June 28, 2007
Citibank and the City of Wuhan: Struggling on the Banks of the Yangtse
The smoggy, foggy and utterly disheveled metropolis of Wuhan, on the Yangtse River in Hubei Province, bears the historical distinction of locus of the river trade. [See photo I took in Wuhan that gives you an idea of the Wuhan version of a sunny day.]
Prior to the establishment of the P.R.C., the river trade consisted primarily of opium, bibles, more opium, tea, automobiles shipped up from Shanghai, coal, bibles, weapons and opium.
Aside from its typical central-China, second-tier lack of aesthetic appeal, Wuhan natives are delightfully spirited – indeed, noted within China for their revolutionary fervor – and, in my experience, fast friends. But fighters to a man.
So when, at a public forum, Citibank announced its intention to set up a bank -- based in Wuhan but spanning the central region -- in which it would hold a 20% interest, the less-than-a-mile-away thunderclap of response was heard all the way to Shanghai.
Complicating matters somewhat was the fact that, in the early years of the last century, Citibank’s predecessor built a magnificent branch, lording over the docks, as a testament to its preeminence in Wuhan business circles. That building remains. I touched it myself, inducing a frisson of electricity as it grounded my historiographically-charged body. [See photo.]
That predecessor, the National City Bank of New York, subject of at least one recent book of national significance and numerous articles, is accused of the theft of imperial and nationalist China’s asset reserves. Among other financially rapacious crimes. Alleged criminal activity, of course. [I am a lawyer, after all.] Demand was made upon Citibank to pay up for the alleged [I repeat] acts of an institution that was not only dissolved decades ago, but its assets nationalized.
Nationalized. Don’t you just love the subtle fragrance of that perfumed euphemism?
Of far greater significance is the state of Chinese banking institutions, such as the unalterably poor condition of the so-called “city banks （城市商业银行）,” rogue kin to the disastrous city cooperatives（城市合作社）and credit collectives （信用社）, mismanaged by the municipal governments that own and barely run them. [Shanghai being an exception, but only by a hare’s tail.]
Fearing the competition Citibank presents as it moves inland by virtue of the timetable specified by the WTO accords – well, intending to move inland and encountering resistance every step of the way -- Hubei provincial banking administrators have spoken out. They don’t like the idea of a new bank, preferring a reorganization of their existing decrepit and debt-ridden system. Perhaps with the aide of a white knight like Citibank, although this remains unsaid.
But Hubei banking administrators are getting scant support, it appears from their own admission, from national banking regulators in Beijing, who haven’t even responded to their reorganization proposal. And Citibank looks to be favoring an end run up to Beijing for additional leverage on the province.
Read all about it! My rough translation of this recent article from 21世纪经济报 follows.
Prelude to a Yangtse River Bank: Citibank’s Ten Billion Yuan Trick
Relevant Applications Not Received by Hubei Banking Administration
People in the Hubei Provincial Banking Administration have disclosed that the reorganization of existing city business banks would be more practical than the establishment of a new bank.
June 23, a.m, on site at the “China Creates” display at the Wuhan Science and Technology Event Center, Citibank’s rather bland display board attracts the attention of event goers.
The Citibank banner, no more than 200 characters long, displays to all their intentions toward the Central region. The bank proposes to inject 10 billion RMB (approx. US$1.25 billion) to create a national stock-issuing bank – Yangtse River Bank, 20% of which will be held by Citibank. It is well known that Hubei has for a long time wanted to create a regional business bank, but the fact that a foreign bank has thrown out a proposal has astonished the financial world. Everyone involved has kept their reactions to a low undertone. Hubei Provincial Banking Administration officials tell reporters that there is nothing to this at present. Citibank China regional public relations executives refuse to comment. Two roads present themselves: integrate the city business banks or to reorganize them entirely. Each presents difficulties.
Citibank’s Proposal
Recent reports suggest that Citibank has already begun to set up a bank in Wuhan by the name of the Yangtse River Bank (or Yangtse River Development Bank). Moreover, Citibank Group’s international executive Vice-President has said in a speech that the Yangtse River Bank will attract 10 billion RMB in capital obtained from international, Chinese and local sources, of which 2 billion RMB will come from the Citibank Group and the American Brysam Global Partners.
