Obama Talks

A few days ago, I read a report entitled "How Trade Brings Prosperity to America’s Local Communities".
Well, but why there are so much discontentment? and what is to blame, the fiscal policy, the tax policy , or something else?
Here Obama expresses his views.

New funds offer high returns to investors

The Bank of East Asia (BEA) has surprised investment circles in Shanghai by announcing that its newly introduced product under the qualified domestic institutional investor (QDII) scheme had gained more than 20 percent in only half a month amid the international market turmoil brought about by the US credit crisis.
But then, that particular QDII product is different from the many others that have preceded it. In a way, it can be said to be revolutionary in QDII terms.
"In this product that does not guarantee principal, the likelihood for investors to generate a high return has significantly increased, and the impression of QDII products providing only low yields could be changed," said Lam Chi Man, executive vice-president of the bank's China entity.
The excellent performance of the single product goes against a general depressive trend for QDII funds whose attractiveness is severely challenged by the potential high yield at the soaring domestic stock market and the prospect of further renminbi appreciation, which resulted in increasing unwillingness to invest in overseas capital markets.
Meanwhile, a scheme in the pipeline to let individual clients invest directly in Hong Kong securities is believed to bring about a negative impact on QDII products, whose performance already underwent a roller-coaster ride during the recent shake-up in global capital markets caused by US subprime mortgage woes.
But statistics indicated that qualified operators are increasingly investing their clients' assets in overseas funds and share market rather than bonds to notch up higher returns and boost the scheme's attractiveness, on the back of the government approval in May to widen its scope of investment.
Sources said the banking watchdog is about to require banks to lower the minimum investment of customers to let more low-end individuals participate in the program.
The QDII scheme, debuting last April, is part of China's efforts to encourage capital outflow as its foreign exchange reserves, the world's biggest, swelled to US$1.33 trillion in the first half of the year.
The government has so far granted QDII quotas of about US$15 billion for 20 banks, US$5.2 billion for insurance firms and US$500 million for Chinese fund management firm Hua'an. Large foreign and domestic banks have eagerly seized upon the program as a means of driving business growth.
In the past, they have mostly focused on fixed-income products compared with the potential high returns in the mainland share market whose benchmark index has climbed to nearly 5,500 points, five times its early-2006 level.
To enhance the attractiveness of their products, many banks are churning out products promising higher returns - along with higher risks.
The Bank of East Asia last month launched the BEA funds, investing customers' money in BEA Hong Kong Growth Fund or BEA Asia Strategic Growth Fund. By the end of last month, the net asset value of the funds surged 20.23 and 15.49 percent respectively, and they are already open for redemption.
"As an important investment channel, QDII is able to provide satisfactory rewards for investors if the right products are launched at a proper time," Lam said.
The banker also said the move to allow mainlanders to invest directly in the Hong Kong stock market will not have too huge an impact on the QDII program, which claims an advantage in risk control and is more suitable for new hands in the market or those too busy to operate on their own.
The Hong Kong-based bank is about to launch another fund on September 10, helping clients invest their assets in four Hong Kong shares including Datang Power and China Merchants Bank.
There is a growing trend of qualified banks helping customers diversify their investment in funds and shares, not only bonds, said Qin Si, a researcher with an institute under the Southwestern University of Finance and Economics.
Statistics from the institute suggest that since June, more banks, including China Construction Bank and HSBC, have developed funds that directly invest in overseas mutual funds.
"The trend indicates that both domestic and foreign banks are inclined to lure customers with higher yields rather than lower risks," Qin said.
Analysts are also urging investors to open their wallets for new funds to diversify from the roaring but notoriously volatile A-share market.
"The key strategy of investment is diversification and taking a global approach," said Judy Hsu, wealth management and franchise head of Citi Global Consumer Group in Asia Pacific. "Just don't put all your eggs in one basket."

