December 3, 2008
Chinese Front Companies and Export-Controlled Purchases
Cliff Burns at ExportLaw Blog recounts the tale of Chinese operatives, who'd set up a front company to buy export-controlled items, ensnared by American operatives who'd set up a front company to catch front companies doing precisely that.
Front companies of foreign intelligence services are most likely a dime a dozen, but it is rare when they are discovered, no less made public and prosecuted publicly. During the mid-1980s, I was working in Osaka for a Japanese electronics company. A friend of a friend (both Chinese resident in Japan) approached me looking to appoint me U.S. representative of his company, the Japanese subsidiary of Sea Gull Co. (Hai Ou 海鷗).
Specifically, I was asked to find and conclude deals with American manufacturers of gluing machinery, which applies glue between the fibers and the base cloth of oversized carpeting. This seemed like a delightful opportunity. I'd visited carpet factories in Tianjin -- while selling electronic components to Chinese factories for another Japanese company in Tokyo, sort of a solo jaunt, shall we say, during which I searched and did not find product worth exporting to the U.S. -- so I knew the machinery was needed.
Through friends, I discovered Sea Gull's connection to Chinese naval intelligence. While I thought it possible that a unit of naval intelligence was indeed looking to go into the carpet business, the mere possibility of my being used as a front swore me off the deal really fast. With friends like these...
On the subject of spies, I recommend two books -- lots of fun reading.
我杀死了张作霖 -- the record of a Japanese spy who in September of 1931 helped plan the murder of warlord, Chang Tso-lin (available in digital form in Chinese; originally published in Japanese)
Vespa, Amleto, Secret Agent for Japan. Wikipedia entry here.
December 2, 2008
Video Event: Chinese MIgrants Return to Countryside
This Wall Street Journal article discusses what is a minor phenomenon at present, that of Chinese migrants to urban centers returning home, out of work, to their villages. One or two million jobless is an insignficant number, a police problem, perhaps. But given the many factory closings in south China and the several thousand riots annually, it bears watching..
Would WSJ please put more interesting voices to their videos?
November 25, 2008
ALERT: American Companies in China: US to Redouble Enforcement of Foreign Corrupt Practices Act:
The American Foreign Corrupt Practices Act seeks to criminalize bribery of foreign officials -- not of American officials -- by regulating and punishing the conduct of Americans doing business globally. In its "Report of the Committee on Banking, Housing and Urban Affairs to Accompany S. 305...May 2 (legislative day, March 28), 1977," the U.S. Senate noted:
The statute covers payments made to foreign officials for the purposes of obtaining business or influencing legislation or regulations. The statue does not, therefore, cover so-called "grease payments" such as payments for expediting shipments through customs or placing a transatlantic telephone call, securing required permits, or obtaining adequate police protection, transactions which may involve even the proper performance of duties.
The word "corruptly" is used in order to make clear that the offer, payment, promise, or gift, must be intended to induce the recipient to misuse his official position in order to wrongfully direct business to the payor or his client, or to obtain preferential legislation or a favorable regulation. The word "corruptly" connotes an evil motive or purpose, an intent to wrongfully influence the recipient. It does not require that the act be fully consummated, or succeed in producing the desired outcome.
Did you too see the word? I had to read it twice to make sure "evil" was not a typo. Hmmm.... This is, without doubt, activist legislation that seeks to influence global behavior indirectly by holding Americans to account. Does that sound right to you, when many of the nations it seeks to indirectly regulate employ bribery as a common and ordinary way of life? Isn't it their responsibility to clean up their own mess? Why am I to be punished for behaving as they would in their own land?
The EU and its member countries have enacted similar legislation. For those doing business globally, especially in the third world, where "gifts" are expected, anti-corruption leglislation in one's home country is a serious obstacle. In China, one of the most corrupt nations, those who require the assistance of government walk the wire of violating US and EU anti-corruption leglislation.
Once thought to be safe from the same level of scrutiny, payments to charities are not immune. Schering Plough's $76,000 contribution to a legitimate charity -- the favorite of a senior Polish official -- resulted in a $500,000 fine in June 2004 when the company failed to account for the payment as the bribe that it was deemed to be.
Government enforcement, at least in the U.S., will apparently be redoubled.
The U.S. Securities and Exchange Commission expects in the next two to six months to slap larger penalties than in the past on a number of companies that have allegedly violated the Foreign Corrupt Practices Act, reminding lawyers in the field that the regulator is taking a tougher stance today on international bribery.
