Posts tagged ‘banking’

05/03/2016

China lays out its vision to become a tech power | Reuters

China aims to become a world leader in advanced industries such as semiconductors and in the next generation of chip materials, robotics, aviation equipment and satellites, the government said in its blueprint for development between 2016 and 2020.

In its new draft five-year development plan unveiled on Saturday, Beijing also said it aims to use the internet to bolster a slowing economy and make the country a cyber power.

China aims to boost its R&D spending to 2.5 percent of gross domestic product for the five-year period, compared with 2.1 percent of GDP in 2011-to-2015.

Innovation is the primary driving force for the country’s development, Premier Li Keqiang said in a speech at the start of the annual full session of parliament.

China is hoping to marry its tech sector’s nimbleness and ability to gather and process mountains of data to make other, traditional areas of the economy more advanced and efficient, with an eye to shoring up its slowing economy and helping transition to a growth model that is driven more by services and consumption than by exports and investment.

This policy, known as “Internet Plus”, also applies to government, health care and education.

As technology has come to permeate every layer of Chinese business and society, controlling technology and using technology to exert control have become key priorities for the government.

China will implement its “cyber power strategy”, the five-year plan said, underscoring the weight Beijing gives to controlling the Internet, both for domestic national security and the aim of becoming a powerful voice in international governance of the web. China aims to increase Internet control capabilities, set up a network security review system, strengthen cyberspace control and promote a multilateral, democratic and transparent international Internet governance system, according to the plan.

Source: China lays out its vision to become a tech power | Reuters

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25/11/2014

# Chinese overseas acquisitions / investments – 25 November 2014

#          “China’s outbound direct investment is for the first time set to exceed investment into the country, highlighting the ongoing shift of global economic influence to the east.” – FT.com, 22 Oct, 2014 – http://www.ft.com/cms/s/0/28f6b8d4-59cd-11e4-9787-00144feab7de.html#axzz3JzPW4Z3o

#          “Chinese enterprises completed a record 176 mergers and acquisitions (M&A) overseas in the first nine months of 2014, up 31 percent year-on-year, according to a report released by accounting firm PwC on Monday.

Among them, private enterprises completed 120 M&A transactions, more than doubling the number carried out by state-owned enterprises and making them the major force in the M&A market, according to the report.” – China Daily, 22 Oct 2014 – http://usa.chinadaily.com.cn/business/2014-10/27/content_18809601.htm

#          “The theme of outbound China M&A has changed. State-owned enterprises are no longer the only buyers going overseas, private companies in industries like consumer and technology have started doing high-profile acquisitions on the global stage in recent years,” said Stephen Gore, Asian-Pacific head of mergers and acquisitions at Bank of America Merrill Lynch.” – WSJ, 21 Sept, 2014 – http://online.wsj.com/articles/chinese-overseas-buying-increasingly-shifts-to-private-from-state-1411335001

#          There are five kinds of Chinese overseas investments (or at least JVs) – which are not mutually exclusive – in rough order of priority:

  • Natural resources: oil and gas serving a growing need:
    • Chesapeake Energy – Sinopec(July 2013)
    • Wolfcamp shale exploration – stake by Sinochem (Jan 2013)
    • Pre-August 2012:
      • Oil and gas: (Sinopec, CNOOC and PetroChina have all been very active in several continents, including North America – Nexen, Canada),
      • coal, steel, minerals (incl Australia’s Sundance),
      • arable land (parts of Africa and South America).
  • Infrastructure and other tangibles which are ‘safer’ than holdings of US or Euro bonds and provides relatively predictable yields; they often also provide technology transfer at no additional cost:
    • Salov – Bright Foods( Oct 2014)
    • Tnuva – Bright Foods( May 2014)
    • AMC Entertainment cinemas – Wanda(Sept 2012)
    • Weetabix – Bright Foods(May 2012)
    • Smithfield Foods – Shuanghui Foods (May 2013)
    • Pre-August 2012:
      • manufacturing plants (Putzmeister),
      • oil refineries (INEOS’ Grangemouth (Scotland) and Lavéra (France),
      • utilities (Redes Energeticas Nacionais, Energias de Portugal, Thames Water; Brazilian electricity grid, Northumbrian Water), office blocks (Canary Wharf, London),
      • housing in the US;
      • construction – Spanish construction company; all sorts in parts of Africa and the Caribbean (sports stadium, holiday resorts, roads, ports, etc).
  • Technology: esp new and innovative building for the future:
    • Motorola – Lenova (Jan 2014)
    • Pre-August 2012:
  • Brands: especially luxury brands which reduces the outflow of currency and increases the inflow as the population gains affluence and demand for luxury goods continue to expand:
    • Waldorf Astoria – Anbang Insurance(June 2014)
    • Corum watches – Wanda (April 2014)
    • Pre-August 2012:
      • yachts (Ferretti),
      • high fashion (Cerruti, Sonia Rykiel),
      • essentials (Putzmeister);
      • soccer (Inter Milan).
  • Financial houses, esp owners/managers of funds (BlackRock) – which are not as ‘safe’ as resources and tangibles, but much safer that Euro and $ bonds.

