|Bid||3.150 x 0|
|Ask||3.160 x 0|
|Day's Range||3.130 - 3.190|
|52 Week Range||2.910 - 3.840|
|Beta (3Y Monthly)||1.16|
|PE Ratio (TTM)||4.70|
|Forward Dividend & Yield||0.21 (6.65%)|
|1y Target Est||4.49|
(Bloomberg) -- Explore what’s moving the global economy in the new season of the Stephanomics podcast. Subscribe via Apple Podcast, Spotify or Pocket Cast.The engines of China’s economy are sputtering, with exports falling, factory output slowing, investment growth at a record low and consumption coming off the boil.Industrial output rose 4.7% from a year earlier, versus a median estimate of 5.4%, data showed Thursday.Retail sales expanded 7.2%, compared to a projected 7.8% increase.Fixed-asset investment slowed to 5.2% in the first ten months. That was the lowest reading in comparable data back to 1998.The soft data underscored the need for a Phase-one trade deal with the U.S. to put a floor under business confidence. Even as the economy has lost steam, the government and central bank have refrained from dumping stimulus into the economy, preferring to make smaller adjustments to try and boost growth without a massive expansion in debt.“Momentum for slowdown is not yet over,” said Julia Wang, an economist at HSBC Holdings Plc. in Hong Kong. “Given the slowdown is so sharp, it is going to impact maybe the labor market at some point next year, and you are going to see further weakness in domestic demand.”Many Asian stock markets fell to session lows after the readings. Yet, the yuan remains slightly stronger for the day and government bonds have shed some of this week’s gain.China’s Ministry of Commerce spokesman Gao Feng on Thursday said removing existing tariffs is an important condition for any deal and that China is willing to address core concerns with the U.S. to create conditions for reaching a phase-one deal.Chinese and some U.S. officials last week said they agreed to roll back some tariffs if there is a phase-one deal. But the optimism was quickly damped as President Donald Trump said that he hasn’t agreed to anything. The trade war has lasted more than a year and hurt the global economy. Any re-escalation would further hit investor sentiment.The investment data shows how cautious private companies have become, with their spending in the first 10 months of the year at the lowest level since 2016. The continued stability in spending by state-owned firms’ is preventing an even stronger drop in the headline data.Investment in the property market is one bright spot, with spending by the manufacturing sector barely above the record low recorded in September. Infrastructure investment growth continued to bounce along around 4% as it has all year.“I’m quite concerned with property investment, the only stable element in fixed-asset investment now,” according to Xue Zhou, analyst at Mizuho Securities Asia Ltd in Hong Kong. “Monetary policy needs to be more supportive on economic growth and there should be more cuts to banks’ reserve ratios to help smaller banks.”While the challenges facing the economy shouldn’t be underestimated, the overall momentum hasn’t changed, according to National Bureau of Statistics spokeswoman Liu Aihua, who spoke in Beijing after the data was released.Signaling increasing concern about the level of investment, the government announced a reduction in capital requirements for some infrastructure projects on Wednesday.What Bloomberg’s Economists Say...That decision by the government opens up the fiscal tap a bit further, and given the continued downward pressure on the economy, we expect a faster rise in the number of approved projects in the following months. However, “it’s unlikely that would lift infrastructure investment significantly.”Qian Wan, economist at Bloomberg EconomicsClick here to see the full noteThe People’s Bank of China has made various small policy adjustments to increase the flow of credit and stimulate demand, but has refrained from broad interest rate cuts or other measures that would flood money into the financial system and risk rapidly increasing debt and pumping up another housing bubble.The central bank reduced the cost of 1-year funds for banks for the first time since 2016 earlier this month, reflecting the struggle to support the economy when debt and consumer prices are rising but demand remains weak.“We are very close to the Chinese government’s bottom line,” said Larry Hu, an economist at Macquarie Securities Ltd in Hong Kong. “When the downward trend will turn around depends entirely on when the government will step up their stimulus efforts.”(Updates with comments from China’s Ministry of Commerce spokesman in fifth paragraph)\--With assistance from Tomoko Sato, Yinan Zhao and Kevin Kingsbury.To contact Bloomberg News staff for this story: Miao Han in Beijing at email@example.com;Lin Zhu in Beijing at firstname.lastname@example.orgTo contact the editors responsible for this story: Jeffrey Black at email@example.com, Malcolm ScottFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- China wants to balance functionality with concerns about anonymity as it works toward launching a digital version of the yuan, according to an official from the People’s Bank of China.“The demand from the general public is to keep anonymity by using paper money or coins,” according to Mu Changchun, the director-general of the PBOC’s Institute of Digital Currency. “We are not seeking full control of information on the general public,” rather using “controllable anonymity” for “people who demand anonymity in their transactions. At the same time it will keep the balance” to allow for things like anti-money-laundering actions and combating the financing of terrorism.Read: Why China’s Rushing to Mint Its Own Digital Currency: QuickTakeChina isn’t targeting capital markets or trade-financing centers with its digital currency plans at this time, Mu said, speaking on a panel at the Singapore FinTech Festival on Tuesday. Those things may happen some time in the future, he said, “but it’s far away from us.”The PBOC is poised to become the first major central bank to issue a digital version of its currency. According to new patents registered by the PBOC and official speeches, it could work something like this: Consumers and businesses would download a digital wallet on their mobile phone and load the digital cash from their account at a commercial bank -- similar to going to an ATM. They then use that like cash to make and receive payments with anyone else who also has a digital wallet.Read: From Pigs to Party Fealty, China Harnesses Blockchain Power\--With assistance from Yinan Zhao, Heng Xie and Zheping Huang.To contact the reporter on this story: Joanna Ossinger in Singapore at firstname.lastname@example.orgTo contact the editors responsible for this story: Christopher Anstey at email@example.com, James MaygerFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
Hong Kong commuters faced transport chaos on Tuesday, with multiple metro train stations and lines closed and gridlock on some roads, as the city braced for a second consecutive day of clashes. Police confirmed that live fire was used and that one man had been shot during a confrontation with protesters, an incident that was filmed and circulated on social media. A separate video also went viral showing what appeared to be protesters dousing a man in liquid and setting him on fire.
(Bloomberg) -- Sputtering progress toward a trade deal and signs of weakness in the Chinese economy are looming as the biggest threats to the wave of optimism spreading across emerging markets.Before Friday, developing-nation stocks had touched the highest level since May and currencies held near a three-month high. Then President Donald Trump rattled traders by saying the U.S. hadn’t agreed to a tariff rollback with China, dimming hopes for a preliminary trade deal next month. Beijing wants a deal “much more than I do,” Trump weighed in again on Saturday.A slew of data is forecast to show weakness spread across China’s economy in October, with production slowing. All of which means the yuan will probably continue to set the tone for trading as its correlation with other emerging-market currencies remains near the record high reached in July. The Chinese currency weakened on Monday following a five-week advance, its longest winning streak since February 2018.“There remains considerable uncertainty about how a phase-one agreement will be secured,” said Mansoor Mohi-uddin, a Singapore-based senior macro strategist at NatWest Markets. “Upside strength in the yuan may also be limited by renewed monetary easing.”Read more in China Insight: Look Beyond the Phase One Frenzy to Assess YuanListen here for the emerging markets weekly podcast.Rate Cuts Seen in Mexico, EgyptMexico’s central bank is expected to cut interest rates for the third time this year on Thursday, which NatWest Markets expects to mark the start of faster, deeper reductions that could weigh on the peso. Industrial production probably fell from a year earlier in September, data is expected to show on MondayWith inflation slowing to its lowest level in over nine years, Egypt’s central bank will likely add to this year’s 350 basis points of rate cuts. The Monetary Policy Committee will probably reduce its key rate by a further 100 basis points to 12.25% Thursday, according to a Bloomberg surveyThe Philippine central bank’s interest-rate decision on the same day will probably result in a pause in monetary easing after Governor Benjamin Diokno said this month the authorities have “done more than enough for the year.” Policy makers have delivered 75 basis points of rate cuts and also lowered the reserve ratio. There is also less need to support the economy after growth rebounded to 6.2% in the third quarter“Monetary policy is supportive across regions, but any optimism on growth also relies on the ongoing trade talks to deliver the expected de-escalation,” Barclays Capital Inc. economists Christian Keller in London and Michael Gapen in New York wrote in a reportEconomic Data and EventsChina’s economic reports, which will also include retail sales, will give the latest read on how growth is holding up in the wake of additional U.S. tariffs that took effect in SeptemberThe People’s Bank of China said Monday the nation’s credit growth slowed more than expected last month to the weakest pace since at least 2017, signaling that efforts to prop up the economy through bank lending still aren’t workingInvestors will watch Argentina’s consumer price inflation data for October, released Thursday, as they await details on President-elect Alberto Fernandez’s economic plan. The peso is the worst-performing currency in the world this yearSeptember retail sales and economic activity numbers for Brazil come on WednesdayPeru’s September economic activity index will probably indicate growth is recovering below potential, which may help explain why the central bank unexpectedly cut interest rates in NovemberMalaysia will probably report on Friday that third-quarter GDP slowed as exports struggled; Poland, Hungary, the Czech Republic, Romania and Ukraine will release GDP data on ThursdayTrade-deficit countries India and Indonesia will report October figures for exports and imports on FridayIndia is also due to release October consumer-price and wholesale-price inflation. The central bank last month maintained its sub-4% inflation projections for the year ahead, signaling room for more easing after reducing the benchmark rate five times this yearPresident Trump is scheduled to meet Turkish counterpart Recep Tayyip