"The dollar amounts in the cases that will be coming within the next short while will dwarf the disgorgement and penalty amounts that have been obtained in prior cases," said Scott Friestad, the SEC's deputy director for the Enforcement Division.
I have never understood why the American government has made -- over three decades -- the extraordinaty effort to reach into its taxpayer funds to prosecute the bribery by Americans of foreign officials. Where will the money come from to increase enforcement efforts of global activities? Ah, timing, timing, never to be forgotten -- this must be part of the Obama stimulus? Clean up the world, in our image, and have the American government pay for the enforcement of it. A missionary purpose, one with which I find it hard to agree.
But that is the law as it stands and we must follow it. Businesses dealing with China must thoroughly understand the effect FCPA has on even something as seemingly unrelated as its client development efforts. Thinking of showing the Import/Export Development Official of City X and his colleagues around your factories in the US and then taking them for a weekend jaunt in some city where you have no business interests? What are you going to pay for? Do you plan on giving them "spending money?" Do you risk going afoul of the FCPA? To answer those questions, the extent of your exposure needs to be determined up front. Your business activity needs to be vetted by your company counsel.
Here's fish for thought: are the activities of Chinese national employees of American subsidiaries, who may never have left China in their lives, also regulated by the FCPA? We will deal with that question in a forthcoming post.
Posted by Richard at 1:55 PM | Comments (1)November 20, 2008
Video Event: The Onion Speaks on the Chinese Court System
Have we ever before seen such commentary on the Chinese court system? Or on China, from Westerners?
20 years ago, China was held the object of veneration -- perhaps because few knew anything about her. But she is now the target of and criticism, which grows ever more intense, and even ridicule. Watch this and you'll see what I mean.
China�s Andy Rooney Has Some Funny Opinions About How Great The Chinese Government Is
Posted by Richard at 7:38 PM | Comments (0)
Chinese Government Tells FDA To Enjoy Its Wonderful Vacation Spots
In yesterday's post, we noted the opening of the FDA office in Beijing and the frustration that they are bound to expect.
The struggle has begun.
"China hopes the U.S. side accepts certificates offered by the Chinese quality inspection department on goods to be exported to the United States," Foreign Ministry spokesman Qin Gang was quoted as saying by the state-run Xinhua news agency.
In other words, China will not cooperate with American Food and Drug Administration inspectors resident in China and will only issue certificates attesting to a Chinese government inspection.
This is the opening salvo In what should prove to be a major battle, much of which will be fought in public, a spectator's delight, a regulator's nightmare.
Posted by Richard at 2:09 PM | Comments (0)November 19, 2008
Another "So What?": American Food and Drug Administration Announces the Establishment of an Office in Beijing
We’re opening up a new era, not just new offices...a permanent F.D.A. presence in China.
So claims Mike Leavitt, Secretary of Health and Human Services for the Bush administration. Well, at least there will be a physical presence -- but whether or not this office will be able to inspect any of the factories it wishes remains to be seen. It is unlikely the Chinese government will give the American government the access it wishes. Let us not forget similar programs which have come up against extraordinary stonewalling, e.g. Validated End-User (VEU) inspections under the BIS, requiring on-site inspections in China for certain technology items requiring a license prior to shipment.
The American public barely knows of that program and its frustrations, failures and very limited successes. Imagine the potential publicity of American inspections in Chinese factories where access is unfettered! No, indeed, there will be epic battles between Chinese and American regulators over destination factories. American regulators are sure to be on the short end of the stick. One hopes that the stories of these bureaucratic tangles will find their way to the press -- I will be pleased to post a report of anyone so involved, especially any of the eight inspectors who are supposed to be manning the office. You may remain confidential...
Posted by Richard at 1:57 PM | Comments (0)November 16, 2008
Another, Yet Another Email Scam Targeting Lawyers
Another scam mail targeting lawyers. Similar content to previous scams: delinquent accounts in the U.S. requiring your legal services to recover.
You'll notice, however, that, in this email, the author has inserted my name, as if to reassure me that his request is genuine.
He may have pulled the info on the company from Hoovers. My hunch is that this email was created by someone with access to Hoovers, perhaps at a university library in Hong Kong.
Wouldn't you agree that a domestic steel company in Anhui is very unlikely to have debt collection work in the U.S.? The yahoo.com.hk address listed in the email, does not agree with the AOL.com return email address in the email's properties tab, making this solicitation completely unpersuasive.
