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Monday, 6 May 2013

Let them eat cake!

Dying days ahead of a revolution?
Before entering into the Chinese presidency, current leader Xi Jinping was rumoured to have been handing out copies of de Tocqueville's L'Ancien Régime et la Révolution as a signal on the need for the party to reform and commit itself to purging corruption and addressing the need for improving Chinese welfare following decades of breakneck till-we-choke economic growth.  Recent reports that the territory of Macau, a gambling enclave which also operates as a centre of excess for Chinese gamblers (and a laundry for Chinese officials' cash proceeds) will see the opening of an ultra-luxury hotel employing a descendant of the French King Louis XIII, might have many readers exclaiming "l'ironie!".  The comments of the project company's owner might suggest a reaction more along the lines of that to Marie Antoinette.
“The willingness of mainland Chinese to spend money on the very best is unprecedented,” said Mr Hung, who also plans an invite-only atelier of luxury brands offering bespoke couture. Graff Diamonds has already signed up."           
That other established luxury brands are already slowing in China (and Hong Kong) seems not to matter to much to some, but the success of the project will remain to be seen.  What was seen though were hordes of people at Chinese gold shops seeking to aquire bullion following the price drop - so perhaps luxury is second in mind for the moment?

Dirty business
Meanwhile in another corner of the Chinese economy there is plenty of unseemly behaviour being exposed in news out from the domestic bond markets - including profit skimming by traders and possibly the death of an executive who fell from an office building.  More on that later.

A number of outlets have covered recent developments in some detail.  Caixin had a long piece detailing the executives arrested for dealing and profiting at their client's expense as did Reuters (and here).  Simon Rabinovitch at the FT has also covered the issue and had a good piece explaining the involvement of reformer heavyweight Wang Qishan in not only cleaning up the interbank bond market, but also (possibly) intervening to block the NDRC from encouraging local governments to over-borrow.  Those who have read Red Capitalism by Walter and Howie or other such works will know that the conflict between the reformist PBOC and statist NDRC, is one that has carried on since the first Chinese financial liberalisation in the 1990s.  As noted in Simon's article:

"...bond traders have told beyondbrics that there may also be another, more political reason for his involvement. The interbank bond market has been carefully nurtured by the central bank, which has tried to ensure that risk is properly assessed and ultimately borne by market participants....Over the past two years, though, the NDRC has weighed into the market, pushing it as a venue for local governments to raise financing, even when their credit-worthiness is suspect. That has started to undermine the central bank’s efforts.
According to this version of events, Wang’s main target is not really the few bond traders under investigation. Rather, he is helping shine a strong light on the bond market to check the encroachment of the NDRC and keep the control in the central bank’s hands."
 and this amidst other efforts to better identify brewing risks from interbank lending (here).  In sum though Wang may be successful, it does lead to a question of how much malpractice is out there?  

Details of the death of the chairman of one securities company were to be found in the FT rather than from a whitewashed press announcement from the company's own website (which referred to death "for health reasons").

Crumbling city
And in addition to some illicit brokerages it seems the buildings housing China's financial industry themselves may be at risk of crumbling.  Vivre la différence!




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