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June 29, 2005
Audio: More Confusion For Chinese Share Sell-off
Click the little triangle to hear today's post.
More Confusion for China Share Sell-off
We posited this question in a prior post: will the Chinese plan to sell non-tradable shares apply to all companies? Evidently not, according to Shang Fu-lin, the chairman of the CSRC. Although all listed non-tradable shares will be converted into tradable shares, not all listed companies will sell those shares. The state will hold on to much of its holdings.
Financial Times's Geoff Dyer posits that this announcement is related to the fact that "some investors [are] afraid of a glut of new shares coming on to the market." [Subscription page.]
Not really. There is more at work here.
From the website of the embassy of the People's Republic of China in the U.S.:
"After the non-tradable shares become tradable, whether they would come into circulation or not depends not only on the shareholders' strategic choice, but also on relevant restrictions, said Shang.
He clarified the restrictions as follows: firstly, it depends on the entire strategic layout of state-owned sectors. After the reform on non-tradable shares is completed, state-owned shares can be cashed in only upon the approval of the state-owned assets authorities.
Secondly, it depends on the intention of controlling shareholders. Even though there are no restrictions in the laws and policies, the controlling shareholders will hold a substantial amount of shares in the long run in order to control the company."
Well, that clears things up: the state will choose the companies to participate in the sale of converted shares. The state will continue to hold the Ace cards as investors plaintively ask for approval.
Am I hallucinating or doesn't this latest pronouncement tend to make less valuable the publicy-owned shares of those companies whose converted non-tradable shares won't be sold? The publicly-traded shares in those companies will remain burdened by a state ownership beholden to nary a market force. They will gather at the lower end of the market, weighing it down, while the companies whose shares are more or less freely tradable will better reflect their market values.
And then, there is the further complication of H shares. There has been a report in western media that H shares will be included in the reform, but it appears that this is, as yet, just talk:
尚福林說，A股和H股分屬大陸和香港兩個市場，分別適用兩種不同的市場規則。在股權分置改革的過程中，對含有H股的公司解決其A股的股權分置問題，在具體方案的設計上要充分考慮這一因素。在境內證券市場的發展過程當中，我們有很多規則的制定都是學習和借鑒了香港市場的做法，今後我們還會一如既往地加強與香港證券監管部門及證券交易機構的溝通和交流。
So, even as the state announces cheerfully that the problems in the stock market will be resolved within one to two years, it injects further distortion and confusion into the plan to sell off state shares.
Disciple: What is this thing that is like a share, but not a share?
Master: Ah, yes. Tell me, what is the sound of one investor's hand clapping?
June 27, 2005
Audio: Greater Legal Assurances?
Click the little triangle to hear an introduction to Ben Kao's guest column.
Greater Legal Assurances for Cross-Straits Transactions?
[Editor’s Note: We are now able to confirm the validity of a portion of the press release discovered on the P.R.C. Ministry of Justice website. A P.R.C. company, suing on a P.R.C. judgment, has for the first time won a judgment relating to a business transaction against a Taiwanese corporation in the Taiwan High Court. See this post for background. This ruling may have substantial ramifications for the legal relationships of businesses involved in cross-strait trade. We will continue to post on developments in this case.]
We turn to a guest columnist for a discussion of High Court’s decision and its possible implications. Peihuan Benjamin Kao, currently attending the University of Minnesota Law School as a Juris Doctor (J.D.) candidate, is our guest columnist this week. Mr. Kao was most recently a Legal Consultant to the Executive Director at a publicly listed corporation in Bangkok, having previously served as a Legal Research Fellow at the Science and Technology Law Center in Taipei. His education includes an LL.M. from Columbia Law School and Soochow Law School (Taipei), as well as an M.S. in Medical Technology from National Taiwan University.]
Ruling of the Taiwan High Court Recognizes P.R.C. Judgment
By Peihuan Benjamin Kao
On December 23, 2004, the Taiwan High Court, ruling against Changrong International Storage and Transport Corp. (“Changrong”), recognized a decision of the courts of the People’s Republic of China. [See links at end of this post for the full text of Ruling 93 抗 3089.] Reportedly, Changrong appealed this ruling to the Taiwan Supreme Court in May, 2005, and lost, leaving the judgment of the Taiwan High Court to stand. However, the decision on appeal has not yet appeared in the Supreme Court’s official database. Therefore, we don’t really know how the Supreme Court reached its ruling nor why it made the “breakthrough” at this moment, nearly 13 years after promulgation of the Act Governing Relations Between Peoples of the Taiwan Area and the Mainland Area (the “Act”).
While awaiting the publication of the Supreme Court’s official ruling, the ruling by the High Court is worth pondering. I will focus on the grounds upon which the Taiwanese High Court reached the conclusion of recognizing a P.R.C. judgment, and discuss the possible rationale of the Supreme Court’s denial of appeal.
BIRTH OF AN APPEAL
Zhejiang Textile Import & Export Group of the P.R.C. (“Zhejiang Textile”) sued Lirong in the Shanghai Court of Admiralty for Lirong’s breach of admiralty shipping contract. Zhejiang Textile won the judgment in the Shanghai Court of Admiralty and an appeal of that judgment in the High People’s Court of Shanghai. Lirong then merged with Changrong.
Because Changrong had no assets in the P.R.C. which the P.R.C. court could seize in order to enforce its judgment, Zhejiang Textile sought remedy in a Taiwan court by filing for a request of recognition and hence, enforcement, of the judgments of the Shanghai Court of Admiralty and the High People’s Court of Shanghai. Taiwan Taoyuan District Court ruled for Zhejiang Textile. Changrong appealed to the Taiwan High Court.
Zhejiang Textile filed its request based upon Article 74, Paragraphs 1 and 2 of the Act. Paragraph 1 allows for the filing of applications for recognition of irrevocable P.R.C. court rulings, judgments or arbitral awards, as long as they do not conflict with the public order or good morals of Taiwan. Once recognition is granted by a Taiwan Court, Paragraph 2 further permits P.R.C. rulings, judgments, or arbitral awards to serve as writs of execution.
