China Economic News

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China hits record trade surplus of $US49.8 billion

China’s monthly trade surplus rose to $US49.8 billion ($53.88bn) in August, its highest amount on record, official data showed today.

Bloomberg analysts had forecast a median trade surplus of $US40bn for the month.

Exports increased 9.4 per cent year on year, the General Administration of Customs announced, while imports decreased 2.4 per cent.

The surplus bested the previous all-time high of $US47.3 billion recorded last month.

It also exceeded the median forecast of $US42 billion in a Wall Street Journal survey of 15 economists.

Export growth slowed from July’s gain of 14.5 per cent, but beat the median expectation of a gain of 9.2 per cent.

Imports, which had declined 1.6 per cent in July, worsened further in August and failed to match the median forecast of a 2.7 per cent increase.
Beijing confident on 7.5% growth


China is on course to hit its annual growth target of about 7.5 per cent this year, Chinese Premier Li Keqiang said, as he sought to reassure a high-profile gathering of Chinese and overseas executives that the world's No. 2 economy continues to welcome foreigners and remains committed to reform.

The comments by Mr Li at a gathering of the World Economic Forum come as more foreign companies in China express worries. Recent polls by business groups show rising concerns about the country's slowing economic growth, the pace of reform and stepped-up enforcement of the country's pricing and antitrust laws.

"We are committed to pressing ahead with reform even though it is not an easy thing," Mr Li said, speaking in the northeastern Chinese city of Tianjin. "Just like an arrow shot, there will be no turning back."

In remarks following the speech, he reiterated China's stance that it treats foreign and domestic companies equally when it enforces the law.

China's economic planners, long used to exceeding targets by a couple of percentage points, have faced tough sledding this year. First-quarter growth came in at 7.4 per cent compared with a year earlier, its slowest pace in 18 months, prompting targeted stimulus measures such as loosened lending and spending on rail and housing projects.

Second quarter growth rose slightly to 7.5 per cent, but measures of trade, property prices and manufacturing activity show momentum has slipped again, raising questions about the sustainability of Beijing's growth-fanning measures. Some economists expect China to ramp up targeted stimulus measures during the rest of the year to hit the 7.5 per cent target.

At a separate event, Ma Jun, chief economist at the research bureau of China's central bank, said that while exports and fiscal spending have helped support growth, the flagging property market will drag down investment.

In his speech, Mr Li said Beijing is pursuing numerous beneficial goals, ranging from expanded green energy and red tape reduction to financial reform and technological innovation. He added that the government has made strides cutting red tape, encouraging service industries and tackling its environmental problems.

In particular, he said, China has cut its carbon intensity -- a measure of its fuel efficiency -- by about 5 per cent during the first six-months of 2014 compared with a year earlier. He described the fall as "the largest drop in many years."

Mr Li said that employment -- a major focus of Beijing -- remains solid even as growth has slowed. The unemployment rate in 31 big and medium-size cities was 5 per cent, he said.

A survey released at the meeting by employment firm ManpowerGroup said employment in China will continue to grow but that the outlook is at its weakest level in five years. "We're seeing higher wages, increased productivity and less demand," Jeffrey Joerres, the company's executive chairman, said in an interview. Higher wages and productivity can boost the economy in the longer-term, but they also put more immediate pressure on hiring.

China has twice this year lowered the amount of reserves that banks must hold with the central bank in ways that loosen lending for specific industries such as agriculture, Mr Li said. China's broadest measure of money supply, M2, was up 12.8 per cent on year at the end of August, marking the slowest growth in five months.

Mr Li said China will continue to innovate and push into higher-value industries even as it continues to benefit from and support the global order. "The Chinese economy is resilient and has ample room to grow," he said, adding: "The world need China, and China needs the world."
China growth engine sputtering

A worker welds on the assembly line for the Geely CK-1 (CK1) car at the Zhejiang Geely Automobile Co. auto plant in Ningbo, ...

