PBOC’s Pan telling hard, uncomfortable truths

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At a moment of peak uncertainty about the direction of China’s economy, People’s Bank of China (PBOC) Governor Pan Gongsheng is surprising many by speaking in unusually direct terms.

Some of the ambiguity of the “Xi Jinping thought” era is a government big on soaring reform rhetoric and fuzzy on nuts-and-bolts specifics. It’s here where Pan’s burst of economic realpolitik is both refreshing and telling.

The bottom-line message: kindly give China some space and tolerance to pull off modern history’s greatest effort to transition away from property and infrastructure to new drivers of economic growth. Oh, and that period of 8-10% annual growth? It’s not coming back.

“The traditional model of relying heavily on infrastructure and real estate might generate higher growth, but it would also delay structural adjustment and undermine growth sustainability,” Pan told bankers in Hong Kong on Tuesday (November 28).

He added that “the ongoing economic transformation will be a long and difficult journey. But it’s a journey we must take.”

Pan went on to say that “China’s real estate sector is searching for a new equilibrium” to achieve “healthy and sustainable growth” of the “high-quality” variety.

Nor did Pan shy from discussing the biggest potential cracks in China’s financial system. He admitted, for example, that financially fragile regions in the west and north of the country may have “difficulties servicing local government debts.” Expect more defaults, in other words.

Such off-script admissions of turbulence to come are relatively rare in official Communist Party circles. Normally, the top-down impulse in the Xi era has been to project an image of economic omniscience and omnipotence. As such, Pan’s foray into straight talk is useful, intriguing and timely.

On Thursday, China’s National Bureau of Statistics released fresh signs that the manufacturing and services sectors shrank in November, fanning expectations for increased state support as the economy faces intensifying headwinds.

The manufacturing purchasing managers index dropped to 49.4 while non-manufacturing activity slid to weaker than expected 50.2.

Manufacturing data is down in a slowing Chinese economy. Photo: Asia Times Files / Imaginechina via AFP / Liang Xiaopeng

Granted, central bankers as a profession tend to speak in vague and non-committal ways. Obfuscation, in other words, is a monetary policymaker’s tool — their modus operandi — to keep all options open at all times.

A top practitioner of the discipline was Alan Greenspan, who chaired the US Federal Reserve from 1987 to 2006. As he once joked to a business forum: “If I’ve made myself too clear, you must have misunderstood me.”

Yet Pan is hardly playing rhetorical games as he telegraphs a long, bumpy road ahead. Naturally, this had PBOC watchers wondering if a new, more activist monetary strategy might be in store in Beijing.

Including, perhaps, a pivot toward quantitative easing (QE) with Chinese characteristics. Though the PBOC hasn’t officially gone the QE route, the central bank spent the last few months — Pan took the helm in July — expanding its balance sheet with aggressive lending to banks.

The PBOC’s total assets jumped 8.6% year on year in October to 43.3 trillion yuan (US$6.1 trillion), the biggest increase since at least 2014. Again, neither Pan nor his staff are talking explicitly about QE. And notable PBOC leaders of the past threw cold water on the prospects for Chinese QE.

In 2010, Zhou Xiaochuan, governor from 2002 to 2018, cautioned that QE policies, particularly in the US, were causing havoc globally.

In September 2021, Pan’s immediate predecessor, Yi Gang, warned that runaway, Japan-like asset purchases “would damage market functions, monetize fiscal deficits, harm central banks’ reputation, blur the boundary of monetary policy and create moral hazard.”

At the time, Yi said that “China will extend the time for implementing normal monetary policy as much as possible and there is no need for asset purchases.”

Yet the need for big asset purchases has gone full circle as China’s post-Covid rebound disappoints. China’s worsening property crisis is pushing the PBOC toward more assertive strategies to boost liquidity.

Some of this has been to absorb a boom in government bond issuance to add fiscal jolts to an ailing economy and to support green sector pursuits.

In a report earlier this week, the PBOC said it’s working to “unblock the monetary policy transmission mechanism, enhance the stability of financial support for the real economy, promote a virtuous economic and financial cycle, and keep prices reasonably stable.”

This has the PBOC mulling a strategy of providing upwards of 1 trillion yuan ($141 billion) in cheap financing for construction projects. Under Beijing’s Pledged Supplementary Lending (PSL) program, the PBOC will channel low-cost long-term liquidity to policy banks to boost lending to the infrastructure and housing sectors.

This plan is at least nominally QE-adjacent. Though more targeted than the QE employed by the Bank of Japan, which pioneered the technique in 2000 and 2001, and the Fed, the PBOC’s plan would make large-scale bond purchases behind the scenes aimed at depressing yields.

Economists can’t help but connect the dots and label this expansion of the PBOC’s balance sheet as “Chinese-style” QE.

Analysts are looking for signs of quantitative easing with Chinese characteristics. Photo: Facebook

“Beijing might have finally recognized the need to introduce quantitative easing or money printing for the collapsing property sector,” notes Nomura economist Ting Lu. “We believe Beijing will eventually need to reach into its own pockets, with printed money from the PBOC – such as PSL – to fill up the vast funding gap and secure the delivery of pre-sold homes.”

Economists at Goldman Sachs said in a recent note to clients “we think additional broad-based monetary policy easing is still needed to facilitate the large amount of government bond issuance and improve sentiment towards growth.”

It’s a controversial step, one that divides economists.

In an August note to clients, Robert Carnell, economist at ING Bank, warned that “QE would put the Chinese yuan under further weakening pressure, which it is very clear the PBOC does not want and would make it much harder for them to manage the yuan. It would also raise the risks of capital outflows, which they will also be keen to avoid.”

Count Carnell among economists who think the answer to China’s troubles lies with Xi’s reform team, not earlier PBOC policies. “As for government stimulus policies, these, we think, will tend to be along the lines of the many supply-side enhancing measures that we have already seen.”

Carnell adds that “the way through a debt overhang is not to print more debt, though it may be to swap it out for lower-rate central government debt, or longer maturity debt to ease debt service.

“Enhancing the efficiency of the private sector will also play a key role, though this and all the supply-side measures will take a considerable time to play out. The tiresome chorus clamoring for more stimulus is unlikely to stop in the meantime.”

This week, Xi made a rare visit to Shanghai just as his team unveiled a 25-point plan to reinvigorate private sector innovation and productivity.

Others argue that the end justifies the means. “Some traditionalists would argue that central banks should not engage in asset allocation, except through the interest-rate channel,” said Andrew Sheng at the University of Hong Kong.

“But QE has already proven to be a powerful resource-allocation tool capable of transforming national balance sheets. An innovative, well-planned QE program … could support China’s efforts to tackle some of the biggest challenges it faces,” he adds.

Like central banks in high-income countries after the 2008 financial crisis, “the PBOC could still avail itself of quantitative easing, with large-scale purchases of government bonds giving commercial banks more liquidity for lending,” notes Shang-Jin Wei, a former Asian Development Bank (ADB) economist.

