Latest News From China

China's new bankruptcy law, which makes it more difficult to declare bankruptcy, has caused companies to choose "hidden bankruptcy".
Throughout 2008, only 3,500 enterprises formally filed for bankruptcy in China. Hiding behind this tiny number however is the approximately 800,000 businesses that exited the market by either cancelling their registration or having their business license revoked.

The rise in the number of these hidden bankruptcies has emerged since a new bankruptcy code came into force in China on June 1, 2007.

In order to solve problems that have emerged since the introduction of the new legislation, the Supreme People's Court has accelerated it's timetable to release judicial interpretations of the law.
Professor Li Shuguang diagnoses the problem:
"Among those 800,000 enterprises, some managed to responsibly resolve issues related to creditors' rights and to settle their debt, but many enterprises simply cancelled their license or registration in order to avoid debt obligations. This kind of withdrawal can be deemed as malicious bankruptcy or even credit fraud."

Li noted that there were far more bankruptcy cases when the former corporate bankruptcy law, introduced in 1986, was in effect. At that time bankruptcy was mainly instructed by government policy.

According to Li, these new methods of withdrawal provide no guarantee for creditors' interests and also bring about a higher risk of credit default in the market as a whole and amounted to a huge waste of quality assets.

Not only were these enterprises not making use of the market exit mechanism provided by the Law on Enterprise Bankruptcy, but in doing so, they also failed to take advantage of the the market economy's ability to efficiently allocate resources.

He believed that government intervention was the major cause of the huge drop in bankruptcy cases, saying "the Government has intervened too much in the market."

Prof. Li said, the reason a lot of enterprises that should make use of bankruptcy procedures don't, is because so many government officials fail to recognize that bankruptcy is a common method utilized by market economies. Bankruptcy procedures are used by market economies as a way to allocate resources.
My take: we already knew the bankruptcy law was too strict and many factory owners just walk away. Reform will cause a surge in bankruptcies, but it would be a positive step since the companies are closing anyway, and as Professor Li says, it leads to misallocations of capital.

Minsheng Bank (600016.SS) wants to offer H-shares:





“民生银行这些年扩展速度比较快,股份制商行中属于业务增长速度较快的银行,为了支撑业务发展,为补充资本金还是需要开辟融资新渠道,H 股策划时间比较长,亚洲经济率先复苏,香港股市目前比较活跃,对银行来讲更符合经济利益。此次海外扩展和展开国际业务有直接帮助。”中央财经大学中国银行业研究中心主任郭田勇认为。

Bloomberg also reports:
Beijing-based Minsheng plans to sell as much as 15 percent of its enlarged share capital on the Hong Kong stock exchange for the first time, it said June 5. The lender may increase the offering by 15 percent if there’s enough demand.

Minsheng’s capital shortage threatens to crimp profit growth amid a government-backed lending boom aimed at boosting expansion in the world’s third-largest economy. The bank, founded by 59 private investors including pig-feed tycoon Liu Yonghao, aims to increase profit by 35 percent this year after growth slowed to 25 percent in 2008, the slowest pace since its 2000 listing in Shanghai.

“Investors started to revalue Chinese banks after concluding that the profit decline trend has been stemmed, if not reversed,” said Liu Xiaochang, a Nanjing-based analyst at Huatai Securities Co. “Minsheng is the first to take advantage of this opportunity.”

The lender’s capital adequacy ratio narrowed to 9.22 percent at the end of December, lower than the 10 percent minimum required by the country’s regulator and the 13.4 percent average of the nation’s 14 publicly traded banks.

My take: Mingsheng is doing the same as Citigroup, Bank of America, Goldman Sachs and others. Get your money while the gettin' is good.

Chinese local governments need more capital:
The NAO conducted a survey in 18 provinces lately and in a report released on May 18, it revealed that some local governments had lagged in channeling the required funding timely, with the poorest performing province managed to release only 48% of the funding earmarked.

The Economic Observer learned that majority of the local funding came from policy-driven bank loans, while local bonds - by late April, 111.8 billion yuan worth of bonds issued - and contributions from local treasuries formed a minor part of the financing. Meanwhile, participation from private capital was negligible.

For locally initiated investment projects, even if bank loans were secured, the local governments concerned would need to raise the required registered capital, which constituted some 20% to 40% of the projects' cost.

Sources from the banking industry and local authorities told the EO that red tape and shrinking local revenues - resulted partly from tax cuts to stimulate the economy and reduced collections from less profitable companies - had added pressure to timely financing from local governments.

A state-owned bank researcher estimated that the grand total of local financing required - including that for projects mapped out under the stimulus package and other supplementary costs - could run into 5.2 trillion yuan, nearly double that of all the local treasuries' revenues combined - 2.8 trillion yuan - last year.

...To relieve financing pressure at local level in meeting the required registered capital for investment projects, the EO learned that Chinese Finance Ministry was planning to expand local government bonds issuance in the first half of 2009.

My take: good for the local bond markets. Also, China's still getting far more stimulus into the economy than the U.S., even if there's a funding bottleneck. It may turn out to be a blessing if local governments focus only on the most productive projects.

No comments:

Post a Comment