Chinese Economics Thread

[Hendrik_2000]

Another stimulus wow like the mandarin is spending money like there is no tomorrow

China is expected to announce a 500-billion-yuan stimulus package for the struggling petrochemical industry.

The stimulus package includes 100-billion-yuan investment in 2009 and 2010 for oil products upgrade, and investment of 400 billion yuan for construction of 20 new large-scale petrochemical projects, China Business News reported, citing unnamed sources.

The proposed package will be submitted to the State Council for approval soon. Sources with China Petroleum and Chemical Industry Association (CPCIA) said it is expected to be announced after the Chinese Lunar New Year.

The nation had earlier announced stimulus packages for steel and auto industries recently.

"The package will focus on oil products restructuring and improvement on technology," an industry insider, who declined to be named, said.

Under the package China plans to invest 60 billion yuan this year to improve the quality of 60 million tons of gasoline to the level of China III and China IV standards, which are equivalent to Euro III and Euro IV standards, according to the report.

The country would also spend 40 billion yuan in 2010 to improve the quality of 60 million tons of diesel to similar standards.

China's two leading oil companies, China National Petroleum Corp (CNPC) and China PetroChemical Corp (Sinopec) are expected to fund the 100-billion-yuan investment.

China will also support domestic enterprises in overseas mergers and acquisitions, especially in oil resources and the fertilizer industry.

The package will also cover many other areas, including the adjustment of export tax rebate policies in the sector and the construction of more oil reserves.

Analysts said the package would mainly benefit China's two leading oil companies, CNPC and Sinopec, as they are now managing almost all the large oil refineries and chemical manufacturing plants.

Sinopec is also accelerating its pace in building new large-scale manufacturing facilities, a source with the company told China Daily in an earlier interview.

Some analysts said that the stimulus package will do little to strengthen the weak demand, which is the main problem at hand.

(China Daily January 22, 2009)

 

[crobato]

BEIJING, Jan. 22 (Xinhua) -- China's gross domestic product (GDP) reached 30.0670 trillion yuan (4.4216 trillion U.S. dollars) in 2008, up 9 percent year on year, said the National Bureau of Statistics (NBS) Thursday.

The growth was the slowest since 2001, when an annual rate of 8.3 percent was recorded, and the first time below a double-digit level since 2003.

The overall national economy maintained the good developing momentum of fast growth, stable prices, optimized structures and improved welfare, said Ma Jiantang, director of the NBS, at a press conference.

The annual growth rate for the fourth quarter dipped to 6.8 percent from 9.0 percent in the third quarter and 9.9 percent for the first three quarters, according to Ma.

"The international financial crisis is deepening and spreading, while its negative impact on domestic economy is continuing," said Ma.

Despite the fourth-quarter slowdown, Ma said the 9-percent pace was "still a high figure".

China's performance was better than the average growth of 3.7 percent for the world economy last year, 1.4 percent for developed countries and 6.6 percent for developing and emerging economies, he said, citing estimates of the International Monetary Fund.

"With a 9-percent rate, China actually contributed to more than20 percent of the global economic growth in 2008," said Ma.

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[crobato]

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DAVOS SPECIAL: CRISIS WINNERS
Why China Works

A look at bright spots in the recession begins with Beijing, where state control is looking smart.


Excerpt:

"Once seen as the bad habit of an immature economy, China's state meddling is now seen as a bulwark of stability. "Government control of the most capital intensive sectors leaves me optimistic about China's prospects," says CLSA economist Andy Rothman. "The government can say to companies in these sectors, 'Continue to spend, don't defer your investment plans'." Despite the falls in its biggest export markets and its own stock markets, China's economy looks likely to grow more than 7 percent in 2009—down from the double-digit pace of recent years, but stronger than most. Corporate loan rates are actually up, as state banks loosen credit. In a nation where investment is "the backbone of sustainable growth," accounting for 40 percent of GDP, the state is once again ramping up investment to fight serious threats to growth, says Morgan Stanley Asia chief Stephen Roach. "What we're seeing is that the Chinese command-and-control system can actually work more effectively than other market based systems in times of economic stress," he says."

