SHANGHAI — Keith Bradsher Chinese officials cheered on the country’s stock market when it reached heady new highs, offering hope that it could become a new source of money to fix China’s economic problems. Then, last year, the market crashed.
“China is struggling with its own balancing act. The Chinese bond slump also stems from Beijing’s efforts to wring excess money from its financial system and to stop potential bubbles that may lurk in shadowy, hard-to-track corners of its economy. Should it continue with those efforts, bonds could fall further.”
Now another fast-growing part of China’s vast and increasingly complicated financial market is showing signs of distress: its $9 trillion bond market.
Prices for government and corporate bonds have tumbled over the past week, a sell-off that continued on Tuesday. The situation has spooked investors, prompting the government to temporarily restrain some trading and to make emergency loans to struggling financial institutions.
“The adjustment has not yet finished. It will continue and normalize until money is put where the government can see it.”
— Miao Zuoxing, a partner at the FXM Brothers Fund
The price drops have resulted in higher borrowing costs at a time when more Chinese companies need the money to cope with slowing economic growth. Yields reached new highs again on Tuesday.
In part, China is reacting to financial shifts across the globe. With the Federal Reserve raising short-term interest rates and many expecting the presidency of Donald J. Trump to lead to heavier government spending, investors worldwide are selling bonds.
“Due to recent, relatively large market fluctuations, our company decided to cancel the issue of the current bond, and will reissue it at a chosen time.”
— Jiangsu Sumec Group
But China is struggling with its own balancing act. The Chinese bond slump also stems from Beijing’s efforts to wring excess money from its financial system and to stop potential bubbles that may lurk in shadowy, hard-to-track corners of its economy. Should it continue with those efforts, bonds could fall further.
“The adjustment has not yet finished,” said Miao Zuoxing, a partner at the FXM Brothers Fund, a Shanghai-based investment fund that trades stocks, bonds and futures. “It will continue and normalize until money is put where the government can see it.”
At least 40 companies have said they would postpone or cancel bond offerings rather than risk being forced to pay high interest rates to sell the bonds — or being unable to sell them at all. Among them was the Jiangsu Sumec Group Corporation, an industrial trading house that exports items as varied as gardening tools and auto parts; the company said on Thursday that it would not go through with the sale of $130 million in short-term bonds.
“Due to recent, relatively large market fluctuations, our company decided to cancel the issue of the current bond,” Jiangsu Sumec Group said in a statement, “and will reissue it at a chosen time.”
China has particular reason to worry. As the world’s second-largest economy, after the United States, it relies on a rickety financial system that is mired in debt and susceptible to hidden stresses. Higher overseas interest rates could also prompt more Chinese investors to move their money out of the country, either to chase higher returns elsewhere or to avoid what some see as China’s growing problems.
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The I.M.F. decision will help pave the way for broader use of the renminbi in trade and finance, securing China’s standing as a global economic power.
HONG KONG — Keith Brasher reports: The International Monetary Fund on Monday approved the Chinese renminbi as one of the world’s main central bank reserve currencies, a major acknowledgment of the country’s rising financial and economic heft.
The I.M.F. decision will help pave the way for broader use of the renminbi in trade and finance, securing China’s standing as a global economic power. But it also introduces new uncertainty into China’s economy and financial system, as the country was forced to relax many currency controls to meet the I.M.F. requirements.
The changes could inject volatility into the Chinese economy, since large flows of money surge into the country and recede based on its prospects. This could make it difficult for China to maintain its record of strong, steady growth, especially at a time when its economy is already slowing.
The I.M.F. will start including the renminbi in the fund’s unit of accounting, the so-called special drawing rights, at the end of September. The renminbi will take its place alongside the dollar, the euro, the yen and the pound.
Many central banks follow this benchmark in building their reserves, so countries could start holding more renminbi as a result. China will also gain more influence in international bailouts denominated in the fund’s accounting unit, like Greece’s debt deal. Read the rest of this entry »
Important Correction: Headline Should Read ‘Greek Prime Minister Purges Left-Wing Rebels to Bolster Divided Government’Posted: July 17, 2015
We Apologize for the inconvenience.
Meanwhile in Germany, Merkel pushes through support for unloved bailout despite repeated suggestions by her finance minister that Greece should quit the Eurozone.
