360° Coverage : China Construction Cos Default Trumps Positive Economic Data

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China Construction Cos Default Trumps Positive Economic Data
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China Construction Cos Default Trumps Positive Economic Data

Apr 1 2014, 4:03pm CDT | by

China’s official purchasing managers index came out on Tuesday over 50, following back to back declines.  But a new default today trumped any positives in the market.  The iShares FTSE China (FXI)...

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17 weeks ago

China Construction Cos Default Trumps Positive Economic Data

Apr 1 2014, 4:03pm CDT | by

China’s official purchasing managers index came out on Tuesday over 50, following back to back declines.  But a new default today trumped any positives in the market.  The iShares FTSE China (FXI) exchange traded fund rose just 0.34%, underperforming the MSCI Emerging Markets Index by nearly 90 basis points.

The good news came in the form of China’s PMI index tracking above 50 for the first time this year.  That is surely better than a decline, but investors are not getting too excited as credit problems trump all.

The National Bureau of Statistics said PMI rose to 50.3 in March, the first increase since November, beating consensus estimates of 50.1. The increase was led by the PMI for large enterprises, which rose to 51 in March from 50.7 in February.  China’s economy is moving like a tortoise. And as the credit crisis unfolds, the Central Bank will likely get tighter with bank lending.

Nevertheless, the headline reading beat the HSBC PMI which fell to 48 in March from 48.5 in February.

Jian Chang, an economist for Barclays Capital in Hong Kong, said official PMI gives a better picture of overall economic conditions because of its greater sample size: 3,000 companies versus about 420 in the HSBC survey.  ”It is also noteworthy that the improvement in the NBS PMI came about despite the drag from domestic restructuring efforts – as the government tries to reduce excess capacity in five major industries,” Chang said.

Today’s PMI data should come as a relief for policymakers, as it suggests that the economy is not slowing as quickly as earlier data indicated.

Last week, Premier Li Keqiang said that the government has policies ready to counter any volatility this year, as well as the capability to maintain growth in a reasonable range. As it is, investment banks have been reducing their growth forecasts.  China International Capital Corporation, one of the largest investment banks in China, lowered their growth forecast to 7.3% from 7.6% last week.

Beijing is going to take more action to stabilize growth while also being mindful of credit defaults, which averaged one per week last month — from the overbuilt steel sector to real estate and the first-ever bond default by a Chinese company, Chaori Solar Energy. The maker of solar cells and panels defaulted on a $15 million coupon payment to bond holders in mid-March.

Then on Tuesday, another default was reported, this time in the junk bond space when Xuzhou Zhongsen Tonghao, a manufacturer of construction materials defaulted on a $29 million bond, according to a report in The 21st Century Business Herald, a financial newspaper based in Guangzhou.

Since mid-March, investors have expected the government to accelerate planned investment projects and roll out stabilization measures to ensure its “bottom line” for 7.4% growth is achieved.  However, the government will have to be careful with fixed asset investment going forward. It cannot afford more overcapacity in sectors as diverse as solar and construction if the one-year old Keqiang government is to build a sustainable economy.

China won’t let its economic growth slip too fast and has been successful at avoiding at hard landing, according to the front-page forecast in the March 28 edition of The Kiplinger Letter. 

Odds favor a 7.2% to 7.5% expansion this year, down from 7.7% last year. That’s not slow enough to damage the U.S. economy, shaving just a tenth of a percentage point from GDP, at most. Other countries — mainly commodity exporters — will be less fortunate.

Looking ahead, Kiplinger forecasts slower economic gains in China.  By 2020, a pace of 6% to 7% a year is likely as the Chinese economy matures.

See: Another Default In China As Construction Company Misses Bond Payment – The New  York Times

What Do Chinese Defaults Mean To Chinese Financial Markets? – CFA Institute

China’s Central Bank Battles Bubbles – Bloomberg Businessweek/>/>

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Update
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7 weeks ago

RM47mil KWSG contributions still unclaimed

Jun 9 2014 7:54am CDT | Source: Business Times Malaysia

KUALA LUMPUR: About RM47 million of contributions in the Teachers Provident Fund (KWSG) still remain unclaimed, the Dewan ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
9

7 weeks ago

Gold shop lost almost RM1mil

Jun 9 2014 3:50am CDT | Source: Business Times Malaysia

KANGAR: A gold shop owner lost almost RM1 million after after the safe on in his shop was broken into by robbers ...
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Update
8

7 weeks ago

Motion to debate MAS losses in Dewan Rakyat rejected

Jun 9 2014 3:39am CDT | Source: Business Times Malaysia

KUALA LUMPUR: AN emergency motion to debate the losses incurred by Malaysia Airlines last year, amounting to RM1.2 billion was rejected by the D ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
7

7 weeks ago

MH370 Tragedy: Hisham: RM27.6 mil spent on 1st phase of SAR

Jun 9 2014 2:11am CDT | Source: Business Times Malaysia

KUALA LUMPUR: Malaysia spent some RM27.6 million in its first phase of the search operations for missing Malaysia Airline flight MH370, said Acting Transport Minister, D ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
6

7 weeks ago

9.1m litres of diesel seized in a month

Jun 8 2014 1:11am CDT | Source: Business Times Malaysia

PUTRAJAYA: The Domestic Trade, Cooperatives, and Consumerism ministry has seized some 9.1 million litres of diesel and property worth RM58 million since mounting ‘Operasi Diesel Selatan’ in the ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
5

7 weeks ago

Girl, 9, awarded RM2.78m compensation for medical negligence

Jun 6 2014 4:56am CDT | Source: Business Times Malaysia

KUALA LUMPUR: A nine-year-old girl who suffered brain damage during her birth at a government hospital was awarded over RM2.78 million ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
4

7 weeks ago

Malaysia's total trade in April up 12pc

Jun 5 2014 11:52pm CDT | Source: Business Times Malaysia

KUALA LUMPUR: Malaysia's total trade in April 2014 rose by 12 per cent from a year ago to RM123.86 billion due to growing trading activities, International Trade and Indust ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
3

8 weeks ago

Works Ministry to spend RM20m for upgrading works at 50 accident black spots

Jun 4 2014 11:35pm CDT | Source: Business Times Malaysia

JOHOR BARU: The Works Ministry will implement upgrading works at 50 accident prone locations in the country that have been identified this year involving an allocat ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
2

8 weeks ago

Najib launches loan scheme for Ramadan traders

Jun 4 2014 10:24pm CDT | Source: Business Times Malaysia

PUTRAJAYA: Prime Minister Datuk Seri Najib Razak today launches RM45 million Ramadan Bazaar Scheme 2 ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
1

8 weeks ago

Residents bring up objection against Kidex to Suhakam

Jun 4 2014 4:49am CDT | Source: Business Times Malaysia

PETALING JAYA: A group of 20 Petaling Jaya residents held a meeting with the Human Rights Commission of Malaysia (Suhakam) over their objection against the proposed RM2.2 billion Kinrara Damansara Skyway (Kid ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 

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