From Bloomberg this morning:
As U.S. Treasury Secretary Henry Paulson visits China this week to push for faster appreciation of the yuan, the bigger issue may be what China is doing to strengthen the dollar.
Paulson's fifth trip to the nation as Treasury Secretary has taken on added urgency as the U.S. grows more dependent on the dollar's decline to lift exports and keep the economy out of recession. While the pace of the yuan's gains tripled in the past 15 months, Chinese officials now plan to increase investments in America that may boost the U.S. currency instead.
``China at this stage needs to be looking to opportunities provided by the weakening U.S. dollar,'' Ha Jiming, chief economist in Beijing at China International Capital Corp., the nation's largest investment bank, said in an interview last week. ``Very recently the government is becoming more interested in channeling money out of the country.''
The Ministry of Commerce said last week it will encourage businesses to buy American assets. Twenty insurers were granted licenses to invest overseas. China Investment Corp., the nation's $200 billion sovereign wealth fund, said it will be a ``stabilizing force'' in markets rocked by credit losses, signaling it may invest in American banks.
``We just started the going-out strategy,'' said Xia Bin, director of financial research at the State Council Development Research Center, which reports to the nation's cabinet. ``It is helpful to reduce yuan appreciation pressure in tandem with other measures, like blocking inflows of speculative money,'' he said in a Dec. 7 interview.
`Rush to Invest'
The combination of a trade surplus that reached $27 billion in October and rising foreign investment increased currency reserves ninefold this decade to $1.46 trillion, according to data compiled by the People's Bank of China.
At the same time, inflation rose to a 6.5 percent rate in October, the fastest in a decade, and regulators are concerned that the country's financial markets are a bubble waiting to burst. The benchmark CSI 300 Index of stocks in Shanghai and Shenzhen jumped 147 percent this year, pushing prices to more than 45 times per-share earnings, more than double that of Hong Kong's Hang Seng Index.
``The biggest issue in Asian markets starting from 2008 will be China's rush to invest overseas,'' said Park Hyo Jin, a strategist in Seoul at Good Morning Shinhan Securities Co. The firm is a unit of Shinhan Financial Group Co., South Korea's second-largest finance company by assets.
The yuan strengthened 11.9 percent since the end of the fixed exchange rate with the dollar in July 2005, including 8 percent since Paulson became Treasury Secretary in July 2006.
`Pace of Change'
The cost to buy yuan in 12 months with forwards fell 1.4 percent last week to 6.8075 per dollar, the biggest decline in three months. The spot rate for the currency dropped 0.04 percent to 7.4030, and declined 0.3 percent on Dec. 6, the most in one day since the peg was scrapped. It rose 0.15 percent to 7.3922 at 11:29 a.m. Shanghai time.
Paulson will try to show in the Dec. 12-13 meetings that a stronger currency will help restrain consumer prices. Chinese officials agree with the ``principle'' that they need a more flexible exchange rate, Paulson said in an interview Dec. 7. A currency that responds to market signals would help China control inflation. ``The pace of change has accelerated,'' he said. ``They need to move it more.''
``The U.S. wants a strong yuan, but what about the dollar being so weak?'' said Binay Chandgothia, who oversees $2 billion as chief investment officer at Principal Asset Management Asia in Hong Kong. ``This will form part of the posturing in the discussions.''
Strong Dollar
Paulson has been consistent in saying a strong dollar is in the nation's interest at the same time that the U.S. Dollar Index, which measures the currency's performance against six of its biggest trading partners, fell to 74.48 on Nov. 23, the lowest since it began trading in 1973. The index, down 8.7 percent for the year, rose 0.1 percent today to 76.33.
The depreciating dollar has helped American exports rise to records in the seven months through September, the longest streak since 2000, Commerce Department data show.
Exports rose to $140.1 billion in September, a bright spot in an economy suffering the worst housing slump in 16 years. The trade deficit narrowed to $56.5 billion in September from the record $67.6 billion in August 2006 as a falling dollar made American goods cheaper in foreign markets.
Record Deficit
The U.S. deficit with China, though, is set to exceed last year's record of $232.5 billion, prompting lawmakers including Senator Charles Schumer, a New York Democrat, to propose sanctions unless the yuan gains at a faster pace. U.S. growth may slow to 1.9 percent in 2008, compared with 10 percent forecast for China, the International Monetary Fund in Washington said.
The nation's leaders have growing incentives to help the dollar appreciate. China owned $396.7 billion of Treasuries as of September, up from $71.4 billion in 2000, according to the Treasury Department. Among foreign nations, only Japan, with $582.2 billion, owns more U.S. government debt.
China Investment ``wants to be a stabilizing force in the international capital markets'' just as other sovereign wealth funds have been, Chairman Lou Jiwei told a conference in Beijing on Nov. 29.
Overseas acquisitions by Chinese companies climbed to almost $28 billion this year, compared with $19 billion in all of 2006, according to data compiled by Bloomberg. The government has approved funds to raise the equivalent of $42.2 billion to invest abroad as of Sept. 30, according to central bank data. In July, the nation's insurers were allowed to invest 15 percent of an estimated $300 billion of assets in foreign currency holdings.
Initial Steps
Initial steps to invest abroad had mixed results. U.S. lawmakers in 2005 blocked an $18.5 billion bid by Hong Kong- based Cnooc Ltd., the country's biggest offshore oil producer, for El Segundo, California-based Unocal Corp. In May, China Investment, the sovereign wealth fund, bought $3 billion of shares in New York-based Blackstone Group LP. The value of the holding has fallen by $1 billion.
Blackstone is planning a bid for Rio Tinto Group, the world's third-largest mining company, that may include China Investment, the Daily Telegraph reported today. Spokespeople for China Investment, Rio and Blackstone all declined to comment.
In October, New York-based Bear Stearns Cos., the second- biggest underwriter of U.S. mortgage bonds, sold a $1 billion stake to state-owned Citic Securities Co., based in Beijing.
`Various Risks'
``Not many Chinese companies have made successful investments overseas so far,'' said Lian Ping, chief economist at Shanghai-based Bank of Communications Ltd., the nation's fifth-biggest state lender. ``We should push outbound investments further, but need to watch various risks.''
Forward contracts suggest the yuan will gain 8.7 percent over the next 12 months, compared with 5.9 percent in the past year. Some investors say they'd be surprised if the gains are that large.
