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FILE PHOTO: A man works in the Tianye Tolian Heavy Industry Co. factory in Qinhuangdao in the QHD economic development zone, Hebei province, China December 2, 2016. REUTERS/Thomas Peter
March 27, 2019
BEIJING (Reuters) – Profits earned by China’s industrial firms dropped 14.0 percent year-on-year to 708.01 billion yuan ($105.50 billion)in the first two months of 2019, the statistics bureau said on Wednesday.
The sharp decline follows December’s 1.9 percent fall and marked the biggest contraction since Reuters began keeping records in October 2011.
The data combines figures for January and February to smooth out distortions caused by the week-long China’s Lunar New Year.
Chinese industrial firms’ liabilities rose 6.0 percent from a year earlier to 62.4 trillion yuan by end-February, compared with a 5.2 percent rise as of end-2018.
The data covers large companies with annual revenue of more than 20 million yuan from their main operations.
(Reporting by Beijing Monitoring Desk; Editing by Shri Navaratnam)
Source: OANN
FILE PHOTO: Flags of Taiwan and U.S. are placed for a meeting between U.S. House Foreign Affairs Committee Chairman Ed Royce speaks and with Su Chia-chyuan, President of the Legislative Yuan in Taipei, Taiwan March 27, 2018. REUTERS/Tyrone Siu/File Photo
March 26, 2019
WASHINGTON (Reuters) – Republican and Democratic U.S. lawmakers introduced legislation seeking to boost Washington’s relations with Taiwan and raise the island’s international profile on Tuesday, which could heighten tensions with China.
Senator Bob Menendez, the top Democrat on the influential Foreign Relations Committee, along with Republican Senators Tom Cotton and Ted Cruz, and Democratic Senators Catherine Cortez Masto and Chris Coons offered the “Taiwan Assurance Act.”
Representative Michael McCaul, the top Republican on the House of Representatives Foreign Affairs Committee, plans to introduce a companion measure in the House.
Among other things, the bill would mandate that President Donald Trump review State Department guidelines on relations with Taiwan, direct the Defense Department to make efforts to include Taiwan in military training exercises and expresses congressional support for regular U.S. arms sales to Taiwan.
“This legislation would deepen bilateral security, economic, and cultural relations, while also sending a message that China’s aggressive cross-Strait behavior will not be tolerated,” Cotton said in a statement.
To become law, the measure would have to pass the Senate and House and be signed into law by Trump. Its passage would rankle Beijing as the United States and China are edging toward a possible deal to ease a months-long tariff dispute.
Taiwan is one of a growing number of flashpoints in the U.S.-China relationship, which also include the trade war, U.S. sanctions and China’s increasingly muscular military posture in the South China Sea, where the United States also conducts freedom of navigation patrols.
Washington has no formal ties with Taiwan but is bound by law to help defend the island nation and is its main source of arms. The Pentagon says Washington has sold Taiwan more than $15 billion in weaponry since 2010.
China has been ramping up pressure to assert its sovereignty over the island, which it considers a wayward province of “one China” and sacred Chinese territory.
(Reporting by Patricia Zengerle; Editing by Lisa Shumaker)
Source: OANN
FILE PHOTO: People stand on the sidewalk at Lujiazui financial district in Pudong, Shanghai, China March 14, 2019. REUTERS/Aly Song
March 26, 2019
SINGAPORE (Reuters) – China’s economy showed “unmistakable” signs of recovery in the first quarter, with company profits, investment and hiring improving, but policymakers may be relying too much on extraordinary levels of credit, a private survey showed on Wednesday.
The quarterly survey of thousands of Chinese firms by China Beige Book International (CBB) painted a surprising picture of a turnaround in business conditions after a poor fourth quarter that saw the weakest economic growth since the financial crisis.
CBB’s findings were in contrast to mostly downbeat official data for January and February and other business surveys which suggest recent stimulus measures are only slowly kicking in. Most analysts have also warned of a rocky first quarter, and do not expect China’s economic downturn to bottom out until mid-year.
