China Economic News

[BlueKelah]

https://sg.finance.yahoo.com/news/offsho...00567.html

(Bloomberg) -- The offshore yuan declined as China’s central bank lowered its reference rate for a second day, stoking speculation the authorities judged previous gains in the currency excessive amid a slowing economy.

The People’s Bank of China cut the fixing by a combined 0.53 percent on Monday and Tuesday, the biggest two-day reduction since January. The onshore yuan has gained 1.3 percent in the past two months, rebounding from its biggest annual decline in two decades. The nation’s economy will expand by 6.5 percent in 2016, the slowest pace in more than a quarter century, according to a Bloomberg survey.

[specuvestor]

This seemed to be a more balanced unbiased article 've seen

INSIGHT: China’s Never-Ending Stimulus -- Adding Up Local Debt
2016-03-22 10:02:30.283 GMT


By Fielding Chen and Tom Orlik
(Bloomberg Intelligence) -- China’s local government debt
pile was meant to shrink. Instead, it’s grown. A review of debt
levels in 29 of the country’s 31 provinces at the end of 2015
shows borrowing continued to expand at a rapid pace. The chances
of a national crisis remain remote. But burgeoning debt
highlights China’s continued reliance on off-balance-sheet
stimulus to support growth. Some provinces with rising debt and
stagnant tax revenue are vulnerable to heightened financial
stress.

Total Provincial Debt as % of Provincial Revenue, 2013 and 2015

At the end of 2015, total borrowing by 29 of China’s
provinces totaled 16.2 trillion yuan ($2.5 trillion), up 53%
from 10.6 trillion yuan in 2013. It’s possible that some of that
expansion represents local governments taking responsibility for
loans they had previously guaranteed. Even so, a continued and
rapid expansion in borrowing is a worrying sign, for two main
reasons:
* Financial risks are rising. As a ratio of provincial tax
revenue, local government debt has risen to 195% in 2015 from
153% in 2013. In many cases, debts are the highest in the
provinces with the lowest capacity to repay.
* Even the continued slowdown in overall GDP growth in the last
two years has been substantially underpinned by continued off-
balance sheet stimulus. The 5.6 trillion yuan expansion in
borrowing over the last two years was equal to 8.3% of 2015 GDP.


Government Debt-to-GDP Levels for Major Economies

(Chart available in ECWB)
To be sure, the chances of a national debt crisis are
small. Taking account of central and local government borrowing,
the total remains a modest 40% of GDP, according to Bloomberg
Intelligence Economics’ calculations. The Ministry of Finance’s
3.2 trillion yuan debt swap -- where provinces issue low-cost
bonds to pay off high-cost loans -- has eased some of the
pressure. If problems do emerge for China, they will be local
rather than national.

Provincial Debt-to-GDP Levels, 2013 and 2015

The 2015 data show pronounced variation in the level and
pace of debt accumulation among provinces. In general, the
pattern is high and rising debt in smaller, less-developed
inland provinces, and low and stable debt in bigger, advanced
coastal provinces:
* The highest debt-to-GDP levels are in the less-developed
southwestern provinces of Guizhou and Yunnan, at 87% and 48% of
GDP, respectively.
* The biggest increase in debt-to-GDP levels came in Guizhou,
where debt as a share of GDP rose 29 percentage points in two
years, and Ningxia, where it rose 20 percentage points to 39%.
* Guangdong and Shandong, with debt-to-GDP levels of 13% and
15%, respectively, are the least heavily encumbered. They are
also among China’s most advanced and economically-significant
provinces. The provinces that matter most seem to have the
lowest risks.

[BlueKelah]

Rapid wage gains in China that began after the 2009 global financial crisis have begun to fade as the economy slows, and that could create problems for officials trying to boost domestic consumption.

Income increases for migrant workers will fall below 7 percent this year, down from a 7.2 percent rise in 2015, according to nine of 12 economists surveyed by Bloomberg News this month. The findings follow an announcement by Guangdong province, China’s biggest exporter and one of the biggest destinations for rural job seekers, that it will freeze minimum wages for two years.

A slower rise in labor costs could make Chinese companies more competitive while also helping employers weather structural reforms that Communist Party leaders pledge will address excess capacity in the world’s No. 2 economy. Authorities under the previous administration had championed wage gains as a way to stoke domestic demand.

"China’s fairly pragmatic policy makers have recognized the limits of things like minimum wage increases," said Louis Kuijs, chief Asia economist at Oxford Economics in Hong Kong. "You cannot expect wage growth to continue to power ahead if business conditions and profit developments are weaker."

Softer Spending
Consumers also won’t spend as freely, according to the survey. Six economists said they see average disposable income rising 6.5 to 6.9 percent this year, compared with a 7.4 percent increase in 2015. Four forecast a rise of 7 percent to 7.4 percent.
Jobs, income and the "new normal" of slower economic growth were among the top agenda items for the Chinese congress meeting earlier this month in Beijing and again this week on the southern island of Hainan, where policy makers are gathering for their annual Boao Forum. Premier Li Keqiang set a target to create 10 million jobs this year, the same goal as the last two years.
Even with smaller pay rises for workers, economists still forecast an increase in joblessness in China this year. The urban unemployment rate will rise to 5.3 percent to 5.5 percent in 2016, up from about 5.1 percent last year, seven out of 12 economists said in a Bloomberg survey.