DEFENDANT’S ARGUMENT ON APPEAL
Changrong on appeal based its arguments mainly on four grounds.
1) PUBLIC POLICY. Changrong argued that the decisions of the Shanghai Court of Admiralty and the High People’s Court of Shanghai were inconsistent with the “public order and good morals” of Taiwan, and thus shall be deemed as violating Article 74, Paragraph 1 of the Act. To back up its public policy argument, Changrong asserted: (1) the P.R.C. decisions breached the principle of privity of contract as stipulated in Taiwan’s Civil Code and (2) the P.R.C. decisions violated Taiwan’s Admiralty and Maritime Law regarding egulation of the Bill of Lading format requirements. By infringing these two legal principles, long enacted and upheld in Taiwan, the P.R.C. decisions were not in conformity with the public order and good morals of Taiwan.
2) LACK OF FINALITY OF THE P.R.C. DECISION. Changrong further argued that the decision in P.R.C. was not final. The company had appealed to the Supreme People’s Court of the P.R.C. and requested a retrial from the Shanghai Court of Admiralty, based on new substantive evidence which could overrule the former judgment. Hence, even if the Taiwan Court would have liked to review the P.R.C. judgment for the purpose of recognition, it should have halted until the final decision was rendered by the P.R.C. Supreme Court and the Shanghai Court of Admiralty.
3) ARGUMENT ON THE MERITS. Changrong tried to argue the merits of the P.R.C. judgments by bringing up the substantive issues, such as document forgery and maritime fraud involved in the Bill of Lading. Investigation did uncover certain evidence that might support such allegation. Changrong argued that it claimed damages against its opponent based on these allegations and that those cases werere still pending.
4) LACK OF RECIPROCITY. Changrong stipulated that based on reciprocity, the P.R.C. decisions should not be enforced in Taiwan, since P.R.C. courts have refused to enforce most of the decisions rendered by Taiwan courts to “avoid violating the One China Policy.” Even if P.R.C courts had enforced some decisions involving Taiwanese, most of those decisions favored P.R.C. citizens inheriting properties from Taiwanese citizens. Thus, it was argued, Taiwanese Courts should not recognize and enforce decisions of P.R.C. courts.
CHANGRONG’S APPEAL: THE HIGH COURT RULING
The High Court rejected all of Changrong’s arguments, ruling against it on the following grounds:
(1) The case was governed by Article 74 of the Act. The Taiwan High Court interpreted Article 74 as a rule of procedural character which applies only to cases of a non-litigation nature. This warrants the Court's review the cases on two issues: A) whether the irrevocable P.R.C. ruling/judgment/award violates Taiwanese public order or good morals, and B) whether an application can be filed in the P.R.C. courts to recognize or serve as a writ of execution of that irrevocable ruling, judgment or awards rendered in Taiwan. Therefore, the Court may not review the substantive merits of the judicial decision rendered by the P.R.C. courts. Consequently, how the P.R.C. court applies P.R.C. law to the facts adopted in that court similarly may not be reviewed by the Taiwanese court.
2) The dispute involved breach of admiralty and maritime contractual responsibility, causing damages to the shipper. The legal effects of the P.R.C. judgments and the factual and legal bases for such decisions were not in breach of Taiwanese public policy, i.e., public order or good morals.
3) Even if there were maritime fraud and forgery involved in the Bill of Lading, it was a dispute of the substantive merits and, therefore, shall not be reviewed.
DISCUSSION: POSSIBLE IMPLICATIONS OF THE RULING
Although the Taiwan Supreme Court's decision of May 2005 has not appeared officially, we might well make a reasonable guess that the Supreme Court will have adopted an approach similar to the High Court’s interpretation and application of Article 74 of the Act.
While the implication of this case might not be crystal clear at this point, its ramifications could be larger and wider than it appears at first glance. It seems a little bit too formalistic for the High Court to have rejected all the arguments of Changrong without considering the reciprocity issue which indicated that the the current practice in mainland China seems to favor the citizens of the PRC. Furthermore, the maritime fraud and forgery issues exposed by UN investigation deserve some degree of consideration under the context of public policy and good morals. It was surprising that the Taiwan High Court reached its ruling without even looking into the merits of the case decided by the P.R.C. court.
Although the Taiwan High court and Supreme Court have recognized irrevocable P.R.C. judgments and rulings since promulgation of the Act, those cases were mostly for personal disputes such as divorce and inheritance of property among citizens across the strait. Should Taiwan Supreme Court affirm the rationale of the High Court, it will have for the first time recognized and consequently enforced a P.R.C. judgment for P.R.C. corporations against a Taiwanese corporation.
With increasing volume business transactions across the strait, it is not difficult to foresee what a huge impact this ruling might have on the future transactional environment between P.R.C. and Taiwan. It may encourage corporations incorporated and based in the P.R.C. to be more willing to conduct business with their counterparts in Taiwan, bearing in mind their legal remedies available in the mainland would also be recognized and enforced in Taiwan. On the other hand, if the unilaterally tilted practice of judgment recognition and enforcement in P.R.C. courts are not balanced with reciprocity, Taiwanese corporations might suffer from from the lack of such assurance in their business transactions with P.R.C.-based corporations.
Will these Taiwanese companies hesitate to enter into transactions with P.R.C. based corporations merely for this reason? Probably not. Even without reciprocal legal protection mechanisms, Taiwanese corporations have for more than a decade flooded the industrial parks and investment triangles all over the P.R.C.
In other words, the net impact of this ruling might well be a boost to cross strait business transactions by providing legal assurances to PRC-based corporations, while not pouring too much cold water over their Taiwanese counterparts.
However, this entire discussion must be put in the context of the Taiwan Supreme Court ruling expected in the very near future.
[The Taiwan High Court Ruling is available here or on this weblog at the extended entry link directly below.]
臺灣高等法院裁判書 -- 民事類
【裁判字號】93 , 抗 , 3089
【裁判日期】931223
【裁判案由】認可判決書
【裁判全文】
臺灣高等法院民事裁定 九十三年度抗字第三０八九號
抗 告 人 長榮國際儲運股份有限公司
法定代理人 游長和 .
