Your daily digest of the biggest business news in China, translated and summarized every day.
Bad loans just tip of the iceberg
A senior official from the Chinese Banking Regulatory Commission has warned that banks have not yet disclosed the full extent of their bad loans and that the bad loans already publicly disclosed are just the tip of the iceberg.
Yu Xuejun, who heads the financial institution supervisory committee, says problems such as overcapacity, housing bubbles and shadow banking are all putting pressure on the country’s banking system.
He blames the government’s massive fiscal stimulus package, which comprised of 4 trillion yuan-worth of fixed asset investment and 10 trillion yuan-worth of indiscriminate lending as the key culprit for the debt problem.
Leading bankers back PBOC’s rate cut move
Two of China’s most senior bankers have supported the PBOC’s surprise rate cut in an effort to support the country’s struggling SME sector.
Ma Weihua, the former chief executive of China Merchants Bank says the country’s “zombie companies” from sectors that suffer from excess capacity suck up too much credit from the banking sector.
The banker believes the interest rate cut will support the SME sector, encourage the development of more innovative companies and help the real economy.
Wang Jianhua, the head of Guotai Junan, one China’s largest brokerage houses, says the rate cut is a very positive move for the capital market, and will help to reduce the cost of funding.
Senior official supports more Chinese investment in farm assets
The former deputy chairman of the sugar-producing province of Guangxi has urged Chinese companies to invest more abroad to prevent soaring pressure on commodities prices.
Chen Zhangliang says China already imports about 70 to 80 per cent of soybeans on the international market and that the price will soar further if Chinese demand continues.
It is more cost-effective for China to produce its food overseas. For example, it costs 50 yuan to rent an acre of land in Cambodia per year while it costs 750 yuan per acre in China. Similarly, the production cost per ton of sugar is 5500 yuan while it costs only 3750 tonnes in Australia.
Banking industry enters a new phase
The chief executive of China’ largest commercial bank says the days of easy profit on the back of fast expansion are over.
In the past six years, Commercial and Industrial Bank of China’s total assets increased 15 per cent a year and its net profit soared 30 per cent a year during the same period.
However, its net profitability sank to 10 per cent per year and its total asset only increased eight per cent for the past two years.
Jiang Jianqing says the banking sector is under assault on multiple fronts including the weakening economy, interest rate liberalization and technological innovation.
Call for higher railway fares to deal with debt
China Railway Corporation, the successor to the former Ministry of Railways, is carrying 3.5 trillion yuan in debt due to is massive spending on high speed railroads.
One of the main reasons for the high level of debt is the country’s relatively cheap fares, which has not seen a price increase in the last twenty years.
There has been an on-going call for the government to increase railway fares to tackle the debt problem within the rail transport sector.
Hebei province shifts steel production abroad
China’s largest steel producing province wants to shift its excess capacity abroad to ease the pressure from the closure of steel mills as Beijing clamps down on excess production.
The province wants to relocate 20 million tonnes of steel, 30 million tonnes of cement and 10 million tonnes of pleated glass production abroad by 2023.
Hebei will bear the brunt of Beijing’s plan to cut back on excess production. The province will have to cut 60 million tonnes-worth of steel production out of the planned 80 million tonne target within five years.
The move is likely to impact on 400,000 workers as well as cost 37 billion yuan in tax revenue.