China’s Brand New Business Era

Posted: October 12, 2015 | Author: chankaiyee2 | Filed under: Uncategorized | Tags: China, economic reform, innovation, young entrepreneurs | 1 Comment

Workers at Tech Temple, a co-working space for start-ups in Beijing. Young people are making the most of the mainland’s rising internet technology sector. Photo: Bloomberg

China’s entrepreneurs have been inspired by Premier Li Keqiang’s call for companies to use the internet to revamp business models. Photo: Xinhua

In SCMP’s report “China’s young entrepreneurs answer Beijing’s calls to innovate”, it quotes Li Ruoshan, a professor at Fudan University’s School of Management, in Shanghai as saying, “China is at the start of a brand new business era. Companies must respect the market rather than focus only on building relationships with government officials.”

SCMP says under the title, “Focus on internet technology helps start-ups avoid economic gloom and take advantage of a sea change in mainland business environment”. China is focusing on enabling the emergence of lots of entrepreneurs like America’s Steve Jobs and Bill Gates. China’s future prosperity lies on that.

SCMP lists the suspended initial public offerings on the stock market, the lack of strong tax incentives and rigid bureaucracy as stumbling blocks to young entrepreneurs’ rise.

However, the government has exempted taxes for two years for small enterprises and is making efforts for small enterprises to get loans. It takes time for deregulation but due to central government’s policy, local officials are encouraging small enterprises’ creation and innovation,

The above is this bloggers’ comments on SCMP’s report.

The following is the full text of SCMP’s report:
China’s young entrepreneurs answer Beijing’s calls to innovate

Focus on internet technology helps start-ups avoid economic gloom and take advantage of a sea change in mainland business environment

PUBLISHED : Sunday, 11 October, 2015, 11:07pm
UPDATED : Sunday, 11 October, 2015, 11:09pm
Daniel Ren

Encouraged by Beijing’s support for an innovation-led economy, young entrepreneurs are taking advantage of the mainland’s burgeoning internet technology sector to launch their businesses.

The economic slowdown and stock market slump have taken a toll on large state-run companies and many traditional manufacturers have been hit by rising labour costs and dwindling orders.

Less affected by the gloom are the many young businessmen and women who have created internet-technology-based start-ups, often with minimal funding.

They have been inspired in part by Premier Li Keqiang’s call for companies to use the internet to revamp business models and enhance services.

Ken Cui, 30, is among those to have heeded Li’s call.

Cui quit his job as a clerk at a Shanghai-based foreign bank to start a 3D printing business after hearing Li say 3D printing should be part of the push to modernise China’s economy.

“To quit my steady job at a bank was not an easy decision,” Cui said. “But the vast market potential offered by 3D technology and the government’s supportive attitude cemented my belief that it was the right time to make a change.”

With his banking background Cui is in charge of the financing and marketing of the 10-million-yuan (HK$12 million) venture while his business partners supply the premises and technology.

In the past, private entrepreneurs on the mainland needed connections in local governments to secure orders and preferential policies. But the ability to attract customers via the internet has led to a sea change.

“China is at the start of a brand new business era,” said Li Ruoshan, a professor at Fudan University’s School of Management, in Shanghai.

“Companies must respect the market rather than focus only on building relationships with government officials.”

Terence Ho, of professional services company EY, said it was “much more complicated to assess the value of a company today than several years ago”.

“Even without substantial revenue, a company can be viewed as a promising star of the future with potential for profit if it achieves heavy online traffic.”

EY recently named Skio Matrix – a start-up in Hangzhou that provides battery-charging services for electric vehicles – as one of China’s most promising businesses. The firm uses internet technology for its sales and to manage client services. It offers a low-cost e-car rental service and has received funding from carmakers.

EY said the firm’s focused business model should ensure long-term success.

“It’s no longer necessary to gauge a start-up’s financial strength,” Ho said. “As the mainland highlights innovation as it looks for new drivers of growth, the mass market will be the ultimate judge of a company’s prospects.

“That’s why online traffic can be a key yardstick for assessing a start-up company’s valuation.”

However, there are hurdles for even the most technologically savvy young entrepreneur.

Beijing recently suspended initial public offerings on the stock market – closing the door on cash-hungry businesses looking to raise funds.

And the leadership has yet to introduce any strong tax incentives to ease financial burdens on small companies.

Rigid bureaucracy is also a stumbling block, with many young entrepreneurs saying they will be unable to expand without further market deregulation.

Can China break the vicious circle of economic slowdown and foreign capital exodus?

Posted: February 23, 2015 | Author: chankaiyee2 | Filed under: Uncategorized | Tags: China, economic reform, economic slowdown, foreign capital exodus, Hu Jintao, Xi Jinping | 2 Comments

Is China’s economic slowdown causing the foreign capital exodus or vice versa? It is like the old question: which came first, the chicken or the egg? Let’s look at both scenarios.

