Changing of Economic Strategy and Timeline

Changing of Economic Strategy and Timeline

China is the worlds more populous nation, with it's capital in Beijing and population: 1.4 billion, currency: Renminbi, President: Xi Jinping. Chinese shoppers recently spent a record $25bn in Singles Day, the annual event for single people in China.

E-commerce giant Alibaba promoted the event held on 11 November and many companies offered big discounts for the 24 hour period. Singles Day is four times bigger than Cyber Monday and Black Friday, the US calendar shopping days.

Looking back on how we got here, previous China ambassador from Mexico, made a few comments and insights on the economic and political challenges facing China, drawing his expertise from Mexican history. Mexico and China have distinct differences but Mexican past economic history may give some useful template to gain a deeper understanding of China. Many analysts do not give enough coverage to Mexican history or other emerging nations' economic history.

Many people often take Japan and US as references to compare against China even as the countries have different political institutions. There are also vast different in the nations' wealth, both quantitatively and qualitatively. In accordance to IMF, US GDP per capita is 7.2 times more compared to China GDP per capita and US households income per capita is 11 times more compared to China household income per capita. Japan GDP per capita is 4.8 times more and household income per capita is 6 times more than China. Mexico GDP per capita is 1.4 times more and household income per capita is 2 times more than China.

China's strategy of rebalancing its economy is to close the differences between GDP per capita and household income per capita. There are some advancement in China's rebalancing strategy from the China consumption level. For the 1st three quarters in 2015, national income per capita for whole of China experienced a 7.7% growth. It was 0.1% higher compared to 1st half of 2015. Real GDP seems to be growing at 6.9% per year. Nominal GDP seems to be growing at 6.2%. This seems that household income per capita is growing faster than GDP, about 0.8% more. This is assuming growth in population is stagnant.

The rebalancing outcome is showing up the in the reversal of gap between household income growth and GDP growth. After many years where GDP growth far exceeds household income growth or consumption growth, reversal is important to enable consumption proportion of GDP to return to safe and healthy levels. However, the narrowing of gap is not fast enough to provide a meaningful balance when President Xi steps down at the end of his term in 2023. There are many ways to calculate household income proportion for GDP. There is no one best method. In accordance to established sources, household income as a % of GDP has hit bottom in 2011 at 41%.It is currently on the rise, which will reach 44% in 2014. Another estimate puts the share at 60% in 2011. There is definitely some discrepancy in the data.

If the household income is about 50% of GDP, the % will increase to 53% in 2023 with 8 years of GDP growth at 6.9% and household income growing at 7.7%. The level is only 3% higher and way below the modern day average. China will still be heavily reliant on foreign investment and surplus in its current account. It will take at least 25 years for household income to rise by 10% of GDP, which is the bare minimum for real rebalancing target.

It will take at least 10 to 15 years for sufficient adjustment to China's economy even the gap is closing at two times the speed. Its economy will only return to more sustainable growth with the scenario happening. Unless more radical economic policies are executed to fasten the household income growth and it consumption proportion of GDP, and unless more are being done to step up wealth transfer from state to household sector, we will not be able to see enough rebalancing for another 10 to 15 years.

Bohai Steel in China is at Stake

Bohai Steel in China is at Stake

Bohai Steel is one of the biggest steel factories in Tianjin, China. It has produced 22 million tons of steel every year, including bars and plates. This capacity let the deficit amount of the steel of the nationwide be reduced. The matter of fact, this factory was backed up by the government of Tianjin. BHS is a state-owned business group combined by four state-owned steel manufacturers. The four manufacturers are Tianjin Pipe Group corporation, Tianjin Iron & Steel Group Co., Ltd., Tianjin Tiantie Metallurgy Group Co., Ltd. And Tianjin Metallurgy Group Co., Ltd. The group is a massive production business group which specialized in sintering, iron making, steelmaking, continuous casting, steel rolling and metal productions.

Unfortunately, this factory is rumored to have serious debt problems with hundreds, and even more, of creditors, which cost as much as 192 billion yuan (equals to $28.8 billion US Dollars). The steel executives, the government, the bankers, and others related to the existence of Bohai Steel has been argued about its future. The committee has been formed by the Tianjin government to restructure Bohai Steel, but the bankers seem to have a disagreement with the plan. The bankers become very careful with the committee proposal to extend Bohai Steel loans and cut their debt interest for about 10%. Some of them are claiming to get Bohai Steel's land to be sold due to pay its debts.

