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China’s Banks See Non-Performing Loans Surge

The cooling off of the housing market and the economic slowdown have led to a sharp increase in bad debts and in the non-performing loan (NPL) ratio. 

The bad debts of the China Industry and Commerce Bank hit a record high – the hightest since 2006. In the third quarter, the NPL ratio was 1.06 percent. The NPL amount grew nine percent reaching 115.5 billion yuan. This is the largest increase since 2006. 
Quarterly reports of other banks also showed that the NPL ratio and amount have increased since the beginning of 2014. At the end of September, the NPL ratio was 0.99 percent for the China Industrial Bank, 1. 20 percent for China Merchants Bank, and 1.39 percent for China CITIC Bank. The growth rate of the NPL was 0.23 percentage points, 0.30 percentage points and 0.36 percentage points, respectively. 

Source: Chinese Business, October 30, 2014 
http://www.cb.com.cn/finance/2014_1030/1091953.html

Briefings | | |   Economy/Resources

New Rules to Battle Local Government Debts

On October 28, China’s Ministry of Finance issued the first of a series of directives on handing outstanding local government debt. 

According to the directive issued, local government debt outstanding as of December 31 must be categorized so that appropriate authorities will be assigned to take responsibility. The effort is meant to identify local debts with the ultimate goal being to include all government debts into budgets. Some debts may be converted into corporate debts through public-private partnerships (PPP). 
Analysts observed that the issuance of the directive indicated that China has entered the peak of debt repayments and many local governments face pressure to repay large debts that are due. The PPP model that the directive promotes, in fact, will allow the use of private funds to lessen the enormous pressure on local governments. 

Source: Economic Information Daily reprinted by People’s Daily, October 29, 2014
http://gd.people.com.cn/n/2014/1029/c123932-22752301.html

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SAFE Acknowledges China Currently Has Capital Outflows

On October 23, 2014, Guan Tao, head of the department of international payments at the State Administration of Foreign Exchange, said at a press conference that China currently has capital outflows but it is considered a risk or a problem. 

According to Guan, for the second quarter, although the trade surplus expanded, posting a current account surplus, China recorded a net outflow of $16.2 billion under its capital account, a reduction from a net inflow of $94 billion in the first quarter. The growth of the foreign reserve for international payments declined from over $100 billion to $20 billion, an 82 percent reduction from the first quarter. Preliminary estimates show that the pattern continued in the third quarter. 

Guan stated that it is possible that capital flows may be more volatile due to the uncertainties of the complex domestic and international environment. 
Source: China News Service reprinted by People’s Daily, October 23, 2014                                 http://politics.people.com.cn/n/2014/1023/c70731-25894310.html

Briefings | | |   Economy/Resources

Ministry of Commerce Official: China Will Soon Become a Net Capital Exporter

On October 22, Zhang Xiangyang, the Assistant Minister of Commerce of China held a State Council Information Office press conference at which he said that China will soon become a net capital exporter. Official data shows that as of the end of 2013, China’s total outbound foreign direct investment stock amounted to a cumulative US$660 billion. For the same period, China accumulated inbound foreign direct investment was US$950. It is widely expected that, as China’s outbound investment is growing at a rate far exceeding its inbound investment, the day for China to become a net exporter of capital is just around the corner. Zhang predicted that the outbound investment for 2014 will show growth of about 10 percent, reaching about US$120 billion.
Zhang said, "In my personal view, it is just a matter of time for the outbound investment to exceed the amount of inbound investment. … China has reached a stage of exporting capital, and will soon become a net exporter of capital. It is a realistic issue."
Zhang pointed out that the stock of China’s US$660 billion foreign investment accounts for only 2.5 percent of the world’s total, the equivalent of 10 percent of the United States and half of Japan. He maintained that, in terms of quantity, China "still has a long way to go."
Source: China News Service, October 22, 2014
http://www.chinanews.com/gn/2014/10-22/6706730.shtml
Briefings | | |   Economy/Resources

China Surprisingly Suffered a US$100 Billion Decline in Foreign Exchange Reserves

