1 Talking Point 5 The Week in 60 Seconds 6 Auto Industry Week in China 7 Merger and Acquisitions 8 China and the World 9 Banking and Finance 11 Chinese Character 16 September 2011 13 Society and Culture Issue 122 17 And Finally www.weekinchina.com 19 The Back Page China’s euro dilemma m o c . n i e t s p e a t i n e b . w w w y b g u in Will China buy Italian bonds and bail out the crisis-struck eurozone? o k y n o a t B s t l t h a e g b k u o r o l a r G M B C d B n S a H Week in China Talking Point 16 September 2011 Will Beijing cross Rubicon? Italy asks China to buy its government debt and help save eurozone fter 10 years of restoration by Askilled artisans the George C Marshall Center was reopened in the Hotel de Talleyrand in May last year. The timing was telling. After all, it was from this building that Eu- rope was last saved from economic collapse. From this iconic Parisian head- quarters, US secretary of state, George Marshall executed his eponymous plan to rescue a bank- rupt and beleaguered Europe in the aftermath of the Second World War. Almost $13 billion of Ameri- can aid helped Europeans rebuild their shattered economies and avoid financial disaster. Once again, debt-ridden Europe needs to be rescued. But with its fi- nances vying with Europe in the feckless stakes, Washington is in no position to repeat the rescue act it staged nearly 65 years ago. So who else has trillions of dol- lars of spare cash lying around? No prizes for guessing the an- swer: China. The big story this week was whether Beijing would also seek to earn political goodwill, with a re- suscitated version of the Marshall Plan, this time from the East. China to the rescue? As the week began, markets were Not exactly a symbol of strength these days... selling off after a spate of grim head- lines from Europe. Italy, with investors worrying that who suggested Germany would In brief: the Germans seemed its own debt burden was unsus- exit the euro and revert to the ready to allow the erstwhile ‘un- tainable. An Italian default would Deutschmark. thinkable’ outcome of a Greek de- be much, much worse than a Greek Respite for battered investors, Photo Source: Reuters Source: Photo fault, despite rising French anxiety equivalent, say analysts – probably however, then seemed to come that their own banks would be enough to sink the euro. On Mon- from an article in the Financial worst hit by the prospect. Mean- day Bloomberg TV even inter- Times. while the contagion had spread to viewed an American fund manager It reported: “Italy’s centre-right 1 Week in China Talking Point 16 September 2011 government is turning to cash-rich lion overseas. “A similar amount in serious dent in Italy’s €1.9 trillion China in the hope that Beijing will the second half would allow China to debt pile too… help rescue it from financial crisis cover the cost of redeeming all the by making ‘significant’ purchases debt the Italian finance ministry has But are the Chinese keen? of Italian bonds and investments in falling due,” reckons the Wall Street The newsflow from China on its po- strategic companies. According to Journal. tential role as Europe’s saviour has Italian officials, Lou Jiwei, chairman In April The Economist wrote a been mixed. of China Investment Corp, one of piece along similar lines. “China On the one hand, officials clearly the world’s largest sovereign wealth could buy all of the outstanding sov- like to be cast as responsible global funds, led a delegation to Rome last ereign debt of Spain, Ireland, Portu- citizens. According to Sohu Finance, week for talks with Giulio gal and Greece, solving the euro one senior source said in an inter- Tremonti, finance minister, and area’s debt crisis in a trice. And it view that financial help for Italy Italy’s Cassa Depositi e Prestiti, a would still have almost half of its re- “benefits China and the world”. Wu state-controlled entity that has es- serves left over,” it mused. Xiaoling, a former vice-governor of tablished an Italian Strategic Fund The half that’s left over – al- the central bank and current Na- open to foreign investors.” most $1.5 trillion – could make a tional People’s Congress member The news cheered up markets immediately. “Reports that Italy is in talks with China to buy some Italian sovereign debt have com- pletely turned around the stock market. The Dow has regained about 100 points in a very short pe- riod of time,” reported the Wall Street Journal. Asian stock markets rose on Tuesday morning, buoyed by the idea of a China bailout. Other media were quick to pick up on the wider implications. “Euro propped