Posts tagged 'China'

China, capital outflow and that over-reporting of imports problem

While, sometimes, moments of unique creativity from those trying to get money out of China come out from behind the curtain to take a bow — losing a lawsuit on purpose and ants moving house, for example — the really large flows outwards have remained pretty opaque.

Less opaque now though. Both Christopher Balding and Deutsche’s chief China economist Zhiwei Zhang have taken a long hard look at how capital is flying out of China, despite capital controls which shouldn’t be sniffed at… but clearly are to a large extent.

tl;dr: It’s the over-reporting imports that we should blame. Read more

China’s got problems, but it won’t run out of reserves

For years the Chinese government accumulated claims on the rest of the world, with foreign reserves soaring almost continuously to a peak level of just under $4 trillion in 2014. Then things went into reverse:

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All about China’s public-to-private foreign asset swap

Are shrinking Chinese government FX reserves a sign of capital flight or are they just a public-to-private asset swap?

Here’s a chart from Nomura’s Asia Insights team to mull over whilst considering that question. Pay attention to the net foreign asset entry line in particular:

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Caption competition, XiTV edition

This evening’s show is brought to you by…

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China wants to put some banks back in their box? UPDATED

REUPDATING because this seems good from HSBC:

On Friday afternoon, Bloomberg News reported that the People’s Bank of China (PBoC) is raising some banks’ reserve requirement ratio (RRR) to curb their lending behaviour. This report rattled investors’ nerves, given that it was inconsistent with China’s weak macro-economic outlook. In an effort to pursue better communication with the market, the central bank issued a statement on Friday evening stating that it has reviewed banks’ lending behaviour in 2015 and decided that a small number of banks no longer qualified for the lower differentiated RRR. However, it also added that some banks, which previously did not enjoy the differentiated RRR, have pursued prudent lending and are now qualified for the lower RRR. The effective date of the latest adjustment is 25 February 2016 (Thursday). Clearly, the initial media report was “lopsided”. We are of the view that the impact of the adjustment is likely to be insignificant for the money market. More importantly, the central bank’s proactive clarification of the media report, along with the recent decision to permanently hold open market operations (OMOs) on a daily basis, underscores its strong desire to anchor money market rates…

Updating at top because apparently PBoC governor Zhou Xiaochuan hasn’t heard about this selective RRR increase. That’s the same Zhou who is keen to up the comms capacity at the central bank. We’ll update again when we/ the PBoC get some clarity.

Just now, via BloombergRead more

China bezzle watch, $4.9bn in allegedly fraudulent loans edition

This one escalated rather quickly.

From the FT, with our emphasis:

The latest victim to emerge is Bank of Liuzhou where $4.9bn (Rmb32.8bn) in fraudulent loans were discovered by the bank late last year, according to state-backed China Business Journal. That represents more than 40 per cent of the bank’s total assets of Rmb80bn at the end of 2014 — a dent so large on the bank’s balance sheets that it would likely require government intervention.

… a new chairman at the bank in 2014 discovered the massive pile of debt accrued by one borrower during the tenure of the previous bank head.

Upon that revelation, the borrower, a businessman named Wu Dong, allegedly ordered the murder of the chairman, China Business Journal reported.

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Governor Zhou: “The central bank is neither God nor magician that could just wipe the uncertainties out”

Which is sad, but at least he’s talking and talking at length.

Before we get to that though, it’s worth having a read of George Magnus and Eric Burroughs on Chinese capital outflows, reserves and the country’s ongoing FX trilemma — China cannot “pursue more than two of an independent monetary policy, a fixed exchange rate, and free capital movements simultaneously”. They’re good catch ups on where China is now and the prospects of a float, devaluation or increasing capital controls.

It’s also broadly what PBoC governor Zhou discussed, among other things, in a lengthy interview to Caixin over the last few days — after a long period silence — and a transcript of that interview is now pixelated and ready for your eyeballs.

We thought we’d aid that eyeballing and pick out some sections of the interview and put a summary of sorts near the bottom. It’s best to skip down to there if you’ve already read the full thing. The extracts are chunky, as was the interview — which you could maybe read as some 10,000 words of PBoC versus the speculators. Read more

Guest post: Re-electing Madame Lagarde

A guest post by Peter Doyle, economist and former IMF staffer

An election with only one candidate? Doesn’t sound competitive. But with nominations just closed for Managing Director of the IMF, the one candidate, Madame Lagarde, will be reelected regardless. Read more

Guest post: How to think about the Capital of China

By George Magnus, an associate at Oxford University’s China Centre and senior economic adviser to UBS

Ok you guessed: we are not talking about Beijing. Read more

Foreign cbank drawdowns, int’l drawbridges and a Fed moat

Chinese FX reserves are down to a three-year low according to figures released this weekend.

