XinHua News
China to invest $41 bln in 3G network in next two years
2008-12-19 15:12:32
BEIJING, Dec. 19 (Xinhua) -- China will invest 280 billion yuan(40.96 billion U.S. dollars) in developing third-generation (3G) mobile telecommunications networks over the next two years, said Li Yizhong, head of the Ministry of Industry and Information Technology, here on Friday.
He said the government will give "strong support" to promote the self-developed TD-SCDMA (Time Division Synchronous Code Division Multiple Access) standard. Efforts will be made to enhance industrialization of core chips, terminals and test equipment as well as to expand network coverage.
3G networks handle faster data downloads, allowing cell phone users to make video calls and watch TV programs.
The country's top three telecom companies are expected to receive 3G licenses either this month or at the beginning of next year. China Mobile will apply TD-SCDMA, while China Unicom and China Telecom will use Europe's WCDMA and North America's CDMA 2000 respectively.
Editor: An
Friday, December 19, 2008
"Buy first, pay later" system can help China boost domestic consumption
XinHua News
"Buy first, pay later" system can help China boost domestic consumption
2008-12-19 13:57:12
By Xinhua writer Jiang Xufeng
BEIJING, Dec. 19 (Xinhua) -- A consumer credit system could help Chinese enterprises better weather adverse effects of the global financial crisis and flagging external demands, a senior analyst told Xinhua on Friday.
Zhao Qiuyan, a senior analyst with the Ministry of Commerce (MOC), said "to bolster credit consumption would help stimulate domestic consumption, reduce inventories and raise companies' capital."
Credit consumption can happen between enterprises, or between enterprises and consumers.
Chinese firms, especially those whose products are export-oriented, have felt the punch of the financial crisis and waning demands. Some are operating under production capacity and inventories were on the rise. They are turning their attention to the domestic market of 1.3 billion people.
The MOC said on its Web site Thursday that average capital turnover rate of Chinese enterprises was only about one fourth of their peers from developed countries.
Capital turnover rate is a measure of a company's ability to use equity to generate revenue. The higher the ratio is, the more efficiently a company is using its capital.
The ministry said that by encouraging credit transaction, domestic manufacturers could raise sales and help small and medium-sized companies qualify for financing -- an long-time obstacle for smaller firms.
Figures from the MOC revealed that credit consumption only accounted for 3 percent of Chinese citizens' monthly bills , much less than the more than 33 percent in Japan and about 67 percent in the United States.
Zhao said the Chinese credit system is still in its start-up period and that this consumption method also involved risks for manufacturers and shopping malls, as it is more difficult for them to perform credit history checks checks.
Zhao said it might take awhile for credit purchasing to catch on.
Some local authorities have began to take measures to clear the obstacle for enterprises. Hangzhou, the prosperous capital city of Zhejiang, said last week it is scheduled to establish a citizen information database of personal credit histories.
She said for those export-oriented companies to get a bigger share of the domestic market, they should also be prepared for a "concept shift" to adapt to the domestic market as Chinese buyers' purchasing habits were different from those overseas.
Editor: Wang Hongjiang
"Buy first, pay later" system can help China boost domestic consumption
2008-12-19 13:57:12
By Xinhua writer Jiang Xufeng
BEIJING, Dec. 19 (Xinhua) -- A consumer credit system could help Chinese enterprises better weather adverse effects of the global financial crisis and flagging external demands, a senior analyst told Xinhua on Friday.
Zhao Qiuyan, a senior analyst with the Ministry of Commerce (MOC), said "to bolster credit consumption would help stimulate domestic consumption, reduce inventories and raise companies' capital."
Credit consumption can happen between enterprises, or between enterprises and consumers.
Chinese firms, especially those whose products are export-oriented, have felt the punch of the financial crisis and waning demands. Some are operating under production capacity and inventories were on the rise. They are turning their attention to the domestic market of 1.3 billion people.
The MOC said on its Web site Thursday that average capital turnover rate of Chinese enterprises was only about one fourth of their peers from developed countries.
Capital turnover rate is a measure of a company's ability to use equity to generate revenue. The higher the ratio is, the more efficiently a company is using its capital.
The ministry said that by encouraging credit transaction, domestic manufacturers could raise sales and help small and medium-sized companies qualify for financing -- an long-time obstacle for smaller firms.
Figures from the MOC revealed that credit consumption only accounted for 3 percent of Chinese citizens' monthly bills , much less than the more than 33 percent in Japan and about 67 percent in the United States.
Zhao said the Chinese credit system is still in its start-up period and that this consumption method also involved risks for manufacturers and shopping malls, as it is more difficult for them to perform credit history checks checks.
Zhao said it might take awhile for credit purchasing to catch on.
Some local authorities have began to take measures to clear the obstacle for enterprises. Hangzhou, the prosperous capital city of Zhejiang, said last week it is scheduled to establish a citizen information database of personal credit histories.
She said for those export-oriented companies to get a bigger share of the domestic market, they should also be prepared for a "concept shift" to adapt to the domestic market as Chinese buyers' purchasing habits were different from those overseas.
Editor: Wang Hongjiang
US auto industry worker average yearly pay surpass professor's
The average pay for the US auto industry worker surpass that of a university professor. The amount is 1.5 times the pay of the professor.
With the strong support of the worker's union, the average education level of the auto industry worker is at secondary level and their pay surpass that of a university professor.
Here is the pay breakdown.
Ford: 70.51 USD per hour. Yearly income 141,025 USD.
GM: 73.26 USD per hour. Yearly income 146,520 USD.
Chrysler: 75.86 USD per hour. Yearly income 151,720 USD.
Toyota, Honda and Nissan: 48 USD per hour. Yearly income 96,000 USD.
With the strong support of the worker's union, the average education level of the auto industry worker is at secondary level and their pay surpass that of a university professor.
Here is the pay breakdown.
Ford: 70.51 USD per hour. Yearly income 141,025 USD.
GM: 73.26 USD per hour. Yearly income 146,520 USD.
Chrysler: 75.86 USD per hour. Yearly income 151,720 USD.
Toyota, Honda and Nissan: 48 USD per hour. Yearly income 96,000 USD.
Various Asia central banks act to depreciate their currency
From the China media reports, as export declines and economy contraction replacing inflation and liquidity concerns, there are evidence that various Asia central banks have started to buy the US dollar which they have been previously selling to prop up their own currency value. The act is to help step up export through the depreciation of their own currency.
Start to buy the US dollar in the past 2 days
Patrick Bennett, Asian currency and fixed-income strategist at Societe Generale says that there are evidence that Singapore, Malaysia, India and South Korea's central banks in the past 2 days have started to buy in the US dollar.
HSBC mentioned that Thailand and Taiwan have switch policy towards depreciation of their own country's currency. Recently, Thailand started to buy in the US dollar since August 2007 and Taiwan started to buy in the US dollar since April this year.
Asia Development Bank warned last week that there is the need to prevent too much intervention and unnecessary actions in the forex market, especially the depreciation of the country's own currency.
Selling of the US dollar in the past 6 months
But in the past 6 months, as the global financial crisis pushes for risk avoidance causing the strong rally in the US dollar, in order to prevent funds from flowing out, a lot of Asia countries have been active in using their foreign exchange reserves to stop the pace of depreciation of their own country's currency against the US dollar.
As such, in October, South Korea, India, Singapore and Indonesia's foreign exchange reserve accumulated in the past 10 years have shown a decline.
To depreciate own country's currency to step up export
However, recently, as the FED's big drop in interest rate to near zero, the US dollar has plunged quite fast. The various Asia countries started to worry about their own currencies rebound against the US dollar as it will hurt the export industries profit margin. To Asia countries, export is their lifeline.
This means that such countries which have been selling the US dollar to preserve the value of their own currency, now have to control the appreciation pace of their own currencies. Thus they have to buy in the US dollar and inject funds into their own markets with their much needed local currency.
Barclays Head of Emerging Asia Research Peter Redward says that we may see Asia central banks starting to buy the US dollar because considering economy growth and inflation prospects, the policy decision maker is most unwilling to see their own country's currency going strong.
Start to buy the US dollar in the past 2 days
Patrick Bennett, Asian currency and fixed-income strategist at Societe Generale says that there are evidence that Singapore, Malaysia, India and South Korea's central banks in the past 2 days have started to buy in the US dollar.
HSBC mentioned that Thailand and Taiwan have switch policy towards depreciation of their own country's currency. Recently, Thailand started to buy in the US dollar since August 2007 and Taiwan started to buy in the US dollar since April this year.
Asia Development Bank warned last week that there is the need to prevent too much intervention and unnecessary actions in the forex market, especially the depreciation of the country's own currency.
Selling of the US dollar in the past 6 months
But in the past 6 months, as the global financial crisis pushes for risk avoidance causing the strong rally in the US dollar, in order to prevent funds from flowing out, a lot of Asia countries have been active in using their foreign exchange reserves to stop the pace of depreciation of their own country's currency against the US dollar.
As such, in October, South Korea, India, Singapore and Indonesia's foreign exchange reserve accumulated in the past 10 years have shown a decline.
To depreciate own country's currency to step up export
However, recently, as the FED's big drop in interest rate to near zero, the US dollar has plunged quite fast. The various Asia countries started to worry about their own currencies rebound against the US dollar as it will hurt the export industries profit margin. To Asia countries, export is their lifeline.
This means that such countries which have been selling the US dollar to preserve the value of their own currency, now have to control the appreciation pace of their own currencies. Thus they have to buy in the US dollar and inject funds into their own markets with their much needed local currency.
Barclays Head of Emerging Asia Research Peter Redward says that we may see Asia central banks starting to buy the US dollar because considering economy growth and inflation prospects, the policy decision maker is most unwilling to see their own country's currency going strong.
Thursday, December 18, 2008
Jim Rogers plans to sell all his US dollar assets
Investment guru Jim Rogers is planning to sell all his US dollar assets. He believes that the 'man-made' US dollar rally is nearing the end and now is the best time to switch to other investments.
Jim Rogers not long ago said that this year the US dollar will have a big rebound because investors were forced to liquidate. At that time when interviewed by Bloomberg, he said that before that a lot of investors shorted the US dollar but now they have to unwind their positions which causes the rebound of the US dollar.
Now the rebound will be ending. Jim Rogers thinks that it will be like the pound not long ago. The world's first choice currency, the US dollar has started its long path of depreciation.
Jim Rogers said that he as an American is not willing to say but he has to say it. He said that in the coming days, weeks, months, he is ready to sell all his US dollar assets. During an interview on Tuesday, Jim Rogers said that he is now using the rebound of the US dollar to sell his US dollar assets.
Jim Rogers said that comparing to the Euro and Yen, the US dollar is not like before any more. He said that although he is not wiling to say it, but he said that in his lifetime, it will be not so good for the US dollar. He even estimates that like the pound, the US dollar will depreciate by up to 90% in the coming few years.
Expressing his disappointment for the US dollar, Jim Rogers is also negative about the US stock market. He said that Citi fundamentals were damaged, GM's fundamentals were also not good. What Jim Rogers is investing now is still on commodities because he feels that the fundamentals for commodities are better. At the same time he is also concerned about China and other financial bodies which have not shown structural problems such as consumer finance and commercial growth.
Jim Rogers on last Wednesday mentioned that now is the time not seen in 150 years where investors are forced to clear their positions and the economy may enter into the second great depression. Other then commodities, there are nothing else with good fundamentals. Because of the lack of investments, commodities and food will face shortages in the future. When the economy recovers, commodities prices will shoot up. Jim Rogers belived that the last bubble for the US, the government bonds, will burst any time. He warns people to think thrice before investing in those 30 year government bonds paying 4% interests.
Jim Rogers not long ago said that this year the US dollar will have a big rebound because investors were forced to liquidate. At that time when interviewed by Bloomberg, he said that before that a lot of investors shorted the US dollar but now they have to unwind their positions which causes the rebound of the US dollar.
Now the rebound will be ending. Jim Rogers thinks that it will be like the pound not long ago. The world's first choice currency, the US dollar has started its long path of depreciation.
Jim Rogers said that he as an American is not willing to say but he has to say it. He said that in the coming days, weeks, months, he is ready to sell all his US dollar assets. During an interview on Tuesday, Jim Rogers said that he is now using the rebound of the US dollar to sell his US dollar assets.
Jim Rogers said that comparing to the Euro and Yen, the US dollar is not like before any more. He said that although he is not wiling to say it, but he said that in his lifetime, it will be not so good for the US dollar. He even estimates that like the pound, the US dollar will depreciate by up to 90% in the coming few years.
Expressing his disappointment for the US dollar, Jim Rogers is also negative about the US stock market. He said that Citi fundamentals were damaged, GM's fundamentals were also not good. What Jim Rogers is investing now is still on commodities because he feels that the fundamentals for commodities are better. At the same time he is also concerned about China and other financial bodies which have not shown structural problems such as consumer finance and commercial growth.
Jim Rogers on last Wednesday mentioned that now is the time not seen in 150 years where investors are forced to clear their positions and the economy may enter into the second great depression. Other then commodities, there are nothing else with good fundamentals. Because of the lack of investments, commodities and food will face shortages in the future. When the economy recovers, commodities prices will shoot up. Jim Rogers belived that the last bubble for the US, the government bonds, will burst any time. He warns people to think thrice before investing in those 30 year government bonds paying 4% interests.
Thursday, December 11, 2008
China's budget deficit may reach 280 bln yuan in 2009
China Information News
China's budget deficit may reach 280 bln yuan in 2009
11 December 2008
China's budget deficit will rise to 280 billion yuan in 2009, according to a fiscal budget proposal presented by the Ministry of Finance (MOF) to the State Council, China Business Journal reported Monday.
The 280 billion yuan deficit, although still reasonable in the context of China's 4 trillion yuan stimulus package, marks a substantial rise of 100 billion yuan from this year's budget deficit. The jump in fiscal deficit on one hand is in line with the government's shift to an active fiscal policy, on the other hand indicates that China will face more fiscal pressure amid the global financial crisis.
280 bln yuan budget deficit
The MOF has decided on a 280-billion-yuan budget deficit for fiscal year 2009, rising by 100 billion yuan from this year's figure, said a source close to the ministry.
"The 280 billion yuan is the planning deficit in the fiscal budget report; there will be other deficit data in the government's final accounting of revenue and expenditure," the source noted.
Normally the deficit data only shows the state of fiscal balance, and information on how the increased deficit will be used is not specified.
According to the source, the fiscal budget report has been submitted to the State Council and might have been discussed at the Central Economic Work Conference which concluded yesterday.
Growing fiscal pressure in 2009
Although the impact of the global financial crisis on China started to emerge in the second half of this year, China is still looking at a 24 percent fiscal revenue growth in 2008. Based on calculations of the Research Institute for Fiscal Science under the Ministry of Finance, China may still be able to increase by about 20 percent in its fiscal revenues next year.
"We will also see an obvious rise in long-term construction treasury bonds and fiscal deficit in 2009," said Jia Kang, head of the institute. But he argued that even so, China's deficit is still within the safety zone.
Although China's deficit in 2008 reached 180 billion yuan, its nominal deficit ratio still remains relatively low. Jia said that most of the 180 billion yuan deficit had not been invested in projects, but in state funds, such as "the central budget stability and regulation fund, the social security fund and so on."
In the meanwhile MOF officials have agreed on the growing fiscal pressure next year, the above source said.
Fiscal policy targets adjusting economic structure
Monetary policy cannot provide much help in adjusting the economic structure; in contrast, both expanding the deficit and active fiscal policy can impact directly on structural economic adjustment, noted an expert within the government finance system.
According to this expert, the Central Economic Conference would have discussed measures to ensure allocation of fiscal funds and avoid reverting to the old investment pattern in the planned economy.
(China.org.cn by Yan Pei, December 11, 2008)
China's budget deficit may reach 280 bln yuan in 2009
11 December 2008
China's budget deficit will rise to 280 billion yuan in 2009, according to a fiscal budget proposal presented by the Ministry of Finance (MOF) to the State Council, China Business Journal reported Monday.
The 280 billion yuan deficit, although still reasonable in the context of China's 4 trillion yuan stimulus package, marks a substantial rise of 100 billion yuan from this year's budget deficit. The jump in fiscal deficit on one hand is in line with the government's shift to an active fiscal policy, on the other hand indicates that China will face more fiscal pressure amid the global financial crisis.
280 bln yuan budget deficit
The MOF has decided on a 280-billion-yuan budget deficit for fiscal year 2009, rising by 100 billion yuan from this year's figure, said a source close to the ministry.
"The 280 billion yuan is the planning deficit in the fiscal budget report; there will be other deficit data in the government's final accounting of revenue and expenditure," the source noted.
Normally the deficit data only shows the state of fiscal balance, and information on how the increased deficit will be used is not specified.
According to the source, the fiscal budget report has been submitted to the State Council and might have been discussed at the Central Economic Work Conference which concluded yesterday.
Growing fiscal pressure in 2009
Although the impact of the global financial crisis on China started to emerge in the second half of this year, China is still looking at a 24 percent fiscal revenue growth in 2008. Based on calculations of the Research Institute for Fiscal Science under the Ministry of Finance, China may still be able to increase by about 20 percent in its fiscal revenues next year.
"We will also see an obvious rise in long-term construction treasury bonds and fiscal deficit in 2009," said Jia Kang, head of the institute. But he argued that even so, China's deficit is still within the safety zone.
Although China's deficit in 2008 reached 180 billion yuan, its nominal deficit ratio still remains relatively low. Jia said that most of the 180 billion yuan deficit had not been invested in projects, but in state funds, such as "the central budget stability and regulation fund, the social security fund and so on."
In the meanwhile MOF officials have agreed on the growing fiscal pressure next year, the above source said.
Fiscal policy targets adjusting economic structure
Monetary policy cannot provide much help in adjusting the economic structure; in contrast, both expanding the deficit and active fiscal policy can impact directly on structural economic adjustment, noted an expert within the government finance system.
According to this expert, the Central Economic Conference would have discussed measures to ensure allocation of fiscal funds and avoid reverting to the old investment pattern in the planned economy.
(China.org.cn by Yan Pei, December 11, 2008)
China - Key economic conference promises stable growth
China Information News
Key economic conference promises stable growth
11 December 2008
China concluded the three-day annual Central Economic Work Conference Wednesday in Beijing with a pledge to maintain stable, healthy growth next year through domestic demand expansion and economic restructuring.
President Hu Jintao and Premier Wen Jiabao addressed the meeting, which is held once a year to set the tone for economic development during the next year.
