agricultural

Patrick Sharma: Farm Subsidies: A Useful Sacrifice in the Budget Debate

by on May 12, 2011

Huffington Post…

Amid continuing debates over how to reduce the federal deficit, recent proposals to cut farm subsidies present an important opportunity to bridge partisan divides. By reforming our antiquated farm support system, Congress can exercise some much-needed fiscal discipline and give the country an agricultural policy for the 21st century. Doing so, however, will require putting the national good over the interests of a powerful few, as well as confronting some enduring myths about American farming. Farm subsidies have long been recognized as ineffective. Since being introduced to help small farmers cope with the Great Depression, the federal farm support program has devolved into a hodgepodge of price supports, direct payments, insurance programs, tax loopholes and low-interest loans that overwhelmingly benefit wealthy farmers and large agricultural businesses. According to data compiled by the Environmental Working Group and the U.S. Department of Agriculture, in recent years the largest 10 percent of American farms have received almost 75 percent of total agricultural subsidies, while a whopping two-thirds of farmers have obtained no government support at all. In addition to rewarding millionaires and agribusinesses rather than small farmers, farm subsidies have encouraged environmentally destructive agricultural practices. By promoting production in areas that would otherwise remain fallow, farm supports have led to habitat destruction and land degradation, as well as increased pesticide and fertilizer use. Subsidies have also had a devastating impact abroad: when shipped to developing nations, cheap American foodstuffs tend to glut local markets and put indigenous producers out of business. Indeed, U.S. agricultural subsidies have been a key factor in derailing the recent Doha round of international trade negotiations. In other words, farm subsidies are bad foreign and domestic policy. But because the program is relatively cheap (estimated to cost around $16 billion in 2011, according to the Congressional Budget Office) and its impacts felt indirectly, subsidies have been allowed to remain on the books. Five-year re-authorizations of the farm support program have historically been dominated by rural congressmen and the agribusiness lobby, and as a result we have a system that lacks oversight and focus. Although Congress made some important reforms in 1996, farm subsidies continue to be a drain on the nation’s coffers, diverting taxpayer dollars away from much-needed investments in education, infrastructure and other productive endeavors. Fortunately, the current preoccupation with the federal deficit has put farm subsidies on the chopping block. Eager to find savings wherever they can, members of both parties have proposed reexamining the way the nation supports agriculture. Republican Congressman Paul Ryan of Wisconsin has called for cutting direct payments to farmers by $30 billion over ten years, while Democratic Senators Dick Durbin of Illinois and Debbie Stabenow of Michigan have indicated their willingness to reform the nation’s farm support system. Importantly, these representatives all hail from agricultural states. Going forward, it is vital that Congress look to reform the farm support program in the most thoughtful way possible. At present, discussions over altering farm subsidies are focused almost entirely on curtailing direct payments to farmers, in which the government automatically pays farm owners a fixed amount of money per year regardless of whether or not their land is being cultivated. Yet direct payments represent just a fraction of total farm supports, and other subsidies, such as price supports, do more to distort the market. If Congress is truly interested in achieving budget savings and developing a modern agricultural policy, it should put all farm subsidies (including supports for ethanol) on the table. This would mean not only curtailing payments to wealthy farmers and agribusinesses but examining whether the government should be in the business of American farming in the first place. For while agriculture accounted for a significant percentage of the U.S. economy in the 1930s, today farming constitutes less than one percent of GDP, and the notion that government support helps struggling family farmers is little more than a myth. Of course, reforming the farm support program will not solve the nation’s fiscal problems. Even eliminating all agricultural subsidies would barely dent the deficit, where meaningful action will be confined to reforming taxes and entitlement spending. But the current budgetary environment does present a chance to rethink our agricultural policies and, in the process, discard a relic of the past.

