BACHY - Bank of China Limited

Other OTC - Other OTC Delayed Price. Currency in USD
0.00 (0.00%)
As of 3:48PM EDT. Market open.
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Previous Close9.91
Bid0.00 x 0
Ask0.00 x 0
Day's Range9.91 - 9.91
52 Week Range9.25 - 12.17
Avg. Volume91,781
Market Cap138.735B
Beta (3Y Monthly)0.84
PE Ratio (TTM)4.40
EPS (TTM)2.25
Earnings DateN/A
Forward Dividend & Yield0.67 (6.70%)
Ex-Dividend Date2019-05-22
1y Target EstN/A
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  • Global Economy Seen Sliding Toward Weakest Growth in Decade

    Global Economy Seen Sliding Toward Weakest Growth in Decade

    (Bloomberg) -- Terms of Trade is a daily newsletter that untangles a world embroiled in trade wars. Sign up here. Intensifying trade conflicts have sent global growth momentum tumbling toward lows last seen during the financial crisis, and governments are not doing enough to prevent long-term damage, the OECD said in its latest outlook.The Paris-based organization cut almost all economic forecasts it made just four months ago, as protectionist policies take an increasing toll on confidence and investment, and risks continue to mount on financial markets. It sees world growth at a mere 2.9% this year.“Our fear is that we are entering an era where growth is stuck at a very low level,” OECD Chief Economist Laurence Boone said. “Governments should absolutely take advantage of low rates to invest in the future now so that this sluggish growth doesn’t become the new normal.”The OECD is the latest institution sounding the alarm over the state of the global economy. In the past two weeks, the Federal Reserve, the European Central Bank, the People’s Bank of China and numerous of their peers have eased policy to shore up demand, urging governments at the same time that fiscal stimulus will be needed to ensure their efforts won’t be futile.Manufacturing has born the brunt of the economic crisis brought about by a tit-for-tat trade war between the U.S. and China. The services sector has proved unusually resilient to the malaise so far, but the OECD warned that “persistent weakness” in industry will weigh on the labor market, household incomes and spending.Additional risks stem from a sharper slowdown in China and a no-deal Brexit that could push the U.K. into a recession and would considerably reduce growth in Europe, according to the report.What Bloomberg’s Economists Say“Trump’s brinkmanship on trade with China has left consumers, businesses and financial markets on edge. Not knowing whether the next Presidential tweet will ease or exacerbate tensions makes for an environment of extreme uncertainty, pushing businesses to turn cautious on investment and hiring, and households to swing from spending to saving.”\--Dan Hanson, Jamie Rush and Tom Orlik.Read the GLOBAL INSIGHTThe OECD said “collective effort is urgent,” and the effectiveness of monetary policy could be enhanced by “stronger fiscal and structural policy support.”It’s a point central bankers have made for months, and their requests are getting more intense. Following the ECB’s latest monetary stimulus push, President Mario Draghi said it’s “high time” for fiscal policy to take charge, signaling there’s not much more his institution can do.“The takeaway for the euro zone today is do not rely on monetary policy to do the job alone,” Boone said. “Start investing to do the structural reforms that need to be done for more sustainable growth, and do it now.”(Updates with OECD’s Laurence Boone starting in third paragraph.)To contact the reporter on this story: William Horobin in Paris at whorobin@bloomberg.netTo contact the editors responsible for this story: Fergal O'Brien at, Jana RandowFor more articles like this, please visit us at©2019 Bloomberg L.P.

  • While the Fed Has No 'Guts,' the PBOC Is on Steroids

    While the Fed Has No 'Guts,' the PBOC Is on Steroids

    (Bloomberg Opinion) -- It’s debatable whether the Federal Reserve has sense, vision or “guts.” But one thing is certain: The U.S. central bank has become a weakling. The People’s Bank of China, on the other hand, is loaded with technocrats on steroids. The Fed’s prestige took a hit this week. Its most powerful regional reserve bank somehow botched a critical market rescue operation – its first overnight repurchase agreement operation in a decade. Monitoring supply and demand in this key funding market should be routine; yet, embarrassingly, the Fed’s main rate shot above its targeted range, just when central-bank officials were convening for their monetary-policy meeting. The New York Fed will follow up its $75 billion emergency-liquidity injection with another equally sized chunk on Thursday.By contrast, open-market operations have become commonplace for China’s central bank, which actively manages liquidity to its liking. That’s less a signal of the PBOC’s draconian grip on the market and more indicative of its increasingly sophisticated efforts to ensure things run smoothly. Since a funding crunch in January 2016, the PBOC has given itself the flexibility to conduct such operations on a daily basis, up from twice a week. There are 49 primary dealers, mostly banks, that carry out the central bank’s bidding. These procedures help the PBOC manage foreseeable yuan shortages in the money market. For example, on Jan. 16, the central bank injected a net 560 billion yuan ($79 billion), the highest on record, into the interbank system via reverse repos to meet consumers’ demand for yuan ahead of the Lunar New Year, when cash gifts are common.The PBOC also isn’t shy about experimenting. Of course, there are the traditional tools: repurchase agreements and reverse repos, which, respectively, drain and inject short-term liquidity into the banks. Yet clever policymakers keep inventing new toys. Last December, the PBOC launched targeted medium-term lending facilities to encourage banks to lend to small businesses. In January, officials introduced central bank bill swaps to help lenders replenish capital by issuing perpetual bonds. The PBOC also uses open-market operations to manage the yield curve, which in China remains relatively steep compared with other global markets. Since the central bank has been cutting reserve ratios its commercial banks are required to hold – to encourage more lending to businesses – it has simultaneously been retiring medium-term lending facilities, effectively dialing up one knob and dialing down another. This ensures that rates in certain parts of the curve don’t drop too low.Wall Street analysts have been calling for the PBOC to cut its benchmark one-year lending rate since early 2019. So far, the central bank has resisted. That’s all for good reason, as I’ve written. The PBOC has realized that a good chunk of blanket easing goes into the real-estate market, which makes China’s housing unaffordable to the middle class and risks stoking social unrest. One can scoff at more obscure open-market operations, saying they’re insufficient to avert an economic recession. But here’s the thing: If a central bank is getting a good read on the economy by engaging consistently with traders, it can send liquidity to pockets of the economy most in need. Rate cuts then become a last resort. That’s a problem the Fed can only dream of having. To contact the author of this story: Shuli Ren at sren38@bloomberg.netTo contact the editor responsible for this story: Rachel Rosenthal at rrosenthal21@bloomberg.netThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Shuli Ren is a Bloomberg Opinion columnist covering Asian markets. She previously wrote on markets for Barron's, following a career as an investment banker, and is a CFA charterholder.For more articles like this, please visit us at©2019 Bloomberg L.P.

  • Bloomberg

    Argentine Billionaire Warns Fernandez Against Closer China Ties

    (Bloomberg) -- Eduardo Eurnekian, one of Argentina’s richest men, has advice for Alberto Fernandez, the populist contender to become the crisis-ridden country’s next president: Don’t lean on China for financial support, stick to the U.S.The 86-year-old billionaire is reacting to speculation that Fernandez, the Peronist candidate who’s favorite to win October’s election, may turn to China for financing as the government is on the verge of default once again. Guillermo Nielsen, an economist linked to Fernandez’s alliance, has talked about a “financial lifebelt called China,” though a representative for the campaign has said the politician for now won’t comment on Chinese money and influence in Argentina.“Turning our back to the U.S. again and seeking an alliance with China to get funds would be a big mistake,” Eurnekian, whose Armenian immigrant family made its wealth through a start in textiles, said in an interview in Buenos Aires. Today his main companies are Corporacion America Airports, which operates about 50 airports globally, and energy producer Cia General de Combustibles SA.The next Argentine president should understand there is no other path to growth than embracing U.S.-style liberalism, based on “principles that generate progress and prosperity,” according to Eurnekian, who has been critical of current President Mauricio Macri and the slow pace of his ultimately failed reforms. “Seeking an alliance with China would only generate more poverty.”Read More: Argentina’s Financial Crisis Creates an Opportunity for ChinaThe rise of China’s global economic power has appealed to mainly leftist governments in Latin America. Between 2005 and 2017, the Asian Communist regime lent $75 billion to the region with Venezuela, Brazil, Argentina and Ecuador receiving 91% of the total, according to a study by the Inter-American Dialogue. In that 12-year period, those countries were governed by left-wing leaders such as Hugo Chavez, Luiz Inacio Lula Da Silva, Dilma Roussef, Rafael Correa, Nicolas Maduro, Nestor Kirchner and Cristina Fernandez de Kirchner.Argentina under Cristina Fernandez, who is Alberto Fernandez’s running mate, sealed a three-year $11 billion currency swap agreement with the People’s Bank of China. And while Macri warmed to the U.S. after 2015 election, he also pursued several agreements with China including renewing the swap deal for another three years and approving the Chinese operation of a space station in Patagonia.China is Argentina’s second-largest trading partner with about $15.6 billion of total trade in 2018. Brazil is the biggest, while the U.S. is third biggest.“If we want to prosper we need to stick to our largest commercial partner, Brazil, which has already decided to ally with the U.S.,” Eurnekian said. “If the country commits a new geopolitical mistake like the several it committed in the last 80 years by picking once and again the wrong political ally, Argentina will be condemned to failure.”To contact the reporter on this story: Pablo Gonzalez in Buenos Aires at pgonzalez49@bloomberg.netTo contact the editors responsible for this story: Nikolaj Gammeltoft at, Carolina MillanFor more articles like this, please visit us at©2019 Bloomberg L.P.