Wei adds that “if the goal is to achieve higher inflation – as is the case in China today – there is no mechanical limit on the additional stimulus that can be applied to the economy through this channel.”

Wei channels Mario Draghi when he argues “China needs the ‘whatever it takes’ approach that the European Central Bank pursued a decade ago when it, too, was facing a debt-deflation spiral. The PBOC should publicly declare a strategy to monetize a big portion of government debt and to incentivize more private equity investment.”

Pan hasn’t done that, of course. And it’s debatable that he will. But as China grapples with an unprecedented property crisis, it will fall to the PBOC to grease the skids via liquidity as local governments dispose of bad debts.

The enterprise will echo the role the BOJ played in the early 2000s to facilitate the discarding of toxic loans undermining what was then Asia’s biggest economy.

Resolving local government debt troubles, made worse by an explosion of local government financing vehicles (LGFVs), is vital to stabilizing China’s $61 trillion financial sector while China Inc is already grappling with cratering real estate markets.

The idea, argues state-run Xinhua News, is to “optimize the debt structure of central and local governments” to improve the quality of national growth.

PBOC Governor Pan has markets dissecting his every move on rates. Image: BBC Screengrab

As China embarks on what Pan calls a “long and difficult journey” of disruption, the PBOC is on the frontlines. “Looking ahead,” Pan said, “China’s economy will remain resilient. I’m confident China will enjoy healthy and sustainable growth in 2024 and beyond.”

Yet as Pan just explained with unusual frankness, “China is experiencing a transition in its economic model” driven by a belief that “high-quality, sustainable growth is far more important” than rapid expansion.

Doing whatever it takes to get there may have China pivoting in ways most never expected – and in ways almost certain to unnerve global markets.

Follow William Pesek on X, formerly Twitter, at @WilliamPesek

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Cordlife probed after storage tanks exposed to suboptimal temperatures, cord blood in at least one tank damaged

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SINGAPORE: Cordlife, a private cord blood bank, is under investigation after seven of its tanks storing cord blood units were exposed to temperatures above acceptable limits, said the Ministry of Health (MOH) on Thursday (Nov 30).

During investigations, MOH found that the affected storage tanks has been exposed to temperatures above -150 degrees Celsius, the acceptable limit for cord blood units.

Around 2,200 cord blood units belonging to approximately 2,150 clients have been damaged. Another 17,000 clients could be affected, pending investigations.

The company was ordered on Thursday to stop the collection, testing, processing and/or storage of any new cord blood and human tissues, or provide any new types of tests to patients, for a period of up to six months. 

Cordlife has been given 14 days to make representations to MOH.

Cord blood unit storage, a private service offered to parents when their babies are first born, has emerged over the last 20 years, said MOH.

Cord blood, which contains stem cells, may be used in stem cell transplants to treat blood diseases and some cancers such as leukemia and lymphoma, should the baby develop such illnesses in the future.

Cordlife is currently licensed in Singapore as a cord blood and human tissue banking service, and a clinical laboratory service.

INVESTIGATIONS

MOH said during the company’s last inspection in September 2022, as part of a biennial routine for such services, it had not found any lapses relating to the temperature of the storage tanks based on random checks. Cordlife also did not disclose any incidents during or after the routine inspection.

But MOH received a complaint from a member of the public on Jul 24 this year, alleging that cord blood units stored in a tank at Cordlife had been exposed to temperatures above 0 degrees Celsius, in addition to other service quality issues.

The ministry then conducted unannounced audits on the company on Aug 15, and Nov 16 to Nov 21.

“Between the first audit in August 2023 and second audit in November 2023, MOH’s inspectors had contacted CGL on multiple occasions to request for and clarify their reports, documents, and request for further explanations where discrepancies were noted,” it said.

The audits showed that Cordlife’s cryopreserved cord blood units had been exposed to temperatures above acceptable limits in seven of its 22 storage tanks at different periods, dating back to November 2020.

MORE THAN 19,000 CLIENTS COULD BE AFFECTED

“Based on CGL’s (Cordlife Group Limited) inventory records provided to MOH, an estimated 2,200 cord blood units belonging to approximately 2,150 clients in one of the affected tanks (Tank A) were exposed to temperatures beyond the acceptable limits for several days in February, March and June 2022,” said the Health Ministry.

“CGL had tested some of the donated cord blood units stored in Tank A to establish the cell viability of the affected cord blood units. MOH appointed a panel of three cord blood banking experts to conduct an independent review of CGL’s test results,” it said.

“All of the experts have concluded that the cord blood units stored in Tank A have been damaged, and are unlikely to be suitable for stem cell transplant purposes.”

MOH also found that Cordlife’s temperature monitoring system failed to send notifications of the temperature excursions in two tanks to Cordlife personnel between February and June 2022.

It added that the company’s six-monthly preventative maintenance was also not carried out for two tanks in 2022, while a new cord blood processing method implemented in August 2023 was not properly validated according to approved plan and protocol.

“CGL has not taken adequate steps to expeditiously escalate, address and rectify the above issues, including the systemic problems which may have led or contributed to them,” said MOH.

MOH said investigations are ongoing for the remaining six storage tanks, which contain approximately 17,300 cord blood units belonging to about 17,050 clients.

Pending the outcome of this probe, the ministry will consult its experts to determine if similar tests should be performed for the cord blood units stored in the six tanks.

MOH also said it will consider further enforcement actions, including imposing financial penalties or prosecution.

While investigations are ongoing, Cordlife has been directed by MOH to “take appropriate remedial actions to address the lapses and strengthen their governance and processes. MOH will closely monitor and audit them”.

“CGL’s lapses will be distressing to many of their clients. MOH has instructed CGL to reach out to all its clients to address their concerns. Individuals who are concerned should contact CGL directly to enquire about the status of their CBU and if their CBU is in the impacted lot.”

MOH said: “To provide assurance to parents who have stored their cord blood units in the three other licensed cord blood banks in Singapore, MOH has conducted a targeted audit of these banks from Nov 15 to Nov 22, 2023, focusing on the quarantine, storage, and distribution of cord blood units.”

“Our investigations have found no temperature excursions of concern at the other three licensed cord blood banking service, namely Cryoviva (Singapore) Laboratory Services, Stemcord Private Limited and the Singapore Cord Blood Bank.”.

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China’s spurious claim to Lebensraum in the South China Sea

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As US President Joe Biden recently attempted to charm Chinese President Xi Jinping into standing down from his imperial ambitions of obtaining more Lebensraum for his country, all should question Xi’s right to claim dominion over the South China Sea.

Without legal authority or historic precedent, China has audaciously and arrogantly claimed most of the South China Sea as its “domestic” waters. By militarizing its presence in the South China Sea and harassing Philippine vessels (and also shadowing American ships and planes), China is risking war.

