We might just strip out one more thing from Deutsche’s recent report on Bretton Woods 2.o, namely the bit about how the growth of Chinese “reserve holdings associated with export-led growth provided de facto protection for foreign private investors in emerging markets and thereby caused the gross flows” needed for China’s growth strategy.
The point being that private capital flows generate political risk — “haha, all your FDI are belong to us” — and, without some sort of collateral, flows from rich countries to poor countries will be held back. Think of China’s reserves as a $4tn hostage which stops China from throwing its weight around and stands in the way of a geopolitical breakdown. With it in place, foreign capital becomes more comfortable heading into China. The idea from Deutsche is that this was the only way to get China’s development model to work on the scale it has. Read more
By Paul J. Davies, the FT’s Asia financial correspondent.
After trying to work out how big China’s bad debt problem might be, many people still turn round and point to the country’s mammoth foreign exchange reserves as its great get-out clause. Read more
China’s foreign direct investment rose 18.4 per cent year-on-year to $60.89bn in the first half of the year, the Ministry of Commerce said. In June alone, Xinhua reports, China’s FDI rose 2.83 per cent from one year earlier to $12.86bn, according to a ministry spokesman. The figures follow the announcement this week of slightly higher than expected GDP growth of 9.5 per cent for the second quarter. They come amid some growing fears over China’s growth and local government debt.
Figures this week showed surging foreign direct investment in China — up 23.4 per cent to $10bn in January from a year earlier. But they hide a number of key trends — including a steady shift in the direction of Japanese and Korean FDI, away from China to other emerging economies of the region.
Macquarie Securities picks up on this in a research note suggesting that China’s reduced tax incentives and higher labour costs have been driving the shift in Japanese and Korean intra-regional investment flows over the last couple of years. Read more
Foreign direct investment in China climbed in January, adding to record inflows last year that are complicating Beijing’s efforts to curb inflation in the world’s fastest-growing major economy, reports Bloomberg. Investment rose 23.4% to $10bn last month from a year earlier, the Ministry of Commerce said on Thursday. The figure was at the top end of economists’ estimates. China may need to add to last week’s third interest-rate rise since mid-October and allow faster appreciation of the renminbi to control cash inflows from the trade surplus, foreign investment and surging bank lending, added Bloomberg. Inflation accelerated to 4.9% in January and the nation’s top economic planning agency said last month price gains will remain at a “high” level in the first quarter.
Australia’s top four retail banks, which have the highest credit rating in the global banking system, have been placed under review for “possible downgrade” by Moody’s Investors Service, reports the FT. The review will focus on the Australian banking system’s “structural sensitivity” to conditions in the international wholesale funding market, said a Moody’s spokesman. The four – ANZ, CBA, NAB and Westpac – rely on market funds for an average 43% of their total liabilities, a higher percentage than for many banks around the world. Australian banks however need the funds to address a shortfall from customer deposit bases. For two years, Moody’s has had a negative outlook on the Australian quartet’s Aa1-rated long-term debt, and a decision on whether to downgrade any or all is expected within three months.