On the afternoon of June 25, a reporter telephoned Mao Zhi-hua, manager of public relations for the China region, to ask about the organization of the Yangtse River Bank. Mao said he would not comment at this time.
A source disclosed that no application for the organization of the Yangtse River Bank has to date been received by the Hubei Provincial Banking Administration, and that the proposal was still only an idea. A spokesman from the largest business bank in Hubei province – Wuhan Business Bank -- said he had not heard about the organization of the Yangtse River Bank.
“Currently, there is nothing to this,” came the response on the afternoon of June 25 from the Hubei Provincial Banking Administration.
That spokesman said, “I think this issue should not be raised just now, because the People’s Congress and the Politburo have proposed similar ideas about the improvement of the Hubei banking system. In the past, the relevant departments looked into it and studied improvement of the financial system. But the financial system is a complex problem.”
The spokesman said that the establishment of new financial institutions was far more difficult than coming up with the idea to do so. From Citibank’s point of view, they can naturally express their own ideas on the subject, “ But this issue isn’t just about talking. Even though foreign banks think the Wuhan financial market is ripe for development, setting up a financial institution can lead to a series of problems, and whether the idea can be put into practice is awfully hard to say.”
Reorganization of the Old or Establishment of the New?
What differs in Citibank’s idea, in the eyes of local Wuhan scholars, is that the development of the Wuhan Business Bank would have stronger roots within the local region.
“Strengthening and expanding the Wuhan Business Bank, creating a stock-issuing bank that spans the region, is, I think, the most practical,” says Wuhan University Economic Study Center’s President, Ye Yong-gang.
Ye Yong-gang’s proposal is to first inject capital into the Wuhan Business Bank with a share issue, thereafter change the bank’s name, and finally to change the business model to operate regionally as a stock-issuing bank.
Song Qing-hua, professor at Southeast Financial Economy, Law and Politics University, Xinhua Finance and Insurance Study Center, believes that a regional stock-issuing bank with its main branch at Wuhan has two possibilities: reorganization or the establishment of a new bank.
Song Qing-hua tends toward reorganization. “China already has over 130 banks, not a few, and the crucial thing is to take these banks and create a real market presence, and to increase competitiveness. Since we’re talking about bank, it must have a certain size, and only in this way, can it create trust among people and be capable of meeting its competition.”
A spokesman for the Hubei Provincial Bank Administration said that the integration of the city business banks in Hubei would be more practicable than the establishment of a new bank. “We could take the Wuhan Business Bank and [those of other cities] and merge them.”
Wuhan Business Bank would naturally form the core. Established in the late 1990s, its registered capital is 568 million RMB, and the Wuhan City Economics Bureau holds 17.6%, as its largest shareholder.
“Creating a large Wuhan Business Bank would meet with very great obstacles, coming from those municipalities with their own city business banks,” says a source.
An administrator who knows Hubei finance says that the Hubei provincial government has wanted to merge and reorganize the city business banks and credit collectives, creating a big and strong “Yangtse River Development Bank.”
“But there’s some difficulty in doing this.”
The difficulty includes the fact that within Hubei, banks and credit collectives have developed unevenly, just as was the situation encountered when Jiangsu provincial banks were reorganized into the Jiangsu Bank. A source close to the Wuhan Business Bank disclosed that, in planning future development strategy, Wuhan Business Bank wanted to take off on its own and to launch an IPO. It was not willing to merge and reorganize with other banks in the province.
The Dream of a Regional Banking Center
During the “China Creates” event, Hubei Provincial Vice-Governor Li Chun Ming did not express an opinion as to Citibank’s plan.
Sources say that Citibank has raised the idea with Hubei provincial officials in the past. As to the establishment in Wuhan of a national stock-issuing bank, Hubei province and the city of Wuhan have many times submitted their applications to national administration, but have never received any response. “At this time, they purposefully maintain a low profile on this issue, and I guess they are worried that national administrators are taking a long time in the approval process.”
Wuhan has never stopped dreaming of the day when it would once again become a financial center. The most recent proposal for a regional bank was submitted at the 5th meeting of the 9th plenum of the 2007 Hubei Political Committee, when top officials suggested that “a regional development bank can only be established in Wuhan.”