  • China’s Economy Slows Again, Adding Pressure for Policy Action

    China’s Economy Slows Again, Adding Pressure for Policy Action

    (Bloomberg) -- Terms of Trade is a daily newsletter that untangles a world embroiled in trade wars. Sign up here. China’s slowdown is deepening just as risks for the global economy mount, piling pressure on the authorities to do more to support growth.Industrial output rose 4.4% from a year earlier in August, the lowest for a single month since 2002, while retail sales came in below expectations. Fixed-asset investment slowed to 5.5% in the first eight months, with the private sector lagging state investment for the 6th month.The data add support to the argument that policy makers’ efforts to brake the slowing economy aren’t sufficient as the nation grapples with structural downward pressure at home, the risk of yet-higher tariffs on exports to the U.S. and now surging oil prices. Nomura International Ltd. said this all raises the likelihood that the People’s Bank of China will cut its medium-term lending rate on Tuesday.“In terms of policy room, we still think there’s quite a lot for both the Ministry of Finance and the PBOC, but now it’s a matter of whether they want to use it,” Helen Qiao, chief Greater China economist at Bank of America Merrill Lynch said on Bloomberg television. “What I worry about is that policy makers are hesitating at the moment because of the potential implications on the long term impact, so they’re really fallen behind the curve.”The Shanghai Composite swung between gains and losses before closing slightly lower. Futures contracts on China’s 10-year government bond regained losses after the data release to close at 0.07% higher on Monday.The slowdown in output was almost across the board, with food processing and general equipment manufacturing unchanged from last year. Car output rose after declining for four months. Growth in sales of consumer goods slowed to 7.2%, the lowest since April this year, but there was an increase in food sales. The unemployment rate fell to 5.2% from 5.3% in July, within the narrow band it has occupied all year even amid the slowdown.The record oil price surge after a strike on a Saudi Arabian oil facility couldn’t have come at a worse time for China and a world economy already in the grip of a deepening downturn. While the severity of the impact will depend on how long the oil price spike endures, it risks further eroding fragile business and consumer confidence amid the ongoing U.S.-China dispute and already slowing global demand.Saudi Arabia is the largest single source of China’s crude oil imports, which in turn supply about 70% of total demand.After China’s data release on Monday by the National Bureau of Statistics, Citigroup Inc. lowered its growth forecast for the world’s second-biggest economy to 6.2% for this year from 6.3% previously, and to 5.8% from 6% for 2020.“We don’t expect a growth rebound in the fourth quarter anymore, with the new forecast flat at 6.1% year on year,” wrote Yu Xiangrong, a Hong Kong-based economist with Citigroup, referring to the quarterly outlook. “In particular, we now hold a more cautious view on the recovery of infrastructure investment and retail sales.”The People’s Bank of China cut the amount of cash banks must hold as reserves this month to the lowest level since 2007, though it’s still holding off on cutting borrowing costs more broadly.Some 265 billion yuan ($37.5 billion) of 1-year loans from the PBOC to banks will mature on Tuesday. The central bank will likely roll-over at least some of these, giving it an opportunity to cut the rate it charges.Analysts are divided on whether the PBOC would actually take the chance to cut. Some see the need for more significant easing while the other argue the authorities would like to avoid announcing multiple stimulus at once, and they’ll watch the U.S. Federal Reserve before taking any actions themselves. The Fed is expected to cut rates this week.Morgan Stanley expects borrowing costs to be cut by 10-15 basis points as early as this week, likely in the form of an medium-term lending rate cut.What Bloomberg’s Economists Say..“We expect policy support to continue at a measured pace as Chinese authorities strive to put a floor under the slowing economy. Yet, officials are bracing for a long war, and are careful not to deplete their policy ammunition.”-- Chang Shu and David Qu, Bloomberg EconomicsFor the full note click hereIt’s getting more difficult to “safeguard 6%” expansion in the third quarter and growth will likely slow further from the pace in the second quarter, China International Capital Corp. economists led by Eva Yi wrote in a note. Not only is it necessary, but there is room to step up the intensity of counter-cyclical adjustment in a timely manner to make sure economic growth won’t slip below the targeted growth range of 6-6.5%, Yi said.There are likely to be more easing measures including cuts to banks’ reserve ratios and the PBOC’s mid-term lending rate, although that cut probably wouldn’t happen this week, said Peiqian Liu, China economist at Natwest Markets Plc in Singapore. The pace of economic slowdown is faster than expected and the impact of the trade war on Chinese manufacturers has been relatively big, she said.Goodwill TalksNegotiators from China and the U.S. plan to have two rounds of face-to-face negotiations in coming weeks. Both sides have taken steps to show goodwill, and U.S. officials are considering an interim deal to delay tariffs with China, people familiar with the matter told Bloomberg.However, even if those talks do go well and get the negotiations back on track, it may not be enough.“Even a reprieve on the trade front, with U.S. and Chinese negotiators back at the table, will not in itself cure China’s growth malaise,” said Frederic Neumann, co-head of Asian economics research at HSBC Holdings Plc in Hong Kong. “There is a growing risk that keeping the reins too tight may push growth much lower.”(Updates with Morgan Stanley comments and markets reaction.)\--With assistance from Amanda Wang, Tian Chen, Yinan Zhao, Enda Curran, Dan Murtaugh and Claire Che.To contact Bloomberg News staff for this story: Miao Han in Beijing at;Tomoko Sato in Tokyo at;Kevin Hamlin in Beijing at khamlin@bloomberg.netTo contact the editors responsible for this story: Jeffrey Black at, James MaygerFor more articles like this, please visit us at©2019 Bloomberg L.P.

  • China’s Bond Traders Stuck With a Market That Just Doesn’t Move

    China’s Bond Traders Stuck With a Market That Just Doesn’t Move

    (Bloomberg) -- Sign up for Next China, a weekly email on where the nation stands now and where it's going next.While most of the world’s bond markets swing between massive gains and losses, traders in China are getting increasingly stuck.Consider this: last week’s paltry 8 basis-point increase in the nation’s 10-year yield was the worst rout in five months, even as a return of risk appetite sank sovereign debt globally. It shows how little the bonds are moving, with the rate trading between 3% and 3.12% since August. This year’s range -- at just 42 basis points -- is set to be the narrowest in seven years.Improving sentiment in equities is now offsetting a dovish (yet not so dovish) central bank, meaning there’s little conviction either way among bond traders onshore. While the People’s Bank of China has tweaked multiple policies to support a slowing economy in recent months, it’s refrained from deploying the sweeping stimulus that some bond bulls had been hoping for.“The domestic bond market is stuck,” said Ming Ming, head of fixed income research at Citic Securities Co. “Monetary policy has remained steady, and policy makers have a higher tolerance for downward pressure on the economy.”Weaker-than-expected economic data on Monday will have bond traders looking for signs of easing from policy makers as soon as this week. Industrial output, retail sales and fixed-asset investment all rose less than anticipated in August.Frances Cheung, head of Asia macro strategy at Westpac Banking Corp., said the PBOC may cut the rate on medium-term lending facilities Tuesday as 265 billion yuan ($37.5 billion) of loans mature. Even if the rate is left unchanged, the central bank could lower the cost of borrowing with the loan prime rate on Sept. 20, she said.China’s bonds have had a relatively good few months amid a sell-off in the equity market, with the 10-year yield in August falling briefly below 3% for the first time since 2016. Their addition to the Bloomberg Barclays Global Aggregate Index has helped attract foreign investors, who have bought about $40 billion of the bonds this year through August. JPMorgan Chase & Co. will start a phased inclusion into its benchmarks from February.Still, the rally has been capped by concerns over credit risks, a volatile yuan and increasing supply. More than 2 trillion yuan of special government bonds will be sold this year by the end of September, and China is considering allowing regional authorities to sell more debt for infrastructure investment, people familiar with the matter have said.Beijing’s calibrated approach to stimulus has also kept bond bulls in check. China’s central bank this month cut the amount of money lenders need to deposit in reserves to the lowest level since 2007 - a move that will inject 900 billion yuan into the economy. It’s also been adding liquidity via open-market operations.Still, the PBOC hasn’t touched its one-year benchmark lending rate since 2015 even as weak economic data strengthened the case for further stimulus. It also passed on the opportunity to lower the rate for medium-term loans earlier this month. Its big overhaul of how loan rates are calculated only reduced costs by a small amount, and largely fell flat with the bond market.It all means Chinese bonds are unlikely to get much of a lift from monetary policy, according to Hao Zhou, a senior emerging markets economist at Commerzbank AG. He predicts the 10-year benchmark yield will end the year at 3.1%. The bonds traded at a yield of 3.09% as of 5:22 p.m. in Shanghai.“Bond yields will likely remain sticky for now,” he said.(Updates with bond price in penultimate paragraph)\--With assistance from Helen Sun, Jeffrey Black and Philip Glamann.To contact Bloomberg News staff for this story: Livia Yap in Shanghai at;Yuling Yang in Beijing at;Yinan Zhao in Beijing at;Claire Che in Beijing at yche16@bloomberg.netTo contact the editors responsible for this story: Sofia Horta e Costa at, Tian ChenFor more articles like this, please visit us at©2019 Bloomberg L.P.

  • Moody's

    Agricultural Bank of China Ltd, Singapore Br. -- Moody's assigns A1 rating to Agricultural Bank of China, Singapore Branch's senior unsecured floating rate notes; outlook stable

    Moody's Investors Service has assigned (P)A1/(P)P-1 local and foreign currency senior unsecured medium-term note (MTN) programme ratings to Agricultural Bank of China Limited (ABC), Singapore Branch. At the same time, Moody's has assigned an A1 rating to the proposed US-dollar denominated floating rate senior unsecured notes to be issued by ABC, Singapore Branch. The outlooks on the notes' rating and ABC, Singapore Branch are stable.

