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Business Tianjin Magazine - Business English Magazine in China
China tightens reins on loans
Wednesday, 27 January 2010 15:26
BEIJING—Several state-run Chinese banks have ordered some branches to suspend new lending for the rest of this month, suggesting a coordinated effort by Beijing to manage state banks' torrid lending in the year's first few weeks.
A person with direct knowledge of the matter said Tuesday that Industrial & Commercial Bank of China Ltd., the country's biggest lender by assets, last Friday ordered its branches in Beijing not to issue any new loans for the rest of January.
China Citic Bank Corp. also suspended new lending in Shanghai last week because its local operations have already used up their monthly quota for new loans in the city, a Shanghai-based official at the medium-sized bank said Tuesday. The Citic Bank official added that both the bank's own headquarters and the People's Bank of China, the country's central bank, "have told us to control the pace of lending this year."
The moves by the two state-owned banks follow similar steps taken last week by state-run Bank of China Ltd.
Concerns that China may be moving more aggressively to rein in bank credit rippled through Asian markets Tuesday. The Shanghai composite index fell 2.42% to its lowest level in almost three months, with declines in many property shares. Hong Kong's blue-chip Hang Seng Index fell 2.4% to 20,109.33, its lowest closing level since Sept. 3.
Taiwan shares ended at an eight-week low, with the Taiwan Stock Exchange's Weighted Price Index falling 274.18 points, or 3.5%, to 7598.81.
The curbs on lending come after China last week announced higher-than-expected economic growth for 2009—8.7%, comfortably above its 8% target. Now, the government appears to be winding down the bank-led stimulus program that helped it weather the global economic slowdown.
Beijing has also raised the amount of reserves banks have to hold at the central bank against their deposits, which shrinks the amount they can lend. It is gradually lifting the yield on central bank bills, making it appealing for banks to buy government debt rather than lend.
It remains unclear how severely China will continue to curb credit flows. Last week, China Banking Regulatory Commission Chairman Liu Mingkang said the regulator expects new yuan lending to be around 7.5 trillion yuan this year. That's down from a record 9.6 trillion yuan in new loans in 2009 but still more than double the 2008 level.
Chinese banks, which traditionally rush out loans at the start of the year, have already issued more than 1 trillion yuan ($146 billion) in new loans in the first two weeks of the year, more than double the monthly average of 400 billion yuan in the second half of last year, according to Chinese media reports, which could not be independently verified.
"In responding to such a credit surge, the People's Bank of China has launched more aggressive quantitative tightening than we previously have thought," said Credit Suisse economist Dong Tao.
Mr. Tao said six Chinese banks he contacted had confirmed they had suspended "new lending" across the country starting Jan. 19. He didn't name the banks.
Some economists said the government was attempting to smooth the flow of credit throughout the year.
"If banks are allowed to lend seven to eight trillion yuan in new loans for the full year, you can't come to a point [toward year end] where you ask banks to stop lending entirely," said Standard Chartered economist Stephen Green. "This is just policing of the quota."
Bank of America-Merrill Lynch economist Ting Lu said in a note that the credit suspension may mean that banks need to keep their loan levels stable, allowing them to extend new credit whenever an existing loan matures.
Given how much the banks have already lent this month, "there's no credit crunch. In hindsight there won't be any impact on the real economy," Mr. Lu said in a telephone interview.
Beijing is unlikely to drastically slow lending since many projects started as part of the government's stimulus measures still need at least another year of credit to bring them to completion.
On Tuesday, the People's Bank of China signaled its intention to keep monetary policy fairly accommodative by keeping the yield on its benchmark one-year bills unchanged after having raised it twice in the previous two weeks.
China curbs loan commissions
Thursday, 14 January 2010 14:51
SHANGHAI—China has told banks to stop giving commissions to real-estate agents for introducing mortgage customers, as Beijing tries to rein in an overheated property market and unscrupulous lending practices.
The warning from a banking industry association came after an unexpected decision by the central bank to tighten the reserve requirement for commercial lenders, a move aimed at curbing loan growth amid mounting concerns over inflation and a broad-based asset bubble.
The China Banking Association said Wednesday that the new guideline on housing-loan commissions has been in effect since Jan. 1. The association, which is under the directive of China's banking regulator, didn't specify whether banks that ignore the guideline would be penalized.
"High commissions paid by banks to real-estate agents have seriously disturbed the [financial and real-estate] markets and impacted banks' credit business," the association said in a statement.
Agents could receive commissions ranging from 1.2% to 1.5% of a home's value from banks, the state-run Shanghai Securities News reported, citing several agents.