代 理 人 陳玲玉律師
傅祖聲律師
范纈齡律師
右抗告人因與相對人浙江省紡織品進出口集團有限公司間聲請認可大陸地區人民法院
判決事件，對於中華民國九十三年八月十一日臺灣桃園地方法院九十三年度聲字第一
○三二號裁定提起抗告，本院裁定如左：
主 文
抗告駁回。
抗告費用由抗告人負擔。
理 由
一、本件相對人主張：相對人與立榮海運股份有限公司（下稱立榮公司）於大陸地區
發生海上貨物運送契約糾紛，於中華民國(下同)九十一年十二月二十五日經大陸
地區上海海事法院以（二○○一）滬海法商初字第四四一號民事判決立榮公司應
賠償相對人貨款損失美金二百六十萬二千五百六十二元，及自
月一日起至
計算之利息，暨退稅款損失人民幣三百十一萬一千四百八十六元三角五分，及自
企業活期存款利率計算之利息，並將其應負擔之案件受理費人民幣十三萬二千五
百十元七分支付予相對人。嗣於九十一年十一月二十八日抗告人因與立榮公司合
併概括承受其權利義務，乃由抗告人對上開上海海事法院判決提起上訴，經大陸
地區上海市高級人民法院於
海）終字第三九號民事判決駁回抗告人之上訴而告確定，為此聲請裁定認可上開
二件大陸地區作成之民事確定判決等語，並提出該判決書二件、上海市公證書正
本三件，及經財團法人海峽交流基金會認證之公證書正本四件為證。原法院審核
上開大陸地區作成之判決係以立榮公司違反海上貨物運送義務，未憑正本提單即
將相對人託運之貨物交付他人，致相對人受有貨款及退稅款之損失等情為由，而
命立榮公司及承受權利義務之相對人賠償相對人之損失，認該判決並不違背臺灣
地區公共秩序或善良風俗，遂准予認可。
二、抗告意旨略以：系爭大陸地區作成之判決違反我國民法「債之相對性原則」，且
違背我國海商法關於載貨證券權利移轉要式性之規定，顯然違反我國之法秩序，
即屬臺灣地區與大陸地區人民關係條例（下稱兩岸人民關係條例）第七十四條第
一項所指違背臺灣地區公共秩序及善良風俗，依法不應認可。又抗告人發現足以
推翻判決結果之具體事證，業向大陸最高人民法院及上海海事法院提起再審之訴
，並聲請終止及暫緩執行；且本件所涉提單，有偽造文書及海運詐欺之犯行，聯
合國已著手調查並發現確有弊端，抗告人亦已向上海海事法院對相對人提起海運
詐欺之損害賠償訴訟，故系爭大陸判決顯有無可維持之虞，亦不應准予認可。再
者，中華人民共和國近年來基於「不違反一個中國原則」，未再認可我國法院作
成之判決，其有認可我國法院作成之判決者，多為大陸地區人民繼承我國人民財
產之案件，係屬有利於大陸地區人民之案例，與本件情形不同，且不符合「平等
互惠原則」。從而，系爭大陸判決不應予以認可，原裁定應予廢棄，為此提起抗
告云云。
三、按在大陸地區作成之民事確定裁判、民事仲裁判斷，不違背臺灣地區公共秩序或
善良風俗者，得聲請法院裁定認可；前項規定，以在臺灣地區作成之民事確定裁
判、民事仲裁判斷，得聲請大陸地區法院裁定認可者，始適用之，臺灣地區與大
陸地區人民關係條例第七十四條第一項、第三項定有明文。此所指違背公共秩序
或善良風俗者，不以大陸地區作成之民事確定裁判、仲裁判斷所宣告之法律上效
果，有背公共秩序或善良風俗者為限，其本於有背公共秩序或善良風俗之原因，
而宣告法律上之效果者，亦包括在內。次按依上開規定聲請法院為裁定認可之程
序，其性質為非訟事件，裁定法院僅得審查該民事確定裁判或仲裁判斷有無違背
臺灣地區公共秩序或善良風俗，及在臺灣地區作成之民事確定裁判、仲裁判斷，
得否聲請大陸地區法院裁定認可為認定標準，不得就當事人間之實體法律關係重
為判斷，故在大陸地區作成之民事確定裁判、仲裁判斷認定事實或適用法規是否
無瑕，並不在審認之範圍。
四、經查前揭大陸地區上海海事法院（二○○一）滬海法商初字第四四一號民事判決
之結果，係命立榮公司應賠償相對人貨款損失美金二百六十萬二千五百六十二元
，及自
行現行企業活期存款利率計算之利息，暨退稅款損失人民幣三百十一萬一千四百
八十六元三角五分，及自
日止按中國人民銀行現行企業活期存款利率計算之利息，並將其應負擔之案件受
理費人民幣十三萬二千五百十元七分支付予相對人。其所憑之主要理由略以：「
中華人民共和國海商法」中之法定托運人，其有別於締約人之交貨人，並不以其
名稱在相應單證上載明與否作為法定條件，因認相對人具有涉案貨物托運人之主
體資格，其就涉案糾紛之持單形式正當合法，有權向立榮公司主張提單項下相應
權利，承運之立榮公司違反航運慣例，在交付涉案貨物時未收回正本海運提單，
應承擔無單放貨引起之相應違約責任，並賠償相對人遭受之損失」等語；而上海
市高級人民法院（二○○三）滬高民四（海）終字第三九號民事判決駁回抗告人
之上訴，除以上海海事法院認定之事實未據抗告人表示不服資為判決基礎外，並
稱：「被上訴人 (即相對人，下稱相對人)委託貨代公司向上訴人 (即抗告人，
下稱抗告人)交付貨物、支付運費，並提出繕制提單之具體要求，抗告人則完全
按照相對人之要求簽發提單，將三家國外公司記載為名義托運人，向相對人委託
之貨代公司交付提單，並於貨代公司處收取涉案運費，上開事實足以證明兩造間
事實上建立了海上貨物運輸合同關係。相對人持有正本提單，並以此作為證據之
一向抗告人主張損害賠償，用以證明相對人是運輸合同關係中之托運人，抗告人
無單放貨構成違約，因此，相對人能否憑提單提貨以及提單是否代表貨物所有權
，不是本案需解決之關鍵問題，因本案並不是非托運人持有提單向承運人主張權
利，而是托運人在持有提單情況下針對承運人所提起的運輸合同履約糾紛，即提
出權利請求的是托運人即相對人，而非其他提單持有人，相對人所請求者係因承
運之抗告人違反運輸合同規定之憑正本提單放貨義務致相對人未能收回貨款之損
失，相對人此一權利係基於其托運人本身之身份決定，因此，在涉案提單未經流
轉之情況下，抗告人關於相對人非提單持有人、無提貨權等上訴理由，對相對人
無實際意義，與本案處理亦無直接關係。本案抗告人無單放貨致使相對人未收到
貨款而不具辦理出口退稅之條件，由此產生之退稅款損失是抗告人無單放貨違約
行為可以預見亦應當預見所造成之損失。綜上，兩造間存在海上貨物運輸合同關
係，相對人是合同中之托運人，抗告人是承運人，抗告人違反承運人憑正本提單
交付貨物之義務，構成違約，在提單未經流轉的情況下，應賠償由此造成托運人
即相對人貨款、退稅款等損失」等語，為其判決理由。核其宣告之法律效果及事
實理由，並無違背臺灣地區公共秩序或善良風俗者之情形，抗告人主張系爭大陸
判決違背臺灣地區公共秩序或善良風俗，並無可採。
五、次查在臺灣地區作成之民事確定裁判得聲請大陸地區法院裁定認可，亦據相對人
提出中華人民共和國自八十七年五月二十六日施行之「最高人民法院關於人民法
院認可台灣地區有關法院民事判決的規定」，及大陸地區上海市第一中級人民法
院（一九九八）滬一中民初字第二八○號裁定書在卷可稽（見本院卷第一五四、
一五五、一六八、一六九頁），則原法院裁定准予認可系爭大陸地區判決，核與
兩岸人民關係條例第七十四條第一項、第三項之規定，並無不合之處。雖抗告人
主張相對人有偽造文書、海運詐欺之行為，縱然屬實，亦係當事人間實體法律關
係之爭執，揆諸前揭說明，非本件所應審認。至抗告人是否提起再審之訴或損害
賠償之訴，亦非兩岸人民關係條例第七十四條應否裁定認可所應審究之事由，抗
告人執此指摘原裁定不當，求予廢棄，為無理由，應予駁回。
六、據上論結，本件抗告為無理由，爰裁定如主文。
中 華 民 國 九十三 年 十二 月 二十三 日
民事第十二庭
審判長法 官 阮 富 枝
法 官 吳 麗 惠
法 官 黃 豐 澤
正本係照原本作成。
本裁定除以違背法令為理由，不得再抗告。如提再抗告，應於收受送達後十日內向本
院提出再抗告狀。並繳納抗告費新台幣四十五元整。
中 華 民 國 九十三 年 十二 月 二十八 日
書記官 廖 艷 莉