Erdogan at the White House on Wednesday amid lingering rifts over Ankara’s purchase of a Russian missile-defense system and a U.S. case against Turkish state-lender HalkbankTurkey is set to unveil its current account balance on Tuesday and industrial production data on ThursdaySaudi Aramco will allow investors to start bidding for shares in the world’s most-profitable company from Nov. 17. It left potential buyers in the dark about the size of the stake it plans to sell and the pricing rangeRead more: Aramco IPO Will Lean on Saudis and China as Fund Managers BalkRomanian President Klaus Iohannis won in Sunday’s first round of voting, clinching about 37% of votes, according to preliminary results. A runoff will be held two weeks later against Social Democrat leader Viorica Dancila, whose government was ousted last month and had about 23% of the votesThe finance ministers of Ghana and Zimbabwe will present their 2020 budgets on Thursday\--With assistance from Karl Lester M. Yap and Carolina Wilson.To contact the reporters on this story: Netty Ismail in Dubai at firstname.lastname@example.org;Lilian Karunungan in Singapore at email@example.com;Sydney Maki in New York at firstname.lastname@example.orgTo contact the editors responsible for this story: Dana El Baltaji at email@example.com, Justin Carrigan, Paul WallaceFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- Explore what’s moving the global economy in the new season of the Stephanomics podcast. Subscribe via Apple Podcast, Spotify or Pocket Cast.China’s consumer inflation rose to a seven-year high last month on the back of rising pork prices, complicating policy makers’ decision on whether to further ease funding for the country’s weakening industrial sector.The consumer price index rose 3.8% in October from a year earlier, up from 3% in the previous month.Factory prices fell by 1.6%, compared with the median estimate for a drop of 1.5%.Key InsightsWhile monetary policy isn’t the solution for rising pork prices caused by a supply shock, the People’s Bank of China has stayed relatively restrained compared with other major central banks even as growth has slowed. The bank offered a mini cut to the interest rate of 1-year bank funding this week amid a bond sell-off, while keeping the overall liquidity supply neutral.“The surging CPI inflation is due to supply (mostly pork price) and the worsening PPI deflation is due to demand,” said Larry Hu, head of China economics at Macquarie Securities Ltd. in Hong Kong. “Ideally monetary policy should respond to demand instead of supply. In reality, the PBOC is likely to strike a balance between PPI and pork price.”While further monetary stimulus would help companies struggling with weakening demand, deflation and higher tariffs, even faster inflation would hurt households more. “Persistent deflation in the industrial sector squeezes profitability -- reducing leeway for investment and hiring,” David Qu, economist at Bloomberg Economics in Hong Kong, wrote in a note.Get MoreCPI rose to the highest since January 2012, according to data compiled by Bloomberg.Pork prices were up 101.3%, the National Bureau of Statistics figures showed.Food prices jumped 15.5%; food, tobacco and alcohol combined rose 11.4%, accounting for 3.37 percentage points of the CPI.Some economists have said consumer inflation could rise to 4% soon on the back of surging pork prices(Updates with analyst comment)\--With assistance from Miao Han.To contact Bloomberg News staff for this story: Yinan Zhao in Beijing at firstname.lastname@example.org;Lulu Yilun Chen in Hong Kong at email@example.com;Zhang Dingmin in Beijing at firstname.lastname@example.orgTo contact the editors responsible for this story: Jeffrey Black at email@example.com, James Mayger, Stanley JamesFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- Three Chinese banks are suing the brother of Asia’s richest man in a London court for failing to pay back $680 million in defaulted loans.The Industrial & Commercial Bank of China Ltd., China Development Bank and the Export-Import Bank of China agreed to loan $925.2 million to Anil Ambani’s firm Reliance Communications Ltd. in 2012 on condition that he provide a personal guarantee, ICBC’s lawyer Bankim Thanki told the court. Some repayments were made by the wireless carrier but in February 2017, it defaulted on its payment obligations.The embattled Indian tycoon says that while he agreed to give a non-binding “personal comfort letter,” he never gave a guarantee tied to his personal assets -- an “extraordinary potential personal liability.” He’s the brother of Mukesh Ambani, who’s worth $56 billion and is the wealthiest man in Asia and 14th richest in the world. Anil, on the other hand, has seen his personal fortune dwindle over recent years, losing his billionaire status.ICBC “failed and continues to fail, to distinguish between Mr. Ambani on the one hand, and the company to whom the loans were being extended...on the other,” Ambani’s lawyer Robert Howe said in a court filing.Anil Ambani was chairman of Reliance Communications, which fell into administration earlier this year. His wider telecommunications-to-infrastructure empire Reliance Group has continued to struggle under a mountain of debt. As of July, four of its biggest units, excluding the phone company, had about 939 billion rupees ($13.2 billion) of debt, Bloomberg reported in September.Anil Ambani was caught up in a similar case earlier this year, when India’s Supreme Court threatened him with prison after Reliance Communications failed to pay to pay 5.5 billion rupees to Ericsson AB’s Indian unit. The judges gave him a month to find the funds, and his brother, Mukesh, stepped in to make the payment.The brothers’ relationship has been fraught since their father’s death left behind a vast empire that was split between them. While Mukesh’s oil and petrochemicals businesses have flourished, Anil’s assets dwindled.According to a court filing, Anil went to Beijing in the winter of 2011 to negotiate the loan with ICBC’s former Chairman Jiang Jianqing directly. The lenders sought a share pledge before granting the loans, but the legal dispute centers on whether Ambani or one of his associates went on to provide a personal guarantee as security.Hasit Shukla, Reliance’s commercial and treasury head, signed a personal guarantee on Ambani’s behalf by power of attorney when the loan was set up seven years ago, Thanki said. But Ambani didn’t give Shukla the authority to sign for him, making the guarantee non-binding, his lawyer Robert Howe said in written submissions.“Mr. Ambani’s position is that the claim made by ICBC in relation to his alleged personal guarantee for loans to RCOM is without merit,” a spokesman for the tycoon said in an email.Industrial & Commercial Bank is the sole claimant in the London case, and is representing itself and the other two lenders.“This is a straightforward debt claim to recover outstanding loans made to RCOM in good faith, and secured by a personal guarantee given by Mr. Anil Ambani,” the banks said in a statement.In Thursday’s court hearing, ICBC’s lawyers asked Judge David Waksman for an early ruling or a conditional order requiring Ambani to pay into court the unpaid sum and interest under the facility agreement. Ambani has declined to give any evidence of his wealth, they said.(Adds details of brother’s relationship in 6th paragraph.)To contact the reporters on this story: Ellen Milligan in London at firstname.lastname@example.org;Jonathan Browning in London at email@example.comTo contact the editors responsible for this story: Anthony Aarons at firstname.lastname@example.org, Christopher ElserFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- Sign up for Next China, a weekly email on where the nation stands now and where it's going next.A rash of manufacturing job losses, a collapse in investment, a property-market bust or renewed turmoil in the banking sector: These are the risks that could end China’s current policy of restrained stimulus.So far, they’re being held at bay, and China’s officials are working to keep it that way, managing rather than reversing the slowdown in the world’s second-largest economy.A miniscule cut to the 1-year bank funding rate announced Tuesday amid a bond sell-off is the latest sign of restraint. Both the People’s Bank of China and the fiscal authorities have refrained from stimulating activity through bigger rate cuts and increased spending, wary of reflating the debt bubble they’ve worked hard over the past few years to contain.“China is done with the approach of driving up growth straightaway,” said Nie Wen, an economist at Huabao Trust Co. in Shanghai. “The constrained nature of those policies needs longer time to feed in, and till then, the leaders are stitching the patches to avoid a sharp decline in growth.”The trickiness of the balancing act is best seen in the job market, always the most important focus for the Communist Party’s drive for stability. One problem with that is that the official jobless rate isn’t sensitive enough to identify turning points in the labor market.While the government announced it has “almost achieved” its target of creating 11 million jobs this year, months ahead of schedule, the official unemployment rate is higher than it was last year and could keep rising toward the end of the year, according to China International Capital Corp. And other indicators of employment don’t look so rosy, although there is some signs of stabilization.“The government may resort to more supply-side measures to absorb potential unemployment pressure in a down cycle,” such as easing the barriers for investment in services, given there’s no quick fix to reboot the economy using monetary policy, Liang Hong, chief economist at CICC, wrote in a recent note.Another source of instability would be a rapid deceleration in property investment as developers face tightening financing conditions, according to Yao Wei, chief China economist at Societe Generale SA in Paris.For now, a large amount of construction is still ongoing, but projects are starting at a slower pace and the completion rate is improving. That can lead to two layers of complications -- a quick fall in property starts could jeopardize overall investment, but more completed new houses might boost the sales of second-tier goods from glass to decoration materials and home appliances. The net effect of those two factors will be one to watch.Unless easing trade tensions lead to a revival in companies pouring money into new equipment, the onus will likely remain on the government to increase spending on infrastructure to keep overall investment figures healthy. Authorities have loosened the rules on the financing of major infrastructure and rolled back environment curbs.China’s debt as a share of gross domestic product rose marginally to 257.6% in the first eight months this year from 248.5% at the end of 2018, according to the calculations by Bloomberg Economics. That ratio could pick up faster if the economic slowdown deepens.Debt defaults are increasing, but debt resolutions have lagged behind, Goldman Sachs Group Inc. warned last month. The state takeover of Baoshang Bank Co. worsened the situation of Chinese small lenders, adding to the woes of weaker capital buffers, higher financing costs and difficulty in attracting deposits.Read More: China Debt Iceberg Shows Most Risk in State-Dominated AreasFor now though, the state’s approach to the banking sector appears to have warded off a worse decline in confidence, and the government is now considering sweeping reforms to shore up smaller lenders and force the weaker ones to merge or restructure.