Economy/Resources - 107. page

On September 4, China’s central bank the People’s Bank of China, and the All-China Federation of Industry and Commerce, which is the chamber of commerce for the private sector, held a meeting to discuss how to improve the financing status for private enterprises and small and micro enterprises.

With the ongoing US-China trade war, more uncertainties have been added to the economic situation. Banks are reluctant to lend to private enterprises. Difficulties in financing will hit private investments and affect China’s economy in the second half of the year. China’s state banks have always preferred lending to state-owned enterprises, but small and micro businesses represent the vitality of the national economy. Yi Gang, president of the People’s Bank of China, once said that they contributed to 80 percent of China’s employment, about 70 percent of patent rights, more than 60 percent of gross domestic product (GDP), and more than 50 percent of taxes.

Starting on January 1, 2019, tax authorities will replace the social security bureaus in collecting a number of items now under social security. Since the tax bureaus also collect the salary information, the move will add to the burden on the private sector, as most of the enterprises currently declare their social security obligations at the minimum wage standard.

Additionally, China’s Ministry of Ecology and Environment recently issued a directive that prohibits local governments from shutting down businesses across-the-board or from suspending operations using the excuse of protecting the ecological environment until they have conducted investigations. Local government authorities, when dealing with inspections from environmental protection units, usually place unreasonable restrictions on enterprises, especially private and small businesses.

Source: Central News Agency, September 6, 2018
http://www.cna.com.tw/news/acn/201809060130-1.aspx

Since 2018, many real estate development companies have been under tremendous pressure when trying to deal with the tightening of the financing channel, as well as serious cash flow and debt issues. According to an article that Changjiang Times published, a number of large publicly traded real estate companies have either initiated hiring freezes, closed down unprofitable projects and departments, or laid off employees. The list of companies includes Greenland Holdings, CK Asset Holdings Limited, Vanke, R&F Properties, and Agile Properties. The article also quoted statistics which revealed that, in the first six months of 2018, the total debt among 136 publicly traded real estate companies reached 10 trillion yuan (US$1.46 trillion) and their average debit ratio was at 79.1 percent, which was the highest since 2005 and up 33.33 percent from 2016. In the first seven months of 2018, forty real estate companies borrowed 410.5 billion yuan (US$60.08 billion), which is equivalent to the total amount borrowed in the second half of 2017. At the same time, many real estate companies were stopped from issuing bonds in order to raise cash and fewer and fewer financing options were available for them. The article stated that, since the average financing term of a real estate debit is three years, these real estate companies will have to deal with paying off heavy debts that are due in 2018 to 2019.

Source: Changjiang Times, September 3, 2018
http://www.changjiangtimes.com/2018/09/588297.html

At present, the impact of the Sino-US trade wars on the lives of the people who live in the mainland has emerged gradually. This is especially so as prices of goods such as vegetables, pork, and eggs have risen. A recent fire at a grain warehouse and the reduction in summer grain production once again sent a signal that China has a food crisis. Ye Tan, a well-known Chinese economist, published an article that has been circulating on the Internet. It is titled, “Considering internal and external problems, China’s food situation may be more serious than we imagined.” Below is the translation of a summary of the article.

On July 18, the national summer grain production data that the National Bureau of Statistics released showed that the total summer grain production was 138.72 million tons in 2018, down by 3.0 percent or 3.06 million tons from 2017. On August 10, the Committee of the Market Early Warning Experts of the Ministry of Agriculture and Rural Affairs released an analysis of the supply and demand situation as to China’s agricultural products in August 2018. The analysis predicted a shortage of corn production from 2018 to 2019 with the ending balance down by 17.75 million tons. The gap had grown from the previous year.

In addition, as of August 15, the projected wheat purchase in the main producing areas was 41.059 million tons, a year over year decrease of 20.331 million tons. Among the three provinces of Henan, Anhui and Hubei, there was a sharp decline of 55.1 percent in Henan and 45.9 percent in Anhui. In Henan, the production accounts for about a quarter of the country’s wheat production.

The reduction in summer grain and in wheat production is alarming. According to the National Grain and Oils Information Center, China’s corn, rice and wheat production will suffer a reduction of 8.08 million tons, 5.545 million tons, and 7.867 million tons respectively in 2018 compared to 2015. According to a report by the World Bank, China’s total food demand is expected to reach 670 million tons in 2020 and 700 million tons in 2030. Even if China could maintain a record high of 620 million tons, the gap would still be large.

At present, China imports 95.53 million tons of soybeans every year. The self-sufficiency rate is less than 20 percent. In the case of corn, China also imports about 760,000 tons from the U.S., accounting for one-quarter of total imports. As the trade war escalates, a food shortage crisis will surface.

At the same time, there are reports on fires that have broken out in grain warehouses. Regarding the most recent one, coincidentally, the timing was that the fire occurred after the party issued a notice on July 23 that it would perform an inspection of the grain warehouse. In less than a week, at 8:00 am on July 29, a fire broke out in the No. 1 storage warehouse of that Datong Grain Reserve in Weinan City, Jilin Province. Afterwards, the local official said that the fire had nothing to do with the upcoming audit. Four days before the incident, the Central First Inspection Team had just entered the site for inspection. In another coincidence, the five cameras in the granary failed just before the fire due to wind, electrical appliances, and other reasons. In March of this year, there was a fire at the Jiaozuo grain warehouse in Henan Province. The staff of the Central Grain Reserve also denied that the fire was related to the inspection of the national grain clearing warehouse.

In recent years, the China Grain Reserves Corporation has been accused of becoming a very large base of corruption. The authenticity of the grain production data has been questioned for many years. According to the official data, it is estimated that China’s grain output has been overstated by a minimum of hundreds of millions of tons.

Source: 10jqka.com.cn, August 6, 2018
http://master.10jqka.com.cn/20180806/c606217537.shtml

China Energy Network, a news network that People’s Daily sponsors, recently reported that PetroChina announced its new winter natural gas pricing structure. All customers can expect a minimum 20 percent price increase this winter. This minimum percentage was set by the Chinese government as the baseline price. In Eastern China, the PetroChina price increase will be 38 percent, across all types of customers, including the consumer market. In Southern China, the increased number will be 40 percent. Natural gas related stocks skyrocketed after the announcement. The Chinese government officially increased the tariff against U.S. liquid natural gas (LNG) by 25 percent. In the past 12 months, China became the second largest U.S. LNG buyer (after South Korea). After China’s tariff announcement, in the month of July, China’s import volume from the U.S. already dropped in half.

Source: China Energy, August 8, 2018
http://www.cnenergy.org/yq/trq/201808/t20180808_675676.html