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Two Constraints to Investment in Foreign Countries: Money and Insurance

On April 4, 2014, www.cnstock.com published an article on China’s overseas investments. According to the article, the amount of China’s overseas investments accounted for only 6.3 percent of global cross-border investment, while China’s principal assets accounted for only 2.3 percent of the world’s investments. Although both state-owned or private enterprises all have a strong desire to invest in foreign countries, two major constraints prevent these Chinese enterprises from increasing their investments: the difficulty in obtaining financing and in obtaining insurance to cover their overseas investments.

Source: www.cnstock.com, April 4, 2014
http://news.cnstock.com/news/sns_jd/201404/2974836.htm

Briefings | | |   Economy/Resources

Global Times: Chinese Bank Loan Write-Downs Increased Significantly

Global Times recently reported that the five largest banks in China had a 127 percent increase in loan write-downs last year. This demonstrated a clear slow-down in growth with high pressure in the financial sector. These five banks own more than half of all of the loans in China. They wrote down a total of RMB 59 billion (around US$9.5 billion) worth of loans that would never be paid back. This level of write-downs is also the highest in ten years. In addition to the dramatic number of loan write-downs, in March, the Chinese financial market also suffered the first default in the corporate bond segment, two instances of near-default “shadow bank” investment products, as well as a run on the bank in Jiangsu Province. Data also showed that the first quarter economic slow-down turned out to be more severe than expected, which may indicate the slowest year of growth for the Chinese economy since 1990.
Source: Global Times, March 31, 2014
http://finance.huanqiu.com/view/2014-03/4942861.html
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HSBC’s March Chinese Manufacturing PMI Reached Eight-Month Low

Well-known Chinese news site NetEase recently reported that the newly released HSBC March Chinese Manufacturing PMI (Purchasing Managers Index) number showed an eight-month low, at 48.0. The Manufacturing Output sub-index reached 47.2, which is the lowest it has been in 28 months. The sub-indexes for New Orders, Import Prices, and Export Prices fell to 46.5, 46.8 and 40.7, respectively. Qu Hongbin, the HSBC Chief Economist for the China Region, commented that the Chinese manufacturing PMI confirmed a very weak domestic demand level. He expected first quarter GDP growth to be slower than the annual goal, set at 7.5 percent. HSBC expressed the belief that the Chinese authorities will start economic policy adjustments sooner rather than later. PMI is an indicator of financial activity reflecting the purchasing managers’ acquisition of goods and services. A PMI number below 50 typically reflects a decline.
Source: Netease, April 1, 2014
http://money.163.com/14/0401/09/9OO4GBUF00253B0H.html
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Xinhua: Experts Say China’s New Buildings Last Only 25 to 30 Years

On April 4, a 20-year old residential building in a city in Zhejiang Province suddenly collapsed. The incident draws attention to the many buildings that were built en masse

in the 1980’s in China. Now that these buildings are reaching the age of 20 to 30 years, there have been quite a few accidents:

On August 4, 2009, a two-story building in Shijiazhuang, Hebei, that had been built in the 1980s, collapsed in a rainstorm. On September 5, a five-story residential building in Ningbo, Zhejiang suddenly collapsed. Several other incidents took place in 2012 and 2013, resulting in deaths or injuries.

In 2010, a Ministry of Housing and Urban-Rural Development expert said at a conference, "Our country is the country with the largest number of new buildings constructed each year, but the buildings last only 25 to 30 years." In contrast, the average life expectancy of U.K. construction is 132 years and in the U.S. it is 74 years.

Source: Xinhua, reprinted on People’s Daily Online, April 7, 2014
http://society.people.com.cn/n/2014/0407/c1008-24838390.html

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Beijing Business Today: What is the Biggest Problem for the Chinese Economy?

Beijing Business Today published an interview of Professor Huang Guoxiong of China People’s University on the Chinese economy. In Huang’s opinion, “The high growth rate with low efficiency is the biggest problem currently facing the Chinese economy. The development of the services industry is the key to expanding domestic demand.”

