Banks – Page 95 – Sure A Not

China maneuvers to boost home prices as cycle peaks

On: September 3, 2023

In: Asia

In order to raise home prices ahead of the customary high period in late September and October, China’s economic officials have decided to reduce transaction numbers and mortgage interest rates for consumers.

According to a joint statement released by the People’s Bank of China( PBoC ) and the National Administration of Financial Regulation( NAFR ), the minimum down payment ratio for first-time homebuyers will be lowered from 30 % to 20 % and that for second, time buyers, it will decrease from 40 % to 30 %. & nbsp,

The minimum and nbsp mortgage rate for second-time homebuyers is set at 20 basis points higher than the loan prime rate( LPR ), which is the same as the initial rate. A schedule point is one tenth of a percentage point.

Analysts claimed that the new regulations, which went into effect on Friday, may help entice new homebuyers to enter the industry in first – and second-tier places, but not in lower tier people. Additionally, they claimed that the procedures would harm Chinese banks’ profit margins.

On Friday, A-shares of the Bank of China fell 1.07 % while Industrial and Commercial Banks’ shares fell 1.08 percent. China’s Agricultural Bank experienced a 0.58 percent decline. As a super storms known as Saola approached the capital, Hong Kong’s stock markets shut down.

The Shanghai Composite Index increased by 0.43 % on Friday to close at 3, 133. & nbsp, It came after the Caixin / S & amp, P Global manufacturing purchasing managers’ index( PMI ) rose from 49.2 in July to 51.0 in August, surpassing analysts’ predictions of 48.1 and representing the highest reading since February. A reading above & nbsp, 50, indicates expansion, whereas a reading below & bnp.50 indicates contraction.

In the meantime, the PBoC announced its intention to release liquidity totaling about$ 16.4 billion into the banking system by reducing foreign exchange reserve requirement ratios( RRRs ) by 200 basis points from 6 % to 4 %. & nbsp,

On September 15, the RRR cut, which supports the Chinese yuan and is targeted at & nbsp, will go into effect. & nbsp,

As of late August, Renminbi had depreciated by 5.3 % this year, reaching a value of about 7.29 yuan to one US dollars. The price of the currency increased by 0.4 % to 7.26 on Friday.

First payment

Besides their Thursday night speech on changes in lower payments and rates, the PBoC and NAFR said in another assertion that first – time homebuyers who had already borrowed mortgage loans before August 31 can restructure their rates with banks starting September 25.

” Many of the existing homeowners, who are having their mortgage rates at 5 – 6 %, will be entitled to slash their rates by more than 100 basis points”, said Zhang Dawei, chief analyst at & nbsp, Centaline & nbsp, Property Agency Ltd.” People who borrowed one million yuan ( US$ 137, 798 ) for 30 years can lower their monthly mortgage payment by 839 yuan from 5, 995 to 5, 156 yuan”.

Tang Guanghua, head of research at Shenyin & amp, Wanguo Futures Co Ltd, said the average interest rate on mortgage loans borrowed in the first half of this year is 4.18 %, compared with 5.15 % for those borrowed between 2019 and 2022. Tang said mortgage & nbsp, deals involving about 25 trillion yuan, or two – third of all the outstanding mortgage loans of 39 trillion yuan, will have to be renegotiated.

An unknown director for the PBoC told the media that the mortgage rate reduce will not only help homeowners save money, it will also prevent people from making first repayment, a problem that has troubled Chinese banks over the past two years. & nbsp,

Economic experts said since China’s home bubble burst in late – 2021, Chinese banks have slowly lowered their loan rates. They said many owners who were taking out mortgage loans at levels of around 5.8 % two years ago wanted to repay their loan debts earlier as they were angry that they could not like the lowered prices, which are close to 4 %.

They also pointed out that two years ago, people was like an interest rate of 6 – 10 % by investing in money management goods in China and use this income to pay their loan. They said that, with the yields of most success control products now falling below the mortgage rates, many people prefer to have early payments.

” Some Chinese lenders are very concerned about this flood of early payment”, He Yi, a Beijing – based financial journalist, says in an article published earlier this year. & nbsp,” Loan loans are one of the highest value property for lenders. A big wave of early payment will make lenders drop their high – quality property”.& nbsp,

He said many people seeking to make early repayment were asked by their & nbsp, businesses to go to their branches. He said some folks had waited for several weeks before their apps were handled.

