinist state.
Fences more than 13ft high, topped with barbed wire, are now being erected along an eight-mile stretch of the Yalu river around the Chinese city of Dandong. This is a popular escape point for North Korea refugees seeking food or better lives, Korea's Yonhap news agency reported.
"It's the first time such strong border fences are being erected here. Looks like it is related to the unstable situation in North Korea," a resident said of the work which began last November but is ongoing.
Previously the border was only marked by a 10ft-high fence which "anybody could cross if they really wanted", the resident added.
Fears for the stability of North Korea have been heightened in recent weeks with reports of a growing food crisis following the severest winter in 60 years and an outbreak of foot-and-mouth disease that has hit the oxen that are still mainly used to plough the North's fields.
This week, in a highly unusual step, foreign aid agencies based in Pyongyang issued a joint statement warning that 6 million North Koreans now need urgent food aid because crops of potatoes, wheat and barley have all failed.
The groups, which include Save the Children and the Swiss government's relief agency, warn that already-malnourished North Koreans could face a total collapse in the North's food distribution system as early as May.
Earlier this month the UN's World Food Programme warned that the at-risk population urgently needed 475,000 tons of food, including cereals and soya beans, to increase protein in the diets, but warned of the risk of corruption in distribution channels.
North Korea experienced a widespread famine in the second half of the 1990s that is estimated to have killed up to a million of the country's 22m-strong population.
In the past North Korea has relied on massive food aid from South Korea – the so-called "sunshine policy" – but the aid has now stopped after attacks by North Korea soured relations between the two countries.
World Food Program officials briefed the South's government on Wednesday about the growing food needs in the North, however Seoul has made it clear that it will not resume aid to the North until Pyongyang takes responsibility for past attacks.
These also include the torpedoing of a North Korea warship, the Cheonan, last March with the loss of 46 South Korean sailors, an act which the North denies.
China has tried to urge North and South to restart stalled peace talks, warning that failure to negotiate with Pyongyang could destabilise North Korea, plunging the country into chaos and precipitating a flood of refugees across the border it is currently reinforcing.
However in a sign that Seoul intends to keep up the pressure on Pyongyang, its armed forces conducted live-fire exercises on Yeonpyeong, the same island where two marines and two civilians were killed in a North Korean artillery bombardment last year.
Google Tests Fate in China as Mapping Application Deadline Looms
Google Inc. (GOOG)’s defiance of China’s censorship rules resulted in the world’s most popular search engine being pulled out of the country 12 months ago. This year, the dispute may be spilling over to Gmail and maps.
As of yesterday, China’s State Bureau of Surveying and Mapping hadn’t received an application from Google to keep offering its service, as required under regulations announced in May, according to Kou Jingwei, the bureau’s spokesman. Jessica Powell, a Google spokeswoman, declined to comment on whether the company has applied. The deadline is tomorrow.
As Baidu Inc. widens its lead in the world’s largest Web market, a discontinuation of the mapping service would signal Google’s dimming outlook in China, according to analysts, after the company blamed local censors for disruptions in its e-mail service. The latest clash shows the government hasn’t forgiven Google’s decision to halt compliance with censorship rules on Internet searches, said Christopher Tang, a professor of business administration at UCLA.
“Google faces major problems within China,” Tang said. “Unless Google is going to change the way they operate, unless they are willing to apologize to the Chinese government, unless they are willing to cooperate with the Chinese government to impose censorship according to the wishes of the Chinese government. Otherwise, there’s no deal.”
Google British East India
A March 4 opinion piece in the official People’s Daily, the mouthpiece of China’s Communist Party, compared Google with the British East India Company, whose sales of opium in the country was the root of two 19th-century conflicts.
China introduced a new licensing system for Internet mapping services in May to “address illegal practices” and an “inadequate awareness of national security,” the official Xinhua News agency reported March 21. Since 2008, online mapping services have committed more than 1,000 violations including unauthorized disclosure of confidential information and mistakes in drawing the country’s border, Xinhua reported.
As of mid-February, the bureau had granted licenses to 105 websites for mapping services, including Baidu, Sina Corp., a Nokia Oyj (NOK1V) joint venture and China Mobile Ltd. (941), Xinhua said. The bureau has pledged to close unapproved websites.
The Bureau said applications for license must be made by March 31, to avoid “administrative actions” it will take by July 1. The Bureau this month vowed “resolute punishment for serious violations,” such as closing websites, Xinhua said.
License Renewal
“We are examining the regulations to understand their impact on our maps products in China,” Google said in a statement.
Google in July was able to renew its Internet-service license in China through 2012, even after shuttering its Google.cn site in China and redirecting users to a Hong Kong site. The company had said it was no longer willing to comply with online censorship rules on topics such as Tiananmen Square crackdown in 1989 and Tibet independence.
In the latest round of friction, Google accused local censors of disrupting its Gmail e-mail service and disguising the blockage as technical issues on Google’s behalf. China’s Foreign Ministry spokeswoman Jiang Yu on March 22 called that claim “unacceptable.”
“In the 17-19th centuries, the East India Company made their contribution for the development of a British Empire where ‘‘the sun never sets’’ through the monopoly of trade, the opium trade and openly looting,” the People’s Daily piece said. “Google is essentially similar to the East India Company, but is smarter in its performance than the East India Company. Google does not burn and loot, and they are also good at camouflage.”
Opium War
China fought the first Opium War with the British Empire in 1839-42, and a second from 1856-1860.
Beyond Google’s own history of conflict with China’s censors, the company is now also being perceived as a greater threat to the government in light of popular unrest throughout North Africa and the Middle East that has already brought down regimes in Tunisia and Egypt, said James Lewis, senior fellow at the Center for Strategic and International Studies, a Washington-based policy group.