On November 25, near the Paracel Islands, China deployed naval and air forces to “track, monitor and warn away” the US destroyer Hopper.

China said the incident “proves that the United States is an out-and-out security risk creator in the South China Sea.”

On November 27, the US Seventh Fleet issued a statement that:

“Unlawful and sweeping maritime claims in the South China Sea pose a serious threat to the freedom of the seas, including the freedoms of navigation and overflight, free trade and unimpeded commerce, and freedom of economic opportunity for South China Sea littoral nations.

“The United States challenges excessive maritime claims around the world regardless of the identity of the claimant. Customary international law reflected in the 1982 Law of the Sea Convention protects certain rights, freedoms and lawful uses of the sea enjoyed by all nations. The international community has an enduring role in preserving the freedom of the seas, which is critical to global security, stability, and prosperity.

“The United States upholds freedom of navigation for all nations as a principle. As long as some countries continue to claim and assert limits on rights that exceed their authority under international law, the United States will continue to defend the rights and freedoms of the sea guaranteed to all. No member of the international community should be intimidated or coerced into giving up their rights and freedoms. 

“US forces operate in the South China Sea on a daily basis.… The operations demonstrate that the United States will fly, sail, and operate wherever international law allows – regardless of the location of excessive maritime claims and regardless of current events.”

Also this month, the US and China held “candid” talks on maritime issues, including the contested South China Sea, where Washington underlined its concerns about what it called “dangerous and unlawful” Chinese actions.

In late October, Chinese coast-guard and maritime-militia vessels “recklessly harassed and blocked” Philippine Coast Guard boats on their way to resupply a Manila-held outpost in the South China Sea. One Chinese ship fired a water cannon at a supply boat, Philippine forces said.

Ship-tracking data showed at least two dozen Chinese vessels, including large ships of the China Coast Guard, descending on Philippine-controlled Second Thomas Shoal in the Spratly Islands archipelago.

Map evidence

Decades ago when he was US ambassador to Thailand, my father bought an old naval map of Southeast Asia showing in great detail the entire South China Sea. In that expanse of water, not one Chinese name appears. The only places identified with Chinese names are on the coasts of Hainan Island and the Chinese mainland.

Similarly, names on the coast of Vietnam are shown in Vietnamese, while along the coasts of Malaya, Borneo, and around the Philippine Islands names are shown in Malay.

Nearly all land features in the South China Sea are identified with names in English.

This is evidence that the Chinese had no occupation or permanent presence in the South China Sea as of 1794.

(The map was published in London by Laurie and Whittle on May 12, 1974, based on the last edition of the Neptune Oriental by Monsieur D’apres de Mannervillette, and using drafts and journals of British navigators and a Dutch coastal chart.)

Second, in 1816 the king of Vietnam, Gia Long, planted his flag on the Paracel Islands in the South China Sea with no objection from China. 

French priest J L Taberd wrote in 1837:

“The Pracel or Parocels, is a labyrinth of small islands, rocks, and sand-banks, which appears to extend up to the 11th degree of north latitude, in the 107th parallel of longitude from Paris. Some navigators have traversed part of these shoals with a boldness more fortunate than prudent, but others have suffered in the attempt. 

“The Cochin Chinese call them Con uang. Although this kind of archipelago presents nothing but rocks and great depths which promises more inconveniences than advantages, the king Gia Long thought he had increased his dominions by the sorry addition. In 1816, he went with solemnity to plant his flag and take formal possession of these rocks, which it is not likely any body will dispute with him.”

Third, there is a 1905 Chinese map of China that does not show the South China Sea at all, implying that China had no claim to those waters or any islands in that sea.

Fourth, on March 30, 1933, the government of Vietnam, then a French protectorate, placed administration of the Paracel Islands under its province of Thua Thien. The government decree stated that such islands had been under the sovereign authority of Vietnamese for many generations under previous Vietnamese dynasties.

Fifth, on December 21, 1933, the French colonial administration of Cochin China decreed that the Spratly Islands, and the islets named Amboyna Cay, Itu-Aba, and Two Islands Group – Loaito and Thi-tu – would be subordinated to the administration of Baria province. 

Previously on July 26, 1933, the Official Gazette of the French Republic published an opinion of its Ministry of Foreign Affairs relating to the occupation of certain islands by French naval units. On August 24 and September 14, 1933, the governor general of Cochin China annexed the islands and islets of the Spratly or Storm Group.

The Chinese government did not protest these claims by the governments of Vietnam and the Cochin China colony nor did it assert its own rival claim to sovereignty over those islands.

So today, why is the international community in general and the United States, in particular, not formally rejecting China’s claim to “rule” the South China Sea and taking effective steps to enforce the claims of Vietnam, Philippines, Malaysia, and Indonesia to those waters and the right of free passage through international waters beyond the jurisdiction of any nation?

Should China make good on its pretense that the South China Sea is part of its Lebensraum, it will be able to impose restrictions on and even a blockade of the shipping which sustains the existence of South Korea, Japan, Taiwan, and Singapore, not to mention the wealth earned by countries which trade with those Asian nations by sea.

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China paying substantial climate finance while US lags

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Finance is poisoning international cooperation on the climate crisis.

There is no longer any credible debate about the need to act on climate change, but tensions are flaring around the question of who should make the immense investments necessary to phase out fossil fuels and adapt to a more hostile climate.

The rift between richer and poorer countries has consequently revived and the negotiations have once more descended into acrimony. How can the finance fight be resolved?

Back in 2009, developed countries at the Copenhagen summit committed to provide developing countries with US$100 billion of climate finance a year from 2020.

$100 billion a year is just a fraction of the $1.8 trillion that low- and middle-income countries need each year to reduce emissions and adapt to the impacts of climate change.

But it is symbolic: it represents redress for the outsized share of the global carbon budget that developed countries have gobbled up, leaving the rest of the world both battered by climate disasters and constrained in terms of the carbon that they can emit as they pursue a better quality of life.

Despite the political importance of the $100 billion pledge, developed countries did not deliver it in 2020 or 2021. They may meet the goal in 2022, but the self-reported data has not yet been verified.

The broken promise of climate finance has stoked resentment in developing countries, compounded by vaccine hoarding and debt hangovers.

Many of these countries insist that the $100 billion a year must be met before other aspects of the climate negotiations can continue in good faith.

Yet many developed countries look askance at these demands from some of the increasingly wealthy and polluting economies – like the Gulf states or China – that sit within the developing country bloc. This bloc has no obligation to provide climate finance under the international regime.

Posturing by both sides overlooks the huge amount of climate finance that many developing countries already contribute.

Unsung climate heroes?

Most countries pay into multilateral development banks, which are set up by governments to help poorer countries access cheaper finance and advisory services.

While fighting climate change is rarely a country’s primary motivation for investing in these banks, their contributions nonetheless help developing countries mitigate and adapt to climate change.