It was agreed at the meeting, 2008 was an extraordinary year for China, in which the country experienced unexpected, seldom seen, major challenges. Those include severe winter weather at the beginning of the year, the May 12 earthquake and the current international financial crisis.
Fighting those challenges, China has taken a string of measures to further expand domestic demand and promote economic growth. As a result, the Chinese economy has kept growing relatively rapidly, with inflationary pressure eased and the economic structure improved.
The achievements "demonstrated the overall national strength China had built over the past three decades, proved the correctness of socialism with Chinese characteristics and justified the advantage of a socialist institution in pooling various forces to realize big feats," according to attendees of the meeting.
The achievements also displayed the "heroism and strong cohesion" of the Chinese nation.
As international financial woes worsened and permeated into the real economy worldwide, instabilities and uncertainties mounted for the Chinese economy. This, together with problems that already exist within the Chinese economy, downward economic pressure increased on the nation.
However, conference attendees noted, important opportunities for China's economic and social development still existed and would not be reversed by ongoing global financial woes.
As they pointed out, priority should be given to maintaining stable and relatively fast economic growth next year. This will be achieved through expanding domestic demand, restructuring the economy and transforming the growth pattern. All will ultimately target improving people's living standard.
In 2009, China will enhance and improve macroeconomic control efforts and carry out an active fiscal policy, as well as a moderately easy monetary policy, the central authorities decided.
In this regard, expenditures in public areas will be "substantially increased" and those in major areas should be guaranteed.
Financial support should be reinforced for farmers and agricultural production, employment, social welfare, education, health care, energy conservation and emissions reduction, technical innovation, manufacturing of state-of-the-art equipment, service and smaller enterprises. Subsidies and other aid should be increased for low-income earners.
It is also stressed more efforts should be made to "solve problems related to interests of ordinary people, so as to maintain stability of the society".
Wide-ranging measures should be taken to provide more jobs and improve social welfare systems for both urban and rural areas. Pension and health care insurance should cover more employees in urban areas, similar services should be offered on a trial basis in rural areas and related insurance should be established for rural migrant workers, according to the central authorities.
Also noted was the exchange rate of Chinese currency, Renminbi. Attendees said it should be kept "largely stable at a reasonable and balanced level".
Zhao Jinping, a researcher with the government think tank, the Development Research Center under the State Council, said it was necessary for China to mitigate the upward trend of Renminbi.
Tan Yaling, a Beijing-based financial expert, said Renminbi had not entered a channel of depreciation.
She was echoed by Zhao. He said depreciation would bring about outflow of short-term speculative funds, which was unfavorable for the stability of capital markets.
To achieve 2009's goals, the attendees pointed out, flexible and prudent macroeconomic policies should continue. China should also improve abilities to respond to changes and enhance the real effect of macro control efforts.
(Xinhua News Agency December 11, 2008)
Key economic conference promises stable growth
11 December 2008
China concluded the three-day annual Central Economic Work Conference Wednesday in Beijing with a pledge to maintain stable, healthy growth next year through domestic demand expansion and economic restructuring.
President Hu Jintao and Premier Wen Jiabao addressed the meeting, which is held once a year to set the tone for economic development during the next year.
It was agreed at the meeting, 2008 was an extraordinary year for China, in which the country experienced unexpected, seldom seen, major challenges. Those include severe winter weather at the beginning of the year, the May 12 earthquake and the current international financial crisis.
Fighting those challenges, China has taken a string of measures to further expand domestic demand and promote economic growth. As a result, the Chinese economy has kept growing relatively rapidly, with inflationary pressure eased and the economic structure improved.
The achievements "demonstrated the overall national strength China had built over the past three decades, proved the correctness of socialism with Chinese characteristics and justified the advantage of a socialist institution in pooling various forces to realize big feats," according to attendees of the meeting.
The achievements also displayed the "heroism and strong cohesion" of the Chinese nation.
As international financial woes worsened and permeated into the real economy worldwide, instabilities and uncertainties mounted for the Chinese economy. This, together with problems that already exist within the Chinese economy, downward economic pressure increased on the nation.
However, conference attendees noted, important opportunities for China's economic and social development still existed and would not be reversed by ongoing global financial woes.
As they pointed out, priority should be given to maintaining stable and relatively fast economic growth next year. This will be achieved through expanding domestic demand, restructuring the economy and transforming the growth pattern. All will ultimately target improving people's living standard.
In 2009, China will enhance and improve macroeconomic control efforts and carry out an active fiscal policy, as well as a moderately easy monetary policy, the central authorities decided.
In this regard, expenditures in public areas will be "substantially increased" and those in major areas should be guaranteed.
Financial support should be reinforced for farmers and agricultural production, employment, social welfare, education, health care, energy conservation and emissions reduction, technical innovation, manufacturing of state-of-the-art equipment, service and smaller enterprises. Subsidies and other aid should be increased for low-income earners.
It is also stressed more efforts should be made to "solve problems related to interests of ordinary people, so as to maintain stability of the society".
Wide-ranging measures should be taken to provide more jobs and improve social welfare systems for both urban and rural areas. Pension and health care insurance should cover more employees in urban areas, similar services should be offered on a trial basis in rural areas and related insurance should be established for rural migrant workers, according to the central authorities.
Also noted was the exchange rate of Chinese currency, Renminbi. Attendees said it should be kept "largely stable at a reasonable and balanced level".
Zhao Jinping, a researcher with the government think tank, the Development Research Center under the State Council, said it was necessary for China to mitigate the upward trend of Renminbi.
Tan Yaling, a Beijing-based financial expert, said Renminbi had not entered a channel of depreciation.
She was echoed by Zhao. He said depreciation would bring about outflow of short-term speculative funds, which was unfavorable for the stability of capital markets.
To achieve 2009's goals, the attendees pointed out, flexible and prudent macroeconomic policies should continue. China should also improve abilities to respond to changes and enhance the real effect of macro control efforts.
(Xinhua News Agency December 11, 2008)
Weathering the economic storm - Rapid collective action is key
China Information News
Weathering the economic storm - Rapid collective action is key
11 December 2008
By David Ferguson
Decisive and collective action will be key to the success of Asian countries in defending themselves from the impact of the global economic slowdown.
This was the message from Jong-Wha Lee, Head of the Office of Regional Economic Integration (OREI) of the Asian Development Bank (ADB), in response to a new report from the Bank indicating a slowdown in economic growth in developing Asia. As the impact of the global financial crisis spreads to emerging markets, growth will slow to 5.8% in 2009, down from a probable 6.9% this year and 9% in 2007.
With the global economy facing a major downturn, the region's economic resilience will be tested by weakening exports and a sharp slowdown of private capital flows, according to the December issue of Asia Economic Monitor (AEM).
"2009 is likely to be a difficult year for developing Asia but it will be manageable if countries respond decisively and collectively," said Lee.
The message will strike a chord in China and in the ASEAN (Association of South East Asia Nations). At the recent China-ASEAN Trade Expo and Business Summit held in Nanning, Guanxi, in October, there was clear understanding of the expected economic turbulence. Eminent speakers, including some of the most senior politicians from the participating nations, repeatedly emphasized the need for common action, but the mood was in general assertive and positive rather than pessimistic. Even then, widespread support was apparent for Lee's current analysis: "Swift action by policymakers to stem both the threat to the financial systems and the real economy will allow most of the region's economies to sustain a healthy if slower expansion."
Economic growth in emerging East Asia - defined as ASEAN, plus the People's Republic of China (PRC), Hong Kong, Chinese Taipei, and the Republic of Korea - will slow to 5.7% in 2009 down from 6.9% in 2008. Growth in the PRC itself, the region's engine, is expected to moderate to 8.2% in 2009 from 9.5% in 2008 even as the government has undertaken aggressive measures, with the injection of 4 trillion yuan (US $600 billion) into the economy to spur domestic demand in order to offset a slowdown in exports and private investment growth.
The AEM says that supporting this growth momentum in domestic demand is key to keeping the regional economy in relatively good shape amid a weakening external environment. But further clouding the outlook is the prospect of a deeper, more prolonged global recession creating persistent stress on the region's financial systems.
"The risks to the region's growth outlook are strongly tied to the global outlook through both trade and financial links," says Dr. Lee. "Further financial disruption could also exert a significant influence on consumer and investor confidence in the region."
While the region's economies and financial systems are fundamentally sound and appear better cushioned to withstand the immediate effects of the crisis than other parts of the world, the report notes with concern that the global credit crunch is now simmering in the domestic banking systems, squeezing funding resources for corporate investment, and could boil over in some key regional economies if left unaddressed. If banks in the region become more risk averse, the report warns, monetary policy may have less traction than in the past and governments will have to develop more active fiscal responses to shore up domestic demand.
The most dynamic economy in South Asia in recent years, India, is facing similar problems. The country is seriously concerned by the probable impact of the global financial crisis on its banking systems and financial markets, and the impact on its economic performance will be almost identical - the growth projection for India has been revised down to 7% in 2008 and 6.5% in 2009, falling from 9% in 2007. These figures are reflected in the forecasts for the whole of South Asia, which follow a similar trend to India but are slightly lower.
The AEM urges policymakers throughout the Asian region to move swiftly to reduce the risk of a regional credit crunch, and provides a number of specific recommendations. These include: increased monitoring of local financial markets; clear policies in place in advance to deal with stressed institutions; adequate provision of foreign and domestic liquidity so that credit continues to flow into the economy.
A further recommendation to the region's authorities concerns improvements in the regulation, control, and monitoring of financial systems. The five key objectives here are: (a) to strengthen transparency and accountability, (b) to enhance prudent management and effective review, (c) to mitigate the impact of extremes in financial market cycles, (d) to extend the range and depth of financial markets in order to enhance their resilience to economic turbulence, and (e) to reinforce cross-border cooperation.
(China.org.cn December 11, 2008)
Weathering the economic storm - Rapid collective action is key
11 December 2008
By David Ferguson
Decisive and collective action will be key to the success of Asian countries in defending themselves from the impact of the global economic slowdown.
This was the message from Jong-Wha Lee, Head of the Office of Regional Economic Integration (OREI) of the Asian Development Bank (ADB), in response to a new report from the Bank indicating a slowdown in economic growth in developing Asia. As the impact of the global financial crisis spreads to emerging markets, growth will slow to 5.8% in 2009, down from a probable 6.9% this year and 9% in 2007.
With the global economy facing a major downturn, the region's economic resilience will be tested by weakening exports and a sharp slowdown of private capital flows, according to the December issue of Asia Economic Monitor (AEM).
"2009 is likely to be a difficult year for developing Asia but it will be manageable if countries respond decisively and collectively," said Lee.
The message will strike a chord in China and in the ASEAN (Association of South East Asia Nations). At the recent China-ASEAN Trade Expo and Business Summit held in Nanning, Guanxi, in October, there was clear understanding of the expected economic turbulence. Eminent speakers, including some of the most senior politicians from the participating nations, repeatedly emphasized the need for common action, but the mood was in general assertive and positive rather than pessimistic. Even then, widespread support was apparent for Lee's current analysis: "Swift action by policymakers to stem both the threat to the financial systems and the real economy will allow most of the region's economies to sustain a healthy if slower expansion."
Economic growth in emerging East Asia - defined as ASEAN, plus the People's Republic of China (PRC), Hong Kong, Chinese Taipei, and the Republic of Korea - will slow to 5.7% in 2009 down from 6.9% in 2008. Growth in the PRC itself, the region's engine, is expected to moderate to 8.2% in 2009 from 9.5% in 2008 even as the government has undertaken aggressive measures, with the injection of 4 trillion yuan (US $600 billion) into the economy to spur domestic demand in order to offset a slowdown in exports and private investment growth.
The AEM says that supporting this growth momentum in domestic demand is key to keeping the regional economy in relatively good shape amid a weakening external environment. But further clouding the outlook is the prospect of a deeper, more prolonged global recession creating persistent stress on the region's financial systems.
"The risks to the region's growth outlook are strongly tied to the global outlook through both trade and financial links," says Dr. Lee. "Further financial disruption could also exert a significant influence on consumer and investor confidence in the region."
While the region's economies and financial systems are fundamentally sound and appear better cushioned to withstand the immediate effects of the crisis than other parts of the world, the report notes with concern that the global credit crunch is now simmering in the domestic banking systems, squeezing funding resources for corporate investment, and could boil over in some key regional economies if left unaddressed. If banks in the region become more risk averse, the report warns, monetary policy may have less traction than in the past and governments will have to develop more active fiscal responses to shore up domestic demand.
The most dynamic economy in South Asia in recent years, India, is facing similar problems. The country is seriously concerned by the probable impact of the global financial crisis on its banking systems and financial markets, and the impact on its economic performance will be almost identical - the growth projection for India has been revised down to 7% in 2008 and 6.5% in 2009, falling from 9% in 2007. These figures are reflected in the forecasts for the whole of South Asia, which follow a similar trend to India but are slightly lower.
The AEM urges policymakers throughout the Asian region to move swiftly to reduce the risk of a regional credit crunch, and provides a number of specific recommendations. These include: increased monitoring of local financial markets; clear policies in place in advance to deal with stressed institutions; adequate provision of foreign and domestic liquidity so that credit continues to flow into the economy.
A further recommendation to the region's authorities concerns improvements in the regulation, control, and monitoring of financial systems. The five key objectives here are: (a) to strengthen transparency and accountability, (b) to enhance prudent management and effective review, (c) to mitigate the impact of extremes in financial market cycles, (d) to extend the range and depth of financial markets in order to enhance their resilience to economic turbulence, and (e) to reinforce cross-border cooperation.
(China.org.cn December 11, 2008)
Morgan Stanley: China's economy likely to regain growth momentum in 2nd half of 2009
XinHua News
Morgan Stanley: China's economy likely to regain growth momentum in 2nd half of 2009
2008-12-11 00:51:57
by Xinhua Writer Cheng Yunjie
BEIJING, Dec. 10 (Xinhua) -- As the risk of deflation looms large on top of weaker exports and declining private real estate investment, China's economy may continue to slow down in the quarters immediately ahead but regain growth momentum in the second half of next year, according to a Morgan Stanley report released on Wednesday.
In its China Economics Outlook for 2009, the Hong Kong-based Morgan Stanley Asia forecast China's baseline GDP growth would be around 7.5 percent next year, with the bull and bear scenarios projected at 9 percent and 5 percent respectively.
The projection came after the country's economic indicators showed that the impacts from the global financial crisis on China's tangible economy have become much severer.
The exports totaled 115 billion U.S. dollars last month, down 2.2 percent year-on-year in the first monthly decline since June 2001, the General Administration of Customs said on Wednesday. The previous decline, a much smaller 0.6 percent, reflected slumping U.S. demand after the tech bubble burst.
The producer price index (PPI), a measure of inflation at the factory level, decelerated sharply to an annual rise of 2 percent in November. It was also slowest rise for the PPI since May 2006, which prompted worries about the fast-slowing economy and rising deflation risks.
Late last month, the World Bank has revised down its forecast for China's GDP rise of next year from 9.2 percent to 7.5 percent.
Morgan Stanley Asia chief economist on the Chinese economy Wang Qing said that three factors, namely the cooling-down in real estate investment, a massive de-stocking of raw material inputs in the immediate aftermath of the collapse of international commodity prices and the weakening external demand, had caused China's economy to slowdown rather sharply.
The "triple-whammy impact" however could barely maintain its full force throughout 2009, although the ravage would likely continue to be felt though in the first quarter of next year, he said. "We believe that China's economic outlook for next year is best characterized as getting worse before getting better, laying the foundation for a firmer recovery in 2010."
As the fiscal stimulus package came much faster this time than that during the Asia financial crisis, Morgan Stanley expected the effect to be apparent by mid-2009. Besides, the slow recovery of the G3 economies -- the United States, European Union and Japan--after the unprecedented monetary and fiscal policy actions might have led to an improving external demand by the second half of next year and thus would contribute to a modest recovery of the Chinese economy.
REAL ESTATE CONCERN
Identifying real estate as the biggest swing factor among all scenarios, Wang said that weakening external demand was not the primary reason for China's sharp economic slowdown as deceleration in exports had been gradual and taking place since mid-2007.
It was the macroeconomic tightening policy package launched in late 2007 to avert overheating that has hit the property sector hard. As a consequence, real estate investment has slowed substantially, diminishing demand for key construction materials, such as steel, cement, and aluminum, and housing-related consumer durable goods, he noted.
Wang envisaged a significant decline of six percent (in real terms) in real estate investment from the private sector next year, contending that the chance of a massive industrial collapse on a nationwide scale was small.
To activate the property market, Chinese government has rolled back austere measures previously taken to prevent the economy from overheating, reduced taxes and cut interests.
"There has been a welcome correction in property prices, we expect housing affordability to increase, sentiment to improve, and property sales to stabilize by mid-year 2009", said the report. "Further property-sector-boosting policy measures will likely be implemented in the coming months."
DEFLATION RISK
In this report, Morgan Stanley Asia also revised its Consumer Price Index forecast for 2009 from 1.5 percent down to -0.8 percent, pointing to a "high deflation risk".
From the supply side, the bursting of the international commodity price bubble since October has spawned a sharp decline in the prices of raw materials imported by China. Moreover, weakening exports that are expected to continue amid a synchronized recession in G3 economies also exacerbated the problem of production overcapacity, limiting Chinese producers' pricing power, it said.
"Deflation is not always a bad thing. The challenge is to prevent deflationary expectations from getting entrenched. This necessitates a strong, preemptive monetary policy response," Wang said.
Morgan Stanley therefore expected China's central bank to cut benchmark interest rates aggressively by an additional 162 basis points over the course of 2009. And to ease deflationary expectations, the cuts will most probably be done in the first half.
Although China's economy would steer clear of the extreme downside risk of an outright hard landing after current public-sector-driven growth helped achieve the headline GDP growth and job creation targets, the stimulus would not deliver nearly as strong corporate earnings growth as when the same level of headline GDP growth was fueled by buoyant private-sector spending.
"China's macro-economic environment will be relatively job-rich but profit-deficient in which bonds tend to be favored over equities," Wang said.
Editor: Sun
Morgan Stanley: China's economy likely to regain growth momentum in 2nd half of 2009
2008-12-11 00:51:57
by Xinhua Writer Cheng Yunjie
BEIJING, Dec. 10 (Xinhua) -- As the risk of deflation looms large on top of weaker exports and declining private real estate investment, China's economy may continue to slow down in the quarters immediately ahead but regain growth momentum in the second half of next year, according to a Morgan Stanley report released on Wednesday.
