Posts Tagged ‘China’s economy’

China fumes over S&P credit rating downgrade

September 22, 2017

China is angry at Standard and Poor’s (S&P) following a downgrade of its creditworthiness by the ratings agency over concerns about the country’s rising debt. S&P underestimated China’s financial strength, Beijing said.

Konzernzentrale von Standard and Poors in New York USA (dapd)

China’s Ministry of Finance said on Friday that S&P’s downgrade of Chinese sovereign debt was a “wrong decision” and based on a “long-standing mode of thinking, and misreading of the Chinese economy.”

On Thursday, the New York based ratings agency cut China’s sovereign credit rating from A+ to AA- , however keeping the country’s outlook on “stable.” The one-notch downgrade came after Moody’s Investors Service made a similar move in May – the first time in almost three decades that the nation’s credit rating was cut.

In a statement, S&P said it decided to make the call after concluding that China’s “de-risking” drive that started early this year was having less of an impact on credit growth than initially expected.

“Despite the fact that the government has shown greater resolve to implement the deleveraging policy, we continue to see overall credit in the corporate sector staying at a 9 percent point,” S&P senior director of sovereign ratings, Kim Eng Tan, said in a conference call. “We’ve now come to the conclusion that deleveraging is likely to be much more gradual than we thought could have been the case early this year.”

Debt-fueled investment in infrastructure and real estate has underpinned China’s growth for years. But Beijing has launched a crackdown amid fears of a potential financial crisis.

Ballooning debt

China’s banks extended a record 12.65 trillion yuan ($1.84 trillion or 1.60 trillion euros) of loans in 2016, roughly the size of Italy’s economy. Total social financing (TSF) – a broad measure of credit and liquidity in the economy – was a record 17.8 trillion yuan.

Tan said broader lending by all financial institutions has started to rise after growing by a relatively steady 12-13 percent in the last few years. “That was the key metric that we look at…and we believe while this growth of aggregate debt financing could come down somewhat over the next few years, it’s not likely to come down very sharply,” he noted.

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But the Finance Ministry accused S&P of ignoring the country’s economic fundamentals and development potential as the world’s second-largest economy.

“China is able to maintain the stability of its financial systems through cautious lending, improved government supervision and credit risk controls,” the ministry said in a statement Friday. “[S&P’s] view neglects the characteristics of China’s financial market fundraising structure and the accumulated wealth and material support from Chinese government’s spending.”

As a matter of fact, China’s economic growth has unexpectedly accelerated this year, racing ahead at 6.9 percent in the first half. But much of the impetus has come from record bank lending, a property boom and sharply higher government stimulus in the form of infrastructure spending.

Moreover, analysts say China’s campaign to cut financial risks this year has had mixed success, prompting doubts whether Beijing is moving fast enough to avert the dangers of a debt crisis down the road.

Hong Kong hit by fallout

On Friday, S&P also slashed Hong Kong’s top-notch credit rating, warning of potential spillover risks from the mainland’s ballooning debt pile.

The ratings agency cited Hong Kong’s “very strong institutional and political linkages” with China, saying: “We view a weakening of credit support for China as exerting a negative impact on the ratings on Hong Kong beyond what is implied by the territory’s currently strong credit metrics.”

Despite Hong Kong’s “very strong” credit metrics, S&P said the territory still faced multiple challenges including sky-high property prices and rising interest rates in the United States, to which the city’s monetary policy was tied.

uhe/tr (Reuters, dpa, AFP)


China confident of maintaining strong growth, Premier Li Keqiang tells heads of six global agencies

September 12, 2017

Nation’s economy was becoming healthier and more sustainable, Li tells IMF, World Bank, WTO chiefs

By Catherine Wong
South China Morning Post

PUBLISHED : Tuesday, 12 September, 2017, 3:43pm
UPDATED : Tuesday, 12 September, 2017, 3:43pm

Chinese Premier Li Keqiang said on Tuesday he was confident China would maintain the strong economic growth it achieved in the first half of the year.

Speaking at a press briefing after a round-table meeting with the heads of six global agencies, including the World Bank, International Monetary Fund and the World Trade Organisation, Li said China’s economy was becoming healthier and more sustainable.

“Judging from the trend of China’s economy over the past few months, it will continue to maintain the momentum of the first half of this year,” he said.

“There will not be any big changes to the trend of China’s economic development.”

The “1+6” dialogue was established in July 2016 when Beijing was working hard to persuade the world that neither its economy nor its currency was on the brink of crashing.