``The market is expecting too much in terms of what China may do after Paulson's visit,'' said Wee-Ming Ting, who helps manage $2.4 billion of global emerging market debt as head of Asian fixed income at Pictet & Cie in Singapore and invests in yuan forwards.
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Sunday, December 09, 2007
Is the Lending Slowdown Biting?
From the FT today:
China loan curbs hit businesses
By Henny Sender
Published: December 9 2007 16:32 | Last updated: December 9 2007 16:32
In the Chinese river city of Fuling, where Hong Kong’s Noble Group has a soybean crushing operation, the barges continue to unload their cargo of soybeans to be turned into meal and cooking oil and sold on to customers.
But in recent weeks, some of those customers have been doing something new, company officials say: asking Noble to provide them with credit because they can no longer obtain financing from their banks.
But what with one hand you take away, with the other you give:
China raises foreign investment quotas
By Sundeep Tucker in Hong Kong, Geoff Dyer in Shanghai and Richard McGregor in Beijing
Published: December 9 2007 22:06 | Last updated: December 9 2007 22:06
China is to treble the amount of money that foreigners can invest in the mainland capital market, making the long-awaited announcement on the eve of this week’s high-level economic summit between Chinese and US policymakers.
The State Administration of Foreign Exchange, the country’s foreign exchange regulator, said on its website on Sunday that the quota for registered foreign investors would be increased from $10bn to $30bn. It could take several months before institutional investors secure fresh quotas.
The announcement will be welcomed by foreign investors, who have been lobbying for greater access to the mainland’s booming stock market, and comes amid signs Beijing is poised to permit further foreign investment in the domestic securities industry.
The Financial Times reported last week that Credit Suisse and Morgan Stanley had each signed agreements with Chinese partners to establish mainland investment banking ventures – the first such moves since a moratorium on further foreign involvement in the sector was introduced two years ago to protect local firms.
Citigroup, Merrill Lynch and JPMorgan are among the other US investment banks discussing potential partnerships with mainland securities firms, though foreign bankers believe new ventures will be not allowed to operate in some lucrative business areas.
Beijing is expected to point to the twin developments to placate the US delegation, led by Hank Paulson, US Treasury secretary, which has been lobbying China on a number of fronts since the so-called Strategic Economic Dialogue began last year.
Beijing agreed in principle to expand the quota for the Qualified Foreign Institutional Investors scheme at a previous round of bilateral talks in May, though it held back implementation because of a surge of capital trying to enter the country.
The flagship index on the Shanghai market has fallen by about 15 per cent in the past month, though it has still doubled this year.
In an indication of how lucrative the Chinese capital market has been to the 49 institutions which have secured QFII licences, the regulator said on Sunday that the value of their securities had risen to Rmb200bn ($26.5bn) from the initial investment quota of $10bn.
News of the revised quota was welcomed by Chris Ruffle, co-chairman of MC China, a subsidiary of Martin Currie, a UK-based fund manager and largest foreign investor in A-shares.
Mr Paulson is still expected to come under pressure from US investment banks to ensure that new securities ventures will be allowed to trade mainland stocks.
Beijing is expected to permit Credit Suisse and Morgan Stanley to each acquire a 33 per cent stake in their ventures – the maximum allowed under the law. However, western bankers familiar with the thinking of Chinese authorities believe that the new securities ventures will only be granted licences to underwrite initial public offerings and not to trade domestic stocks.
China loan curbs hit businesses
By Henny Sender
Published: December 9 2007 16:32 | Last updated: December 9 2007 16:32
In the Chinese river city of Fuling, where Hong Kong’s Noble Group has a soybean crushing operation, the barges continue to unload their cargo of soybeans to be turned into meal and cooking oil and sold on to customers.
But in recent weeks, some of those customers have been doing something new, company officials say: asking Noble to provide them with credit because they can no longer obtain financing from their banks.
But what with one hand you take away, with the other you give:
China raises foreign investment quotas
By Sundeep Tucker in Hong Kong, Geoff Dyer in Shanghai and Richard McGregor in Beijing
Published: December 9 2007 22:06 | Last updated: December 9 2007 22:06
China is to treble the amount of money that foreigners can invest in the mainland capital market, making the long-awaited announcement on the eve of this week’s high-level economic summit between Chinese and US policymakers.
The State Administration of Foreign Exchange, the country’s foreign exchange regulator, said on its website on Sunday that the quota for registered foreign investors would be increased from $10bn to $30bn. It could take several months before institutional investors secure fresh quotas.
The announcement will be welcomed by foreign investors, who have been lobbying for greater access to the mainland’s booming stock market, and comes amid signs Beijing is poised to permit further foreign investment in the domestic securities industry.
The Financial Times reported last week that Credit Suisse and Morgan Stanley had each signed agreements with Chinese partners to establish mainland investment banking ventures – the first such moves since a moratorium on further foreign involvement in the sector was introduced two years ago to protect local firms.
Citigroup, Merrill Lynch and JPMorgan are among the other US investment banks discussing potential partnerships with mainland securities firms, though foreign bankers believe new ventures will be not allowed to operate in some lucrative business areas.
Beijing is expected to point to the twin developments to placate the US delegation, led by Hank Paulson, US Treasury secretary, which has been lobbying China on a number of fronts since the so-called Strategic Economic Dialogue began last year.
Beijing agreed in principle to expand the quota for the Qualified Foreign Institutional Investors scheme at a previous round of bilateral talks in May, though it held back implementation because of a surge of capital trying to enter the country.
The flagship index on the Shanghai market has fallen by about 15 per cent in the past month, though it has still doubled this year.
In an indication of how lucrative the Chinese capital market has been to the 49 institutions which have secured QFII licences, the regulator said on Sunday that the value of their securities had risen to Rmb200bn ($26.5bn) from the initial investment quota of $10bn.
News of the revised quota was welcomed by Chris Ruffle, co-chairman of MC China, a subsidiary of Martin Currie, a UK-based fund manager and largest foreign investor in A-shares.
Mr Paulson is still expected to come under pressure from US investment banks to ensure that new securities ventures will be allowed to trade mainland stocks.
Beijing is expected to permit Credit Suisse and Morgan Stanley to each acquire a 33 per cent stake in their ventures – the maximum allowed under the law. However, western bankers familiar with the thinking of Chinese authorities believe that the new securities ventures will only be granted licences to underwrite initial public offerings and not to trade domestic stocks.