China AMC QDII fund limit jumps

China AMC, one of China's leading asset management companies, announced on Wednesday that it will issue US$4 billion worth of funds in China on Thursday.
The fund limit given to the Beijing-based company had risen by US$1.5 billion in three days, according to a company statement released on Sunday.
China AMC said it was applying for more quota to the State Administration of Foreign Exchange, but gave no further details on the last-minute fund limit jump.
The fund, to be launched in RMB, would invest in selected shares in overseas stock markets, including in the United States, Europe, Japan, Hong Kong and other emerging countries and regions, said the company.
At least 60 percent of the fund would go to equity securities like stocks and about 30 percent would be invested in Hong Kong shares.
Qualified Domestic Institutional Investors, or QDIIs, serve to ease the appreciation pressure on the yuan. Designed to help reduce China's excessive liquidity, the QDIIs had long been deterred from overseas investment by China's rebounding stock markets and high investment threshold.
China's banks only used 26 percent of the 50-billion-yuan quota granted to QDIIs in the first half, according to the China Banking Regulatory Commission (CBRC).
The government is considering expanding the investment area and lowering the minimum investment for QDII products.
For example, stock investment business of China's banking QDIIs would likely expand to New York and London stock markets from Hong Kong, according to a senior CBRC official.
Meanwhile, the threshold of QDII products was like to be lowered from 300,000 yuan to 100,000 yuan, said the CBRC official.
China AMC, with T. Rowe Price Group as its consultant, has appointed more than 40 professionals for its overseas investment.
The T. Rowe Price Group, one of the largest U.S. independent asset management companies, manages about US$380 billion of assets.
The first stock-oriented QDII fund, launched by the China Southern Fund Management Co Ltd on September 12, raised almost 50 billion yuan, far beyond its scheduled limit of 15 billion yuan.
China might experience a QDII fund sales peak as China AMC, Harvest Fund Management and China International Fund Management launch QDII products and other fund firms receive launch approval.

Chinese exporters adapt to the rising yuan

Looking at China's snowballing trade surplus since its exchange rate reform in July 2005, one might think the appreciation of the Chinese currency yuan, also known as renminbi (RMB), had gone largely unnoticed by the country's exporters.

Yin Mingshan, chairman of the Chongqing Lifan Group, China's largest private motorcycle manufacturer, noticed that pressure from the rising yuan never ceases to ease up. "The impact is tangible and costly," he says.

The self-made entrepreneur who started from scratch 15 years ago earned 78 million yuan less from exports worth US$318 million after the RMB rose by 4 percent against the US dollar at the end of last year.

By August this year when the RMB had gained more than 9 percent accumulatively to reach 7.57 yuan to US$1, five of the company's smaller Chinese rivals had folded.

Lifan foresees motorcycle exports slowing from last year's 30 percent rise to 25.5 percent this year.

Instead of complaining as the RMB strengthens, however, many Chinese enterprises, including Lifan, rise to the challenge and seek to check exchange rate risks through all available means, such as cost efficiencies and technological innovation.

China's exports have grown to US$546.7 billion in the first half of this year, a rise of 27.6 percent from the same period last year, bringing the aggregate surplus to US$112.5 billion, up 83 percent.

"We should give credit to our exporters, who bear the brunt of China's exchange rate reform as a stronger yuan squeezes their profitability and dampens their competitiveness in world markets," says Tan Yaling, a research analyst with the Bank of China.

China scrapped the yuan peg to the US dollar and linked it to a basket of currencies in July 2005 so as to allow the currency to float in line with market changes. But a daily floating band was imposed to ensure only a gradual appreciation. This encourages exporters to become more competitive through quality, brand reputation and technology.

"If the RMB had gained 20 percent overnight, a legion of Chinese enterprises would have gone bust. Now we have time to adapt, upgrade our production and get stronger," Yin says.

Yin's company has registered 3,807 patents at home and abroad, the most among all domestic automobile companies. Its flagship product, the Lifan 50-200ml Single Cylinder Gasoline Engine, and motorcycles were sold to more than 100 countries in South-East Asia, West Asia, Europe, Africa, and South America. It has also begun producing sedans.

The sense of the urgent need for changes is prevalent among China's exporters, especially in such traditional sectors as textile.

Forex reserves not invested in US subprime securities

None of the country's $1.33 trillion foreign exchange reserves is invested in US subprime mortgage-backed securities, a top official from the foreign reserve administration said yesterday.
"China's official foreign exchange reserves have no holdings of US subprime securities," Wei Benhua, deputy director of the State Administration of Foreign Exchange (SAFE), said in Beijing during a financial forum.
Most of China's foreign exchange investment in the United States is focused on treasury bonds. China is currently the world's second-biggest holder of such bonds after Japan.
The ongoing subprime credit crisis had led to big losses among global financial institutions, including the near-collapse of two hedge funds run by Bear Stearns Co, the biggest broker for US hedge funds, in June.
Liu Chunhang, an official with the China Banking Regulatory Commission, said last month that domestic commercial banks had limited exposure to US subprime ills, and that they had set aside adequate provisions for dealing with the problems.
Three commercial banks have invested in US subprime mortgage backed securities.
In their latest financial disclosure in August, Bank of China reported a holding of $8.965 billion in US subprime mortgage-backed loans as of the end of June, accounting for 3.51 percent of the bank's securities' investment.
Industrial and Commercial Bank of China reported a holding of $1.23 billion and China Construction Bank said it had $1.06 billion. The investment in such products account for 0.3 percent and 0.38 percent of the banks' total securities investment.
"The subprime mortgage-backed loans will have limited impact on the three banks," said Yang Dan, analyst with China Chengxin International Credit Rating Co Ltd, a leading local rating agency in which Moody's has invested.
Yang said the agency will not downgrade the three banks' ratings.