“Google’s caught in some larger political issues,” Lewis said. “It’s a very big problem, and the events in the Middle East have made it a little bit bigger.”
Google executive Wael Ghonim helped set up a website for Egypt opposition leader Mohamed ElBaradei as anti-government protests in the Middle Eastern country toppled President Hosni Mubarak. Ghonim’s 11-day detention turned him into a hero for a disaffected Egyptian youth.
Blocking Facebook
China, the world’s largest Internet market with 457 million Web users, bans pornography, gambling and content critical of the ruling Communist Party. It already blocks Google’s YouTube site as well as social-networking websites run by Facebook Inc. and Twitter Inc.
The People’s Daily piece, which also called Google “a tool of U.S. expansionism and hegemony,” ran on other popular websites in China including Tencent Holdings Ltd. (700)’s QQ.com and Sina Corp.
Without specifically commenting on the People’s Daily piece, Mountain View, California-based Google denied that the U.S. government meddles in its affairs.
“Contrary to assertions made by the Chinese media, every decision we have made regarding China has been made by Google alone,” the company said March 7 in an e-mailed reply to Bloomberg News.
Widening Gap
Baidu accounted for 75.5 percent of China’s search-engine market by revenue in the fourth quarter, rising from 73 percent in the previous three months, according to research company Analysys International. Google’s share dropped to 19.6 percent from 21.6 percent, the research firm said.
Google may fall further behind as companies such as Sina, owner of China’s third-most-visited website, said it dropped Google’s search engine to use its proprietary technology.
Google’s China business is “immaterial to the overall financials,” so the value of its operations in the country has more to do with the future than the present, said Clay Moran, an analyst at Benchmark Co. who rates the shares “buy” and doesn’t own any.
China contributed about 1 percent of revenue before it changed its approach in the country to search early last year, Moran estimates.
Sina stopped using Google’s search service after the expiry of a contract, Liu Qi, a spokesman at Chinese Web portal operator, said in an e-mail today. The Shanghai-based company will instead use its own proprietary technology, he said.
“It’s a lot less strategic than it was a year or two ago,” Moran said. “Investors prefer to see Google maintaining a position in the country so that it can potentially benefit from growth in the future.”
ICBC Fourth-Quarter Profit Jumps 33% to $5.8 Billion on Wider Loan Margins
Industrial & Commercial Bank of China (1398) Ltd., the world’s largest lender by market value, posted a 33 percent gain in fourth-quarter profit as wider loan margins allowed Chinese banks to overcome a slowdown in credit growth.
Net income climbed to 37.9 billion yuan ($5.8 billion) in the quarter ended Dec. 31, based on figures released by the Beijing-based bank today. That exceeded the 36.6 billion yuan average estimate of 19 analysts surveyed by Bloomberg.
ICBC, whose full-year profit of $25.2 billion was more than a third bigger than that of JPMorgan Chase & Co. (JPM), and rivals including Bank of China Ltd. benefited from widening margins on loans, which account for the bulk of their earnings. China’s bank regulator said yesterday it will keep restraining lending this year, forcing lenders to slow expansion plans.
“Margin expansion will be more evident as an earnings driver this year,” said Xie Aihong, a Beijing-based analyst at Rising Securities Co., before the earnings were announced. “But banking shares may still underperform because their operating conditions deteriorate as the government keeps tightening.”
ICBC’s net interest margin, a measure of the profitability of loans, widened to 2.44 percent last year from 2.26 percent in 2009.
Smaller rival Bank of Communications Co., the nation’s fifth-largest, today posted a 34 percent increase in fourth- quarter profit to 9.5 billion yuan, exceeding the average analyst estimate by 12 percent. The lender’s net interest margin expanded 16 basis points to 2.46 percent in 2010. A basis point is 0.01 percentage point.
Valuation
The country’s five biggest lenders -- ICBC, China Construction Bank Corp., Bank of China, Agricultural Bank of China Ltd. and BoCom -- boosted combined profit 29 percent last year to a record 515.1 billion yuan, according to the China Banking Regulatory Commission.
Shares of ICBC have risen 10 percent in Hong Kong this year, after dropping 8.4 percent in 2010 on concern that the quality of loans to property projects and local governments will worsen. The stock trades at 9.6 times forecast 2011 earnings, near the cheapest level in two years, data compiled by Bloomberg show.
ICBC advanced 1.06 trillion yuan of new loans last year, taking the outstanding amount to 6.79 trillion yuan. The growth rate slowed from 25 percent in 2009. President Yang Kaisheng said this month that growth will continue to slow this year.
ICBC’s net interest income rose 24 percent to 303.75 billion yuan last year. Net fee and commission income from products and services such as credit cards, wealth management and insurance sales jumped 32 percent to 72.8 billion yuan, the bank said.
Rate Increases
An unprecedented $2.7 trillion of loans extended by domestic banks in the past two years has driven inflation to near a two-year high and fanned concerns that a property bubble will form and eventually deflate. China faces a 60 percent risk of a banking crisis should a property bubble burst, according to Fitch Ratings.
The People’s Bank of China has raised interest rates three times since October and pushed up the ratio of deposits banks must set aside as reserves to 20 percent for the country’s biggest lenders, the highest in at least two decades.
Along with interest rate increases, China in January raised the minimum down payment for second-home purchases, told local governments to set price targets on new properties, and introduced taxes for homes in the cities of Shanghai and Chongqing.
The country’s real estate market has defied the curbs as home sale values rose 26 percent in the first two months this year, according to China’s statistics bureau.
ICBC said it set aside 28 billion yuan against potential soured debts last year, up from 23 billion yuan a year earlier. The lender’s bad loans stood at 73.24 billion yuan on Dec. 31, down 3 percent from three months earlier. ICBC said it plans to keep the non-performing ratio below 1.1 percent this year.