The argue keep overwhelmed between the instruments. The government has been persistent to give Bohai Steel an extra chance to get up from its bankruptcy process, which make the governments considering two things; The government asks the bankers to continue to lend their money to Bohai Steel, but the interest is being paid by the government. Or, a debt for equity swap program. This last consideration is given due to the assets of Bohai Steel Factory, which has reached fabulous number (290 billion yuan, which equal to $43.5 billion US Dollar). When a global financial crisis occurred on 2008, Bohai Steel expanding their assets, following government program. The results are, this company has grown this big nowadays.

In the past years, the bankers willing to lend the money to Bohai Steel due to its wealth, rich company. They said that they thought it's going to be safe to lend them some several billion yuan. This conclusion doesn't make the creditor feel safe at all. They thought skeptically that it would be useless to restructure Bohai Steel if the government didn't make a very good management on the overall process and eliciting the transparency of the company. Bohai Steel will be ended like it was, buried in debt, said one of the executives. It has to be effective, otherwise, it's will have a problem with the implementation, said another executive. The government had this almost bankrupt Bohai Steel to cut their production by two third or, equal to 15 million tons in 2016. There is no new group news on Bohai Steel website since 2016.

A hundred bankers or the creditors included Bank of Tianjin, Bank of Beijing, Tianjin Binhai Rural Commercial Bank (Each of them has lent about 10 billion yuan to Bohai Steel), China Construction Bank, Bank of China, and Industrial Bank.

Bohai Steel isn't alone to face their debt. The several other steel company has faced the same problem, and also the coal company. The government has determined their policy for this almost collapsed company, which is to cut their employee and production until below of the market demand. They also ask the financial institution to support these local steel companies.

Bohai Steel not just buried itself in debt, but also the subsidiary company of it. One of the worst is Tianjin Iron and Steel Group Co. At first, Bohai Steel has promised 9 percent yields to their affiliates, which cost 350 million yuan, but then disappointing them and missed the payment. This investment released by Tianjin Iron and Steel. Later known that Tianjin Iron and Steel also cannot repay their debt to the bank since 2011. Tianjin Iron and Steel also operate several companies like Tianjin Tiantie Metallurgy Group Co., Tianjin Pipe Corp., and Tianjin Metallurgy Group Co. Tianjin Iron and Steel has risen its debt from 32,8 billion yuan to 60 billion yuan. They raised 3-billion-yuan loan after sold their high yielding trust to their employee, but also cannot repay them. This makes the corporation in need of help from the bankers.

Tianjin Pipe Corp., a subsidiary of Bohai Steel, which is the only one who didn't cut their production, also in a big debt problem it reached 46 billion yuan. Bohai Steel also has a loan to its trading partners, Tewoo Group. It seems not just like the steel company problem like everybody see from the outside, but also the system problem inside the corporation and their subsidiary which make it decay.

Banks Bracing for Debt-Equity Swaps Revival

Banks Bracing for Debt-Equity Swaps Revival

Chinese debt-for-equity swap (DES) agreements remain a focus in 2017, following kick-off last year. It will take time before DES schemes really convert bad debt into equity.

Looking back the goal of the government of China is to recover the liability for equity switches and dispersal of Yuan's trillions of money that has been in a toxic loan even before it made the banks of the country choke. There were programs that were outlined in March 25, which is called the swap program by some of the administrators in Beijing and that may reflect the success of the project between 1999-2004. It is by which the bank took the stakes in more than 580 firms in altercation for the cancelation of the four hundred five Billion Yuan comprising of the loans that has been overdue.

Premier Li Keqiang has told the National People's Congress that a new kind of swaps may restrict the leverage ratio as well as the mitigate financial system risks of the company. He even elaborated that the debt interest in government for equity swaps occurred in the 24th of March during the Boao Forum for the Asian conference of the government and business leaders in Hainan. However, there are lots of alterations that occurred in 2004. The banks of the country for instance are altering far more with bad debts than they used to. The banks had estimated roughly 2 Trillion Yuan worth of non-performing loans on the books by the end of February, that rose in around 35% worth of value from the same time in 2015.

Starting in 2004, the banks without any other choices have been dealing with bad loans thus they sell them at a lower rate to the 4 asset management firms or AMCs of the government. That made them look for investors who will be very much willing to carry all the debts and burdens that they have. However, with bad loans up surging in the current years, the AMCs have become unwilling in accepting bad debts. As Li and some other officials of the government have laid their plans and their willingness to support, there was a bank executive that relays to Caixin that he thinks that the debt equity swaps can actually help the banks. Some other bankers as well as economists say that they are reaching the plan with carefulness.