Since then, the situation is has changed significantly. China’s GDP expanded 6.9 per cent in the first half of this year, compared with 6.7 per cent for the whole of 2016, while the yuan has gained almost 6 per cent against the US dollar since January.

Besides the improvements in the headline figures, Li said China’s economy was becoming healthier and more sustainable.

“China has shifted from excessive reliance on investments and exports to a coordinated development of consumption, investment and exports,” Li said.

The progress achieved in shutting down obsolete industrial facilities had “exceeded our expectation”, he added.

Li said also that China’s debt situation, which has been a source of concern regarding the stability of its economy, was “under control”. He did not mention the yuan’s exchange rate.

Speaking at the press briefing, which was attended by all six of the visiting dignitaries, Jim Yong Kim, president of the World Bank, noted China’s continued “leadership in promoting open trade” and said its “Belt and Road Initiative” was expected to help infrastructure spending around the world.

The way in which Li had “embraced” multilateral trade was “critical in what has become a very challenging time”, he said.

Christine Lagarde managing director of the International Monetary Fund, said the IMF was seeing the “progress of reform across a wide range of areas” in China. The agency would continue to offer its “strong support” to China’s reform efforts in terms of boosting consumption, increasing the role of market forces and focusing on the quality rather than quantity of growth, she said.

“Your leadership is as clear as the blue sky in Beijing today,” Lagarde said.

The four other leaders at the talks were Roberto Azevedo, director general of the World Trade Organisation; Guy Ryder, director general of the International Labour Organisation; Angel Gurria, secretary general of the Organisation for Economic Cooperation and Development; and Mark Carney, chairman of the Financial Stability Board.

Yuan’s rise halted as China eases capital controls

September 12, 2017


© AFP/File | The yuan’s rise has been halted as China eases capital controls
SHANGHAI (AFP) – China’s yuan lost ground Tuesday for the first time in two weeks after the central bank relaxed capital controls, sparking speculation the government wants to halt the currency’s recent strengthening.The People’s Bank of China (PBOC) set the yuan’s daily reference rate lower on Tuesday — the first time it had done so in 11 trading sessions — at 6.5277 to the dollar, down 0.43 percent from Monday.

China allows the yuan to rise or fall two percent on either side of the fixed daily rate to control volatility.

The move came after a financial newspaper controlled by the central bank said Monday the PBOC would no longer require banks to set aside a 20 percent deposit on forward sales of foreign exchange, a rule imposed in 2015.

It said foreign institutions which trade the yuan offshore also no longer need to keep reserves in onshore banks.

The latest moves halted the yuan’s recent march to a 16-month high. It triggered speculation that the central bank may be worried the yuan had risen too much and that an official campaign to stem capital outflows has peaked.

“This is a clear positive step of stepping back on capital controls,” Eddie Cheung, a strategist at Standard Chartered in Hong Kong, told Bloomberg News.

“It can be argued that the recent yuan appreciation was too fast. The yuan may be a bit more rangebound in the near term than one-way as markets digest the impact of the move.”

The head of the PBOC’s Research Bureau, Sun Guofeng, was quoted by Chinese financial media on Monday as saying a stabilising China economy and other positive signs made it necessary to readjust rules.

The measures were first imposed in 2015 after the central bank moved the yuan almost five percent lower in a week in August that year.

The yuan, also known as the renminbi, has been under pressure since late 2015 due to uncertainty about the health of the world’s second-largest economy, massive capital outflows seeking better returns abroad and a sharp rise in the dollar.

The yuan had flirted with slipping past 7.0 to the dollar, a threshold not crossed in more than eight years.

The government responded this year by imposing a series of new requirements making it difficult to move capital offshore. Most of these controls remain in place.

“We expect the RMB to fluctuate further and depreciate against the USD in the rest of 2017, to around 6.7 by the end of this year,” Huatai Research said in an analysis.

“The PBOC intends to avoid one-way depreciation or appreciation, with the target of inducing two-way flexibility.”

Southeast Asian economies get a lift from China. Later, they may get the bill

September 8, 2017

By Marius Zaharia

HONG KONG (Reuters) – Southeast Asia appears to be on a roll.

The Philippines is boasting the second-fastest growing economy in Asia, Malaysia has posted its best growth figures in more than two years and Thailand in more than four.

The growth is being fuelled by China, whose expanding economic presence is propping up fundamental weaknesses around Southeast Asia. It also underlines China’s dominance in a region that will be under increasing pressure to follow Beijing’s lead.