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Patrick Sharma: Farm Subsidies: A Useful Sacrifice in the Budget Debate

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Ian Fletcher: U.S. Manufacturing ‘Red Hot’? Dream On

by Ian Fletcher on March 1, 2011

Huffington Post…

There is an article in the Huffington Post today which, before apparently being retitled, asserted in its headline that U.S. manufacturing is now “red hot,” and whose text quotes a financial analyst (apparently approvingly) who asserts that it is. This is based on a report from the respected Institute for Supply-Chain Management which reports that manufacturing output in the U.S. has expanded for 19 months straight. Sounds like things are looking up, no? Well, no. As I explained in detail in this article , upticks in American manufacturing output, or even the fact that manufacturing output is at record levels (as it is), do not prove we have a healthy manufacturing sector. The reason is that the appropriate standard for how much manufacturing output America should have is not “more than yesterday,” which is what all the joy over reported increases implies. Instead, the right standard is defined by the simple fact that Americans must either produce what they wish to consume, or produce something we can exchange with other nations that do produce it. If we don’t, we can only finance consumption by either a) selling of existing assets or b) going into debt. That’s what a trade deficit is. This implies that if America runs a trade deficit in manufactured goods (we do, and it’s huge) and our exports of raw materials and services aren’t big enough to cover the gap (they aren’t), then our manufacturing output isn’t large enough. Forget raw-materials exports saving us. That idea drowns in the ocean of foreign crude oil we suck in every year–which causes us to run a deficit, not a surplus, in this sector. Granted, we could hypothetically export more soybeans to pay for our imports without loitering around the global pawn shop. But our agricultural exports are a tiny fraction of the size of our deficit, so that’s unlikely. Our situation in services is a bit better, but our surplus in services is going down, not up, thanks to offshoring, which isn’t going away. Therefore, it’s pretty much up to manufacturing to balance our trade, which gives us two choices: either export more Boeings and Caterpillars in return for all those Hyundais and BMWs, or produce more Fords and Chryslers here so we don’t need to import so many Hyundais and BMWs. Either choice would requires more American manufacturing output, so no, our manufacturing output isn’t high enough. And it certainly isn’t “red hot.”

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Ian Fletcher: U.S. Manufacturing ‘Red Hot’? Dream On

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Dory Rand: Farm Loan Crisis of 1980s Demonstrates How "Stripdowns" Worked without Working

November 24, 2010

The longer this foreclosure crisis drags on, the clearer it is that voluntary loan modification programs are inadequate to meet the needs of millions of borrowers with homes worth less than the mortgages. A recent commentary published by the Federal Reserve Bank of Cleveland shows how an old tool could be used in this new context to help underwater borrowers. The fact that the current modification programs, such as the Home Affordable Modification Program, are voluntary means that homeowners have little power to force reluctant mortgage loan servicers to the bargaining table. While several “judicial foreclosure” jurisdictions (where foreclosures must be approved by a judge) are implementing mandatory or voluntary court-supervised mediation programs that bring homeowners and servicers to the table, such programs are too few to address the nationwide problem of ongoing foreclosures. Continuing to rely exclusively on voluntary modifications and expect a different result would be irrational and irresponsible. There are other options proven to be more effective at keeping people in their homes, such as allowing judges to modify mortgage loans on primary residences through the bankruptcy process. Under this option, bankruptcy judges would reduce the balance of the mortgage loan to the current market value of the home and turn the remaining balance into an unsecured claim that would be treated the same as other unsecured debts in the Chapter 13 bankruptcy petition. Almost any kind of secured loan, including mortgages on rental properties and vacation homes, can be modified through bankruptcy under current law-except loans for primary residences. When this exclusion was established, housing represented a borrower’s most stable investment. With home values on the decline, a home mortgage now represents many borrowers’ most volatile investment. When Illinois Senator Dick Durbin proposed the idea of judicial modification for primary residences ( S. 61 ) in 2009, it was shot down by the financial industry as a bankruptcy “cramdown.” Opponents argued that allowing judicial modification would create a “moral hazard” by allowing debtors to get out their debts and discouraging other borrowers who could afford to pay from keeping current on their payments, lead to higher mortgage interest rates/reduce the availability of credit, prompt an avalanche of bankruptcy petitions, and/or give judges too much power. The Cleveland Fed piece is fascinating because it documents how the same objections were raised in opposition to judicial modification of family farm loans (the process was then called “stripdown”) during the agricultural lending crisis of the 1980′s, and how none of the feared results came to pass after Congress allowed farm mortgage stripdowns by creating a new Chapter 12 of the Bankruptcy Code. According to the authors, “the actual negative impact of the farm stripdown legislation was minor.” Furthermore, “what was most interesting about Chapter 12 is that it worked without working… [I]nstead of flooding bankruptcy courts, Chapter 12 drove the parties to make private loan modifications. In fact, although the General Accounting Office reports that more than 30,000 bankruptcies were expected the year Chapter 12 went into effect, only 8,500 were filed in the first two years.” The Chapter 12 reforms have been on the books for more than two decades now. While the authors note that there are some important differences between the agricultural foreclosure crisis of the 1980′s and the current home foreclosure crisis, we can learn some lessons from the earlier crisis. The authors concluded that “the effects of the stripdown provision… on the availability and terms of agricultural credit suggest that there has been little if any economically significant impact on the cost and availability of that credit.” Now that we understand how allowing judicial modification of mortgages on primary residences through bankruptcy would likely result in most parties negotiating private modifications without causing other significant adverse consequences, it’s time for our policymakers to allow use of this proven tool to help stop the current tsunami of foreclosures.

