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Xinhua: Banks Saw Concentrated Outbreak of Nonperforming Loans

Xinhua recently reported on the first quarter financial reports that multiple major banks released on May 1. The report indicated that the net profit growth rates of the top five Chinese commercial banks all fell into the "realm of one percent.” As the Chinese macro economy slows, the whole banking industry has been dealing with many challenges. In the first quarter, the top five banks saw their nonperforming loans double on a year-over-year basis. According to senior experts at PricewaterhouseCoopers (PwC), more and more overdue loans are in the process of becoming nonperforming loans. PwC recently published a new report which predicted that most banks would post end-of-year-reports for 2015 showing only single-digit growth and that some would even see negative growth. The total of the nonperforming loans is still rising. In the meantime, the risk resulting from the lower quality of credit based assets is continuing to growing.
Source: Xinhua, May 1, 2015
http://news.xinhuanet.com/fortune/2015-05/01/c_127755182.htm
Briefings | | |   Economy/Resources

Asian Infrastructure Investment Bank and the “One Belt, One Road” Strategy

China Review News republished an article that Chinese economist Xian Langping wrote discussing China’s rise. Xian stated that the Asian Infrastructure Investment Bank (AIIB) and China’s "One Belt, One Road" strategy are tightly integrated to support China’s continued economic growth and its international influence.

Xian explained that, on October 24, 2014, China and 20 other countries, including India and Singapore, signed the Memorandum of Understanding (MOU) to establish the AIIB. These 20 countries share some commonalities: first, they are China’s neighbors; second, they are in the "One Belt, One Road" zone; and third, they are cooperating or have the intention to cooperate with China to build high-speed railways.

China’s "One Belt, One Road" strategy is to build roads and railways to connect the countries in the zone. It will create economic growth opportunities (e.g. the export of high-speed railway system and construction materials) for China and will also expand international trade (so that China can export more goods to these countries).

Even though the contributions of the AIIB member countries are based on their GDPs and in theory, the U.S. can have the loudest voice if it joins, Xian believes that the U.S. will not join. To him, the bank was created to serve infrastructure development; more specifically, high-speed rail construction. China has a big advantage in this field. If the U.S. were to make any contribution, it would only benefit China.

Source: China Review News, April 26, 2015
http://hk.crntt.com/doc/1037/2/6/7/103726773.html?coluid=53&kindid=0&docid=103726773&mdate=0426080715

Briefings | | |   Economy/Resources

Minister of Finance on Areas to Help China Overcome the Middle Income Trap

Phoenix Chinese News and Entertainment reported that, on April 24, when attending the Tsinghua China high-level economic forum held at Tsinghua University, Lou Jiwei, China’s Minister of Finance, said that there is a 50 percent chance that China will fall into the middle income trap [where a country attains a certain level of income and then gets stuck at that level] in the next 5 to 10 years due to its fast becoming an aging society. Lou listed five areas that will help China to overcome this problem.

1) Agricultural reform: to promote agriculture imports and reduce farm subsidy spending. Lou believes this will shift the labor force in the countryside to supplement the labor shortage in the manufacturing and service sectors while keeping salary increases below the growth of productivity.

2) Reform of household registration: to break the registration barriers. Lou said that since the reform initiation published in July 2014, only 14 provinces have introduced a plan to execute the reform and none of these are in the areas where most people wish to migrate. Therefore, in order to break the barrier, the government must provide education and medical resources that will help the migrant workers to have stable living conditions in the city.

3) Labor relations: to allow employers and the employees to manage labor relations themselves in order to promote flexibility in the labor market.

4) Land reform: Once the construction land is bought out, it can be freely traded, just like urban land. The government is not allowed to expropriate land and evict the tenants.

5) Social Security: the government needs to allocate more funds so as to reduce the social security rate. More changes are needed in social security payments and in collection and investment. Otherwise, China will not be able to deal with its aging population.

Source: Phoenix Chinese News and Entertainment, April 26, 2015
http://finance.ifeng.com/a/20150426/13664167_0.shtml

Briefings | | |   Economy/Resources

Government Reduces the Amount of Land Available for Commercial Development

On April 21, the Ministry of Land and Resources released major economic statistics for the first quarter of 2015. The statistics showed that the amount of state-owned land available for commercial real estate development declined by 38.7 percent year on year. Beijing, Guangzhou, Harbin, and other cities have published an estimated 2015 land availability forecast for real estate development. On a year on year basis, the availability in Guangzhou decreased 24 percent, Beijing 27 percent, and Harbin about 50 percent. The reduction is in response to the sluggish housing market and the high inventory of available housing.