June 23, 2005
Greenspan and Snow Duke It Out Before a Cantakerous Senate
Greenspan informs U.S. Congress that revaluing the renminbi will not increase manufacturing activity or jobs in the United State.
Listen to the entire testimony to the Senate Panel on U.S.-China Economic Relations. It was a spirited debate, with Greenspan and Snow face to face in the ring. One, and only one, of them at his rhetorical finest.
Several senators jumped on the pile, as they are wont to do. One performed an execrable impression of Mike Tyson chewing on Holyfield's ear. (Holyfield won, nonetheless.) Worth your time, if only for entertainment value.
Posted by Richard at 8:37 PM | Comments (0) | TrackBackJune 20, 2005
Audio: 42 Companies Named to State Share Plan
Click the little triangle to hear an audio summary of the post directly below.
42 Companies Named to Sell Off State Shares
For the background to this post, click here.
The China Securities Regulatory Commission (CSRC) 中国证券监督管理委员会 announced an extension of its plan to sell the non-tradeable state shares of 42 listed companies. This Bloomberg article lists the companies involved.
FT also reported on the announcement, noting briefly that
"The State-owned Assets Supervision and Administration Commission (SASAC) 国务院国有资产监督管理委员会, which controls the state's equity holdings, said at the weekend it would engage in the shareholder reform plan, but added that the state would maintain controlling positions in many state-owned enterprises."
Hmm... That's a frighteningly contradictory assertion.
The finance magazine Caijing deals with this idea in greater depth:
"...in spite of...optimistic pronouncements the plan still faces major obstacles. Most notably, it must overcome the “lack of policy harmony” among its proponents on key issues. Since the plan’s announcement, some shareholders have attempted to claim compensation from the reforms, pointing to the losses they suffered during the 15-year development of China’s stock market. Until now, the State-owned Assets Supervision and Administration Commission (SASAC), which manages all state-owned property, has made no formal declaration regarding whether and how to compensate these shareholders.
The conduct of the SASAC has left some analysts pessimistic about whether the CSRC’s plan will ultimately survive: “the SASAC has made many statements supporting [the floating of untradeable state shares], but with no concrete action. The CSRC, on the other hand, could resort to one desperate last measure, slamming more restrictions on the future fundraising efforts of those companies who haven’t solved their untradeable shares problem,” said one analyst from Boshi Fund Management. 'The CSRC appears to be pushing aggressively, but it is doubtful whether a unilateral action would succeed.'”
[ABI editor's ellipsis. NB: I have been unable to locate original Chinese version of this article on the Caijing site, and have put in a query for the link with the editors.]
Is it possible that some firms will divest their non-tradeable state shares and others will not?
That aside, the market -- at least the Chinese financial media -- appears to understand that an intractable inter-agency dispute at the highest levels may ultimately affect the execution of CSRC's share sale plan.