“Stability is the bottom line,” said Martin Chorzempa, a research fellow at Peterson Institute for International Economics in Washington. The authorities are “tinkering around” to defusing risks without causing a sharp decline of growth, and people looking for signals of China giving up derisking and hitting the gas of stimulus again would be taking “the wrong way to look at it,” he said.To contact Bloomberg News staff for this story: Yinan Zhao in Beijing at email@example.comTo contact the editors responsible for this story: Jeffrey Black at firstname.lastname@example.org, Malcolm ScottFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- Want to receive this post in your inbox every day? Sign up for the Terms of Trade newsletter, and follow Bloomberg Economics on Twitter for more.If what we’re witnessing is the art of a trade deal between the U.S. and China, it’s feeling a little like the process for a Jackson Pollock.The easiest part, according to U.S. Commerce Secretary Wilbur Ross, should be for both sides to decide on the location for leaders Donald Trump and Xi Jinping to sign phase one of agreement. But U.S. officials signaled in the past in the past 24 hours that the U.S. locations under consideration — Iowa, Hawaii, maybe even Alaska — have been ruled out while more neutral venues in Europe and Asia are scouted.The timetable is less clear, too. After speaking optimistically that Trump and Xi should be able to stick to their plan to meet this month to ink the partial deal, and then watching the stock market soar to a record on renewed optimism for both economies, some U.S. officials are now saying the signing summit might slip to December. The “consensus in principle” that China declared last Friday suddenly sounded less than air tight. And most importantly, the substance that will wind up on paper is still all over the place. China just said both sides have agreed to roll back tariffs on each other’s goods in phases as they work toward the deal. That sounds like a big U.S. concession, but one that comes with an equally big “if:”“If China, U.S. reach a phase-one deal, both sides should roll back existing additional tariffs in the same proportion simultaneously based on the content of the agreement, which is an important condition for reaching the agreement,” Ministry of Commerce spokesman Gao Feng said Thursday.Trump likes what his tariffs on some $360 billion of Chinese imports are doing to redirect supply chains away from China and for the revenue boost that import taxes are giving to a Treasury Department that’s facing a $1 trillion budget deficit. While he may remove the threat of more levies on Dec. 15, he’s unlikely to roll back the existing ones without something of substance in return.China is trying to make the decision easier for him. Chinese officials this week sentenced three people to maximum punishments for smuggling fentanyl to the U.S., a high-profile crackdown against the illicit flow of opioids that Trump called for as part of the broader trade talks. In another move, China is studying the removal of curbs on U.S. poultry imports, according to Xinhua.Ross explained one possible reason that it’s not coming together neatly and quickly. “Trade deals are very, very complicated and this one is particularly complicated,” he said in an interview Sunday with Bloomberg Television.Charting the Trade WarThe European Commission lowered its prediction for EU export market growth for this year and next: “Global policy uncertainty is expected to continue weighing on trade in the quarters to come, driven by the ups and downs of the trade conflict between the U.S. and China and the global increase in protectionism as also other countries have ramped up their rhetoric and started introducing new trade barriers themselves.”Today’s Must ReadsCar tariff threat | The EU’s trade chief said a U.S. threat to impose tariffs on European automotive goods later this month persists while sounding cautiously optimistic that levies will be avoided. Services exports | Israel is pushing to upgrade major trade agreements to help boost the country’s growing technology export such as such as cyber security and banking. Germany struggles | Industrial production in Europe’s biggest economy continued to worsen, putting a damper on recent signals of improvement in the region. Beef binge | Brazil’s beef exports reached a record last month on soaring shipments to China, which has been opening doors for foreign meat in the wake of an African swine fever outbreak. Stephanomics podcast | The 2020 U.S. presidential election may be a year away but one policy idea is already stirring fierce debate: a big-time tax on the richest Americans.Economic AnalysisChina inflows | A clear signal from the People’s Bank of China this week that it retains an easing bias has accelerated inflows of foreign capital into Chinese stocks and bonds. German worry | September production figures show industry acted as another big drag on economic growth in Germany. Coming UpNov. 8: China, Germany and France trade balances Nov. 12: Trump speaks on trade at the Economic Club of New YorkLike Terms of Trade?Don’t keep it to yourself. Colleagues and friends can sign up here. We also publish Balance of Power, a daily briefing on the latest in global politics.For even more: Subscribe to Bloomberg All Access for full global news coverage and two in-depth daily newsletters, The Bloomberg Open and The Bloomberg Close.How are we doing? We want to hear what you think about this newsletter. Let our trade tsar know.To contact the author of this story: Brendan Murray in London at email@example.comTo contact the editor responsible for this story: Zoe Schneeweiss at firstname.lastname@example.orgFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- Sign up for Next China, a weekly email on where the nation stands now and where it's going next.China just hit the pause button on its gold-buying spree.The People’s Bank of China kept holdings level 62.64 million ounces in October, unchanged from a month earlier, according to data on its website on Thursday. That holding pattern follows 10 straight months of accumulation that have boosted the nation’s stockpile by more than 100 tons.Central-bank purchases have been an important feature of the global market this year, with official sector demand helping to support gold prices and offset a drop in demand from consumers. The backdrop to Beijing’s accumulation has been the nagging trade-war with the U.S., which has hurt growth.Gold for immediate delivery traded 0.3% lower at $1,486.56 an ounce at 4:33 p.m. in Beijing, with losses following a statement from China that it’s agreed with Washington to roll back tariffs on each other’s goods in phases as the two sides work toward a deal. The precious metal is still up 16% this year.To contact the reporter on this story: Ranjeetha Pakiam in Singapore at email@example.comTo contact the editors responsible for this story: Phoebe Sedgman at firstname.lastname@example.org, Jake Lloyd-SmithFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- Explore what’s moving the global economy in the new season of the Stephanomics podcast. Subscribe via Pocket Cast or iTunes.While Tuesday’s move by the People’s Bank of China to trim a benchmark for bank funding costs has helped halt a slide in the country’s bonds, market participants see little scope for more robust moves by the central bank that could offer further support.That leaves yields, which have climbed the past two months even as economic growth weakened, remaining under pressure -- all the more so with central and local government debt issuance expected to climb. Key to investor concerns is inflation, which probably hit the highest in more than seven years last month.“Probably more action is needed to bring yields down further, but authorities may not want to do it in an aggressive manner because of the inflation outlook,” said Suan Teck Kin, Singapore-based economist at United Overseas Bank. “Bond investors should expect only a gradual drop in yields.”Tuesday’s announcement from the PBOC, when it cut by 5 basis points the rate on a tranche of medium-term funds extended to banks, came after weeks of inaction by monetary authorities to address evidence of a weakening economy. Concerns about consumer-price pressures probably explained the delay, said Wu Zhaoyin, chief strategist at Avic Trust Co. in Shanghai.Market participants will next be watching how the PBOC handles further batches of medium-term funds that come up for renewal. Tranches are due on Dec. 4 and Dec. 16, when officials could trim rates by another 5 to 10 basis points, according to Goldman Sachs Group Inc.Wu is among those doubting whether the PBOC will also reduce the seven-day reverse repurchase rate. The central bank had raised that money-market benchmark during the Federal Reserve‘s tightening cycle, but has held off on lowering it even as the U.S. shifted to easing this year.Ten-year Chinese government bond yields were around 3.25% in Shanghai midday Thursday, down from the October high of 3.31%, though still well up on the September low of 3%.Also in focus for the market is the likelihood of greater supply, as fiscal authorities take steps to shore up growth while the central bank limits its actions.Some analysts have forecast new issuance of local-government bonds could reach 5.5 trillion yuan ($786 billion) in 2020, marking a year-on-year jump of 28%. Local authorities also have more than 2 trillion yuan ($286 billion) of notes maturing next year, according to data compiled by Bloomberg -- a record and 58% more than this year’s level.Meantime, the central government’s fiscal targets are up for discussion at the annual Economic Work Conference, typically held in December. This year already saw a widening in the budget deficit to 1.83 trillion yuan from 1.55 trillion the previous year, with the gap filled by additional debt. Fiscal stimulus didn’t arrest a slowdown that may drop below 6% in the final quarter of 2019.“With consumption still weaker than expected, a trade deal not yet in hand, and the housing market under scrutiny, China has to rely more on fiscal stimulus,” said Wu at Avic Trust.\--With assistance from Jing Zhao.To contact the reporter on this story: Hong Shen in Singapore at email@example.comTo contact the editors responsible for this story: Richard Frost at firstname.lastname@example.org, Christopher Anstey, Sofia Horta e CostaFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- China’s yuan rallied past 7 per dollar only yesterday and analysts are already warning the strength won’t last.The currency jumped as much as 0.60% to 6.9880 a dollar Tuesday, trading stronger than the key level for the first time since August. The offshore rate rose as much 0.66%. The level had been a key support for the currency for years until August, when the central bank allowed it to weaken past 7 for the first time in more than a decade.China’s yuan has proven to be a good barometer of progress in trade talks between Beijing and Washington. Its surge in the past month came as the two sides inched toward a deal and the greenback weakened. Still, the latest gains coincide with China’s slowest economic growth since the early 1990s -- a factor that prompted the central bank to lower one of its many interest rates on Tuesday.