PBOC to inject 180 bln yuan via reverse repos

Date Aug 23 2017 10:26:14

SHANGHAI, Aug 23 (Reuters) - China's central bank will inject 180 billion yuan ($27.03 billion) into money markets on Wednesday, traders said.

    The People's Bank of China is injecting 100 billion yuan through seven-day reverse bond repurchase agreements and 80 billion yuan through 14-day reverse repos, they said.

    On a net basis, the PBOC will drain a net 40 billion yuan from the market via its open market operations for the day.

    The PBOC injected a net 110 billion yuan into the money market last week.


Edited by SHMET

China has more room to tackle debt - if it wants to

Date Aug 22 2017 13:57:43

By Marius Zaharia and Tripti Kalro

HONG KONG/BANGALORE (Reuters) - Rising corporate profits are providing Chinese policymakers with room to do more to tackle the country’s growing debt problems without inflicting major damage on the economy.

Profits are increasing even though financial conditions are tightening in some significant areas of the economy; lending rates have inched higher, regulators have clamped down against risky lending and have moved to take the heat out of the property sector.

The economy is also comfortably on course to meet the government's GDP growth target this year of around 6.5 percent.

Although it is far from certain the government will tighten credit conditions further, some economists expect policymakers to move that way once President Xi Jinping consolidates power at a key five-yearly Communist Party Congress later this year.

"There's more room to experiment (with tightening credit) ... It is the right timing and moment to do so against this backdrop of a strong growth momentum," said Andrew Fennell, the main sovereign analyst for China at Fitch Ratings.

The government has made reducing China's debt burden a priority this year after credit soared following the global financial crisis.

The International Monetary Fund warned last week that China's credit growth was on a "dangerous trajectory" and called for "decisive action." The Bank for International Settlements said in September excessive credit growth was signalling a banking crisis in the next three years.

But a few things are falling into place to ease worries that further moves to curb debt would prompt an economic and financial crisis.

Thomson Reuters data of almost 1,000 Shanghai-listed non-financial companies shows net profits rose almost 70 percent in the first quarter from the same period of 2016.

Results so far from the second-quarter earnings season suggest continued momentum on a pick-up in global trade and economic activity: Gansu Jiu Steel <600307.SS> expects a 54 percent first-half net profit rise, while China Coal Energy <601898.SS> expects net profit of 1.5-1.8 billion yuan (384.05 million pounds)from 616 million a year earlier.

For the 104 companies for which 2017 estimates are available, analysts predict a 38.25 percent overall increase in net profits, compared with 10.6 percent growth in 2016.

Annual profits either shrank or barely grew over 2011-2015, which contributed to the rapid accumulation of debt.

Benchmark policy rates have been on hold for almost two years. But average lending rates edged up to 5.67 percent in June, the highest since September 2015, from 5.53 percent in March, the second-quarter policy report from the People's Bank of China showed earlier this month.

Total social financing (TSF), a broad measure of credit and liquidity, fell to 1.22 trillion yuan in July from 1.78 trillion in June. Still, TSF grew 13.2 percent from a year earlier, suggesting authorities do not want to hit the brakes too hard.


The government appears more tolerant of company failures as well. A Fitch analysis of files from the Supreme People's Court shows there were 4,700 bankruptcy cases between January and July this year, compared with 5,665 for all of 2016 and 3,684 in 2015.

Even if this signals Chinese policymakers are more tolerant of companies being pushed into bankruptcy, analysts say it also suggests they are moving slowly so as not to destabilise the economy.

Still, only 12 percent of the bankruptcies were in the indebted state sector and the figures pale in comparison with bankruptcies in developed economies: they were 10 times lower than in France and four times lower than in the United States last year.

A large chunk of the corporate debt, which the BIS estimates at almost 1.7 times the economy, has been taken by non-listed entities, especially in the state sector, which employs over 60 million workers. Analysts say many state-owned companies are loss-making and only kept alive by loans from state banks.

"Deleveraging is a process that is very long," said Iris Pang, ING's Greater China economist. "No one wants the clean-up to happen in a short time span, because it would be very costly not only for the banking sector but for the whole economy in terms of defaults, write-offs of banking loans and redundancies."


Corporate deposits have also risen sharply, while a strong correlation between finance pumped into the economy and the performance of the Shanghai stock market has broken down for the first time in at least two decades, suggesting the performance of those companies, on aggregate, may not be as credit dependent as in the past.

China Inc's new profits are not entirely risked away in new spending or investments. Cash holdings and short-term investments for non-financial, Shanghai-listed corporates rose 26.3 percent in the first quarter from a year earlier, having posted double-digit growth rates for the past three years.

Oxford Economics' Louis Kuijs said China could rein in credit so that it stopped growing by 2021 and only lose 1 percentage point of economic growth a year.

"They would achieve something that is good for the long run while they would still end up with growth that is ... pretty good in any other economy," said Kuijs, who is head of Asia economics.

"They should consider it because it's not the end of the world."

Source: Reuters

Edited by SHMET

PBOC Drains Net CNY10 Billion In OMOs Tuesday

Date Aug 22 2017 11:43:19

BEIJING (MNI) - The People's Bank of China injected CNY40 billion inseven-day reverse repos and CNY20 billion in 14-day reverse repos viaopen-market operations Tuesday, Wind Information, a Shanghai-based financial data provider, said.

     This resulted in a net drain of CNY10 billion for the day, as a total of CNY70 billion in reverse repos mature on Tuesday.

     The CFETS-ICAP money-market sentiment index ended at 58 on Monday - up from 50 at Friday's close -- as the PBOC drained a net of CNY50 billion via OMOs from the interbank market on Monday. The lower the reading the better the liquidity conditions in the interbank market.