Even as the rest of the world feels the pinch of Beijing’s clampdown on outbound capital, China is ploughing money into Southeast Asia – much of it into infrastructure projects related to President Xi Jinping’s signature Belt and Road initiative.

Chinese tourists are also flocking to beaches, temples and shopping malls around the region. And trade is surging.

Exports to China from Indonesia and Malaysia grew more than 40 percent in the first half of the year; from Thailand and Singapore it was almost 30 percent, and more than 20 percent from the Philippines, according to Reuters calculations.

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Malaysia — China’s Forest City development is the biggest by a Chinese property developer

China has been investing heavily in infrastructure and property in the region and buying commodities such as rice, palm oil, rubber and coal. It is also buying electronic components and equipment from countries like Malaysia, Thailand and Singapore.

Going the other way is everything from cheap T-shirts to high-end telecommunications systems.

Welcome as all this economic activity is to the region, it could also present political problems, as countries confront China over issues such as its claims in the South China Sea, as both Vietnam and the Philippines have found.

And it raises the risk that China could apply economic pressure to get its way.

“The large rise in ASEAN’s exports to China have increased potential vulnerabilities to geopolitical risks,” said Rajiv Biswas, Asia Pacific chief economist for IHS Markit.


For a glimpse of how that feels, Southeast Asian countries could look at South Korea’s experience.

The deployment in South Korea of a U.S. anti-missile defence system that China opposed resulted in a sharp decline in Chinese tourists. South Korean companies doing business in China, like Lotte Group and Hyundai have also been hit in the diplomatic fallout.

“The South Korea example is a highlight of how the geopolitical vulnerability to China can increase as the bilateral economic relationship expands,” Biswas said.

The Philippines found itself subject to a Chinese ban on its fruit in 2012 after challenging China’s maritime claims. The ban was only lifted last year as President Rodrigo Duterte adopted a friendlier stance towards Beijing.

“Any sector that you have with a big exposure – tourism inbound like Thailand, bananas outbound like the Philippines, coal from Indonesia – is vulnerable,” said Dane Chamorro, senior partner and head of South East Asia at Control Risks, a global risk consultancy. “You can imagine how that would be pretty easy for China to stop or hinder.”

Leaders of Malaysia’s ruling party last year voiced concerns after Prime Minister Najib Razak secured deals worth $34 billion on a trip to Beijing, saying it opened the door for a more direct Chinese influence on Malaysia’s affairs, besides saddling the country with billions of dollars in debt.

A planned $5.5 billion rail link through Thailand to southern China also hit resistance, with Thai critics targeting what they said were Beijing’s excessive demands and unfavourable financing. However, Thailand’s cabinet in July approved construction of the first phase of the project.

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Chinese tourists pose for photos as they visit Thailand


There has also been popular opposition to such deals around the region, raising the stakes for leaders.

In Myanmar, a $10 billion Chinese oil pipeline linked to the Belt and Road project sparked angry protests in May. Three years ago, the deployment of a Chinese oil rig in disputed waters in the South China Sea triggered anti-Chinese riots in Vietnam.

“The next level from here is you can see more social outcry,” said Sanchita Basu Das, lead researcher for economic affairs at the ASEAN Studies Center at ISEAS-Yusof Ishak Institute in Singapore.

“These are the checks and balances for some of these countries, especially those where leaders are elected for a specific number of years,” she said. “China will be mindful of that as well.”

GROWING DEPENDENCE The growing economic dependence on China is another concern for countries in the region with underlying vulnerabilities.

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Singapore’s skyline is seen June 17, 2017. REUTERS/Thomas White/Files

Consumption growth has been lagging in countries like Indonesia and Philippines, which are dependent on domestic demand, even as they posted growth figures of 5 percent and 6.5 percent in the second quarter. And investment from sources other than China is slowing, as are portfolio inflows.

Indonesia, which has been lagging its regional peers, cut interest rates last month.

In Thailand, where the economy grew 3.7 percent in the second quarter, the baht THB= has been surging in recent months, putting pressure on exporters, while the Philippine peso PHP= has been weakening on concerns over the country’s shrinking current account surplus.

If there was a downturn in China, it could have serious ripple effects in export-reliant countries like Thailand and Malaysia. Malaysia grew 5.8 percent in April-June.