up by China,” ran the head- line in The Australian. “The idea that the Chinese may step up and buy Italian bonds puts a halt to the idea of contagion,” Jim Bianco of Bianco Research told Bloomberg Television. “The big question is whether they follow through and buy Italian bonds.” Dim Sum bonds: The news alone was enough to the comprehensive menu help Italy auction off €7 billion of Since the Dim Sum bond market opened in Hong Kong government bonds on Tuesday (al- last year, HSBC has successfully completed 49 issuances: the largest share of the market*. beit it at an average yield of 5.5%) The recipe is simple: experience, familiarity with relevant and thus complete 70% of its regulations and an unrivalled distribution network. If you have an appetite for Dim Sum bonds, talk to HSBC. fundraising for the year. Find out more at www.hsbcnet.com/rmbmenu Does China have the firepower to make a difference? On this score most people think yes. China has $3.19 trillion of foreign Renminbi (RMB) is currently not freely convertible and conversion of RMB through banks in Hong Kong is subject to certain restrictions. Clients should be reminded of conversion risk in RMB exchange reserves, and they keep products. In addition, there is a liquidity risk associated with RMB products, especially if such investments do not have an active secondary market and their prices have large bid/offer spreads. RMB products in Hong Kong are denominated and settled in RMB deliverable in Hong Kong, which represents a market which is different from that of RMB deliverable in Mainland China. For individual clients, conversion of RMB is subject to the daily limit in Hong Kong, the clients may have to allow time for the conversion of RMB from/to another currency of an amount exceeding the daily limit. HSBC operates in various jurisdictions through its affiliates, including, but not limited to, HSBC Bank plc, authorised and regulated by the Financial Services Authority, The Hongkong and Shanghai Banking growing: in the first half of this year Corporation Limited, HSBC Securities (USA) Inc., member of NYSE, FINRA and SIPC, and HSBC Bank USA, NA. 11-065 *Source: Bloomberg Dim Sum Bond League Table, 2010 - June 2011, excludes self-led and synthetic RMB bonds. alone it invested a further $274 bil- 2 Week in China Talking Point 16 September 2011 also donned the Superman cape, telling investors that they “need not fear” as China was ready to boost market confidence. However, Wei Jianguo, a former vice minister of commerce, told CBN that China cannot be “the sav- iour of Europe’s debt crisis”. Wei said too that China should be in no hurry to buy more European bonds, having already made losses on ex- isting purchases (CBN reckons Eu- ropean debt makes up a quarter of foreign exchange reserves). Wei added that the future of Eu- rope could only be settled by Euro- peans themselves (pretty much mirroring what Beijing likes to say about its own affairs) and what China can do is limited. China Securities Journal was also negative: “The debt crisis in Europe has been reduced to a terrible black Would you lend your hard-earned cash to this man? hole, which means no matter how much money is injected it will be to sitions. The European Council on a larger trade deficit with the Chi- no avail.” Foreign Relations told Reuters that nese than with the Americans. Public opinion was also largely Chinese firms had invested $64 bil- The relationship with Europe sour. Though not a scientific meas- lion in Europe in the six months to remains complex. The Financial ure, Sina’s popular Twitter-like March this year. Times points out that the man Weibo gave a good idea of the mood. In an op-ed in The New York now going cap-in-hand to the Chi- One commentator asked whether Times Parag Khanna and Mark nese, Giulio Tremonti, Italy’s fi- China hadn’t learned from buying Leonard argued that China in- nance minister, has written Fannie Mae bonds. Another queried creasingly favours a G3 world – extensively in the past about his why the Chinese should foot the bill with the EU alongside the US as fears of China’s “reverse colonisa- for over-spending Italians. The gen- global partners. tion” of Europe. eral tone was that the reserves be- “The United States, the European Readers of WiC will recall our longed to the people of China and Union and China are the three Talking Point in issue 93, after a should not be wasted by bureau- largest actors in the world, together number of attempted Chinese ac- crats from Beijing on buying “re- representing approximately 60% quisitions in Europe had been spect” in Europe.