The bank plans to increase assets by 1.5 trillion yuan this year and total liabilities by 1.4 trillion yuan, according to today’s statement.
Cnooc, Total Buy Into Uganda
LONDON—Oil-and-gas company Tullow Oil PLC said it will sell one-third stakes in three Ugandan exploration areas to Total SA and China's Cnooc Ltd. for $2.9 billion in cash, pushing forward a development that is set to transform Uganda into a major oil producer.
Once completed, the deal will allow Tullow and its partners to get approval from the Ugandan government for a proposed $10 billion program to develop the license areas, which includes boosting oil production to about 200,000 barrels a day by around 2015, building a refinery and a pipeline to the Indian Ocean.
"This is an enormous African project and will be one of the biggest in Africa and will be transformative for both Africa and Uganda," Tullow Chief Executive Officer Aidan Heavey said in a telephone interview. Tullow expects to complete the transaction, subject to regulatory approvals by China and Uganda, in the next four to six weeks, a statement said.
The agreement with Total and Cnooc has been in the works for over a year while a tax dispute involving Heritage Oil, which sold its stake in the licenses to Tullow, was resolved.
Tullow was able to sign the agreement with Cnooc and Total following a memorandum of understanding with the government two weeks ago that decoupled Tullow from the Heritage tax dispute and allowed the stake sales to move forward.
However, Tullow's deal with Cnooc and Total has opened a fresh dispute over $473 million in capital-gains tax the Ugandan government says is due on the sale. But the new dispute won't prevent the completion of the deal, Mr. Heavey said.
Tullow has agreed to deposit 30%, or $142 million, of the total tax assessment in a Ugandan bank account within five business days of completion of the sales of the stakes and then follow the normal tax-dispute resolution process in Uganda.
"This isn't standing in the way of completing the deal," Mr. Heavey said.
Later Wednesday, Tullow's general manager in Uganda, Brian Glover, said the new tax dispute is expected to be resolved in the next 12 months.
Exploration areas 1, 2 and 3A are located in the Lake Albert Rift Basin in Uganda.
Tullow said it has already found around one billion barrels of oil there and hopes to find up to 1.5 billion barrels more.
Upon completion of the two transactions, Cnooc, Tullow and Total will each hold one-third interests in the three areas, it said.
Analysts said the $2.9 billion Tullow got for the stakes was better than expected, but the tax issues with the Ugandan government could weigh on shares, as it could halt development of the basin if not resolved within the next 12 months.
Goodyear aims for another good year
US tire maker to raise capacity and expand in growing Chinese market
SHANGHAI - The United States-based Goodyear Tire and Rubber Co said on Tuesday that it plans to open more stores in China this year.
The new outlets are part of a strategy to further tap into the Chinese market, at a time when tire makers are under scrutiny after malpractices surfaced earlier this month.
The opening of the new stores will raise the company's total number to 1,000 in China, where the company says an efficient retail and distribution network is "essential" for achieving success.
Goodyear's expansion comes after doubt was cast on working practices at some tire makers. Kumho Tire Co Ltd, a leading producer in China, was found to have used excessive amounts of recycled rubber as raw materials in a plant in Tianjin.
The excessive use of recycled material has the potential to cause accidents as it can lead to bulges in the tires, or even result in them splitting.
When asked if the Kumho scandal had provided an incentive for Goodyear to accelerate expansion in a bid to gain market share, Huang Yuan, managing director of Goodyear China, said that the expansion plan has been formulated according to the company's own strategy and that "China's tire market is so big and growing so quickly that we don't need to take advantage of others' misfortunes to register growth".
He also said that the amount of recycled rubber used in the company's tires is well within standards, and promised "world-class quality" for the products made by its factories in China.
"Actually we export our Chinese-made products to Japan and Germany, which means we have to meet the world's most demanding engineering and quality standards," he said.
The expansion plan comes after Goodyear registered a strong year in China. "2010 was a good year and this is an exciting time for Goodyear in China," said Pierre Cohade, president of the company's Asia-Pacific region.
Sales, profit and revenue all jumped to record highs in 2010, said Cohade, who declined to provide specific numbers, citing corporate policies.
"In fact, we have been back-ordered in China over the past two years, with our capacity falling short of rising demand," Cohade said. "We have both short- and long-term plans to expand our manufacturing capacity here in China."
A $700 million plant is currently under construction in Pulandian, Liaoning province.
The facility has been designed to produce as many as 5 million tires a year, raising Goodyear's total annual capacity in the country to 11.5 million tires.
The new factory, which is expected to be operational by May, will serve the company's target of doubling sales in China by 2013, the company said.
Tuesday, March 29, 2011
Have You Heard
- Analysis: China G20 to go nowhere fast on global currency reform
- China Cosco Predicts 32% Bulk-Cargo Slump as Global Fleet Outpaces Demand
- Food to be tested for radiation
- Japan shipper mulls future of vessel with "abnormal" radiation
- Guangdong Nuclear Tests Sentiment After Fukushima With Hong Kong Listing
Analysis: China G20 to go nowhere fast on global currency reform
(Reuters) - A lack of cohesion on global monetary reform will be on display this week when the Group of 20 wealthy and developing economies meets in China for a seminar, an event that was supposed to have been a starting point for Sino-French efforts to design a new global currency order.
At the start of its year-long G20 presidency, the French government thought it could count on China as a partner in spearheading change. Four months on, those hopes have been dashed by the reality of conflicting national interests and the enormity of the challenge in any serious attempt at reform.
Discussion topics at the seminar, which takes place on Thursday, still sound ambitious.
A first panel is set to look at shortcomings in the international monetary system. In a sign of the importance that France attaches to the event, President Nicolas Sarkozy will deliver the opening speech, though he will be the only head of state attending the meeting.