However, the U.S.-based consultancy questioned whether the first-quarter’s “credit-soaked” recovery was sustainable, noting riskier types of shadow banking were on the rise again.
While companies said access to credit was improving, the survey also found some firms were reporting higher interest rates, despite the central bank’s efforts to lower financing costs.
“Credit is surprisingly expensive… Credit costs need to be further stabilized or the current rally will falter,” CBB said in a statement, saying shadow lenders were charging sky-high rates.
Chinese banks lent a record 3.23 trillion yuan ($477 billion) in January as policymakers tried to jumpstart sluggish investment and prevent a sharper slowdown in the world’s second-largest economy.
Authorities have urged banks to keep lending to struggling small and private firms in particular, even though such companies are considered higher credit risks.
“Even traditionally disadvantaged firms in the credit markets are no longer so – at least for a quarter: private firm borrowing outpaced state-owned enterprises in the first quarter,” CBB said.
In early March, Premier Li Keqiang announced billions of dollars in additional tax cuts and infrastructure spending this year.
Along with a growing list of government support measures, signs of progress in U.S.-China trade talks may also have been a factor behind the improvement in business confidence, CBB added.
China will release March and first-quarter economic data around mid-April.
(Writing by Kim Coghill; Editing by Richard Borsuk)
Source: OANN
FILE PHOTO: Lu Wei, head of Cyberspace Administration of China, attends a news conference in Beijing, China December 9, 2015. Picture taken December 9, 2015. REUTERS/Stringer
March 26, 2019
BEIJING (Reuters) – A Chinese court on Tuesday jailed the former chief internet regulator, Lu Wei, for 14 years, having found the once influential official guilty of taking bribes worth almost $5 million.
Lu, one of numerous senior officials caught up in President Xi Jinping’s sweeping anti-graft campaign, had already been expelled from the ruling Communist Party, which tightly controls the courts.
At the height of his influence, Lu, a colorful and often brash official by Chinese standards, was seen as emblematic of pervasive internet controls, although his downfall has not brought a reversal of those policies.
The court, in the eastern city of Ningbo, said in a statement that Lu had accepted the verdict and would not appeal.
Lu, 59, pleaded guilty in October after prosecutors had accused him of abusing his power in various government posts over 15 years, including as the head of the Cyberspace Administration of China (CAC).
Between 2002 and 2017, he received illicit assets from government units or individuals worth more than 32 million yuan ($4.77 million), the court said in the statement.
He had “shown repentance” and “actively returned” most of the money and property, it added.
Reuters could not reach Lu in jail to seek comment, and it is unclear who acts as his lawyer.
Lu worked his way up though China’s official Xinhua news agency before becoming head of propaganda in Beijing and then moving to internet work in 2013. He became a deputy propaganda minister after being replaced at the internet regulator.
Under Lu, the regulator did not carry out Xi’s instructions in a timely or resolute fashion, China’s anti-corruption watchdog has said.
The government blocks websites it deems a challenge to party rule or a threat to stability, from foreign social media platforms and news outlets to sites such as Google’s main search engine and Gmail service.
Organisers of China’s first World Internet Conference in 2014, set up under Lu to promote Beijing’s vision of internet governance, irked foreign tech firms by seeking their agreement on a last-minute declaration on “internet sovereignty”.
Tech industry representatives declined to sign, and rights groups condemned it as a bid to undermine internet freedom.
When Lu visited Facebook Inc’s U.S. campus in 2014, he was greeted in Mandarin by Mark Zuckerberg, the founder of the social networking site that has long been blocked in China, a Chinese government website has said.
Lu had vociferously defended China’s internet curbs. In 2015, he told reporters: “Indeed, we do not welcome those that make money off China, occupy China’s market, even as they slander China’s people. These kinds of websites I definitely will not allow in my house.”
