China

A Chinese lending spree of the magnitude that tipped Asian nations into crisis in the late 1990s and preceded Japan’s lost decades is putting pressure on top leaders to map out a strategy to tackle the threat. Half of the economists in a Bloomberg News survey say non-performing local-government and corporate debt will probably have a “significant impact” on China’s credit and economic growth.

Three quarters of China's solar-grade polysilicon producers face closure as Beijing looks to overhaul a bloated and inefficient industry, resulting in fewer but better companies to compete against Germany's Wacker Chemie AG and South Korea's OCI Co Ltd., Reuters reported. The polysilicon sector, which has around 40 companies employing 30,000 people and has received investment of 100 billion yuan ($16 billion), suffers from low quality and chronic over-capacity as local governments poured in money to feed a fast-growing solar panel industry, for which polysilicon is a key feedstock.

The Chinese state owes a lot of money – but even in Zhongnanhai, the secluded compound where the Communist Party’s top brass have their headquarters, no one really knows how much, The Wall Street Journal China Real Time Report blog reported. Sovereign debt issued by the central government in Beijing stands at 8.4 trillion yuan ($1.4 trillion), or 16% of GDP, as of the end of last year – wonderfully low by western standards.

China will conduct an urgent review of overall public debt, highlighting concerns about burgeoning official borrowing that are adding to stress in China's financial system and limiting Beijing's capacity to support flagging growth, The Wall Street Journal reported. In a one-line statement on Sunday, China's National Audit Office said it would carry out an examination of total government debt, acting on the orders of the State Council, China's cabinet.

China ordered more than 1,400 companies in 19 industries to cut excess production capacity this year, part of efforts to shift toward slower, more-sustainable economic growth, Bloomberg reported. Steel, ferroalloys, electrolytic aluminum, copper smelting, cement and paper are among areas affected, the Ministry of Industry and Information Technology said in a statement yesterday. Excess capacity must be idled by September and eliminated by year-end, the ministry said, identifying the production lines to be shut within factories.

A $91 billion industrial project here, mired in debt and unfulfilled promise, suggests part of the reason why China's economy is wobbling – and why it will be hard to turn around, The Wall Street Journal reported. The steel mill at the heart of Caofeidian, which is outside the city of Tangshan, about 225 kilometers (140 miles) southeast of Beijing, is losing money. Nearby, an office park planned to be finished in 2010 is a mass of steel frames and unfinished buildings. Work on a residential complex was halted last Christmas, after workers completed the concrete frames.

China’s economy may be facing a period of instability and imbalance as it transitions from high-speed growth, a state researcher said, Bloomberg reported. “Growth inertia should not be underestimated, as new growth engines and patterns have not been formed,” researcher Yu Bin said in a report by China’s Development Research Center released yesterday in London. “Market expectations are unstable, downward pressure has increased, and existing and new structural mismatches exist.

Chinese state-controlled firm AVIC is to buy the commercial business of German aircraft engine maker Thielert, banking on a surge in demand for diesel plane engines in China and other emerging markets, Reuters reported. AVIC and Thielert, which filed for insolvency more than five years ago, did not provide financial details of the deal announced on Tuesday.

Foreign capital flowed out of China in June as economic growth slowed and a rise in the Chinese currency stalled, contributing to a credit crunch that briefly strained the nation's banking system, the Wall Street Journal reported today. The credit crunch has eased considerably since last month as the central bank injected liquidity in the interbank market, where banks lend funds to each other, but the squeeze raised doubts about the strength of China's banking and financial system. The net outflow of foreign capital in June was the first since November.

China eliminated the lower limit on lending rates offered by the nation’s financial institutions as growth slows and authorities expand the role of markets in the world’s second-biggest economy, Bloomberg News reported on Saturday. The change, effective on Saturday, removes a floor set at 30 percent below the current 6 percent benchmark, according to a People’s Bank of China statement yesterday. While the move temporarily jolted world stocks higher, the PBOC acknowledged that it was a limited step and said that freeing up deposit rates would be more important.