” In the first quarter of 2021, individuals were also queuing up in front of banks to borrow loan money but now they are queuing up for payment”, He said.

The PBoC suddenly announced on Thursday that people could revise their loan deals with bankers from September 25. It means people will finally enjoy lower mortgage rates and be less determined to have early settlement.

Home and regional debt problems

Since April, the & nbsp, situation of China’s home markets has deteriorated as property developers cut selling prices to boost sales and replenish their cash for debt repayment. However, as more people experience unpredictable income, the total demand for real estate has decreased.

According to the National Bureau of Statistics( NBS ), 44 of China’s 70 largest cities saw year-over-year declines in new home prices in July. Out of the 70 locations, 42 saw a decrease in the cost of new homes in June.

It will be more challenging for property programmers to improve their financial situations as a result of the nation’s declining real estate prices, according to some academics. They claimed that the real estate problems would also depress property sale markets and exacerbate local governments’ debt issues.

They claimed that raising house prices and boosting homebuyer trust are the only ways to put an end to both problems.

According to Tang, the most recent reduction in maximum down payment ratios will help stabilize the real estate industry and drive up house prices in first – and second-tier places.

However, it is still unclear whether this action will increase real estate prices in lower-tier places. & nbsp,

In fact, early this year, Heze, a prefecture-level city in Shandong province( a fourth-tier city ), lowered the minimum down payment ratios for first-time homebuyers from 30 % to 20 %. However, the action did not have any impact.

Many real estate developers have reduced their selling prices by hundreds of thousands or even millions of renminbi, but their sales have not increased. A Hunan-based house author claims in an article that a decrease in the lower payment ratio will have no effect. All consumers are aware that if they make a down payment of 20 % rather than 30 %, they will eventually have to pay more attention.

He claims that many homebuyers won’t provide the markets until house prices start to rise once more.

Read: China’s corporate earnings are harmed by home and regional debt.

@ jeffpao3 Follow Jeff Pao on Twitter at & nbsp.

Govt to address gig drivers’ concerns

By: Barkar Nash

On: September 2, 2023

In: South-East Asia

What can be done may be carried out right away, the P declares.

3 September 2023 at 6:21 PUBLISHED

The new federal on Saturday took into account a few grievances and worries from motorbike taxi drivers and gave the Transport Ministry the responsibility of leading initiatives to improve their lot in life.

The third group of people Prime Minister Srettha Thavisin met to learn firsthand about the drivers’ lives after his visit was their members. At the Bangkok office of the Pheu Thai Party, the party ran into Mr. Srettha.

Suriya Jungrungreangkit, Deputy Transport Minister Manaporn Charoensri, and PM’s Office Minister Puangpet Chunlaiad were with Mr. Srettha.

Higher fuel prices were at the top of drivers’ list of complaints, but they also had worries about a lack of pick-up factors, the driver’s time restriction, and not having enough money to buy new cars or switch to electric motorcycles.

Mr. Srettha responded by saying that while the government is ready to solve their most urgent issues, it will take time. He said,” I’m asking for some time to address these issues, but whatever can be done will get done right away.”

According to Mr. Srettha, those who pass a wellbeing check may be permitted to continue working after allowing individuals over 60 to do so first. More discussions on this group’s social security protection with the Labour Ministry are required, he said.

Regarding economic support, he stated that the government will beg state-run banks to think about offering soft loans to drivers who want to buy new cars or switch to electric ones.

Another practical option was a revenue-sharing plan. In accordance with this proposal, drivers may be required to split their earnings in order to pay for the purchase of digital motorcycles rather than applying for loans.

In order to maintain good cure, Mr. Srettha also discussed the possibility of creating a localized ride-hailing mobile app for motorbike taxi individuals.

He asked the new travel minister to investigate and stated that this might require changing a number of rules.

In response, Mr. Suriya stated that a working committee will be established to investigate the problems, and the findings— which are anticipated in two months — will be presented to the government for review.

Mr. Srettha spoke on Friday on behalf of the fish sector in Samut Songkhram.

In order to promote tourism during the forthcoming high season, which lasts from November to March, he first met with representatives from the vacation business.

Climate change withering Chinaâs food security

By: Bolen C

On: September 2, 2023

In: Asia

Over the past four decades, China has made significant achievements in maintaining food security through institutional reforms, technological progress and increased investment in public agricultural infrastructure.