But all the signals from China are that it is a most reluctant host, its commitment to the cause of reform less extensive than France had believed.
Stuttering cooperation stems in part from a rancorous G20 meeting in France in February, when China fought hard against a plan to include exchange rates and currency reserves as indicators for identifying economic imbalances.
"China doesn't think that there's really much room for progress in the G20 under France. The government (Beijing) has become more realistic in pushing instead for yuan internationalization ... something it can achieve itself," said Zhang Ming, an economist in the Chinese Academy of Social Sciences, a top government think-tank in Beijing.
"It's not as enthusiastic as before about getting into the currency reform issue," Zhang added
Despite being a showpiece of Sarkozy's G20 agenda, basic details about the seminar have only been finalized at the last minute. China agreed just a month ago to hold it in Nanjing, a second-tier city that was the national capital in the past but has little economic or political clout today.
The Chinese foreign ministry has also taken pains to distance itself from the seminar, emphasizing that France is the organizer and China merely the staging ground. It has insisted that a small think-tank headed by a retired vice premier is responsible for the Chinese side of the planning.
TOUGH ROAD
Even if France and China were getting along swimmingly, reform of the global monetary system was never going to be a simple task.
France seized on a proposal made two years ago by People's Bank of China Governor Zhou Xiaochuan to build up the special drawing right (SDR), the International Monetary Fund's unit of account, into a global reserve currency that would eventually displace the dollar.
In an essay that garnered much attention at the time, Zhou said the objective was to have a super-sovereign currency, one that is "disconnected from the economic conditions and sovereign interests of any single country."
Laying out his G20 priorities, Sarkozy said in December that he wanted to look at widening the SDR's role and reducing reliance on the dollar. Given that China had mooted this idea, its backing would have seemed a foregone conclusion.
But as France is learning, China's enthusiasm for the SDR has cooled along the way. A series of Chinese officials have said Zhou's essay was mainly an academic exercise. Zhou himself later said that he had put the proposal forward as a way of deflecting criticism of China's own currency, which many other governments say is artificially cheap.
"China understands that reforming global financial and monetary institutions will be a gradual process. It won't be looking for radical or dramatic outcomes from the G20 summit," said Guo Xian'gang, vice president of the China Institute of International Studies in Beijing.
"China will prefer a more cautious path than Sarkozy might want to support," he said.
YUAN OR SDR?
Beijing's fundamental concern about the dollar may in fact be much narrower than the supposed dysfunctions it causes in the global economy. With about two-thirds of its $2.85 trillion invested in U.S. assets, China worries that any fall in the dollar will erode its own wealth.
The solution need not be so complicated as fashioning a new global reserve currency, Owen Humpage, a senior economic adviser in the research department of the Federal Reserve Bank of Cleveland, wrote in a rejoinder to Zhou's initial essay.
"Countries, like China, that worry about their expanding dollar portfolios have another option: allow their currencies to appreciate," he said.
China has followed that advice to a limited extent since the middle of last year, letting the yuan rise about 4 percent against the dollar.
Beijing has also intensified efforts to shape the yuan into an international currency, especially for settling trade deals, a transition that will limit its exposure to the dollar over time.
China has not entirely forgotten the SDR. But rather than beefing up the IMF currency in its own right, internationalization of the yuan has become the prism through which Beijing views the SDR.
Xia Bin, an academic adviser to the Chinese central bank, wrote in a book this year that Beijing should aspire to have the yuan join the dollar, pound, yen and euro as a component of the SDR basket.
"This would be a reflection of the yuan's international status and it would also be a basic foundation for the process of further internationalizing the yuan," he said.
Practically, including the yuan in the SDR would make little difference, because the Chinese currency would still not be fully convertible. However, in a symbolic sense, it would capture China's vision of the future global monetary order, one in which the yuan plays an increasingly central role.
China Cosco Predicts 32% Bulk-Cargo Slump as Global Fleet Outpaces Demand
China Cosco Holdings Co., Asia’s largest shipping company by market value, forecast a 32 percent drop in dry-bulk traffic this year as expansion in the global fleet outpaces demand.
Commodity shipments will slump to 959 billion ton-nautical miles this year from 1.42 trillion last year, the Tianjin, China-based shipping line said in a statement late yesterday. Container volumes will rise 9.4 percent to 6.8 million, it said.
Global dry-bulk capacity will expand 14 percent this year, outpacing a 6 percent rise in demand, the shipping line said, after China financed orders for new vessels during the global recession to help prop up shipyards. The increasing capacity has caused the Baltic Dry Index, a benchmark for commodity-shipping rates, to plunge 48 percent in the past year.
Traffic for the company’s dry-bulk fleet last year was little changed, trailing a 19 percent jump in container volumes as rebounding consumer spending in the U.S. and Europe revived demand for shipments of Asian-made goods. The company’s container-shipping revenue was 43 percent higher than its dry- bulk sales in 2010 after being almost the same a year earlier.
The container pick-up helped China Cosco, operator of the nation’s largest cargo-box fleet, post a 2010 net income of 6.9 billion yuan, compared with a year-earlier loss of 7.5 billion yuan, according to the statement. The company was expected to post a profit of 6.8 billion yuan, according to the average of 14 analyst estimates compiled by Bloomberg.
China Shipping Container
China Shipping Container Lines Ltd., the nation’s second- biggest cargo-box carrier, separately reported a profit of 4.2 billion yuan last year, compared with a loss 6.49 billion yuan a year earlier, in a Shanghai stock exchange statement.
This year, the container-shipping market will “maintain its equilibrium due to the increase of cargo volume and reasonable management” of capacity industrywide, China Cosco said.
