Ben Bernanke on China Policy

Ben Bernanke on China Policy

Ben Bernanke was the name behind the economic decisions of George W. Bush. He was an economic adviser of the former US president in 2005. After the reign of the former president, he joined the Brookings Institute. His role is prominent, since he became the famous Fellow in Residence while playing the role of the senior adviser to the Citadel in Chicago. During the global financial crisis in 2004, he took the spotlight and drew the attention of the public. That went on until he resigned as the chairman of the US Federal Reserve in 2014. He has been managing the central bank as a government and that brought him to the hardest options. He was the one who acted on the bail out American Insurance Group, yet nobody acknowledged his efforts. He added, if they will not act, then, who will dare to do that? At age 62, he still has some ideas in mind about the monetary as well as the fiscal policies that must be polished.

He was also the man behind the Target Fiscal Policy that has been suggested to China. He implies that it can help in reducing the pressure on the monetary policy and through the years, it will be of help to the entire nation in terms of their developing consumption driven economy. In an interview headed by Caixin, he elaborated the thought and he said that a well conceptualized fiscal investment may boost the productivity in the long run while giving added demand for a short period of time. Compared to some nations, he added, china has the fiscal capability to add more investments. During the interview, there were some questions thrown to him that he answered accordingly. Some of the questions Caixin threw at him are as follows.

Caixin asked, it has been deliberated upon that the Yuan must be criticized a little bit. What can Ben say about it? He answered confidently that he doesn't believe that a big depreciation will do good for the country, it is due to the fact that it will export the deflation to the other parts of the globe and that may mean a rebound on China in a bad manner. If it is not good to anyone, why, if the depreciation is not massive? What if it is just light, is that probable? Are there still any bad effects? The hardship in managing the depreciation problem is still there. If there is a definite, continuous depreciation, then it will just boost more capital outflows, since the citizens will be making an effort to get out of the Yuan as the depreciation went on. It will be best to just have a less foreseeable trail.

What was the idea of Mr. Ben Bernanke about the Yuan internationalization in the past years, has it gained a new pace? What can he say about it? It is by far good enough. That is because it shows the truth that China is really making an effort to come up with a good financial markets with more openness, more rules and more liquid as well. In that sense, Yuan is not yet used in an international manner just the same as the dollars as well as the other monetary are, however, that is not essential at all. But in time, it will be important.

How about Mr. Ben Bernanke's point of view about the China's pushing to enhance the standing of the SDR in an international monetary system? From his perspective, he doesn't think that it is realistic at all, since the SDR will just use a primary international currency. It is not about how much for now, since it does not have any fundamental infrastructure and there are no liquid markets for the SDR assets, since there are for the assets dominating the dollars as well as the euros. He recently said it's probably fair to say that looking at the markets and the economy globally, there are some positive trends. We're seeing, for example, pretty good performance in China, we're seeing some pickup in Europe, even Japan is doing better. So the increased optimism, including the optimism in markets, is not solely due to the expectations of the new administration's policies. It's due in part to a somewhat broad-based improvement in the global economy.

Lastly, what Mr. Ben Bernanke thinks about digital virtual currencies in the next years to come? From his viewpoint, technology wise, he thinks that the technologies do offer a lot of possibilities in terms of improving the payment systems and how people will go through their daily lives with the transactions. Also he thinks that the non-government sponsored currencies such as bitcoin will have a place in the international financial system. But people will still go on in using dollars, Yuan and even euros and the technological advancement will play a vital role in making the payment system more effective and organized.

Multiple for China's Economic Growth

Multiple for China's Economic Growth

China's economy grew 6.9 percent in the first quarter of 2017. The government is aiming for growth of around 6.5 percent in 2017. Lets take a look back at China's Economic Growth.

America Enterprise Institute leading economic analyst and researcher published a write-up on a 2014 study made by Credit Suisse to measure China's household wealth by geographical regions and sovereigns. In deciding on the argument whether China will surpass US to become the world biggest economy, the only right way is to compare the GDP between the two rich nations. Some advocated the use of nominal GDP using prevailing exchange rates for being the better measure. Others preferred on the use of GDP adjusted by Purchasing Power Parity (PPP). The analyst do not agree to the use of the above 2 measures due to various reasons.

Debate has been ongoing as to which country's economy is the largest currently. GDP adjusted by PPP will put China on the top spot ahead of US, while other indicators will put US ahead of China. The news and evidence used to back China's economy as the largest is to emphasize the importance of competition in Sino-America and single our China's economic threat and might. A undisputed fact is China has been enjoying higher economic growth compared to US. It is a matter of time before China will surpass US. One indicator points otherwise, which the the national wealth. From 2008 to 2014, US came out tops in terms of total national wealth amount.