“Southeast Asian countries are becoming more dependent on China,” said Jean-Charles Sambor, deputy head of EM fixed income, BNP Paribas Asset Management. An event like a sharp slowdown in China could have “a very significant spillover,” he said, citing exports, financing and investment.

For the moment, the Chinese economy remains strong and it appears that Southeast Asia is weathering a crackdown by Beijing on overseas acquisitions.

Data from China’s Ministry of Commerce shows outbound direct investment globally nearly halved in the first half of the year. But data from the American Enterprise Institute shows Chinese investments and construction contracts of $13.46 billion in the period, almost unchanged from a year earlier.

The initial stages of a rail line on Malaysia’s east coast, in which China Communications Construction Company has already invested $2 billion, according to the data, is one of the most high-profile investments.

Other investments, many of which are tied to the Belt and Road initiative, include energy projects in Laos, Cambodia and Philippines, another large railway investment in Indonesia and real estate purchases across the region.

This week, Thailand signed contracts worth 5.2 billion baht ($157 million) with Chinese state enterprises for a high-speed rail project with China.

“Notwithstanding the recent introduction of restrictions on outbound investment, Chinese investment in Southeast Asia is likely to remain strong over the coming years,” said Stephen Smith, lead partner at Deloitte Access Economics.

“Chinese authorities appear to remain strongly committed to investment in projects tied to the Belt and Road Initiative.”

Graphic – Southeast Asia’s export growth in key markets:

Additional reporting by Joseph Sipalan in Kuala Lumpur; Editing by Philip McClellan

See also:


China export growth slows in August on weak demand — But imports accelerate — China’s global trade surplus declined by 19 percent in August

September 8, 2017

BEIJING (AFP) – Chinese export growth slowed in August, official data showed Friday, missing forecasts expectations as weak global demand weighs on the world’s second largest economy.

Exports rose 5.5 percent year-on-year, the customs administration said, down from a 7.2 percent increase in the previous month and missing a Bloomberg News forecast of 6.0 percent.

“There appears to have been a broader decline in external demand,” Julian Evans-Pritchard of Capital Economics said in a note.

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Imports climbed 13.3 percent beating an expected increase of 10.0 percent, and leaving a $42.0 billion trade surplus for the month. Imports rose 11 percent in July.

The trade figures come among mixed signals for the Chinese economy. Factory activity accelerated in August, but inflation remained steady in July, fuelling concerns of further slowdown caused by domestic policy tightening.


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China’s Exports Cool in August While Imports Accelerate

BEIJING — China’s export growth weakened in August as global demand softened while imports showed unexpected strength despite expectations of a slowdown in the world’s second-largest economy.

Exports rose 5.5 percent over a year earlier to $199.2 billion, down from July’s 7.2 percent growth, trade data showed Friday. Imports rose 13.3 percent to $157.2 billion, up from the previous month’s 11 percent.

Forecasters have warned Chinese economic growth will cool this year, dampening demand for foreign goods as controls on bank lending to slow a rise in debt take hold.

The International Monetary Fund expects this year’s economic growth to slip to 6.6 percent from last year’s 6.7 percent and to below 6.2 percent in 2018.

“The strong import data suggests that domestic demand may be more resilient than expected,” said Louis Kuijs of Oxford Economics in a report.

Export growth was unexpectedly strong in the first half of the year, a positive sign for Chinese leaders who want to avoid job losses in trade-related industries.

China has been credited with helping to support global demand and weaker imports might hurt suppliers for whom this country is a major market.

China’s global trade surplus declined by 19 percent in August from a year earlier to $42 billion.

The politically sensitive surplus with the United States rose 4 percent to $26.2 billion.

American officials have resumed criticizing China’s large surpluses and currency control after President Donald Trump said in April he would temporarily shelve complaints while Washington and Beijing cooperated on North Korea. This week, Trump threatened to block imports from countries that do business with the North, China’s main trading partner.

“Downside risks to exports remain, in particular in the area of U.S.-China trade relations,” said Kuijs.

China’s trade surplus with the 28-nation European Union, its biggest trading partner, shrank 14 percent to $11.7 billion.


General Administration of Customs of China:

Yuan’s Sharp Rise Muddles China’s Growth Picture

September 7, 2017

Currency’s newfound strength surprises traders and adds pressure to country’s businesses

Image result for China, currency piles, photos

A recent surge in the value of the yuan has blindsided Wall Street and stands to complicate China’s efforts to simultaneously manage a slowdown in growth while deepening its ties to global markets.