Delinquent account services in USA. Attn: Richard Kuslan This is an official requisition for your legal consultation services on behalf of Maanshan Iron & Steel Company Ltd.Posted by Richard at 11:36 PM | Comments (0)We are based in China and our principal activity is manufacture and sale of iron and steel products. The production process of the Group mainly comprises cooking, sintering, iron smelting, steel smelting and rolling. The principal steel products come in four major categories: steel sections, wire rods, medium or thick steel plates and train wheels and tyres. It imports machinery and raw materials and exports steel products. It is also involved in the planning and designing of automation system, metallurgical, construction and environmental protection projects. Other activities include purchase, installation and repair of computers and communications systems; production, sale and transportation of slag products and provision of related consultation and technology services. We are presently incapacitated due to international legal boundaries to exert pressure on our delinquent customers in USA and we request for your services accordingly.
We got your contact information from the state of USA lawyers Directory as a result of our search for a reliable firm or individual to provide legal services as requested. After a careful review of your profile as well as your qualification and experience, we are of the opinion that your are capable and qualified to provide the legal services as requested.Please accept my sincerest appreciation on behalf of Maanshan Iron & Steel Company Ltd,in advance for your willingness to render your services as we look forward to your prompt response to our request.
Thank you.
Mr.Zhu Changqiu
Executive,
Maanshan Iron & Steel Company Ltd.
zhuchangqiu@yahoo.com.hk________________________________________
You Rock! One month of free movies delivered by mail from blockbuster.com
November 14, 2008
The Chinese "Stimulus Package" -- A Few Notes from a Political Economist
Victor Shih's always engrossing Elite Chinese Politics & Political Economy blog talks about the Chinese bail-out:
There is a rumor that Chinese Academy of Social Sciences, a government think-tank, came up with a plan to set up a government fund to buy up Chinese stocks if the market falters drastically.
Read it all here.
November 13, 2008
FDA Issues Blanket Detention Order of Certain Products From Chinese Manufacturers
Below you will find the relevant text of the FDA's import detention order of Chinese-made product, as reported by the AP today. Note the breadth of products potentially affected. Physical inspection is not required under this order for detention. (For some background on melamine, read this FDA paper on melamine contamination in China)
Products affected by this order include:
PRODUCT
Bakery Products/Doughs/Mixes/Icings
Cereal Preparations
Breakfast Food Ready to Eat
Breakfast Food Quick Cook
Snack Foods
Milk/Butter/Dried Milk Products
Cheese/Cheese Products
Ice Cream Products
Filled Milk/imitation Milk Products
Soft Drink, Milk Based (Chocolate Flavored), Noncarbonated
Noncarbonated Soft Drink, N.E.C.
Soft Drink/Waters N.E.C.
Soft Drink, Milk Based (Chocolate Flavored, Etc.) Carbonated
Carbonated Soft Drink, N.E.C.
Beverage Base N/Fruit (Cola Rootbeer Etc)
Beverage Base Non-Fruit Liquid
Soft Candy w/ Nut, seeds, w/out Coconut
Soft Candy w/ Coconut
Soft Candy w/ Fruit
Soft Candy w/ Nuts & Fruits
Soft Candy, w/out Nut/Fruit
Candy Specialties
Candy w/out Chocolate, N.E.C.
Chocolate/Cocoa Products
Custard Pudding mix
Pudding Mix (Not Custard)
Baby Food Products
Iodinated Casein (Cat. I, Type A med. Article)
Iodinated Casein (Combo Cat. I& II, type A, med)
Iodinated Casein (Cat. I med. feed)
Iodinated Casein (Combo Cat. I & II, med. feed)
Dairy Byproducts for Animals
Animal Waste Feed Products
Byproducts for Animals, N.E.C.
Pet Cat Foods
Pet Dog Foods
Pet Fish Foods
Other Pet Foods, N.E.C.
Laboratory Animal Feeds
Pet and Laboratory Animal Foods, N.E.C.