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Raymond J. Learsy: Wall Street Guiding America Toward Third World Status. Now Instructing China As Well

August 31, 2010

Wall Street will not let up. In spite of the Financial Regulation Bill passed last month, the Wall Street casino continues at full tilt. Just last week the New York Times reported (“Despite Reform, Banks Have Room for Risky Deals”08.25.10) that the likes of JPMorgan Chase and Goldman Sachs are continuing to squander hundreds of millions on bets, purportedly on transactions handled for their customers, (they are now passing themselves off as “croupier” at the roulette wheel) bets that seem to serve little or no economic value other than to further pressure an economy already in distress, pushing a deeply burdened American middle class further into third world status, and taking the entire nation along for the ride. It is a phenomenon all too real and has been authoritatively set forth Arianna Huffington’s recent book, “Third World America”. Among the most malign effects of Wall Street’s workings on our economy has been its ruthless focus on the bottom line and its grim focus on its self enrichment, irrespective of the societal cost visited on workers, communities, the nations economic sinews and the nation’s entrepreneurial vision. Millions of workers have lost high value and productive jobs in manufacturing, trade and the professions. Jobs having been sent overseas and many destroyed through the brutal and self-serving leveraging of debt by the financial engineers, pledging the assets of the companies of which they have taken control before flipping them or dressing them up for an IPO. Many were enterprises with years of tradition created by the hard work of entire communities that have now been closed down entirely or moved offshore after having dismissed its workers en masse. All to the rapacious benefit of the Wall Street Mergers and Acquisition teams and their banking enablers, and the hedge fund honchos. But our friends on Wall Street need not despair. They have their admirers or better said “emulators” in, of all places, Beijing. Heartlessness in the name of Capitalist efficiencies makes strange bedfellows. And China, as in so many endeavors, will not be left behind. Just yesterday the New York Times’ lead article blazoned “China Fortifies State Businesses to Fuel Growth”. The article informs us that China, which calls itself socialist, is often perceived as brutally capitalist. Once eager to learn from the United States, “China’s leaders during the financial crisis, have reaffirmed their faith in their own more statist approach to economic management.” And yet some of the lessons learned under Wall Street tutelage continue to linger on, all to our shame. Some weeks ago an illuminating article, again in the Times (“Workers let Go by China’s Banks Are Putting Up a Fight” 08.15.10) reports on the single largest public offering ever, a $22 billion IPO of the Agricultural Bank of China, resulting in windfalls for the well placed in China and overseas. But wait, having learned a thing or two from Wall Street the bank “slashed payrolls and restructured to raise profitability and make themselves more attractive to outside investors.” And where have we heard that before? And of course in China nothing is small. Some 70,000 people among the laid off by the bank are seeking to regain their old jobs or receive fair monetary compensation. There are differences of course. Here we do not, as yet, place recalcitrant laid off workers into labor camps or have them do jail time without having been prosecuted. But then again, here as in China, the financial upheavals of these last years are tearing at the very fabric of our society. In China, dozens of former Bank staffers- unsuccessful at finding new jobs- have committed suicide. Where it will all end for China and for us, as the excess of the few trumps the welfare of the many, is yet to be told.