Economic slowdown has caused capital exodus.

Taiwan media Want China Times says in its report “Foreign manufacturer exodus from China”, “With the Chinese economy slowing down and its population dividend diminishing, foreign capital has been exiting the market at an accelerated pace”.

Exodus has been caused by high labor cost instead of slowdown.

In its report “Exodus of Foreign Enterprises Quickens: There Is Fear of Closedown of 100 More Large Factories in Dongguan”, Hong Kong’s Singtao Daily also ascribes the exodus to the lower labor cost in Southeast China.

Japan’s Citizen has closed its production base in Guangzhou while US Microsoft’s Nokia has planned to close its factory in Dongguan this year

According to China’s http://www.ce.cn, Japan’s Panasonic, Sharp, Daikin and TDK have planned to transfer production capacity from China back to Japan while well-known foreign enterprises such as Uniqlo, Nike, Foxconn and Samsung have set up new factories in Southeast Asia and India in preparations for exodus.

Foreign capital exodus has caused closedown of some large Chinese enterprises in Dongguan City that supply parts or processing products for foreign enterprises in China. Singtao says that it is estimated that about 100 more large enterprises will close down due to the exodus resulting in the unemployment of hundreds of thousands workers there.

The serious unemployment due to the exodus reduces demand in Chinese market and thus gives rise to economic slowdown.

Then it’s the exodus that causes the slowdown.

Anyway, no matter which came first slowdown or exodus, slowdown will give rise to exodus while exodus will give rise to slowdown. It is a vicious circle.

The difficult question is: How can China break that vicious circle?

Hu Jintao wanted to replace the development model that relies on export and excessive investment for economic growth by the model that relies on domestic consumption and innovation. He failed to achieve the replacement due to resistance from conservatives and vested interests.

Now, it’s Xi Jinping’s turn. Will he be able to overcome the resistance? Let’s wait and see.

Source: Singtao Daily “Exodus of Foreign Enterprises Quickens: There Is Fear of Closedown of 100 More Large Factories in Dongguan” (summary by Chan Kai Yee based on the report in Chinese)

Source: Want China Times “Foreign manufacturer exodus from China”

A flexible yuan can help China cope with bigger capital flows: central bank

Posted: June 24, 2014 | Author: chankaiyee2 | Filed under: Uncategorized | Tags: capital inflow, China, Chinese economy, Chinese politics, economic reform, flexible yuan, grip on yuan | 2 Comments

A Chinese national flag flutters outside the headquarters of the People’s Bank of China, the Chinese central bank, in Beijing, April 3, 2014. Picture taken April 3, 2014.

China’s central bank will focus on liberalizing bank deposit rates over the next two years, while loosening its grip on the yuan currency to give greater influence to market forces, a vice governor of the People’s Bank of China said on Saturday.

“Our priority this year and next year is pushing forward reform of bank deposit rates,” Yi Gang told an economic forum in Beijing.

The central bank will relax control of interest rates on a wide range of fixed-income products and bank deposits, Yi said, adding there would be “substantial progress” ahead.

Central bank chief Zhou Xiaochuan said earlier this month deposit rates were likely to be liberalized in one to two years, but government economists and policy advisers told Reuters they believed the central bank was treading cautiously as economic growth slows.

The central bank already allows banks to set their own lending rates, but in practice they do not have full freedom because of controls on deposit rates.

Yi also reiterated earlier official remarks that two-way fluctuations in the yuan would become normal.

“The yuan exchange rate will be more and more determined by the market and the People’s Bank of China’s decisive role on the exchange rate will weaken,” he said.

Yi also reaffirmed the long-standing pledge to make the yuan fully convertible but did not give a timeframe.

Last week, the central bank loosened its grip on the yuan by doubling its daily trading band, adding teeth to a promise it would allow market forces to play a greater role in the economy.

China’s yuan hit a 13-month low on Friday and posted its biggest weekly drop after the central bank stepped up efforts to shake speculative money out of the market, although traders said there were signs the currency may be finding a base.

The yuan has lost 2.8 percent so far this year, unwinding the gains it made in 2013 amid suspected central bank efforts to introduce two-way currency moves to deter speculative inflows.

A run of disappointing data showing China’s economy lost steam at the start of 2014, and the country’s first domestic bond default and subsequent media reports of trouble at other companies, have added to pressure in its financial markets.

