Economy/Resources - 185. page

The Chinese Family Finance Investigation and Research Center of South Western University recently conducted a research study on lending. The results disclosed that 33.5 percent of Chinese citizens utilize private lending channels. The total amount channeled through the private lending business has reached 8.6 trillion yuan (US$1.4 trillion). Of this amount, 3.8 trillion (US$0.62 trillion) was used in home financing, 3 trillion (US$0.49 trillion) was for agriculture and business financing, and the rest was used for auto equity and education. It was believed that these results indicated that the financial services in China’s banking sector have not been able to meet public demand.

Source: Guangming Daily, July 5, 2013
http://finance.gmw.cn/2013-07/05/content_8180051.htm

On July 2, 2013, National Business Daily published a commentary on the impact that banks’ tightening of credit will have on rail expansion.

China is transitioning from a country on tires to one on the rails. High-speed railways, urban subways, and light rails are becoming the primary mode of transportation. The total rail length will reach 6,000 kilometers by 2020, requiring an investment of 3 to 4 trillion yuan.

According to the commentary, real estate appreciation has become the most important element in funding rail transit construction. The rail transit companies that the local authorities control first acquire some land. Then they start to develop real estate, followed by construction of a rail transit system and other infrastructure in the area. This leads to anticipated appreciation of the land they own. The increase in the real estate market allows the rail transit companies to make the money needed to cover the cost of all the construction and to repay the debts they owe for rail transit. 

The commentary concluded that, as banks tighten credit by evaluating the financials of prospective rail transit projects, a few planned rail transit projects will not make it. 

Source: National Business Daily, July 2, 2013
http://ntt.nbd.com.cn/articles/2013-07-02/754446.html

On June 24, 2013, Securities Daily published an article titled “(China) Needs to Reform Its Entire Financial System Completely.” According to the article, in recent years, China’s capital assets reserve has been increasing too fast. China has become the country with the largest currency reserve in the world. As of late last year, China’s broad money (M2) balance was 97.42 trillion Chinese yuan, 1.5 times that of the United States’ M2 and close to a quarter of total global money supply. By the end of May 2013, China’s broad measure of money supply (M2) reached 104.21 trillion yuan. However, the effect of increasing loans to stimulate the economy is getting worse as domestic enterprises are facing high costs and a sluggish external demand from overseas.

China has separated its financial system from the real economy for years. A bubble has been growing in the virtual economy as China’s commercial banks have been loaning money to large enterprises that have the government’s backing. On the other hand, the private SMEs (small and medium enterprises) that do not no have such backing and collateral have to rely on the private lending market, a “shadow” lending market that charges high interest rates. Burdened with such high interest loans, the SMEs have a low return on investment and are thus declining.

Source: Securities Daily, June 24, 2013
http://zqrb.ccstock.cn/html/2013-06/24/content_362891.htm

According to the macro-economic statistics recently released for the month of May, investments, exports, and consumption all fell below market expectations. The total social financing was 1.19 trillion yuan, a drop of over 30 percent from the figure for April. Since September of 2012, the Producer Price Index (PPI) and the industrial value added have hit new lows.

A review of the “Troika” (fixed asset investments, retail sales, and exports) that is deemed to be the driving force for economic growth shows fixed-asset investments grew slower than April by 0.2 percent compared to the growth from last year which was 20.4 percent; retail sales, with a growth of 12.9 percent from a year ago, was also below market expectations; exports in May grew one percent from a year earlier, a reduction of 13.7 percentage points compared to April’s growth. This was way below the 5.6 percent market expectation; it has hit its lowest point since last July.

Source: Xinhua, June 13, 2013
http://news.xinhuanet.com/fortune/2013-06/13/c_124847267.htm

China’s National Audit Office recently released the results of the debt audit of 36 provincial level governments. As of the end of 2012, these 36 governments had a debt balance that had reached 3.85 trillion yuan (US$0.63 trillion). This represents a 440 billion yuan (US$71.7 trillion) or 12.9 percent increase over the level in 2010. An official from the National Audit Office observed that the pace of current local governments’ debt growth is too high and that some regions and industries are facing a looming debt crisis.

The audit results highlighted four aspects of the debt problem. The first is the high debt growth of some provincial capital cities: 14 provincial capital cities have 18.17 billion yuan (US$2.96 billion) in overdue debt. Second is the decline in the growth of land sale revenues. Third, in some areas, the debt for highway construction has grown rapidly. Fourth, due to the cancellation of road tolls, some governments face greater pressure for debt repayment.

Source: Xinhua, June 13, 2013
http://news.xinhuanet.com/2013-06/13/c_124847326.htm