August 16, 2005

Biz Weak Inadvertently Tells Us Why CNOOC-Unocal Was a Bad Idea

Filed under: Biz Weak,Business Moves,Economy,Taxes & Government — Tom @ 2:11 pm

Now they tell us.

Oh, they didn’t mean to. They were just trying to enlighten us on how things really work in China.

But Business Week’s August 22 article on “The State’s Long Apron Strings” tells us in a few paragraphs the kind of world Unocal would have been absorbed into (requires subscription; bold is mine) if the deal with CNOOC had been allowed to go through, and therefore why the deal’s prevention was for the better:

But even if it doesn’t interfere in day-to-day matters, the state — really the Communist Party — still has plenty of clout. Every state-linked company has a Party organization that acts as a kind of shadow management and vets all senior appointments. The state-owned Assets Supervision & Administration Commission (SASAC), a sort of über-holding company with a controlling stake in nearly 200 big enterprises, keeps a close eye on the results of China’s giants, tracking metrics such as return on equity, gross margins, and sales growth just as closely as Wall Street might.

Like activist shareholders in the West, SASAC also sometimes shakes up management. In November, SASAC rotated the heads of rival phone companies China Telecom (CHA ), China Unicom (CHU ), and China Mobile without any explanation. And Wei Liucheng, who earned praise as chairman of CNOOC, was promoted to governor of Hainan Province in October. “Senior managers have to keep their finger on the pulse of their business, but also on the pulse of the Communist Party,” says George J. Gilboy, a researcher at the Center of International Studies at Massachusetts Institute of Technology. “They ignore either one at their peril.”

State control can clearly give these businesses advantages at home. In the early 1990s, when China began embracing the market economy in earnest, state-owned companies in key industries were chosen to lead the country’s development drive, landing lucrative contracts or receiving tariff protection, cheap land, easy credit from state banks, and preferential access for listing their shares. Legend Group, which owns 60% of Lenovo, is 65%-owned by the Chinese Academy of Sciences, the country’s top research body. Its staff of more than 60,000 has lent a hand in developing Lenovo’s PCs and servers.

Another big benefit: The government has steered foreign joint-venture partners to these national champions to ensure they have access to imported technology and management knowhow.

To those like the normally quite sane James Glassman, who opposed and now warns of the dire consequences of preventing the CNOOC-Unocal deal: If you don’t mind a Communist Party-controlled company that is part of the mother of all cartels buying a US company, simply say so, in those words (Glassman still clings to the fantasy that CNOOC is a “foreign company,” not a de facto part of a still-tyrannical speech-repressing government whose unapologetic legacy goes back to this guy, and which still has no regrets over this more recent massacre). Otherwise, what about the above features of Party control don’t you understand?
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Outside the Beltway Jammer.
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UPDATE: The August 10 Wall Street Journal (requires subscription) points out that there’s also this little problem of thousands of Chinese Communist spies in the US engaging primarily in industrial espionage.

Consumer Outrage of the Day–The Latest Card Issuer Penalty Rates

Filed under: Consumer Outrage,Corporate Outrage,Taxes & Government — Tom @ 6:04 am

From CardTrak, August 8 (bold mine):

For the first time in U.S. credit card history, interest rates charged by some major U.S. issuers have blasted through the 30% barrier. Due to the increase in the prime rate last month to 6.25%, Chase, Citibank, and Bank of America are now charging some cardholders this month an annual interest rate of 30.24%. With the likelihood that rates will rise further this week and beyond, it is possible that some mainstream customers will see credit card rates of 32% or more by the end of this year on cards issued by the nation’s top issuers. Chase (#1), Citibank (#2), and Bank of America (#4) levy a punitive interest rate of prime + 23.99% to customers who make late-payments, exceed the credit line, or who are otherwise considered undesirable or risky. According to CardWeb.com’s “August Credit Card Rates,” as published since 1988 in Wall Street Journal, the other top ten issuers charge punitive interest rates ranging from 19.99% to 29.99%. MBNA, which recently experienced some backlash over its pricing policies, assesses the lowest punitive rate of 19.99%. The average punitive rate charged by the top ten issuers is now 27.48%. For consumers, the best advice is to avoid making a late payment, exceeding the credit limit or bouncing a payment to avoid the bite of a loan sharking interest rate.

HIGHEST RATES CHARGED BY TOP ISSUERS (Source–August Table of Credit Card Rates as published 8-8-05 in The Wall Street Journal):
1. JPM Chase–30.24%
2. Citibank–30.24%
3. MBNA–19.99%
4. Bank of America–30.24%
5. Discover–26.24%
6. Capital One–27.24%
7. American Express–28.24%
8. HSBC–28.49%
9. Providian–29.99%
10. Wells Fargo–23.90%
AVERAGE:–27.48%

Bank of America just bought MBNA, so you can expect that in about a year MBNA’s “lenient” rate will go away. The top three of BofA, Chase, and Citi (which BizzyBlog has christened the “New Big Three”) will, after the just-noted merger is done, control well over half of all card balances owed, as covered in a previous post on another subject. So the weighted average of penalty rates in the market seems destined to go up yet again.

It would be nice to think that the card issuers are limiting the urge to assess penalty rates to particularly bad cases, but my instincts tell me otherwise.

Here’s an example from this past week that makes me think that issuers are looking for even the slightest excuse to assess penalty fees and rates:

A woman told me that she charged an item that caused her to go over her credit limit by less than a dollar. When she realized it as she was about to schedule her due-date payment online, she immediately scheduled a small payment for the next business day to take the balance below the limit again, and scheduled the remaining minimum payment for the due date. The bank charged her a $35 overlimit fee anyway, and waived it as a onetime courtesy, telling her that if she went over again, even by less than a dollar, the next fee would not be waived. (Note that the bank is also counting on a certain percentage of cardholders not complaining and just paying up.)

The woman complained that the bank’s system should have prevented her from charging an item that would push her over the limit (as the vast majority of cards still do), and requested that this customary hard limit be placed on the account so that it would be impossible for this to occur again. The request was refused.

Thanks to “universal default” language in most card agreements, just one overlimit fee could cause this woman to go into a penalty-rate situation not only on this account, but on other card accounts at other banks.

Now, try to tell me the credit card sharks haven’t crossed the line.

Meanwhile, The Office of the Comptroller of the Currency (OCC; occ.treas.gov), which is supposed to regulate this madness, sits idly by, resting on its laurels. Given their current hands-off approach, they should change their acronym to OCCC and their name to The Office of the Credit Card Companies.
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Flashback: Universal Default is Out of Control, including “The Top 10 Reasons Why Your Credit Card Rate Can Go Up”