The order (redacted):
IA #99-30, 11/12/2008, IMPORT ALERT #99-30, "DETENTION WITHOUT PHYSICAL
EXAMINATION OF ALL MILK PRODUCTS, MILK DERIVED INGREDIENTS AND FINISHED FOOD PRODUCTS CONTAINING MILK FROM CHINA DUE TO THE PRESENCE OF MELAMINE AND/OR MELAMINE ANALOGS"
PRODUCTS: All milk products
All milk derived ingredients
Finished food products containing milk
PROBLEM: Unsafe Food Additive
Poisonous or Deleterious Substance
Unfit For Food
COUNTRY: China (CN)
MANUFACTURER/
SHIPPER: All
CHARGES: "The article is subject to refusal of admission pursuant to
Section 801(a)(3) in that it appears to bear or contain a
food additive, namely melamine and/or a melamine analog,
that is unsafe within the meaning of section 409
[Adulteration, section 402(a)(2)(C)(i)]"
OASIS charge code: MELAMINE
and/or
"The article is subject to refusal of admission pursuant to
section 801(a)(3) in that it appears to bear or contain a
poisonous or deleterious substance which may render it
injurious to health [Adulteration, section 402(a)(1)]"
OASIS charge code: POISONOUS
and/or
"The article is subject to refusal of admission pursuant to
section 801(a)(3) in that it appears to be unfit for food
[Adulteration, 402(a)(3)]"
REASON FOR
ALERT: In September, 2008, FDA became aware of thousands of infant
illnesses in China due to the consumption of infant formula
reported to contain melamine. Reports indicated over 53,000
illnesses, including almost 13,000 hospitalizations, and at
least four deaths of infants. The illnesses involved the
formation of kidney stones and crystals and related
complications.
The milk used in the infant formula has been implicated as
the source of the melamine contamination. According to
sources, at a bulk fluid milk collection point, water is
added to the bulk fluid milk to increase the apparent volume
of product. Melamine is added to the water/milk mixture to
increase the nitrogen content in order to inflate the
apparent protein content found in the product. Milk is
transported from the collection centers to milk processing
facilities.
The problem of melamine contamination is not limited to
infant formula products. Chinese government sources
indicate contamination of milk components, especially dried
milk powder, which are used in the manufacture of a variety
of finished foods. These contaminated milk components
appear to have been dispersed throughout the Chinese food
supply chain.
FDA analyses have detected melamine and cyanuric acid in a
number of products that contain milk or milk-derived
ingredients, including candy and beverages. In addition,
information received from government sources in a number of
countries indicates a wide range and variety of products
from a variety of manufacturers have been manufactured using
melamine-contaminated milk or milk-derived ingredients,
including: fluid and powdered milk, yogurt, frozen desserts,
biscuits, cakes and cookies, taffy-like soft candy products,
chocolates, and beverages. These products appear to contain
at least one milk-derived ingredient and they are of Chinese
origin. Reports of contamination have come from more than
thirteen countries in Asia, Europe, and Australia, in
addition to the United States. Additional products from
various manufacturers continue to be found to be
contaminated with melamine.
The problem of melamine contamination in Chinese food
products is a recurring one. In 2007, bulk vegetable protein
products imported from China were contaminated with melamine
and melamine analogs, apparently from deliberate
contamination.
November 10, 2008
Auto Bailout, Financial Bailout, What Next?
Massive non-performing loans that force major financial institutions into insolvency. Significant state investment in manufacturing industries. National governmental leadership in product planning. Taxpayers "profiting" from equity investments in quasi-private enterprises.
What nation do you think I'm referring to? Could be China, but no.
The United States has apparently embarked upon the creation of a quasi-capitalist economy with socialist characteristics:
The Democratic lawmakers said federal aid should come with "strong conditions," such as requirements that car makers build more fuel-efficient vehicles, and equity stakes for the government so taxpayers could profit if the companies recover.
A re-run of the last 25 years of a Chinese state-led market economy, Americanized?
Posted by Richard at 4:04 PM | Comments (1)November 9, 2008
World Bank Chief Asserts World Trade Has Fallen
An update to our earlier post on the contraction of credit used for international trade:
According to Mr. Zoellick, the onset of the [credit] crisis caused a "stunning" decline in global trade. "And we believe that you could find in 2009 that you could have an actual decline in world trade, which would be the first time since 1982," Mr. Zoellick said.
Speaking at a briefing during the Group of 20 meeting of finance ministers and central bankers in Sao Paulo, Mr. Zoellick said that one of the primary drivers in the drop-off was a big gap in trade finance. The World Bank recently moved to expand a trade finance facility to $1.5 billion, up from $1 billion, that could be expanded further to help offset the gap.
Read the rest here.
According to Mr. Zoellick, China is a country that could move forward with a financial stimulus package.
Which, in fact, they have just announced.