(Reporting by Michael Martina and Ben Blanchard; Editing by Clarence Fernandez)
Source: OANN
FILE PHOTO: FILE PHOTO: An investor looks at an electronic board showing stock information at a brokerage house in Shanghai, China September 7, 2018. REUTERS/Aly Song/File Photo/File Photo
March 26, 2019
By Luoyan Liu and Patturaja Murugaboopathy
SHANGHAI/BENGALURU (Reuters) – A sharp rally in Chinese stocks this year has been driven more by investor optimism than fundamentals, based on an analysis of corporate earnings estimates in an economy expanding at its slowest pace in 28 years.
As the 2018 earnings reporting season begins for mainland firms, analysts are issuing more downgrades than upgrades for corporate earnings, even as they hope that China’s stimulus plans for the economy kick in.
That implies that investors who have pushed the market up 22 percent this year are hoping for a turnaround in earnings, which often lags share prices.
(Graphic: China earnings yet to improve – https://tmsnrt.rs/2UOrRnV)
(Graphic: Asia’s estimated earnings for 2019 – https://tmsnrt.rs/2USI63y)
China has promised billions of dollars in tax cuts and infrastructure spending to help businesses and protect jobs. Hopes of a deal with the United States to end a year-long trade war have also boosted stock prices.
Beijing has vowed to use more policy tools to ensure the economy grows within a targeted range of 6.0 to 6.5 percent.
“The impact from Beijing’s tax cuts and expenses reductions in 2019 will be between 150-400 billion yuan ($22.37-59.64 billion) on the A-share market, accounting for 4-9 percent of their net profits,” investment bank China International Capital Corporation Limited (CICC) said in report.
Those supportive measures will systematically improve the profitability of Chinese companies, CICC said.
(Graphic: China’s industrial profits shrank in Dec – https://tmsnrt.rs/2HETCMK)
As companies this month release their annual results for 2018, investors need to see prospects for improved profitability to push the market any higher.
“It’s a misperception that solid fundamentals are not needed for a bull run, which is now in its first stage, and the signal for the second stage will be earnings growth recovery after bottoming out,” Haitong Securities wrote in report.
(Graphic: Shanghai firms revenue and profit growth – https://tmsnrt.rs/2CyoQRF)
The rebound has been led by the financial sector, which President Xi Jinping has labeled a key part of China’s core competitiveness and Beijing has vowed to liberalize further.
Some financial firms have posted hefty earnings. Ping An Insurance Group said it would return up to 10 billion yuan to shareholders through its first share buyback after a forecast-beating jump in annual profit.
Yet estimates for the sector have not been marked higher.
(Graphic: China MSCI financials – https://tmsnrt.rs/2USUMr3)
Consumer firms are also expected to gain from measures to boost consumption. Liquor makers have been pushed to record highs by investors, including foreigners who have long favored firms with strong brand names and solid profits.
Shares of Fuling Zhacai, dubbed one of China’s “super brands”, hit a new high after it reported strong profit growth in 2018 and expected a 26 percent revenue gain in 2019.
(Graphic: China MSCI consumer discretionary – https://tmsnrt.rs/2UXX0FS)
Investors are also tracking mainland-listed tech firms as Beijing seeks to reduce dependence on foreign technology to counter U.S. curbs on China’s tech advancement.
Xiaomi-backed TCL Corp reported strong 2018 earnings, sending its stock up nearly 70 percent this year.
(Graphic: MSCI China tech – https://tmsnrt.rs/2HFL6xp)
Market participants believe a new technology board in Shanghai will help improve the valuations for tech firms already listed on the A-share market.
Shenzhen’s Nasdaq-style start-up board index Chinext has soared 32 percent this year. That compares with a 15 percent rise for Nasdaq in the same period.
(Graphic: China’s Nasdaq-style tech board outperforms – https://tmsnrt.rs/2Cwq9Ax)
Still, given how far some companies have missed their earnings’ estimates in 2018, analysts are reluctant to upgrade their forecasts until they see a decisive turn in profitability.
