This week, all eyes were on the Chinese economy growth figures, the lowest since 2009; the finance ministry planned to end quasi-muni bonds; and Tesla stunned company watchers by setting up a store on Tmall.
The X factor
China logged the slowest growth rate in five years this week: gross domestic product (GDP_ expanded 7.3% year-on-year in the third quarter, according to the National Bureau of Statistics. The rate is the lowest number since the first quarter in 2009, when growth tumbled to 6.6% during the financial crisis.
It means that China may miss its growth target for the first time since the Asian financial crisis in 1998. This year the country’s GDP expanded by 7.4% and 7.5% in the first two quarters respectively. To prevent the economy from losing too much steam, China engaged in a series of stimulus measures including cutting the required reserve ratio for selective banks and the 14-day repurchase rates.
Last month, China’s central bank injected RMB 500 billion (about $81.4 billion) into the country’s five biggest banks through a standing lending facility (SLF) operation; and this week, news came out that the People’s Bank of China is going to inject another RMB 400 billion ($65.1 billion) to 20 banks by conducting a pledged lending facility (PLF), which means that banks need to provide collaterals in order to get the loans.
Providing liquidity would not work unless the money trickles down to the real economy. But according to an earlier survey done by CKGSB’s economics professor Gan Jie, 44% of the 2,000-odd industrial firms said that they didn’t need more bank loans due to weak demand and excessive inventory.
One of the industries that are crying for demand is real estate, which accounts for as much as 25% of China’s GDP. Housing transactions across the country have been falling in the past few months, and the newest numbers released this week showed that new home prices have fallen back to the level a year ago.
According to the official data, new home prices dropped in September from August in 69 of the 70 major cities; 58 of them recorded price drops compared with the same period a year ago.
However, Beijing and the local governments’ effort to support the housing sector may be showing effects soon—the average price is decreasing at a lower speed than in August, and Barclays’ analysts believe that the October sales number is going to be the first year-on-year increase in 2014.
Local debt overhaul
Besides the property market, local debt is the other sword of Damocles hanging over the Chinese economy. Last week, the National Development and Reform Commission (NDRC) reportedly suspended processing some of the enterprise bond applications filed by local government financing vehicles (LGFVs); on Monday, the Chinese media reported that the Ministry of Finance is considering to put an end to the issuance of such bonds by the end of 2015.
LGFVs are state-owned enterprises created by local authorities to take on large infrastructure projects. Often considered parts of the state, they were able to get bank loans and issue debt at relatively low costs. Because LGFVs wear the guise of enterprises, it’s hard for Beijing to know exactly how much local governments owe.
LGFVs and local officials will be allowed to continue existing projects through their current financing channels, the new document released by the Ministry of Finance reportedly said, but no new debt can be raised through LGFV bonds after December 31, 2015.
Instead, Beijing wants local governments to fund their projects through municipal bonds. In August, the National Congress passed amendments to the budget law to allow local governments to issue such bonds starting in 2015. The move is expected to make local governments’ balance sheets more transparent and thus easier to control.
But the municipal bonds market may be too immature to handle such a huge transition, according to some economists, who are concerned about the lack of qualified rating agencies and possible collusions between local governments and underwriting banks. Their worry is not baseless—Beijing has allowed a pilot bond program that enrolls limited cities and provinces this year, and the result is not so promising—some local governments were able to issue bonds at yields even below those of the treasury bills.
Another potential problem is that Chinese investors usually consider government-backed debt to be completely risk-free, which may result in distorted risk pricing in the market.
New China stores for Apple and Tesla
There’re currently 15 Apple Stores (other than the identical but fake ones) in China, and Apple plans to increase that number to 40 within two years, according to Tim Cook, CEO of the Cupertino, California-headquartered company.
China is the third-largest market for Apple after the US and Europe, but the company has been losing market share due to strong competition from Samsung and local players like Xiaomi, Huawei and Lenovo. Sales of the new iPhone 6 and 6 plus aren’t so impressive either due to the delayed launch date and insufficient supply, according to the Chinese media.
Another California company that faced capacity issues in China is Tesla—the firm’s founder and CEO Elon Musk had to issue an apology to his Chinese customers for late deliveries.
But Tesla is hoping to overthrow the impression of its horrible delivery speed through a new partnership with Tmall, the B2C platform of e-commerce group Alibaba. The electric car company has established an online shop on Tmall, its first third-party online shop in the world.
According to Sina, Tesla will also join Alibaba’s famous Single’s Day sale on November 11 by releasing a limited number of its Model S sedans—customers can put down RMB 50,000 online and get a very special treat—the car will be delivered in just five days.
Tesla is the second big name that joined Tmall lately—warehouse retailer Costco opened its virtual storefront on the platform earlier this month—shoppers can select from a range of its products (or just the beloved Craisins) and have them delivered to their doorstep within five to 20 days.