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Tuesday November 7, 2017

CHINA’S shadow banking activ-ity stopped growing in the fi rst half of 2017 and declined rela-tive to gross domestic product (GDP) for the fi rst time in fi ve years, Moody’s Investors Service said yesterday.

China’s shadow banking assets were equivalent to 82.6 percent of gross domestic product in the January-June period, declining from a peak of 86.5 percent in 2016, according to the Moody’s report.

Moody’s said it was the fi rst time since 2012 that China’s nominal GDP grew faster than its shadow banking assets.

A fall in issuance of higher risk instruments such as wealth management products and non-bank fi nancial institu-tions’ asset management plans contributed to the shadow banking slowdown, according to Moody’s, indicating China’s recent regulatory measures are proving to be effective.

China is expected to continue to rein in shadow banking and address some of the key systemic imbalances, Moody’s said.

Michael Taylor, Moody’s chief credit offi cer for the Asia-Pacifi c region, warned that “core shadow banking activity,” including

entrusted loans, trust loans, and undiscounted bankers’ accep-tances, continued to expand.

“The ability of the formal system to replace shadow credit faces limits, and bank credit may not prove a perfect substitute for shadow credit,” Moody’s said.

Government, household and corporate debt accounts for up to about 260 percent of the economy, according to Bloom-berg Intelligence.

China has vowed to crack down on illicit banking activities, tight-ening control of trust companies, insurers and increasing checks on banks’ off-balance sheet wealth

management products — a key component of shadow banking credit, and risk lending, among other things.

It also plans to introduce 20 sets of new regulations to increase supervision on shadow banking, a senior banking regula-tor offi cial said in August.

China’s fi nancial system is becoming signifi cantly more vulnerable due to high leverage, according to central bank gover-nor Zhou Xiaochuan, who has made a series of direct warnings in recent weeks about China’s debt levels.

Latent risks are accumulating,

including some that are “hidden, complex, sudden, contagious and hazardous,” even as the overall health of the fi nancial system remains good, Zhou wrote in an article published on the People’s Bank of China’s website late Saturday.

The nation should toughen regulation and let markets serve the real economy better, accord-ing to Zhou. The government should also open up markets by relaxing capital controls and reducing restrictions on non-Chinese fi nancial institutions that want to operate on the mainland, he wrote. (SD-Agencies)

Shadow banking ‘falls in proportion to GDP’

LOTTE Corp. said yesterday that their major property development project in China had received approval from local authorities to start a second phase of construction.

A Lotte spokesman said the approval to build commercial complexes at its 66,000-square-meter Chengdu land project, worth some 1 tril-lion won (US$89.9 billion), came Oct. 31 — the same day that South Korea and China announced they had agreed to mend ties.

“Investors are hoping that

from 2017 earnings will improve drastically as rela-tions between South Korea and China get better and Chengdu is one piece of news that is adding to that,” said Joo Young-hun, analyst at Eugene Investment and Securities.

But construction at Lotte’s Shenyang project, which covers 1.45 million square meters, remains suspended, said the spokesman for Lotte Corp., the conglomerate’s holding company.

Construction has been halted

since a December inspection for fi re hazards. Lotte plans to build apartments and a theme park at the Shenyang project, in addition to a department store and a movie theater that are already open.

Lotte’s retail outlets have been stunted by the tension with most of its hypermarkets and supermarkets in China shut down. The group said last month that it aimed to sell its Lotte Mart stores in China by the end of this year for only a fraction of what it invested.

(SD-Agencies)

Lotte wins nod for Chengdu property project

A man walks past a logo of Lotte Mart in Beijing in this fi le photo. Lotte said yesterday that their major prop-erty develop-ment project in China had received approval from local authori-ties to start a second phase of construc-tion. SD-Agencies

CNPC to cut gas supplies to industrial usersCHINA National Petroleum Corp. (CNPC) plans to reduce natural gas supplies to industrial users as it expects supply short-ages this winter after millions of residential households were switched to gas for heating under a government program to reduce pollution.

CNPC, one of China’s top three gas producers, said it will cut supplies to industrial clients by a range of 3 percent to 10 percent, the China Youth Daily reported yesterday, quoting several unidentifi ed sources.

The company expects a 12-percent jump in gas consump-tion from a year ago because of the residential switch.