Why a continuing dispute over an issue of major proportions? The issue is this: who, if anyone, will compensate investors when share lots of gargantuan proportions come on the market? Perhaps no one can offer anything near a satisfactory answer. It is a hot potato question that everyone fears and few career bureaucrats would dare to touch. No wonder the inter-agency dispute.
Despite this, it appears that the CSRC has thrown down the gauntlet, having decided -- forgive my mixed metaphors -- to blaze a trail. It could be that the CSRC, having failed to come to terms with SASAC, has simply opted for the capitalistic notion that the market must take the pain now for future benefit. It is a decision based either on careful planning and analysis, complemented by a dose of courage and the support of some on the State Council -- or sheer foolhardy cheek.
Given the extraordinarily intelligent and well-trained Chinese peppering the ranks of the bureaucracy, I would tend towards the former. But knowing that the ranks can be otherwise salted, the latter remains a distinct possibility.
Posted by Richard at 12:58 PM | Comments (0) | TrackBackJune 16, 2005
Guest Column: Sam Park on the Fed
[Editor's Note: For today's guest column, we welcome back Sam Park with the New York investment and business development advisory service of R. W. Wentworth & Co. Sam's post of March 9, 2005, "Dealing with Greenspan's Conundrum," may be found here. Many thanks as well to Mr. Alan Rude, President of R. W. Wentworth, as well as his staff, for permission to post.]
Can't Blame the Fed for Everything
The Fed's Duties
Contrary to the belief of many bullish investors, the Fed has not increased rates simply to put an end to the party. Greenspan has been marked as the villain because he¹s an easy target to blame for the flattening yield curve. It is true that the Federal Open Market Committee's decision to push short-term rates higher contributed to the flattening curve. However, it is highly doubtful that the Fed ever intentionally tries to put an end to a good thing. If anything, one key word is probably in the forefront of the FOMC's thinking minds, and that word is stability.
According to Jack Guynn, President of Federal Reserve Bank of Atlanta, the Fed must strategically "act before the appearance of widespread price increases to keep inflation and inflation expectations firmly in check." The objective, which eludes laymen, is to make preemptive moves before excessive inflation is present. If high inflation appears in core inflation benchmarks, then the Fed has not moved aggressively enough. By then it would be too late, and the Committee would be forced to take a tighter stance and make steeper hikes.
However, the Fed does not always make all the right moves. The Committee has in the past pushed rates too high, which have triggered a slowdown or even a recession. Monetary policy is not an exact science; indeed it is more like chess match with the outcome in doubt. While the Fed carefully and diligently observes relevant data, and develops a strategy that they feel is best, the outcome is not always what is desired. The following topics are some matters that the Fed and Wall Street are taking into consideration before they make their moves.
Situation with Oil
How much oil is needed to make the world turn? Apparently the world needs 84.3 million barrels per day (mb/d) to run its activities. Of that amount, the United States consumes 20.7 mb/d, or approximately 25% of total world supply. U.S. imports almost 60% of its crude oil mostly from Canada (1.6 mb/d), Mexico (1.6mb/d), Saudi Arabia (1.5 mb/d), Venezuela (1.4 mb/d), and Nigeria (1.1 mb/d).
Since U.S. imports a majority of its oil consumption, it depends on stable foreign relations with suppliers. However, OPEC does not seem to have much direct impact on U.S. consumption, since our top two oil providers in 2004 were Canada and Mexico. Then again, OPEC supplies about 40% of world's total consumption. Therefore, OPEC directly impacts the U.S. through its ability to affect world oil prices.
Moving prices by adjusting production levels only explain part of the story. Demand also drives market prices of oil as with any other commodity. Much of the demand for oil has lately been attributed to China and India; both of which have been experiencing strong growth over the recent years. In the short-run, OPEC's production levels and growth in China and India will contribute to oil price increases.
Some reports show concerns that there may be a decline in worldwide oil reserves. London-based Oil Depletion Analysis Centre (ODAC) foresees oil production to peak at 85 mb/d by 2008, when oil extraction is expected to reach its highest point and then start to decline. International Energy Agency (IEA), on the other hand, does not expect "peak oil" until sometime between 2013 and 2037. These outlooks may have helped push recent oil prices to reach record levels. Nevertheless, economics 101 tells us that shifts towards substitutes will occur before a certain resource (i.e. oil) runs out. Greenspan believes that "in the decades ahead, natural gas and oil will compete in the United States with coal, nuclear power, and renewable sources of energy."
A Reluctant China
Some U.S. policymakers have expressed their disapproval of China's currently erroneous policies involving trade and exchange rate manipulation. Bush's administration continues to push China to revalue the Yuan. Bush continues campaigning that he will save U.S. jobs by trying to keep Chinese import prices at reasonable levels, so that U.S. domestic producers can stay competitive. The artificially weak Yuan also makes prices of U.S. exports expensive relative to competing Chinese products. U.S. exports to China have suffered from this currency imbalance.
The Bush Administration's principled intentions are respectable and reasonable, but its "persecuting" methods may be doing more harm than good. One thing we would want to avoid is a trade war with China. U.S. has recently imposed quotas, limiting Chinese imports to 7.5 percent a year. This quota particularly affects Chinese textile product prices in the U.S. While this quota may protect domestic textile producers, it hurts U.S. clothing producers and does not help consumers that buy clothes or the overall inflation situation.
Because of the trade and payments imbalance with China (and also Japan), these countries have accumulated enormous dollar assets, which they have invested for the most part in the U.S. Treasury bond market. At some point, these foreign holders, due either to geo-political situations or a realization they have excess dollar holdings, may start selling their long-term Treasuries causing a sharp increase yields.
Solid US Economy
Overall, the U.S. economy appears solid as the labor market has been improving and as investment spending is expected to climb. The Bureau of Economic Analysis revised recent GDP figures, saying that the inflation-adjusted GDP grew at a relatively stable and healthy rate of 3.5 percent during the first quarter of 2005. This growth, however, comes at a gradually decelerating rate since the second half of 2004. On the other hand, corporate profit continued to rise and reached 13.8 percent during the first quarter.
