Super Ads XLIV

2 ads I loved from Super Bowl weekend (which unfortunately turns into a Manic Monday in otherwise perfect Singapore) -

The Economist : Chinese Banking System’s True Workings Are Hidden In Maze Of Secrecy

FROM being a rounding error a decade ago, the financial clout of China now trails only that of America.  By market capitalisation, it has three of the four largest banks, the two largest insurance companies, the second-largest stockmarket and a lengthening list of investment funds.  Yet who makes the decisions in China is barely understood.  The government and the Communist Party are intimately entwined with the managers of China’s financial institutions.  Working out who is really in charge is almost impossible.  Even attempting to do so takes you into sensitive territory.  Disclosing information about how the Chinese government works risks violating nebulous secrecy laws or sacrificing business opportunities.  Many China-watchers will only speak face to face, concerned about using e-mails or phone calls to discuss what, in the West, would be standard chatter about the status of bankers and their supervisors.

Almost all of the credit for Chinese companies is raised through its commercial banks.  The country’s bank chiefs are powerful men whose careers have been meticulously managed.  But none has the freedom of their peers in the West, not even those managing state-infested firms like Citigroup and RBS.  Perhaps the only Western equivalents of a Chinese bank are the two American housing agencies, Fannie Mae and Freddie Mac—vast institutions with political mandates to expand credit, and protection from the consequences of their role in fostering bad debt.  Big credit decisions in China are not advanced by any one bank, nor any one banker.  Credit is infused and withdrawn by central diktat.  That process has extraordinary appeal to state planners but is horribly inefficient for individual institutions.  In recent weeks, for example, as the screws on lending have tightened, favoured industrial companies have been getting urgent calls from their bankers demanding that they immediately scoop up their credit needs for months to come, or be subject to a freeze of uncertain duration.  Firms that manage to load up on credit still suffer because they bear interest costs long before the money is actually needed.  “The Chinese banks are pure utilities,” says one banker.  “The State Council [the government’s chief administrative arm] tells them to lend, and they lend.”  Overt controls increase in line with the amount of credit.  Loans above $500m are said to be directly vetted by the State Council.  Something like four-fifths of the assets in the banking system are controlled by 17 institutions.  In many ways, China Development Bank is easiest for an outsider to understand.  It is vast, run by a powerful government official, Chen Yuan (son of Chen Yun, one of the “eight immortals” who created modern China), and supports projects that the government favours.  Most of the other big banks are not explicitly run by the government, but regulators attend board meetings and senior management often includes a person with the title “head of discipline”, who represents the Communist Party.  Executives are rotated between institutions by government decree.  HSBC was stunned in 2006 when Zhang Jianguo, the president of Bank of Communications, in which it had taken a 20% stake, turned up as president of a key competitor, China Construction Bank, the country’s second-largest financial institution.  There was no consultation, nor even notification of the move.  China Construction Bank’s chairman, Guo Shuqing, is rumoured to be in the running for a top political position: the move could have been succession planning.  Shifts of this kind have gone into high gear since the start of the year…..

Other parts of the financial system are no more transparent.  Take the China Investment Corporation (CIC), China’s sovereign-wealth fund, which was founded in 2007.  For fund managers and companies in search of money, CIC’s chief investment officer, Gao Xiqing, has become highly sought-after.  But just how much autonomy Mr Gao has is uncertain.  CIC’s chief executive, Lou Jiwei, told a conference in Hong Kong on January 20th that two things would improve his organisation: more freedom from foreign authorities to make investments, which would doubtless be fostered by his second wish, more freedom to manage itself.  For many firms, ties to government are considered their greatest asset.  The seed capital for China International Capital Corporation (CICC), which dominates domestic underwriting activity, was provided by Morgan Stanley back in 1995.  But Morgan has since been squeezed out of a hands-on role.  CICC is now run by Levin Zhu, son of Zhu Rongji, a former prime minister.  Two CICC alumni, Wu Shangzhi and Fang Fenglei, run what are described as the most important private-equity firms in China—CDH Investments and Hopu Investment Management, respectively.  In this kind of system, big decisions are funnelled upwards to a very small group of people.  Technically, the banks fall under the auspices of Liu Mingkang, chairman of the China Banking Regulatory Commission.  Interest-rate and exchange-rate decisions come under Zhou Xiaochuan, head of the People’s Bank of China, and a former director of the State Administration of Foreign Exchange, now run by Yi Gang.  But their official titles both overrate and underrate their authority.  Mr Liu and Mr Zhou are likely to be involved in innumerable decisions that would be considered private matters outside China.  It is unlikely that lending rates or credit policies could be shifted without their input.  Both provide an intellectual foundation, through papers and speeches, for China’s actions. 