Between 1978 and 2022, the total quantity of agricultural output grew at the rate of 4.5% per year — more than four times the population growth over the same period. In 2022, China’s total grain output reached a historical high of 686.53 million tonnes, substantially boosting its domestic food supply.

But China still faces considerable challenges in ensuring food security, with demand for high-value and high-protein products increasing along with per capita income. Constraints in land and water supply, issues with small farms, an aging rural population and extreme weather events caused by climate change can disrupt food production and distribution.

Recent studies show that extreme rainfall has led to an 8% decrease in China’s rice crop yields over the past two decades, exacerbating food insecurity concerns caused by frequent pest shocks, severe droughts and rising carbon emissions.

To tackle the challenges arising from climate change, the Chinese government has implemented three sets of measures. These measures involve improving irrigation systems and other agricultural and transportation infrastructure. This includes initiatives such as channeling water from the south to the north and constructing high-standard farmland and water conservancy facilities.

The government has also invested in agricultural research and technological innovation, promoting the adoption of climate-resilient crop varieties. Additionally, efforts have been made to strengthen the insurance system for agricultural production.

China has instituted public policies to actively foster the transition towards a sustainable agricultural production system. In 2015, China introduced the strategy of “hiding grain in the ground and hiding grain in technology,” emphasizing the importance of capacity building rather than solely focusing on output targets in grain production.

Since implementing the “Action Plan for Zero-Growth in Fertilizer Use” in 2015, the use of fertilizers and chemicals in agriculture has reduced by one-third.

As part of its 14th Five Year Plan, China has launched a new initiative aimed at increasing domestic grain production by an additional 50 million tonnes. Several new policies have been implemented in conjunction with this campaign to enhance farmers’ climate resilience.

These measures include strengthening disaster prevention and mitigation capabilities by adopting ICT technologies, better utilizing germplasm resources, constructing seed banks, implementing full-cost insurance for grain producers in food-deficient counties and preventing the use of arable land for non-agriculture purposes.

China is also considering diversifying its food sources through increasing imports of feed grains and oil crops. In 2022, China imported 91 million tonnes of soybean and 20.6 million tonnes of maize, which accounted for about 14% of its total grain consumption.

View of imported soybeans in Nantong city, east Chinas Jiangsu province. Photo: Twitter Screengrab

While this campaign helps mitigate potential food shortages caused by climate-related disruptions in the short run by bolstering domestic grain self-sufficiency, the long-term effects of these policies on mitigating climate change remain uncertain.

China continues to confront significant pressure in maintaining stable grain production while simultaneously promoting green development and the sustainable utilization of resources.

While efforts have already contributed to conserving resources, reducing emissions and increasing agricultural productivity, fertilizers and chemicals are still being used in agriculture at a rate far above the global average.

Looking forward, China is on the right track for setting up its policy scheme for its agriculture sector to cope with increasing environmental risks.

In the next decade, new agricultural practices, such as precision agriculture and vertical farming, are expected to play a more prominent role in facilitating the transformation of food production in China towards a sustainable path.

Yet the future of agricultural production and food security depends not only on government policies and technological advancements but also on active private sector participation in adapting to climate change. International cooperation also plays a crucial role in addressing climate change and its impacts on the global food system.

China is actively working to improve farmers’ capacity to adapt by further reforming the agricultural production system. Collaborative efforts are also underway with other countries and regions in research, knowledge sharing and sustainable practices, including enforcing its carbon emission reduction scheme to secure a stable food supply for China’s population.

However, the ongoing development and implementation of strategies related to food security and climate change still have a long way to go.

Yu Sheng is Professor at the School of Advanced Agricultural Sciences and Deputy Director at New Rural Development Institute, Peking University.

Siying Jia is research associate at the School of Advanced Agricultural Sciences, Peking University.

This article was originally published by East Asia Forum and is republished under a Creative Commons license.

Global community steps up financial pressure on Myanmarâs military junta

By: Jing Write

On: September 1, 2023

In: Asia

The army-controlled central bank has also issued new 20,000 kyat banknotes, the highest denomination among Myanmar’s current currency notes.

But these moves, coupled with global action against the country, are hurting the Myanmar people.

“In the past, foreign direct investment thrived, and there were many factories, restaurants and hotels around. As service providers to them, we flourished alongside them,” said one Myanmar businessman, who only wanted to be known as “Myat”.

“But the current landscape is starkly different, with establishments shuttering. Investors are departing, and every sector is struggling. Big hotels are unhappy over their lack of prosperity. Large factories are suffering amid this unstable economic wave.”