  • Emerging-Market Rally May Hinge on Stimulus. Just Not Too Much

    Emerging-Market Rally May Hinge on Stimulus. Just Not Too Much

    (Bloomberg) -- Emerging markets will again be looking to central banks to provide the next leg-up in a rally that’s making it the best September so far for stocks and currencies since 2013.That’s assuming there’s no conflagration between the U.S and China over trade, and no panic over the slump in Saudi Arabia’s oil production, though the oil’s record spike and weaker-than-expected economic data from China weighed on assets on Monday in Asia trading. The Federal Reserve and Bank of Japan decisions on Wednesday and Thursday will be key to sentiment, not forgetting interest-rate decisions in Brazil, South Africa and Indonesia.“Continued easing in the context of growth stabilization would likely be a very compelling setting for emerging markets,” said Morgan Harting, a New York-based money manager at AllianceBernstein, which manages $581 billion. “However, to the extent central banks deliver more stimulus than expected because growth is worse than expected, it would be hard to see emerging-market assets delivering very strong returns.”Developing-nation stocks, as measured by a MSCI index, climbed for a fourth week to break above their 200-day moving average on Friday, heralding further gains, though oil-related news may slow any advances. Meantime, a gauge of emerging-market currencies approached its 100-day average after advancing 1.6% since end-August. The European Central Bank said Thursday it would restart quantitative easing.“While much of the chatter will be about the Fed, more and more emerging-market investors are likely to pick up on this and reduce underweights,” Harting said. “To the extent we start to see greater evidence of stabilization in EM activity and the forward-looking earnings outlook, I think EM could begin to outperform meaningfully.”Listen here for the emerging markets weekly podcast.OilWhile global oil prices surged the most on record on Monday, some analysts are expecting the ripple effect on equities and currencies to be short-lived“Based on what I know, this is a short-term one-off event; I certainly would not run out and make any major decisions based on this”, according to Brian Barish, chief investment officer at Cambiar Investors LLC in DenverRate-Cut DebateBrazil’s central bank is expected on Wednesday to cut interest rates by half a percentage point to an all-time low of 5.50% to support growthEconomists surveyed by Bloomberg predict the Selic rate will end the year at 5%The real was the worst performing emerging-market carry trade currency in the past month after the Hungarian forintBrazil’s Senate will vote this week on a landmark pension overhaul bill, a key step for investors betting on structural reform in Latin America’s biggest economySouth Africa’s policy decision on Thursday has analysts and the market more divided than usual. Just three out of 14 economists in a Bloomberg survey predict the central bank will lower its benchmark rate by 25 basis points to 6.25%, with the rest forecasting a hold. Yet forward-rate agreements are pricing a 68% chance of a 25-point cutA stronger rand and inflation below the mid-point of the target range would bolster the case for easing, making Wednesday’s inflation print more significant than usual. Consumer-price growth probably quickened slightly to 4.2% in August, from 4%Indonesia’s central bank is expected to cut its key rate for a third consecutive time, while policy makers in Taiwan will probably hold the rateIndonesia’s bond market has attracted around $2.2 billion foreign money so far this quarter, higher than the previous three months with cumulative inflows of $1.5 billionGhana’s central bank will also probably keep its benchmark rate unchangedEconomic PulseChina’s industrial production and retail sales slowed in August, data on Monday showed, boosting the odds for further stimulusIndustrial output rose 4.4% from a year earlier, versus a median estimate of 5.2%. Retail sales expanded 7.5%, compared to a projected 7.9% increase. Fixed-asset investment slowed to 5.5% in the first eight months, versus a forecast 5.7%China will announce its September loan prime rate for the 1-year and 5-year tenures, following the unveiling of the new benchmark lending rates in August. Consensus is that the People’s Bank of China will announce a five basis-point reduction to both tenuresU.S.-China trade tensions continue to bite into exports of Asian economies, with Indonesia recording its 10th consecutive month of decline, according to data released on MondayTaiwan’s export orders are also expected to fallThailand also releases its data for last month, with July seeing its first positive growth print following four months of declineThe Philippines publishes July overseas remittances and August balance of payments figuresArgentina’s gross domestic product data due Thursday will probably show the nation remained mired in a recession during the second quarter. A jobs report the same day may also flag an increase in unemployment for the same period. On Friday, Argentina’s will release its budget balance report for August, after a month of politically triggered market turmoilThe next tranche under the International Monetary Fund’s $57 billion Argentina bailout risks being delayed to after the presidential elections in October, the Financial Times reported, citing people with knowledge of the talksPeru publishes its July economic activity index data on Monday. A positive reading would support expectations for improved growth in the second halfTraders will watch Poland’s inflation data for August on Monday, followed by last month’s wages and employment statistics on Wednesday, industrial output and PPI on Thursday, and retail sales on Friday. Poland will also hold its second and last switch-bond auction for the month on Thursday.\--With assistance from Tomoko Yamazaki, Alec D.B. McCabe, Philip Sanders and Karl Lester M. Yap.To contact the reporters on this story: Netty Ismail in Dubai at;Marcus Wong in Singapore at;Sydney Maki in New York at;Robert Brand in Cape Town at rbrand9@bloomberg.netTo contact the editors responsible for this story: Dana El Baltaji at, Justin CarriganFor more articles like this, please visit us at©2019 Bloomberg L.P.

  • Moody's

    China International Marine Containers (Hong Kong) Ltd. US$300,000,000 Commercial Paper Program - 2019 -- Moody's assigns P-1 to China International Marine Containers (Hong Kong) Ltd.'s USD300,000,000 Commercial Paper Program - 2019

    Moody's Investors Service has assigned a definitive P-1 rating to the USD commercial paper (CP) notes to be issued by China International Marine Containers (Hong Kong) Limited (unrated) through its USD300 million fully supported commercial paper program established in 2019. Up to USD300,000,000 of Commercial Paper Notes, Assigned P-1.

  • China’s Credit Growth Rebounds on Seasonal Boost, Policy Support

    China’s Credit Growth Rebounds on Seasonal Boost, Policy Support

    (Bloomberg) -- Terms of Trade is a daily newsletter that untangles a world embroiled in trade wars. Sign up here. China’s credit growth rebounded faster than expected in August after a seasonal decline the previous month, signaling that policy efforts to channel funds to companies may be gaining further traction.Aggregate financing was 1.98 trillion yuan ($278 billion) last month, compared to about 1.01 trillion yuan in July, the People’s Bank of China said Wednesday. The median estimate of economists was 1.6 trillion yuan.Key InsightsFinancial institutions offered 1.2 trillion yuan of new loans in the month, matching projectionsBroad M2 money supply grew 8.2% from a year earlier, marginally faster than in JulyAugust’s credit growth is usually faster than in July, with the increase in 2019 outpacing the average expansion in the past few yearsThe data signal that China’s policy makers are seeing some success in their efforts to increase the supply of credit to the slowing economy. In recent weeks the People’s Bank of China has cut the amount of funds that banks have to hold in reserve, and introduced a new loan benchmark that’s intended to help bring down funding costs“The government’s recent easing measures, including the reserve-ratio cut and initiatives to bring forward more local government bond issuance, should help to support total-social financing growth to rebound in the rest of the year,’’ said Wang Tao, chief China economist at UBS AG in Hong Kong. “This credit rebound should then help to offset the additional negative impact from additional tariff hikes that will hit Chinese exports in October and December.’’Get MoreEntrusted loans, organized by a bank between borrowers and lenders, fell 51.3 billion yuanTrust loans, made by trust companies to finance infrastructure and real estate, decreased by 65.8 billion yuanBankers’ acceptance, short-term credit issued by a company with a bank’s guarantee, increased by 15.7 billion yuan\--With assistance from Jiyeun Lee and Kevin Hamlin.To contact Bloomberg News staff for this story: Tomoko Sato in Tokyo at;Miao Han in Beijing at mhan22@bloomberg.netTo contact the editors responsible for this story: Jeffrey Black at, James MaygerFor more articles like this, please visit us at©2019 Bloomberg L.P.

  • Why China’s Rushing to Mint Its Own Digital Currency

    Why China’s Rushing to Mint Its Own Digital Currency

    (Bloomberg) -- The People’s Bank of China is poised to become the first major central bank to issue a digital version of its currency, the yuan, seeking to keep up with -- and control of -- a rapidly digitizing economy. Unlike cryptocurrencies such as Bitcoin, though, dealing in the digital yuan won’t have any presumption of total anonymity, and its value will be as stable as the physical yuan, which will be sticking around too. Some questions remain, including the impact on commercial banks as well as Big Tech companies such as Ant Financial and Tencent Holdings Ltd. that already offer payment services. Behind China’s rush is a desire to manage technological change on its own terms. As one PBOC official put it, currency isn’t only an economic issue, it’s also about sovereignty.1\. What’s the plan?Not all the details are out, but 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.2\. Aren’t most transactions already electronic?Yes. China is increasingly a cashless society. Even street-food sellers in small towns will prefer to use a mobile payment app than make actual change. In the first quarter of 2019, such apps handled 59 trillion yuan ($8.3 trillion) of transactions in China, up 15% from a year earlier, according to research firm Analysys. Ant Financial’s Alipay handled almost half of that, followed by Tencent’s WeChat Pay with a third. The PBOC says all non-cash transactions (which also includes such things as credit, debit and stored-value cards, bank transfers and checks) totaled 3.8 quadrillion yuan in 2018. The trend is hardly unique to China: A central bank survey in Sweden found that only 13% of people in 2018 paid for their most-recent purchase in cash, down from 39% in 2010.3\. So why is the PBOC doing this?There are important regulatory and political considerations. Having the ability to track money electronically as it changes hands would be useful in combating money laundering and other illegal activities. The project was started by former PBOC Governor Zhou Xiaochuan, who retired in March 2018. He wanted to protect China from having to some day adopt a standard, like Bitcoin, designed and controlled by others. Facebook Inc.’s push to introduce its own digital coin, called Libra, in 2020 may be speeding things up, as it could end up strengthening the dollar’s dominance -- and weakening China’s capital controls. As the head of the PBOC’s research bureau, Wang Xin, put it in July, that could have “economic, financial and even international political consequences.”4\. Is it a cryptocurrency?Probably not. When we say cryptocurrency, we usually mean an offering such as Bitcoin that uses decentralized, online ledgers known as blockchain to verify and record transactions. It and others such as Ethereum support anonymous transfers without the need for a middleman -- or a central bank. The wild volatility in their value, however, makes them ill-suited for use as a means of payment. Libra will also be a cryptocurrency, but a so-called stablecoin, 100% backed by a basket of securities and real-life currencies such as the dollar, euro, pound and yen. Because those don’t fluctuate much, Libra’s value should be steady as well. Initially at least, Libra will be run by private companies including Facebook, Visa and Uber. The PBOC will, of course, back the digital yuan, making the currency the opposite of decentralized. It’s also not certain that it will use blockchain, either.5\. Why not use existing coins?China banned cryptocurrency exchanges and so-called initial coin offerings in 2017 amid a broad effort to cleanse risk from its financial system and clamp down on so-called shadow banking. They can still be traded, but through a slower, more restrictive process. Digital currencies also could provide a way to move money out of China, potentially adding to capital outflows that would undermine the yuan’s value. Even though Libra isn’t out yet, Chinese officials have called for oversight by monetary authorities. (Facebook’s website is banned in China, but many Chinese access it via a work-around called a virtual private network, or VPN.)6\. Why not use blockchain?The PBOC has considered it, but researchers have expressed doubts about whether the technology would be able to support a large volume of simultaneous transactions. China’s annual Singles’ Day shopping gala in 2018 had payment demand peaking at 92,771 transactions per second, far above what Bitcoin’s blockchain could support, according to another central bank official, Mu Changchun.7\. How about privacy?The bank wants to “strike a balance” between anonymity and the need to crack down on financial crimes, Mu said, but it’s unclear what that means. The PBOC has said that user information won’t be completely exposed to banks. But user identities will likely be tied to individual wallets, giving authorities another window into people’s lives. PBOC Deputy Governor Fan Yifei suggested in an article in 2018 that banks may need to submit daily information on transactions and that there could be caps on transactions by individuals.8\. When’s it coming?Soon, it seems. Mu said in August that the digital cash is “close to being out.” The PBOC has been looking into a digital currency since at least 2014, and it’s been recruiting staff for a dedicated institute. Research and innovation regarding digital currencies was mentioned in the grand plan to make Shenzhen, the technology hub next to Hong Kong, into a world-class city by 2025.9\. Will people use it?It’s hard to say. The PBOC’s digital wallet is just a wallet, at least for now, whereas the incumbents Alipay and WeChat Pay are deeply embedded in a whole world of social media, e-commerce, ride-hailing, bill-paying, investments and other functions. Da Hongfei, the Shanghai-based founder of open-sourced blockchain platform Neo, said he can’t see why the general public would choose the PBOC’s digital currency over something as handy as Alipay.10\. How will banks be affected?Mainly in bookkeeping. Digital cash would have to be kept separate from regular savings, because it represents money in actual circulation (known in central banking parlance as M0), not the so-called demand deposits (M1) which banks use to lend out again to companies and households. Commercial lenders would deposit 100% worth of reserves at the central bank in exchange for digital currency, which it then distributes to retail users. The two-tier system also reduces the burden on the PBOC to perform due diligence, revamp IT systems and answer client requests.11\. Any economic impact?Probably not immediately. As the PBOC’s digital money is designed to replace cash, it won’t have a big impact on the broad money supply, and thereby its affect on monetary policy will likely be neutral. If the digital currency is widely accepted and people are encouraged to hold more cash, bank deposits could decline, but the impact will be manageable, according to a 2018 article from the PBOC’s digital currency research institute. In a more distant future, the central bank might use digital currency to help steer the economy. Patent filings made public in October 2018 described a currency that would require banks making loans to input details about borrowers and interest rates before funds could be transferred. That could allow the PBOC to more proactively control bank lending and direct funding where it deems appropriate. Furthermore, should there be a need for China to turn to an unconventional monetary policy toolkit, digitized currency would allow it to apply negative rates even for people holding digital cash.12\. What are other central banks doing?Uruguay has done a pilot program, called e-Peso, that was praised by the International Monetary Fund. Venezuela has a controversial offering called the petro, and Sweden’s Riksbank is exploring an e-krona. Last month, Bank of England Governor Mark Carney called for Libra-like reserve currency to end the dollar’s dominance. An anonymous survey by the Bank for International Settlements in early 2019 showed most of the global central banks are participating in theoretical and conceptual research.\--With assistance from Ling Zeng.To contact Bloomberg News staff for this story: Yinan Zhao in Beijing at;Heng Xie in Beijing at;Zheping Huang in Hong Kong at zhuang245@bloomberg.netTo contact the editors responsible for this story: Jeffrey Black at, Paul GeitnerFor more articles like this, please visit us at©2019 Bloomberg L.P.