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Video: Rabobank’s Foster Discusses European Bank Stress Tests: Video

July 26, 2010

July 26 (Bloomberg) — Adrian Foster, head of financial-markets research for Asia at Rabobank Groep NV in Hong Kong, talks with Bloomberg’s Linzie Janis about the results of stress tests on European banks and the outlook for the region’s economies. European regulators found that seven banks need to raise a combined 3.5 billion euros ($4.5 billion) of capital. Germany’s Hypo Real Estate Holding AG, Agricultural Bank of Greece SA and five Spanish savings banks didn’t have adequate reserves to maintain a Tier 1 capital ratio of at least 6 percent in the event of a recession and sovereign-debt crisis, lenders and regulators said on July 23. (Source: Bloomberg)

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Video: Atlantis’ Liu Says Agricultural Bank Is `Must Buy’ Stock

July 6, 2010

July 7 (Bloomberg) — Liu Yang, chairwoman of Atlantis Investment Management Ltd. in Hong Kong, talks about Agricultural Bank of China Ltd.’s initial public offering. Agricultural Bank is raising at least $19.2 billion in what may become the world’s biggest IPO, according to people with knowledge of the pricing for Hong Kong and Shanghai. Liu speaks from Hong Kong with Linzie Janis on Bloomberg Television’s “Global Connection.”

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Video: Agricultural Bank Shrinking Discount Makes IPO Hard Sell: Video

July 4, 2010

July 5 (Bloomberg) — Bloomberg’s Paul Gordon reports on Agricultural Bank of China Ltd.’s planned initial public offering. Agricultural Bank’s valuation discount to its closest rivals has halved in seven trading days, making the world’s biggest initial public offering in almost four years less appealing to investors. Shares in the Hong Kong part of Agricultural Bank’s IPO are valued at an average 5.3 percent less than its three biggest competitors as measured by book value, based on the top end of the IPO price range and data compiled by Bloomberg. When the bank priced the offering on June 24, the gap was 10.5 percent. Bloomberg’s Susan Li also speaks. (Source: Bloomberg)

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Video: Morgan Stanley’s Lou Says China’s A-Shares `Oversold’: Video

July 1, 2010

July 2 (Bloomberg) — Jerry Lou, China strategist at Morgan Stanley, talks with Bloomberg’s Susan about his investment strategy for Chinese stocks. Lou, speaking from Singapore, also discusses China’s shift in its currency policy, and Agricultural Bank of China Ltd.’s planned initial public offering. (Source: Bloomberg)

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Video: Agricultural Bank Said to Win Hong Kong IPO Approval: Video

June 10, 2010

June 11 (Bloomberg) — Bloomberg’s Paul Gordon reports on Agricultural Bank of China Ltd.’s planned initial public offering. Agricultural Bank, China’s largest lender by customers, received approval in Hong Kong for an IPO, clearing the way to what may be the world’s biggest first-time share sale, two people familiar with the matter said. The listing committee of the Hong Kong exchange gave in-principle approval to the company’s IPO application, according to the people, who declined to be identified because it hasn’t been publicly announced. The China Securities Regulatory Commission on May 9 gave its nod to the Shanghai part of the share sale. Bloomberg’s Rishaad Salamat also speaks. (Source: Bloomberg)

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Agricultural, Communications Share Sales May Miss Target on Market Slump