Beijing is struggling to reach its annual 7.5 per cent economic-growth target in a nation where hitting benchmarks remains important. Source: AFP
CHINA’S economic engine sputtered in August as industrial production growth slowed to its lowest level since the 2008 global financial crisis, according to data released yesterday, increasing the chance that Beijing will step up stimulus measures to bolster the world’s second-largest economy.

Economists said the sharp deceleration in industrial output, along with weaker fixed-asset investment, retail and real estate sales data, is likely to rattle regional stock markets today as Beijing struggles to reach its annual 7.5 per cent economic-growth target in a nation where hitting benchmarks remains important.

“This figure is a bit shocking,” said ANZ economist Liu Li-Gang. “If we have another month of low IP growth, the third-quarter GDP figure could be at most 7 per cent.”

Data came in below a median forecast of 15 economists polled by the WSJ. Value-added industrial output grew by 6.9 per cent in ­August year-over-year, down from the 9.0 per cent level in July, the National Bureau of Statistics said. It is the weakest growth seen since December 2008.

Fixed-asset investment in non-rural China rose 16.5 per cent year-over-year in the January-August period, slower than the 17.0 per cent increase recorded during January-July.

Retail sales expanded 11.9 per cent year-over-year last month, down from the 12.2 per cent year-over-year level in July. “Our sales have not been very good lately,” said Zhang Guangwei, 31, a manager at a Beijing electronics store.

And the real-estate industry continued to slump despite moves by more than 30 cities to relax purchase restrictions, with housing sales declining during the first eight months of 2014 by 10.9 per cent to 3.43 trillion yuan ($559 billion) as developers fought bulging inventories, reluctant lenders and fickle buyers.

“Late last year, we bought a small apartment in Dongcheng district … but the price has dropped a lot since then,” said Xu Jiangyuan, 33, a saleswoman at a Beijing travel agency. “Home prices will definitely drop further.”

The weak data — including news that August electricity output fell 2.2 per cent — suggest that earlier government stimulus measures lack staying power. “The economy is losing steam very quickly in August,” said Macquarie Group economist Larry Hu. “Previously when they stimulated the economy, private companies followed, leading to a restocking cycle. But this time, the private sector is so cautious.”

While Beijing remains outwardly confident that economic growth prospects are on target, more weakness this month and next — particularly in the property market — could prompt planners to shelve their targeted stimulus approach in favour of a more broad-based stance, some economists said.

This week, Premier Li Keqiang told a World Economic Forum meeting in Tianjin that China would avoid printing money, continue its focused spending on rail, energy and public housing projects and maintain its targeted monetary-easing program for first-time home buyers and small companies. “The IP number is a surprise because Premier Li talked in Tianjin about a quite stable situation,” said Mizuho economist Shen Jianguang. “If they don’t ease, the economic deceleration will come much faster.”

Planners in China’s top-down government have more tools at their disposal — including, for instance, telling banks and state-owned companies what to do — than their counterparts in market economies. They’re also helped by weak inflation, which eased to a four-month low in August.

If Beijing holds to its targeted stimulus approach in its bid to shrink bad loans and pare industrial overcapacity, it could ramp up spending on public housing and transport, cut income-tax rates and mortgage-interest rates for first- and second-time home buyers and reduce property stamp-tax duties, economists said.

The statistics bureau can also change the way GDP figures are calculated to give more weight to corporate intellectual property and spending on research and development, thereby boosting the investment component of nominal economic growth.

If planners decide these still aren’t enough they could introduce a broad interest-rate cut or wholesale cut in the amount that financial institutions are required to keep on reserve with the central bank. “If the slowdown continues for another one or two months, I think they will not stay” with targeted stimulus, said HSBC economist Ma Xiaoping.
China faces its hour of truth

CHINA’S long push toward financial reform is bumping up against a more pressing national goal: boosting growth.

The world’s second-largest economy is faring worse than ­previously thought, with government stimulus measures proving too short-lived to counter a real-estate downturn and flagging factory output. Over the weekend, China reported a sharp drop-off in industrial production during ­August to 6.9 per cent, year-over-year, the slowest pace of growth since the 2008 global financial ­crisis.