The company’s container-shipping revenue surged 68 percent last year to 46.3 billion yuan, with sales on Asia-Europe and transpacific routes both almost doubling because of increased volumes and higher rates. The company, with 150 container ships at the end of last year, will receive six this year and 32 more in the next two years.
The shipping line’s dry-bulk fleet totaled 450 vessels at the end of last year. It has 18 ships on-order through 2014.
The company, controlled by China Ocean Shipping (Group) Co., rose 0.3 percent to close at HK$8.09 in Hong Kong trading before the earnings announcement. The stock has fallen 1.8 percent this year, while the benchmark Hang Seng Index is little changed.
Rates Decline
The Baltic Dry Index dropped 41 percent in 2010 to end the year 1,773. The index has fallen 11 percent this year because of an oversupply of vessels and slowing demand in China.
The backlog of on-order bulk ships is equal to 43 percent of the current global fleet by deadweight tons compared with a 25 percent rate for container ships, according to data on the Bloomberg terminal.
Iron ore imports by China, the world’s biggest buyer, may also fall for a second year in 2011 as record high prices spur output from domestic mines, according to Mysteel Research Institute. Shipments into the country fell 1.4 percent last year, the first decline since 1998.
Food to be tested for radiation
Beijing - The Ministry of Health has ordered local administrations in 14 places including Beijing, Tianjin, Shanghai and some coastal provinces to test drinking water and food for radiation, according to an online statement issued on Sunday.
The announcement came after the authority had confirmed over the weekend that the level of radiation stemming from iodine-131, a radioactive isotope, was higher than usual in four counties in Northeast China's Heilongjiang province.
Exposure to iodine-131 can cause several diseases including thyroid cancer, according to the statement.
Even so, the Ministry of Health said the radiation level detected in Heilongjiang was too low to pose a danger.
"Based on the current situation, people don't need to worry about the contamination of the air or of food and water here," said Wang Zhongwen, a researcher at the China Institute of Atomic Energy's radiation safety department.
As for the radiation testing ordered by the ministry, Wang said it was part of routine inspections of food and water undertaken in many parts of the country.
Largely in response to various scandals involving tainted food in recent years, China has become ever more painstaking in its attempts at ensuring the safety of its food.
Many countries routinely test the radiation levels of their domestic food and water supplies. China, though, only has the means to conduct such tests in a few regions, not across the entire country, Wang noted.
"The Japan nuclear incident might help shorten the time it will take to establish similar testing in other places in the country," he said.
To prevent contamination, the General Administration of Quality Supervision, Inspection and Quarantine has prohibited the importation of some Japanese foods, including dairy products, seafood and vegetables.
Meanwhile, the Chinese public, including residents of the counties where the higher level of radiation was found, remains unfazed.
Zhao Haixing, deputy director of the Hulin county environmental protection bureau, said on Monday that the radiation level there had not changed since Sunday and that being in the county "is less harmful than getting a medical X-ray".
"Life is as peaceful as ever," Song Yufeng, a local publicity official, said on Monday.
"Our county gets most of its information from the TV," he said. "And the TV shows have made it clear to everyone that there is too little radiation to pose health hazards."
Officials in nearby counties said they have not seen panicked customers buying up iodine tablets or other substances often used as protection against radiation.
Japan shipper mulls future of vessel with "abnormal" radiation
(Reuters) - Mitsui O.S.K. Lines has not yet decided what it will do with its container ship when it returns to Japan this week, a company official said on Tuesday, after China rejected the vessel for "abnormal" radiation levels.
The MOL Presence is the first ship barred from unloading its cargo at a foreign port over radiation concerns since Japan's Fukushima nuclear plant was crippled by the March 11 earthquake, a spokesman for the Japanese Shipowners Association said.
Governments, including China and the United States, have begun screening for radiation on ships that traveled from Japan's quake-hit northeast, threatening to slow seaborne trade for the world's third largest economy.
"The container ship is expected to arrive in the port of Kobe on Wednesday," said a spokeswoman for MOL, the world's 11th largest container shipper. "The travel plan on when or whether the container ship will depart Kobe is not decided as of now."
If radiation levels are confirmed to be too high on the vessel, MOL may be forced to dispose of the machinery, furniture and other cargo on the ship and reimburse its clients since insurance companies do not cover radiation exposure linked to nuclear accidents, industry experts said.
The vessel would also need to be thoroughly cleaned before it can set sail again.
Chinese authorities detected a maximum of 3.5 microsieverts per hour on MOL's ship when it arrived at the port of Xiamen in eastern Fujian province last week, the company spokeswoman said.
That is above the global average of naturally occurring background radiation, but half of the cosmic radiation experienced on a Tokyo-New York flight.
The Chinese standard level was not disclosed.
U.S. SHIPMENT
The MOL Presence originated in California, stopping in Tokyo for only a few hours on March 17 before arriving in China four days later, port authorities said.
Ports in Tokyo Bay, located 240 km (150 miles) south of the Fukushima nuclear plant, remain outside the exclusion zone for most shipping companies.
However, at least three container firms -- Germany's Hapag-Lloyd, Claus-Peter Offen and Hong Kong's Orient Overseas Container Line -- have widened their "no-go" area to more than double the industry norm to include Tokyo Bay.
"At this point, there is no change to our shipping schedule, including location of the ports we call at," the MOL's spokeswoman said. She said this is the first case a Mitsui ship was turned back.
Radiation levels as of late Monday in Tokyo Bay ports were considered "very safe", Japan's transport ministry said on its website.
"Thus far, the flow of traffic to and from Japan has not been impacted by radiation fears," said a U.S.-based shipping source.
"Although some owners have been reluctant to trade cargoes to Japan, there have been sufficient owners willing to do so and that has minimized the impact."
Guangdong Nuclear Tests Sentiment After Fukushima With Hong Kong Listing
China Guangdong Nuclear Power Group is set to gain a Hong Kong listing for its uranium assets, testing investor sentiment toward the industry as Japan tries to contain its worst atomic accident.