 

[AssassinsMace]

Even though China will feel the effects of the world slowdown, much of the doom and gloom talk is more from wishful thinkers. Wasn't a couple years ago when China was overheating, they said China had to slow down to 7%? Now the economy supposedly drops 3% from the year before and now China is collapsing? Or what about those that claim that China always lies about growth? Early in China's economic reform they said China was exaggerating the figures higher because that's what commies do. Then when China is overheating, they said the commies are hiding higher figures than the official 13%. Why the contradiction? Because being anti-China you can only think of the worst. Just like they say China will plunge into turmoil and chaos as a result of the global slowdown. Where do they come up with this? Because they think all of China's economy is 100% dependent on exports to the West regardless of what happens domestically. So if Chinese exports drop 50%, then the Chinese economy collapses 50%. Also Westerners have this mentality that if it's bad for them, it has to be worse for everyone else. The more inferior they view you, it's just makes it more worse for you. Which is why they believe China will plunge into chaos and disorder. A Western country could never take a 50% drop in its economy without complete disorder and lawlessness raging from its citizens. So in China that's what they predict. But then a Western system of government could never take care of 1.3 billion people. China has managed pretty well since reforms. Before this global crisis they believed a free political and economic system checks and balances correcting itself. This financial crisis is the result. Now they're in just plain denial of their situation where they can only feel good from reporting bad news from China. I read some news saying that this crisis will be good for the US in the end because it will force outsourced American jobs back to the US. Maybe but in the end the high-demanding pay of the American worker cannot compete with cheap labor overseas so Americans will never be able to sell their products to a developing world who cannot afford them. So who wins? The foreign company that can produce and sell more cheaply than the out of reach cost American brand. What they gleefully enjoy about bad news from China is actually worst news for them. If China is not making money from the West, China no longer has to be careful about Western interests. China can sell arms to who ever they wish without fearing any economic reprecussions because there will be none. Seriously, there's a silver lining for China in this global slowdown. Beijing's actions as a result of this slowdown shows they're shifting to strengthen and concentrate on the domestic economy. Meaning in the end China will be more independent than ever.

 

[bladerunner]

The Economist is speculating that China is doing something underhanded, with the closing of thousands of factories and unpaid interest on loans as it makes no sense that they would be spared the spreading financial meltdown. However I did find one comment rather humorous and perhaps not to far off the mark when he/she suggested

“it would be interesting to look at the state of those unconventional ways of financing in China. I'm sure there is a lot of broken friendships, strained family relations and broken legs as result of this financial crisis.”

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"The troubling opacity of Chinese banks"

TWO radically different opinions are emerging to explain the apparent resilience of China’s financial system to the current global collapse. The first, which seems by far the more widely circulated, rests on the notion that a command-and-control economy driven by talented bureaucrats is simply more resilient than the alternative. Spared western problems like an open system, stupid regulators, and malevolent bankers, China has dodged a reckoning.
An alternative explanation is that China may have been spared the incompetence of America’s Treasury Department and Securities and Exchange Commission but still landed in the same soup. Seen from this perspective, the good news from China is less a product of a managed economy than it is of managed statistics.
The debate takes a particularly vivid form when applied to the institutions at the heart of China’s financial system, its banks, which have avoided showing signs of credit deterioration in the face of collapsing export orders, rising factory closings and the abandonment of numerous large property developments. China boosters attribute this resilience to the country’s ability to offset exports with domestic demand; steadily improving financial risk controls; and the lack of credit-default swaps and other odd financial instruments.
Conversely, sceptics wonder if the current good news may have more to do with weak accounting and regulatory forbearance. A collapse in demand from Europe and America has had a direct impact on factories’ orders, and an indirect impact on most other industrial areas, notably steel and construction. Shipments have been frozen, orders left unpaid, suppliers jilted, and hundreds of thousands of migrant workers made redundant. If domestic demand had filled the gap, factories would not have closed. Surely in this sort of environment, credit losses should be popping up.
History is not reassuring about the ability of Chinese financial institutions to weather or quickly disclose problems. It was only in the past five years that Chinese banks were able to rid themselves of vast amounts of bad loans, and the process did not involve internal risk controls, but rather risk transfer of the sort now practised to much derision in the West: sticking the government with losses.
These varying visions are not just hypothetical; they have practical consequences. In response to the visible implosion of bank balance sheets, western governments have engaged in highly publicised, controversial recapitalisations and then been faulted for, among other things, failing to have the new capital manifest itself in fresh loans. A major, if often overlooked, impediment is the unwillingness of the newly recapitalised bankers, who have just become brutally familiar with the fragility of lending, to throw money at risky businesses.
In contrast, Chinese banks, apparently unsullied by losses, have expanded their loan portfolios. If the Chinese economy truly remains strong, this expansion in credit will be put to good use, but if the strength is an illusion, then the credit will provide an inefficient form of life support for business mistakes.
In a western market, a check would be the equity markets, which would presumably pull money from institutions suspected of using it poorly. The Chinese market, though, is at best only partially driven by private investors. China Investment Corporation, the country’s sovereign-wealth fund, recently acknowledged being a large buyer of shares in the major domestic banks, effectively renationalising them only a few years after the government sold off stakes in the public markets.
At the same time, big western investors that were among the initial buyers of the Chinese banks when they were privatised have begun dumping their shares. Since the beginning of the year, UBS, RBS, and Bank of America have sold billion-dollar stakes in China Construction Bank and Bank of China, two of the three largest Chinese financial institutions. In April, a three-year lock-up for initial investors in Industrial and Commercial Bank of China expires, and at least one of the initial foreign investors, American Express, is rumoured to want out.
The stated rationale of the sellers is their obvious need for capital, but it is striking that General Motors, even as it is collapsing in America, continues to invest in China, the reason being the profitability of its local operations. If the banks really believed the positions were precious, they would at least complain on the way out the door.
The Chinese are certainly not happy about the disposals, with the Bank of China reportedly saying it would remember “those who extracted the firewood from under the cauldron” in the middle of winter. Alert observers were struck less by the criticism than by the implicit acknowledgment that, even in China, the economy has gone cold.