Beijing has sought to avoid ­large-scale stimulus programs that would spur short-term growth at the expense of longer-term reform efforts, with banks, companies and local governments still carrying a mountain of debt from the massive lending used to bounce back from the crisis.

The government tried a limited stimulus this year, steering loans to public housing and railways. But for the first time since 1998, China may fall short of meeting its ­annual growth target, set at 7.5 per cent this year. Beijing now must decide whether to employ more dramatic measures, such as ­cutting interest rates, or simply ­accept slower growth and fewer new jobs, economists say.

“There’s a bottom level they won’t tolerate,” said Julian Evans-Pritchard, an economist with Capital Economics. “But we haven’t hit it yet.”

A recent showdown illustrates how easily financial reform can lose out to the demands of political leaders struggling to meet GDP growth targets.

China’s central bank has long pushed for reforms intended to spur competition among state-owned banks and put more money in consumers’ pockets, two long-term goals embraced by top government leaders.

Toward that end, the People’s Bank of China put together a plan to offer banks discounted loans, along with the freedom to decide how to lend the money. The idea was to encourage banks to make more loans to commercial enterprises instead of relying on low-risk government-directed projects. The program also would give banks a financial cushion when China lifts the interest-rate cap on bank deposits in the next two years — another reform goal.

But the program’s debut loan instead followed a familiar script, The Wall Street Journal found, sending 1 trillion yuan (about $179.3 billion) to the China Development Bank: the politically connected institution had lobbied top government leaders to lower its funding costs for slum clearance. China’s State Council, the government’s top decision-making body, directed the central bank to make the loan — at 4.5 per cent, far lower than current rates — to stimulate the economy, the officials said.

Unlike the US Federal Reserve, China’s central bank, known informally as yang ma or “Big Mama”, doesn’t operate independently and for decades directed banks to make politically ­approved loans.

Media officials at China’s central bank and the China Development Bank didn’t respond to requests for comment.

With economic growth stalled, China’s leaders have made clear the central bank’s priority is stimulating the economy — even at the risk of delaying or reversing efforts at financial reform.

“The PBOC is making a heroic but schizophrenic effort to maintain momentum on financial market reforms while alleviating political pressure to support growth by using targeted interventions,” said Cornell University economist Eswar Prasad, who tracked China’s economy for the International Monetary Fund.

The new lending facility — called Pledged Supplemental Lending — allows banks to bid for central bank loans of a year or longer. Interest rates for the loans are intended to eventually serve as a medium-term benchmark rate, according to Zhang Xiaohui, head of the central bank’s monetary policy department, during ­remarks to economists in May.

China’s central bank hasn’t publicly confirmed the new bank lending program, but it hopes that by keeping quiet about the lending facility it can revamp the program when pressure from leaders ease and turn it into an ­instrument of ­financial liberalisation.

The central bank also feared that word of the trillion-yuan loan — made in April — would signal to the market that it backs a broad stimulus plan to pick up the sagging Chinese economy, which could trigger further investment in Chinese real estate, despite a glut of unfinished apartments. The new lending facility dovetails with the central bank’s goal of removing government limits on bank deposit rates. China’s central banker, Zhou Xiaochuan, has pledged to liberalise deposit rates by 2016 — seen as a crucial reform. The move would push banks to compete for customers by offering the best terms.

Bank-deposit rates are now capped at 3.3 per cent, providing a cheap source of bank funds. Higher rates would likely force banks to better analyse risks and, economists say, make banks more likely to lend to private borrowers — who would pay higher rates — than to state-owned firms that have been their mainstay customers. Economists say the shift could hurt short-term growth.

“We believe the priority of the policy makers now is to prevent the property market from evolving into an economy-wide crisis,” said Mizuho economist Shen Jianguang. “We’re reaching a moment of truth.”
Great News! reports that the PBOC will use their Standard Lending Facility to add 500bn in liquidity.
Update: is citing a banking analyst Qui Guanhua who says PBOC will be providing 100bn yuan to each bank today and tomorrow with a 3 month duration.
It will affect mostly the offshore borrowings...