June 6, 2010

By Bloomberg News June 7 (Bloomberg) — Agricultural Bank of China Ltd. and Bank of Communications Co. may raise less than estimated in share sales after a slump in stock markets, underscoring the challenges of replenishing capital depleted by record lending . Agricultural Bank, China’s fourth-largest lender by assets, will sell a 15 percent stake in an initial public offer, according to a prospectus published June 4. The lender will likely raise no more than $22 billion, Haitong Securities Co. estimated, less than the $30 billion local media had reported. Bank of Communications , also known as BoCom, yesterday said it will sell 33.07 billion yuan ($4.8 billion) of shares in a rights offer, about 20 percent less than initially planned. Rivals including Bank of China Ltd . that plan to tap equity markets must sway investors unnerved by Europe’s sovereign debt crisis and the prospect of bad loans piling up in China after unprecedented lending last year. “The outlook for the global economy is bleak and China won’t be immune to a slowdown,” said Lan Wang Simond , who helps manage $5 billion at Geneva-based Pictet & Cie Banquiers, including shares of Industrial and Commercial Bank of China Ltd. and Bank of China Ltd. “China banks’ massive fund-raising plans are another overhang weighing down the market, so I would say the worst is yet to come for them.” Stock Performance Wang said she reversed a decision to invest more in Chinese lenders after analyzing the industry, and hasn’t decided whether to subscribe for Agricultural Bank’s IPO. BoCom fell as much as 2.8 percent in Hong Kong trading to HK$7.96 and traded at HK$8.04 as of 10:37 a.m. local time, taking this year’s decline to 11 percent. The Shanghai Composite Index slipped 1.4 percent, taking this year’s decline to 23 percent and making the gauge the worst performance among the world’s 10 largest equity markets. Beijing-based Agricultural Bank, China’s largest lender by customers, plans to sell 22.235 billion shares in Shanghai and 25.411 billion shares in Hong Kong, excluding an over-allotment option, according to a document posted on the securities regulator’s website . In addition to Agricultural Bank’s and BoCom’s offerings, publicly traded competitors have announced plans to raise at least a combined 280 billion yuan in stock and bond sales. ‘Staying Away’ “China banks are cheap now, but they’ll become even cheaper and probably stay at that level for quite some time as the domestic and global economies worsen,” said Leo Gao , who helps oversee about $600 million at APS Asset Management Ltd. in Shanghai. “Until the Chinese policymakers lift their tightening hand for a bit, I would stay away from banks.” Gao said he wouldn’t participate in Agricultural Bank’s IPO even if the bank prices the shares at 1.3 times price to book. ICBC , the world’s largest by market value, trades at 2.09 times estimated book value for 2010, according to Bloomberg data. Bank of China, the country’s third-largest and closet rival of Agricultural Bank, trades at 1.5 times estimated 2010 book value, Bloomberg data show. Agricultural Bank’s prospectus didn’t give a price range or an amount that the lender would seek to collect. The company may seek to raise as much as $30 billion, Apple Daily reported last month. China’s securities regulator said it will review the IPO plan on June 9. World’s Largest IPO? The IPO, which may be the world’s biggest since ICBC raised $22 billion in 2006, may force Agricultural Bank to improve corporate governance standards so it can join rivals in tapping capital markets to aid expansion and meet demand for loans. ICBC, China Construction Bank Corp., Bank of China and BoCom would require at least 1.7 trillion yuan of additional capital to sustain the nation’s 8 percent economic growth and meet 15 trillion yuan of loan demand over the next five years, according to estimates from Yang Kaisheng , president of ICBC, in April. Agricultural Bank forecast full-year profit to rise to at least 82.9 billion yuan from 65 billion yuan in 2009 in its prospectus. Agricultural Bank said without sufficient capital it may not be able to maintain an average 21.7 percent annual loan growth since 2007, according to the document. The lender had a capital adequacy ratio of 10.07 percent at the end of 2009 and its non-performing loan ratio stood at 2.91 percent, both worse than state-controlled competitors. — Luo Jun , with assistance by Bei Hu in Hong Kong. Editors: Joost Akkermans , Philip Lagerkranser To contact Bloomberg News staff of this story: Luo Jun in Shanghai at +8621-6104-7021 or jluo6@bloomberg.net

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Agricultural Bank Said to Consider Shunning Foreign Investment Before IPO