For example, the banks might provide a low-cost loan to countries looking to enhance their wastewater systems to cope with more rainfall, or to build a public transport network that avoids emissions from private cars.

A worker installs polycrystalline silicon solar panels as terrestrial photovoltaic power in Yantai, China. Photo: Asia Times Files / Getty

Developing countries do not seek or receive credit for this climate finance, as they are not obliged to report their contributions to the UN climate convention. In a first of its kind analysis, the global affairs think tank ODI has revealed that developing countries already provide large amounts of climate finance through these banks.

China is the 11th largest provider of all countries, contributing $1.2 billion a year. India (17th), Brazil (19th) and Russia (20th) are also notable donors.

Even these figures understate developing country contributions, as they do not include climate finance channeled bilaterally between countries, rather than through multilateral development banks or UN agencies, and are only available for a handful of developing countries, including China.

Drawing on these databases, we calculated that China provides an estimated $1.4 billion of public finance bilaterally. If we combine this figure with the $1.2 billion of climate finance that it channels through multilateral development banks, China is the seventh largest provider of climate finance between Italy (sixth) and Canada (eighth).

These figures make a mockery of US and EU demands that China begin contributing to climate finance – particularly given the track record of the US to date.

Unfair share

Our annual “fair share” report attributes responsibility for the $100 billion target among developed countries based on their historical emissions (which continue to fuel global warming), income and population size.

Based on these metrics, we found that the US is overwhelmingly responsible for the climate finance shortfall. The world’s largest economy should be providing $43.5 billion of climate finance a year. In 2021, it gave just $9.3 billion – a meager 21% of its fair share.

For context, the US accounts for around a fifth of historical emissions but just 4% of the global population. Its economy is four times larger than Japan’s, five times larger than Germany’s and eight times larger than that of France, yet it provides less climate finance than any of them.

Although China has 17% of the global population, it is responsible for just 11% of cumulative emissions. China is also much poorer per person than the US – or indeed, any of the developed countries expected to provide climate finance. Nonetheless, China gives $2.6 billion of climate finance a year.

If not China, who?

Countries are assembling in the United Arab Emirates (UAE) for the next round of climate negotiations. The new climate finance goal, which will replace the current target of $100 billion a year, and the new loss and damage fund, will both be under the spotlight.

We propose two criteria to determine when countries should be obliged to provide climate finance: that they are at least as rich per person as the average developed country at the start of the 1990s, when international climate negotiations began, and that they have produced as many historical emissions per person.

Six countries meet our criteria: Brunei Darussalam, the Czech Republic, Estonia, Kuwait, Qatar and the UAE. The Czech Republic, Estonia and Qatar already voluntarily provide additional climate finance on top of their contributions to multilateral development banks. Brunei Darussalam, Kuwait and the UAE – which is presiding over this round of climate negotiations – do not.

Closing the climate finance gap

So, how can the deadlock be broken?

The fastest way to restore trust in the international climate regime would be for the US to step up with its fair share of climate finance. Without it, the Europeans are on track to close the gap by meeting and exceeding their fair share of the $100 billion.

Only once the developed countries have fulfilled their longstanding promise does a conversation about new climate finance contributors become politically possible.

The world has just endured the hottest 12 months on record. Let us hope that these extreme temperatures light a fire under diplomats and negotiators, igniting a joint commitment to finding the finance to avert climate catastrophe.

Sarah Colenbrander is Director, Climate and Sustainability Program, Overseas Development Institute & Guest Lecturer, Climate Change Economics, University of Oxford

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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Making nuclear energy cheaper than coal in Indonesia

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The following article was written for Asia Times by Robert Hargraves, a cofounder of the company ThorCon, which has scaled up technology pioneered by US Oak Ridge National Laboratory to design the government-supported plant.

The safety properties of the molten salt reactor design that ThorCon is using are well-known, and it is credible that those features make running the reactor easier. (- Jonathan Tennenbaum, science editor)

The distorted map below illustrates the world’s nations, not by area, but by population. Indonesia (in green) uses only a seventh of the per capita energy the US does, and India even less. Will CO2 emissions rise as such populous nations develop?

Map of nations, scaled by population size. Image: Our World in Data / Creative Commons

Wealthy United States and Europe, which consume energy by burning fuels and emitting CO2, now want to reduce their emissions. They import energy-intensive products from developing nations such as Indonesia, increasing those nations’ needs for energy and electric power.

Burning fuels for energy increases those nations’ CO2 emissions. Perversely, Europe is starting to tax exports from these nations proportionate to the CO2 emitted in manufacturing.

People in these populous nations aspire to the living standards of the rich US and EU nations. They will use more energy and especially electricity to build their economies, trade competitively with rich nations and increase citizens’ incomes. For them to reach European standards, world electricity consumption must double.

Global electric power per capita, by region  The height of each block represents the average electric power consumption per capita. The width is proportional to the regional population, so the area represents regional average electric power use. Graph courtesy of ThorCon and Geoff Russell.

Energy for economic development

The emerging economies build coal-fired and liquified natural gas (LNG)-fired power plants because these are the least expensive ways to generate full-time, reliable electricity for commerce and industry. They need to optimize scarce capital to power up their economies. 

To reduce global CO2 emissions, we must incentivize developing nations to choose electric power sources that emit little CO2. But at present coal-fired generation is the cheapest option for them. 

Advocates claim wind and solar power generation is cheaper. But that has not worked out, in practice, simply because those energy sources are dispersed and intermittent. Wind is not strong in equatorial Indonesia. Solar panels produce intermittent daytime energy and no nighttime energy.

It’s not possible to run industries such as mining or smelting or chemical manufacturing with intermittent energy. These activities require continuous power, at levels that batteries can not provide.

Grid-scale batteries cost US$500 for capacity to store each kilowatt hour of electric energy, typically generated for about $0.03 to $0.10. Google abandoned its RE<C project in 2011, concluding renewable energy could not economically replace coal.

Like Iceland, Indonesia has some limited opportunities for dispatchable geothermal energy because it sits on a geologic “ring of fire.” Geothermal power contributes about 3% of Indonesia’s total generation capacity of 62 GW.

Hydroelectric power might provide continuous, dispatchable power service, as it does in Brazil, Quebec and Scandinavia, but worldwide sites for suitable dams have largely been exploited – and droughts stop generation altogether.

Indonesia’s per capita electric power consumption is 114 watts, while Europe’s is 780 watts, about seven times as much. This suggests Indonesia’s 274 million people’s future average demand may rise to 200 GW, requiring at least 250 GW of generation capacity.

Nuclear power can provide full-time, dispatchable, CO2-emission-free power, but there are no nuclear power plants in Indonesia, yet. Nuclear power is the only realistic solution to energy poverty and economic growth with zero CO2.

