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Wednesday's Top 10 with NZ Mint: Britain rows back from PPPs; 'Eventually we all have to have our moment'; China's 'Mistress-Industrial complex'; How nano-trading hurts regular investors; Dilbert
Here's my Top 10 links from around the Internet at 11 am in association with NZ Mint.
As always, we welcome your additions in the comments below or via email email@example.com.
My must watch is #9 on China's shadow banking system, which grew lending at more than 50% last year...
1. More public and less private - The BBC's Robert Peston reports the British government is edging away from the same Public Private Partnerships that New Zealand's government is keen to use.
It turns out the PPPs done in Britain over the last decade were great deals for the companies, but not so much for the government or taxpayers.
The Conservative/Liberal Democrats coalition is likely to announce the more controlled Private Finance initiative tonight.
Is our government wary enough of these PPPs?
There's a big risk they store up huge public liabilities for the future.
I still can't work out why the government would need to do this when it can borrow at 3.5%.
The last government financed the building and maintenance of vast numbers of schools, hospitals and other expensive investments by asking the private sector to bear the big costs, in return for regular payments from the public sector.
But the Treasury under George Osborne became concerned that huge long-term liabilities were being created for taxpayers - and that lousy negotiation by civil servants was allowing private companies to make huge windfall profits.
So in the Autumn Statement on Wednesday George Osborne will unveil what will be called Private Finance 2 (PF2) - which will involve the public sector taking stakes of up to 49% in individual private finance projects (20% stakes are likely to be typical) and appointing a director to the boards of each project. This is to ensure that the taxpayer gets a share of any profits from the deal.
In today's money, future PFI liabilities for taxpayers are £144bn, according to the Office for National Statistics.
2. Useful advice - NZTE's Guangzhou Trade Commissioner John Cochrane has written a useful guidance note to those businesses approached by distributors in China that may not be completely legitimate.
While China remains a lucrative market with enormous growth potential for many New Zealand companies, like many markets, it is not entirely without risks. For a fraction of the cost of an air ticket, even basic level due diligence should be performed at the start of any financial transaction.
3. 'Eventually we all have to have our moment' - AFR reports former Fletcher Building CEO and now Woolworths Chairman Ralph Waters saying the Australian economy is in for a quiet time it was always had to have.
He says Australia's manufacturing sector is toast and its dairy farmers are wasting their time too.
“Australia avoided [a recession] but you can’t do that forever and eventually we all have to have our moment. The difference in our moment is we are paying the debt and interest we tried to run up to avoid this.”
Mr Waters said he held grave fears for many Australian manufacturing companies given structural changes caused by the strong dollar and the carbon tax. “Those businesses are in tremendous stress and not one is going to get through a tough year with a few interest rate cuts,” he said.
“They’re going to be gone.” The structural changes would weed out inefficient or impractical businesses, he said, citing the dairy industry as one example.
4. '7 years of fat and 7 years of lean' - PIMCO boss Bill Gross reckons in his December newsletter that economic growth in the US and in other developed nations is slowing to below 2% because of structural headwinds. HT Bloomberg
“The biblical metaphor of seven years of fat leading to seven years of lean may be quite apropos in the current case with the observation that the developed world’s growth binge has been decades in the making,” Gross wrote in his monthly investment outlook posted on the Newport Beach, California-based company’s website today. “We may need at least a decade for the healing.”
5. The corruption crackdown starts - WSJ reports the new Chinese government has begun a crackdown on the shadowy agents that organise junkets for the super-rich to Macau's casinos.
In recent weeks, police in mainland China and Macau have detained people from at least three of Macau's biggest junket operators, the middlemen who extend credit to high-roller players and collect the debts in China, according to people familiar with the situation. Some of the detentions have occurred in China and in other cases, the detainees have been moved there, these people say.
Casino operators in Macau have also noticed more restrictions on cross-border financial transactions involving Chinese funds and recently received requests for information from Macau police about the people staying at their hotels, casino executives and others said. Such requests aren't unheard of but have raised concerns in light of the other events, these people say.
Here's the key line:
Macau boomed in recent years as Chinese gamblers flooded into the former Portuguese colony, which now generates more than five times the gambling revenue of the Las Vegas Strip. International authorities, including in the U.S., have raised concerns that wealthy Chinese were using the casinos to launder the proceeds of corruption and to illegally get money out of the country. Chinese individuals aren't allowed to move more than $50,000 a year out of the country, including to Macau, which, like Hong Kong, is part of China but has its own financial system and its own set of laws. That restriction has prompted some high-roller gamblers to rely on junket operators to get around Chinese laws and provide access to greater sums.
6. The Mistress Industrial complex - Foreign Policy's Christina Larson reports on whether China can solve its corruption problem by targeting adultery. My favourite adverb in this piece is 'atop'.
The Chongqing sex-bribes-videotape saga comes to light just days after Xi Jinping, who was appointed Communist Party chairman in mid-November, made anti-corruption pledges a centerpiece of an important speech: "Much evidence tells us that worsening corruption's only outcome will be the end of the party and the end of the state. We must be vigilant," he told top officials in Beijing; Xi also likened graft to "worms breeding in decaying matter." Whether or not Xi's intentions are genuine, similar pledges have been repeated for more than a decade. So how, exactly, do you crack down on corruption in China?
Li Chengyan, a professor at Peking University's Research Center for Government Integrity, has an idea: Involve the mistresses. No, seriously. A staunch party loyalist, he is researching the role of kept women, or ernai, as whistleblowers, intentionally or otherwise. "The phenomenon of mistresses is so common in Chinese history, but the scale today is really unprecedented," says Li, who thinks the problem is caused by loopholes in the discipline system and lack of effective supervision. "If we examine corrupt officials, about 80 to 90 percent of them also have mistresses."
Li sees a connection between China's modern concubine culture and its runaway graft: the "emperor psychology" of the unrestrained: "Absolute power corrupts absolutely. When officials have absolute power, they become bold to ignore the law and social norms and do everything they like." This ultimately hurts the party: "It's misleading to think that keeping a mistress is not a big problem -- that it won't affect the official's main work, records, and achievements. Temptation brings temptation."
7. The Japanese bank problem - Lots of people worry about Japan's debts. Now their banks are too because they are so exposed to painfully high Japanese bond prices (low yields).
The risk facing Japanese banks from their vast holdings of government bonds has been underlined by the chief executive of the country’s largest bank who said it would struggle to reduce its exposure.
Nobuyuki Hirano, chief executive of Bank of Tokyo-Mitsubishi, admitted that the bank’s Y40tn ($485bn) holdings of Japanese government bonds were a major risk but said he was powerless to do much about it.
“This is analysts’ main concern,” he told the Financial Times. “A default of Japanese government bonds would have a severe impact on us. But we need to be responsible to keep that market in order.”
According to data produced by the Bank for International Settlements, and published last week by the Bank of England, the holdings of JGBs by Japan’s banks equate to 900 per cent of their tier one capital, compared with about 25 per cent for UK banks’ exposure to gilts and 100 per cent for US banks’ exposure to US Treasuries.
A top government economist has concluded that the high-speed trading firms that have come to dominate the nation’s financial markets are taking significant profits from traditional investors.
The chief economist at the Commodity Futures Trading Commission, Andrei Kirilenko, reports in a coming study that high-frequency traders make an average profit of as much as $5.05 each time they go up against small traders buying and selling one of the most widely used financial contracts.
9. China's shadow banking system - This FT analysis by Simon Rabinovitch of China's slightly precarious shadow banking system (finance companies) is well worth a read.