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China Unleashed Multiple Yearly Plans for 2016

China Unleashed Multiple Yearly Plans for 2016

Renee Mu, Currency Analyst

This daily digest focuses on market sentiment, new developments in China’s foreign exchange policy, changes in financial market regulations and Chinese-language economic coverage in order to keep DailyFX readers up-to-date on news typically covered only in Chinese-language sources.

- Eight Chinese ministries published a joint announcement to support reforms in manufacturing industries.

- Chinese commercial banks are facing challenges to maintain sufficient capital against potential risks.

- Hong Kong property prices dropped by 9.5% over the past six months.

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PBOC News: China’s central bank.

- Eight Chinese ministries including the Central Bank published a joint announcement to support reforms in manufacturing industries by using multiple tools. Details include: Regulators will encourage mergers and acquisitions among manufacturing firms to help promote improved productive efficiencies. Differentiated credit policies will be applied to firms according to their performance and growth potential. For the non-performing firms and firms with high debt ratios, bank will tighten or cut the credit issuance. Also, regulators will encourage manufacturing firms to issue bonds, stocks or other financial products in the overseas markets. The joint announcement shows that China is taking serious steps to work towards the target of reducing excess production in manufacturing in 2016.

Sina News: China’s most important online media source, similar to CNN in the US. They also own a Chinese version of Twitter, called Weibo, with around 200 million active usersmonthly.

- China’s National and Reform Commission published two articles on February 15 regarding top development strategies in 2016. The country will A) continue to promote the One-Belt-One-Road initiative in the Central and Eastern Asia, and B) launch a new program to build up an economic belt for cities along the Yangtze River. China normally publishes yearly plans after the Lunar New Year, and we may see additional new policies from the state departments in the coming days.

- Overall tone on the stock market from Sina News: Mixed.

Hexun News: Chinese leading online media of financial news

- Hong Kong real estate prices have dropped significantly. The closing price of a recent land sale plunged 70% compared to a similar deal six months ago. Because of increases in the housing supplies along with higher interest rates, as well as the economic slowdown in mainland, Hong Kong’s property prices have dropped by 9.5% since last September. In addition, over the past three months, two land auctions failed to reach any deal as the bid prices fell below the reserve prices. Local research institutions expect that in 2016 the property market will contract further, with a drop between 10% and 15%.

- Overall tone on the stock market from Hexun News: Positive.

China Stock News: Chinese leading online media of financial news

- Chinese banks are facing increasing challenges to hold sufficient capital in order to deal with potential risks. The average capital adequacy ratio of Chinese banks is roughly 13%. This is lower than the ratio of 15% in US and Japan. The capital adequacy ratio measures banks’ ability to deal with potential risks - the higher, the better. According to Bank of China’s recent report, many banks may not be able to reach the required capital adequacy ratio set by China Banking Regulatory Commission by the end of 2018. In order to narrow the gap, Chinese commercial banks are eagerly issuing preferred stock to increase their Tier 1 capital while also issuing bonds to increase Tier 2 capital.

- Coal prices in China have fallen to lows last seen in 2004. The total profit of 90 major coal firms in 2015 has shrunk by 50 billion yuan; this is a drop of 90.7% from a year ago. Reducing excess production has become the No. 1 target for the coal industry. The average annual increase in domestic coal production was 257 million tons from 2010 to 2015. Despite of the high levels of domestic production, China has a surplus of 199 million tons in coal imports for 2015, as imported coal have lower prices. As a result, the total coal inventory has remained above 300 million tons for the past 48 months. Coal companies face high fixing costs no matter whether they produce or not. Thus, a lot of these producers choose to continue on productions, which in the short-term can cover some of their costs but in the long-run impacts the entire coal market due to over-supply.

- Overall tone on the stock market from China Stock News: Mixed.

Written by Renee Mu, DailyFX Research Team

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.