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Wednesday, 13 November 2013

The rising of three suns

Recently China watchers have added to their experience of weird weather phenomena by witnessing the rising of three suns in Chifeng city - due to the presence of ice crystals high in the atmosphere which reflect the sunlight downwards.  Perhaps symbolic the phenomena occurred prior to the convening of the third plenum Party conference (that is the significant third meeting of Xi Jinping's premiership), when the most important policies and overall direction of the administration is laid out.

Reports from the main session of the plenum proceedings were mixed, commitments to market opening and deepening were contrasted with an absence of concrete measures to tackle some of the more significant issues in China, including the rampant state owned entities which distort the Chinese economy and waste resources (summary also here).  Meanwhile foreign journalists faced difficulty getting into China to report and/or (allegedly) the prospect of self-censorship of certain significant news investigations.

On the modernisation drive Bloomberg did report on developments from the new free trade zone in Shanghai, including the opening of a massive gold vault which will store up to 2,000 metric tonnes of gold.  Gold bugs are speculating on possible future outcomes from the high volumes of Chinese gold buying, constituting a seminal moment when gold had moved from "west to east".  Adding to this, speculation of the adoption of international rather than Chinese law in the free trade zones (similar to Hong Kong) suggest that much is happening.

The reality may be different however.  China's (and the world's) largest bank ICBC, has been added to the list of globally systemically important banks by the global bank regulator, the Financial Stability Board (which is hosted by the Bank of International Settlements), meaning tougher capital requirements.  And there has been declining interest in lower tier banks coming to market - mid-sized Huishang Bank, which acts as an intermediary in the shadow sector (including transactions involving entrusted loans and other interbank off-balance sheet lending) saw lacklustre demand following its recent Hong Kong IPO, with analysts divided as to whether the IPO of one of the original four Chinese bad debt vehicles, Cinda (an asset management company) expected in December will be well received.  As even profligate local governments are staring to see more scrutiny (not only in calls for action from the central government but also from their constituents), the scale of Chinese indebtedness may be fully revealed.

More abstract perhaps but there are some analysts who doubt the short term impacts of the proposed reforms to China's financial system.  Pu Yonghao, UBS's head of Asia research, says China may experience a period of economic hardship over the next two to three years.

And in other news it was reported that disgraced solar panel company Suntech has filed for provisional liquidation in the Cayman Islands (following a buyout of some of its business and attempts to save it by the local government).  There could be more to come.

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