China Uranium Development Co., a unit of Guangdong Nuclear, agreed to pay more than HK$984 million ($126 million) for control of drug supplier Vital Group Holdings Ltd. (1164), according to a Hong Kong stock exchange filing yesterday.
The acquisition gives Guangdong Nuclear access to investors in a financial center that it supplies with electricity from atomic plants 50 kilometers (31 miles) away. Uranium prices and stocks have plunged since the March 11 disaster in Japan prompted countries worldwide to review or halt nuclear power programs pending safety checks.
“Buying a company like this gives them a quick way to get a backdoor listing and access to funds to buy uranium resources,” said Gordon Kwan, head of regional energy research at Mirae Asset Securities in Hong Kong. “Despite the Japan crisis, China will expand its nuclear power program after initial safety checks and this is a good time to get bargains securing uranium resources.”
The stock exchange filing didn’t detail China Uranium’s plans for Vital. Guangdong Nuclear spokesman Liu Kaixin didn’t answer three calls during office hours. Three calls to Vital executive director James Liu during office hours weren’t answered.
“Strict Regulations”
The transaction may be treated by Hong Kong regulators as a takeover if Guangdong Nuclear doesn’t try to inject large amounts of assets into Vital, according to Katherine U, a partner at legal firm Minter Ellison in Hong Kong.
“The stock exchange does have strict regulations about circumventing the listing rules. If the company changes the focus of the business, but doesn’t try to roll in assets from the existing business, it’s not a backdoor listing,” she said. “These kind of takeover deals are quite common in Hong Kong.”
Reverse takeovers are treated as initial listings, the Hong Kong Stock Exchange says on its website. The transaction needs approval by the Securities and Futures Commission, Vital said in its statement yesterday.
Three years ago, CNNC Nuclear International Uranium Corp., a unit of the nation’s biggest atomic power plant operator, China National Nuclear Corp., purchased a stake in Hong Kong- listed aluminum and zinc die-casting company United Metals Holdings Ltd. and changed its name.
The renamed CNNC International Ltd. in 2009 bought Canada- listed Western Prospector Group, which explores for uranium in Mongolia. It acquired uranium assets in Niger from its parent last year, the China Daily reported.
Approvals Suspended
China has the world’s biggest nuclear program, with 26 reactors under construction and 28 planned, according to the World Nuclear Association. The government suspended approval of new projects on March 16 pending safety checks of existing plants as Japan tried to prevent a meltdown at Fukushima Dai- Ichi, the worst nuclear disaster since Chernobyl.
Germany said on March 15 it will close seven nuclear reactors for safety review. India said on March 14 it will examine its 20 atomic plants.
Guangdong Nuclear owns the Daya Bay and Ling Ao nuclear power stations in southern China, according to its website. Daya Bay, which supplies about a quarter of Hong Kong’s electricity, discovered a radiation leak in October which it said was in a contained area.
36 Percent Discount
China Uranium will buy 1.67 billion Vital shares for 23 cents each, a 36 percent discount to the last traded price. It will pay HK$600 million for the bonds, which are convertible at the same price per share. Vital shares surged 33 percent in two days before they were suspended on March 4.
Initial details of the transaction were published on the Hong Kong Stock Exchange website on March 22. Vital suspended trading on March 4 pending a possible restructuring. It said on Jan. 25 that a supplier had lost the Chinese import license for one of its main drug products.
Vital has 779 employees in mainland China, Hong Kong and Macau, according to its 2010 earnings statement released yesterday. Its shares traded at 36 Hong Kong cents on March 3. They will remain suspended until a further announcement on the Guangdong Nuclear deal, according to yesterday’s statement.
Monday, March 28, 2011
Construction Bank Declines as Profit Misses Estimates on Rising Provisions
China Construction Bank Corp., the world’s second-largest lender by market value, fell the most in more than a month in Hong Kong after posting profit that missed some analysts’ estimates because of rising provisions.
The shares dropped 2.3 percent to close at HK$7.15, after Beijing-based Construction Bank said yesterday net income rose 26 percent last year to 134.8 billion yuan ($20.6 billion). That was less than the 139 billion yuan average of 17 estimates compiled by Bloomberg.
Construction Bank, established in 1954 to fund roads, bridges, dams and other public works, recorded 4 billion yuan of provisions on equity investments and off balance-sheet assets. The lender also said non-performing loans for infrastructure projects increased, fueling concern that a two-year lending boom that started late 2008 will hurt asset quality.
“The market is concerned about asset quality,” said James Liu, a Hong Kong-based analyst at CIMB-GK Securities who cut his rating on Construction Bank to “neutral” from “outperform” after the earnings report.
Construction Bank has a higher ratio of infrastructure related loans than most of its biggest rivals, the companies’ financial statements show. China’s central bank has raised interest rates three times since October and property sales taxes have been introduced in fast-growing markets as the government sought to prevent a real estate bubble.
Finance Vehicles
The lender, part-owned by Bank of America Corp., set aside 29.3 billion yuan in provisions against bad debts last year, up from 25.5 billion yuan in 2009. That boosted provisions to 2.52 percent of total loans, above the new 2.5 percent minimum imposed by the government.
Construction Bank said infrastructure-related bad loans rose “slightly” from 2009, without giving more details.
The company had about 540 billion yuan of loans outstanding to the financing arms of local governments as of Dec. 31, President Zhang Jianguo said at a briefing in Hong Kong today. Some 65 percent of those credits are financed by cash flows, he said, adding that Construction Bank has stopped lending to county-level governments to control risks.
China’s government has clamped down on lending to local- government financing vehicles in the past year to avoid a repeat of the 1990s era of state-directed lending that led to an estimated $650 billion cleanup of the banking system.
