China Economic News

China Style QE

People’s Bank to roll over bonds
THE AUSTRALIAN APRIL 29, 2015 12:00AM

Scott Murdoch

China Correspondent
Beijing
The People’s Bank of China is on the verge of introducing a new credit-easing program to help the nation roll over trillions of yuan worth of local government bonds and ensure liquidity remains in the domestic financial system.

The Chinese central bank is understood to be close to finalising the program which would allow Chinese commercial banks to effectively swap local government bonds with the central bank in return for greater access to funding.

The plan is believed to be similar to asset-swap programs that formed parts of quantitative easing programs put in place in Europe after the global downturn.

However, it would be the first time a program of its nature would be allowed under the PBoC which is known for its conservative management practices.

The growing volume of local government debt that is due to expire in the next few years has become a major concern for China’s central government and economic policymakers. It is estimated local government debt has grown to be worth at least 16 trillion yuan ($3.3 trillion) and the growth rate has prompted warnings from the International Monetary Fund that it could become a major risk to economic stability when the debt matures.

China’s Ministry of Finance said yesterday local government officials should be working to put in place measures to help the debt roll over easily once it hits maturity. The majority of the debt build-up has occurred in China’s central region and is the result of major stimulus spending ordered since the global financial downturn in 2008.

The Ministry of Finance said local authorities had to “speed up debt issuance and scheduling, rationally set debt issuance times and urgently complete the work of issuing bonds”.

“As the global economy is undergoing a deep adjustment and China’s development is showing a new normal, major economic indicators keep falling, revenue growth is slowing down, and the annual economic and social development goals face difficulties,” the ministry said.

“The State Council attaches great importance to require the local governments to perform their duties and work hard.”

There has been growing speculation in the global financial markets that China would consider a quantitative easing program to help maintain lending and kickstart economic growth, which is at a 15-year low.

Capital Economics chief Asia economist Mark Williams said the main aim of a “QE style” scheme would be to reduce the high debt rollover costs faced by local governments.

“The key point is that any such debt purchases by the PBoC would be part of a response to local government debt concerns rather than a shift in monetary policy,” he said.

The Shanghai Composite Index closed in rare negative territory yesterday after it lost 51.18 points, 1.13 per cent, to 4476.21.

It is the world’s best performing market, having risen by nearly 120 per cent in the past year.

ADDITIONAL REPORTING: WANG YUANYUAN AND AGENCIES

I read more chatter about China QE. It has become a mantra deemed newsworthy

US QE yes, EU QE yes, Japan QE yes... cause they have near to zero interest rates.

In the not so distant past these are called lending via the discount window. The collateral is different but the concept is the same. Now everything called QE. But fair to say the stigma attached to these lending seemed to have totally disappear simply because everyone is doing it.

(20-04-2015, 10:34 AM)specuvestor Wrote: mate China interest rate not even zero how can it be QE

the RRR trend is positive primarily for banking sector and secondarily real assets. I don't think they will let speculative bubble to build up too much but for sure there will always be a delayed policy response as they have to discuss how to react.

(19-04-2015, 06:58 PM)greengiraffe Wrote: Clamping down on speculative bubble but underwriting slowing real economy... China style QE but certainly liquidity will prevail...

Chinese central banks are extremely busy over weekends... nothing new as new policies are better digested over weekends where herd instincts have little avenue to unleash their energy...

Chinese consumer confidence slips in April
FERGUS RYAN BUSINESS SPECTATOR APRIL 29, 2015 2:16PM

Chinese consumer sentiment deteriorated in April, slipping back close to the level seen in November last year before the latest round of interest rate cuts began, according to a private survey.

The Westpac MNI China consumer sentiment indicator fell 3.1 per cent on the month in April to 111.1 from 114.7 in March. According to Westpac, the increased optimism that followed rate cuts at the end of February have been “conclusively unwound”.

According to the bank, “the reality of weak underlying growth, confirmed by the first quarter GDP report [was] the stronger force in April”.

Consumers were less optimistic about their current personal financial situation while attitudes towards their current business situation proved more resilient.

The Current Conditions Indicator declined to 100.4 in April from 103.8 in March, the lowest since November 2011.

Meanwhile, sentiment on house buying increasing 2.6 per cent on the month to 96, the highest since July 2014 — indicating that recently announced measures to support the housing market have helped boost sentiment.

While respondents’ expectations for future stock prices eased slightly in April, they have been trending higher since October 2014.

Hopes for monetary easing by China have seen Shanghai’s benchmark index double over the past year, while the Hang Seng has surged this month to levels not seen since the end of 2007 — helped by an easing of rules for cross-border trading.