Payback time: Indebted Chinese firms face off with ratings agencies
19 Sep 2014 06:49
[HONG KONG] Chinese companies hounded by debt obligations accrued over the past few years are grappling with a new adversary at what is a very inconvenient time: global ratings agencies.

Standard & Poor's and Fitch Ratings have slashed more ratings of Chinese companies in 2014 than a year earlier as towering debts weigh on corporate bottom-lines. The thumbs-down from the agencies will make it harder - and more costly - for companies to borrow at a time when their cash flows are taking a hit from a weakened economy.
Source: Business Times Breaking News
“夏则资皮,冬则资纱,旱则资船,水则资车” - 范蠡
China to stick to targeted easing in monetary policy: Premier Li Keqiang
Business | Updated yesterday at 07:34 PM

BEIJING (REUTERS) - China will continue leading a prudent monetary policy with focus on targeted easing measures, Premier Li Keqiang said, according to a statement published on a central government website.

Addressing the State Council, China's cabinet, Mr Li said China over the past year had avoided stimulating its economy through quantitative easing. "In the current complex economic situation and the downward pressure, we still have to maintain concentration and adhere to a proactive fiscal policy and prudent monetary policy to stabilise market expectations," Mr Li said.

He added he was hopeful China's massive urbanisation drive would help fuel future economic growth.

The statement came as state-owned news agency Xinhua on Friday quoted the chairman of the China Construction Bank saying the central bank has issued 500 billion yuan (S$103.1 billion) worth of three-month loans to China's five biggest banks.
Short sellers turn focus back to China

Three reports published this month separately accused three Chinese companies – Tianhe Chemicals, 21Vianet and Shenguan Holdings – of business or accounting fraud. Photo: Tamara Voninski
Short-sellers who profit from stock price declines have resumed targeting Chinese companies after a three-year lull, but many of the researchers who instigate the strategy are now cloaked in anonymity, shielding themselves from angry companies and Beijing’s counter-investigations.

Three reports published this month separately accused three Chinese companies – Tianhe Chemicals, 21Vianet and Shenguan Holdings – of business or accounting fraud. All three companies said the allegations were baseless but their shares were hit by a wave of short-selling by clients of the research firms and then by other investors as the reports were made public.

The reports were written by research firms that did not publicly disclose names of research analysts or even a phone number.

In the last wave of short-selling that peaked in 2011 and wiped more than $21 billion off the market value of Chinese companies listed in the United States, the researchers advocating short-selling were mostly public.

Carson Block of Muddy Waters, one of the most prominent short sellers, openly accused several Chinese companies of accounting fraud. Block said in 2012, according to several media reports, that he moved to California from Hong Kong because he had received death threats.

“If you have researchers who are based in China, it makes sense to operate anonymously because some of the mainland Chinese companies have a history now of retaliating against people who do negative research,” said short-seller Jon Carnes.

Carnes’s research firm Alfred Little has the best track record among short sellers, according to data compiled by Activists Shorts Research that shows the share performances of companies it targeted.

Carnes has said he was threatened by representatives of one of the companies he reported on in 2011. His researcher Kun Huang was jailed in China for two years and then deported.

Kun, a Chinese-born Canadian, told The New York Times after returning to Vancouver this year that he was charged with criminal behaviour and convicted in a one-day private trial.

A series of incidents in recent years has highlighted China’s growing willingness to investigate, detain and prosecute people for crimes involving the use of information for commercial purposes. Short-selling has particularly irritated the authorities, financial industry analysts have said.

In 2012, China’s state news agency Xinhua described the short-selling reports as malicious and aimed only at making quick money. In an editorial, the agency said short-sellers did find genuine problems at some companies but that they later unfairly targeted quality Chinese firms.

Now, research firms are becoming more adept at using online tools to mask their locations and identities, said John Hempton, an Australia-based short seller at Bronte Capital.