January 14, 2010

By Cathy Chan Jan. 15 (Bloomberg) — Agricultural Bank of China , the country’s third-biggest by assets, may exclude foreign investors from buying shares before an initial public offering scheduled for this year, three people familiar with the matter said. The Beijing-based lender had previously held talks with European banks including Credit Agricole SA and Rabobank Nederland NV about investing before the IPO, one of the people said, declining to be identified because the discussions were private. The offering may raise as much as 200 billion yuan ($29.3 billion), according to reports in Chinese newspapers. That would make it the biggest first-time sale ever. Agricultural Bank would be the only one among China’s four largest lenders not to accept foreign investment before its IPO. Goldman Sachs Group Inc. and Bank of America Corp. are among firms that reaped multibillion-dollar profits investing in three Chinese state-owned banks before IPOs in 2005 and 2006 and selling part of their stakes last year. “History has shown that many of these so-called strategic investors are more like common financial investors seeking quick returns as they want to benefit from China’s economic growth,” said CSC Securities HK Ltd. analyst Li Qing . Agricultural Bank, which mainly serves China’s 700 million rural dwellers, may raise between 100 billion yuan and 200 billion yuan selling shares this year, Li Fuan , head of the China Banking Regulatory Commission’s banking innovation department, said last month, according to the Securities Times. ‘Strategic’ Investors A spokesperson for Agricultural Bank, who asked not to be identified citing company policy, declined to comment. Credit Agricole spokesman Stephane Petibon and Rene Loman , a spokesman for Utrecht, Netherlands-based Rabobank Groep NV, declined to comment. Industrial & Commercial Bank of China Ltd. , China Construction Bank Corp. and Bank of China Ltd. sold shares in 2005 and 2006 just as China was finishing a decade-long effort to clean up its banking system. They brought in foreign banks as investors, aiming to tap their expertise in risk management, product innovation and technical support, executives at ICBC and Construction Bank have said. While foreign banks such as Royal Bank of Scotland Group Plc touted the “strategic” nature of their purchases, the need to salvage finances hobbled by the global financial crisis led them to sell part of their holdings after lockup periods ended last year. RBS, the lender bailed out by the U.K. government, bought a $1.6 billion stake in Bank of China in 2005, before the bank’s June 2006 IPO . The Edinburgh-based lender sold its stake for $2.3 billion in January 2009 to replenish capital. Goldman’s Paper Profit New York-based Goldman Sachs , the most profitable securities firm in Wall Street history, made a paper profit of almost $4 billion on its then six-month old investment in ICBC when the lender went public in October 2006. Goldman Sachs sold part of its stake in June for about $1.9 billion, and its remaining holding is worth $10.4 billion. Agricultural Bank, which received a $19 billion cash injection from the government and removed 800 billion yuan of non-performing loans from its balance sheet in 2008, expects to lure buyers to its IPO even without the cachet of having a foreign investor, said one of the people. “Agricultural Bank’s IPO won’t be a flop” because of a lack of foreign strategic investors, said Li. “That said, the bank could still improve its management ability with some help from foreign competitors.” China plans to increase the lockup period on new foreign investment in its commercial banks to five years from three, the Securities Times reported in April last year, citing Liu Mingkang , chairman of the banking regulator. Most Profitable ICBC, Construction Bank and Bank of China now rank among the world’s 10 largest lenders by market value, after China’s economic boom and improved risk management helped them boost profit. ICBC ranks No. 1 both by profit and market capitalization. China’s Ministry of Finance and Central Huijin Investment Co., a unit of the nation’s sovereign wealth fund, each hold 50 percent of Agricultural Bank. The National Council for Social Security Fund, China’s national pension fund, said in February last year that it won cabinet approval to invest in Agricultural Bank before its IPO. Agricultural Bank had 8.6 trillion yuan of assets as of Sept. 30, making it China’s third-largest by that measure, trailing market leader ICBC and Construction Bank. The lender operates more than 24,000 branches nationwide and employs almost half a million people. — Luo Jun , Zhang Dingmin . With assistance from Fabio Benedetti- Valentini in Paris and Martijn van der Starre in Amsterdam. Editors: Philip Lagerkranser , Joost Akkermans To contact the reporter on this story: Cathy Chan in Hong Kong at kchan14@bloomberg.net .

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China Raises GDP Estimates, Closing in on Japan as Second-Biggest Economy

