Archive for the ‘ China ’ Category

Australia economy the worst is still to come

Western economy that has defied the financial crisis and kept growing . Australia economy was built on the emerging market bubble .

Assets which boomed off the back of aggressive emerging market growth will come under increased scrutiny with Australia particularly vulnerable.

That is the view of Alexander Friedman, CIO of UBS Wealth Management, who believes certain EM-linked markets are not properly reflecting the slowdown in the developing world.

He said:

‘While low valuations keep us neutral on EM equities, we reiterate our negative position on Australian equities and the Australian dollar, and are adding a new theme expressing a negative view on Australian financials, all of which are overvalued EM-linked assets.’

Emerging markets, Friedman said, are undergoing a two stage transition as foreign capital flows reverse direction.

‘If capital stops flowing, countries tend to go through two phases. First there’s a “crisis prevention” phase in which a country draws on any available liquidity reserves to prevent widespread bankruptcies.’
‘Then there’s a “reform” phase in which countries try to reduce their reliance on foreign capital,’ he said.

Reform phases

In the reform phase, Freidman said the key question is whether previous foreign inflows were channelled into profitable enterprise or speculative ones. One sign of the latter is foreign ownership of local assets.

On this count we are cautious on South Africa, where foreign bond holdings represent a massive 86% of the country’s reserves. This makes interest rates and the rand particularly vulnerable to a reversal,’

he said.

A second sign Freidman is wary of is misallocated capital, and among EM economies, he points out China’s investment-to-GDP ratio of 48% as ‘far too high’.

With producer prices in deflation for the past 18 months the economy is clearly suffering from overcapacity.’‘Imbalances have been able to persist and even grow as vast liquidity in the banking system created by the People’s Bank of China’s de facto dollar peg has fuelled credit growth to unprofitable enterprises, such as the steel industry,

Chinese transition

While Freidman notes the importance of reforms, and a key focus of China’s government, he remains realistic about the implications this transition will have on the world’s second-largest economy.

‘We expect the Chinese economy to continue to disappoint expectations over the course of the year, and believe recently announced measures to lower taxes for small businesses, support trade, and reform railway investment will directly affect the economy in only a limited way. We project growth to slow to 7.2% year over year in the fourth quarter.’

‘We continue to believe in the long-term emerging market consumption growth story but believe near-term performance will be challenging due to the headwinds to EM growth described above,’ Freidman said.

Aussie Falls to Lowest in More Than Two Years

Bloomberg reports Aussie Falls to Lowest in More Than Two Years as Home Loans Slow

Australia an ‘overvalued EM-linked asset’ says UBS WM’s CIO

Australia’s dollar fell to the lowest in more than two years versus the greenback after home-loan approvals grew at the slowest pace in three months, boosting the case for further cuts to borrowing costs.

The Aussie slid against all but one of its 16 most-traded peers amid speculation the U.S. central bank will reduce stimulus this year, narrowing Australia’s interest-rate advantage. Standard & Poor’s lifted the U.S. credit outlook to stable from negative, supporting the view that the Federal Reserve could taper asset purchases under its program of quantitative easing. New Zealand’s kiwi dollar fell.

“Housing is the one area most likely to make up for the mining investment downturn, and it’s disappointed,” said Joseph Capurso, a Sydney-based foreign-exchange strategist at Commonwealth Bank of Australia.

Australian Insolvencies Hit Record

Australian insolvencies hit record for month of April.

A new April record has been set for Australian companies becoming insolvent. Some 941 firms were put under administration, marking the highest tally for that month since records were first made public in 1999.

Some 941 firms were put under administration, according to an FTI Consulting analysis of Australian Securities and Investments Commission records.

Almost 3450 companies have gone into administration so far this year, compared with 3524 during the same period in 2012.

But the number is higher than the opening four months of 2008 to 2011, which included the global financial crisis.

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China will invest £180bn to clean up Beijing’s air

China will invest £180bn to clean up Beijing's air.

The Chinese government has promised to invest a massive £180bn to tackle the problem of smog in Beijing.

Smog is a source of increasing social discontent in China, and the new government’s five-year plan to get rid of air pollution, worth more than the total economic output of Hong Kong in 2012, shows how serious the problem is.

The money will be spent mainly in regions that have heavy air pollution and high levels of dangerous microscopic particles.
The programme was confirmed by Wang Jinnan, vice-president of the Chinese Academy for Environmental Planning.

Newspaper China Daily said the plan targets Beijing, the neighbouring port city of Tianjin and densely populated Hebei province, which surrounds them.

Beijing’s smog stems from years of industry, motor vehicles, heating and power generated from coal. It is a smear upon the country’s image abroad and makes life difficult for residents.

In March, air quality in the capital hit a new 50-year low, sending lung cancer rates soaring.

The government plans – backed by the State Council – are to reduce air emissions by 25% by 2017 compared with 2012 levels in those areas, according to the report.

However, it is thought that at least a decade has to pass before any real difference is felt.

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China manufacturing activity slumps to 11-month low

China manufacturing activity slumps to 11-month low.

A decline in new orders caused China’s manufacturing activity to fall to an 11-month low in July, according to a preliminary survey by HSBC.

The bank’s Purchasing Managers’ Index (PMI) fell to 47.7 from 48.2 in June. A reading below 50 shows contraction. The HSBC reading has been below that level for the third month running.

Fears of a slowdown have been plaguing China’s overall economy, as data released earlier this month showed that China’s economic growth slowed in the April to June period, the second straight quarter of weaker expansion.
The world’s second biggest economy grew by 7.5% compared to the previous year, down from 7.7% in the period from January to March.