The unemployment rate has been steadily declining since its recent peak in mid-2003. At the same time, the employment cost index shows that wages and salaries have been falling since 2000. The rising employment signals that the economy is improving; however, falling wages has been supplementing these added jobs to the economy. While the employment picture indicates that more wealth is steadily being added to the economy, the declining salaries counters the aggregate wealth effect from the additional jobs.
Housing Situation
The falling income trend is apparent throughout the various income measures. Some may argue that falling wage inflation should ease inflationary worries. However, employers may be the only ones to benefit from falling wages.
Despite the falling wages, residential investments remain very strong, growing 6.7 percent on a year-over-year basis during the first quarter in 2005. The sizzling housing market has been fueled by the low mortgage rates. Homeownership rate is estimated to have reached nearly 70 percent nationwide.
Housing is seen as a local business, and Greenspan has noted some "hot" markets. In FOMC's May minutes, there have been remarks of "speculative excesses" in certain areas. The areas cited are California, Florida and parts of the Northeast, hardly isolated instances in that these contain at least one-third of the U.S. population. Speculation poses a threat because speculators create artificially inflated prices. These property flippers generate synthetic demand for the property and pass this gain to the next purchaser.
Certainly high housing prices are not a big problem if homebuyers are buying for permanent living arrangements. It is a big problem when speculators cannot sell their assets and are left with falling housing prices and excess housing inventory. Credit lenders must carefully consider to whom they lend, and real estate agents should not relax purchasing requirements despite the increased competition among brokers.
The increasing number of real estate brokers is of concern because they will vigorously compete for sales, pushing up prices. If speculators are allowed to continue their practices, these artificial prices will continue to balloon. The problem will arise when rising mortgage interest rates slow demand, and the excess supply will initiate the downward cycle of home prices.
Are Hedge funds in Trouble?
We would hate to see another LTCM and its aftermath brewing in the current markets. There have been reports and rumors that a number of prominent hedge funds are currently experiencing troubles. Their unregulated practices make it difficult to diagnose the funds¹ potential problems. LTCM¹s past predicament should have taught us to realize that a good game will be mimicked and arbitrage opportunities will diminish quickly. Maybe we have yet to fully grasp and measure all risks.
More Hikes Up Ahead
As shown, several factors continue to contribute to the potential imbalance in the U.S. economy. Oil prices remain relatively high, and the Fed acknowledges that the high energy is negatively affecting household and business confidence. The negative trade situation with China is another issue and poses a threat to both price stability and interest rate stability. Also potential problems with hedge funds and housing situations could cause shocks to the economy. Despite the potentially dangerous conditions, Greenspan expressed that the U.S. has exhibited the ability to handle negative shocks.
Nonetheless, the Fed will continue to feed us what it sees as our necessary medicine by gradually raising rates by 25 basis points at a time. Fed fund futures shows that the FOMC will almost definitely increase rates to 3.25 percent in the upcoming meeting at the end of June. Market participants are also pricing that the Fed will continue to raise rates into next year.
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Posted by Richard at 12:31 PM | Comments (0) | TrackBackJune 13, 2005
Audio Update: Plan to Sell State Shares
Click the little triangle to hear today's update post on developments in the PRC plan to sell state shares in the Chinese stock markets.
UPDATE: PRC PLAN TO SELL OFF THE STATE'S INTEREST
You may remember the experiment to test the "unwinding" of the state's interest in the Chinese stock markets. See this post for a refresher.
Investors of two of the four companies involved have voted on proposals to offload state shares. IHT reports that Tsinghua Tongfang investors rejected the proposal put to them; Sany investors accepted theirs. Partial success for Chinese regulators.
The Financial Times of London paints a very different portrait:
"China's plan to reform the complicated shareholder structure of its stock market has suffered a setback as investors in one of the four companies involved in its pilot programme rejected the proposals." [Subscription required.]
Is it accurate to call this a "setback?" Possibly. As I explained in my May 11 post, companies were carefully selected to ensure the "experiment" succeeded. And yet FT didn't even bother to tell its readers of the nearly 100% vote in favor of the plan at Sany.
The Sany proposal passed with 99.9% of the vote of tradeable shares -- flying colors -- Tsinghua Tongfang's failed by only 4 percentage points. Why? Perhaps we might come up with an answer as investors talk to the Chinese press in the next few days.
Crazy old Xinhua must have been smoking something. The (Hong Kong) Standard adds -- in the final paragraph of the IHT/Bloomberg article run otherwise word for word -- Xinhua's first report, make that incorrect report, of the passing of Tsinghua Tongfang proposal passed:
Tsinghua Tongfang's statement contradicts a report from Xinhua news agency, which said the plan was approved by 93.4 percent of shareholders of the tradable stock at the meeting. Xinhua Saturday corrected its report ``after checking with the company's board.''
What a great line: "after checking with the company board." Touché!
* * *
Editor's Addendum, June 21, 2005
Dan Slater of FinanceAsia.com, discusses in some depth the investor rejection of the Tsinghua Tongfang proposal here. He proffers two reasons for its failure to pass:
1. A-share investors holding out for more shares.
2. Shareholder opinion that the company is managed too poorly to drive up the share price.
Perhaps, but the verdict is out. We continue to monitor the Chinese media for relevant information.
June 8, 2005
Audio: Taiwanese Court Recognizes PRC Judgment?
Click the little triangle to hear a summation of the post below.
Taiwanese Court Recognizes PRC Judgment?
I include below the original of a press release found at the PRC Ministry of Justice site and also carried more or less verbatim in the Chinese online media, which claim that Taiwanese courts have for the first time recognized the validity of a PRC judgment.
However, I am as yet unable to verify the validity of the assertions in this article. Interestingly, it does not show up on media sites outside of China -- the meaning of which is as yet uncertain. I welcome anyone with information relating to this story.
[Rapid translation of the MOJ release immediately below. Original text directly below that.]
First Recognition by Taiwan Court of Chinese Judgment
Zhejiang Enterprise Crosses Taiwan Straits to Collect on Debt
Case in Taiwan Exhausts Appeal Process
(May 19) Zhejiang (PRC) Textile Import Export Group sued Taiwan’s Changrong International Storage and Transport Corp. to enforce rights to collect on a debt. Taiwan’s Supreme Court denied an appeal by Changrong, ruling that the judgments of the Shanghai Court of Admiralty and the High People’s Court of Shanghai were valid in Taiwan.
