Last month I was talking about some funny things that happened in China and I forgot to mention the best story of all.

It took place just after the merger of MeesPierson and Generale Bank (Fortis). The newly appointed managing director visited China to meet everyone in the different offices. We were in Beijing and we had to search out an especially spicy Sichuan restaurant because the MD could eat this stuff like he had a tongue made of rubber. Meanwhile, the rest of us were crying in the restaurant every time we took a bite. Strolling back to our hotel with our wives the MD wanted to find a toilet and then suddenly said, “Oh here is an old building; let me do it against the wall.” So he raced off down the side street and proceeded to urinate on the wall of the Forbidden City. The guards just stared in amazement as he did up his trousers, said “that’s better”, and walked off. I could just imagine the headlines in the Dutch newspapers if he had been arrested.

Of course, reverting to storytelling can only mean one thing – it’s slow times doing deals in China. There are so many things going on to make it more difficult to do any sort of deal. Over the past year, lenders have been primarily worried about power shortages and products not coming out to service loans. Now the Chinese government’s environmental protection commission has started clamping down, not only on old energy intensive plants, but also on new projects and even some that have already started construction. We are not only seeing this is in aluminium and steel, but across different industries such as the ferro alloys industry too. The commission is particularly targeting power projects with the official reason that such power is being used to fuel unnecessary production.

Whatever the official reason – conserve energy resources, direct resources into the hungry domestic market or even to curb the inflow of what is perceived as speculative pre-export advances – the government is taking measures to limit exports. The ministry of commerce and the tax bureau abolished export-tax rebates on several metals in the lead up to the long May holidays, as well as introducing new increased export-tax payments on numerous metals. Somebody told me the other day that if the recently introduced 5% tax on aluminium doesn’t work then the government may introduce an incredible 25% export tax.

A recent reversal of policy came about in the aluminium industry where the decision to introduce export-tax payments even on tolled material was reversed. The government intended to tax exports of aluminium under tolling contracts for alumina imports. What was interesting was the outcry came in a united front from both the public and private sector, lobbying together. Articles have been written, for example in the Metal Bulletin, by prominent aluminium industry executives publicly criticising government policy.

We have been quite active in zinc deals but where the domestic price is already $100 per tonne higher than international markets, it is already difficult enough to negotiate an export contract to underpin a new pre-export loan. Additional tax will make it more difficult and worry banks about defaults on deliveries later on.

Already last summer strict new regulations were introduced by the state administration for foreign exchange practically making it impossible to convert US dollar loan proceeds into the local currency, renminbi. Officially the ‘reasonable’ reason given was to stop speculative arbitrage on China’s strong currency. One of the exceptions to this tightness was the concept of a trade-related pre-export where US dollars could still be converted. Now several provinces are only allowing this up to 180 days, which makes it impossible to work on one of those big pre-export loans that put good fees in the bank for us and meet the budget of the foreign bank structured finance team in China.

So the implementation of all these measures may possibly be the right thing for the Chinese government in the long run, but it is not easy for those of us trying to make a living out of it. And the rents in Hong Kong keep going up.

Any bank out there looking for an experienced structured finance team in Asia that will provide a good salary? Now that would be another funny story.

David Sullivan is CEO of Trade Finance Corporation in Hong Kong