Wednesday, November 28, 2007
Bear Market in China?
From Bloomberg this morning:
China's stocks fell, taking the CSI 300 Index's decline from its Oct. 16 record close to more than 20 percent. Baoshan Iron & Steel Co. led steelmakers lower on speculation U.S. and European Union regulators will impose punitive duties on their Chinese imports.
China Minsheng Banking Corp. and China Merchants Property Development Co. led banks and real-estate companies lower after China Central Television said the government will take measures to slow expansion in fixed-asset investment.
The CSI 300 Index, which tracks 300 yuan-denominated stocks traded in Shanghai and Shenzhen, lost 59.05, or 1.3 percent, to 4,652.10 as of 2:29 p.m. local time, reversing an earlier gain of 1.1 percent. The measure has declined 21 percent since its record close on Oct. 16. Investors consider a 20 percent drop within 12 months as the signal of a bear market.
``Valuations are still very high and we're not quite ready to go back in just yet,'' said Leslie Phang, who helps manage $1 billion at Commonwealth Private Bank in Singapore, and has been reducing holdings of exchange-traded funds that track the Chinese A-share market.
About two stocks declined for each that climbed on the benchmark, with a measure of materials shares the biggest contributor to the drop. The gauge, which has advanced 128 percent this year, is valued at 42 times reported earnings, the highest in Asia, according to Bloomberg data.
China follows Japan among the world's 10 biggest stock markets to enter a bear market since the summer's U.S. subprime- mortgage collapse. The People's Bank of China has raised borrowing costs five times this year and Premier Wen Jiabao pledged last month to limit land use and tighten investment- project approvals.
In Japan....
Japanese stocks fell, led by Sumitomo Mitsui Financial Group Inc., after Wells Fargo & Co. announced a $1.4 billion pretax charge tied to increased losses on home equity loans.
Shares also declined after U.S. consumer confidence fell more than expected in November and housing prices dropped the most since at least 1988, pointing to weaker demand in Japan's biggest overseas market.
Fast Retailing Co. and Mitsubishi UFJ Financial Group Inc. slid after Japan's government lowered its assessment of the job market for the first time in three years.
``It looks like the trend for growing subprime-related losses at U.S. financial institutions is here to stay,'' said Kiyoshi Ishigane, who helps oversee $61 billion in assets at Mitsubishi UFJ Asset Management Co. in Tokyo. ``Japanese banks have declined because of weak domestic demand and as wages and employment stalled.''
The Nikkei slid 69.07, or 0.5 percent, to 15,153.78 at the close of trading in Tokyo. The Topix index slipped 3.14, or 0.2 percent, to 1,475.64.
Bridgestone Corp. led tiremakers and chemical companies higher after the price of oil slumped the most in two weeks, lowering production costs.
Sumitomo Mitsui, Japan's third-largest publicly traded bank, lost 22,000 yen, or 2.4 percent, to 880,000. Mitsubishi UFJ, the biggest, declined 16 yen, or 1.6 percent, to 1,014. T&D Holdings Inc., the nation's only publicly traded life insurer, slid 130 yen, or 2 percent, to 6,260.
Subprime Losses
Wells Fargo, the second-largest U.S. mortgage lender, said after the close of trading in New York it will take a charge to account for expected losses on home-equity loans as the U.S. housing market continues to deteriorate. The company's shares fell 4.7 percent in after-hours trading in New York.
Norinchukin Bank, the central credit provider to Japan's farmers and fishermen, said yesterday it had unrealized losses of 53.3 billion yen ($491.2 million) on 476.7 billion yen of subprime loan-related assets in the six months to Sept. 30.
The bank, which is not traded, had an additional 14 billion yen valuation loss in October on those investments.
``It's still too early to say'' that the credit crisis has passed, said Masafumi Oshiden, a fund manager in Tokyo at BlackRock Japan Co., whose parent company holds $1.1 trillion in assets.
U.S. Consumer Confidence
Toyota Motor Corp., which gets as much as 70 percent of its profit from operations from North America, lost 100 yen, or 1.6 percent, to 6,000. Komatsu Ltd., the world's second-largest maker of construction machinery, dropped 90 yen, or 2.9 percent, to 3,050.
The New York-based Conference Board said yesterday its consumer confidence index fell more than expected to 87.3 in November, the lowest level since 2005, as Americans struggled with surging fuel costs and falling home prices. House values dropped 4.5 percent in the third quarter from a year earlier, the most since records began in 1988, S&P/Case-Shiller reported separately.
Fast Retailing declined 240 yen, or 3.2 percent, to 7,230. J. Front Retailing Co., Japan's largest department store operator, fell 17 yen, or 1.7 percent, to 1,005.
Sales of clothing slid 1.3 percent in October, as mild weather reduced demand for jackets and sweaters, according to a report by the Ministry of Economy, Trade and Industry.
The Cabinet Office toned down its outlook on the job market after the unemployment rate rose for two months. ``Job-market conditions continue to be difficult and there has been a pause in improvement,'' the government said in its monthly economic report for November, published yesterday.
Cheaper Oil
Wages declined in nine of the 10 months to September and mid-year bonuses, about 10 percent of a worker's annual income dropped for the first time in three years.
Bridgestone, the world's second-largest tiremaker, gained 20 yen, or 1 percent, to 2,025. Sumitomo Chemical Co., Japan's No. 2 chemical maker by market value, jumped 30 yen, or 3.4 percent, to 922 yen.
Crude oil for January delivery extended declines for the second day falling 0.7 percent to $93.76 a barrel in the New York. The price fell 3.4 percent yesterday, the biggest drop since Nov. 13.
Oil explorers fell. Inpex Holdings Inc., Japan's biggest petroleum explorer, slid 50,000 yen, or 4.2 percent, to 1.13 million. Japan Petroleum Exploration Co., the second largest, declined 290 yen, or 3.3 percent, to 8,580.
Sony Corp., the world's second-largest consumer electronics maker, rose 190 yen, or 3.3 percent, to 5,940, completing its biggest three-day gain in almost two years after Dubai International Capital LLC said on Nov. 26 it bought a ``substantial'' stake in the company. The stock has advanced 13 percent over three sessions, the most since Jan. 2006.
Nikkei futures expiring in December lost 0.5 percent to 15,160 in Osaka and dropped 0.3 percent to 15,170 in Singapore.