Fixed assets spree continues

Fixed-assets investment is showing no sign of slowing, with year-on-year growth of 26.7 percent from January to August, according to figures released on Friday.
The National Bureau of Statistics said on Friday 6.6 trillion yuan was pumped into new projects in the period, and more than one-fifth of the money was channeled into real estate.
The pace picked up from the January-July rate of 26.6 percent after investment growth dipped slightly in July due to extreme weather, especially flooding, according to Goldman Sachs' Asia Economics Research Group.
Fixed-assets investment growth has slowed from around 30 percent last year to the current 26.7 percent in the previous eight months. But it is still higher than the 25 percent set by economists as the warning line.
Property developers and local governments are still driving fast-paced growth, according to statistics. The central government has listed curbing fast investment, the trade surplus and high inflation as its major targets for macroeconomic control since 2003.
Together with other economic indicators made public this week, Friday's new figures indicate the government's tightening measures have failed to meet their targets. The statistics bureau said on Wednesday that China's consumer price index for August had reached an 11-year high of 6.5 percent.
Meanwhile, property prices are still going up. The National Development and Reform Commission said the average housing price in 70 major cities had increased by 8.2 percent in August compared with the same period last year.
Property developers poured 1.42 trillion yuan into the economy in the first eight months, 29 percent more than the same period last year.
Lin Yueqin, a researcher with the Chinese Academy of Social Sciences, said the latest figures are a cause for concern. "It's a dangerous sign that inflation and property prices have been rising at the same time," said Lin.
He said local governments are the main drivers of the investment spree as their performance assessment system puts emphasis on economic achievements. Local governments' fixed-assets investment has risen 28.4 percent year-on-year, while that of the central government grew 13.2 percent in the past eight months.
The investment growth rate of local government was about 27.9 percent in the first seven months of the year, while that of the central government was 15.4 percent.

China stocks up 2.6% as IPO money floods back

The benchmark Shanghai Composite Index surged 2.64 percent on Friday, boosted by the return of money from a huge IPO and by a spectacular listing by drilling and oil equipment firm China Oilfield Services.
The Index ended the day at 5,552.301 points, after hitting a fresh all-time high of 5,560.417. Friday's close left it up 106 percent since the start of this year.
Gaining Shanghai stocks far outnumbered losers by 783 to 60. Turnover in Shanghai A shares was 137.6 billion yuan (US$18.3 billion), which was moderate but still sharply higher than Thursday's two-month low of 95.1 billion.
China Oilfield Services almost tripled from its initial public offer price to close at 39.90 yuan, far exceeding analysts' expectations of a jump of 50 percent. That left it at a premium of over 130 percent to its Hong Kong-listed H shares, one of the biggest premiums for a dual-listed share.
The stock will only be included in the index in mid-October, but its strength improved sentiment throughout the market.
Analysts said its dramatic debut was partly due to its near-monopoly position in China's booming drilling sector, but its listing was also perfectly timed to attract money flooding back into the market after the IPO of Shenhua Energy.
Shenhua, China's top coal producer, drew a record 2.66 trillion yuan in subscriptions early this week and when the money from unsuccessful retail applications was unfrozen on Friday, some of it immediately returned to the stock market.
"The market was so strong today and there was so much money - I expect the index will just continue rising," said Wu Feng, analyst at Tianxiang Investment Consulting.
Some traders are talking of 6,000 or 6,500 points being hit by the end of this year.
Others, however, said Friday's moderate turnover showed many investors remained cautious about holding stocks over the holiday week starting next Monday.

Bear Stearns CEO says could mull China investment

Bear Stearns Cos Inc isn't looking for an equity infusion, but would consider selling a stake to an investor from China or the Middle East if it was part of a transaction that created value, its chief executive said on Thursday.
ames Cayne also told investors and analysts that he has been spending much of his time meeting with Bear Stearns prime brokerage clients to convince them to keep their investment balances with the firm.