Why China canât stop propping property

By: Bolen C

On: September 1, 2023

In: Asia

On November 11, 2022, the People’s Bank of China and the former Banking and Insurance Regulatory Commission issued a joint notice outlining 16 supporting policies for the real estate sector.

It was aimed at “maintaining orderly and stable real estate financing, improving financial services for building handover, handling risks of distressed real estate companies, and increasing financial support for housing rental.”

China’s overall real estate policy has relaxed since then. On July 10, 2023, the People’s Bank of China and the National Financial Supervision and Administration Bureau issued an additional notice to extend the policy period.

This reaffirms Beijing’s commitment to supporting the “healthy development” of the real estate industry. The extension involves two key points.

Financial institutions were encouraged to support existing real estate loans through loan extensions and adjusted repayments. Loans due before December 31, 2024, could be extended for an additional year without changing their classification.

Loans issued for unfinished projects before December 31, 2024, by commercial banks that adhere to the 2022 Notice will not be downgraded during the loans’ term. For newly issued loans that become non-performing, the institutions and personnel performing their duties can be exempted from liability.

Such persistent policy support for the real estate industry may create moral hazard and hamper the consumption-driven economic development model that Beijing wants. Some posit that the Chinese government still staunchly backs this industry because housing represents more than 70% of urban household wealth.

China’s property woes threaten systemic risks. Image: Facebook

A decline in housing prices could create negative wealth effects that weaken consumer demand and economic growth. But this is just one facet of the rationale. Major political economy explanations provide a more comprehensive understanding of this quandary.

China’s primary national interest is sustaining economic growth as China aims to become “a medium-level advanced nation” by 2035. China is now in the process of rapid urbanization and industrialization.

The country’s future GDP growth rate is expected to be 4-5% per annum — lower than it has been since the 1990s but still modest. The real estate industry has contributed significantly to China’s ‘economic miracle’, averaging 13.4% of GDP since 2013.

According to a Stanford University report, the sector “has remained around 26% of GDP since 2018” — a high portion by both international and domestic standards. Given the unstable external environment and the challenges of domestic economic transition, higher fixed asset investment and support for the real estate industry appear to be the Chinese government’s most viable options for the near and medium term.

Another explanation for why the government backs the real estate industry so readily is that Chinese local governments rely heavily on revenues generated from selling land to real estate developers. This land sales revenue, combined with real estate taxes, contributes nearly 40% of the government’s income.

This income is used for local economic development, including infrastructure projects. These infrastructure developments attract further investments, stimulate local economies and create jobs, forming a cycle of economic growth. The Chinese government, especially at the local level, has strong incentives to support and stabilize the real estate industry.

But a land sales-focused fiscal system could lead to myopic governmental decision-making. An over-reliance on the real estate sector has already led to an economic imbalance and raised long-term sustainability concerns. Still, as a significant source of fiscal revenue, the real estate sector is favored over other vital sectors.

The real estate industry is also a significant employer. According to the Fourth National Economic Census, the industry directly employed 12.64 million people as of 2018 — a 44% increase from 2013. Considering that the housing construction industry employed 35.91 million workers, the total number of people in real estate-related jobs in 2018 was close to 49 million.

During economic hardship, the role of the real estate industry as a significant employer becomes crucial. China’s unemployment rates in 31 large cities have increased more than 12% since 2018 due to the US-China trade war, the pandemic and domestic deflationary pressure.

Surveyed unemployment rates of workers between 16 and 24 years old have spiked from 11% in early 2018 to roughly 21% in June 2023. Widespread unemployment within the real estate industry could exacerbate economic damage and social problems. So for the Chinese government, a resilient real estate industry is critical for economic and social stability in the foreseeable future.

People crowd a street in Zhengzhou, in central China’s Henan province. Photo: CFP

Despite the Chinese government’s insistence that “houses are for living, not for speculation,” the government continues to support this sector due to its crucial contribution to China’s GDP, fiscal revenue and employment.

While there is a growing consensus that Beijing is unlikely to adhere to the credit-fuelled, debt-laden property development paradigm, it will likely continue propping up the real estate industry to avert systemic perils — given its many stakeholders — in the foreseeable future.

In 2011, I argued that the path of China’s economic transition would be bumpy. The journey remains intricate and protracted. The real estate sector has been instrumental in China’s rapid economic growth, but it presents complex challenges for this transition.

