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. Read the rest of this entry »
Caracas (AFP) – Venezuela‘s President Nicolas Maduro threatened on Friday to jail his political opponents if they follow through on their vow of launching a legislative trial to remove him from power.
Shrugging off a partially-observed strike which the opposition called to raise pressure on him, the socialist president went on the counterattack.
Maduro sharpened the tone in a volatile political and economic crisis that has sparked food shortages and riots in the South American oil producer.
“If they launch a supposed political trial, which is not in our constitution, the state prosecution service must bring legal action in the courts and put in jail anyone who violates the constitution, even if they are members of Congress,” Maduro said in a speech Friday.
Friday’s strike was called after authorities blocked a bid by the center right-dominated MUD coalition to hold a referendum on removing Maduro from power.
After that move, the crisis heated up this week. Opposition lawmakers vowed to put Maduro on trial and exchanged accusations of coup-mongering with the mustachioed president.
Friday’s strike seemed to be only partially observed.
In the capital Caracas and cities such as Maracaibo and San Cristobal, the streets were quieter than normal but public transport was running and banks and some schools opened as usual.
Clashes broke out in recent days between riot police and pro- and anti-government protesters around the country.
Maduro earlier threatened to break the strike by sending the army to take over firms that took part in it.
The center-right coalition’s latest move to pressure the unpopular leftist leader came after anti-government protests drew hundreds of thousands of people on Wednesday.
In its bluntest warning to date on the costs of policy inaction, the IMF said “financial and economic stagnation” could take hold unless governments prevented a “pernicious feedback loop of fragile confidence, weaker growth, low inflation and rising debt burdens” from forming.
José Viñals, the head of the IMF’s financial stability division, said a prolonged slowdown could knock around 4pc off global output relative to current expectations over the next five years amid repeated bouts of market turmoil.
Mr Viñals said a $1.3 trillion (£912bn) corporate debt timebomb in China also posed “potentially serious challenges” to financial stability if defaults pushed banks over the edge.
The IMF’s global financial stability report said a “loss of market confidence” would drag global bourses into a bear market.
Under this scenario, Stocks in the UK, US, eurozone and China would lose a fifth of their value over two years, it estimated.
The triple threat of slower growth, rising risks from China and diminished faith in policymakers’ ability to prevent a fresh downturn meant households and businesses were likely to save more and spend less in the uncertain global environment.
Economic powerhouses such as China and India would see output losses of more than 4pc by 2021 compared with current IMF forecasts, it said, while world output world be 3.9pc lower relative to the baseline.
“This would be roughly equivalent to foregoing one year of global growth, said Mr Viñals.
Low inflation and nominal growth would also push debt burdens in struggling countries such as Greece and Japan to fresh highs.
This would “entrench secular stagnation worldwide” the IMF warned.
Mr Viñals called for a “more balanced and potent policy mix for improving the growth and inflation outlook”.
He urged policymakers in the eurozone to help banks deal with an “elevated” number of so-called non-performing loans – where debtors are usually three months behind on payments.
In China, the IMF called for an end to implicit subsides that allowed zombie companies to remain in business. It also said Beijing should equip regulators with the tools needed to police China’s increasingly complex financial system.
“Much is at stake. Additional measures are needed to deliver a more balanced and potent policy mix. If not, market turmoil may recur and intensify, said Mr Viñals.
“Monetary policy was becoming “overburdened”, the IMF said. Growth-friendly fiscal policies and wider reform would be needed to support the recovery and boost investment and consumption. Read the rest of this entry »
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 »
The Venezuelan Observatory of Violence estimates there were 40 cases in 2014 of lynchings, usually defined as extrajudicial killings by mobs.
VALENCIA/CARACAS (Reuters) – Alexandra Ulmer and Diego Oré report: When a man they believed to be a thief sneaked into their parking lot in the Venezuelan city of Valencia, angry residents caught him, stripped him and beat him with fists, sticks and stones.
“The police can arrest criminals, but then the courts free them. As long as there’s no response from the state, lynchings will increase.”
— Elisio Guzman, the head of state police in the state of Miranda
They tied him up and doused him in gasoline, according to witnesses, in one of what rights groups and media reports say are an increasing number of mob beatings and lynchings in a country ravaged by crime.
That August night, as locals say is common, three people had sneaked into Valencia’s Kerdell residential block. In past such break-ins, thieves have made off with car tires, batteries and radios.
“President Nicolas Maduro’s administration often blames violence on political rivals seeking to sabotage the socialist government. Authorities have also accused foreign media of exaggerating crime in Venezuela.”
But this time, one resident spotted the trespassers and alerted other neighbors, according to the witnesses.
“‘Kill him, give it to him,’ they shouted,” recounted Trina Castro, 82, in this once middle-class and peaceful area that is now plagued with garbage and graffiti. One reads: “Get ready, thief, here we burn you. Regards, Kerdell.”
