China surpasses US as world's top corporate borrower; Will the IMF headquarters move to Beijing?

China surpasses US as world's top corporate borrower

Corporate debtChinese corporate borrowers owed $14.2 trillion at the end of 2013 versus $13.1 trillion owed by U.S. corporations with the switch in ranking

The Chinese mainland has surpassed the US as the world's top corporate borrower, and higher debt risk in the world's second-largest economy may mean greater risk for the world, a report said on Monday.

However, Chinese economists noted that the debt risk in China's corporate sector is still well under control.

Nonfinancial corporate debt in the Chinese market was estimated at around $14.2 trillion by the end of 2013, overtaking the $13.1 trillion debt owed by the US corporations, a progress happening sooner than expected, said a report from the Standard & Poor's Ratings Services on Monday.

The report expects that by the end of 2018 debt needs of mainland companies will reach $23.9 trillion - around one-third of the almost $60 trillion of global refinancing and new debt needs.

"It [the mainland surpassing the US as the largest corporate borrower] is not surprising at all, as the [size of] mainland non-service sector has already surpassed that of the US," Tian Yun, an economist with the China Society of Macroeconomics under the National Development and Reform Commission, told the Global Times on Monday.

Cash flow and leverage at mainland corporations has worsened after 2009, and debt risks in the property and steel sectors remain a particular concern, the report said.

Private companies are facing more challenging financing conditions - highlighted by China's first corporate bond default case of Shanghai Chaori Solar Energy Science and Technology Co in March and another case of default of leading private steel maker Shanxi Haixin Iron and Steel Group.

"The capital market has been sluggish during the past few years, leading to the fast growth in corporate debts," Xu Hongcai, director of the Department of Information under the China Center for International Economic Exchanges, told the Global Times Monday.

Experts noted that the rapid growth in debt reflected some problems of the  Chinese economy, but the size of the debt is still in a safe range and will not cause major risks as the economy remains stable.

"The problems of the Chinese economy are institutional and structural," Tian said, "By addressing these issues, debt risks can be managed."

Tian further noted that most corporate debts in China are internal debts, thus debt problems in the country will have limited impact on the rest of the world.

The report also said a possible contraction in "shadowing banking" will be detrimental to businesses as general.

But Xu noted that China's tighter supervision of the "shadow banking" sector will make it more transparent and better-regulated, which will reduce the potential risks in the sector.


Local governments face massive debt repayment pressure

China's local governments are facing huge debt repayment pressure this year with 2.4 trillion yuan ($390 billion) of debts due in 2014, China Business News reported Monday.

From 2009 to 2013, China issued 94 local government bonds raising 850 billion yuan, the report said.

With another 400 billion yuan worth of bonds to be issued this year, the total financing since 2009 will reach 1.25 trillion yuan, according to the report.

However, the total local government debt is much higher than the amount raised through the bonds, the report said, noting that major debt came from bank loans.

Although the central government has stated several times that the overall debt risk is under control, the statistics from China's National Audit Office show that some local governments have a debt-asset ratio of more that 100 percent and are facing huge repayment pressure, the report said.

Market analysts hold the view that local governments may borrow new debts to pay for the old ones.

The central government allowed local authorities to raise funds since 2009 in the wake of the global financial crisis, while the central government also issued bonds and repaid debts on behalf of the local governments, a practice criticized by some as not conforming to market economy principles.

As the bond issuing backed by the central government is limited and could not fully meet the local needs, the local governments also turned to opaque financing channels including shadow banking activities, the report said.

Despite the big debt pileup, no local government default has so far taken place.

- By Liang Fei Source:Global Times Published: 2014-6-16 23:43:09 

Will the IMF headquarters move to Beijing?

The International Monetary Fund's headquarters may one day move from Washington to Beijing, aligning with China's growing influence in the world economy, the fund's managing director Christine Lagarde said early this month.

Attaching importance to China

Christine Lagarde made the statement at the London School of Economics and Political Science (LSE), saying that the IMF rules require that the institution should be headquartered in the country that is the biggest shareholder. This has always been the U.S. since the fund was formed.

"But the way things are going, I wouldn't be surprised if one of these days, the IMF was headquartered in Beijing," she said.

Lagarde remarked that the IMF had a good relationship with China, the world's second largest economy, and she praised the Chinese government's commitment to fighting corruption.

Lagarde added that she did not think the IMF should be controlled by Europeans in its first place. Since its establishment in 1945, the IMF headquarters has been headed by Europeans and located in Washington, while the World Bank has been headed by the Americans.

Not satisfied with the U.S.