Geoffrey Smith writes: Greek Prime Minister Alexis Tsipras sacked some prominent left-wing rebels from his government Friday in a cabinet reshuffle following a party revolt against a tough new bailout deal adopted this week.
The 40 year-old prime minister dismissed Energy Minister Panagiotis Lafazanis and two deputy ministers after 39 Syriza hardline lawmakers refused to back the government over the measures, which were demanded by Eurozone partners as a pre-condition for beginning talks over a new bailout.
The main economic ministries remain unchanged, with Euclid Tsakalotos remaining in place at the finance ministry and George Stathakis staying at the economy ministry.
But Labor Minister Panos Skourletis, one of Tsipras’ closest allies, will replace Lafazanis in the key energy portfolio, where he will be responsible for sensitive privatization dossiers. Administrative Reforms Minister George Katrougalos will take over at the labor ministry.
The reshuffle had been expected ever since the party rebellion left Tsipras dependent on the votes of pro-European opposition parties to pass the bailout deal but it is not likely to change the uncertain overall outlook for the government.
Former Deputy Finance Minister Nadia Valavani, another bailout opponent who resigned earlier this week before the vote, was replaced by Tryfon Alexiadis, a leading member of Greece’s tax experts’ union.
The new ministers are expected to be sworn in on Saturday. Read the rest of this entry »
ATHENS – Kerin Hope reports: IGreek banks are preparing contingency plans for a possible “bail-in” of depositors amid fears the country is heading for financial collapse, bankers and businesspeople with knowledge of the measures said on Friday.
The plans, which call for a “haircut” of at least 30 per cent on deposits above €8,000, sketch out an increasingly likely scenario for at least one bank, the sources said.
A Greek bail-in could resemble the rescue plan agreed by Cyprus in 2013, when customers’ funds were seized to shore up the banks, with a haircut imposed on uninsured deposits over €100,000.
It would be implemented as part of a recapitalisation of Greek banks that would be agreed with the country’s creditors — the European Commission, International Monetary Fund and European Central Bank.
“It [the haircut] would take place in the context of an overall restructuring of the bank sector once Greece is back in a bailout programme,” said one person following the issue. “This is not something that is going to happen immediately.”
Eurozone officials said no decision had been taken to wind up any Greek banks or initiate a bail-in of depositors, a process that would be started by the ECB declaring the banks insolvent or pulling emergency loans.
Greece’s banks have been closed since Monday, when capital controls were imposed to prevent a bank run following the leftwing Syriza-led government’s call for a referendum on a bailout plan it had earlier rejected. Greece’s highest court rejected an appeal by two citizens on Friday who had asked for the referendum to be declared unconstitutional.
Depositors can withdraw only €60 a day from bank ATM cash machines, while requests to transfer funds abroad have to be approved by a special finance ministry committee in co-operation with the Greek central bank. Read the rest of this entry »
IMF chief Christine Lagarde, one of the world’s most powerful women, announced Wednesday she had been charged with “negligence” over a multi-million-euro graft case relating to her time as French finance minister.
“The investigating commission of the court of justice of the French Republic has decided to place me under formal investigation.”
— IMF chief Christine Lagarde
The shock announcement came a day after she was grilled for more than 15 hours by a special court in Paris that probes ministerial misconduct, the fourth time she has been questioned in a case that has long weighed upon her position as managing director of the International Monetary Fund.
“The investigating commission of the court of justice of the French Republic has decided to place me under formal investigation,” she said in exclusive comments to AFP.
In France, being placed under formal investigation is the nearest equivalent to being charged, and happens when an examining magistrate has decided there is a case to be answered. Read the rest of this entry »
Edited from an interview with William Kazer
Julia Leung has spent two decades engaged in financial policy work for the Hong Kong government. During her time as an official, she’s seen the city’s economy whiplashed by the 1997-1998 Asian financial crisis and again by the global crisis a decade later. She has also witnessed the territory’s increasing economic links to mainland China.
In her new book The Tides of Capital, Ms. Leung examines the origins and response to financial crises of the 1990s and 2008 that shook economies across Asia and the world. The former Hong Kong Monetary Authority official and ex-undersecretary for financial services and the treasury (who also had a decade-long stint with the Asian Wall Street Journal) contends that emerging economies need a greater voice in global financial governance. China Real Time caught up with the reporter-turned-policy maker to talk about the financial challenges facing emerging nations, as well as China’s own financial and economic reforms.