 

03/01/2014

China’s Runaway Train Is Running Out of Track – Bloomberg

A financial drama is unfolding in China as the new year begins. Last week, for the second time in six months, interest rates in the critical interbank lending market spiked above 10 percent, prompting fears of a liquidity crisis that would trigger mass defaults and cripple the world’s second-largest economy.

Western investors largely ignored the cash crunch and failed to grasp its potential significance. Although the situation has largely eased after the People’s Bank of China hastily injected at least $55 billion into the market, that isn’t the end of the story. These repeated crises are a sign that the foundations of China’s investment-driven growth model are crumbling — with unsettling implications for the rest of the global economy.

To those who wrote off China’s first banking seizure in June as a fluke, this latest episode appeared to come out of nowhere. They cast about for explanations: Perhaps some seasonal surge in cash withdrawals was to blame, or the U.S. Federal Reserve’s decision to taper its bond-buying policy. Optimists assumed the PBOC was tightening credit on purpose, as a warning to banks to rein in unsafe lending practices. With inflation at manageable levels, they reasoned, the People’s Bank of China had plenty of room to loosen monetary policy again and ease the cash crunch.

In fact, loose monetary policy is the problem, not the solution. Two simple words — bad debt — are the key to understanding why China has too much money, yet not enough. In the years since the global financial crisis, China has racked up impressive growth in gross domestic product by engineering an investment boom, fueled by a surge in easy credit. Total debt has risen sharply, from 125 percent of GDP in 2008 to 215 percent in 2012. Credit has spiraled to $24 trillion from $9 trillion at the end of 2008. That’s an additional $15 trillion – – the size of the entire U.S. commercial banking sector — lent out in just five years.

A lot of that money has gone into projects whose purpose was to inflate the country’s economic statistics, not to generate a return. Officially, China’s banks report a nonperforming loan ratio of less than 1 percent. In reality, they are rolling over huge amounts of bad debt, both on their own books and by repackaging it into retail investment products — many of them extremely short-term — that promise ever higher rates of return.

China’s banks can hide bad debt by playing this shell game, yet that doesn’t change the fact that they’re not getting their money back. With their capital locked up in existing projects, the only way they can finance the next round of big investments — and keep China’s GDP growth rates from collapsing — is by expanding credit. More and more of that new credit is now eaten up paying imaginary returns on the growing pile of bad debt.

This year, total credit in China grew about 20 percent, from an extremely high base — hardly tight money. Yet the cash needs of China’s banks aren’t what they seem. In addition to its declared balance sheet, each bank is juggling a host of dubious assets and hidden cash obligations (in the form of quasi-deposits) on what amounts to a “shadow” balance sheet. Rein in credit growth, even modestly, and there isn’t enough to go around.

That’s what Chinese authorities discovered in June, and again last week. In both instances, the People’s Bank of China didn’t take away the punch bowl by tightening credit, it merely tried to resist handing over an even bigger punch bowl. The result, both times, was a near-meltdown in the interbank lending market that threatened to unleash a cascade of defaults throughout the economy. Nor have the signs of financial stress been limited to the interbank market: Over the past few months, yields on Chinese government and corporate bonds have steadily risen, even as the economy slows.

The PBOC could, and did, halt the immediate liquidity crisis by injecting more cash. But in doing so, it effectively cedes control over monetary policy to the shadow banks. Runaway lending continues, bad debts mount even higher, and the need for more cash to paper over losses becomes that much more acute. Far from solving the problem, pumping in more cash just kicks the can farther down a dead-end street.

The implications of this brewing storm are bigger than many global investors realize. China’s credit-fueled investment boom has been a driver of metals prices and machinery exports. China has become the world’s largest automobile market, its largest oil importer, and its largest buyer of gold. Although foreign banks have relatively little direct exposure to Chinese financial markets, capital flows into and out of the mainland are potentially large enough to have a significant impact on asset classes not normally associated with China. A financial train wreck would send tremors through global markets.

The detailed blueprint for market reform published by the Communist Party in November encouraged many. China’s leaders clearly recognize that its economy needs to move in a new direction. But the first crucial step, weaning China away from its addiction to debt-fueled stimulus, is proving a lot harder than many imagined. China’s leaders are riding a runaway train that they don’t quite know how to stop. And they’re running out of track.

via China’s Runaway Train Is Running Out of Track – Bloomberg.

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