Chinese Economics Thread


zgx09t

Junior Member
Registered Member
The overall local government debt ratio was 93.6 percent in 2020
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Here are some food for thought for that kind of selective quote.

Imagine those debts, issued in RMB, are mostly held by state owned banks, which it is, like in high double digits. Now there should be some portion of them held by some commercial banks and foreigners, but not to a degree like those of policy banks. For simplicity sake, forget about LGFV's and bond quotas, and just ponder over the financing sources only. Think of them debts as perpetual bonds, or 100 year, or heck even 200 year bonds. Who cares, it's little brothers owing to the big brother, time scale is simply irrelevant. All you need to worry about is paying the interests only, which will go to state owned banks, which in turn will go to PBoC and ultimately to the government. Win win. The only thing you need to pay attention is all these money should go to productive infrastructures, or social programs that support current workforce, or upgrading human resources and technical skills, ie, preempting potential and future bottlenecks that would impede current and future productivity. Those kind of stuff usually doesn't come with a ROI of 15%. As long as the growth in those burrowed funds roughly falls in line with GDP growth rate, effectively nobody cares, and shouldn't care. Good times, stay steady and pay it back; bad times, do it a bit more to pick up the slack. Rinse and repeat. It can go on forever, as RMB is owned by China, and nobody else does.
 

caudaceus

Junior Member
Registered Member
Here are some food for thought for that kind of selective quote.

Imagine those debts, issued in RMB, are mostly held by state owned banks, which it is, like in high double digits. Now there should be some portion of them held by some commercial banks and foreigners, but not to a degree like those of policy banks. For simplicity sake, forget about LGFV's and bond quotas, and just ponder over the financing sources only. Think of them debts as perpetual bonds, or 100 year, or heck even 200 year bonds. Who cares, it's little brothers owing to the big brother, time scale is simply irrelevant. All you need to worry about is paying the interests only, which will go to state owned banks, which in turn will go to PBoC and ultimately to the government. Win win. The only thing you need to pay attention is all these money should go to productive infrastructures, or social programs that support current workforce, or upgrading human resources and technical skills, ie, preempting potential and future bottlenecks that would impede current and future productivity. Those kind of stuff usually doesn't come with a ROI of 15%. As long as the growth in those burrowed funds roughly falls in line with GDP growth rate, effectively nobody cares, and shouldn't care. Good times, stay steady and pay it back; bad times, do it a bit more to pick up the slack. Rinse and repeat. It can go on forever, as RMB is owned by China, and nobody else does.
For all of the high debt issues, my opinion is that China has very high saving rate and equity financing is weak so financing tends to go to debt.
 

Strangelove

Captain
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PBC announces largest cut in 5-year LPR as China fast-tracks pro-growth policies

By GT staff reporters Published: May 20, 2022 04:47 PM


RMB Photo:VCG

RMB Photo:VCG

China's central bank on Friday lowered the five-year loan prime rate (LPR) by 15 basis points (bps) to 4.45 percent in May, its biggest cut in the mortgages-referenced benchmark for longer-term lending. This comes as the government vows to fast-track pro-growth policies amid a slowing economy.

The People's Bank of China (PBC), the country's central bank, held the one-year LPR steady at 3.7 percent in May, while lowering the five-year LPR from the previous month's 4.6 percent.

The LPR, based on a weighted average of lending rates from 18 designated commercial banks, is announced on the 20th of each month.

Friday's decision was the second cut in the five-year LPR this year, also the largest and first asymmetrical reduction in the longer-term lending rate.

The previous changes were in January, when the PBC cut the one-year LPR by 10 bps from 3.8 percent. Meanwhile, the five-year LPR was lowered by 5 bps from 4.65 percent, the first reduction since April 2020.

The fresh cut came on the heels of a symposium on stabilizing growth held in Southwest China's Yunnan Province which urged pro-growth measures to be fast-tracked, fully indicating the central bank's resolve to lower financing costs, especially medium- to long-term funding, Yan Yuejin, research director at Shanghai-based E-house China R&D Institute, told the Global Times on Friday.

While chairing the symposium on Wednesday, Premier Li Keqiang called for an accelerated pace in implementing macro policies.

As most policies introduced by the Central Economic Work Conference and government work report were implemented in the first half of 2022, Li called for local governments to push for more measures in May so as to quickly bring the economy back on track, according to Xinhua.

The country must ensure the full implementation of its relief measures, including tax cuts and refunds, so that businesses can enjoy policy support promptly and thoroughly, Li said.

In a sign of subdued growth amid both domestic and overseas uncertainty, a slew of economic indicators for April were revealed earlier this month, including an 11.1 percent fall year-on-year in social retail sales for April, which have pointed to a broad-based moderation in the world's second-largest economy.

Currently, credit demand remains weak amid the COVID-19 fallout, with growth in medium-to long-term credit trending slower, according to Wang Yunjin, a senior researcher with Zhixin Investment Research Institute.

Last month, the increase in medium-to long-term lending shrank by 918.4 billion yuan ($137.2 billion) from the year before, Wang said in a note sent to the Global Times on Friday.

In light of weakened demand at both home and abroad amid the still-raging pandemic and a monetary tightening in overseas markets, the country's economy is facing increased downward pressure, necessitating a ramped-up countercyclical fine-tuning to effectively stimulate credit demand, Wang explained, expecting the Friday cut to revive business investment and consumer spending.

With the policy easing to gradually flex its muscles, the property sector is anticipated to bottom out in the second half of the year, as the costs of mortgages for residents and financing for property developers over the longer term are both reduced, market watchers said.

The fresh rate cut followed the PBC's move on Sunday to lower interest rate floors on mortgages for first-time homebuyers by 20 bps off the LPR, culminating a flurry of housing market-reviving moves across the country as part of a broader pro-growth push.

New housing starts are likely to hit the rock bottom in the second half, with property investment growth gradually stabilizing in the third quarter before seeing a small uptick in the fourth quarter, according to Zhixin Investment. The research institute estimated the full-year property investment to grow by around 2 percent year-on-year.

The cut in the five-year LPR directly bodes well for the manufacturing and real estate sectors and the market confidence is set to gradually revive, Zhou Maohua, a macroeconomic analyst at Everbright Bank, told the Global Times on Friday.

An accelerated recovery in the real estate and manufacturing sectors within the year would spur a rebound in domestic consumption and investment, Zhou said.

The Friday announcement also signals a varying monetary policy path in China, as opposed to a US-led cycle of rate hikes, Yan said.

The stability and sustainability of China's monetary policy that focuses on averting a continued slowdown in the economy would acquaint market entities with the country's monetary and financial policy trends in a clearer manner, he remarked.
 

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