In your book you conclude that the IMF and the U.S. offered up the wrong prescriptions in the Asian crisis of 1997-1998. Where do you see policy leadership headed in the future?
Twenty years ago, the world was divided between the core and the outlying periphery….Financial crises only happened in the periphery, and the core dished out advice. In 2007, financial crisis erupted at the core and rippled to the periphery. Between 2008 and 2013, the size of China ’s economy doubled in dollar terms. The U.S. grew 14% during the same period, while Europe including the U.K. still falls short of the peak reached before the crisis. Combined GDP of emerging markets now make up more than 50% of global GDP, compared to one-third in 1990.
There will have to be considerable give-and-take between the country that is still the world’s leading economy and the other important players, especially China, that are assuming a progressively more important role. In view of the economic stagnation and political infighting besetting Europe, that continent will not be playing a full part in developing and policing a series of better standards for world economic and financial governance. The world will rely ever more on a U.S.-Asian tandem for policy leadership.
You say the U.S. Congress is standing in the way of reforming International Monetary Fund quotas that would give more say to emerging markets. What will happen if there’s no reform?
The IMF is ideally positioned to provide policy leadership, particularly at times of crisis, but its effectiveness is undermined by its shareholding and governance structure, which has not kept pace with the shift in economic power to emerging markets. It is not surprising that developing countries have shown considerable frustration and exasperation with this imbalance, leading to new regional financing facilities, such as the Asian Infrastructure Bank and the New Development Bank.
When the core of the old world order continues to write rules that don’t take developing countries’ interests into account, the “peripheral” nations will use their own vast resources to start a new core…and write their own rules.
You say Asia needs to speak with a more coordinated voice. How much progress do you see here and what steps are still needed?
Even if Asia has a coordinated voice, it’s hard for it to be heard in the councils of the world power when the governance of these councils is slow to reflect shifting power. Read the rest of this entry »
Each week seems to bring another incident. Who will the thought police come for next?
How ironic that the persecutors this time around are the so-called intellectuals. They claim to be liberal while behaving as anything but. The touchstone of liberalism is tolerance of differing ideas. Yet this mob exists to enforce conformity of thought and to delegitimize any dissent from its sanctioned worldview. Intolerance is its calling card.
Each week seems to bring another incident. Last week it was David and Jason Benham, whose pending HGTV show was canceled after the mob unearthed old remarks the brothers made about their Christian beliefs on homosexuality. People can’t have a house-flipping show unless they believe and say the “right” things in their life off the set? In this world, the conservative Tom Selleck never would have been Magnum, P.I.
This week, a trail-blazing woman was felled in the new tradition of commencement shaming. International Monetary Fund Managing Director Christine Lagardewithdrew from delivering the commencement speech at Smith College following protests from students and faculty who hate the IMF. According to the Foundation for Individual Rights in Education, this trend is growing. In the 21 years leading up to 2009, there were 21 incidents of an invited guest not speaking because of protests. Yet, in the past five-and-a-half years, there have been 39 cancellations.
I.M.F. Chief Christine Lagarde Not Approved by Smith College’s Left-Wing Thought Enforcers, Withdraws as Commencement SpeakerPosted: May 13, 2014
For THE NEW YORK TIMES, RICHARD PÉREZ-PEÑA reports: A week before she was to speak at the Smith College commencement, Christine Lagarde, chief of the International Monetary Fund, has withdrawn from the event, citing protests against her and the fund, the college said Monday.
Her withdrawal comes after Condoleezza Rice, the former secretary of state,withdrew from speaking at the Rutgers University commencement in the face of protests against her role in Bush administration foreign policy, and weeks after Brandeis University rescinded its invitation to the rights advocate Ayaan Hirsi Ali to receive an honorary degree at its commencement, after protests over her anti-Islam statements.
Such reversals have become more common in recent years, said Greg Lukianoff, president of the Foundation for Individual Rights in Education, referring to this time of year as “disinvitation season.” What has changed is not so much the protests themselves, but the willingness of colleges and speakers to give in, adding that many apparently voluntary withdrawals are made at the college’s urging. Read the rest of this entry »