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China Currents 2014 Issue Volume 13 Number 1

Katherine Peavy

In Due Time: China’s business environment makes the case for due diligence

The South China Morning Post headline jumped out at me: Steel Princessstrading company in liquidation. I leaned a little closer to my neighbor on Hong Kong’s Star Ferry to read over his shoulder. The article claimed that liquidators were looking for about US$500 million that the company should have had in the bank. “Yes!”I mentally fist-pumped. Some people might view a missing half-a-billion as a failure, for me the headline meant success. I had investigated the CEO of Pioneer Iron and Steel, dubbed the “Steel Princess”by the press, on behalf of a client.

Fortunately, occasions when front-page headlines support the analysis in a due diligence report remain rare. On this occasion, the bankruptcy of Pioneer Iron and Steel leading to transfers of company assets from the trading company to other entities owned by the Pioneer Metals Group fulfilled the worst-case risk scenario in a due diligence report I’d given to a client a few years before. The largest risk, depending on what business the client planned to do with Pioneer, was that the corporate structure allowed for undocumented asset transfers. I never expected to see the exact risk we’d documented on the front page of a newspaper.

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Henry Yu

China’s Currency Reforms from a Banker’s Perspective

China’s Currency Reforms from a Banker’s Perspective: A Conversation with Henry Yu, Managing Director of Fifth Third Bank, Atlanta, Georgia.

Introduction

As China’s economy moves ever closer to surpassing the U.S. in terms of purchasing power GDP, China’s currency system seems incompatible with its global economic status. China’s new leadership led by President Xi Jinping is pushing to modernize and marketize the currency system along with necessary concurrent reforms. The 2008 financial crisis was a wake-up call for many countries, demonstrating the heavy dependence of the global economy on the U.S. dollar. The vulnerability of the U.S. economy became everyone’s challenge. Reform of the Renminbi (RMB) became a priority in order to establish the Chinese currency as a global player and lessen China’s reliance on the U.S. dollar. Aside from the fallout from the financial crisis, the sheer size of China’s cross-border trade is creating demand for far more depth and flexibility in the currency markets.

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China Ukraine Crisis

China and the Ukraine Crisis

China’s handling of the Putin-engineered annexation of Crimea from Ukraine into the Russian Federation reflects deeply competing Chinese interests. On the one hand, Beijing values its strategic partnership with Russia — a partnership tracing back to 1996 — especially now, when Sino-U.S. relations are tense over the intertwined issues of Washington’s “pivot” to Asia and Chinese cyber-espionage against U.S. advanced weapons research and development. In Washington there is a growing sense that the military gap between China and the U.S. is narrowing rapidly because of Chinese cyber-penetration of U.S. military-industrial firms and approaching a transition point between rising and incumbent paramount powers, which may be especially dangerous. Japan under Shinzo Abe’s second government (in office since December 2012) also has begun courting India with unprecedented vigor. Even more startling, New Delhi is responding with an unembarrassed embrace of Tokyo. Beijing’s trump card of “the history issue” does not play very well in New Delhi. Given these elemental shifts in the balance of power that are in play, Beijing has no interest in loosening its strategic partnership with Russia. In terms of energy supply, a falloff in European purchases of Soviet natural gas also would not be bad for China, perhaps prompting Moscow to offer China lower prices, easing one of the hurdles to expanded Russo-Chinese energy cooperation over the past decade or so.

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