China Digital Times

China news tagged with: interest rates (16)

• China 2008: The Global Financial Crisis

  

  This next article in the CDT series on important issues facing China in 2008 focuses on China’s role in the global financial crisis.

  To give a deeper understanding of China’s up-and-coming role on the world stage, CDT looks at articles, issues, and policies over the last six months that contributed to the current state of the Chinese economy. While this is not a comprehensive timeline, it will give a basic analysis of China’s reaction to the financial crisis and its role within it.

  –
  After starting 2008 with a double-digit growth rate, substantial trade surpluses, and over a trillion dollars in foreign reserves, it took almost half the year before China fell victim to the global financial crisis. At first some believed China might be immune; however, as banks began to collapse in the United States and Europe, China quickly found itself drawn into the financial mess.

  When the U.S and Europe fell into the credit crisis earlier this year, they were forced to cut back on consumption, which fueled a massive decrease in demand for Chinese imports. China was already experiencing a economic downturn, and the lack in demand from abroad meant factory closures, resulting in high job losses all over China. Guangzhou, a major manufacturing town, lost tens of thousands of workers in 2008, forcing citizens to return to their home in the countryside. Dongguan, and the southern Pearl River Delta, also lost thousands of workers. Suddenly the great engine of China was slowing.

  At the same time, China also still seems poised to “rescue” the West. With $1.9 trillion in foreign reserves, a $29.3 billion trade surplus, and potentially undervalued yuan, China still seems to be one of the most influential players in the world – at least from a fiscal perspective. But China became leery. Having been burned by previous sour investments, the country is cautious in handling its $200 billion of sovereign wealth funds abroad. For example, many thought the China Investment Corporation (CIC) would use some of these funds to purchase an additional stake in Morgan Stanley earlier this year; however, Japanese bank Mitsubishi UFJ Financial Group ended up financing the investment. The West is asking China for help, but representatives from China continually answer that the best strategy for China is to focus on its own internal growth.

  The Chinese government is working on this in a variety of ways. In the beginning of 2008, the CIC invested money directly into Chinese banks, giving $20 billion to China Development Bank, and $47 to Agricultural Bank of China. The latter held $100 billion of bad loans and was the country’s fourth largest state-owned lender to have to be funded by the government. Then in mid-September, China’s Central Bank cut interest rates for the first time in six years; China wanted to keep inflation levels low, but it also needed to encourage lending. The Central Bank continued to cut rates throughout the remainder of the year. Just a few weeks later, the government introduced a series of tax cuts for new homeowners, lowering the property contract tax from three percent to one percent and decreasing the down payment on certain-sized homes. Perhaps the most well known “stimulus” for China was the $586 billion stimulus package unveiled in November; the package received plenty of speculation in terms of how much “good” it would do the real economy, but many find it difficult to argue with China’s desire to invest in infrastructure.

  But most recently, the Chinese government is hoping to change habits. Many Chinese take a certain amount of pride in thriftiness, and Beijing wants to encourage consumption. Consumer spending currently accounts for 38 percent of the China’s GDP, compared to somewhere like the United States where consumer spending is almost two-thirds of the country’s GDP. Part of the previously mentioned $586 billion stimulus package includes incentives for individuals to buy cellphones, furniture, washing machines and flat-screen TVs. And lastly, we can’t forget the ever-argued “manipulation” over the value of the yuan.

  Right now China says it needs to focus on keeping its economy growing. With the economic outlook looking much slower for 2009, China needs to address the increasing social unrest from rising unemployment, as well as its role in the turbulent global economy. China’s projected growth for 2009 lies anywhere from 5.5 to 9 percent, and it needs a minimum of 7 or 8 percent growth to provide jobs for the estimated 20 million people that annually enter its workforce.

  So what will China do? Most recently outgoing U.S. treasury secretary Henry Paulson met with officials in Beijing to discuss the global financial crisis. At the most recent convening, China’s Central Bank governor, Zhou Xiaochuan, blamed the financial crisis on “excessive consumption and high leverage” by Americans. Yet China holds over $585 billion in United States debt (along with Japan, Great Britain, and countless others), essentially helping to finance the ability of Americans to live beyond their means over the past decade.