This case, involving a mainland Chinese company’s attempt to collect a large sum owed to it, has thus progressed to actual enforcement. It is believed to be the first case in which a Taiwan court, relying upon Article 74 of the “Act Governing Relations Between Peoples of the Taiwan Area and the Mainland Area,” recognized the judgment of a mainland court to enforce rights to collect a debt, and which exhausted the Taiwan appeals process.
[Editor's note: The Mainland Affairs Council can be accessed at this URL.]
In the fourth quarter of 2000, Zhejiang Textile hired Lirong Shipping to ship transport to Iraq in 21 bills of lading with a total value of over US$2.6 million. Zhejiang Textile did not receive payment, and upon investigation, discovered that Lirong, after shipping the cargo to Iraq, failed to deliver it to the correct receiver based on the original bill of lading. Zhejiang Textile sued Lirong, demanding damages of US$2.6 million and RMB6.36 million.
In December, 2002, the Shanghai Court of Admirality ordered Lirong to pay damages to Zhejiang Textile in the amount of US$2.6 million and RMB3.11 million, as well as interest accrued. Lirong then appealed to the High People’s Court of Shanghai.
On the eve of the judgment, Lirong merged into Changrong International Storage and Transport. Zhou Jiang-xiung, Assistant Managing Director of Zhejiang Textile, told this reporter that the company had originally planned upon enforcing the judgment by seizing Lirong’s ships in China. It was not foreseen that Lirong would dissolve, passing on its debt to Changrong, as well as its transport operations in China to another firm.
In September, 2003, the Shanghai City High Court sustained its original ruling, and the case entered the enforcement stage. Then the court discovered that Changrong had no assets in China upon which to enforce the judgment and the enforcement documentation could not be successfully sent to Taiwan, as both mailings had been returned. The judgment entered a period of stalemate.
This cross-straits debt collection case became known to the Taiwan Liaison Office in Zhejiang Province. Ma Li-hua of that Office told this reporter that in July 1992 the Taiwan Region promulgated the “Act Governing Relations Between Peoples of the Taiwan Area and the Mainland Area.” Article 74 of that act reads:
To the extent that an irrevocable civil ruling or judgment, or arbitral award rendered in the Mainland Area is not contrary to the public order or good morals of the Taiwan Area, an application may be filed with a court for a ruling to recognize it. Where any ruling or judgment, or award recognized by a court's ruling as referred to in the preceding paragraph requires performance, it may serve as a writ of execution.
This regulation clearly allowed for a breakthrough in this case. Despite the lack of a similar prior case, in the end, it had to be attempted.
The case thereafter formally began the debt collection process in Taiwan. In August, 2004, a Taoyuan (Taiwan) Local Court recognized the mainland court judgment. Changrong’s appeal was denied. Changrong then attempted to appeal once again to Taiwan’s Supreme Court. On May 19, 2005, that court denied Changrong’s second appeal. At this point, this cross-straits debt collection case entered the actual enforcement stage.
Zhejiang Textile’s Zhou Jian-xiung said that, even though three and one half long years had passed since the suit was filed, everyone could finally seeing the light at the end of the tunnel. They praised the Taiwan Region court’s ability to uphold the law and the judgment that safeguards the legal rights of mainland Chinese businessmen.
This reporter has come to understand that mainland courts have already ruled on judgments of Taiwanese courts. In 1998, the Regulation of the High Peoples Courts Regarding People’s Court Recognition of Taiwan Region Civil Judgments was promulgated. [In Chinese.] The Zhejiang Province, Taizhou Intermediate People’s Court, recognized for the first time the judgment of a Taiwan Nantou Local Court regarding the status of adoptive relationship between a Taiwanese and his nephew in Tiantai. In 1998, the Shanghai First Intermediate People’s Court recognized and enforced the judgment of the Taiwan Kaohsiung Local Court, in a case involving the repayment of a debt between Xu Ling-wen and Taiwan Changtaiyen Construction Development Company.
Fom 1998 until March of this year, cross-straits indirect trade exceeded US$420 billion. In 2003, cross-straits trade exceed US$50 billion, and last year exceeded US$70 billion.
Ma Li-hua of the Zhejiang Taiwan Liaison Office told this reporter that, in the recent few years, cross-straits trade grows daily, and that cooperation between mainland and Taiwan courts with regards to similarities in civil law processes to help safeguard the legal rights of individuals, legal persons and enterprises may become a possibility. Thus, the risk-related costs of cross-straits trade will decrease, helping to stimulate that trade and popular interaction.
