news blog from Matthew

Oct 14 2011 ∞

Gucci replaces 2 China store managers after staff-abuse allegations


Gucci has established “direct confidential communications” between senior management and staff after the letter was released, the company said in a statement to Reuters.The retailer has also hired outside consultants to conduct a comprehensive review of the situation, including “talent recruitment and retention.”Late on Thursday, Chinese state media reported that the Shenzhen city government was investigating the company after the release of the letter.”Gucci has been closely monitoring recent media reports regarding certain complaints from a small group of former employees,” the company said.”Gucci does not and will not endorse or tolerate the alleged malpractices,” it said.Company representatives had met local authorities in Shenzhen on Thursday, Gucci spokesman Ben Huang said. He did not give further details of the meeting.A number foreign companies operating in China have come under fire in recent months for various rule violations, leading some executives to complain privately that their companies are subject to stricter enforcement than local Chinese firms.Earlier this week, state media reported that authorities in the central city of Chongqing arrested two employees of Wal-Mart and detained dozens more over alleged mislabelling of pork products, after ordering 13 of the retail giant’s stores in the region to close.This summer, oil company ConocoPhillips was roundly criticised in the Chinese press for its handling of an oil spill that occurred in June.The State Oceanic Administration has threatened to sue ConocoPhillips, but not its state-owned partner CNOOC .’NO SHORT REST’The letter from former Gucci employees claimed the store repeatedly rejected requests for overtime pay and required employees to reimburse Gucci for stolen items, even though they were insured.”It was a kind of torture for us to stand for more than 14 hours a day,” said the letter, posted on sina.com.”No short rest, water or food was allowed even for a pregnant employee.”The company’s China operations are based in Shanghai and it has 44 stores in China, Gucci spokesman Huang said. He would not say how many people Gucci employs in the country.Despite the recent focus on foreign firms, local Chinese companies haven’t been exempt from criticism.Local media often report that Chinese companies are found to have committed serious abuses such as underpaying workers in sweatshop conditions, using child labour and substituting fake or toxic ingredients in food.

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Oct 13 2011 ∞

Issuance rumours fuel China bank funding concerns


The rumours first surfaced on Monday when Huijin Investment - the subsidiary of China’s sovereign wealth fund which owns major stakes in the country’s banks and is charged with investing in the China FIG sector - was in the market picking up the stock of Agricultural Bank of China, BOC, China Construction Bank, and Industrial and Commercial Bank of China. The purchases, although for a paltry US$31m total across the four lenders, caused a sharp reversal of the recent decline in their Hong Kong-listed stock prices, pushing them up between 8% and 16%.”Fast money thinks some of the Chinese banks are in trouble, which has been reflected in the upward surge in their CDS spreads since July. No one believes the official figure for NPLs at the big banks, which is supposed to be in the 1% area, but which the hedge funds and prop traders believe is higher. There is an underlying sense that Huijin was telegraphing the government’s implicit support for those banks and trying to staunch rumours of trouble which might choke off the banks’ access to wholesale funding markets,” said a regional syndicate banker.On the day of the Huijin purchases, BOC was rumoured to be preparing a 10-year subordinated US dollar Lower Tier 2 bullet, structured to convert to senior with a reduced coupon should Basel III regulatory changes deem that the paper not qualify as bank capital. The bank was taken on non-deal roadshows by BOC International, Citi and Deutsche Bank early last month, added credence to the gossip.Outstanding BOC 2020s backed off 5bp on the chatter to Treasuries plus 350bp bid. The syndicate banker suggested a new deal would need to price 100bp back from there to clear, a level which - if agreed to by BOC - would have repriced the entire China bank offshore curve, as well as adding to the general unease swirling around the sector.Former PBOC deputy governor Wu Xiaoling told Reuters in August that the large Chinese banks face capital shortfalls of Rmb400bn-500bn (USD63bn-USD78bn) over the next five years due to Basel III compliance, and that: “Along with a quick expansion of domestic loans, banks will generally face relatively heavy pressure on ordinary capital.”But he added that with capital adequacy ratios averaging 12% and core capital averaging 9% there was no immediate funding pressure at the mainland’s large lenders - something doubted by a somewhat sceptical large segment of the Asia-focused fast-money community given the PRC banking sector’s large exposure to regional governments and the increasingly precarious property and shipping industries.MAYBE, MAYBE NOTMeanwhile, China Merchants Bank (CMB) is planning a USD300m three-year CD led by ANZ and Standard Chartered, which is dividing the market by raising the thorny issue of whether or not it marks the reopening of the public Asia dollar offshore primary bond space.A banker away from the trade suggested it was driven by reverse enquiry, would involve only a limited number of investors already in close contact with CMB, and was essentially a cross trade being facilitated by the leads who would earn minimum wallet on the deal.ANZ, which has almost zero presence in the Asia G3 primary bond markets, was rumoured to have been mandated solely on the back of providing a bilateral loan to CMB at an ultra-tight rate, potentially wearing a loss on the loan versus its own cost of funds.A banker close to the deal, however, sees it as a true reopening of the Asia ex-Yen G3 public markets, and predicted full distribution statistics following a print, which would involve a significant number of investors and a geographical/investor split typical of a public G3 issue. Books have been heard around USD150m, with a further tightening of guidance from the mid-swaps plus 300bp area likely before pricing.

