| China hunts fugitive commodities trader | |
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| Jul 28, 2008 21:10 |   |
 | Do we (Chinese) have credit crunch? Do we have bad debts? Yes we have. But we have state owned banks that never bankruptcy no matter how much those ‘privileged parasite’ whale swallow state wealth in legal disguise in mismanaged credit market which is driven by administrative demands instead of market force. The fundamental restructuring referencing to western matured system will be painful before it really is able to be capable player in world market once China is totally open its financial market. The man who is being hunted is said to be fleeing for LosAngelos. I am wondering what probability it is that Chinese police catches this man and how this man is going to laundry money. The second article is another example of embezzlement and mismanagement of credit market that results in chains effect on the failure of futures market. |
| Jul 28, 2008 21:10 | #1 |
| China hunts fugitive commodities trader By Joe Mcdonald, AP 16 July 2008 @ 09:42 am EST BEIJING - As demand for soybeans, copper and other raw materials surged, investors flocked to Huaxia Commodities Spot Exchange Co., plunging into the risky world of commodities in search of better profits amid slumping Chinese stock prices. But now Huaxia's boom has collapsed amid accusations its founder fled to the United States last week with up to $25 million in customers' money. Police have launched a manhunt for him and say several employees have been detained. Investors who include farmers and entrepreneurs besieged Huaxia's Beijing headquarters last weekend, demanding their money. The collapse comes at an especially awkward moment for communist leaders, just weeks before the Beijing Olympics open Aug. 8 and at a time when China's stock market is near 16-month lows and investor confidence is weak. |
| Jul 28, 2008 21:11 | #2 |
| "If it were not for the games, we would all hold rallies around the country. But we love the country. We're considerate," said Chen Yunshan, who said she had 500,000 yuan ($73,000) invested with Huaxia. "The government should be considerate of us as well." As the United States grapples with the subprime credit crisis, China faces its own market meltdown. Its main stock index has fallen 50 percent since October, hurting ordinary investors and making a growing number willing to embrace higher-risk alternatives in an economy with few investment options. Police said they are "making every effort" to find Huaxia founder Guo Yuanfeng, wanted for unspecified "economic crimes." A police statement said several employees were detained but gave no details. Police spokesmen declined to comment further. There was no indication why Guo fled or whether any of Huaxia's activities were deemed illegal. Driven by a boom that is expected to see China's economy grow by at least 9 percent this year, commodities trading grew 142 percent to 35 trillion yuan ($5.1 trillion) in the first half of 2008, compared with the same period last year, according to the China Futures Association. |
| Jul 28, 2008 21:12 | #3 |
| Small traders are allowed under regulations issued last year, but Huaxia might have been engaged in bigger, longer-term trading than its status allowed, the financial newspaper 21st Century Business Herald said. The Ministry of Commerce, which oversees commodities trading, did not respond Monday to questions by phone and fax about Huaxia's legal status and trading. The Chinese newspaper Legal Daily, citing unidentified sources, said 170 million yuan ($25 million) in investors' money was missing. Guo founded Huaxia in 2001 and as the firm grew, it expanded to other regions of China, according to police. According to investors, Huaxia customers used Web-based accounts to trade commodities, with the company charging a percentage on each deal. Chinese markets trade futures in wheat, soybeans, palm oil, sugar, cotton, corn, gold, copper and zinc. Short-term traders sign contracts to take delivery of commodities and sell them minutes or hours later, trying to profit from price rises. Buyers can include small food processors or other traders who need to fulfill delivery commitments. |
| Jul 28, 2008 21:12 | #4 |
| Ye Xinying, from the central province of Hubei, said she invested with Huaxia for a number of years, then joined it as a broker in March during an expansion that she said created a nationwide network of sales representatives. Ye said she is part of a group of 69 people who have 1 million yuan ($130,000) in Huaxia accounts--a huge sum in China, where despite growing prosperity the average economic output per person is $2,600 a year. Police gave no details on Guo's background, but Ye said he grew up in central China and got his start in the 1990s trading bananas from the tropical southern island of Hainan before moving to Beijing. Ye said she called a Huaxia manager last Thursday after hearing that investors could not get money out of their accounts. "He told me the company had some problems, and Guo left with the money," she said. Chen and Ye were among some 200 investors who gathered Saturday in the lobby of the Beijing office tower where Huaxia occupied the 19th floor. Police took down information about their accounts but said they had no answers. |
| Jul 28, 2008 21:13 | #5 |
| An investor from rural Hubei who refused to give his name said he turned to Huaxia after losing money in the falling stock market. "If I lose money due to market forces, it's OK," the man said angrily. "But I didn't lose it that way. Someone took my money." The police statement said Guo's whereabouts were unknown. The 21st Century Business Herald said he flew to Los Angeles last Tuesday. China has suffered a string of scandals over insider trading on its turbulent stock markets and embezzlement or mismanagement at state banks. But this is the biggest publicly known case of its kind in fast-growing Chinese commodities markets. Investors are pouring into commodities because few can make money in stocks, and interest on bank accounts fails to keep pace with inflation, said Li Zhe, head of research for Beijing China International Futures Co., which has no connection to Huaxia. "A lot of individual investors are doing commodities futures trading," Li said. "Among our clients, winners and losers are about half and half." |
