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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: RealMuLan who wrote (8839)	7/7/2004 9:36:42 PM
From: mishedlo	Respond to of 116555

China Credit Crunch Beginning to Hurt Stratfor Summary [Yiwu what is your take on this - Mish] As China's central bank curbs lending to cool down the country's rapidly expanding economy, evidence is starting to emerge that the dearth of funds is causing problems for businesses and investors. Analysis Angry investors demonstrated at the main branch of the Bank of Communications in Shanghai on July 2-5 after they failed to receive guaranteed returns from an investment product promoted by the bank, The Wall Street Journal reported July 6. The incident is yet another sign that China's financial system remains shaky, in spite of Beijing's desperate attempts to salvage it. The latest mishap, however, is specifically a byproduct of the Central Bank's efforts to curtail overlending; more blowback is likely to follow as Chinese firms are cut off from easy credit. Up to 50 protesters at a time reportedly began gathering at the bank after they were tipped off by a source inside that money was not available to return the principal or the 5.2 percent interest due on their investments. Customers say the Bank of Communications implicitly promised to back returns on a high interest-bearing trust. When the trust matured July 2, however, the investors did not receive payments on $10.4 million in investments. The investors who demonstrated at the bank complained that they were advised to pour money into an unsound venture. The Bank of Communications sponsored a trust launched by Jinsin Trust & Investment Company to finance dairies in China. The company said it would receive a 6.5 percent profit from existing deals to sell dairies to a privately-held company, D'Long International Strategic Investment Co. However, D'Long reportedly ran into financial problems after Beijing started to clamp down on excessive bank lending, and Jinsin apparently did not receive the returns it promised its investors. Failing to meet financial obligations in China's immature and poorly regulated capital market is not uncommon. In fact, not repaying loans is practically a national pastime in China, where it is estimated that banks are racked by over $500 billion dollars in non-performing loans. However, the example of Jinsin and D'Long illustrates the challenges Chinese policy-makers face in attempting to rationalize economic growth in a country addicted to cheap loans. According to China's central bank, bank credit in 2003 accounted for about 85 percent of funds raised by Chinese businesses. Most Chinese firms -- state-owned and privately held -- are comparatively undisciplined with their finances because they measure success by market share instead of returns. This creates a cycle of debt and expansion that is not necessarily profitable. When the firms no longer have access to loans, their business models begin to crumble and their investors, believing in guaranteed returns, start protesting in bank lobbies. As China's central bank cuts lending in order to prevent an overheated economy, the drying up of funds is causing a financial chain reaction throughout the country. Businesses and investors are now facing defaults on loans because they cannot refinance their debts. It's a rock-and-a-hard place dilemma for China, which now seems stuck between too much growth and too little.

To: RealMuLan who wrote (8839)	7/8/2004 3:24:42 PM
From: justwhatuwant	Read Replies (2) \| Respond to of 116555

Overhead rates are at 2x at least. That makes a higher paid engineer you speak about, costing at least $300k.You can hire (no overhead) an Indian engineer for less than $30k. But he is not the equivalent engineer. $120k engineers are highly technical and have tons of experience. Now, before you start talking "engineering" you must realize that Indian engineers are replacing US engineers involved in the "implementation" engineering tasks. Software is the easy example. You cannot outsource system design or R&D. This is where the media does not get it. Implementation engineering is like manufacturing. The cutting edge is dull. All the new innovations are expensive and cannot be burdened by the average company. Further, the new innovations are few and far between, hence, India and China can easily compete. The US is still very strong in the System Design and R&D areas of engineering. We retain a lot of head knowledge, and more importantly, experience. One last point, IMVHO, we are in an age where engineering is dull. The last several decades of amazing engineering innovations (ICs, wireless, DSP, CPU ....etc) have levelled off. We are ahead of ourselves. We have not integrated these technologies into our products and lives to saturation yet. Look at CPUs, way more power than the average person needs. Look at wireless, how many wireless technologies do we need (CDMA, WCDMA, 802.11a/b/e, ZigBee, Bluetooth, WiMAX, UWB)? I mean really, internet access on my phone, nobody knows What to do with that except the most tech-saavy engineer. Alas, I ramble.