Posts tagged ‘Royal Bank of Scotland’

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10/04/2014

Chinese Exports Plummeted Last Month. Puzzled? We Have You Covered – China Real Time Report – WSJ

China’s exports were down 6.6% on year in March, confounding economists, many of whom expected growth of over 4%.

What’s going on?

First, it’s important to remember that China’s trade statistics in the first quarter are often skewed by the Chinese Lunar New Year holidays, when activity slows down in much of East Asia.

But economists expected exports to show signs of a pickup in March, the first month not affected by the holidays, which this year fell in late January and early February.

One explanation is the March data was warped by over-invoicing. This is a practice by which Chinese companies dodge capital controls by using fake export invoices to get money into the country to benefit from relatively high onshore interest rates.

Beijing cracked down on the practice last spring, but over-invoicing was still prevalent in March 2013. Since then it has decreased because of tighter regulatory controls. The government’s efforts to guide the yuan currency lower this year also has diminished the attraction of such a carry trade.

That could mean the year-ago comparison was artificially boosted, making March 2014’s numbers look poor by comparison.

“Do not worry about the export data,” wrote Louis Kuijs, an economist at RBS in Hong Kong, in a note to clients.

RBS estimates year-on-year export growth in March 2013 was inflated by 11.8 percentage points due to over-invoicing. The bank also thinks export growth on-year in March this was 5.2% adjusting for over-invoicing.

“The competitiveness of China’s manufacturing sector is still solid, allowing its export sector to benefit from global demand growth,” Mr. Kuijs wrote.

Andrew Tilton, an economist at Goldman Sachs in Asia, agreed with this assessment.

“The main reason is that the over-invoicing distortions were peaking last year around this time,” he said. Now, “the increased currency volatility and deprecation is discouraging that activity from a financial incentive perspective.”

via Chinese Exports Plummeted Last Month. Puzzled? We Have You Covered – China Real Time Report – WSJ.

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19/02/2014

Is China at Risk of a Debt Crisis? Not Really,Bank Says – China Real Time Report – WSJ

Compare this somewhat optimistic view with Robert Peston’s BBC2 programme – “How China fooled the world.” – http://www.bbc.co.uk/news/business-26225205

Is China headed for a debt crisis? That has emerged as a pressing question over the past year as the country’s overall debt level rises quickly and the recent specter of defaults in the shadow banking system rattles financial markets in China and abroad.

For economists at the Royal Bank of Scotland, the answer is “no” – at least not imminently. Comparing China to countries that have suffered recent debt crises – including the United States, United Kingdom and Spain in 2007, and South Korea and Thailand in 1997 – RBS finds that on two key metrics, the world’s second-largest economy is on safer footing.

For one thing, China’s loan-to-deposit ratio, which reflects the banking system’s resilience to a sudden drop in asset prices, is the lowest for all the countries tracked — half of Korea’s level and 43% of Thailand’s level when those economies melted down in the late 1990s.

Then there’s the current account, which reflects a country’s sensitivity to foreign investment. A current-account deficit can leave developing economies acutely vulnerable to a sudden exit of capital, as India, Indonesia and some other emerging-market stars found out last year.

Unlike nearly all the countries RBS examined, China runs a current-account surplus — a reflection both of its export dominance and, critics would say, its related determination to keep its currency undervalued. There’s also the fact that China’s capital controls make it difficult for investors to pull their money out of the country, even if they wanted to.

“It’s legitimate for people to worry about different kinds of financial risk in China,” Louis Kuijs, RBS’ chief economist for greater China, told reporters in Hong Kong this week. “But I still don’t really see a lot of room for the kind of macro meltdown or the type of serious financial crisis that we typically associate with emerging markets.”

That being said, Mr. Kuijs said investors can expect to see more defaults or near-defaults — like the one that rocked markets in January until the trust product in question was bailed out in fairly opaque circumstances.

“Policy makers are interested in changing people’s expectations and changing the moral hazard question, but they’re so careful and so risk averse still that it will take a while before they will just let these defaults happen without doing anything,” he said.

So if China isn’t prone to the type of debt-driven meltdown that has befallen other emerging-market economies, could it share the fate of Japan – the other current account-surplus country in the RBS study — which ran up so much debt during its boom years that it has bogged down the economy for the better part of two decades?

That’s also unlikely, Mr. Kuijs said.

“Japan had finished catch-up growth in the late 1980s, so it was much harder to grow out of the crisis,” he said. “China is more like Japan in the 1960s,” with years of strong growth still ahead of it.

via Is China at Risk of a Debt Crisis? Not Really,Bank Says – China Real Time Report – WSJ.

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