Lagarde also pointed out that the U.S. government is an "outlier" among the G20 in refusing to approve IMF reform, and the IMF was trying to give emerging economies like China and Brazil a bigger voice through reform.

According to Lagarde, on the part of countries like China, Brazil, and India, there is frustration with the lack of progress in reforming the IMF by refusing to adopt the quota reform that would give emerging economies a bigger voice, a bigger vote, and a bigger share in the institution. “I share that frustration immensely,” she said.

She also claimed that the credibility and the importance of the IMF are closely related to proper representation among the membership. "We cannot have proper representation of the membership if China has a tiny share of quota and the voice, when it has grown to where it has grown," she said.

The IMF agreed to reform its management structure in 2010 so that emerging economies could play a bigger role, and made China the third largest member. The U.S. is the only member with control weight in the voting; meaning that any major reform must be approved by the United States.

Hello headquarters

Lagarde has no specific schedule for the headquarters' shift. However, this once again reminds China that there are few international organizations headquartered in its country, which is disproportionate to China's status as the world's second largest economy.

This article is edited and translated from 《IMF总部要搬北京？》，source:Beijing Youth Daily, author: Bu Xiaoming. (People's Daily Online)

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U.S. has responsibility to rein unruly allies for Asia-Pacific stability

WASHINGTON -- U.S. Defense Secretary Leon Panetta on Sunday began his three-nation Asia-Pacific tour, during which he will pay his first visit as Pentagon chief to China to deepen military ties, a visit overshadowed by rising tensions in the region.

To prevent the tense situation from further escalation, the U.S. government should take the responsibility to rein in its unruly allies in the region including Japan and the Philippines.

Washington should discourage Japan's provocations and rectify its own wrong position of applying the U.S.-Japan security treaty to China's Diaoyu Islands in the East China Sea. It also should warn Manila against making further provocations in the South China Sea, and urge it to return to the negotiating table.

When Panetta made remarks before reporters aboard ahead of his landing in Tokyo on Sunday evening, the first stop of his trip, the U.S. apparently was attempting to play a "detached" arbitrator of the territorial disputes, a role that hadn't been invited by any concerning parties.

Panetta said, "I am concerned that when these countries engage in provocations of one kind or another over these various islands, that it raises the possibility that a misjudgement on one side or the other could result in violence, and could result in conflict."

He even alarmed that provocations over the territorial disputes could blow up into a war unless governments exercised more restraint.

To be frank, the U.S. isn't qualified to behave as a judge for the disputes, because it hasn't played a constructive role in the process.

Instead, it shoulders certain historical responsibilities for the chronic disputes, and has, more or less, fanned relevant countries' provocative moves with its biased words or actions and added instability to the region.

Both Japan and the Philippines have been making reckless provocations against China this year in an attempt to obtain undeserved territorial gains in the East China Sea and South China Sea, emboldened by the U.S. "Pivot to Asia" policy, which has featured increased military deployment and involvement in the region.

In the past week, the world witnessed one of the most blatant acts of sabotaging Asian peace and stability by Japan, the staunchest ally of the U.S. in the region, with its completion of the so-called "nationalization" of the Diaoyu Islands that are inherently part of China's sovereign territory. China totally rejects Japan's act of theft, and is taking necessary steps to protect its sovereignty and territorial integrity.

On the dispute, Washington cannot shake off its responsibility for sowing the seeds of conflict. The U.S., through a backroom deal with Japan in 1971, transferred the administration of Ryukyu Islands (known as Okinawa today) and Diaoyu Islands, which were then under the U.S. trusteeship after World War II, to Japan. China has firmly opposed this deal from the very beginning.

Earlier this year, the Philippines, partially encouraged by U.S. support, also sparked a tense standoff with China in the South China Sea by sending a naval ship to harass Chinese fishermen operating legally in China's territorial waters around the Huangyan Islands.

Panetta's China visit, on the bright side, symbolizes the continuation of a good momentum in the U.S.-China relations, which feature regular high-level dialogues and exchanges of visit by senior political and military leaders.

The visit was reciprocal to the one paid by his Chinese counterpart Liang Guanglie to the Pentagon in May.

The visits have helped increase mutual understanding and advance the China-U.S. cooperation partnership and military-to-military ties.

On the other side, due to the current rising tensions in the Asia-Pacific region, the success of Panetta's visit will be judged by how he will reassure Beijing that Washington is willing to do more things conducive to regional peace and stability, which are now threatened by some of the U.S. allies.

The U.S. should understand that, if it continues to allow its allies to fish in troubled waters in the Asia Pacific and let the tensions spin out of control, no countries in the region can escape unscathed.