Previously, at the 2004 national meetings, the former Wuhan City Political Committee Chairman Liu Shan-bi submitted a proposal in his capacity as a national official, entitled: “A proposal to speed up the development of a regional financial center, regarding establishment in Wuhan of the Hankow Development Bank,”
Liu Shan-bi believes that, a stock-issuing bank, rooted locally, serving the central region, and aiming at national service, is established in Wuhan, it would have a far reaching effect on curtailing the loss of capital away from the area, support the growth of the central region, stimulate production..etc. etc. etc.”
21世纪经济报道 2007-06-26 16:18:30
“长江银行”前奏：花旗百亿谋略
湖北银监局尚未接到有关申请
本报记者 聂春林 刘晓 实习记者 王传晓 武汉、上海报道
湖北省银监局相关人士表示，相比成立一家新的银行，整合湖北省现有的城市商业银行更为现实。
6月23日上午，武汉科技会展中心二楼“华创会”现场。花旗银行一块并不起眼的展板引起参展者关注。
花旗银行用不到200字的篇幅向外界展示了其向中部区域渗透的用心。该行建议，牵头引资100亿元，在武汉设立一家全国性股份制银行———长江银行，花旗有意持有20％股份。
湖北方面设立区域性商业银行的意图早已为外界知悉。但此次由一家外资行先抛出一纸建议书却令金融界人士颇觉诧异。
各方对此反应均非常低调。湖北银监局某人士告诉记者，此事目前还没有说法。而花旗中国区负责公共事务的人士也拒绝表态。
摆在湖北面前的有两条路：整合现有地方城市商业银行或者重新组建。无论哪种选择都一样艰难。
花旗的设想
近日有媒体报道称，美国花旗银行拟在武汉组建长江银行(或称“长江发展银行”)，目前已经进入筹建阶段，并援引花旗银行集团全球决策管理部高级副总裁刘恒中的讲话称，长江银行将从国际、国内、民间等引进战略投资资本100亿元，其中，从花旗集团、美国Brysam全球银行投资合伙公司等国际银行财团引进20亿元。
6月25日下午，记者致电该行中国区负责公共事务的毛志华，询问组建长江银行一事，毛表示暂不表态。
一位知情人士透露，关于组建长江银行的申请目前还没有报到湖北银监局，组建“长江银行”一事还停留在设想的层面。湖北省内最大的城商行———武汉商业银行一位人士告诉记者，没有听说组建长江银行一事。
“目前还没有说法。”6月25日下午，湖北银监局办公室相关负责人如是答复本报记者。
该负责人称：“我觉得现在不要提这个问题，因为关于银行的设置问题，有人大、政协代表就如何完善湖北省的金融体系提出过类似的建议，前期相关部门也进行了考察，研究如何完善金融布局。但金融布局是一个比较复杂的问题。”
该负责人表示金融机构的设置远比设想困难。如果站在花旗的角度，自然可以对此事发表自己的看法。“但这个事情不是说说的问题，虽然外资金融机构很看好武汉的金融发展环境，但设置一个金融机构将面临一系列的问题，想法能否付诸实施很难说。”
重组还是重建？
与花旗银行的设想不同，在武汉当地学者们眼中，在武汉商业银行的基础上发展区域性银行似乎更现实些。
“把武汉市商业银行做大做强，扩展成为跨区域的股份制商业银行，在我看来更为现实一些。”武汉大学经济学院副院长叶永刚表示。
叶永刚的方案是，首先将武汉商业银行增资扩股，然后更名，最终转型成为跨区域经营的股份制银行。
中南财经政法大学新华金融保险学院教授宋清华认为，总部设在武汉的区域性股份制银行，有两种组建方式：一是重组，二是新建。
宋清华更倾向于采取重组的方式。“中国已有130多家银行，银行的数量并不少，关键是要将这些银行塑造成真正的市场主体，提高他们的竞争力。既然是银行，就必须有一定的规模，只有这样，对内才可以取信于民，对外迎接竞争。”
湖北省银监局相关人士曾表示，相比成立一家新的银行，整合湖北省现有的城市商业银行更为现实。“可以把武汉市商业银行和宜昌、荆州、襄樊、十堰、孝感、黄冈、荆门等地城市商业银行合并。”
武汉商业银行理所当然成为重组的核心。该银行成立于上世纪90年代后期，注册资本为5.68亿元，其中武汉市财政局占17.6%，是最大的股东。
“做大武汉商业银行，遇到的最大的阻力，在于其他几个地级市的商业银行，一直得不到地方财政的放行。”知情人士告诉记者。
熟悉湖北金融的一位监管人士称，湖北省政府此前也想仿照徽商银行模式，进行省内城商行和信用社联合重组，组建“长江发展银行”(拟)，实现做大做强，“但是有些困难。”
而困难就包括湖北省内各城商行和城信社的发展不平衡，跟当初江苏省组建江苏银行遇到的情况一样。据一位接近武汉商业银行的人士称，在设计未来发展战略时，武汉商业银行更愿意单飞，并有上市的想法，而不愿意参与省内城商行的联合重组。
区域金融中心之梦
湖北省副省长李春明在“华创会”记者见面会上，对花旗银行的建议不置可否。
知情人士称，花旗银行这一设想应该与湖北省有关方面事先沟通过。在武汉设立全国性股份制银行的想法，湖北省、武汉市已多次向国家有关部门提出过申请，但一直未得到回复。“此次刻意保持低调，估计是担心国家有关部门审批手续较长。”
武汉从来没有停止过恢复昔日金融中心的梦想。
最近的一次设立区域金融中心提案，是在2007年湖北省政协九届五次会议上，民革湖北省委员会建议，“成立一家中部发展银行，总部设在武汉。”
此前的2004年全国两会上，武汉市原政协主席刘善壁以全国政协委员的身份提交了一份提案：“关于在武汉组建汉口发展银行，加快推动中部地区金融中心建设的建议。”
刘善壁认为，如果能在武汉新设立一家立足地方、服务中部、辐射全国的股份制银行，对改善中部地区资金外流，扶持中部地区企业发展壮大，促进中部崛起战略的实施，将产生深远的影响。
March 29, 2007
Hey, China, Listen Here! We've Just About Had It With You! (Again)