December 25, 2009

By Bloomberg News Dec. 25 (Bloomberg) — China raised its 2008 growth estimate to 9.6 percent from 9 percent and said this year’s quarterly figures will increase, narrowing the gap with Japan, the world’s second-biggest economy. Gross domestic product was 31.405 trillion yuan ($4.6 trillion) last year, the statistics bureau said at a briefing in Beijing today. That compares with a previous 30.067 trillion yuan and the World Bank’s estimate of $4.9 trillion for Japan. China’s expansion will be more than 8 percent in 2009, according to government officials, and the nation is poised to overtake Japan next year, International Monetary Fund projections show. Today’s figures result from an economic census which showed a bigger contribution from services and continue a pattern of China revising up preliminary growth estimates. “The big underlying factor propelling China’s growth is the continued migration of people from the agricultural sector to the more modern economy — industry and services,” said David Cohen , an economist at Action Economic in Singapore. “There’s no stopping China.” For 2009, revisions will mainly affect the value of the year’s gross domestic product, with a “very small” impact on the growth rate, said Peng Zhilong , the head of the bureau’s national economy calculation department. China Versus U.S. China’s expansion in 2008 compares with U.S. growth of less than 1 percent. The Indian economy expanded 6.7 percent in the fiscal year ended March 2009. This year, the Chinese economy grew 8.9 percent in the third quarter from a year earlier, 7.9 percent in the second and 6.1 percent in the first. The government has pledged to maintain a “moderately loose” monetary policy in 2010 to sustain a rebound driven by a stimulus package and record lending. The pace of growth is attracting more investment. Foreign direct investment climbed 32 percent in November to $7 billion from a year earlier. Luxury carmaker Bayerische Motoren Werke AG said last month that it will build a new factory worth 5 billion yuan in China to tap an auto market set to overtake the U.S. as the world’s largest. “Investors are anxious to participate in what remains, with India, the biggest story that’s out there,” Action Economics’ Cohen said. Today’s figures showed a 13.1 trillion yuan contribution from services in 2008, compared with 12 trillion yuan previously. The census, intended to give a better picture of the economy’s make-up, focused on industry and services rather than agriculture. More Revisions Gross domestic product figures for 2005, 2006 and 2007 will also be revised as a result of the census, Peng said. China’s economy was 4.4 percent bigger in 2008 than originally estimated, today’s figures showed. In comparison, a previous census in 2005 showed the statistics bureau had under- estimated the size of the 2004 economy by 17 percent. Besides the census, China routinely carries out a first and second check of each set of annual figures for gross domestic product, issuing revisions where necessary. In April last year, the bureau raised the growth figure for 2007 to 11.9 percent from 11.4 percent, citing larger estimates for the contribution from service industries such as telecommunications and retailing. In January this year, it raised the estimate again to 13 percent. — Li Yanping , Nerys Avery. Editors: Paul Panckhurst , Nerys Avery . To contact Bloomberg News staff for this story: Li Yanping in Beijing at +86-10-6649-7568 or yli16@bloomberg.net

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China Raises GDP Estimates, Closing in on Japan as Second-Biggest Economy

December 25, 2009

By Bloomberg News Dec. 25 (Bloomberg) — China raised its 2008 growth estimate to 9.6 percent from 9 percent and said this year’s quarterly figures will increase, narrowing the gap with Japan, the world’s second-biggest economy. Gross domestic product was 31.405 trillion yuan ($4.6 trillion) last year, the statistics bureau said at a briefing in Beijing today. That compares with a previous 30.067 trillion yuan and the World Bank’s estimate of $4.9 trillion for Japan. China’s expansion will be more than 8 percent in 2009, according to government officials, and the nation is poised to overtake Japan next year, International Monetary Fund projections show. Today’s figures result from an economic census which showed a bigger contribution from services and continue a pattern of China revising up preliminary growth estimates. “The big underlying factor propelling China’s growth is the continued migration of people from the agricultural sector to the more modern economy — industry and services,” said David Cohen , an economist at Action Economic in Singapore. “There’s no stopping China.” For 2009, revisions will mainly affect the value of the year’s gross domestic product, with a “very small” impact on the growth rate, said Peng Zhilong , the head of the bureau’s national economy calculation department. China Versus U.S. China’s expansion in 2008 compares with U.S. growth of less than 1 percent. The Indian economy expanded 6.7 percent in the fiscal year ended March 2009. This year, the Chinese economy grew 8.9 percent in the third quarter from a year earlier, 7.9 percent in the second and 6.1 percent in the first. The government has pledged to maintain a “moderately loose” monetary policy in 2010 to sustain a rebound driven by a stimulus package and record lending. The pace of growth is attracting more investment. Foreign direct investment climbed 32 percent in November to $7 billion from a year earlier. Luxury carmaker Bayerische Motoren Werke AG said last month that it will build a new factory worth 5 billion yuan in China to tap an auto market set to overtake the U.S. as the world’s largest. “Investors are anxious to participate in what remains, with India, the biggest story that’s out there,” Action Economics’ Cohen said. Today’s figures showed a 13.1 trillion yuan contribution from services in 2008, compared with 12 trillion yuan previously. The census, intended to give a better picture of the economy’s make-up, focused on industry and services rather than agriculture. More Revisions Gross domestic product figures for 2005, 2006 and 2007 will also be revised as a result of the census, Peng said. China’s economy was 4.4 percent bigger in 2008 than originally estimated, today’s figures showed. In comparison, a previous census in 2005 showed the statistics bureau had under- estimated the size of the 2004 economy by 17 percent. Besides the census, China routinely carries out a first and second check of each set of annual figures for gross domestic product, issuing revisions where necessary. In April last year, the bureau raised the growth figure for 2007 to 11.9 percent from 11.4 percent, citing larger estimates for the contribution from service industries such as telecommunications and retailing. In January this year, it raised the estimate again to 13 percent. — Li Yanping , Nerys Avery. Editors: Paul Panckhurst , Nerys Avery . To contact Bloomberg News staff for this story: Li Yanping in Beijing at +86-10-6649-7568 or yli16@bloomberg.net