(Graphic: Percentage of Chinese firms missing expected earnings in 2018 – https://tmsnrt.rs/2Cyy4xd)
(Reporting by Luoyan Liu; Additional reporting by Patturaja Murugaboopathy in BENGALURU; Editing by Vidya Ranganathan and Darren Schuettler)
Source: OANN
China’s Minister of Industry and Information Technology Miao Wei speaks at the annual session of China Development Forum (CDF) 2018 at the Diaoyutai State Guesthouse in Beijing, China March 26, 2018. REUTERS/Jason Lee
March 25, 2019
BEIJING (Reuters) – China will reduce direct government intervention in its vast industrial sector, the industry minister said on Monday, as Beijing seeks to ease concerns about its industrial policy, core to Washington’s complaints in the Sino-U.S. trade war.
The government’s pledge to reduce its influence over operational matters in China’s manufacturing sector follows an apparent toning down of its high-tech industrial push, which has long annoyed the United States.
“We will gradually reduce the government’s micro-management and direct intervention, in order to allow the market to effectively decide resource allocation and support the development of the manufacturing industry”, Miao Wei, minister of industry and informational technology, said at the China Development Forum.
But China will continue to encourage higher-value production, he said.
In his speech, Miao did not touch on the so-called “Made in China 2025” plan, an initiative intended to help China catch up with global rivals in sophisticated technologies such as semiconductors, robotics, aerospace and artificial intelligence (AI).
The state-backed industrial policy has provoked alarm in the West, due to China’s open efforts to deploy state support and subsidies.
The comments came days ahead of the latest round of high-level trade talks between China and the United States starting in Beijing on Thursday.
Washington has threatened further action if China does not change its practices on issues ranging from industrial subsidies to intellectual property.
China is not conceding to U.S. demands to ease curbs on technology companies, the Financial Times reported on Sunday, citing three people briefed on the discussions.
‘VALLEY OF DEATH’
The latest conciliatory tone struck by Beijing to placate Washington does not mean China is less serious about its high-tech manufacturing drive, with local governments still rolling out plans to help manufactuers move up the value chain.
Local governments have also been told to pursue new engines of industrial growth by developing innovative technologies, such as new energy vehicles (NEVs) and artificial intelligence (AI).
Miao said technology manufacturers needed to survive “the Valley of Death” as they seek to turn laboratory samples into mass production.
The southern province of Hunan this month issued a three-year plan for the AI sector, pledging more support for a local industry whose size is projected to reach 10 billion yuan ($1.49 billion) by 2021.
In the central province of Henan, production of service robots rose 14.3 times in January-February from a year earlier, according to local media. [nL3N216108]
When asked to comment on President Donald Trump’s wish to bring manufacturing jobs back to the United States, Miao said that such decisions could not be made by a single person because an entire supply chain was involved.
“Every company will consider putting its supply chain in a country were costs are relatively lower, this the purpose of the law of economics,” he said.
“If, after comparisons are made, that the United States has lower costs and possess advantages versus other countries, I’m sure that a company…will bring its manufacturing back to the United States.”
In a bid to support to small companies, many of which have been struggling to get financing, Miao said small and medium-sized companies will play a bigger role in the sector’s innovation.
China is planning to launch a highly-anticipated Nasdaq-style technology board – a move by Beijing to counter U.S. curbs on China’s technology advances.
The government’s next move is to implement policies such as tax reductions and to improve the protection of intellectual property rights, according to Miao, adding that the general manufacturing sector will be fully liberalized.
(Reporting by Brenda Goh and Shu Zhang; Writing by Stella Qiu and Ryan Woo; Editing by Kim Coghill)
Source: OANN
FILE PHOTO: Federal Reserve Board building on Constitution Avenue is pictured in Washington, U.S., March 19, 2019. REUTERS/Leah Millis
March 22, 2019
(Reuters) – Following are five big themes likely to dominate thinking of investors and traders in the coming week and the Reuters stories related to them.
