Posts tagged 'China'

PBoC in the ascendant

Monetary policy probably not so much.

It’s a rare thing these days to see monetary policy taking the back seat but according to the WSJ an ever more influential PBoC is winning the argument against cutting interest rates and in favour of smaller more targeted measures like RRR cutsRead more

Chinese debt — going external

We’ve said that this might be a dolorous year for the dollarless in China.

In which case, it’s nice of the State Administration of Foreign Exchange to loosen the rules under which Chinese companies can borrow abroad then — effective from June 1. Of course, as with all reform in China, attempts at liberalisation carry their own internal risks. In this case, the rise of external debt.

This is from Michael Pettis’s latest note (he’ll also be at Camp Alphaville, nudge-nudge): Read more

Chinese QE turns American?

Yeah, we know, it’s semantic. China are already the kings of QE. But bear with us for a bit. The nature of their QE may be changing.

From Stephen Green and Becky Liu at Standered Chartered: Read more

Caption contest! Putin in China edition

That’s the Russian president on the left, rainbow-mantled former General Secretary Jiang Zemin on the right… and Gazprom’s gas deal not pictured because it is presently nowhere to be foundRead more

New normals in China

From Bloomberg:

Chinese President Xi Jinping said the nation needs to adapt to a “new normal” in the pace of economic growth and remain “cool-minded” amid a slowdown that analysts forecast will lead to the weakest expansion since 1990.

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Won’t somebody think of the property developers?

And so it goes, from Nomura’s Zhiwei Zhang:

Today’s 21st Century Business Herald reports that in Jiangsu Province the Rongchen Property Development Co. Ltd. defaulted on a RMB100m trust product that came due last August. The paper says that as yet the principal and interest have not been fully paid.

Separately, in Zhejiang Province, risks have increased with regard to entrusted loans totalling about RMB5bn made by 19 listed companies (as of end-2013) to mainly small and medium-sized property developers. These loans were extended at interest rates ranging from 7.25% to as high as 25%. Almost all entrusted loans made by one of the listed companies, Sunny Loan Top Co. Ltd., were extended to property developers at annual rates above 18%. The paper reports that some RMB600m of entrusted loans extended by four companies have either.

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Easing with Chinese characteristics

Even when a western government eases policy, the methods and transmission mechanisms involved aren’t that well understood. We’ll grant that things are even fiddlier in China.

A timely note from Goldman’s China economist Yu Song then, just as expectations of more easing build in response to fears of a systemic property market problem:

When China is loosening these questions are much more complex and less transparent, for several reasons:

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The China over-invoicing export distortion is back (sort of)

Let’s face it. Chinese national statistics are to some degree always treated with a pinch of salt by analysts and economists alike.

That said, there’a s big difference between massaging subjective inputs in statistical methodologies and failing to adjust for misleading economic activity driven by actual economic behaviour.

Case in point, Chinese export figures, which according to Capital Economics are now suffering the consequences of a bad comparative due to last year’s carry-trade inspired over-invoicing fad (since cracked down on by the state). Read more

Blame the media, China property edition

The bank that brought “adaptive pricing” to the China property euphemism table just two weeks ago is getting quite a bit blunter.

We’ll spare you more charts today, but here’s a chunk or two from Citi’s Oscar Choi and Marco Sze who have been forced into a shower of scare quotes by weaker than expected April data (emphasis in original):

A Powerful Loosening “Combo” now a MUST to Prevent a “Demand Cliff”: We believe the physical market has reached a critical point, with potential for broader- based demand shrinkage across different product-ends. Beside the recurring factors like tight credit, HPR [home purchase restrictions] policy, altered ASP [average selling price] expectations due to media reporting, etc, different to FY08/11, the downward pressure on demand is also intensified by new factors, like a weaker economy, RMB depreciation, anti- corruption, outflows of purchasing power to overseas, etc, We believe merely fine- tuning policy by the local gov’ts is insufficient to mitigate this potential correction…

June/July – Last Chance to Shoot the Silver Bullet:

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China’s leaning towers

We are now fairly sure there is a serious mismatch between the supply of and demand for charts about China property — more are being produced than will ever be seen. That said, here are a few worth paying attention to:

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China, the US, and PPP: a pretty poor parallel

Much is being made of China being about to pass the US as the world’s biggest economy — and of China’s fight to massage down the figures.

