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Beijing News: Stock Market Landslide Results in 1.3 Trillion Loss in One Day

On June 25, Beijing News reported that, on June 24, the Chinese domestic stock market suffered a major landslide, losing RMB 1.34 trillion (around US$194 billion) in one day. The Shanghai Stock Exchange Index dropped below 2,000, which was the biggest single-day decline in 46 months. Over 200 stocks were suspended from trading. The banking stocks suffered the biggest loss. In the weeks before this landslide, a number of Chinese banks had been running very low on liquidity. The Shanghai Inter Bank Offered Rate (SHIBOR) reached over 13 percent, which was much higher than the normal level of less than 4 percent. The central bank did not immediately inject money into the market this time like it had in previous years. Sectors related to banking, such as insurance and brokerage, all suffered major losses in this round of crisis. Experts expressed the belief that mid-sized banks were the biggest losers in this wave and that this market landslide was a clear signal calling for better risk management in the Chinese banking industry. Some also blamed the QE exit strategy that the U.S. Federal Reserve had announced as being responsible for triggering the event. Since 2009, there have been four other Chinese domestic stock market landslides at this level.
Source: Beijing News, June 25, 2013
http://www.bjnews.com.cn/finance/2013/06/25/269993.html
Briefings | | |   Economy/Resources

Global Times: Chinese Central Bank Requires Enhanced Liquidity Management

On June 24, Global Times reported that the Chinese central bank issued a regulatory requirement that all financial institutions, including commercial banks, must apply more control over liquidity management. The central bank statement suggested that the purpose of the new requirement is to stabilize the currency environment and to improve the handling of an increasingly volatile financial market, especially at the mid-year time point. The central bank also asked all banks to “pay careful attention” to the market trend and to maintain an adequate reserve level. Large commercial banks were asked to maintain good control over risks as well as to cooperate with the central bank in the effort to stabilize the market. The central bank statement mentioned that banks should set reasonable profit goals and loans should be used mainly to support the growth of the real economy.
Source: Global Times, June 24, 2013
http://china.huanqiu.com/politics/2013-06/4057189.html
Briefings | | |   Economy/Resources

Chinese Scholar: China Needs to Reform Its Entire Financial System Completely

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

Briefings | | |   Economy/Resources

Beijing News: State Council Considers Allowing Private Banks

Beijing News recently reported that the State Council announced a series of new policies at its latest executive meeting. One decision was the policy that the central government will no longer require approval for 32 counts of earlier restricted activities such as non-stop direct railway passenger and cargo transportation plans, or a change in the registration of publishing businesses. The goal is to promote fewer government regulations in market-based operations. One key focal point of the discussion at the meeting was the intent to allow the creation of private banks. The meeting recognized that the Chinese market has a significant lack of competition in the banking sector. Meanwhile, small businesses, private companies, as well as agricultural areas suffer a serious lack of lenders. The large state-owned banks are typically not interested in lending money to the businesses other than state-owned companies, which often enjoy fewer risks and a higher profit margin due to government endorsement. 
Source: Beijing News, June 20, 2013
http://epaper.bjnews.com.cn/html/2013-06/20/content_441918.htm?div=-1
Briefings | | |   Economy/Resources

Xinhua: The Troika Out of Steam and Economic Recovery Difficult

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

Briefings | | |   Economy/Resources

In 2012, 36 Provincial Governments Had Debts Totalling 3.85 Trillion Yuan

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

Briefings | | |   Economy/Resources

Chinese Real Estate Industry May Have Become the Biggest Money-Laundering Channel

On June 8, 2013, the Hong Kong-based Mirror Books published an article titled, “Chinese Real Estate Industry May Have Become the Biggest Money-Laundering Channel.” “Not only is there money laundering; it is a double shameless plunder. The first plunder is corruption. It is a second plunder when officials invest the money collected through their corrupt acts and channel it into real estate, thus causing housing prices to rise.”

According to the Central Commission for Discipline Inspection of the Communist Party of China, since November 2012, there has been a new trend of selling luxury homes and villas. Many government officials, especially those in Guangzhou and Shanghai, have undersold their luxury homes. In Guangzhou and Shanghai, officials put up 4,880 and 4,755 luxury homes for sale, respectively. Of those public officials who left China from the Mid-Autumn Festival to October 1, 2012, more than 1,100 of them did not return to China on time and 714 of those 1,100 officials have been categorized as having fled China. In 2010, the outflow of illegal money from China was US$412 billion. In 2012, it was US$600 billion. It has been estimated that, in 2012, US$1 trillion was transported overseas. In 2013, the illegal funds that have fled China has reached US$1.5 trillion.

Source: Mirror Books (http://city.mirrorbooks.com) , June 8, 2013
http://city.mirrorbooks.com/news/?action-viewnews-itemid-88522

Briefings | | |   Economy/Resources

China Prevents MasterCard from Handling RMB Transactions

Xinhua recently reported on a dispute between MasterCard and the Chinese authorities on the right to handle RMB transactions. The report is based on British media reports of a document that the Chinese central bank issued  asking online payment platform EPayLinks to stop cooperating with MasterCard in conducting RMB business. About a year ago, the World Trade Organization (WTO) ruled that the Chinese government’s protection of the monopoly power of UnionPay, China’s bankcard association, in RMB credit card transactions broke the WTO agreement. Since that ruling, the Chinese central bank has not made any changes. It seems the Chinese authorities will continue to maintain a tough position on this matter. China is one of the fastest growing credit card markets in the world. China issued 46 million credit cards in 2012. According to MasterCard’s estimate, China will surpass the United States in 2020 to be the largest credit card market in the world. The Chinese RMB-based credit card monopoly, UnionPay, doubled its business volume over the past four years. EPayLinks argued in this new case that its business with MasterCard did not break any Chinese law since all operations are handled by the Hong Kong branch.
Source: Xinhua, June 3, 2013
http://finance.cankaoxiaoxi.com/2013/0603/219334.shtml
Briefings | | |   Economy/Resources