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Reuters blog archive
from Global Investing:
China data: Lessons from Yongzheng
This is a reference when the People's Bank of China makes big decisions.Difficulty in collating accurate data is perhaps not so surprising, given the rapid urbanisation of the world's second largest economy. Off-beat labour statistics (employing dissimilar methodology to the ILO) are partly skewed due to a large number of temporary registrants that slip the official statistics net. The solution? Jinny Lin at Standard Chartered, who thinks China's real GDP level is more likely around 5.5 percent, suggested this could be taken from the history books. Emperor Yongzheng, China's ruler in the late Qing dynasty, set up an independent body to look at data at the local level, and successfully stemmed tax evasion.
If local data is reliable enough, we should use local data.
Source: Flikr creative commons
Problems are found at a local level too, however. While the current system sets local government officials' bonuses for better GDP growth, there is no penalty for supplying incorrect data, neither are local government officials assessed on the jobs they create but via a points system. Instead local governments have 'soft' and 'hard' targets to attain, according to the panellists, some of which include environmental targets.
Then there is the issue of language. Some say data is more detailed in the Chinese language than in English, though official translations help bridge this gap. Quandaries remain, the resolution is still far from clear.
from MacroScope:
Yield is king in China’s ‘dim sum’ offshore yuan bond markets
A return to China's offshore yuan bond markets, or "dim sum” as they are colorfully known in Hong Kong, may be sweet for Gemdale, a mainland property developer. But not all fund managers are smiling. The company raised five-year money at 5.63% amounting to 2 billion yuan. Not bad, considering that last July, it raised a lesser sum for a shorter tenor while coughing up nearly double of what it paid this time around. Add the fact that it did so by keeping to the same weak bond covenant and Gemdale seems to have pulled off a stunner.
But Gemdale doesn’t seem to be the only one. In recent days, issuers with weak bond covenants have discovered a ready market for their debt and at much cheaper rates. In theory, bond covenants can be divided into two halves: affirmative and negative ones. The former promises to pay bond holders on time while the latter forbids it from exceeding certain financial ratios such as interest paid/EBITDA, debt to equity, etc. And of course, they are secured by the company's assets or backed by bank guarantees or letters of credit.
from Breakingviews:
China FX swap may blur Bank of England mandate
By Peter Thal Larsen
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
The Bank of England is discovering the downside of being the City of London’s chief watchdog. The central bank is under pressure from financial institutions to set up a currency swap with the People’s Bank of China. Such a move would help to boost London as a centre for trading offshore renminbi. However, worrying about the City’s competitiveness also risks blurring the BOE’s main objective of preserving financial stability.
from MacroScope:
The risk from China’s shadow banks
Many blame America’s shadow banking system, where dangers lurked away from the scrutiny of complacent regulators, for the massive financial crisis of 2008-2009. Richard Fisher, president of the Federal Reserve Bank of Dallas, said in a speech on Thursday that he is now worried about the risks to China from its own version of the shadow banks.
During the recent credit boom fueled by the 4-trillion-yuan fiscal stimulus, off-balance-sheet lending by banks and private loans by nonbanks exploded. This shadow-banking lending activity accounted for an estimated 20 percent of China’s total loans in 2011. With the cooling of the real estate market and with slower economic growth likely in the near term, a large share of these loans could turn bad. And because these loans took place outside the view of regulators, the effect of a sudden disruption in repayment is virtually impossible to predict.
from MacroScope:
Manifest currency? U.S. dollar’s global dominance not set in stone
Incumbency, it is often said, confers many advantages.
Sitting U.S. presidents certainly have reaped its benefits – in the past 80 years, only three have been unseated.
Most economists believe the same benefits apply to reserve currencies. Yes, the U.S. dollar may one day be supplanted as the leading international currency, the thinking goes, but that day is many decades away.
from Breakingviews:
Iran’s yuan oil payments won’t catch on, yet
By Una Galani
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
Iran’s yuan-for-oil payments won’t catch on, yet. Tough sanctions from the United States have pushed the Islamic Republic to accept the Chinese currency as part-payment for crude exports to the People’s Republic. But while the yuan should play a bigger role in the world’s energy settlements by the end of the decade, Iran’s shift won’t be the catalyst.
from Breakingviews:
Freer yuan sends the right message
By Wei Gu
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
China’s moves to free up the way its currency trades might seem like throwing a bone to the United States, ahead of the two countries’ strategic summit in May. But it is China itself that gains most from this kind of reform, however gradual. The benefits are likely to include less foreign hot money, happier trade partners and the prospect of more capital account opening in the future.
from Breakingviews:
China’s trade deficit is sign of things to come
By Wei Gu and Edward Hadas
The authors are Reuters Breakingviews columnists. The opinions expressed are their own.
China will have to get used to monthly trade deficits. Special factors contributed to the $4.2 billion negative number for the first two months of 2012, but something fundamental is changing. A smaller portion of China’s imports are of goods which will be processed for export, and a higher portion is going straight into domestic consumption.
from Global Investing:
Yuan risks uniting bulls and bears?
Is the outlook for China's yuan uniting the biggest global markets bulls and bears? Well, kind of.
As China posts its biggest trade deficit (yes, that's a deficit) of the new millennium and its monetary authorities flag greater "flexibility" of the yuan exchange rate (the PBOC engineered the US$/yuan's second biggest daily drop on record on Monday), the chances of an internationally-controversial weakening of yuan in a U.S. election year have risen. A weaker yuan would clearly up the ante in the global currency war, coming as it does amid Japan's successful weakening of its yen this year and as Brazil on Monday felt emboldened enough in its battle to counter G7 devaluations by extending a tax curbing foreign inflows. And, arguably, it could bring the whole conflagration around full circle, where currency weakening in the BRICs and other emerging economies blunts one of the desired effects of money-printing and super-lax monetary policy in the G7 -- merely encouraging even more printing and so on.
from Breakingviews:
China’s march to currency dominance just got longer
By John Foley
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
China’s path to currency dominance just got a bit longer. Hong Kong holdings of the Chinese yuan fell in January, according to data out on March 1; there has been an 8 percent decline since the end of November. With the yuan no longer certain to rise in value, foreigners have much less reason to hold it. For a would-be reserve currency, that’s a real spanner in the works.
