Chinese Firm Refuses To Pay Goldman $80 Million For Bad Derivatives Bets

[girl gone mad]

This is one of the big risks of doing business in China, but even with the rampant theft of intellectual property and refusal to recognize or honor contracts, American corporations still can't resist the lure of this giant market. It's hard to feel any sympathy for Goldman here.

From http://ow.ly/QMvv">Reuters:

BEIJING, Dec 29 (Reuters) - A small Chinese power generator on Tuesday rejected demands from a Goldman Sachs unit to pay for nearly $80 million lost on two oil hedging contracts, part of a long-running dispute over how China deals with derivatives losses.

Goldman Sachs (GS.N) was one of the foreign banks, along with Citigroup (C.N), Merrill Lynch and Morgan Stanley (MS.N), blamed by the state assets watchdog for providing "extremely complicated" and difficult to understand derivatives products.

Shenzhen Nanshan Power (000037.SZ) (200037.SZ) said in a statement that it received several notices from J. Aron & Company, a trading subsidiary of Goldman Sachs (GS.N), for at least $79.96 million as compensation for terminating oil option contracts.

"We will not accept the demand by J. Aron for all the losses and related interests," said Nanshan, in line with the stance it took last December.

"We will try our best to negotiate with J. Aron and resolve the dispute peacefully...but the possibility of using a lawsuit can not be ruled out when talks fail," it added.

[msongs]

1. in the US we give goldman sachs guys cabinet positions lol nt

[A HERETIC I AM]

2. This is a perfect example of why the international financial markets do NOT look to China..

when seeking a safe haven for money.

If this deserves an "LOL" it should be directed at the Chinese authorities who allowed inexperienced and/or ignorant traders to enter into contracts they could not fulfill.

Regardless of the common opinion of Goldman Sachs, if a corporate entity within and under the auspices of the Chinese government decides on a whim that it will not honor contracts duly entered into, then that corporation deserves to be shunned by the international financial community as a whole, and it will not and should not reflect on the Chinese government in a favorable light.

Imagine the international uproar if a similar situation was to transpire with a company based in Wichita or Boise.


Edited for spelling

[girl gone mad]

3. You would think Chinese firms would be shunned..

when they steal trade secrets from American manufacturers and use these formulas, along with the foreign-owned production equipment, to make copy cat products for sale in the Chinese market.

You would also think Chinese firms would be shunned for using cheap, sometimes dangerous, substitute ingredients when manufacturing products for foreign consumption.

You would also think that Chinese firms' reputation for attempting contract negotiation long after original agreements have been finalized, at the point where such an enormous investment has already been made that the foreign company has no choice but to comply, would cause them to be shunned.

In each of these cases, you'd be wrong. The draw of China's cheap labor and enormous potential market is simply too great to resist. American businesses have rolled over, time after time, and our tax and trade policy encourages this completely irresponsible behavior.

[westerebus]

6. But,but...

Moral hazzard?

Not when the FED back stops every trade you make with the assistance of a former Head of the NYC Federal Reserve.

Or the help from the former CEO turned Treasury Sec, who's only a phone call away during the credit crisis, they traded and hedged the world into.

They were not alone in that process by any reckoning. Who were the shorts selling Lehman?

As for the Chineese, what did you expect? Did you not see the big picture of the Chairman in Teninem Square? The fellow who wrote the little Red Book.

Who do you think runs that country?

Buyer beware. Trader's take notice. Investors are cautioned.

I suppose GS will just have to cash another check from the American people.

[benld74]

4. I believe they are the sane ones here,,,

[pa28]

5. Over the summer the Chinese government foreshadowed this.

At the time it was blanket warning that state owned enterprises could walk away from bad derivative trades. If I recall correctly the potential losses centered around some Air China fuel hedges that went very, very wrong.

I always like to consider possible themes and trends for the new year around this time and I get the feeling we might see this particular story again. It will be interesting to see if the Chinese government sets a precedent here by protecting a private defaulter.

[Po_d Mainiac]

7. Wanna bet GS have this hedged? n/t