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China’s Five Biggest Banks Said to Hand Capital-Raising Plans to Regulator

November 24, 2009

By Bloomberg News Nov. 24 (Bloomberg) — China’s five largest banks submitted preliminary plans for raising capital to the industry regulator after they extended unprecedented amounts of new loans this year, according to four people with knowledge of the matter. The China Banking Regulatory Commission evaluated the finances of Industrial & Commercial Bank of China Ltd. , China Construction Bank Corp., Bank of China Ltd., Agricultural Bank of China and Bank of Communications Ltd. last week, the people said, declining to be identified. Lenders were told to estimate potential capital shortfalls in 2010 based on their own lending forecasts and capital ratio targets for the year, and to make plans to plug the deficits, they said. The five banks extended a record 4.7 trillion yuan ($688 billion) of loans in the first nine months, even as lenders worldwide reined in credit to repair balance sheets. Bank of China said today it’s studying “various options” to replenish capital after doling out more new loans than any other Chinese lender. The company’s shares fell in Hong Kong trading. “With China’s pace of credit growth, banks’ capital will be drained very quickly and that leaves little room for cushioning if asset quality worsens,” said Sheng Nan , a Shanghai-based analyst at UOB-Kayhian Investment Co. The CBRC said yesterday that lenders must formulate longer- term fundraising plans and those with “relatively low” capital adequacy ratios and without a “practical” plan will face four restrictions on their operations, including limits on market entry, outbound investment, new branches and “business expansion.” Credit Boom China’s government encouraged a $1.3 trillion credit boom this year to complement its monetary and fiscal stimulus plans, propelling the economy to the fastest growth in a year last quarter. The nation’s 11 largest publicly traded banks may need to raise about 300 billion yuan by selling shares and bonds to ensure they have adequate capital for continued loan growth, BNP Paribas SA said in a report last week. The fundraising plans submitted by banks are informal and may change, the people said. Spokespeople at China Construction Bank and Bank of Communications declined to comment and those at Agricultural Bank of China and ICBC weren’t immediately available for comment. Chinese lenders would need as much as a combined 368 billion yuan to keep their capital adequacy ratios at 12 percent, according to BNP Paribas. Bank of China , the nation’s third- largest by market value, would require 137 billion yuan, BNP estimated. Capital Ratios Bank of China shares fell as much as 4 percent in Hong Kong and traded at HK$4.64, a drop of 3.5 percent, as of 2:41 p.m. local time, the biggest drop since Sept. 24. The CBRC late yesterday denied telling “large” banks to raise their capital adequacy ratios. The regulator’s statement came after Reuters reported it urged big state-owned lenders to boost their ratios to 13 percent next year, citing a person it didn’t identify. The regulator last year raised the minimum required capital adequacy ratio, or capital as a percentage of risk-weighted assets, for publicly traded banks to 10 percent from 8 percent. It said in September it plans to tighten capital requirements for banks by capping cross-holdings of subordinated bonds. ICBC, the world’s largest bank by market value, had a capital adequacy ratio of 12.6 percent as of Sept. 30, while Construction Bank was at 12.11 percent. Bank of China’s capital adequacy ratio stood at 11.63 percent and Bank of Communications stood at 12.52 percent. Their Tier 1 ratios were all above 9 percent except for Bank of Communications. The credit expansion helped housing prices post their biggest gains in more than a year and aided an 78 percent surge in the Shanghai Composite Index of stocks. China may need to rein in credit growth to tame inflationary pressures and keep asset bubbles from emerging as growth accelerates, the Organization for Economic Cooperation and Development said this week. Banks may issue 7 trillion yuan of new loans in 2010, BNP Paribas estimated. For Related News and Information: Top financial stories: FTOP Stories on China Banks: TNI CHINA BNK Banking industry debt and equity monitor: BANK Relative value comparison: 3988 HK RVC

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Injazat Capital to advise on a $1 billion Agricultural project in Sudan

July 25, 2009

Injazat Capital to advise on a $1 billion Agricultural project in Sudan

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