“The yuan’s rally above 7 will only be temporary,” said Commerzbank AG’s Zhou Hao, the top yuan forecaster. “The MLF cut shows the Chinese central bank may see a strong currency as harmful to the economy.”Zhou also pointed to the People’s Bank of China’s daily reference rate -- which was set weaker-than-expected in the four sessions through Tuesday -- as a factor limiting more gains. The fixing has been closely watched after the PBOC set it weaker than 7 per dollar in August, shattering a psychological barrier that officials had spent years defending.The central bank set the daily reference rate at 7.0080 on Wednesday, slightly stronger than predicted. The offshore yuan gained 0.05% to 6.9989 after the fixing.The Chinese currency has now rebounded 2.4% since it fell to the weakest level since 2008 in early September. U.S. Commerce Secretary Wilbur Ross said Tuesday that reaching a phase-one deal will help rebuild trust between the two sides and could serve as a precursor to more talks.“The easing trade tensions helped to override the downside surprises seen in the dreary China domestic economic data and have contributed to a convincing rally on the yuan,” said Stephen Innes, a strategist at AxiTrader Ltd.While Citigroup Inc. strategists say the yuan might strengthen toward 6.9 if Washington agrees to roll back tariffs imposed on Chinese goods in September, Li Liuyang, an analyst at China Merchants Bank Co. said doubts will remain until a deal has been finalized.Societe Generale SA’s Jason Daw says the yuan is more likely to weaken to 7.2 in the coming months, rather than strengthen to 6.8. That means there’s no point chasing the rally now, he wrote in a Wednesday note.The median forecast of analysts surveyed by Bloomberg is for the yuan to end the year at 7.15.(Adds analyst comment in second-to-last parapraph)\--With assistance from Tian Chen, Claire Che and Qizi Sun.To contact Bloomberg News staff for this story: Livia Yap in Shanghai at email@example.comTo contact the editors responsible for this story: Sofia Horta e Costa at firstname.lastname@example.org, Philip GlamannFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- Terms of Trade is a daily newsletter that untangles a world embroiled in trade wars. Sign up here. President Xi Jinping stressed China’s commitment to the global trading order as his trade negotiators wrangle with the U.S. over rolling back punitive tariffs ahead of a phase one deal.As Xi spoke in Shanghai, the nation’s central bank acted in Beijing to stem a sell-off in the debt market. The People’s Bank of China reduced the cost of 1-year funds to banks for the first time since 2016 after a week in which investors had dumped debt amid fears of tightening liquidity.At the opening of the second annual China International Import Expo, Xi said the country would “open its doors only wider” to the world. He refrained from taking a swipe at his U.S. counterpart Donald Trump, as he’d done the previous year, and didn’t reference the prospective deal to defuse the tariff war.“We must all put the common good of humanity first rather than place one’s own interests above the common interests of all,” Xi said.Chinese and U.S. officials are currently wrangling over the extent to which the Trump administration will roll back previous tariff increases as the price for Xi agreeing to travel to the U.S. to ink a so-called phase one deal, according to people briefed on the discussions.Chinese RestraintAmid the trade standoff, China has sought to stabilize the economy without flooding it with liquidity for fear of worsening its debt problems. It has retaliated against Trump’s tariff barrage but been careful not to escalate a conflict that’s sapped confidence and weighed on manufacturers.“It is obvious that deep conflicts of interest still exist between China and the U.S.,” Li Yang, a member of the government think tank the Chinese Academy of Social Sciences, said in an interview in Shanghai after Xi’s address. “But China and the U.S. have now embarked on a path seeking practical solutions. I feel the likelihood for a major clash or start of a new cold war has disappeared.”The central bank has been similarly restrained this year, defying many economists’ expectations of major stimulus. Tuesday’s 5 basis-point reduction in the 1-year medium term lending facility was greeted as largely symbolic in economic terms, though it did stop the rot in bonds for now.The offshore yuan on Tuesday strengthened past 7 per dollar for first time since falling below that key level in August. China’s benchmark 10-year yield dropped the most since August, while the cost on 12-month interest-rate swaps fell the most in a month.Economic growth has slowed to the weakest pace in almost three decades, with economists forecasting that the expansion will slip further to below 6% next year. Rather than embark on a short-term stimulus boost though, Xi’s government has instead focused on defusing the nation’s ticking debt bomb and promoting structural changes such as the shift to a more consumption-led economy.“China will give greater importance to imports,” Xi said Tuesday. “We will continue to lower tariffs and institutional transaction costs,” he added, repeating earlier pledges. China’s imports have contracted this year.“Xi’s speech endorsed the trade optimism as he indicated that he sees negotiations as the right way to solve disputes,” said Gai Xinzhe, a senior analyst at Sino-Ocean Capital in Beijing. But Xi also warned against “intellectual blockages” and “widening technology gap,“ highlighting China’s worry over the technology decoupling some U.S. politicians are advocating, he said.Tariff DemandsChinese negotiators continue to chip away at the wall of U.S. tariffs imposed on their exports since last year, wary of conceding too much for fear of a political backlash at home.Negotiators asked the Trump administration to eliminate tariffs on about $110 billion in goods that were imposed in September and lower the 25% tariff rate on about $250 billion that began in 2018, some of the people familiar with the talks said.China has also previously demanded that Trump cancel plans to impose duties on roughly $160 billion in imports, scheduled for Dec. 15, which would hit consumer favorites like smart-phones and laptops. At the very least, those tariffs have to be taken off the table for Xi to get on a plane to meet Trump, people familiar with China’s plans said.The prospective deal for agreement this month would not address most of the major structural complaints that the U.S. has made, with thornier topics like state industrial subsidies or intellectual property theft left for later rounds, according to U.S. Commerce Secretary Wilbur Ross.Speaking in Bangkok Tuesday, Ross said he was “hopeful that phase one will be precursor for a much more robust set of agreements.”“I’m reasonably optimistic we can get something done,” he said.\--With assistance from Peter Martin, Jenny Leonard, Steven Yang, Niu Shuping, Yinan Zhao, Livia Yap, Claire Che and James Mayger.To contact the reporters on this story: Jeffrey Black in Hong Kong at email@example.com;Charlie Zhu in Shanghai at firstname.lastname@example.orgTo contact the editors responsible for this story: Jeffrey Black at email@example.com, ;Sharon Chen at firstname.lastname@example.org, Malcolm ScottFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- Explore what’s moving the global economy in the new season of the Stephanomics podcast. Subscribe via Pocket Cast or iTunes.China’s central bank reduced the cost of 1-year funds to banks for the first time since 2016, seeking to calm markets nervous about tightening liquidity amid a slowing economy.The People’s Bank of China lent 400 billion yuan ($57 billion) with its medium-term lending facility and lowered the interest rate on the loans to 3.25% from 3.3%, according to a statement. The injection replaced 403.5 billion yuan of loans that mature Tuesday.The cut reflects the bank’s cautious approach to stimulus and shows the difficulty in setting policy when debt and consumer prices are rising but industrial prices are falling due to weak demand. Concern about that cautious stance prompted traders to sell Chinese bonds last month, and while this reduction doesn’t immediately cut rates in the real economy, it could do so if banks pass along the lower borrowing costs.The central bank is sticking to “neutral, targeted easing,” said Peiqian Liu, China economist at Natwest Markets Plc. in Singapore. The MLF rate cut is “more of a signal to calm markets,” and the PBOC needs to offer more liquidity in the future to effectively lower overall financing cost, she said.How the cut will workThe MLF cut will take a while to filter through to companies’ borrowing costs. Only the biggest banks can use the facility and smaller and rural financial institutions can’t access the cheaper loans. The cut will influence the level of the new de-facto benchmark interest rate - the Loan Prime Rate - when the latest price is released on the 20th of this month. However, not all the new loans are pegged to the LPR yet as it was only introduced in August. Considering all that, Tuesday’s reduction will likely benefit only some borrowers in a limited way.The benchmark 10-year sovereign yield climbed to the highest level since May last week and rose in October by the most in six months. China’s 10-year government bond yield declined 3 basis points to 3.264% on Tuesday, erasing an earlier gain. Futures on the debt rose as much as 0.41% to the highest level in over a week.What Bloomberg’s Economists Say...“Today’s move reinforces our view that the PBOC is pursuing a gradual and measured easing bias in its monetary policy.”“Looking ahead, we expect the MLF rate to trend lower in the coming quarters, reflecting authorities’ efforts to reduce funding costs for companies.”David Qu, economistSee here for the full noteThere are various contradictory factors limiting the room for large changes in monetary policy. The price of manufactured goods is a falling as demand and the economy slows, which would normally mean the central bank should add stimulus to boost growth.However, consumer prices are rising and some economists expect them to hit 4% as soon as November as pork prices surge. Faster inflation would generally mean the bank would be unlikely to add stimulus. Those constraints, together with Governor Yi Gang’s comments to “cherish” the conventional monetary policy, have prompted economists from Nomura International Ltd. to China International Capital Corp to dial back their easing bets for the remainder of 2019.Authorities refrained from adding cash via open-market operations or with a targeted lending facility last week, resulting in a net liquidity drainage of 590 billion yuan -- the most since February.“As we see from macro data, China needs further targeted easing to support the slowing economy and now with a firmer yuan versus the dollar, they finally have room to cut MLF,” said Stephen Chiu, an Asia FX and rates strategist at Bloomberg Intelligence. The loan prime rate will probably be lowered further and another targeted reserve requirement ratio cut might still be needed in December, he added.(Updates throughout with comments, more details)\--With assistance from Claire Che and Yinan Zhao.To contact the reporters on this story: Tian Chen in Hong Kong at email@example.com;Livia Yap in Shanghai at firstname.lastname@example.orgTo contact the editors responsible for this story: Sofia Horta e Costa at email@example.com, James Mayger, Malcolm ScottFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