     The People's Bank of China and Ministry of Finance announced that they had deposited at commercial banks 3-month treasury cash bills totaling CNY80 billion at 4.5% on Friday, up 30 basis points from last such deposit made on March 16,when the rate was 4.2%.

     The PBOC is expected to make an official announcement on its official website about this morning's OMO around 9:45a.m., Beijing time.

     The benchmark seven-day repo average was last at 2.7487%, compared with 2.8795% on Monday.


Edited by SHMET

Chinese banks battle slowing loan growth, default risks loom

Date Aug 18 2017 16:40:37

BEIJING/SHANGHAI (Reuters) - Chinese banks are set to see a slowdown in lending growth in the second half of the year, having exhausted most of their annual credit quota, raising the spectre of corporate defaults as financing costs climb further in the world's No.2 economy.


Beijing's crackdown on riskier lending has already stretched financing costs and hurt profit margins. Analysts estimate banks have used 80 percent of their yearly credit quota over January-June, versus the usual 60 percent, amid a regulatory push to bring shadow financing activities to the main loan book.


"Loan demand is strong throughout the whole year," said Ma Kunpeng, chief financial industry analyst at China Merchants Securities. "The core conflict in the second half is loan quota - whether banks will be able to extend more loans than they originally planned."


The country's top five lenders, including Industrial and Commercial Bank of China (ICBC) <601398.SS>, China Construction Bank <601939.SS> and Agricultural Bank of China <601288.SS>, will report their first-half results over the next two weeks.


China saw a 12.9 percent growth in outstanding yuan loans as of June end. Nomura's China economist Wendy Chen expects this to moderate to 12.6 percent year-on-year in the third quarter and 12.4 percent in fourth, from 13.5 percent in 2016.



China's policymakers have said the government will continue to lower overall leverage and that slower growth in broad M2 money supply, which includes demand deposits and monies held in easily accessible accounts, could be a "new normal".


The central bank has also increased checks on banks' off-balance sheet wealth management products - a key component of shadow banking credit - while the banking regulator has stepped up a crackdown on risky lending behaviours.


"Corporate defaults will rise if the availability of finance is further restricted. This could become a threat to economic growth ... especially if defaults are concentrated in labour-intensive segments like steel and coal," Moody's said.


China's economic growth showed signs of fading in July as lending costs rose, but a hard landing is unlikely with Beijing keen to ensure stability ahead of a once-in-five-years Communist Party leadership reshuffle later this year.


China's commercial banks reported higher first-half profits, while overall non-performing loans in June did not increase from March, the banking regulator said on Monday.


But analysts cautioned that slower credit growth would eventually take a toll on banks' profit margins.



Net interest margins (NIM) - the difference between interest paid and earned by banks and a key gauge of profitability - have fallen sharply in the past quarters following six successive benchmark interest rate cuts in 2014-15.


For China's top lender ICBC, the margin is forecast to narrow to 2.13 percent in 2017 from 2.21 percent last year, while CCB could report a drop of 27 basis points to 2.09 percent in 2017, Thomson Reuters data shows.


Adding to banks' cost pressures is their move to increase deposit interest rates this year to as much as 40 percent above central bank benchmark rates to lure depositors, statistics compiled by Reuters showed.


Part of the higher costs has been passed on to corporate borrowers. The price of loans as measured by the weighted average of loan interest rates rebounded to 5.67 percent in June, from 5.22 percent in September.


But that will not be sufficient to cushion the impact on near-term profits.


"The most direct impact of the regulatory crackdown is on liquidity and profitability," said Alicia Garcia-Herrero, chief Asia Pacific economist at Natixis.


"Chinese banks will find themselves in a dilemma ... with more doors shut in the shadow banking, which has been a source of profits to offset the impact on net interest income." 


China will step up efforts to boost private investment - state planner

Date Aug 18 2017 16:39:15

BEIJING, Aug 18 (Reuters) - China will take more steps to boost private investment, the  state planner said on Friday, as policymakers seek to keep  growth steady while reducing the economy's reliance on state spending. 

     A sharp slowdown in private investment last year forced Beijing to rely more heavily on fiscal spending and investment by heavily indebted state firms to hit its growth target.

    "Expanding private investment and strengthening private economy is an important foundation for ensuring stable, healthy and sustainable development of China's economy," Meng Wei, a spokeswomen for the National Development and Reform Commission (NDRC), told a Beijing briefing.

    The government will simplify investment approval procedures for private firms and ensure "reasonable returns" in public-private partnership (PPP) projects to lure private investment in infrastructure and public utility projects, she said.

    Financial institutions will be banned from attaching  conditions when they make loans to private firms, while local governments will be encouraged to set up funds to help private firms hedge credit risks, Meng added.

    The state planner said it approved 165.5 billion yuan ($24.80 billion) of fixed-asset investment projects in July, the highest since December.

    Data released by the statistical bureau on Monday showed fixed-asset investment grew 8.3 percent in the first seven months from a year earlier, cooling from 8.6 percent in the first half.

    Annual growth of private investment slowed to 6.9 percent in January-July from 7.2 percent in the first half.

    The government kept its budget deficit target at 3 percent of gross domestic product this year - the same as in 2016 -  as policymakers look to a recovery in private investment, partly via PPP projects, to drive growth. 

    China's factory output, investment, retail sales and trade all grew less than expected in July as lending costs rose and the gravity-defying property market cooled, though activity levels generally remained solid, propped up by a year-long construction spree.  


Edited by SHMET