By John Davies, Standard Chartered
China is the second-largest investor in US government bonds (or US Treasuries), trailing only the US Federal Reserve, but as the renminbi becomes more international, Chinese demand could drop, with significant implications for US yields.
The International Monetary Fund (IMF) is scheduled to decide later this year whether to include the RMB in its Special Drawing Rights (SDR) currency basket. In our view, China’s currency now meets the technical requirements for SDR inclusion, and we see a better than even chance that the IMF will add the renminbi.
Beijing appears to have taken up the challenge of the SDR review this year by accelerating the liberalisation of China’s capital account. However, this liberalisation cannot be achieved with a fixed RMB, so China, as this month’s move by its central bank has demonstrated, is likely to be heading towards a floating currency regime. Read more
By Ali Wyne, Wikistrat
This September will mark the ten-year anniversary of two documents that have been highly influential in framing contemporary analysis of America’s relationship with China: an essay by Zheng Bijian in Foreign Affairs explaining how China would achieve a “peaceful rise,” and a speech by Robert Zoellick advising China to serve as a “responsible stakeholder” in the evolution of world order.
Today the two countries are struggling to define a framework of partnership that reconciles the imperative of enduring cooperation with the inevitability of mutual suspicion. Meanwhile, initially shared enthusiasm over adopting a “new type” of great-power relations has waned, in part because of the difficulties in bringing such an abstract and ambitious ideal into existence. Read more
Clearly, China’s interest rate cut on Friday was motivated by a desire to manage a flagging growth story. But the announcement also revealed a few sub-plots, which together may say more about Beijing’s mindset than the dominant narrative.
The first point, several analysts said, is that Beijing’s monetary easing may well have further to run, following the decision by the People’s Bank of China (PBoC) to cut its benchmark lending rate by 0.4 percentage points to 5.6 per cent, while cutting its deposit rate by 0.25 per cent to 2.75 per cent. Read more
There may be some light at the end of the tunnel for China’s beleaguered housing market, according to a survey of real estate developers by China Confidential. Home sales growth in October was the highest in 18 months, while a separate survey of urban consumers shows home buying sentiment at a multi-year high.
China Confidential’s monthly survey of 300 real estate developers across 40 cities, showed a sharp rebound in sales volumes in October, with companies reporting the biggest month-on-month increase since March 2013. Developers reported an even larger expansion in sales inquiries, suggesting that many potential home-buyers remain on the side-lines. Read more
The World Bank’s annual “Doing Business” rankings have long been a favourite grousing point for policymakers in the developing world and a regular source of tension between the bank and its member countries.
So much so that China – disenchanted with its persistently low place in the rankings – tried to kill them altogether in 2013.
The rankings’ defenders argue there is a good reason for why the annual Doing Business report is the bank’s most popular: It offers an unvarnished assessment of economies’ relative standings in the world when it comes to bureaucratic barriers to business. And that, the defenders contend, makes it a valuable policy tool Read more
When oil prices fall, it’s a fair bet that Venezuela’s economy will suffer. After all, that has been the case every time oil prices have fallen in the past. When Venezuela’s official gazette then publishes a legal notice on October 10 saying that its oil-for-loans scheme with China had been tweaked, it is also a fair bet that this would be taken as a sign of Venezuelan economic distress and maybe even a default on loans from its closest ally, China. That is how beyondbrics and many others understood it. How wrong one can be — sort of. Read more
Last month Ricardo Hausmann, a normally mild Harvard academic, set off the equivalent of a financial bomb. The economist suggested that Venezuela had already defaulted on many of its suppliers, its oil service contractors, and its citizens. So who or what might come next?
When Hausmann suggested Wall Street, the market reaction was huge. Indeed Venezuelan bonds, undercut by the falling oil price, have been dropping ever since. Yet it turns out that Venezuela’s latest default has been, in fact, to China. Given that Beijing is one of Caracas’ closest allies, this is surprising. It is also bullish for Wall Street. Read more
Free-trade champion Mexico is on a reform drive that promises new openness in key sectors of its economy, especially energy. So what is it doing slapping protectionist measures on its shoe industry?
Fighting unfair competition from China, officials say.
The raft of new measures to protect Mexico’s industry – which makes 240m pairs of shoes a year – sounds distinctly off message, especially since President Enrique Peña Nieto has made boosting trade ties with China a priority. (He met his Chinese counterpart three times within six months to forge closer relations.) Read more
By Roy Williams of Vendigital
The latest wave of anti-trust investigations in China – first Qualcomm and now Microsoft and the ongoing criminal investigations involving GSK – is having an unsettling effect on global supply chains across a variety of industry sectors.