China's stocks fell, taking the CSI 300 Index's decline from its Oct. 16 record close to more than 20 percent. Baoshan Iron & Steel Co. led steelmakers lower on speculation U.S. and European Union regulators will impose punitive duties on their Chinese imports.
China Minsheng Banking Corp. and China Merchants Property Development Co. led banks and real-estate companies lower after China Central Television said the government will take measures to slow expansion in fixed-asset investment.
The CSI 300 Index, which tracks 300 yuan-denominated stocks traded in Shanghai and Shenzhen, lost 59.05, or 1.3 percent, to 4,652.10 as of 2:29 p.m. local time, reversing an earlier gain of 1.1 percent. The measure has declined 21 percent since its record close on Oct. 16. Investors consider a 20 percent drop within 12 months as the signal of a bear market.
``Valuations are still very high and we're not quite ready to go back in just yet,'' said Leslie Phang, who helps manage $1 billion at Commonwealth Private Bank in Singapore, and has been reducing holdings of exchange-traded funds that track the Chinese A-share market.
About two stocks declined for each that climbed on the benchmark, with a measure of materials shares the biggest contributor to the drop. The gauge, which has advanced 128 percent this year, is valued at 42 times reported earnings, the highest in Asia, according to Bloomberg data.
China follows Japan among the world's 10 biggest stock markets to enter a bear market since the summer's U.S. subprime- mortgage collapse. The People's Bank of China has raised borrowing costs five times this year and Premier Wen Jiabao pledged last month to limit land use and tighten investment- project approvals.
In Japan....
Japanese stocks fell, led by Sumitomo Mitsui Financial Group Inc., after Wells Fargo & Co. announced a $1.4 billion pretax charge tied to increased losses on home equity loans.
Shares also declined after U.S. consumer confidence fell more than expected in November and housing prices dropped the most since at least 1988, pointing to weaker demand in Japan's biggest overseas market.
Fast Retailing Co. and Mitsubishi UFJ Financial Group Inc. slid after Japan's government lowered its assessment of the job market for the first time in three years.
``It looks like the trend for growing subprime-related losses at U.S. financial institutions is here to stay,'' said Kiyoshi Ishigane, who helps oversee $61 billion in assets at Mitsubishi UFJ Asset Management Co. in Tokyo. ``Japanese banks have declined because of weak domestic demand and as wages and employment stalled.''
The Nikkei slid 69.07, or 0.5 percent, to 15,153.78 at the close of trading in Tokyo. The Topix index slipped 3.14, or 0.2 percent, to 1,475.64.
Bridgestone Corp. led tiremakers and chemical companies higher after the price of oil slumped the most in two weeks, lowering production costs.
Sumitomo Mitsui, Japan's third-largest publicly traded bank, lost 22,000 yen, or 2.4 percent, to 880,000. Mitsubishi UFJ, the biggest, declined 16 yen, or 1.6 percent, to 1,014. T&D Holdings Inc., the nation's only publicly traded life insurer, slid 130 yen, or 2 percent, to 6,260.
Subprime Losses
Wells Fargo, the second-largest U.S. mortgage lender, said after the close of trading in New York it will take a charge to account for expected losses on home-equity loans as the U.S. housing market continues to deteriorate. The company's shares fell 4.7 percent in after-hours trading in New York.
Norinchukin Bank, the central credit provider to Japan's farmers and fishermen, said yesterday it had unrealized losses of 53.3 billion yen ($491.2 million) on 476.7 billion yen of subprime loan-related assets in the six months to Sept. 30.
The bank, which is not traded, had an additional 14 billion yen valuation loss in October on those investments.
``It's still too early to say'' that the credit crisis has passed, said Masafumi Oshiden, a fund manager in Tokyo at BlackRock Japan Co., whose parent company holds $1.1 trillion in assets.
U.S. Consumer Confidence
Toyota Motor Corp., which gets as much as 70 percent of its profit from operations from North America, lost 100 yen, or 1.6 percent, to 6,000. Komatsu Ltd., the world's second-largest maker of construction machinery, dropped 90 yen, or 2.9 percent, to 3,050.
The New York-based Conference Board said yesterday its consumer confidence index fell more than expected to 87.3 in November, the lowest level since 2005, as Americans struggled with surging fuel costs and falling home prices. House values dropped 4.5 percent in the third quarter from a year earlier, the most since records began in 1988, S&P/Case-Shiller reported separately.
Fast Retailing declined 240 yen, or 3.2 percent, to 7,230. J. Front Retailing Co., Japan's largest department store operator, fell 17 yen, or 1.7 percent, to 1,005.
Sales of clothing slid 1.3 percent in October, as mild weather reduced demand for jackets and sweaters, according to a report by the Ministry of Economy, Trade and Industry.
The Cabinet Office toned down its outlook on the job market after the unemployment rate rose for two months. ``Job-market conditions continue to be difficult and there has been a pause in improvement,'' the government said in its monthly economic report for November, published yesterday.
Cheaper Oil
Wages declined in nine of the 10 months to September and mid-year bonuses, about 10 percent of a worker's annual income dropped for the first time in three years.
Bridgestone, the world's second-largest tiremaker, gained 20 yen, or 1 percent, to 2,025. Sumitomo Chemical Co., Japan's No. 2 chemical maker by market value, jumped 30 yen, or 3.4 percent, to 922 yen.
Crude oil for January delivery extended declines for the second day falling 0.7 percent to $93.76 a barrel in the New York. The price fell 3.4 percent yesterday, the biggest drop since Nov. 13.
Oil explorers fell. Inpex Holdings Inc., Japan's biggest petroleum explorer, slid 50,000 yen, or 4.2 percent, to 1.13 million. Japan Petroleum Exploration Co., the second largest, declined 290 yen, or 3.3 percent, to 8,580.
Sony Corp., the world's second-largest consumer electronics maker, rose 190 yen, or 3.3 percent, to 5,940, completing its biggest three-day gain in almost two years after Dubai International Capital LLC said on Nov. 26 it bought a ``substantial'' stake in the company. The stock has advanced 13 percent over three sessions, the most since Jan. 2006.
Nikkei futures expiring in December lost 0.5 percent to 15,160 in Osaka and dropped 0.3 percent to 15,170 in Singapore.
Monday, November 19, 2007
Regulatory Measures For the Banks?
From Bloomberg this morning:
China's banking regulator said it's giving ``guidance'' to banks to cool lending that's already topped its goal of 15 percent growth this year and threatens to overheat the world's fastest-growing major economy.
