All posts by NNL - 173. page

Outlook Weekly published an article discussing China’s economic growth in the mid to long term. It listed four challenges that China faces:

1. As the global economy is still depressed, the demand for exports may negatively impact China’s economic growth. In 2011, exports dragged down the GDP growth rate by 5.8%.

2. Consumption is likely to stay at the same level. However, the continued economic depression may cause consumption to decrease.

3. The pressure of inflation still exists due to a lack of land in cities, a rapid increase in labor and service costs, an upward adjustment in service industry pricing, the the continuous increase in the price of agricultural products as a result of urbanization, and the ongoing pricing reform

4. High financial leverage results in a risk of bad loans. The M2/GDP ratio, which was 180% in 2011, is higher than in both developed countries and developing countries that are at a comparable income level with China. Local governments and state-owned enterprises are both highly leveraged.

Source: Outlook Weekly, republished on Sohu.com, January 29, 2012
http://news.sohu.com/20120129/n333094430.shtml

China Review News (CRN) commented on Wen Jiabao’s recent speech on financial reform given at the National Conference on Financial Worik held in Beijng. Wen “suggested breaking the (state-owned banks’) monopoly and encouraging private money to enter the financial service field.” The speech also highlighted that the government’s work would be to “improve confidence in the stock market” in 2012.

A few points that Wen’s made in his speech:

1. “China has steadily advanced the international status of the Renminbi (RMB). China has signed a total of 1.3 trillion yuan (U.S. $200 billion) in bilateral currency swap agreements. The amount of cross-border trade in RMB has reached 2.6 trillion yuan (U.S. $400 billion).”

2. “We must acknowledge that the global financial crisis is not over yet. We must improve our sense of crisis and sense of responsibility, and prepare for adversity during times of prosperity."

3. Wen stressed that financial services should move to the real economy and stop “using money for speculation.” For the real economy, Wen wants to “effectively solve the hard-to-obtain-financing problem and the too-expensive-to-obtain-financing problem…”

4. Wen listed “guard against and mitigate the local government’s debt risk” as one of eight measures for China’s financial reform.

Sources
1. Xinhua, January 7, 2012
http://news.xinhuanet.com/video/2012-01/07/c_122551507.htm
2. China Review News, January 8, 2012 http://gb.chinareviewnews.com/doc/1019/7/0/2/101970247.html?coluid=10&kindid=253&docid=101970247&mdate=0108105700

Wen Jiabao attended the National Conference on Financial Work China held in Beijing on January 6 and 7, 2012, and gave a speech, which listed eight measures for China’s financial reform:

1. Provide more good-quality financial services for society’s economic development.
2. Deepen the reform of financial organizations.
3. Strengthen and improve financial oversight and prevent systematic financial risks.
4. Guard against and mitigate the local government’s debt risks.
5. Improve the development of the capital market and the insurance market.
6. Improve the financial macro-control system.
7. Expand the opening of the financial industry (to the world) and improve the capabilities to allocate financial resources and safeguard the level of protection for financial security.
8. Strengthen the development of the financial infrastructure and improve the environment for financial development.

Source: Xinhua, January 7, 2012
http://news.xinhuanet.com/video/2012-01/07/c_122551507.htm

Xinhua reported that recently some real estate developers in Beijing, Shanghai, and Hangzhou have reduced their housing prices in order to promote sales. For example, the “Beijing Business International City” apartment complex is selling at 15,000 yuan per sq. meter (U.S. $256 per sq. ft), down from its peak of 25,000 yuan. “Long Hu Li Cheng” in Shanghai gave the buyers a 280,000 yuan (U.S. $43,000) discount, or 20 to 30% off the list price. This has attracted a lot of buyers, but has also greatly agitated the earlier buyers who purchased properties at a higher price. The earlier buyers are demanding refunds of the “lost value” or even that they be able to return the properties to the developers.

The article listed three groups of developers who are considering the decision of whether to reduce the price of property. The first group conducts quick sales in a short period to recover their capital investment. It tends to include limited developers with only spotty action and does not impact the overall market price. The second group is the small to mid-sized developers who might be forced to lower prices because of pressure to repay loans. There was a burst in real estate trusts after 2009 with an interest rate of 15% or more. The trusts must be paid back between September of this year and the end of next year. The third group is the big companies that have sufficient capital. They face a pricing dilemma. If they don’t lower their prices, the properties won’t sell; but if they do lower their prices, there might be complicated disputes with owners who paid higher prices earlier.

According to statistics, of 70 large or mid-size cities, the housing prices in 17 of those cities were lower in September than a year ago; 29 kept the price the same; and for the cities with an increased price, the increases were all below 0.3%.

Wen Jiabao recently expressed that it is critical to control the real estate market and maintain a healthy growth of the market (Ed: not to have a dramatic drop in prices). Officials from Shanghai and Beijing all expressed their determination to “unswervingly control the real estate market and ensure that housing prices remain ‘flat or with only a slight decrease.’”

Source: Xinhua, Oct 26, 2011
http://news.xinhuanet.com/politics/2011-10/26/c_111125641.htm