China Banks Surge to World’s Biggest May Be Too Good to Be True

China Banks Surge to World’s Biggest May Be Too Good to Be True
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By Philip Lagerkranser

April 30 (Bloomberg) -- Just when the world is beginning to appreciate China’s biggest banks, unencumbered by Wall Street assets of no discernible value and fortified by record first- quarter lending, some analysts say it’s too good to be true.

While Industrial & Commercial Bank of China Ltd., China Construction Bank Corp. and Bank of China Ltd., three of the world’s four largest banks by market value, led an increase in lending focused on investments in railways, roads and ports, similar state-directed loans caused bad debts to snowball in the 1990s. The resulting rescue cost $650 billion and took 10 years.

“We suspect some of the banks may have compromised their risk-management and risk-aversion attitude to meet targets and government expectations,” said Wen Chunling, a Beijing-based analyst at Fitch Ratings. “That will lead to a rebound in non- performing loans in the next few years.”

Chinese banks tripled first-quarter lending to $670 billion as part of a government stimulus package designed to help the economy recover from its slowest growth in almost a decade.

ICBC advanced 636.4 billion yuan ($93.3 billion) of new loans in the first quarter, almost quadruple the amount extended in the same period a year ago and more than the bank’s total lending last year. China Construction offered 521 billion yuan of new credit in the first three months, compared with 161 billion yuan a year earlier. Bank of China made 511 billion yuan of new loans, more than twice the amount a year earlier. All three banks are state-owned and based in Beijing.

Three-Year Wait

It may take as long as three years before the increase is fully reflected in bad-debt statistics, twice as long as in other countries, according to Wen. That’s in part because China’s loan-classification system requires subjective assessments, giving lenders room to maneuver, she said.

The largest borrower in the quarter was government-owned China Aviation Industry Corp., or AVIC, the nation’s biggest aerospace company. The Beijing-based company received 236 billion yuan from 11 Chinese banks, including ICBC, China Construction and Bank of China. It won another 100 billion yuan of credit from Export-Import Bank of China on April 16, without specifying how the money will be used.

AVIC General Manager Lin Zuoming said in an April 16 interview with Beijing-based newspaper Economic Observer that his biggest worry is how to allocate the borrowings to increase returns. AVIC invests in industries ranging from resorts and watch manufacturers to makers of airplanes, cars and electronics.

“There are a lot of companies that borrowed not for the need of business expansion, but rather were talked into borrowing by banks,” said Ma Jun, chief China economist at Deutsche Bank AG in Hong Kong.

China Eastern Airlines

Some of those companies in turn lend proceeds to firms that don’t qualify for financing from banks, increasing the risk of defaults spreading through the economy, Ma said. In other cases, corporate loans are being used to cover operating expenses rather than investments.

Shanghai-based China Eastern Airlines Corp., the nation’s third-largest carrier, has received 87 billion yuan of credit lines from China Construction, Bank of China, China Development Bank Corp., Bank of Communications Co. and Shanghai Pudong Development Bank Co. since December. The company, whose liabilities exceed assets by $1.8 billion, posted a record $2.2 billion loss in 2008 and has received $1 billion of government bailout money.

“We aren’t borrowing to expand our fleet or add new routes; we simply want more money to keep the business running and to make sure our flights can take off,” said China Eastern board secretary Luo Zhuping in an interview, adding that the company needs about 80 million yuan of working capital a day, of which 20 percent goes to interest payments.

‘Quality Borrower’

“Banks are more than willing to lend to us, for we are a large state-owned company and a quality borrower,” Luo said.

The carrier has sought to delay plane deliveries due this year from Boeing Co. and Airbus SAS as it struggles to fill jets ordered during the economic boom of the past decade. Even so, China Eastern expects to get additional credit lines from ICBC to keep it afloat, Chief Financial Officer Wu Yongliang said on April 16.

The company announced plans four days later to spend $41 million to build an aerospace exhibition center for the 2010 Shanghai World Expo with AVIC.