More American critics of Chinese intransigence here and here. More experts are mustered to plead a case believed persuasive, but not resulting in hoped-for change. And none should be expected, as I've argued many times on this blog, unless Chinese decision makers find change to be absolutely necessary and directly advantageous to them. Constant reports (for years) of what top level Americans are unable to accomplish has become a mainstay of traditional financial news, valuable to historical researchers 50 years from now and to a few policy makers in marbled halls. But otherwise of little value.
Lest we not forget the baby's rhyme, remember, please, that the wolf never could blow down the brick house of the last little pig. It was too strongly built to fall to the hot air with which the wolf blew down weaker structures. Why didn't the wolf offer the pig a bucket of slops to induce him out into the open? The pig was too smart. Why didn't he use a bulldozer? Because wolfie wanted to eat the piggy alive. Somewhere in the middle of these extremes lies a method involving a strong arm, but one must be willing to use it.
Quite a few years ago, I was interviewed for a position in Beijing representing a large Western industrial organization, which, it turned out, hoped to significantly influence Chinese government policy. I suggested it was not possible to move Chinese policy as far as the organization wished. (I hope, however, their choice for the position has done what I didn't think quite possible.) During our talks, I asked what the organization believed it could offer to benefit Chinese policy makers and, as well, what strength it possessed that would allow it to put substantial pressure on them, forcing change. As you have likely guessed by now, the latter is an essential part of achieving a goal in China when contrary individuals possess as much or greater authority than you. It appeared to me that the organization had not even considered these fundamentals of the equation. Needless to say, we were not a match.
Benefits are easy for Americans to think up. We really do like to help out. But this is different. Where is the stick and who is going to wield it?
[UPDATE: Has the administration decided to up the ante?]
Posted by Richard at 12:43 PM | Comments (1)December 29, 2006
Money Laundering in China: The Case of Huang Guang-rui (Part 3)
[Editor's Note: This is the final installment of our series on money laundering in China. Read Part 1 here. Part 2 here.]
“Wipe Clean” and “Wring Dry”
“Wiping clean” follows soaking -- allowing dirty money to distance itself from its unlawful origin. After the dirty money has entered the banking system, [they move it in and out of] accounts in as many different locations as possible or holding companies [they] establish, creating a complex web of financial transactions that render helpless any auditor and moving the dirty money farther and farther away from the criminal boss [of the original enterprise].
