Posts of the Week: 11/17 -11/23

Well, it's that time of year again . . . I was going to write this yesterday with some tea in the afternoon. But, I was working on extraterritorial antitrust jurisdiction problems, and I kinda lost track of time.

Transitional Review Mechanism of China's TRIPs Implementations Q&A Copyright Law at IP Dragon

China VAT Changes List for December 2008 at SourceJuice

Nissan Will Try and Make the Red Dragon Greener at Autopia

Totally Cool: wikinvest

An email from wikinvest arrived sometime this morning suggesting that the next time I mention a company or exchange, I throw in one of their graphs. Here are a couple of graphs:

View the full SHGIDX-SH chart at Wikinvest

View the full SHGIDX-SH chart at Wikinvest

Pretty sweet, huh?

Also, they've got some good articles floating around their databases. Plus, there's a cool bookmarking system so you can keep track of pages you like. A nice place to start for China stuff is at the Investing in China page. They've got links to most of the relative info on China from here. The linking is still a little weak, but it is fully wikiable and I expect that it will only get better with time.

A Cross Pacific Look at AML/Antitrust in Action

Today, the Associated Press reported on MOFCOM's AML review of InBev's takeover of Anheuser-Busch. Both InBev and Anheuser-Busch have substantial investments in breweries in China, which triggered the AML review of InBev's acquisition of Anheuser-Busch's China operations. The article describes the China acquisition as "highest-profile acquisition approved" since China adopted the AML.

There was substantial fear over how the AML would be interpreted. I was just excited about the AML because of the clearer guidelines for M&A approval. Here's a comparison of the terms for deal approval imposed on InBev by MOFCOM in China, and by the Justice Department in the US.

In China:

The Commerce Ministry said Anheuser-Busch is barred from increasing its 27 percent stake in the Tsingtao Beer Ltd. InBev is barred from adding to its 28.5 percent stake in Zhujiang Beer Ltd.

The companies are barred from linking up with two leading Chinese breweries, Huarun Snow Beer Ltd. and Beijing Yanjing Beer Ltd., the ministry said.

In the US:

The U.S. Justice Department agreed to InBev's purchase of Anheuser-Busch on condition the Belgian brewer sell its Labatt USA brand to reduce its market dominance.

I have no idea whether these restrictions are comparable because I'm not in the business of valuing breweries. However, InBev did claim that the sale of Labatt USA would have "no material impact on its earnings." But, Tsingtao had a net income growth of 15.87% to RMB 410.46 million for 2007. Financial info on Zhujiang Beer, Huarun Snow, and Beijing Yanjing are much more difficult to find, but the large China breweries had a revenue growth of 16.37% for 2007. And, by way of comparison to Tsingtao's 15% market share, Zhujiang has a 12% market share. Gut reaction: ownership limits in Tsingtao and Zhujiang would cause me to lose more sleep than being forced to sell Labatt USA.

Why Would China Want to Expand Its IMF Quota?

To have more influence within the IMF, of course. A brief at China Economic Review says that China may have remained mum at the G-20 Summit on increasing its contribution to the IMF, its quota, until developing countries in general, and China particular, are afforded more influence within the IMF. China has tried to increase its quota before, in 2001, but China was blocked from increasing its quota beyond the size of the smallest G7 member, Canada. That restriction has since been exceeded, but China's quota is still only at 3.72%.

Who might be doing this blocking? Well, the second highest quota is held by Japan at 6.13%, and the third highest is Germany with 5.99%. Number one? The US at 17.09%. It just so happens that having a veto on institutional issues within the IMF requires a a 15+% quota in order to overcome the 85% weighted majority voting requirements. Which means that there is only one nation in the world with the final say on the structure of the IMF.

The US appears undecided on what sort of IMF it wants. Brad Setser reports that last week George Bush did not want to substantially increase the size of the IMF, but at G-20 the US suggested reviewing "the adequacy of the resources of the IMF." Whatever the case truly is, it is hard to imagine the US actually giving up its veto power. And, it is hard to imagine Congress approving additional allocations to the IMF at this point in time in order to maintain our veto. Without true necessity, it is easy to see the US use its veto to maintain the IMF's status quo.