Westpac senior international economist Huw McKay said the increased activity in the domestic real estate and share markets indicated that the investment preferences of Chinese consumers had “tilted in a moderately risk-seeking direction in April”.

“However, the scale of the movements have been relatively small, implying there remains plenty of room for a rebalancing of household portfolios towards asset classes offering the potential for capital gains,” he said.

“For now though, there is little sign that the spectacular gain in share prices over the last year is having a material impact on the conservative financial mindset of the ordinary Chinese citizen.”

(29-04-2015, 12:48 PM)specuvestor Wrote: I read more chatter about China QE. It has become a mantra deemed newsworthy

US QE yes, EU QE yes, Japan QE yes... cause they have near to zero interest rates.

In the not so distant past these are called lending via the discount window. The collateral is different but the concept is the same. Now everything called QE. But fair to say the stigma attached to these lending seemed to have totally disappear simply because everyone is doing it.

Will this be a case of 'What the Wise Man does in the beginning, the Fool does in the end?' I am not wise enough to predict or discern what or when will the fool gets in the end, but it is in my common observation that certain cures for current diseases generally leads to/or lay the seeds for the next disease.

(30-04-2015, 12:16 AM)weijian Wrote:

(29-04-2015, 12:48 PM)specuvestor Wrote: I read more chatter about China QE. It has become a mantra deemed newsworthy

US QE yes, EU QE yes, Japan QE yes... cause they have near to zero interest rates.

In the not so distant past these are called lending via the discount window. The collateral is different but the concept is the same. Now everything called QE. But fair to say the stigma attached to these lending seemed to have totally disappear simply because everyone is doing it.

Will this be a case of 'What the Wise Man does in the beginning, the Fool does in the end?' I am not wise enough to predict or discern what or when will the fool gets in the end, but it is in my common observation that certain cures for current diseases generally leads to/or lay the seeds for the next disease.

That is economics for you especially in modern day management of social science.

(30-04-2015, 09:32 AM)greengiraffe Wrote:

(30-04-2015, 12:16 AM)weijian Wrote:

(29-04-2015, 12:48 PM)specuvestor Wrote: I read more chatter about China QE. It has become a mantra deemed newsworthy

US QE yes, EU QE yes, Japan QE yes... cause they have near to zero interest rates.

In the not so distant past these are called lending via the discount window. The collateral is different but the concept is the same. Now everything called QE. But fair to say the stigma attached to these lending seemed to have totally disappear simply because everyone is doing it.

Will this be a case of 'What the Wise Man does in the beginning, the Fool does in the end?' I am not wise enough to predict or discern what or when will the fool gets in the end, but it is in my common observation that certain cures for current diseases generally leads to/or lay the seeds for the next disease.

That is economics for you especially in modern day management of social science.

So what should we do? Holding more cash, stocks, properties, gold, ....or what?

Wang Jianlin, a Billionaire at the Intersection of Business and Power in China

http://www.nytimes.com/2015/04/29/world/...rc=me&_r=0

Foreign chains hit stumbling blocks in China

Retail Patti Waldmeir and Jamil Anderlini
785 words
1 May 2015
The Australian Financial Review
AFNR
English
Copyright 2015. Fairfax Media Management Pty Limited.

Shanghai | From fast food to smartphones, from luxury goods to groceries, the way China shops - and what mainland shoppers want to buy - is changing rapidly. The changes are leaving foreign supermarket and hypermarket chains struggling to keep up by revamping store formats and selling more groceries online, retail analysts say.

This week, Walmart announced a plan to turn round its declining sales in China by boosting store numbers by more than 25 per cent, renovating existing shops and introducing a new online shopping app.

The US chain has been hit by food safety scandals in China, along with rapidly intensifying competition from other big hypermarket chains and from new online grocers.

But Walmart is far from the only foreign grocer that has struggled in China in recent years: Tesco, the UK chain, failed to make it alone on the mainland despite an ambitious program of building so-called "lifestyle malls", anchored by Tesco stores.

That gamble failed, largely because Tesco did not have the expertise to compete as a property developer in the difficult mainland property market, retail analysts say. Tesco was forced into a joint venture with one of the mainland's leading retailers, China Resources Enterprise.

But turning around Tesco's mainland business has not proved easy for CRE either, and the company last week sold its lossmaking non-beer (including grocery) businesses to its parent, China Resources Holdings.

The sector's woes are not limited to foreign brands. A new report by OC&C strategy consultants finds that "nearly all the major players among China's big-box grocers ... have experienced near-consistent negative growth since 2010." Growth during that period has come almost entirely from new store openings, OC&C said.

