Policy

Banking industry introduces director elimination mechanism

Date Dec 29 2010 09:15:07

Dec.29,2010(SHMET)--China's banking regulator has rolled out a regulation to assess the qualification of commercial banks' directors, requiring banks to promptly replace unqualified directors, the 21st Century Business Herald reported Tuesday.

The regulation, issued by the China Banking Regulatory Commission (CBRC), established the assessment and elimination mechanism for bank directors. It is the first such regulation by CBRC targeting individuals in company supervision.

Directors will be labeled qualified, basically qualified or unqualified. Basically qualified directors need to improve their performance within a set time if they want to maintain their positions.

The regulation also stipulates one person can not act concurrently as directors of competing banks. Currently, it is common for one person to serve as director of two or even more banks at the same time.

The CBRC will also release regulations on members of supervising committees and senior management in the future, the report said.

Edited by SHMET

Wen: We are beating inflation

Date Dec 27 2010 13:20:22

Dec.27,2010(SHMET)--The government will be able to keep inflation in check, Premier Wen Jiabao said on Sunday, after the central bank raised interest rates for a second time in just over two months.

The central bank raised one-year lending and deposit interest rates by 25 basis points on Dec 26, after issuing a statement posted on its website on Saturday.

Steps taken in the past month, including price controls to curb speculation and monetary tightening, have started to produce results, Wen said in a radio broadcast.

The central government has raised the reserve requirement ratio for banks six consecutive times and increased interest rates twice this year to absorb excess liquidity in the market to support healthy economic development.

The State Council, China's cabinet, has also been trying to rein in food prices by increasing production of vegetables and other basic goods.

"I believe we can keep prices at a reasonable level through our efforts. As a major leader of the government, I have the responsibility and I have the confidence, too," Wen said, referring to large grain reserves as well as moves to support production by reducing and waiving taxes.

The country is facing inflationary pressure as the consumer price index (CPI), a main gauge of inflation, accelerated to a 28-month high of 5.1 percent in November.

This is the second time the central bank hiked interest rates in 2010 after it raised the benchmark lending and deposit rates by 25 basis points on Oct 20, for the first time in about two years.

The country will bring its overall money supply to a normal level with a range of policy tools next year as the government shifts monetary policy from "moderately loose" to "prudent", the central bank said on Friday in a statement on its website, citing Hu Xiaolian, deputy governor.

Hu stressed that China is facing pressure due to excess liquidity from home and abroad, and for the next phase the government will work on liquidity controls with a range of policy tools, including open market operations, and adjusting interest rates and reserve requirement ratios.

Brian Jackson, economist with the Royal Bank of Canada, believes China will see another 75 basis points of rate hikes in 2011.

Wang Tao, chief China economist at UBS Securities, shared a similar viewpoint. "The average CPI will range from 4 to 4.5 percent in 2011, and the inflation risks will be manageable. We expect an increase in interest rates by 75 basis points next year."

The expectation of interest rate hikes next year, however, will also attract an inflow of overseas speculative money seeking quick returns.

According to the Yellow Book of the World Economy, published by the Chinese Academy of Social Sciences (CASS) on Sunday, the risk of deflation in developed economies and inflationary pressure in emerging economies will further intensify next year, resulting in capital flow from developed to developing countries.

The interest rate gap between the United States and India, for instance, has reached 6 percent, according to the book.

"The scale of hot money flooding into China will definitely increase next year, due to the interest rate gap and the expectation of renminbi appreciation," said Zhang Ming, a senior research fellow of CASS.

"Stock and property markets are still the two major fields for the inflow of speculative money. China thus faces more pressure in containing asset price growth next year," he added.

Foreign investment in China's property sector rose 48 percent to $20.1 billion in the first 11 months of 2010, the Ministry of Commerce said on Dec 15. This is almost three times the 17.7 percent increase in the country's total overseas capital inflow.

"The climbing interest rate and a stronger yuan will definitely make the mainland a more attractive destination for us, but we will not change our investment strategy right now as we are a long-term investor," said a managing director at a US-based real estate fund.

Li Daokui, an academic member of the central bank's monetary policy committee, said the inflow of hot money is not expected to have a major impact on China, given the scale of the country's economy and controls on capital flows.

International Monetary Fund statistics show that China will replace Japan this year as the world's second largest economy in terms of its overall GDP.

Edited by SHMET

China raises interest rate second time this year to curb inflation

Date Dec 27 2010 13:19:37

Dec.27,2010(SHMET)--China's central bank announced Saturday that it will raise the one-year lending and deposit interest rate for the second time this year, as the government continues its battle against surging prices.