Moody’s Outlook
Moody’s Investors Service said today rising inflationary risks will lead to faster interest rate increases and cause a rebound in bad loans, which have been falling for a decade. The ratings company maintained its “stable” outlook for the industry over the next 12 to 18 months.
“While we expect rising bank non-performing loans -- which typically follow in the wake of very strong loan growth --robust earnings, significant loan loss reserves, and additional capital raised from the capital markets will help the banks to tackle asset quality challenges,” Beijing-based Moody’s analyst Yvonne Zhang wrote in a report today.
China’s five largest banks raised a combined $56 billion selling shares and convertible bonds in the past year.
Rivals Bank of China Ltd. and China Minsheng Banking Corp. last week reported stronger-than-expected profit growth as demand for consumer and corporate loans climbed in an economy that overtook Japan last year as the world’s second largest.
Pricing Power
Bank of China, the nation’s third-largest by market value, on March 24 reported a 29 percent increase in 2010 profit to 104.4 billion yuan, 5.5 percent above the consensus estimate. Minsheng Bank said on March 25 net income rose 45 percent to 17.6 billion yuan, also beating expectations.
Construction Bank’s “prudent and proactive” provision charge will help it to deliver stable credit cost, according to Macquarie Capital Securities Ltd.
The lender’s fourth-quarter net income rose 18 percent to 24.35 billion yuan, based on subtracting nine-month profit from full-year earnings.
“Strong demand for loans and rising pricing power are still the dominant factors driving banks’ profit growth,” said Wu Xiaoling, a Shenzhen-based analyst at Great Wall Securities Co. “A rebound in bad loans is a valid and long-term concern, but that’s not likely to depress earnings anytime soon.”
The value of loans outstanding at the state-controlled lender stood at 5.53 trillion yuan at the end of December, an increase of 18 percent from the start of the year, according to yesterday’s statement. That’s slower than 2009’s expansion of 27 percent. The bank said it expects yuan-denominated credit to grow 13 percent this year and Zhang told reporters that new loans will be about 700 billion yuan to 750 billion yuan.
Property Lending
Net interest income, or revenue from borrowers minus interest paid to depositors, gained 19 percent to 251.5 billion yuan last year as the net interest margin widened to 2.49 percent from 2.41 percent. Income from fee-based services jumped 38 percent to 66.1 billion yuan.
The bank said yesterday its loans to the real-estate industry climbed 12 percent last year, slower than the 19 percent growth in overall corporate loans, and accounted for 7.1 percent of total lending at the end of 2010.
China in January increased the minimum down payment for second-home purchases, told local governments to set price targets on new properties and introduced taxes for homes in Shanghai and Chongqing.
The country’s real estate market has defied the restrictions, with the average price of homes rising 26 percent in the first two months of this year, according to China’s statistics bureau.
Construction Bank’s capital adequacy ratio rose to 12.68 percent as of Dec. 31 from 11.64 percent three months earlier after it completed a $9.2 billion rights offer in December.
Santander, CCB to Target Smaller China Towns
SHANGHAI—Spain's Banco Santander SA will take a 19.9% stake in a joint venture with China Construction Bank Corp. to provide banking services outside of China's major cities, an area of increasing interest to foreign financial institutions looking to make a mark in China.
The tie-up, which was flagged by executives from both banks early last year, will see the two sides initially invest 3.5 billion yuan ($534 million) in the joint venture. The venture will specialize in investing and managing "village and town banks," China Construction Bank, China's second-largest lender by assets, said in a statement.
China's townships and rural areas have traditionally been neglected by the country's major banks, which have typically focused on big corporate clients in major urban areas. That has become a major concern for Beijing's leaders, who are trying to redress the income imbalances between the country's urban and rural areas.
An increasing number of foreign banks are setting up operations in towns and villages, usually without a Chinese partner. Many are targeting relatively affluent areas that are likely to benefit from the government's drive to shift a greater portion of its population off agricultural land and into nascent cities.
Singapore sovereign-wealth fund Temasek Holdings Pte. Ltd. and Bank of China Ltd. are also planning to set up a rural banking joint venture, which will seek to establish 40 to 60 outlets.
After the first year, Banco Santander and CCB will increase their investment in the joint venture to six billion yuan, the Chinese bank said. China Construction Bank will hold the remaining 80.1% in the venture.
The deal is subject to Chinese regulatory approval.
Separately, CCB said its net profit rose 26% last year, boosted by higher interest income and commissions.
That is broadly in line with Bank of China, the first of China's major four banks to report full-year earnings, which said Thursday that its 2010 profit rose 29% from a year earlier.
State-run China Construction Bank, in which Bank of America Corp. owns a 10% stake, said its net profit for the 12 months ended Dec. 31 totaled 134.84 billion yuan, up from 106.76 billion yuan a year earlier.
Its net interest income, which accounted for about 80% of its operating income, rose 19% to 251.50 billion yuan, and net fee and commission income surged 38% to 66.13 billion yuan.
China Construction Bank said it expects its yuan-denominated loans to grow 13% this year. The bank's outstanding yuan-denominated loans grew 18% last year, slowing from a 27% surge in 2009.
Chinatrust deal seals Metlife Taiwan exit
(Reuters) - U.S. insurer Metlife agreed to sell its Taiwan unit to Chinatrust Financial for $180 million, giving Chinatrust its long sought-after entry into the sector.
"The acquisition will be positive for Chinatrust in the longer term, as it can leverage its strong banking network into the insurance business," said Chen Tungli, a fund manager at Schroders in Taiwan.
"However, any effective synergy would not emerge until at least three years later."
Chinatrust, Taiwan's top credit card issuer, said on Monday it would pay for the deal from its own funds and retain all the unit's staff.