  In the coming months, it is unclear how China will welcome the new Obama administration, and aside from several small comments, it is yet to be seen how the Obama administration will interact with China. Discussions have obviously begun, as China’s Central Bank governor, Zhou Xiaochuan, met with Mr. Paulson’s successor, Timothy Geithner, earlier this month. At a time where the financial landscape is changing daily, the United States, and the world, are looking at China for its reaction.

  Analysts around the world have given their perspective of China’s role in the current economic crisis. To learn more about China’s role within the crisis, here are some additional links:

  China 2008: La Repubblica’s Asia Chief Correspondent and Senior Global Columnist, Federico Rampini gave a lecture on the impact of the global economic crisis on US-China relations on November 10, 2008. His speech was followed by the remarks prepared by two discussants, and a Q&A session.

  Understanding the Global Financial Crisis: Blogger from The China Vortex discusses the importance, and difference, of home owernership in China and the US.

  Video: China Investment Corporation: An interview by CBS’s Lesley Stahl reveals deep insight into the workings of the the CIC by interviewing CIC President Gao Xiqing. Gao discusses the funds goals and how the rest of the world feels about the CIC.

  Obama’s New Deal and the fate of migrant workers: Overseas political commentator Liang Jing wrote this essay; translated by Dr. David Kelly.

  Book Review: Chinese Capitalism: A new analysis on China’s political and rural economy in the 1980s compared to the 1990s.

  Reflections on migrant workers and news on the recent social unrest in China

  » Read more
  • December 8, 2008 10:55 PM

• China Cuts Interest Rates; Oil Prices Surge

  

  The People’s Bank of China, the country’s central bank, announced the largest interest rate cut in 11 years today in an effort to get the economy moving again. From the New York Times:

  The central bank, the People’s Bank of China, announced late Wednesday afternoon that it was lowering by 1.08 percentage points the one-year lending and deposit rates that banks are allowed to charge, effective on Thursday. The new lending rate is 5.58 percent and the new deposit rate is 2.52 percent. The central bank had already cut the benchmark rate three times since Sept. 16 and the benchmark deposit rate twice, by 0.27 percentage points each time.

  The one-year lending rate is important in China because banks use it to calculate other interest rates, based on the maturity of the loan and the creditworthiness of the borrower.

  Immediately following this news, oil prices rose globally, Bloomberg reported:

  Chinese fuel demand has fallen “sharply” since September because of credit-market turmoil, the country’s biggest oil producer, China National Petroleum Corp., said Nov. 17. Prices fell from the day’s highs after a government report showed that U.S. oil and gasoline supplies increased more than forecast.

  “Thank you People’s Bank of China,” said Phil Flynn, senior trader at Alaron Trading Corp. in Chicago. “The Chinese action is definitely giving us a boost today. I don’t know if this rally will last because we’ve had a number of stimulus packages announced followed by short-term rallies.”

  Crude oil for January delivery climbed $2.67, or 5.3 percent, to $53.44 a barrel at 11:25 a.m. on the New York Mercantile Exchange. Prices rose as much as $2.23, or 4.4 percent, to $53 before the Energy Department released its weekly report today at 10:35 a.m. in Washington. Futures have dropped 64 percent since reaching a record $147.27 on July 11.

  » Read more
  • November 26, 2008 10:28 AM

• China Cuts Rates, Tracking Global Effort to Ease Credit Crisis

  

  From Bloomberg:

  China cut interest rates and allowed banks to set aside smaller reserves, supporting an unprecedented global effort to unfreeze credit markets and ease the worst financial crisis since the Great Depression.

  The one-year lending and deposit rates will be lowered by 0.27 percentage point to 6.93 percent and 3.87 percent effective tomorrow, the People’s Bank of China said on its Web site. It reduced the proportion of deposits banks must set aside as reserves by 0.5 percentage point starting Oct. 15.

