Tuesday, August 30, 2005

Poverty Rate Rises to 12.7 Percent

By JENNIFER C. KERR The Associated PressTuesday, August 30, 2005; 11:10 AM

WASHINGTON -- The nation's poverty rate rose to 12.7 percent of the population last year, the fourth consecutive annual increase, the Census Bureau said Tuesday.

The percentage of people without health insurance did not change.

Overall, there were 37 million people living in poverty, up 1.1 million people from 2003.

Asians were the only ethnic group to show a decline in poverty _ from 11.8 percent in 2003 to 9.8 percent last year. The poverty rate among the elderly declined as well, from 10.2 percent in 2003 to 9.8 percent last year.

The last decline in overall poverty was in 2000, when 31.1 million people lived under the threshold _ 11.3 percent of the population.

The number of people without health insurance grew from 45 million to 45.8 million. At the same time, the number of people with health insurance coverage grew by 2 million last year.
Charles Nelson, an assistant division chief at the Census Bureau, said the percentage of uninsured remained steady because of an "increase in government coverage, notably Medicaid and the state children's health insurance program, that offset a decline in employment-based coverage."

The median household income, meanwhile, stood at $44,389, unchanged from 2003. Among racial and ethnic groups blacks had the lowest median income and Asians the highest. Median income refers to the point at which half of households earn more and half earn less.

Regionally, income declined only in the Midwest, down 2.8 percent to $44,657. The South was the poorest region and the Northeast and the West had the highest median incomes.

The increase in poverty came despite strong economic growth, which helped create 2.2 million jobs last year.

"I guess what happened last year was kind of similar to what happened in the early 1990s where you had a recession that was officially over and then you had several years after that of rising poverty," Nelson said. "... These numbers do reflect changes between 2003 and 2004. They don't reflect any improvements in the economy in 2005."

Sheldon Danziger, co-director of the National Poverty Center at the University of Michigan, said the poverty number is still much better than the 80s and early 90s.

"The good news is that poverty is a lot lower than it was in 1993, but we went through a hell of an economic boom," Danziger said. "Nobody is predicting we're going to go through another economic boom like that."

The poverty threshold differs by the size and makeup of a household. For instance, a family of four with two children was considered living in poverty if income was $19,157 or less. For a family of two with no children, it was $12,649. For a person 65 and over living alone, it was 9,060.

The estimates on poverty, uninsured and income are based on supplements to the bureau's Current Population Survey, and are conducted over three months, beginning in February, at about 100,000 households nationwide.

The only city with a million or more residents that exhibited a significant change in poverty level last year was New York City, which saw the rate increase from 19 percent to 20.3 percent.

____

On the Net:
Census Bureau: http://www.census.gov

Asia's Big Three Take Oil's Heat

Indonesia Seems Vulnerable But Optimism Is PrevalentOn Japan, China and India

By RON HARUI DOW JONES NEWSWIRES August 30, 2005

SINGAPORE -- Soaring oil prices could deal a blow to some Asian economies such as Indonesia, Thailand and the Philippines, but the region's biggest economies -- Japan, China and India -- should remain strong, analysts said.

The price of U.S. crude-oil futures had surged above a record $70 a barrel yesterday, as Hurricane Katrina approached New Orleans and threatened to shut for an extended period oil- and gas-producing areas in the Gulf of Mexico and Louisiana refining systems.

Stock markets weakened yesterday in Asia, the U.S. dollar initially sagged before rebounding, and bond prices rose as investors sought a haven from the surge in oil prices.

The specter of a further rise in the cost of oil instilled some caution among economists over Asia's healthy outlook. But many said it is too early to sound an alarm for the region's major economies.

"Oil, rising short-term U.S. rates and slower growth will expose fragilities in emerging markets," said Tim Condon, ING's head of research and chief economist for Asia, in a research report. "In Asia, the weakest links are the Philippines and Indonesia."

Time Is of the Essence

The question is, how long will oil prices sustain their current levels?

"If [the high oil prices are] just weather-related, the [economic] impact will be temporary rather than permanent," said Song Seng Wun, regional economist at GK Goh Research.

Mr. Song warned that Asia's economic outlook could get "interesting" if oil prices rose further and were sustained at a nominal level of $80 a barrel.

Ahead of the latest oil-price surge, economists were mostly upbeat about Asia's prospects for the rest of the year and expected a pickup in growth in the second half after a slow start.

Lehman Brothers, in a weekly report, said it forecast Asia ex-Japan growth at 6.4% in 2005 and at 6.8% in 2006. It also projects the consumer-price index for Asia ex-Japan at 2.8% this year and at 3.1% next year.

Most regional currencies tumbled following the latest oil-price jump. The Singapore dollar slipped to a new one-month low of S$1.6787 against the U.S. dollar, while the Taiwan dollar plunged to a fresh eight-month low of NT$32.473. The yen also was weaker.

In morning New York trading, the dollar was quoted at 110.54 yen, up from 110.20 yen late Friday. Asian equity markets got hammered across the board, especially in South Korea, where the Korea Composite Stock Price Index dropped 2.2%, or 23.39 points, to 1063.16.

The Weighted Price Index of the Taiwan Stock Exchange fell 87.11 points, or 1.4%, to 6049.4 -- its lowest settlement level since finishing at 6039.48 on June 2. Tokyo's benchmark Nikkei 225 Stock Average fell 1%, or 129.65 points, to 12309.83, while Hong Kong's Hang Seng Index fell 145.92 points, or 0.97%, to 14,836.97, after trading between 14,734.43 and 14,861.48. (Articles on pages M2 and M6.)

Jakarta's Jitters

While most Asian economies have coped with persistently high oil prices, Indonesia is most vulnerable as it struggles to adjust to its recently acquired status as a net oil importer and faces a speculative attack on its currency, the rupiah.

Yesterday, Indonesian share prices tumbled to their lowest level since late December 2004 in what traders said was panic selling amid the rupiah's continued losses. The Jakarta Stock Exchange's main index ended down 5.2%, or 54.104 points, to 994.77. Volume was heavy with 3.1 billion shares changing hands, valued at 2.31 trillion rupiah ($222.4 million), compared with 1.4 billion, valued at 1.2 trillion rupiah Friday. (Related article on page M2.)

Indonesia is the sole Southeast Asian member of the Organization of Petroleum Exporting Countries, but slackening investment in oil exploration and extraction has reduced the country's crude output.

Indonesian President Susilo Bambang Yudhoyono on Sunday called for greater domestic oil and gas production to help Indonesia battle rising global oil prices, which are threatening the nation's economic recovery.

Fuel subsidies aimed at protecting poor Indonesians from high prices have risen along with oil prices, putting pressure on the government's budget. Last year, it spent around $7.4 billion, or 3% of gross domestic product, on subsidies.

The rupiah hit a 3½-year low against the dollar yesterday, in part due to high demand for dollars by state-owned Pertamina oil company to fund oil imports. The rupiah traded late at 10,840 to the dollar, down from 10,400 rupiah Friday and equal to the close Nov. 6, 2001.
To a lesser extent, Thailand is sensitive to elevated oil prices because of its high inflation, though the government should be able to mitigate the potential negative impact on the economy, said GK Goh's Mr. Song.

Bank of Thailand Governor Pridiyathorn Devakula said Monday that he isn't worried about global oil prices at historic highs as the climb is likely be temporary.

In Malaysia, the government is rethinking its policy of oil subsidies in light of high global oil prices, and may cut the subsidies, according to Deputy Finance Minister Ng Yen Yen, although Malaysia's economy is relatively strong.

With refineries and rigs disrupted, oil inventory problems in the U.S. could worsen. Energy analysts now see the possibility of oil at $80 a barrel and natural gas at $15 per million British thermal unit in the wake of Katrina, a jump that could hurt the U.S. economy, and by extension, the economies in Asia that export to the U.S.

China Tangles With EU, U.S.On Textile Front

Talks Aimed at Capping Garment Exports Wind On; Too Many Wool Trousers

By MEI FONG in Hong Kong and JULIANE VON REPPERT-BISMARCK in Brussels Staff Reporters of THE WALL STREET JOURNAL
August 30, 2005; Page A9

As millions of Chinese-made garments remain stranded on European docks, China today resumes negotiations with the other huge market trying to come to grips with this year's flood of Chinese textile imports: the U.S.

Talks between the U.S. and China will restart on the heels of an inconclusive round of negotiations between Beijing and the European Union. A negotiating team from Brussels, which has been struggling to get Chinese authorities to amend an agreement they made in June, left Beijing yesterday after several days of talks.

The situation in Europe is causing widespread frustration, as some 80 million pieces of Chinese garments that exceeded the limits of the June quota agreement have piled up in European ports.

European trade chief Peter Mandelson yesterday said he will release the Chinese textiles at EU ports, but declined to give details. "I have ... set in motion procedures to unblock the goods," he said.

Negotiators are preparing a set of proposals on how to release the goods; the suggestions were to be presented to European governments yesterday, Mr. Mandelson said.

But tensions rose late yesterday among diplomats in Brussels as Mr. Mandelson's office delayed a formal proposal despite mounting pressure for a quick solution. The EU and China are holding a summit next Monday, and European and Chinese diplomats say they want the row resolved before then. Mr. Mandelson's office is holding talks with individual governments before presenting a formal proposal Friday.

China's negotiations with its chief trading partners come in the wake of a surge in its garment exports following the demise of global quotas at the end of last year, which triggered demands for fresh restraints.

Today's Sino-U.S. talks in Beijing follow a round of negotiations in San Francisco in early August aimed at capping Chinese garment exports to the U.S., which rose 47% during the first half of the year.

While the agreement Beijing and Brussels struck in June set caps of between 8% and 12.5% for import growth on 10 Chinese garment categories until 2008, the U.S. is in a position to push for stricter terms, analysts say.

According to people familiar with the matter, U.S. trade negotiators are pushing for caps on a broader range of Chinese clothing categories and for calculating import growth differently -- using a narrower base -- from the way it was done in the Sino-EU deal.

The relatively short gap between the San Francisco talks and the coming negotiations in Beijing suggests China is prepared to come to an agreement with Washington, analysts say. President Hu Jintao's visit to the U.S. in early September also is expected to improve the chances of a speedy and successful conclusion. Mr. Hu is scheduled to meet President Bush in Washington on Sept. 7.

Unlike their European counterparts, U.S. trade lobbyists have been more active in filing petitions asking Washington to impose "safeguard" quotas on imports of a variety of Chinese clothing categories. These actions have increased pressure on the Chinese to hammer out a more comprehensive agreement that would reduce sourcing uncertainties.

Additional safeguard decisions by the U.S. government are scheduled to be made tomorrow on cases covering wool trousers, sweaters, brassieres, dressing gowns, knit fabric and other synthetic filament fabric. The U.S. also has accepted for review petitions on Chinese curtains, socks, woven blouses, skirts, nightwear and swimwear, with decisions pending in the coming months.