 

[bladerunner]

so do you think the chinese banks are cooking the books?

 

[crobato]

so do you think the chinese banks are cooking the books?

I can ask the same question for every bank worldwide.

 

[crobato]

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Shanghai banks expect steady profit

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2009-01-20 09:03:32 Print

Special Report: Global Financial Crisis

BEIJING, Jan. 20 -- Over 70 percent of the banks in Shanghai said their profits will not slide in 2009, according to a survey.

About 30 percent of the banks surveyed said they expected their business performance for 2009 "will move on a sound track" with rising profits, while another 40 percent said their profitability "will maintain the same level as 2008", said the survey on Shanghai banks' Q4, 2008 performance, unveiled by the Shanghai Bureau of China Banking Regulatory Commission (CBRC) over the weekend.

For banks, premium on interest rates between borrowing and lending still remains the biggest contributor for their future profit rise, followed by intermediary businesses and portfolio securities investment. And over 70 percent of the Chinese banks and 60 percent of foreign banks said they expect interest rate premium to be the major source for their 2009 profit rise.

About 60 percent of the banks regarded the central bank's adjustments in the benchmark interest rate as the "major policy risk". The central bank announced five cuts in the benchmark rates between September and December last year to help boost China's domestic demand. In the latest one, effective from Dec. 23, the one-year lending and deposit rates were slashed by 27 basis points to 5.31 percent and 2.25 percent.

The survey showed over 70 percent of Shanghai banks have a sound outlook for their property credit business in 2009, much higher than the result in Q3.

Statistics from the Shanghai Bureau of CBRC showed that by the end of December last year, overall asset of all banks in Shanghai reached 5.23 trillion yuan (765 billion U.S. dollars), a rise of 11.1 percent over a year ago. Among those, foreign banks' assets in Shanghai reached 760.7 billion yuan, accounting for 56.57 percent of the overall foreign banks in China.

Shanghai banks are witnessing a drop in their profits. In 2008, banks realized a net profit of 70.86 billion yuan, a year-on-year rise of 28.2 percent, lower than the 75 percent registered in the previous year.

(Source: China Daily)

 

[bladerunner]

Quote Assassins Mace"the American worker cannot compete with cheap labor overseas so Americans will never be able to sell their products to a developing world who cannot afford them. So who wins?"

Labour costs are only a small part of the equation, even before this financial meltdown it was reported a lot of companies were reconsidering in outsourcing to China because, outside the normal operating costs such as transport etc, there has been the concern of intellectual property rights, product quality and communications eg theres been articles that Boeing are reducing their outsourcing because of probs.
They will be building new factories and with more robotics incorporated into the production process
they could produce the item even cheaper and a better quality.
They neednt bother about the 3rd world markets as their traditional western markets and a percentage of the privileged who want western brands and their quality would more than suffice. China although it does produce some quality products, quality is still a oxymoron.

 

[bladerunner]

I can ask the same question for every bank worldwide.

At the moment the Western Banks are beginning to come clean, but the "S... will hit the fan" when China does the same thing?