We hate to side with Chinese statisticians, but at the very least Beijing may well be right to play down the comparison in its local media.

Here are a couple of surprises which come out from using similar adjustments to the PPP calculations used to show China’s economy is bigger (using the IMF’s World Economic Outlook database)…

  • In 1980, Greece and Gabon (which was in default on its debt from 1999 to 2005, but has lots of oil) were ranked above the UK for PPP-adjusted GDP per person. Before adjustment they were about a third poorer.
  • East Timor, on the IMF’s 2014 estimates, is ranked as richer on PPP-adjusted GDP per capita than Poland, Estonia or Hungary – and is ranked only 1.4 per cent poorer per person than Portugal, its former colonial master. It has discovered oil, boosting GDP. But before the PPP adjustment, GDP per capita is put by the IMF this year at $4,669 vs $14,166 a head for Portugal.

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Safe as houses, and perfectly priced

Some expansive credit-related thoughts arrive from Alberto Gallo at RBS, for a quiet May Day when Europe’s capitalists take the day off in honour of its workers.

In short, its the safe stuff that may not be safe anymore as/if/when the continent’s economy expands: Read more

Where the tech innovation goes

It’s day two of the London TfL strike, which calls for another installment in the robot vs jobs debate. This time we present the findings of Daron Acemoglu, of MIT, in a new working paper which explores technological capital biases and why it is that the benefits of technological innovation don’t always flow neutrally across the economy.

Acemoglu’s paper expands on the seminal work of Atkinson and Stiglitz on technological change in 1969, and uses a neat North/South analogy to explain the why these biases develop in the first place (our emphasis): Read more

China in gold collateral financing shock

This Reuters story about China having up to 1,000 tonnes of gold tied up in financing deals is doing the rounds, courtesy of information out of the WGC.

But it’s hardly a revelation.

We’ve known that China has been using gold (and almost everything else under the sun) for financing purposes for ages.

Goldman even blessed us with a more recent update about the shenanigans in March: Read more

China’s FX grip is not what it seems

The influence of the ‘China factor’ on currency markets is waning.

That at least is the view of HSBC’s FX strategy team, headed by David Bloom. Read more

SOE this is what passes for reform?

When is reform of a Chinese state-owned enterprise not reform at all?

When it’s not going to create value.

Arguably, for example — when it’s really a reverse merger that allows a parent to tap international capital markets and bail out a struggling subsidiary that lost heavy in Australian iron ore mines. Arguably, we said.

Or — an oil major selling a third of its enormous marketing segment to state-backed pension funds, in order to access private capital and boost its already dominant position. Again, arguablyRead more

Leaving Las Bambas

We take an unseemly level of interest in Peruvian copper mine projects on FT Alphaville. It’s a side-effect of writing for Lex.

But then so too has a consortium of highly strategic Chinese resources investors (Minmetals, Guoxin International Investment, Citic)…

They’ve bought Glencore Xstrata’s stake in Las Bambas, a very big Peruvian copper asset, for $5.8bn cash, according to a release from Baar, Switzerland on Sunday: Read more

Doozer finance

UK chancellor George Osborne announced on Monday that the Bank of England will initiate a scheme to help support export finance for UK exporters.

This, as the BoE explains on its website, will see the Bank accept UK Export Finance-guaranteed debt capital market notes as collateral for liquidity operations, encouraging (it is hoped) banks to make export-finance related loans to industry. So, similar to funding for lending, but on this occasion specifically lending to export businesses. Read more

Who really benefits from EM export feedback loops?

We all know the role played by the vendor financing feedback loop of hell in dotcom bubble mark 1.

Quickly summarised, tech equipment suppliers became overly dependent on sales to internet startups funded through vendor financing, a situation which saw them lending money to companies with dubious track-records for the purpose of buying equipment directly back from them. It didn’t end well.

Nevertheless, it’s still a model replicated on a consumer level in the west, whether it’s through car company lending money to customers so that they can buy their cars or sofa company loans for purchases of sofas. Read more

Both a lender and a borrower be, China property edition

This week in circularity, from China:

Chinese property companies are buying stakes in banks and raising fears that the country’s already stretched developers are trying to cosy up to their lenders.

Ten Chinese property companies have invested Rmb18.4bn ($3bn) in banks, according to the Financial News, an official newspaper published under the aegis of China’s central bank.