Under China's agreement with the World Trade Organization, trading partners can implement safeguard quotas until 2008 on China's textile exports if they are shown to be disruptive to their markets.

In the case of China's exports to the EU, European negotiators have been lobbying Beijing to agree to use up part of its 2006 quota allowance to let Chinese imports be brought in, but Chinese negotiators instead are holding out for a one-time dispensation.

Yesterday, Mr. Mandelson dismissed speculation in Europe that some stores there won't be able to get needed clothing to sell. "The idea that there are likely to be shortages and shelves going empty is rather far from the truth," he said at a news conference. "Assuming the member states agree to my proposal ... the goods will be unblocked."

Write to Mei Fong at mei.fong@wsj.com and Juliane von Reppert-Bismarck at juliane.vonreppert@dowjones.com

Monday, August 29, 2005

Why Oil's Surge Hasn't Damped Global Growth


Prices, Interest Rates Stay Low, While Property Boom Keeps Consumers Spending


By BHUSHAN BAHREE Staff Reporters of THE WALL STREET JOURNALAugust 29, 2005; Page A1

The near-doubling of oil prices -- to $70 in the past 24 months -- has had surprisingly little impact on the pace of global growth, as other broad economic factors have helped damp the damage inflicted by previous oil-price shocks.

The global real-estate boom and a flood of cheap goods from Asia have enabled consumers, particularly in the U.S., to continue spending despite higher energy prices. The bond market has kept long-term interest rates low, providing a stimulus to the economy that has offset some of the restraint that sharply higher oil prices usually produce. And the Federal Reserve and other major central banks, enjoying the credibility that comes with their success in keeping inflation low, have held short-term lending rates relatively low, in sharp contrast with the oil shocks of the 1970s and 1980s.

Moreover, in contrast with past episodes, this surge in oil prices stems more from global economic vigor -- the strong demand for oil from China and the U.S. -- rather than producers' manipulative tightening of supply or fears about Middle East conflicts disrupting supply.

"The cost of continuing economic growth will be rising oil prices," says Philip Verleger Jr., an oil economist and senior fellow at the Institute for International Economics in Washington. Oil prices may well rise to $100 a barrel, but that alone wouldn't trigger a recession, Mr. Verleger says. The rise in oil prices "ends when the global real-estate bubble bursts."

While crude oil-prices recorded another record in nominal terms last night, the record in inflation-adjusted terms would be over $90 in April 1980. Energy futures spiked Sunday evening, as traders got a chance to react to the new and dire course charted by Hurricane Katrina. In overnight electronic trading on the New York Mercantile Exchange, October crude-oil futures opened up more than $4 from Friday's close of $66.13, topping $70 a barrel for the first time.

The oil industry Sunday braced for severe damage reports from Hurricane Katrina as the storm moved through the heart of the U.S. Gulf Coast oil-production and -refining system yesterday.
Any major supply disruption, whether from Katrina or another quarter, could quickly turn the present oil crunch from relatively benign to nasty if even higher prices force consumers and companies to curtail other spending to pay energy bills. That is a particular concern in the U.S., where consumers have drawn down their savings substantially and there are signs that the housing boom, which has helped stoke consumer spending, may be cooling off.

The price of oil has been rising for two well-known reasons: Supplies are constrained after years of underinvestment, and demand is booming as fast-growing nations gulp ever-more fuel. The puzzle for economists has been why the price increase hasn't done more to slow growth.

orecasts for economic output remain upbeat, with global gross domestic product on track to expand 4.3% this year, down from 5.1% last year, the fastest rate in a generation, according to International Monetary Fund data.

Oil-price spikes can hurt the economy by acting as a tax on consumption, forcing people to spend less on other goods, and by raising the costs and crimping the profits of companies. But on both fronts, broader economic forces have been offsetting the oil shock.

Global competition has helped keep inflation in check. Nearly one-third of the 3.2% increase in U.S. inflation in the past year, as measured by the consumer-price index, has been due to rises in energy prices, including gasoline, natural gas and heating oil, according to Bureau of Labor Statistics data.

Cheaper imported goods are replacing American ones or forcing U.S. manufacturers to hold down their prices. Imported goods from the Pacific Rim countries, which account for one-third of all U.S. imports, have fallen in price by 0.2% since December 2003, according to data from the Bureau of Labor Statistics.

Oil prices aren't boosting wage inflation either. In the oil shocks of a generation ago, companies indexed workers' earnings to inflation and doled out raises amid the rising oil prices.

"Global labor markets are keeping wages under control," says Joseph Quinlan, chief market strategist for Bank of America. But he adds that inflation is an increasing risk. The Fed targets core inflation, which strips out energy and food prices, and is now running at slightly over 2%, the top end of the Fed's comfort zone.

What's more, the wealth effect of the boom in housing prices alone has enabled many U.S. households to pay for pricier energy and continue spending more on everything else -- from clothing and cars to vacations. This year, at least, that trend is expected to continue.

In 2004, Americans extracted $140 billion from their homes in "cash out" mortgage-refinancing deals, in which they borrowed against the equity built up in their homes. Mortgage-finance company Freddie Mac expects them to draw an additional $162 billion this year through cash-out refinancing. Capital gains on home sales and booming home-equity loans have been additional financial resources for many households.

Gasoline consumption in the U.S. rose 1.6% in the latest four-week period from a year ago, even though prices at the pump were up 73 cents a gallon, or 39%, on the year. U.S. households spent about $276 billion on gasoline and oil on an annualized basis in the second quarter, nearly $76 billion more than two years ago, according to data compiled by the U.S. Bureau of Economic Analysis. But Americans also spent $41 billion more on clothing and shoes in the latest quarter compared with two years ago, not to mention tens of billions of dollars of additional outlays on furniture, health care and recreation.

The bigger energy bill is painful, of course -- but not enough to hobble the economy. Fed Chairman Alan Greenspan said in a speech in May that the rise in the value of imported oil -- essentially a tax on U.S. residents -- amounted to about three-quarters of a percent of GDP. "But, obviously, the risk of more serious negative consequences would intensify if oil prices were to move materially higher," Mr. Greenspan said.

Oil prices are now $16.30 a barrel above their May levels. Although the U.S. economy in 2004 was more than twice the size it was in 1979, the Energy Department says the nation consumed only 9% more petroleum, primarily because it has become more energy-efficient.

On Friday, Mr. Greenspan suggested he isn't very worried by the rise in energy prices: "The flexibility of our market-driven economy has allowed us, thus far, to weather reasonably well the steep rise in spot and futures prices for crude oil and natural gas that we have experienced over the past two years." But he also warned that the recent rise of stock and house prices reflects greater willingness by investors to accept risk, leaving markets vulnerable to an "onset of consumer caution."

The Department of Energy's rule of thumb suggests oil prices haven't risen high enough to cause recession. "Every 100% increase in the price of oil sustained over a year can reduce [U.S.] GDP growth by one point from what it would have been," says Nasir Khilji, an economist at the DOE's Energy Information Administration. Oil prices have risen by about 84% during the past two years, comparing the average price in the second quarter this year with the same quarter in 2003.

Also limiting the fallout has been the slow unfolding, over 2½ years, of this oil shock, which has allowed central bankers and consumers to manage the blow. In 1973-74 and 1979-80, prices tripled in just weeks or months after supplies were cut.

The sudden jumps in the 1970s came amid already high levels of inflation, and provoked quick and sizable interest-rate increases by central banks fearful of a runaway wage-price spiral. Officials at the Fed and other central banks have studied those shocks closely, and many have concluded that the sky-high interest rates were the primary cause of the recessions that followed.

After the first oil crisis in 1973, the U.S. federal-funds rates peaked at 13% in May 1974, up from 5.75%. As the Iranian revolution unfolded some years later and oil prices soared again, the federal-funds rate went from 6.5% at the start of 1978 to a peak of 20% in May 1981. Severe recessions ensued both times.

This time, amid the lowest rates of inflation in decades, the Fed kept trimming its funds rate until it reached a 46-year low of 1% in June 2003. It has been gradually raising the rate since June last year, with the latest increase in August bringing it up to 3.5% in a trend that is widely expected to continue.

Instead of oil prices driving monetary policy, policy may now be driving oil prices. "The Fed overstimulated the economy in 2002 and 2003," says James Hamilton, a professor of economics at the University of California at San Diego. "That had nothing to do with oil prices." But one consequence of the overheated economy was a rise in oil use and its price. Now, the ratcheting-up of short-term interest rates may result in a slowdown in the next six to nine months, Mr. Hamilton says.

KPMG to Pay $456 Million In Settlement on Tax Shelters

By JONATHAN WEIL Staff Reporter of THE WALL STREET JOURNALAugust 27, 2005 4:09 p.m.; Page C1

In a crucial step toward ensuring KPMG LLP's survival, the U.S.'s fourth-largest accounting firm signed a settlement agreement with prosecutors Friday under which it will pay $456 million in penalties, admit to fraudulent conduct in connection with past tax-shelter sales and avoid a criminal indictment, according to people familiar with the matter.

An indictment would have meant almost certain death for KPMG, as it did in 2002 for Arthur Andersen LLP, whose obstruction-of-justice conviction was overturned this year. Still, KPMG faces numerous challenges ahead, including a heavy caseload of civil lawsuits by former tax-shelter clients who could benefit from the firm's admissions.

Under the agreement, KPMG admitted that the tax strategy called "Bond Linked Issue Premium Structure," or Blips, was a fraudulent tax shelter, according to a person familiar with the agreement. It also admitted that the firm engaged in fraudulent conduct in connection with its promotion of the shelters known as Flip and Opis, which stand for "Foreign Leveraged Investment Program" and "Offshore Portfolio Investment Strategy," respectively.

But it stopped short of admitting that Flip and Opis on their face were fraudulent shelters, this person said. KPMG sold the shelters to wealthy Americans who used them to generate billions of dollars in false tax losses, the government said previously. KPMG sold the tax shelters from 1996 through 2002.

The terms of KPMG's so-called deferred-prosecution agreement, which would remain in effect through Dec. 31, 2006, are expected to be announced Monday at a court hearing scheduled in federal court in Manhattan, a person familiar with the matter said. KPMG would pay the $456 million in penalties in installments over the next 16 months.

As part of the agreement, the government plans to file a criminal information against the firm listing a single count of conspiracy to defraud the U.S. government, this person said. Importantly, this person said, the government's accusations will not include a charge of obstruction of justice. This person explained that KPMG considered this to be a vital concession because it feared its audit clients might not be able to stand by KPMG if it admitted to obstructing government investigations.

Under the terms of the agreement reached Friday, the government will not prosecute KPMG on the fraud count so long as the firm complies with all the agreement's conditions.

Additionally, as previously reported, KPMG agreed to the appointment of an independent monitor selected by the Justice Department, former Securities and Exchange Commission Chairman Richard Breeden.