According to sources familiar with the government promotion of sales of state-owned land, the issue is not that local governments want to cut back on the sale of land; it is that the decline in the market has forced the reduction of such sales. In fact, local governments have been very enthusiastic about the sale of land because it has been a major source of revenue for them. 

Based on the numbers the National Bureau of Statistics of China released, in the first quarter of 2015, housing developers reduced the amount of land they acquired by 32.4 percent year on year. 
Source: 21st Century, April 22, 2015 
http://jingji.21cbh.com/2015/4-22/xOMDA2NTFfMTM4MTcxOA.html

Briefings | | |   Economy/Resources

China’s Trade Surplus Declined to $3 Billion in March

Well-known Chinese news site Netease reported that the General Administration of Customs held a press conference recently. According to the announcement that it made, China’s trade surplus suffered a sharp decline to US$3.08 billion in March, while the expected surplus was US$40.1 billion. The same number in February was US$60.62 billion. Month-over-month, March imports declined 15 percent, while March exports declined 12.7 percent. In the first quarter of this year, China’s total import/export volume declined six percent year-over-year. According to the spokesperson of the General Administration of Customs, the world economy is still in a “deep recovery period,” following the global financial crisis. China has entered the mode of the “New Norm.” Its international trade volume has been declining, but the quality and the efficiency of the trade has seen improvements. The second quarter situation now faces uncertainty. After the announcements, the onshore Chinese currency RMB dropped sharply against the U.S. Dollar.
Source: Netease, April 13, 2015
http://fa.163.com/zx/cj/15/0413/10/AN2U6TIO00754KOA.html
Briefings | | |   Economy/Resources

Li Keqiang: Downward Pressure Continues and Greater Difficulties Lie Ahead

On April 14, 2015, Chinese Premiere Li Keqiang met with some academicians, experts, and business leaders to hear their recommendations on the Chinese economy. During the meeting he stated, “Downward pressure on China’s economy continues to increase.” The country “must prepare to face bigger economic difficulties and challenges.”  

It was the second time within five days that Li expressed grave concern about the Chinese economy. On April 12, Li made similar remarks about China’s economy when he was inspecting the northeast region. “I used to work in the northeast and can be considered as being half northeasterner, so I don’t have to be too polite. Your [economic] statistics indeed make me worry.” 
 Source: People’s Daily, April 14, 2015, and April 12, 2015 
http://cpc.people.com.cn/n/2015/0415/c64094-26846242.html http://politics.people.com.cn/n/2015/0412/c1024-26831938.html
Briefings | | |   Economy/Resources

Xinhua: State Council Introduced New Policies to Rescue the Economy

Xinhua recently reported that the Chinese State Council Executive Meeting held on April 8 came up with three new policies to “rescue” the real economy of China. The policies include restricting the government fees that companies have to pay, reducing electricity prices, and lowering the natural resource tax rate on iron ore. Experts widely expected that China’s first quarter GDP growth rate would decline. The second quarter is also facing serious challenges. The State Council’s latest move is considered a much needed life-saving shot for the economy, especially the real economy. Su Jianxiang, Deputy Director of the Economic Research Center of Beijing University, suggested that these new policies will focus on pumping oxygen into the supply side of the economy. Not long ago, the State Council approved a proposal to allow the Social Security Funds to enter the stock market, which has the primary purpose of rescuing the economy on the demand side. The iron ore resource tax rate was cut by 60 percent, which surprised many experts in the industry.
Source: Xinhua, April 9, 2015
http://news.xinhuanet.com/fortune/2015-04/09/c_127670266.htm
Briefings | | |   Economy/Resources

RMB Saw a Decline in Global Usage

Well-known Chinese news site Sina recently reported that SWIFT (Society for Worldwide Interbank Financial Telecommunication) February numbers indicated that the Chinese currency, the RMB, saw a 2.2 percent decline in the total volume of global settlements. This data may indicate that investors and companies are slowing down on using RMB. Based on Dealogic’s data, the number of offshore RMB bonds issued since the beginning of this year is showing a significant decline as well. In the meantime, an HSBC report also showed, in a year-over-year comparison, that fewer global companies are using RMB for cross border settlements. Even Chinese companies are switching to other currencies, such as the Euro, to issue their bonds overseas. In the past year, the Chinese government made a great effort to expand the use of RMB in the international market. However it seems the expectation that the RMB will depreciate is becoming stronger.
Source: Sina, March 30, 2015
http://finance.sina.com/bg/wsj-ftchinese/ftchinese/20150330/15251235619.html
Briefings | | |   Economy/Resources