The deal still needs regulatory approval which could slow its progress.
Regulators are highly sensitive to changes among life insurers because of the huge numbers of policies held by individual Taiwanese and concerns over the state picking up the bill if companies run into financial difficulties.
The sale would mark the latest exit by a foreign firm from Taiwan's $52 billion insurance market after American International Group sealed a deal in January to sell its Nan Shan unit.
An earlier $112 million attempt by Metlife to sell its Taiwan unit was blocked in October by regulators concerned about the financial structure of would-be buyer Waterland Financial
"A while ago, we realized the business would be substantially better if it's owned by a financial holding company," said Peter Smyth, Metlife's regional managing director Asia Pacific.
Metlife's Taiwan unit has about 600 employees, and some 307,000 policyholders, giving it a market share of less than 1 percent. AIG's Nan Shan unit by comparison has 4 million policyholders, or one sixth of Taiwan's population.
JP Morgan advised Metlife and Standard Chartered advised Chinatrust.
PICKY REGULATORS
For Chinatrust, , the deal marks the end of a lengthy search for an insurance unit to add to its stable, a search that had become something of a personal quest for President Daniel Wu. It was twice beaten in the bidding for the AIG unit.
"I am feeling very happy right now," Wu told the media briefing. "Chinatrust is paying 0.57 time price to book. We think the price we're paying is very reasonable."
The Metlife acquisition would complete Chinatrust's product lines which cover most financial services.
"This is good news for Chinatrust," said Jeff Chung, an analyst at Mega Securities in Taipei.
"Their bancassurance business is already No.1 in Taiwan, so adding an insurance company can reduce their costs. It will also have a good effect on profitability."
P&G, Unilever up China prices, fuel inflation fears
(Reuters) - Consumer goods giants Procter & Gamble and Unilever will both raise detergent and soap prices in China by up to 15 percent next month, local media reported, underscoring the battle the government faces with inflation.
Policy makers in the world's second-largest economy have been racing to contain consumer prices, which rose 4.9 percent in February from a year earlier, to prevent inflationary expectations from settling in and contributing to further rises in the prices of everything from broccoli to beer.
State television on Monday showed images of empty store shelves in some Chinese cities as residents raced to pick up P&G and Unilever products before the price rises went into effect, highlighting the sensitivity to prices of especially poorer Chinese people, who are hit hardest by inflation.
Unilever confirmed there will be price rises across its portfolio to offset hikes in raw material costs but did give details after the Shanghai Daily said they would be up to 15 percent. P&G could not be reached for comment.
The two companies, which sell a variety of products including shampoo, bath lotion and toothpaste, have a significant portion of the consumer goods market in China.
Anglo-Dutch Unilever has said raw material costs will rise by 4 percent of its turnover in 2011 which analysts calculate as a rise of 12 percent as prices of vegetable oils, crude oil and packaging have risen sharply, but it hopes to offset these by rising its own prices and making cost savings.
Unilever has the highest proportion of sales from emerging countries, at 53 percent, compared to other big consumer goods groups and said it had a particularly strong year in China during 2010 with products such as Omo detergents, Clear and Dove shampoos, Rexona deodorants, Lipton tea and Wall's ice cream.
The group saw its fastest growth in 2010 from emerging markets despite tougher competition, and sees these areas as key as it aims to grow ahead of its market and push up margins.
Unilever Plc shares were up 0.5 percent at 1,895 pence by 1139 GMT in a slightly firmer London stock market.
Economists said they did not think the price rises would impact the government's fight against inflation significantly.
"I'm sure there has been a lot of monetary policy tightening, and if that's the case, then inflation will start to come down," said Paul Cavey, an economist at Macquarie in Hong Kong. "This doesn't really change our view on that, although it could make getting there a bit more difficult."
China does not publish the makeup of its consumer price basket, but bank economists estimate the "health, medical and personal products" category, within which consumer products fall, has a weighting of about 9.5 percent.
UNDER CONTROL?
China has raised interest rates and banks' required reserves multiple times in the past several months in an effort to tame inflation, which has stabilized at under 5 percent after hitting a peak of 5.1 percent in November.
Although food is the main driver of consumer price pressures, the government wants to prevent inflation expectations growing. There are some signs its efforts are starting to take effect. A central bank survey released this month showed more households were satisfied with current price levels and saw less chance of rising inflation.
A flash purchasing managers' index (PMI) from HSBC Markit last week showed that rises in factory input prices were their slowest in at least half a year and increases in output prices their weakest in seven months.
With overall rises in the prices of raw materials slowing from last year and Chinese monetary policy now tighter, Cavey said he thought China could keep the situation under control.
"Now, commodity prices aren't rising so quickly, monetary policy has been tightened domestically. There is still some inflation, but the government is getting ahead of the curve. I'm not that worried about inflation in the second half," he said.
Yi Yang, a deputy governor of the People's Bank of China, said last week that China was facing strong price pressures but inflation in the second half of the year would be lower.
"So for the year, we will be able to meet the 4 percent goal," he told a business conference in Hong Kong, referring to the government's 2011 inflation target.
Still, policymakers are sensitive to rising prices, so on Monday required hospitals and clinics nationwide to cap the price of certain drugs.
Planned price rises by P&G, Unilever and other Western companies have also drawn the attention of the public and authorities. Shanghai's Development and Reform Commission, the local planning body, is investigating the matter of P&G and Unilever raising prices, the Shanghai Daily said.
Earlier this month, P&G said it would raise its U.S. detergent prices by 4.5 percent in June in response to rising costs of raw materials, packaging and transport.
Global commodity prices have risen sharply in the past year. Commodity prices, measured by the Reuters-Jefferies price index .CRB, reached their highest levels this year since 2008. The United Nations food agency has said global food prices hit a record high this year.
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