Uranium is a million times more energy-dense than coal, so in physical terms, uranium energy ought to be cheaper than coal energy. Unfortunately, nuclear power has up to now been more expensive. 

If nuclear power is to provide an answer, the cost of nuclear-produced electricity must be drastically reduced. Otherwise, there will be no economic motivation for nations to satisfy their increasing energy needs without burning coal or LNG.

How can we reduce the capital costs and electricity costs of nuclear power?     

ThorCon

In 2013 the American engineer Jack Devanney initiated the ThorCon project with the aim of mass-producing nuclear power plants that can generate electricity at a cost below that of burning coal. ThorCon company has remained steadfastly committed to this goal.

Devanney was a professor of ocean engineering at MIT and worked as well with the US Navy shipbuilding program. He learned that the Navy’s paperwork bureaucracy produced faulty ships, years late, with billion-dollar cost overruns.

As demand for oil and thus for tanker ships grew, shipyards in East Asia competed internationally on ship quality and cost. They cut labor costs to five labor hours per ton of fabricated steel, built machinery for automated cutting and welding of steel plates and prefabricated component blocks up to 600 tons. Ships were assembled in less than a year, and mass-produced in dockyards at low, competitive costs.

Devanney used this manufacturing capability to design and build eight supertankers for Loews Corporation, including four of what at the time were the world’s largest supertankers. 

To significantly reduce world CO2 emissions requires mass producing tens of CO2-free nuclear power plants each year rather than tens of new coal and LNG-fired plants. 

The ThorCon company has developed a 500 MW nuclear power plant design, ThorCon 500, that is suitable to be mass-produced in competitive factories – shipyards. The world’s largest shipyard can produce 2 million tons of steel ships per year. That’s enough steel fabrication capacity to make 20 GW of ThorCon 500 power plants per year.

Present plans foresee a prototype ThorCon 500 power plant to begin test operation in 2028.

ThorCon shipyard-produced 500 MW molten salt reactor plant. Image: ThorCon

Low-cost design

Shipyard docks are wide enough to build 65-meter beam vessels, setting the ThorCon 500 plant width. The steam heat source is two molten salt fission reactors, generating 557 MW (thermal) each. Efficient supercritical steam turbine generators benefit from economy of scale, so a single 500 MW (electric) turbine generator is less costly than two smaller ones

The uranium fuel is dissolved in molten fluoride salts of sodium and beryllium, which are continuously circulated through the reactor and heat exchanger. The high-temperature (704°C) heat of the molten salt exiting the reactor is converted to 550°C supercritical steam.

Thereby a ThorCon 500 power plant generates nearly 50% more electricity from the same amount of uranium than do current pressurized water nuclear reactors with their more massive, lower-temperature steam turbines.

ThorCon 500 also reduces costs by using 100% passive safety, not requiring staff of highly trained operators. In a total electric blackout, overheat or other failure, the reactor shuts down and cools itself without operating any valves or pumps, relying only on gravity and thermodynamics. Operators do not have to take any action to bring the plant into a safe state. Indeed, operators cannot do anything to deviate the plant from a safe state.

ThorCon 500 uses the same, commercially available turbine-generators as a coal plant. But while a coal plant of comparable electric output consumes 5000-10 000 tons of fuel every day, ThorCon 500 needs on average only about 15 kilograms of its uranium fuel. 

The steam-generating part of the ThorCon 500 nuclear power plant – including reactors and heat exchangers – is far smaller than that of a coal power plant. Image: ThorCon

The ThorCon 500 is designed to help developing nations grow reliable electric power grids. New power plants can be ordered and connected within two years of completing site selection and all permits.

A waterside site with a water depth of 5-10 meters is prepared and the grid connection is built. With advance planning for the turbine generator, a shipyard can build the ThorCon 500 plant in less than one year. It will be towed across the ocean to the site, ballasted down firmly to the seabed, and then connected to the grid.

Developing nations’ grids may be subject to interruptions by transmission faults or fading intermittent power sources. A ThorCon 500 can load-follow, changing compensating power generation by 5% per minute.

It also has “blackstart” capability, meaning that it does not require electric power from the grid to start up. In the event of a regional grid collapse, a ThorCon 500 can provide the initial grid power needed by other generators to restart.

Powering Indonesia

Indonesia has about 40 GW of operational coal-fired power plants, with 19 GW under construction.

At the 2022 G20 Summit in Bali, a group of governments issued a joint statement noting that they would work to mobilize $20 billion for the “Just Energy Transition Partnership” (JETP) for Indonesia. The JETP aims to shut down Indonesia’s coal power plants and replace them with renewable energy sources.

But Indonesia has not agreed, because funding is absent and because wind and solar sources cannot power growing industries such as mining and smelting. Indonesia  produced 1.6 million tons of nickel in 2021 to meet growing world battery demand, requiring 10 GW of electric power.

Such industries are now planning their own 13 GW of captive, dedicated power plants to keep them from relying solely on the government-owned utility Perusahaan Listrik Negara (PLN).

The viable alternative is for ThorCon to build nuclear power plants with private funds and sell full-time electric power under contract to PLN at prices cheaper than coal-produced power. Multilateral development banks such as the World Bank and Asian Development Bank refuse to finance nuclear power plants.

But the low capital cost of ThorCon 500, at $1 per watt of electricity generation capacity, can be attractive to private investors.

Projected site of the ThorCon 500 nuclear power plant on the island of Kalesa, Indonesia. Image: ThorCon

In 2022, the governor of Bangka-Belitung province recommended Kelasa Island for the ThorCon prototype. PLN Engineering analyzed the uninhabited island harbor, routes for an undersea power cable and the impact of interconnection to the electric grid serving Bangka-Belitung and Sumatra.

ThorCon has engaged nuclear-experienced Agrupados Empresarios to help complete the detailed design and prepare permit applications to Bapeten, Indonesia’s nuclear regulator. Because the ThorCon 500 is a vessel to be towed across the seas, Bureau Veritas provides inspection and certification services to comply with international rules.

In March 2023 ThorCon and nuclear regulator Bapeten began formal pre-licensing consultation about the design and safety of the power plant in regular meetings. The prototype ThorCon 500 power plant is expected to be operating under test at Kelasa Island in 2028.

After earning design approval from Bapeten in 2030, ThorCon and Indonesia are planning more such power plants. Subsequently, ThorCon hopes to build 20 500 MW power plants per year.

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Xi’s big push to reverse China’s massive capital flight

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Xi Jinping’s first public visit to Shanghai in three years signals a new effort to boost China’s private sector. Yet even more important, Xi’s team in Beijing chose this week’s occasion to unveil a series of reforms that are a bigger deal than might meet the eye.

The stocks of Shanghai-centered tech companies like Semiconductor Manufacturing International Corp, Hua Hong Semiconductor Ltd. and Will Semiconductor Co. rallied on the news Monday.