Both the Chinese and American governments have asserted through massive market invasions their great goodwill as final protector of the People. We can posit that Chinese decision-makers are intent upon bolstering their own private business interests, which will suffer without a stimulus, and with tamping down root causes of social disorder. It is only natural that the single biggest investor in capital infrastructure in China -- it's government -- would also move massively to expand its involvement.
But who would ever have thought that Americans would act to nationalize banks and invest vast sums of taxpayer money into private non-banking enterprises? Isn't something very wrong here? We in America trod a dangerous path of ever-expanding federal government, a behemoth bureaucracy that blots out the sun while claiming the light as its own. Those who grow it larger, accompanying their aggrandizement with language at once fearful and promising, contribute to the starvation of everyone who does not need a handout from the King to live and thrive.
Posted by Richard at 2:29 PM | Comments (0)November 7, 2008
Yawn! Another Attorney Scam-mail with Webpage for Effect
Here's yet another example of a scam-the-attorney email. I guess you can call me a collector.
Crudely conceived email. Its properties:
from Rising Sun
reply-to WLung@aggies.com
to sunr35@yahoo.com
date Wed, Nov 5, 2008 at 11:54 PM
subject Your Service Needed (Attorney at Law)
mailed-by yahoo.com
signed-by yahoo.com
The From and To are identical. In other words, mass email. Here's the text
Rising Sun (HK) Limited
7/F The Grande Building
398 Kwun Tong Road
Hong Kong
Phone/fax: (852)3010-1786
Attention: Counsel,
We the management of Rising Sun Industrial, Hong Kong require your legal representation for our North American Customers. We are of the opinion that the ability to consolidate payments from North America will eradicate delays due to inter-continental monetary transaction between Asia and North America.
We understand that a proper Attorney Client Retainer will provide the necessary authorization and we are most inclined to commence talks as soon as possible. Your consideration of our request is highly anticipated and we look forward to your prompt response request.
Sincerely,
William Lung Chin
Not addressed to me personally. But -- google the phone number and you get a complete webpage for the Rising Sun company. DO NOT go to that webpage. I was able to view a cached version through the google search, but the original may be a phishing site.
Posted by Richard at 2:31 PM | Comments (0)November 5, 2008
More on Closing Chinese Factories
Chinese banks, despite State prodding to the contrary, refuse to lend to struggling factories. At least, that is what Bloomberg writes.
``It's wishful thinking for the government to try to talk banks into lending to stimulate the economy,'' says Li Qing, a Shanghai-based analyst at CSC Securities HK Ltd. ``Banks are holding onto their purse not because they are bound by the quota, but because they are expecting mounting defaults and failures.''
Hold on to your 帽子 （hats）!
Posted by Richard at 3:06 PM | Comments (0)November 4, 2008
Off-topic: Electronic Voting Machine Our Next President
I know it has nothing to do with China, but it's just too funny to pass up.
Voting Machines Elect One Of Their Own As President
November 3, 2008
Audio Event: Retail in Vietnam with Giles Cooper
While China occupies center stage for most Western investors, Vietnam's nascent retail sector may provide opportunities, which our guest attorney Giles Cooper, resident in Hanoi, expounds upon, with comments on the legal system as well.
Giles Cooper is Special Counsel to Duane Morris. View his bio here.
Posted by Richard at 7:02 PM | Comments (0)November 1, 2008
Melamine and the Chinese Academy of Sciences?
One of my fav blogs suggests that the Chinese Academy of Sciences (中国科学院) was the prime mover in the introduction of melamine into the Chinese food production industries. The Academy has issued a denial.
Posted by Richard at 1:44 PM | Comments (0)October 29, 2008
Video Event: Robert Adanto's "The Rising Tide" -- Chinese Video Artists
We take a detour today with a clip from Robert Adanto's, "The Rising Tide, a New Documentary on Chinese Contemporary Art." Many thanks to Robert for his kind permission, enabling us to post this clip on Asiabizblog.
Please note as well that Mr. Adanto's film will preview at the The Smithsonian Institution's Hirshhorn Museum on November 13 (details below).
In his beautiful debut film, Robert Adanto explores the work of some of China's most talented emerging video artists and photographers and their personal responses to the country's rise as a global economic, political and cultural force. This is a unique opportunity to see this elegant and thoughtful film, introduced by the director.
Featured artists include: Cao Fei, Wang Qingsong, Xu Zhen, Zhang O, Chen Qiulin, Yang Yong and Birdhead
The Rising Tide was recently part of CHINA NOW in the UK, as it was part of Constant Stream: China 08 at the Royal College of Art in London, where it screened with a film by acclaimed Chinese director Jia Zhangke.