The China Banking Regulatory Commission denied a Wall Street Journal report today that it had ordered banks to freeze this year's lending at Oct. 31 levels. A 15 percent ceiling on loan growth is ``informal guidance, not a hard target,'' said Lai Xiaomin, the commission's Beijing-based spokesman.
Record trade surpluses have pumped cash into China, threatening to stoke inflation, asset bubbles and investment leading to overcapacity in manufacturing. The central bank has raised the benchmark one-year lending rate by 1.17 percentage points this year to 7.29 percent and ordered commercial lenders to set aside larger reserves.
``Reserve-ratio requirement hikes and rate hikes have not been able to slow bank lending growth this year,'' said Sun Mingchun, an economist at Lehman Brothers Holdings Inc. in Hong Kong. ``Therefore, the government has to rely on this non-market type of monetary policy tool.''
Chinese banks extended 3.5 trillion yuan ($471 billion) of new loans in the first 10 months, a 15.6 percent increase from loans outstanding at the end of last year, according to central bank data.
`Obstacles' for Banks
``Banks that exceed the 15 percent cap will face regulatory obstacles in applying for a new branch opening or new product lines,'' said Li Shanshan, a Shenzhen-based analyst at China Merchants Securities Co. ``Therefore, banks still have an incentive to obey what the government says.''
Lending is biggest early in the year ``so slower lending in the remaining two months won't have a significant impact on their bottom lines,'' said Li. Average loan growth of big state-owned banks this year is about 15 percent versus about 20 percent for small and medium-sized lenders, the analyst said.
The regulator last week told state banks to curb lending, citing the 15 percent target, according to the Shanghai Securities News. Another newspaper, China Business News, reported last week that overseas banks were told to tighten lending to real estate developers.
``We don't subject banks to hard-and-fast lending caps since individual banks have such different business needs,'' said the regulator's Lai. ``What we want is a reasonable pace of loans growth, dependent on each bank's capital-adequacy ratio, and the risk and quality of its loan portfolio.''
Accelerating Inflation
The central bank this month ordered lenders to set aside more money as reserves for the ninth time this year, raising the ratio to 13.5 percent, the highest since at least 1987.
The trade surplus widened to a record $27 billion in October.
Inflation last month jumped to 6.5 percent, matching August's rate, the highest in more than 10 years, on higher food prices. The benchmark CSI 300 Index of stocks has more than tripled in the past year even after declines since mid-October.
Government efforts to guide lending illustrate its reluctance to ``raise rates too much or let the yuan appreciate faster'' to curb liquidity, according to Wang Tao, head of economics and strategy for Greater China at Bank of America Corp. in Beijing.
The Chinese currency has gained more than 11 percent versus the dollar since the end of a fixed exchange rate in July 2005.
China's banking regulator said it's giving ``guidance'' to banks to cool lending that's already topped its goal of 15 percent growth this year and threatens to overheat the world's fastest-growing major economy.
The China Banking Regulatory Commission denied a Wall Street Journal report today that it had ordered banks to freeze this year's lending at Oct. 31 levels. A 15 percent ceiling on loan growth is ``informal guidance, not a hard target,'' said Lai Xiaomin, the commission's Beijing-based spokesman.
Record trade surpluses have pumped cash into China, threatening to stoke inflation, asset bubbles and investment leading to overcapacity in manufacturing. The central bank has raised the benchmark one-year lending rate by 1.17 percentage points this year to 7.29 percent and ordered commercial lenders to set aside larger reserves.
``Reserve-ratio requirement hikes and rate hikes have not been able to slow bank lending growth this year,'' said Sun Mingchun, an economist at Lehman Brothers Holdings Inc. in Hong Kong. ``Therefore, the government has to rely on this non-market type of monetary policy tool.''
Chinese banks extended 3.5 trillion yuan ($471 billion) of new loans in the first 10 months, a 15.6 percent increase from loans outstanding at the end of last year, according to central bank data.
`Obstacles' for Banks
``Banks that exceed the 15 percent cap will face regulatory obstacles in applying for a new branch opening or new product lines,'' said Li Shanshan, a Shenzhen-based analyst at China Merchants Securities Co. ``Therefore, banks still have an incentive to obey what the government says.''
Lending is biggest early in the year ``so slower lending in the remaining two months won't have a significant impact on their bottom lines,'' said Li. Average loan growth of big state-owned banks this year is about 15 percent versus about 20 percent for small and medium-sized lenders, the analyst said.
The regulator last week told state banks to curb lending, citing the 15 percent target, according to the Shanghai Securities News. Another newspaper, China Business News, reported last week that overseas banks were told to tighten lending to real estate developers.
``We don't subject banks to hard-and-fast lending caps since individual banks have such different business needs,'' said the regulator's Lai. ``What we want is a reasonable pace of loans growth, dependent on each bank's capital-adequacy ratio, and the risk and quality of its loan portfolio.''
Accelerating Inflation
The central bank this month ordered lenders to set aside more money as reserves for the ninth time this year, raising the ratio to 13.5 percent, the highest since at least 1987.
The trade surplus widened to a record $27 billion in October.
Inflation last month jumped to 6.5 percent, matching August's rate, the highest in more than 10 years, on higher food prices. The benchmark CSI 300 Index of stocks has more than tripled in the past year even after declines since mid-October.
Government efforts to guide lending illustrate its reluctance to ``raise rates too much or let the yuan appreciate faster'' to curb liquidity, according to Wang Tao, head of economics and strategy for Greater China at Bank of America Corp. in Beijing.
The Chinese currency has gained more than 11 percent versus the dollar since the end of a fixed exchange rate in July 2005.
Friday, November 16, 2007
China Factory Spending Up 26% y-o-y
From Bloomberg this morning:
China's growth in factory and property spending unexpectedly accelerated, stoking speculation the central bank will raise interest rates for a sixth time this year to cool the world's fastest-growing major economy.
Fixed-asset investment in urban areas rose 26.9 percent to 8.9 trillion yuan ($1.2 trillion) in the first 10 months of 2007 from a year earlier, the statistics bureau said today. That beat the 26.2 percent median estimate of 21 economists surveyed by Bloomberg News. The pace was 26.4 percent through September.
The central bank may raise the benchmark one-year rate from 7.29 percent as early as today after inflation matched a decade high in October and the trade surplus widened to a record. Surging factory spending increases the risk that China, the biggest contributor to global growth, will be left with idle factories, job losses and a supply glut if export demand slows.
