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HKET: China’s Q3 Debt Level Increased to 335 Percent of GDP

Hong Kong Economic Times (HKET), the leading financial daily in Hong Kong, recently reported that, according to a report that the Institute of International Finance (IIF) released, Chinese debt saw a rapid increase in the third quarter to 335 percent of its GDP. The same ratio was 302 percent at the end of last year. The total debt of the Emerging Countries grew to 250 percent of GDP. The IIF report points out that non-financial sector debts in Lebanon, China, Malaysia and Turkey had the biggest increase. Unlike previous years, non-financial corporate debts have been the main cause of China’s debts this year. By the third quarter, Chinese non-financial corporate debts reached 165 percent of China’s GDP, up from 150 percent for same quarter last year. With the coronavirus, China did not take the route of large-scale government-sponsored stimulus plans. Instead, the Chinese government allowed the companies to enlarge their borrowing scale. It appears China is asking the companies to channel through corporate bonds instead of bank loans. However, recently, many major Chinese companies have defaulted on their bonds.

Source: HKET, November 19, 2020
https://bit.ly/3lTC7Ji

China’s Elderly Population to Reach 400 million in 2035

China has become an aging society. It is estimated that the number of elderly people over 60 will reach 400 million in 15 years, accounting for nearly 30 percent of the population. Some organizations predict that the labor force will shrink substantially in the future. Statistics show that there were 14.65 million newborn babies nationwide last year. The birth rate dropped to about 10 per thousand. It is projected that, in ten years, it will further drop to less than 11 million births every year. After the “two-child policy” was adopted, there was no peak in the number of births.

Zheng Gongcheng, a Chinese scholar, said at a recent forum that the process has been accelerating. It is expected that by 2035, China will be considered a “super-aged society.” The average annual increase in the elderly population is about 10 million, and the total will reach about 400 million by then. The number of the elderly population, that is, those over 80 years old, will increase by more than 1 million annually.

A country is defined by the United Nations as “aging” if the percentage of those over 65 exceeds 7 percent; it is considered “aged” if it exceeds 14 percent, and “super-aged” when it is over 20 percent. In 2011, the weighted average of the percentage of the global aging population was 8.1 percent, indicating that the world has entered the era of aging.

Source: Radio Free Asia, November 14, 2020
https://www.rfa.org/cantonese/news/elderly-11142020091031.html

China’s State Banks’ Profits Fall and Bad Debts Rise

China’s big five state banks announced their financials on Friday October 30 and stated that their profits and debts have continued to deteriorate.

The Industrial and Commercial Bank of China (ICBC), which has the largest number of assets, posted a 4.7 percent decline in third-quarter profits.

The Bank of Communications (BoCom) reported a drop in net profits of 12.36 percent year-on-year in the first three quarters. The bank’s non-performing loan ratio was 1.67 percent, an increase of 0.2 percentage points from the end of the previous year.

The Bank of China’s net profit dropped 8.7 percent year-on-year, and the group’s asset impairment losses were nearly 100 billion yuan, an increase of 60 percent year-on-year. The total debt was 22.6 trillion yuan, an increase of 8.68 percent over the end of the previous year. The non-performing loan ratio was 1.48 percent, an increase of 0.11 percentage points over the end of the previous year.

According to Chinese media, in the first half of this year, at least 1,300 bank outlets and branches were closed. A total of 26,000 state bank employees were laid off.

China’s Securities Daily newspaper quoted Pan Helin, a professor from Zhongnan University of Economics and Law. He stated that, although only a small portion of the publicly listed banks disclosed their third-quarter financial reports, they are the best performers in the industry and their profitability is stronger than the unlisted banks. Among the large number of unlisted banks, based on the financial reports of nearly a hundred companies that have already disclosed their financial performances, profits have fallen sharply. According to Securities Daily, the proportion of loss-making companies is as high as 75 percent. 31 companies saw a double digit drop in net profits.

Reuters reported that Guo Yi, an analyst with Wanlian Securities, said the degree of economic recovery will impact expectations for the asset quality of banks, with banks likely to see corporate loan repayment pressure peaking around mid-2021.

Earlier in the year, the Chinese government asked banks to lower mortgage standards in order to reduce corporate losses and curb the impact of the epidemic. The government also asked banks to delay corporate loan repayments to increase economic liquidity. It is hard to tell how many bad loans will be brought to the banks through the use of this measure. Experts believe that the consequences will be unraveled in the next few months.

Source: Voice of America, October 30, 2020
https://www.voachinese.com/a/China-banks-seen-facing-persistent-bad-loan-pressures-after-third-quarter-earnings-drop-20201030/5641898.html

Grain Companies Issued Notice of Increase in the Price of Rice

Two price increase notices that the grain companies in Hunan and Jiangxi provinces issued in October have been circulating on the Internet. A notice from Jiangxi province stated that COVID 19 and natural disasters this year affected several major grain producing areas across the country Some areas had rain for two consecutive months prior to the harvest season, so overall rice production dropped by about 30 percent compared to previous years. The notice predicted that the minimum increase per ton of rice would be between 200 and 500 yuan (US$30-75). A notice from a grain company in Hunan province stated that the reduced grain production output has resulted in the price being highly competitive. Therefore, the purchase price of the rice will be based on the market rate on the day of the purchase.