The U.S. must know better than other countries what it should do to benefit Asia-Pacific stability. 

By Zhi Linfei (Xinhua)

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The US Pacific free trade deal that's anything but free?

The US's draft TPP deal may grant new patent privileges and restrict net freedom, but it's secret – unless you're a multinational CEO

Patent protection increases what patients pay for drugs in the United States by close to $270bn a year (1.8% of GDP). Photograph: Graham Turner for the Guardian

"Free trade" is a sacred mantra in Washington. If anything is labeled as being "free trade", then everyone in the Washington establishment is required to bow down and support it. Otherwise, they are excommunicated from the list of respectable people and exiled to the land of protectionist Neanderthals.

This is essential background to understanding what is going on with the Trans-Pacific Partnership Agreement (TPP), a pact that the United States is negotiating with Australia, Canada, Japan and eight other countries in the Pacific region. The agreement is packaged as a "free trade" agreement. This label will force all of the respectable types in Washington to support it.

In reality, the deal has almost nothing to do with trade: actual trade barriers between these countries are already very low. The TPP is an effort to use the holy grail of free trade to impose conditions and override domestic laws in a way that would be almost impossible if the proposed measures had to go through the normal legislative process. The expectation is that by lining up powerful corporate interests, the governments will be able to ram this new "free trade" pact through legislatures on a take-it-or-leave-it basis.

As with all these multilateral agreements, the intention is to spread its reach through time. That means that anything the original parties to the TPP accept is likely to be imposed later on other countries in the region, and quite likely, on the rest of the world.

Government secrets
 
At this point, it's not really possible to discuss the merits of the TPP since the governments are keeping the proposed text a secret from the public. Only the negotiators themselves and a select group of corporate partners have access to the actual document. The top executives at General Electric, Goldman Sachs, and Pfizer probably all have drafts of the relevant sections of the TPP. However, the members of the relevant congressional committees have not yet been told what is being negotiated.

A few items that have been leaked give us some insight as to the direction of this pact. One major focus is will be stronger protection for intellectual property. In the case of recorded music and movies, we might see provisions similar to those that were in the Stop Online Privacy Act (Sopa). This would make internet intermediaries like Google, Facebook and, indeed, anyone with a website into a copyright cop.

Since these measures were hugely unpopular, Sopa could probably never pass as a standalone piece of legislation. But tied into a larger pact and blessed with "free trade" holy water, the entertainment industry may be able to get what it wants.

The pharmaceutical industry is also likely to be a big gainer from this pact. It has decided that the stronger patent rules that it inserted in the 1995 WTO agreement don't go far enough. It wants stronger and longer patent protection and also increased use of "data exclusivity". This is a government-granted monopoly, often as long as 14 years, that prohibits generic competitors from entering a market based on another company's test results that show a drug to be safe and effective.

Note that stronger copyright and patent protection, along with data exclusivity, is the opposite of free trade. They involve increased government intervention in the market; they restrict competition and lead to higher prices for consumers.

In fact, the costs associated with copyright and patent protection dwarf the costs associated with the tariffs or quotas that usually concern free traders. While the latter rarely raise the price of a product by more than 20-30%, patent protection for prescription drugs can allow drugs to sell for hundreds, or even thousands, of dollars per prescription when they would sell for $5-10 as a generic in a free market.

Patent protection

Patent protection increases what patients pay for drugs in the United States by close to $270bn a year (1.8% of GDP). In addition to making drugs unaffordable to people who need them, the economic costs implied by this market distortion are enormous.

There are many other provisions in this pact that are likely to be similarly controversial. The rules it creates would override domestic laws on the environment, workplace safety, and investment. Of course, it's not really possible to talk about the details because there are no publicly available drafts.

In principle, the TPP is exactly the sort of issue that should feature prominently in the fall elections. Voters should have a chance to decide if they want to vote for candidates who support raising the price of drugs for people in the United States and the rest of the world, or making us all into unpaid copyright cops. But there is no text and no discussion in the campaigns – and that is exactly how the corporations who stand to gain want it.

There is one way to spoil their fun. Just Foreign Policy is offering a reward, now up to $21,100, to WikiLeaks if it publishes a draft copy of the pact. People could add to the reward fund, or if in a position to do so, make a copy of the draft agreement available to the world.

Our political leaders will say that they are worried about the TPP text getting in the hands of terrorists, but we know the truth: they are afraid of a public debate. So if the free market works, we will get to see the draft of the agreement.

• • By Dean Baker
  • guardian.co.uk
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