The practice isn't unique to China but has raised concerns among regulators, as banks often lowered lending rates or relaxed lending practices to secure individual mortgage loans, a lucrative sector for lenders, while real-estate agents helped borrowers forge mortgage documents to get higher commissions.
Individual mortgage loans soared last year amid a property-sector boom formed by supportive measures from the government, which included tax breaks, smaller down-payment requirements and lower loan rates for first-time home buyers.
Central-bank data show banks extended 952 billion yuan ($139.45 billion) worth of individual mortgage loans in the first three quarters of 2009, nearly four times the amount banks issued in the same period of 2008.
Property prices have hit record highs in major cities in China since the third quarter of 2009. Prices in more affluent coastal areas were especially strong. In December, prices of new housing in Shanghai rose to an average of 20,187 yuan per square meter, up 8% from November, government data show.
Sizzling property prices have worried not only ordinary citizens but also top government leaders. In a rare press interview in December, Premier Wen Jiabao expressed his concerns about what he described as an "overly rapid" rise in real-estate prices.
Fears that high property prices would fuel inflation and threaten social stability have prompted Beijing to begin tightening its policies on the real-estate market and home purchases. Measures include the introduction of a nationwide minimum down payment on land purchases, and the withdrawal of a favorable business-tax policy on the purchase of second homes.
In a clear signal that Beijing is shifting its policy focus toward pre-empting inflation risks from single-mindedly supporting economic growth, the People's Bank of China said Tuesday it will raise the proportion of money that banks must deposit with the central bank by 0.5 percentage point from Monday, reducing the amount of cash banks have available for lending.
Regulators also told banks to tighten lending for second-home buyers, as part of efforts to prevent speculation. China's cabinet reiterated on Sunday that buyers of second homes will have to pay a minimum down payment of 40%, double the level for first-time home buyers.
US software firm sues China for 2.2b USD
Wednesday, 06 January 2010 16:06
Jan. 6 – A U.S. software maker has filed a US$2.2 billion lawsuit against the Chinese government, two Chinese software companies and seven computer makers for pirating the code of its filtering software.
California-based Cybersitter LLC claims that Chinese software developers copied more than 3,000 lines of code from its own software using it to produce the government’s internet filtering and monitoring system called the Green Dam Youth Escort in English.
Computer makers Sony, Lenovo, Toshiba, Acer, ASUSTeK, BenQ and Haier were also included in the lawsuit for allegedly shipping Green Dam Youth Escort with its systems despite knowing the program was illegally copied. According to the Associated Press, the company is suing defendants for misappropriation of trade secrets, unfair competition, copyright infringement and conspiracy.
“The lawsuit aims to strike a blow against the all-too-common practice of foreign software manufacturers and distributors who believe that they can violate intellectual property rights of small American companies with impunity without being brought to justice in U.S. courts,” Greg Fayer, an attorney for CYBERsitter, said in a statement.
In July 1, 2009, China announced that all computers sold in the mainland would be required to have filtering software installed on its system although the decision was reversed after University of Michigan researchers found the system faulty and containing code from CYBERsitter.
China May introduce index futures as early as March
Tuesday, 05 January 2010 15:22
Jan. 5 (Bloomberg) -- China’s securities regulator may introduce futures contracts on the country’s stock indexes as early as March, an official with knowledge of the matter said.
The State Council, China’s cabinet, has given the China Securities Regulatory Commission approval “in principle” to introduce index futures, said the person, who declined to be identified before an announcement. The first contract, based on China’s CSI 300 Index, may begin trading after the Communist party’s annual congress in March, the official said.
Index futures would give investors in China a mechanism to profit from declines in prices for the first time, allowing them to hedge risks. That may help ease fluctuations in a market in which the stock benchmark almost doubled in 2007, slumped 65 percent in 2008 and rebounded 80 percent last year.
“China’s capital market has been a one-sided market, where investors can only profit from gains in stocks,” said Teng Yin, chief strategist at Everbright Securities Co. in Shanghai. “With the introduction of stock index futures, a short mechanism is in place.”
Stock index futures are agreements to buy or sell an index at a preset value on an agreed date. CSRC Chairman Shang Fulin said in 2007 that the infrastructure needed for such products, including regulations, are in place. An official at the regulator’s press office declined to comment.
Brokerages Gain
Shares of publicly traded securities firms rose on optimism the introduction of index futures will buoy trading revenue. Citic Securities Co., China’s largest brokerage by market value, climbed as much as 5.5 percent and Haitong Securities Co. gained by a similar magnitude.
“Stock index futures contract trading will be huge and brokerages will get a slice of the trading fees,” said Yin.