Yu Baoyue, a spokesman for China Construction Bank, said the firm hasn’t lowered lending standards to support the government’s stimulus package. The company is drawing on its more than 300,000 employees to visit borrowers and to research major loan projects before they’re approved, he said.

ICBC spokesman Xie Taifeng said the new lending was reasonable and the bank’s risk-management system was sound.

Stimulus Package

China’s 4 trillion yuan stimulus package requires less than 1 trillion yuan of annual lending, according to Deutsche Bank’s Ma. Banks lent 1.89 trillion yuan, almost twice that amount, during March.

“We don’t know the whereabouts of the rest of the lending,” he said. “This is where the default risk comes from. A lot of signs have shown that most of the loans offered in the first quarter didn’t go to the infrastructure sector.”

BNP Paribas analyst Dorris Chen cut her rating on Bank of China to “hold” from “buy” on April 22, citing concerns about infrastructure projects. That same day, Macquarie Group Ltd. downgraded ICBC, saying “credit quality will be a key focus” for the bank.

Corporate Delinquencies

Bad loans at Chinese banks fell by 10.7 billion yuan in the first quarter to 549.5 billion yuan, according to the country’s banking regulator. The ratio of soured debt relative to the total declined 0.38 percentage point to 2.04 percent.

Liu Mingkang, chairman of the Beijing-based China Banking Regulatory Commission, said April 18 that bad loans will continue to drop this year as lenders tighten scrutiny. Liu made the comment three days after urging banks to pay “close attention” to the risks stemming from increased lending.

The decrease in delinquent debt is surprising, considering the surge in bankruptcies among small and mid-size companies in coastal areas, said Peng Xingyun, director of the monetary policy division at the Chinese Academy of Social Science in Beijing. At least 7.5 percent of the country’s 42 million small and medium-size enterprises had closed or suspended operations by the end of last year and about 30 million migrant workers have lost their jobs, according to official statistics.

“I hope it’s a reflection of improvements in banks’ risk management, but I don’t know,” Peng said. “There will be a one-year lag before bad loans start to emerge.”

Provincial Lending

The drop doesn’t reflect better risk management, said Fitch’s Wen. Rather it was a result of lenders writing off borrowings they had earlier classified as non-performing, removing them from their balance sheets, she said.

Even lending to local governments may be risky, Deutsche Bank’s Ma said. Such loans, typically maturing in more than five years, may not be repaid in full, according to the economist.

Bank of China, the nation’s largest provider of financing denominated in foreign currencies, agreed April 15 to lend 15 billion yuan to Zhejiang province for water-supply and water- cleaning projects. Six days later, the bank advanced 200 billion yuan to Hebei province to support “economic and social developments.”

No specific investment projects were mentioned in the press release announcing the Hebei loan.

“The money was earmarked for a number of projects that are in line with government stimulus policies,” said Wang Zhaowen, a Beijing-based spokesman at Bank of China. “Lending to local governments isn’t different from lending to central government- initiated projects. There’s not much additional risk.”

1998 Collapse

Guangdong International Trust & Investment Corp., which borrowed at home and overseas on behalf of Guangdong province in southeast China, collapsed in 1998, leaving creditors including Dresdner Bank AG of Germany and Bank One Corp. in the U.S. with $3 billion of unpaid bonds. It marked the first time that Chinese authorities failed to bail out one of the nation’s state-owned trusts.

Ultimately, investing in Chinese banks may amount to a bet that Premier Wen Jiabao’s stimulus package will succeed, said Lan Wang Simond, who helps manage $5 billion at Geneva-based Pictet & Cie Banquiers and owns ICBC and Bank of China shares.

“If the stimulus package fails to revive the economy, a lot of loans will turn sour, that’s for sure,” Lan said. “If the economy picks up, things may be fine. For banks, perhaps it’s either a death penalty to be served immediately or a suspended one.”

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Anti-Ageing Skin Cream Really Does Work

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An anti-ageing cream sold on the high street really does improve wrinkles, scientists say. Skip related content
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An earlier version of Boots' No 7 anti-ageing cream sparked a rush on the chemist chain two years ago.

