02/11/2009 Source: People’s Daily

China’s insurers will benefit more than banks as “accelerating” inflation pushes bond yields higher and lending growth slows, according to Morgan Stanley.

“We don’t think there’s a massive inflation problem in China, but we’re definitely in a period of accelerating inflation,” said Jonathan Garner, Morgan Stanley’s emerging markets strategist. “The insurance companies tend to be more positively levered to inflation than the banks.”

China’s benchmark Shanghai Composite Index has fallen 9.5 this year on concern increases in consumer prices and asset bubbles will spur the central bank to increase borrowing costs.

People’s Bank of China Governor Zhou Xiaochuan said on Tuesday. China needs to monitor inflation as analysts forecast consumer prices rose in January by the most since 2008.

“We need to closely watch” the inflation rate, Zhou told reporters in Sydney on Tuesday after a meeting of central bankers. “Right now the inflation rate has started to go up, but the level is still relatively low.”

Consumer prices probably advanced 2.1 percent in January from a year earlier, a third straight gain, according to the median estimate of a Bloomberg News survey.

Slowing loan growth

Insurers tend to be able to “reset” the policy premiums and benefit from rising bond yields, while banks have problems with loan growth in “this sort of environment”, Garner said.

Still, China’s banks probably made more new loans in January than the previous three months combined as lenders anticipated a credit clampdown by policymakers seeking to stem inflation pressures.

New bank lending totaled 1.38 trillion yuan last month, according to the median estimate of 16 economists in a Bloomberg News survey ahead of a government report scheduled for this week.

China Life Insurance Co, the nation’s largest insurer, and Industrial & Commercial Bank of China Ltd have declined 14 percent this year in Hong Kong trading, compared with a 10 percent drop in the MSCI China Index.

01/27/2010 Source: China Daily

A senior official in charge of Internet security has claimed that the country has become the world’s biggest victim of cyber attacks.

In an interview with Xinhua over the weekend, Zhou Yonglin, deputy chief of the operations department of China National Computer Network Emergency Response Technical Team (CNCERT), also dismissed Google’s allegation that hackers traced to China had attacked its servers.

Google has not yet given CNCERT any report on the company’s complaints about the attacks, according to Zhou.

“We have been hoping that Google will contact us so that we could have details on this issue and provide them help if necessary.”

Foreign firms such as eBay have turned to CNCERT for cyber security issues in the past year.

Last year, the Internet security watchdog received 21,618 complaints from foreign companies, of which 1,095 cases were resolved after combining similar cases, Zhou said. These cases included the trojan and phishing attacks against eBay/Paypal, JPMorgan Chase & Co and MarkMonitor Inc.

China has also sought other countries’ help to clear web pages with malicious content, he said.

In November 2009, CNCERT reported to its US counterpart, the US-CERT, about two US-registered domain names that were planting trojans on hundreds of Chinese websites. The domain names were shut down within two days of CNCERT’s requests.

With the number of Chinese netizens soaring but their Internet security awareness lagging, hackers have made China their primary target, Zhou said.

He accused overseas hackers, especially those in the US, of illegally controlling computers in China by implanting malicious programs including trojans and zombie programs.

“Compared with (Internet security issues in) the US, Japan and the Republic of Korea, it is very serious in China,” he said.

Last year, 262,000 IP addresses in China were hit by trojans planted by nearly 165,000 overseas IP addresses.

“Those from the US ranked first, accounting for 16.61 percent,” Zhou said.

China had the most zombie program-infected computers in 2008, accounting for 13 percent of the worldwide total, with IP addresses in the US accounting for the highest number of hackers.

Overseas hackers have also become a major force in defacing China’s websites.

The US was the source of most web-based attacks in 2008, Zhou said, citing a Symantec report on Internet security threats published last April. Symantec is the world’s biggest cyber security company.

The report said that 33 percent of the world’s zombie servers were located in the US, more than any other country.

01/28/2010 Source: Xinhua

China’s $300 billion sovereign wealth fund is considering new investments in resource-related companies after bets on commodities producers from the US to Kazakhstan paid off in 2009.

China Investment Corp (CIC) increased spending on energy and mineral assets last year to profit as the global economy recovers. The Beijing-based fund avoided the worst of the credit crunch in its first full year in 2008 and may have had a return of more than 10 percent in 2009, said London-based Jan Randolph, director of sovereign risk, analysis and forecasting at IHS Global Insight.

“They have timed the upside well both in market terms, but also to fit in with the longer-term diversification strategy,” Randolph said.

CIC has had “early” talks for direct investments in Brazil, the world’s second-biggest iron-ore exporter, and Mexico, the No 2 silver producer, Chairman Lou Jiwei said at the Asian Financial Forum in Hong Kong on Jan 20. Lou pumped about $10 billion into commodity-related companies in the second half of 2009, according to data compiled by Bloomberg.

With China’s reserves at $2.4 trillion and swelling by an average of $37.8 billion a month last year, CIC has asked the government for another $200 billion, the Economic Observer reported on Nov 21, citing a person it didn’t identify.

