The ever ingenious Chinese financial system has developed a new kind of shadow bank – insurance companies.
China’s $586bn stimulus package in 2009 caused a flurry of lending through the country’s financial arteries. Some of this money ended up leaking out of the banks into unofficial channels, including the country’s state banks and the giant provincially-owned pseudo banks called Trust Companies. By the end of 2014, these off-balance sheet loans accounted for 18 per cent of all financing, up from less than 2 per cent a decade earlier. Read more
As the Chinese economy posts its slowest growth in six years, major reforms to China’s state-owned enterprises are now in the final planning stages. The Xi Jinping administration has pledged to overhaul and consolidate the state-owned economy to tackle widespread inefficiency and corruption.
A wave of mega-mergers among state-owned firms has already been announced in railways, nuclear power and other industries. Consolidation may be easier politically than market reforms, but it’s not the right way forward. China’s crown jewel firms don’t need to be bigger; they need to be better. Read more
One year on since new trade mark laws took effect in China and there is little evidence to show it is becoming any easier for global brands to enforce their rights in the country. The new laws and practices were intended to make it easier to enforce trade mark rights and provide greater levels of transparency and accountability surrounding intellectual property (IP) infringement.
It’s easy to understand why an increasing number of western companies are looking to take advantage of the Chinese market as e-commerce sales have recently rocketed, outpacing the US. However, some companies are still finding it difficult to protect their brands in China. Read more
The first whispers of worry about a Chinese property bubble surfaced in late 2009. Since then, the local real estate market has quickened and slowed in line with government measures to stoke or cool the market, but has never crashed. Nonetheless, some market watchers insist that the Chinese property bubble will burst one day. Recent sector weakness has given them further ammunition, as has the near collapse of Kaisa, a mid-sized Shenzhen-based developer.
Until December 2014, Kaisa’s finances were perceived to be strong and sales were rising. Now its survival is at the mercy of lenders and rivals. Its woes started when the government halted some of its Shenzhen projects in December without giving a reason. The chairman abruptly resigned, while debts to banks and bondholders have gone unpaid and the firm is in the process of being acquired by its competitor. It has yet to reach a consensual solution with its creditors. Read more
Argentina recently announced a deal to buy nuclear reactors from China, one of which is expected to be of original design. The anticipated export of the indigenously developed Hualong One is a symbol of how far China has come in a relatively short space of time. It has been able to manipulate its expanding domestic market to make a meteoric rise in terms of technological development.
A relative latecomer to nuclear power, its first reactor was connected to the grid in 1991. Less than 25 years later, China is now aiming to become a major player in the supply of nuclear technology to the world. Read more
After China’s notable political success in registering more than 35 applicants for funding membership of the yet to be launched Asia Infrastructure Investment Bank (AIIB), some important issues remain to be addressed that will determine the long term success of the new institution.
Scope of intervention: China-centric or Asia-focused? It is no coincidence that the set-up of the bank comes at the same time Beijing is rolling out its “one road, one belt” action plan. The revival of the Silk Road is part of the charm initiative aiming at winning greater consideration from neighboring countries as much as fostering trade relationships. Read more
By Andy Rothman, Matthews Asia
Will China’s real estate market crash? No, not in my opinion. China’s residential property market is significantly softer now. But I believe there is very little risk of a crash. House prices are stabilising in China, and are likely to rise again by the second half of this year on a year-over-year basis.
But keep in mind that because of the base effect, prices are likely to fall year-on-year at a steeper rate through much of the first half of this year, leading to a growing chorus of predictions of a housing crisis. Read more
By Joel Backaler, Author of “China Goes West”
On March 22, China National Chemical Corporation (CNCC) reached an agreement with the controlling shareholders of Italian tire-maker Pirelli to move forward with a €7bn takeover. If successful, the deal will be one of the largest overseas acquisitions of a European company by a Chinese firm to date.
While CNCC may not have the global recognition of Chinese firms such as Alibaba, Huawei and Lenovo, CNCC and its chairman, Ren Jianxin, are experienced international acquirers. Ren has acquired either directly, or via government driven consolidation, 107 domestic firms and four international businesses in France, Australia and Israel. Read more
By Noor Menai, CTBC Bank USA
In a thinly veiled admonishment, the White House recently accused the UK – our closest ally – of “a policy of constant accommodation” towards China. The parallel drawn to the historical appeasement of Germany by an apprehensive Europe was lost on no one, nor indeed the overwrought nature of the underlying concern.
The proximate cause of this spleen-venting was the surprise breaking of ranks by the UK to join as a founding shareholder the nascent China-led Asian Infrastructure Investment Bank (AIIB.) This initial $50bn fund has as its’ agenda the financing of overdue infrastructure in Asia. Read more
By Gavin Bowring, Asean Confidential
With the China-led Asian Infrastructure Investment Bank (AIIB) gaining support from a growing number of global economic actors, one big question remains. Where will the bank itself be headquartered?
Beijing might seem the obvious choice. But given the political sensitivities surrounding the bank’s formation, it may seek to alleviate fears of Sinocentrism and opt for a neutral, regional destination. A similar calculation resulted in the decision by the Asian Development Bank (ADB) – in which Japan is the largest shareholder – to pitch its regional headquarters in Manila. Read more
By David Mann of Standard Chartered
Much of the negativity about world growth prospects at the moment seems to stem from the absence of a credit boom in any major market and worries over the consequences of higher US interest rates for the first time since 2006.