Women flocked to buy it after it was shown on TV to work by stimulating production of fibrillin, a protein promoting the skin's elasticity.

Stocks of the product immediately sold out and some 50,000 women subsequently signed up to waiting lists for the serum.

Now, after a year-long clinical study published in the British Journal of Dermatology, scientists say No7 Protect & Perfect Intense Beauty Serum really can improve the appearance of skin damaged by everyday exposure to sunlight.

Scientists at the University of Manchester, who carried out the study on the original serum, have since gone on to look at whether the product could stand up to scrutiny of its performance in the long-term.

A clinical trial involving 60 volunteers showed that the second cream produced a significant improvement in facial wrinkles after 12 months of use, with 70% of product users showing a "marked improvement" over the test period.

The trial, funded by Boots, was carried out in the same way a medicine would be tested, with those conducting the research "blind" to what the products were.

Dermatology professor Chris Griffiths, who led the research, said: "This trial was conducted to the very highest of scientific standards.

"The results show that, when used long-term, the product produces a clinically discernable improvement in wrinkles in photo-aged skin. This test paves the way for larger studies with more statistical power."

Other experts have applauded Boots for what is thought to be the first "properly conducted, placebo-controlled, double blind trial of an over-the-counter cosmetic product".

"I think this will raise the bar for what we should expect from the cosmetic companies in showing that their products work," said Dr Richard Weller, a senior lecturer in dermatology at the University of Edinburgh.

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国内の３たばこ工場を閉鎖へ　ＪＴ、需要減で効率化
2009.4.30 16:46

　日本たばこ産業（ＪＴ）は３０日、国内のたばこ需要減を受けた生産効率化策として、盛岡工場（盛岡市）と米子工場（鳥取県米子市）を平成２２年３月末、小田原工場（神奈川県小田原市）を２３年３月末に閉鎖すると発表した。

　２１年４月時点で合計４１４人いる各工場の従業員は、配置転換や希望退職の募集で対応する。

　たばこの販売本数は減少が続き、今後も増加は見込めず、生産体制を縮小する。今回の３工場の閉鎖後は、北関東工場（宇都宮市）など６工場が残る。

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Putin concerned with conflicts involving Russian assets in Ukraine


MOSCOW, Apr 29 (Prime-Tass) -- Russian Prime Minister Vladimir Putin said Wednesday he was concerned with what he called raids against Russian companies' assets in Ukraine, ITAR-TASS reported.

In particular, he mentioned conflicts involving the Kremenchuk Oil Refinery, also known as Ukrtatnafta, and locomotive producer Luganskteplovoz.

"Our numerous requests for Ukrainian official authorities to take care of these facts are not yet being handled efficiently," he said at a meeting of a Russian-Ukrainian committee for economic cooperation.

Ukrainian oil and gas company Naftogaz Ukrainy is involved in a long-running dispute with Russian oil company Taftneft and the government of the Russian constituent republic of Tatarstan over control of Ukrtatnafta.

Ukrainian authorities have also disputed the acquisition of Luganskteplovoz by Russia's Bryansk Engineering Plant.

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Arab businesses to attend Petersburg economic forum
11:47 | 30/ 04/ 2009

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CAIRO, April 30 (RIA Novosti) - An Arab business group is interested in developing relations with Russia and plans to participate actively in the St. Petersburg economic forum to be in June, a member of the Arab-Russia Business Council said.

The St. Petersburg International Economic Forum will be held on June 4-6 in Russia's second largest city and will focus on the topical issues of global economic development, in particular, new approaches to the understanding of the future of international financial institutions, the prospects for banking activity and Russia's role in fighting the global economic crisis.

"This is one of the largest global forums, which has been held on a regular basis for over ten years and brings together not only influential business people but also heads of states," Adnan Kassar, the head of the General Union of Arab Chambers of Commerce, Industry and Agriculture, told RIA Novosti.