1/ TAKE IT EASY
With the U.S. Federal Reserve well and truly doubling down on its dovish guidance this month, the global rate hiking cycle is at an end. There are exceptions of course but the big central banks of the developed world — the Fed, the European Central Bank and Bank of Japan — have all reacted decisively to the steady drumbeat of depressing economic data by pushing any policy tightening plans to the backburner.
But instead of deriving any comfort from the pivot, some in the market are interpreting the moves as desperate measures to ward off impending recession. That fear is certainly evident on bond markets where the gap between three-month and 10-year U.S. treasury yields — one of the gauges the Fed uses to assess inflation risks — has inverted. European yield curves too have flattened and German 10-year government borrowing costs have slid back below zero percent for the first time since 2016.
There are outliers. Norway has hiked rates while Hungary and Czech rates may also rise this coming week. One could argue Norway’s economy has been lifted by oil this year, while emerging European economies have been recovering nicely. But the question is: with the world’s biggest economy starting to hurt, Fed rate cuts bring priced for 2020 and G4 bond yields plunging, can any market avoid being sucked in? On Wednesday, New Zealand’s central bank could become the latest to flag downside risks to growth and interest rates.
(Graphic: U.S. federal funds activity png link: https://tmsnrt.rs/2EcJkRq).
2/ DEADLINES, RED LINES
March 29 is when Britain was supposed to leave the European Union, 2-1/2-years after a slender majority voted to leave the bloc. EU leaders have now granted Prime Minister Theresa May a two-week reprieve, during which she must persuade lawmakers to accept the divorce deal she has negotiated. Not easy, given they have resoundingly defeated it twice already. She is expected to make another attempt and if the deal still fails, several possibilities open up, from a no-deal Brexit to Brextension and even exit from Brexit.
The question is whether May will be flexible on any of the “red lines” she outlined in 2016, ruling out a customs union with the EU, UK’s membership of the single market and any role for the European court of justice. Seen by many as an extreme interpretation of the referendum, it has stymied efforts to find a solution to the Northern Ireland border issue.
With all this in play, many warn that markets are still assigning too low a probability to a no-deal Brexit — banks such as Goldman Sachs and Deutsche reckon that risk at just 15-20 percent. But though this is rising, most analysts warn.
Sterling has tumbled this month after strengthening for two months straight and jitters are bubbling up on derivative markets. Here one-month pound risk reversals show an elevated premium for sterling puts — options that confer the right to sell at a certain price. Implied sterling volatility — a gauge of expected daily swings — has slipped off highs but remain above some typically volatile emerging currencies such as Brazil’s real or the Turkish lira.
(Graphic: No-deal Brexit probabilities IMG link: https://tmsnrt.rs/2VlgLGT).
3/ GLASS QUARTER FULL
Back in January, the U.S. Federal Reserve fired up investors’ appetite for risk by pledging to be patient with future rate rises. In March it sealed that promise by doubling down on its dovish stance and scaling back projected 2019 interest-rate increases to zero. The result: a 10 percent-plus bounce on global stocks in the January-March period. The S&P500 is headed for its best first quarter of any year since 1991. Other big Q1 winners with dollar-based gains close to 30 percent are Chinese shares and Brent crude.
What happens next? To some, the rally in what are inherently risky, growth-reliant assets makes little sense when the world economy is in slowdown mode and should therefore evaporate. But others counter the second quarter will bring more gains. They note that despite double-digit gains, investors have mostly been betting against stocks for most of 2019. Investment research firm TrimTabs says equity funds have seen outflows of $18.7 billion this year through Wednesday. They have instead channeled $73.1. billion into bond funds.
(Graphic: S&P 500 vs U.S.10-Year Treasury Yield link: https://tmsnrt.rs/2UNzRFP).
(Graphic: Q1 performance link: https://tmsnrt.rs/2UQo3CG).