But, if like us, you trace the current drawdowns to dynamics which first emerged at the end of December 2011… then you might find the following chart from Macquarie Bank’s global equities team of interest:

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China bezzle watch, 1,200 account books buried deep below ground edition

From the FT’s Tom Mitchell:

Chinese police have arrested more than 20 people associated with “a complete Ponzi scheme” that took in more than Rmb50bn ($7.6bn) from investors, according to the official Xinhua news agency.

It is the biggest scam yet to emerge from China’s unruly and largely unregulated peer-to-peer lending sector, part of the country’s shadow banking sector. Police had to use two excavators to uncover some 1,200 account books that had been buried deep below ground, according to Xinhua.

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Stocks fall, and now our China bezzle watch continues

What’s “Only when the tide goes out do you discover who’s been swimming naked” in Chinese?

That’s the Shanghai Comp, and this is from Bloomberg:

China Citic Bank Corp., a unit of the nation’s largest investment conglomerate, uncovered a fraud case at its bill-financing business involving about 1 billion yuan ($152 million) late last year, people familiar with the matter said.

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The Plaza Accord, then and *cough* now?

Which leads us, naturally, to a partial Fed transcript from August 1985:  Read more

Further, further Pettis on China’s new “supply-side” reforms

This by Michael Pettis — on Beijing’s belated realisation that it needs to change its definition and reality of reform because the attempts of the last few years look to have failed — is very worth your time this morning.

We still consider Pettis’ framework to be the best way of looking at the Chinese economy and the challenges it faces. Here he runs through the recent shifts in the RMB, the fear that other countries might see that shift as a spur to their own devaluations, the failure of rebalancing so far, what a successful rebalancing must entail and, most importantly, the hope that China’s latest push for “supply-side reforms” will be in the right direction.

It’s pretty thorough. Read more

China and traditional industrialisation-led development: the world was not enough

Earlier this month at the annual meetings of the American Economic Association in San Francisco, Justin Yifu Lin argued that China’s growth slowdown has been mainly the result of external and cyclical factors rather than structural transformation.

His case rests on the idea that other East Asian and emerging-market economies had also decelerated in recent years, some of which — Hong Kong, Singapore, Taiwan — do not have the same structural problems that are thought to plague China’s economy. Furthermore, Brazil’s decline has been much sharper than China’s, while India in 2012 also slowed dramatically before rebounding; China can rebound too. Read more

Chairman Xiao insists he’s staying put

There seemed to be an inevitability to news broken by Reuters earlier on Monday that Xiao Gang, the embattled head of the China Securities Regulatory Commission, had offered to resign and would shortly be moving jobs.

He, after all, was responsible for the bungled introduction of stock market circuit breakers this month, which cost many Chinese investors their shirts. This supposed market safety valve had to be withdrawn in something of a hurry, leaving higher-ups in the Chinese leadership extremely unhappy, according to Reuters.

But no! Read more

It’s all connected, CNY edition

From Societe Generale’s analysts over the weekend, with our emphasis, on the fallout from the weakening yuan on the European Central Bank, and why that might circle back (and back again):

Global currency markets have taken their cue from China and commodities, and the resulting shifts are causing something of a headache for the major central banks. Since the low of last spring, the euro has bounced back by just over 9% trade-weighted. Similar moves have been observed for the JPY and USD, with the bulk of depreciation coming from EM commodity currencies. Their status as funding currencies has even seen the euro and yen gain against the dollar in recent weeks

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Giving up

Some bullet points from JP Morgan’s Flows & Liquidity team to start the week.

Signs of capitulation, as they put it, in the face of a slowing China, the CNY and its “depaluation”, the Fed, a liquidity vacuum etc:

 Retail investors were heavy sellers of equity funds for two consecutive weeks on extreme pessimism.

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China’s crude oil price exposure

We don’t think of China as an oil producer. And yet, it very much is.

China’s oil production in 2014 amounted to about 4.2 mbpd in 2014, according to BP statistics — equal to that of Canada’s production at 4.2 mbpd in 2014 and nearly double that of Nigeria’s at 2.4 mbpd.

Then, of course, there’s the mark-to-market value of China’s strategic petroleum reserve, which the country has been building up for years. We don’t know the actual size of the SPR because the numbers are not public, but oil experts say it stands close to 100m barrels, with a sizeable portion of the reserve built up during the $80-$100 per barrel price era. Read more

China “is levering up almost at the same pace as it was 5 years back”

Yup, amidst all the CNY/CNH spread stuff, this is what really counts.

From UBS, with our emphasis:

And here’s the thing – the factors that we believe have motivated the shift in currency regime [to a broader trade-weighted basket] are unlikely to change anytime soon. Weak international demand will likely keep a lid on export growth. Most importantly, lest we miss the woods for the trees, let’s remind ourselves that China’s key issue is that it is levering up almost at the same pace as it was 5 years back, when investors first started worrying about credit misallocation (Figure 8). The more levered the economy, the less effective countercyclical monetary will be. Clearly, then, all growth enhancing options need to be on the table. From a 2-3 year perspective, we do believe that the CNY can be considerably weaker than what forwards are implying.