| Jul 28, 2008 21:15 | #6 |
| New China Stumbles Into Old-Fashioned Trade Scandal Losses on Copper Futures Have Leadership Spinning By Peter S. Goodman Washington Post Foreign Service Friday, November 25, 2005; Page D01 HO CHI MINH CITY, Vietnam, Nov. 24 -- China on Thursday acknowledged that a since-detained government trader placed a series of disastrous bets on the price of copper in London this summer, leaving the state to cover hundreds of millions of dollars in losses, according to a report in official Chinese media. As rumors of the scandal filtered out this month, China first denied the existence of the trader, and then branded him a rogue operator. Thursday's report in the official China Daily newspaper suggests that the Communist Party-led government has resolved to take responsibility for a scandal that has roiled commodity markets while renewing fundamental questions about the transparency of the fast-growing economy. China's fortunes and those of the global economy are increasingly intertwined, with decisions made by rulers in Beijing and traders in Shanghai rippling out to markets from New York to Tokyo. Once bent on self-sufficiency, China has in recent years developed a voracious appetite for raw materials, becoming the world's largest buyer of copper, iron ore and steel, as well as the second-largest purchaser of oil. This month copper prices soared to record levels on the assumption that China will eventually have to buy large quantities to square its accounts after the trading debacle. |
| Jul 28, 2008 21:16 | #7 |
| In its Thursday edition, China Daily reported that a trader named Liu Qibing, working for the National Control Center of the State Reserve Board -- a central government body that stockpiles commodities for the country's industrialization -- shorted copper on the London futures exchange, meaning that he bet that prices would fall. "But prices kept rising, exposing the government to losses of hundreds of millions of dollars," the report noted. In recent days, China has been selling large volumes of copper in a bid to drive prices down to contain the scale of the losses. "The auctions were triggered by the misjudgment of trader Liu Qibing," the report said, adding the state plans to sell an additional 20,000 tons next week. In financial circles, China's copper calamity evokes a similar episode nearly a decade ago, when a trader at Japan's Sumitomo Bank lost $1.5 billion by buying huge volumes of copper in anticipation of a price spike, only to see it plummet. Some recall Nick Leeson, whose $1 billion in losses on the Tokyo stock market in the mid-1990s brought down Barings, the venerable British merchant bank. |
| Jul 28, 2008 21:16 | #8 |
| But where Leeson was a highflying renegade, Liu Qibing, 36, a career Communist Party functionary, seems an unlikely maverick capitalist. Since graduating from Wuhan University in his native province of Hubei in 1990, he has worked at the National Control Centre, an institution that dates back to China's central planning days, according to a report in the China Securities Journal. After a training stint in London, he returned to the agency in 1995. He later set up a computer network that allowed him to place trades on the London Metals Exchange from his office in Shanghai. Liu soon amassed a reputation as a savvy navigator of the markets. According to Hong Kong's South China Morning Post, he netted the state more than $300 million by betting on a sharp appreciation in the price of copper between 2002 and 2004, correctly assuming that the country's construction boom would translate into escalating demand. But this year, he got it wrong, underscoring the difficulties of forecasting in an economy that is increasingly capitalist yet still subject to the often secret dictates of its Communist Party leaders. |
| Jul 28, 2008 21:17 | #9 |
| Liu began betting on a drop in the copper price this past spring, when China's central bank was preventing state banks from lending to real estate developers to prevent inflation. He figured the policy would continue, keeping the clamps on development and limiting the demand for copper. However, under pressure from local governments demanding development, the central bank again turned on the lending taps. A new wave of construction commenced, and with it a surge of demand for copper for wiring in a country that now absorbs roughly one-fifth of the worldwide supply. The price has risen by roughly one-third this year. "So much is still controlled not by market forces, but by government decisions in terms of opening and closing the floodgates of credit," said Arthur Kroeber, managing editor of the China Economic Quarterly. "There is no mechanism for communicating these decisions, even in an indirect way, to the market." Liu's bet was placed via futures contracts -- an agreement to deliver a certain amount of copper in December at a fixed price. Had the price dropped, Liu could have bought what he needed at the lower price, delivered the agreed-upon amount, and pocketed the difference. The rising price meant that he would have to shell out extra for the copper he was obligated to deliver. |
| Jul 28, 2008 21:17 | #10 |
| In July and August, when the price was at about $3,300 per ton, Liu agreed to sell roughly 130,000 tons for delivery in December, according to China Daily. This week, copper for delivery in December was trading above $4,200 per ton. Total losses have previously been estimated at $60 million to $200 million. As the price of copper climbed, Liu's supervisors apparently pressured him to double his bets in hopes that an eventual drop in the price would erase his losses, lest they provoke scrutiny from higher up, said a source familiar with the case. A merely bad bet ballooned into a disaster. "There's definitely no chance it was Liu's personal decision," said Huang Xiao, an analyst at Beijing Capital Futures Co. Ltd. "Trading activities like this by a state arm are not like those in some Western countries, operating in a completely market environment. This is supposed to be a nonprofit state unit that helps stabilize the price and supply of raw materials. They are not supposed to be engaged in speculation for profit. He could not have done that alone." |
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