The CSRC “will actively and steadily push forward the innovations of securities and futures based on the actual needs of the market,” Shang said in a Dec. 18 speech. “We will introduce margin trading and index futures at an appropriate time.”
Index futures are part of China’s push to make more investment options available in a nation with 25.3 trillion yuan ($3.7 trillion) in household savings. The limited scope of securities to trade has contributed to boom-and-bust cycles in China’s stock and property markets.
Tools for Hedging
Singapore Exchange Ltd. started trading stock index futures based on the FTSE Xinhua China A50 Index, which tracks Class A shares of China’s 50 biggest companies, in 2006. The value of the contracts advanced 84 percent last year.
Investors will be required to put up 10 percent of a contract’s value to buy, sell or short CSI 300-based futures as collateral, according to rules published on China Financial Futures Exchange’s Web site in 2007. The bourse has been conducting mock trading in the securities since October 2006.
“For institutional investors, having stock index futures is important,” said Tony Wu, a Shanghai-based portfolio manager at Martin Currie Investment Management, which oversees $4 billion in Greater China. “There will be some tools we can use to hedge risks.”
The value of the futures contracts will be points of the CSI 300 multiplied by 300 yuan, according to the trading rules the exchange set. At yesterday’s closing level of 3535.23, an investor would have to put up 106,000 yuan to buy a contract valued at 1.06 million yuan.
Mainland, Taiwan open channel to trade deal
Wednesday, 23 December 2009 16:08
Top negotiators from the mainland and Taiwan made a breakthrough yesterday by announcing the plan to launch negotiations on the much-anticipated cross-Straits free-trade deal.
The Economic Cooperation Framework Agreement (ECFA) signifies a major effort on both sides to boost economic ties. Initiated by Taiwan leader Ma Ying-jeou of the ruling Kuomintang, it will help cut import tariffs and aims to normalize trade across the Straits.
The decision to launch negotiations was made during a two-hour meeting between Beijing's top envoy Chen Yunlin and his Taiwan counterpart Chiang Pin-kung.
Chen, president of the Association for Relations Across the Taiwan Straits (ARATS), stressed yesterday that the potential deal "is purely an economic matter that will not touch upon politically sensitive issues."
The meeting with Chiang, chairman of the Straits Exchange Foundation (SEF), was their fourth since June of last year. Chiang said the proposal will be a key issue in the next round of talks, expected to be held on the mainland in the first half of next year.
"Both sides agreed that negotiations for the deal should begin as soon as possible and will be conducted in a gradual way," said Chiang, who declined to give an exact timetable. "Such a complicated issue cannot be completed in a single stroke."
He stressed that the ECFA is necessary for jointly tackling the global economic recession and challenges of globalization.
Scant details about the possible deal were released yesterday. Covering trade in goods and services as well as investment, it is expected to pave the way to scrap Taipei's current restrictions on mainland investment and products.
Zheng Lizhong, Chen's deputy, said that in pushing for the deal, the mainland will "give full consideration to the scale of Taiwan's economy and market".
"We will try hard to strive for maximum benefits at minimum cost," he said.
The assurance was apparently aimed at easing critics who have expressed concern over the island's efforts to bridge ties with the mainland.
Hundreds of protesters gathered outside the meeting site, a massive drop from the tens of thousands who initially filled Taichung's streets when Chen arrived.
In their opening statements, the negotiators pointed out the benefits of closer cooperation.
"Peaceful development between the two sides is the overwhelming trend. No one can stand in its way," Chen said.
Since taking office in May of last year, Ma has eased tension across the Taiwan Straits by turning his back on predecessor Chen Shui-bian's pro-independence policies.
He has pushed a package of initiatives aiming to boost businesses, including regular air and sea links with the mainland and ending across-the-board restrictions on mainland investment in Taiwan.
But the main opposition Democratic Progressive Party (DPP) has opposed Ma's friendly policies towards the mainland.
The DPP says Ma's proposed trade deal will flood the island with cheap mainland products, prompting massive job losses.
Ma has "turned blind eye to the possibility that jobs will be lost" if he signs the agreement, DPP Chairwoman Tsai Ing-wen told tens of thousands of pro-independence demonstrators who marched through Taichung's streets on Sunday, a day ahead of Chen's arrival.
Ma rejected that assertion, saying the deal is necessary to prevent Taiwan's economic marginalization amid growing commercial ties between Beijing and neighboring Asian countries.
Chen and Chiang also signed three agreements on labor cooperation in the fishing industry, cooperation in inspection and quarantine of farm produce, and cooperation in measuring of standards, inspection and certification.
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