too funny, the world is collapsing around stratfor's ears and it is aboutto bow to obama, and yet stratfor is making a big deal of a minor biz dispute in th middle of $#@4-all nowhere in china
Geopolitical Diary: A Closer Look at China
October 28, 2008
As the world tries to respond to the global financial crisis, there are reports emerging that suggest things may not be as calm in China as Beijing would have people believe. On Oct. 23, Goldarrow Metals Limited, a London-based firm dealing in the international scrap metal business, issued a statement describing what it called the “kidnapping” of its senior trader in China by representatives of Ningbo Yibao Import and Export Co. Ltd., a subsidiary of the state-backed Zhejiang Arts and Crafts Import and Export Co. that deals primarily in the importation of scrap metal.
According to the Goldarrow statement, which the company’s office reiterated to Stratfor on Oct. 27, the firm’s main trader traveled to China on Oct. 15 to discuss a $1.2 million back payment due by Ningbo Yibao to Goldarrow for the delivery of scrap. Ningbo Yibao asked the Goldarrow representative for his passport and told him he couldn’t leave China until his company had paid Ningbo Yibao some $350,000 or an equivalent value of goods to make up for low-quality deliveries to China by Goldarrow.
The Goldarrow representative that evening “escaped” from his hotel, with assistance from the hotel staff, and traveled to the airport in Shanghai attempting to catch a flight out of the country, but Ningbo Yibao representatives found him at the airport and took him away to a secluded hotel. Goldarrow contacted the British Consulate in Shanghai but was told it was unable to help, and received a similar negative response from the local police, according to the statement. On Oct. 21, a courier delivered shipping documents for goods valued at $350,000 from Goldarrow to Ningbo Yibao, and the Goldarrow representative was released.
The details of this incident are somewhat convoluted and complicated by variations in the narrative given to the media and in response to Stratfor’s inquiries. Some different versions include an interval between the airport incident and the secluded hotel when the Goldarrow representative was taken to the police station by the Ningbo Yibao representatives, but was released a few hours later into their custody, despite the Goldarrow representative asking to stay in the police station. Another variation is that the Chinese firm demanded $400,000, and that Goldarrow deposited $350,000 to pay the ransom, rather than giving over the documents for goods already in China.
The British Foreign and Commonwealth Office, in response to questions, confirmed that an incident did occur and that it worked in league with local police, but denied it was a kidnapping case, saying it was a private business matter and that the Goldarrow employee received “consular assistance.” Goldarrow stands by its version of the story, calling it a kidnapping — the word that caught our attention.
In any event, a kidnapping of a foreign business partner is not exactly best practices for Chinese firms, and the incident occurred shortly before a series of scrap metal recycling conferences in China, prompting the U.S.-based Institute of Scrap Recycling Industries (ISRI) to issue a travel warning for scrap dealers considering heading to China. However, such “kidnapping” cases often have something to do with shady business relations — something that seems somewhat backed by the lack of response by the British Consulate in Shanghai and the comments from the Foreign and Commonwealth Office. While there are certainly missing pieces to this story, it is relatively resolved.
However, there is another angle to this incident that bears noting. The initial trigger that led to the kidnapping (or whatever it was) was the Chinese company’s failure to pay for scrap metal already delivered. Reports from China indicate that during the heightened commodity prices in earlier months, Chinese scrap metal importers were paying high prices for imported materials, but as commodity prices plunged, they no longer wanted to pay the higher prices for materials they have already purchased but not yet taken delivery of. ISRI also noted this trend internationally, taking up the issue of nonpayment for shipments at one of its recent meetings and noting a growing trend in the industry as commodity prices fall and demand for scrap metal declines.
It is this latter issue — the nonpayment of goods by the Chinese — that has us most interested, as it is just one of a series of anecdotal pieces of information flowing from China and from foreign businesses operating in and with China that have revealed what appears to be a Chinese credit crunch. In China, the entire economic system is kept alive by the ready availability of credit. The government ensures credit is available to maintain high rates of growth and high rates of employment; if growth and employment fall, social instabilities rise.
There are an estimated 300 million to 400 million urban “middle class” Chinese, and they have some reserves should times grow lean. But that still leaves nearly a billion rural and migrant Chinese on the low end of the economic scale, and they bear the brunt of the slowdown. For Beijing, a rising among the coastal middle class is not nearly as worrying as a billion disgruntled peasants. The government has constantly traded long-term economic efficiency and stability for short-term solutions to avoid a massive rise in unemployment and the blowback from the rural population. But if credit is getting tight in China, this social control mechanism is at risk.
If it were just a single report of an unfulfilled scrap metal contract, or even a systemic problem across the scrap metal sector, we would not be so concerned. But there are similar signs of trouble in other sectors as well, from the textile industry (long a staple of China’s export-based low-wage/high-employment model) to iron and other metal ore importers (who are finding it difficult to get letters of credit from their banks to buy ores abroad) to the construction and real estate sectors, where major developers are seeking out foreign investors to make up for thinning sources of credit in China to complete projects.
While thus far the Chinese seem to have weathered the global financial crisis better than most, these anecdotal reports are making us take a closer look at China and whether it is as resistant to the twists in the world financial system as official reports say.
|