Forex investment agency to debut on Sep 29

China's new sovereign wealth fund with a registered capital of US$200 billion will start operations on September 29, the China Securities News reported today.
The agency's board will comprise 11 members, including three executive directors and two independent directors, the newspaper said in a front page report, citing unidentified sources.
The chairman of the agency will be Lou Jiwei, a former deputy finance minister, and the general manager will be Gao Xiqing, vice-chairman of China's national pension fund, the report said.
The independent directors are former finance minister Liu Zhongli, and Wang Chunzheng, deputy head of the National Development and Reform Commission, China's top economic planner, the newspaper said.
China is establishing the fund in an effort to increase the investment returns on its mounting foreign exchange reserves, which reached nearly US$1.4 trillion at the end of July.
The Standing Committee of the National People's Congress in June approved the issuance of 1.55 trillion yuan (US$206 billion) in special treasury bonds to fund the new agency.

China to hold fair for Latin American, Central and Eastern European commodities

China is to hold a trade fair for commodities from Latin America and Central and Eastern Europe in Beijing from Nov. 22 to 24, according to the Ministry of Commerce.
"The fair will feature about 200 booths with a total area of 5,000 square meters," said Wang Xinpei, the ministry's spokesman, at a regular press conference.
"The fair mainly aims to boost exchanges and cooperation between Chinese enterprises and those from Latin America as well as central and eastern Europe," Wang said.
"It will offer companies from Latin America as well as central and eastern Europe booths free of charge to display their traditional and excellent products and help them explore Chinese markets," he said.
By Sept. 15, the ministry had received participation applications from Mexico, Brazil, Argentina, Peru, Hungary, Croatia, Poland and many other countries, and 182 booths had been booked.

Tightening policy will continue

The central bank said on Friday that it will continue to adopt a "moderately tight" monetary policy in the coming months to keep the economy on the right track.
On the whole, the economy is sound, but "still faces prominent problems such as excessive investment growth, too large a trade surplus and too much lending", the People's Bank of China said in a statement on its website after a quarterly meeting of its monetary policy committee.
Moreover, problems such as continually rising inflation and asset prices have also surfaced, the statement said.
China's consumer price index surged to a decade high of 6.5 percent in August and its gross domestic product expanded year-on-year by a blistering 11.9 percent in the second quarter.
The central bank set a target of 3 percent for CPI growth early this year, although it has altered its stance as the situation has changed.
One of its research arms said in a report released on Friday that it expects inflation to reach 4.6 percent this year.
But inflation should ease to about 5 percent in the first half of next year, according to the report cited by the China Securities Journal.
It forecast the country's GDP will grow by 11.6 percent in 2007 and slow down to 10.8 percent in the first half of next year.
"The economy risks becoming overheated in terms of some indicators," Zhao Xijun, a finance professor at Renmin University of China, told China Daily.
A central bank quarterly survey of 20,000 Chinese households in 50 cities last month showed most people expected inflation to rise further in the fourth quarter.
The central bank did not say in its statement how it will implement its "moderately tight" policies, but some experts have suggested it raise the interest rate further to keep it in line with rising inflation.
The central bank will closely study different factors that caused recent inflation and asset price rises and will take "targeted" measures, according to the statement.
It has raised interest rates five times and commercial banks' required reserves seven times so far this year to mop up excessive liquidity.
Whether another interest rate hike will become a reality depends on a number of factors, said Zhao.
"There are some uncertainties, although it is possible."
If the US economy is further trapped in the crisis triggered by its current credit crunch and its consumption slows down, it may affect China's exports, which will lower the possibility of another interest rate hike this year on the Chinese side, he said.
Moreover, China's tightening measures in the first half of this year may gradually start to work in the coming months. If that happens and inflation is stabilized, another hike will not come, he said.