In its China Economics Outlook for 2009, the Hong Kong-based Morgan Stanley Asia forecast China's baseline GDP growth would be around 7.5 percent next year, with the bull and bear scenarios projected at 9 percent and 5 percent respectively.
The projection came after the country's economic indicators showed that the impacts from the global financial crisis on China's tangible economy have become much severer.
The exports totaled 115 billion U.S. dollars last month, down 2.2 percent year-on-year in the first monthly decline since June 2001, the General Administration of Customs said on Wednesday. The previous decline, a much smaller 0.6 percent, reflected slumping U.S. demand after the tech bubble burst.
The producer price index (PPI), a measure of inflation at the factory level, decelerated sharply to an annual rise of 2 percent in November. It was also slowest rise for the PPI since May 2006, which prompted worries about the fast-slowing economy and rising deflation risks.
Late last month, the World Bank has revised down its forecast for China's GDP rise of next year from 9.2 percent to 7.5 percent.
Morgan Stanley Asia chief economist on the Chinese economy Wang Qing said that three factors, namely the cooling-down in real estate investment, a massive de-stocking of raw material inputs in the immediate aftermath of the collapse of international commodity prices and the weakening external demand, had caused China's economy to slowdown rather sharply.
The "triple-whammy impact" however could barely maintain its full force throughout 2009, although the ravage would likely continue to be felt though in the first quarter of next year, he said. "We believe that China's economic outlook for next year is best characterized as getting worse before getting better, laying the foundation for a firmer recovery in 2010."
As the fiscal stimulus package came much faster this time than that during the Asia financial crisis, Morgan Stanley expected the effect to be apparent by mid-2009. Besides, the slow recovery of the G3 economies -- the United States, European Union and Japan--after the unprecedented monetary and fiscal policy actions might have led to an improving external demand by the second half of next year and thus would contribute to a modest recovery of the Chinese economy.
REAL ESTATE CONCERN
Identifying real estate as the biggest swing factor among all scenarios, Wang said that weakening external demand was not the primary reason for China's sharp economic slowdown as deceleration in exports had been gradual and taking place since mid-2007.
It was the macroeconomic tightening policy package launched in late 2007 to avert overheating that has hit the property sector hard. As a consequence, real estate investment has slowed substantially, diminishing demand for key construction materials, such as steel, cement, and aluminum, and housing-related consumer durable goods, he noted.
Wang envisaged a significant decline of six percent (in real terms) in real estate investment from the private sector next year, contending that the chance of a massive industrial collapse on a nationwide scale was small.
To activate the property market, Chinese government has rolled back austere measures previously taken to prevent the economy from overheating, reduced taxes and cut interests.
"There has been a welcome correction in property prices, we expect housing affordability to increase, sentiment to improve, and property sales to stabilize by mid-year 2009", said the report. "Further property-sector-boosting policy measures will likely be implemented in the coming months."
DEFLATION RISK
In this report, Morgan Stanley Asia also revised its Consumer Price Index forecast for 2009 from 1.5 percent down to -0.8 percent, pointing to a "high deflation risk".
From the supply side, the bursting of the international commodity price bubble since October has spawned a sharp decline in the prices of raw materials imported by China. Moreover, weakening exports that are expected to continue amid a synchronized recession in G3 economies also exacerbated the problem of production overcapacity, limiting Chinese producers' pricing power, it said.
"Deflation is not always a bad thing. The challenge is to prevent deflationary expectations from getting entrenched. This necessitates a strong, preemptive monetary policy response," Wang said.
Morgan Stanley therefore expected China's central bank to cut benchmark interest rates aggressively by an additional 162 basis points over the course of 2009. And to ease deflationary expectations, the cuts will most probably be done in the first half.
Although China's economy would steer clear of the extreme downside risk of an outright hard landing after current public-sector-driven growth helped achieve the headline GDP growth and job creation targets, the stimulus would not deliver nearly as strong corporate earnings growth as when the same level of headline GDP growth was fueled by buoyant private-sector spending.
"China's macro-economic environment will be relatively job-rich but profit-deficient in which bonds tend to be favored over equities," Wang said.
Editor: Sun
US jobless claims to rise
The Straits Times
Dec 11, 2008 |
US jobless claims to rise
WASHINGTON - WALL Street expects the US government to report that new claims for unemployment benefits increased last week as companies ramped-up layoffs amid the recession.
The jobless claims report comes a day after the federal government said the monthly budget deficit reached a record in November, in part because of increased spending on programs such as unemployment insurance and food stamps.
The number of new claims for jobless benefits is projected to increase to a seasonally adjusted 525,000, up from 509,000 the previous week, according to Wall Street economists surveyed by Thomson Reuters.
Claims late last month reached 543,000, their highest level in 16 years. Economists said the drop to 509,000 was partly due to volatility from the Thanksgiving holiday week.
Last week's report showed the number of people continuing to claim unemployment benefits reached nearly 4.09 million, the highest level since December 1982. Economists expect that number rose to 4.1 million.
Even when the larger work force is factored in, the proportion of workers who are continuing to receive jobless benefits matches a level last reached in September 1992, when the economy was recovering from a recession.
'The underlying trend in claims is still strongly upwards,' Ian Shepherdson, chief US economist at High Frequency Economics, said in a research note.
A number of large US employers announced layoffs this week, including Dow Chemical Co., 3M Co., Anheuser-Busch InBev, National Public Radio and the National Football League.
The layoffs come as the federal budget deficit continues to spiral.
In just the first two months of the budget year that started Oct 1, the deficit totaled US$401.6 billion (S$598.4 billion), nearly matching the record gap of US$455 billion posted for all of last year, according to Treasury Department data released Wednesday. If the deficit does top US$1 trillion for the current budget year, it also would be a post-World War II high when measured as a percentage of the economy.
The increased red ink stems from both lower tax revenue and increased spending that is a result of the recessionary economy. The government is receiving less in business and personal income taxes while spending more on programs such as unemployment insurance and food stamps.
Then there's the US$700 billion bank rescue program. The Treasury report showed that the government spent $76.5 billion from the program in November and US$191.5 billion over the past two months.
The department said the gap between the government's revenue collections and what it paid out last month totalled US $164.4 billion, the largest deficit ever recorded for the month of November. The deficit was US$98.2 billion in November 2007.
An annual deficit of US$1 trillion would equal 6.7 per cent of the gross domestic product, the economy's total output in a single year.
That would surpass the previous postwar record in GDP terms of 6 per cent sent in 1983 when Ronald Reagan was president.
And some economists think the annual deficit will be even higher.
David Rosenberg, North American economist at Merrill Lynch, projected that it could reach US$1.5 trillion, depending on how large an economic stimulus package is approved next year.
The Treasury Department plans to use US$250 billion of the US$700 billion program to make direct purchases of bank stock, providing the nation's financial institutions with an infusion of cash in the
hopes that they will resume more normal lending practices.
Some analysts argue that the deficit is effectively lower than Treasury's figures because the government has received stakes in the banks in return for the capital. The government could get some or all of the money back when it sells those ownership stakes in the future.
The Congressional Budget Office said last week that accounting for the value of those stakes would reduce the combined deficit for October and November to US$267 billion, rather than the US$401.6 billion reported by Treasury. -- AP
Dec 11, 2008 |
US jobless claims to rise
WASHINGTON - WALL Street expects the US government to report that new claims for unemployment benefits increased last week as companies ramped-up layoffs amid the recession.
The jobless claims report comes a day after the federal government said the monthly budget deficit reached a record in November, in part because of increased spending on programs such as unemployment insurance and food stamps.
The number of new claims for jobless benefits is projected to increase to a seasonally adjusted 525,000, up from 509,000 the previous week, according to Wall Street economists surveyed by Thomson Reuters.
Claims late last month reached 543,000, their highest level in 16 years. Economists said the drop to 509,000 was partly due to volatility from the Thanksgiving holiday week.
Last week's report showed the number of people continuing to claim unemployment benefits reached nearly 4.09 million, the highest level since December 1982. Economists expect that number rose to 4.1 million.
Even when the larger work force is factored in, the proportion of workers who are continuing to receive jobless benefits matches a level last reached in September 1992, when the economy was recovering from a recession.
'The underlying trend in claims is still strongly upwards,' Ian Shepherdson, chief US economist at High Frequency Economics, said in a research note.
A number of large US employers announced layoffs this week, including Dow Chemical Co., 3M Co., Anheuser-Busch InBev, National Public Radio and the National Football League.
The layoffs come as the federal budget deficit continues to spiral.
In just the first two months of the budget year that started Oct 1, the deficit totaled US$401.6 billion (S$598.4 billion), nearly matching the record gap of US$455 billion posted for all of last year, according to Treasury Department data released Wednesday. If the deficit does top US$1 trillion for the current budget year, it also would be a post-World War II high when measured as a percentage of the economy.
The increased red ink stems from both lower tax revenue and increased spending that is a result of the recessionary economy. The government is receiving less in business and personal income taxes while spending more on programs such as unemployment insurance and food stamps.
Then there's the US$700 billion bank rescue program. The Treasury report showed that the government spent $76.5 billion from the program in November and US$191.5 billion over the past two months.
The department said the gap between the government's revenue collections and what it paid out last month totalled US $164.4 billion, the largest deficit ever recorded for the month of November. The deficit was US$98.2 billion in November 2007.
An annual deficit of US$1 trillion would equal 6.7 per cent of the gross domestic product, the economy's total output in a single year.
That would surpass the previous postwar record in GDP terms of 6 per cent sent in 1983 when Ronald Reagan was president.
And some economists think the annual deficit will be even higher.
David Rosenberg, North American economist at Merrill Lynch, projected that it could reach US$1.5 trillion, depending on how large an economic stimulus package is approved next year.
The Treasury Department plans to use US$250 billion of the US$700 billion program to make direct purchases of bank stock, providing the nation's financial institutions with an infusion of cash in the
hopes that they will resume more normal lending practices.
Some analysts argue that the deficit is effectively lower than Treasury's figures because the government has received stakes in the banks in return for the capital. The government could get some or all of the money back when it sells those ownership stakes in the future.
The Congressional Budget Office said last week that accounting for the value of those stakes would reduce the combined deficit for October and November to US$267 billion, rather than the US$401.6 billion reported by Treasury. -- AP
Asian banks still strong
The Straits Times
Dec 11, 2008 |
Asian banks still strong
TOKYO - THE global financial crisis may have ravaged banks in the West, but look East for a different story.
In Asia, banks are bruised but not collapsing. Governments haven't had to resort to massive bailouts. And some are even expanding while their Western counterparts fold, another sign that the world's economic center of gravity may be shifting east.
Their resiliency, however, and the region's ambitions to become the world's next financial leader face major tests ahead. Volatile equity markets are eroding bank assets, the global slump is battering Asia's export-driven economy, and a jump in bad loans from failing firms looks inevitable.
For now, Asia is keeping banks in business by embracing less risk and drawing on experience fighting its own financial problems of the past, including the region's 1997-98 crisis. Public finances, external balances and corporate balance sheets are on sounder footing due to smarter macroeconomic policies, tighter bank supervision and better risk management systems.
None of the major banks in the region is expected to need big bailouts such as the ones Citigroup Inc. and insurance giant American International Group have received from the U.S. government, analysts say.
Moreover, Asian banks stand to benefit from the high savings rates of their domestic depositors, which gives them a deep pool from which to lend and invest.
The milder impact of the financial crisis thus far means that Asian banks 'may have relatively more resources to capture market opportunities when the market stabilizes and then look for the next stage of growth,' said Jerry Chien, managing director of the financial institutions group at Moody's Asia Pacific.
Central banks in the region also have responded aggressively since September by introducing various monetary measures, including liquidity injections and interest rate cuts.
'Thanks to the quick action of policy makers from virtually every East Asian country, banking systems have been able to deal with the crisis so far,' said Jim Adams, World Bank vice president for the East Asia and Pacific region.
South Korea's banking system is probably the most vulnerable with low capital adequacy ratios and high loan-to-deposit ratios. Balance sheets could be hurt further by an expected spike in bad loans as economic growth slows.
'It depends how bad the economy is going to get,' said Kim Jae-woo, banking analyst at Samsung Securities in Seoul.
Some analysts say banks may need to raise new capital and perhaps even require government funds, though not on a large scale.
Still, South Korea's banks and economy are far stronger than they were a decade ago, when a collapse in the Thai baht sparked a wave of recessions across Asia, bankrupting thousands of companies and putting millions out of work. After getting a multibillion dollar bailout arranged by the International Monetary Fund in 1997-98, South Korea reformed its banking system and corporations pared debt levels and improved transparency, setting the stage for more stable, long-term growth.
Japan also has learned from its bad debt debacle of the 1990s, triggered by a plunge in land prices. Its mammoth financial institutions - with nearly $15 trillion in domestic household assets - have emerged from the subprime crisis with far smaller losses than their Western peers.
And in Wall Street's ruins, they saw opportunity.
Nomura Holdings Inc., Japan's biggest brokerage, snapped up Lehman Brothers' operations in Asia, Europe and the Middle East for $2 billion after the U.S. investment firm collapsed in September.
Top Japanese bank Mitsubishi UFJ Financial Group Inc. invested $9 billion for a 21 percent stake in Morgan Stanley and recently completed the purchase of UnionBanCal Corp., now a wholly owned subsidiary.
Likewise, Hong Kong's banks are considered healthy, analysts said. Most are well-capitalized, maintaining Tier 1 capital ratios above 8 percent. A key measure of financial strength, a Tier 1 capital ratio essentially measures equity against risky assets.
Australia's banking system is also holding steady compared with the teetering U.S. system, with stronger regulation and limited exposure to U.S. subprime mortgages. The country's four biggest banks, including National Australia Bank Ltd. and Commonwealth Bank of Australia Ltd., appear stable, though the global financial crisis is cutting into the booming profits that had become the norm in recent years.
In mainland China, big state-owned lenders such as Industrial & Commercial Bank of China Ltd. have undergone massive, government-financed restructuring in recent years, shedding their huge legacy of bad debt. Capital infusions from strategic foreign investors and share listings have since pushed up the bank's capital adequacy ratios to some of the highest in the region.
By contrast, many American and European banks have already turned to national authorities for major help.
The U.S. Treasury has invested so far in 52 banks, including Citigroup, Bank of America Corp., and JPMorgan Chase & Co. Inc.
The British government has nationalized two banks - Northern Rock and Bradford & Bingley - and taken large equity stakes in three others to prevent a collapse of the country's banking sector.
Germany drew up a bailout plan worth as much as 500 billion euros ($645 billion) in October.
Still, while Asia's banks may have averted the worst of the subprime mortgage crisis, they haven't been immune to pressures from the global slowdown and market turmoil.
They will likely face rising credit costs and an increase in non-performing loans, said Emmanuel Daniel, president and chief executive of The Asian Banker, a Singapore-based banking research and consulting company.
Japanese financial firms are bolstering their bottom lines after suffering massive losses on their shareholdings. They are now reassessing risk, scaling back their profit outlooks and scrambling to raise cash by issuing new shares. Mitsubishi UFJ's first-half net profit plunged 64 percent, while Nomura Holdings posted a 72.9 billion yen ($787.3 million) net loss in the third quarter.
In Hong Kong, banks with heavy exposure in China may be particularly vulnerable as slowing growth, factory closures and cooling property values could lead to more defaults, analysts say.
Moody's Chien acknowledges that the immediate road ahead looks rocky. But, he adds, Asian banks will be well positioned to take advantage of a recovery once it does emerge.
'With more experience with financial crises and risk management, we hope that banks in Asia will be better equipped with the knowledge and infrastructure to deal with the next round of prosperity,' he said.
---- AP Business writers Kelly Olsen in Seoul, Jeremiah Marquez in Hong Kong, Elaine Kurtenbach in Beijing and Rohan Sullivan in Sydney contributed to this report.
Dec 11, 2008 |
Asian banks still strong
TOKYO - THE global financial crisis may have ravaged banks in the West, but look East for a different story.
In Asia, banks are bruised but not collapsing. Governments haven't had to resort to massive bailouts. And some are even expanding while their Western counterparts fold, another sign that the world's economic center of gravity may be shifting east.
Their resiliency, however, and the region's ambitions to become the world's next financial leader face major tests ahead. Volatile equity markets are eroding bank assets, the global slump is battering Asia's export-driven economy, and a jump in bad loans from failing firms looks inevitable.
For now, Asia is keeping banks in business by embracing less risk and drawing on experience fighting its own financial problems of the past, including the region's 1997-98 crisis. Public finances, external balances and corporate balance sheets are on sounder footing due to smarter macroeconomic policies, tighter bank supervision and better risk management systems.
None of the major banks in the region is expected to need big bailouts such as the ones Citigroup Inc. and insurance giant American International Group have received from the U.S. government, analysts say.
Moreover, Asian banks stand to benefit from the high savings rates of their domestic depositors, which gives them a deep pool from which to lend and invest.
The milder impact of the financial crisis thus far means that Asian banks 'may have relatively more resources to capture market opportunities when the market stabilizes and then look for the next stage of growth,' said Jerry Chien, managing director of the financial institutions group at Moody's Asia Pacific.
Central banks in the region also have responded aggressively since September by introducing various monetary measures, including liquidity injections and interest rate cuts.
'Thanks to the quick action of policy makers from virtually every East Asian country, banking systems have been able to deal with the crisis so far,' said Jim Adams, World Bank vice president for the East Asia and Pacific region.
South Korea's banking system is probably the most vulnerable with low capital adequacy ratios and high loan-to-deposit ratios. Balance sheets could be hurt further by an expected spike in bad loans as economic growth slows.
'It depends how bad the economy is going to get,' said Kim Jae-woo, banking analyst at Samsung Securities in Seoul.
Some analysts say banks may need to raise new capital and perhaps even require government funds, though not on a large scale.
Still, South Korea's banks and economy are far stronger than they were a decade ago, when a collapse in the Thai baht sparked a wave of recessions across Asia, bankrupting thousands of companies and putting millions out of work. After getting a multibillion dollar bailout arranged by the International Monetary Fund in 1997-98, South Korea reformed its banking system and corporations pared debt levels and improved transparency, setting the stage for more stable, long-term growth.
Japan also has learned from its bad debt debacle of the 1990s, triggered by a plunge in land prices. Its mammoth financial institutions - with nearly $15 trillion in domestic household assets - have emerged from the subprime crisis with far smaller losses than their Western peers.
And in Wall Street's ruins, they saw opportunity.
