Fri, 06th May 2016

Anirudh Sethi Report


Archives of “china” Tag

Bank of China ekes out 1.7% profit growth in Q1 (Net Income for qtr $ 7.2 billion )

Profit growth at Bank of China — one of the country’s big four state-owned banks — remained lacklustre in the first quarter, continuing a trend from last year when lenders had to weather a year of central bank rate cuts, jitters over the strength of the Chinese economy and rising bad loans.

Net income at the bank, which earlier this year warned the Chinese economy is at a“critical juncture”, edged up by 1.7 per cent in the first quarter to RMB46.6bn ($7.2bn).

Analysts have been warning that an era of easy profits for Chinese banks is drawing to a close, with Chen Long of research group Gavekal Dragonomics saying last month:

The headwinds that Chinese banks face will last for a long time.

In addition to lower sources for profit, they will also have to prepare themselves for losses on bad loans.

ALERT : China clamps down on commodities fever

China moved to clamp down on excessive speculation in commodities on Monday after weeks of frenzied trading boosted prices and ignited fears of another bubble in its domestic markets.

Activity on China’s largest commodity exchanges has surged in recent days with turnover in key steel contracts exceeding the combined volume of the Shanghai and Shenzhen stock exchanges on one day last week.

Investors around the world have zeroed in on the latest trading binge as the prices of many commodities have risen sharply, with iron ore gaining almost a third in just two weeks. Cash has started to flow into raw materials in part because Chinese officials imposed curbs on equities trading last year.

“China’s latest speculative spike has stunned global markets,” said Tom Price, a Morgan Stanley analyst.

Shanghai steel futures have risen more than 50 per cent this year and more than a fifth this month. Iron ore traded on the Dalian Commodity Exchange hit its highest level since September 2014 last week.

The surge led the country’s largest commodity trading venues — the Shanghai Futures Exchange, Dalian Commodity Exchange and Zhengzhou Commodities Exchange — to curb activity by lifting transaction costs, margins and daily trading limits on some contracts.

ALERT : China wants laws to regulate ratings agencies

Shanghai Securities News reports (via MNI) on a comment piece from State Information Center researcher Cheng Weili

  • China needs to introduce laws to regulate international ratings agencies
  • Accuses them of using ratings mechanism to create trading opportunities
  • Ratings actions too subjective & suspicion of manipulation
  • Said ratings companies had failed to previously warn of large bankruptcies and past financial crises
MNI helpfully add … Cheng’s comments came after Moody’s and Standard & Poor’s lowered China’s sovereign credit outlook from stable to negative in March.
Yes, quite.

China delayed release of GDP numbers that show growth was slower

If you were around in the pre-Doha world (i.e. last Friday) you would have seen the Chinese Q1 GDP data

What you didn’t see, though, was the q/q GDP growth data. That was delayed and only released more than 24 hours later
That piece of the puzzle came in at 1.1%, which is the slowest since the government started releasing seasonally adjusted quarterly figures in late 2010
Says the WSJ:
  • Economists like quarter-over-quarter GDP because it gives a better sense of an economy’s current direction than year-over-year
  • Convert that 1.1% quarterly figure into annualized terms, and it implies a GDP growth rate of 6.3%, quite a bit slower than the headline 6.7%.
  • In the past these two figures have matched quite closely
  • The 0.4-percentage-point variance is the largest on record

Shadowy tax havens inflame Chinese power struggle

Power struggles in communist China always play out behind the scenes in the form of nasty life-or-death party infighting.

     The political saga that has evolved around President Xi Jinping the past few years or so is no exception. 

     Since being inaugurated, Xi has wielded a sweeping anti-corruption campaign against political foes.

Zhou Yongkang

     Many influential figures, including Zhou Yongkang, have fallen victim to Xi’s anti-corruption drive. Zhou is a former member of the Politburo Standing Committee, the Chinese Communist Party’s top decision-making body.

     Bo Xilai, Zhou’s highly ambitious and flamboyant ally and a former party chief in the city of Chongqing, was purged while Xi was still preparing to take over from Hu Jintao.

     Xi became the Chinese Communist Party’s general secretary in the autumn of 2012. He then assumed the country’s presidency in the spring of 2013.

China forex losses jump to $7.5 Billion

China’s publicly traded companies’ annual results are showing the August yuan devaluation cost 48.7 billion yuan ($7.5 billion) in combined foreign-exchange losses for last year.

  • Almost 13 times the amount in 2014
  • And … Profits at those firms slumped 11 percent last year to 789.2 billion yuan
Analyst comment:
  • “Continued yuan depreciation will definitely impact Chinese companies’ bottom line”
  • “In some cases, the impact is severe. Although one can argue FX impact is non-cash, it does impact the company’s credit ratios and debt servicing ability.”