Canadian venture

In July, CIC bought 17.2 percent of Teck Resources Ltd, Canada’s largest base-metals producer, for $1.5 billion. It acquired an 11 percent stake in a unit of Kazakhstan’s state-run energy company in late September, two weeks before purchasing 45 percent of Nobel Oil Group of Russia.

In November, it announced investments in US power producer AES Corp and GCL-Poly Energy Holdings Ltd, China’s biggest poly-silicon producer.

AES closed at $13.31 in New York trading on Dec 31, giving CIC a paper profit of 7 percent, while GCL-Poly shares had risen 30 percent from the fund’s HK$1.79 purchase price.

CIC’s early investments also recovered some losses last year, with shares of Blackstone Group LP doubling and Morgan Stanley’s stock surging 85 percent.

Those returns may encourage CIC to be “more aggressive”, according to Zhang Zhiming, director of asset allocation research at HSBC Holdings Plc in Hong Kong.

“Most investors do momentum investing and CIC is no exception,” he said. “They are sticking to a double-diversification principle. First, buy a bit of everything and be geographically spread out. And timing-wise, to be also spread out to avoid major ups and downs.”

China Investment Corp will likely expand the scope of its investments this year into “all categories”, including US and European markets that it largely shunned in 2009 during the crisis, Zhang said. The fund may invest in a US infrastructure project, Lou said, without giving details. It may put money in US high-speed railways, the Shanghai Securities News reported on Jan 13, citing a person it didn’t identify.

CIC was created in September 2007, funded by a $200 billion chunk of the nation’s foreign reserves. The $2.4 trillion in reserves – equivalent to the annual output of India and Australia combined – have increased about 60 percent since CIC was founded, driven by current account surpluses and foreign direct investments.

A CIC press official said she was unaware of the request for $200 billion in extra funds reported by the Economic Observer. The company’s top executives weren’t available for interviews for this story.

“CIC will soon become one of the top three sovereign wealth funds in the world with this extra capital, and one of the most aggressive in 2010 to 2015,” said IHS’s Randolph.

01/25/2010 Source: Global Times

The Bank of China (BOC) announced Friday it plans to float up to 40 billion yuan ($5.86 billion) in convertible bonds on the yuan-dominated A share market, in a bid to supplement its capital.

The issuance is to satisfy higher standards for the capital adequacy ratio (CAR) of commercial banks required by regulatory bodies from both home and abroad after the financial crisis, the BOC said in a statement on its website.

The CAR has been raised from 8 to 10 percent for small-and medium-sized banks and 11 percent for large banks, Wang Zhaoxing, vice chairman of the China Banking Regu-latory Commission (CBRC), wrote in an article published in December in China Finance, a semimonthly magazine run by the central bank. Wang’s article is widely considered an official announcement.

The weighted average CAR and core CAR of the country’s commercial banks reached 11.4 percent and 9 percent respectively by the end of the third quarter of 2009, conforming to the regulatory requirements, the CBRC said in December.

But commercial banks, including the BOC, generally reported declines in both the CAR and core CAR, as a result of last year’s unprecedented credit growth that saw net loans nearly double from 2008.

By the end of September last year, the CAR of the BOC dropped to 11.63 percent from 13.89 percent during the same period in 2008, and the core CAR also declined to 9.37 percent from 11.04 percent, according to data from the BOC’s quarterly reports.

The BOC is also one of seven Chinese banks that will run a trial implementation of the New Basel Capital Accord this year. The calculation of the CAR differs according to the accord, and the banks’ CAR will likely drop after applying the new calculation method.

Banks have to raise adequate capital for this year’s lending, said Lu Zhengwei, a senior economist at the Industrial Bank. Net loans issued this year are expected to reach 7.5 trillion yuan ($1.10 trillion), Liu Mingkang, chairman of the CBRC, forecast Wednesday. The figure, which lags the unprecedented credit growth last year, saw an annual growth of 16-18 percent.

Lu pointed out that Chinese banks now have no choice but to raise the CAR on orders of the regulatory body, as the main services offered by banks – deposits and loans – will naturally consume capital, while intermediary services that exhaust less capital are considered a cause of the crisis.

Converting profits into capital is also a solution, “but shareholders are not always willing to invest while not gaining rewards,” Lu said.

The face value of the bonds is planned to be 100 yuan ($14.65), with a coupon rate of up to 3 percent. The BOC is also likely to issue H-share bonds, the bank said. The convertible issuance plan will be reviewed at a general meeting of stockholders expected in March.

The BOC has issued 40 billion yuan worth of second bonds, part of an issuance plan of 120 billion yuan ($17.57 billion) approved in March 2009 and aimed at increasing capital.

01/25/2010 Source: Xinhua

China restated on Sunday its resolute opposition to claims that the government was involved in cyber attack and vowed to enhance cooperation with international community to fight against Internet crimes.

“Accusation that the Chinese government participated in cyber attack, either in an explicit or inexplicit way, is groundless and aims to denigrate China. We firmly opposed to that,” spokesman of the Ministry of Industry and Information Technology told Xinhua in an exclusive interview on Sunday.

