China

China’s slumping property market is fueling speculation the industry is set for a shakeout as small developers face difficulty raising funds to pay off debt, Bloomberg News reported yesterday. Yield premiums on Chinese real estate bonds denominated in dollars have jumped 35 basis points this month to 582 basis points over Treasuries, the sharpest increase among emerging Asian countries, according to Bank of America Merrill Lynch indexes. That compares with a 19 basis-point advance for Indonesian builders.

A reluctance among some developers in China to sell units at prices lower than they could fetch just months ago threatens to cause a swelling in unsold properties, Bloomberg News reported today. The worsening glut would extend a slide in construction that’s already put a drag on the world’s second-largest economy, and counter policy makers’ efforts to stimulate the real-estate industry with loosened rules. In Nanjing, eastern China, nine housing projects originally planned for sale in the first half of 2014 were held for later this year, consulting firm Everyday Network Co. says.

China's overseas borrowings are leaving the country increasingly vulnerable to a rise in U.S. interest rates, potentially creating funding problems for some companies and tighter conditions for the financial system overall, the Wall Street Journal reported today. The world's second-largest economy largely rode out the 2008 global financial crisis, shielded in part by a surge in domestic bank lending and capital controls that protected it from a sharp reversal in global money flows.

China’s government is authorizing developer debt sales for the first time in five years in a bid to avoid bankruptcies as the property market cools, Bloomberg News reported. Jiangsu Future Land Co., a builder of homes in eastern China, sold 2 billion yuan ($323 million) of five-year AA rated bonds last week to yield 8.9 percent. That’s less than the average 9.73 percent on trust products that many developers relied on for financing after authorities stopped approving onshore note issuance in 2009.

A group of Chinese investors is in talks with the bankruptcy estate of Icelandic bank Islandsbanki, which was previously known as Glitnir and failed in 2008, over buying a stake in the up-for-sale bank, a finance ministry source said on Thursday. The source told Reuters that among the investors were Chinese bank ICBC, insurer China Life Insurance Company and a large Chinese private equity fund. Creditors own 95 percent of Islandsbanki through ISB Holding while the government owns 5 percent.

China’s total debt load has climbed to more than two and a half times the size of its economy, underscoring the difficult challenge facing Beijing as it seeks to spur growth without sowing the seeds of a financial crisis, the Financial Times reported. The total debt-to-gross domestic product ratio in the world’s second-largest economy reached 251 per cent at the end of June, up from just 147 per cent at the end of 2008, according to a new estimate from Standard Chartered bank.

China's major banks have halted an experimental program, sanctioned by the country's central bank, that helped citizens transfer large sums overseas despite government capital controls, according to people with knowledge of the matter, The Wall Street Journal reported. The halt, which the people said was likely to be temporary, comes after the program was criticized by China's powerful state television broadcaster, underscoring the political sensitivity of the issue of wealthy Chinese moving money abroad.

Bank of China Ltd. denied a report by the state broadcaster alleging it broke the nation’s foreign-exchange rules by providing services that help clients move “dirty money” abroad, Bloomberg News reported. Reports by China Central Television and other media “contain discrepancies with and misunderstanding of the facts,” the Beijing-based lender said in a statement on its website late yesterday. “References to an ‘underground bank’ and ‘money laundering’ are inconsistent with the facts.” CCTV said Bank of China Ltd. was among lenders that circumvented the foreign-exchange regulations.

China should let more ailing firms go bankrupt to help improve economic mechanisms rather than allow them to get government-led bailouts, a deputy central bank governor said on Tuesday, Reuters reported. The risk of corporate failures is rising as economic growth slows and the government tries to put a lid on high debt levels in the economy to help ward off financial risks. "In the course of our surveys, we found that many companies are in the zombie state but they have taken up a large amount of credit," Liu Shiyu told a forum in Beijing.

Chinese regulators increased banks’ capacity to lend money and bolster the slowing economy by changing the way loan-to-deposit ratios are devised, Bloomberg News reported. Banks from today can include in the calculation negotiable certificates of deposit sold to companies or individuals, the China Banking Regulatory Commission said in a statement yesterday. They can also exclude loans advanced to small enterprises and the rural sector that are backed by bonds, the CBRC said. Bank lending is capped at no more than 75 percent of deposits to prevent an overextension of credit.