Nomura Holdings Inc., Japan's biggest brokerage, snapped up Lehman Brothers' operations in Asia, Europe and the Middle East for $2 billion after the U.S. investment firm collapsed in September.
Top Japanese bank Mitsubishi UFJ Financial Group Inc. invested $9 billion for a 21 percent stake in Morgan Stanley and recently completed the purchase of UnionBanCal Corp., now a wholly owned subsidiary.
Likewise, Hong Kong's banks are considered healthy, analysts said. Most are well-capitalized, maintaining Tier 1 capital ratios above 8 percent. A key measure of financial strength, a Tier 1 capital ratio essentially measures equity against risky assets.
Australia's banking system is also holding steady compared with the teetering U.S. system, with stronger regulation and limited exposure to U.S. subprime mortgages. The country's four biggest banks, including National Australia Bank Ltd. and Commonwealth Bank of Australia Ltd., appear stable, though the global financial crisis is cutting into the booming profits that had become the norm in recent years.
In mainland China, big state-owned lenders such as Industrial & Commercial Bank of China Ltd. have undergone massive, government-financed restructuring in recent years, shedding their huge legacy of bad debt. Capital infusions from strategic foreign investors and share listings have since pushed up the bank's capital adequacy ratios to some of the highest in the region.
By contrast, many American and European banks have already turned to national authorities for major help.
The U.S. Treasury has invested so far in 52 banks, including Citigroup, Bank of America Corp., and JPMorgan Chase & Co. Inc.
The British government has nationalized two banks - Northern Rock and Bradford & Bingley - and taken large equity stakes in three others to prevent a collapse of the country's banking sector.
Germany drew up a bailout plan worth as much as 500 billion euros ($645 billion) in October.
Still, while Asia's banks may have averted the worst of the subprime mortgage crisis, they haven't been immune to pressures from the global slowdown and market turmoil.
They will likely face rising credit costs and an increase in non-performing loans, said Emmanuel Daniel, president and chief executive of The Asian Banker, a Singapore-based banking research and consulting company.
Japanese financial firms are bolstering their bottom lines after suffering massive losses on their shareholdings. They are now reassessing risk, scaling back their profit outlooks and scrambling to raise cash by issuing new shares. Mitsubishi UFJ's first-half net profit plunged 64 percent, while Nomura Holdings posted a 72.9 billion yen ($787.3 million) net loss in the third quarter.
In Hong Kong, banks with heavy exposure in China may be particularly vulnerable as slowing growth, factory closures and cooling property values could lead to more defaults, analysts say.
Moody's Chien acknowledges that the immediate road ahead looks rocky. But, he adds, Asian banks will be well positioned to take advantage of a recovery once it does emerge.
'With more experience with financial crises and risk management, we hope that banks in Asia will be better equipped with the knowledge and infrastructure to deal with the next round of prosperity,' he said.
---- AP Business writers Kelly Olsen in Seoul, Jeremiah Marquez in Hong Kong, Elaine Kurtenbach in Beijing and Rohan Sullivan in Sydney contributed to this report.
Morgan Stanley: Economic crisis has reached 2nd half
Yesterday, Executive Director of Global Capital Markets at Morgan Stanley George Taylor at the 2nd 中怡领袖创见论坛 in BeiJing said that the global economic crisis has entered 2nd half.
He recalls that in the past economic crisis periods, the average decline cycle period for stock markets was about 27 months. In them, the decline brought about by the bursting of the internet bubble was longer. Counting from the peak in October last year, the stock market currently has only fallen 14 months. As such, a lot of people thinks that it will take at least 2 more years for the economic crisis to end. But he thinks that because of the various country's government quick measures and policies to save the market, the time needed for economic recovery will be shorten. From IPO issuance analysis, he thinks that investors attitudes towards new start-ups has shift from looking at growth potential to concerning about the company's ability to counter risks.
On the topic of exchange rate between the China RenMinBi and US dollar, George Taylor says that currently the exchange rate will remain as it is but in the future there will be room for appreciation for the RenMinBi.
He recalls that in the past economic crisis periods, the average decline cycle period for stock markets was about 27 months. In them, the decline brought about by the bursting of the internet bubble was longer. Counting from the peak in October last year, the stock market currently has only fallen 14 months. As such, a lot of people thinks that it will take at least 2 more years for the economic crisis to end. But he thinks that because of the various country's government quick measures and policies to save the market, the time needed for economic recovery will be shorten. From IPO issuance analysis, he thinks that investors attitudes towards new start-ups has shift from looking at growth potential to concerning about the company's ability to counter risks.
On the topic of exchange rate between the China RenMinBi and US dollar, George Taylor says that currently the exchange rate will remain as it is but in the future there will be room for appreciation for the RenMinBi.
Financial groups' problem assets hit $610bn
Financial Times
Financial groups’ problem assets hit $610bn
By Aline van Duyn and Francesco Guerrera in New York
Published: December 10 2008 23:32 | Last updated: December 10 2008 23:32
The biggest US financial institutions reported a sharp increase to $610bn in so-called hard-to-value assets during the third quarter, raising concerns about the hidden dangers on balance sheets.
So-called level-three assets, classified as hard to value and hard to sell, rose 15.5 per cent from the second quarter, according to analysis by the Market, Credit and Risk Strategies group of Standard & Poor’s.
Level-three assets have risen all year for most banks as they have found it virtually impossible to sell mortgage-backed securities and collateralised debt obligations.
“A lot of banks are saying: ‘I am going to move securities to level-three assets because I have more control over, and confidence in, the model used for their valuations’,” said Gregg Berman, head of the risk management unit at Risk Metrics.
The study is based on regulatory filings by the biggest underwriters and traders of mortgage-backed securities and CDOs. These asset classes have plunged in value amid a wave of house price falls and foreclosures and are at the centre of the crisis.
Next week, Goldman Sachs and Morgan Stanley will be the first banks to report fourth quarter results, which are likely to be scrutinised for information about their holdings of opaque assets.
Michael Thompson, managing director of MCRS, said he would be “surprised if we did not see writedowns of these level-three assets” in the fourth quarter.
Already, level-three assets are many times bigger than the market cap of the banks. The US Treasury had planned to buy these using the $700bn troubled asset relief programme but changed tack and has used some funds for capital injections.
Mr Thompson said it was hard to imagine banks would not have to take further writedowns.
Copyright The Financial Times Limited 2008
Financial groups’ problem assets hit $610bn
By Aline van Duyn and Francesco Guerrera in New York
Published: December 10 2008 23:32 | Last updated: December 10 2008 23:32
The biggest US financial institutions reported a sharp increase to $610bn in so-called hard-to-value assets during the third quarter, raising concerns about the hidden dangers on balance sheets.
So-called level-three assets, classified as hard to value and hard to sell, rose 15.5 per cent from the second quarter, according to analysis by the Market, Credit and Risk Strategies group of Standard & Poor’s.
Level-three assets have risen all year for most banks as they have found it virtually impossible to sell mortgage-backed securities and collateralised debt obligations.
“A lot of banks are saying: ‘I am going to move securities to level-three assets because I have more control over, and confidence in, the model used for their valuations’,” said Gregg Berman, head of the risk management unit at Risk Metrics.
The study is based on regulatory filings by the biggest underwriters and traders of mortgage-backed securities and CDOs. These asset classes have plunged in value amid a wave of house price falls and foreclosures and are at the centre of the crisis.
Next week, Goldman Sachs and Morgan Stanley will be the first banks to report fourth quarter results, which are likely to be scrutinised for information about their holdings of opaque assets.
Michael Thompson, managing director of MCRS, said he would be “surprised if we did not see writedowns of these level-three assets” in the fourth quarter.
Already, level-three assets are many times bigger than the market cap of the banks. The US Treasury had planned to buy these using the $700bn troubled asset relief programme but changed tack and has used some funds for capital injections.
Mr Thompson said it was hard to imagine banks would not have to take further writedowns.
Copyright The Financial Times Limited 2008
China Producer-Price Inflation Is Slowest in 2 Years
Bloomberg
China Producer-Price Inflation Is Slowest in 2 Years (Update3)
By Nipa Piboontanasawat and Li Yanping
Dec. 10 (Bloomberg) -- China’s producer-price inflation slowed to half the pace estimated by economists as commodity and energy costs fell, raising the possibility that the country will slide into deflation as demand wanes at home and abroad.
Prices at the factory gate rose 2 percent in November from a year earlier, the statistics bureau said today, after gaining 6.6 percent in October. That was the slowest pace in two years and less than the 4.5 percent median estimate of 15 economists surveyed by Bloomberg News.
Cooling inflation gave the central bank room to slash interest rates by the most in 11 years last month to counter a deepening slowdown in the world’s fourth-biggest economy. A global recession is cutting demand for exports just as falling property prices and sales slow construction and consumption.
“China may face deflation next year, which could be problematic, and the government is trying to avoid it,” said Isaac Meng, senior economist at BNP Paribas SA in Beijing. “Inflation is no longer an issue for policy makers; the global recession and a slump in the property market have dragged down demand and prices for industrial goods.”
Foreign direct investment in China fell 36.5 percent in November from a year earlier, the commerce ministry said today, as economic growth cooled and gains by the yuan stalled against the dollar. Investment was $5.3 billion, the least in 14 months.
Yunnan Tin
The CSI 300 Index of stocks climbed 0.5 percent as of 1:38 p.m. in Shanghai on speculation that interest rates will be cut further to boost growth. The yuan rose to 6.8632 against the dollar from 6.8651 before the producer-price announcement.
China’s Yunnan Tin Co., the world’s biggest producer of the metal, said yesterday that it had suspended output at its smelter for at least a month because of falling prices.
“In 2009, there is a possibility that China’s producer- price inflation could temporarily dip into negative territory, given the sharp fall in commodity prices,” said Jing Ulrich, chairwoman of China equities at JPMorgan Chase & Co. “However, a potential increase in electricity tariffs in the New Year would keep price inflation for producers at a higher level than for consumers.”
The central bank last month reduced borrowing costs for a fourth time since mid-September, leaving the key one-year lending rate at 5.58 percent and the deposit rate at 2.52 percent.
“There is still a lot of room for the central bank to cut interest rates, ” said Meng, of BNP Paribas.
Gasoline, Diesel
Crude oil has plunged about 70 percent in the second half of this year and copper has fallen about 64 percent. The Reuters/Jefferies CRB Index of 19 raw materials has declined about 53 percent.
China will cut gasoline and diesel prices next month, the official Xinhua News Agency reported yesterday, citing a government planner. The nation is accelerating changes to its oil pricing system to reflect cheaper costs and stimulate growth.
China’s economy expanded 9 percent in the third quarter from a year earlier, the slowest pace since 2003. Next year’s expansion may be as little as 5.5 percent, the least since 1990, according to CLSA Asia-Pacific Markets.
House prices in 70 major cities fell 0.5 percent in November from the previous month, the government said yesterday. Prices have declined for four straight months.
Economic Reversal
“In less than six months, the inflation problem and ongoing over-heating of the Chinese economy has turned to a strong probability of a deflation problem,” Stephen Koukoulas, the London-based head of global foreign exchange and fixed- income strategy at TD Securities, said last month.
Producer-price inflation is down from 10.1 percent in August, which was the fastest pace since at least 1996.
Consumer-price inflation has fallen from a 12-year high of 8.7 percent in February. Last month, the rate was 3.3 percent, the lowest in 19 months, according to the median estimate of 18 economists surveyed by Bloomberg News. The number will be released tomorrow.
Besides cutting borrowing costs, the central bank has lowered the proportion of deposits that lenders must set aside as reserves, scrapped temporary loan controls and sold fewer bills, boosting liquidity to encourage lending and investment.
The government last month announced a plan to spend 4 trillion yuan ($586 billion) through 2010 to boost domestic demand by building houses and infrastructure and cutting a private-investment tax.
For the first 11 months, producer prices increased 7.6 percent from a year earlier.
Purchasing prices climbed 4.7 percent in November and 11.6 percent in the first 11 months, the National Bureau of Statistics said.
Last Updated: December 10, 2008 00:43 EST
China Producer-Price Inflation Is Slowest in 2 Years (Update3)
By Nipa Piboontanasawat and Li Yanping
Dec. 10 (Bloomberg) -- China’s producer-price inflation slowed to half the pace estimated by economists as commodity and energy costs fell, raising the possibility that the country will slide into deflation as demand wanes at home and abroad.
Prices at the factory gate rose 2 percent in November from a year earlier, the statistics bureau said today, after gaining 6.6 percent in October. That was the slowest pace in two years and less than the 4.5 percent median estimate of 15 economists surveyed by Bloomberg News.
Cooling inflation gave the central bank room to slash interest rates by the most in 11 years last month to counter a deepening slowdown in the world’s fourth-biggest economy. A global recession is cutting demand for exports just as falling property prices and sales slow construction and consumption.
“China may face deflation next year, which could be problematic, and the government is trying to avoid it,” said Isaac Meng, senior economist at BNP Paribas SA in Beijing. “Inflation is no longer an issue for policy makers; the global recession and a slump in the property market have dragged down demand and prices for industrial goods.”
Foreign direct investment in China fell 36.5 percent in November from a year earlier, the commerce ministry said today, as economic growth cooled and gains by the yuan stalled against the dollar. Investment was $5.3 billion, the least in 14 months.
Yunnan Tin
The CSI 300 Index of stocks climbed 0.5 percent as of 1:38 p.m. in Shanghai on speculation that interest rates will be cut further to boost growth. The yuan rose to 6.8632 against the dollar from 6.8651 before the producer-price announcement.
China’s Yunnan Tin Co., the world’s biggest producer of the metal, said yesterday that it had suspended output at its smelter for at least a month because of falling prices.
“In 2009, there is a possibility that China’s producer- price inflation could temporarily dip into negative territory, given the sharp fall in commodity prices,” said Jing Ulrich, chairwoman of China equities at JPMorgan Chase & Co. “However, a potential increase in electricity tariffs in the New Year would keep price inflation for producers at a higher level than for consumers.”
The central bank last month reduced borrowing costs for a fourth time since mid-September, leaving the key one-year lending rate at 5.58 percent and the deposit rate at 2.52 percent.
“There is still a lot of room for the central bank to cut interest rates, ” said Meng, of BNP Paribas.
Gasoline, Diesel
Crude oil has plunged about 70 percent in the second half of this year and copper has fallen about 64 percent. The Reuters/Jefferies CRB Index of 19 raw materials has declined about 53 percent.
China will cut gasoline and diesel prices next month, the official Xinhua News Agency reported yesterday, citing a government planner. The nation is accelerating changes to its oil pricing system to reflect cheaper costs and stimulate growth.
China’s economy expanded 9 percent in the third quarter from a year earlier, the slowest pace since 2003. Next year’s expansion may be as little as 5.5 percent, the least since 1990, according to CLSA Asia-Pacific Markets.
House prices in 70 major cities fell 0.5 percent in November from the previous month, the government said yesterday. Prices have declined for four straight months.
Economic Reversal
“In less than six months, the inflation problem and ongoing over-heating of the Chinese economy has turned to a strong probability of a deflation problem,” Stephen Koukoulas, the London-based head of global foreign exchange and fixed- income strategy at TD Securities, said last month.
Producer-price inflation is down from 10.1 percent in August, which was the fastest pace since at least 1996.
Consumer-price inflation has fallen from a 12-year high of 8.7 percent in February. Last month, the rate was 3.3 percent, the lowest in 19 months, according to the median estimate of 18 economists surveyed by Bloomberg News. The number will be released tomorrow.
Besides cutting borrowing costs, the central bank has lowered the proportion of deposits that lenders must set aside as reserves, scrapped temporary loan controls and sold fewer bills, boosting liquidity to encourage lending and investment.
The government last month announced a plan to spend 4 trillion yuan ($586 billion) through 2010 to boost domestic demand by building houses and infrastructure and cutting a private-investment tax.
For the first 11 months, producer prices increased 7.6 percent from a year earlier.
Purchasing prices climbed 4.7 percent in November and 11.6 percent in the first 11 months, the National Bureau of Statistics said.
Last Updated: December 10, 2008 00:43 EST
Buffett on 0% interest rates
CNN Money
December 9, 2008, 7:28 pm
Power Point: Buffett on 0% interest rates
Warren Buffett emailed this note to the directors of his company, Berkshire Hathaway, Tuesday after he heard that the U.S. Treasury sold $32 billion in 4-week bills at a yield of 0%:
“This should be bullish for Berkshire. With great foresight, I long ago entered the mattress business in a big way through our furniture operation. Now mattresses have become fully competitive as a place to put your money, and sales will soon take off.”
December 9, 2008, 7:28 pm
Power Point: Buffett on 0% interest rates
Warren Buffett emailed this note to the directors of his company, Berkshire Hathaway, Tuesday after he heard that the U.S. Treasury sold $32 billion in 4-week bills at a yield of 0%:
“This should be bullish for Berkshire. With great foresight, I long ago entered the mattress business in a big way through our furniture operation. Now mattresses have become fully competitive as a place to put your money, and sales will soon take off.”
US foreclosures drop but storm clouds ahead, says report
Channel News Asia
US foreclosures drop but storm clouds ahead, says report
Posted: 11 December 2008 1403 hrs
WASHINGTON: US home foreclosures, at the root of the global financial crisis, fell to the lowest levels in five months in November but it may be a lull before the storm, according to a group tracking foreclosures.
Foreclosure filings - default notices, auction sale notices and bank repossessions - were reported on 259,085 properties in November, a seven per cent drop from October, said RealtyTrac, a California-based group said Thursday.
"Foreclosure activity in November hit the lowest level we've seen since June," said James Saccacio, chief executive officer of RealtyTrac.
He attributed the drop in part to recently enacted laws that have extended the foreclosure process in some states along with flexible loan programmes and other packages by lenders.
"There are several indications, however, that this lower activity is simply a temporary lull before another foreclosure storm hits in the coming months," he said.
Delinquencies on loans not yet in the foreclosure process jumped to nearly seven per cent in the third quarter, a record high, according to the Mortgage Bankers Association, Saccacio said.
"And more than half of the homeowners who received loan modifications to reduce monthly mortgage payments in the first half of 2008 are already delinquent on their loans again, according to the US Office of Thrift Supervision.
"Many of these delinquencies could turn into foreclosures next year," he warned.
A collapse of the US home mortgage industry plunged the world's most developed nation into financial turmoil, which spread across the globe and led to a sharp economic slowdown.
