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Echoes Of Mao In China Cash Crunch
http://www.ft.com/cms/s/0/1c2f126c-d982-11e2-bab1-00144feab7de.html#ixzz2WqmbUIgr June 20, 2013 11:51 am Echoes of Mao in China cash crunch By Simon Rabinovitch in Shanghai As China’s credit crunch takes a turn for the worse, the question of why the central bank has permitted market conditions to deteriorate so suddenly and so sharply looms ever larger. Short-term money market rates surged to more than 10 per cent on Thursday, a record high and nearly triple their level just two weeks ago, after the central bank refused to inject extra funds into the strained financial system. Analysts have mostly viewed the squeeze in economic terms, as a warning to lenders that they must rein in dangerously fast credit growth. But in the midst of the extreme market stress, a statement issued late Wednesday by the central bank raised the possibility that politics are also playing an important role. Bankers had been calling for the central bank to ease the pressure and a few investors had even predicted that it might cut interest rates. Instead, the People’s Bank of China ordered a thorough implementation of the new “mass line education” campaign launched this week by President Xi Jinping – a campaign that in its propaganda-style and potential scope carries echoes of the Mao era. The Communist party cadres that run the central bank were told to attack the “four winds” of “formalism, bureaucracy, hedonism and extravagance”, as demanded by Mr Xi. “It is quite possible that the central bank’s policies have some connection to Xi’s campaign,” said Willy Lam, an expert on Chinese politics at the Chinese University of Hong Kong. “It seems to be much more serious than the short anti-corruption campaigns launched by Hu Jintao and Jiang Zemin [Mr Xi’s predecessors over the past two decades].” In monetary policy terms, the central bank could certainly be said to be waging war on hedonism and extravagance. The seven-day bond repurchase rate, a key gauge of liquidity in China, surged 270 basis points to more than 10.8 per cent on Thursday – a punitively high rate that could force cash-hungry banks to call in the riskiest of their loans. “There are definitely political calculations,” said Ken Peng, an economist with BNP Paribas. “The senior leadership is much more worried about ‘correcting behaviour’ and political considerations than just protecting their 7.5 per cent growth target.” Unlike the cash crunch that occurred in developed markets when the global financial crisis erupted in 2008, the squeeze in China has been almost entirely self-inflicted, a deliberate move by the central bank. Market players had hoped the central bank might inject extra cash in the economy at a scheduled auction on Thursday. But it rebuffed the pleas for help, putting more pressure on overstretched lenders. Concerns about financial risks appear to be the immediate trigger for the central bank’s actions. A surge in credit growth at the start of this year, despite a slowdown in the economy, has alarmed regulators. The central bank wants to send a message to banks to be more cautious in their risk control and to improve their own liquidity management – Peng Wensheng, China International Capital Corp The overall credit-to-gross domestic product ratio in China has jumped from roughly 120 per cent five years ago to closer to 200 per cent today, an indication of rising leverage throughout the economy. Song Yu, an economist with Goldman Sachs, said the tightening was “aimed at preventing the leverage ratio from reaching an even higher level”. With money market rates soaring, interbank rates have also shot up over the past two weeks. This has punished lenders that have used their privileged access to the stable, central bank-controlled interbank market to fund purchases of risky, high-yielding bonds. “The central bank wants to send a message to banks to be more cautious in their risk control and to improve their own liquidity management,” said Peng Wensheng, an economist with China International Capital Corp. “It is saying that you cannot expand credit as you like, and then simply rely on the central bank to back you up.” But the risk of dangerously fast credit growth in China is not new. The biggest change over the past half year has been political, with the ascension of Mr Xi as the country’s new paramount leader. Zhou Xiaochuan, central bank governor, is believed to have a good personal relationship with Mr Xi. Both are “princeling” sons of Communist revolutionary leaders. Mr Zhou had been expected to retire this year, having reached the mandatory retirement age, but Mr Xi allowed him a special dispensation to remain in office. Mr Xi’s campaign against the “four winds” was officially announced on Tuesday. The order that central bank cadres across China should study and implement the campaign was transmitted less than 24 hours later, ahead of virtually all other government units. Continue reading
Chinese Carbon Pollution: Buy Or Sell?