Thursday, 11/13 8:00 PM
Smithsonian Institution’s Hirshhorn Museum and Sculpture Garden
Ring Auditorium
Washington, DC
202-633-1000
To learn more about the film, click this link.
Posted by Richard at 4:43 PM
| Comments (0)
October 27, 2008
More Reports of Chinese Factories Shutting Their Doors
As we've noted in the past, sporadic reports of factory closings in China seem to be tied to a downturn in orders from Western nations, as summed up in this USA Today article.
More than half of all China's toy exporters — 3,631 firms — shut their doors the first half of the year, the official Xinhua news agency reported. "Many toy factories have gone bankrupt this year," says Luo Yunzhang, founder of toy exporter Guangzhou Sixiren Toy, which makes playground equipment for Ohio-based Little Tikes, among other products.
"We saw exports start to dip in May, when the government began restricting businessmen's visits ahead of the (August) Olympic Games. … Now the global crisis is causing problems. When people are in difficulties, they spend less on things like toys," Luo says. Luo predicts that Sixiren's export revenue will drop by half this year, to $500,000.
China's textile industry is also enduring a deep slump. Textile exports have been tumbling since March. More than 10,000 small textile manufacturers went out of business the first half of this year alone, the government says. "The global crisis is seriously affecting the local textile industry," says Yu Xin of the China Chemical Fibers and Textile Consultancy in Hangzhou.
Other reports of factory closings may be found here and here [Many thanks to Sean Hocking in Hong Kong for these links.] I haven't even begun to search Chinese language websites for reports of factory closings.
The popular opinion noted at Asiabizblog several months ago -- that the growth slowdown began well before the global financial meltdown -- has been borne out by Chinese government statistics.
Those statistics, invariably unreliable for reasons we have discussed often before, posit a decrease in the rate of GDP growth in the most recent quarter, compared with the same quarter in 2007. Nevertheless, 9% growth, as claimed by China, remains extraordinary. But is it accurate? Is it even close? (Economists posit that 8% growth is required simply to maintain a satisfactory level of employment growth.) Is the Chinese economy still growing by leaps and bounds, or is it qualitatively as bad as the Washington Post reports, also relying upon government statistics?
The official Xinhua News Agency reported this week that 3,631 toy exporters _ 52.7 percent of the industry's enterprises _ went out of business in 2008.
Perhaps we will know when we see more news reports of massive Chinese companies suddenly filing for bankruptcy, like this.
Posted by Richard at 2:44 PM | Comments (1)October 24, 2008
Audio Event: an Interview with China Law Scholar and Practitioner, Stanley Lubman
Asiabizblog kicks off a new season of podcasts with an interview of Stanley Lubman, China law scholar and practitioner. Mr. Lubman has, over 40 years, been witness to and participant in China's veritable earthquake of changes.
Whether as student of Chinese law at Columbia University School of Law in the 1960s, as delegate to the earliest Guangzhou trade fairs in the 1970s, as attorney for energy deals in the 70s and 80s, as scholar/practitioner at Harvard, SOAS or Allen & Overy in the 80s and 90s, Stanley Lubman always seems to be one step ahead of the pack.
Such also seems to be the case with his journal article, "Looking for Law in China," available here. While much of the world, including academia, seems to approach China with an "irrational exuberance," a subject upon which I have discoursed a often (see below for links), Stanley Lubman's take on China's development is nuanced, endowed with a subtlety of understanding that comes only with experience. Many thanks to Stanley for his willingness to share his expertise with the Asiabizblog audience.
An in-depth interview with Stanley Lubman, China law scholar and practitioner, on the uncertainties lawyers and businessmen face when dealing with China.
* * *
The Irrational Exuberance Series (from 2005):
Quick links to Rich Kuslan's "Irrational Exuberance, or, Should You Enter the China Market?" series:
* Should You Be Doing Business In China? (Text only)
* What Do You Wish to Accomplish? (Text / Audio)
* Where's the Beef? (Text / Audio)
* A Handsome Bit of Documentation (Text / Audio)
* Says Who? (Text / Audio)
October 23, 2008
CITIC Pacific's Great Big Bet (Bath) -- Who Else Is Next? China Railway!
Details have emerged in the CITIC Pacific forex scandal:
Citic Pacific Ltd.'s attempt to manage currency risk means the Chinese steelmaker and property developer has four times more money riding on the Australian dollar than it earned last year.