US mortgage giants Fannie Mae and Freddie Mac announced last month they had notified loan servicing organisations to freeze foreclosures until January 9, 2009. Banking giants had also announced similar measures.
RealtyTrac also said that Nevada, Florida, Arizona had the top foreclosure rates.
Nevada foreclosure activity in November decreased nearly four per cent from the previous month, but it maintained the nation's number one foreclosure rate, the report said.
- AFP/yb
US foreclosures drop but storm clouds ahead, says report
Posted: 11 December 2008 1403 hrs
WASHINGTON: US home foreclosures, at the root of the global financial crisis, fell to the lowest levels in five months in November but it may be a lull before the storm, according to a group tracking foreclosures.
Foreclosure filings - default notices, auction sale notices and bank repossessions - were reported on 259,085 properties in November, a seven per cent drop from October, said RealtyTrac, a California-based group said Thursday.
"Foreclosure activity in November hit the lowest level we've seen since June," said James Saccacio, chief executive officer of RealtyTrac.
He attributed the drop in part to recently enacted laws that have extended the foreclosure process in some states along with flexible loan programmes and other packages by lenders.
"There are several indications, however, that this lower activity is simply a temporary lull before another foreclosure storm hits in the coming months," he said.
Delinquencies on loans not yet in the foreclosure process jumped to nearly seven per cent in the third quarter, a record high, according to the Mortgage Bankers Association, Saccacio said.
"And more than half of the homeowners who received loan modifications to reduce monthly mortgage payments in the first half of 2008 are already delinquent on their loans again, according to the US Office of Thrift Supervision.
"Many of these delinquencies could turn into foreclosures next year," he warned.
A collapse of the US home mortgage industry plunged the world's most developed nation into financial turmoil, which spread across the globe and led to a sharp economic slowdown.
US mortgage giants Fannie Mae and Freddie Mac announced last month they had notified loan servicing organisations to freeze foreclosures until January 9, 2009. Banking giants had also announced similar measures.
RealtyTrac also said that Nevada, Florida, Arizona had the top foreclosure rates.
Nevada foreclosure activity in November decreased nearly four per cent from the previous month, but it maintained the nation's number one foreclosure rate, the report said.
- AFP/yb
Wednesday, December 10, 2008
Fed Weighs Debt Sales of Its Own
Wall Street Journal
DECEMBER 10, 2008
Fed Weighs Debt Sales of Its Own
Move Presents Challenges: 'Very Close Cousins to Existing Treasury Bills'
By JON HILSENRATH and DAMIAN PALETTA
The Federal Reserve is considering issuing its own debt for the first time, a move that would give the central bank additional flexibility as it tries to stabilize rocky financial markets.
Government debt issuance is largely the province of the Treasury Department, and the Fed already can print as much money as it wants. But as the credit crisis drags on and the economy suffers from recession, Fed officials are looking broadly for new financial tools.
Fed officials have approached Congress about the concept, which could include issuing bills or some other form of debt, according to people familiar with the matter.
It isn't known whether these preliminary discussions will result in a formal proposal or Fed action. One hurdle: The Federal Reserve Act doesn't explicitly permit the Fed to issue notes beyond currency.
Just exploring the idea underscores many challenges the ongoing problems are creating for the Fed, as well as the lengths to which the central bank is going to come up with new ideas.
At the core of the deliberations is the Fed's balance sheet, which has grown from less than $900 billion to more than $2 trillion since August as it backstops new markets like commercial paper, money-market funds, mortgage-backed securities and ailing companies such as American International Group Inc.
The ballooning balance sheet is presenting complications for the Fed. In the early stages of the crisis, officials funded their programs by drawing down on holdings of Treasury bonds, using the proceeds to finance new programs. Officials don't want that stockpile to get too low. It now is about $476 billion, with some of that amount already tied up in other programs.
The Fed also has turned to the Treasury Department for cash. Treasury has issued debt, leaving the proceeds on deposit with the Fed for the central bank to use as it chose. But the Treasury said in November it was scaling back that effort. The Treasury is undertaking its own massive borrowing program and faces legal limits on how much it can borrow.
More recently, the Fed has funded programs by flooding the financial system with money it created itself -- known in central-banking circles as bank reserves -- and has used the money to make loans and purchase assets.
Some economists worry about the consequences of this approach. Fed officials could find it challenging to remove the cash from the system once markets stabilize and the economy improves. It's not a problem now, but if they're too slow to act later it can cause inflation.
Moreover, the flood of additional cash makes it harder for Fed officials to maintain interest rates at their desired level. The fed-funds rate, an overnight borrowing rate between banks, has fallen consistently below the Fed's 1% target. It is expected to reduce that target next week.
Louis Crandall, an economist with Wrightson ICAP LLC, a Wall Street money-market broker, says the Fed's interventions also have the potential to clog up the balance sheets of banks, its main intermediaries.
"Finding alternative funding vehicles that bypass the banking system would be a more effective way to support the U.S. credit system," he says.
Some private economists worry that Fed-issued bonds could create new problems. Marvin Goodfriend, an economist at Carnegie Mellon University's Tepper School of Business and a former senior staffer at the Federal Reserve Bank of Richmond, said that issuing debt could put the Fed at odds with the Treasury at a time when it is already issuing mountains of debt itself.
"It creates problems in coordinating the issuance of government debt," Mr. Goodfriend said. "These would be very close cousins to existing Treasury bills. They would be competing in the same market to federal debt."
With Treasury-bill rates now near zero, it seems unlikely that Fed debt would push Treasury rates much higher, but it could some day become an issue.
There are also questions about the Fed's authority.
"I had always worked under the assumption that the Federal Reserve couldn't issue debt," said Vincent Reinhart, a former senior Fed staffer who is now an economist at the American Enterprise Institute. He says it is an action better suited to the Treasury Department, which has clear congressional authority to borrow on behalf of the government.
DECEMBER 10, 2008
Fed Weighs Debt Sales of Its Own
Move Presents Challenges: 'Very Close Cousins to Existing Treasury Bills'
By JON HILSENRATH and DAMIAN PALETTA
The Federal Reserve is considering issuing its own debt for the first time, a move that would give the central bank additional flexibility as it tries to stabilize rocky financial markets.
Government debt issuance is largely the province of the Treasury Department, and the Fed already can print as much money as it wants. But as the credit crisis drags on and the economy suffers from recession, Fed officials are looking broadly for new financial tools.
Fed officials have approached Congress about the concept, which could include issuing bills or some other form of debt, according to people familiar with the matter.
It isn't known whether these preliminary discussions will result in a formal proposal or Fed action. One hurdle: The Federal Reserve Act doesn't explicitly permit the Fed to issue notes beyond currency.
Just exploring the idea underscores many challenges the ongoing problems are creating for the Fed, as well as the lengths to which the central bank is going to come up with new ideas.
At the core of the deliberations is the Fed's balance sheet, which has grown from less than $900 billion to more than $2 trillion since August as it backstops new markets like commercial paper, money-market funds, mortgage-backed securities and ailing companies such as American International Group Inc.
The ballooning balance sheet is presenting complications for the Fed. In the early stages of the crisis, officials funded their programs by drawing down on holdings of Treasury bonds, using the proceeds to finance new programs. Officials don't want that stockpile to get too low. It now is about $476 billion, with some of that amount already tied up in other programs.
The Fed also has turned to the Treasury Department for cash. Treasury has issued debt, leaving the proceeds on deposit with the Fed for the central bank to use as it chose. But the Treasury said in November it was scaling back that effort. The Treasury is undertaking its own massive borrowing program and faces legal limits on how much it can borrow.
More recently, the Fed has funded programs by flooding the financial system with money it created itself -- known in central-banking circles as bank reserves -- and has used the money to make loans and purchase assets.
Some economists worry about the consequences of this approach. Fed officials could find it challenging to remove the cash from the system once markets stabilize and the economy improves. It's not a problem now, but if they're too slow to act later it can cause inflation.
Moreover, the flood of additional cash makes it harder for Fed officials to maintain interest rates at their desired level. The fed-funds rate, an overnight borrowing rate between banks, has fallen consistently below the Fed's 1% target. It is expected to reduce that target next week.
Louis Crandall, an economist with Wrightson ICAP LLC, a Wall Street money-market broker, says the Fed's interventions also have the potential to clog up the balance sheets of banks, its main intermediaries.
"Finding alternative funding vehicles that bypass the banking system would be a more effective way to support the U.S. credit system," he says.
Some private economists worry that Fed-issued bonds could create new problems. Marvin Goodfriend, an economist at Carnegie Mellon University's Tepper School of Business and a former senior staffer at the Federal Reserve Bank of Richmond, said that issuing debt could put the Fed at odds with the Treasury at a time when it is already issuing mountains of debt itself.
"It creates problems in coordinating the issuance of government debt," Mr. Goodfriend said. "These would be very close cousins to existing Treasury bills. They would be competing in the same market to federal debt."
With Treasury-bill rates now near zero, it seems unlikely that Fed debt would push Treasury rates much higher, but it could some day become an issue.
There are also questions about the Fed's authority.
"I had always worked under the assumption that the Federal Reserve couldn't issue debt," said Vincent Reinhart, a former senior Fed staffer who is now an economist at the American Enterprise Institute. He says it is an action better suited to the Treasury Department, which has clear congressional authority to borrow on behalf of the government.
Half of 'rescued' borrowers still default
CNN Money
Half of 'rescued' borrowers still default
Many modified mortgages in 2008 defaulted in 6 months, a top federal regulator says. A new study raises concerns over the quality of such loan adjustments.
By Tami Luhby, CNNMoney.com senior writer
Last Updated: December 9, 2008: 5:11 PM ET
WASHINGTON, D.C. -- More than half of delinquent homeowners whose mortgages were modified earlier this year ended up redefaulting within six months, a top bank regulator said Monday.
Some 53% of borrowers with loans modified in the first three months of 2008 and 51% of those with loans modified in the second quarter could not keep up with payments within six months, according to U.S. Comptroller John Dugan, who spoke at a housing conference.
The report, which will be released in full next week, covers nearly 35 million loans worth a total of $6 trillion - or 60% of all primary mortgages in the United States.
The high redefault rate raises concerns about the long-term effectiveness of loan modifications, which many are pushing as a key solution to the nation's financial crisis.
A record 1.35 million homes are in foreclosure, while the number of borrowers who have fallen behind on their payments soared to a record 6.99%, the Mortgage Bankers Association said last week.
Meanwhile, 1.7 million homeowners have been helped in 2008 through the Hope Now Alliance, a coalition of lenders, servicers, investors and counselors working with delinquent borrowers on modifications and repayment plans.
Dugan said the Office of the Comptroller of the Currency is asking servicers for more details on the loans in his report to determine what went wrong. He wants to know whether the modifications reduced the monthly payments to affordable levels or whether the borrowers had too much other debt to keep their head above water.
"These answers are important, because they have important ramifications for the foreclosure crisis and how policymakers should address loan modifications, as they surely will in the coming weeks and months," Dugan said.
Other regulators speaking at the conference questioned the quality of the loan modifications, saying that early efforts to restructure loans were not very effective. Many simply tacked on the missed payments and penalties to the end of the loan.
"The quality of the modifications are not what they should be," said FDIC Chairwoman Sheila Bair, a vocal proponent of adjusting loans by reducing interest rates, extending loan terms and deferring principal. Also, verifying income is very important.
Modifications that include an interest rate reduction have a 15% redefault rate, said Bair, citing a recent Credit Suisse study.
Last month, Bair unveiled a plan to address the foreclosure crisis by modifying loans to as low as 31% of a borrower's gross monthly income. This could be done by setting interest rates to as low as 3% or extending loan terms to 40 years. Principal could also be deferred free of interest to the end of the loan.
To entice servicers and investors to participate, Bair's plan calls for the government would share up to 50% of losses should the loan redefault. But that guarantee only kicks in after the borrower has made six monthly payments to better ensure the mortgage modification is sustainable long-term. It would cost $24.4 billion, which Bair has said could come from the rescue funds.
Bair's efforts have been widely praised, but the Bush administration has yet to act on it.
As the housing crisis continues to spin out of control, lawmakers, economists and community activists are increasingly demanding that financial institutions and the Bush administration do more to help homeowners by modifying loans to affordable monthly payments.
In recent months, banks and federal agencies such as the Federal Deposit Insurance Corp. and Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) have stepped up efforts to adjust loans so that payments are no more than 38% of a borrower's monthly income.
Rep. Barney Frank, D-Mass, who heads the powerful House Financial Services Committee, said Monday that Congress will not give the Bush administration the $350 billion left in the $700 billion financial system bailout package unless loan modifications are part of the plan.
However, other regulators said that federal money may be better spent on economic stimulus and job creation since a growing number of foreclosures are caused by unemployment. In those cases, loan modifications won't help.
The unemployment rate soared to 6.7% and is expected to go higher with companies announcing massive downsizings almost daily.
"I have to wonder whether or not focusing on job creation..is a better way to focus federal dollars than on a loan modification process that may be only partially effective," said John Reich, director of the Office of Thrift Supervision.
First Published: December 8, 2008: 3:19 PM ET
Half of 'rescued' borrowers still default
Many modified mortgages in 2008 defaulted in 6 months, a top federal regulator says. A new study raises concerns over the quality of such loan adjustments.
By Tami Luhby, CNNMoney.com senior writer
Last Updated: December 9, 2008: 5:11 PM ET
WASHINGTON, D.C. -- More than half of delinquent homeowners whose mortgages were modified earlier this year ended up redefaulting within six months, a top bank regulator said Monday.
Some 53% of borrowers with loans modified in the first three months of 2008 and 51% of those with loans modified in the second quarter could not keep up with payments within six months, according to U.S. Comptroller John Dugan, who spoke at a housing conference.
The report, which will be released in full next week, covers nearly 35 million loans worth a total of $6 trillion - or 60% of all primary mortgages in the United States.
The high redefault rate raises concerns about the long-term effectiveness of loan modifications, which many are pushing as a key solution to the nation's financial crisis.
A record 1.35 million homes are in foreclosure, while the number of borrowers who have fallen behind on their payments soared to a record 6.99%, the Mortgage Bankers Association said last week.
Meanwhile, 1.7 million homeowners have been helped in 2008 through the Hope Now Alliance, a coalition of lenders, servicers, investors and counselors working with delinquent borrowers on modifications and repayment plans.
Dugan said the Office of the Comptroller of the Currency is asking servicers for more details on the loans in his report to determine what went wrong. He wants to know whether the modifications reduced the monthly payments to affordable levels or whether the borrowers had too much other debt to keep their head above water.
"These answers are important, because they have important ramifications for the foreclosure crisis and how policymakers should address loan modifications, as they surely will in the coming weeks and months," Dugan said.
Other regulators speaking at the conference questioned the quality of the loan modifications, saying that early efforts to restructure loans were not very effective. Many simply tacked on the missed payments and penalties to the end of the loan.
"The quality of the modifications are not what they should be," said FDIC Chairwoman Sheila Bair, a vocal proponent of adjusting loans by reducing interest rates, extending loan terms and deferring principal. Also, verifying income is very important.
Modifications that include an interest rate reduction have a 15% redefault rate, said Bair, citing a recent Credit Suisse study.
Last month, Bair unveiled a plan to address the foreclosure crisis by modifying loans to as low as 31% of a borrower's gross monthly income. This could be done by setting interest rates to as low as 3% or extending loan terms to 40 years. Principal could also be deferred free of interest to the end of the loan.
To entice servicers and investors to participate, Bair's plan calls for the government would share up to 50% of losses should the loan redefault. But that guarantee only kicks in after the borrower has made six monthly payments to better ensure the mortgage modification is sustainable long-term. It would cost $24.4 billion, which Bair has said could come from the rescue funds.
Bair's efforts have been widely praised, but the Bush administration has yet to act on it.
As the housing crisis continues to spin out of control, lawmakers, economists and community activists are increasingly demanding that financial institutions and the Bush administration do more to help homeowners by modifying loans to affordable monthly payments.
In recent months, banks and federal agencies such as the Federal Deposit Insurance Corp. and Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) have stepped up efforts to adjust loans so that payments are no more than 38% of a borrower's monthly income.
Rep. Barney Frank, D-Mass, who heads the powerful House Financial Services Committee, said Monday that Congress will not give the Bush administration the $350 billion left in the $700 billion financial system bailout package unless loan modifications are part of the plan.
However, other regulators said that federal money may be better spent on economic stimulus and job creation since a growing number of foreclosures are caused by unemployment. In those cases, loan modifications won't help.
The unemployment rate soared to 6.7% and is expected to go higher with companies announcing massive downsizings almost daily.
"I have to wonder whether or not focusing on job creation..is a better way to focus federal dollars than on a loan modification process that may be only partially effective," said John Reich, director of the Office of Thrift Supervision.
First Published: December 8, 2008: 3:19 PM ET
Point of no return
The Straits Times
Dec 10, 2008 |
Point of no return
Interest on T-bills hits zero
NEW YORK - INVESTORS are so nervous they're willing to accept the same return from government debt that they'd get from burying money in a coffee can - zero.
The Treasury Department said on Tuesday it had sold US$30 billion (S$45 billion) in four-week bills at an interest rate of zero percent, the first time that's happened since the government began issuing the notes in 2001.
And when investors traded their T-bills with each other, the yield sometimes went negative. That's how extreme the market anxiety is: Some are willing to give up a little of their money just to park it in a relatively safe place.
'No one wants to run the risk of any accidents,' said Mr Lou Crandall, chief economist at Wrightson ICAP, a research company that specialises in government finance.
At last week's government auction of the four-week bills, the interest rate was a slightly higher but still paltry 0.04 per cent.
Three-month T-bills auctioned by the government on Monday paid poorly, too - 0.005 per cent.
While everyday people can keep their cash in an interest-earning CD or savings account at the bank, institutional investors with hundreds of millions of dollars on their hands often use government debt as part of their investment strategy.
In the Treasury market, the US government, considered the most creditworthy of borrowers, issues IOUs of varying durations to raise money.
The zero per cent interest rate is no reason to panic. As recently as Monday, investors were plowing cash into stocks, and averages like the Dow industrials are off their lows.
And long-term government bonds, while near record lows, are still paying decent money considering the tumultuous climate. The yield on a 30-year bond on Tuesday was a little higher than 3 per cent.
There's good news in all this for taxpayers: Low interest rates on government debt mean the United States is financing its US$700 billion bailout of the financial system very cheaply. The Treasury has sold mountains of debt to pay for it.