When Huang Guang-rui would set up a false account, the deposit usually came in and went out on the same day or the following. Huang Xi-tian and the others would split up and deposit money in the accounts set up by Huang Guang-rui. Huang Guang-rui would then move it on the same day or the following into the accounts of Gao Zhan-kun, Wang Li-Mei and others, leaving a small balance in the [transmitting] account.
Thereafter, the money would be transferred to Huang Guang-rui’s Hong Kong Xinxing International Trade Company and YongXing International Trade Company accounts. Once wrung dry, the dirty money had been washed clean, becoming money Huang Xi-tian could make use of without worry,
An important middle man, called “A-Nan,” who exchanged RMB for Hong Kong dollars and has not yet been made part of this case, moved Huang Guang-rui’s RMB across the border, completing the important step of wringing the money dry.
Actually, before the end of 2000, Huang Guang-rui didn’t know who A-Nan was. Later, he was introduced to A-Nan, who, through his gang, made money off of the forex spread across the border. But in the beginning, when the amount of RMB was small, A-Nan was never directly in touch with Huang Guang-rui.
The turning point came after 2002. The amount of smuggled money that was wired had become rather large, so Huang Guang-rui began direct contact with A-Nan so that [RMB could be] exchanged into Hong Kong dollars.
Between them, Huang Guang-rui and A-Nan established a fixed fee schedule. Huang Xi-tian and Huang Chu-dong called Huang Guang-rui to ask the daily rate (not the official rate, higher than the bank’s officially announced rate, and based on the supply of Hong Kong dollars at the time of the transaction), and paid Huang Guang-rui in RMB based on the rate Huang Guang-rui had provided. Huang Guang-rui would pay A-Nan based on the rate provided by A-Nan, making money off the forex spread.
Changed into Hong Kong dollars, A-Nan would then transfer, via underground money-lending networks, to the Hong Kong Xinxing International Trade Company and YongXing International Trade Company accounts.
Judiciary organs have said that, since A-Nan has not been made part of this case, the exact methods of those who use underground money-lending networks to move money across border remain a mystery. Moreover, the details of the transacations between Huang Guang-rui and A-Nan are impossible to prove, as there is so little evidence.
Huang Guang-rui said that he only wished to give RMB to A-Nan. He guessed that A-Nan, in order to exchange currencies, may have had a relationship with a joint venture factory, to which A-Nan would have provided RMB in cash, in return for the joint venture (or foreign invested factory) would have placed the equivalent in Hong Kong dollars into the Hong Kong accounts.
In addition, Huang Guang-rui disclosed the activities of several other underground money lending networks – which directly exchanged RMB for Hong Kong dollars in cash and then moved it out into Hong Kong accounts. Chinese who gambled and won Hong Kong dollars on horse racing or the lottery in Hong Kong would give over their cash to A-Nan, who would then pay RMB to them in China. Outside of China, criminal elements who received smuggled goods would take Hong Kong dollars and within China pay RMB at a certain rate to people of a similar ilk.
Just like Huang Xi-tian and the others who profited from laundered, smuggled cash, there was still the originator of the smuggling – a Vietnamese trader name Zhang Ze-chun
For ease of moving money from one account to another, Huang Guang-rui and Zhang Ze-chun settled accounts via cellphone messaging that would send money from the Hong Kong accounts to Huang Xi-tian, and then to Huang Guang-rui. Block amounts of 500,000 or 1 million Hong Kong dollars were moved into Zhang’s Hong Kong accounts. The money arrived the same day. Zhang only shipped product once he had the money in hand.
By means of this cycle, the laundered cash entered the “wringing dry” stage, or perhaps one might say it had reached the “return of capital” stage. Just like legal capital, the laundered money was moved out to other destinations.
Well over 100 million RMB, dirty money earned through the smuggling efforts of Huang Xi-tian and 15 of his brothers and sisters, had been washed clean.
December 20, 2006
Audio: Renminbi Redux - Have They Begun to Circle the Wagons
More renminbi revaluation silliness from Washington... Click the little triangle to listen to today's post.
December 15, 2006
Money Laundering in China: The Case of Huang Guang-rui (Part 2)
[Editor's note: Read Part 1 here.]
“Soaking”
This isn’t something everyone can do – laundering money requires contact with financial institutions so that cash can move up to the surface from underground, becoming legal income – it requires a series of complex techniques. The players in this industry have specialized knowledge and skills: lawyers, accountants, auditors, financial consultants and others.