4/EURO GLOOM TO BOOM — OR DOOM
Despite a strong rally across markets this year, European equities remain one of the most disliked regions in the world. Bank of America Merrill Lynch’s monthly fund manager survey confirmed that view, with investors naming “short” European equities as the most crowded trade for the first time.
For contrarians, that’s a gift – a sign bearish positioning on Europe has got too extreme and stocks should rise from here.
Indeed, there are some positive signals from recent macroeconomic data, from retail sales to wages. That has sparked a quiet rise on Citi’s index of euro zone macro surprises which now, interestingly, sits above the equivalent U.S. index. There are also predictions that as China’s economy starts benefiting from the stimulus its authorities have unveiled, Europe too will feel the effect.
But after every glimmer of hope, comes a dampener. February PMI data from Germany and the euro zone sent markets reeling.. Next up are the Ifo business climate survey and consumer confidence figures. Those should tell us whether it is too early to call a bottom.
(Graphic: macro surprises March 22 link: https://tmsnrt.rs/2HAy8B0).
5/YUAN: STRONG AND STABLE
Chinese markets aren’t abandoning hopes that authorities may soon relax trading rules for the yuan. Beijing and Washington are locked in heated discussions on a deal to end their trade war and President Donald Trump hopes to extract a commitment to yuan stability. The Chinese have other compulsions. The yuan fell more than 5 percent in 2018 but this year it is rising too rapidly for comfort. As China makes its way into global benchmark stock and bond indices, foreigners are rushing into its markets. In January and February, inflows under the Stock Connect scheme were almost quadruple the amount last year.
Rumors are swirling that China’s currency regulator SAFE will rescind requirements for banks to maintain reserves on dollar purchase contracts and also remove the secretive X-factor used to guide the currency’s trading range. Theoretically, those steps would count as efforts to free the yuan – they were imposed last year to curtail speculators betting against the yuan. Detractors might say China is creating conditions for yuan depreciation. The coming week should offer some visibility as a U.S. trade delegation, headed by Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin, shows up in China for the next round of tariff negotiations.
(Graphic: China’s yuan rises as foreign investment picks up link: https://tmsnrt.rs/2HBZbLX).new york stock
(Reporting by Karin Strohecker, Saikat Chatterjee and Helen Reid in London; Jennifer Ablan in New York and Vidya Ranganathan in Singapore; Compiled by Sujata Rao; Editing by Alison Williams)
Source: OANN
FILE PHOTO: U.S. President Donald Trump salutes a U.S. Army soldier as he observes a military demonstration with U.S. Army Major General Walter “Walt” Piatt, the Commanding General of the Army’s 10th Mountain Division at Fort Drum, New York, U.S., August 13, 2018. REUTERS/Carlos Barria
March 22, 2019
BEIJING (Reuters) – China’s Defence Ministry on Friday accused its United States counterpart of deliberately seeking to hype up the threat from China and other nations to justify its own military expenditure, calling the move short-sighted and dangerous.
U.S. President Donald Trump’s $750-billion defense spending request to Congress is the largest ever in dollar terms, though not after being adjusted for inflation, and is meant to counter the growing strength of the Chinese and Russian militaries.
By comparison, China this month unveiled a hike of 7.5 percent in defense spending for the year, to 1.19 trillion yuan ($177 billion), though many experts and diplomats say the real figure is probably far higher. China denies that.
In a statement, China’s Defence Ministry reiterated its standard line about being committed to a peaceful path, and said the United States loved to talk up the “China threat theory”.
“We have noted that when the U.S. Defense Department is fighting for military spending, it always likes petty niggling, trying to get even more benefit for itself by exaggerating the threat posed by other countries,” it said.
“This is short-sighted and extremely dangerous,” it added.
It urged the United States to cast aside Cold War thinking, and take steps to promote the healthy and stable development of two-way ties between the two militaries.
The two countries frequently say they are committed to a sound military-to-military relationship, but their armed forces have seen some tense stand-offs in recent years, particularly in the disputed South China Sea, where the U.S. Navy conducts freedom of navigation patrols.