  • China Factory Deflation Deepens Signaling Worsening Economic Slowdown

    China Factory Deflation Deepens Signaling Worsening Economic Slowdown

    (Bloomberg) -- Terms of Trade is a daily newsletter that untangles a world embroiled in trade wars. Sign up here. China’s producer price index fell further into contraction, signaling a worsening economic slowdown that threatens to add deflationary pressures to the global economy.Factory prices fell 0.8% in August from a year earlier, compared with a decline of 0.9% in the median estimate of economists in a Bloomberg surveyThe consumer price index rose 2.8% year-on-year, faster than the median estimate of 2.7%Key InsightsThe contraction in factory prices hurts manufacturers’ pricing power and threatens disinflation to the rest of the global economy via exports. The central bank announced fresh easing measures last week including cuts to the amount of cash banks’ hold as reserves, but economists said more stimulus is needed to boost demand“The confluence of positive CPI and negative PPI will be especially felt by both firms and workers in some of the export-intensive sectors such as machinery and IT equipment,” said Victor Shih a professor at the University of California in San Diego who studies China’s politics and finance. “At a time when the trade war lessens these firms’ pricing power, they are also under pressure to pay their workers more due to increasing food prices. This will lead to financial difficulties among some firms facing these pressures.”What Bloomberg’s Economists Say..“Price pressures in China are weak overall, even with pockets of strength in food inflation on soaring pork prices. To us, the main risk is deflation, or at least dis-inflation -- not rising inflation. This spells more pressure on the People’s Bank of China to ease monetary policy.”-- David Qu, Bloomberg EconomicsFor the full note click hereGet MoreA gauge of inflation excluding food and energy slipped to 1.5%.(Updates to add economist comments in Key Insights.)\--With assistance from Miao Han and Kevin Hamlin.To contact Bloomberg News staff for this story: Yinan Zhao in Beijing at yzhao300@bloomberg.netTo contact the editors responsible for this story: Jeffrey Black at, Enda CurranFor more articles like this, please visit us at©2019 Bloomberg L.P.

  • China’s Pork Prices Take Flight as Economy Holds Inflation Down

    China’s Pork Prices Take Flight as Economy Holds Inflation Down

    (Bloomberg) -- Terms of Trade is a daily newsletter that untangles a world embroiled in trade wars. Sign up here. China’s ongoing swine fever outbreak is causing havoc for consumers in the form of runaway price gains for pork, but less of a headache for the central bank that’s more focused on emerging deflation risks.Inflation data released Tuesday showed that pork prices rose 46.7% from a year earlier in August, almost 20 percentage points higher than in the previous month. At the factory gate though, prices contracted 0.8% in August. The headline rate of consumer price gains held steady at 2.8%, with a gauge of inflation excluding food and energy slipping to 1.5%.That combination of product-specific inflation plus weakening price gains elsewhere means that while swine fever is a political issue that China’s policy makers are stepping up their response to, it’s far from being a constraint on supportive monetary policy from the central bank. As pork plays a declining role in the basket of goods used to calculate the consumer price index, it’s not as much as a problem for broad purchasing power as it once would have been.“Policymakers will be willing to look through high pork prices and continue with easing,’’ said Michelle Lam, greater China economist at Societe Generale SA in Hong Kong. “Weakening domestic demand is weighing on downstream price pressure.’’There are still risks ahead. The effects of African swine fever decimating China’s herd may push overall price rises as high as 3.9% by the end of the year, according to analysis by Bloomberg Economics’ David Qu. That’sHowever, even though the People’s Bank of China aims to keep the consumer price index below 3%, that spike may not prompt them to take action and tighten policy. Average CPI gains are forecast by economists in a Bloomberg survey to come in at 2.4% for 2019.There is also a limit to what the central bank can do to deal with a supply problem such as a food shortage. While the government is stepping in to assist building new hog farms and increase supply, with no indication that fever has been bought under control, that may make the problem worse.Sluggish EconomyAnother reason is that the consideration about overall prices is less important than the outright deflation seen in producer prices, and the sluggish inflation seen in non-food CPI. With domestic demand weakening and oil prices falling, non-food inflation will remain low, according to Bloomberg’s Qu."We don’t think the pork-price-driven CPI inflation will have a significant impact on the PBOC’s monetary policy stance because the pork price inflation is caused by a supply shock, and China’s PPI inflation is turning negative due to weakening growth," according to Lu Ting, chief China economist at Nomura International Ltd. Lu revised up his forecast for pork prices this year, but kept the outlook for CPI unchanged at 2.5%.So although households may complain more about rising food prices and CPI will likely get faster later in the year, it’s unlikely that there will be a drop off in calls for the PBOC to add stimulus.The government is taking notice though.Vice Premier Hu Chunhua recently called the situation “much grimmer than we have been informed,” and told officials to take immediate steps to increase supplies. “If pork prices continue to rise too fast, it will seriously affect the lives of urban and rural residents, especially low-income people, and affect the joyful atmosphere when celebrating the 70th anniversary of the founding of New China,” he said.\--With assistance from Yinan Zhao, Miao Han and Kevin Hamlin.To contact Bloomberg News staff for this story: James Mayger in Beijing at jmayger@bloomberg.netTo contact the editors responsible for this story: Jeffrey Black at, Jiyeun LeeFor more articles like this, please visit us at©2019 Bloomberg L.P.

  • Hong Kong Stonewalls China's Trillion-Dollar Easing

    Hong Kong Stonewalls China's Trillion-Dollar Easing

    (Bloomberg Opinion) -- The longer Hong Kong protests drag on, the less likely China will be to unleash the trillion-dollar stimulus markets seem to want. Beijing has become painfully aware that its easy-money policies of the past inflated asset bubbles and widened the wealth gap. Any repeat endeavors could risk stoking social unrest on the mainland. Over the past decade, China flooded its economy with big-ticket outlays. There was the 4 trillion yuan ($561 billion) package after the collapse of Lehman Brothers Holdings Inc., followed by interest-rate cuts in 2014 and 2015, and 3.5 trillion yuan of shantytown redevelopment projects from 2015 to 2018, to name a few. Lately, however, China has been conspicuously timid with its monetary tools, even as deflation hangs over the country’s producers and the trade-war standoff deepens. Sure, Beijing lowered banks’ required reserve ratio on Friday; but an outright cut to its benchmark lending rate is nowhere in sight. In fact, one could argue that the central bank bought itself some time to delay any weighty monetary-policy decisions, after last month’s tweak to the rate lenders offer their best clients. On the fiscal side, Beijing has found a new way to finance construction projects: Issuance of special-purpose municipal bonds has hit record highs this year. Yet infrastructure spending hasn’t picked up. That’s because the Ministry of Finance has been diligently auditing local governments, sometimes bi-weekly, to ensure money is spent in the right places.What explains this change of tune? China increasingly sees Hong Kong’s sky-high home prices as the root cause of city’s turmoil, which has continued for 14 consecutive weeks. Even the country’s liaison office in the former British colony cited minsheng, or people’s livelihood, as a valid concern.Beijing wants to prevent Hong Kong’s discontent from spreading to the mainland, aware that China is now a society of extreme income inequality, too, as measured by the Gini coefficient. Home prices in the first-tier cities of Beijing, Shanghai, Shenzhen and Guangzhou have more than doubled since 2013; as a result, young Chinese, just like their counterparts in Hong Kong, may find that climbing the middle-class ladder is getting harder. In that light, the hesitation of the People’s Bank of China to unleash an ambitious stimulus program makes sense. Whenever the central bank reopens its taps, a sizable chunk of hot money goes into real estate. The latest mini-easing proved no exception: Property investment shot up, while the manufacturing sector, hit hardest by China’s trade war with the U.S., remains anemic. President Xi Jinping’s mantra, “apartments are to be lived in, not speculated on,” hasn’t been heeded. Meanwhile, China is using its strict audit system to discourage local governments from relying too heavily on the property market, a problem that beset Hong Kong. Last year, the city collected a quarter of its fiscal revenue from land sales, compared with roughly a third for an average mainland municipality. To its credit, Beijing wants to prevent moral hazard: If a large chunk of government revenue comes from land sales, local officials are incentivized to keep the property bubble aloft, for instance, by nudging regional banks to dole out easy financing to developers. Shenzhen is now hailed as a model socialist city, in part because personal-income and corporate taxes account for almost all of its fiscal coffers. Commentators have lamented that China’s reserve ratio cuts and infrastructure spending are too little, too late. They’re missing the point. With the People’s Republic of China about to celebrate its 70th anniversary, social stability is foremost on Beijing’s mind – and that means eschewing the generous stimulus packages that tend to benefit the wealthy and sow the seeds of unrest.To contact the author of this story: Shuli Ren at sren38@bloomberg.netTo contact the editor responsible for this story: Rachel Rosenthal at rrosenthal21@bloomberg.netThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Shuli Ren is a Bloomberg Opinion columnist covering Asian markets. She previously wrote on markets for Barron's, following a career as an investment banker, and is a CFA charterholder.For more articles like this, please visit us at©2019 Bloomberg L.P.

