From Credit Suisse, do breathe in the romance:
The impact of the easing of the one child policy on birth rates may be overstated based on the experience of easing restrictions on parents who are both single children in their families (as shown in Exhibit 3). Guangzhou, a southern China city, had more than 14,000 couples, who were both single children in their families, hence eligible to have the second child, but only 360 couples had the second child in 2009.
Starting today we get what is basically the first formal step to a fully fledged market based deposit rate system from China (honourable mention of course to those more informal weapons of mass ponzi). It’s been coming and the move doesn’t effect corporates or individuals, but in the context of the Shibor spike, deposit pressure and the post-plenum reform blush it’s very worth noting.
From UBS’s Wang Tao:
[The PBOC] took the long-expected step toward liberalizing deposit rate on December 8, announcing that effective from December 9, depository financial institutions (banks) are allowed to issue large-denomination negotiable certificates of deposit, i.e., the so-called interbank CDs.
Some are betting that Beijing will eventually endorse Bitcoin. This week Lightspeed Venture Partners of San Francisco and a China-based sister fund announced a $5m investment in BTCChina…
– Financial Times, November 22
The People’s Bank of China even did a Q&A on Thursday to explain why it’s more or less forbidden the Chinese financial system from dabbling in Bitcoin… Read more
A couple of things worth noting, for those interested in the virtual pump-and-dump campaign that is Bitcoin.
1) The Chinese Bitcoin premium has seemingly abated. Read more
China, caught somewhere between futility and necessity, is attempting to once again regulate the whack-a-mole game that is its interbank market. From the FT on Tuesday:
The China Banking Regulatory Commission is looking to establish three new hard caps on the interbank market, according to the draft of what is known as “document no. 9”. First, lending to any single financial institution should not exceed 100 per cent of a bank’s net capital. Second, lending to non-bank financial institutions should not exceed 25 per cent of a bank’s net capital. Third, lending to all financial institutions should not exceed 50 per cent of a bank’s total deposits.
We’ve argued before that the 2005-2007 commodity bull-run could have been the product of an unwitting self-manufactured squeeze, as the industry rushed to monetise as much inventory as possible to benefit from higher than usual interest rates and as inventory levels dropped. (All pretty much unwittingly, of course.)
As prices increased, the economy choked. Read more
The assumption for a long time has been that when a free floating yuan is finally born step 1 on its journey would be a joyous rush of capital inflows sweeping it upwards as foreigner investors finally got to jump into China with both feet.
But, as we’ve been arguing for a while, that might not be true anymore. Diana Choyleva of Lombard Street seems to agree: Read more
Crises tend to be born out of the unexpected and the thing most people just don’t see coming. Nassim Taleb taught us that.
With all eyes on western central banks, QE, accusations of Western repression — and a repetitive dialogue that it’s QE that’s causing bubbles everywhere — we’d argue the markets may be missing a trick in neglecting the importance of China’s recent turn towards liberalisation.
But not necessarily for the reason most people think. Read more
A common criticism of the secular stagnation and post-scarcity theory is that it is contradicted by the fact that unacceptable levels of poverty exist in many places around the world, and in particular the developing world.
If there’s so much growth potential out there, how is it possible that the economy is in secular stagnation? Or so, at least, the argument goes.
But perhaps the question we should be asking is what continues to frighten investment capital away? Read more
We were going to be slightly snarky in the face of Zhou Xiaochuan, head of the People’s Bank of China, promising to “basically” end normal intervention in the currency markets and other such liberalising things — the lack of a timetable and the ambiguity of phrasing making this seem rather similar to what we’ve heard in the past — but then we saw this from Neil Mellor at BoNYM and felt bad:
However, although a timetable was absent from Mr Zhou’s brief – something we discuss below – the fact is that this announcement constituted the beginnings of a new era for financial markets and no superlative would overstate its significance.
Oops. Read more
Just in case you haven’t been able to review the full 21,500 word “Decision” by the CPC’s Central Committee, covering 15 areas of reform and 60 concrete tasks, here’s a summary of the key measures, with commentary from Nomura’s Zhiwei Zhang:
1. State-ownership and monopolistic industries reform Read more
You may have seen these rather important tweets earlier.
Some reaction to the relatively small amount of information that can be gleaned from the summary document released by China’s powers that be post-plenum, with the obvious caveat that the final effects of the meeting will take rather more time to emerge. Read more
(Title credit to Anne Stevenson-Yang of J-Capital, who kindly insisted we steal what we would have stolen anyway.)
Brushing aside the obvious points that Xi is ‘Deng II, the Reformer’ and that his third plenum will be a knockout success similar to the big man’s in 1978, let’s pretend there’s a chance it might go wrong. Read more
Wait a minute, Doc. Ah… Are you telling me that you built a time machine… out of a sovereign bond contract?