Source: Reuters “China’s central bank to focus on deposit rate reform, ease grip on yuan”

China’s yuan slides to near one-year low as economic risks mount dated March 20, 2014
China doubles yuan trading band, seen as sign of confidence dated March 15, 2014
China’s rapid growth hits the brakes; slowest in more than a decade dated March 19, 2014 at chinadailymail.com
China: ‘Tough road’ ahead for reform effort dated March 3, 2014
China, Chinese politics, Chinese economy, economic reform, grip on yuan, slowing economy, deposit rate reform

Factbox: China’s reform tally since November policy meeting

Posted: May 5, 2014 | Author: chankaiyee2 | Filed under: Uncategorized | Tags: China, Chinese economy, economic reform, slow steady reform | 1 Comment

Top reformist Chinese Premier Li Keqiang. Photo: AFP

China’s leadership unveiled some of the most comprehensive economic and social reforms in nearly 30 years in November 2013.

Implementation since then has been slow but steady. China has eschewed riskier, game-changing reform but the incremental steps promise to reach enough critical mass to sustain momentum and help the world’s second-largest economy shift down fairly smoothly after decades of red-hot investment-fuelled growth.

Following are some of the significant steps taken since the Communist Party Central Committee’s Nov 9-12 policy conclave:

APRIL

April 23 – Premier Li Keqiang says China will allow private investment in 80 projects in energy, information and infrastructure.

April 22 – Changes to the environmental law seeking stiffer penalties for polluters submitted to parliament.

April 11 – Chinese firms can invest up to $1 billion overseas without seeking approval, China’s top planner says.

April 10 – China allows cross-border stock investment between Shanghai and Hong Kong.

April 9 – The government relaxes price controls over non-public hospital services.

April 2 – The government says will fast-track some spending and cut taxes for small firms, as a way of supporting the weakening economy.

MARCH

March 31 – Britain and China sign an agreement to set up a clearing service for offshore yuan trading in London. That follows a similar agreement with Germany.

March 24 – China simplifies review procedures for mergers and acquisitions.

March 21 – The securities regulator issues rules for a pilot program allowing listed companies to issue preferred shares.

March 20 – The foreign exchange regulator relaxes curbs on foreign investment in China’s stock market.

March 20 – PetroChina (0857.HK), China’s biggest oil and gas producer, is welcoming private investment into oil and gas pipelines in China, according to chairman Zhou Jiping.

March 16 – China sets 2020 targets for urban population growth and registered urban residents.

March 15 – The central bank doubles the yuan currency’s daily trading band against the dollar.

March 11 – Central bank governor Zhou Xiaochuan says China’s deposit rates should be liberalized in one to two years.

March 11 – Development of 3-5 privately-owned banks to be tested in Tianjin, Shanghai, Zhejiang and Guangdong, bank regulator says.

March 11 – The cabinet outlines its healthcare reform plan.

March 7 – Loss-making solar equipment maker misses interest payment in China’s first domestic bond default.

March 5 – Premier Li Keqiang promises to wage a “war” on pollution and reduce the pace of investment to a decade-low.

March 1 -Simplified corporate capital registration comes into force. Government data later show 309,500 new firms were registered in March, up 46 percent from a year earlier.

FEBRUARY

Feb 26 – Beijing details pension reform that seeks to decrease urban-rural economic divisions before 2020.

Feb 21 – The central bank gives operational details for cross-border yuan deals made through Shanghai free trade zone.

Feb 20 – Sinopec Corp (0386.HK), Asia’s largest oil refiner, says it will sell up to 30 percent of its retail business to private investors in a multi-billion dollar revamp.

JANUARY

Jan 29 – The cabinet sets up a cross-ministry group to boost development of three service zones in Guangdong province.

Jan 22 – Six teams to supervise economic reforms are set up, with President Xi Jinping and Premier Li Keqiang in charge.

Jan 17 – China’s wealthy eastern province of Zhejiang became the first to implement changes to the one-child policy.

Jan 6 – The cabinet publishes guidelines strengthening regulation of off-balance lending.

DECEMBER

Dec 11 – Beijing strips 82 powers away from central government ministries. Over 200 administrative approvals are set to be abolished or delegated to local authorities in 2014.

Dec 10 – New standards on performance ratings of officials break the obsession with growth and include such criteria as work safety, innovation, environmental and resource costs.

Dec 8 – The central bank sets guidelines for issuing of interbank certificates of deposit, a step towards allowing markets to determine interest rates.

Dec 4 – The government expands its value-added tax trial to rail transport and the postal service.

Dec 4 – The central bank announces details of financial reform test runs in the Shanghai free trade zone.

NOVEMBER

Nov 30 – The stock market regulator announces IPO reforms.

Nov 12 – The Aihui province, which spearheaded land reform in 1978 announces pilot land reforms, including accelerating the development of large-scale farming, completing land use rights registration before end-2015 and simplifying land transactions.