Born in 1972, Huang Guang-rui was nonetheless considered a skilled mouthpiece. From 1990 to 1993, after studying at the Guangdong International School of Finance, he spent the next five years working in a bank branch in Shenzhen. After resigning in 1998, with an inside-out knowledge of the way banks move money, he became a expert money launderer.
His activities fit the classic laundering process – using the analogy of clothes-laundering, the money laundering cycle of “placement, layering and blending” became to them “soaking, wiping clean and wringing dry.
Soaking is the first stage. Placing unlawful revenue into the financial system, into ordinary channels of distribution, is the first step. Important methods include the use of bank current accounts, postal money orders, travelers checks and other commonly circulated instruments.
Under ordinary circumstances, a very large bank deposit will attract the attention of regulators. Huang Guang-rui didn’t have much he could do about this. He used the most common technique – he opened tens of accounts in the local branches of two banks under many false names.
These accounts were patently preposterous. A few were opened using the altered IDs of his cousins. As an example, the account name of "Huang Juan-hua" was opened with a copy of photographs taken from an ID of Huang Guang-rui’s wife Huang Hai-xuan and sister-in-law Huang Xiao-yan, but with altered ID names, addresses and other pertinent information, The account name of "Huang Hui-juan" used Huang Hai-xuan’s photograph, but the ID name and number did not match hers.
Kanjiang’s “Boss Chen” shipped smuggled cigarettes into Guangzhou, Shenzhen and other designated stores, included cigarette counters and tea shops. Then those who were responsible for selling the smuggled cigarettes would figure their total revenue, and using banking institutions over a wide area, deposit that money over computer networks into the accounts Huang Guang-rui had established with falsified documents.
Experienced international money-launderers all know that the soaking stage is the most fragile, the most easily detected. But Huang Guang-rui was fortunate. The Judiciary has stated that the counter staff at two banks he patronized were insufficiently alert. Due diligence on the customer was halted at the auditing stage, becoming somewhat like a dead letter.
Identity auditing is but the first link. If one wishes to uncover soaking, one only needs to look very closely and often at the individual bank account.
Usually, a bank account opened with a false identity will show constant movement of large sums in and out. From July 1, 2003 to Feb. 27, 2004, the deposit account of "Huang Rui-juan" received 73 deposits for total of RMB 38.35 million (US$4.5 million). On August 8, 2003, however, that account showed 5 transactions amounting to over RMB 4 million (US$500,000).
However, in developed areas such as Guangzhou and Shenzhen, a single account with flows exceeding several tens of millions and even over 100 million is not that unusual. This provided good camouflage for Huang Guang-rui.
TO BE CONTINUED
December 14, 2006
Money Laundering in China: The Case of Huang Guang-rui (Part I)
[Editor's Note: Given the restrictions upon the movement of money within China and across its borders, money laundering -- the transformation into apparently clean income of unlawfully transferred or earned money -- has become a commercial activity of great significance. This article from 21世纪经济报, which I have roughly translated, describes the methods used by a major player in that business, now imprisoned, that turn "black" money, as the Chinese call it, into mainstream wealth.]
Money Laundering
Special Report
Reporters: Zhong Wen-qing (Shanghai)
“Soak, wipe clean, wring dry” – and several hundred millions of dirty money become clean. Huang Guang-rui has not been in prison long. On December 4, China’s Anti-Money Laundering department announced that it had broken up one of Shanghai’s largest underground money laundering cases since the founding of the PRC, involving as much as 5 billion RMB (US$ 625 million).
All international money laundering experts know that the soaking stage is the most delicate and easiest to be discovered. But Huang Guang-rui was fortunate. The Judiciary department has said that counter staff at two local banks he patronized weren’t alert.
For nearly five years, Huang Xi-tian took his 15 siblings and disappeared into the border area between China and Vietnam.
They liked the feeling of flying at night. Each time, they loaded up their private airship with its five engines full of carefully chosen name brand cigarettes, like Southern Comfort and 555. [Private dirigibles in China? You bet.]