“China’s policy on Internet safety is transparent and consistent,” he said.

Internet security was a global concern which required international coordinated efforts. China was willing to deepen cooperation with other countries and learn from their experiences to make Internet a better place, he said.

The spokesman’s remarks came nearly two weeks after search engine giant Google said it might quit China citing disagreements with government policies and unidentified attacks targeting Google’s services in China.

“China is the biggest victim country of hacking as its Internet has long been facing severe threats of hacker and online virus attacks,” the spokesman said.

Official data showed more than one million IP addresses were under control by overseas sources and the number of Web sites tampered by hackers exceeded 42,000 last year.

The widespread Conficker worm virus infected 18 million computers per month in 2009, the most in the world, or 30 percent of the global total infected.

According to the Internet Society of China, the number of cyber attacks from abroad saw a year-on-year increase of 148 percent in 2008.

They not only affected a large number of netizens but also sectors of finance, transportation and energy, which posed severe harm to economic development and people’s lives, the spokesman said.

He noted the Chinese government had issued various regulations and launched many Internet safety campaigns against the attacks.

The National Computer Network Emergency Response Technical Team dealt with more than 1,000 Web accidents in 2009 and helped recover economic losses for many banks and E-business Web sites.

China has also taken part in the Internet safety emergency drill organized by the ASEAN countries for many times, and signed cooperation pacts with member countries of regional organizations in Asia.

01/18/2010 Source: Global Times

Although Chinese banks saw their assets increase while the ratio and balance of bad loans both sank in 2009, the nation’s bank regulator warned over the weekend that banks should pay attention to future risks, especially in the property market.

The total foreign and domestic currency assets of Chinese financial institutions rose 26.3 percent year-on-year to 78.8 trillion yuan ($11.54 trillion) in 2009, and combined liabilities rose 26.8 percent from last year to 74.3 trillion yuan ($10.88 trillion), the China Banking Regulatory Commission (CBRC) announced on its website Saturday.

“The rise of total assets was due to increasing mid- and long-term loans, and the rise of liabilities was largely due to deposits from enterprises, which get loans from banks but do not use all of them, as well as increasing residents’ deposit,” said Zhao Xijun, deputy director of the School of Finance at Renmin University of China.

Zhao expected that banks’ total assets and liabilities increase in 2010 would not be as large as in 2009, but the quality of assets and liabilities would become better.

The bad loan ratio among major commercial banks, including State-owned and joint-stock commercial banks, fell to 1.59 percent, down 0.86 percentage points from the beginning of 2009. Bad loans stood at 497.33 billion yuan ($72.86 billion), down 62.98 billion yuan ($9.23 billion) from the beginning of 2009.

“It is good to see the decreasing bad loan ratio and balance in China, as ‘toxic assets’ in other countries were increased during the financial crisis,” Zhao commented. “However, banks still face challenges from their mid- and long-term loans to enterprises.”

New lending in December rose to 379.80 billion yuan ($55.64 billion) from November’s 294.80 billion yuan ($43.19 billion), and new lending for the whole year in 2009 amounted to 9.59 trillion yuan ($1.40 trillion), almost double the level in 2008, the People’s Bank of China, the central bank, said in an announcement on its website Friday.

Normally bad loan ratios rebound two years after a credit spree, said Li Shanshan, an analyst at BOCOM International Holdings.

The CBRC said at an annual conference Friday that banks should be wary of credit risks despite the decrease in bad loan ratios and balance.

The regulator said banks should ensure that credit enters the real economy, and restrict lending to high-polluting, high-energy consuming industries and those with overcapacity.

01/18/2010 English.news.cn

Top Chinese legislator Wu Bangguo has urged to accelerate transformation of the mode of economic development, so as to improve sustainable development when fighting the global financial crisis.

Wu, chairman of the Standing Committee of the National People’s Congress, China’s top legislature, made the remarks during his visit to east China’s Jiangsu Province from Thursday to Sunday.

He called for more efforts for the transformation of the mode of economic development, adjusting economic structure and boosting industrial upgrading.

“To accelerate transformation of the mode of economic development should be an important goal and strategic measure in carrying out the Scientific Outlook on Development,” Wu said.

The economic recovery should be based on an optimized and upgraded economic structure, and the fight against global financial crisis be a process of improving sustainablity of development, he said.

Wu stressed the importance of bringing in high-level human resources, advanced technologies and management expertise. He also encouraged domestic companies to acquire research and development institutions, sales networks, and famous brands, as well as to build production bases, in foreign countries.

Advanced technologies and new economic growth points are needed for transformation of development mode, economic restructuring and industrial upgrading, and also for China to participate in international competition, he said.

Wu also called for more efforts to develop emerging industries, including new energy, new materials, Internet of Things, low-carbon technologies and others, “to ensure China will not lose a new round of international economic competition.”

Human recourses are the key factor of industrial upgrading and nurturing new economic growth points, Wu said.

“We shall bear in mind that human resources are of utmost importance,” he said.

Wu visited industrial parks, scientific research institutions and workshops of enterprises in the cities of Nantong, Suzhou and Wuxi.