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In most large countries, loan growth of 17% would represent a breakneck pace. In China, such growth is perceived as sign of a slowdown.

In May, the value of China’s outstanding bank loans rose by 17% from the year before, the slowest pace since late 2008. A series of interest rate increases and, more importantly, hikes to banks’ reserve requirements appear to be cooling the stimulus-fuelled surge in lending recorded in the months after the global financial crisis. The latest boost to reserve requirements, announced today, is the sixth hike so far this year. More increases are likely in the coming months, as worries persist over rising consumer inflation—5.5% in May—and a frothy property market. Still, the Economist Intelligence Unit expects China’s GDP to grow by 9% this year, only a modest slowdown from the 10.3% growth recorded in 2010. Despite the central bank’s tightening measures, credit conditions will remain relatively loose.

(Note: Some data in this post, and the accompanying chart, have been updated to reflect revised historical data.)

Asset managers and private bankers are expanding rapidly in Asia, and a new report on China’s wealthiest citizens shows why. Hurun Report, a magazine, published its latest “China Rich List” yesterday. The publication counts 1,363 yuan billionaires (US$150m) in the Middle Kingdom, up from 1,000 last year. There are also 189 dollar billionaires “that we know of”, the magazine said. It reckons that there are actually around 400 dollar billionaires and 4,000 yuan billionaires in the country.

The rankings include plenty of trivia about China’s richest residents. The average yuan billionaire is 51 years old, more than a decade younger than their American or European equivalents. Just over 10% of those on the list have been appointed to government advisory posts. A similar share is made up of women, with the top three in China also the wealthiest in the world (see here for more). Less than 1% of those that made the list inherited their wealth. Two former rich listers are now in jail. The most billionaires were born in the year of the rabbit and the fewest in the year of the boar.

A “robust” recovery is underway for private equity in emerging markets, according to an industry group. The Emerging Markets Private Equity Association notes that buyouts in developing markets reached US$13bn in the first half of this year, up from US$8bn at the same time last year. The rise was driven mainly by activity in China, India and Latin America.

Fundraising is also ahead of last year, with some US$11bn raised in the first six months of 2010, a 22% increase on the previous year. Although investments remain modest in relation to other emerging regions, fundraising in sub-Saharan Africa in the first six months of 2010 surpassed the total raised in the whole of 2009.

The majority of data and analysis at Financial Services Briefing is available only to subscribers. Each week, a small share of content from the service is made available to non-subscribers.

Perhaps inspired by the rebound in global financial shares in the preceding days, Industrial and Commercial Bank of China unveiled the details of its long-planned rights issue on July 28th. The firm, the largest lender by market value in China and the world, said it would raise Rmb45bn (US$6.6bn) by selling new shares to existing investors, including its controlling shareholders in the Chinese government.

The plan comes at a crucial time for Chinese banks, which generally need to raise fresh capital after a lending binge in 2009 and into early 2010. The group effort enjoyed a good start when Agricultural Bank of China made a surprisingly strong initial public offering in early July that may eventually raise up to US$22.1bn. But the fundraising queue continues to grow and doubts persist about whether private investors can absorb even the minority stakes on offer.

Read more at Financial Services Briefing: “Rights plan for ICBC” (July 28th)

The EIU’s latest financial services report for China, with revised industry forecasts, was published recently. (Link for subscribers; Link to online store for non-subscribers.)

China’s key policy challenge this year and next will be to manage a deceleration in credit growth following the boom in bank lending last year. The rapid expansion in credit fuelled a steep rise in property prices; officials must now carefully deflate this developing bubble. Monetary policy is expected to remain relatively loose, so bank lending will instead be crimped by higher reserve requirements and stricter credit quotas. Still, loan growth is expected to be buoyant this year, with the full-year total approaching US$1trn.

The majority of data and analysis at Financial Services Briefing is available only to subscribers. Each week, a small share of content from the service is made available to non-subscribers.