China is also deeply opposed to U.S. arms sales to self-ruled and democratic Taiwan, which Beijing claims as its sacred territory, to be brought under its control by force if necessary.
Responding to reports the Trump administration has approved the sales of more F-16 fighter jets to Taiwan, a Chinese foreign ministry spokesman on Friday said the government had already lodged “stern representations” with the United States.
“We urge the U.S. side to fully acknowledge the extreme sensitivity of the relevant issue, and extreme harmfulness of it,” he added.
The United States is bound by law to provide Taiwan with the means to defend itself.
Taiwan President Tsai Ing-wen will stop over in Hawaii next week at the end of a tour of the Pacific, to China’s anger.
(Reporting by Ben Blanchard; Editing by Clarence Fernandez)
Source: OANN
FILE PHOTO: FILE PHOTO: An investor looks at an electronic board showing stock information at a brokerage house in Shanghai, China September 7, 2018. REUTERS/Aly Song/File Photo/File Photo
March 22, 2019
By Shu Zhang and Samuel Shen
SINGAPORE/SHANGHAI (Reuters) – On a cloudy March morning in Shanghai’s glitzy financial district of Lujiazui, Ye Lixia was knocking on the doors of potential clients, offering loans to bet on a surging stock market.
“We provide money to investors who need quick funding to capitalize on the market rally,” Ye told Reuters.
Ye, in her 30s and a general director at Bo Ying Asset Management, is one of the thousands of gray market lenders operating in the shadows of China’s colossal capital markets.
A stock market that shot up 25 percent in the last three months has revived the undercover margin lending business that was notoriously responsible for China’s 2015 boom-bust market volatility.
In defiance of warnings from the China Securities Regulatory Commission (CSRC), shadow lenders pitch their business via cold telephone calls and social media advertisements, dangling the prospects of a reversal of fortune.
“In China, speculators adopt very aggressive trading strategies, gaming the rules… and pushing policy-makers’ tolerance to the limit,” said Stephen Huang, vice president of Shanghai See Truth Investment Management Co.
The Shanghai index’s swift recovery from last year’s heavy losses has been primarily driven by signs of an end to the long-running Sino-U.S. trade war.
Beijing’s efforts to lower the cost of lending in a slowing economy, and foreign investment inflows after the inclusion of Chinese A-shares in global equity benchmarks encouraged the rally.
Shenzhen’s start-up board ChiNext, traditionally a hotbed for speculation, has surged more than 30 percent this year.
In the official margin financing market, in which stock investors borrow money from brokerages, outstanding loans have jumped nearly 30 percent since the end of January to 911.6 billion yuan ($136.08 billion). That is just a third of the 2.27 trillion yuan record hit in June 2015.
But unofficial margin financing, in which small investors borrow from grey market lenders, is thriving.
Hui Ju Ying, a margin lending platform, lures clients with suggestions of “returns of 100 percent.” Another platform, www.zfpz.com, says: “young people shouldn’t resign to mediocrity; margin financing can change your fate.”
The CSRC said in late February that it was closely monitoring the situation. But regulators have so far taken a soft approach towards such lending.
“Last year, the government was talking about reducing leverage. Now, the government is talking about steadying leverage, which is good for us,” said Ye, whose company borrows money from banks and lends it to investors.
NO DEJA VU?
Managers at five margin lenders said they began aggressively marketing loans over the past few weeks to investors eager to make outsized stock market bets.
Such lending helped the Shanghai stock index double between 2014 and mid-2015, forcing the authorities to crack down on shadow lending and causing a 40 percent decline in stocks over six months.
Some of the lenders this time around are newcomers. Others are survivors of the last crackdown, emboldened by the belief that regulators, focused on enabling funding for struggling private firms, will look the other way.
“The loans we make are deals between us and investors and are none of brokerages’ business,” said Xiao Xiao, a saleswoman at shadow financing platform xianniuwang.com.