The visit, coupled with new policies to level playing fields and increase private companies’ access to capital, is seen by some as Xi following through on vows made in California earlier this month to make life easier for China’s beleaguered entrepreneurs.

To date, Xi’s attempts to restore investor confidence amid struggles to move past Covid-19 fallout have fallen short. More than US$1 trillion of foreign capital fled mainland share markets since Xi clamped down on Big Tech in late 2020. More recent fears about deflation haven’t helped.

In recent weeks, Xi restarted China’s stimulus machine amid calls for greater government action amid a property crisis and stalling economic recovery. In particular, the People’s Bank of China, China’s central bank, has channeled more liquidity to troubled property developers.

Analyst Zerlina Zeng at CreditSights speaks for many when she says “we expect China’s softening external stance and warming relationship with the US and other developed markets to set a more conducive geopolitical backdrop for China credit.”

But the reforms being outlined this week could be a game-changer. The PBOC and seven other government bodies have unveiled 25 steps to increase the role of the private sector.

They will apply to a broad range of private sector industries, including the ailing property market. Gavekal Research analyst Xiaoxi Zhang isn’t exaggerating when she warns that “debt strains from property developers and local government financing vehicles are spreading across China’s economy.”

There are concerns, too, that Beijing’s criminal probe into the wealth management unit of Zhongzhi Enterprise Group, one of China’s largest “shadow banks,” could soon spook Asian markets the same way China Evergrande Group’s default did in 2021.

The Zhongzhi Group shadow bank is on the verge of collapse. Image: Twitter

Broader initiatives include setting clear and transparent targets for widening access to financial services for private enterprises.

With an emphasis on regular performance assessments and financial support, the plan is to increase the proportion of loans to private enterprises while improving organizational structures to increase efficiency.

Areas of particular focus include: supporting technological innovation amongst small and medium-sized enterprises, entrepreneurs in the green and low-carbon space and innovators keen to disrupt China from the ground up.

This will include a greater tolerance for risk-taking and the non-performing loans that startups can rack up. Beijing seeks to recalibrate lending and borrowing practices to increase private sector development while limiting risks.

This also includes increased support for first-time loans and unsecured loans. Financial institutions will be encouraged to develop a wider range of credit-financing products suitable for private enterprises.

Most important of all, Xi’s reform team is eying a great leap forward for China’s corporate bond market. This has long been a stumbling block for smaller, less established corporate credits. In particular, China plans to expand the range of bond financing options — and the scale — to private enterprises.

Under a series of “innovation bills” under the National Association of Financial Market Institutional Investors and China Securities Regulatory Commission, new structures will be welcomed for stock-bond hybrid products, green bonds, carbon neutrality bonds, transition bonds, infrastructure bonds and other financing tools.

Support programs will seek to incentivize private enterprises to issue asset-backed securities to restructure and revitalize existing assets. Registration mechanisms will be streamlined.

And Beijing will prod state-owned entities like China Bond Insurance Co and China Securities Finance Corporation, and even non-government institutions, to adhere to global standards and raise their credit market games.

That means building world-class systems for credit guarantees, credit risk mitigation tools, credit analysis and ratings and expanding China’s universe of bond financing support tools for private enterprises.

At long last, the Communist Party finally seems serious about facilitating increased bond investment in private enterprises. In years past, Beijing worried about a “crowding out” effect if private issuers lured capital from the national and local governments.

China’s bond markets haven’t kept pace with the economy’s needs. Image: Twitter

Now, Beijing will encourage banks, insurance companies, pension funds, public funds, and other institutional investors to allocate capital to private enterprises. Regulators will be charged with internationalizing trading mechanisms, market pricing, compliance and disclosure procedures.

Xi’s team also is stepping up efforts to develop a high-yield bond market. Few steps might be more impactful for private sector development – especially tech-oriented SMEs – than creating a dedicated high-yield debt platform empowered by world-class trading systems. It would supersize capital-raising options and pull in new generations of overseas investors.

In June, local media reported that the PBOC and CSRC sought advice from market participants on setting up a high-yield marketplace. As of then, only four high-yield debt issues with coupons exceeding 8% had priced in 2023.

Authorities sought input from fixed-income players, investment bankers, legal experts, rating companies and accountants. This would channel greater financing to tech enterprises, startups and riskier borrowers.

The key, though, is implementation. The disconnect between Xi’s rhetoric since 2012 and execution helps explain why investors tend to be skeptical of China’s past efforts to reboot the reform process.

“Time will tell whether President Xi’s words will first stem the current large foreign direct investment outflows and eventually lead to a resumption of the net FDI inflows that China has enjoyed for more than four decades,” says Nicholas Lardy, senior researcher at the Peterson Institute for International Economics. “A safe assumption is that it will take more than words to accomplish this objective.”

It helps that the news dropped days after Xi’s government drafted a list of property developers eligible for large-scale support, including the troubled Country Garden Holdings. The property crisis remains a major turnoff for overseas investors.

New data, Lardy notes, “imply that foreign firms operating in China are not only declining to reinvest their earnings but – for the first time ever – they are large net sellers of their existing investments to Chinese companies and repatriating the funds.”

The outflows in question exceeded $100 billion in the first three quarters of 2023 and, as Lardy predicts, “are likely to grow further based on trends to date.”

Among the factors Lardy cites as repelling overseas investors and chieftains: tense Sino-US tensions; recent news of Beijing cracking down on foreign consultancy and due-diligence firms vital to evaluating investments; Beijing’s increasingly stringent regulatory environment; new national security laws; and restrictions on cross-border data flows.

Michael Hart, president of the American Chamber of Commerce in China, notes that “foreign business executives here are eager to continue in China. But boards back in the US are wary.”

Hence the importance of Xi and Li ensuring that these new private enterprise policies are implemented in credible and transparent ways. The good news is that Li, party secretary for Shanghai City from 2017 to 2022, has close ties with, and deep understanding of, China’s tech sector.

Li Qiang understands the tech sector. Image: Screengrab / NDTV

Veteran banker Zhu Hexin seems a solid choice as new party chief of the State Administration of Foreign Exchange (SAFE). He will assume management of China’s foreign exchange stockpile from PBOC Governor Pan Gongsheng. Zhu also was appointed as a member of the central bank’s party committee.

Prior to SAFE, Zhu helmed state-run financial conglomerate CITIC Group, meaning he comes to the job with deep market knowledge and industry contacts. Also, Vice Premier He Lifeng has been tapped to oversee economic and financial policy and trade talks with the US and Europe as head of the Central Financial Commission.

It now falls to Li, Zhu and He to ensure that President Xi’s recent pledges to top Western chieftains in San Francisco don’t fall by the wayside.

CEOs on hand to hear Xi speak included Apple’s Tim Cook, Bridgewater Associates’ Ray Dalio, Citadel Securities’ Peng Zhao, ExxonMobil’s Darren Woods, JPMorgan Chase’s Jamie Dimon, Microsoft’s Satya Nadella, Pfizer CEO Albert Bourla and Tesla’s Elon Musk.

