Nov 15, 2005 — By Lucy Hornby
SHANGHAI (Reuters) - A copper trader for a secretive, high-level Chinese government agency has gone missing. But more than his whereabouts, traders are seeking clues as to how his employer — and Beijing — will handle the potential fallout.
Liu Qibing, a senior trader working for an entity of China's State Reserves Bureau, hasn't been heard from for a few weeks, since rumors surfaced of a large short position held by his employer in London copper markets.
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The position, rumored to be between 150,000 and 200,000 tons, was taken as a bet that copper would fall — just as the industrial metal continued to hit new peaks.
"We all really just want to go up there and pay them a visit, to find out what is really going on," said a Shanghai-based copper trader with a Hong Kong metals trading firm.
"Right now, if the copper market is like a highway, there's a student driver out there driving a tank, and everyone else just wants to get out of the way."
The Bureau told Reuters that Liu was "on leave" and said any short position was undertaken on his behalf and not by the SRB, adding to the uncertainty over whether the bureau is prepared to recognize any possible obligations.
Although the SRB is immune to public scrutiny — the level of its reserves, its purchases and sales are legally a state secret — it does answer to a stern higher authority.
"How would you like to tell the State Council you have hundreds of millions in losses?" said a trader with a Western firm, referring to China's cabinet.
The size of the SRB's copper shorts on the London Metal Exchange are estimated by traders at between 150,000 and 200,000 tons. Liu headed up its physical and futures trading, traders have said.
Rather atypically, the secretive Bureau recently started to openly sell copper on the spot and futures markets, in a move traders view as trying to push down prices and help unwind the position.
"It feels like a different management altogether. Their methods are entirely different," said the Western trader.
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The last copper trader to hit the headlines was Sumitomo Corp.'s <8053.T> Yasuo Hamanaka, who racked up $2.6 billion in losses. Nick Leeson ran up 791 million pounds in trading Nikkei futures at Barings, the UK's oldest investment bank, and served time in jail.
CHINA INC
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Beijing is very concerned about the image of China Inc., as its state-backed companies increasingly list on international stock exchanges or hedge their forex and futures positions abroad, analysts with long ties to China's metals industry say.
But cultural factors mitigate against risk-management procedures that could help limit spectacular losses. The hierarchical structure of Chinese firms prevent risk managers from having the authority to face down a trader with a gambling streak, analysts say.
The severe punishment and loss of face for an individual responsible for a loss-making position may also have the perverse effect of encouraging officials to take larger bets in the market, rather than closing out a position to limit losses, analysts say.
A case in point may be China Aviation Oil (Singapore) Corp. Ltd. <CNAO.SI>, which imploded last November after it incurred $550 million in losses from speculative trading.
The jet-fuel trading company had speculated in over-the-counter oil product swaps, exceeding its mandate to source and hedge jet fuel for China.
Chief executive Chen Jiulin, known in China for his articles on good corporate governance, was among five CAO officials charged in a Singapore court in June for failing to disclose CAO's $550 million trading losses, giving misleading or false statements and insider trading.
Auditors blamed CAO's collapse on insufficient risk- management controls and a failure to follow industry standards in valuing its options portfolio.
The woes of CAO, a Singapore-listed company, couldn't be swept under the rug, as it fell under the country's jurisdiction.
With a brewing scandal coming on the heels of the CAO case, the Chinese government could be forced to be more aggressive in enforcing risk-management practices —
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a move that would help raise confidence in the way China does business. |