The yuan jumped to its strongest level in 16 months this week, bringing its total gain versus the dollar to 7% in 2017, more than recouping all of its decline last year. Last month alone, the yuan soared 2% against the dollar, notching its biggest monthly advance since July 2005.

Traders and analysts attribute the yuan’s changing fortunes both to the dollar’s softening and to the Chinese central bank’s stepped-up controls over the yuan—through a tweaked mechanism to guide its value—which have reduced expectations for it to weaken and prodded companies that had been hoarding dollars to convert them into local currency.

In recent trading sessions, investors have regularly pushed the yuan stronger than the level set daily by central bank—a rare occurrence for a currency that has more often been battered over the past year. In Hong Kong, a yuan-trading hub outside the mainland, rising yuan bank deposits suggest individuals are growing more comfortable holding on to the currency rather than swapping it for foreign alternatives.

“Market expectations are at work here,” an official at the People’s Bank of China says.

For years, China seemed to defy the “trilemma,” an economic theory that a country can’t at the same time have a controlled exchange rate, free flow of capital and an independent monetary policy. Now Beijing is betting big on defending the yuan. Photo: Qilai Shen/Bloomberg News (Originally published April 11, 2017)

The yuan’s recent ascent comes with a heavy price tag for Beijing. It has dialed back long-running efforts to make the yuan a freer currency and imposed strict controls on money leaving China. Even as those measures have helped stem outflows—official data Thursday showed China’s foreign-exchange reserves rose for a seventh straight month to $3.092 trillion in August—the steps have damped demand from overseas for Chinese assets despite the government’s effort to attract more foreign investors to buy Chinese stocks and bonds.

Meanwhile, the pent-up desire among Chinese companies and individuals to diversify their assets offshore means that underlying pressures on the yuan to weaken have merely been kept bottled up, economists say. The Chinese economy’s growing challenges, from mounting debts and persistent industrial overcapacity to an out-of-balance housing market, also suggest there is a lack of fundamental drivers to keep the currency going up.

Eric Liu, portfolio manager of Asia fixed income at Manulife Asset Management in Hong Kong, is among the investors who have cut positions in the yuan in the past few days.

“We’ve turned neutral from here because of the magnitude of the move,” Mr. Liu says. “The pace has been too fast.”

Bryan Carter, head of emerging markets fixed income at BNP Paribas Asset Management, believes the policy-driven advance in the yuan is essentially done. He expects the currency to give up some of its recent gains after the Communist Party’s twice-a-decade congress next month, which will help shape the nation’s power structure for years to come.

With that political transition looming, China’s leadership wants its currency to be stable to help fend off financial risks, buttress the economy at home and avoid trade disputes abroad. A roaring yuan, however, is putting pressure on the country’s manufacturers who are counting on an uptick in foreign orders as domestic demand remains lackluster. (An appreciating yuan makes Chinese goods more expensive in markets overseas.)

Wu Yinhe, who runs a stainless-steel kitchenware and furniture manufacturer in southern China, says her company is among those feeling the pinch from a soaring yuan.

“External demand is pretty good,” says Ms. Wu, general manager of Golden Star Steel Furniture Factory in the city of Jiangmen. But the yuan’s strengthening means she is getting less bang for her dollar earnings when she converts them into the Chinese currency, she says.

Such pressure on Chinese businesses doesn’t bode well for an economy that has been struggling with tepid private investment and consumption. Exports have been one of the few bright spots that have helped China keep growth on track in the past few months. And that, economists say, was at least partly due to the yuan’s depreciation in the past year or so, which helped give Chinese exporters a price advantage in foreign markets.

Already, the yuan’s newfound strength has started to weigh. Official data show that year-over-year growth in Chinese goods sold overseas dropped to 7.2% in July from 11.3% in the previous month. Economists polled by The Wall Street Journal expect that growth rate to have fallen further to 6% last month. Notably, year-over-year growth in China’s sales to the U.S. plunged to 8.5% in July from 19.72% in June, and the growth in sales to its other major trading partner, the European Union, also dropped to 9.54% from 15.08%. Most of China’s cross-border trade is priced in dollars.

Over the years, China has sharply reduced its reliance on exports, with the contribution of trade to the Chinese economy much smaller now compared with the early 2000s. Still, analysts say, Beijing can ill afford a slumping export sector when the leadership is stressing economic stability in a year of political transition.

