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China's Market News: PBOC Governor Said Developed Markets Help to Offset High Debt

China's Market News: PBOC Governor Said Developed Markets Help to Offset High Debt

2016-03-21 16:23:00
Renee Mu, Currency Analyst
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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.

- China’s Central Bank Governor said roughly one-third of the country’s foreign reserves were short-term funds.

- The Governor also said further development in capital markets will help to counter high debt ratios.

- The Central Bank requires banks to increase retained earnings in the effort of maintaining sufficient core capital.

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PBOC New: China’s Central Bank

- China’s Central Bank Governor Zhou Xiaochuan commented on China’s foreign reserves: He said approximately one-third of China’s foreign reserves accumulated over earlier periods were short-term funds including, speculative funds. It is no surprise that those funds are flowing out of China when speculators think it’s appropriate.

Mr. Zhou also explained the relationship between China’s high saving and high debt ratios: China’s overall saving rate was over 46% of GDP in 2015 and the household saving rate was over 35%; both higher than the averages of 20% to 30% in other countries. High savings makes financing through banks more viable to Chinese companies. China’s equity market, on the other hand, is young. Financing through equity markets is still developing. Therefore, promoting the development in capital markets will help to increase corporate financing through equities and reduce financing through debt and, in-turn, reduce the debt-to-GDP ratio.

Later, the PBOC clarified that Governor Zhou did not mean to suggest households should invest their savings in the equity market.

Chinese media didn’t mention that PBOC warns of elevated debt which was reported by the English media.

- Five state agencies including China’s Central Bank issued a joint announcement to support pension development in China. Detailed measures include encouraging banks to lend and provide favorable terms to pension-related service institutions in the effort of supporting their business, promoting innovation in insurance products as well as promoting Public-Private-Partnership projects. The aging population has become an increasingly important issue in China and thus needs preparation in advance.

Hexun News: Chinese leading online media of financial news

- Hexun news quoted two sources saying that China’s banking regulator has warned banks against major risks and has required them to increase retained earnings in the effort of maintaining sufficient core capital. According to the news agency, China’s total bad debt is over 4 trillion yuan; the bad debt increased in last year was at least 500 billion yuan.

- China’s five major securities companies have changed the investment advice on Chinese equities to long as of March 21. The five companies are Haitong Securities, Guojun Securities, Huatai Securities, Yinhe Securities and Guangfa Securities.

To get more in-depth behind moves in Chinese stocks yesterday, read Australian Dollar Gains as China Relaxes Margin Lending Curbs.

China Stock News: Chinese leading online media of financial news

- China is planning to officially set up the Internet Financial Association on March 25, which is designated to regulate emerging industries. The establishment of the Association was approved by the State Council and led by China’s Central Bank. For China, e-finance is a coin with two sides: On one hand, it is an emerging industry which may bring new momentum to the slowing economy. On the other hand, the industry has been developing so quickly that regulation has fallen behind. For example, retail investors’ borrowing from unauthorized online platforms contributed a significant part to the equity crash last August.

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.

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