``Macro controls will strengthen because the government wants slower investment,'' said Liao Qun, chief economist at Citic Ka Wah Bank in Hong Kong. ``Add the high inflation number and the chance of an interest-rate increase today or this weekend has got much bigger.'' He expects borrowing costs to rise as many as two times before year's end.
China's key rate, at a nine-year high after climbing 1.17 percentage points this year, compares with 0.5 percent in Japan, 4.5 percent in the U.S., 5 percent in South Korea and 5.75 percent in the U.K.
The yuan was little changed at 7.4233 versus the dollar at 3:57 p.m. in Shanghai. The currency has climbed 11.5 percent since the end of a fixed exchange rate in July 2005. The CSI 300 Index of stocks fell 1.5 percent on speculation that rates will rise, paring the benchmark's gains for the year to 145 percent.
Bigger Than Brazil
Economists calculated the increase in fixed-asset investment for October alone was more than 30 percent.
Spending through October exceeded the gross domestic product of the economies of Russia, Brazil or India. Investment has quadrupled since 1996 when the data was first released. It accounted for 42.5 percent of China's GDP last year.
The nation's projects include a $65 billion facelift for Beijing that includes a new airport terminal, subway lines and roads for next year's Olympic Games.
Spending in the non-ferrous metal industry jumped 33 percent in the first 10 months. Investment in non-metal minerals soared 54 percent. The number of new investment projects was 191,086, an increase of 22,518 from a year earlier.
``The economy risks overheating and more needs to be done in monetary policy tightening,'' said Qu Hongbin, chief China economist at HSBC Holdings Plc in Hong Kong. ``There will be at least one more interest-rate increase this year and the central bank will be tougher in curbing loans.''
Borrowing Costs
The People's Bank of China is boosting this month the proportion of deposits that lenders must set aside as reserves to 13.5 percent, the most since at least 1987.
``A sharper-than-expected slowdown in global growth could curtail China's exports and expose the severity of its overcapacity problem,'' Sun Mingchun, an economist at Lehman Brothers Holdings Inc. in Hong Kong, said in a report this month.
More than two-thirds of Chinese enterprises believe their industries have overcapacity, the state-run Xinhua News Agency reported Nov. 11, citing a government survey. Textile, pharmaceutical and equipment manufacturing were cited as examples.
China's economy may face ``a turning point'' if exports drop abruptly as a result of cooling overseas demand, Sheng Baofu, a Ministry of Commerce researcher, wrote in a Nov. 13 article posted on the ministry's Web site. Exporters mainly targeting the U.S. risk ``continuously shrinking'' orders, Sheng wrote.
Flood of Cash
That contrasts with government efforts now to tame the flood of cash from a trade surplus that reached $27 billion last month, stoking inflation, asset prices and investment.
Money supply grew 18.5 percent from a year earlier, exceeding the central bank's annual target of 16 percent for a ninth straight month. Consumer prices rose 6.5 percent on surging food costs.
China should raise rates and allow more currency appreciation, the World Bank said yesterday. Bigger yuan gains would staunch money inflows by pushing up export prices.
China is the biggest contributor to global growth this year, the International Monetary Fund said last month.
China's growth in factory and property spending unexpectedly accelerated, stoking speculation the central bank will raise interest rates for a sixth time this year to cool the world's fastest-growing major economy.
Fixed-asset investment in urban areas rose 26.9 percent to 8.9 trillion yuan ($1.2 trillion) in the first 10 months of 2007 from a year earlier, the statistics bureau said today. That beat the 26.2 percent median estimate of 21 economists surveyed by Bloomberg News. The pace was 26.4 percent through September.
The central bank may raise the benchmark one-year rate from 7.29 percent as early as today after inflation matched a decade high in October and the trade surplus widened to a record. Surging factory spending increases the risk that China, the biggest contributor to global growth, will be left with idle factories, job losses and a supply glut if export demand slows.
``Macro controls will strengthen because the government wants slower investment,'' said Liao Qun, chief economist at Citic Ka Wah Bank in Hong Kong. ``Add the high inflation number and the chance of an interest-rate increase today or this weekend has got much bigger.'' He expects borrowing costs to rise as many as two times before year's end.
China's key rate, at a nine-year high after climbing 1.17 percentage points this year, compares with 0.5 percent in Japan, 4.5 percent in the U.S., 5 percent in South Korea and 5.75 percent in the U.K.
The yuan was little changed at 7.4233 versus the dollar at 3:57 p.m. in Shanghai. The currency has climbed 11.5 percent since the end of a fixed exchange rate in July 2005. The CSI 300 Index of stocks fell 1.5 percent on speculation that rates will rise, paring the benchmark's gains for the year to 145 percent.
Bigger Than Brazil
Economists calculated the increase in fixed-asset investment for October alone was more than 30 percent.
Spending through October exceeded the gross domestic product of the economies of Russia, Brazil or India. Investment has quadrupled since 1996 when the data was first released. It accounted for 42.5 percent of China's GDP last year.
The nation's projects include a $65 billion facelift for Beijing that includes a new airport terminal, subway lines and roads for next year's Olympic Games.
Spending in the non-ferrous metal industry jumped 33 percent in the first 10 months. Investment in non-metal minerals soared 54 percent. The number of new investment projects was 191,086, an increase of 22,518 from a year earlier.
``The economy risks overheating and more needs to be done in monetary policy tightening,'' said Qu Hongbin, chief China economist at HSBC Holdings Plc in Hong Kong. ``There will be at least one more interest-rate increase this year and the central bank will be tougher in curbing loans.''
Borrowing Costs
The People's Bank of China is boosting this month the proportion of deposits that lenders must set aside as reserves to 13.5 percent, the most since at least 1987.
``A sharper-than-expected slowdown in global growth could curtail China's exports and expose the severity of its overcapacity problem,'' Sun Mingchun, an economist at Lehman Brothers Holdings Inc. in Hong Kong, said in a report this month.
More than two-thirds of Chinese enterprises believe their industries have overcapacity, the state-run Xinhua News Agency reported Nov. 11, citing a government survey. Textile, pharmaceutical and equipment manufacturing were cited as examples.