Agricultural Bank of China has unveiled plans for what could be the largest initial public offering ever, a deal worth up to US$30bn. Meanwhile, all four big listed mainland banks have recently detailed how they want to raise additional equity capital, which taken together could amount to US$46bn.

A year-long surge in lending has weakened capital ratios at China’s largest banks. As the controlling owner of all of them, the government could fix this in a dramatic way by injecting capital. But it favours the solution, which is friendlier to markets and minority investors, of having them issue fresh equity. There are now increasing doubts about whether investors have an appetite for all these new shares.

Read more at Financial Services Briefing: “Share-sale tsunami” (May 7th)

A weighty new report from PricewaterhouseCoopers surveys the state of foreign banks’ operations in China. As with most other industries, the world’s banking groups are looking to China as a key source of growth in the coming years.

But for all of the country’s promise, the barriers to entry are daunting. Following a state-directed lending binge, China’s government-backed domestic banks took additional market share from foreign competitors, who now control only 2% of the country’s banking business. Despite increasingly sophisticated and service-friendly domestic rivals and “policy constraints that dictate the pace, scope and direction of their market penetration”, foreign banks remain firmly committed to China, PwC says. Of course, given the moribund state of financial services in the west, some would argue that they have little choice.

The banks surveyed by the consultancy expect to boost their headcount in China by nearly 50%, on average, over the next three years. There are few places in the world where banks could match that sort of growth (or, indeed, grow at all).

After last year’s government-directed lending binge, Chinese banks are reportedly tightening the reins on credit. According to press reports, the country’s four largest lenders doled out 300bn yuan (US$44bn) in new loans in February, down 30% on January’s total. Worries about a potential halt in lending as abrupt as last year’s surge sent shares in Shanghai lower today.

The official People’s Daily reports that, in total, the country’s banks probably approved around 600bn yuan in new loans last month, down from 1.4trn during the previous month. China’s central bank has recently raised reserve requirements and set a target for loan growth of around 7.5trn yuan this year, down from 9.6trn in 2009. But even after February’s slowdown, new loans in the first two months of 2010 account for around 25% of the central bank’s full-year target, suggesting that steeper cuts in credit may be on the horizon.

The majority of data and analysis at Financial Services Briefing is available only to subscribers. Each week, a small share of content from the service is made available to non-subscribers.

Despite their size and strength in many financial metrics, Chinese banks are not leaders when it comes to core capital. After a state-directed lending binge earlier this year, worries have surfaced that China’s largest banks might launch massive cash calls to meet rising capital requirements.

Although based on thinly-sourced, sometimes contradictory news flow, fears of a major hike in capital requirements seem overdone. Although two of the country’s largest lenders, China Construction Bank and Bank of China, may need to raise fresh funds to bolster capital ratios, the scale of the fundraising should be minor compared to recent blockbuster rights issues at banks in Europe, the US and Japan.

The quality of loans taken on in the past year may put balance sheets under pressure, but Chinese banks’ earnings capacity appears strong enough to absorb potential losses without requiring drastic capital-raising measures.

Read more at Financial Services Briefing: “Great wall of worry” (December 10th)

Initial public offerings are usually exciting events. Nowhere is this more true than in China, where a relatively short history of share trading is already long on bouts of frenzied speculation around newly listed shares.

ChiNext 10-30-09

Trading began today for 28 companies on ChiNext, a new segment of the Shenzen exchange intended for small, fast-growing firms. All of the companies posted strong gains on their debuts, ranging from 75% to more than 200%. The increases triggered at least one temporary trading suspension for every company’s shares during the day.

The table at right is the list of top performers, with the closing share price in the middle column and the day’s percentage gain in the right column. Chengdu Geeya Technology, a digital television equipment maker, topped the list with a gaudy 209.73% gain.

The average ChiNext share closed with a price-earnings ratio of 111. Investors who didn’t flip their shares today will likely find trading next week rather exciting, but not in a good way.

UPDATE (Nov 2): As expected, most ChiNext shares slid today, with 20 of 28 firms losing 10% of their value, the limit at which the exchange halts trading for the day.

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