  • EM Rally Hinges on Draghi Being the Dove Traders Want Him to Be

    EM Rally Hinges on Draghi Being the Dove Traders Want Him to Be

    (Bloomberg) -- Investors looking for signs that the strongest rally in emerging markets in months is more than just a temporary reprieve will probably get it when the European Central Bank meets.The monetary authority is set to unveil a fresh salvo of stimulus, which may further embolden traders to look for yield across emerging markets. More than 80% of economists surveyed by Bloomberg predict ECB President Mario Draghi will announce the central bank’s resuming bond buying, and forecasters see the deposit interest rate falling to a record minus 0.5%.If those estimates are proven right, developing-nation stocks, bonds and currencies will probably extend a rally that was sparked earlier this month by the prospect of a meeting between U.S. and Chinese officials to discuss trade issues. The yuan’s one-month implied volatility fell last week the most in two years ahead of the 70th anniversary of the founding of the People’s Republic of China on Oct. 1.“The ECB meeting on Thursday will be crucial for setting the tone of sentiment in emerging markets,” said Paul Greer, a London-based money manager at Fidelity International, whose emerging-market debt fund has outperformed 97% of peers this year.The triggers of last week’s rally, “coupled with some cheap valuations in currencies after the August sell-off, make us tactically optimistic on the asset class for the next three weeks,” he said, adding that his fund is tactically overweight currencies and “more strategically overweight” credit and local duration in emerging markets.Listen here for the emerging markets weekly podcast.Turkey’s Big CutGiven the muted reaction from financial markets to the central bank’s 425-basis-point rate cut in July, slowing global growth, falling inflation and political pressure, the monetary authority will probably cut borrowing costs by 300-basis point this week, according to Bloomberg Economics“We are lowering and will lower interest rates to single digits in the shortest period,” President Recep Tayyip Erdogan said in a televised speech on Sunday. “After it falls to single digits, inflation will also slow to single digits”The lira has outperformed all of its peers this quarterMore Rates DecisionsEconomists see Bank Negara Malaysia maintaining its key rate at 3% on Thursday after the nation’s economy grew more-than-estimated in the second quarterING Groep NV is among the minority, expecting a cut, arguing that Malaysia’s economy will find it challenging to outperform in an increasingly unfriendly external trade environment. The central bank last reduce interest rates in May. India, Thailand and Indonesia surprised markets last month with cutsThe ringgit reached an almost two-year low last weekPoland will probably keep interest rates on hold on Wednesday, while Serbia and Peru will decide on monetary policy a day laterEconomic DataChina will release a slew of key data in the coming week on credit growth, new yuan loans and money supply. Consumer and producer-price figures for August are due Tuesday. The latter fell below zero in July for the first time in nearly three years, sparking concerns over deflationExports unexpectedly contracted in August, with sales to the U.S. tumbling amid the escalating trade war between the two nations. The offshore yuan weakened Monday after climbing four straight days through Friday, when the People’s Bank of China said it would cut the reserve ratio to the lowest since 2007“China would likely want to keep further yuan depreciation relatively modest ahead of U.S.-China trade talks,” said Patrick Wacker, a fund manager for emerging-market fixed income at UOB Asset Management Ltd. in Singapore. “As the Chinese measures announced on Friday indicate, they have a number of tools at their disposal short of yuan depreciation. While yuan depreciation is one of the more potent measures, it would likely antagonize the U.S. and lower the already slim odds of a breakthrough during scheduled trade talks”Taiwan said Monday that exports during August rose 2.6%, well above expectations and the fastest since October. The Philippines and India will report trade numbers later in the weekIndia’s inflation, scheduled for Thursday, is estimated to have accelerated in August due to higher food and gold prices, according to Australia & New Zealand Banking Group Ltd. The central bank said last month the inflation outlook remains benignAttention will turn to Argentina’s national inflation reading for August on Thursday, which comes after an upset in the nation’s primary presidential vote and subsequent market sell-off. The peso is the biggest loser among emerging-market currencies this yearMexico’s inflation decelerated in August to the lowest level since 2016 and may push the central bank to cut its key rate again later this month. On Wednesday, industrial production data will likely point to a considerable level of slack in Latin America’s second biggest economyIn Brazil, traders will watch July retail sales results for clues on the state of the nation’s economy. On Thursday, the central bank will post the result of its economic activity index, seen as a proxy for national GDP\--With assistance from Tomoko Yamazaki and Philip Sanders.To contact the reporters on this story: Netty Ismail in Dubai at;Lilian Karunungan in Singapore at;Sydney Maki in New York at smaki8@bloomberg.netTo contact the editors responsible for this story: Dana El Baltaji at, Shaji MathewFor more articles like this, please visit us at©2019 Bloomberg L.P.

  • China Has Added Nearly 100 Tons of Gold to Its Reserves

    China Has Added Nearly 100 Tons of Gold to Its Reserves

    (Bloomberg) -- Terms of Trade is a daily newsletter that untangles a world embroiled in trade wars. Sign up here. China has added almost 100 tons of gold to its reserves since it resumed buying in December, with the consistent run of accumulation coming amid a rally in prices and the drag of the trade war with Washington.The People’s Bank of China raised bullion holdings to 62.45 million ounces in August from 62.26 million a month earlier, according to data on its website at the weekend. In tonnage terms, August’s inflow was 5.91 tons, following the addition of about 94 tons in the previous eight months.Bullion is near a six-year high as central banks including the Federal Reserve cut interest rates as signs of a slowdown mount amid the U.S.-China trade war. Central-bank purchases have been another key support for prices as authorities from China to Russia accumulate significant quantities of bullion to help diversify their reserves. That buying spree likely to persist in the coming years, according to Australia & New Zealand Banking Group Ltd.Trade war restrictions, in the case of China, or sanctions, as with Russia, give “an incentive for these central banks to diversify,” John Sharma, an economist at National Australia Bank Ltd., said in an email. “Also, with increasing political and economic uncertainty prevailing, gold provides an ideal hedge, and will therefore be sought after by central banks globally.”China has previously gone long periods without revealing increases in gold holdings. When the central bank announced a 57% jump in reserves to 53.3 million ounces in mid-2015, it was the first update in six years.Spot gold rose 0.2% to $1,510.27 an ounce on Monday. Prices, which capped a fourth straight monthly gains in August, have risen 18% this year. Goldman Sachs Group Inc. and BNP Paribas SA are among banks that expect the metal to challenge $1,600 an ounce within the coming months.(Adds comment in fourth paragraph; price in sixth paragraph.)\--With assistance from Emma Dong.To contact the reporter on this story: Ranjeetha Pakiam in Singapore at rpakiam@bloomberg.netTo contact the editors responsible for this story: Phoebe Sedgman at, Jake Lloyd-Smith, Keith GosmanFor more articles like this, please visit us at©2019 Bloomberg L.P.

  • China’s Stimulus Debate Is Still Alive After Grim Trade Data

    China’s Stimulus Debate Is Still Alive After Grim Trade Data

    (Bloomberg) -- Terms of Trade is a daily newsletter that untangles a world embroiled in trade wars. Sign up here. The contraction in China’s trade in August underscored what economists were already saying about the government’s stimulus efforts: they’re not yet enough to put a floor under the slowing economy.Data released Sunday showed that exports decreased 1% in dollar terms from a year earlier last month, a period when companies could have been expected to try to increase cargoes to the U.S. ahead of higher tariffs that kicked in Sept. 1. Instead, a 16% contraction in shipments to the U.S. highlighted the damage that the trade war is doing.That makes the injection of $126 billion into the economy announced by the central bank on Friday look more like a cautious move that will need to be followed by further steps if the government wants to keep economic growth above the key 6% level. Yet the fear of a bubble in the property market could still preclude larger-scale action.“More policy easing will be needed to help stabilize domestic economic growth,” Louis Kuijs, chief Asia economist at Oxford Economics in Hong Kong, wrote in a note Sunday. “The key downside risk to our outlook for growth and imports is policymakers not stepping up policy support sufficiently.”The State Council, China’s cabinet, last week signaled more stimulus measures are coming, though that raises the perennial question of which selection of tools best does that job while keeping debt under control.On top of the reserve-ratio cut announced Friday, more government debt sales are in the pipeline. Some in financial markets also expect a cut in the interest rate on the central bank’s medium-term loans to banks, though policy makers skipped an opportunity to do that on Monday.China Signals Further Stimulus Coming as Economic Headwinds RiseHere’s a recap of China’s main stimulus measures this year and how they’ve worked:RRRBefore Friday, the People’s Bank of China had cut banks’ reserve ratios twice this year, unleashing cash to help banks lend more. In the latest move, the required reserve ratio for all banks will be lowered by 0.5 percentage points, taking effect on Sept. 16, the People’s Bank of China said. The PBOC also cut the reserve ratios by one percentage point for some city commercial banks, to take effect in two steps on Oct. 15 and Nov. 15.The cuts will release 900 billion yuan ($126 billion) of liquidity, the PBOC said, helping to offset the tightening impact of upcoming tax payments.However, Nomura International Ltd has warned markets to be conservative in estimating the potential of RRR cuts. That’s because current curbs on financing rules for the property sector and the anti-pollution campaign have meant softer overall demand for credit.Blue Skies for Beijing Parade May Drag on Growth, Nomura SaysRatesThe PBOC has refrained from cutting the benchmark rate or the rates for its market liquidity tools in recent years. Instead, it initiated a long-awaited revamp of the country’s interest rate framework last month, a move aimed at pushing down the cost of borrowing by households and companies without fueling bubbles in housing market.The new reference rate, called the loan prime rate, stood at 4.25% in August in its first release, a small step lower from the previous benchmark. Some analysts expect the PBOC to cut the interest rate on medium-term lending facility this month in step with the Federal Reserve, which could in turn push the loan prime rate lower.Tax CutsThe government has pledged to cut taxes for businesses and households by about two trillion yuan this year in what they described as the largest-ever fiscal stimulus plan in the country. The move has had an effect -- swelling the fiscal deficit to 1.2 trillion yuan in the first seven months of 2019, according to Bloomberg calculations based on official data, compared to a shortfall of 374.5 billion yuan in the same period last year. However, the tax cuts haven’t been able to lift business investment.Special BondsLocal governments are allowed to sell 2.15 trillion yuan of so-called special bonds in 2019 to raise funding for infrastructure projects. The issuance has been rapid, and all the debt is to be sold by the end of September. However the money hasn’t led to a significant revival in infrastructure investment growth yet. That’s partly because a majority of the debt was used to buy land and for shanty-town renovation, according to UBS Group AG, uses which has less of a multiplier effect than spending on building railways and airports.Yuan?While the PBOC repeatedly said it wouldn’t use the yuan as a tool in the trade war, it has argued that the exchange rate could be a “stabilizer” in the economy as a weaker currency may help absorb some external shocks.Markets had “looked at the yuan’s exchange rate for the next possible channel of easing amid the trade war,” as China refrained from using traditional easing tools in recent months, Tommy Xie, economist at Oversea-Chinese Banking Corp. Bank in Singapore wrote in a note.If conventional monetary easing and fiscal stimulus steps up, expectation for using the yuan as the main hedging tool in the trade war will ease, he said.(Updates with MLF in sixth paragraph.)\--With assistance from Kevin Hamlin.To contact Bloomberg News staff for this story: Yinan Zhao in Beijing at;Miao Han in Beijing at mhan22@bloomberg.netTo contact the editors responsible for this story: Jeffrey Black at, James MaygerFor more articles like this, please visit us at©2019 Bloomberg L.P.