Alternatively, why should China seek to expand its influence in the IMF? China's use of soft power is not necessarily backfiring, but in the face of recent troubles in Sudan, China might be more aware that the authority of an international body would be more acceptable to the rest of the world in bringing stability to troubled regions. But, why the IMF? The political tone of my undergrad college was extremely liberal, but how many people don't think of corrupt dictators who were 'friends' of the US and 'enemies' of communism when they think of the regimes that the IMF was used to to prop up?

Maybe, just maybe, if the IMF allowed China and other nations to increase their quotas under the IMF, it could improve its own image. Perhaps Argentina wouldn't take loans that amount to usury from Hugo Chavez. Perhaps the IMF could actually start doing what it was formed to do, help install sound macroeconomic policies in developing nations in need of loans. After being a piggy bank for bad guys, this would be a huge step up. That just might be worth a veto...

Posts of the Week: 11/10 - 11/16

Enough Said at Managing the Dragon
A helpful list of where the stimulus dough is supposed to be spent.

China's Stimulus Plan: Money, And More Money at China Journal
Words on China's stimulus plan from what's left of the world's investment bankers.

A simple model of China's model of China at Marginal Revolution
Tyler Cowen having some fun.

Tencent and the Labor Contract Law at China Hearsay
Wonky fun with NCAs!

Tencent Launches "Litigation-gate" Against Former Employees at WSJ: China Journal
More on the NCAs with Tencent with translated rumors from the Chinese blogosphere.

Current VAT 'Encouraged Projects' to Change Under New Tax Reform at China Briefing

Corruption Info From Around the World

Stumbled onto an interesting site this morning, the Business Anti-Corruption Portal. They've got a lot of nifty info. The two coolest are the Due Diligence Tools, and the Country Profiles.

The due diligence tools section contains several sample flowcharts designed to give companies a strategy for recognizing and avoiding corruption. With a statute like the Foreign Corrupt Practices Act, and international agreements like the UN Convention Against Corruption and the OECD Convention on Combating Bribery in International Business Transacation, it is really important that bribery does not occur. Fortunately, the FCPA does not hold offenders strictly liable as there is an element of intent.

The country profiles section uses a combination of recent reports to draw an in depth profile of corruption in almost every developing nation in the world. Very well cited, too. Each profile contains info on the nation's political climate, general info on corruption in business, the regulatory environment, a data table on types of corruption by sector, further web resources, and public and private anti-corruption initiatives in each country. Of particular interest on the China page is a paragraph on the use of agents. While recognizing that agents are commonly used and do add value, they also highly recommend conducting careful due diligence on your agents because they can and do cause quite the headaches.

US Priorities for APEC

On Monday, November 17, the Asia Pacific Economic Cooperation (APEC) will convene their 2008 meeting in Lima, Peru. On Monday morning, Ambassador Patricia Haslach gave a press conference on US priorities for APEC. Here's a summary of points related to US-China interests:

• On China's financial stimulus package: "we look forward to getting more information on that."
• APEC must continue to recognize that trade and investment are the key drivers of economic growth and development in the region.
  
• The US has previously proposed that an APEC free trade zone, but this will require wide support and joint leadership.
• Promotion of food security, and a special nod to "Taiwan on - China on this one, the - a workshop that they held on disaster preparedness after the - after an earthquake in China."
• Interest in continued progress of IPR.
• Actually getting Doha done.
• Don't turn inward, possibly as much a suggestion for ourselves as anybody else.
  
• North Korea? APEC "is largely an economic organization" . . .

Thoughts?

Ambassador Haslach is understandably playing coy about the US full objectives for a meeting that has yet to begin.

There also seems to be some discomfort expressed by Ambassador Haslach because the US will have a whole new (or slightly altered) slew of trade objectives and a new ambassador to APEC in a couple of months. President-elect Obama may or may not have representatives in Peru next week, and his true stance on how free trade should be has proven difficult to determine. This is at least part of the reason why I think there might be a dual audience for Ambassador Haslach's statements, US and everybody else.

NOTE: Taiwan is not officially a member, but is represented in APEC as Chinese Taipei, hence the stumble on "Taiwan, uh China."

Thinking About African Ports

The other day a buddy sent me a link to a Calculated Exuberance post on Djibouti. The author sees a bright future for Djibouti as a future financial center. Source of the exuberance? A proposal by Tarek bin Laden for what would be the longest bridge in the world across the Gate of Sorrows from Djibouti to Yemen. The author suggests that this could pave the way for a mega port in Djibouti serving as a hub for Northeast Africa and the Middle East. I see several problems with this.