  The Federal Reserve, European Central Bank and four other central banks lowered borrowing costs by half a percentage point at the same time in an emergency coordinated action. China cut rates for the first time in six years on Sept. 15 to reduce the risk that worsening credit turmoil and weakening export demand will cause a slump in the world’s fourth-largest economy.

  » Read more
  • October 9, 2008 1:21 AM

• China’s Central Bank Signals Concern About Sagging Asset Values

  

  The International Herald Tribune’s Karen Yeung and Samuel Shen report that some traders did not anticipate China’s Central Bank rate cut of .27% until later in 2008. The early cut may reflect a need to support Chinese asset prices as oppose to stimulate its slowing economy.

  The surprise decision to ease China’s monetary policy may be to help support China’s real estate sector and slowing stock markets rather than to boost the economy.

  “This is mainly a signal for the stock market,” said Shi Lei, an analyst at Bank of China in Beijing. “The index is near 2,000 points, and that’s a key level where authorities feel they need to come in and help the market.”

  Although China’s economy is slowing, it is still growing at a rate of 10.4%, and most Economists expect its GDP to continue to grow above 8% for the remainder of 2008; however, analysts speculate that if China were anxious to encourage solely economic growth, they would have also cut the bank deposit rates, not just the lending rates. This would encourage customers to shift investments from savings into stocks. By lowering only the lending rate, the Bank of China is trying to avert a further decline in asset markets. Many emerging markets have experienced a decline in their asset markets, such as real estate, and analysts believe China is trying to avoid this.

  Also related: From Bloomberg, Li Yanping and Kevin Hamlin “China’s Central Bank May Cut Rates Again”

  In the coming months, China’s policy makers may consider further interest rate cuts to allow banks a better ease of lending, to help spur economic growth, and to boost spending.

  China’s Central Bank cut rates from 7.47% to 7.0% earlier this week to, “help solve important problems in our economy for its continued stable and fast development,” the central bank reported.

  China is experience its slowest inflation rate in 14 months, and an additional cut may assist in continual growth and job protection for China’s economy while the credit crisis deepens around the world.

  » Read more
  • September 16, 2008 10:02 PM

• China Has Scope to Raise Interest Rates, Zhou Says

  

  From Bloomberg:

  China’s central bank chief said there’s still room to raise interest rates after six increases last year, as he tries to tame the highest inflation since 1996.

  “The anti-inflation policy is a combination of both quantitative measures and price measures,” Zhou Xiaochuan said in an interview with Bloomberg News in Washington yesterday. “There’s room for using interest rates further.”

  China has allowed faster gains by the yuan and pushed bank reserve requirements to a record high to tackle inflation that jumped to 8.7 percent in February on food and fuel costs. Higher rates may slow the economy that contributed the most to global growth last year, just as the Group of Seven nations says the world outlook has weakened.

  » Read more
  • April 14, 2008 4:56 AM

• Inflation vs. Interest Rates: The Battle Continues

  

  As the United States winces with each new release of data that suggests the world’s largest economy may be shrinking, the world’s fourth largest economy looks to be facing it’s own new set of anxiety-producing figures. In a preview of official numbers due tomorrow from the National Bureau of Statistics, the Bank of China is reporting that inflation likely set an 11-year record at 8.3 percent last month. From Reuters via Economic Times:

  The bank, China’s second largest lender, said in its report that February’s spike in the consumer price index was fuelled mainly by food, which rose more than 22 per cent from a year earlier, according to Xinhua.

  “Making things worse… when people expect prices to keep rising, they will spend more to avoid those future rises, which in turn will push prices up,” Xinhua said, quoting the bank.

  Meanwhile, in an revelation sure to upset bargain shoppers in the U.S. and elsewhere, the government also announced the producer price index (PPI), a critical measure of costs borne by manufacturers and wholesalers, rose 6.6 percent in February. In an article on the announcement, AFP reports raw material prices rose nearly 9 percent, while crude oil climbed almost 38 percent. (American drivers, China feels your pain.)