  • ‘Super Mario’ Draghi Set to Ride Again: Global Economy Week

    ‘Super Mario’ Draghi Set to Ride Again: Global Economy Week

    (Bloomberg) -- Terms of Trade is a daily newsletter that untangles a world embroiled in trade wars. Sign up here. European Central Bank President Mario Draghi is looking to go out with a bang.With less than two months before he steps down, Draghi will on Thursday convene policy makers for the penultimate time as the euro-area economy is squeezed by a stumbling Germany and the U.S.-China trade war. The betting of investors and more economists is he will burnish the reputation for energy that earned him the nickname of “Super Mario.”More than 80% of economists surveyed by Bloomberg predict the ECB will announce its resuming bond buying despite some officials saying doing so would be premature. Forecasters also predict the deposit interest rate will be reduced by 10 basis points to a record-low minus 0.5%.In easing, the ECB would be following the lead of the Federal Reserve, which is set to cut rates again this month after Chairman Jerome Powell said on Friday that the central bank was monitoring “significant risks” and would act as appropriate to extend the record expansion.Here’s our weekly rundown of other key economic events and click here for more from Bloomberg Economics:The U.S.Fed officials aren’t talking ahead of their meeting the following week. Consumer inflation data on Thursday is unlikely to influence them much, but with economists predicting the headline figure rose 1.8% in August it may shape how much the central bank keeps easing beyond this month.Firming Core CPI Bodes Well for Fed’s Inflation MandateOther data include Wednesday’s factory gate numbers and Friday’s retail and import prices. Investors will also be looking for insights into whether the U.S. and China are still adrift in their efforts to resolve the trade war.For more, read Bloomberg Economics’ full Week Ahead for the U.S.AsiaAs the trade war intensifies, China reported Sunday morning that exports unexpectedly contracted in August with sales to the U.S. shrinking by 16% from a year earlier. Consumer and factory price numbers due Tuesday will underscore the dilemma for the People’s Bank of China as surging pork prices drive food prices higher while the return of industrial deflation highlights the need to underpin demand. Credit data will show further weakness in lending to companies, according to Bloomberg Economics.Malaysia’s central bank is set to keep interest rates unchanged on Thursday, according to early forecasts by economists. In Japan, second quarter growth may be revised down on Monday amid weak investment.For more, read Bloomberg Economics’ full Week Ahead for AsiaEurope, Africa and the Middle EastThursday’s ECB meeting will dominate the week in the euro-area, but with the threat of a no-deal Brexit hanging over the U.K., monthly gross domestic product data for July will show if the British economy has continued contracting at the start of the third quarter, threatening a recession after a drop in the growth data for the prior three months. Bloomberg Economics predicts the report, released on Monday, will allay fears the economy is heading into recession. Poland is seen leaving its key interest rate unchanged.Turkey’s central bank will probably reduce interest rates by another several hundred basis points on Thursday, prodded by a larger-than-expected deceleration in August inflation and by President Recep Tayyip Erdogan, who declared himself “allergic” to interest rates and all but ordered the new governor to cut. Bloomberg Economics predicts a reduction of 300 basis points. Russia will probably report that its economy expanded by 0.9% in the second quarter, leaving its central bank with more incentive to continue reducing borrowing costs.For more, read Bloomberg Economics’ full Week Ahead for EMEALatin AmericaMexico’s August inflation is expected on Monday to mark its slowest pace since 2016, potentially encouraging the central bank to cut its interest rate for a second straight month later in September. Investors will also be watching Brazil’s July retail sales for any sign of a consistent rebound in consumption amid aggressive monetary easing by the central bank.Stronger Credit Boosts Sales of Autos, Construction MaterialMeanwhile, Peruvian policy makers will debate on Thursday whether to lower borrowing costs again, following last month’s quarter-point cut, amid slowing inflation and declining growth expectations. Markets will continue to eye Argentina’s simmering financial woes.For more, read Bloomberg Economics’ full Week Ahead for Latin America(Adds China export data.)To contact the reporter on this story: Simon Kennedy in London at skennedy4@bloomberg.netTo contact the editors responsible for this story: Stephanie Flanders at, Zoe SchneeweissFor more articles like this, please visit us at©2019 Bloomberg L.P.

  • China’s Foreign Exchange Reserves Rise Slightly After July Dip

    China’s Foreign Exchange Reserves Rise Slightly After July Dip

    (Bloomberg) -- Terms of Trade is a daily newsletter that untangles a world embroiled in trade wars. Sign up here. China’s foreign-currency holdings rose in August, signaling the pressures from capital outflow remain muted despite the yuan’s rapid depreciation.Reserves climbed to $3.107 trillion from $3.104 trillion in July, the People’s Bank of China said Saturday.Key InsightsThe reading is higher than the median estimate of $3.1 trillion in a Bloomberg survey of economistsChina’s reserves stockpile has stayed largely steady since 2017 as the authorities refrain from direct intervention in the market while keeping a tight rein on capital controls. The yuan weakened more than 3.8% in August, the biggest single-month decline since data started in 1994“Capital outflow pressures may have increased in August, as the yuan weakened,” while trade and foreign investment remain in surplus, keeping the reserves holdings largely stable, said Wang Tao, chief China economist at UBS Group AG.Get MoreGold reserves rose for a ninth monthChina’s foreign exchange supply and demand was basically balanced in August, and FX reserves rose on changes in asset prices and exchange rates, the State Administration of Foreign Exchange said in a statement\--With assistance from Emma Dong.To contact Bloomberg News staff for this story: Yinan Zhao in Beijing at yzhao300@bloomberg.netTo contact the editors responsible for this story: Jeffrey Black at, James MaygerFor more articles like this, please visit us at©2019 Bloomberg L.P.

  • Record Bitcoin-Yuan Divergence Suggests New Trade-War Fallout

    Record Bitcoin-Yuan Divergence Suggests New Trade-War Fallout

    (Bloomberg) -- Bitcoin is increasingly moving in an opposite direction to China’s currency -- suggesting it may have become a refuge for people hedging the yuan’s depreciation.The biggest digital coin reached a record inverse relationship in the past week, according to a Bloomberg analysis of their 30-day correlation.“There’s corroborating evidence for this, in that people in Asia were paying more for Bitcoin than elsewhere when the yuan fell,” said Dr. Garrick Hileman, a researcher at the London School of Economics and’s research director. “You can see it in the premium price paid sometimes for Bitcoin in exchanges like Huobi that primarily cater to Chinese.”Speculation on the China effect has centered on factors that are weakening the yuan, from the trade war to the slowing economy. It also has included a court ruling in July stating Bitcoin is an virtual asset protected by Chinese laws, the first time any local court has reached such a decision, according to state media reports.The inverse correlation “became more evident also in April and May, and as the tensions ratcheted up with the deterioration on U.S.-China trade relations,” Hileman said.For years, the question of what moves Bitcoin’s price day to day has eluded enthusiasts, investors and Wall Street financial engineers who have begun creating futures and trusts on the world’s best-known private money to make it easier to trade. Its anonymous ownership and unregulated nature have kept big movers and shakers largely in the shadows. The size of the inverse movement is of the order of gold versus Brent crude-oil futures, where the precious metal tends to climb when the most-traded commodity is sinking.All this doesn’t mean China will relax its treatment toward cryptocurrencies, to permit them as legal tender in competition with the yuan.Since 2017, Beijing has shut down all China-based crypto exchanges and banned crypto-related crowdfunding schemes from targeting local customers. Even as the People’s Bank of China is looking to launch its own digital currency, this official offering is designed to let Beijing have better control of its financial system, defying the purposes of popular tokens like Bitcoin to distribute financial power.(Updates with regulatory framework from penultimate paragraph)\--With assistance from Zheping Huang and Eric Lam.To contact the reporter on this story: Todd White in Madrid at twhite2@bloomberg.netTo contact the editors responsible for this story: Samuel Potter at, Robert Brand, Ravil ShirodkarFor more articles like this, please visit us at©2019 Bloomberg L.P.

  • China Ratchets Up Stimulus, Cutting Reserve Ratio to Lowest Level Since 2007

    China Ratchets Up Stimulus, Cutting Reserve Ratio to Lowest Level Since 2007

    (Bloomberg) -- Terms of Trade is a daily newsletter that untangles a world embroiled in trade wars. Sign up here. China’s central bank said it will cut the amount of cash banks must hold as reserves to the lowest level since 2007, injecting liquidity into an economy facing both a domestic slowdown and trade-war headwinds.The required reserve ratio for all banks will be lowered by 0.5 percentage points, taking effect on Sept. 16, the People’s Bank of China said on its website Friday. The PBOC also cut the reserve ratios by one percentage point for some city commercial banks, to take effect in two steps on Oct. 15 and Nov. 15.The cuts will release 900 billion yuan ($126 billion) of liquidity, the PBOC said, helping to offset the tightening impact of upcoming tax payments. That is more than the previous cuts in January and May, which released 800 billion yuan and 280 billion yuan, respectively, the PBOC said at those times.The shift is aimed at supporting demand by funneling credit to small firms and echoes the earlier cuts this year. While limited, it could also put pressure on the already weakening yuan which may antagonize President Donald Trump. PBOC officials indicated recently they are wary of larger-scale easing measures, and have so far refrained from following the U.S. Federal Reserve in cutting benchmark interest rates.The cut “doesn’t reflect an aggressive easing,” said Zhou Hao, a senior emerging markets economist at Commerzbank AG in Singapore. “In fact, China has recently massively tightened property financing. Hence this is still a re-balancing -- to lower the funding costs for the manufacturing sector but tighten liquidity in the property sector due to asset bubble concerns.”The Stoxx Europe 600 Index and S&P 500 futures extended gains after the announcement. The offshore yuan gained 0.35% to 7.1128 a dollar as of 6:30 p.m. in Beijing.China’s economy softened again in August after poor results in July, and will likely deteriorate further in the remainder of the year. Trade tension between China and the U.S. expanded onto the financial front recently after China allowed the currency to decline below 7 a dollar, prompting the U.S. to name it a currency manipulator.What Bloomberg’s Economists Say..“The PBOC has also gained more room for monetary easing, as the spread between U.S. and China 10-year government bond yields hovers near its highest level since 2018. The depreciation of the yuan also gives the PBOC more flexibility in performing monetary policy.”David Qu, Bloomberg EconomicsTo read the full note click hereThe central bank emphasized that the policy change wasn’t a massive step up in easing.“The cut is not flooding the economy with stimulus and the stance of prudent policy has not changed,” it said in a separate statement. The RRR cut will offset the tax season in mid-September, and the overall liquidity in the banking system will stay basically stable, according to the PBOC.‘The cuts don’t mean significant easing in monetary policy,” said Ding Shuang, chief China and North Asia economist at Standard Chartered Bank Ltd. in Hong Kong. “Rather it is something they must do, a sort of marginal easing, in order to prevent tightening in monetary policy.”(Updates with comment, more details from the statement.)\--With assistance from Miao Han.To contact Bloomberg News staff for this story: Yinan Zhao in Beijing at yzhao300@bloomberg.netTo contact the editors responsible for this story: Jeffrey Black at, James MaygerFor more articles like this, please visit us at©2019 Bloomberg L.P.