– Marty McFly (paraphrased)
Imagine the next place to come under the new era of enforcing sovereign debt isn’t Argentina, or in the Caribbean, or even a future eurozone crisis. Imagine something… older. Much older. Read more
Step one: realise there are no good answers. Step two: don’t give the worst answer. Step three: be wary of the Deng vs Mao mask choice session in the afternoon. It’s a trick.
The mission for the near-dozen Communists sitting round a table at a Beijing ministry was explicit: criticize their boss, who was present. Party cadres carefully recorded their comments as they spoke, in an echo of sessions held decades ago under Chairman Mao Zedong’s direction.
Ladies and gentleman, we have what looks like a reform framework proposal…
The muddy waters of this particular creek have been known to drive good men mad…
From the FT:
The seven-day bond repurchase rate, a key gauge of short-term liquidity in China, opened at 5 per cent, a four-month high and up 150 basis points from the end of last week.
But we also get this: Read more
Compare and contrast the following from a note by GoldMoney’s head of research Alasdair Macleod that landed in the collective hands of FT Alphaville on Friday.
Here’s the original version: Read more
Chinese inflows are back.
Wei Yao at SocGen notes on Tuesday that China’s FX reserves added $163bn in the third quarter, the biggest quarterly increase since the second quarter of 2011.
As she notes, however, the source of those inflows is not necessarily down to the usual suspects (our emphasis):
China’s FX reserves added USD 163bn in Q3, the biggest quarterly increase since Q2 2011. The FX positions of all financial institutions (including the central bank) increased by only CNY 2.8bn in the first two months of Q3. Hence, inflows probably accelerated significantly in September. We estimate that the impact of the euro appreciation on the valuation of the reserve stock should be no more than USD 40bn during the month. In addition, the trade surplus narrowed significantly to USD 15.2bn in September from USD 28.5bn in August. Even if we assume a 20% increase in FDI, that still leaves us with nearly USD 100bn of unspecified capital inflows.
On the danger or not of China’s inflation rate:
Here’s a refreshingly different view on China, courtesy of Karen Ward, senior global economist at HSBC.
Her key point: it’s not that China is necessarily over-investing (as is frequently argued) but that the rest of EM may be under investing. Read more
SIV/ LGFV/ LGIV/ *shrug*
Whatever you choose to call the vehicles China’s local governments used to fund infrastructure when Beijing restricted financing (we are going with LGFVs here) they are very near the centre of Chinese debt fears. Which means it’d be nice to know how big they really are.
From Stephen Green at Standard Chartered (our emphasis): Read more
No point in getting too excited about China’s big policy bash — November’s third plenary session of the 18th Party Congress — just yet. It may be a once-in-a-10 year event but it’s probably going to be rather coy on detail.
It’s also important to remember this is the party’s meeting not the government’s and it’s not likely everyone sees eye-to-eye on a host of issues. Never easy getting people excited about changes to the teats upon which they suckle… Read more
Chinese authorities are continuing their efforts to finish mopping up the bad debts left from the big bank bailout of 1999-2000, in what some believe is an attempt to address — or, head off — another financial crisis.
So far we’ve seen IPOs, private capital raisings, quietly retiring bonds, and pushing for a big expansion of securitisation. Read more
What could possibly go wrong?
It looks increasingly likely that China is gearing up for another round of bad-loan cleansing with asset management companies seemingly being prepared for some more NPL absorption and a move towards what might be loosely termed market-based approaches to restructurings.
It looks like this will include securitisation, which Chinese authorities have been dipping their toes back into since a Lehman-burning, according to SocGen’s Wei Yao (with our emphasis): Read more
Last week we ran a guest post from Yukon Huang of the Carnegie Foundation, which argued that China’s high rate of investment to GDP (which exceeds levels ever reached by obvious comparisons such as Japan and South Korea) is a consequence of China’s economic rise, not a problem in itself.
The imbalance, says Huang, merely reflects the urbanisation-industrialisation process — income rises and output grows as newly-urbanised workers earn more, but the proportion of their income spent on consumption falls for a time. Read more
Chinese macro data have been on a good run recently. Today’s release of August industrial production was particularly strong, beating consensus forecasts by a relatively wide margin, although not in a way that bodes especially well for long-term growth sustainability.
Here’s a summary of key data published today, courtesy of BAML: Read more
Economic commentators have often expressed concerns that economic growth in China is unbalanced, with an unsustainable reliance on investment-driven growth. Here, we make comparisons with two other Asian economies, and look at the evidence for a counter-argument that the imbalance merely reflects a shift from an agricultural, rural economy to a more productive and urban economy. Read more