It is hard to keep track of where all the money creation in China is likely to show up, but yesterday four powerful departments (the Supreme People's Court, the Supreme People's Procurator, the Ministry of Public Security and the China Securities Regulatory Commission) jointly issued a new rule to strengthen the crackdown on illegal securities business
Companies apparently have been illegally selling unlisted or non-tradable shares to the public, promising that the company will receive a domestic or overseas listing soon enough, which will allow the buyers of the shares to sell out, presumably at a big profit.With all the illegal hot money coming in China, I would guess that a lot of this money is forced to find grey areas in which to invest, and this seems to be one of those areas.Needless to say it is hard to estimate the size of this market, but the fact that several government departments have decided to take action (or to be seen taking action) suggests that the practice is big enough to matter.
Yesterday also during a national televised conference, National Development and Reform Commission minister Ma Kai said China's fixed investment growth rate had been too high.He reiterated that curbing overheating is a top priority for the government, and argued that there were too many new projects, and that investment in energy-intensive and pollution sectors were still too high. He said that the investment spree was mainly the fault of provincial and local government leaders and warned that "All the trends can deteriorate our economic stability."
The central government is making a major push to try to limit the surge in investment that normally occurs when the new leadership takes up their positions – as they will in March of this year.It is hard to see how they will be successful. New leaders are definitely better off if they can hit the ground running and show that they are capable of commanding resources and distributing growth and employment.It will be a real challenge to keep them in check, especially as money in China is so plentiful.My basic assumption is that if there is a need to put money to work, and a desire to raise money for investment, it is likely to be extremely difficult to keep the two sides from meeting.
There is also a bureaucratic subtext here in that the NRDC is trying to position itself as the "central planning agency" and has over the last year been looking for expanded powers to regulate industry. Not to say that this is a bad thing (although I doubt that Milton Friedman) would approve, but this is just a note to say why they are arguing for what they are arguing for.
Michael Pettis is a professor at Peking University's Guanghua School of Management, where he specializes in Chinese financial markets. He has also taught, from 2002 to 2004, at Tsinghua University’s School of Economics and Management and, from 1992 to 2001, at Columbia University’s Graduate School of Business. He is a member of the board of directors of ABC-CA Fund Management Co., a Sino-French joint venture based in Shanghai.
Pettis has worked on Wall Street in trading, capital markets, and corporate finance since 1987, when he joined the Sovereign Debt trading team at Manufacturers Hanover (now JP Morgan). Most recently, from 1996 to 2001, Pettis worked at Bear Stearns, where he was Managing Director-Principal heading the Latin American Capital Markets and the Liability Management groups. He has also worked as a partner in a merchant banking boutique that specialized in securitizing Latin American assets and at Credit Suisse First Boston, where he headed the emerging markets trading team. Besides trading and capital markets, Pettis has been involved in sovereign advisory work, including for the Mexican government on the privatization of its banking system, the Republic of Macedonia on the restructuring of its international bank debt, and the South Korean Ministry of Finance on the restructuring of the country’s commercial bank debt.
Pettis is a member of the Institute of Latin American Studies Advisory Board at Columbia University as well as the Dean’s Advisory Board at the School of Public and International Affairs. He is the author of several books, including The Volatility Machine: Emerging Economies and the Threat of Financial Collapse (Oxford University Press, 2001). He received an MBA in Finance in 1984 and an MIA in Development Economics in 1981, both from Columbia University.
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Comments (1) for "Where is Chinese money going?"
- 1/7/2008 3:29 PM
December, 2007