In a statement Saturday, KPMG's chief outside counsel, Robert Bennett said: "I am confident under the new leadership that KPMG will not only survive but will flourish." Mr. Bennett, a partner at the Washington law firm Skadden, Arps, Slate, Meagher & Flom LLP, and his firm were hired by KPMG in late 2003, midway through the government's tax-shelter investigation, amid government complaints that the accounting firm wasn't complying with the government's demands for information.

Other conditions in the agreement include a requirement that KPMG continue to cooperate with federal prosecutors' ongoing tax-shelter investigations, which are focusing on the actions of numerous bankers, tax attorneys and accountants. KPMG also agreed to a series of new restrictions on its tax practice, including a ban on marketing and selling prepackaged tax strategies.

The size of the penalties and the 16-month term of the deferred-prosecution agreement were reported today by the New York Times.

In a related agreement, the Internal Revenue Service will forgo seeking further penalties against KPMG over any tax shelters that previously had been the subject of IRS investigations, so long as the firm continues to cooperate with the government and meet certain other conditions, according to a person familiar with the matter. The IRS's original requests for information from KPMG in 2002 sought records pertaining to Blips, Flip and Opis, as well as numerous other types of KPMG tax shelters, most of which KPMG sold to large corporations, including audit clients.

Separately, the government is expected to unveil its first wave of indictments next week against a number of former KPMG partners on fraud and conspiracy charges in connection with the firm's past sales of tax shelters. There could be additional indictments against former KPMG personnel and others in the coming months, people familiar with the investigation said, because the government's probe is continuing.

Hong Kong Moves to Stop Leaks Of Analysts' Pre-IPO Research

By KATE LINEBAUGH Staff Reporters of THE WALL STREET JOURNAL August 29, 2005

HONG KONG -- In an effort to prevent research reports published ahead of Hong Kong initial public stock offerings from landing in the hands of individual investors, regulators are giving the market a choice: Stop writing them or face sanctions.

Neither option is apt to appeal to underwriters, which argue that such "predeal research" is vital to finding an acceptable offering price for the billions of dollars of stock issuance that flows into Hong Kong's market, especially from opaque Chinese companies.

At the same time, information in those reports sometimes is published by the city's media, raising concerns that individual investors could be making decisions based on analysts' projections rather than on a company's legal document, the prospectus.

While any decision is unlikely until next year, the move to set distribution regulations highlights how financial-market regulators world-wide are grappling with rules for research dissemination three years after the landmark settlements between U.S. regulators and securities firms over abuses.

The debate is notable in Hong Kong, an attractive listing venue for huge Chinese offerings when arduous regulations in the U.S. have deterred some foreign companies from listing there. For instance, China Construction Bank, the country's third-biggest bank by assets, is seeking to raise $5 billion in an IPO in Hong Kong expected in October and won't be listing its shares in the U.S.
Hong Kong's market regulator today will present proposals to enhance investor protection, including how to handle predeal research, according to people close to the regulator.

What Hong Kong's Securities and Futures Commission will suggest, they said, is either to ban all written predeal research, as the U.S. does, or to continue to allow the distribution of the reports to institutional investors but with one caveat: If information from the reports makes its way into the news media, the entire report will have to be made public by the underwriter. The company that is offering shares also will have to make a statement about the report in its prospectus. Companies now don't have to comment on analysts' forecasts.

The SFC, as the regulator is known, will give the market about three months to respond to policy recommendations. It will make a decision next year.

Because such pre-IPO reports are generated by analysts at the underwriters, who have exclusive access to the companies, they can contain insights and often are the most comprehensive information available to investors until the prospectus is issued a few weeks later. In many cases, such reports offer the analysts' own profit projections. But they also tend to be upbeat about a company's prospects.

As the SFC can't stop the media from publishing, it is trying to find the most effective way to restrict that information from getting into the pages of Hong Kong newspapers and onto TV financial shows.

Many bankers who work on IPOs say predeal research is essential to finding an acceptable price. In Hong Kong, information about many of the companies that are listing shares often is limited. Analysts from the underwriters, given privileged access to the companies, crunch the numbers to create a valuation profile and comparison of companies globally that helps bankers open price discussions with their institutional clients.

At the same time, when the research hits the news pages, it creates a legal to-and-fro between the underwriter and the regulator that an outright ban would eliminate. It is a headache many bankers who work on these transactions say their business would be better without.

Each market has a different policy. The U.S., Japan and Canada have imposed an outright ban on predeal research. In Europe, regulators allow it and on big privatization deals that target small investors, some underwriters have done reports aimed at the retail market. Singapore's regulators have eased rules so some predeal research on international listings can be distributed to the city-state's professional investors.

Saturday, August 27, 2005

Greenspan's Remarks

August 26, 2005

Reflections on central banking At a symposium sponsored by the Federal Reserve Bank of Kansas City, Jackson Hole, Wyoming, August 26, 2005.

* * *

In the spirit of this conference, I asked myself what developments in the past eighteen years -- both in the economy and in the economics profession--were most important in changing the way we at the Federal Reserve have approached and implemented monetary policy.

The Federal Reserve System was created in 1913 to counter the recurrent credit stringencies that had so frequently been experienced in earlier decades. As lender of last resort, we had a mandate that, at least viewed from today's perspective, was limited. We did not engage in Systemwide open market operations until the 1920s. And as recently as the 1950s, the framework within which those open market operations were formulated was still being developed. Credit was eased when the economy weakened and tightened when inflation threatened, but largely in an ad hoc manner. As a consequence, the Federal Reserve was perceived by some as often accentuating, rather than damping, cycles in prices and activity.

Importantly, however, the surge in prices that followed the removal of wage and price controls after World War II and again after the Korean War kept monetary policymakers wary of the threat of inflation.

But concern that the monetary restraint of the 1950s had led to unnecessarily high unemployment persuaded the Federal Open Market Committee to adopt a more stimulative policy stance in the mid-1960s. Those actions appear to have been predicated, in part, on an acceptance of the then-prevalent view that a long-term tradeoff existed between inflation and unemployment.

Subsequently, however, the experience of stagflation in the 1970s and intellectual advances in understanding the importance of expectations--which built on the earlier work of Friedman and Phelps--undermined the notion of a long-run tradeoff. Inflation again became widely viewed as being detrimental to financial stability and macroeconomic performance. And as the decade progressed, a keener appreciation for the monetary roots of inflation emerged both in the profession at large and at central banks. Indeed, the insights from the work of Friedman and Schwartz a decade earlier gained greater prominence in the realm of practical policy.

These events, both economic and intellectual, significantly influenced the tool kits employed by macroeconomists inside and outside policymaking institutions. The large-scale macromodels that had been the focus of so much work in the 1960s came under attack on two fronts.

Most prominently, greater recognition of the importance of expectations suggested that those models, which for the most part incorporated autoregressive expectations, were excessively reduced-form and backward-looking in nature and thus insensitive to changes in economic structure and the policy process. In addition, some researchers observed that simple time-series models often produced better forecasts than the large macromodels of that period.

One prescription was to focus on uncovering, at a more fundamental level, the structural parameters of the economy. Needless to say, this task has proven to be a very tall order that has yet to be filled. Partly in response to these difficulties, a substantial body of research focused on improvements in empirical modeling, such as vector autoregressions for forecasting, and in some cases, for policy analysis.

Each one of these approaches has proven useful, and their descendants are currently employed in various forms in central banks throughout the world. But as yet, none of these approaches is capable of addressing the full range of policymakers' needs.

At various points in time, some analysts have held out hope that a single indicator variable -- such as commodity prices, the yield curve, nominal income, and of course, the monetary aggregates -- could be used to reliably guide the conduct of monetary policy. If it were the case that an indicator variable or a relatively simple equation could extract the essence of key economic relationships from an exceedingly complex and dynamic real world, then broader issues of economic causality could be set aside, and the tools of policy could be directed at fostering a path for this variable consistent with the attainment of the ultimate policy objective.

M1 was the focus of policy for a brief period in the late 1970s and early 1980s. That episode proved key to breaking the inflation spiral that had developed over the 1970s, but policymakers soon came to question the viability over the longer haul of targeting the monetary aggregates.

The relationships of the monetary aggregates to income and prices were eroded significantly over the course of the 1980s and into the early 1990s by financial deregulation, innovation, and globalization. For example, the previously stable relationship of M2 to nominal gross domestic product and the opportunity cost of holding M2 deposits underwent a major structural shift in the early 1990s because of the increasing prevalence of competing forms of intermediation and financial instruments.

In the absence of a single variable, or at most a few, that can serve as a reliable guide, policymakers have been forced to fall back on an approach that entails the interpretation of the full range of economic and financial data. Policy is implemented through nominal and, implicitly, real short-term interest rates. However, reflecting the progress in economic understanding, our actions are now better informed about the pitfalls associated with relying on nominal interest rates to set policy and the important role played by inflation expectations in gauging the stance of monetary policy.

Our appreciation of the importance of expectations has also shaped our increasing transparency about policy actions and their rationale. We have moved toward greater transparency at a "measured pace" in part because we were concerned about potential feedback on the policy process and about being misinterpreted -- as indeed we were from time to time. I do not intend this brief and necessarily incomplete review of events to illustrate how far we have come or to despair of how far we have to go. Rather, I believe it demonstrates the inevitable and ongoing uncertainty faced by policymakers.

Despite extensive efforts to capture and quantify what we perceive as the key macroeconomic relationships, our knowledge about many critical linkages is far from complete and, in all likelihood, will remain so. Every model, no matter how detailed or how well conceived, designed, and implemented, is a vastly simplified representation of the world, with all of the intricacies we experience on a day-to-day basis.

Formal models are a necessary, but not sufficient, system of analysis. To be sure, models discipline forecasts by requiring, among many restraints, that identities are indeed equal, inventories non-negative, and marginal propensities to consume positive. But we all temper the outputs of our models and test their results against the ongoing evaluations of a whole array of observations that we do not capture in either the data input or the structure of our models. We are particularly sensitive to observations that appear inconsistent with the causal relationships of our formal models. Tentative revisions of that structure are reflected in our add factors.

Given our inevitably incomplete knowledge about key structural aspects of an ever-changing economy and the sometimes asymmetric costs or benefits of particular outcomes, the paradigm on which we have settled has come to involve, at its core, crucial elements of risk management.

In this approach, a central bank needs to consider not only the most likely future path for the economy but also the distribution of possible outcomes about that path. The decisionmakers then need to reach a judgment about the probabilities, costs, and benefits of various possible outcomes under alternative choices for policy.

The risk-management approach has gained greater traction as a consequence of the step-up in globalization and the technological changes of the 1990s, which found us adjusting to events without the comfort of relevant history to guide us. Forecasts of change in the global economic structure -- for that is what we are now required to construct -- can usefully be described only in probabalistic terms. In other words, point forecasts need to be supplemented by a clear understanding of the nature and magnitude of the risks that surround them.