Competition from online grocers is one of the biggest threats to bricks-and-mortar sales at chains such as Walmart, Carrefour and Auchan's SunArt Retail, retail analysts say. Consumer tastes in China change more rapidly than in many established markets, and in the past year or two, online grocery sales have exploded.

OC&C says online sales rose nearly 50 per cent in 2014, year on year, compared with a paltry 6.7 per cent for hypermarkets and supermarket sales (including new store openings). Many consumers are shifting their buying to convenience stores too, retail analyst say, prompting grocers including Walmart and Carrefour to try new, smaller formats for their stores in big cities.

"In China, older people don't have a lot of entertainment so shopping (even in grocery stores) is entertainment for them, but our younger generation has grown up with a computer at their side and so they prefer to entertain themselves by travelling, not shopping in physical stores," says Huang Aizhu, head of Tmall's food business. The business, part of the Alibaba group, is growing annually in the "triple digits", she says.

"The combination of online and offline is the way of the future," Ms Huang adds. Sales of fresh foods like fruit, vegetables and seafood - traditionally the preserve of bricks and mortar stores or traditional wet markets - are growing faster online than other grocery items, she says.

Walmart already has one of the strongest ecommerce presences in China, through its 51 per cent stake in Yihaodian, the popular online grocer.

Doug McMillon, Walmart global chief executive, told a press conference in Beijing Walmart plans to expand online and offline. "We want to help customers shop in a way that is most convenient for them. For some convenience is shopping online and having products delivered to their homes, for others it is shopping online and picking up at a store, and for others the experience of being in a store, seeing and handling products that they buy . . . new ways are being invented every week."

"Consumer spending power in China is rising about 10 per cent per year and tastes are changing rapidly," says Matthew Crabbe, Mintel's China retail analyst. "Keeping up with that for retailers is tough, and there is increasingly competition with each other. A lot of chains are having to close existing stores and reopen and redevelop new formats."

Solving the cold chain logistics problem is key for online food retailers, he says. JD.com, a leading mainland e-commerce company, has struck a deal to distribute fresh, chilled and frozen products through convenience stores that either hold them for customer collection or deliver to their homes. "They are leapfrogging the big chains, which will have to respond in kind to compete," he adds, noting that Walmart and Tesco have been "developing their stores to be more like delivery depots".


Fairfax Media Management Pty Limited

Document AFNR000020150430eb510002b

China April Manufacturing Weakens Further in Final HSBC PMI

A Chinese manufacturing gauge trailed economists’ estimates in April as new orders declined, underscoring forecasts for policy makers to step up stimulus to shore up growth.

The final Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics was at 48.9, missing the median estimate of 49.4 in a Bloomberg News survey and lower than the preliminary reading of 49.2. Numbers below 50 indicate contraction.

With economic expansion threatening to dip below the leadership’s 2015 target of about 7 percent -- one state-affiliated group reportedly sees a 6.8 percent pace this quarter -- officials have already loosened monetary policy. Anticipation of more measures to come has helped stoke a rally in stocks the past two months.

“China’s authorities are becoming more concerned about the economic downturn,” Wang Tao, chief China economist at UBS Group AG in Hong Kong, wrote in a note Monday. “In the next couple of months, we expect the government to speed up infrastructure investment with enhanced support from policy banks and cut the benchmark interest rate.”

The Shanghai Composite Index of stocks initially dropped after the PMI report, before recovering to be 0.9 percent higher as of 11:33 a.m.

The deterioration in the report contrasted with the official manufacturing PMI for April that suggested a stabilization.

Shanghai stocks slump amid margin loan fears
[Mainland China's main equity index has closed more than 4 per cent lower, amid reports that domestic stockbrokers are pulling back from lending clients money to buy shares, as regulators become increasingly concerned about the fierce nature of a recent stock-market rally.

The Shanghai Composite, which has increased in value by almost 120 per cent over the past year, fell 4.1 per cent to 4,308 points. That is the index's biggest drop since January 19, and the seventh biggest fall over five years. ]

[The management team of Chinese online video company Beijing Baofeng Technology urged the public to "invest rationally", after its stock jumped by 44 per cent on the first day of trading on the nation's mid-cap market in the wealthy southern Chinese city of Shenzhen. ]

[As RBS strategist Alberto Gallo wrote in a late-April note:
Housewives, taxi drivers and street vendors busy trading stocks are common sight in China these days. It appears the banana guy has a few friends, around 12 million who opened A-Share trading accounts since March 20, and after the government allowed investors to hold multiple accounts with different brokers in early April.]
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Another exciting day on SSE! If only SGX was so exciting...