The financing has been a boon to risk takers like Zhang, who more than doubled his investment capital via shadow margin loans through leveraged bets on 5G-related China tech stocks.
With 50,000 yuan in hand, Zhang, who was willing to disclose only his family name, borrowed 500,000 yuan from a gray-market lender named Gu Zhang Gui six months ago. He has earned 56,000 yuan in net returns so far, he told Reuters.
Zhang pays a daily interest rate of 0.06 percent, which translates to an annualized cost of funding of 22 to 24 percent.
“Stocks are rallying so we investors are making money. And then we want to make even more money, so we are turning to those lenders who can leverage our funding,” he said.
Individual investors account for about 80 percent of total stock market turnover. Many are day-traders, frequently churning their holdings for quick returns.
Regular broker financing is regulated and limited at 1:1 leverage – the maximum amount they can borrow is equal to their principal. Shadow margin loans allow for a leverage of up to 10 times the capital the investor provides, and lenders do not dictate what stocks investors can buy.
“No qualification is needed,” said an executive who used to work for Beijing-based Yueda Investment, a gray-market lender. “Investors just come to our office to take a look and then we sign loan contracts.”
Operating in the shadows carries risks, he said, notably that they cannot use the courts to recover losses.
A director at another Shanghai-based margin lender said his company charges interest of 11.5 to 15.5 percent on money that cost them about 9.5 percent.
(For a graphic on ‘China margin lending rises sharply as market jumps’ click https://tmsnrt.rs/2HD8Jqa)
BANK INVOLVEMENTTwo of the gray-market margin financiers interviewed by Reuters said their initial funding came from banks. Banks are prohibited from directly financing stock market investment but use complex product structures to bypass regulations.
Both declined to be named because of the sensitivity of the matter. The names of banks lending to trust companies are never revealed on shadow margin loan contracts.
On March 15, the Taizhou branch of China’s banking watchdog fined two lenders for allowing bank money to flow illegally into the stock market. The Guangdong branch of the CSRC has banned brokerages from cooperating with shadow lenders.
That caused a 4 percent drop in China stocks, their worst day in five months.
Domestic brokerage Shenwan Hongyuan Securities estimated there were about 10,000 grey market lenders running 1-1.5 trillion yuan in margin financing in 2015. Volumes are much lower this time, which is why analysts expect regulators look away for a while longer.
“I think regulators want to see more active trading… Investors or speculators are all welcome,” said a senior manager at domestic brokerage Industrial Securities.
(Reporting By Shu Zhang in SINGAPORE and Samuel Shen in SHANGHAI; Editing by Vidya Ranganathan and Gerry Doyle)
Source: OANN
FILE PHOTO: A man stands near the logo of Alibaba Group at the company’s newly-launched office in Kuala Lumpur, Malaysia June 18, 2018. REUTERS/Lai Seng Sin/File Photo
March 22, 2019
BEIJING (Reuters) – China’s major automobile and internet companies, including Chongqing Changan Automobile, Alibaba and Tencent, are setting up a 9.76 billion yuan ($1.46 billion) joint venture to invest in ride-sharing industry, Chongqing Changan Automobile said on Friday.
Chongqing Changan Automobile has invested 1.6 billion yuan ($238.70 million) in the investment company in Nanjing with partners such as Alibaba’s investment firm, Tencent’s affiliate, Suning’s investment unit, FAW, and Dongfeng Motor.
Changan, Dongfeng, and FAW will each have a 15 percent stake in the investment firm, while Suning will be the biggest shareholder with a 19 percent stake, Changan said in an exchange filing.
Alibaba and Tencent’s investment units will together hold the remainder shares with some other funds, according to the stock exchange filing.
The joint venture will invest in ride-sharing industry with focus on new energy vehicles. It will set up a ride-sharing company. The firm will not engage in other businesses, according to the filing.
(Reporting by Yilei Sun and Brenda Goh in Beijing; Editing by Shreejay Sinha)
Source: OANN
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