Source: Reuters “Factbox: China’s reform tally since November policy meeting”

China’s half-year report card on economic reform- slow, safe and steady dated today

China’s half-year report card on economic reform: slow, safe and steady

Posted: May 5, 2014 | Author: chankaiyee2 | Filed under: Uncategorized | Tags: balanced development, China, Chinese economics, Deng Xiaoping, economic reform, market-driven economy, pollution, slow steady reform, Xi Jinping | Comments Off

China’s President Xi Jinping speaks at the College of Europe at the Concert Hall in Bruges, northern Belgium April 1, 2014.
Credit: Reuters/Yves Logghe/Pool

Six months into China’s grand economic makeover, Beijing is playing it safe, choosing gradual progress on many fronts over game-changing, riskier reforms such as removing all controls over bank interest rates.

Yet taken together, the incremental steps promise to reach enough critical mass to sustain reform momentum and help the world’s second-largest economy shift down fairly smoothly after decades of red-hot investment-fuelled growth.

It’s a 21st century version of Deng Xiaoping’s “crossing the river by touching the stones” strategy of cautious economic experimentation in the 1970s and 1980s.

The caution is still there, the difference is today China is crossing that river in many spots at once and the water is probably deeper.

Economists say there is no substitute for fundamental changes if China is to succeed in its transformation from bureaucratically-run, pollution-spewing industrial powerhouse to a more balanced, market-driven economy.

However, reforms such as freeing up bank interest rates or dismantling state monopolies will cause much short-term pain, and provide gains only in the long-term. With the economy expected to grow by 7.3 percent this year, the slowest in 24 years and close to the level Beijing believes is needed to preserve financial and social stability, those reforms will have to wait.

“We are doing easier ones first and leaving the difficult reforms for later,” said Xu Hongcai, senior economist at China Centre for International Economic Exchanges, an influential think-tank in Beijing.

But Xu and others are encouraged by the progress so far and the consistency President Xi Jinping and Premier Li Keqiang have shown in pushing for a greater role for markets across the economy.

“The leadership is committed to reforms, there is no doubt about that,” said Lu Feng, vice dean of National School of Development at Peking University and a government policy advisor.

Since November, when Communist Party leaders adopted a reform blueprint for the rest of the decade, no week has passed without new initiatives in areas ranging from the environment, resource pricing to capital flows and financial regulation.

“We have indeed seen in the last four or five months a steady accumulation of steps in key areas,” said Louis Kuijs, chief China economist at Royal Bank of Scotland in Hong Kong and a former World Bank economist in Beijing.

Financial market liberalization is a good example.

Freeing up of lending rates last July and the doubling of the yuan trading band in March got most airtime, but they were accompanied by many other steps making it easier to move capital within China and across its borders.

STEADY TRICKLE

Just over the past two months, regulators eased curbs on foreign investments in Chinese stocks, allowed cross-border share investment between China and Hong Kong, eased approvals for overseas acquisitions and domestic mergers and takeovers.

However, a deposit insurance scheme expected to pave the way to removal of curbs on deposit rates has been slow in coming and it is clear that a free-floating yuan and opening up of China’s capital account are still years away.

But changes made so far have already had the effect of allowing more balanced capital flows.

The scaling back of central government’s administrative approval powers and simplified business registration are also expected to bring not yet easily measurable, but tangible economic benefits.

For example, the easing of capital registration rules on March 1 brought a 46 percent surge in that month alone in the number of newly registered firms over a year earlier.

Gradual removal of distortions in pricing of resources such as gas, and services like rail transport and healthcare, is another area where Beijing has been making progress, though many of those steps, taken in isolation, would have little impact.

While those could be seen as low hanging fruit, the vigour with which many local authorities have been experimenting with mixed ownership of state-firms or new management incentives qualifies as one of positive surprises.

Provinces have also shown similar resolve in launching new pilot schemes and special economic zones. It is too early to tell how much impact they may have but the direction is clear: towards more opening up, more competition, more markets, more smart technologies, and cleaner technologies.

THORNY DECISIONS

The thorniest decisions, such as stripping big state firms of an implicit government guarantee or opening sectors such as banking to competition, still lie ahead.

Little has also happened with mooted reforms to China’s residence registration system and land property rights needed to boost the nation’s urban population, among Beijing’s strategic priorities.

Economists also expect slow progress with the promised revamp of how revenues, spending and responsibilities are split between Beijing and local governments, made tricky by high levels of local debt and the need for new sources of tax revenue.

Beijing’s top leaders have themselves warned that resistance from those affected by change such as powerful managers of state firms or provincial officials will only get stronger. They say the reforms are entering “deep waters.”