How China manages the yuan is closely watched by policy makers and investors world-wide. Its shifting and often inscrutable foreign-exchange regime has been a lingering source of uncertainty for global markets. Two years ago, the central bank’s sudden 2% devaluation of the yuan set off a global market selloff.

The yuan’s rise is the latest ripple from the 2017 decline in the U.S. dollar. Many investors expected the yuan to fall to 7 to the dollar this year, reflecting a strengthening U.S. economy and Chinese efforts to cushion the export sector. Instead the yuan’s rise to near 6.5 to the dollar has forced a reassessment.

“Most people, including me, are somewhat surprised” by the recent strengthening in the yuan, says Ben Sy, head of fixed income, currencies and commodities at J.P. Morgan Private Bank in Hong Kong. “I don’t think the yuan can rally a lot from here.”

Some traders and analysts say the People’s Bank of China may take measures to limit the yuan’s rise because of the potential toll on growth. But others expect the central bank will let the yuan continue rising for now to make room for it to weaken in the event of any dollar rebound.

Many reform-minded officials and academics have called on Beijing to take advantage of the current market sentiment to renew its efforts to liberalize the yuan.

For now, there are few signs of any meaningful market-oriented change in the offing. In fact, the yuan’s recent surge started when the central bank in late May asserted greater control over the currency by adding what it calls a “countercyclical” factor into the way it sets the yuan’s official rate against the dollar to prevent big fluctuations. This latest policy tweak has given the central bank greater leeway to lift the yuan as the dollar weakens: More than 80% of the yuan’s gain this year occurred after the introduction of that factor.

At the current level, Mr. Sy of J.P. Morgan Private Bank says it is “a bit expensive” to be making bullish bets on the yuan. “But are you going to short?” he says. “People are very interested but really don’t know which way to go.”

Write to Lingling Wei at and Saumya Vaishampayan at

China factory activity expand further in August: Caixin — Steel and Aluminum still watched closely

September 1, 2017


© AFP | While factory activity in August picked up, the manufacturing sector still faces headwinds from stricter environmental policies

BEIJING (AFP) – Chinese factory activity picked up pace in August as strong foreign demand boosted business confidence, independent data showed Friday, the day after a better-than forecast official reading.

The readings, compiled for Chinese financial magazine Caixin and focusing on smaller manufacturers — will lift hopes that the world’s number two economy and key driver of global growth is stabilising following years of slowing.

The Caixin Purchasing Managers Index (PMI) came in at 51.6 for the month, up from 51.1 in July.

A PMI figure above 50 represents growth while anything below points to contraction.

The Caixin data tallies with the government’s official PMI reading Thursday, which also showed expansion.

Solid foreign demand helped lift new order growth, encouraging companies to expand production schedules and purchasing activities, Caixin said in a statement with data compiler IHS Markit.

Manufacturers seeking to improve efficiency reduced staff numbers in August, which, combined with the rising pick-up in new work, resulted in an increase in the number of unfulfilled orders.

“Overall operating conditions of the manufacturing sector improved further as market demand strengthens,” Caixin analyst Zhengsheng Zhong said the statement.

But the manufacturing sector still faces headwinds from stricter environmental policies, which resulted in longer delivery times, as well as inflationary pressure driven by rises in input costs and output charges.

Higher prices for key industrial metals were likely a key factor in driving up price indices, Julian Evans-Pritchard of Capital Economics said in a note.

“It is speculation over future capacity cuts that has pushed up metal prices and industrial production, rather than stronger underlying demand.”

“If prices rise too quickly the profitability of companies in the middle of a supply chain may be under pressure,” Zhong said.

Tighter monetary policies will lead to a further slowdown in the economy, according to Evans-Pritchard, adding that they are likely to cripple the long term sustainability of the current strength of industrial activity.


China steel rises for 4th straight month after upbeat PMI

Updated: Aug 31, 2017, 01.07 PM IST

MANILA, Aug 31 (Reuters) – Chinese rebar steel futures rose nearly 2 percent on Thursday and posted their fourth monthly gain in a row after data showed growth in the country’s manufacturing sector sped up in August, underpinning the outlook for steel demand.

Iron ore futures climbed almost 4 percent and also ended August higher, rising for a third straight month.

China’s Purchasing Managers’ Index rose to 51.7 this month from July’s 51.4, topping market expectations and staying well above the 50-point mark that separates growth from contraction on a monthly basis.

Separate data showed activity in China’s steel industry – the world’s biggest – expanded in August at the fastest pace since April 2016 as mills boosted output to chase rising prices.