In effect, we strive to construct a spectrum of forecasts from which, at least conceptually, specific policy action is determined through the tradeoffs implied by a loss-function. In the summer of 2003, for example, the Federal Open Market Committee viewed as very small the probability that the then-gradual decline in inflation would accelerate into a more consequential deflation. But because the implications for the economy were so dire should that scenario play out, we chose to counter it with unusually low interest rates.

The product of a low-probability event and a potentially severe outcome was judged a more serious threat to economic performance than the higher inflation that might ensue in the more probable scenario.

Moreover, the risk of a sizable jump in inflation seemed limited at the time, largely because increased productivity growth was resulting in only modest advances in unit labor costs and because heightened competition, driven by globalization, was limiting employers' ability to pass through those cost increases into prices. Given the potentially severe consequences of deflation, the expected benefits of the unusual policy action were judged to outweigh its expected costs.

* * *

The structure of our economy will doubtless change in the years ahead. In particular, our analysis of economic developments almost surely will need to deal in greater detail with balance sheet considerations than was the case in the earlier decades of the postwar period. The determination of global economic activity in recent years has been influenced importantly by capital gains on various types of assets, and the liabilities that finance them. Our forecasts and hence policy are becoming increasingly driven by asset price changes.

The steep rise in the ratio of household net worth to disposable income in the mid-1990s, after a half-century of stability, is a case in point. Although the ratio fell with the collapse of equity prices in 2000, it has rebounded noticeably over the past couple of years, reflecting the rise in the prices of equities and houses.

Whether the currently elevated level of the wealth-to-income ratio will be sustained in the longer run remains to be seen. But arguably, the growing stability of the world economy over the past decade may have encouraged investors to accept increasingly lower levels of compensation for risk. They are exhibiting a seeming willingness to project stability and commit over an ever more extended time horizon.

The lowered risk premiums -- the apparent consequence of a long period of economic stability -- coupled with greater productivity growth have propelled asset prices higher. The rising prices of stocks, bonds and, more recently, of homes, have engendered a large increase in the market value of claims which, when converted to cash, are a source of purchasing power. Financial intermediaries, of course, routinely convert capital gains in stocks, bonds, and homes into cash for businesses and households to facilitate purchase transactions. The conversions have been markedly facilitated by the financial innovation that has greatly reduced the cost of such transactions.

Thus, this vast increase in the market value of asset claims is in part the indirect result of investors accepting lower compensation for risk. Such an increase in market value is too often viewed by market participants as structural and permanent. To some extent, those higher values may be reflecting the increased flexibility and resilience of our economy. But what they perceive as newly abundant liquidity can readily disappear. Any onset of increased investor caution elevates risk premiums and, as a consequence, lowers asset values and promotes the liquidation of the debt that supported higher prices. This is the reason that history has not dealt kindly with the aftermath of protracted periods of low risk premiums.

* * *

Broad economic forces are continuously at work, shaping the environment in which the Federal Reserve makes monetary policy. In recent years, the U.S. economy has prospered notably from the increase in productivity growth that began in the mid-1990s and the enhanced competition engendered by globalization. Innovation, spurred by competition, has nurtured the continual scrapping of old technologies to make way for the new. Standards of living have risen because depreciation and other cash flows generated by industries employing older, increasingly obsolescent technologies have been reinvested to finance newly produced capital assets that embody cutting-edge technologies.

But there is also no doubt that this transition to the new high-tech economy, of which expanding global trade is a part, is proving difficult for a segment of our workforce that interfaces day by day with our rapidly changing capital stock. This difficulty is most evident in the increased fear of job-skill obsolescence that has induced significant numbers of our population to resist the competitive pressures inherent in globalization from workers in the major newly emerging market economies. It is important that these understandable fears be addressed through education and training and not by restraining the competitive forces that are so essential to overall rising standards of living of the great majority of our population. A fear of the changes necessary for economic progress is all too evident in the current stymieing of international trade negotiations. Fear of change is also reflected in a hesitancy to face up to the difficult choices that will be required to resolve our looming fiscal problems.

The developing protectionism regarding trade and our reluctance to place fiscal policy on a more sustainable path are threatening what may well be our most valued policy asset: the increased flexibility of our economy, which has fostered our extraordinary resilience to shocks. If we can maintain an adequate degree of flexibility, some of America's economic imbalances, most notably the large current account deficit and the housing boom, can be rectified by adjustments in prices, interest rates, and exchange rates rather than through more-wrenching changes in output, incomes, and employment.

The more flexible an economy, the greater its ability to self-correct in response to inevitable, often unanticipated, disturbances. That process of correction limits the size and the consequences of cyclical imbalances. Enhanced flexibility provides the advantage of allowing the economy to adjust automatically, reducing the reliance on the actions of monetary and other policymakers, which have often come too late or been misguided.

In fact, the performance of the U.S. economy in recent years, despite shocks that in the past would have surely produced marked economic contraction, offers the clearest evidence that we have benefited from an enhanced resilience and flexibility.

We weathered a decline on October 19, 1987 of a fifth of the market value of U.S. equities with little evidence of subsequent macroeconomic stress--an episode that provided an early hint that adjustment dynamics might be changing. The credit crunch of the early 1990s and the bursting of the stock market bubble in 2000 were absorbed with the shallowest recessions in the post-World War II period. And the economic fallout from the tragic events of September 11, 2001, was limited by market forces, with severe economic weakness evident for only a few weeks.

Most recently, the flexibility of our market-driven economy has allowed us, thus far, to weather reasonably well the steep rise in spot and futures prices for crude oil and natural gas that we have experienced over the past two years.

* * *

This morning I have tried to outline my perceptions of the key developments that have influenced the conduct of monetary policy over the past eighteen years. I acknowledge that monetary policy itself has been an important contributor to the decline in inflation and inflation expectations over the past quarter-century. Indeed, the Federal Reserve under Paul Volcker's leadership starting in 1979 did the very heavy lifting against inflation. The major contribution of the Federal Reserve to fashioning the events of the past decade or so, I believe, was to recognize that the U.S. and global economies were evolving in profound ways and to calibrate inflation-containing policies to gain most effectively from those changes.

For reasons that may not be too obscure, I will pay close attention to, and hope to learn from, the deliberations of the next couple of days. I have been asked to make a few closing remarks tomorrow about some of the unresolved challenges facing policymakers in the year ahead and about my experiences living inside the Federal Reserve for nearly two decades, after so many years of observing our institution from afar.

Sinopec Shanghai Petrochemical Issues Warning on Second Half

By ARIES POON DOW JONES NEWSWIRESAugust 26, 2005 4:27 a.m.

HONG KONG -- Sinopec Shanghai Petrochemical Co., China's largest ethylene producer by capacity, said higher oil prices and slower demand for petrochemical products will cut profit for the industry in the second half of this year.

The company gave its forecast after reporting a 16% rise in first-half net profit to 1.76 billion yuan ($217.4 million), as sales growth offset high oil costs. The average pretax selling price of the group's major products, such as intermediate petrochemicals and synthetic fibers, rose between 14% and 36% from a year earlier, on strong demand for petrochemical products.

"Given the surge in oil costs and the slowdown of domestic demand for petrochemical products in the second half of 2005, ... the industry's profitability level will significantly decline," Chairman Rong Guangdao said in a statement.

Mr. Rong said the excess demand for petrochemical products in China will subside in the second half, with large ethylene projects recently set up in Shanghai and Nanjing. Ethylene is used in the manufacture of plastics.

In the first half, Shanghai Petrochemical's diesel output rose 18% to 1.6 million tons, and its jet fuel output rose 9.2% to 360,900 tons. Gasoline output, however, fell 12% to 417,700 tons. The company didn't provide a reason for the decline.

The company said revenue in the first half rose 23% to 21.89 billion yuan from 17.78 billion yuan. It processed 4.78 million tons of crude oil in the period, 5.5% more than a year earlier. Its weighted-average cost of crude oil rose 35% from a year earlier to 2,875.79 yuan per ton.

"While crude-oil costs continue on its upward trend, margins for chemicals are still being squeezed despite a recent price rebound," Citigroup said, the group has put the petrochemical company stock on "hold".

Goldman Sachs, however, said the company "should remain a beneficiary of China's oil-product pricing reform longer term." Goldman Sachs has a "neutral" rating on the stock.

Shanghai Petrochemical, which processes crude oil into a range of petroleum products, is a listed unit of Asia's largest refiner by capacity, China Petroleum & Chemical Corp., also known as Sinopec.

Its sister firm, Sinopec Zhenhai Refining & Chemical Co., said Friday its first-half net profit fell 1.2% from the year-earlier period to 1.26 billion yuan as high oil prices squeezed its refinery margins.

Understanding the Greenspan Standard

Friday, August 26, 2005; 2:42 PM

The papers presented at the Federal Reserve Bank of Kansas City's economic symposium today and Saturday are expected to be available to the public on the bank's Web site (www.kc.frb.org) Monday. Until then, here is a summary by Washington Post economics reporter Nell Henderson of one of the main papers:

* "Understanding the Greenspan Standard," by Alan S. Blinder and Ricardo Reis of Princeton University. This paper was well-received by many symposium participants today. It highlights Alan Greenspan's most notable contributions to central bank policy during his 18 years as Fed chairman.

The paper focuses on the lessons learned from the "Greenspan Era," summarizing them in 10 main principles that could be followed by his successors. They include:

-- Keep your options open.
-- Do not let yourself get caught in an intellectual straitjacket.
-- Avoid policy reversals.
-- Forecasts, although necessary, are unreliable.
-- Most oil shocks should not cause recessions.
-- Do not try to burst bubbles; mop up after.

The authors say in the paper that they are not focusing on grading Greenspan's performance, but conclude that "when the score is toted up, we think he has a legitimate claim to being the greatest central banker who ever lived."

That said, the authors include some interesting criticisms: "We question the wisdom of a central bank head taking public positions on political issues unrelated to [Fed] policy. And we ask whether the extreme personalization of monetary policy under Greenspan has undercut his ability to pass any 'capital' on to his successor and/or has undermined the presumed advantages of making [Fed] policy by committee."

And for all Greenspan's significant progress in making the Fed more communicative-- by announcing and explaining its actions, providing guidance about the likely course of future actions and releasing the minutes of policymakers' meetings more quickly-- "the Greenspan Fed has been more of a laggard than a leader among central banks" in this area.

Greenspan Cites Economic Risks For Consumers

Warns Higher Long-Term Rates Could Reverse Housing, Stock Gains

By Nell Henderson Washington Post Staff Writer Saturday, August 27, 2005; Page A01

Remarks by Federal Reserve Chairman Alan Greenspan
Paper: Understanding the Greenspan Standard

JACKSON HOLE, Wyo., Aug. 26 -- Federal Reserve Chairman Alan Greenspan warned Friday that recent gains in U.S. home prices, stock values and other forms of wealth may be temporary and could easily erode if long-term interest rates rise.

Households and businesses have been able to spend more by transforming houses, stock and other assets into cash, he noted. But Americans should not assume that such good times will roll on forever.

