The Malaysian Insider :: Features
The Malaysian Insider :: Features |
| Transparency the crux in China’s struggle to deal with rising debt Posted: 01 Jan 2014 08:00 PM PST China's quest to solve its $3 trillion-and-growing (RM10 trillion) public debt problem by starting a domestic municipal bond market hinges on the one thing its officials are most afraid of: transparency. As markets absorb the results of China's latest audit of its state finances, Beijing's long-standing vow to develop a municipal bond market to curtail rapid growth in other types of hidden public debt will take centre stage once more. By letting local governments sell bonds for cash, China wants to rely on nimble markets rather than inflexible regulations to keep spendthrift units in check. The stakes are high. A bond market is the centrepiece in China's blueprint to mop up fiscal troubles and keep its economy growing at an even pace, giving it needed room to start other bold financial reforms. But analysts say China's dreams of a municipal bond market are so far just that, as building one has been impeded by a lack of disclosure from local governments on how much money and assets they have, and how much they owe. "If you want to lend to a specific government, you need to have a clue as to what the financial conditions are like," said Tan Kim Eng, a senior director of sovereign ratings at Standard & Poor's in Singapore. "There's still a lot of work to be done on the fiscal transparency front." In the meantime, some investors are increasingly alarmed by the speed at which local governments are piling on debt to pay for public works. China's state auditor said in its report on Monday that local governments had total outstanding debt of $2.96 trillion, including contingent liabilities and debt guarantees, at the end of June. Although the debt load shows China's government to be far less indebted than fiscally-troubled Japan and Greece, it raised eyebrows among analysts for its 67% jump since the last state audit was published in 2011. The auditor did not say which provinces have the heaviest burdens or face the biggest risks, except to note "certain" dangers in some unnamed regions. "Any improvement to fiscal transparency will be limited unless the central government regularly publishes similar audit reports," Standard & Poor's said separately in a note on Tuesday. "It's also unclear whether China will disclose the debts of individual local and regional governments." Investors have long viewed China's mountain of local government debt as one of the biggest threats to its economy. Market fears that China's banking system will be compromised if a portion of the government debt is not repaid were amplified by a dearth of information in the past year. Amid growing public scepticism about China's fiscal health, Beijing in August ordered a comprehensive review of all government balance sheets. A delay in its release – publication had been expected by October – fed speculation the debt-total could top $4 trillion. In China's defence, the audit is a massive task. The audit office said it deployed nearly 55,000 workers, who examined nearly 2.5 million loans and reviewed the books of 62,215 governments and organisations. The need for transparency is not lost on Beijing. In a plan published in November about China's most ambitious road map for financial reforms in 30 years, Beijing said it would create a "standardised and transparent budget system" for local governments and the funding of public works. This was on top of frequent government pledges to "cast sunlight" on debt. To be sure, China is mulling other options for cleaning up its debt mess, including allowing private investors to pay for public works, and letting the central government absorb more spending responsibilities. But no plan resonates better with reform-minded officials than that for a municipal bond market, partly because it fits perfectly with China's goal of reducing central planning to let financial markets work their magic. Underscoring the importance placed on restructuring the economy, state news agency Xinhua said President Xi Jinping will head a group that will lead reforms which include relaxing state control over the yuan. Under China's laws, local governments are not allowed to borrow from banks even though they are responsible for as much as 80% of all public spending, but take only around half of fiscal income. To get funds, local governments set up firms that borrow for them. When Beijing clamped down on this in 2011, governments changed tack and turned to shadow banks. Monday's audit showed shadow banks accounted for at least 13% of all local government borrowings. Facing savvy local officials quick to change financing strategies to evade rules, Chinese experts have championed creation of a municipal bond market. Such vehicles, they say, will decide which governments deserve funding, and spendthrift ones will be punished with higher borrowing costs. Beijing appears to like the idea, and is testing the ground for such a bond market in six prosperous cities including Shanghai and Guangdong. But short of full disclosure of just how much governments take in and borrow, analysts doubt China's experiments with its local bond market will go far. "Banks and rating agencies do not have easy access to local governments' overall fiscal position, which includes not only budgeted revenue and expenditure but also extra-budgetary revenue and expenditure," the International Monetary Fund said in October. "This lack of transparency prevents banks and rating agencies from pricing credit risk properly and prevents local governments from managing related risks prudently," it said. – Reuters, January 2, 2014. |