The unit of China's largest state-owned investment company has contracts committing it to buy as much as A$9.44 billion ($6.3 billion) of the currency, according to an Oct. 20 statement. That's more than quadruple Citic Pacific's market value yesterday and compares with 2007 net income of HK$10.8 billion ($1.4 billion).
More here.
As worldwide currency traders continued to deleverage risky positions -- with greater volatility and uncertainty than ever done before -- we will certainly see many more Chinese currency investments unwind with significant losses to major overseas investment subsidiaries.
What you know, but the Hong Kong subsidiary of China Railway Group has just announced currency trading losses of $278 million.
Posted by Richard at 2:13 PM | Comments (0)October 21, 2008
China's Economic Growth 9% in Third Quarter And Dropping
Statistics compiled by the Chinese state are unverifiable and unreliable, but Western company representatives seem to agree that the bloom is still there, but wilting somewhat. Indeed, the Chinese economy has slowed drastically, even before the American melt-down. Expect more to come as American and EU retail spending plummets over the course of the next year.
You read intimations that trade was slowing here (and elsewhere on this blog) long before you could read it there.
Posted by Richard at 6:54 PM | Comments (0)October 20, 2008
CITIC Pacific Loses $1.89 Billion in Bad Betting on Currency
CITIC Pacific, whose parent company recently offered to raise its equity stake in Morgan Stanley to 49% from 10%, has announced the loss of US$1.89 billion (and possibly $2 billion) in currency trading. Trading of the shares was suspended for one day (October 20) on the Hong Kong exchange.
``The incident shows the company has problems in its internal control as it's too big a potential forex loss,'' Kenny Tang, a director of Tung Tai Securities Co., said in Hong Kong. ``The company won't get bankrupted because of its state-owned background but the stock may fall at least 10 percent tomorrow.''
Here again we see the general belief that state-owned Chinese financial institutions are invincible. I well remember bankers telling me that no Chinese bank would ever fail in China because ”政府绝对不会让银行倒闭。“ (The government will absolutely never let a bank go under.)
Unless, of course, the loss is great enough. How great? Who knows? We've already seen sleight of hand applied to a bankrupt Chinese financial sector, theoretically taking bad loans off the books and allowing major insolvent institutions to list on world exchanges, as if they were pure as the driven snow. The American house of cards has fallen and the bailout's success is not readily apparent. And the Chinese?
Posted by Richard at 6:48 PM | Comments (0)October 15, 2008
Impact of the Credit Freeze on International Shipments -- Where's the L/C?
Bloomberg reports that the credit freeze is expected to reduce the number of international shipments banks commonly guarantee:
``Letters of credit and the credit lines for trade currently are frozen,'' Khalid Hashim, managing director of Precious Shipping, Thailand's second-largest shipping company, said in Singapore yesterday. ``Nothing is moving because the trader doesn't want to take the risk of putting cargo on the boat and finding that nobody can pay.''
Companies completely dependent upon product purchased overseas by means of letters of credit could be badly affected if L/Cs will not issue. Very few will purchase product from China T/T and who will ship D/P? Primarily self financed manufactured goods (not many of those, one expects) and domestic manufacturers may be somewhat better off.
One would expect effects to be seen at American and EU factories dependent upon foreign parts and retail stores within a matter of weeks. What possible effects? fewer imported products? increased difficulty of obtaining product? Higher prices, if demand remained steady? Production ramped up in the US and scaled down in China?
Posted by Richard at 2:30 PM | Comments (0)October 14, 2008
Alabama Company Cuts Production in China, Brings Work Back Home
In the past six months, production in China has, for some foreign manufacturers, become too expensive. At present, I don't hear this as any more than a minor rumbling, but it could be, possibly, a precursor to a trend.
A drop in the dollar, rising transportation and labor costs, and the added difficulties inherent in overseas production have convinced some to pull production out of China and bring it back home. Remember our post on companies shifting production capacity back home to Germany from China?
Read this story on an Alabama sleeping bag manufacturer which has reduced production at its joint venture in Shanghai and now produces more of its products in the US than anywhere else.
To be fair, production has been shifted to the US only on this one product, but note the skeptical attitude towards the value of production in China:
While sleeping bags are three-fourths of its business, Exxel also makes tents and ski vests that are still cheaper to produce in China. Even so, ``every product we make is up for study now,'' {founder and CEO Kazazian} said.
In other words, something has changed.
