China

Capital flows from China persisted in April despite a reported rise in foreign exchange reserves, which mainly reflected the impact of a weaker dollar on the central bank’s euro and yen holdings, the Financial Times reported. After falling for 18 of 20 months until February, slicing $791bn off the headline total, China’s official reserves rose by a combined $17bn in March and April, hitting $3.22tn last month. But a look inside the data suggests significant latent outflow pressure remains. China has also benefited from global tailwinds in recent months that may not last.

A fertiliser producer in north China will default on bond payments on Thursday, the latest casualty of a slowing economy and rampant overcapacity in commodity sectors including basic chemicals, the Financial Times reported. Defaults have contributed to falling Chinese bond prices in recent weeks, as well as a widening of the spread between safe government bonds and low-rated corporate notes. Traders said that as the implicit guarantee gradually fades, investors were paying more attention to corporate fundamentals.

The steel industry sits at the crux of a major debate playing out across the world economy, one that could soon be intensified by a looming change in the global trade rules, the International New York Times reported. As China’s economy has slowed, the country’s manufacturers, in varied areas like solar panels, tires, aluminum and shoes, have been in a desperate hunt to maintain sales and avoid layoffs. Looking beyond their borders, many are offering rock-bottom prices to win orders. The heavy discounting has fed a backlash.

China’s banking regulator is cracking down on financial engineering that Chinese banks have used to disguise trillions of dollars in risky loans as investment products, the Financial Times reported. The clampdown, which will force banks to make provisions they previously avoided by disguising loans as investments, is designed to deflate one of the fastest-growing areas of the vast shadow banking apparatus, where bad debts are increasing.

Times have changed for Yu Xingzhi since China’s economic boom years. Despite the slowing economy, sales at Shanghai Caison Color Material Chemical are holding up. The trouble is, her customers — garment manufacturers and packaging producers buying her dyes and inks — are taking more time to pay for what they buy, the Financial Times reported. “Receivables are the unavoidable problem for traditional manufacturers. If you don’t accept receivables, you have no business. It’s standard industry practice, even though no one likes it,” says Ms Yu, the dyemaker’s general manager.

Instead of China fixing a corporate zombie problem threatening to overwhelm the world’s second largest economy, Beijing may be about to create a bigger one, The Wall Street Journal reported. That is the implicit warning in a new paper published by the International Monetary Fund late Tuesday. Authorities in China are just starting to tackle the systemic buildup of two decades of credit-fueled and state-directed growth.

One research firm, Gavekal Dragonomics, calls it “the magical debt-shrinking machine”. When the Chinese government first confronted a mountain of non-performing loans in the state-owned banking sector it came up with a seemingly ingenious solution, the Financial Times reported. Rather than write-off NPLs totalling Rmb1.4tn ($216bn), or almost 20 per cent of gross domestic product in 1999, specially created asset management companies bought them off the country’s “big four” state banks at full face value, paying with government-backed 10-year bonds.

Here's a growing list to further excite China bears this Thursday: Baoding Tianwei Group Co., China National Erzhong Group, Sinosteel Co., China Railway Materials Co. Ltd., Guangxi. These are the eight state-owned enterprises (SEOs) that have run into some sort of repayment problem this year, exacerbating already heightened concerns over the future of China's debt-fueled economy, Bloomberg News reported.

Just about the last thing China needs right now is another cement plant, The Wall Street Journal reported. Unused stocks have been piling up since the massively overbuilt real-estate market cratered in 2014. Demand will likely never fully recover; city skylines are dotted with cranes swinging idly atop half-finished apartment blocks. Alarmed, Beijing has declared that reducing overcapacity in industries like steel and cement is a national priority.

For Chinese banks, the decision to lend to companies like Bohai Steel was for years a no-brainer. Lenders took heart from its state backing, which appeared as solid as the millions of tons of steel pipes that rolled off its production lines each year, the International New York Times DealBook blog reported. That ironclad image is now tarnished. Plunging demand and a worsening glut in production capacity have left Bohai Steel struggling to repay as much as $30 billion in debt. Worried creditors — more than 100 of them — are locked in negotiations with the company and local officials.