| Schumacher – Formula One’s greatest or tainted champion? Posted: 01 Jan 2014 04:41 PM PST A ruthless competitor, Schumacher won an unprecedented 91 races, seven world titles including five in a row with Ferrari from 2000 to 2004. But despite his unrivalled record on the track the German, who turns 45 years tomorrow, remains a figure of controversy because of his win-at-all-costs attitude. Yesterday, Schumacher remained in an induced coma in Grenoble after brain surgery following an accident while skiing off piste with his 14-year-old son Mick in France. Long-time rival David Coulthard believes that only now can Schumacher receive the long overdue recognition he deserves for his stunning achievements. "For years Michael was the perfect pantomime villain... German, of course, ruthlessly efficient, ultra-aggressive," wrote Coulthard in the Daily Telegraph. "He was marked down by some, including me, as a tainted champion. But you cannot argue with his achievements. "At the end of the day he had the same rules and the same race marshals as the rest of us. And he destroyed us." Schumacher retired in November 2012 holding every major statistical benchmark - the most world titles (7), wins (91), poles (68), fastest laps (77) and races won in a single season (13). After his seventh place in Sao Paulo for his 308th and final Grand Prix, "Schumi" had for a time considered a switch to another type of horse power... rodeo. "My wife Corinna has already chosen the horse, I'm ready," said the German after his second retirement, the first being between 2007 and 2009. Not rodeo, however, but an ambassadorial role for Mercedes on road safety projects. A surprising choice for a man who was never able to do things slowly. After years of racing in the high-risk world of Formula One, his skiing accident suggests that retirement had not dulled his relish of dangerous pursuits. Holder of a pilot's licence, an accomplished motorbike rider, parachutist, skier and mountain climber, the young retiree had not lost his love of risk-taking, turning his back on the career of television pundit embraced by many of his former rivals. He already survived a motorbike accident in Spain in 2009 suffering head and neck injuries but that time he was released from hospital after just five hours. As an F1 racer, Schumacher was known for his daring overtaking manoeuvres, his at-times almost reckless abandon in the pursuit of victory. When he won his first world title in 1994 with Benetton, he did so in controversial fashion, crashing into his title rival Damon Hill in the final race in Adelaide, Australia after he had already scuppered his own hopes by going off the track when pushing hard despite leading comfortably. He almost provoked a similar crash in the final race of the 1997 season when battling Jacques Villeneuve for the title, an incident for which he was retrospectively disqualified from the whole season. His career was also punctuated by accusations of dangerous driving following incidents such as a near collision with former teammate Rubens Barrichello in 2010, which the Brazilian later described as "the most dangerous thing" he had been through. He retired at the end of the 2006 season before making a damp squib of a comeback in 2010 with Mercedes. Schumacher's duels in his hey-day with Hill, Villeneuve and Mika Hakkinen, fired by an unquenchable competitive spirit, have gone down in Formula One folklore. Schumacher was born in January 1969 near Cologne, Germany, the son of a bricklayer who also ran the local go-kart track, where his mother worked in the canteen. His younger brother, Ralf also became a successful Formula One driver. By 1987, Schumacher was the German and European go-kart champion and had left school to work as an apprentice mechanic, although he was soon racing professionally. In 1990 he won the German F3 championship and was hired by Mercedes to drive sports cars. Just a year later he burst onto the Formula One scene, qualifying seventh for Jordan in his debut race at Belgium. The young German was immediately snapped up by Benetton, where he won his first Formula One race in 1992, again at Belgium's tough Spa-Francorchamps circuit. Schumacher won 18 races over the next four seasons with Benetton, claiming back-to-back world titles in 1994 and 1995. In 2002 Schumacher won 11 times and finished on the podium in all 17 races. In 2003, he broke Argentine Fangio's record by claiming his sixth world title and in 2004 he won 13 races, his greatest season. He was also given the title of "Rain King" because he was at his best in the most challenging conditions - winning 17 of 30 career races in the wet. Married to his wife Corinna since 1995 with two children Gina-Maria, 16, and 14-year-old Mick, Schumacher may have retired in 2012 after a glittering career but his love for speed and danger never left him. The irony is that after a life spent negotiating potentially fatal turns his only serious injury was breaking his leg in 1999. Schumacher told German television in 2009 about his accident at Silverstone on July 11, 1999, when he drove into a wall of tyres and broke his leg. "I lie there and think about how I can start to feel my heartbeat again. And I feel how it gets less and less and then completely stops. Lights go out. And then I think this is how it must feel when you are on your way up." - AFP, January 2, 2014. |
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