Chinese IPOs keep their shine

Chinese companies are on track to launch a record number of IPOs in 2007 on stock exchanges across the globe.
Through September, Chinese mainland firms raised US$34.6 billion through IPOs in Shanghai and Shenzhen, says Thomson Financial. Other Chinese firms raised US$12.4 billion in Hong Kong.
The pipeline to New York has been well-stocked, giving US investors new opportunities to take part in China's blistering growth.
In the US, 16 Chinese companies have launched IPOs this year, raising more than US$3 billion. At least three more are on tap. The previous US high was 11 in 2004.
Among 2007's big gainers: WuXi Pharmatech, energy firms LDK Solar, Yingli Green Energy and JA Solar; E-House and Perfect World .
Shares in China Digital TV shot up 75 percent in its debut Friday. The maker of smart cards and software that control TV access sold 12 million shares at US$16 apiece, above its already-raised price range.
So while Asian markets are hot, some Chinese companies are still taking the US route for IPOs.
"It's easy to raise money in Hong Kong and the domestic market," said Richard Gao, portfolio manager of Matthews China Fund. "Companies can just watch their valuations go up.
"But there are still a lot of companies interested in listing overseas, in New York, especially high-tech and private-sector companies."
Three more Chinese companies plan US IPOs this year: Fuqi International, Noah Education and Longtop Financial Technologies.
The New York Stock Exchange and Nasdaq have stepped up efforts to attract IPOs from Chinese companies. In September, the NYSE was the first foreign exchange to open an office in China.
"The (overseas) IPO pipeline is by no means dry. There's a lot more still to happen, especially from the private sector," said Paul Cavey, China economist at Macquarie Securities.
"On the Internet side, it's much more driven by the private sector," Cavey added. "There's a lot of competition and innovation. There are still a lot more IPOs to come."
China's leading Web search firm, Baidu.com, and online gaming firm Shanda Interactive Entertainment have been top performers since their US IPOs.
A Chinese IPO is no sure-fire winner. Several US listings are trading below their offering prices. But many have doubled or nearly tripled since their IPOs.
State-controlled companies, like banks and those involved in heavy industries, continue to go public mainly in Hong Kong.
Most big companies known to US investors, including China Mobile, China Life Insurance and PetroChina, trade in the US as ADRs but are listed in Hong Kong.
"Until recently, the only listings on the NYSE from China were ADRs from State-owned enterprises," said Donald Straszheim, vice chairman of Roth Capital Partners.
"Now you're beginning to see more (private) companies, like solar, listing on the NYSE as opposed to Nasdaq."
He added, "Most companies in China that have some sort of global vision still look very favorably on listing in New York."

Exporters between rock and hard place

It is risky to defend an unpopular cause, such as the recent product scares involving Chinese exporters.
There is an old saying that epitomizes the ideal response: "If you made the mistake, go correct it. If not, take it as a warning."
Things are more complicated in reality. Every case is unique. You don't know where the buck should stop. But that is something against the nature of journalists ready to spot a trend out of a few isolated incidents.
If you delve deeper, a product defect could come from one of several origins: it could be a lapse in design, a blunder in manufacturing, or even incompatible standards. Within the realm of manufacturing, a failing could be an honest mistake, a slip-up, a systematic attempt to cut corners, or a lack of quality control so pervasive that nothing can be guaranteed.
It is not surprising that, of the large amount of products shipped from China, a small percentage is tainted with quality deficiencies. Quality control programs such as the six-sigma are designed to reduce the rate of defects. No manufacturer can guarantee that everything he produces can be totally safe from flaws.
I've used half a dozen notebook computers since the product category came into being, and they were all big-name brands. Without exception, they all failed at one time or another. If I draw a conclusion from my experience, I should probably never buy another notebook.Sound ridiculous? That is the same as campaign of "China-free" labeling, meaning the product has no parts whatsoever made in China, and therefore with no quality problems.
Granted, China has a long way to go to improve its quality management. But we should be fair that it has also come a long way in the past 30 years. Like the economy itself, the product quality of a developing country usually starts at a low level and moves up the ladder. That was true of both Japan and South Korea.
All this sounds like a lame excuse to defend one's own country, right?
Actually, I'm very much in favor of consumers, both domestic and foreign, constantly pounding manufacturers for quality improvement. The bottom line: no product should be allowed into the market that may bring harm to the consumer.
That said, I must add a word for Chinese manufacturers who sell abroad. I've talked to many who said they are caught between a rock and a hard place: They want to raise quality standards, but at the same time they are under extreme pressures to lower them.
The pressure comes from Western buyers and their agents, who cut prices so low that profits diminish and evaporate. Now China has also been accused of dumping. But nobody wants to sell low. Nobody wants to work all year round and earn nothing, or even lose money.
You'll say, "It's a free market, and nobody is forcing you to sell at that price." That's right, but as the laws of economics indicate, when buyers are big and powerful while sellers are small and replaceable, the latter are not really in a position to bargain. You are lucky if you get an order and keep the factory humming and the workers fed. Sometimes you'll have to take a shipment as free or heavily discounted samples that would hopefully bring profitable business later.
Businesses exist to make money. When buyers overpower sellers into accepting a price that eliminates a reasonable profit margin, they are essentially accomplices in a scheme to play fast and loose in quality.
There are big businesses that prefer an ethical facade and assign the dirty job to trading companies. However you play it, if you cut prices as if cutting throat, you should expect others to cut corners in quality.