Estimate by Credit Suisse puts private wealth for Americans at $42.9 trillion. China's national wealth is only at $4.7 trillion. This implies US is about 9 times wealthier compared to China. GDP ratios point a very different picture. At end 2014, China's official GDP was $9.8 trillion while US official GDP was $16.77 trillion, which is about 2 times more compared to China.

The phenomena and observation might confuse many economists at first. GDP was expected to measure wealth created for the period of measurement, and is similar to total income produced by a thriving enterprise.

Credit Suisse estimation methodology is not made known. If it is almost proportional to the economy's assets, together with labor force for each country from US or China to manufacture goods and provide services, American income generated is 5 times more valuable compared to Chinese income on a per dollar basis. In share market terms, US had a P/E ratio of 5 times compared to China P/E ratio. The ratio is not accurate but it is possible. US should have a higher ratio than China, but the exact multiple of 5 times is hard to ascertain. The argument for China overtaking US economically is not intelligent or fascinating. However the argument is relevant to highlight the Chinese economic growth and the right thinking behind it.

GDP is the total measure of all goods & services produced in an arbitrary period of measurement, and it accounts for improvement and deterioration of capital stock. OECD has their own definition which is sum of all residential and institutional economic units involved in production and includes taxes but excludes subsidies and miscellaneous products.

Many researchers are developing around the multiple ratio ideas, hopefully to understand it better in the future years. The analyst article is a useful trigger point for thinking about the economy of China. It is not so much about trying to figure out which economy is the largest in the world, but to determine the growth quality based on the value being assigned to existing and forward growth. Political leaders from Washington DC and Beijing can implement better economic policies based on a more informed understanding on the growth measurement. China could use the new lights shed on the types of growth for their economic reform process. 

Bank Robbery in China Related Bill of Exchanges

Bank Robbery in China Related Bill of Exchanges

Bill of exchanges is one of the most popular payment systems in China nowadays. It becomes one of the favorite because its simplicity, match for small businesses, and traded between banks are allowed. Besides of the advantages, it is also open to chances of crime, including fraud and robbery. Two of the most explicit of this type of crime are happening to ABC Banks (Referred to Agriculture Bank of China ) and China Citic Bank, two of the biggest bank in the country.

On January 2016, ABC Bank has lost 3,8 billion yuan bills of exchange. Police investigated this missing and few days later, they reported that 969 million yuan bills of exchanges was also lost from Citic Bank, located in Lanzhou, Gansu Province. From the investigation, police really positive that there must be an insider involve at this robbery of Bill of Exchanges. For the result from these two accidental case, the central government has elevated the rule of bills business by their regulation. CBRC (China Banking Regulatory Commission) had reminded the bankers on December, that there's a rise in number for fraud involving Bills of Exchanges and urge them to be very careful on carrying this business.

The investigation including the attention to the use of the fake document and the use of the cash from bills to invest in stock market. At June of 2015, the data has shown about 8 trillion yuan has lost from the interstate bank. This lost, nonetheless, are violations of Bank bills business. This procurement about bills financing has to be supervised more with professional included, not only by government regulators. There was a professional on bills financing, but only until the year of 2000. Their job is just to mediate between bank and companies who needs financing, and getting profit from that.

Bills of Exchange has a characteristic of opaque and loose, making abundantly increasing of the agents in China, and it also has the impact to increase this type of financing business. Central Banks has a report that said that bills of exchange have raised on value by 56,9 percent since 2004 until last years. This elevated has made a lot of transaction on paper, not a computer. It has make Bills of exchange become susceptible, or risky to crime. To handle this situation, CBRC makes several endeavors, which is to tighten the regulation of bills of exchange, and the central bank is trying to change the transactions into a digital format. The experts also said a lot about protecting banks from this fraudulent, one of it is the banks need to make their own supervisions to their own staff and management.

ABC and Citic Banks, also include the other few biggest banks in the country has suspended for a while for the transactions related to bills of exchange and doing some internal review. The small bank also becomes alert to the bill of business transactions. One of the sources also said that if people and paper are watched closely, then the business of bills will be okay. This is worth to try since Bills of exchange has made a significant improve to commercial banks profit, and make the share of the market grown from 32 percent in 2010 to 41 percent in 2014.

As the result of the investigation by the police department, they had arrest two suspect, which is the employee from the ABC bank as the offender. They have been accused of stealing. Later known that they were stealing those 3,8 billion yuan in the form of bills of exchange from the safe, and then stuffing it with a newspaper, exchange the bills for the cash and buy shares. There are several things unknown inside this stealing process because the bankers still wondering how both of them doing that stealing without any help from others. The police have done some more interview and investigation which deliver to the fact that the executives of the ABC Banks are also involved during the stealing process. The police tracing where the bills go to, and found it on Minsheng Bank, with the intermediate of Ningbo Bank. An agent from Chongqing is also involved. By the interview, nothing has found wrong with the bills transactions.