But the trend also underlines stubborn anxiety in the financial market that could keep the economy sluggish for years to come, and it translates into stagnant returns for people who have their money in places like money market funds.
'There's a price for safety,' said Mr Peter Crane, president of money market mutual fund information company Crane Data. 'Down slightly is the new up.'
As the stock market has taken its alarming plunge, people have been moving money from riskier assets to safer ones.
According to Crane Data, funds invested purely in Treasurys have surged more than 150 per cent over the past year, to US$726 billion.
Earning zero per cent on an investment for a short while may not seem that dire for the average person. But a zero per cent rate has serious consequences for the complex credit markets.
Those markets have been dysfunctional since Lehman Brothers Holdings went bankrupt in September, scaring away investors who normally buy bonds from seemingly creditworthy borrowers. Lending, the lifeblood of the economy, has frozen up.
One corner of the credit markets is the repurchase markets, known as 'repo,' where banks and securities firms make and receive short-term loans backed by collateral, usually Treasury bills.
When those T-bills are yielding nothing, there's little incentive to deliver them on time. If the holder loses the interest, it's no big deal.
'This is a particular problem in a time like this, because people are buying Treasury securities for their security, for their safety. It's important that they're delivered,' Mr Crandall said.
And high demand for government debt rather than corporate debt could stifle economic growth.
Corporate bond rates have been surging to record levels compared with Treasurys, which makes it more expensive for companies to raise money.
And when companies can't raise money, they often have to cut costs, sometimes through layoffs.
Only a few corporate bond deals have been going through lately, and most have been through the government, which has agreed to guarantee financial institutions' bond sales. American Express, for one, said on Tuesday it has issued US$5.5 billion through the government programme.
Many worry that the government will become the most attractive lender and borrower in the market - crowding out others in the private sector.
'Because they have a printing press, they can borrow ever greater quantities,' said Mr Howard Simons, strategist with Bianco Research in Chicago. -- AP
Dec 10, 2008 |
Point of no return
Interest on T-bills hits zero
NEW YORK - INVESTORS are so nervous they're willing to accept the same return from government debt that they'd get from burying money in a coffee can - zero.
The Treasury Department said on Tuesday it had sold US$30 billion (S$45 billion) in four-week bills at an interest rate of zero percent, the first time that's happened since the government began issuing the notes in 2001.
And when investors traded their T-bills with each other, the yield sometimes went negative. That's how extreme the market anxiety is: Some are willing to give up a little of their money just to park it in a relatively safe place.
'No one wants to run the risk of any accidents,' said Mr Lou Crandall, chief economist at Wrightson ICAP, a research company that specialises in government finance.
At last week's government auction of the four-week bills, the interest rate was a slightly higher but still paltry 0.04 per cent.
Three-month T-bills auctioned by the government on Monday paid poorly, too - 0.005 per cent.
While everyday people can keep their cash in an interest-earning CD or savings account at the bank, institutional investors with hundreds of millions of dollars on their hands often use government debt as part of their investment strategy.
In the Treasury market, the US government, considered the most creditworthy of borrowers, issues IOUs of varying durations to raise money.
The zero per cent interest rate is no reason to panic. As recently as Monday, investors were plowing cash into stocks, and averages like the Dow industrials are off their lows.
And long-term government bonds, while near record lows, are still paying decent money considering the tumultuous climate. The yield on a 30-year bond on Tuesday was a little higher than 3 per cent.
There's good news in all this for taxpayers: Low interest rates on government debt mean the United States is financing its US$700 billion bailout of the financial system very cheaply. The Treasury has sold mountains of debt to pay for it.
But the trend also underlines stubborn anxiety in the financial market that could keep the economy sluggish for years to come, and it translates into stagnant returns for people who have their money in places like money market funds.
'There's a price for safety,' said Mr Peter Crane, president of money market mutual fund information company Crane Data. 'Down slightly is the new up.'
As the stock market has taken its alarming plunge, people have been moving money from riskier assets to safer ones.
According to Crane Data, funds invested purely in Treasurys have surged more than 150 per cent over the past year, to US$726 billion.
Earning zero per cent on an investment for a short while may not seem that dire for the average person. But a zero per cent rate has serious consequences for the complex credit markets.
Those markets have been dysfunctional since Lehman Brothers Holdings went bankrupt in September, scaring away investors who normally buy bonds from seemingly creditworthy borrowers. Lending, the lifeblood of the economy, has frozen up.
One corner of the credit markets is the repurchase markets, known as 'repo,' where banks and securities firms make and receive short-term loans backed by collateral, usually Treasury bills.
When those T-bills are yielding nothing, there's little incentive to deliver them on time. If the holder loses the interest, it's no big deal.
'This is a particular problem in a time like this, because people are buying Treasury securities for their security, for their safety. It's important that they're delivered,' Mr Crandall said.
And high demand for government debt rather than corporate debt could stifle economic growth.
Corporate bond rates have been surging to record levels compared with Treasurys, which makes it more expensive for companies to raise money.
And when companies can't raise money, they often have to cut costs, sometimes through layoffs.
Only a few corporate bond deals have been going through lately, and most have been through the government, which has agreed to guarantee financial institutions' bond sales. American Express, for one, said on Tuesday it has issued US$5.5 billion through the government programme.
Many worry that the government will become the most attractive lender and borrower in the market - crowding out others in the private sector.
'Because they have a printing press, they can borrow ever greater quantities,' said Mr Howard Simons, strategist with Bianco Research in Chicago. -- AP
Property price growth in major Chinese cities drops to 3-year low
China Daily
Property price growth in major Chinese cities drops to 3-year low
(Xinhua)
Updated: 2008-12-09 20:55
China's property price growth continued to slow down in November, according to statistics released by the country's top economic planner on Tuesday.
Property prices in 70 major Chinese cities rose 0.2 percent from a year earlier, or 1.4 percentage points lower than October, the National Development and Reform Commission (NDRC) said.
The growth rate was the lowest since the NDRC started to publish the figure in July, 2005.
The measurement, jointly compiled by the NDRC and the National Bureau of Statistics, continued to decline this year. It fell from 11.3 percent in January to 0.2 percent last month.
As recently as April, property prices had been rising at a double-digit rate on an annual basis, according to the NDRC.
Last month new home prices in 70 large and medium-sized cities increased 0.2 percent year-on-year, 1.6 percentage points lower than in October.
Housing for low-income earners in major cities was priced 0.6 percent higher than the same month last year.
Property prices in 43 cities eased in November, with some cities recording sharp declines.
New home prices in Shenzhen, Nanjing and Xiamen dropped 2.4 percent, 2.2 percent and 2.9 percent in November, compared with October.
Property price growth in major Chinese cities drops to 3-year low
(Xinhua)
Updated: 2008-12-09 20:55
China's property price growth continued to slow down in November, according to statistics released by the country's top economic planner on Tuesday.
Property prices in 70 major Chinese cities rose 0.2 percent from a year earlier, or 1.4 percentage points lower than October, the National Development and Reform Commission (NDRC) said.
The growth rate was the lowest since the NDRC started to publish the figure in July, 2005.
The measurement, jointly compiled by the NDRC and the National Bureau of Statistics, continued to decline this year. It fell from 11.3 percent in January to 0.2 percent last month.
As recently as April, property prices had been rising at a double-digit rate on an annual basis, according to the NDRC.
Last month new home prices in 70 large and medium-sized cities increased 0.2 percent year-on-year, 1.6 percentage points lower than in October.
Housing for low-income earners in major cities was priced 0.6 percent higher than the same month last year.
Property prices in 43 cities eased in November, with some cities recording sharp declines.
New home prices in Shenzhen, Nanjing and Xiamen dropped 2.4 percent, 2.2 percent and 2.9 percent in November, compared with October.
China - House buyers seek bargains abroad
China Daily
House buyers seek bargains abroad
By Zhang Lei (China Daily)
Updated: 2008-12-10 07:12
Chinese people are signing up for visits to the United States with one aim in mind - to buy homes on the cheap.
The US mortgage crisis and the downturn in the global economy has presented them with a golden opportunity.
About 300 Chinese have registered for a 10-day house-buying trip organized by Soufun.com, one of the largest real estate portals in China. The group is scheduled to leave next month.
"We discovered there was greater interest in overseas properties during a recent domestic sales promotion," Liu Jian, chief operating officer of Soufun.com, told China Daily.
"The trip will focus on San Francisco, Los Angeles, Las Vegas, and possibly New York and Washington DC. These cities have huge Chinese immigrant populations," Liu said.
"The cost will be about 15,000 yuan ($2,200) per person, excluding airfare."
Xiao Hong, a housewife who has signed up for the trip, said: "I'd like to buy a house for my son, a high school student."
If all goes well, the house that Xiao intends to buy in the Greater New York area, will be left vacant for three years until her son enters a US college, and the family obtains the required documents to stay in the country.
The possible rent loss during the three years is not an issue, Xiao said. "I care less about the money than my son's education," she said.
About 60 percent of those who will be going on the trip are from the middle class, like Xiao, who are looking for homes for their children, Liu said.
"The rest are investors who have been following the increase in mortgage foreclosures in the US, and the decline in the real estate market," he said.
The house-buying spree is reflective of the rise of an affluent middle class, said Wang Hongxin, director of the Real Estate Research Institute of Beijing Normal University.
Chinese people visiting the US are allowed to take up to $50,000 a year to spend in the country. Many have toured the US several times to accumulate enough funds to buy property, a lawyer with Beijing law firm King & Wood told China Daily.
Many middle-class Chinese also pay for houses through legitimate businesses they run in the US, said the lawyer, who declined to be named.
US home prices have plunged since April last year.
The US Mortgage Bankers' Association reported on Friday that 1.35 million homes were subject to foreclosure in the third quarter.
House buyers seek bargains abroad
By Zhang Lei (China Daily)
Updated: 2008-12-10 07:12
Chinese people are signing up for visits to the United States with one aim in mind - to buy homes on the cheap.
The US mortgage crisis and the downturn in the global economy has presented them with a golden opportunity.
About 300 Chinese have registered for a 10-day house-buying trip organized by Soufun.com, one of the largest real estate portals in China. The group is scheduled to leave next month.
"We discovered there was greater interest in overseas properties during a recent domestic sales promotion," Liu Jian, chief operating officer of Soufun.com, told China Daily.
"The trip will focus on San Francisco, Los Angeles, Las Vegas, and possibly New York and Washington DC. These cities have huge Chinese immigrant populations," Liu said.
"The cost will be about 15,000 yuan ($2,200) per person, excluding airfare."
Xiao Hong, a housewife who has signed up for the trip, said: "I'd like to buy a house for my son, a high school student."
If all goes well, the house that Xiao intends to buy in the Greater New York area, will be left vacant for three years until her son enters a US college, and the family obtains the required documents to stay in the country.
The possible rent loss during the three years is not an issue, Xiao said. "I care less about the money than my son's education," she said.
About 60 percent of those who will be going on the trip are from the middle class, like Xiao, who are looking for homes for their children, Liu said.
"The rest are investors who have been following the increase in mortgage foreclosures in the US, and the decline in the real estate market," he said.
The house-buying spree is reflective of the rise of an affluent middle class, said Wang Hongxin, director of the Real Estate Research Institute of Beijing Normal University.
Chinese people visiting the US are allowed to take up to $50,000 a year to spend in the country. Many have toured the US several times to accumulate enough funds to buy property, a lawyer with Beijing law firm King & Wood told China Daily.
Many middle-class Chinese also pay for houses through legitimate businesses they run in the US, said the lawyer, who declined to be named.
US home prices have plunged since April last year.
The US Mortgage Bankers' Association reported on Friday that 1.35 million homes were subject to foreclosure in the third quarter.
China - Expert: Stimulus plan to ensure a soft landing
China Information News
Expert: Stimulus plan to ensure a soft landing
8 December 2008
On November 9, the Chinese government announced that it will spent 4 trillion yuan (about US$570 billion) over the next two years to finance programs in ten major areas in an effort to boost domestic demand and spur economic growth. How will the 4 trillion yuan be spent? Will this stimulus package work as hoped? China.org.cn invited Ma Xiaohe, deputy director of the Academy of Macroeconomic Research under the National Development and Reform Commission, to answer these questions.
China.org.cn:
In early November, the State Council announced the 4 trillion yuan economic stimulus package. In normal circumstances the government would put forward its macroeconomic control policies at the Central Economic Conference held in December every year. Why did the government choose to announce the policy earlier?
Ma Xiaohe:
I think there are two reasons for this. Firstly, the Chinese economy is facing a very different situation this year. The current global financial crisis is having a bigger-than-expected impact on China and China was affected more in August and September than the first half of 2008. Therefore it would be too late if the government waited until the Central Economic Conference.
Secondly, the Chinese economy – in particular in the export industry, labor-intensive industries and capital-intensive industries – has seen a slowdown in growth. In this situation, the government needs to adjust its policy and it needs to do it early.
In an effort to cope better with global economic trend and maintain stable domestic economic growth, the government chose to shift its policy in November. And I think it was a necessary and timely move.
China.org.cn:
During the 1997 Asian financial crisis, the government also implemented a policy of stimulus. What's the difference between the 1997 plan and the current one?
Ma Xiaohe:
Back then, the government issued treasury bonds to raise funds for economic investment. In total, 3 trillion yuan was pumped into the Chinese economy. Most of the money was spent on infrastructure projects, including airports, roads and the power network. However, the ten major steps specified in the current 4 trillion yuan stimulus package are quite different. The first one is a welfare housing project, which includes rural housing reconstruction and building low-rent urban housing.
The second one is rural infrastructure construction. During the Asian financial crisis, rural infrastructure construction was not a key project – we focused more on larger projects such as highway construction. But this time, the government will step up efforts to promote the use of methane and to ensure drinking water safety for over 230 million rural residents. This part of the plan also includes more projects that are vital to people's livelihood – rural power grid construction, North-South water diversion projects, reinforcement of risky reservoirs, and water conservation projects.
The third step is the construction of railways, roads and airports. China built a number of these ten years ago, but this time we will try to improve the transport network. The government will invest in health and education projects such as improving the grassroots medical system and rural school construction. Back in 1997, we didn't have these kinds of projects. Environment projects were included on both occasions, but greater efforts will be made to address rural pollution, rubbish disposal and water pollution.
This time, the government will also provide policy support to enhance innovation and promote industrial structure upgrading.
Post-quake reconstruction is unique to the new stimulus policy. The government will invest 300 billion yuan in reconstruction projects. Also the current 4 trillion yuan plan contains some detailed measures to increase people's income in rural and urban areas, including raising minimum grain purchase and farm subsidies, increasing subsidies for low-income urban residents and so on.
The government has extended reforms in value-added tax regulations to all industries. Starting from January 1, 2009, the existing production-based VAT regime will be replaced by a consumption-based one, cutting the 2009 tax burden on companies by 120 billion yuan. The government has also enhanced financial support to spur the economy, including increasing lending to small- and medium-sized enterprises.
Compared with the 1997 economic rescue plan, I think the current plan focuses more on people's livelihoods and covers more areas – some projects can stimulate investment and others aim to increase people's income; some are funded by the government and others are supported by banks.
China.org.cn:
How long will it take for the plan to work?
Ma Xiaohe:
As I said, some of the projects can stimulate investment and some aim to increase people's income. These two types of project work differently. If you increase people's income, through minimum grain purchase, farm subsidies and subsidy for low-income residents for example, these policies will increase consumption and have a direct impact on the economy. Investment projects such as infrastructure construction will influence the economy in two ways. Firstly, these projects can boost the development of inter-related industries such as construction materials, iron and steel, and cement. Secondly, 40 percent of the initial investment will itself go into salaries and be consumed, so there will be a direct impact too. Over a period of time the rest of the investment will transform itself into fixed assets, which will then be added to GDP.
China.org.cn:
The current global financial crisis has delivered a serious blow to small- and medium-sized exporters. What are your suggestions to them? What should they do to adapt themselves to changes in the Chinese economy?
Ma Xiaohe:
It's hard to give suggestions that are sure to work. The government has raised tax rebates to help domestic companies experiencing difficulty in raising funds. In the 10 major steps, the government also encourages these companies to upgrade industrial structure by providing policy support to enhance innovation. But exporters do face a major challenge because the global financial crisis has caused a drop in global market demand. Exporters will have to make a huge effort if they want to survive these difficult times.
In my opinion, exporters can take advantage of the current financial crisis and turn it into an opportunity for innovation. For example, a company could look for new market sectors in which its products are unique. However, I don't think it's going to be easy for them because they themselves can do nothing about shrinking demand. So for the time being all they can do is to improve management and product quality and reduce cost. These can be effective ways to attract customers.
China.org.cn:
Could you make a forecast on China's economy in 2009?
Ma Xiaohe:
I think if these ten steps can be carried out, the impact of global economic recession on China will be significantly reduced. China's economic growth, which had dropped from last year's 11.9 percent to 9 percent by Q3 2008, will decrease at a slower pace. Also, China will come out of the phase of economic contraction quicker. Without the stimulus package, it might have taken four or five years for China to recover economic prosperity, but now three years may be enough. That is to say, the contraction period of the economic cycle will be shortened, the expansion stage of a new cycle will start earlier and the Chinese economy will land softly.
China.org.cn:
How will the government supervise the use of funds?
Ma Xiaohe:
The government has put forward relevant procedures to enable project overview. Inspection and supervision teams have been dispatched. I believe these steps will be well-implemented.
(China.org.cn by Yan Pei, December 8, 2008)
Expert: Stimulus plan to ensure a soft landing
8 December 2008
On November 9, the Chinese government announced that it will spent 4 trillion yuan (about US$570 billion) over the next two years to finance programs in ten major areas in an effort to boost domestic demand and spur economic growth. How will the 4 trillion yuan be spent? Will this stimulus package work as hoped? China.org.cn invited Ma Xiaohe, deputy director of the Academy of Macroeconomic Research under the National Development and Reform Commission, to answer these questions.
China.org.cn:
In early November, the State Council announced the 4 trillion yuan economic stimulus package. In normal circumstances the government would put forward its macroeconomic control policies at the Central Economic Conference held in December every year. Why did the government choose to announce the policy earlier?
Ma Xiaohe:
I think there are two reasons for this. Firstly, the Chinese economy is facing a very different situation this year. The current global financial crisis is having a bigger-than-expected impact on China and China was affected more in August and September than the first half of 2008. Therefore it would be too late if the government waited until the Central Economic Conference.
Secondly, the Chinese economy – in particular in the export industry, labor-intensive industries and capital-intensive industries – has seen a slowdown in growth. In this situation, the government needs to adjust its policy and it needs to do it early.
