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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 »

By Nicholas Borst, Peterson Institute for International Economics

There has been a significant amount of buzz regarding the rapid growth of internet finance in China. The scope of internet financial products includes money market funds, insurance products, third-party payment platforms, peer-to-peer (P2P) lending, and other more exotic investment products. In other words, internet finance is springing up largely beyond the remit of the traditional banks.

The pace of growth has been rapid enough to inspire fear and resentment on the part of the banks even though the total amount of money invested in internet financial products is still small relative to the enormous size of the traditional financial sector. The emergence of internet finance in China raises several key questions: What is behind the growth of internet finance? What are the risks and benefits from investing in these products? And what will the impact be on the rest of the financial system? Continue reading »

More bad news for China’s property market. Not only is the People’s Daily quashing hopes for a real estate stimulus, but data from 42 of the country’s most significant cities is showing a declining trend for property sales in the first half of June.

Home sales from the 42 cities, monitored by China Confidential, fell 16 per cent in the first 15 days of the month from the same period in May. This followed some signs of recovery in May, when transactions rose 4 per cent month on month.

On a year on year basis, property unit sales fell 29 per cent, representing a deepening of the declining trend seen in May – when sales were down 14 per cent year on year – and in April, when sales were down 23 per cent. Continue reading »

By Joel Backaler, Author of “China Goes West”

On a recent trip to London, I was shocked at how much evidence of corporate China was all around me. As I rode in a black cab, I remembered that Geely, a Chinese firm that acquired Volvo in 2010, had bought iconic British cab producer Manganese Bronze in 2013. Arriving at Heathrow, I recalled that China’s sovereign wealth fund, the China Investment Corporation, owns 10% of the firm that operates the international airport. In line at the gate, I stared at a giant display for a laptop by Lenovo, the Chinese firm that made headlines in 2005 for acquiring IBM’s ThinkPad brand.

In only a few short years, Chinese companies have gone West in a big way. However, many questions remain about what drives Chinese firms to expand beyond the boundaries of the Middle Kingdom, and what the ultimate costs and benefits of their global investments will be. Continue reading »

With the benefit of hindsight it is always easy to identify the signs of an impending crisis.

Today it seems perfectly obvious that high-profile loss-making pet food websites will eventually go bust and that giving mortgages to people who cannot pay them back is not a sustainable business model.

Along with such leading indicators of looming disaster I would add another – the conversion of bearish commentators and economists into newly-minted optimists. Continue reading »

By Stephen Green, Standard Chartered Bank

Dangerous things can lurk in the shadows of a financial system. We know this because when the US banking system almost burnt down in 2008, the stuff in the shadows was the fire’s accelerant. The highly-leveraged, off-balance sheet vehicles loaded with securitised debt meant made the banking crisis were far worse than it would have otherwise been.

Knowing the problems that lurked in the US, the idea of shadow banking in China freaks people out. The sector seems to have grown fast, in an economy already known for its tendency for asset bubbles and bad lending. We have spent time poking around in the shadows. We believe that much of the fear is misplaced. Continue reading »

The ingenuity of Chinese netizens seeking to commemorate the 1989 Tiananmen massacre in defiance of the country’s “Great Firewall” of censorship is reaching new heights.

Armed with little but the remarkable flexibility of Chinese characters, the more daring among 618m internet users are finding an endless string of linguistic ruses to outfox – at least temporarily – the world’s most formidable forces of online control to get their messages out. Continue reading »