台湾法院首次认可大陆法院裁决
浙江一企业大陆跨海峡追赔案在台走完三审程序
本网讯 记者余东明5月19日，浙江纺织品进出口集团有限公司诉台湾长荣国际储运股份有限公司执行债权一案，台湾最高法院判决驳回长荣公司的再抗告，最终裁定了上海海事法院、上海市高级人民法院关于此案的判决在台湾有效。至此，这起大陆企业跨海峡追付巨额赔偿案在台取得了阶段性的进展，进入实际执行债权阶段。据悉，此案是台湾法院根据《两岸关系条例》第74 条规定认可大陆法院裁决执行债权成功的首例案件，也是第一个在台湾走完三审程序的案子。
2000年四季度，浙纺公司委托立荣海运股份有限公司运输21票提单项下价值260多万美元的服装至伊拉克，此后浙纺公司一直没有收到货款，经过查询，浙纺公司发现，立荣公司将货物运到伊拉克后，没有凭正本提单就将货物交给了他人。为此，浙纺公司一纸诉状将立荣公司告上法庭，要求赔偿损失260 万美元和 636万元人民币。
2002年12月，上海海事法院作出一审判决，判决立荣公司赔偿浙纺公司260万美元和311万人民币及相应的利息损失。立荣公司遂向上海高级人民法院提起上诉。
一审判决前夕，立荣公司与长荣国际储运公司合并，长荣公司成为续存公司。浙纺公司副总裁周建雄告诉记者，原本他们打算在法院进入执行程序后，可以直接扣留立荣公司在大陆的船只进行执行。没想到立荣公司注销了，它把债权债务转给了长荣公司，将大陆的运输业务转给了另一家公司。
2003年9月，上海市高级人民法院作出“维持原判”的终审判决，该案进入执行程序。然而正如周建雄所介绍的，一方面，法院发现长荣公司在大陆无财产可供执行；另一方面，执行文书又无法成功送达到台湾，法院两次邮寄都被退回。执行陷入僵局。
这起跨海峡巨额追赔案在咨询了浙江省台湾事务办公室后峰回路转。浙台办的马礼华告诉记者，1992年7月，台湾地区曾出台《台湾地区与大陆地区人民关系条例》，该条例第74条规定：“在大陆地区作成之民事确定裁判、民事仲裁判断，不违背台湾地区公共秩序或善良风俗者，得声请法院裁定认可。前项经法院裁定认可之裁判或判断，以给付为内容者，得为执行名义。”这条规定显然给此案的执行找到了突破口，虽然此前，没有同类案件进入过司法实践，但毕竟得尝试一下。
此后，该案的追赔程序正式在台湾启动。2004年8月，台湾桃园地方法院裁定，对大陆法院的判决予以认可。长荣公司遂向台湾高等法院提起抗告，被驳回；此后，长荣公司又向台湾最高法院提起再抗告。今年5月19日，该院驳回了长荣公司的再抗告。至此，这起大陆公司跨海峡巨额追赔案进入实际执行阶段。
浙纺公司周建雄表示，此案从起诉开始，虽然历经长达三年半的时间，但毕竟让人们看到了成功的曙光。他们对台湾地区法院能尊重法律、维护大陆商人合法利益的裁定表示赞赏。
记者了解到，此前大陆法院曾对台湾法院的判决做过裁定。1998年，《最高人民法院关于人民法院认可台湾地区有关法院民事判决的规定》出台，浙江省台州中级人民法院首次裁定认可了台湾南投地方法院关于台湾人褚春裁对天台侄儿褚金绸收养关系的裁定。1998年，上海第一中级人民法院还裁定认可了台湾高雄地方法院关于高雄人许玲雯诉台湾长泰庄建设开发有限公司有偿借款纠纷一案的判决，并进行了强制执行。
有资料显示，自1998年至今年3月，两岸间接贸易总额累计超过4200亿美元，2003年两岸贸易额突破500亿美元，而去年这一数字突破700亿美元。
浙台办马礼华告诉记者，近几年来，两岸经贸活动日趋频繁，大陆法院和台湾法院类似的司法程序合作使依法保障两岸公民、法人、企业的合法权益成为可能，从而降低了两岸间贸易的风险成本，对推动两岸经贸发展和民间交流有着积极的作用。
Posted by Richard at 3:33 PM | Comments (0)June 7, 2005
Shanghai Event: Interpreting the NDRC Rules
The American Bar Association, Section of International Law, China Committee, will present a breakfast and CLE (pending) in Shanghai.
Topic: Interpreting the NDRC Rules
Presenter: Yingxi Fu-Tomlinson, Partner, Kaye Scholer
Date: Friday, June 24, 2005
Time: 7:30 – 9:30 AM
Place: Squire, Sanders & Dempsey L.L.P., Kerry Centre, Suite 1207
1515 Nanjing Road West, Shanghai, Phone: 21-6103-6300
"Obtaining the Ministry of Commerce's (or its predecessor's) approval of projects has been key for foreign investors wishing to access the PRC market. In July of last year, the State Council issued its Reform of the Investment System Decision, which appeared to signal an important role for the National Development Reform Commission (“NDRC”) and perhaps a significant step in development of a registration system instead of an approval system. However, the Decision was broadly worded and left open the specific procedures to be applied by the NDRC.
Of keen interest to foreign investors is how the NDRC registration process will in fact fit with the MOFCOM approval process. The NDRC subsequently adopted the Administration of the Verification of Foreign-invested Projects Tentative Procedures (issued October 9 2004), with the apparent aim of clarifying matters. However, significant questions still remain."
Ms. Fu-Tomlinson will present respecting the new NDRC rules and their impact on the approval process for foreign-invested projects.
Register for this program.
For more information: Jessica Elliot
Posted by Richard at 2:47 PM | Comments (0) | TrackBackJune 4, 2005
Event Announcement: IP and Piracy in China
Intellectual Property & Piracy in China: The Next Chapter
Sponsored by the China Institute, Baker & McKenzie, Georgetown University Law Center and Deheng Chen Chan LLC.
Topic: "While foreign companies continue to criticize the Chinese government for turning a blind eye to rampant piracy, China is taking steps to stem the tide. But is it enough? What are the latest trends in the battle for remedies, and what do they say about the challenges of continued globalization? What’s next?"
Moderator:
James Feinerman, Associate Dean, International & Graduate Programs, Georgetown University Law Center
Panelists:
Kevin O’Brien, Partner, Baker & McKenzie
Dr. Albert Wai-Kit Chan, Managing Partner, DeHeng Chen Chan, LLC
Elaine T.L. Wu, Attorney-Advisor, U.S. Patent and Trademark Office
Tim Punke, Partner, Preston Gates, Ellis, LLP
Date: Thursday, June 23, 2005
Time: 8:30–11:30 AM at Georgetown University Law Center
Place: 600 New Jersey Avenue, NW Washington DC
Cost: $25 China Institute Members; $40 Non-Members
Contact: William Krents, 125 East 65th Street, New York. Tel: 212-744-8181 x 125 Fax: 212-628-4159; E-mail: wkrents@chinainstitute.org
Posted by Richard at 5:24 PM | Comments (0) | TrackBackJune 1, 2005
UPDATE
View the update to my April 7, 2005 post, "New Regulations Curtail Individual Outbound Investment."
Posted by Richard at 1:10 PM | Comments (0) | TrackBack