Breaking -China investment bank defaults on ‘dim sum’ bond

A unit of Guosen Securities, China’s eighth-largest investment bank, has defaulted on a Hong Kong-traded renminbi bond, according to a document seen by the Financial Times, marking the first debt breach by a state-owned enterprise in China’s offshore bond market in nearly two decades.

The technical default by Guosen’s Hong Kong affiliate puts at risk a Rmb38m ($5.9m) coupon payment due April 24 on Rmb1.2bn in “dim sum” bonds sold in 2014. Missing that payment would set a precedent for the offshore units of Chinese SOEs, whose creditors widely assume the onshore parent will always stand behind its affiliates, according to analysts.

he default was unexpected because Guosen’s onshore unit is by all appearances in rude health. With the city government of Shenzhen as its largest shareholder, Guosen Securities was fourth on the league table for stock and bond underwriting in 2015, according to AsiaMoney.

The Shenzhen-listed brokerage earned net profit of Rmb14.2bn in 2015, up 188 per cent from a year earlier, according to a filing in January. It ranked eighth among mainland brokerages by assets at the end of 2014, according to industry association figures.

Like other Chinese securities companies, Guosen benefited from a surge in stock trading commissions during China’s equity market roller coaster last year. But its offshore unit, Guosen Securities (HK) Financial Holdings, has struggled to gain a foothold in Hong Kong’s capital markets, where foreign and mainland banks compete on a more level playing field.

Chinese steelmaker readies 50,000 jobs cuts as industry crisis deepens

The global crisis hammering the steel industry is beginning to be felt in China, where one of the country’s biggest producers has said it may let go 50,000 of its 80,000-strong workforce.

Ma Guoqiang, chairman of state-owned Wuhan Iron and Steel, warned that “probably 40,000 to 50,000 people will have to find other ways forward”, according to reports on a state-backed news outlet. He added that the company was running at only 70pc to 75pc capacity because of lower demand.

A global oversupply of steel, in part created by China, the world’s largest producer of the metal, has pushed prices down and sent the industry into crisis. Chinese companies have been blamed for dumping excess steel on the world’s markets, undercutting steelmakers in Europe and the US that have higher costs.

More than 3m people are directly employed by China's steel industry
More than 3m people are directly employed by China’s steel industry

More than 5,000 British steel jobs have been lost in the past year as companies buckle in the face of cheap Chinese imports. 

China has previously said it would reduce its annual steel production of 1bn tonnes by 150m within five years, but industry experts say there has been little sign of progress on this yet.

The government in Beijing has been reluctant to impose cuts on the steel industry for fear of social unrest, as the sector employs a large chunck of the Chinese workforce.

However, Mr Ma’s comments could signal that China is finally reacting to the crisis in the steel industry.

Chinese manufacturing shrinks for 7th straight month

Chinese manufacturers reported sluggish business for a seventh month in a row, with a PMI reading for February which was worse than expected.

The official manufacturing PMI for February came in at 49, compared to economists’ expectations of 49.4. It was 49.4 in January.

The reading means the manufacturing sector has been shrinking for the past seven months. It is the lowest reading since November 2011, when it was also 49.

The services PMI was 52.7, compared to a previous reading of 53.5.

Stand by for more PMI data from China: a closely monitored series conducted by Caixin is on its way in under an hour.

China’s response to sagging economy could weigh on yuan

As China aims to stem the Shanghai stock market’s slide and assuage fears of a slowing economy by letting banks hold slimmer deposit reserves, it could increase selling pressure on the already weakening yuan in the process.

     The People’s Bank of China said Monday that it would trim banks’ reserve requirement ratio by 0.5 percentage point, effective Tuesday, bringing it to 17% for the largest banks. The cut marks the fifth since the start of 2015 but the first in four months. Lending and deposit rates were left as is this time. 

     The Shanghai Composite Index ended the day down 2.86% at 2,687, its lowest close in around a month. Investors expecting ambitious government outlays this year were disappointed by Finance Minister Lou Jiwei’s failure to mention specific spending plans at the meeting of Group of 20 finance ministers and central bankers that closed Saturday in Shanghai.

     Yin Weimin, minister of human resources and social security, also stirred market unease Monday by noting that cutting excess capacity in the coal and steel industries could result in large labor surpluses. If efforts by President Xi Jinping’s government toward structural reform put a dent in employment, brisk personal consumption could start to slow. Additional easing was thus necessary to fuel that economic growth driver, which accounted for more than 60% of China’s gross domestic product growth in 2015.