  • Hong Kong Gets Credit in Czech Tycoon’s IPO

    Hong Kong Gets Credit in Czech Tycoon’s IPO

    (Bloomberg Opinion) -- Petr Kellner no doubt knows his timing is awful. The Czech Republic’s richest man, who controls multiple telecom firms at home and a bank in Russia, Kellner has been feeding China’s consumption habit by giving out small-value unsecured loans for over a decade.But it’s only now, when Beijing is fighting a trade and technology war on one hand, and trying to deflate a domestic credit bubble on the other, that his Home Credit BV has decided to go public. And of all possible IPO venues, Kellner has chosen Hong Kong, which has of late resembled more of a war zone between protesters and police than a thriving center of global finance. Amid skittish investor sentiment, brewer Anheuser-Busch InBev AB scrapped its Asian unit’s $9.8 billion flotation in July; Alibaba Group Holding Ltd. delayed its much-awaited $20 billion Hong Kong listing. Yet if you leave aside bad timing, Home Credit’s move has substance. The consumer finance firm, part of Kellner’s PPF Group NV, offers point-of-sale loans – think installment loans on fridges, TVs and smartphones at a store or online – as well as cash loans to borrowers who often don’t have bank accounts. Home Credit is looking to raise as much as $1 billion, Bloomberg News reported. If all goes well, a listing is possible in the next month or so.China accounts for nearly 63% of Home Credit’s loan book, though what it has outside the mainland isn’t insignificant. Its moat in Indonesia, Vietnam and the Philippines rivals the 30% share of the point-of-sale loan market it has closer to home in Eastern Europe and Russia and the 28% it commands in China.Even within China, Home Credit has protections. It’s not in the dreaded peer-to-peer lending space that Beijing has restricted after a spate of high-profile fraudsters bilked investors. Home Credit raises funds from banks and securitizing future cash flows, not from yield-starved individuals looking for quick returns. (It has its own bank licenses in Russia, Kazakhstan and the Czech Republic.)Home Credit has been China since 2007, old in consumer-finance terms, and was given a nationwide lending license in 2013. As one of the 27 licensed consumer-finance firms in China, it has access to the People’s Bank of China’s credit reference center. It’s not perfect and excludes a lot of online lending, but remains a useful guide to consumers’ credit history.There are pitfalls, including a sharp slowdown in economic growth in both China and India. Beijing's crackdown on the runaway consumer finance industry soured the lender's nonperforming credit ratio there to 9.7% by the end of 2018, though it has stabilized since. Borrowers under pressure to repay loans they took out elsewhere defaulted on their Home Credit obligations. Then there’s competition, especially from the likes of Alibaba Group Holding Ltd. and other fintech. Home Credit raises ticket size and tenor for better customers as it learns more about their creditworthiness. China's internet giants can probably learn just as much, and more quickly, without risking a single dollar. It will be a challenge to maintain an impressive 2.6% return on assets and a near 20% return on equity in the face of competition from machine learning and big data.The geopolitical risks are also crucial, with the U.S.-China trade war as a backdrop. The Czech Republic is a beachhead of Chinese President Xi Jinping’s Belt and Road project in Eastern Europe. Czech President Milos Zeman, eager to build ties, took Kellner to a meeting with Xi in 2014. But after the Czech cyber watchdog warned in December that Huawei Technologies Co. represented a threat to national security, the Chinese vendor is losing orders in the country. PPF Group’s Czech phone companies are under pressure to avoid using Huawei to develop its 5G network, Bloomberg News reported in March.  It’s unclear whether fraying Chinese-Czech friendship will affect Home Credit. For now, it’s in a better place than the other big consumer lender owned by a foreigner: Dianrong, a P2P platform run by Soul Htite, co-founder of San Francisco-based LendingClub Corp. Earlier this year, the company, backed by Tiger Global Management and Standard Chartered Plc, cut thousands of staff and closed stores to comply with Beijing’s efforts to shrink the industry.China began cleaning up the P2P industry two years ago and asked players to register. So far, none, including Dianrong, seem to have received an approval. Without that registration, Lufax Holding Ltd., China's biggest P2P lender, is unlikely to list anytime soon. A different business model means Home Credit isn’t a bad play, whatever Kellner’s timing.To contact the authors of this story: Nisha Gopalan at ngopalan3@bloomberg.netAndy Mukherjee at amukherjee@bloomberg.netTo contact the editor responsible for this story: Patrick McDowell at pmcdowell10@bloomberg.netThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Nisha Gopalan is a Bloomberg Opinion columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.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©2019 Bloomberg L.P.

  • China Signals Further Stimulus Coming as Economic Headwinds Rise

    China Signals Further Stimulus Coming as Economic Headwinds Rise

    (Bloomberg) -- Terms of Trade is a daily newsletter that untangles a world embroiled in trade wars. Sign up here. China’s cabinet signaled that a reduction in the amount of funds banks have to hold in reserve is on the way while calling for “faster” lowering of the real borrowing cost for businesses, in a move aimed at funneling credit to the slowing economy.The State Council called for the “timely” use of tools including broad and targeted reserve-ratio cuts to support the economy as well as “faster” implementation of measures to reduce real borrowing costs, according to a statement following a meeting chaired by Premier Li Keqiang on Wednesday.The central bank usually follows such requests on reserve ratios from the State Council. The People’s Bank of China last made a broad cut to the required reserve ratios in January, after a similar announcement by the State Council meeting in December. The same measure was reduced for rural lenders in May.The government also called for an acceleration of the issuance of so-called special bonds by local governments at the meeting. The bonds are mostly used to pay for infrastructure spending.“This is the strongest loosening signal from any policy meeting year-to-date,” Song Yu, chief China economist at Beijing Gao Hua Securities Co., wrote in a report. “The expected policy measures should provide support to the real economy, reducing the risks of a dramatic slowdown in the second half,” although uncertainties remain in terms of how much loosening will be done, he said. His firm is Goldman Sachs Group Inc.’s mainland joint-venture partner.The statement comes as a growing number of economists cut their forecasts for gross domestic product growth in 2020 to below 6% as a result of increasing risks from the tariff war with the U.S. Bank of America’s Helen Qiao and others warning that the government’s current approach to stimulus has so far proved insufficient. The earliest indicators compiled by Bloomberg showed the economy slowed further in August and manufacturing contracted further.China Minsheng Banking Corp. researcher Wen Bin said he expects an across-the-board cut as well as a targeted cut to banks’ reserve ratios as soon as this month, while Australia & New Zealand Banking Group Ltd. economist Xing Zhaopeng said the move could come as soon as this week.The statement underlined the increasing headwinds facing China’s economic growth. The State Council decided to expand the sectors the funds raised via local government special bonds can be invested in to include transport, energy, agriculture and forestry, vocational education and medical care in 2020.What Bloomberg’s Economists SayMost striking in the statement was “the underlying tone of a steady-hand approach to policy.” Support will be measured, not aggressive, with the State Council emphasizing “the need for targeted support and proper implementation of announced policies.”\-- Chang Shu and David Qu, Bloomberg EconomicsSee full note here.The International Monetary Fund’s chief economist Gita Gopinath said in an interview with Bloomberg TV Thursday that future policy easing in China should be “more in the fiscal space” as opposed to monetary policy.While the announcement of a reserve ratio cut could come at any time, if the PBOC decides to cut the RRR this month the actual reduction would likely take effect on the 15th or 25th. Along with the 5th day of each month, this is when banks adjust their holdings to ensure they are in compliance with the reserve regulations.Sept. 15 is a Sunday this year, so the actual implementation might be delayed to the Monday if that’s the date the PBOC chooses. There is also a risk the mid-autumn holiday on Sept. 13 may delay some of the clearing work, so the RRR cut could start from Sept. 25.“The government is aware of the headwinds that are facing the economy and wants to dampen those headwinds. It still doesn’t seem they’re interested in really shifting the dial” by moving back toward a much more expansionary policy, according to Louis Kuijs, chief Asia economist at Oxford Economics in Hong Kong. “In the background there’s still that desire not to overdo it and to err on the side of less rather than more.”(Updates to add comment from Bloomberg Economics.)\--With assistance from Allen Wan.To contact Bloomberg News staff for this story: Evelyn Yu in Shanghai at;Yinan Zhao in Beijing at;Tian Chen in Hong Kong at tchen259@bloomberg.netTo contact the editors responsible for this story: Jeffrey Black at, James Mayger, Sharon ChenFor more articles like this, please visit us at©2019 Bloomberg L.P.

  • China Seen Heading for Sub-6% Economic Growth as Tariffs Soar

    China Seen Heading for Sub-6% Economic Growth as Tariffs Soar

    (Bloomberg) -- Economists are downgrading their forecasts for economic growth in China again, to below a level seen as necessary for the Communist Party to meet its own goals in time for its centenary in 2021.Oxford Economics, Bank of America Merrill Lynch, and Bloomberg Economics on Tuesday all cut their forecasts for gross domestic product growth in 2020 to below 6% as a result of increasing risks from the tariff war with the U.S. UBS Group AG also cut their estimate on Tuesday, although they’ve been estimating sub-6% expansion since mid-August. In addition, Bank of America’s Helen Qiao and others are warning that the government’s current approach to stimulus is proving insufficient.China is refraining from cutting benchmark policy rates or pumping large volumes of cash into the economy even as growth slows to the weakest in almost three decades and the tariff escalation in August adds further headwinds. That’s endangering President Xi Jinping’s ability to claim China has reached a “moderately prosperous society” that has doubled 2010 GDP by next year, as a rate above 6% in 2019 and 2020 would be needed.The downbeat sentiments in China adds to concern over a wider global slowdown, as a key U.S. factory gauge released Tuesday contracted for the first time since 2016. Meanwhile, the world’s largest two economies have showed no signs of softening their stance on the protracted trade war.Demand for credit has been weak, and while targeted policy easing since late last year has helped moderate the slowdown, the impact has been small, according to a report by Louis Kuijs, chief Asia economist at Oxford Economics in Hong Kong. With all the issues facing China, “more policy easing is needed to convincingly stabilize economic growth,” Kuijs said.China’s economic growth will likely slow to 5.7% in the last quarter of 2019 and remain broadly at that pace in 2020, Kuijs said. Output growth softened to 6.2% in the second quarter from a year earlier, close to the lower bound of the government’s full-year target of between 6% and 6.5%. Earliest indicators compiled by Bloomberg showed the economy slowed further in August.What Bloomberg’s Economists Say..“We now expect China’s growth to slow to 6% this year and 5.6% next year. Our lower forecasts are subject to downside risks, given further threatened tariffs, and uncertainty over how the blow to business confidence from the trade war will play out.”\--Chang Shu, chief Asia economist, Bloomberg EconomistsSee here for the full note.Bank of America’s chief Greater China economist Helen Qiao said their 2020 forecast has been cut to 5.7% from 6.0%, and warned of the risk that policy makers are falling behind the curve on support to the economy.“The key reason for delayed policy response is policy agencies are waiting for the instruction from top decision makers to shift policy stance towards easing,” Qiao wrote in a note.UBS Group AG sees stimulus coming in the form of more monetary easing, but expects policy makers to refrain from boosting the property market unless there’s a significant downturn. Wang Tao, chief China economist, now sees growth of 5.5% in 2020, after cutting the growth forecast on Tuesday from 5.8%. That’s the second time they’ve lowered in less than a month, down from 6.1% in early August.How much leeway the central bank has in terms of policy easing is questionable, however, as additional tariffs on import products and domestic supply shocks will fuel inflation pressure with the yuan weakening 3.9% since August. Analysts including Citic Securities Co.’s Ming Ming said consumer price growth could breach the government target of 3% in the coming months.“The risk of further escalation remains significant, which would put additional downward pressure on China’s growth,” UBS’s Wang said, adding that she expects the People’s Bank of China to further reduce reserve-ratios this year but hold off from adjusting the broader benchmark rate.(Updates with UBS forecast in second paragraph.)To contact Bloomberg News staff for this story: Yinan Zhao in Beijing at yzhao300@bloomberg.netTo contact the editors responsible for this story: Jeffrey Black at, James MaygerFor more articles like this, please visit us at©2019 Bloomberg L.P.