This year, the forum's program will include business dialogue on Russia and the Arab world, focusing on the creation of an investment fund with Russian and Arab capital to finance joint projects.

"An investment fund is an effective instrument and we intend to back this idea," Kassar said, adding that investment in the Russian economy was very attractive at this stage and Arab business leaders would show great interest in the St Petersburg forum.

Kassar said that current trade between Russia and Arab states, which amounts to $8 billion, was insufficient and needed to be increased.

"I believe that the figure of $8 billion is insufficient and we want bilateral trade to amount to $10-12 billion," Kassar said.

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UAW gears up to join boards of carmakers

By Bernard Simon in Toronto

Published: April 30 2009 03:00 | Last updated: April 30 2009 03:00

The United Auto Workers union is about to embark on one of the riskiest adventures in the 72 years since its founders won recognition from General Motors by turning a fire-hose on police during a strike in Flint, Michigan.

In what is less a victory than a coming-to-terms with reality, the union is likely to emerge as one of the biggest shareholders in the three Detroit carmakers: GM, Ford Motor and Chrysler.

It could end up with 55 per cent of Chrysler, 39 per cent of GM and a sizeable stake in Ford if it accepts shares rather than cash for a chunk of the companies' contribution to new union-managed healthcare trusts, due to be set up next year.

The carmakers' financial woes have forced them to back away from their 2007 promise to fund the trusts entirely with cash.

The prospect of union bosses in the boardroom has sent shivers down investors' spines. The main front-page picture in the business section of Canada's Globe and Mail newspaper yesterday showed a line of workers in blue jeans and T-shirts at a Chrysler plant in Detroit under the headline: "Meet the new board of directors".

But the UAW's ability to influence the groups will be more limited than the scale of its shareholdings suggests. Moreover, there is evidence that it will not wish to be an activist investor.

The UAW will receive only one seat on Chrysler's board, and the Ford family will remain firmly in control of their company through multiple voting shares. The details of the GM deal have yet to be nailed down.

Furthermore, each fund, known as a Voluntary Employees' Beneficiary Association (Veba), will be managed by independent trustees with a fiduciary responsibility to protect retirees' benefits.

In keeping with the low profile that union leaders have maintained throughout their talks with the carmakers, the UAW has given no inkling of how it will behave as a shareholder. But union watchers predict that it will be less confrontational at the boardroom table than at the bargaining table.

"I suspect that the union will find it a sobering responsibility", says Peter Feuille, director of the Institute of Labour and Industrial Relations at the University of Illinois.

One reason is that the security of its members' future healthcare benefits depend on the performance of the trusts and, to a large extent, on the value of the shares. John Russo, a labour professor at Youngstown State University in Ohio, explains: "If you're the owner of the stock, you're probably going to do everything possible to make the company profitable, because you have a direct interest in the enterprise".

Ron Gettelfinger, the UAW president, is no stranger to the corporate world. He sat - uncomfortably, by most accounts - on the board of Daimler during the time that the German carmaker controlled Chrysler. The UAW has retained Lazard, the Wall Street investment bank, as a financial adviser for the past four years.

Mr Gettelfinger has taken a pragmatic approach as Detroit's woes have deepened; often talking tough but retreating from once-sacrosanct principles to preserve jobs. The union has agreed to more flexible work practices and sweeping cuts in medical and other benefits.

The union lost 33,000 members last year, bringing its membership down to 431,000, the lowest since the second world war and less than a third of the 1970s peak.

Veba trustees in other sectors have made diversification a key element of their investment strategy. Should the managers of the GM, Ford and Chrysler trusts follow suit, they are likely to sell most if not all their shares when the carmakers are on the road to recovery. The big question is how long they will have to wait.

Transfer of risk

GM, Ford and Chrysler agreed in 2007 labour contracts to set up union-managed trusts as a way to keep healthcare costs down.

Transferring obligations to the trust, known as a Voluntary Employees' Beneficiary Association (VEBA), the carmakers strengthen balance sheets.

Risk is transferred to the union and members, whose future benefits depend on performance of the trusts' investments.