CNPC will boost purchases of spot liquefi ed natural gas (LNG) cargoes and further lift the capac-ity of LNG receiving terminals, the newspaper reported. The company will also try to increase imports from Central Asian countries such as Kazakhstan.

The oil and gas producer said it can only provide about 76.5 billion cubic meters (bcm) of gas, even if it runs its gas fi elds and LNG terminals at full capacity and fully stocks its underground storage units, which is lower than the current demand of 81.3 bcm.

CNPC is the fi rst natural gas producer to reduce supplies as China could be dealing with a supply shortage after the government has pushed more residents to use gas heating rather than coal heating. Under the new rules, residential users will have priority over industrial users in case there are supply curtailments.

China’s government moved the residential user onto gas to combat smog that typically develops from coal emissions in the winter as more coal is consumed to heat homes and run power plants.

The company has a working volume of 7.4 bcm at its natural gas storage sites, accounting for 5 percent of its annual sales plan, the newspaper reported.

(SD-Agencies)

THE government will exempt banks’ interest income from loans to small fi rms and rural households from value added tax, authorities said yesterday, in the latest step to address a long-standing issue of lack of fi nancing to small fi rms.

The policy will be in effect from Dec. 1, 2017 to the end of 2019, the Ministry of Finance and the State Administration of Taxation said, while contracts for loans with small fi rms will also be free of stamp taxes from 2018 to 2020.

The supportive policies will apply to loans of 1 million yuan (US$150,750) or less.

China has been looking for ways to encourage more fi nan-cial support to the country’s mil-lions of small fi rms for years.

The central bank in September cut the amount of cash that must be held as reserves for banks that meet certain requirements for lending to small businesses and the agricultural sector.

By the end of June, outstand-ing loans from fi nancial institu-tions to small and micro-sized businesses reached 22.6 trillion yuan, nearly double the amount at the end of 2012, accounting for 32 percent of total loans to all businesses. (SD-Agencies)

Small fi rms get fi nancial support

TOYOTA Motor Corp., Japan’s biggest automaker by sales, has fallen to the No. 3 spot among Japanese automakers in China, due to lack of presence in a key segment — a situation experts say will likely prevail well past the middle of 2018.

Through October, Honda Motor Co. and Nissan Motor Co. both outsold Toyota in China, the world’s biggest car market.

Toyota’s sales in the fi rst 10 months of this year totaled 1.07 million vehicles, compared with 1.16 million vehicles Honda sold during the same period. Nissan’s volume through Octo-ber amounted to 1.17 million vehicles.

Market experts believe the

main cause for Toyota’s rela-tive weakness lies in the lack of smallish crossover sport utility vehicles (SUVs) that others, most notably Honda in recent months, have leveraged to accelerate growth.

Honda’s sales have started to grow relatively rapidly and more consistently since 2015, after two key subcompact crossover SUVs hit the market in late 2014.

Though sales growth from these two models — the XR-V and the Vezel — have deceler-ated more recently, the gap was fi lled by the redesigned Civic car, among other models. The Civic hit the Chinese market in April last year.

However, Yale Zhang, head

of Shanghai-based consultancy Automotive Foresight, isn’t all that pessimistic about Toyota’s sales outlook.

“Toyota’s compact sedans, especially (gasoline-electric) hybrid versions of the Corolla and the Levin, are doing well,” Zhang said. “That would give Toyota moderate growth in 2017 and next year, but the issue is the lack of presence” in one of the hottest segment in the Chinese auto market, he said.

If Toyota had subcompact crossover SUVs like Honda’s Vezel and XR-V, “the company could generate an extra volume of 150,000 units a year at the least, which would be a worth-while volume for Toyota since they don’t offer any product

in this segment today,” Zhang said.

Toyota marketing and adver-tising offi cials said that gap in the company’s product offer-ings will not be addressed by the middle of 2018.

China-market versions of the subcompact Toyota CH-R crossover SUV will likely hit showrooms in China in a June-July time frame, they said. The CH-R hit showrooms in the United States in April this year.

Toyota had no immediate and particular response to sales rankings within China. “We would like to continue to grow steadily in the Chinese market,” a Beijing-based spokesman said. (SD-Agencies)

Toyota’s China sales outlook pale due to lack of SUV models