In an effort to cope better with global economic trend and maintain stable domestic economic growth, the government chose to shift its policy in November. And I think it was a necessary and timely move.
China.org.cn:
During the 1997 Asian financial crisis, the government also implemented a policy of stimulus. What's the difference between the 1997 plan and the current one?
Ma Xiaohe:
Back then, the government issued treasury bonds to raise funds for economic investment. In total, 3 trillion yuan was pumped into the Chinese economy. Most of the money was spent on infrastructure projects, including airports, roads and the power network. However, the ten major steps specified in the current 4 trillion yuan stimulus package are quite different. The first one is a welfare housing project, which includes rural housing reconstruction and building low-rent urban housing.
The second one is rural infrastructure construction. During the Asian financial crisis, rural infrastructure construction was not a key project – we focused more on larger projects such as highway construction. But this time, the government will step up efforts to promote the use of methane and to ensure drinking water safety for over 230 million rural residents. This part of the plan also includes more projects that are vital to people's livelihood – rural power grid construction, North-South water diversion projects, reinforcement of risky reservoirs, and water conservation projects.
The third step is the construction of railways, roads and airports. China built a number of these ten years ago, but this time we will try to improve the transport network. The government will invest in health and education projects such as improving the grassroots medical system and rural school construction. Back in 1997, we didn't have these kinds of projects. Environment projects were included on both occasions, but greater efforts will be made to address rural pollution, rubbish disposal and water pollution.
This time, the government will also provide policy support to enhance innovation and promote industrial structure upgrading.
Post-quake reconstruction is unique to the new stimulus policy. The government will invest 300 billion yuan in reconstruction projects. Also the current 4 trillion yuan plan contains some detailed measures to increase people's income in rural and urban areas, including raising minimum grain purchase and farm subsidies, increasing subsidies for low-income urban residents and so on.
The government has extended reforms in value-added tax regulations to all industries. Starting from January 1, 2009, the existing production-based VAT regime will be replaced by a consumption-based one, cutting the 2009 tax burden on companies by 120 billion yuan. The government has also enhanced financial support to spur the economy, including increasing lending to small- and medium-sized enterprises.
Compared with the 1997 economic rescue plan, I think the current plan focuses more on people's livelihoods and covers more areas – some projects can stimulate investment and others aim to increase people's income; some are funded by the government and others are supported by banks.
China.org.cn:
How long will it take for the plan to work?
Ma Xiaohe:
As I said, some of the projects can stimulate investment and some aim to increase people's income. These two types of project work differently. If you increase people's income, through minimum grain purchase, farm subsidies and subsidy for low-income residents for example, these policies will increase consumption and have a direct impact on the economy. Investment projects such as infrastructure construction will influence the economy in two ways. Firstly, these projects can boost the development of inter-related industries such as construction materials, iron and steel, and cement. Secondly, 40 percent of the initial investment will itself go into salaries and be consumed, so there will be a direct impact too. Over a period of time the rest of the investment will transform itself into fixed assets, which will then be added to GDP.
China.org.cn:
The current global financial crisis has delivered a serious blow to small- and medium-sized exporters. What are your suggestions to them? What should they do to adapt themselves to changes in the Chinese economy?
Ma Xiaohe:
It's hard to give suggestions that are sure to work. The government has raised tax rebates to help domestic companies experiencing difficulty in raising funds. In the 10 major steps, the government also encourages these companies to upgrade industrial structure by providing policy support to enhance innovation. But exporters do face a major challenge because the global financial crisis has caused a drop in global market demand. Exporters will have to make a huge effort if they want to survive these difficult times.
In my opinion, exporters can take advantage of the current financial crisis and turn it into an opportunity for innovation. For example, a company could look for new market sectors in which its products are unique. However, I don't think it's going to be easy for them because they themselves can do nothing about shrinking demand. So for the time being all they can do is to improve management and product quality and reduce cost. These can be effective ways to attract customers.
China.org.cn:
Could you make a forecast on China's economy in 2009?
Ma Xiaohe:
I think if these ten steps can be carried out, the impact of global economic recession on China will be significantly reduced. China's economic growth, which had dropped from last year's 11.9 percent to 9 percent by Q3 2008, will decrease at a slower pace. Also, China will come out of the phase of economic contraction quicker. Without the stimulus package, it might have taken four or five years for China to recover economic prosperity, but now three years may be enough. That is to say, the contraction period of the economic cycle will be shortened, the expansion stage of a new cycle will start earlier and the Chinese economy will land softly.
China.org.cn:
How will the government supervise the use of funds?
Ma Xiaohe:
The government has put forward relevant procedures to enable project overview. Inspection and supervision teams have been dispatched. I believe these steps will be well-implemented.
(China.org.cn by Yan Pei, December 8, 2008)
China - Motorists may end up paying less for fuel
China Information News
Motorists may end up paying less for fuel
10 December 2008
Car owners could pay less for gas after the government adjusts the retail fuel tax from January 1.
The retail gas price may drop rather than increase after the fuel price reform is implemented, said Xu Kunlin, deputy head of the pricing department of the National Development and Reform Commission (NDRC).
"We made it clear while devising the reform scheme that people would not have to pay more at the pump even if a higher retail fuel consumption tax was introduced," Xu said.
But he did not say from when exactly would fuel become cheaper and by how much.
Farmers who use gas to run tractors and water pumps are expected to be compensated with more subsidies.
Till Monday, a lot of car owners feared that they would have to pay more for gas after the reform, with many of them complaining that public opinion was being ignored in the reform scheme.
Last week, 1,773 car owners reportedly wrote a letter to the NDRC, the country's top planning body, urging it to lower fuel prices before levying a higher fuel tax.
The government issued a draft plan on Friday to raise the consumption tax on retail gasoline from 0.2 yuan to 1 yuan, and diesel from 0.1 yuan to 0.8 yuan from Jan 1. But it has decided to abolish six categories of highway tolls and waterways maintenance and administration fees, and is soliciting public opinion on the draft plan.
Fuel prices will be adjusted according to international oil prices after the fuel tax reform is implemented, Xu said.
Fuel prices in the country are based on $83.5 a barrel of crude. But crude price in the international market has fallen drastically in the past few months.
Though it was above US$43 a barrel yesterday, it slid to a four-year low of US$40 a barrel on the New York Mercantile Exchange on Friday, down nearly 73 percent from the record high of $147.27 on July 11.
The reform scheme will cut fuel costs and help stimulate the economy, analysts say.
"The government has hastened the pace of retail oil pricing reform because its top priority is to maintain economic growth and encourage people to buy more cars," said Zheng Jun, an auto industry analyst with China Securities Co.
"Since people will feel unhappy paying more for fuel in these difficult times the government has to lower the retail price by 35 to 40 percent to reflect the 70-percent fall in international crude prices from July."
The government also expects higher fuel tax to encourage people to buy energy-efficient cars, he said.
(China Daily December 10, 2008)
Motorists may end up paying less for fuel
10 December 2008
Car owners could pay less for gas after the government adjusts the retail fuel tax from January 1.
The retail gas price may drop rather than increase after the fuel price reform is implemented, said Xu Kunlin, deputy head of the pricing department of the National Development and Reform Commission (NDRC).
"We made it clear while devising the reform scheme that people would not have to pay more at the pump even if a higher retail fuel consumption tax was introduced," Xu said.
But he did not say from when exactly would fuel become cheaper and by how much.
Farmers who use gas to run tractors and water pumps are expected to be compensated with more subsidies.
Till Monday, a lot of car owners feared that they would have to pay more for gas after the reform, with many of them complaining that public opinion was being ignored in the reform scheme.
Last week, 1,773 car owners reportedly wrote a letter to the NDRC, the country's top planning body, urging it to lower fuel prices before levying a higher fuel tax.
The government issued a draft plan on Friday to raise the consumption tax on retail gasoline from 0.2 yuan to 1 yuan, and diesel from 0.1 yuan to 0.8 yuan from Jan 1. But it has decided to abolish six categories of highway tolls and waterways maintenance and administration fees, and is soliciting public opinion on the draft plan.
Fuel prices will be adjusted according to international oil prices after the fuel tax reform is implemented, Xu said.
Fuel prices in the country are based on $83.5 a barrel of crude. But crude price in the international market has fallen drastically in the past few months.
Though it was above US$43 a barrel yesterday, it slid to a four-year low of US$40 a barrel on the New York Mercantile Exchange on Friday, down nearly 73 percent from the record high of $147.27 on July 11.
The reform scheme will cut fuel costs and help stimulate the economy, analysts say.
"The government has hastened the pace of retail oil pricing reform because its top priority is to maintain economic growth and encourage people to buy more cars," said Zheng Jun, an auto industry analyst with China Securities Co.
"Since people will feel unhappy paying more for fuel in these difficult times the government has to lower the retail price by 35 to 40 percent to reflect the 70-percent fall in international crude prices from July."
The government also expects higher fuel tax to encourage people to buy energy-efficient cars, he said.
(China Daily December 10, 2008)
China allows banks to conduct acquisition loans
XinHua News
China allows banks to conduct acquisition loans
2008-12-09 23:35:00
BEIJING, Dec. 9 (Xinhua) -- Commercial banks in China gained the right to provide loans to domestic enterprises conducting acquisition both at home and abroad, the country's top banking regulator announced here on Tuesday.
"The move will enhance the banking sector's role in supporting economic growth by helping domestic companies raise capital," said the China Banking Regulatory Commission (CBRC) in an on-line article.
CBRC went on to say capital shortage had created a bottleneck for companies wishing to do acquisition.
These new loans will help business expansion amid the global financial crisis.
Commercial banks nationwide must meet certain criteria to initiate the business, including a capital adequacy ratio above 10percent and a loan loss provision taking up more than one percent of the total loan, among others.
An effective risk control capability and experts on acquisition assessment are also required, according to the CBRC.
The new regulation applies to both domestic urban and rural commercial banks and foreign banks in the country.
Editor: Sun
China allows banks to conduct acquisition loans
2008-12-09 23:35:00
BEIJING, Dec. 9 (Xinhua) -- Commercial banks in China gained the right to provide loans to domestic enterprises conducting acquisition both at home and abroad, the country's top banking regulator announced here on Tuesday.
"The move will enhance the banking sector's role in supporting economic growth by helping domestic companies raise capital," said the China Banking Regulatory Commission (CBRC) in an on-line article.
CBRC went on to say capital shortage had created a bottleneck for companies wishing to do acquisition.
These new loans will help business expansion amid the global financial crisis.
Commercial banks nationwide must meet certain criteria to initiate the business, including a capital adequacy ratio above 10percent and a loan loss provision taking up more than one percent of the total loan, among others.
An effective risk control capability and experts on acquisition assessment are also required, according to the CBRC.
The new regulation applies to both domestic urban and rural commercial banks and foreign banks in the country.
Editor: Sun
China's top economic planners explain economic stimulus measures
XinHua News
China's top economic planners explain economic stimulus measures
2008-12-09 18:20:59
The statement was made Tuesday by the National Development and Reform Commission (NDRC), the nation's top economic planning agency.
The government will also try to make sure the 4 trillion yuan (586 billion U.S. dollars) is being spent correctly over the next two years, the NDRC noted.
The agency said priority would be given to projects improving people's livelihood, including those in rural areas, housing projects for low-income earners in urban areas, and social undertakings.
Thanks to the stimulus package, 7.5 billion yuan was added in the fourth quarter to the 2-billion-yuan investment earmarked earlier this year by the central government for low-rent housing projects in urban areas.
Meanwhile, infrastructural construction, embracing railroads, highways and water conservancy projects, and biological conservation and environmental protection as well as post-disaster rebuilding, will also be put on top of the development agenda in the coming two years, according to NDRC.
To avoid repetitive construction, environmental devastation and redundant production capacities, strict management should be exercised.
That includes rigid implementation of industrial and environmental policies, market access criteria, along with policies related to land used for construction, environment assessment, energy conservation and emissions reduction.
To prevent jerry-built projects and corruption, supervision should be intensified, accountability should be enforced and transparent and effective operation of related funds should be ensured, according to the NDRC.
As for local investment supporting the central government's financial input, the economic planning agency said local projects should be in conformity with the principles of scientific and sustainable development and with the related policies worked out by the central government.
Four trillion yuan is equivalent to one third of the nation's total fixed asset investment last year.
Around 280 billion yuan will go to housing projects for low-income earners, about 370 billion yuan to rural infrastructure and projects to improve living standards of rural dwellers, some 40 billion yuan to healthcare, education and cultural undertakings, approximately 350 billion yuan to biological conservation and environmental protection, and 1 trillion yuan for post-disaster reconstruction projects.
Besides, 1.8 trillion yuan will be used for building railroads, highways, airports and other transportation infrastructures. Another 160 billion yuan will pay for technical innovation and industrial restructuring.
Editor: Deng Shasha
China's top economic planners explain economic stimulus measures
2008-12-09 18:20:59
- NDRC said priority would be given to projects improving people's livelihood.
- Infrastructural construction will also be put on top of the development agenda.
- The government will also try to make sure the 4 trillion yuan is being spent correctly.
The statement was made Tuesday by the National Development and Reform Commission (NDRC), the nation's top economic planning agency.
The government will also try to make sure the 4 trillion yuan (586 billion U.S. dollars) is being spent correctly over the next two years, the NDRC noted.
The agency said priority would be given to projects improving people's livelihood, including those in rural areas, housing projects for low-income earners in urban areas, and social undertakings.
Thanks to the stimulus package, 7.5 billion yuan was added in the fourth quarter to the 2-billion-yuan investment earmarked earlier this year by the central government for low-rent housing projects in urban areas.
Meanwhile, infrastructural construction, embracing railroads, highways and water conservancy projects, and biological conservation and environmental protection as well as post-disaster rebuilding, will also be put on top of the development agenda in the coming two years, according to NDRC.
To avoid repetitive construction, environmental devastation and redundant production capacities, strict management should be exercised.
That includes rigid implementation of industrial and environmental policies, market access criteria, along with policies related to land used for construction, environment assessment, energy conservation and emissions reduction.
To prevent jerry-built projects and corruption, supervision should be intensified, accountability should be enforced and transparent and effective operation of related funds should be ensured, according to the NDRC.
As for local investment supporting the central government's financial input, the economic planning agency said local projects should be in conformity with the principles of scientific and sustainable development and with the related policies worked out by the central government.
Four trillion yuan is equivalent to one third of the nation's total fixed asset investment last year.
Around 280 billion yuan will go to housing projects for low-income earners, about 370 billion yuan to rural infrastructure and projects to improve living standards of rural dwellers, some 40 billion yuan to healthcare, education and cultural undertakings, approximately 350 billion yuan to biological conservation and environmental protection, and 1 trillion yuan for post-disaster reconstruction projects.
Besides, 1.8 trillion yuan will be used for building railroads, highways, airports and other transportation infrastructures. Another 160 billion yuan will pay for technical innovation and industrial restructuring.
Editor: Deng Shasha
Who can be the ultimate housing buyers?
Market Watch
RWIN KELLNER
The missing link
Commentary: Home lender of last resort must become buyer of last resort
By Irwin Kellner, MarketWatch
Last update: 6:53 p.m. EST Dec. 8, 2008
PORT WASHINGTON, NY. (MarketWatch) -- In an effort to jump-start lending, the government has become the lender of last resort. Now to stabilize the economy, Washington must also become the buyer of last resort.
All over the country, the politicians, pundits and the press have finally figured out what readers of this column have known for nearly a year: Housing is dragging down the economy. See Jan. 29 column on why stimulus package wasn't the right solution
And it's more than simply the decline in homebuilding that's plaguing us, although this alone would be serious enough. Rather, it's the fact that the supply of homes on the market far exceeds the demand for them at current prices.
As a consequence, prices have been falling for a couple of years, bringing the median home price down by some 18% from its all-time high. In some markets like South Florida, prices are down as much as 50%.
Add falling prices to the mix and you can see why we are in a recession. A home is the typical household's biggest asset, so whenever it declines it affects people's wealth, thus their ability and willingness to spend.
Since many families had been relying on the increase in the value of their home as a substitute for saving, today's decline has an even more serious effect than in previous housing cycles.
However, the main problem emanating from the housing slump is the freeze in the financial markets. This, of course, is a by-product of the fact that so many mortgages were turned into securities whose values are now in question because of the decline in home prices.
It seems obvious, then, that the key to ending this recession and thawing out the frozen markets is to stabilize home prices. To do this, it is necessary to pump up the demand for homes, reduce their supply or both.
Boosting demand will be difficult. People are afraid of losing their jobs, the banks have tightened their lending standards and no one's willing to buy these days unless they are sure that prices have hit bottom.
Besides, prices are still too high, relative to household incomes. So while 30-year fixed mortgage rates have come down to a bit over 5.5% and the Treasury is planning to bring them down to as low as 4.52%, the lowest since the early 1960s, it won't be enough to get most buyers off the dime.
Thus supplies must be reduced to meet demand. To do this would mean that median prices would have to come down even further, around another 8% by my calculations.
In effectuating this, the government is not the problem, for a change, but the solution.
As I recommended in March, the government should create an agency (call it the Home Owners Loan Corporation), capitalize it with a few billion dollars, and have it offer to buy all houses for sale either by sellers or through foreclosures for a price not exceeding 2.9 times median household incomes in each market.
This is the ratio that prevailed during most of the 1980s, when the housing market was strong and healthy. Obviously, not every house will go for the median price; mansions will sell for more, shanties for less.
The HOLC probably won't have to actually buy many houses; just offering to buy will set a floor for prices. Those homes that it does purchase can be rented until the market improves, and then sold at what should be higher prices.
Once a floor is clearly established, buyers will buy, sellers will sell (knowing that this is the best deal they will get), bankers will lend --and, most important, value of mortgage-backed securities will materialize. This is the sine qua non for thawing out the financial markets.
Meanwhile, current mortgage holders can renegotiate a lower fixed rate and stretch out repayment of principal to help them keep their homes.
Some foreclosures will be inevitable -- but most of these people probably should not have gotten a mortgage in the first place.
Irwin Kellner is chief economist for MarketWatch, and is Distinguished Scholar of Economics at Dowling College in Oakdale, N.Y.
RWIN KELLNER
The missing link
Commentary: Home lender of last resort must become buyer of last resort
By Irwin Kellner, MarketWatch
Last update: 6:53 p.m. EST Dec. 8, 2008
PORT WASHINGTON, NY. (MarketWatch) -- In an effort to jump-start lending, the government has become the lender of last resort. Now to stabilize the economy, Washington must also become the buyer of last resort.