Huang stated that, “at present, the key issue of China’s economy is not the growth rate of seven percent or eight percent. The biggest problem is a high growth rate and low efficiency, with the output having value, but revenue missing.” Production, according to indices such as GDP growth, employment, and capacity, can no longer meet the current development, and will exacerbate overcapacity. Small to mid-sized businesses can adjust by producing according to orders received. Large, particularly State-run or centrally run, enterprises are still producing according to indices on capacity, GDP growth, and employment. 
Source: Beijing Business Today reprinted by Xinhua, March 31, 2014 
http://news.xinhuanet.com/fortune/2014-03/31/c_126334826.htm
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People’s Daily: Volume of Swiss Watches Exported to China Fell

People’s Daily recently reported from the Basel Watch Fair, the World Watch and Jewellery Show that is taking place from March 27 to April 3 in Messe Basel, Switzerland. It is the largest watch fair in the world. The Swiss Exhibitors Committee Chairman, F. Thiebaud, reported the statistics for the Swiss watches that were exported to Mainland China. He stated that the total value of the exports in 2013 was 1.2 billion Euros, which represents a 12.5 percent decline from the previous year. The exports to Hong Kong were 3.4 billion Euros, a decline of 5.6 percent. All other key export markets enjoyed growth. China is the primary market for Swiss watches and jewelry, and China is also a primary partner in the Fair. Since last year, the Chinese government has been vigorously cracking down on corruption, which is widely recognized as the key force behind the luxury watch sales in mainland China. However Ms. Ritter, the Chief Executive of the Basel Watch Fair, pointed out that China still remains a very important market even after the “adjustments to the consumer structure.”
Source: People’s Daily, March 29, 2014
http://lady.people.com.cn/n/2014/0329/c382558-24770444.html
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WTO Ruled against China on Rare Earths Export Restrictions

Well-known Chinese online news site Sina recently reported that the World Trade Organization (WTO) ruled against China on China’s quota-based rare earths export restrictions. This ruling was based on a complaint filed jointly by the United States, the European Union, and Japan. This is the second time China has lost in WTO filings on natural resource export restrictions. China’s quota-based export management system may be approaching its end. Experts from the Chinese Ministry of Commerce suggested that one-third of the WTO experts assigned to this case supported China’s position, while some other members, such as Russia, also sided with China. However some legal experts expressed the belief that the probability is low that China’s would win the case on appeal. Officials from the China WTO Research Organization called for establishing a protection system for China’s strategic natural resources.
Source: Sina Net, March 27, 2014
http://news.sina.com.cn/c/2014-03-27/012929799448.shtml
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China Review News Agency: China Is Not Ready to Fully Liberate the RMB Exchange Rate in the Market

On March 26, 2014, China Review News Agency published an article on the abnormally sharp decline in the RMB exchange rate this year. In 2012 and 2013, China reduced its goal for maintaining the growth of GDP down from eight percent to seven percent. Last year, as a result, import and export businesses started to slow down. In the past, the appreciation of the RMB (the Chinese yuan) exchange rate resulted from the depreciation of the U.S. dollar. With the recovery of the U.S. economy and the appreciation of the U.S. dollar, the depreciation of the RMB exchange rate has become the trend. Since 2013, a large-scale cross-border capital flow in and out of China has been an indisputable fact. Starting on March 17, 2014, the People’s Bank of China widened the USDCNY trading band to +/-2 percent from +/-1 percent. Thus a larger-scale cross-border capital flow should happen, which may result in a turbulent foreign exchange market and volatile financial markets. Although China holds US$ 3.8 trillion in foreign exchange reserves, they are very limited as China relies more and more on importing fundamental resources from abroad. 

The article concluded that excess promotion of the market-determined exchange rate mechanism may intensify the fluctuations of the interest rate in China and not benefit the stability of financial markets. China is not ready to liberate the RMB exchange rate in the market fully because the RMB interest rate and China’s price system are not market-oriented.

Source: China Review News Agency, March 26, 2014
http://hk.crntt.com/doc/1030/9/4/6/103094658.html?coluid=53&kindid=0&docid=103094658&mdate=0326071815  

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