The estimated cost for the bridge is way beyond bin Laden's means, and even the Economist has suggested that the people he is in bed with hint that the bridge might be partially funded by the US government in order to secure the Red Sea. Thus it becomes more of a security device for this troubled region which includes Sudan and Somalia. Add in the poverty of the area and China's large role in Sudan, and the possibility of financial center under these circumstances looks even smaller.

If the purpose of the bridge is to actually serve the Middle East, then I'd guess it would be for outsourced food sources in Africa. Reportedly, Qatar and Abu Dhabi are both considering Sudan, Djibouti's neighbor, as an investment target for farms to feed the citizens of their desert cities. But, the same reports also point out that Sudan has a history of failing as an agricultural exporter. Thus this also seems unlikely.

If the point is to actually turn Djibouti into a major port for the East, I ask why? The oprt already has a monopoly on Northeast Africa, but the neighboring countries are poor. East Africa is geographically rough, being dominated by the Great Rift Valley, making logistics difficult. All that the area really has going for it is China's close ties with Sudan, but even that relationship is being strained.

In a recent article, the Economist had this handy map of Africa's logistics lines:



There are some major lines there, but this sentence sums up Africa's big transportation problem:

A study by America’s trade department found that it cost more to ship a ton of wheat from Mombasa in Kenya to Kampala in Uganda than it did to ship it from Chicago to Mombasa.

Several companies have been trying to crack Africa's logistics problems. The major breakthrough has come in Cote d'Ivoire at the port of Abidjan. This is less useful for serving the East, though.

For a more economic mega port to serve the East, I'd look towards the planned port in Dar es Salaam, Tanzania, or expansion in Mombasa, Kenya. The logistics networks are stronger, and the wealth of the region is greater. Dar es Salaam might be a slightly better bet than Mombasa just because Dar es Salaam serves a dual function of financial center and trade center, while Mombasa serves as a trade center and Nairobi serves as a financial center. But, Nairobi's exchange is more sophisticated than Dar es Salaam's. Sub-Saharan Africa has unrest, but our social institutions tend to break the Second Law of Thermodynamics, and move towards greater order. As greater order takes hold in sub-Saharan Africa, exportable goods should increase and logistics should improve. The greater wealth of the region relative to the Horn would hopefully bring even greater returns in both export and import opportunities. Though there's plenty of money to be made in the region, I wouldn't plan on seeing anything big until at least 2015-2020. Somethings just take time.

China Financial Stimulus Package: "Oh, Yeah!"

Don't drink the Kool-Aid:

Sure, I might have the advantage of actually commenting on this after others have raised doubts thus casting a shadow on my observations, but when I first read about an RMB 4 trillion stimulus package I was a little skeptical. The thoughts went something along the lines of: China doesn't have a complex financial system that would need bailing out at the same scale as the US. If that's the case, they'll probably just turn spending inwards and build some stuff. But, doesn't China already have huge plans in place to already build a bunch of a stuff. If they already have plans to build stuff, is this "bailout" really just putting horns on a bear to make it look like a bull?

Looks like the answer is mostly yes. There have been some additions, but there ain't much there that wasn't already planned. Jack Perkowski gives a round up of the targeted areas for spending taken from Xinhua.

There's also a bunch of choice quotes from what are left of the world's investment banks over at WSJ.com China Journal. My favorite, because it gels with my thesis, is from Song Yu of Goldman Sachs:

Considerable uncertainties over the ultimate size of the stimulus still remain despite the headlines that are being quoted in the press. Certainly, this announcement does not imply the government will spend 4 trillion yuan of extra investments over the next two years…The 4 trillion yuan investment cost is a “gross” concept in the sense some of the investment would have been made without the stimulus package anyway. The amount of “extra” investments involved is still not clear at this point.

There was also a lengthy piece on NPR today that raises a lot of these questions.

But, since we seem to be measuring the success of these bailouts by the performance of stock markets, if the sentiment of the market is uplifted by semantics then let's wear out our thesauruses.

UPDATE: TIME: China Blog just did their own update from Merrill Lynch on how new the dough is. Apparently, RMB 1.65 trillion is newish, unless we actually don't know what the spending plans were as of mid-October, which we don't. And even if it is new, I'll quote the New York Times article linked to above: "China's overall government spending remains relatively low as a percentage of economic output compared with the US and Europe.