All over the country, the politicians, pundits and the press have finally figured out what readers of this column have known for nearly a year: Housing is dragging down the economy. See Jan. 29 column on why stimulus package wasn't the right solution
And it's more than simply the decline in homebuilding that's plaguing us, although this alone would be serious enough. Rather, it's the fact that the supply of homes on the market far exceeds the demand for them at current prices.
As a consequence, prices have been falling for a couple of years, bringing the median home price down by some 18% from its all-time high. In some markets like South Florida, prices are down as much as 50%.
Add falling prices to the mix and you can see why we are in a recession. A home is the typical household's biggest asset, so whenever it declines it affects people's wealth, thus their ability and willingness to spend.
Since many families had been relying on the increase in the value of their home as a substitute for saving, today's decline has an even more serious effect than in previous housing cycles.
However, the main problem emanating from the housing slump is the freeze in the financial markets. This, of course, is a by-product of the fact that so many mortgages were turned into securities whose values are now in question because of the decline in home prices.
It seems obvious, then, that the key to ending this recession and thawing out the frozen markets is to stabilize home prices. To do this, it is necessary to pump up the demand for homes, reduce their supply or both.
Boosting demand will be difficult. People are afraid of losing their jobs, the banks have tightened their lending standards and no one's willing to buy these days unless they are sure that prices have hit bottom.
Besides, prices are still too high, relative to household incomes. So while 30-year fixed mortgage rates have come down to a bit over 5.5% and the Treasury is planning to bring them down to as low as 4.52%, the lowest since the early 1960s, it won't be enough to get most buyers off the dime.
Thus supplies must be reduced to meet demand. To do this would mean that median prices would have to come down even further, around another 8% by my calculations.
In effectuating this, the government is not the problem, for a change, but the solution.
As I recommended in March, the government should create an agency (call it the Home Owners Loan Corporation), capitalize it with a few billion dollars, and have it offer to buy all houses for sale either by sellers or through foreclosures for a price not exceeding 2.9 times median household incomes in each market.
This is the ratio that prevailed during most of the 1980s, when the housing market was strong and healthy. Obviously, not every house will go for the median price; mansions will sell for more, shanties for less.
The HOLC probably won't have to actually buy many houses; just offering to buy will set a floor for prices. Those homes that it does purchase can be rented until the market improves, and then sold at what should be higher prices.
Once a floor is clearly established, buyers will buy, sellers will sell (knowing that this is the best deal they will get), bankers will lend --and, most important, value of mortgage-backed securities will materialize. This is the sine qua non for thawing out the financial markets.
Meanwhile, current mortgage holders can renegotiate a lower fixed rate and stretch out repayment of principal to help them keep their homes.
Some foreclosures will be inevitable -- but most of these people probably should not have gotten a mortgage in the first place.
Irwin Kellner is chief economist for MarketWatch, and is Distinguished Scholar of Economics at Dowling College in Oakdale, N.Y.
Bernanke suggests 'orderly bankruptcy reorganization' or 'company mergers' for US auto industries
Bloomberg
Bernanke Opposes Fed Loans for GM, Ford, Chrysler (Update3)
By Scott Lanman
Dec. 9 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke signaled opposition to extending central bank loans to automakers, saying that would fall outside its traditional duties and suggesting options including a bankruptcy reorganization.
“Congress is best suited” to determine the viability of the car companies, Bernanke said in a Dec. 5 letter to Senate Banking Committee Chairman Christopher Dodd, obtained by Bloomberg News today. It’s “unclear” whether the companies have strong enough collateral for the Fed to lend to them, he also said.
While the Fed chief didn’t rule out using emergency-lending authority to aid carmakers, he made clear that Congress should determine whether to assist a specific U.S. industry. The letter indicates he’s trying to draw a line on Fed rescues, after the central bank prevented the bankruptcies of Bear Stearns Cos. and American International Group Inc. this year.
Congress may wrap up a $15 billion aid package tonight or tomorrow, Senate Majority Leader Harry Reid said today. General Motors Corp. and Chrysler LLC say they need at least $14 billion in combined aid to keep from running out of cash by early next year. Bernanke said in his letter that the Fed is “not able to verify those assessments.”
Bernanke also underscored that the Fed is against extending credit to the industry in the absence of any plan endorsed by Congress.
‘Extremely Reluctant’
“The Federal Reserve would be extremely reluctant to extend credit where Congress has actively considered providing assistance but, after due consideration, has decided not to act,” he said in the letter, a copy of which the Senate banking panel forwarded to Bloomberg.
The comments represent Bernanke’s first public remarks on whether the Fed would lend to the beleaguered industry. Dodd, a Connecticut Democrat, asked Bernanke Dec. 3 for his position and the scope of the Fed’s authority to lend to automakers.
GM, Chrysler and Ford Motor Co. and have asked U.S. lawmakers for as much as $34 billion in aid. Congress is discussing a $15 billion rescue proposal where the Treasury would get warrants for stock equivalent to 20 percent of any government loans.
Reid, a Nevada Democrat, said on the Senate floor today that remaining disagreements could be resolved within a few hours. The Senate’s top Republican, Mitch McConnell, today called the plan “deeply flawed” because it fails to ensure taxpayers won’t be forced to provide additional aid in coming months and years.
Bankruptcy Option
Congress should also consider a “range of possible policy actions” besides direct aid, including a government-assisted “orderly bankruptcy reorganization” or company mergers, Bernanke said in the letter.
Senator Charles Schumer, a New York Democrat and member of the Senate Banking Committee, asked the Fed in a letter last month to begin lending to the automakers’ credit arms while Congress considered a rescue plan.
Bernanke said in the letter to Dodd that the central bank can only lend in emergency circumstances when the financing can “be secured to its satisfaction.” It’s “unclear” whether the three U.S. automakers could “meet this requirement.”
Industrial Policy
“Even if the companies have sufficient collateral, lending to an auto manufacturing company would represent a marked departure from that policy, and would take us into distinctly new realms of policymaking,” Bernanke said. “In particular, it would raise the question as to whether the Federal Reserve should be involved in industrial policy, which has traditionally been outside the range of our responsibilities.”
The “critical unknown” in the automakers’ plans is “their ability to develop and produce vehicles that the public wants to buy,” Bernanke said.
Dodd said in a statement that the Fed “plays a crucial role in maximizing jobs and economic growth for all Americans.”
“I believe that American manufacturing is just as important to our nation’s economy as a healthy financial sector,” Dodd said. “I look forward to continuing my oversight and work with the Fed to accomplish the goals that we both agree will secure American jobs and stabilize our economy.”
The Fed’s decisions over the past year to aid financial firms and short-term debt markets were aimed at financial stability and the broader economy, Bernanke said. While the automakers have been affected by the credit crunch, it’s “difficult to assess” the broader consequences of one or more of the carmakers becoming insolvent, he said.
The face value of the companies’ outstanding bonds totals more than $70 billion, or 1 percent of the market, and the bonds trade at 20 percent to 40 percent of par value, “suggesting that many of the losses that would be associated with a default have probably already been recognized,” Bernanke said.
At the same time, some banks or financial institutions may not have fully recognized declines in value of more than $30 billion of loans to the automakers, Bernanke said.
Last Updated: December 9, 2008 14:28 EST
Bernanke Opposes Fed Loans for GM, Ford, Chrysler (Update3)
By Scott Lanman
Dec. 9 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke signaled opposition to extending central bank loans to automakers, saying that would fall outside its traditional duties and suggesting options including a bankruptcy reorganization.
“Congress is best suited” to determine the viability of the car companies, Bernanke said in a Dec. 5 letter to Senate Banking Committee Chairman Christopher Dodd, obtained by Bloomberg News today. It’s “unclear” whether the companies have strong enough collateral for the Fed to lend to them, he also said.
While the Fed chief didn’t rule out using emergency-lending authority to aid carmakers, he made clear that Congress should determine whether to assist a specific U.S. industry. The letter indicates he’s trying to draw a line on Fed rescues, after the central bank prevented the bankruptcies of Bear Stearns Cos. and American International Group Inc. this year.
Congress may wrap up a $15 billion aid package tonight or tomorrow, Senate Majority Leader Harry Reid said today. General Motors Corp. and Chrysler LLC say they need at least $14 billion in combined aid to keep from running out of cash by early next year. Bernanke said in his letter that the Fed is “not able to verify those assessments.”
Bernanke also underscored that the Fed is against extending credit to the industry in the absence of any plan endorsed by Congress.
‘Extremely Reluctant’
“The Federal Reserve would be extremely reluctant to extend credit where Congress has actively considered providing assistance but, after due consideration, has decided not to act,” he said in the letter, a copy of which the Senate banking panel forwarded to Bloomberg.
The comments represent Bernanke’s first public remarks on whether the Fed would lend to the beleaguered industry. Dodd, a Connecticut Democrat, asked Bernanke Dec. 3 for his position and the scope of the Fed’s authority to lend to automakers.
GM, Chrysler and Ford Motor Co. and have asked U.S. lawmakers for as much as $34 billion in aid. Congress is discussing a $15 billion rescue proposal where the Treasury would get warrants for stock equivalent to 20 percent of any government loans.
Reid, a Nevada Democrat, said on the Senate floor today that remaining disagreements could be resolved within a few hours. The Senate’s top Republican, Mitch McConnell, today called the plan “deeply flawed” because it fails to ensure taxpayers won’t be forced to provide additional aid in coming months and years.
Bankruptcy Option
Congress should also consider a “range of possible policy actions” besides direct aid, including a government-assisted “orderly bankruptcy reorganization” or company mergers, Bernanke said in the letter.
Senator Charles Schumer, a New York Democrat and member of the Senate Banking Committee, asked the Fed in a letter last month to begin lending to the automakers’ credit arms while Congress considered a rescue plan.
Bernanke said in the letter to Dodd that the central bank can only lend in emergency circumstances when the financing can “be secured to its satisfaction.” It’s “unclear” whether the three U.S. automakers could “meet this requirement.”
Industrial Policy
“Even if the companies have sufficient collateral, lending to an auto manufacturing company would represent a marked departure from that policy, and would take us into distinctly new realms of policymaking,” Bernanke said. “In particular, it would raise the question as to whether the Federal Reserve should be involved in industrial policy, which has traditionally been outside the range of our responsibilities.”
The “critical unknown” in the automakers’ plans is “their ability to develop and produce vehicles that the public wants to buy,” Bernanke said.
Dodd said in a statement that the Fed “plays a crucial role in maximizing jobs and economic growth for all Americans.”
“I believe that American manufacturing is just as important to our nation’s economy as a healthy financial sector,” Dodd said. “I look forward to continuing my oversight and work with the Fed to accomplish the goals that we both agree will secure American jobs and stabilize our economy.”
The Fed’s decisions over the past year to aid financial firms and short-term debt markets were aimed at financial stability and the broader economy, Bernanke said. While the automakers have been affected by the credit crunch, it’s “difficult to assess” the broader consequences of one or more of the carmakers becoming insolvent, he said.
The face value of the companies’ outstanding bonds totals more than $70 billion, or 1 percent of the market, and the bonds trade at 20 percent to 40 percent of par value, “suggesting that many of the losses that would be associated with a default have probably already been recognized,” Bernanke said.
At the same time, some banks or financial institutions may not have fully recognized declines in value of more than $30 billion of loans to the automakers, Bernanke said.
Last Updated: December 9, 2008 14:28 EST
World Bank paints grim 2009
The Straits Times
Dec 10, 2008 |
World Bank paints grim 2009
WASHINGTON - THE World Bank on Tuesday painted a grim picture of the global economy in 2009, with growth weakening to a crawl and trade volume falling for the first time in 26 years.
In its 'Global Economic Prospects' report, the multilateral institution forecast the global economy would expand a mere 0.9 per cent next year and world trade volume would fall 2.1 per cent.
'The global economy is at a crossroads, transitioning from a sustained period of very strong developing country-led growth to one of substantial uncertainty as a financial crisis rooted in high-income countries has shaken financial markets worldwide,' Mr Justin Lin, the chief economist of the anti-poverty bank, said in the report.
Developing countries' economies would likely expand at an annual pace of 4.5 per cent while wealthier, developed economies are expected to contract 0.1 per cent, the multilateral development lender said.
'We know that, in developing countries, every 1.0 per cent reduction in the growth rate will mean around 20 million people lost the opportunity to get out of poverty,' Mr Lin said at a news conference at the bank's headquarters in Washington.
The latest report was far more pessimistic than the bank's prior 2009 forecasts of global growth of 3.0 per cent and 6.4 per cent for developing countries, issued in June.
They also were gloomier than those of its sister institution, the International Monetary Fund, which forecast the world economy would expand by 2.2 per cent and developing economies by 5.1 per cent in early November.
The World Bank projected that world trade volume would contract 2.1 per cent in 2009, the first decline since 1982.
The expected decline in trade volume 'is driven first and foremost by a sharp drop in demand, as the global financial crisis imposes a rare simultaneous recession in high-income countries and a sharp slowdown across the developing world,' the report said.
Still, the world economy in 2009 would escape recession, a contraction in activity unseen since 1945.
But the weak 0.9 per cent economic growth rate would be less than the rate of population growth, which the United Nations has estimated at an average of 1.1 per cent in the 2005-2010 period.
'That is probably the longest recession since the Second World War, and the very sharp slowdown in developing countries between 2007 and 2009 is also the sharpest since WWII,' Mr Hans Timmer, lead economist on global trends, said at a news conference.
The 185-nation World Bank cautioned that it had made its projections in an 'extremely uncertain environment for market participants and forecasters alike.' The economic outlook could weaken considerably and recession could become worldwide, the Washington-based institution said in a particularly grim warning.
'In such an environment, policy makers in both developing and high-income countries must be prepared to weather a worst-case scenario of even lower growth,' the bank said.
That scenario includes 'the possibility of a decline in world GDP (gross domestic product) for the first time in the postwar period, as well as a financial meltdown that could lead to a sudden stop of credit flows to all but the most creditworthy borrowers.'
Commodities prices would likely plunge 23 per cent in 2009, ending a historic five-year boom.
For 2010, the World Bank ventured that the global economy would rebound to growth of 3.0 per cent and a 6.0 per cent rise in trade volume.
Despite the financial and economic turmoil, the development lender appeared optimistic about the international effort to reduce global poverty over the period 2010-2015.
'Per capita GDP in developing countries ... is expected to expand at a relatively rapid annual pace of 4.6 per cent, much faster than the 2.1 per cent pace of the 1990s and the 0.6 per cent average of the 1980s, replicating the average performance of this decade,' the bank said.
'Rapid growth should enable developing countries, as a group, to achieve the Millennium Development Goal of halving poverty by 2015,' it said.
The UN-led Millennium Development Goals, adopted in 2000 by the international community, aim to reduce the number of people living in extreme poverty - less than US$1.25 (S$1.88) a day - to 15.5 per cent of the global population. -- AFP
Dec 10, 2008 |
World Bank paints grim 2009
WASHINGTON - THE World Bank on Tuesday painted a grim picture of the global economy in 2009, with growth weakening to a crawl and trade volume falling for the first time in 26 years.
In its 'Global Economic Prospects' report, the multilateral institution forecast the global economy would expand a mere 0.9 per cent next year and world trade volume would fall 2.1 per cent.
'The global economy is at a crossroads, transitioning from a sustained period of very strong developing country-led growth to one of substantial uncertainty as a financial crisis rooted in high-income countries has shaken financial markets worldwide,' Mr Justin Lin, the chief economist of the anti-poverty bank, said in the report.
Developing countries' economies would likely expand at an annual pace of 4.5 per cent while wealthier, developed economies are expected to contract 0.1 per cent, the multilateral development lender said.
'We know that, in developing countries, every 1.0 per cent reduction in the growth rate will mean around 20 million people lost the opportunity to get out of poverty,' Mr Lin said at a news conference at the bank's headquarters in Washington.
The latest report was far more pessimistic than the bank's prior 2009 forecasts of global growth of 3.0 per cent and 6.4 per cent for developing countries, issued in June.
They also were gloomier than those of its sister institution, the International Monetary Fund, which forecast the world economy would expand by 2.2 per cent and developing economies by 5.1 per cent in early November.
The World Bank projected that world trade volume would contract 2.1 per cent in 2009, the first decline since 1982.
The expected decline in trade volume 'is driven first and foremost by a sharp drop in demand, as the global financial crisis imposes a rare simultaneous recession in high-income countries and a sharp slowdown across the developing world,' the report said.
Still, the world economy in 2009 would escape recession, a contraction in activity unseen since 1945.
But the weak 0.9 per cent economic growth rate would be less than the rate of population growth, which the United Nations has estimated at an average of 1.1 per cent in the 2005-2010 period.
'That is probably the longest recession since the Second World War, and the very sharp slowdown in developing countries between 2007 and 2009 is also the sharpest since WWII,' Mr Hans Timmer, lead economist on global trends, said at a news conference.
The 185-nation World Bank cautioned that it had made its projections in an 'extremely uncertain environment for market participants and forecasters alike.' The economic outlook could weaken considerably and recession could become worldwide, the Washington-based institution said in a particularly grim warning.
'In such an environment, policy makers in both developing and high-income countries must be prepared to weather a worst-case scenario of even lower growth,' the bank said.
That scenario includes 'the possibility of a decline in world GDP (gross domestic product) for the first time in the postwar period, as well as a financial meltdown that could lead to a sudden stop of credit flows to all but the most creditworthy borrowers.'
Commodities prices would likely plunge 23 per cent in 2009, ending a historic five-year boom.
For 2010, the World Bank ventured that the global economy would rebound to growth of 3.0 per cent and a 6.0 per cent rise in trade volume.
Despite the financial and economic turmoil, the development lender appeared optimistic about the international effort to reduce global poverty over the period 2010-2015.
'Per capita GDP in developing countries ... is expected to expand at a relatively rapid annual pace of 4.6 per cent, much faster than the 2.1 per cent pace of the 1990s and the 0.6 per cent average of the 1980s, replicating the average performance of this decade,' the bank said.
'Rapid growth should enable developing countries, as a group, to achieve the Millennium Development Goal of halving poverty by 2015,' it said.
The UN-led Millennium Development Goals, adopted in 2000 by the international community, aim to reduce the number of people living in extreme poverty - less than US$1.25 (S$1.88) a day - to 15.5 per cent of the global population. -- AFP
Subscribe to:
Posts (Atom)