Balancing economic stability, employment preservation and the prevention of speculative bubbles has been – and will continue to be – a delicate task.

Yuhan Zhang is a scholar based at UC Berkeley where he specializes in China’s political economy and an Adjunct Assistant Professor at the G20 Center of Beijing Foreign Studies University’s International Business School.

A version of this article first appeared here in China’s Economy and the World.

This article was originally published by East Asia Forum and is republished under a Creative Commons license.

China risks losing the battle of market perceptions

By: Bolen C

On: August 31, 2023

In: Asia

President Xi Jinping is prodding China’s largest banks to slash rates on mortgages and deposits.

Yet here’s what’s most interesting about Beijing harnessing roughly US$5.3 trillion of mortgages, equivalent to the combined gross domestic product (GDP) of the UK and Italy: how little excitement the news generated in global markets.

One reason for the dearth of enthusiasm is that investors reckon China has way more yet to do to stabilize economic growth and contain its spiraling property crisis. The bigger question, though, is the extent to which Xi’s team is internalizing this message.

As Asia Times has reported extensively, Xi, Premier Li Qiang and the People’s Bank of China (PBOC) are determined to do more with less during this downswing. In past downturn cycles, including in 2008 and 2015, the response was of the “kitchen sink” variety: Beijing countered headwinds with overwhelming force to keep GDP growth north of 5% against all odds.

Fast forward to 2023, policy caution is winning the day. On the one hand, Xi’s team is reluctant to squander its success in recent years to reduce leverage across the economy. That includes the troubled property sector, which in the past would have been bailed out aggressively in the circumstances.

On the other, devaluing the yuan — an easy call amid past crises — could backfire this time. In doing so, Team Xi would set back progress in internationalizing the yuan’s use in trade and finance. A weaker yuan might make dollar-denominated debt harder to manage, increasing default risks. And it might cause a political riot in Washington as the 2024 US election cycle heats up.

That helps explain why Xi’s economic team is prodding banks to add liquidity around the margins rather than fire its stimulus bazooka again. By cutting rates on the nation’s 38.6 trillion yuan (US$5.3 trillion) of outstanding mortgages, Beijing is looking to support growth with less fanfare.

Yet Beijing is at risk of losing the perception battle.

Accurate or not, a narrative is taking hold that China’s growth “miracle” is over and that “Japanification” risks abound. It doesn’t make it so, but in these social media-driven meme-stock times, in which algorithmic trading trumps gut-feeling responses to global uncertainties, false narratives can take on a life of their own. And damaging ones can metastasize quicker than Xi’s inner circle may realize.

Along with unfavorable demographics, China confronts slipping exports, growing risks from the decoupling/derisking dynamics of recent years and persistent questions about China’s true innovative powers.

At the moment, “there is confusion and, as long as there is confusion, then there’s lack of credibility and that means investors are more likely to stay away,” says strategist Seema Shah at Principal Global Investors, a US-based capital market company. Because there is a lack of confidence, Shah argues, “the only way out is to step up fiscal stimulus.”

The ways in which Beijing’s 2020 clampdown on Jack Ma and fellow private tech firm founders backfired remains a cautionary tale. Beijing’s spin that scrapping a $37 billion initial public offering by Ma’s Ant Group was about “reform” fell flat with many global investors. Markets read it as the political empire striking back at billionaires who thought they had real power.

Jack Ma getting loose during an event to mark the 20th anniversary of Alibaba in Hangzhou. As Ma was achieving an ever-higher profile as the most recognizable face in Asian business, Chinese regulators abruptly slammed on the brakes. Photo: AFP / Stringer

China has been in damage control mode ever since. In March, Xi handed the rebuild-investor-trust portfolio to new Premier Li. Since then, Li has taken pains to argue Beijing is stepping up efforts to normalize China’s regulatory environment. The goal, Li said, is to “reduce the costs of compliance and promote the healthy development of industry.”

Li added that “on the journey of building a modern socialist country, the platform economy has great potential” and that tech chieftains should “push to increase their international competitiveness and dare to compete on the global stage.”

Though such rhetoric checks many boxes, the recent bankruptcy of China Evergrande Group and default drama surrounding developer Country Garden has global investors on crisis watch. The question becomes: Have China’s property woes already been largely priced into the market? Or might additional bad developer news drive shares and the yuan even lower?

This is surely the scenario China is pushing on global investors. But what drowns out this message is China’s demographic trajectory as the population ages and waning export competitiveness dampens the longer-term outlook.

