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5 posts from March 2009

Here are the Reasons why China shall be Worried as the Largest Lender of the U.S.

Chinese Premier Wen Jiabao expresses his worries about the safety of China’s investment in the U.S. treasuries. “We have lent a huge amount of money to the United States,” Wen said at a press briefing in Beijing today. “I request the U.S. to maintain its good credit, to honor its promises and to guarantee the safety of China’s assets.” China Holds $1.2 trillion US Securities, 45% in long-term Treasures By June 2008 China is the largest foreign holder of US securities of $1.2 trillion. 45% of the holdings are in long-term treasuries. US is running a deficit of $765 billion for the first 5 fiscal months of 2009. Obama and his government is going to pump more money hoping to stimulate the economy. Chinese government is worried and shall be worried when simply looking into these numbers. Its investment is exposed to risks. China (Mainland) Holdings of US Securities as of June 2008 China Mainland Holdings Value (US $, million) % of China's Total Holdings % of Total US Foreign Holdings Equity 99,548 8.3% 3.4% Total LT Debt Treasury 521,912 43% Agency ABS 368,721 Agency Other 158,332 Corporate ABS 6,955 Corporate Other 19,330 Subtotal 1,075,250 89.2% 16.6% Total ST Debt... Read more →

China's Investment in Infrastructure - Rail Services

In my previous blog, I talked about China’s $585 billion stimulus plan and its earmark of $118 billion committed to building waterborne transport infrastructure, to expand existing ports and build new ones between 2009 and 2010. At the same time, $90 billion of the stimulus is being pumped into China’s rail services, 70% of which will be used to build high-speed passenger lines, compared with $50 billion budget in 2008. Railroad had been the major transportation for Chinese besides buses and bicycles about 20 years ago. Starting from mid 90s, with the increase of vehicles, both commercial and non-commercial, China started to invest in the construction of highways. The next wave was airport expansion and construction to meet the needs of Chinese’ business and leisure travels. Trains had lost its favor and become the least desired means of transportation, packed, dirty and slow. Until recently China starts to embrace rail products again, esp. high-speed trains and subways. Only Beijing and Shanghai, and a very few other major cities as well, have developed subway systems. By 2015 more than 250 cities in China will have subways. It is a very smart move for China to invest in rail system. Railways and... Read more →

Global Recession Affects China's Solar Energy Industry

I keep telling people that China's solar energy industry is nothing new - it is based on the same model of manufacturing/export, the only thing different is the product. Chinese government is not committed to solar energy yet. It finds solar products expensive to apply. Of course, that's why other governments need to subsidize solar industry. However, for some reason, solar energy is not on Chinese government's priority list yet. By far, the government does not have a particular subsidy plan for solar panel industry. The limited subsidy goes mostly to research instead of commercialization and application of solar energy technologies. As a result, some local governments have to use their own budget to provide financial incentives to local solar energy manufacturers. It is key for the government to come up with a comprehensive subsidy program to stimulate the need from the domestic market, otherwise, solar energy turns out to be another export-driven business, vulnerable to the fluctuation of global markets. With the global recession and credit crunch Chinese solar industry is already feeling the pain. Suntech Power posted a fourth quarter loss of $65.9 million its prices fell 20 percent since the third quarter. LDK Solar Co (LDK.N), a... Read more →

China's Holdings of US Securities as of June 2008

By June 2008 China (Mainland)’s holdings of US Securities is more than $1.2 trillion. The following calculation is based on the preliminary survey results collected jointly done by the Department of Treasury, The Federal Reserve Bank of New York and the Board of Governors of Federal Reserve System. The final results will be released by the end of April. The data is of June 2008 in millions US dollar: China Mainland Holdings Value (US $, million) % of China's Total Holdings % of Total US Foreign Holdings Equity 99,548 8.3% 3.4% Total LT Debt Treasury 521,912 43% Agency ABS 368,721 Agency Other 158,332 Corporate ABS 6,955 Corporate Other 19,330 Subtotal 1,075,250 89.2% 16.6% Total ST Debt Treasury 13,130 Agency 16,699 Corporate 454 Subtotal 30,283 2.5% 3.5% Total LT+ST 1,205,081 23.5% Bsetser from the council of Foreign Affairs looked at the number from a different angel - “Secrets from the Treasury’s Survey: It looks like China bought a lot of equities just before the stock market tumbled”. Read more →

China Issued Legal Guidelines to Penalize Illegal Withdrawal of Foreign Investment

Starting in late 2008, some foreign investors, particularly Korean manufacturing owners in China, abandoned their manufacturing plants, leaving behind large amount of loans taken out from Chinese banks, debts and unpaid workers. To address this issue, four ministries jointly issued "Working Guidelines on Cross-border Pursuit of Liability and Initiation of Legal Action by Relevant Interested Parties in Connection with Abnormal Withdrawal from China of Foreign Investors" to penalize those illegal withdrawal of foreign investors from China. In China, there is an increased hostility toward foreign investors after more and more pull-out of foreign owners of manufacturing plants, providing products and goods to markets outside China. The pull-out left the burden to the government to pay for the salary owed by the foreign owners. Chinese government had been open to foreign investors for decades. What has happened in China in the past few months is a wake up call. This legal document will help protect both the government and employees and send an warning to foreign investors. Read more →