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By Jonathan Fenby of Trusted Sources

Tuesday’s announcement that former Politburo Standing Committee member Zhou Yongkang is to be investigated for corruption shows just how important the drive launched by Xi Jinping at the end of 2012 has become, with implications that stretch beyond the political power play into the economy. It is an important weapon in the simultaneous and wider reform programme with potential positive impact on the huge state sector and the investibility of its big listed companies. Continue reading »

By Ben Simpfendorfer of Silk Road Associates

The Yuecheng in Beijing’s southern suburbs is a pleasant looking senior living home. Its main living room is full of books, potted plants, and mahjong tables. Its bedrooms are bright and well equipped and little different from the rooms that many might be used to seeing in Europe or the US.

Indeed, to the casual observer, the Yuecheng appears to be a pin-up for the commercial opportunities of selling to China’s growing ranks of elderly people. But that’s why it’s also misleading. Continue reading »

Now that the football is finished, there is time to ponder the cultural legacy of the World Cup. For Chinese, some of it may be written in characters.

The Chinese characters inked as tattoos onto footballers’ bodies – no matter how bizarre or bewildering their message – are being seen in some quarters as indicative of a great power’s cultural projection.

“Cultural differences lead to funny misunderstandings, but they still help spread the culture,” Wang Qingyuan, head of the China Association of Tattoo Artists was quoted by the state-run China Daily European Weekly as saying. Continue reading »

By Andy Rothman, Matthews International Capital Management

Statistics announced on Wednesday do much to challenge the view that sub-par Chinese consumer spending is to blame for the sluggish rebalancing of the world’s second largest economy away from an over-reliance on investment. For too long this opinion has obscured the crucial truth that China is actually host to the world’s best consumer story.

Real retail sales rose 10.7 per cent in June and 10.8 per cent in the first half of this year, compared to the year earlier period. The strong momentum of this spending springs from solid foundations, with real urban household disposable income rising 7.1 per cent, up from 6.5 per cent a year ago. Continue reading »

By Paul Hodges of International eChem

Strange things are happening in China’s polyethylene (PE) market. Despite a slowdown in the economy, demand is surging.

Our research suggests that PE, like copper and iron before it, is the latest instrument of China’s ‘collateral trade’, in which spurious imports are helping to drive one of the world’s great credit bubbles.

It can only end badly. Continue reading »

It’s been three months since Ma Jun – sell-side economist and well-known China bull – quit the world of investment banking and moved from Deutsche Bank to the People’s Bank of China.

Now the German bank has found a replacement – poaching China bear Zhang Zhiwei from Nomura. With apparently rather divergent views on where the economy is heading, either Deutsche or Zhang is likely to be revising its forecasts pretty soon. Continue reading »

Banks intensified their squeeze on mortgage borrowers in China in June, contributing to another sharp decline in real estate sales for the month and ratcheting up the pressure on several city government finances.

Data collected by China Confidential, a research service on China at the Financial Times, showed that only 5 per cent of first time buyers were able to secure a mortgage below the benchmark interest rate. This compared with 8 per cent in May and 39 per cent in June 2013, according to China Confidential’s monthly survey of 300 real estate developer sales offices in 40 cities across the country. Continue reading »

Two of China’s stodgiest state-controlled entities locked horns this week as state broadcaster CCTV accused a major state bank of money laundering and violations of the country’s foreign exchange rules.

In a report aired on Wednesday, China Central Television claimed that Bank of China (BOC), the country’s fourth largest lender, was helping clients circumvent foreign exchange controls using a service called “Youhuitong,” a play on words that translates as “Preferential Transfer Channel.”

The incident highlights the many regulatory grey areas that have emerged as China has launched a slew of financial reform pilot programmes. Many such programmes take the form of broad guidelines, while detailed regulations appear much later, if at all. Continue reading »

By Liao Min, China Banking Regulatory Commission

Shadow banking is a risky business, for sure. That’s the reason why the Financial Times ran a recent series on shadow banking, with the first article investigating China. In China, shadow banking is a broad concern, given liquidity mismatches in the system, opaque asset quality and the fact that the end-users of such finance are often in the riskier sectors of the economy such as real estate and those struggling with over-capacity.