The fallout from US President Joe Biden’s China-focused trade policies is doing some serious damage to Asia’s biggest economy. This, too, runs afoul of conventional wisdom. It’s fair to say, though, that Biden’s meticulously targeted moves to limit Chinese access to vital technology are taking a toll.

To be sure, many will argue that Xi’s economic team is running circles around Biden’s. Yet it’s hard not to wonder if Biden’s tech curbs have been the equivalent of pouring sugar into China’s economic gas tank.

Whereas Donald Trump’s tariffs generated headlines, Biden’s death-by-a-thousand-cuts approach is slowly but surely slamming China’s export engine.

That’s dreadful news for the global economy. “China’s huge economy is the planetary body around which all others in Asia revolve,” says economist Vincent Tsui at Gavekal Dragonomics. “That dependency stems from trade linkages – whether as suppliers of raw materials or functioning in some complex supply chain – and from financial relationships through capital flows and currency markets. Hence, to borrow an old adage, when China sneezes, Asia catches a cold.”

The onus is on Beijing to convince markets it’s acting boldly enough to combat slowing growth and deflation. This means moving faster to strengthen capital markets, incentivize innovation, grow the size of the private sector and build bigger social safety nets to encourage consumption over savings.

In a recent note to clients weighing recent stock trading reforms, economists at Nomura Holdings said: “We believe these latest measures are in line with the directive from the July Politburo meeting, when the authorities pledged to invigorate China’s capital markets, but do not represent a meaningful increment in policy support for reviving the real economy.”

China’s stock market reforms may or may not revive investor interest. Photo: Sohu.com

As such, explains Nomura chief China economist Ting Lu, “the measures over the past weekend are not enough to stem the downward spiral” and their impact will be short-lived if not followed by measures for supporting the real economy. “Without additional and more aggressive policy stimulus,” Lu says, “these stock-focused policies alone have little sustainable positive impact.”

In China, what’s needed more than stimulus is credible steps to build a more dynamic and resilient financial system. Along with short-term stimulus, policymakers must look past today’s uncertainty and implement bold and credible reforms, many analysts argue.

The worry, says professor Victor Shih at the University of California, San Diego, is that because Beijing’s policymakers “believe the financial system to be so fragile, they fear any shock could cause a crisis.” If “authorities are so afraid of any sign of instability,” Shih explains, prospects may dim for major upgrades.

The political will for change in Beijing is still unclear, says analyst Charlene Chu at Autonomous Research. The problem is that engineering the transition from state sector-driven growth to a private sector-innovation model is difficult because of how “it directly conflicts with the top-down manner in which the Communist Party typically manages the economy.”

For all the talk of Chinese contagion, global markets aren’t yet panicking. Economist Jay Bryson at Wells Fargo & Co argues that a “debt-induced economic downturn in China likely would not trigger another global financial crisis ala 2008.” That’s partly because the US, Europe and Japan, for all their challenges, are more stable than they were 15 years ago.

Economist Brad Setser at the Council on Foreign Relations adds that there “aren’t realistic channels for financial contagion” from the second-biggest economy to the US. As such, he sees “no real scenario” in which China “disrupts” American markets in ways the US Federal Reserve can’t handle.

Yet the depth of China’s GDP downshift is surprising to even many of the naysayers. And it’s exacerbating concerns about widening cracks in the financial system.

In recent days, Beijing stepped up scrutiny of Zhongrong International Trust’s books, sending markets buzzing about a state-led rescue of the notoriously opaque shadow banking system. Indeed, concern is growing about the health of China’s $2.9 trillion trust sector as the property slump deepens and GDP flatlines.

Zhongrong International Trust is at the heart of China’s opaque shadow banking industry. Photo: Handout

“Demand from key trading partners is diminishing. Both the US and Eurozone Manufacturing PMIs have fallen below the expansion threshold of 50 for nine and 14 consecutive months, respectively,” says economist Taimur Baig at DBS.

As a result, the PBOC’s balancing act might become more challenging over time. The central bank’s recent cuts “suggest that the authorities’ concern about the state of the macroeconomy is mounting,” says economist Robert Carnell at ING Bank. “But that doesn’t mean that they are about to undertake unorthodox policy measures.”

For now, at least. So far, new PBOC Governor Pan Gongsheng is putting financial retooling ahead of stimulus. For example, according to the state-run Securities Times, Pan’s team is devising new plans to give private businesses increased access to funding.