Demand for China’s exports has slowed recently, signaling bad news for China’s manufacturing and export sectors which have been the key drivers of the nation’s economic growth for the past few decades.

But China’s key markets such as the US and Europe have their own problems to deal with, as they wrangle with slowing economic growth. A slowing demand from key markets, paired with less domestic consumption could hurt growth in China’s manufacturing sector and impact China’s overall economic growth.

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Richest man in China proposed tax cut and monopoly break-up

Going against all principles of communism !

Richest man in China proposed tax cut and monopoly break-up.

Zong Qinghou, China’s richest man and Chairman of a food and beverage conglomerate, is proposing cutting taxes and breaking up monopolies in order to drive an economic recovery in the emerging market economy – and warned that Chinese growth will slide further in the second half of the year.

“Economic growth will slow down again in the second half because there have been no major economic policies rolling out”, Zong said.

Therefore, his prescription for driving the Chinese economy into recovery is in line with Premier Li Keqiang’s call for the state to have a reduced role in the economy. The billionaire also urges the break-up of monopolies and to make administrative approvals from the Government easier.

Meanwhile, China’s economy grew 7.5% in the second quarter from a year earlier, slowing for a second straight period. Experts explained that the Government’s pledge to limit additional stimulus is adding to the risk of a deeper slowdown in an economy jolted by a cash crunch and weakened by faltering global demand for exports.

Zong, who currently has a net worth of $11.3 billion, said that whilst the global economy is declining, China will recover faster than other countries.

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India joins Brazil and China in tightening access to cash

When the BRIC wall starts to how one cracks .

India joins Brazil and China in tightening access to cash.

India joins Brazil and China in tightening access to cash

In response to seeing its currency plunge to a record low, India has stepped up efforts to tighten liquidity by raising two interest rates – a move shadowed in most of the larger emerging market economies.

Central bank Governor Duvvuri Subbarao announced the decision yesterday after he had cancelled a speech earlier in the day to meet the Finance Minister. The Reserve Bank of India thus raised two rates by 2 percentage points and plans to drain 120 billion rupees ($2 billion) through open market sales of government bonds.

JPMorgan Analysts explained how the importance of this move is that it signals that the RBI is willing to act and make it much more costly to short the rupee.

On the other hand, Finance Minister Palaniappan Chidambaram assured today that these measures in no way affect the Government’s commitment to growth. Instead, the ‘measures are taken to quell excessive speculation and reduce volatility and stabilize the rupee’, he said.

Notably, the RBI’s move leaves Russia as the only BRIC economy to not have reined in funds in its financial system.

Meanwhile, India’s economy expanded 5% in the fiscal year that ended in March. Despite the positive figures when compared to minimal growth in the developed world, this marked the slowest since 2003, on the back of moderating investment, easing domestic demand and subdued exports.

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GlaxoSmithKline in £300m bribery scandal

Isn’t that the pot calling the pot black!

GlaxoSmithKline in £300m bribery scandal.

Britain’s largest pharmaceutical company, GlaxoSmithKline, has been accused of bribing doctors with cash and sexual favours in return for prescribing the company’s drugs.

Chinese authorities have detained four senior Chinese GlaxoSmithKline executives as part of an ongoing investigations stretching back to 2007 involving £320m.

The Chinese investigator leading the probe said the head of GSK’s Chinese operations, Mark Reilly, a British national, left the country on 27th June and has not returned.

Gao Feng, the head of China’s fraud unit, said: “We found that bribery is a core part of the activities of the company. To boost their share prices and sales, the company performed illegal actions.”

GSK is alleged to have used a network of more than 700 middlemen and travel agencies to bribe doctors and lawyers with cash and even sexual favours.

GSK said it was “deeply concerned and disappointed” by the allegations and said it would “co-operate fully” with the Chinese authorities. However, Gao said the Chinese investigators had yet to receive any information from GSK’s British headquarters.

Last week, GSK said a four-month internal investigation into its Chinese operation had found no evidence of bribery or corruption of doctors or officials.

Gao said the GSK probe could be extended to other foreign drug companies. “We have also found some clues of illegal money transfers involving other foreign companies,” he said.

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China’s economic growth slows again

China's economic growth slows again.

China witnessed its second consecutive quarter of weakening expansion as Beijing pushes for reforms.

Data showed that the world’s second biggest economy grew by 7.5% compared to the previous year, down from 7.7% in the January to March period.

The figures were in line with analyst expectations.

After decades of rapid growth in China, analysts say authorities now seem ready to accept a slower pace of expansion.

The figures showed that weak trade data and actions by authorities to reign in bank lending contributed to the slower growth.

“As of now, China’s gross domestic product has been staying under 8% for five straight quarters, a clear sign of distress,” said economist Ren Xianfang from IHS Global Insight.

“The rather sharp growth deceleration and the recent financial market turmoil indicate that risks have been building on both the financial and real goods sector,” she added.

The Chinese government has set a target of 7.5% growth for the whole of 2013, which would mark the lowest rate of expansion in more than two decades.

China has been a major driver of the global economy and many countries have gained because of the demand from Chinese companies, including the mining sector in Australia.

Reuters – News Link

Telegraph Article
“The focus is still on reforms. The chances of a cut in interest rates or banks’ reserve ratio look slim,” said Xu Hongcai, senior economist at the China Centre for International Economic Exchanges (CCIEE).

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