Police found the similarity with the offender of the Citic Bank, which also doing by the insider of the bank, but with a different mode. The offender replaces the bills with a fake document, and then sells it with discount price, more than once. One of the bankers said it is pointed out that bank procedures have been in problems to handle the bills. This is causing an open room to the robbery. The CBRC and Central Bank as the vigilance of this type of crime have made a remembrance tighten the rules of the transaction, but a lot of banks has neglected it. The bankers have put aside the risk, and choose to still have this transaction of bills of exchange because it may seem safer than the traditional transactions, which is writing the loans.

Anbang huge ambitions for the world

Anbang huge ambitions for the world

Anbang Insurance Company made it to the headlines with New York's Astoria Hotel acquisition. It is in the race to bid for the 8th largest hotel chain, Starwood Hotels & Resorts Inc. Anbang's deep funding reserve helps fuel the proposed buyout for US$14billion. Anbang earned US$9.2billion from domestic and property insurance premium, way below the standard premium cash flow typically earned by industry heavyweights China Life or Ping An, according to CIRC (China Regulatory Commission for Insurance). Anbang also earned US$6billion by selling investor insurance. It has almost 80% of market share for investment products pushed to the retail segment that has almost 10% yield. Revenue is a small proportion of its assets totaling US$292 billion in 2014. Its cash pile is being used to fund its acquisition spree with the latest being Starwood. Anbang has not revealed it financing scheme for the takeover of Starwood with partner Primavera Capital, a private equity outfit and London company J.C. Flowers. Regulators may halt the deal on ground of investment restriction for insurance companies to invest more than 15% group assets for overseas investments.

Anbang forked out US$2billion for Waldorf Astoria, and bought Fidelity and Guaranty Life with US$1.59billion cash. In 2014, Anbang acquired Fidea, a Belgium based insurer with 220million euros and forked out 219million euros for Delta Lloyd Belgium. Blackstone sold its portfolio company stake in Strategic Hotels and Resorts to Anbang, which operates Four Seasons to Intercontinental hotel chains, for about US$6.5billion. The deals are subject to US and Chinese regulatory commission approvals. Anbang's total investment outlat for overseas purchases totaled US$27billion to-date. It has yet to compute the exact amount it could invest overseas. Non insurance company assets are supporting Anbang fianancially. The firm has major shareholding in local domestic banks and various property development outfits. Chengdu Bank was the first banking company acquired by Anbang. There are little insurance holdings. In 2014, property insurance and life insurance department has 329billion yuan in total compared to 1.9trillion assets held by Anbang.

Anbang is in competition with Marriott for the 1,222 hotel chains owned by Starwood, and that includes Sheraton as well as Westin brands. Merger between Marriott and Starwood will form the biggest hotel chain in the world. In March 2016, Anbang's offer of US$14billion is US$400million more than Marriott. Anbang joined in on the bidding when Starwood management was looking to dispose the chain into the hand of Marriott, weeks before shareholders voting. Starwood will pay Marriott a release fee if Anbang succeeds. Other Chinese entities are keen on Starwood, for instance China Investment Co., Jinjian International Corp and HNA Group. None made a firm offer. Cinda Securities analyst head commented Starwood has prime assets and solid financials. Hotel business has been providing good investment returns, around 5%. Anbang wants higher return on its cash pile. It is a good time for insurers in making investments.

Anbang had been incorporated in 2004 with registered capital of 500million yuan. Largest shareholder was SAIC Motor Co with 20% stake. Business registration files showed Anbang having 39 investors, all obscure and diverse. The addresses were similar for certain shareholders, and they have some form of connection to the Chairman who has good connection with central government. Sinopec bought 20% of Anbang and became a major shareholder in 2005. Anbang registered capital was increasedto 62billion yuan. Its equity is evenly distributed. There were changes in shareholding where SAIC reduced its stake to 1.2% while Sinopec reduced its stake to 0.5%.

Anbang was rearranging shareholding structure to comply with CIRC regulations. In the old rule, one investor cannot hold a stake exceeding 20% for insurance company. In the new rule effective 2014, one investor can hold up till 51%, subject to approval. Anbang focused on investor insurance sales for retail investors and has been a significant revenue source. It is a market leader with 80% market share. However the plans are short term (less than a year) and maturities are due. Investor expects repayment in full plus investment returns and yield. This poses a risk to Anbang, as China faces economic slowdown. Thus Anbang has been looking overseas for acquisition and growth, even it faces potential non-approval from CIRC. Anbang has shaken off the regulatory scrutiny with more than 1trillion assets in yuan, well sufficient for future foreign acquisitions.