  • Ohio's Great Chinese Power Conspiracy Theory

    Ohio's Great Chinese Power Conspiracy Theory

    (Bloomberg Opinion) -- An entity dubbing itself “Ohioans For Energy Security” has a warning for the good people of the Buckeye State:The Chinese government is quietly invading our American electric grid; intertwining themselves financially in our energy infrastructure.Before we get into the details of the one-minute ad in which a suitably ominous voice intones those words over much footage of President Xi Jinping, some context: Ohio recently passed legislation to subsidize struggling nuclear and coal-fired power plants, while also weakening incentives for renewable power and energy efficiency. The law benefits several incumbent power companies, especially FirstEnergy Solutions Corp., the bankrupt merchant-generation arm of utility FirstEnergy Corp. In response, opponents are busy gathering signatures for a petition to put a referendum aimed at scrapping the law on the November 2020 ballot.The ad warns Ohioans about such people approaching them to sign. And while the ad doesn’t go on to say this, I think I am duty-bound to point out that those clipboard carriers will not necessarily be sporting identifying markers like Chinese-flag lapel pins or tee-shirts proclaiming “XI LOVES YOU!”As my Bloomberg News colleague Will Wade reports, Carlo LoParo, a spokesperson for OFES, explained that state-controlled Industrial and Commercial Bank of China Ltd. has loaned money to several natural-gas-fired power projects in Ohio. Therefore, as those plants gain market share, so Beijing could gain undue influence over the state’s power system.Having rejected “compelling,” I’m struggling to find a word that adequately captures the class of logic on display there. Suffice it to say that loans made to power plants by a bank, state-owned or otherwise, do not actually grant that bank or its shareholders ownership of said plants, let alone influence over the grid they supply. Finance and power-market oversight just doesn’t work that way.LoParo runs a local public relations firm and previously worked on behalf of a group funded by FirstEnergy Solutions that promulgated the bailout legislation(1). He says the ad was “produced in a way to get your attention,” and I can only agree with him on that. When asked how exactly a bank loan would translate to undue influence over the grid, things got a little fuzzier, and he said we just don’t know the terms of the financing. Not knowing would seem like a good reason to hold off airing inflammatory insinuations — especially as loans don’t grant equity-like control — but maybe that’s just me. I also asked LoParo how OFES feels about Industrial and Commercial Bank of China’s role as a lender to none other than FirstEnergy itself. An amended agreement from last October attached to the parent company’s last 10-K filing with the Securities and Exchange Commission lists the Chinese bank as part of a 23-strong syndicate providing a $2.5 billion credit line to FirstEnergy and several of its subsidiaries.Here’s the thing: That also doesn’t give ICBC any control of FirstEnergy’s operations in Ohio’s power market. But by the comically tortured logic of the OFES ad, surely having a Chinese bank provide credit to the actual owner of the grid presents a similarly sinister challenge? LoParo actually said he would “prefer” FirstEnergy not to take such funding. (A spokesperson told me the company isn’t associated with OFES and doesn’t plan on changing its lending banks.)Indeed, in response to a broader question, he said he would prefer any public or quasi-public Ohio infrastructure project not to take funding from banks controlled by foreign governments. That sounds like a great way to increase the cost of just about everything for Ohioans. One wonders if OFES plans on also going after the federal government over the small issue of who owns all those U.S. Treasuries. As an abattoir of reason, the ad at least comports with the spirit of this bailout. Consider representative William Seitz, a co-sponsor of the law, who declared years ago that when it comes to renewable energy, Ohio’s legislature wouldn’t continue its “march up state mandate mountain.” But now that the mountain happens to be made of coal and uranium, he has scrabbled up with gusto.In its vilification of sinister outside forces, the ad displays a certain despicable cunning. It recasts local energy supply as being about other, national hot-button issues promulgated by President Donald Trump, who carried the state in 2016. We have seen this already, of course, not least in Energy Secretary Rick Perry’s attempt to force through subsidies for coal and nuclear plants on national-security grounds. The Chinese link, tenuous as it is, stokes fear and attempts to connect the prior decade’s decline in manufacturing employment — not confined to Ohio by any means — to the job losses that result from unprofitable old power plants closing. This use of labor issues is an extension of Trump’s pledge to coal miners and seems likely to be weaponized more and more as our energy system changes. Faced with implacable forces of falling costs for newer technologies and rising concern about climate change, rallying support for struggling incumbents on the basis of protecting jobs can be a potent populist tactic.On this front, there is a grim irony to be found in the fact that FirstEnergy Solutions’ emergence from chapter 11 has been delayed due to a dispute with unions about honoring existing collective bargaining agreements. Just as Trump’s love for coal miners has done little to revive their sector, the Ohio state legislature’s subsidies for struggling older plants represent a losing strategy (except for the asset owners). Plus, like OFES’s seeming preference for financial autarky, such subsidies raise costs for everyone, including manufacturers. If folks are worried about interference in Ohio’s grid, they should forget Beijing and start with Columbus.With assistance from Margaret Newkirk(1) He told Wade he has had no interaction with that group on this campaign.To contact the author of this story: Liam Denning at ldenning1@bloomberg.netTo contact the editor responsible for this story: Mark Gongloff at mgongloff1@bloomberg.netThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Liam Denning is a Bloomberg Opinion columnist covering energy, mining and commodities. He previously was editor of the Wall Street Journal's Heard on the Street column and wrote for the Financial Times' Lex column. He was also an investment banker.For more articles like this, please visit us at©2019 Bloomberg L.P.

  • Crypto Exchange Says It’ll Handle Regulators Better Than Libra

    Crypto Exchange Says It’ll Handle Regulators Better Than Libra

    (Bloomberg) -- One of the world’s largest cryptocurrency exchanges said it has learned a valuable lesson from the push back on Facebook Inc.’s Libra and will take a different approach as it works on a rival project.Malta-based crypto platform Binance is ready to engage with all regulators from day one as it prepares to roll out its Venus digital currencies. “If we want to launch Venus in a country, we’ll make sure it complies with the regulations,” the exchange’s co-founder He Yi said in an interview.Binance announced last week it plans to seek partners to create so-called stable coins -- digital currencies that are pegged to traditional money and thus less volatile than cryptocurrencies like Bitcoin, which fluctuate based on market dynamics. In an interview detailing the project, He said Venus drew inspiration from Facebook’s Libra in many ways -- but that the resistance from governments around the world to the social-media behemoth’s plan served as a cautionary tale.Facebook hopes its new currency will be used for everyday transactions across the globe after it goes live as soon as next year under the governance of a broad set of partners from Visa Inc. to Uber Technologies Inc. and Spotify Technology SA. But since the release of its whitepaper in June, Libra has drawn wide-ranging regulatory scrutiny. The European Union has started an antitrust investigation, U.S. officials from President Donald Trump to Federal Reserve Chairman Jerome Powell have questioned Libra and officials from places like India have expressed skepticism.READ: EU Antitrust Probe Is Facebook-Led Libra’s Latest HeadacheBinance also plans to form an independent association in charge of Venus, and use a basket of government-backed currencies and securities as its reserve. But He said the company will take a “more conservative” approach to push through the project, with a priority on regulatory compliance rather than technological developments.Unlike Libra, Venus will focus on partnering with governments and companies in non-Western countries, He said. In a special shout-out to China, she called Venus a “Belt and Road version of Libra,” saying its geographic scope would roughly align with Beijing’s sprawling infrastructure initiative.The emphasis on regulatory buy-in is yet another sign of Binance’s efforts to improve its relationship with governments. The crypto platform, established in 2017, has at times played a game of regulatory whac-a-mole -- for example, it quit markets including Japan and China to avoid clashes with local financial watchdogs. But more recently Binance has set up regulatory-compliant exchanges in friendlier jurisdictions like Singapore and Malta, allowing customers to trade using real money.China, meanwhile, is planning to release its own cryptocurrency that would eventually replace cash in circulation and give Beijing even more control of its financial system. The country’s central bank, the People’s Bank of China, has already shut down local crypto exchanges.“So far regulators around the world can’t gauge precisely the potential risks stable coins will bring to their financial systems, and that’s why they are very careful about Libra-like currencies,” said Hu Tao, founder of Beijing-based crytpo researcher TokenInsight. “In theory, Binance will face the same challenges as Facebook.”In the Chinese statement announcing Venus, Binance advises governments to launch a regulatory sandbox, which, among other things, allows private firms to issue their own stable coins for payments and cross-border settlements. “It’s better to embrace the change rather than missing the opportunity,” according to the statement written by He.Binance will likely create a new open-sourced blockchain for Venus, He says, rather than using its own Binance Chain, which already supports a range of stable coins. The exchange operator is willing to give up some commercial interests to attract more partners, she said, although the plan hasn’t been finalized yet.He is leading a team of more than 10 people in compliance, business development and coding to work on the Venus project. There’s no time line yet for the launch, but she expects more details including partnerships to be released in the next few months.A TV anchor-turned tech entrepreneur, He launched Binance with “CZ” Zhao Changpeng after leaving Chinese crypto exchange OKCoin, which the two co-founded. Previously she also served as a vice-president of marketing for Beijing-based Yixia Technology, which owns a slew of popular short video apps.To contact the reporter on this story: Zheping Huang in Hong Kong at zhuang245@bloomberg.netTo contact the editors responsible for this story: Edwin Chan at, Joanna Ossinger, Colum MurphyFor more articles like this, please visit us at©2019 Bloomberg L.P.