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News from China
Check on steel and coal capacity cut
17th October 2016

 CHINA will conduct checks on its coal and steel overcapacity reduction efforts, which had apparently gained momentum by September, Shanghai Securities News reported Saturday.

Details on the axed capacity are being examined and will be released soon, said Zhao Chenxin, spokesperson of the National Development and Reform Commission, according to the report.

The ministerial meeting will regulate the review and train related authorities to conduct random checks on progress, he said.

In the first half of 2016, China cut its steel capacity by 13 million tons, about 30 percent of the planned cuts for the whole year. By the end of July, a total of 47 percent was completed.

But China had only met 38 percent of its coal cutting targets by the end of July, official data showed.

The efforts have since picked up speed notably in August and September largely due to pressure from the central government, which closely tracked local implementation with inspection groups and targeted operations on outdated production capacity, Zhao stated.

“Meanwhile, local authorities are encouraged to cut much and early as the subsidies are higher this year,” he said.

Source: Shanghai Daily, October 17, 2016
New PPP projects
14th October 2016

 THE Ministry of Finance yesterday published new public-private partnership demonstration projects valued at 1.17 trillion yuan (US$174 billion).

This is the third batch of such projects following two others worth 658.9 billion yuan in 2015 and 180 billion yuan in 2014, as the country tries to stimulate social capital to battle the economic downturn.

The 516 newly announced projects cover energy, transport, water conservation, agriculture and education, the ministry said.

PPPs are collaborative projects between government and private companies.

Source: Shanghai Daily, October 14, 2016
Experts: policies work to quell speculation
13th October 2016

 CHINA’S latest measures to regulate its housing market should rein in speculative house purchases, contain bubble risks and stabilize the market.

A total of 21 Chinese cities have made recent changes to market rules, including higher down payments and restricting purchases.

China’s housing market started to recover in the second half of 2015 after cooling for more than a year, boosted by interest rate cuts and lower deposits.

According to the National Bureau of Statistics (NBS), prices rose in over 90 percent of bigger cities surveyed in August, up from 73 percent in July and 79 percent in June.

Prices in 100 major Chinese cities rose 14.9 percent in the first nine months of 2016, with August and September seeing record month-on-month growth of more than 2 percent, according to the China Index Academy (CIA), a private property research institute.

In Nanjing the price of new homes increased by 4.1 percent from July to August, and August prices were up 38.8 percent from last year’s.

The price acceleration came as excess money supply led to strong investment with buyers looking to profit from further price increases in future, said Zhang Dawei, an analyst with Centaline Property.

The regulations should reduce the expectations of property speculators while protecting ordinary homebuyers’ interests through more land for building, said Liao Junping, a professor of the real estate department of Sun Yat-sen University.

Liao partly blames a lack of new building plots for the rises, with prices of building land in many cities now higher than those of nearby existing homes, implying that home prices in these areas are set to increase. To counteract this shortage, Shenzhen, for example, plans to increase land available for building by 800 hectares by 2020.

In some cases, developers must agree to build some low-cost houses for rent or sale to participate in auctions. Guangzhou, capital of south China’s Guangdong Province,will increase land supply but only grant land to those developers who agree to build more low-cost homes.

Increased down payments will help lower credit risks for banks and channel liquidity to the real economy, said Liao.

Central bank data showed banks in August lent 295 billion yuan (US$45 billion) for mortgages.

China, without doubt, has housing bubbles, said Zhou Jingtong, a senior researcher with the international finance institute of the Bank of China (BOC), who suggests the government be on high alert for overdependence on the property market, which runs the risk of asset bubbles.

The banking sector should balance credit flow and lend more to businesses serving the real economy in line with supply-side structural reform, suggested Zong Liang, a senior researcher with the BOC.

In addition, with the housing market recovery uneven from city to city, local authorities should tackle their specific local issues in stabilizing the market, said Liao Junping.

In bigger cities, credit should be tightened, but for others — smaller cities with high inventories — the major task should be destocking, said Liao.

Source: Shanghai Daily, October 13, 2016
Yuan to stay stable versus other currencies
12th October 2016

 THE central parity rate of the yuan continued to weaken yesterday after hitting a six-year low against the US dollar on Monday. Analysts say this indicates the yuan’s exchange rate has entered a new float range and the yuan will stay basically stable against other currencies.

The central parity rate of the yuan, weakened 90 basis points to 6.7098 against the US dollar yesterday, according to the China Foreign Exchange Trading System.

A senior foreign exchange trade executive from a large domestic commercial bank said this indicated that the yuan’s exchange rate would fluctuate between 6.80 and 6.70 in the future and its recent inclusion in the IMF Special Drawing Rights basket will help the currency stay basically stable against other currencies.

Lu Zhengwei, chief economist with the Industrial Bank, said the high volatility of major currencies such as the pound against the US dollar since the beginning of October led to a stronger dollar index while the yuan’s exchange rate was flat during the National Day holiday.

At present, market makers follow the central parity rate price mechanism, which includes the reference to a basket of currencies, reference closing prices and the filtration mechanism under severe fluctuation.

Following the yuan’s drastic depreciation on Monday, the central bank did not trigger the filtration mechanism as in the past, which is a new signal of more market-oriented policies with a greater tolerance of yuan volatility, said Xie Yaxuan, an analyst with China Merchant Securities.

Sun Lijian, a senior finance researcher with Fudan University, said the yuan is under increasing depreciation pressure since the United States posted better-than-expected manufacturing PMI, consumer confidence index and employment data. Taking into account the November US presidential election, he expected a rise in the US interest rate in the middle of December.

But analysts say the yuan’s exchange rate also follows changes in the supply and demand of the foreign exchange market. As the supply and demand has become basically stable, the yuan’s exchange rate is winning support.

Xie said that from “recent economic data ... the exchange rate is expected to be stable, so the recent depreciation will have a limited influence on the financial market and the behavior of main economic sectors.”

Source: Shanghai Daily, October 12, 2016

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