There, Xi claimed that “China doesn’t seek spheres of influence, and will not fight a cold war or a hot war with anyone.” Xi also seemed to preview the next phase of reform, stating that “we should remain committed to open regionalism, and steadfastly advance the building of a free trade area of the Asia-Pacific. We should make our economies more interconnected and build an open Asia-Pacific economy featuring win-win cooperation.”

Xi added that “we should promote transitions to digital, smart and green development. We should boost innovation and market application of scientific and technological advances and push forward the full integration of digital and physical economies. We should jointly improve global governance of science and technology, and build an open, fair, just and non-discriminatory environment for the development of science and technology.”

Earlier this month, Xi presided over a private sector symposium in Beijing to highlight its central role in a more innovative and productive Chinese future. There, Xi stressed that private enterprises contribute more than 60% of gross domestic product, 50% of tax revenue, 80% of urban employment, 90% of new jobs and 70% of tech innovation.

“Over the past 40 years, the private sector of the economy has become an indispensable force behind China’s development,” Xi acknowledged.

Yet private enterprise has had a rough few years, from Covid-19 to Xi’s tech crackdown. A major concern now is that China falls into a Japan-like lost decade, so-called “Japanification.”

Economist Takatoshi Ito, a former Japanese deputy vice minister of finance, notes that the Chinese property sector’s “travails echo Japan’s experience” with bad loans and deflation.

But, Ito adds, “perhaps the greatest threat to China’s economic growth and development is Xi himself. Xi has spent the last few years tightening government control over all aspects of life in the country, including the economy. The regulatory crackdown on large tech companies like Alibaba, which began in late 2020, is a case in point.”

Alibaba took the brunt of Xi’s tech clampdown. Image: Agencies

Though regulators “have since backed off somewhat, and China’s government is actively supporting high-tech industries like electric vehicles, Xi’s obsession with control continues to pose a serious threat to China’s prospects. Not only does it hamper innovation by domestic firms; it also discourages foreign investment.”

The good news is that the private sector reforms detailed in recent days suggest Xi is serious about bold economic disruption and recalibrating growth engines away from state-owned enterprises and public investment toward private sector innovation.

As long as implementation is swift and credible, 2024 could be a markedly better year for China than many investors now pulling their investments from Asia’s largest economy expect.

Follow William Pesek on X, formerly Twitter, at @WilliamPesek

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Zhongzhi collapse could be bigger than Evergrande’s

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Top executives of a major Chinese wealth management firm are being probed after the company reported a net liability of up to 260 billion yuan (US$36.5 billion) last week.

Beijing police said over the weekend that they have launched a criminal probe into the wealth management unit of Zhongzhi Enterprise Group, which reportedly manages about 3.72 trillion yuan worth of assets and is regarded as one of China’s largest “shadow banks.” 

A person surnamed Jie, who is believed to be a nephew of the firm’s late founder Jie Zhikun, is among those who have been arrested, Chinese media reported on Monday. Jie Zhikun died in December 2021 due to heart disease.

The arrested were accused of being involved in illegal fundraising activities and other suspected crimes. 

The police operation was launched a few days after Zhongzhi reported on November 22 total assets of 200 billion yuan and total liabilities of between 420-460 billion yuan, meaning the firm’s net liabilities were somewhere between 220-260 billion yuan.

On Monday, Chinese commentators published a series of articles and videos criticizing Zhongzhi for partnering with some state-owned enterprises (SOEs) and using its reputation to sell wealth products. 

They also slammed Jie’s family members and senior executives for cashing in on their wealth product investments before Zhongzhi’s financial problems were reported by the media this summer. 

“With a net liability of 220 billion to 260 billion yuan, Zhongzhi is severely insolvent and is having a huge operational risk,” a financial anchor said in her vlog posted on social media on Monday.

“The company said it’s not easy to liquidate its assets, most of which are bonds and equities that are now undervalued. It seems to be telling the public that its net liability may actually be more than 260 billion yuan.”

She says Zhongzhi’s founder and executives built a financial empire by forming partnerships between the firm and SOEs while using the latter’s reputation to raise funds over the past two decades. She says Jie’s family had accumulated as much as 25 billion yuan of wealth during the peak period.  

Zhongzhi Enterprise Group’s founder Jie Zhikun died in December 2021. Photo: Baidu

“Zhongzhi said it has lost its direction after the death of Jie in 2021. How could the company blame a dead person after a huge amount of its assets disappeared?” she asked?

“The fall of Zhongzhi may be one of the largest defaults since the establishment of the New China in 1949,” a financial columnist wrote in an article. “The negative impact of Zhongzhi’s collapse may be even bigger than that of Evergrande as Zhongzhi has huge assets under management.”

“Many senior executives in Zhongzhi have made their fortune and left the company while the company’s wealth management product clients lost their money,” he says. “Who is going to take the responsibility?”

An apology

In June, some clients complained that they could not get their money back when the wealth management products they bought from Zhongzhi and its subsidiaries such as Zhongrong International Trust matured. 

On August 11, an unnamed former employee of Zhongrong was quoted by Cailian Press, a financial website, as saying on August 11 that at least 350 billion yuan of Zhongrong’s wealth products that were sold through Zhongzhi’s sales channels had stopped payouts. 

He said the figure did not include the products directly sold by Zhongrong.

The National Financial Regulatory Administration (NFRA), China’s financial regulator, has set up a task force to examine Zhongzhi, Bloomberg reported. 

After a three-month auditing, Zhongzhi told its clients in a letter on November 22 that it wanted to apologize for its ineffective internal operation after Jie’s death. It said its management had tried to restructure the business and turn around the unfavorable situation but the moves did not achieve the expected results. 

“After the issuance of this letter of apology, Zhongzhi’s clients’ last hope that the company would survive has vanished,” a financial writer using the pen name Mi Mei says in an article. 

Over the past two decades Zhongzhi had invested in different companies and financial assets but all these investments, controlled by Jie, had seen falling returns in recent years, Mi Mei wrote. 

Zhongzhi’s liabilities are way bigger than its assets. Image: Twitter

According to a Beijing Police announcement, a person surnamed Jie was arrested for Zhongzhi’s illegal fundraising activities.

Chinese media said after Jie died, his nephew Liu Yang was appointed by the board to lead the company. At the same time, Jie’s other nephew, Jie Zizheng, a 34-year-old executive director at the firm, had the power to decide which projects to invest in.

Jie’s other successor options were his daughter Jie Huiyu, as well as his second wife, Mao Amin, a famous Chinese singer, and her two children.