Ma Jianyang, deputy head of the PBOC’s financial market department, says it’s now a “clear goal” to increase private firms’ share of loans.

At the same time, financial news outlet Cailian reports that Beijing will increase support for private companies seeking to go public or execute secondary share offerings.

The Shanghai Stock Exchange, meantime, is working to streamline the IPO process, increase the efficiency of corporate acquisitions and facilitate restructuring efforts among tech companies.

China Inc isn’t without its bright spots at the moment. Shenzhen-based Huawei Technologies cheered mainland markets with a savvy new US$960 smartphone this week. It was the latest sign that China’s biggest companies are finding creative ways around US tech sanctions.

Though Chinese foreign direct investment is likely to decline through year-end, says analyst Karl Shen at Fitch Ratings, “FDI into the high-tech manufacturing sector is likely to stay more resilient.”

Shen notes that year-on-year declines in total FDI inflows accelerated to 9.8% in the first seven months of 2023 versus a 3.3% drop in the first four months. “We believe the Chinese government’s latest plan to further attract foreign investment is unlikely to produce a significantly positive effect in the short term,” Shen says.

But, he adds, “We expect high-tech manufacturing to remain a bright spot, supporting FDI inflows in the medium term. High-tech manufacturing FDI has continuously grown faster than total FDI and high-tech FDI since 2021 and remained resilient in 2023 – growing at 25.3% year-on-year” in the January-July period.

Overall, though, China faces growing market perceptions that its responses to domestic troubles and collateral damage from trade tensions are unequal to the challenge.

It doesn’t make it so. But Xi, Li and Pan would be wise to read the global room and signal that Beijing is well on top of things. At the moment, this message is getting lost in translation.

Follow William Pesek on X, formerly known as Twitter, at @WilliamPesek

Police hunt scam suspects linked to family killing tragedy

By: Barkar Nash

On: August 29, 2023

In: South-East Asia

Man forced to pay colleague’s car loan, wife tried to help but was deceived by scammers and losses mounted

PUBLISHED : 29 Aug 2023 at 18:42

Police are hunting for five suspects who owned mule accounts associated with a scam gang linked to a family tragedy in Samut Prakan, where a man despondent over debts killed his wife and two sons and then slashed his own throat.

The Cyber Crime Investigation Bureau (CCIB) has found evidence of transactions made by Wipaporn Racha, the 44-year-old wife of Sanit Dokmai, who committed the killings, to eight accounts linked to the five suspects.

The money was withdrawn and transferred to a country abroad, Pol Gen Sompong Chingduang, a special adviser to the Royal Thai Police, said on Tuesday.

Police are reviewing security video to identify the suspects who withdrew the money and coordinating with banks to look into the transaction routes, he added.

Arrest warrants have been issued for the five suspects who opened the mule accounts.

The tragedy unfolded at the family’s three-storey townhouse on a road behind Wat Nam Daeng in tambon Bang Kaeo of Bang Phli district and was reported to local police at about 1am on Monday.

Police found the bodies of two boys, aged 9 and 13, and their mother, who had deep neck and body wounds. Mr Sanit, 41, had a deep slash across his neck and wrist but survived and was taken to hospital.

Pol Lt Col Rangsan Kamsuk, acting superintendent of the Bang Kaeo Police, said the tragic chain of events began when Mr Sanit was asked by his employer to act as a guarantor for him as he wanted to refinance his car. The employer did not repay the loan and filed for bankruptcy.

A lawsuit was then filed against Mr Sanit, who had to repay around 600,000 baht as the guarantor or risk losing his house.

He thought he could clear the debt if he could get a small loan. His wife wanted to help, so she looked for a personal loan on social media and became a victim of a scam gang.

Police said she wanted a loan of about 100,000 baht but was tricked by scammers and ended up borrowing a total of 1.7 million baht from colleagues and other sources and transferred the money to the fraudsters.

Later, creditors were demanding repayment from his family every day. The damage from the scam could have been the last straw leading to the tragedy, said police.

Police hunt scam gang linked to family killing tragedy

By: Barkar Nash

On: August 29, 2023

In: South-East Asia

Man forced to pay colleague’s car loan, wife tried to help but was deceived by scammers and losses mounted

PUBLISHED : 29 Aug 2023 at 18:42

The money was withdrawn and transferred to a country abroad, Pol Gen Sompong Chingduang, a special adviser to the Royal Thai Police, said on Tuesday.

