Welcome to the LEHMAN, LEE & XU Firm’s “China Capital Market” newsletter, for June 7, 2013. 

In this edition of our “China Capital Market” news letter we first discuss Hong Kong and the massive attention being focused upon very successful capital markets there, and on who is taking advantage of them.

Next we take a look at the drive coming from the top of Chinese government for market reforms in light of rapidly occurring changes international financial and investing strategies world- wide.  China must do what it needs to do to keep up with the global economy and it appears mounting pressure from the outside will make China move forward with the rest of the world no matter what it might take to do so.

Post world-wide recession development plans are taking most countries into unknown and uncharted waters.  It remains to be seen which international players will be the best navigators.

Best Regards,
Lex Smith
Foreign Legal Consultant

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In the News

BMO Capital Markets Expands Presence in Hong Kong

HONG KONG, CHINA and TORONTO, ONTARIO--(Marketwire - 04/13/11) - BMO Capital Markets, the investment and corporate banking arm of BMO Financial Group (NYSE:BMO - News)(TSX:BMO - News), is bolstering its capital markets presence in the Pan Asian market with the opening of a foreign exchange office in Hong Kong. In addition, BMO is expanding its financial products and debt products capabilities in Hong Kong. A team of sales and trading specialists have been hired to support the firm's latest growth efforts, doubling the size of the Hong Kong office."We've been building relationships in China, for almost as long as the bank has been in business. Bolstering our service capabilities in the Asian market is a key part of our growth strategy that will deliver a significant contribution to BMO over time," said Jamie Thorsen, Executive Managing Director & Head of Foreign Exchange and China Capital Markets, BMO Capital Markets. BMO's foreign exchange practice will be run by Jolway Li, who has been appointed Head of FX Asia (ex-China). Mr. Li brings almost 20 years of FX experience to his new role, including 13 years in BMO's Chicago office. He will be responsible for growing the foreign exchange business in Hong Kong and serving clients with Pan Asian interests outside of mainland China. BMO Capital Markets currently provides foreign exchange services in China through its office in Guangzhou, Shanghai and Beijing."Our Hong Kong launch marks another significant milestone in the expansion of our business, as it supports our strategic priority to maintain our position as a leading provider of Canadian dollar foreign exchange products globally," said Ms. Thorsen. "Our foreign exchange presence in Hong Kong gives us a clear advantage in growing our existing business and capitalizing on the tremendous growth potential of the Pan Asian market."Robert Yeung is appointed Managing Director of Financial Products and Debt Products coverage for Asia. Mr. Yeung will be responsible for growing BMO's global platform in financial products and debt products. This includes both cash, interest rate and cross-asset derivative and structured products. Mr. Yeung joined BMO four years ago and has more than 15 years experience in capital markets. He will be supported in Hong Kong by a team of experts in sales and trading for debt and financial products."Having Rob and his team on the ground in Hong Kong will make it easier for us to deliver financial products and debt products solutions across our various lines of business for the benefit of our corporate, institutional and wealth management clients in Asia, as well as elsewhere in the world," said Luke Seabrook, Executive Managing Director and Head of Financial Products, BMO Capital Markets."Moreover, as our business grows, we plan to create and develop products specific to the Asian market that will provide a differentiating advantage for our clients in Canada, the U.S. and Europe," added Charlie Piermarini, Executive Managing Director and Head of Debt Products, BMO Capital Markets. About BMO in ChinaBMO Financial Group is the only Canadian bank incorporated in China, with branches in Beijing, Guangzhou, Shanghai and Hong Kong. It is the only foreign financial institution headquartered in Beijing. BMO also has a representative office in Taipei, Taiwan and an Investment Banking representative office in Beijing. In September 2010, BMO officially opened its new incorporated subsidiary, Bank of Montreal (China) Co. Ltd. (BMO ChinaCo), allowing the bank the flexibility to expand its product and service offerings for North American and Chinese clients. In addition, earlier this year, BMO became the first Canadian bank to offer North American commercial clients the ability to make payments directly to Chinese companies in the Chinese Yuan (CNY).A History of Excellence BMO's Foreign Exchange Group is a recognized leader in Canadian Dollar foreign exchange. The group has consistently won several global awards for its capabilities. Most recently, BMO was named the Best Forex Provider, North America by Global Banking & Finance Review; Best FX Bank North America by DealMaker's Monthly survey and Top 20 FX Bank Globally by FX Week Magazine. In China, for the fourth year in a row, BMO was named one of the Most Popular Market Makers in China and the Best Non-U.S. Dollar Market Maker by the China Foreign Exchange Trade System (CFETS).About BMO Capital Markets BMO Capital Markets is a member of BMO Financial Group (NYSE:BMO - News)(TSX:BMO - News), one of the largest diversified financial services providers in North America with CDN$413 billion total assets and 38,000 employees as at January 31, 2011.


Global capitalist crisis drives China’s pro-market reform

The Chinese Communist Party (CCP) led by President Xi Jinping and Premier Li Keqiang have announced a third wave of pro-market reforms, aiming to open up state-run sectors of the economy to global capital.

Li sent out the clearest message before his trip to Europe last month, pledging in a Swiss newspaper to “make an all-around effort to deepen market-oriented reform.” The National Reform and Development Commission has also outlined proposals including faster approval for investment projects, liberalization of interest and exchange rates, and above all, private investment in state-run sectors such as finance, energy and telecoms. The policy is to be presented to the CCP Central Committee this autumn.