Yet, the overall verdict six months after the reform blueprint was announced is that so far, despite the economic slowdown and signs of financial strains highlighted by China’s first domestic bond defaults, Beijing has not strayed from the course.

Royal Bank of Scotland’s Kuijs says steps taken by Beijing in the past two months to prop up the economy such as fast-tracking spending on some rail lines and debate whether more stimulus might be needed could leave an impression that reforms have taken a back seat.

“But then if you look at the accumulation of steps on the reform side, you realize that the reform process is still going on.”

Source: “China’s half-year report card on economic reform: slow, safe and steady”

China’s April services growth quickens slightly: government survey

Posted: May 3, 2014 | Author: chankaiyee2 | Filed under: Uncategorized | Tags: China, Chinese economy, economic reform, leaner growth, Li Keqiang, PMI, slowdown | 2 Comments

Construction workers stand on a street corner at the financial district of Pudong in Shanghai March 11, 2014.
Credit: Reuters/Carlos Barria

Growth in China’s services sector accelerated slightly in April as new orders held steady, an official survey showed, an encouraging sign of strength in an economy that otherwise faces a cloudy outlook.

The purchasing manufacturing index (PMI) for the services industry edged up to 54.8 last month, the National Bureau of Statistics said on Saturday, up marginally from 54.5 in March.

A reading above 50 in PMI surveys indicates growth on a monthly basis, while a number below that threshold points to a contraction in activity.

The mild improvement in the services sector, which mirrors a marginal gain in the official PMI survey of Chinese factories in April, should be welcomed by investors fretting about the health of the world’s second-largest economy.

But the pick-ups in the official PMI surveys for factories and services firms would not be enough to dispel concerns that China’s slowing growth engine might cool at a sharper pace faster in coming months.

For one thing, the manufacturing PMI – released on Thursday – showed a sizable and worrying drop in export orders in April, suggesting that foreign demand for Chinese goods remains tepid.

Saturday’s survey showed services firms in China fared better than factories in April, but not by much.

Although new orders rose on a monthly basis, the pace of growth did not change from last month, leaving the sub-index flat at 50.8. Business confidence in the services industry also stayed unchanged at 61.5.

STEADY GROWTH SINCE 2007

An expanding industry that is likely to continue accounting for over half of all jobs in China, the services sector has weathered the country’s economic cooldown better than manufacturing, even though growth has slackened.

The official PMI survey has hovered above 50 every month since records started in January 2007, though growth still slumped to a five-year low in January, when the PMI dropped to 53.4.

The Chinese growth engine has lost steam in the past year. It has been squeezed by lackluster foreign demand for Chinese exports and the government’s effort to cut its own investment in a bid to reshape the country’s maturing economy.

Economic growth slipped to an 18-month low of 7.4 percent in the first three months of the year, and is forecast to also be 7.4 percent for 2014, compared with the government’s growth target of about 7.5 percent.

To prove that China has the mettle to enact painful reforms, Chinese Premier Li Keqiang has repeatedly said that his government would not loosen policy drastically to counter any short-term dips in activity.

And in a break from the past, the government has also turned its economic growth target into one that is flexible, saying it would be comfortable if actual expansion falls slightly short of what is envisioned.

HSBC will release a similar PMI survey for China’s services sector on May 7 at 0145 GMT.

Source: Reuters “China’s April services growth quickens slightly: government survey”

China PMI steadies, but doesn’t dispel growth worries dated May 2, 2014
China’s 7.5 percent GDP growth target is flexible: finance minister dated March 6, 2014
China signals focus on reforms and leaner, cleaner growth dated March 5, 2014

China PMI steadies, but doesn’t dispel growth worries

Posted: May 1, 2014 | Author: chankaiyee2 | Filed under: Uncategorized | Tags: China, Chinese economy, economic reform, leaner growth, Li Keqiang, PMI, slowdown | 2 Comments

A shipyard is silhouetted against the rising sun in Dalian, Liaoning province, Janaury 28, 2014.
Credit: Reuters/China Daily

Activity in China’s factories increased marginally in April but export orders fell sharply, a government survey showed on Thursday, adding to questions about whether the world’s second-largest economy is stabilizing after its first-quarter slowdown.

The data came a day after Premier Li Keqiang pledged to step up support for the trade sector, adding to measures taken over the past month on concerns that the economy may be losing momentum more quickly than expected.

The Purchasing Managers’ Index rose to 50.4 in April from March’s 50.3, the National Bureau of Statistics said, one of the first indicators of how the economy started the second quarter.

At just above the 50 level that separates growth from contraction, it indicated a slight pick-up in activity for the month, although it was a notch below economists’ expectations.