“We think this positive development in China’s economy is a tailwind for commodity demand, which should not be underestimated any more,” Argonaut Securities analyst Helen Lau said in a note.

The most-active rebar on the Shanghai Futures Exchange closed up 1.8 percent at 3,927 yuan ($596) a tonne, after falling as much as 1.9 percent earlier. The construction steel product rose nearly 11 percent this month.

Iron ore for January delivery on the Dalian Commodity Exchange, also the most-traded contract, jumped 3.9 percent to end at 573 yuan per tonne. The steelmaking raw material gained 5.7 percent in August.

Amid fatter margins, Chinese steel producers have increased steel production and restocked on raw materials, prompting investment bank Macquarie to upgrade its iron ore price forecast for the third quarter to $73 from $50.

“As long as steelmaking margins remain wide, mills have little incentive to tap into the ample supply of lower-grade ore sitting at ports, and a destocking cycle is increasingly unlikely,” Macquarie said in a report.

But the bank sees iron ore easing to $65 in October-December on the back of rising seaborne supply.

“Given a slowing real estate sector in China, our view remains that high-cost supply will need to be displaced as we move towards 2018,” it said.

Iron ore for delivery to China’s Qingdao port .IO62-CNO=MB slipped 0.4 percent to $76.08 a tonne on Wednesday, the lowest since Aug. 17, according to Metal Bulletin.

The spot benchmark is on course for a third consecutive monthly increase, but the August gain of 3.2 percent so far was a fraction of last month’s 13.5 percent spike.

$1 = 6.5942 Chinese yuan Reporting by Manolo Serapio Jr.; Editing by Sunil Nair and Kenneth Maxwell

My prediction: the coming collapse of China’s Ponzi scheme economy — The Chinese Communist Party is unlikely to survive

August 27, 2017

By Jake Van Der Kamp
South China Morning Post

So much production in industries like steel is based on demand for more production, but should that demand falter, the whole system could come crashing down

Sunday, August 27, 2017, 1:03am

I think this phrases things the wrong way. The one country bit was never in issue.

What they actually mean to say is that Beijing’s system of state command of the economy will become dominant and Hong Kong’s more freewheeling system will fade away.

I don’t think it will happen.

In my view human society is so dynamic that no command system can last long in charge of an economy. Attempts at this particular form of hubris inevitably end in either war or financial crisis. For the Soviet Union it was financial crisis. I think the same fate awaits Beijing.

Consider crude steel production, a test-tube example of how command economies get it wrong. In the mainland this stood in June at an all time monthly record of 73 million tonnes, five times the total production in all of Europe.

Steel was recently targeted for a reduction in capacity but then a regime of easy money intended to help the industry overcome a difficult period of contraction instead stimulated production.

As long as it keeps growing everything is fine. When it stops growing it collapses

It has happened across the mainland’s rust belt industries.

Why is so much steel needed?

Simple. It is needed to build more steel mills so as to build more shipyards, ports, railways and bridges so that more ships can be built to carry more iron ore to more ports and thence along more rails and bridges to more steel mills so as to build more shipyards, ports, railways …

What we have here, in short, is a giant Ponzi scheme. In a Ponzi scheme you pay out the winnings of the first entrants with what others later pay into it.

As long as it keeps growing everything is fine. When it stops growing it collapses.

In this case you justify production with demand based purely on more production. As long as you keep pushing production up everything looks fine. At its peak in 2014 China turned out 30 times more cement than the United States, and the latest production figures are only a smidgen less than 2014’s.

Command systems may be good at deciding where to direct economic effort in wartime but they are hopeless in peacetime at deciding when to stop and do something else.

They just keep going down the same old track and then what you get is economic cancer, uncontrollable growth.

You don’t see it right away. Any Ponzi scheme looks just fine as long as more people can be found to put their money in. But the end is inevitable and the longer it is delayed the more resounding the collapse.

It has so long been delayed in the mainland that, when the end finally comes, I believe more than half of the loans and advances of the financial system will prove irrecoverable, which would be very resounding indeed.

When will it happen?

I cannot tell you. No one has ever conducted so big a Ponzi scheme from so high a level of authority before. The closest comparison is the Soviet Union and its collapse was not only extraordinarily rapid but took the whole world by surprise.

I think the Chinese Communist Party is unlikely to survive this coming debacle although I do not think it will result in the break-up of China or replacement by a full democracy.

Political and economic affairs are more likely to resemble the Russian emergence from a command economy.

