China

A warning indicator for banking stress rose to a record in China in the first quarter, underscoring risks to the nation and the world from a rapid build-up of Chinese corporate debt, Bloomberg News reported. China’s credit-to-gross domestic product “gap” stood at 30.1 percent, the highest for the nation in data stretching back to 1995, according to the Basel-based Bank for International Settlements. Readings above 10 percent signal elevated risks of banking strains, according to the BIS, which released the latest data on Sunday.

For many years, China's authorities took a Goldilocks approach to housing prices: They wanted a market that was neither too hot nor too cold, and took measures as needed to control prices. Although an explicit asset-price target was never announced, it was widely assumed that the government wanted home prices to grow in line with the rate of economic growth, Bloomberg News reported. To accomplish this, technocrats in Beijing deployed a combination of monetary stimulus and regulatory measures.

Since China was the first country to use paper money it shouldn’t be a surprise that it was also guilty, earlier than most, of monetary recklessness, The Wall Street Journal reported.

China's economic growth accelerated in August, a batch of data showed on Tuesday, relieving pressure on policymakers to boost stimulus and assuaging fears of a sharp slowdown that would drag down global growth, the Financial Times reported. Industrial production, a gauge of the crucial manufacturing sector, grew 6.3 per cent annually in August, the fastest pace since March. Retail sales growth accelerated to 10.6 per cent in August, up from 10.2 per cent in July, led by auto sales, which rose 13.1 per cent.

Amid mounting corporate debts and defaults, China's banking regulator has stepped into the fray, urging banks that are creditors of heavily indebted companies to coordinate their actions and negotiate together. The China Banking Regulatory Commission (CBRC) issued a notice on Friday that told banks to set up creditor committees not only to protect their rights but also, when possible, to help companies struggling to repay their debts to get back on their feet. Although the notice was aimed at banks, other financial institutions approved by the CBRC can also participate.

Shanghai police say they have found the root of rumors that sparked a home-buying frenzy in late August and led to instability in the city’s real-estate market, The Wall Street Journal China Real Time Report blog reported. It began, police said, with a woman who said she had a tip that the city government was mulling changes to home-buying rules.

More than half of Chinese infrastructure investments have “destroyed, not generated” economic value as the costs have been larger than the benefits, according to researchers at Oxford university, a finding that will fuel debate over the viability of China’s infrastructure-heavy growth model. Infrastructure investment has been a major driver of Chinese economic growth over the past 35 years as hundreds of millions of workers migrated from rural to urban areas. China has stepped up infrastructure spending this year to buffer a slowdown in manufacturing investment.

When several large state-owned companies in China unexpectedly defaulted on their debts earlier this year, the government seemed determined to send a clear and unified message: it was time to get rid of zombie companies, Reuters reported. But since then, China's signals have become increasingly contradictory and as a result bond market pricing suggests investors see the smallest chance in seven years that many firms will be allowed to go bankrupt.

Eight Chinese centrally-owned state-owned enterprises signed restructuring contracts on Tuesday, the state-run China Securities Journal reported on Wednesday, The Daily Mail reported on a Reuters story. These companies are Aviation Industry Corp of China, China National Machinery Industry Corp, China Poly Group Corp, China First Heavy Industries, China North Industries Group Corp, China South Industries Group Corp, China Reform Holdings Corp Inc, and China Nuclear Engineering Construction Corp.

China’s banks, which dialed down fundraising efforts this year even as bad debts swelled, are making up for lost time, Bloomberg News reported. Both lenders and the companies set up to acquire their delinquent assets are bolstering their finances. China Citic Bank Corp. last month announced plans to raise as much as 40 billion yuan ($6 billion), while Agricultural Bank of China Ltd., Industrial Bank Co. and China Zheshang Bank Co. are also boosting capital. China Cinda Asset Management Co. and China Huarong Asset Management Co. are poised to tap investors.