The People's Bank of China (PBOC) said in a statement posted on its website that it will hike the benchmark interest rate by 25 basis points beginning Sunday, which raised the one-year lending rate to 5.81 percent and one-year deposit rate to 2.75 percent.

The PBOC increased the benchmark lending and deposit rates by 25 basis points on Oct 20, which was the first increase in nearly three years.

The rate hike came after the central bank vice governor, Hu Xiaolian, said Friday that China would bring its overall money supply to a normal level using various policy tools, as the government shifts monetary policy from "moderately loose" to "prudent" to rein in rising inflationary pressures and curb asset bubbles.

The country's consumer price index (CPI), a main gauge of inflation, accelerated to a 28-month high in November of 5.1 percent, while new loans reached 7.45 trillion yuan in the first 11 months of this year, compared to the government's full-year target of 7.5 trillion yuan.

A recent PBOC survey also showed that the proportion of Chinese citizens satisfied with the current price level had sunk to an 11-year low, and only 17.3 percent of the consumers said they intended to consume more in the future.

Rising prices have prompted the government to take measures to rein in the hikes, including boosting supplies and providing financial aid to the needy.

Li Daokui, a member of the monetary policy committee with the PBOC, said the rate hike mainly aimed at managing inflationary expectations and reflected the policy shift, as tightening the money supply is the best way to curb inflation.

The rate increase came "at the right time", as western countries are celebrating the Christmas holiday, to avoid overreaction from the global markets, Li added.

Besides interest rate hikes, China had increased the bank reserve requirement ratio six times in 2010 to 18.5 percent and 19 percent for some large commercial banks.

"The decision was made in consideration of China's economic condition next year," said Lian Ping, chief economist with the Bank of Communications, the country's fifth largest lender, who described fighting inflation as the central bank's primary task at present.

Lian expected inflation to continue to go up in the first quarter next year due to rises both in demand and cost, as well as other influences from the external market.

His views were echoed by Zhuang Jian, chief economist with the Asian Development Bank, who also attributed rising inflation to holiday seasons and the extreme winter weather.

Observers believe that further rate hikes are to be expected since solving inflation and liquidity pressure at the same time is considered a difficult task.

"You cannot expect one or two rate rises to have a significant impact on economic indicators," said Zuo Xiaolei, chief economist with Galaxy Securities.

However, Lian said China only has room for two or three rate hikes, as higher interest rates would increase risks of "hot money" inflows due to a widening interest margin between China and the United States, which is likely to keep rates low.

Li Daokui also attributed the timing of the rate increase to avoiding rapid capital inflows.

But currently the factors that decides the direction of capital flows are currency exchange rates and assets prices, Lian added.

UBS Securities economist Wang Tao said last month that she expected the central bank to raise the interest rate by 25 basis points before the end of the year and by another 75 basis points in 2011.

China's economy grew 9.6 percent year-on-year in the third quarter this year, slowing from the 10.3 percent increase in the second quarter and 11.9 percent in the first quarter.

The country targets about a 3 percent inflation rate in 2010.

Edited by SHMET

China vows to tame housing prices

Date Dec 27 2010 13:18:54

Dec.27,2010(SHMET)--Policies launched this year to tighten the rise in housing prices have not been well implemented, Premier Wen Jiabao said on Sunday, though the central government will continue its efforts to maintain prices at a reasonable level.

He made the remarks while taking questions from netizens while visiting China National Radio, according to a report on the station's website.

"I made a promise to the Chinese people last year that I would try to keep housing prices at a reasonable level during my tenure, and I won't shrink from the goal," Wen said.

The government will work to increase the supply of affordable housing and will strictly control speculation in the property market next year, he said.

Wen said the country will start to build 10 million units of government-subsidized property in 2011, nearly double this year's 5.8 million units.

Furthermore, the central government will increase the supply of land for government-subsidized housing construction and use credit leverage to control housing speculation.

"I'm confident we can make housing prices return to a reasonable level through these measures," he said.

But the premier also made it clear that it is hard to have every citizen own property due to the country's limited land supply and huge population.

He said the housing ownership rate in China's cities and towns has reached a very high rate of 80 percent.

He said some people who cannot afford property, such as new graduates and migrant workers, can rent apartments. "(But we should make sure) the living conditions are good and the rent is reasonable."

The central government introduced a slew of policies to cool the hot real estate market this year, including the suspension of mortgages for third-home purchases in Beijing and Shanghai. But Wen acknowledged that these policies have not achieved satisfactory results.

The latest data from the National Bureau of Statistics showed property prices in 70 major Chinese cities rose 7.7 percent on average year-on-year in November. That's slower than the 8.6 percent increase in October and the 9.1 percent figure for September. But the month-on-month figure increased 0.3 percent.