Flying from Situn over the Gulf of Tonkin, Huang Xi-tian traveled into Hepu County in Guangxi to a shrimp farm on the coast. Zheng Xu-ming owned the shrimp farm. Many nights, he waited for the airship to land on the dock at the farm. Radar had been installed on the roof of the shrimp farm’s office building, used specifically to monitor the patrol status of the Customs, Coast Guard and other police unit. After the goods had been safely unloaded, they were loaded onto trucks and transported to Guangzhou, Shenzhen, Kanjiang and other places, to be sold to many [buyers]. [Editor's Note: Does any reader know the Vietnamese name for the port of 四屯?]
Huang Xi-tian was very busy, flying often in the past five years, and having smuggled from Vietnam over 47,000 cigarette cartons across the border, they now had 170 million RMB (US$20 million) in hand. But with any more money than that, they were anxious – after all, it was dirty money.
Huang Guang-rui was a genuine money god for them. Only through him could the money become Huang Xi-tian’s legal income. Money laundering – the “dirty money industry” practiced by Huang Guang-rui, was becoming the world’s third largest business activity after foreign exchange and oil.
But now, the easy life was over. On August 23, 2006, the Guangxi People’s Supreme Court sentenced Huang Xi-tian and 15 defendants to prison, reprieved from death sentences, for various terms for commodity smuggling crimes
Moreover, Huang Guang-rui set a precedent – since the amendment of the criminal money laundering law of 1997, this was the first case in China where guilt had been established for money laundering with smuggling as its predicate crime.
TO BE CONTINUED
November 10, 2006
Guess What? New Rules!
The Wall Street Journal reports on new Chinese banking regulations that will further delay Citigroup's China strategy.
The rules will "strengthen and improve the supervision and management of foreign banks and promote the stable operation of the banking sector," the State Council said in a statement Wednesday.
One would think, given the state of the Chinese banking system, that foreign banks require less supervision. But China can be -- how can I put it nicely? -- counter-intuitive.
FOLLOW-UP: Readers of Chinese will find of interest this 金融界 special edition on foreign banks. As of November 28, 2006, 金融界's online reader survey reported the following results:
外资银行管理条例发布调查
共有790人参与
您认为外资银行是否会对我国银行业造成冲击
会，内资银行将倒闭几家 53.04%
不会，内资银行可以经得住竞争 33.04%
不清楚，现在不好判断 13.92%
作为个人，您更倾向于选择内资银行还是外资银行
外资银行 54.81%
内资银行 45.19%
November 8, 2006
The Cost of Free Trade in China: Corruption and the FCPA
May 15, 2006
Audio: Ernst and Young Retracts China Bad Loans Report
Click the link to hear today's post.
February 22, 2006
The Incredible Vanishing Credit Card
[Editor's Note: After our post on counterfeiting (and we thank you all for the wonderful audience reaction), we are forced to admit to a fascination with the "look-alikes" in Chinese business that aren't exactly what they seem to be. Today, we turn to the credit card. Credit cards are a financial tool of recent invention in the West, but in China are much like newborn babes in swaddling clothes. But is there really a living baby in there or a doll made up to look like one?
Despite many obstacles, the Chinese internet community is active, well-educated, opinionated, agressive and very often spot on. Business is not a suspect topic -- but consumer discontent is some form of revolt, no matter how one may cut it. This article by Wu Xiang-hong (吴向宏), a financial blogger, takes the Chinese credit card industry to task. While some of Wu's comments are inexact, he clearly has done his research. We went jaw agape upon reading the allusion to the American Truth-in-Lending Act and Regulation Z, which cap consumer liability in case of unauthorized usage. One would venture to suggest that most American consumers have no knowledge of this law and the benefits it confers upon them. (Many buy the outrageously expensive credit insurance -- completely valueluess -- that issuers routinely flog to the unknowing.)
Wu's post has been reprinted countless times on many Chinese internet sites, resulting in hundreds of comments, generally in agreement.]
The Beautiful Lie of Chinese Credit Cards
In the U.S. and other developed western nations, you needn’t worry when your credit card is lost. American law stipulates that one need only report a credit card stolen within 24 hours (or after discovery of theft), regardless of the amount of the theft, and the cardholder’s loss is capped at $50. Similar law exists in England, stipulating the cardholder’s loss at £50. The remaining portion above that amount becomes the bank’s loss, unless the bank can prove obvious error by the merchant. Actually, many banks implement terms that are even more favorable than the law allows. Not only do they allow more time to report a stolen card, they also take the loss on the $50. That is to say, the bank uses its own credit as a guarantee for all credit card consumption.