What’s worse, it has exposed traditional banks to increased wholesale funding and greater fragility. Therefore, Chinese banking regulators, in common with their global counterparts, are concerned about and eager to learn how the shadow banking sector is evolving and reshaping finance in China and around the world. Continue reading »

By Guonan Ma, Bruegel

Against a backdrop of weakening domestic demand, and in the slipstream of a major debate about whether Chinese monetary policy in the last year has been too restrictive, there have been definite signs of Chinese monetary loosening in recent weeks. This makes sense. Timely and measured monetary easing will support growth, facilitate structural rebalancing and underpin rapid economic reform.

There is little doubt that Chinese growth has been losing momentum. During the past few quarters there were clear signs of rising inventories, slumping property sales, producer price deflation, declining consumer price inflation, weakening corporate earnings, slowing investment and anaemic industrial production. Fortunately, private consumption is still holding up. Continue reading »

China said on Tuesday it will tighten curbs on journalists to prevent the disclosure of state secrets, commercial secrets and “unpublicised information” as the administration of Xi Jinping reinforced controls over information amid outpourings of anti-Beijing sentiment in Hong Kong.

Xinhua, the Chinese official news agency, said that rules published by the State Administration of Press, Publication, Radio, Film and Television prohibit disclosure of “various information, materials and news products that journalists may deal with during their work, including state secrets, commercial secrets and unpublicised information.”

None of the key terms used – including state secrets, commercial secrets and unpublicised information – were defined, leaving them open to interpretation by China’s army of censors both within media organisations and in several state bodies charged with regulating information industries. Continue reading »

By Andrew Collier, Orient Capital Research

Beijing’s desire to pump up the Chinese economy is leading it into dangerous territory.

Although China has piled on debt, the country has been relatively cautious about one of the big areas that led to the U.S. financial crisis: leverage. It was the slicing and dicing of mortgages into digestible bite-sized chunks called derivatives that was a key contributor to the U.S. financial meltdown in 2007. Once they unwound, they threatened the banking system itself.

Until recently, China has avoided complicated derivatives and other forms of leverage. However, desperate to keep the economy from slumping, the Chinese reluctance to wander down the leverage path seems to have faded. Continue reading »

China’s renminbi is becoming more attractive, despite not being freely traded. Hayden Briscoe, head of Asia-Pacific Fixed Income with AllianceBernstein, discusses with the FT’s John Authers why the currency is growing in popularity, and the risks and opportunities this opens.

The nerdier parts of Washington DC have been riveted over the last week by a fight over one of the duller institutions in the city: the Exim Bank, the US’s export credit agency. The battle threatens the very existence, at least in its current form, of the agency that promotes US exports by insuring foreign buyers.

The battle is generally portrayed as a domestic ideological affair that pits true believers in unregulated markets (at least on this issue) against true believers in business. Yet the context inescapably includes other exporting economies, particularly in emerging markets. The stakes for the Exim Bank’s defenders have only been raised by the aggressive use of similar export credit agencies (ECAs) by emerging economies and most particularly China. It remains remarkable that the same US Congress that regularly inveighs against unfair Chinese export competition is also contemplating abolishing the agency that may help redress the balance.

 Continue reading »

By Qu Hongbin, Co-Head of Asian Economic Research, HSBC

For many, China’s growth model, which has delivered average annual GDP growth of 10 per cent over the past three decades, simply looks wrong: a national savings rate of around 50 per cent is unheard of in a large, modern economy.

A typical diagnosis states that China invests too much and consumes too little. The prescription is “rebalancing” – moving the economy away from investment towards consumption-led growth. However, a consumption-led growth model has little in theory or evidence to support it. Continue reading »