China's state-owned banks, which survived the US-China trade war with their asset quality and profitability unscathed, may see their interest margins coming under pressure in the fourth quarter as competition intensifies for deposits.The overall non-performing loans (NPL) ratio in China's banking industry improved by between 1 and 2 basis points in the third quarter. This came at the expense of net interest margins (NIM), especially among the four largest state-run lenders " Industrial & Commercial Bank of China (ICBC), Bank of China, Agricultural Bank of China and China Construction Bank " which fell by about 1 basis point in the third quarter from the previous three months, according to government data."While management at Chinese banks are confident that their asset quality will continue to improve, the pressure on NIM will continue, as the competition for deposit will extend into the fourth quarter," said CIMB International Securities' banking analyst Terry Sun.The squeeze on profitability underscores how China's financial industry is grappling with survival after more than 12 months of a bruising trade war with the United States, amid slowing demand for loans and investments in the local economy's slowest quarterly growth pace in decades.The banks' margins are squeezed by higher returns that they must pay to depositors to attract their funds " the banks' cost " and the interest rate they can charge to lend money to borrowers.The difference between the cost and the revenue, known as the interest rate spread, has been the biggest source of profitability for China's state-owned banks, in an industry where the financial authorities keep a tight grip on the interest rates for deposits and loans.On one hand, Chinese banks have had to offer higher rates on their deposits and investment products to compete for customers, adding to costs for the banks.The expected yield for structured deposits " an investment-linked financial product whose returns are tied to the performance of a stock index, foreign exchange or interest rates " was 3.9 per cent per annum in September, almost double the one-year savings rate at 2 per cent. And the issuance of thee hybrid investment-deposit products will only continue with ever-higher costs to the banks, analysts said.On the other hand, banks have seen their loans rates cut, after the central bank loosened its grip on lending rates by switching to a loan prime rate (LPR) regime. The one-year LPR was cut twice by a combined 11 basis points in August and September, while the five-year LPR " the benchmark used for residential mortgage loans " was left unchanged.That would benefit China Construction Bank the most, as its sizeable mortgage loans book at 5.06 trillion yuan puts it in the best position to gain from the higher lending rate, said Sun.Still, the net interest margin among Chinese banks, at close to 2 per cent, compares favourably with Japanese banks at less than 1 per cent and with European lenders at between 1 and 2 per cent, said Societe General, in a report last week. Investors' concerns on the profitability and growth of Chinese banks may have been "overdone," the bank said, recommending investors to go "long" on the industry.The financial picture among banks had been rosy thus far, with the industry's overall profitability inching up during the third quarter, compared with the preceding three months. Overall third-quarter net profit growth rose 7.5 per cent, 20 basis points higher than the three months ended June, in line with analysts' expectations.Agricultural Bank reported the fastest profit growth among the so-called Big Four, with third-quarter net profit rising 5.8 per cent to 59 billion yuan, even though revenue was little changed at 151.8 billion yuan (US$21.6 billion). For the first nine months, the net income of Beijing-based Agricultural Bank rose 5.2 per cent to 180.3 billion yuan, from the same period last year.Bank of China, which traces its root to 1912, had the lowest profit growth rate among the four, with third-quarter net income growing 3 per cent to 45.53 billion yuan, while its nine-month net profit was up 4.1 per cent to 159.6 billion yuan."Revenue from cross-border banking services accounted for less than 10 per cent of the Chinese banks' business, [which helped] cushion Chinese banks from the impact of US-China trade tensions," Sun said. "The exception is Bank of China, whereby cross-border trade financing and other revenues account for 25 per cent" of its business, he said.This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2019 South China Morning Post Publishers Ltd. All rights reserved. Copyright (c) 2019. South China Morning Post Publishers Ltd. All rights reserved.
(Bloomberg) -- A rare, simultaneous bout of weakness is hitting Chinese bonds and stocks, exposing growing unease about the dual brunt of slowing output growth and rising prices in the world’s second-largest economy.Up until recently, stock investors could take a measure of solace from weakening economic growth, confident that policy makers would respond with expanded stimulus measures -- even if they weren’t the same scale as in years past. But now, a jump in inflation is cementing the view that the People’s Bank of China isn’t likely to roll out large-scale stimulus soon. It’s not the same magnitude of stagflation that walloped stocks and bonds alike in the U.S. in the 1970s and early 1980s. But the nervous undercurrents in Chinese markets are drawing attention to Beijing’s policy dilemma, one that is complicated by the trade tensions and elevated debt levels.“A weak economy is well expected, but the problem is that inflation has reduced space for the central bank to ease policy,” said Amy Lin, a Shanghai-based analyst at Capital Securities.There were some signs of a respite on Friday, with the Shanghai Composite Index up 0.9% as of 2:06 p.m. local time, following an unexpected gain in a manufacturing gauge that cut against the run of recent data. Yet it’s still down about 4% since the end of April, while the MSCI World Index of developed stocks is up 2.6% in that time. And it’s 10% off of its high for the year.On the bond side, Chinese government securities have under-performed their peers this year, more than doubling the 10-year yield premium over Treasuries to about 157 basis points.Ten-year bonds are heading for fourth straight week of declines. The latest disappointment: the People’s Bank of China’s decision to drain a net 590 billion yuan ($84 billion) from the financial system this week by allowing money market loans previously issued to financial institutions to mature.The PBOC has also held off on using a one-year targeted lending tool, which was widely expected among central bank watchers since last week. Even before recent price rises, the central bank was wary of cutting actual lending rates out of concern for high debt levels and the stability of the financial system. Higher inflation now on balance makes it even less likely that dramatic easing is on the cards.Consumer prices rose 3% in September from a year earlier, propelled by a 69% surge in pork prices thanks to the outbreak of swine fever that’s ravaged hog production in the world’s biggest consumer of the meat. Deutsche Bank AG doesn’t rule out a further climb to 4% inflation.Read here how China’s monetary policy is being hamstrung.“Pork is not a small deal -- there are already signs of some fine-tuning of monetary policy,” said Qu Qing, Beijing-based chief economist at Jianghai Securities, who thinks inflation could even surpass 4.5% in January. It’s a new element for policy makers up to now focused on holding down real-estate prices, according to Qu.And what’s next for markets?“It all depends on what the central bank does next,” Qu said.To contact the reporter on this story: Shen Hong in Singapore at firstname.lastname@example.orgTo contact the editors responsible for this story: Richard Frost at email@example.com, Christopher Anstey, Jeffrey BlackFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- China’s central bank has helped trigger a massive sell-off in government debt by doing nothing at all.The People’s Bank of China disappointed bond traders by skipping open-market operations every day this week -- effectively withdrawing 560 billion yuan ($79 billion) from the financial system. It has also wrong-footed bond bulls by not deploying a one-year targeted lending tool, despite the move being widely expected since last week.Beijing’s message to markets on stimulus is no different to the calibrated approach it has stuck to all year. But the inaction this week stands out when most of the world’s central banks are easing, with the Federal Reserve cutting rates Wednesday for a third time this year. Throw in China’s surging inflation and the looming wall of supply from local authorities -- the result is the worst rout in sovereign bonds since April.“The PBOC has refrained from flooding the market with cash partly because it remains wary of risks from a high debt buildup and the country’s still bubbly property market,” said Zhu Chaoping, a Shanghai-based economist at JPMorgan Asset Management. “This has limited the room for further monetary easing.”Concern that additional cash injections won’t necessarily direct money into the real economy is keeping policy makers cautious, said Nathan Chow, an economist at DBS Bank Hong Kong Ltd. Beijing won’t want to flood markets with cheap funds and risk inflating a bubble in the property market -- or increase leverage in the financial industry.“China needs to unclog monetary policy transmission,” Chow said.The spread between 10-year Chinese and U.S. government debt is nearing the widest in almost two years. That gap makes yuan-denominated assets more attractive for international investors, which could cushion its tightly-managed but fragile currency.China has chosen not to follow the Fed on its latest easing path, relying instead on tools such as its daily liquidity operations and banks’ reserve requirements to free up funds. It introduced a new loan prime rate in August as part of its interest-rate overhaul aimed at lowering borrowing costs. But it has yet to pull the trigger on the official lending rate.Investors may get fresh clues on policy after the Chinese Communist Party concludes its key four-day meeting, where officials are expected to discuss the country’s next five-year economic blueprint. Data Thursday showed the outlook for China’s manufacturing sector worsened in October.But for now, the risk is that China’s bond market will keep tumbling as traders price in the reality of limited liquidity injections. The 10-year yield slipped Thursday after touching a five-month high this week.“Traders are now rushing to sell government bonds and stop losses,” said David Qu, an economist at Bloomberg Economics. “We may see more buying when the 10-year yield is close to 3.4%.”(Adds Thursday’s liquidity withdrawal in second paragraph, economic data in ninth paragraph)\--With assistance from Claire Che and Tian Chen.To contact the reporter on this story: Hong Shen in Singapore at firstname.lastname@example.orgTo contact the editors responsible for this story: Richard Frost at email@example.com, Sofia Horta e CostaFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- China’s central bank offered little in the way of relief to bond traders as it allowed last week’s massive cash injections to mature.The People’s Bank of China skipped open-market operations again Tuesday, effectively draining 250 billion yuan ($35 billion) in liquidity from the financial system as funds come due. It said fiscal spending at the end of the month will offset maturities, according to a statement. Another 290 billion yuan is maturing in the next three days.Whether China will act to slow the sudden downward spiral in government debt has become a key question for investors. Monday’s effective net withdrawal spooked a bond market already under pressure from returning risk appetite, with China’s 10-year yields surging the most since April. Selling momentum on sovereign notes was the strongest since late 2017.