Posted by Richard at 1:44 PM | Comments (0)October 10, 2008
Another Attorney Scam -- India, China, Japan, This One's Got It All
As we in the U.S. find ourselves inching ever closer to the nationalization of private banks -- despite Treasury denials -- let's take a break in the turmoil for some humor and at least an instance of successful self-preservation. Here is another example of the attorney scam with an Asian, about which I've written many times. Click this link to save it to your desktop and view it large enough to read it clearly.
The URL is linked to a server in Mumbai. Saitama is nowhere near Shanghai. The text is completely unpersuasive. DON'T visit the URL -- might be a malicious website. Many thanks to my colleague who sent it in.
Posted by Richard at 3:51 PM | Comments (0)October 9, 2008
More Chinese-Style Financial Steps Planned for American Banking System?
The Fed has discussed a plan to take ownership stakes in American banks, even healthy ones
"It is the policy of the federal government to use all resources at its disposal to make our financial system stronger,'' Paulson said. ``We will use all of the tools we've been given to maximum effectiveness, including strengthening the capitalization of financial institutions of every size.''
Direct infusions of capital into specific banks, taking equity stakes in return. If this doesn't hint of the Chinese system, I don't know what does
"No such moves are imminent, but the fact that the department is engaging in such discussions is an indication of how the crisis is constantly morphing. Such a move was not under consideration just a few days ago but has become more of a possibility in recent days as the stock market has plunged and the credit crunch shows no signs of easing."
Where are these ideas coming from? Apparently from a Republican administration. I must confess to be frightened at the mere contemplation of such ideas at the highest level of American governmental authority. If such invasive activitiy is to be practiced now, what next?
[UPDATE: This article asks: "The End of American Capitalism?"]
Posted by Richard at 2:45 PM | Comments (0)October 8, 2008
ABA Hiring for the Rule of Law Initiative, China Program
The American Bar Association Rule of Law Initiative China Program is currently hiring for the following positions (click each link for a job spec):
- Staff Translator/Interpreter
These positions are available immediately.
Many thanks to Hyeon-Ju Rho (卢炫周), Country Director, China Program, for this information.
October 7, 2008
Fed to Set Up Special Purpose Vehicle to Purchase Bad Debt
Just over the wire: the Fed will set up an SPV (special-purpose vehicle) to purchase bad commercial paper directly from banks and non-banks. Echoes of the Chinese experience...
An extraordinary step, which appears to be authorized by the Federal Reserve Act, Section 13:
3. Discounts for Individuals, Partnerships, and CorporationsIn unusual and exigent circumstances, the Board of Governors of the Federal Reserve System, by the affirmative vote of not less than five members, may authorize any Federal reserve bank, during such periods as the said board may determine, at rates established in accordance with the provisions of section 14, subdivision (d), of this Act, to discount for any individual, partnership, or corporation, notes, drafts, and bills of exchange when such notes, drafts, and bills of exchange are indorsed or otherwise secured to the satisfaction of the Federal Reserve bank: Provided, That before discounting any such note, draft, or bill of exchange for an individual, partnership, or corporation the Federal reserve bank shall obtain evidence that such individual, partnership, or corporation is unable to secure adequate credit accommodations from other banking institutions. All such discounts for individuals, partnerships, or corporations shall be subject to such limitations, restrictions, and regulations as the Board of Governors of the Federal Reserve System may prescribe.
[12 USC 343. As added by act of July 21, 1932 (47 Stat. 715); and amended by acts of Aug. 23, 1935 (49 Stat. 714) and Dec. 19, 1991 (105 Stat. 2386.]
This clause has been invoked very rarely in the past.
Posted by Richard at 2:01 PM | Comments (0)IRS Allows Multinationals to Borrow Larger Sums of Cash from Overseas Subsidiaries
As a further response to the credit crisis (crash?), the American Internal Revenue Service issued a temporary guidance last Friday allowing multinationals to borrow cash from overseas subsidiaries for as long as 60 days, three times a year, without incurring corporate tax.
"Recognizing current liquidity constraints, we issued this temporary guidance," said Andrew C. DeSouza, a Treasury Department spokesman. He declined to comment on whether any specific companies or their representatives had pushed for the move. "I think we're recognizing there were companies out there that were having liquidity constraints," he said.
Those of you located outside the United States may find headquarters tapping you on the shoulder for your cash somewhat more often.
Posted by Richard at 1:42 PM | Comments (0)
Stumble It!