Zhang Liqun, an economist at the Development Research Centre, which helps compile the PMI, said the index pointed to stabilizing economic growth ahead, but others disagreed.

“We do not believe the economy has passed a turning point,” said Zhiwei Zhang, China economist at Nomura.

Zhang expected annual economic growth to slow to 7.1 percent in the second quarter from an 18-month low of 7.4 percent in the first, adding the risks were to the downside.

The new orders sub-index in the PMI rose to 51.2 in April from 50.6 in March, but the sub-index for export orders fell to 49.1 last month from 50.1 in March.

Data last month showed exports fell in annual terms for a second straight month in March, the weakest run since 2009.

The official PMI is weighted more towards bigger and state-owned enterprises and tends to paint a rosier picture than a PMI compiled by HSBC and Markit Economics, which focuses more on smaller private firms.

A preliminary reading of the HSBC/Markit PMI last week showed factory activity shrank for a fourth straight month in April, although at a slower pace than in March. The final reading is due on Monday.

COOLING PROPERTY

Sun Wencun, an economist at CITIC Securities in Beijing, said exports could benefit from a recovery in developed economies but the property sector was a big concern.

“The economy is showing slight improvements due to recent policy measures but there is no sign of a bottoming out, and the trend of slowdown is continuing as the sluggish property market weighs on related industries,” he said.

Analysts see the property sector as a key risk to growth as evidence mounts of a rapid cooling in what had been one of the few strong spots in the economy.

The rate of growth in home prices slowed in April, two private surveys showed on Thursday. The property sector supports some 40 other industries, ranging from cement to furniture, and plays an important role in underpinning consumer confidence.

The property market has lost steam since late 2013 after authorities tightened controls on speculative buying and banks made it harder for home buyers and small developers to get loans.

Official media reported this week that the southern city of Nanning, has eased rules on house buying in an effort to boost the local economy, raising speculation it could be the start of a series of local-level support measures.

JOBS GROWTH

The government is trying to restructure the economy so it is driven more by consumption than the traditional engines of exports and investment, but wants to avoid a sharp slowdown that could fuel job losses and threaten social stability.

The employment sub-index of the PMI held steady at 48.3 in April, indicating contraction. The government has taken steps to create more jobs, particularly for college graduates.

Premier Li has said that the economy must grow 7.2 percent annually to create 10 million jobs a year.

A Reuters poll found economic growth is forecast to slow to 7.3 percent in the second quarter. For 2014, growth of 7.3 percent is expected – the weakest showing in 24 years and down from 7.7 percent last year.

Respondents also expected the central bank to cut the amount of deposits that banks must hold as reserves by 50 basis points in the third quarter.

Source: Reuters “China PMI steadies, but doesn’t dispel growth worries”

China’s 7.5 percent GDP growth target is flexible: finance minister dated March 6, 2014
China signals focus on reforms and leaner, cleaner growth dated March 5, 2014

China first-quarter GDP at 18-month low, to cut reserve ratio for small banks

Posted: April 17, 2014 | Author: chankaiyee2 | Filed under: Uncategorized | Tags: China, Chinese economy, Chinese politics, economic reform, low GDP growth, pro-growth measures, slowing economy | 3 Comments

Labourers work at a construction site in Beijing, April 16, 2014.
Credit: Reuters/Kim Kyung-Hoon

China’s economy expanded 7.4 percent between January and March, its slowest pace in 18 months, prompting authorities to act for the second time in as many weeks to shore up growth.

Hours after the National Bureau of Statistics released the data, Premier Li Keqiang was quoted by state media as saying that China would reduce the amount of cash that some village banks hold at the central bank to help the farm sector.

The relaxation of reserve requirements, alongside tax breaks for more companies to support job creation, comes just two weeks after China took its first step this year to juice its slackening economy – cutting taxes for small firms and speeding up investment in railways.

The unveiling of new pro-growth measures in quick succession suggests China may be more worried about the foundering economy than it lets on, even though it has ruled out the use of major stimulus to fight short-term dips in growth.

“We don’t expect the amount of liquidity released to be significant for the economy,” Zhang Zhiwei, an economist at Nomura in Hong Kong, said in reference to the reduction in the reserve requirement ratio for village banks.

“Nonetheless, this is another loosening signal from the government, which suggests it is probably more concerned about the economic outlook.”

The gross domestic product data was slightly stronger than the median forecast of 7.3 percent in a Reuters poll, but still slower than 7.7 percent in the final quarter of 2013.

It was China’s slowest annual growth since the third quarter of 2012, when the world’s second-largest economy also grew 7.4 percent.

“The slowdown of China’s economy is a reflection of a transformation of the economic mode,” said Sheng Laiyun of the statistics bureau. “There is no fundamental change in the improving trend of China’s economy.”