“Following two days of net cash drainage, there are strong expectations that the PBOC will conduct targeted medium-lending facilities to add liquidity tomorrow,” said Zhaopeng Xing, a markets economist at ANZ Bank China Co. He added the central bank may inject nearly 300 billion yuan on Wednesday. “But I don’t think a turning point has appeared for the sliding bonds, which will continue to be pressured until a phase-one trade deal is signed.”The PBOC defied some market watchers’ expectations by not using the targeted monetary tool since last week to inject one-year cash. A spike in 12-month interest-rate swaps shows traders are pricing in tighter liquidity.“The PBOC is quite consistent in that they’re keeping their powder dry for now,” said Tommy Xie, an economist at Oversea-Chinese Banking Corp. “There’s no need for them to ease in a big way, they want to keep some policy buffer for future economic risk.”The yield on China’s benchmark government bonds has jumped about 30 basis points since a low in September, as optimism increases that the country will soon sign a partial trade deal with the U.S. Accelerating inflation also adds pressure to the bond market, as it means Beijing won’t want to inject too much liquidity and risk inflating prices further.China’s 10-year sovereign yield was flat with Monday’s finish at 3.295% as of 10 a.m. in Shanghai.\--With assistance from Claire Che.To contact the reporters on this story: Tian Chen in Hong Kong at firstname.lastname@example.org;Livia Yap in Shanghai at email@example.comTo contact the editors responsible for this story: Richard Frost at firstname.lastname@example.org, Sofia Horta e CostaFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- A sell-off in China’s government bonds is getting worse by the day.The plunge in the sovereign notes accelerated on Monday, pushing the benchmark 10-year yield up by the most since April. Selling momentum surged to the strongest since late 2017, according to the 14-day relative strength index on the rate.Risk appetite has returned as traders become increasingly optimistic that China and the U.S. will sign a partial trade deal next month. Meanwhile, bets for aggressive monetary easing have waned as the Asian nation’s inflation grew at a faster-than-expected pace in September.The People’s Bank of China skipped open-market operations and refrained from using a targeted tool to add one-year cash on Monday, effectively draining a net 50 billion yuan ($7.1 billion) from the financial system as previously issued reverse repurchase contracts came due. Officials will provide a hint on whether they are willing to keep borrowing costs low as another 540 billion yuan of short-term funds mature over the rest of the week.Read: Analyst says the PBOC may add funds via targeted medium-term lending facility this week“Sovereign notes could drop more toward the confirmation of a trade deal in November,” said Stephen Chiu, an Asian currency and rates strategist at Bloomberg Intelligence. The debt will look attractive when the yield is close to 3.4%, he said, adding the rate could fall to 3.2%-3.3% by year-end. “I don’t think the risk-on mood could last. It’s too early to call it a happy ending of the trade war.”The yield on China’s 10-year government bonds rose 6 basis points to 3.3% as of 4:50 p.m. in Shanghai. The cost has jumped 29 basis points since hitting a nearly three-year low in early September, making the notes some of the worst-performing in Asia.The yuan’s 12-month interest-rate swaps climbed to 2.84%, the highest since May, suggesting traders are pricing in tighter liquidity.To contact the reporters on this story: Tian Chen in Hong Kong at email@example.com;Claire Che in Beijing at firstname.lastname@example.orgTo contact the editors responsible for this story: Sofia Horta e Costa at email@example.com, David Watkins, Philip GlamannFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- Sign up for Next China, a weekly email on where the nation stands now and where it's going next.Chinese billionaires Jack Ma and Pony Ma, who built their online finance empires by dominating the country’s online payments industry, are facing what could be the strongest competitor yet: the central bank.The People’s Bank of China is set to provide its own electronic version of the yuan soon, potentially the first major central bank in the world to issue a digital national currency. In doing so, the PBOC is throwing down the gauntlet to Ant Financial’s Alipay and Tencent Holdings Ltd.’s WeChat Pay for a share of China’s $27 trillion payments industry.In China, smart-phone-based electronic payments are ubiquitous, used for everything from bus-rides and convenience stores to vegetables at the local market -- and 94% of those transactions are controlled by the two firms. Yet private-sector primacy in a critical industry is becoming a rarity in China under President Xi Jinping, spelling tougher times ahead for the tech giants. A central bank-backed digital wallet could severely undermine the payments services that are the beating heart of Ant’s and Tencent’s businesses.“The central bank is trying to regain the power it lost, as it simply can’t allow private companies to dominate payments which lie at the heart of the finance system,” said Zhu Chen, the founder of Wisburg, a Shanghai-based financial and research consultancy. He forecasts that the PBOC could take as much as a third of the payments business. “Expect some big blows to WeChat Pay and Alipay,” he said.Much remains unclear about the threat that the digital yuan will pose to the existing businesses, including the extent to which the public will be willing or required to take it up. Executives from both companies have also not commented on it in public, though Ant Financial has worked with the regulator on it.The PBOC has yet to set a time-line or plan of implementation, but official speeches suggest it could work something like this: Consumers and businesses would download a digital wallet on their mobile phone and load the token from their account at a commercial bank -- similar to going to an ATM. They then use that like cash to make and receive payments.That’s subtly different from the existing mobile payments function, which are essentially processing claims on a bank account much like a debit or credit card. But the state token, if it gains acceptance, would help Chinese regulators maintain a better grasp of the country’s money supply.Mobile payments for consumption represent 16% of gross domestic product in China, compared with less than 1% in the U.S. and U.K. where credit cards are more popular. As the nation becomes essentially cashless, the authorities have been paying ever more attention to the companies that operate the financial plumbing.“Those big tech companies bring to us a lot of challenges and financial risks,” Yi Gang, China’s central bank governor, said during a conference earlier this year. “You see in this game, winners take all, so monopolies are a challenge.”Zhu reasons that if Chinese regulators see payments as a sector of vital strategic importance, then the state will target at least one third of market share to achieve control. The usefulness of a payment function to the general public has proven to be so great that both Tencent and Alipay have been willing to pour billions into the business just to win market share. Even though they are inherently loss making -- free to the user but incurring fees from banks -- payment services are a key way to keep nearly a billion people using the apps and available to buy other finance services.Already Chinese regulators have curbed one of Alipay and WeChat Pay’s most lucrative businesses – the interest they gain from escrow funds. The PBOC has also reclaimed its authority in the clearing and settlements service, requiring all third party payment systems to connect to a company called Nets Union Clearing Corp. that links with the central bank. That’s effectively stopped the duo playing the role of what Yi described as a “second central bank.”China’s ruling party is adamant about the state controlling key sectors that pose systemic risk -- finance being one of the most important. “We have to have the borderline between central bank and big tech companies,” said Yi.Mighty IncumbentsAnt Financial, owner of Alipay, and Tencent declined to comment for this story. The PBOC didn’t respond to a fax seeking comment on their digital currency plans.It won’t be easy to uproot the mighty incumbents though. For years, users have linked their bank saving cards to the apps, which also include a wide range of other useful services, to pay for daily outlays. Alipay and WeChat Pay each have more than 900 million active users in the country.The simple part of the plan is that the token could replace existing cash -- part of an effort to prevent money laundering -- but if the PBOC wants to win more payment share, it will have to build a network where merchants are willing to accept the token directly. That would require a lot of work, said Ryan Zheng, co-founder of RiverPay, which helps Alipay and WeChat Pay connect with merchants.The risk for the PBOC is that adoption is weak, undermining the institution’s reputation. That’s a concern on the minds of many central banks around the world also grappling with the impact of digital payments and currencies.To listen to PBOC officials though makes it clear that these are just practical considerations beside the bigger themes at stake.“Currency means interest, power, global politics and diplomacy,” said Wang In, director of the People’s Bank of China research bureau, during a conference this year. “If a payments tool can provide the function of a currency, then it will definitely have impact on legal tender, and affect how a country manages its currency and financial system.”