“It’s getting more anonymous, because the attitude of the Chinese authorities is becoming more and more dangerous,” said Hempton.

This month’s round of short-selling began with the publication of a report by Anonymous Analytics, which describes itself as a “faction” of the hacker group Anonymous, against Hong Kong-listed Chinese company Tianhe Chemicals Group. .

Anonymous Analytics said Tianhe “vastly misrepresented the size and scope of its business, and has produced false and misleading statements to the market.” The research group said its findings were based on “months of due diligence, field research and analysis”. It said the analysis included government and State Administration for Industry and Commerce (SAIC) documents, and that it also conducted interviews with clients, competitors and former employees of Tianhe.

Tianhe said in a statement it “unequivocally denies and vigorously refutes the groundless allegations in the report” while Hong Kong stock exchange authorities, contacted by Reuters, refused comment.

Tianhe requested that its shares be halted from trading on September 2, the day after the Anonymous report.

The same day, another research group, Emerson Analytics, accused Hong Kong-listed sausage casing maker Shenguan Holdings Group Ltd of doctoring its books, and said its report was based on government and SAIC documents, company filings, and an analysis of the casing industry.

“In 2013, Shenguan inflated its revenue by at least 10 to15 per cent and hid part of its raw materials costs (the actual cost is about 124 per cent higher than the reported amount). This bloated its (earnings) margins from our estimated 19.8 per cent to a reported 52.4 per cent,” Emerson said.

Shenguan said in a statement that the report contained errors and misleading statements.

The company also requested a halt in trading of its shares.

On September 10, Trinity Research Group published a report on Nasdaq-listed Chinese data centre company 21Vianet Group Inc saying it had “overwhelming evidence that the company is committing accounting and securities fraud”. It said the report was based on a six-month investigation by a team of accountants, lawyers, telecom industry executives and insiders, as well as former employees, current and former customers and current and former service providers of the company.

In a public statement and in a letter to shareholders from its CEO, 21Vianet called the report malicious and baseless. Its shares fell as much as 35 per cent before recovering slightly after the company statement.

None of the research reports listed contact names or telephone numbers - only e-mail addresses. The groups declined to disclose their location or give other details when contacted by Reuters.

In the previous short-selling wave, several Chinese firms were delisted as their share values sank at the cost of billions of dollars in destroyed investor capital.

But the very success of the shorting campaign also hastened its end: Chinese stocks began underperforming their respective peers, while the cost of borrowing shares to short skyrocketed, cutting into profit margins.

At the same time Chinese law enforcement began moving against the due diligence investigators on whom shorters relied to dig up dirt on Chinese firms.

The recent short-selling shows these traders have discovered a new way to take on Chinese companies, relying on anonymity, public information, and less upfront costs, allowing them to profit more quickly and more safely than before, according to China-based short sellers who declined to be named.

“The incentive structures are such that you’re going to see a lot of frauds (among Chinese companies), and a lot of takedowns,” said Hempton at Bronte Capital. “This will be a feature of Chinese capital markets until those incentives change.”

Beijing rules out major macro economic policy change

China’s macroeconomic policy will not significantly change due to any one economic indicator, Finance Minister Lou Jiwei said on Sunday.

Lou made the comments, published on the central bank website on Sunday, at a meeting of finance ministers and central bank governors in Cairns.

The finance minister stressed that despite downward pressure on the economy, China’s macro policy would focus on delivering key growth targets, especially employment and inflation figures.

Lou said policies aimed at cutting tax rates for small businesses and reforming state-owned enterprises will help to stabilise growth.

Lou’s remarks follow a slew of disappointing economic data in August that show China's economy is worsening rapidly despite stimulus measures taken by Beijing.

Last week a reported $US81 billion ($A87.6 billion) injection into China's major banks prompted analysts to predict further stimulus measures are on their way.

"We believe Beijing (is) to introduce a slew of other easing and stimulus measures in coming weeks to re-boost confidence and re-stabilise growth," Bank of America Merrill Lynch said in a research note.
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