The sources have told Caixin that the March 25 meeting of the government has relayed fundamentals for the fresh programs, even as of the early part of April, a lot of details hasn't been finalized. Some of the officials that were there came from the State Council, People's Bank of China, China Banking Commission, Ministry of Finance to name some. In the middle part of March, the Chairman said that the technical information must be polished even before the new swap programs may be finalized. There is just one probable obstacle involved and that is the rule that bars the banks from holding the stakes in non-financial firms. However, this issue may also be solved through a special arrangement. The ban might also be waived.

In the debt equity swaps project, there has always been an objection and that is while it is bringing ease and comfort to some banks and firms, it brings the state an added payable. This is according to the statement of Wang Xuedong, he is the chairman of the financial company CDB, it is situated in Beijing. The money came from the taxpayers and that made the program work, he insisted. Tis brought arguments to some of the experts over the new swaps program on ideas that it may just shift accordingly in handling the non-performing loans to the banks from the firms. They are also scared of being overseen and that the rules may bring the country its weakest state. The banks must not be used to handling and dealing with the economic downturn, because they will lose if a company will fail. There must be a balance to withstand the crisis and to surpass it. however, the government can also help by imposing the rules to aid the banks in managing their debts.

Videos of Stock Analysts under Fire

Videos of Stock Analysts under Fire

(Beijing) – Financial and investment circles in China are buzzing over the amateur videos being made by some analysts in the market in order to get the attention of investors. Lately some videos have amateur videos have surfaced on some websites and mobile apps which depict some analysts presenting their views and recommending the investors to buy some certain stocks on in the light of the strong research of their firm.

On April 7, a clip appeared online, showing a young women, who was dressed in traditional Chinese attire, talking about why the investors should buy the stocks of Shenzen-listed ZTE Corp., a company providing telecommunication equipment and services. A stock analyst from Founder Securities, Liao Lei, suggests in a two-minute video that it was worth investing in ZTE because research has shown that its income has been stronger than ever, it is also being managed by a team which is young, capable and ambitious. It also seemed from the video that it was filmed in a living room or a kitchen.

Financial workers widely shared this video on social media. It became popular because of the information being presented by the analyst which impressed the viewers. It should be kept in mind that the industry in which analysts work is marked by professionals who have shun to spotlight and most of them imitate the tone of news commentators.

Several other similar clips have also been uploaded to streaming sites, with analysts representing various brokerages firms including Haitong Securities and Essences Securities recommending stocks to the investors.

Some critics are of the view that the clips are a publicity stunt. According to a public fund manager, he did not even pay attention to what was being said by them in the videos. Moreover, he also added that everybody was doing it as it has started to become a trend and some have been doing it for fun and for them the analysis's quality does not matter.

A researcher form a securities firm said that there has been a fierce competition in some recent years and it was necessary for analysts to somehow catch the attention of investors. Some critics have also cited the article written by chief economist of Essence Securities, Gao Shanwen, which was published a few years back in which he argued that due to a surge in the marketing tricks the quality of the research of the securities' firms has been declining.

One macroeconomic analyst working for a brokerage firm, on conditions of anonymity told that some of his coworkers have turned to social media and streaming websites in order to promote their analyses. He also added that women featured in the most videos that have been quite popular.

These discussions have surfaced when the securities regulator has asked the brokerage firm to properly supervise and manage how their employees advertise their corporate research reports being published, especially on social media.

The notice which was issued by Shanghai branch of the China Securities Regulayory Commisison (CSRC) addressed the brokerages and conveyed that CSRC is concerned because research reports of some securities firm have drawn attention of the investors and made the media as well as the public to question the ethics and professionalism of the analysts and researchers of securities firms.

The regulator's note, which was also viewed by Cixin, did not indicate the reports or firms which published the. A similar notice was also issued by the Beijing office of CSRC, the employee of a security firm said.

The branch of CSRC which is Hubei, in January also criticized the securities firm Changjiang Securities over a report which according to them had a poor title, but it was not elaborated by them.

Minsheng Securities, in December bowed to the pressure being put by the regulators and reprimanded the authors who used slangs in two research reports which were widely circulated. IT said that the researchers made use of quite an inappropriate writing style and eventually caused bad social influence.