\--With assistance from Yinan Zhao.To contact the reporters on this story: Lulu Yilun Chen in Hong Kong at firstname.lastname@example.org;Zheping Huang in Hong Kong at email@example.comTo contact the editors responsible for this story: Jeffrey Black at firstname.lastname@example.org;Edwin Chan at email@example.comFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg Opinion) -- Facebook Inc.’s idea of a global cryptocurrency may get demoted to something more humble. You can almost hear a collective sigh of relief from Asian central banks.The original plan was to create a synthetic unit that would hold its value against a basket of existing currencies. Libra was being billed as a future rival to the greenback, a blockchain innovation that would promote financial inclusion by catering to the daily needs of billions of people. It’s a so-called stablecoin, a virtual currency that avoids the wild, speculative gyrations of Bitcoin by tracking the value of a low-volatility asset such as the U.S. dollar.However, a medium of exchange is only one use of money. If a global stablecoin like Libra, fully backed by reserve assets, came to be widely viewed as a store of value, “it could weaken the effect of monetary policy on domestic interest rates and credit conditions, particularly in countries whose currencies are not part of the reserve assets,” a Group of Seven working group noted recently.That’s not a risk central banks in Jakarta or Mumbai would want to take. The outsize role of the dollar in global finance already restricts their maneuverability by triggering untimely surges in capital inflows or outflows. Who wants a new straitjacket? Even governments wouldn’t be happy. Domestic currency held by the public costs a fraction of its face value to produce. The difference is a source of profit for fiscal authorities. A shift in consumer preferences toward Libra would lower this seigniorage income.Given that India and Indonesia are Facebook’s No. 1 and No. 3 markets respectively, by number of users, the only way the social networking site can surmount these monetary and fiscal obstacles and get Libra off the ground may be to drop the plan of a brand-new global currency. “Instead of having a synthetic unit... we could have a series of stablecoins, a dollar stablecoin, a euro stablecoin, a sterling pound stablecoin, etc.,” David Marcus, who heads the Libra project for Facebook, told a banking seminar on Sunday, according to a Reuters report. Going down this route would undoubtedly dilute the proposition. In this possible new avatar, Libra would be no more contentious than Tether, the world’s most used stablecoin. But it would also mean that Beijing, which has been spurred on by Facebook’s ambitions to put the finishing touches to a five-year plan for a digital yuan, would steal a march over Western tech firms in money matters.With a single global token, Facebook could have leapfrogged China by pushing out its currency “to almost 2.5 times the user base of WeChat or Alipay overnight,” says Martin Chorzempa, an analyst at the Peterson Institute for International Economics in Washington. A scaled-down Libra considerably reduces that advantage.The official Chinese crypto would also be a stablecoin, backed fully by yuan assets. But while Facebook is still a fledgling player in payments, digital wallets like WeChat Pay and Alipay are already ubiquitous within China and increasingly visible even outside the mainland, thanks to Chinese tourists. At present, one needs a yuan-denominated bank account to put money into the wallets, which limits international usage. However, once anybody, anywhere can stuff these and other wallets with easy-to-obtain digital yuan, not only would the mainland’s economy be able to junk physical cash entirely, but also the stalled project of internationalizing the Chinese currency would receive new momentum. The share of yuan in global currency trade, stuck at a modest 4.3%, would get a fillip.Would this new order be any less intimidating to the rest of Asia than accepting a subjugation of their policies to Western tech? There are arguments for and against. One advantage in letting Beijing take charge of a globally popular yuan crypto is that the People’s Bank of China will be standing behind it. The Facebook-sponsored, Switzerland-based Libra Association, were it to operate a separate global currency, wouldn’t have the same heft. The logic is simple. The association may have 1:1 reserve backing for the Libra coin it issues, but sooner or later banks will get into their usual act of creating money from thin air by making loans in the digital currency. Who’ll guarantee the stability of this larger edifice? “With a basket-based stablecoin, there is no-one to call,” as ING Bank NV economists Teunis Brosens and Carlo Cocuzzo say.The People’s Bank would welcome the calls. Every appeal to provide liquidity support for its crypto would mean greater recognition of China’s status as the new global superpower: Beijing would get a step closer to its goal of making the yuan the dominant world currency, albeit in a tokenized form. But the flip side is worrisome. Digital currencies won’t offer the same perfect anonymity as cash. While Facebook’s record of protecting users’ privacy isn’t saintly, governments in New Delhi or Jakarta will hardly welcome the prospect of exposing their citizens’ lives to Chinese authorities. In the end, it’s Donald Trump’s stance on Libra that should perplex Asia. The U.S. president has blasted Facebook’s plan. Why is a leader otherwise so determined to delay China’s rise on the world stage not willing to hand over the reins of the dollar’s global dominance to Western tech companies whose behavior the U.S. can still influence? If the sticking point is oversight, it may still be possible to hammer out a compromise, and rescue a global stablecoin.Fitch Ratings says it expects Facebook CEO Mark Zuckerberg to reveal more about how Libra may be regulated in his congressional testimony this week. That may hold the clue to where the next master of Asian central banks will reside: Silicon Valley or Beijing. To contact the author of this story: Andy Mukherjee at firstname.lastname@example.orgTo contact the editor responsible for this story: Matthew Brooker at email@example.comThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.
(Bloomberg) -- The mini trade deal reached between China and the U.S. earlier this month won’t be enough to sustain the rebound in Asian currencies from a 10-year low, according to the region’s top forecaster.“The tariffs are a big hindrance,” said Frances Cheung, the Singapore-based head of Asian macro strategy at Westpac Banking Corp., which has topped Bloomberg’s ranking for Asia ex-Japan currencies for four straight quarters. “The China stance has always been that some tariffs have to be done away in order for them to sign a deal. But Trump is using these tariffs as a bargaining chip.”The world’s two biggest economies agreed, in principle, the first part of a larger trade deal. The initial deal is expected to be signed in mid-November at an Asia-Pacific Economic Cooperation summit in Chile. That’s helped a gauge of Asia ex-Japan currencies advance almost 2% after falling to a 10-year low in early September.While the truce marked the biggest breakthrough in the 18-month trade fight, some of the prickliest disputes -- such as U.S. accusations of intellectual-property theft and industrial subsidies -- remain. Existing tariffs have not been removed and additional American duties on $160 billion of Chinese goods are scheduled to kick in on Dec. 15, putting its economy even more at risk of sub-6% growth.“The sequential timing of the tariffs is something they cannot agree on,” Cheung said in an interview. “That is one main obstacle, let alone other structural issues.”Read related news: Trump Says China Signals Trade Talks on Target for November DealBelow are more of Cheung’s comments. Scroll to the table at the bottom for changes to her year-end forecasts.The yuan will probably weaken to 7.3 per dollar by the end of 2019The People’s Bank of China will continue to loosen monetary policy to support growth; it will probably cut reserve requirements another 50 basis points this year and lower loan prime ratesThe South Korean won, already the biggest loser among emerging Asian currencies this year, could depreciate by another 4.9% by the end of 2019It is “very volatile” and vulnerable to the trade warTaiwan’s dollar will find it difficult to sustain its recent rebound as a stronger currency hurts its exportsIt could decline more than 3% by end-2019The Malaysian ringgit will be among the most resilient Asian currencies as economic growth remains sound, with Cheung expecting it to fall less than 1% by the end of DecemberWestpac sees the dollar remaining firm even as the Federal Reserve continues to cut rates, partly because economic growth in other developed economies remains low; the bank forecasts two more U.S. rate cuts in 2019 and another two next yearYear-end forecastsNOTE: Spot price as of 10:39 a.m. in London on Tuesday.(Updates prices in the table.)To contact the reporter on this story: Lilian Karunungan in Singapore at firstname.lastname@example.orgTo contact the editors responsible for this story: Tomoko Yamazaki at email@example.com, Paul Wallace, Karl Lester M. YapFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- China’s central bank used open-market operations to inject the largest amount of cash into the banking system since May, as upcoming corporate tax payments tighten liquidity conditions.The People’s Bank of China on Tuesday net injected 250 billion yuan ($35 billion) via seven-day reverse repurchase agreements, according to a statement. There were no facilities coming due Tuesday, and the central bank kept the rate steady at 2.55%. China’s 10-year bond yield was little changed at 3.22%.The central bank is acting to fine-tune interbank liquidity conditions while it keeps broader monetary-policy settings stable, seeking to keep credit growth appropriate while avoiding rapid debt build-up as the economy slows. The move comes before an Oct. 24 deadline for companies to pay tax, which typically increases the demand for cash and tightens liquidity.The PBOC injected a net 490 billion yuan in the four days through Oct. 25 last year, and acted last week to funnel 200 billion yuan in one-year funds into the system.“Part of the timing is that we’re in the tax season, but a big part is that China wants to make sure there’s ample liquidity in the system,” said Gerry Alfonso, executive director of the international business department at Shenwan Hongyuan Group Co. “There are a lot of ups and downs, they want to calm the market, and they want to do it in a delicate way.”Government bonds tumbled and a gauge measuring traders’ bets on liquidity tightness jumped to the highest level since May on Monday. Investors turned cautious after local banks unexpectedly kept the base rate for corporate loans unchanged. A local report saying China may limit sales of bond funds also damped sentiment.China’s policy makers are preparing for two key meetings in the coming weeks with fresh evidence that economic growth will slow below 6%. PBOC Governor Yi Gang responded to last week’s gross domestic product data not by hinting at much greater stimulus in the pipeline, but by reminding investors that China’s focus remains on keeping its heavy debt load under control.“The PBOC wants a monetary policy that is not too tight or too loose,” said Larry Hu, head of China economics at Macquarie Securities Ltd. in Hong Kong. The slowing economy limits the room for the officials to tighten policy, while the rise in inflation means they can’t ease too much, he said.“But later this quarter, the PBOC will take a looser stance to aid the economy and the LPR will continue to fall,” Hu said. “The yield on government bonds will have room to drop.”\--With assistance from Claire Che, Helen Sun and Yuling Yang.To contact the reporters on this story: Elena Popina in Hong Kong at firstname.lastname@example.org;Tian Chen in Hong Kong at email@example.comTo contact the editors responsible for this story: Richard Frost at firstname.lastname@example.org, Sofia Horta e Costa, Jeffrey BlackFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- Sign up for Next China, a weekly email on where the nation stands now and where it's going next.Soaring pork prices in China are walloping the country’s inflation-adjusted bond yields, now in danger of turning negative for the first time in seven years.Home to half of the world’s hogs, China’s been hit hard by African swine fever -- more than 200 million pigs have been culled this year. That’s sent the price of pork, a key element in Chinese cuisine, soaring and in turn drove the consumer price index to breach 3% gains in September. Given the 3.22% yield on 10-year government bonds Monday, the highest since July 1, that means a mere 0.2% return for bondholders after accounting for inflation.While extraordinarily low yields -- adjusting for inflation or not -- have become the norm across the developed world, it’s rare in emerging markets. By contrast with China, South Korea’s 10-year bonds offer 2% real yields. Bondholders in India are getting more than 2.5% after accounting for inflation running at almost 4%.And unlike the U.S., Japan and other issuers, China’s government doesn’t sell inflation-linked bonds, which boost returns to investors in lockstep with a gauge of consumer prices. That leaves domestic investors bearing the full brunt of the loss in purchasing power from the latest surge in inflation. And they’re likely to take the pain without demanding greater compensation, market participants say.