Greater China’s Hard Land Lumps
Hong Kong shares slackened on the dramatic arrest on bribery charges of the Kwok brothers whose firm has controlled a commercial and residential land empire for decades, just a week after self-declared populist Leung was elected chief executive in a tightly-managed race following a scandal involving the previous candidate Henry Tsang which flaunted ties to the island’s wealthy. Widening income inequality and poverty have suffused political debate amid the post-crisis property boom, and the new leader has promised to confront tycoons’ power despite his early role in supporting breakneck housing expansion. Developer stocks have long been under the microscope as the Monetary Authority attempts to brake lending alongside Beijing’s existing curbs that were reiterated at the latest gathering of top officials before the upcoming reshuffle. The enclave still suffers from a shortage of affordable flats underscored by the saga of Mr. Tang’s illegal wine cellar which itself was bigger than typical units. The economy may only grow 1 percent this year on re-export retrenchment as the outgoing government tries to find additional revenue for small-business and social spending. The soft patch and rich-poor divide have resurrected calls for universal voting and re-examination of the dollar peg as the renimbi again noticeably slips against the greenback for the first time since the mid- 1990s Asian financial crisis. In Taiwan following the re-election of President Ma electronics and manufacturing sales are also drifting and to pay for fiscal stimulus his team may impose capital gains tax. Investor wariness increased over the move in the wake of sudden Chinese naval activity in the area and several mooted joint banking ventures across the strait. Oil import costs further hamper prospects and the central bank may consider cuts in already low benchmark rates.
On the mainland the future politburo composition is in doubt with the unexplained purge of Chongqing boss Bo amid coup and Mao-era Cultural Revolution return warnings. The military has gotten a hefty budget rise and citizen revolts against provincial official land grabs and arbitrary treatment have brought in consensual replacements. Hong Kong brokers who have been idle even with reduced lunch breaks enjoyed a burst of activity with China Minsheng Bank’s $1.5 billion capital raising, although it is believed to have large local government loan exposure which regulators wish to extend without write-downs over the medium term. One-fifth of these portfolios at close to $300 billion have been improperly classified in the safest category, they stipulated at the same time. Municipal pension funds have also been criticized for riskier allocation against established guidelines, and authority to issue debt will be confined to pilot efforts as debris is cleared from the hidden crash.