In China, all loss owing to the theft of a credit card is borne by the consumer. This makes us aware of the fact that, even though a small plastic card called a “credit card” is running around on the Chinese market, there is no bank guarantee behind it. In all frankness, there is no “credit” in our “credit cards,” and can’t possibly be discussed on even terms with those of the developed nations. The latter truly has a magical feel to it, almost as if one sees the bank when one sees the card itself.
I must elucidate this point because in China the phrase “international norm” is invoked in order to justify bank fees. As an example, in the midst of the brouhouha over annual fees for bankcards in the past two months, some declared that annual fees for bankcards were an “international norm.” Recently, during a similar brouhaha in Shenzhen and other cities where issuers refused to process cards, we also heard a similar tune. Merchants believed that bank processing fees were too high and demanded fees be lowered. The Chinese banking industry retorted that international processing fees run at 2% and that Chinese banks were only half that. So you still want us to decrease fees?
[For detail regarding the Shenzhen brouhouha, see this article.]
Their use of the “international norm” was inaccurate. At the beginning of the year, many experts (including the author) pointed out that most international bank cards do not charge annual fees. The argument that the so-called annual fee is an “international norm” can not be established. And this time, their use of “international norm” is slimy. In the U.S., card processing fees for retail merchants run as cheap as $0.20 plus 1.6% of the transaction, generally averaging around 2%. But the rate for debit cards is as low as $0.40, that is to say, 0.4% for every $100. How can this possibly “average around 2%?” Don’t forget, the bank cards currently used in China are primarily debit cards (requiring a PIN number), which should permit a lower fee rate.
But these details aren’t the core of the problem. The core is the basic standard required for doing business, which is, “you (should) get what you pay for.” If you hope to bring fees in line with international standards, then the content and quality of your product and service must also. In the life of Chinese business, we encounter many things like this – the price tracks international standards, but the content does not.
Our so-called “credit card” is, unfortunately, a beautiful lie. Today, within China, much of the PR makes the public believe that the primary value of credit cards is in allowing people to consume before paying and to overdraw. Looking more closely, the PR attributes the reasons for China’s laggard credit card industry to “Chinese not having the custom of buying first and paying later.” This is completely misleading. It is a fact, even if we look at the origins of the credit card, that overdrawing is only one of its complementary functions.
The core of the credit card business is that the bank’s credit functions as a guarantee for the safety of the transaction between the consumer and the merchant. Use of a credit card can actually be more annoying than the use of cash. On what basis does the consumer and the merchant turn down the annoyance of swiping a card and willingly spend money needlessly on such things as processing and annual fees? The first reason is precisely the safety a credit card provides. Aside from the risk of theft, as we spoke of previously, there are other safety aspects to the transaction. For example, in many transactions, the consumer must first pay or leave a deposit before seeing the product or service. At certain times, the product or service is unsatisfactory, even perhaps defective. In such a situation, purchasing goods in a developed nation, the consumer can return the goods completely risk-free. The bank will reverse the charge, crediting the consumer’s account, or the bank will resolve the problem with the merchant. This system of credit safety is important for many consumer formats, such as TV, telephone and mail-order purchasing. In China, mail-order transactions are the province of fraudsters who blow smoke and wind. In the credit transaction system, the banks remove those fraudulent merchants from the ranks of those who may accept credit cards.
Merchants also enjoy a guarantee of safe transactions. For example, an individual rents a car with a credit card and wrecks it. The merchant can within limits first obtain recompense from the bank. Even if amounts exceed the individual’s ability to pay, even as much as to bankrupt a person, the bank is the only one who sustains the loss. Further, the travel, entertainment and leisure industries commonly take reservations, in which the merchant risks a no-show. But if the consumer uses a credit card to make the reservation, the merchant can receive payment from the card when the consumer does not hold to his end of the bargain.
From the time China’s banks established our credit card industry, they’ve continued to hide from risk, continually refusing to provide credit guarantees. In the very beginning, consumers were required to put up money as security against the issuance of a credit card. Up until today, a Chinese credit card is nothing more than a debit card allowing payment to be postponed. Even more, the quality of service is very far from international standards. Upon what basis can it demand fees similar to those commanded internationally?
Posted by Richard at 1:13 AM | Comments (0)