“I tried to stop the mob but the level of violence endangered anyone who opposed them,” said another witness, asking to remain anonymous for fear of retaliation.
The unconscious man, who was not torched, was evacuated and is now in the local hospital’s trauma ward, according to witnesses and Valencia’s police. The police said they had no further details and did not identify the man.
A source at the Interior Ministry, who asked to remain anonymous because the minister is the only person authorized to speak on the record, said it does not usually comment on cases under investigation. Venezuela’s state prosecutor’s office said it had not issued a statement on the incident. Read the rest of this entry »
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.
ATHENS (Reuters) – Lefteris Karagiannopoulos reports: With banks shut and the economy seizing up, some Greek newspapers like the Empros daily on the island of Lesvos are running out of paper and could be forced to stop sales altogether until the banks open again.
“There is a definite problem with paper supply. Our supplier can’t provide us with it, as it is stuck in customs. He can’t pay the foreign suppliers, as bank transfers are blocked and there’s very little cash to continue operations”.
— Empros chief executive Manolis Manolas
The island’s biggest selling newssheet, Empros has already reduced the number of pages to 16 from 20 and its chief executive Manolis Manolas hopes he won’t have to make further cuts as the country’s cash crunch worsens. Greek banks have been shut for almost two weeks after capital controls were imposed.
“There is a definite problem with paper supply,” Manolas told Reuters by phone. “Our supplier can’t provide us with it, as it is stuck in customs. He can’t pay the foreign suppliers, as bank transfers are blocked and there’s very little cash to continue operations”.
“The newspaper you hold in your hands numbers only 32 pages because the stock of printing paper will last for just a few days and it will not be possible to get a fresh supply through customs because of the bank holiday.”
Curbs on money withdrawals and transfers have made life miserable for millions of Greeks, whose government was scrambling on Thursday to devise a new set of proposals for a bailout with its creditors to stave off imminent bankruptcy.
Filo (or phyllo) (Greek: φύλλο ‘leaf’) is a kind of very thin unleavened dough used for making pastries such as baklava and börek in Middle Eastern and Balkan cuisines. Filo-based pastries are made by layering many sheets of filo brushed with melted butter; the pastry is then baked.
As well as reporting on the capital controls introduced at the end of June – queues outside banks and cash machines are now a daily sight in Greece – the media also became a victim of them. Read the rest of this entry »
After ‘No’ Vote Against Bailout, Yanis Varoufakis Steps Down
Greek Finance Minister Yanis Varoufakis resigned from his post Monday after Greek citizens voted to reject further austerity measures the day prior, the Associated Press reported.
“I shall wear the creditors’ loathing with pride.”
— Yanis Varoufaki
Varoufakis said he was told shortly after the voters rejected Sunday’s referendum regarding demands by international creditors to impose further austerity measures in exchange for a bailout package for its bankrupt economy, that the other eurozone finance ministers and Greece’s other creditors would prefer he not attend the ministers’ meetings.
Varoufakis issued an announcement saying Prime Minister Alexis Tsipras had judged that Varoufakis’ resignation “might help achieve a deal” and that he was leaving the finance ministry for this reason Monday.
Varoufakis is known for his brash style and fondness for frequent media appearances at the start of his tenure when the new government was formed in January. He had visibly annoyed many of the eurozone’s finance ministers during Greece’s debt negotiations.
“Soon after the announcement of the referendum results, I was made aware of a certain preference by some Eurogroup participants… for my ‘absence’ from its meetings; an idea that the prime minister judged to be potentially helpful to him in reaching an agreement. For this reason I am leaving the Ministry of Finance today,” Varoufakis wrote in a blog post, according to The Guardian.
“Like all struggles for democratic rights, so too this historic rejection of the Eurogroup’s 25th June ultimatum comes with a large price tag attached,” the post read, according to the Athenian newspaper Kathmerini.
“It is, therefore, essential that the great capital bestowed upon our government by the splendid NO vote be invested immediately into a YES to a proper resolution – to an agreement that involves debt restructuring, less austerity, redistribution in favour of the needy, and real reforms,” Varoufakis wrote. 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 [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 »
Matt Purple writes: The stock market is getting walloped today and the reason is grave: Greece, dogged by enormous debt and an anemic economy, may be about to walk away from its German creditors.
“Thanks to Greece’s socialist policies, its economy has long been creaking under the weight of crushing debt. It only endured in the debt-averse European Union because, with the help of Wall Street honchos like Goldman Sachs, it cunningly concealed its red ink for over a decade.”
Greek Prime Minister Alexis Tsipras has called for a referendum over the latest concessions demanded by Germany and the European Commission. Votes will be cast on Sunday and Tspiras is actively campaigning against Greek cooperation. Four days earlier comes Tuesday, which is the deadline for Greece forking over an additional 1.6 billion euros to the International Monetary Fund. It’s now unknown whether Tspiras intends to default.