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Gnawing the bones in China

By Anne Stevenson-Yang of Beijing based J Capital Research and author of “China Alone” who argues against any misguided faith in the magical powers of China’s leadership.

Between mid January and late March, China’s renminbi depreciated by 2.8 per cent, before settling into a few days of small and shifting up-and-down movements. The official line painted the fall as an intentional move by regulators trying to reduce speculation in the currency. Belief in such intent, however, relies on a dangerous conviction that China’s policymakers want to stop that inbound flow of capital and are in complete control of the system.

Within China’s banks, the view is quite different: “No one will take our calls or meet with us,” said one investment banker about the regulators. Government officials are too afraid of political reprisals to take responsibility for policy moves which could expose them to reprisals and prefer to stay as inconspicuous as possible. Read more

Tiger hunting on fiscal cliffs

Your anti-corruption, anti-vice driven growth in Chinese government deposits from BofAML:

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SOE you think you can reform? Citic edition

SOE reform in China is apparently not like porn.

Thursday’s case — Citic Group. From the FTRead more

An advertisement for deposit insurance in China

One way to avoid a bank run…

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Turquoise — still the colour of money in Mongolia?

Decision time approaches for Mongolia, Rio Tinto and Turquoise Hill on Oyu Tolgoi, the enormous copper mining project that could one day represent about a third of the landlocked nation’s economy.

Since we reported that Mongolia’s yet to be created sovereign wealth fund could take an equity stake in Turquoise (which releases earnings after the close in Toronto on Tuesday), one deadline has been extended, the mining minister has done his best to wind up investors, China has reasserted itself and Tony Blair has popped up.

All of which means that a deal to start work on the underground part of the mine (phase II), funded by $4bn of loans by commercial banks and multilateral lenders, is very close. But it remains caught up in Mongolian politics, and may not hit the March 31 deadline on which the funding hangs. Read more

SOE you think you can reform

As we wrote before, the one thing we can say with certainty after the default of Chaori, China’s first onshore corporate bond default, is that China has become far less tolerant of Chaori.

Most probably, the government’s also less kind to other small private companies with little clout in struggling industries. What it really doesn’t tell us though is whether that tolerance extends any further. Read more

The house that China built

From the FT:

China’s central bank and one of its largest state lenders are holding emergency talks over whether or not to bail out a defaulting real estate developer…

In a case which offers a microcosm of the cracks emerging in China’s shadow banking system, Zhejiang Xingrun Real Estate, the provincial developer, had been offering usurious rates of interest to individuals after being shut out by conventional banks.

Officials from the government of Fenghua, a town in eastern china with a population of about 500,000, the People’s Bank of China and China Construction Bank, which was the main lender to the developer, were on Tuesday thrashing out ways to repay the company’s Rmb3.5bn ($566m) of debt.

Local government officials were keen to downplay the fate of the troubled developer, Zhejiang Xingrun Real Estate, which quickly added fuel to markets already jittery after Chaori, the solar cell maker, this month became China’s first bond default.

Who on earth could have seen trouble in the property market coming… Read more

Is the PBOC driving up the euro?

China’s central bank engineered an abrupt end to the carry trade in the renminbi last month. Could it also be helping to drive up the ever-appreciating euro?

Very likely, is the conclusion of currency strategists. Chinese officials have long been determined to lessen a reliance on the dollar as the world’s dominant reserve currency. But they can only act on this resolve at times when foreign exchange reserves are accumulating – giving reserve managers the opportunity to diversify. Read more

When will I Cu again

Deutsche: yes, copper financing in China is big.

How big? Try a tenth of all short-term FX loans — and 750,000 or so tonnes of metal in Shanghai bonded warehouses alone — big.

But then, they think it will mostly stay profitable… Read more

Alibaba and the 40 cannibals

So. Alibaba’s Yu’e Bao and its internet Money Market Fund ilk are good, particularly if you are in favour of deposit liberalisation in China, say, in 1-2 years. As Lex said, Yu’e Bao is sneaking market-priced bank capital into a closed system.

But. Yu’e Bao and its ilk are bad, particularly if you focus on pesky things like liquidity risk. This is nuts. When’s the 危机? after all, and it’s worth remembering the risk that comes with receiving higher returns than capped bank deposits.

Meanwhile. Yu’e Bao and its ilk are a threat, particularly if you are a Chinese bank… Read more