“The bond market understands that this is purely supply, it’s not a general wage inflation or inflation in the economy,” said Edmund Ng, chief investment officer at Eastfort Asset Management, who previously worked at the Hong Kong Monetary Authority. “The African swine fever will not last forever.”Indeed, National Bureau of Statistics spokesman Mao Shengyong said Friday that pork prices should gradually return to a “normal range,” and played down concerns about inflation. China has worked to restart domestic production by increasing subsidies and loans to help hog breeding. But it may take time to pull down costs -- Bloomberg Economics estimated last month that inflation may surpass 3.5% by December.A decade ago, trends in China’s bond yields tended to coincide with those for inflation, but that link diminished around 2012-13, when the economy decisively put the years of double-digit expansion behind. Investors strengthened their focus on policy makers’ intentions. Now, the assumption is that the People’s Bank of China will look past the pork-induced inflation.Mao also said there is “ample space” for monetary policy to support economic growth, just as third-quarter data showed the slowest expansion since the early 1990s.“Just looking at the pigs, it’s a serious problem, but it isn’t to the extent of panic,” said Li Haitao, deputy director of fund investment at Hexa AMC. “The market is more concerned about other macro factors,” Li said. He expects the bond market to range-trade in the fourth quarter, after 10-year yields stayed within a 3% to 3.44% band this year.(Updates Monday trading throughout)\--With assistance from Masaki Kondo, Dan Murtaugh and Claire Che.To contact Bloomberg News staff for this story: Livia Yap in Shanghai at email@example.com;Xize Kang in Beijing at firstname.lastname@example.org;Heng Xie in Beijing at email@example.comTo contact the editors responsible for this story: Sofia Horta e Costa at firstname.lastname@example.org, Christopher AnsteyFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- China’s base rate for new corporate loans stayed unchanged in October, defying expectations of a reduction as the economy sees its slowest pace of growth since the early 1990s.The one-year loan prime rate was kept at 4.2%, according to a statement from the People’s Bank of China on Monday. That compares to the 4.15% median estimate compiled by Bloomberg. The five-year tenor was also kept unchanged at 4.85%.The LPR is a revamped market indicator of the price that lenders charge clients for new loans, and is linked to the rate at which the central bank will lend financial institutions cash for a year. It’s made up of submissions from a panel of 18 banks, though Beijing has a role in setting the level. The rate is released monthly.A static one-year rate shows China “may be trying to balance the shrinking margins of banks with support to the real economy,” said Zhou Hao, a senior emerging-markets economist at Commerzbank AG. “The PBOC remains restrained on policy easing.”Financial shares were among the biggest winners on the MSCI China Index on Monday as lenders including China Citic Bank Corp. and Bank of Communications Co. rose at least 1%.The nation’s government bonds dropped while money-market rates climbed, amid bets that the policy makers are not in a rush to loosen monetary policy. The yield on 10-year sovereign notes rose three basis points to 3.22%, the highest since July 1, as of 12:02 p.m. in Shanghai. The costs on 12-month interest-rate swaps advanced to the highest level since late May. October’s rate comes as China continues to offer credit support to the economy, including a surprising $28-billion injection of one-year cash into the financial system last week. Gross domestic product rose 6% in the July-September period from a year ago as investment slowed, missing a consensus forecast of 6.1%.The Chinese economy has been under pressure amid a prolonged trade dispute with the U.S., prompting the central bank to ease monetary policy by lowering corporate borrowing costs and cutting banks’ reserve ratios this year. Still, the PBOC hasn’t embarked on an aggressive stimulus program as some market watchers had hoped.“It’s not in line with market expectations,” said Zhaopeng Xing, markets economist at ANZ Bank China. “The PBOC intends to reserve room for future headwinds.”(Updates to add Monday trading in bonds and money-market rates in sixth paragraph)\--With assistance from Claire Che and Lucille Liu.To contact Bloomberg News staff for this story: Livia Yap in Shanghai at email@example.comTo contact the editors responsible for this story: Sofia Horta e Costa at firstname.lastname@example.org, Tian Chen, David WatkinsFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- Explore what’s moving the global economy in the new season of the Stephanomics podcast. Subscribe via Pocket Cast or iTunes.Global economic policy makers may risk making the perfect the enemy of the good.From the Federal Reserve and the German Finance Ministry, to the People’s Bank of China, economic authorities have reacted with restraint to signs of spreading weakness worldwide.As officials gather in Washington for the annual International Monetary Fund meeting, the danger on minds is that they will misjudge the severity of the slowdown -- as they seek to calibrate policy just right -- and allow the risk of a recession to morph into reality.“The global outlook remains precarious with a synchronized slowdown and uncertain recovery,” IMF chief economist Gita Gopinath wrote in an Oct. 15 blog post.Citing a broad deceleration as trade tensions undermine the expansion, the IMF this week cut its 2019 global growth forecast to 3%, the weakest performance since 2009 -- when output shrank and the financial system tottered.Policy makers back then pulled out the stops to fight the downturn, slashing interest rates to rock bottom levels and opening up the spending spigots.The stakes now are not nearly that great, especially since the putative U.S.-China trade truce has reduced -- at least for now -- the biggest risk to the outlook.As a result, officials are fine-tuning policies to achieve objectives rather than just relentlessly pumping up growth. They’re trying to reduce excessive leverage and engineer soft landings for their economies. So the Fed is trimming rates -- it’s expected to move again this month -- while governments are holding off from budget-busting fiscal packages.Out of AmmunitionThere are other reasons for the restrained response. Some central banks -- particularly the Bank of Japan -- are virtually out of monetary ammunition. And it takes time for governments to put together and pass changes in taxes and government expenditures.“Fiscal policy is political and far slower to respond than monetary policy,” Chua Hak Bin, an economist at Maybank Kim Eng in Singapore. It “depends more on the bureaucracy and politics than on the economic cycle.”Another complication: Policy makers don’t have a lot of experience dealing with trade tensions. It’s “something that we haven’t faced before,” Fed Chairman Jerome Powell said in July.China DebtThe more tempered reaction is most evident in China, which is trying to rein in debt that tops 300% of gross domestic product, according to the Institute of International Finance.Rather than launching an all-out borrowing binge as it did a decade ago, the government has responded with more targeted measures, including 2 trillion yuan ($280 billion) of tax cuts and some infrastructure spending.It’s also held off from dramatically loosening monetary policy. “We are not in a rush to roll out massive rate cuts,” People’s Bank of China Governor Yi Gang said Sept. 24.“Policy makers in China have shown restraint and are allowing growth to slow, partly due to a desire to maintain financial stability,” said Shaun Roache, S&P Global Ratings’ Asia-Pacific chief economist.The downside is that growth next year could slip below 6%, the most tepid pace in decades.Japan’s EconomyThe Chinese slowdown has sideswiped Japan’s export-dependent economy.But rather than responding with a looser fiscal stance, Prime Minister Shinzo Abe pressed ahead with an Oct. 1 consumption tax increase that he says is needed to improve the government’s finances but which some economists fear could trigger a downturn.The push to tighten budget policy -- even though countermeasures such as tax breaks on buying cars were also rolled out -- will pressure the BOJ to expand its already unprecedented stimulus measures.GermanyGermany has also felt fallout from China’s downdraft and looks to be on the brink of a recession. Yet the government has so far resisted rolling out a big budget package.That’s despite pleas from outgoing European Central Bank President Mario Draghi that fiscal policy makers should step up after the central bank resumed quantitative easing last month.Europe’s largest economy is prepared to spend “a lot of money” if it faces an economic crisis, but those conditions don’t exist, Finance Minister Olaf Scholz said Oct. 10.Under the country’s constitution, the lower house of parliament must first declare a crisis if the government is to issue debt beyond the normal guidelines.The likely result for now is a “slow-motion stimulus,” Berenberg economist Florian Hense told Bloomberg Television on Oct. 10.Federal ReserveThe Fed, for its part, was fairly quick off the mark to cut rates, by a quarter-percentage point each in July and September, even as the economy powered ahead.But it’s unclear how much further it’ll go even though growth now is slowing. Some policy makers have expressed concern that lowering interest rates may encourage risk taking and fuel financial-market bubbles.Powell has likened today’s situation to two instances in the 1990’s when the Fed cut rates three times, just enough to ensure that the economy “gathered steam and the expansion continued.”But sticking a soft landing and avoiding a crash is not easy.Indeed, research by New York Fed President John Williams suggests the central bank should be aggressive in easing policy when rates are low.Deutsche Bank Securities economist Matthew Luzzetti said trade policy uncertainty may be tempering the Fed’s response as it tries to sort through sudden shifts in President Donald Trump’s stance and their impact on financial markets.That said, global policy makers have pushed out a fair amount of stimulus, particularly in parts of Asia, the trade shock’s epicenter.But whether that will prove enough remains unclear.\--With assistance from Francine Lacqua.To contact the reporters on this story: Rich Miller in Washington at email@example.com;Enda Curran in Hong Kong at firstname.lastname@example.orgTo contact the editors responsible for this story: Margaret Collins at email@example.com, Robert JamesonFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.