But instead of planning an exodus, Western businesses should avoid over reacting and focus on finding new, appropriate strategies that will allow them to stay and profit from doing business in the world’s fastest-growing consumer market.
Of course, any business thinking about shifting operations to China in order to gain access to its developing marketplace should do so with its eyes fully open. Businesses that go there simply seeking to profit from their exposure to the market will be unlikely to find that things run smoothly. Read more
By Rafael Halpin, China Confidential
Those trying to gauge how much of an economic slowdown Beijing is prepared to tolerate, should take a look at Hebei province.
GDP growth in China’s industrial heartland collapsed to 4.2 per cent in the first quarter of this year, according to official figures. Quarterly GDP data is available on a year-to-date basis from 2005, and the first quarter reading was the lowest for Hebei since then (see chart). Read more
When China’s premier was an up-and-comer in the provinces, he famously told US diplomats that he looked at indicators including electricity consumption and freight transport to gauge the true state of the world’s second largest economy. According to a Wikileaks cable, Li Keqiang said such figures were more reliable than the government’s own official GDP growth number.
Embarrassingly for the then premier, Wen Jiabao, the “Keqiang index” was thus christened and was subsequently used by economists to cross-check the GDP growth numbers revealed every March at the annual session of China’s parliament, the National People’s Congress. Read more
Which tapering programme is bigger – the US Fed’s or China’s? Of course, the two processes are different in several aspects, but each represents an unwinding of monetary stimulus for the global economy.
The question is particularly topical after US Fed Chairman Janet Yellen reaffirmed her commitment this week to keep reducing US asset purchases and China’s central bank pledged to keep its monetary policy unchanged in 2014. Read more
January was a scary month for China’s machinery makers and their investors. First, Zoomlion was accused by a “concerned investor” of booking phantom sales, then Caterpillar accused its own recently-acquired Chinese subsidiary of accounting misconduct and took a $580m write down on the value of the deal.
Time for a ghostbusting analyst to bring some rational rigour to the sector. Read more
For the tens of millions of Chinese who will journey back home next month for the Chinese New Year, fighting over the limited supply of train tickets is nothing new. But this year, the fight has moved online, and somewhat controversially. Read more
Critics of lotteries the world over often describe them as taxes on the poor, and for good reason. From the US to Spain, lower-income citizens are the biggest buyers of lottery tickets, and, as a group, they will lose at least 35 per cent of what they spend.
In China, though, it is more accurate to describe the lottery as a tax on hope. Those buying tickets tend to earn more than average, but they have run into the chasm that is China’s wealth gap and see the lottery as their best bridge across it. Read more
From 21 hours to 8: Beijing to Guangzhou
China’s infrastructure development hit another milestone on Wednesday with the full opening of the world’s longest high speed rail line.
Connecting Beijing with Guangzhou at speeds of over 300kph, the 2,298-km route halves travel time between the two cities to less than 10 hours. Read more
It seems in every family there are secrets and lies.
On Wednesday afternoon, Pedro Delgado, the cousin of Ecuador’s President Rafael Correa, and the Andean country’s central bank president, stepped down after confessing that he did not hold a university degree in economics.
“I submit my irrevocable resignation as head of the central bank… and I do it because I made a grave mistake 22 years ago,” Delgado said. Read more
China’s big spenders have finally made it to the top of the league table: according to reports published on Wednesday by McKinsey and Bain, mainlanders are now the world’s biggest luxury buyers – even if they choose to do more and more of their shopping away from home. Read more
The FT’s bureau chief Jamil Anderlini has just concluded a lively online debate on Google+ about China’s forthcoming leadership change and the implications of the Bo Xilai scandal, the subject of his new ebook.
Beyondbrics presents highlights from the debate. Read more
By Tim Taylor of SJ Berwin
Television pictures of rioting Chinese citizens are a startling demonstration of the seemingly spontaneous civic anger over Japan’s territorial claims to five uninhabited islands and three rocks known to Japanese as the Senkaku Islands and to the Chinese as the Diaoyu Islands.
At stake in the East China Sea (and in a separate row in the South China Sea) are not the barren rocks themselves but the oil and gas that might be found under surrounding waters. Oil majors contemplating investment need a primer in international law as well as an appreciation of the historical and political background before they venture into this region. Read more