  According to Xinhua, the Bank of China expects the central bank will raise interest rates yet again in the first half of the fiscal year to deal with the problem.

  » Read more
  • March 10, 2008 1:29 AM

• China Growth May Slow at Worst Time for World Economy

  

  For years economists have warned China needs to do more to keep its economic growth from spiraling out of control. Now, with the country’s leaders finally showing signs they may be able to rein in the beast, Bloomberg reports there’s a danger in that as well:

  The risk is that, with months of effort to cool off China finally taking hold when the U.S. is already flirting with recession, both main engines driving the global economy may power down at the same time.

  “As foreign demand deteriorates, China may overdo its tightening of policy and cause a sharp economic slowdown,” says Frank Gong, Hong Kong-based chief China economist at JPMorgan Chase & Co. “If the central bank raised interest rates too much, it would damp domestic demand and increase the danger of economic downturn.”

  » Read more
  • January 13, 2008 10:01 PM

• Bank Lifts China’s Interest Rates – BBC News

  

  From BBC News:

  China’s central bank has raised interest rates for the sixth time this year, adding to its efforts to cool the country’s surging inflation.

  The benchmark lending rate will rise to 7.47% from 7.29% with effect from Friday, while the main deposit rate will increase to 4.14% from 3.87%. Chinese inflation hit 6.9% in November, its highest level since 1996. Separately, Beijing has promised to double subsidies for pig farmers to ensure pork supplies and lower prices. [Full Text]

  [Image: Pork is a staple of the Chinese diet, from AP.]

  » Read more
  • December 20, 2007 7:40 AM

• China’s Rate Increase Targets Food Prices – Jamil Anderlini

  

  From Financial Times:

  China’s central bank raised interest rates for the second time in less than a month on Friday in an attempt to rein in soaring food prices, excessive bank lending and bubbles in the property and stock markets.

  The People’s Bank of China lifted the one-year benchmark deposit rate by 27 basis points to 3.87 per cent and the one-year lending rate by the same amount to 7.29 per cent, effective immediately.

  The PBOC has now lifted rates five times this year as it strives to contain headline inflation that reached 6.5 per cent in August, the fastest increase in more than a decade. [Full Text]

  » Read more
  • September 15, 2007 5:21 AM

• Interest Rate Hikes An Effective Economic Tool – Yi Xianrong (ÊòìÂÆ™ÂÆπ)

  

  From China Daily:

  For the fourth time this year, the People’s Bank of China, the central bank, raised interests rates on Wednesday.

  The interest rate on bank deposits was raised by 27 basis points, and the lending rate by 18 basis points. After the hikes, the benchmark one-year deposit rate is now 3.6 percent while one-year lending rate is 7.02 percent.

  The central bank said it raised the interest rate to “control money supply and credit, and stabilize inflation expectation”.

  Judging from the series of moves by the monetary authorities, it is not hard to detect the new preference of the decision-makers in choosing policy tools. The frequent adjustments of the interest rate this year indicate that the authorities are attaching more importance to it.[Full Text]

  Yi Xianrong (ÊòìÂÆ™ÂÆπ) is a researcher with the Institute of Finance and Banking at the Chinese Academy of Social Sciences. Read also Highlights of China’s Monetary Policy in the Second Quarter of 2007 by People’s Bank of China.

  » Read more
  • August 26, 2007 6:22 AM

• China Takes Steps to Curb Its Surging Economy – Keith Bradsher

  

  From International Herald Tribune:

  The Chinese central bank announced Friday that it would allow its currency to fluctuate more during daily foreign exchange trading, but again rebuffed demands from the United States and Europe for a sustained rise in the yuan’s value.