Well-known Chinese news site Sina recently reported that official third quarter government reports showed an unexpected US$100 billion decline in China’s foreign exchange reserves. This was the first decline after nine consecutive quarters. There is no clear indication of where the money went. Some experts suggested this could have been caused by China’s central bank making international investments. Some expressed the belief that more and more Chinese companies and individuals are holding on to more foreign currencies because they worry about a potential devaluation of the Chinese currency. Another possible cause of the decline could be the recent appreciation of the U.S. dollar, which caused a decline of the valuation of all assets not priced in U.S. dollars. Chinese Premier Li Keqiang has said twice this year that the high level of China’s foreign exchange reserves is becoming a very heavy burden for China. 
Source: Sina, October 17, 2014
http://finance.sina.com.hk/news/-35-7072165/1.html
Briefings | | |   Economy/Resources

Close to 50 Percent of Real Estate Development Companies Went Out of Business in the Past Five Years

Guangming Daily recently published an article about real estate development companies. The article stated that by the end of 2013, the number of real estate development companies registered in China was 42,000, which was 36.6 percent lower than the number in 2010 and 50 percent lower than 2008. The article said that, because the current real estate market continues to be soft, most of the small to mid-size real estate development companies face serious cash flow issues. Some of them have a debit ratio close to 120 percent, while the short term liquidity ratio and total Asset Turnover are getting worse as well. In addition, the on-hand inventory level continues to grow. The article said that the only solution to the problem is to have an aggressive sales strategy and to use the income from sales revenue to pay back the debts.

Source: Guangming Daily, October 17, 2014
http://economy.gmw.cn/2014-10/17/content_13565131.htm

Briefings | | |   Economy/Resources

In China, 82 Million People Live in Poverty

At a recent news conference, Zheng Wenkai, deputy director of China’s State Council Leading Group Office of Poverty Alleviation and Development (LGOPA), announced the results of a survey on poverty in China. At the end of 2013, more than 82 million people lived below the poverty line.
According to Zheng, the level established to determine poverty in China was set at an annual income of 2300 yuan (US$376). If poverty were measured by the international standard of US$1.25 per day (US$456), the number of Chinese living in poverty would jump to more than 200 million.
Zheng said that poverty is still a prominent problem in China. It is reflected first in the number of poor people, numbering 82 million. Second, these poor people also face other difficulties, including drinking water, transportation, electricity, schooling, medical care, and loans. Lastly, the poor are concentrated in destitute regions with poor living conditions, frequent natural disasters, and backward infrastructures.
Source: Voice of America, October 16, 2014
http://www.voachinese.com/content/Chinese-survive-20141016/2485584.html
Briefings | | |   Economy/Resources

Beijing Suffers Intense Haze

From Oct 7 to Oct 11, Beijing suffered five days of intense haze. A large portion of Northern China was also the victim of haze. In many places, the visibility was below 1 km (0.6 mile). Sometimes it was even below 500 meters (0.3 mile).

The Hong Kong based South China Morning Post reported that, in order to create a clean sky during the upcoming APEC Economic Leaders’ Meeting in Beijing, "employees of government departments, quasi-government institutions, and organizations in Beijing will be granted a six-day holiday starting on November 7 and continuing through November 12." "The meeting will be held on November 10 and 11. The ministers of 21 Pacific-rim governments will meet from November 7."

People’s Daily published an article stating that China’s current smog treatment is ineffective. There have been many theories on the cause of the smog, but no one knows exactly which one is the real culprit. On the simpler pollution treatment issue, local governments are not synchronized. The central government has established a coordination mechanism with six provinces/autonomous regions/cities to treat the air pollution. It includes Beijing, Tianjin, Hebei, Shandong, Shanxi, and Inner Mongolia. However, different local government have different regulations. For example, Hebei’s fine for pollution discharge is only 20 or 30 percent of the amount of fines in Beijing. Some companies would rather move to Hebei to pay the penalty than spend money to treat the pollution.

The local environmental protection agencies do not have enough power to enforce pollution treatment regulations. Many big pollution offenders also contribute a substantial amount of taxes to local governments. As a result, the local governments protect them.

Source:
1. South China Morning Post Online, October 10, 2014
http://www.scmp.com/news/china/article/1613232/beijing-marks-apec-summit-extra-public-holiday-moves-cut-pollution
2. People’s Daily Online, October 10, 2014
http://politics.people.com.cn/n/2014/1010/c1001-25801921.html

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