China's economy may face ``a turning point'' if exports drop abruptly as a result of cooling overseas demand, Sheng Baofu, a Ministry of Commerce researcher, wrote in a Nov. 13 article posted on the ministry's Web site. Exporters mainly targeting the U.S. risk ``continuously shrinking'' orders, Sheng wrote.
Flood of Cash
That contrasts with government efforts now to tame the flood of cash from a trade surplus that reached $27 billion last month, stoking inflation, asset prices and investment.
Money supply grew 18.5 percent from a year earlier, exceeding the central bank's annual target of 16 percent for a ninth straight month. Consumer prices rose 6.5 percent on surging food costs.
China should raise rates and allow more currency appreciation, the World Bank said yesterday. Bigger yuan gains would staunch money inflows by pushing up export prices.
China is the biggest contributor to global growth this year, the International Monetary Fund said last month.
Global Slowdown and Chinese Exports
From the FT this morning:
China’s commerce ministry warned on Thursday that a slowing US economy would trigger a drop in Chinese exports that would mark a “turning point” for China’s rapid economic growth.
A global economic slowdown stemming from problems in the US subprime mortgage market and the resulting credit squeeze “will be the biggest challenge to China’s economy next year”, a report from the ministry’s policy research department said.
The report is Beijing’s first public comment on what repercussions it expects from the global credit crisis and a sign that the government does not support the view that Asian growth has “decoupled” from the US. “If demand in the US drops further, Chinese exporters will be devastated by a rapid and continuous fall in orders,” the report said.
Exports account for more than a third of China’s economic growth and 10 per cent of overall GDP, a radically different situation from just four years ago, when exports contributed nothing to headline growth figures.
Huang Yiping, chief Asia economist for Citigroup, said: “I agree with the government that a marked slowdown in the US would be very bad for China.
“We haven’t seen overcapacity or a so-called hard landing in China because it has been able to export all its excess capacity until now.”
The ministry’s report was pessimistic about the chances of avoiding a US and global slowdown, pointing out that although central banks in the US, Europe and Japan had taken numerous steps to alleviate the credit crisis, the situation had continued to deteriorate and “panic in the credit market remains”.
The US receives a fifth of all Chinese exports, making it the second-largest destination for Chinese-made goods after the European Union.
China’s central bank estimates that every 1 per cent drop in US economic growth translates into a 6 per cent fall in Chinese exports.
Exports to the US have slowed significantly since the start of the year, dropping from a 20.4 per cent year-on-year rise in the first quarter to a 15.6 per cent increase in the second. Growth fell to 12.4 per cent in the third quarter following the eruption of subprime loan problems.
The ministry said a combination of falling US interest rates and rising Chinese rates was limiting Beijing’s ability to rein in soaring property and stock market prices and inflation was running at its highest level in a decade. It also noted that continued turmoil in global financial markets could encourage greater capital inflows to China, straining the country’s financial and regulatory system and increasing inflationary pressure.
While potentially devastating for Chinese exports, a US slowdown could help reduce China’s soaring trade surplus, which hit a monthly high of $27bn in October, having increased more than 59 per cent to $212.4bn in the first 10 months from a year earlier.
China’s commerce ministry warned on Thursday that a slowing US economy would trigger a drop in Chinese exports that would mark a “turning point” for China’s rapid economic growth.
A global economic slowdown stemming from problems in the US subprime mortgage market and the resulting credit squeeze “will be the biggest challenge to China’s economy next year”, a report from the ministry’s policy research department said.
The report is Beijing’s first public comment on what repercussions it expects from the global credit crisis and a sign that the government does not support the view that Asian growth has “decoupled” from the US. “If demand in the US drops further, Chinese exporters will be devastated by a rapid and continuous fall in orders,” the report said.
Exports account for more than a third of China’s economic growth and 10 per cent of overall GDP, a radically different situation from just four years ago, when exports contributed nothing to headline growth figures.
Huang Yiping, chief Asia economist for Citigroup, said: “I agree with the government that a marked slowdown in the US would be very bad for China.
“We haven’t seen overcapacity or a so-called hard landing in China because it has been able to export all its excess capacity until now.”
The ministry’s report was pessimistic about the chances of avoiding a US and global slowdown, pointing out that although central banks in the US, Europe and Japan had taken numerous steps to alleviate the credit crisis, the situation had continued to deteriorate and “panic in the credit market remains”.
The US receives a fifth of all Chinese exports, making it the second-largest destination for Chinese-made goods after the European Union.
China’s central bank estimates that every 1 per cent drop in US economic growth translates into a 6 per cent fall in Chinese exports.
Exports to the US have slowed significantly since the start of the year, dropping from a 20.4 per cent year-on-year rise in the first quarter to a 15.6 per cent increase in the second. Growth fell to 12.4 per cent in the third quarter following the eruption of subprime loan problems.
The ministry said a combination of falling US interest rates and rising Chinese rates was limiting Beijing’s ability to rein in soaring property and stock market prices and inflation was running at its highest level in a decade. It also noted that continued turmoil in global financial markets could encourage greater capital inflows to China, straining the country’s financial and regulatory system and increasing inflationary pressure.
While potentially devastating for Chinese exports, a US slowdown could help reduce China’s soaring trade surplus, which hit a monthly high of $27bn in October, having increased more than 59 per cent to $212.4bn in the first 10 months from a year earlier.
Investment in China Accelerates
From Reuters this morning:
Chinese capital spending in October rose at the briskest pace in over a year, rounding out a strong batch of monthly economic data and cementing expectations of a fresh rise in interest rates, possibly as early as Friday.
Capital spending in urban areas on fixed assets such as factories and power plants increased 26.9 percent between January and October compared with the same period last year, the National Bureau of Statistics said.
It was the fastest year-to-date pace since September 2006, eclipsing forecasts of a 26.3 percent rise and the 26.4 percent increase in the first nine months.
Economists calculated that investment spending in October alone was up 30.7 percent from a year earlier. JPMorgan Chase said that was the quickest monthly clip since June 2006.
"That makes an interest rate rise more likely today. Everybody in the market is now expecting it," Qiu Gaoqing, an analyst with Bank of Communications in Shanghai, said.
Shanghai stocks and the yuan eased on Friday as investors focused on the potential for higher interest rates.
The People's Bank of China (PBOC), the central bank, has already raised interest rates five times so far this year and ordered banks on nine occasions to hold more of their deposits in reserve instead of lending them out.
Mingchun Sun, an economist with Lehman Brothers in Hong Kong, agreed that a rate rise was on the cards.