Chinese carbon pollution: Buy or sell? PHILIPPE LOPEZ/AFP/Getty Images The Chinese city of Shenzhen is seen in the distance beyond a landfill. http://www.marketpla…1/player/popout by Rob Schmitz Marketplace Morning Report for Tuesday, June 18, 2013 Today, China launches a new pilot carbon market in the southern city of Shenzhen. Carbon cap and trade schemes have had a hard time getting off the ground in other countries. Can China make it succeed? China is requiring 635 companies to purchase carbon permits for trade in the new market. Durwood Zaelke, president of the Institute for Governance and Sustainable Development, hopes it will succeed though it hasn’t worked well in other countries. “There’s been cheating, there’s been bogus credits created and sold in different European markets,” Zaelke says. Anyone who’s operated in China knows that cheating and bogus-anything is synonymous with doing business there. So, Zaelke has a question for China: “Is China able to learn how to do compliance?” he asks. “Because if you don’t have strict compliance when you’re doing a trading system, it will not work.” If China is able to make its first carbon market thrive, Beijing has promised to launch a national carbon market in 2015. About the author Rob Schmitz is Marketplace’s China correspondent in Shanghai. Continue reading
China Launches World’s No.2 Carbon Trading Market
June 18, 2013 China’s cities won’t get early pollution relief from carbon trading. Photo: Getty China’s plan to set up markets to trade emissions will make it second only to Europe in efforts to put a price on pumping carbon into the atmosphere. For cities choking on the nation’s smog, expect little relief. Seven pilot carbon-trading programs are scheduled to start this year, with the first opening today in Shenzhen, followed by Beijing, Shanghai, Guangdong, Tianjin, Chongqing and Hubei. They are set to regulate 800 million to 1 billion tons of emissions by 2015 in the world’s biggest cap-and-trade program after Europe’s, according to Bloomberg New Energy Finance. China’s National Development and Reform Commission will oversee emission exchanges in a country that the World Bank says has 16 of the world’s most-polluted 20 cities. The commission is better known for setting prices than creating open markets, said Stuart Cerne, managing director at Hong Kong-based environmental business consultant Enecore Carbon. “The NDRC’s measure of success of the pilots is primarily focused on technical aspects of setting up the system, whilst the importance of an active trading environment has not been given as much importance,” Cerne said by telephone. “Because of unresolved design and regulatory issues, I don’t expect that there will be real trading in the pilots other than annual compliance and government influenced transactions.” The seven pilots agreed to regulate emissions using a cap and trade system, with companies that produce more than their allocation buying permits from companies that emit less. Shenzhen’s trading will take place on a purpose-built exchange. Forward step WWF-Australia welcomed the start of the Shenzhen trading as proof that China is stepping up efforts to tackle global warming. “China is already leading the way globally in the deployment of renewable energy and today took the first steps towards a national price and limit on carbon pollution,” Will McGoldrick, Climate Change National Manager at WWF-Australia, said. “China’s Shenzhen region will be joining 35 countries and 13 states, provinces and cities in putting a price on carbon,” Mr McGoldrick said. “If Australia scraps the carbon price it would be the first country to go backwards a move clearly at odds with where the rest of the world is moving.” Shanghai clearinghouse Shanghai’s carbon exchange plans to reduce the supply of carbon permits when prices are low and sell more when they are high “to maintain relatively stable levels,” NDRC Vice Chairman Xie Zhenhua, said in an April speech on climate legislation. Xie is China’s lead climate negotiator. Regulations governing transactions in Shenzhen are still being worked on and aren’t expected to be released by the start of trading, according to a presentation by the city. Shenzhen, one of China’s Special Economic Zones designed to promote market policies, will initially include 635 companies in its cap-and-trade program, Mayor Qin Xu said in April. Those companies discharged 31.7 million tons of greenhouse gases in 2010, 38 percent of the city’s total, according to Bloomberg New Energy Finance. A separate program to complement cap-and-trade in China was a proposed carbon tax that would be paid by consumers at the pump and on utility bills. With economic growth slowing to 7.7 percent in the first quarter, the carbon tax was put on hold after opposition from businesses and local governments. Taxing issue The tax won’t be introduced this year amid “obvious opposition,” Jia Kang, head of research at the Ministry of Finance, said at parliament’s annual session in March. Kang quoted an initial levy of 5 yuan to 10 yuan (86 cents to $1.72). Starting at that level is too low to make an impact or even meet official targets, according to research from Tsinghua University and China’s Central Compilation & Translation Bureau. The effect may be further muted since the government already sets prices for gasoline and electricity that are below market rates. The goal of the trial markets is to provide know-how to establish a national trading platform, so getting the pilot programs right is important for the political will to tackle pollution in the future, said Cerne at Enecore Carbon, which has offices in Beijing. EU assistance The European Commission, the EU regulator, signed a 25 million euro ($35 million) financing agreement in September 2012 to help set up China’s pilot emissions program. “This is an important step for an ever-closer cooperation towards a robust international carbon market and low-carbon development,” Isaac Valero-Ladron, climate spokesman for the European Commission, said in an e-mail. “This is a huge opportunity to modernize our economies, stimulate growth and create jobs in new dynamic industries with innovative technologies and clean energy.” While China’s western provinces lag behind the east in terms of wealth and development, emission trading has the potential to stifle growth, said Ge Xing’an, vice president at the Shenzhen Emissions Exchange. Trading may find less political support in poorer areas looking to attract investment. “While Shenzhen and Shanghai will meet deadlines, a place like Chongqing might lag behind,” Ge said. “While that’s not a major problem in the pilot phase, it may become a concern for the national plan.” Non-compliance The penalties for non-compliance with the new emissions program may be too low to pose a real threat, according to the Center for Clean Air Policy Europe Director Tomas Wyns, who consulted on Hubei’s carbon market design. If profits outweigh the cost of flouting the law, companies have no incentive to reduce pollution. Concern of official corruption is also on the minds of regulators. “We set up electronic systems to assign quotas to the industries,” Wu Delin, vice secretary general for the Shenzhen Municipal Government, said at a press conference in March. “This can help prevent illegal behavior of officials during the assigning of quotas.” Beijing’s worst-recorded air pollution earlier this year renewed pressure on the government, which aims to cut carbon emissions by as much as 45 percent before 2020. China’s emissions from energy use rose 6 percent last year to 27 percent of the world’s total, according to statistics published June 12 by BP Plc. That pace is less than 9 percent last year and is the lowest increase since 2008. Establishing carbon trading in China will be a herculean task given that the country’s markets are still immature, Jeff Huang, co-chair of the China working group at the International Emissions Trading Association, said in a telephone interview. China faces “a unique challenge internationalizing and upgrading their commodity markets overall, while at the same time launching a new market for carbon, something you can’t see or touch,” Huang said. Bloomberg , with Fairfax Media . Read more: http://www.theage.co…l#ixzz2WZpx2sjN Continue reading