I am sure, however, that it will happen long before 2047. We will then make a less difficult transition to one country, one system across all of China, a system that will look more like present-day Hong Kong’s than present-day Beijing’s.

China’s financial crackdown to curb debt — Restrict foreign investments in sports clubs, real estate and entertainment — Time to “prevent risks”

August 19, 2017


© AFP/File | The financial crackdown comes amid fears that powerful conglomerates were racking up dangerous debt levels

BEIJING (AFP) – China is to restrict foreign investments in sports clubs, real estate and entertainment and is banning investment in pornography and “unauthorised” military technology.

The new rules were announced Friday by the government which had previously encouraged overseas spending sprees, but then warned late last year of “irrational” acquisitions amid fears that powerful conglomerates were racking up dangerous debt levels.

The announcement came days after British football club Southampton said it had entered into a partnership with Chinese businessman Gao Jisheng, with press reports saying he and his family had paid £200 million ($259.5 million) for an 80 percent stake.

“Foreign investments that do not conform to China’s efforts towards peaceful development, mutually beneficial cooperation and to macroeconomic regulation are subject to restriction,” said the government, adding it wanted to “prevent risks”.

Chinese firms will no longer be able to invest in conflict zones and places that do not have diplomatic ties with China.

The rules also ban investments that could harm the country’s interests and security.

High-profile Chinese deals in recent years have grabbed the limelight including Fosun’s takeover of Club Med, HNA’s stakes in Deutsche Bank and Hilton hotels, Anbang’s purchase of New York’s historic Waldorf Astoria, and Wanda’s control of Hollywood studio Legendary Entertainment and 20 percent of the Atletico Madrid football club.

But authorities now appear to be concerned about the influence of these conglomerates, their mazes of subsidiaries and debt, and their capacity to trip up the Chinese economy.

There have been indications since July of mounting government pressure.

Wanda has announced the sale of 77 of its hotels and 13 tourism projects to Chinese real estate developers Sunac and R&F properties for a whopping $9.3 billion.

Beijing has also ordered Anbang to sell all of its overseas assets, according to Bloomberg.

The entire private sector has suffered the consequences.

The only companies still permitted to make overseas investments are firms “supporting the real economy” or working with new technologies.

As a result, Chinese non-financial sector overseas investment plummeted 46 percent in the first half of 2017.

Shanghai Stock Exchange Confusion Over China United Network Communications Sale Involves Tencent and Alibaba

August 17, 2017


© AFP/File | Unicom Group was among six SOEs chosen by Beijing last year for a pilot programme to funnel private capital into state firms

SHANGHAI (AFP) – A plan under which big Chinese companies led by Tencent and Alibaba would invest $11.7 billion in the country’s second-largest wireless carrier was cast into confusion on Thursday — just a day after it was announced.China United Network Communications Ltd, the Shanghai-listed arm of China Unicom, was to receive the infusion under a deal announced Wednesday, part of the Chinese government’s push to overhaul inefficient state-owned enterprises (SOEs) by luring in private capital.

The investors were to include internet titans like Tencent, Alibaba, and, taxi-hailing service Didi Chuxing and several other firms.

However, confusion subsequently emerged over exactly which companies would be involved, with China United Network Communications withdrawing a statement to the Shanghai Stock Exchange about the agreement just hours after submitting it on Wednesday.

Meanwhile, plans to lift suspensions on China Unicom-related shares, were subsequently reversed.

China United Network Communications said Thursday in Shanghai that its shares, suspended since April, would remain so for several more days pending further announcements.

“There’s been confusion right to the very last moment — they shouldn?t be rushing ahead to make the announcements,” Francis Lun, Hong Kong-based chief executive officer of Geo Securities Ltd, told Bloomberg News.

“It shows their incompetency. The approval process has to be called into question when they deliver misleading messages like this.”

The fiasco may raise questions over China’s plans to reform SOEs while waging a parallel campaign to crack down on runaway credit in the private sector.

China’s ballooning debt prompted a warning Tuesday by the International Monetary Fund that the country was on a “dangerous trajectory”.

Unicom Group was among six SOEs chosen by Beijing last year for a pilot programme to funnel private capital into state firms, which has seen Unicom-related shares soar this year.

Unicom’s net debt has risen by 20 percent in the last five years to 150 billion yuan ($22 billion), according to Bloomberg, as it spent on mobile network upgrades and plans an expensive 5G rollout expected to benefit the Chinese tech giants.