Read: Chinese wealth management firm stiffs big investors

Follow Jeff Pao on Twitter at @jeffpao3

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Commentary: China seeks to lessen developing countries’ reliance on the US dollar

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CHINA LOOKS TO INCREASE THE POWER OF ITS CURRENCY

Measured against the vast tide of foreign currency transactions undertaken each day, Argentina’s yuan-for-pesos swap in August was a drop in the bucket. However, it should be seen as just the latest of numerous similar deals that Beijing is doing around the world that are designed to increase the power of its currency, known as the RMB in the markets.

The People’s Bank of China has been busily working similar swap arrangements, most notably with Russia in a deliberate strategy to help evade sanctions that have blocked it from tapping its own international reserves held in other entities.

The arrangement with Russia is almost certainly China’s biggest swap line – and it’s growing. Following the withdrawal of Visa and Mastercard, Russian banks currently issue credit and debit cards linked to China’s Union Pay system.

At last count China had signed these deals – more formally known as bilateral currency swap lines (BSLs) – with no less than 41 countries for a total notional value of US$554 billion.

There is nothing anything inherently sinister in a BSL – the Reserve Bank of Australia, for example, signed one with China years ago. The underlying principle behind a BSL is to avoid the kind of liquidity crunches that happened during the COVID-19 pandemic, but also to smooth out trade payments.

Until recently BSLs had no, or little, political motivation. They were purely mutually beneficial, technical arrangements. But that is changing as Beijing aims to erode the hegemony of the dollar in world markets, by default the anchor currency in a turbulent sea. As a well-researched 2022 paper by the Atlantic Council, an American think tank, points out:

“While these BSLs can be used to meet RMB (or other local currency) liquidity needs, the motivation behind these [Chinese] agreements has been to settle bilateral trade and investment transactions in RMB (or other local currencies) in order to gradually reduce the reliance on the US dollar in bilateral transactions both for political reasons and to avoid the volatility of the dollar value of local currencies due to changes in US Fed monetary policy.”

In pursuit of this long-term plan, in quick succession China has created a network of BSLs in the region it intends to dominate. Between South Korea, Singapore, Indonesia, Malaysia and Thailand, China has built up swaps to the tune of US$92 billion that will help spread the yuan throughout the fastest-developing nations in the world.

“The motivation here is to foster local currency settlement arrangements of the bilateral trade of each of these countries with China,” explains the Atlantic Council.

This can be a mutually convenient arrangement, but there is a more subtle purpose and that is to lessen reliance on the greenback by, as with Argentina, providing an alternative settlement currency. That’s why currency traders sometimes refer to the yuan as the “redback”.

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Scammers to face scrutiny

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PUBLISHED : 28 Nov 2023 at 04:42

Scammers to face scrutiny
Workers from mobile phone network providers help police sort SIM cards illegally used in fraudulent transactions in February last year. (Photo: Department of Special Investigation)

The National Broadcasting and Telecommunications Commission (NBTC) will investigate 40,000 numbers linked to SMS and phone scams in a bid to apprehend core perpetrators.

A NBTC subcommittee convened a meeting on data collected of suspected phone numbers used by scammers. Notable attendees included representatives from law enforcement agencies, the central bank and mobile phone networks.

Pol Gen Natthorn Prohsuntorn, Cyber Crime Legal Integration Subcommittee’s chairman, said data began to be collected on the issue when the Royal Decree on Cyber Crime Prevention and Suppression became effective on March 17. The decree allows people who suspect they are scammed or that their online security has been breached to alert banks to freeze their accounts without first filing a police report.

Since the decree’s enactment, Pol Gen Natthorn said, the Cyber Crime Investigation Bureau has received reports concerning 41,398 suspicious phone numbers. Out of these, 11,219 were flagged via the thaipoliceonline.com website and 11,219 numbers via the Anti-Online Scam Operation Centre (AOC) 1441 hotline. There are 30,179 numbers linked to mule bank accounts.

Pol Gen Natthorn said the NBTC approved a draft announcement on SIM-holder identity verifications on Sept 21, which requires holders registered with more than five SIM cards to conduct identity verification. It is expected to take effect in December. By law, those involved in supplying or advertising the sale of SIM cards without proper owner identification could face 2-5 years in jail, fines ranging from 200,000 to 500,000 baht, or both.

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Zhongzhi Enterprise Group: China investigates major shadow bank for ‘crimes’

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An aerial view of the unfinished luxury housing development that has existed for more than a decade by the Qiantang River in Hangzhou, East China's Zhejiang Province, July 18, 2022.Getty Images
By Zarina McDonald
BBC News

Chinese officials have launched an investigation into one of the country’s biggest shadow banks, which has lent billions to real estate firms.

Zhongzhi Enterprise Group (ZEG) has an asset management arm that at its peak reportedly handled more than a trillion yuan ($139bn; £110bn).

Authorities said they are investigating “suspected illegal crimes” against the firm, in a statement on the weekend.

This comes days after reports that ZEG had declared it was insolvent.

The struggling firm reportedly told investors in a letter last week that its liabilities – up to $64bn – had outstripped its assets, now estimated at about $38bn.

While authorities said they had taken “criminal coercive measures” against “many suspects” it’s still unclear who they are, and what role they play in the firm. The company’s founder, Xie Zhikun, died of a heart attack in 2021.

ZEG is a major player in China’s shadow banking industry, a term for a system of lenders, brokers and other credit intermediaries who fall outside the realm of traditional regulated banking. Shadow banking, which is unregulated, is not subject to the same kinds of risk, liquidity and capital restrictions as traditional banks.

China’s shadow banking industry is valued at around $3tn. It often provides a financial lifeline to the country’s property sector. The once-booming industry has been hit by a severe credit crunch, with some of the biggest firms now on the brink of financial collapse.

“For several decades China been chasing this property bubble – and in order to create this bubble, or to fuel growth in China, they needed capital. So they started getting a lot of money from individual investors offering very, very high returns. And it worked for quite a while because the property prices were going up and it’s a win-win for everybody,” says Andrew Collier, a shadow banking expert at Orient Capital Research.

Informal lending has always existed in China’s economy, but shadow banking really took off in the aftermath of the global financial crisis in 2008, when credit was scarce.

Given China’s slowing economy and the crisis in the real estate sector, Mr Collier says the troubles at ZEG may just be the start of a bigger problem: “This is going to spread further into other forms of shadow banks and potentially into the actual real brick-and-mortar banks.”

Embattled property developers currently owe Chinese banks money worth as much as 30% of the banks’ assets.

“That is going to take a long time to unwind,” Mr Collier says.

The latest developments at ZEG has raised concerns of further turmoil in the world’s second-largest economy, after the collapse of property developer Evergrande and more recently the financial woes at Country Garden.

China’s property sector makes up a third of its economic output. That includes houses, rental and brokering services, as well as construction materials and industries producing goods that go into apartments.

The latest figures show that China’s economy expanded by 4.9% in the three months between July and September. That is slower than the previous quarter, when the economy grew by 6.3%.

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