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News from China
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
Energy efficiency improves despite low oil prices
11th October 2016

 ENERGY efficiency accelerated last year despite low oil prices, according to a report from the International Energy Agency published yesterday, driven in large part by gains in China.

The 1.8 percent efficiency gain last year came as crude oil prices had dropped as far as 60 percent from 2014 highs, yet still beat the 1.5 percent increase in 2014, and was triple the average annual gain in the previous decade.

Low oil prices typically reduce investment in energy efficiency as the returns are smaller, but the IEA found government regulations concerning vehicles and buildings were driving gains.

While good news for climate change efforts, the efficiency gains come at a delicate juncture for the oil market, with global demand growth slowing and supply rising.

Efficiency helped keep energy demand flat last year in the 29 industrialized nations that are members of the IEA, while it rose by just 0.9 percent in China — the slowest rate in nearly two decades despite a 6.9 percent growth.

China led the efficiency pack, gaining 5.6 percent. Given that it is the world’s second-largest economy, it contributed 0.4 percent to the 1.8 percent global gain.

“China’s progress on energy efficiency is now at a scale where it is making a significant mark on global energy markets,” said the IEA.

The gains from efficiency are as large as China’s rapidly expanding renewable energy sector, and provided the added benefit of cutting air pollution.

While the acceleration in global energy efficiency gains was positive, the IEA noted they would need to shift up from a trajectory of 1.8 to 2.6 percent annual gains to achieve global climate change goals.

However, there is much room for further improvement. The IEA said that efficiency standards still only cover 30 percent of global energy use.

Source: Shanghai Daily, October, 2016
China’s forex reserves fall to 5-year low
10th October 2016

 CHINA’S foreign exchange reserves dropped around US$19 billion in September to a five-year low, government data showed, with the central bank spending heavily to defend the yuan against capital outflows.

The world’s largest currency hoard fell to under US$3.17 trillion, the People’s Bank of China said on its website on Friday, below median analyst forecasts of US$3.18 trillion in a Bloomberg News survey.

It was the third straight month of decline and brought China’s reserves to their lowest level since April 2011, Bloomberg said.

Analysts said the decline indicated China was selling foreign exchange to buy its yuan amid capital flight spurred by slowing growth in the world’s second largest economy.

The data came days after the yuan’s official entry into the International Monetary Fund’s elite SDR (Special Drawing Rights) basket of currencies.

In the months preceding the currency’s formal inclusion, China’s central bank spent “heavily” to keep the yuan’s value stable, roughly US$27 billion last month, said Julian Evans-Pritchard of Capital Economics.

But “with the inclusion of the renminbi (yuan) in the SDR basket now complete, the PBOC may no longer feel the need to intervene as heavily to counter capital outflows”, he said, adding that United States Federal Reserve rate hikes could increase depreciation pressure on the yuan in coming months.

Source: Shanghai Daily, October 10, 2016

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