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Tuesday, October 21, 2008

Peeking Around

China's going to clean up and sell its major ag bank:
China's government will pump $19 billion into Agricultural Bank of China and remove most of its $120 billion of bad loans, paving the way for the lender to restructure and sell shares to the public.

The cash injection will be announced today, a bank official with knowledge of the matter said, declining to be identified before the announcement at 3:30 p.m. A unit of China's sovereign wealth fund will take a 50 percent stake in the bank and China's finance ministry will hold the rest, the person said.
Banking in China is exceptionally odd. There are government-controlled banks and a bunch of underground banks.

The appreciation of the yuan is causing a lot of problems for Chinese low-value retail producers. China's attempting to help some of them with this measure:
China will raise export rebates on a range of products including textiles, toys and medicines next month to support the world's fourth-largest economy as the deepening global slowdown hurts demand for Chinese goods.

Tax rebates on some shipments of textiles, garments and toys will be increased to 14 percent and those on some plastics exports will be lifted to 9 percent, the Ministry of Finance said today on its Web site. The adjustment, which starts on Nov. 1, will apply to 3,486 items which account for a quarter of taxable exports, the statement said.
Half of the country's toy exporters went out of business in the first seven months of the year because of rising production costs and the increase in the value of the yuan, the customs bureau said last week. A quarter of Hong Kong-owned businesses in the Pearl River Delta manufacturing hub in southern Guangdong province may go bankrupt because of the global financial crisis, the Federation of Hong Kong Industries said yesterday.
The collapse of the Indian rupee is painful (currently around 49 to the dollar), but it's good for some manufacturers. India is considering subsidizing ship builders to try to build up that segment, and it has taken several steps to shore up textiles and other similar sectors, including ag.

In the meantime, the Indian commercial debt plus inadequate power infrastructure are major problems; ordinarily I would expect Indian exports to gain in this situation, but the power problems and funding problems are real. Tata gets no buyers, and stocks don't sell. RBI (central bank of India) cut its repo (overnight bank lending) rate yesterday by 1% in a surprise move.

The drama goes on in eastern Europe, and the big South American news today is Argentina. The government is supposed to announce a new pension plan, and the markets collapsed on speculation that the government is essentially going to seize pension funds:
President Cristina Fernandez de Kirchner will unveil a new pension fund plan at 4 p.m. New York time today, the country's social security administration said in a statement. Fernandez will nationalize the system, giving the government control of $29 billion in retirement accounts, La Nacion reported, citing government officials it didn't identify.

Fernandez has struggled to raise cash to cover growing financing needs as the global financial crisis drives down prices on the country's commodity exports and erodes demand for higher- yielding, developing-nation debt. The government's borrowing needs will swell to as much as $14 billion next year from $7 billion in 2007, RBC Capital Markets, a Toronto-based unit of Canada's largest bank, said in a report today.
Brazil is having a bad day as well. Goodbye carry trades, hello pain.

Venezuela, Russia and Iran
are all tongue-kissing on aircraft carriers.

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