The Federal Reserve Bank of Kansas City's annual Economic Symposium in Jackson Hole, Wyo., is an invitation-only event that draws central bankers, analysts and economists to debate policy issues facing the U.S. and world economies.

"What they perceive as newly abundant [cash] can readily disappear," Greenspan said.

His words followed statements the Fed chief has made in recent months that housing prices in some markets have risen to unsustainable levels and that individuals are taking on increasingly risky mortgages. But Greenspan's comments Friday represent a broader warning, with the Fed chief indicating he believes much of the run-up in housing and stock prices over the past decade has been due to low long-term interest rates, which could rise if global financial conditions shift.
"History has not dealt kindly" with those who underestimate such risks, Greenspan said in remarks delivered at the opening of an economic conference here focused on his 18 years as Fed chief.

Stock prices fell in trading Friday after Greenspan suggested that the value of such assets may be headed lower in the future. Financial markets have responded to Greenspan's warnings in the past, only to shrug them off subsequently. In 1996, he famously warned that "irrational exuberance" might be pumping up stock prices; stocks fell briefly only to climb almost continuously for the following three years.

At the conference's opening session Friday, Greenspan was lauded by current and former colleagues and other analysts for his performance and wisdom as Fed chief. "When the score is toted up, we think he has a legitimate claim to being the greatest central banker who ever lived," wrote former Fed vice chairman Alan S. Blinder and Ricardo Reis, both Princeton University economists, in a paper presented Friday.

The Fed has been raising its benchmark short-term rate for more than a year and has signaled that it probably will keep lifting it in the months to come to keep the lid on inflation. But the Federal Reserve does not set long-term rates, such as those that determine mortgage rates and corporate borrowing costs. Those are affected by international financial markets in response to many factors.

Long-term interest rates remain very low, in part because inflation has remained tame outside of energy costs. Overseas investors have been pouring money into U.S. stocks and bonds, helping dampen long-term rates. But Greenspan said low long-term rates also reflect investors' belief that the U.S. economy is so healthy that there is little risk in lending money here.

Thus, lenders set rates lower because they demand a lower "risk premium," Greenspan said.
"This vast increase in the market value of [stocks, bonds, houses and other assets] is in part the indirect result of investors accepting lower compensation for risk," Greenspan said. "Such an increase in market value is too often viewed by [investors] as structural and permanent."

But we live in an ever-changing economy and an uncertain world, the Fed chief emphasized. Investors could easily get spooked, become more cautious, boost interest rates, and thereby deflate the values of homes and financial assets, he said.

Greenspan said earlier this year that investors are not necessarily irrational in expecting economic waters to stay calm. In Greenspan's nearly two decades at the Fed, other speakers Friday noted, inflation has fallen very low and the economy has enjoyed its longest peacetime expansion with just two mild recessions. This experience contrasted dramatically with the turmoil of the 1970s and 1980s, when inflation and interest rates soared and the nation experienced the deepest downturns since the Great Depression.

Speaking explicitly about the economy, but also implicitly about his tenure as Fed chairman, Greenspan said that since 1987 the nation has survived two sharp stock market declines and the Sept. 11, 2001, terrorist attacks. He also said the economy has so far managed "to weather reasonably well the steep rise" in energy prices over the past two years.

Greenspan acknowledged that Fed policy has been "an important contributor to the decline in inflation and inflation expectations" over that period. But he credited the Fed under his predecessor Paul A. Volcker for doing "the very heavy lifting against inflation." Volcker, who served as Fed chairman from 1979 to 1987, pushed interest rates to double-digit levels to break inflation and start driving it downward, contributing to a severe recession in the early 1980s.

In addition, Greenspan said one of the Fed's major accomplishments in recent years was its willingness "to recognize that the U.S. and global economies were evolving in profound ways" and to tailor the central bank's inflation-fighting strategies accordingly.

But Greenspan attributed the economy's resilience primarily to increased "flexibility" -- his term for the freedom of U.S. financial markets to respond to sudden events through changes in prices, interest rates and exchange rates. That contrasts with the U.S. price controls and heavier regulation of many industries in the early 1970s and with other governments' restrictions on their own markets and industries today.

"To some extent, those higher [house, stock and other asset] values may be reflecting the increased flexibility and resilience of our economy," he said.

These qualities also mean that the nation's housing boom and outsized trade deficit need not be solved through deep downturns in economic growth or employment, he said. "The more flexible an economy, the greater its ability to self-correct in response to inevitable, often unanticipated disturbances."

Friday, August 26, 2005

解讀《2004中國房地產金融報告》

易憲容

  8月15日,央行《2004年中國房地產金融報告》公佈後,房地產市場的大佬們紛紛發表言論,以示自己對《報告》的解讀,有人甚至替代央行來解釋《報告》是什麼而不是什麼。可見,業界對房地產市場並無信心,十分擔心有人道出市場的真相而讓民眾了解之。

我的看法是,該《報告》是央行站在銀行業的角度,利用其數據獲得的優勢,基本上客觀、專業地對國內房地產市場做出了最全面、最坦率、權威的評價,並在此基礎上對房地產市場的風險提出了防範政策建議。

數據獲得的困難使不少機構的研究偏於一角,而一些既得利益集團更是在用一些研究報告來混淆視聽,因此市場與民眾無法真正了解國內房地產市場現狀、變化及未來發展,也就無法根據有效的資訊作出正確的購房決策。而《報告》對房地產市場一些問題分析較為深刻,比如對國內房地產金融的風險分析就有理有據,其中對房地產開發貸款及個人住房消費信貸不良貸款率的分析、對房地產開發隱性債務的分析,都切中目前國內房地產金融的問題所在。而由此引申出房地產金融暗藏六大風險:“部分房地產市場過熱加劇市場風險、基層銀行發放房地產貸款存在操作風險、房地產貸款的法律風險、土地開發貸款的信用風險、‘假按揭’的道德風險、高負債經營隱含財務風險”等,為房地產市場和銀行再一次敲響了警鐘。

當然,《報告》中對有些問題的認識還較為表面化,也有不少值得商榷的地方。

從這幾年房地產市場發展情況來看,國內房地產市場的繁榮完全是個人住房消費信貸產品創新的結果。2002年以來,居民個人購房貸款餘額直線上升,到2005年一季度,其增長速度都保持在30%以上。與發達國家相比,這樣快的增長速度是不可思議的,而且個人住房信貸完全集中在商業銀行也是問題不少。《報告》不僅沒有看到這點,反而認為我國居民個人住房貸款的規模與西方發達國家相比仍偏小(如居民個人住房貸款佔GDP的比例,中國為11.7%,而英國60%、德國47%等),未來增長潛力巨大。

從目前中國住房的持有率來看,已經超過不少發達國家達到81%(美國僅67%、德國更低),但個人住房信貸消費的規模及比例為什麼會這樣低呢?最大的問題就在於國內住房商品化僅是這幾年的事情。國內居民所持有的住房80%以上計劃分配之結果。在計劃條件下所獲得的住房是根本不需要透過銀行貸款的方式獲得,那麼這些住房的信貸規模如何擴大呢?也就是說,兩者是完全不可比的數據,放在一起容易誤導市場。如果就25-35歲的居民個人住房信貸消費規模比較,得出的結論可能會更現實可信些。

此外,《報告》中以目前個人住房按揭不良率低而斷言居民按揭貸款是商業銀行的黃金資產,對此本文亦不敢茍同。因為,目前個人住房按揭貸款啟動只有幾年,而這種個人房地產消費信貸貸款時間一般都在十年、二十年、甚至三十年以上,其不良率及風險短期內根本無法反映出來。特別是中國房地產市場及市場經濟剛剛起步,根本就沒有走出過一個像樣的週期。如果中國經濟出現週期性的變化,不僅國內房地產市場必然會出現週期性變化,而且民眾就業、民眾的可支配收入都可能出現週期性的變化。特別是在中國信用制度十分脆弱同時又不完善的情況,一旦這種市場經濟週期的系統性風險出現,銀行所面臨的風險可能比我們的想像得要大得多。

《報告》指出,很多市場風險和交易問題都源於商品房新房的預售制度,目前經營良好的房地產商已經積累了一定的實力,可以考慮取消現行的房屋預售制度,改期房銷售為現房銷售。對此,國內房地產商一片譁然,紛紛指責。

該建議之所以會引起如此強烈的反映,關鍵是房地產開發商與地方政府輕易地聚集社會財富的方式已為央行所發覺並建議改進。最為重要的目的是從現代商業銀行的角度來規避房地產市場之風險。早些時候有人說房地產市場已經把銀行捆綁上了,一榮俱榮,一敗俱敗。既然房屋預售制度不利於房地產市場發展,不利於銀行規避風險,央行建議取消也是理所當然了。

房地產開發商和一些地方政府之所以極力反對,就在於如果取消該制度,可能會讓他們失去獲得暴利機會。試想,一些人即使身無分文,但一進入房地產市場,就能夠在短期內牟取暴利,關鍵就是利用這種制度之缺陷“空手套白狼”,透過這種銀行金融杠桿之工具,套取銀行的資金為其牟取暴利。在這種情況下,如果獲得暴利就歸個人,如果一旦市場出現風險,就容易轉嫁給銀行。而最後來承擔銀行風險的,當然是整個社會廣大民眾了。

有地方官員說,房屋預售制度不會取消,因為這個制度並非是銀行說了算。當然,在一種非市場的環境下特別是計劃經濟下,銀行如何作為完全是聽任政府政策之擺布,但是在市場條件下,銀行運作也是這樣嗎?特別是目前國內四大國有銀行在大張旗鼓地進行股份制度時。作為現代銀行的一種商業行為,是否採取哪一种經營方式完全是銀行的事情,如何來規避風險根本不需要其他地方政府來指手劃腳。

住房預售制度是香港人的一種發明,它能夠順利發展,最為重要有一個完善的法律體系、健全的信用市場及嚴密的房地產市場監管制度,如果不是這樣,房屋預售制度肯定會面臨著巨大風險。由於這個制度巨大的風險的存在,在歐美發達的市場體制下,幾乎都沒有房屋預售制,即使有也是在嚴格監管制度下得以存在。在中國目前的條件下,這項制度基本上成消費者利益隨時會受到傷害、房地產開發商獲得暴利、而銀行來承擔風險的不平等遊戲規則,因此這樣的制度早該廢黜了。對於這樣的制度即使是有所立法,也應該是一種惡法。

《報告》中提倡節約使用住房的消費理念是目前房地產市場一個全新觀念。它與當前七部委調整住房結構的精神一脈相承。但《報告》要引導以中小戶型為主的住房消費,並把這種住房消費看作是節能、環保、省地、長期可持續、降低銀行信貸風險的基礎。本文認為這種提法十分具體有新意。它不僅反映了中國的國情,也與政府提出的建立和諧社會科學發展觀相合。因為,就目前中國的土地資源、金融資源及民眾的可支配收入水準來看,這種節約性住房消費理念是中國住房市場真正能夠持續穩定發展的核心。在這樣的消費理念下,不僅可以從根本上來調整扭曲的商品房供應結構,緩解住房供求的矛盾,而且可以讓更多的民眾買得起房、住得起房,真正滿足絕大多數民眾的基本居住需求。