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CNH Hibor, nothing to see here

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Deutsche’s China-Network moment

Deutsche’s Oleg Melentyev is mad as hell…

Sorry… we meant this:

So why should US investors care, if, as some market pundits preach to us, exports to China are less than 1% of the US GDP? This reminds us of people saying “Greece is irrelevant because its GDP is only 2% of the EU’s”. Aside from it sounding plain ignorant, to say that the health of second-largest economy is irrelevant to the first-largest, this view also turns a blind eye to how the modern economy works.

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The broadening of Chinese capital outflows

You’ll remember that persistent capital outflows from a slowing, debt burdened China are a thing.

You’ll also remember that FX reserve depletion is a thing as China attempts to control the pace of RMB depreciation. Or, at least, probably does. Christopher Balding suggests we call what’s happening to the RMB a “devreciation” or “depaluation” — a devaluation-depreciation mash-up for those slow on the neologism take-up.

And you’ll probably remember that we got our China FX reserve data for December last week. Read more

Guest post: Peter Doyle on China

By Peter Doyle, former IMF official and economist.

The line of China Bulls is that “things really aren’t that bad or surprising, and there’s considerable willpower and ammunition left in Beijing should it be necessary”. Read more

European stock markets wonder if China might send its plunge protection team their way

From Goldman on the worst start to a year for Euro-stocks since at least the 1970s (putting them in fine company alongside the S&P):

Or, well, more accurately it’s probably from a stuttering China (and its depreciating currency). Read more

Reserves, outflows, CNY depreciation, oh my

The man who knows about the size of central bank reserves needed to defend domestic economic stability says this on Thursday at an economic forum in Sri Lanka (via Bloomberg):

“China has a major adjustment problem,” Soros said. “I would say it amounts to a crisis. When I look at the financial markets there is a serious challenge which reminds me of the crisis we had in 2008.”

Which is apropos because, via Reuters, on Thursday:

China FX reserves fall $512.66 bln in 2015, biggest annual drop on record – RTRS

BEIJING, Jan 7 (Reuters) – China’s foreign exchange reserves, the world’s largest, fell $107.9 billion in December to $3.33 trillion, the biggest monthly drop on record, central bank data showed on Thursday. The December figure missed market expectations of $3.40 trillion, according to a Reuters poll. China’s foreign exchange reserves fell $512.66 billion in 2015, the biggest annual drop on record. The value of its gold reserves stood at $60.19 billion at the end of December, up from $59.52 billion at the end of November, the People’s Bank of China said on its website. Gold reserves stood at 56.66 million fine troy ounces at the end of December, up from 56.05 million at end-November.

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China’s new circuit breaker gets job done in record time (now with more share sale restrictions)

We’d like to bring you back to Tuesday for a second… to a post about the consequences of China’s new circuit breaker:

1. It makes following our rule‘don’t write about Chinese stocks before markets close because they can be relied upon to immediately move and make you look like a jerk’ — that little bit easier.

And to Fast FT today:

A precipitous fall in stocks [in the CSI-300, which the breaker reacts to] at the open triggered a 15-minute suspension at 9:43am local time, or 13 minutes into the session. Within a minute of trade resuming, stocks fell further and a market-wide closure was automatically triggered, at 9:59am.

China’s Shanghai and Shenzhen Composite each began trading in 1990. In 25 years, this is the shortest trading session on record.

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I’m shocked, shocked… to find that China is going to extend its share-sale ban

But first, an updated, increasingly manic, chart of the moves by China to help its equity markets along, from Alberto Gallo at RBS:

And yes, that Jan 5 bit down the bottom right of the chart (which we assume you have all clicked to enlarge by now) alludes to the inevitable and now confirmed plan to put off giving the market a decisive role “extend a ban on stock sales by large shareholders until permanent rules to restrict such sales take effect”. Read more

The consequences of China’s new circuit breaker

A short, occasionally speculative, always incomplete, list:

1. It makes following our rule‘don’t write about Chinese stocks before markets close because they can be relied upon to immediately move and make you look like a jerk’ — that little bit easier.

Those stocks now pause after a 5 per cent drop in the CSI 300 and, crucially, close for the day after a 7 per cent drop. Which happened yesterday. Not the biggest gap between those thresholds btw. As a comparison, via Nomura, “the US has set three thresholds of 7%, 13% and 20%, and Korea has set three thresholds of 8%, 15% and 20%.”

2. It’ll make writing about Chinese markets even more entertaining since these kinds of close together breakers tend to backfire. Read more

New year, new Chinese circuit breaker

Would have been a shame not to road test the sucker…

And, per Bloomberg:  Read more