Even so, in the shifting currents of power, many believe the critical hand is played by Wang Qishan, the vice-premier responsible for the financial sector, a former mayor of Beijing and former head of China Construction Bank.  Unlike Mr Zhou and Mr Liu, Mr Wang rarely comments publicly.  But he is a critical conduit for bankers inside and outside China, directly oversees the People’s Bank and is a member of the Politburo, the government’s chief political arm.  He also serves on three big regulatory commissions covering insurance, banking and securities.  When the government is pondering a new policy—expanding China’s financial ties to Africa, say, or the creation of a futures market—Mr Wang is the one who calls in foreign bankers for consultations.  They do not say no. During the depths of the financial crisis, when money was being sought for Morgan Stanley from CIC, Hank Paulson, then America’s treasury secretary, called Mr Wang for his blessing (and got a lukewarm reception).  Technically, only Wen Jiabao, the prime minister, sits above Mr Wang in economic matters.  But when it comes to financial decisions that China perceives to be particularly sensitive, such as exchange-rate movements, stimulus spending or even large financial transactions, the standing committee of the Politburo—the nine most senior leaders of China, including President Hu Jintao—can take up the matter.  At some point the sheer complexity of China’s economy will preclude China’s top leaders from serving, in effect, as an elevated credit committee. But that time has yet to come.

Reference : http://www.economist.com/businessfinance/displaystory.cfm?story_id=15453014

IDC Predicts Mild Increase In Global IT Spend For 2010

Worldwide spending on information technologies will continue to feel the effects of the global recession throughout 2010.  According to a new forecast from IDC, worldwide IT spending will increase by just 3% in 2010 at constant currency.  In the U.S., IT spending is forecast to increase by less than 3%.  “Despite pent-up demand for upgrades and new applications following the deep spending cuts of the past year, economic uncertainty will combine with capital and credit constraints to inhibit spending in mature economies,” said Stephen Minton, vice president of Worldwide IT Markets and Strategies at IDC.  “The engine of global industry growth in 2010 will be in emerging markets, in particular China and India, where IT spending will recover much more quickly.”

Overall, IDC forecasts that worldwide IT spending will reach $1.48 trillion in 2010, still below the $1.5 trillion recorded in 2008.  “Following a decline in overall tech spending of 4.5% at constant currency in 2009, IT spending will not fully recover from the global recession until sometime in 2011,” Minton noted.  IDC’s forecast of 3% growth in worldwide IT spending is at constant currency, and does not assume future fluctuations in the value of the U.S. dollar or other international currencies over the next 12 months.  If the U.S. dollar weakens in 2010, the actual recorded growth of IT spending in US$ may be significantly higher.  Measured in U.S. dollars, worldwide IT spending declined by 8% in 2009 due to the stronger value of the dollar compared to 2008.  On a global basis, IDC expects hardware spending to grow by 5% in 2010, while software spending and IT services spending will grow by 2% and 3%, respectively, in constant currency.  In the hardware segment, worldwide PC spending is forecast to increase by 3% this year, up from the previous forecast of 2% growth, while the forecast for servers, storage, hardcopy peripherals, and network equipment have also been raised.  The outlook for software and services spending reflects the lower value of contracts signed in the past year and continued caution toward new project-based spending in mature economies.  Regional highlights from IDC’s new forecast include the following:

• Asia/Pacific: Overall, the region will experience 6% growth in IT spending in constant currency, following a 1% decline in 2009.  However, China and India are both expected to experience double-digit growth (11.5% and 13.5%, respectively) this year.  Hardware spending will experience solid gains this year, driven by pent-up demand and new infrastructure deployment.  Following a decline of 8% last year, no IT spending growth is forecast for Japan this year.
• EMEA: Following a worst-ever decline of 7% in 2009 at constant currency, IT spending in Western Europe is forecast to be effectively flat in 2010.  A few market segments are expected to return to positive growth, but the market sentiment across the region remains weak.  In Central and Eastern Europe, the 20% spending crash of 2009 will be followed by 9% growth in 2010.  IT spending in the Middle East and Africa will also return to growth this year (12% at constant currency) after a 2.5% decline last year.
• Latin America: IT spending in Latin America will be up by 5% this year.  Overall spending will gradually accelerate in line with the recovery in business and consumer confidence.  Increasing market maturity in some sectors will contribute to price competition as some buyers gravitate towards low-cost solutions.  The key market of Brazil will return to a more robust level of growth by 2011.
• North America: The gradual economic recovery will enable many U.S. organizations to relieve some of the pent-up demand for system and network upgrades following last year’s spending cuts.  But spending will continue to be cautious and, in contrast to the emerging markets, the SMB sector will struggle to fund new IT initiatives.  In Canada, a subdued market is forecast to produce a decline of 1% in IT spending this year.

Reference : http://vendor.tekrati.com/research/10642/

FT’s Luke Johnson Labels Malcolm Gladwell “A Useful Idiot”

I thought Blink sucked and I also believe Gladwell is way overrated.  Mr. Gladwell’s writings generally come across as too much ”thinking without thinking”, and some of what he espouses is literally dangerous.  This piece in today’s FT therefore struck a chord -

“…..If you want to understand and write about entrepreneurs, then there is no substitute for working with them.  I have spent more than 25 years partnering entrepreneurs, and indeed practising as one, and the past nine years writing about them every week for national newspapers.  Unfortunately, best-selling author Malcolm Gladwell has not – and it shows.  A recent issue of The New Yorker magazine includes an essay entitled “The sure thing: How entrepreneurs really succeed”.  This is a classic Mr Gladwell piece, suggesting that our preconception of business legends as risk-takers is wrong.  He asserts that “successful entrepreneurs are seen as bold gamblers; in reality they’re highly risk-averse”.  His speciality is a counter-intuitive revelation about human behaviour that demonstrates that our preconceived ideas are wrong.  If this article is anything to go by, I think his journalism is shoddy.  The only sources he cites are biographies of tycoons such as Ted Turner and John Paulson, a slim book I wrote about a while ago called The Illusions of Entrepreneurship and similarly derivative material.  Seemingly this grand new concept about how riches are accumulated is not founded on original interviews with entrepreneurs, or indeed direct experience with them.  Therefore, at best, Mr Gladwell’s theory could be described as a hunch based on a few carefully selected examples, rather than a representative study……Mr Gladwell is naively trumpeting bad capitalism and doing a disservice to real entrepreneurs.  He reminds me of the “useful idiot”, the sort of sympathiser who acted as a cheerleader for Soviet communism, while the system was oppressing and imprisoning its citizens.”

Dr. Atul Gawande On Complexity

Dr. Atul Gawande, author of the recent The Checklist Manifesto: How to Get Things Right, spoke at a California university on Jan 12th 2010.  A most engaging speech. 

He was also on BBC Worldservice’s Health Check program on Feb 1st 2010.

(audio runs 26m 28s)