至於城鎮廉租住房的建設,政府要發展,但並不是最為重要的方面。這種制度所受惠的人口只能在10%比例內,而國內絕大多數民眾住房需求就得是以中小戶型為主的節約型住房消費。最近,有人說中國住房價格與中低收入民眾無關,這不知道是哪個星球來的邏輯,連美國政府住房政策都是以提供以安全、民眾能夠負擔得起的住房為核心,難道我們的政府就不如美國政府從大眾出發嗎?所以,我十分贊成《報告》所提出的住房消費觀念。

最後,《報告》就防範房地產風險提出相應的改進措施。如加強利率風險管理、規範房貸操作風險、完善住房置業擔保制度、房貸保險制度等,這些方面都有新意地方。比如新個人住房消費利率體系建立,不僅可以讓民眾在自由選擇條件下選擇最適合自己的信貸產品,也有利於民眾對個人信貸產品選擇承擔責任。

總之,《報告》對國內房地產持續發展具有十分的指導意義,但由於《報告》涉及既得利益,相關部門一定要明辨是非,不要重蹈央行121文件的舊轍。

259家上市公司發佈三季度預報 近4成公司將虧損

2005年08月25日 14:33:09  來源:證券日報

目前有不少公司都在中期報告中預告第三季度業績。截至2005年8月24日,滬深兩市已經有1050家上市公司公佈半年報,其中,深市460家,滬市590家。在已公佈半年報的公司中,有158家公司對三季度業績進行了預告,另外又有101家公司透過公告發佈了業績預告。259家公司預告顯示,上市公司三季度業績不容樂觀,有38%的公司預計出現虧損,有15%的公司預計凈利潤下降。

截止8月24日,有70家公司預計今年三季度業績大幅增長,10家公司業績持平,38家公司凈利潤將大幅下降,可能扭虧或實現微利的有43家,另有98家公司預計虧損,首虧和續虧分別為49家、49家,且包括18家ST公司。可見,預虧公司已經超過預增公司的40%。

從中期的業績來觀察這些預虧公司,僅道博股份、ST酒花兩公司中期盈利,其餘49家公司均有不同幅度的虧損。方向光電、ST精密、錦州石化三公司中期每股收益分別為-0.906元、-0.817元和-0.784元,名列中期虧損前三甲。

特別值得指出的是,有11家ST公司,即ST廣夏、ST猴王、ST嘉瑞、ST精密、ST聯誼、ST雲大、ST四通、ST酒花、ST黑龍、ST化工、ST昌源,目前均已達兩年虧損,三季度繼續預虧。若這11家公司2005年報仍報虧,將面臨暫停上市的風險。

對於三季度業績預增公司來講,陽光股份、浙江醫藥、山西三維、中華企業四公司比較突出。

透過對預憂公司分析發現,上市公司三季度業績預憂原因可謂是五花八門。值得注意的是,人民幣升值的影響首次出現在上市公司報表中。

其一,成本上升。國際油價的持續上漲使國內石油加工行業的利潤呈直線下降趨勢。錦州石化進入2005年後經營形勢便急轉直下,公司在第二季度虧損近5.5個億。石煉化、天發石油在可預計的情況下,1-9月份仍將出現較大幅度的虧損。

其二,大股東佔款。方向光電半年報披露,截止2005年6月30日,公司第一大股東——瀋陽北泰方向集團公司及其關聯企業佔用公司資金餘額為18425.22萬元非經營性佔用,佔最近一期經審計凈資產值的40.5%。

其三,投資未能收回。ST酒花雖然上半年扭虧為盈,但預計1-9月仍虧損。截至2005年6月30日,ST酒花委託理財事項尚有2030萬元本金未收回。由於業務所涉及的單位新疆金新信託投資股份有限公司目前處於停業整頓狀態,預計投資收回的可能性不大。

其四,宏觀調控影響。多家公司業績顯示受到宏觀調控影響。天倫置業就表示,今年前三季度將不會產生房地產銷售收入,所以預計今年第三季度公司業績與去年同期相比將下滑50%-70%。

其五,行業拖累。在國產手機市場份額不斷下滑的情況下,國內手機企業本來已經攤薄的利潤受到嚴重打擊,TCL集團、ST托普、波導股份、夏新電子、中科健……一些以手機為主要利潤來源的上市公司紛紛發出上半年業績預虧公告。另外,紡織行業依然處於困境之中,化纖業利潤受到擠壓,相關公司損失慘重。

其六,人民幣升值。白貓股份稱,中期首虧的原因是,受人民幣升值影響,預計下一報告期因匯兌損益公司利潤額將減少人民幣約51萬元。

溫家寶主持國務院會 總結今年經濟體制改革工作


2005-08-25 09:53:18  來源:新華網

溫家寶主持召開國務院常務會議 總結今年以來經濟體制改革工作 研究部署深化改革的重點任務 (溫家寶活動報道集)

新華網北京8月24日電 國務院總理溫家寶24日主持召開國務院常務會議,總結今年以來經濟體制改革工作,研究部署深化改革的重點任務。

會議聽取了國家發改委關於今年以來貫徹落實《國務院關於2005年深化經濟體制改革的意見》情況的彙報。會議認為,今年以來,經濟社會發展總體形勢是好的,經濟運行繼續朝著宏觀調控的預期方向發展。

根據黨中央、國務院的部署,各地區、各部門積極推進經濟體制改革,取得重要進展,特別是一些多年醞釀的重點領域和關鍵環節的改革有所突破。農村稅費改革進入新階段,國有企業股份制改革和國有資產管理體制改革不斷深化,非公有制經濟發展的體制和政策環境進一步改善,金融體制改革力度加大,財稅、投資、流通、對外開放體制改革穩步推進,科技、教育、文化和衛生體制改革有了新進展,政府行政管理體制改革繼續深入。改革的推進對於鞏固和發展宏觀調控成果、保持經濟社會發展的好形勢,起了重要作用。

會議提出,各地區、各部門要繼續貫徹黨中央、國務院對今後一個時期改革工作的部署,抓住宏觀調控取得積極成效、經濟保持平穩較快發展的有利時機,加大改革力度,重點推動四個方面的改革。

(一)繼續推進涉及經濟結構調整和增長方式轉變的改革。針對經濟結構不合理、經營粗放,某些行業和領域建設過度擴張,高耗能、高耗材、高污染、低效益等問題,從體制、機制上採取有力的改革措施,為落實科學發展觀、轉變增長方式提供體制機制保障。

(二)繼續推進涉及政府職能轉變的改革。政府不該管的事要堅決交給企業、仲介組織和市場;政府該管的事一定要管好。國務院有關部門要更加注重宏觀管理,既要使企業成為投資的主體,又要加強對全社會投資活動的指導、調控和監管,防止盲目投資和重復建設。

(三)繼續推進涉及維護人民群眾根本利益的改革。尤其要做好就業、社會保障、教育、醫療、扶貧、環保、安全生產等方面的改革工作。

(四)繼續推進涉及對外開放的改革。完善涉外經濟管理體制,做好加入世貿組織後過渡期的各項工作,妥善應對貿易摩擦,改善貿易結構,優化投資環境,提高利用外資水準。各方面的改革都要著眼於體制機制創新和制度建設。

會議要求,各地區、各部門要進一步加強對改革工作的領導。要切實把深化改革擺在突出重要位置,堅持以改革為動力推進各項工作;進一步做好已確定改革任務的組織協調工作,做到有佈置,有檢查,注重實效;處理好改革發展穩定的關係,妥善處理改革中的各種矛盾,保持社會穩定和諧,為經濟平穩較快增長和改革開放創造良好的環境。(完)

中國經濟形勢:下半年中國經濟基本面不會改變

新華社5日播發文章《全面正確認識當前中國經濟形勢》。文章認為,目前經濟領域的一些結構性問題日益突出,但下半年經濟基本面不會改變。

Rents Head Up as Home Prices Put Off Buyers


August 25, 2005
By DAVID LEONHARDT

Rents are rising again across the country, squeezing tenants who are already coping with high gasoline prices and improving returns to landlords after a deep five-year slump.

The turnaround appears to be another sign that the boom in house prices and sales is finally slowing, as homes have become so expensive in many metropolitan areas that some people have decided to rent instead.

A government report yesterday also offered new evidence that the housing boom could be reaching a peak. The median price of a newly built home fell to $203,800 in July from $219,500 in June, after having risen in the winter and spring, the Commerce Department said.

Still, the number of new homes that were sold continued to grow, and economists cautioned that the recent housing slowdown could turn out to be a pause.

But rents have clearly changed direction, even if the increases have been relatively small. With the economy growing and mortgage rates inching up, more people are looking to rent apartments and homes rather than buy them. At the same time, many buildings are being turned into condominiums, reducing the supply of rental property.

"It seems like the tide has finally turned," said Michael H. Zaransky, co-chief executive of Prime Property Investors, which owns 15 buildings in Chicago.

Rents in about 85 percent of large metropolitan areas have climbed in the last year, according to Global Real Analytics, a research company in San Francisco. Late in 2003, rents were falling in 85 percent of markets.

Only in the hottest markets like New York, Southern California and South Florida have average rents been rising generally.

In Chicago, people who moved into a small brick building on the leafy corner of Sherwin Avenue and Paulina Street two years ago had it very good. They did not have to put down a security deposit, the $50 application fee was waived and, best of all, they got to live rent-free for two months.

By last summer, the enticements had shrunk to one month of free rent. Today, all that a new tenant receives for signing an $1,100-a-month lease are the keys to the front door.

Throughout the South, in cities like Atlanta and Charlotte, N.C., fewer apartments are empty, building managers say. Nationwide, the vacancy rate for rentals fell to 9.8 percent in the second quarter after having climbed early in 2004 to 10.4 percent, the highest level since the Census Bureau began keeping statistics in 1956.

Even in Northern California - where average rents dropped about 25 percent after the dot-com crash, according to RealFacts, a research firm there - prices have reversed direction. "I'm appalled at the rents and what they are asking in relation to what they are giving," said Shari West, 47, who lives with her 13-year-old daughter and has been looking for a two-bedroom house in Castro Valley, about 25 miles east of San Francisco. "You're not getting what you pay for."

The apartments she has seen cost almost $1,800 a month, about $100 or $200 more than they did when she briefly looked last summer, she recalled. The buildings still offering concessions, like a month's free rent or a reduced security deposit, are in neighborhoods where Ms. West said she did not want to live.

In most places, the rent increases have been smaller than the ones Ms. West found - smaller in fact than inflation in the rest of the economy. The average rent nationwide rose 2.5 percent from the spring of 2004 to this spring. It had fallen 4.5 percent from 2001 to 2003, according to Global Real Analytics.