The driving forces behind the reform are intensifying economic and geo-political tensions unleashed by the global economic crisis. China’s export markets have collapsed as savage austerity, wage cuts, and mass joblessness hit workers’ purchasing power in the United States and Europe, slashing global demand for cheap consumer goods produced with super-exploited Chinese labor.

China’s “export-led” growth strategy has failed, its economy only kept afloat by the massive expansion of debt after Beijing passed a $650 billion stimulus package in 2008. The subsequent explosion of bank lending has driven total spending to trillions of dollars—miring local governments over $2 trillion in debt, cutting into profit rates, and inflating a housing bubble that could engulf China’s banking system.

Despite the flood of cheap credit, growth continues to slow: it is expected to hit 7 percent this year, well below the 8 percent minimum the CCP believes necessary to keep unemployment from rising.

The Xi-Li leadership also faces pressure from Washington, which is aggressively stepping up operations to militarily contain China with the Obama administration’s “pivot to Asia.” It aims to encircle China with hostile military alliances and bases, before China’s economic and technological growth would allow it to challenge Washington’s influence in the Western Pacific.

Free-market attacks on the working class are one area, however, on which US imperialism and the CCP bureaucracy can agree: CCP officials and transnational corporations in China want to drive up productivity and boost profits. There is also rising dissatisfaction in ruling circles with the pay raises the CCP was forced to grant after waves of strike struggles initiated by Honda auto workers in 2010, which have led international business to shift production towards India or Vietnam.

A major US demand is to dismantle China’s 120 largest “state monopolies”—a goal laid out in a report, China 2030, which Li worked on together with the World Bank last year. With state firms in strategic sectors such as energy, telecommunications and railways holding trillions of dollars of assets, their privatization would be a major bonanza for top CCP bureaucrats—as well as for their business partners in Wall Street investment banks.

Many current and former CCP leaders’ children, active as private equity or investment banking executives in speculating on state-owned assets and resources, could take over huge assets in the new privatizations.

Xi and Li, who are implementing this policy, are fitting representatives of the parasitic “red aristocracy” which emerged inside the CCP since the restoration of capitalism under Deng Xiaoping in the 1980s. Xi represents one of the most hated social types in China: a “princeling,” a child of the previous generation of top bureaucrats who have amassed power and wealth since capitalist restoration.

A pupil of leading free-market economist Li Yining, Li Keqiang helped articulate the official doctrine in the 1990s that justified the last wave of privatization that destroyed tens of millions of jobs.

China’s business elite, closely intertwined with CCP officialdom, is trying to break free of the remaining state structures inside which they accumulated their wealth. Free-market policies would not only permit intensified exploitation of workers and higher profit rates, but also give a firmer juridical foundation for the private wealth they have built up in China.

By adopting such a policy, the CCP is setting itself on a collision course with the working class. Pressures for higher output, wage cuts and high unemployment already lead to frequent clashes between strikers and police. So-called “mass incidents” doubled from 90,000 in 2006 to 180,000 in 2010, according to the latest figures.

Writing in the Western press, the CCP makes clear the dangers it foresees. Deng Yuwen, a former deputy head of the CCP Central Party School wrote in the Financial Times that if the government made any major policy mistake, “no one can guarantee that a revolution will not break out. Besides, even if a nationwide upheaval can be avoided, fierce social turbulence might still arise locally. If the ruling party fails to cope with these outbursts, they could snowball into a revolution.”

Intimations of coming revolutionary struggles of the working class testify to the historic bankruptcy of the CCP’s Stalinist perspective of “building socialism in a single country” after the 1949 revolution. In the final analysis, the CCP bureaucracy re-established capitalism, amid the social conflicts and working-class struggles of the 1970s, because—as the great Marxist Leon Trotsky had pointed out—it was impossible to find the resources within any individual country to build a socialist society.

Three decades later, the society created in China based on accessing the world economy through ties to Western capital has also been undermined by its own contradictions. The CCP looks abroad and sees rising risks of war with the United States and its allies, and at home sees the rising threat of working-class discontent and revolution.

The critical task is the development of a united, politically independent struggle by the international working class against the bankrupt capitalist order.

Chinese workers cannot trust various pseudo-left or “conservative” factions of the CCP who criticize the pro-market “reform” or warn about the takeover of China by “neo-imperialism.” They base themselves not on the standpoint of socialism, but on reactionary economic nationalism. They hope to transform the largest state enterprises into “national champions” like Samsung and Hyundai in South Korea, in which CCP leaders’ families would be the main owners.

Chinese workers must intervene independently, fighting together with their class brothers in America, throughout Asia-Pacific and the world, to put an end to the root of sweatshop exploitation, depression and war: capitalism and the nation-state system. This means a revolutionary mobilization to overthrow the capitalist CCP regime and establish a genuine workers government, as part of a global struggle for socialism.

To develop a political leadership capable of undertaking such a struggle, the essential step to take is to build a Chinese section of the International Committee of the Fourth International, the world Trotskyist movement.


Edward Lehman雷曼法学博士
Managing Director 董事长

LEHMAN, LEE & XU China Lawyers
Founder of LehmanBrown International Accountants

Lehman, Lee & Xu is a top-tier Chinese law firm specializing in corporate, commercial, intellectual property, and labor and employment matters. For further information on any issue discussed in this edition of China Capital Markets In The News or for all other enquiries, please e-mail us at mail@lehmanlaw.com or visit our website at www.lehmanlaw.com.

© Lehman, Lee & Xu 2013.
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