The lack of a credit boom means that growth is more subdued than it was in the run-up to the global financial crisis.
In particular, there are fears about China’s growth prospects, given the recent bad news concerning weak credit demand, high real interest rates and tight liquidity. However, we see three reasons for at least some optimism. Read more
By Dominic Jephcott, Vendigital
The Chinese Government’s decision to embark on a fresh round of industry consolidation as part of a move to strengthen state-owned enterprises (SoEs) and increase their global competitiveness has been a long time coming. It is an understandable response to the slowdown in economic growth, over-capacity in many sectors and poor returns on huge capital investments over the last ten years.
The Made in China 2025 initiative, which was outlined last week at the National People’s Congress, is a 10-year plan for transforming the country’s disparate manufacturing sector in order to create a smaller number of large-scale businesses capable of competing internationally in the higher added-value and strategic industries. Calls to address the endemic inefficiencies of China’s SoEs and increase their global competitiveness are nothing new, of course, but this time it seems there is a clear commitment to make sure it happens. Read more
The International Monetary Fund will hold discussions in May and make a decision in November on whether to add the Chinese renminbi to the four currencies it uses to value its Special Drawing Right (SDR), the international reserve asset created by the Fund.
China is keen for this to happen, as the deputy governor of its central bank, the People’s Bank of China (PBoC), reiterated at a press conference in Beijing on Thursday. There is a snag: the renminbi is not and may never be a convertible currency, which is a standard pre-requisite of a reserve currency. But as David Lubin of Citi Research argues in a note also published on Thursday, that consideration is likely to be put aside. Read more
By Andrew Collier, Orient Capital Research
Chinese investors have discovered a new way to spirit money out of the country behind the backs of the country’s regulators.
In recent years, savvy investors have used false invoicing as a way to disguise their capital flight. A Chinese company pays $1m to a foreign company for a machine tool that is actually worth $500,000; the rest is invested in property or stocks in London or Sydney or New York. Read more
China is no stranger to internet sensations, but a documentary highlighting the scale of the country’s chronic air pollution seems to have shaken the trees all the way to Beijing’s highest branches.
Under the Dome, the 104-minute film made by journalist Chai Jing, has already been seen by 160m people on Tencent’s video page, and garnered praise from government ministers and state media. Investors are also taking note. Read more
The second cut in China’s interest rates in three months reveals key elements in Beijing’s thinking as it tries to reconcile an economic policy agenda beset with conflicting priorities, analysts said on Monday.
The task before China requires some delicate manoeuvres. It aims to wean the country off an extraordinary debt binge (see Martin Wolf ) while keeping GDP growth fairly robust. It hopes to combat disinflationary pressures while preventing the renminbi from sliding too sharply against the US dollar. It wants to curb a dangerous slump in industrial profits without resorting to another round of investment pump-priming. It needs to keep domestic liquidity levels buoyant in spite of a surge in capital flight. Read more
By Guonan Ma, Bruegel
The Chinese economy is simply too big to remain tied to the once useful monetary anchor of the renminbi-US dollar peg. It is time to let it go.
The Chinese renminbi depreciated 2.5 per cent against the US dollar in 2014, the largest annual fall since 2005 when Beijing timidly started loosening its tight dollar peg. Recently, the Chinese currency has repeatedly tested the weak side of its daily trading band, despite attempts by the People’s Bank of China (PBoC) to signal a steadier bilateral renminbi-US dollar rate via its daily fixing (see chart below, left panel).
What has led to the changing fortunes of the renminbi? What lies ahead for the currency in 2015? Read more
Being born under the dragon sign of the Chinese zodiac is considered to be the luckiest start in life one can have. Dragon babies were so sought after in 2012 – the most recent window of opportunity – that some would-be parents went to extraordinary lengths to make sure they had one.
Evidence suggests those endeavours could yet pay off. According to a (not very) scientific piece of research from Wealth-X, dragons are indeed more likely to end up sitting on (or rather earning) vast piles of gold. Read more
By Marty Sun, Goldman Sachs
The launch of the Shanghai-Hong Kong Stock Connect last November has made it easier for international investors to access China’s equity markets.
The link got off to a smooth start largely thanks to the money from hedge funds worldwide flowing into Shanghai.
But unlike their hedge fund cousins, less than one-third of Hong Kong’s long-only fund managers (who buy stocks hoping their prices will rise) are using the link to buy Shanghai-listed shares, according to a recent survey by the Hong Kong Investment Funds Association (HKIFA). Access from Europe has been even more measured, with only a few Luxembourg funds approved for the programme, even though a fast track application process has been put in place. Read more
Ever fancied a holiday from the internet? Complete peace of mind, a world away from the hyperreality of tweets, email, hashtags, likes, blogs and the other trappings of an ICYMI world?
Welcome to China, where, ensconsed behind the Great Firewall, you can relax, maybe shop on Alibaba, send the odd Wechat message, or fight little bug eyed jumping dragon thingies with a Kung Fu laser sword. But that’s it. No Gmail, no YouTube, no Facebook or Twitter. You’re guaranteed a relaxing disconnect from being a beast of online burden.
But it turns out not everyone appreciates the opportunity. Read more