Outside the San Francisco Bay Area, many of the biggest declines occurred in cities like Dallas, Denver and Memphis, where abundant land and light regulation allowed home builders to put up thousands of new houses. Rents have continued to drop in those cities over the last year. But they have begun rising in metropolitan areas including Seattle, Las Vegas, Phoenix, Kansas City, Cleveland, Philadelphia and Washington.

"It seems to us that the market bottomed last year," said V. James Marfuggi, chief operating officer of EPT Management in El Paso, which owns 70 properties around the country. "This will be the first year that concessions have not increased."

Some apartment owners have raised the effective rent on their apartments by cutting back on concessions while keeping the announced monthly rent roughly the same. On North Bosworth Avenue in Chicago, the rent for a two-bedroom apartment in a building near the elevated transit line has increased only slightly in the last year, but the landlord is no longer offering a free month to new tenants.

Other landlords have become pickier about which tenants they accept, no longer signing leases with those who have spotty credit records or who must stretch to afford the rent, said Paul Magyar, director of leasing at Chicago Apartment Finders, a listing service.

The surge in condominium conversions is also helping to push up rents by taking rental buildings off the market. Looking at weak rents and high sales prices, many owners have decided that their buildings are not worth keeping.

Still, the market remains worse for landlords and better for renters than in much of the last two decades, in large part because home sales remain healthy. Mortgage rates are low, and many people are using creative loans that hold down their initial payments, like interest-only mortgages, to become first-time home buyers.

The number of existing homes sold in July rose 4.7 percent compared with July 2004, the National Association of Realtors said this week. But the pace of sales slowed from June to July, according to the trade group, which adjusts its numbers to account for normal seasonal variations.

"The bottom line is housing is not plunging and it's not soaring," said James O'Sullivan, an economist at the investment bank UBS. "There are signs that housing is peaking, but there is no evidence that housing is weakening sharply."

Chris R. Howard, a 28-year-old computer technician at the University of Chicago, has suffered the consequences of rising rents, but he is about to become one reason that the profits of rental companies remain weak. In the spring, the rent on the two-bedroom apartment Mr. Howard shares with his girlfriend increased to $1,000 from $975. "They didn't give any real justification," he said, "other than the rent was low and it needed to be raised."

In October, though, he plans to move to an apartment near the university that they are planning to buy. They could not afford anything in their neighborhood, Ravenswood, but their new apartment on the South Side will be almost twice as big as their current one.

Mr. Howard said they were able to buy the place because mortgage rates were still extremely low.

Carolyn Marshall, in San Francisco, and Vikas Bajaj, in New York, contributed reporting for this article.

New Data, New Record In a Housing Market That Defies Predictions



By Sandra Fleishman Washington Post Staff Writer Thursday, August 25, 2005; D01

So which direction is the housing market headed in, anyway?

On Tuesday, some analysts said the boom was definitively going south, based on a report from the National Association of Realtors that sales of existing homes slipped 2.6 percent from June to July.

Yesterday, however, the Commerce Department reported that new-home sales hit a record high in July, up 6.5 percent from June. That sent some pontificators the opposite way, saying the boom lives on.

What's going on? Is a housing "bubble" about to burst or not?

Some who have been predicting a gradual slowing of the robust housing market rather than a dramatic pop say they remain upbeat because mortgage rates are holding steady and because July's dip in existing-home sales was small and its jump in new-home sales strong.

The doomsday talk about Tuesday's numbers was "laughable," said Mark Vitner, vice president and economist with Wachovia Securities. "The drop was not even statistically significant. Next month, we may find out that sales [of existing homes in July] were actually up."

Analysts who have been seeing darker clouds ahead, however, say the reports do not allay their fears. They cite not only the drop in sales of previously owned homes but also data showing an increase in inventory of such homes, to the highest level since 2003, and a 5 percent drop in sales of condos.

And they note that the Commerce Department yesterday found that median sales prices of new homes had fallen for the third time in a row, to the lowest since December 2003.

Dean Baker of the District-based Center for Economic and Policy Research, who predicted a stock market collapse in 1997, three years before it hit, said the contradictory numbers do not reassure him. "I still make the same analogy with the stock market," he said. "I saw the bubble for technology and I saw that it would come, I just couldn't say when it would happen. . . . If you ask me when it will happen for housing, I can't tell you either."

He said, "If we get a big jump in interest rates . . . that would probably very quickly put a damper on the housing market. If mortgage rates stay more or less where they are, my guess is that it will take longer."

Part of the uncertainty lies in the numbers themselves.

The Commerce Department, for instance, extrapolates how many new homes are sold by sampling each region each month on the number of purchase contracts signed.

The Realtors data lag behind the Commerce data. The group adds up settlements on existing homes each month for houses that went under contract a month or two earlier.

On top of that, there are some anomalies within the data.

Even the chief economist for the National Association of Home Builders, David F. Seiders, said he does not believe the Commerce Department's new-homes numbers for July because they are so at odds with other estimates and with the builders' surveys of its members.

July's report "is probably a non-credible number," Seiders said. "I am taking these . . . numbers with a grain of salt and pleading for more time to understand what's going on."

In particular, the estimate that new-home sales jumped 36 percent in the West is "an outlandish number," Seiders said.

Nationally, Seiders was "expecting a modest decline" in July.

Seiders did not challenge the Commerce estimate that July sales dipped 3.5 percent in the South, which includes the Washington area, and 13.5 percent in the Midwest. Sales rose 10.1 percent in the Northeast, the Commerce Department said.

"I don't want to suggest that the market isn't strong," Seiders said, "but in the context of other information for the month, I don't see it performing" at a record level.

The housing market is "truly flattening," he said. "Whether we are starting to erode or not is hard to tell, but we could be on the edge of the market starting to lose some ground."

Wachovia's Vitner disagrees. "Everybody is just itching to pull the trigger and say that the housing bubble has just burst, but my contention is that there is no housing bubble, there's just been a mismatch between supply and demand." In past months, he said, prices climbed because builders could not meet demand, but the newest numbers, showing more sales and lower prices, indicate that builders have been able to step up production.

With a "better balance between supply and demand," Vitner predicted that there would be "more modest gains in prices in the latter part of this year and throughout 2006."

The Commerce report said the median price of a new home dropped 7.2 percent, to $203,800 in July from $219,500 in June and was 4 percent below a year ago. The sales price was the lowest since December 2003, when it stood at $196,000.

Baker said the new-homes total for the West appears to be "an anomaly" and if it is in error, the government's estimate that inventory of new homes is declining would also be wrong.

He sees "a creeping, gradual weakening of the market."

But Baker said that before he draws any conclusions about the market, he would have to "see the data go in the same direction two months in a row."

He said, "If it does that, it's probably real."

Thursday, August 25, 2005

Common in China, Kickbacks Create Trouble for U.S. Companies at Home

By Peter S. Goodman Washington Post Foreign Service Monday, August 22, 2005; A01

SHANGHAI -- For multinational companies grappling with stagnant sales, China has become a magnet for investment and a huge potential market beckoning with growth. Yet the lure of China profits combined with pervasive local corruption is tempting foreign companies and managers and bringing them into conflict with U.S. anti-bribery laws.

In interviews, China-based executives, sales agents and distributors for nine U.S. multinational companies acknowledged that their firms routinely win sales by paying what could be considered bribes or kickbacks -- often in the form of extravagant entertainment and travel expenses -- to purchasing agents at government offices and state-owned businesses.

The sources, who spoke on condition of anonymity for fear of jeopardizing their businesses, said such payments are usually funneled through distribution companies or public-relations firms to minimize the chance of prosecution by the Justice Department and the Securities and Exchange Commission, which enforce the U.S. Foreign Corrupt Practices Act.

"It's normal industry practice," said a salesperson at a unit of a major U.S.-based technology company with a substantial retail presence in China.

American business leaders often describe their China operations idealistically, suggesting that their presence here will compel Chinese competitors to adopt more ethical business practices. But in one key regard, the dynamic operates in reverse, with U.S. companies adopting Chinese-style tactics to secure sales, as they compete in a market in which Communist Party officials routinely control businesses, and purchasing agents consider kickbacks part of their salary.

Managers of U.S. companies say they are caught in a dilemma: They are answerable to shareholders on Wall Street and home offices that demand a piece of an increasingly lucrative Chinese market. Yet they are also held to account at home by the Department of Justice and the SEC.

"It's a different market, and you can face unrealistic expectations," said Kathryn L. Buer, who said she was fired last year as head of Asia-Pacific operations for Datastream Systems Inc. after she unearthed problems with how the South Carolina software company had been booking sales in China.

Buer recently settled a whistleblower lawsuit she filed against Datastream following her termination. Last month, the Nasdaq stock market delisted Datastream shares after the company failed to file earnings reports on time.

Zhu Jianhua, Datastream's interim China manager from May to July of 2004, said the company had booked revenue after signing contracts without actually delivering goods. Sales agents also used liberal entertainment funds to win business. In one instance, he said, his staff had arranged to fly a buyer to the United States for training, tacking on a tour of New York. "I stopped it," he said. "That's not right."

Datastream President C. Alex Estevez said he would not comment on personnel matters. "Datastream has a strong interest in developing business throughout Asia and the Pacific Rim, including China," Estevez said. "In doing so, we intend to use proper and legal means."

Fueling the aggressive play is the growing recognition that China -- long a graveyard for the dreams of foreign investors -- is finally yielding profit.

"Companies are seeing some of their fastest growth in China, and it's profitable growth," said Kristin J. Forbes, a former member of the White House Council of Economic Advisers and now a professor at MIT's Sloan School of Management.

Writing last year in the China Economic Quarterly, journalist Joe Studwell called 2003 "the best year in at least a century for making money in China." Studwell, author of "The China Dream" and an articulate skeptic of business prospects in China, crunched data filed by mainland China and Hong Kong affiliates of U.S. publicly traded companies, concluding that their China earnings rose from $1.9 billion in 1999 to $4.4 billion in 2003.

But just as the late-1990s technology bubble in the United States fostered a free-money and rule-bending mentality, a series of corruption cases involving U.S.-based multinationals underscores the pressures managers face to make good on the Chinese bonanza.

In December, the Justice Department announced that InVision Technologies, a California-based manufacturer of airport security screening systems, had agreed to pay an $800,000 penalty as part of a settlement after admitting that its distributors in China, Thailand and the Philippines had bribed government officials to gain sales.

In a separate settlement with the SEC filed in February, InVision -- since acquired by General Electric Co. -- paid a $500,000 penalty and surrendered $589,000 in profits. According to the SEC settlement document, in April 2004 InVision paid $95,000 to a Chinese distributor even though it knew of a "high probability" that the agent would use some of this money to pay for foreign travel for government officials to complete the sale of some $2.8 million in security equipment for a state-controlled airport in the southern city of Guangzhou.