Due to flooding in dozens of provinces across the country, along with pest infestation, droughts, and hail this year, China has seen much lower grain production compared to prior years. The grain that the state-owned grain warehouse received was only two-thirds of last year’s level. The official CCTV reported that in previous years farmers would go to the market to sell their grain, but this year the grain merchants have been visiting the farmers homes to buy grain. The price for corn even reached 2600 yuan (US$389) per ton, the highest in the last four years.

According to China’s agricultural commodity futures website, China recently granted a rice import license to 43 rice companies in Myanmar. The reason it switched from its major rice importing countries such as India, Vietnam and Thailand this year was because these countries have either refused to sell, have restricted grain exports, or have increased the price.

Source: Aboluowang, October 31, 2020
https://www.aboluowang.com/2020/1031/1518272.html

Chinese Workers Inundate Vietnam; Beijing Builds Border Wall to Stop them from Escaping

A Large number of foreign companies are exiting China lately and many Chinese companies are also relocating their factories to Vietnam to lower the costs. These companies have also attracted Chinese workers to work for them in Vietnam. A video posted on twitter showed that on October 20, nearly a thousand Chinese high-tech workers were gathering at the Sino-Vietnamese border in Guangxi and were ready to cross the border. All of them were supervisory level technicians. Vietnamese companies that the mainland or Taiwanese businessmen set up were the ones that hired them. A Taiwanese businessman living in Vietnam said that the Vietnam government restricts workers from China and it is not easy for people to find jobs in Vietnam. A Chinese businessman told Radio Free Asia that Vietnam is almost a democratic country now. It’s just like Shenzhen in the old days, but its policies, business environment, and the openness are much better than it is in the mainland and it draws many workers to work in Vietnam.

As a result, China is building a two-meter-high wall along the Sino-Vietnamese border to prevent Chinese residents from leaving China. The Sino-Vietnamese border runs about 1300 kilometers (808 miles). People commented that the “US is building a wall to prevent people from entering (illegally), while the CCP is building a wall to prevent people from escaping!”

Source: Radio Free Asia, October 22, 2020
https://www.rfa.org/mandarin/yataibaodao/jingmao/ql1-10222020063212.html

Counterfeit Digital Currency Surfaced in Pilot Cities

On October 25, at the 2nd Bund Finance Summit in Shanghai, Mu Changchun, director of the Digital Currency Research Institute of the Bank of China, disclosed that counterfeit digital currency has appeared in pilot cities such as Shen Zhen, Suzhou, Xiong’an New Area, and Chengdu. The central bank is facing issues with the prevention of people counterfeiting digital currency. The general public was shocked about the news. People commented that they believe that paper money is much safer than digital currency because digital currency is easier to counterfeit than paper money and the cost of counterfeiting is lower. The Central Bank rushed to introduce digital currency even though the technology is still pre-mature.

The Bank of China has been studying digital currency since 2014. They kept a low profile from the outside world for a number of years. However, as more information has been made public recently, it has triggered high expectations on the launch of digital currency. Even though the officials have repeatedly emphasized the advantages of digital currency over traditional paper money, they have obviously ignored the problems that would come with the digital currency.

Source: Radio Free Asia, October 28, 2020
https://www.rfa.org/mandarin/yataibaodao/jingmao/QL1-10282020042449.html

As Street Vendors Reappear, Retail Stores Are Closing Down

Several videos posted on Twitter show that the retail stores on the street or in shopping malls in large cities like Shanghai, Guangdong, and Shenzhen are closed. At the same time, the once officially banned street vendors have begun to re-appear in the larger cities like Beijing, an indication that the Chinese economy is heading towards depression.

The videos were posted on different twitter accounts. They show that many retail stores on Nanjing Road in Shanghai and Luohu Commercial City in Shenzhen are closed due to an increase in e-commerce shopping and the COVID 19 pandemic. The once prosperous commercial districts that used to be packed with retail stores are like empty cities right now. In Yiwu City, Zhejiang Province, there were not only few visitors and customers at an annual International Commodity Fair, but also, few exhibitors participated in the fair. The organizers had to use cardboard to block sight of the empty booths. In Heilongjiang in the northern part of China, a video showed a street with few people. The person who was taking the video said, “What happened? It is only five or six o’clock in the afternoon right now. All the stores are closed. There are not that many people on the street.” In Beijing, the city started to allow street vendors to sell on the street again even though the city was previously against the street vendor idea. One economist commented that allowing street vendors means that the economy is not doing well. Even though these street vendors will not help to improve the overall economy, if the street vendors were still not allowed, there would be more people unemployed. They could become a possible source of social instability.

Source: New Tang Dynasty Television, October 26, 2020
https://www.ntdtv.com/b5/2020/10/26/a102972176.html