"For all the talk of the new normal, the implicit promise is that things will get better," said Pauline Loong, managing director at Asia-Analytica Research in Hong Kong. "But look at wages growth – or the lack of it. With even big bank profits down, where is the room for wage growth? The big state-owned enterprises are not making money either."
Fewer Workers
The projected weakening of the job market is notable because China has a shrinking labor force, something that otherwise would typically lead to companies having to pay more to attract the workers they need................

China's Great Wage Boom Is Starting to Fade

[HitandRun]

Thanks CF san for sharing the news on BOC. Naturally, I would think that the state-owned banks will play a significant part in financing the deals. To put things in perspective, the cum M&A deals in 2015 were slightly above USD100b.

[CityFarmer]

A redistribution of state tax revenue to provincial level? The local provincial governments need more revenue for their debts?  

China pushes state-owned companies to leave Beijing

BEIJING — Beijing may be pulling in the welcome mat for many of the country’s biggest state-owned companies, including some that have had their headquarters in the capital for decades, setting off a scramble among other cities competing to lure them away.

The plan — part of President Xi Jinping’s blueprint to reinvigorate the economy — aims to move the main offices of state firms that have no core business in Beijing, according to two people familiar with the discussions.

The relocations would help reduce traffic congestion, pollution and overcrowding in the capital, as well as reinvigorate other first- and second-tier cities on the receiving end, such as Shenzhen, Tianjin, Wuhan and others, according to the people, who asked not to be identified.

“Every Chinese city wants to have SOE (state-owned enterprise) headquarters to boost the local economy,” said professor at the Chinese Academy of Governance Wang Yukai. “The impact of having a locally based state-run firm is considerable for the local development, as it will bring extra tax revenue, make more jobs available and be good branding for the city.”
...
http://www.todayonline.com/chinaindia/ch...ve-beijing

[Behappyalways]

How Bad Is China's Debt Problem, Really?
http://www.bloombergview.com/articles/20...lem-really

[TTTI]

How Bad Is China's Debt Problem, Really?
http://www.bloombergview.com/articles/20...lem-really

Thanks for this link.
In my personal experience, it is very hard to capitalise on such a particular event.
You can have all the data, and be absolutely right, but still get wiped out.
As the saying goes, the market can stay wrong longer than you can stay solvent.
I first read an article about China's mega debt problems, their shadow banking sector and the immense debt that's "off the books" way back in 2012.
Since then, the talk about these debt problems has never gone away, but kept intensifying.
It's been 4 years since I've started monitoring this particular issue, but there are no major defaults or blow ups.
Sure, there are some corporate defaults that's state sanctioned (The state decided not to backstop the debt and allowed some default of some aluminium producers last year), but nothing systemic.
The skeptics have always argued that the state government in China has enough firepower to control any debt blowup contagion.
So how does one really capitalise/invest with this in mind?

[BlueKelah]

How Bad Is China's Debt Problem, Really?
http://www.bloombergview.com/articles/20...lem-really

Thanks for this link.
In my personal experience, it is very hard to capitalise on such a particular event.
You can have all the data, and be absolutely right, but still get wiped out.
As the saying goes, the market can stay wrong longer than you can stay solvent.
I first read an article about China's mega debt problems, their shadow banking sector and the immense debt that's "off the books" way back in 2012.
Since then, the talk about these debt problems has never gone away, but kept intensifying.
It's been 4 years since I've started monitoring this particular issue, but there are no major defaults or blow ups.
Sure, there are some corporate defaults that's state sanctioned (The state decided not to backstop the debt and allowed some default of some aluminium producers last year), but nothing systemic.
The skeptics have always argued that the state government in China has enough firepower to control any debt blowup contagion.
So how does one really capitalise/invest with this in mind?

That is a very good question. 

For the buy and hold value investor the simple thing to do would be to be cashed up until the inevitable big deleverging of the asset bubble occurs then pick up assets at cheap valuations. Would say a good indicator would be to see when lee ka shing starts buying in China again (assuming he is still alive by then)

So far the stock market has already corrected and had it not be for gov intervention would be trading much much lower.

Property prices throughout China have also gone down and in the process of deleveraging with the exception of large cities where there is still a lot of big easy money sitting around from the loosening controls and liquidity increases from gov for the banks.

Its taken many years for the boom and asset bubbles to form in China, one cannot expect this deleveraging to occur overnight. Reckon it will take at least 2-3 years before any bottom is reached. Whether or not its a hard or soft landing, we have yet to see, but so far the stock market story has showed a hard landing.

japan's story is a good reference, though not exactly the same, it is a good history lesson.
https://en.wikipedia.org/wiki/Japanese_a...ice_bubble

[HitandRun]

Incidentally, the article in question was written by Chris Balding. We had some fun debating about him in one of the threads.

[Behappyalways]

Beijing risks 'ERM-style' currency crisis as deflation persists
http://www.telegraph.co.uk/business/2016...ion-persi/