And property developers have staged a comeback in recent weeks by pouring billions of yuan into land auctions across the nation.

Figures from Centaline China, a nation-wide property agent, show that 10 leading property developers have invested 14.8 billion yuan ($2.23 billion) to grab parcels of land in the first 16 days of this month, compared with 21 billion yuan in November.

The Beijing municipal government's income from land this year is expected to rise more than 50 percent over the previous year to more than 150 billion yuan.

Zhang Dawei, an analyst with Centaline China in Beijing, said the premier's remarks on Sunday have given a strong signal that the government will not sit on its hands as the housing price keeps ballooning.

"It's predictable that more tightening measures will be rolled out to tame the overheated property market, and he has implied in the speech that current housing prices are unreasonable," Zhang said.

Wang Yulin, deputy director of the policy research office of the Ministry of Housing and Urban-Rural Development, said he hasn't seen a distinct rise in the supply of housing, though the government has stepped up efforts to put more land onto the market.

"How to make an efficient use of the existing stock of housing is also important to ease the imbalance of supply and demand," Wang said at the Beijing Urban Development Forum on Saturday.

But Han Wei, vice-general manager of Singapore-headquartered Capitaland (North China), said the company is still optimistic about next year's property market despite the continuous tightening measures.

"We're actively seeking opportunities to purchase land, betting on the long-term development potential of China's housing market," said Han.

Edited by SHMET

Anticipated limit on license plates fuels car-buying frenzy

Date Dec 23 2010 14:58:14

Dec.23,2010(SHMET)--The capital city is expected to release a package of detailed rules on Thursday to ease its growing traffic gridlock, including axing new car license plates from next year.

The Beijing Municipal Commission of Transport is scheduled to hold a press conference at 3 pm. Though no official information was available in advance, a rumor was circulating that the city will take a leaf out of Shanghai's book and limit license plates.

The city will only grant 150,000 license plates next year and a resident without a Beijing permanent residence permit will need to provide proof of having paid local taxes for five consecutive years to purchase a car, the Economic Observer News reported an unnamed city transport official as having said.

Another rumor swirling around suggested that 240,000 license plates will be permitted next year.

If it proves to be true, the number of new cars in Beijing next year will be cut by at least two-thirds compared to this year, when Beijing had 4.76 million vehicles as of Dec 19, 700,000 more than at the beginning of 2010, according to official figures.

The rumors have fueled public concern that it will be more expensive to get a new car next year, which fueled car sales to those who want to register their plates before the end of the year.

Car ownership in the city increased 30,000 just in the past week, with a maximum addition of 5,000 cars per day, according to figures from the Beijing Municipal Commission of Transport.

Chi Yifeng, general manager of Yayuncun Automobile Trade Market, the biggest dealership in Beijing, said daily car sales this week doubled those over the past two weeks and that he is worried the current buying frenzy will hit sales in the first quarter of 2011.

According to Chi, there are more than 460 car dealerships in Beijing and, if the rumor about license plates being limited to 240,000 proves to be true, a number of them will struggle to survive, which will have a knock-on effect on allied industries, such as repair services and insurance.

Wang Ruichao, a marketing manager at a Toyota dealership in Beijing, said he is worried that business will suffer if the number of license plates is limited.

"If only 20,000 licenses are granted a month, each dealership will only sell an average of 40 cars a month, which will be a big blow to us," he said.

Earlier this month, the Municipal Commission of Transport released a draft plan on clearing traffic congestion, which was posted online to gauge public reaction from Dec 13 to 19.

More than 3,000 responses were received from members of the public and only 5.8 percent of the respondents opposed the plan, while others made their own suggestions, according to the commission's website.

Respondents who opposed the plan were dissatisfied with proposals to restrict car use, the number of new cars allowed on the road and a congestion charge.

The draft plan also included measures to prohibit new government cars, increase the pace of building the transport infrastructure and expanding public transportation.

When necessary, it also suggested resorting to the measure used during the Olympic Games of restricting the number of cars on the road during peak hours on the basis of odd and even final license plate numbers.

No details were available in the draft on a possible start date for the proposed congestion charge and what concrete measures will be taken to prevent car ownership from increasingly too rapidly.

"The draft plan is just a framework. Its lack of detail has made the public feel uncertain about the measures that are likely to be taken," said Zhang Changqing, director of the transportation law institute at Beijing Jiaotong University.

"Its ambiguity may have misled the public and even created some panic," he said, calling for the government to be more open and transparent in formulating policies that affect every household.

Edited by SHMET