MORE POLICY LOOSENING?

Li was quoted by state media as saying that reserve requirements would be relaxed for qualifying village banks, but did not say when and by how much the ratios would be lowered.

China’s central bank sets different reserve requirements for banks, depending in part on the size of their loan business. The ratio stands at 20 percent for China’s biggest banks, which face the most onerous requirements, and fall as low as 16 percent for smaller, rural banks.

To support employment, which Li reiterated is the first priority for his government, tax breaks for entrepreneurs will be extended until the end of 2016 and broadened to include all industries and types of workers. The tax incentive had originally lapsed at the end of last year.

To assuage investor anxiety about China’s stumbling economy, Beijing said in early April it would cut taxes for small firms and speed up investment in railways to try to steady growth near its target of 7.5 percent.

Modest in scope and a far cry from the 4 trillion yuan stimulus unveiled by authorities in 2008/09, analysts say the measures unveiled this year will help China avoid a bruising downturn without disrupting its plans for reform. Crucially, they do not add to China’s problems of overcapacity and debt as well.

But some analysts believe it is a matter of time before China takes more forceful action to energize growth, such as relaxing reserve requirements for major banks to free up more funds in the economy.

Activity data for March, released with the GDP report, showed that factory output growth hit a near five-year low of 8.8 percent, just below expectations.

Cumulative fixed-asset investment in the first three months of the year was 17.6 percent higher than a year earlier, again on the low side of forecasts, and at a level not seen since December 2002.

Only retail sales growth was slightly above forecasts with an annual increase of 12.2 percent.

“It’s not bad enough to change monetary policy, but forward indicators suggest that in the next few months we will see more aggressive easing,” Stephen Green, an economist with Standard Chartered in Hong Kong, said before the government announced its latest steps to spur growth.

Green expects a 50-basis-point cut in the reserve requirement ratio for major banks in coming months.

SERVICES IMPORTANT

The services sector, which includes retail, made up 49 percent of GDP in the first quarter, 4.1 percentage points more than the industrial sector.

Growth in retail bodes well for the labor market as the services industry is now the biggest employer in China.

“The resilience of the relatively labor-intensive services sector has helped the labor market hold up reasonably well in the first quarter, even though it cooled,” Louis Kuijs, RBS economist in Hong Kong, said in a note.

Previously released figures for March had raised concerns that the economy was losing more momentum than expected, and even though first-quarter GDP was slightly better than forecast, those worries remained.

Exports fell for the second month in a row and imports dropped sharply in March, while money supply grew at its slowest annual pace in more than a decade. Official and private surveys also show the manufacturing sector continuing to struggle.

($1 = 6.2107 Chinese Yuan)

Source: Reuters “China first-quarter GDP at 18-month low, to cut reserve ratio for small banks”

China’s doomsday Will Finally Come as China ‘Bears’ have Predicted dated April 3, 2014
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China’s Economic Slowdown Is Precisely What Xi Jinping Wants dated September 2, 2013
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China’s doomsday will finally come as China ‘bears’ have predicted

Posted: April 3, 2014 | Author: chankaiyee2 | Filed under: Uncategorized | Tags: Andy Xie, China, Chinese economy, Chinese politics, debt crisis, economic reform, Gordon Chang, property meltdown, slowing economy | 1 Comment

A sculpture is seen in front of an apartment block in Beijing in this January 16, 2014 file picture.
Credit: Reuters/Jason Lee/Files

“It’s like a horror movie. People like to watch, but don’t want to be in it,” quips economist Andy Xie about his popular lectures where he predicts a collapse in China’s property and stock markets.

The former Morgan Stanley economist is among the more moderate of the bearish voices that have called the ‘China crash’ since the late 1990s. The more extreme doom-mongers have been forecasting everything from a property meltdown and debt crisis to full-blown economic recession and even political revolution.

Yet China has consistently defied the odds, projecting itself as a single-party-led export powerhouse with absolute hold over its financial system and a government with deep pockets. Investors have been rewarded with a decade of double-digit economic growth and a property market that has multiplied several times over the years.

But this year seems different. Rising funding costs, a more volatile yuan currency, money market liquidity crises and companies defaulting on bond payments, which is rare for China, all have raised concerns that this could be China’s Year of the Bear.

Will the bears finally be able to say “told you so”?

“It’s going to be big, it’s going to be historic, and probably going to be this year,” says Gordon Chang, a Chinese-American lawyer and columnist who’s been predicting a crash in China for the past 15 years or so.

Xie, who has a decent track record in predicting major twists and turns in China’s markets, is, however, mindful of how those who queue to hear his talks are agnostic when it comes to forecasting the definitive China crash. “They pay to listen to me, get scared, and then go out and feel good again. It’s entertainment,” he says.