What is known is that the uncertainty is causing Greeks to party like it’s 1930. NBC News reports:
Greece imposed restrictions on money withdrawals and banking transactions to keep its financial system from collapsing due to a run on the banks.
Anxious Greeks rushed to ATMs to withdraw cash after Prime Minister Alexis Tsipras called late Friday for a referendum on the creditors’ reform proposals. …
Meanwhile, retirees lined up just after dawn at bank branches hoping they would be able to receive their pensions, which were due to be paid Monday. The finance ministry said the manner in which pensions would be disbursed would be announced later in the afternoon.
The president of the European Commission has declared that Greece’s departure from the euro is not an option, but even the most impenetrable of Eurocrats must comprehend that their little science project is falling apart.
This weekend’s referendum isn’t just about the current bailout package; a “no” vote will effectively jettison Greece from the euro and resurrect their old drachma currency. A “Grexit,” the prospect of which has long triggered dramatic sting music in the minds of European financial ministers, is looming over the Continent.
“That debt is often attributed to the fact that ‘Greeks don’t pay their taxes,’ which has now reached near-aphorism status among economic writers. But rarely does anyone explore the reasons for all this tax dodging.”
And why not? The referendum is likely a leverage tactic by Tspiras—who’s resorted to such risibly desperate measures in the past as calling on Germany to pay Greece Nazi war reparations—but it intersects with one of the seminal themes of his election campaign last year: giving the Greek people a choice. Why should Athens, fuzzily remembered as the “birthplace of democracy,” have its finances determined in the back room of a foreign accounting office? Read the rest of this entry »
FRANKFURT—Scattered incidents of violence broke out Wednesday across Germany’s financial capital alongside demonstrations against austerity timed to the inauguration of the European Central Bank’s new headquarters.
While most parts of Frankfurt remained peaceful, a policeman on patrol said some police cars had been set on fire and some protesters burned tires. Police used water cannon on some protesters.
‘European unity is being strained. People are going through very difficult times.’
—ECB President Mario Draghi
ECB President Mario Draghi defended the bank’s policies at the inauguration ceremony, warning that moving toward more isolation and nationalization wouldn’t solve Europe’s problems.
“European unity is being strained. People are going through very difficult times,” Mr. Draghi said in prepared remarks at the inauguration. Read the rest of this entry »
IMF chiefChristine 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 »
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 »
…There’s no easy way to say this, so I’ll just say it: We’re no longer No. 1. Today, we’re No. 2. Yes, it’s official. The Chinese economy just overtook the United States economy to become the largest in the world. For the first time since Ulysses S. Grant was president, America is not the leading economic power on the planet.
It just happened — and almost nobody noticed.
The International Monetary Fund recently released the latest numbers for the world economy. And when you measure national economic output in “real” terms of goods and services, China will this year produce $17.6 trillion — compared with $17.4 trillion for the U.S.A.
“Make no mistake. This is a geopolitical earthquake with a high reading on the Richter scale.”
As recently as 2000, we produced nearly three times as much as the Chinese.
To put the numbers slightly differently, China now accounts for 16.5% of the global economy when measured in real purchasing-power terms, compared with 16.3% for the U.S.
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.
Erika Johnsen writes: Their triumphant return to positive economic (if only just) earlier this year was met with plenty of self-congratulatory optimism on which Socialist President Hollande’s government proclaimed they were fairly confident they’d be able to build, but interestingly enough, it seems that their high-tax, high-regulatoryregime is in fact preventing them from making any additional progress (weird, right?). Earlier this week, we learned that the euro economy grew by “less than expected” at a mere 0.1 percent, while France’s economy contracted by a tenth of a point. Now, more bad news in the form of slackened businesses activity and weakened consumer confidence across the zone in general and in certain places especially:
Hopes that the euro zone could be emerging from years of torpor suffered another setback on Thursday when an indicator of economic activity in the region slipped unexpectedly and suggested that France could be sliding back into recession.
The indicator, a survey of purchasing managers published by the research firm Markit, fell to 51.5 in November from 51.9 in October, according to preliminary data, as the decline in France offset further improvement in Germany. Economists had expected the composite index for the euro zone, which tracks both manufacturing and service sectors, to rise to 52, according to Barclays.
A reading above 50 is considered a sign that the euro zone economy is growing. But the index for France fell to 48.5 in November from 50.5 in October, the latest sign of shrinkage in the French economy…
For the first time ever, the combined gross domestic product of emerging and developing markets, adjusted for purchasing price parity, has eclipsed the combined measure of advanced economies. Purchasing price parity—or PPP for short—adjusts for the relative cost of comparable goods in different economic markets.
According to the International Monetary Fund—the supplier of this data—emerging and developing economies will have a purchasing price parity-adjusted GDP of $42.8 trillion in 2013, while that of emerging economies will be $44.4 trillion. In other words, emerging markets will create $1.6 trillion more value in goods and services than advanced markets this year.