  The central bank also raised interest rates and demanded that commercial banks set aside more of their assets as reserves that cannot be lent. The two moves are aimed at tightening credit and reducing the risk of overheating in an economy that is growing at more than 11 percent a year and in mainland Chinese stock markets that have more than tripled since the beginning of last year. [Full Text]

  See also Public Announcement of the People’s Bank of China on Enlarging the Floating Band of the RMB Trading Prices against the US Dollar in the Inter-bank Spot Foreign Exchange Market and Spokesperson of the People’s Bank of China Answers Questions on Enlarging the Floating Band of the RMB Trading Prices against the US Dollar in the Inter-bank Spot Foreign Exchange Market.

  » Read more
  • May 18, 2007 9:52 AM

• Black Tuesday in China – Shu-Ching Jean Chen and Vivian Wai-yin Kwok

  

  From Forbes:

  
  

  They’re calling it Black Tuesday in China: local stock markets unexpectedly sold offt, losing nearly 9% of their value, and putting pressure on equity prices around the world.

  Analysts said the Shanghai and Shenzhen markets were reacting to widespread rumors of plans by the Chinese government to raise interest rates or institute a capital gains tax, measures that would serve to temper local stock markets that were up about 10% for the year before Tuesday’s decline.

  Vincent Lam, director and fund manager of Quam Asset Management said “Rumors has been circulating in Hong Kong for a few days that China Premier Wen will announce a new set of policies, such as raising interest rates, to tighten China’s economy.” [Full Text]

  -Also see the story from Financial Times

  » Read more
  • February 27, 2007 1:05 PM

• China’s Central Bank Raises Rates in Latest Effort to Slow the Economy – Keith Bradsher

  

  From the New York Times:

  China’s central bank raised interest rates on Friday evening, the latest in a series of moves by the government to choke off a binge in speculative lending and investment that threatens to saddle the country’s banks with more bad loans if the economy slows.

  The People’s Bank of China raised interest rates for one-year bank loans and bank deposits each by 27-hundredths of a percentage point. Economists had been predicting an interest-rate increase, China’s second this year, after government statisticians announced last month that economic growth reached a torrid 11.3 percent in the second quarter.

  The government has already increased restrictions on bank lending policies, raised bank reserve requirements and even reprimanded regional officials who pursue speculative construction projects in defiance of Beijing’s instructions. Chinese officials have hinted at further brakes on the economy in the months to come.[Full Text]

  Also see China’s Central Bank Raises Lending, Deposit Rates from Bloomberg News

  » Read more
  • August 18, 2006 11:04 PM

• China banks face increased bad loans due to rising rates, stronger yuan – AFX News

  

  From AFX News via Forbes.com:

  China’s banking industry faces the prospect of a significant increase in bad loans, if interest rates rise rapidly and the value of the yuan, ratings agency Standard & Poor’s said in a report.

  It estimates that if the Chinese yuan appreciates by 25 pct and interest rates increase by 200 basis points, the corporate sector’s net profit could fall by about a third and the banking sector’s nonperforming loan ratio could rise by up to nine percentage points.

  This scenario would materialize if both sectors fail to take any countermeasures to mitigate risks and losses, S&P said. [Full Text]

  Also see Don’t Bank on China for stories about non-performing loans

  » Read more
  • June 27, 2006 5:58 AM

• China moves to fend off economic overheating – Kevin Yao and Eadie Chen

  

  From Reuters:

  China on Friday moved to curb the rapid credit growth that its leaders fear could cause the red-hot economy to overheat, as the central bank imposed new limits on the amount of money commercial banks can lend.

  It raised the proportion of money banks must keep in their reserves by half a percentage point, effective July 5.

  The move follows a 27 basis-point hike in benchmark lending rates in late April and a revaluation of the yuan by 2.1 percent against the dollar in July last year.[Full Text]

  Also see “China PBoC raises banks’ reserve requirements by 0.5 percent” from Forbes.com

  For April’s interest rate change, see “China’s interest rate hike necessary, but not sufficient”

  » Read more
  • June 17, 2006 6:23 AM

CDT BOOKSHELF

China Digital Times is run by the Berkeley China Internet Project | Copyright © China Digital Times | Powered by WordPress.