BUBBLES AND PERMA-BEARS

There are varying scales of China bearishness.

Moderate doubters, such as Xie, fret more about short-term asset bubbles than about the country’s long-term ability to reform and evolve. Hedge fund manager Jim Chanos, who founded Kynikos Associates LP, has made money from short selling Chinese commodity stocks, while Aberdeen Asset Management fund managers have long been ‘underweight’ China due to concerns over the transparency and maturity of businesses there.

To be fair, some short-sellers have enjoyed brief successes, such as when the Shanghai property market fell 40 percent in 2005-06 and the stock market .SSEC slumped in 2007-08.

Despite being challenged and marginalized, the die-hard pessimists remain steadfast. These ‘perma-bears’ say China’s export-driven, investment-fuelled economy is inherently unstable, not to mention the moral hazard wrought by a system where no one was allowed to fail.

What keeps them believing?

Chang, the New York-based lawyer, published his book ‘The Coming Collapse of China’ more than a dozen years ago. He says he just has a deep-rooted belief that China can’t rig the game forever. His was a lonely bear voice in the late 1990s, but he remains convinced the Chinese bubble will pop.

TIPPING POINT

The China bear drum beat has sounded stronger this year, with slowing growth and evidence that private debt has climbed to twice economic output – levels that triggered debt crises in Spain and Ireland recently. Malaysia, Taiwan and Thailand are other uncomfortable precedents.

China is at a tipping point, the bears argue, because President Xi Jinping’s administration is determined to rebalance the economy towards consumption and away from investment – and that will bring a sharp slowdown and debt defaults.

Chang argues the modernization of China’s economy in the three decades since Mao Zedong’s death disguises deep insolvency, deflation and corruption problems that will ultimately bring about its implosion. The crash, he says, would have come by now, but for the massive stimulus China unleashed in 2008, when the world was in the grip of a financial crisis.

Other China bears, such as hedge fund manager George Soros, who successfully bet against the British pound in the early 1990s and also made money from the U.S. subprime crisis, are ringing the alarm bells, too. Soros recently wrote about China’s “exponential debt growth”, warning that such borrowing cannot be sustained for much longer than a couple of years.

Morgan Stanley analysts have been routinely bearish on China, and warned last month it was at its ‘Minsky moment’ – the point, named after economist Hyman Minsky in 1993, when a credit boom fuelled by speculative funding messily unravels. Morgan Stanley warns this unwind in China could trigger a global corporate earnings crisis.

DEBT TRIGGER

Xie, who was labeled an ‘American parrot’ by Chinese local media in 2008 for repeatedly predicting a stock market collapse, expects a big crash in the property market. “In a year’s time people will be really upset, but they don’t want to talk about it now,” he said.

Michael Pettis, a professor at Peking University’s Guanghua School of Management and a noted blogger, predicts China’s growth will slow sharply to an average 3-4 percent in the decade to 2022. “We’re no longer including in our growth those losses which we failed to recognize. So that reduces GDP to the correct rate and, as we begin amortizing losses, growth reduces even further,” he says.

Pettis acknowledges the risk that China’s economy could hit a sudden stop the moment it reaches its debt capacity – the total debt a country can borrow without leading to financial difficulty. At the same time, he expects Beijing will manage to slow the economy and avoid bumping into that debt limit.

For now, it seems that a debt mountain estimated at more than $20 trillion, and the difficulty in predicting how China will claw its way out, separate the bulls and the bears.

From Japan’s debt-driven ‘lost decade’ in the 1990s to the more recent euro zone crisis, the bears may have precedent on their side.

“Debt is always misunderstood, it’s emotive and when there’s a lot of it, people assume it could all go horribly wrong. China certainly meets that condition,” said Tim Condon, Asia economist at ING. “What makes it complicated is what is exactly the burning fuse here? The deck view is that it’s just a fuse, and could be very long.”

Source: Reuters “Apocalypse Now? China ‘bears’ hope for their ‘told you so’ moment”

China’s yuan slides to near one-year low as economic risks mount dated March 20, 2014
China’s rapid growth hits the brakes; slowest in more than a decade dated March 19, 2014 at chinadailymail.com
China doubles yuan trading band, seen as sign of confidence dated March 15, 2014

China’s central bank to focus on deposit rate reform, ease grip on yuan

Posted: March 22, 2014 | Author: chankaiyee2 | Filed under: Uncategorized | Tags: China, Chinese economy, Chinese politics, deposit rate reform, economic reform, grip on yuan, slowing economy | Comments Off

A man walks past the headquarters of the People’s Bank of China (PBOC), the central bank, in Beijing November 20, 2013.
Credit: Reuters/Jason Lee