In a week that rocked investors around the world, news out of China was sparse as all eyes focused on the euro
-region and the Greek debt crisis. However, over the weekend China announced that it returned to a trade surplus in April, though it narrowed 87% from a year earlier, indicating the deficit in March may be a one-off occurrence related to lags between imports of raw materials and exports of factory goods. April’s trade surplus totaled $1.68 billion, compared to $7.2 billion deficit in March, according to figures released by the state run Xinhua news agency. Exports for the month were up 31% from a year earlier to $119.2 billion, while imports were up 50% at $118.24 billion. Economists polled by Dow Jones
Newswires had expected a 29.1% rise in exports and a 52.3% rise in imports. For the January-to-April period, the trade surplus totaled $16.1 billion, a drop of 79% from a year earlier.
Economists are not wholly convinced the March trade deficit was a one-off, citing the fact that China is something of an anomaly in Asia, in that its dependency upon Europe as an export market has increased in recent years while other regional economies were paring back shipments to the EU as an overall percentage of global trade. Of China’s global exports, the EU accounts for 21% stake today, up from 16.5% in 1999. Therefore, China is heavily exposed to any further slowdowns in the European economy amid a spreading debt crisis.
In other data released, Chinese banks accelerated their lending in April, extending 700 billion yuan ($102 billion) of new loans, compared to 510.7 billion yuan of new lending in March. The lending beat expectations, with analysts’ forecasts centering around the 500 billion yuan mark. The Xinhua news agency said the total was in line with guidance by state regulators for banks to smooth out their lending activities. The report also mentioned that 2.25 trillion yuan in new lending has been anticipated for the second quarter of 2010.
Staying with the banking sector, first quarter reports by five second rung Chinese banks – after the five biggest state owned banks- revealed that behind the rapid growth in net profits, capital adequacy ratios have fallen and some banks have dipped below the regulatory capital requirement. China Merchants Bank, the country’s sixth-largest lender reaped 5.91 billion yuan ($866 million) in net profit, ranking first among the five. They were also the only bank with relatively abundant capital which saw its capital adequacy ratio rise from 1.08% to 11.53% in the past three months, after raising 22 billion yuan to consolidate its capital base in a rights issue. China Citic Bank, Industrial Bank and Bank of Ningbo all slipped close to or below the 10% minimum capital requirement for banks while posting firm end of quarter profits. Shenzhen Development Bank fared the worst of the five, as its capital adequacy ratio fell to 8.66% at the end of the quarter, down from 8.88% at the end of 2009.
Continuing with concerns in the banking sector, a report released last week showed a total of 21.5 billion yuan in loans for rural development were diverted for other purposes, including property development, according to the National Audit Office. The Agricultural Bank of China’s was the only bank singled out so far, the report said 2 trillion yuan of loans went to development which was not in line with regulations. About another 4.8 billion yuan of loans also breached regulations and nine branches of ABC were involved in credit irregularities. For example, a 220 million yuan loan was issued to a steel maker which was on the shut-down list during the government’s industrial upgrade campaign. The National Audit Office said further reports will follow and fines will be imposed where necessary.
Elsewhere, Macau’s gross gambling revenue hit a record in April, jumping 70% from a year earlier to more than to more than 14.1 billion yuan. SJM Holdings continued to lead the market share with slightly more than 33%, followed by Las Vegas Sands Corp unit Sands China with just over 21% and Wynn Macau with around 14%. The April record just edged out the one hit in January when gross gambling revenue in the Chinese territory totaled 13.9 billion yuan.
Written by Joel Kruger, Technical Currency Strategist for DailyFX.com
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