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Oct 12 2011 ∞

HP expands PC sales lead, Lenovo No. 2: Gartner


Wall Street analysts had speculated a premature announcement about the potential spinoff of its largest division would drive customers away.Lenovo, aided by a laptop-sales tie-up with Japan’s NEC and aggressive marketing, expanded its market share to 13.5 percent from 11.1 percent, eclipsing Dell’s 11.6 percent.PC sales are sputtering as consumers turn increasingly to mobile devices from smartphones to tablets like Apple Inc’s iPad, while faltering economies pressure corporate spending on technology hardware.U.S. PC shipments edged up just 1.1 percent to 17.8 million units in the third quarter. While anemic, that marked the first time shipments had grown in three straight quarters. HP notably expanded its shipments by 15.1 percent in its home market.”Despite the potential spinoff of its PC business, HP executives’ efforts to give the appearance of ‘business as usual’ seemed to work,” Gartner wrote in its statement.Emerging markets — such as Lenovo’s backyard, China — remain however a rare bright spot in an otherwise gloomy outlook.”The PC industry has been performing below normal seasonality,” said Mikako Kitagawa, principal analyst at Gartner. “As expected, back-to-school PC sales were disappointing in mature markets, confirming that the consumer PC market continues to be weak. The popularity of non-PC devices, including media tablets, such as the iPad and smartphones, took consumers’ spending away from PCs.

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Oct 11 2011 ∞

Can export bans be challenged at the WTO?


    Russia’s ban on grain exports as a heat wave parches crops in the world’s third biggest wheat exporter has raised questions whether such export curbs break World Trade Organization rules. Russia is not a member of the WTO, and it remains to be seen how its new grain policy will affect its 17-year-old bid to join. But other grain exporters, such as Ukraine, which is also considering export curbs, are part of the global trade referee. WTO rules are quite clear that members cannot interfere with imports and exports in a way that disrupts trade or discriminates against other members. But in practice most WTO rules aim to stop countries blocking imports – shutting out competitor’s goods to give their own domestic producers an unfair advantage.     Saudi Arabia and other members of the oil cartel OPEC (not all of whom are members of the WTO) routinely control the production and hence export of oil to defend target prices, but have not faced challenges at the WTO. What can be challenged are restrictions on exports designed to hurt competitors. The United States, European Union and Mexico are currently suing China at the WTO over Beijing’s export duties and other restraints on raw materials. They argue that these make the raw materials more expensive for foreign competitors, putting them at a disadvantage to Chinese processors. The fact is that many WTO rules have an opt-out for national security, whether that is defence, censorship to protect public morals, special treatment of banks to protect the financial system, or food security. Article XI of the core treaty of the WTO, the General Agreement on Tariffs and Trade, says that apart from duties, taxes and similar charges, you cannot impose any bans or restrictions on imports or exports such as quotas or import or export licences. But it goes on to say: “The provisions of paragraph 1 of this Article shall not extend to the following: (a) Export prohibitions or restrictions temporarily applied to prevent or relieve critical shortages of foodstuffs or other products essential to the exporting contracting party; …” While the right of a country to protect its own food supply is unchallenged, many economists argue that export bans or other restrictions can make a global food shortage worse. That was certainly the case in the 2008 food crisis when food prices rose to record levels, triggering shortages and riots from Bangladesh to Haiti. There are fears that rising grain prices now could stoke unrest again.     A proposal in early 2008 by Japan and Switzerland to tighten rules on export restrictions in the light of rising prices drew little support from developing countries. Even inside the countries that use them, export restrictions can be unpopular and have perverse effects. Export taxes on grains imposed by the Argentine government prompted a rebellion by Argentine farmers in 2008 and have made it unprofitable for small farmers to grow corn and wheat, shrinking harvests of those crops.     Now the World Bank has called on countries to avoid policies that could precipitate a crisis – such as a food export ban. As the problem won’t be resolved at the WTO, it seems likely that the question of some kind of global “architecture” for food and agriculture will come up at next month’s United Nations conference on the Millenium Development Goals,  or at the next G20 summit in Seoul. PHOTO CREDIT: Russian grain harvest , WTO protest , Haiti demonstration , Argentine protest

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