In May, the SEC resolved a case against Diagnostic Products Corp., a Los Angeles-based medical equipment firm, with the firm surrendering $2 million in profits. The SEC charged that between 1991 and 2002 the company's Chinese subsidiary, DePu Biotechnological & Medical Products Inc., handed out $1.6 million in bribes to doctors and other workers at state-owned Chinese hospitals to generate business.

The payouts "were made with the knowledge and approval of senior officers of DePu," the SEC said in a notice of enforcement proceedings. DePu's office in Tianjin did not respond to calls.
In March, Chinese media reported that the head of state-owned China Construction Bank, Zhang Enzhao, had been detained on corruption charges. He remains under investigation and house arrest.

A lawsuit filed in Monterey County, Calif., alleges that Zhang and his associates took $1 million in bribes disguised as consulting fees from a U.S.-software company, Alltel Information Services, while also accepting a golf outing to Pebble Beach. In exchange, Alltel Information Services, then a division of Alltel Corp., walked away with contracts worth $176 million from the bank, the lawsuit claims. The suit was filed by Grace & Digital Information Technology Co. Ltd., a Chinese company that asserts its own contract for the bank's software business was breached because of the bribes.

In a reply filed in federal court in San Jose, Jim N. Wilson, former executive with Alltel Information Services -- since purchased by Fidelity National Financial Inc. and renamed Fidelity Information Systems -- dismissed the allegations of bribery as "completely false." In an SEC filing on Aug. 9, Alltel Corp. said the SEC had opened an informal inquiry into the matter. Alltel did not respond to requests for comment about the SEC probe.

Last year, Lucent Technologies Inc., the giant telecommunications firm, sacked its China president and chief operating officer along with a marketing executive and finance officer after what the company described as "internal control deficiencies" that could violate the Foreign Corrupt Practices Act.

Chinese media reported that the executives were found by internal auditors to have bribed officials at state-owned telecommunications companies. Lucent declined to furnish details, asserting that it is cooperating with federal investigators.

The sources at U.S. companies and Chinese distribution firms said the Lucent case was hardly unusual. Most companies that engage in such practices limit their exposure to prosecution by cutting intermediary firms into their sales, leaving it to distributors to close the deal, the sources said.

But using middlemen as conduits for payments does not insulate U.S. and U.S.-listed companies against American anti-corruption statutes, said Patrick M. Norton, managing partner of the Beijing office of the law firm O'Melveny & Myers LLP.

The Foreign Corrupt Practices Act's anti-bribery provisions, which carry criminal penalties of up to five years in prison for individuals and fines reaching $2 million for companies, specifies that "U.S. persons" are forbidden from paying or offering to pay "anything of value" to a "foreign official" with a "corrupt purpose" of gaining business. Norton said the Justice Department has been interpreting the statute to include bribes paid by foreign companies and agents on behalf of U.S. companies.

"Willful ignorance is not a defense," Norton wrote in the journal China Law & Practice last year. "U.S. businesses in China are responsible under the FCPA for ensuring that their agents do not do indirectly what the U.S. businesses are prohibited from doing directly."

Nevertheless, such behavior appears common. "What happened at Lucent is happening at all the big tech companies," said a senior manager at a distribution company that sells products for Hewlett-Packard Co. He said H-P cuts his company in as a means of lubricating deals without handling the money directly.

"This happens 90 percent of the time on H-P's Unix business," the distributor said. "The bosses at H-P know the situation."

In a written statement, H-P said it uses distribution companies "to effectively expand coverage" across China, adding that the company operates "in a legal and ethical manner around the world."

"We are unaware of any specific examples of inappropriate behavior by our partners at this time," the statement continued. "Should proof be provided to the contrary we will clarify and pursue the matter, and follow up with appropriate action."

Most kickbacks are handled as rebates that land in a communal fund inside the government agency or company responsible for the purchase, to avoid making individuals vulnerable to corruption charges, sources said.

"The fund is for the department's use," said a former executive for a major U.S. technology company. "It pays for vacations to Las Vegas and Hong Kong, visits to hostess bars, gifts for spouses. Everybody knows about this."

Staff Researcher Richard Drezen in New York and Special Correspondents Eva Woo and Jason Cai in Shanghai contributed to this report.

China Deals Can Pose Accounting ConflictsRadvision

-Control Tech Dispute Reveals Potential Problems That Can Develop

By Peter S. Goodman Washington Post Foreign Service Monday, August 22, 2005; A13

SHANGHAI -- It began as a joint venture aimed at capturing customers in China, the world's largest potential market for pretty much everything.

Radvision Ltd., an Israeli company whose stock trades on the Nasdaq Stock Market, had the products -- sophisticated videoconferencing equipment. Beijing Control Tech had the relationships with purchasing agents at government ministries and state-owned companies, which make up more than three-fourths of the market for such goods in the People's Republic of China.

But as Control Tech tells the story, the relationship soon devolved into a crude arrangement that could bring Radvision into conflict with the accounting rules that govern in the United States, where its stock rises and falls with its earnings. Nearly every quarter, Radvision pressured Control Tech to buy more gear even as unsold inventories mounted. Twice, these end-of-quarter sales allowed Radvision to meet its earnings targets, Control Tech executives said.

Radvision's general counsel, Arnold Taragin, issued a blanket denial, characterizing the company's dispute with Control Tech as simply a commercial relationship gone awry. "We do not negotiate commercial disputes in public," Taragin said by phone from Israel. "If Control Tech wants to do something, they can call me or they can sue us."

As China continues its relentless development, attracting more than $100 billion in foreign investment in the past two years alone, business is becoming a larger slice of overall revenue for many multinational firms. But as the Radvision case illustrates, the appeal of China profits may be compelling some managers for American and U.S.-listed companies to test the limits of acceptable bookkeeping, risking conflict with the Securities and Exchange Commission.

Two years ago, Radvision -- which has offices in Israel, New Jersey, the United Kingdom and Hong Kong -- gave Control Tech the exclusive rights to sell its high-end videoconferencing system in China.

According to Control Tech's general manager, this mutually beneficial arrangement changed late last year when Radvision brought in a new Asia-Pacific general manager, Eitan Livne.

Lean, fit and in his thirties, Livne was known to wear casual attire at business meetings, once showing up to negotiate a purchase in blue jeans and a black T-shirt, recalled Carrie Hartwick, president of Hartcourt Cos., which purchased Control Tech in February. The first time she met him, she was struck by what she termed Livne's "wheeler dealer" style.

"He told me that he had lived in China for six or seven years and he knew how to play the China game," Hartwick recalled. "He said 'In China, a contract means nothing. I can sign any contract you want, but at the end of the day we can do what we want.' I was shocked that an executive at a U.S.-listed company could so totally deviate from the expected level of corporate practice."

Reached by telephone in Hong Kong, Livne denied that account. "Nothing like this ever happened," he said, before asking for a list of written questions to which he did not respond.
According to Ren Qi, general manager of Beijing Control Tech, in December Livne flew to Beijing to press Control Tech for an end-of-year order. They met in a conference room at Radvision's China headquarters.

Ren says he demurred, because Control Tech was already sitting on more than $2 million in unsold equipment. Ren told Livne that he could only buy another $500,000, he said.

"First, he asked me for a favor," Ren said. "Then he said that if I didn't agree to the order, Radvision wouldn't do business with us anymore."

Ren took the threat seriously, he said, because Control Tech was already worried that Radvision was seeking other distributors in China. Control Tech was trained in selling Radvision's gear and had been sinking $250,000 a year into marketing its products.

"We agreed," Ren said. "We had no choice."

In exchange for the $800,000 order, Ren said Livne made a verbal promise that Control Tech would remain Radvision's sole China distributor.

In early February, Radvision chief executive Gadi Tamari told Wall Street analysts that 2004 had been "a record year for our company," according to a transcript of the firm's quarterly conference call. When analysts asked about China, Tamari said, "China remains our largest market overall in Asia-Pacific." He added: "We still have a very good relationship with Control Tech."

In March, with the end of another quarter approaching, Livne returned to Beijing, Ren said, this time accompanied by Radvision's chief executive.

"At first, they were very polite, very discreet," Ren said. "But then they were desperate. They said, 'If you want to continue the relationship, you have to give us $600,000 for the first quarter and $5.1 million for the year.'"

Radvision's chief executive did not return phone calls.

Ren again reluctantly assented, he said. Control Tech placed the order on March 18 via a Chinese import agent, according to the purchasing document. But on March 28, Taragin, Radvision's general counsel, issued a letter to Control Tech: "Your rights to represent Radvision will terminate immediately as of the date of this letter."

"They blatantly lied to me," Ren said.

Reached by phone in Israel, Taragin said Radvision ended its relationship with Control Tech because of the Chinese company's "substantial and material breaches of the contract," declining to offer specifics. Since then, he said, Control Tech has neither returned Radvision's corporate seal nor relinquished rights to the Radvision name on its Web site.

On March 31, three days after it cut ties with Control Tech, Radvision shipped the $600,000 worth of gear from Tel Aviv to Shanghai, according to an air waybill.

Hartwick said she figures Radvision wanted to book the revenue from the shipment to achieve its sales target, but then make it impossible for Control Tech to actually sell the gear so it could open up new channels with other local agents. Today, the Radvision gear sits in boxes in a warehouse in Shanghai. Control Tech has repeatedly pressed Radvision to take it back and refund its money but has been refused, Hartwick said.

Without the rights to represent Radvision, Control Tech maintains that it cannot sell its inventory -- particularly as Radvision has been telling customers that any goods brought into China by unauthorized firms should be considered "illegal imports," according to a letter issued by Radvision's China office.

Two former SEC enforcement branch lawyers said the timing of these transactions raises legal questions, suggesting that Radvision may not be able to book the sale as revenue.

The SEC often considers unusual end-of-quarter transactions as "highly suspicious," said Jason P. Lee, a former commission attorney who co-chairs the Securities Enforcement Defense Group at Shartsis Friese LLP in San Francisco.

Taragin dismissed as "ridiculous" suggestions of impropriety. "If the SEC feels they have a problem," he said, "they know how to contact me."

Without the $600,000 deal, Radvision's revenue would have come in at $15.7 million -- $300,000 below forecasts -- according to the company's earnings statement. On April 20, Radvision declared that its first-quarter revenue had "exceeded the company's forecast," reaching $16.3 million.

In a conference that day with Wall Street analysts, Tamari, Radvision's chief executive, again highlighted strong sales in China.

"China remained our largest market in Asia-Pacific," he said. "This Asia-Pacific market, which is obviously a very promising market in the world, is doing well for us."

In June, with the end of another quarter in sight, Tamari and Livne flew back to China and tried to settle matters with Hartwick.

They met in a hotel bar near Radvision's office, Hartwick recalled. Livne made a plea for another order, she said.

"He said that if we would give him another order for $1.2 million, we could go back to how things were before," Hartwick said.

Hartwick refused. On July 19, Radvision disappointed the market, announcing earnings of $17.5 million -- less than its forecast of $18 million.