"We expect one 27 basis-point hike by the end of this year, and it's possible that it could even happen today or tomorrow," he said.
China shifts its interest rates in increments such as 0.27 that are divisible by nine to make it easier for banks, which levy interest based on a 360-day year, to calculate the new payment changes.
A HOT ECONOMY
Chinese policy makers have been trying to cool over-investment for fear that excess supply will drive down profit margins and leave companies unable to service their debts.
"I'm pretty worried about this strong number because we think that the overcapacity issue is already a big problem, and this number is definitely making this more severe," Sun said.
The government has tightened land-conversion and environmental-protection rules, taking particular aim at industries that consume a lot of energy and spew out pollution.
Slightly softer factory output and export growth in October had prompted some economists to conclude that these measures might be biting. The investment report suggested they are not.
Capital spending accelerated in real estate, in smelting and pressing of non-ferrous metals such as copper, aluminium and zinc, and in non-metal minerals including cement.
Moreover, investment in new projects increased by 26.5 percent in the January-October period, up from 24.2 percent in the first nine months and just 6.4 percent in the first half.
Even after five rate rises, the one-year lending rate of 7.29 percent remains attractive given China's strong economic growth and fast-rising profits. Moreover, companies finance more than half of their investment from retained earnings, not bank loans.
The pick-up in investment follows figures earlier this week showing a record trade surplus in October; the sharpest rise in retail sales since the government started issuing the data in 1999; faster money and credit growth; and a rebound in consumer price inflation (CPI) to a nearly 11-year high of 6.5 percent.
Taken together, they leave the world's fourth-largest economy on track to grow by more than 11 percent for all of 2007, the fifth straight year of double-digit expansion.
"This higher investment number, plus a rebound in headline CPI and accelerating credit growth, should give the PBOC more than enough reasons for taking immediate tightening actions," said Qu Hongbin, HSBC's chief China economist.
He said he expected a rise of at least 0.27 percentage point as early as this week.
JP Morgan is also in the pack expecting an increase, but the bank struck a note of caution on the timing.
The rationale for a rise is to lift inflation-adjusted deposit rates -- now 3.87 percent for one year -- out of negative territory quickly to discourage people from investing their bank savings in the frothy stock market, economist Qian Wang noted.
"But with the domestic equity market already in correction mode, the urgency of an aggressive rate hike has been reduced," she said in a note to clients.
The stock market <.SSEC> was down more than 2 percent in early afternoon, partly in anticipation of higher borrowing costs, and is now 14 percent off its peak, scaled on Oct. 16.
The yuan eased a touch to 7.4230 per dollar, as the central bank set a lower reference point for the day's trading, which traders said may be aimed at keeping the currency stable before raising rates.
Chinese capital spending in October rose at the briskest pace in over a year, rounding out a strong batch of monthly economic data and cementing expectations of a fresh rise in interest rates, possibly as early as Friday.
Capital spending in urban areas on fixed assets such as factories and power plants increased 26.9 percent between January and October compared with the same period last year, the National Bureau of Statistics said.
It was the fastest year-to-date pace since September 2006, eclipsing forecasts of a 26.3 percent rise and the 26.4 percent increase in the first nine months.
Economists calculated that investment spending in October alone was up 30.7 percent from a year earlier. JPMorgan Chase said that was the quickest monthly clip since June 2006.
"That makes an interest rate rise more likely today. Everybody in the market is now expecting it," Qiu Gaoqing, an analyst with Bank of Communications in Shanghai, said.
Shanghai stocks and the yuan eased on Friday as investors focused on the potential for higher interest rates.
The People's Bank of China (PBOC), the central bank, has already raised interest rates five times so far this year and ordered banks on nine occasions to hold more of their deposits in reserve instead of lending them out.
Mingchun Sun, an economist with Lehman Brothers in Hong Kong, agreed that a rate rise was on the cards.
"We expect one 27 basis-point hike by the end of this year, and it's possible that it could even happen today or tomorrow," he said.
China shifts its interest rates in increments such as 0.27 that are divisible by nine to make it easier for banks, which levy interest based on a 360-day year, to calculate the new payment changes.
A HOT ECONOMY
Chinese policy makers have been trying to cool over-investment for fear that excess supply will drive down profit margins and leave companies unable to service their debts.
"I'm pretty worried about this strong number because we think that the overcapacity issue is already a big problem, and this number is definitely making this more severe," Sun said.
The government has tightened land-conversion and environmental-protection rules, taking particular aim at industries that consume a lot of energy and spew out pollution.
Slightly softer factory output and export growth in October had prompted some economists to conclude that these measures might be biting. The investment report suggested they are not.
Capital spending accelerated in real estate, in smelting and pressing of non-ferrous metals such as copper, aluminium and zinc, and in non-metal minerals including cement.
Moreover, investment in new projects increased by 26.5 percent in the January-October period, up from 24.2 percent in the first nine months and just 6.4 percent in the first half.
Even after five rate rises, the one-year lending rate of 7.29 percent remains attractive given China's strong economic growth and fast-rising profits. Moreover, companies finance more than half of their investment from retained earnings, not bank loans.
The pick-up in investment follows figures earlier this week showing a record trade surplus in October; the sharpest rise in retail sales since the government started issuing the data in 1999; faster money and credit growth; and a rebound in consumer price inflation (CPI) to a nearly 11-year high of 6.5 percent.
Taken together, they leave the world's fourth-largest economy on track to grow by more than 11 percent for all of 2007, the fifth straight year of double-digit expansion.
"This higher investment number, plus a rebound in headline CPI and accelerating credit growth, should give the PBOC more than enough reasons for taking immediate tightening actions," said Qu Hongbin, HSBC's chief China economist.
He said he expected a rise of at least 0.27 percentage point as early as this week.
JP Morgan is also in the pack expecting an increase, but the bank struck a note of caution on the timing.
The rationale for a rise is to lift inflation-adjusted deposit rates -- now 3.87 percent for one year -- out of negative territory quickly to discourage people from investing their bank savings in the frothy stock market, economist Qian Wang noted.
"But with the domestic equity market already in correction mode, the urgency of an aggressive rate hike has been reduced," she said in a note to clients.
The stock market <.SSEC> was down more than 2 percent in early afternoon, partly in anticipation of higher borrowing costs, and is now 14 percent off its peak, scaled on Oct. 16.
The yuan
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