Posts of the Week: 11/3 -11/9

The Great Stall of China at Free Exchange
A few commentators on the trade impact of higher cost letters of credit.

How to Git that Gosh Durn Howse at bizCult
Could've done without the 'tude, but the substantive points are interesting.

China As Downturn Neophyte. If I Stick My Head In The Sand.... at China Law Blog
Deep look into shipping, with some helpful client case studies.

Zhejiang: Signs of a Freer Market

Just read an interesting case study on Zhejiang Province at Business Week, Zhejiang Province: A Free-Market Success Story. The article starts off as a comparison piece of Zhejiang and Jiangsu Province, but turns into argument that Zhejiang has a relatively freer economy than Shanghai.

Excluding Shangahi, Beijing and Tianjin, Zhejiang and Jiangsu are ranked first and third in China in terms of per capita GDP. The author makes it clear that Zhejiang is so rich because it has grown so quickly, from seventh in per capita GDP in 1980 to its preeminent position today. Facilitating this growth:

The Zhejiang model is characterized by a heavy reliance on private initiatives, a noninterventionist government style in the management of firms, and a supportive credit policy stance toward private companies.

The author calls this an indigenous entreprenuerial economy, in contrast to a statist economy which allocates more of GDP to the government and encourages foreign investors to bring in technology and management expertise.

The author then interprets Zhejiang's GDP data in relation to Shanghai's in order to show that the price and cost of Shanghai's statist economy has had a detrimental effect on the relative real income of Shanghai residents compared to the rising relative real incomes of Zhejiang residents.

The author does not argue that Zhejiang residents are more wealthy than Shanghai residents, but he does point out that despite increases in both Zhejiang's and Shanghai's per capita GDP in relation to the national mean from 1999-2004, Shanghai's household income actually declined in this same period in relation to the national mean while Zhejiang's increased. In both cases the economy grows in real terms, but in the more entrpreneurial economy of Zhejiang the "material prosperity for aggregate bodies of human beings," measured in terms of lifespan, TVs, PCs, cameras, phones, house size, had a chance to grow at a faster pace in relation to the rest of China. For this reason, the author thinks that policies supporting indigenous entrepreneurship should spread in China.

Compelling, but I wonder if the author misses any benefit that a more well financed government might bring to its citizens? Or the benefit that foreign technology and management offer?

Now What?

Now that I don't have to check RCP or Drudge 5 times a day, or consume every little report on what was gonna happen yesterday, I guess I'm gonna have some more time on my hands. Well... Finals are just around the corner... And I've gotta write some sort of paper on international discovery... And there's some conference I'm working on... But to misquote Lawrence Taylor about as accurately as I can, I think I'm going to start doing regular blogging again.

[yippee, but not about blogging, about something else]
[damn, this has been one self-indulgent post]

Jets and UAVs on Show in Zhuhai

Wired: Danger Room points its readers to some advance press on an airshow taking place in Zhuhai tomorrow. The star of the show is the Chengdu J-10 Vigorous Dragon, which has been under development and under wraps for a long time. The other stars of the show are supposed to be the bids for a military UAV contract. I searched for, but could not find the Yellow Flying Saucer...

Posts of the Week: 10/27 - 11/2

Taiwan's growing trade with China: A national security threat? at Volokh
A summary of a paper that the author presented at University of Chicago last week.

China's White Paper on Climate Change and China's Climate Change Negotiation Stance at China Environmental Law
A pair of posts on China's climate change policy stands.

The CIC, the world's best performing sovereign fund? at Brad Setser: Follow the Money
In this year "best performing" is a stand in for "most stable."

Comrades to Consumers: Advertisements in Chinese Media at Brand Science Institute
The symbols of Communism are gold for increasing sales.

We'll Always Have Litigation to Talk About at China Hearsay
No Rule 11 in China?

China's Upcoming Circular Economy Law. What Goes Around..... Well, Not Exactly at China Law Blog
Clearing up any misinterpretations, Steve Dickinson lets his readers know that the purpose of the Circular Economy Law is delivering energy efficiency. The chances sound slim.

100 Essential Resources for Doing Business in China at BSchool.com
Help list, and yours truly at #58.

Misery and Modernization: China and the Financial Crisis at China Sourcing Blog

Real Taxes for Real Money Made by Online Game Players at WSJ:China Journal.