Police are reviewing security video to identify the suspects who withdrew the money and coordinating with banks to look into the transaction routes, he added.

Arrest warrants have been issued for the five suspects who opened the mule accounts.

The tragedy unfolded at the family’s three-storey townhouse on a road behind Wat Nam Daeng in tambon Bang Kaeo of Bang Phli district and was reported to local police at about 1am on Monday.

A lawsuit was then filed against Mr Sanit, who had to repay around 600,000 baht as the guarantor or risk losing his house.

He thought he could clear the debt if he could get a small loan. His wife wanted to help, so she looked for a personal loan on social media and became a victim of a scam gang.

Later, creditors were demanding repayment from his family every day. The damage from the scam could have been the last straw leading to the tragedy, said police.

Setting sights on Southeast Asia | FinanceAsia

By: Marcus Ching

On: August 29, 2023

In: Asia, Finance, South-East Asia

Global investors have always been drawn to Southeast Asia’s growth story, as one of the world’s fastest developing economies and home to a relatively youthful population of 600 million.

This year’s Asean Summit chair, Indonesia, pitched that the region would continue its role as an epicentre for expansion. Even amid the backdrop of a challenging external environment – from the Russia-Ukraine war, to rising inflation and interest rate escalation – there is still substance behind the Southeast Asian story.

East Ventures, a venture capital (VC) firm based in the region, raised a total of $835 million in the past year across various strategies, achieving in May the first and final close of its debut Growth Plus fund, at $250 million. The vehicle aims to support innovators within the company’s ecosystem of portfolio companies that demonstrate strong potential.

“The successful fundraise shows that with the right strategy, management team and mandate, capital is still available,” Roderick Purwana, managing partner at East Ventures, told FinanceAsia.

The East Ventures team is experiencing promising traction across its portfolio – 60% of its growth-stage start-ups have delivered a positive earnings before interest, taxes, depreciation and amortisation (Ebitda) or are in the process of doing so; and more than 40% have a secured a cash runway beyond 2025. At the end of May, the company had invested in more than 20 start-ups so far this year, across sectors ranging from waste management and mental health, to digital mortgages.

In total, the firm has $1.5 billion in assets under management (AUM) across 12 funds that are active across Japan and Southeast Asia. In the latter, it has invested in over 300 companies and was an early backer of Indonesian start-ups, Traveloka and Tokopedia, which merged with GoJek, in 2021.

The firm sees particular opportunity in Indonesia and is among the most active in the market, even though Purwana admits that pace of activity has slowed due to market sentiment.

Money continues to flow into Southeast Asia, as evidenced by the accumulation of $10.4 billion in the region’s start-up ecosystem, in 2022. According to Cento Ventures’ recent Tech Investment report, last year marked the strongest performance of the market for three years on record. In spite of a global slowdown, it finished up on par with pre-pandemic investment levels.

“Southeast Asia will face or is already facing a correction, but the ramifications of this are not as profound as those being experienced by other emerging regions like Latin America and India,” Dmitry Levit, partner at Cento Ventures, told FA from Singapore.

“It remains to be seen whether this contraction is justified by the return to a pre-2022 baseline, or overdone, as a result of investor panic; but as a firm, we take the view that when valuations are low enough, we should invest in such a market.”

Financing the future

Levit and his VC peers remain focussed on digital financial services. It is the fintech sector that they view as key for Southeast Asia, having accounted for 46% of overall liquidity in 2022, according to the firm’s report.

The Cento Ventures team has capitalised on this opportunity through recent investment in Indonesia’s Finfra, which provides embedded finance solutions; and Philippine cross-border payments start-up, Aqwire.

In May, Singapore-based fintech start-up, Jenfi, secured one of the highest fundraising milestones across the region to date, raising $6.6 million in a pre-series B round led by Japan-headquartered Headline Asia. The round also saw participation from existing investors, such as Monk’s Hill Ventures.

“The opportunity in Southeast Asia – especially across traditional working capital and SME loans – is huge. Banks tend to deprioritise this segment as it is riskier, so participation opens up to technology companies like Jenfi, to act as alternative lenders and to offer something that is differentiated but also commercially viable,” said Susli Lie, partner at Monk’s Hill Ventures. She is also the co-founder of ErudiFi, a tech-enabled education financing company.

Jenfi co-founder and CEO, Jeffrey Liu, attributes the firm’s recent successful fundraise to experience. With a background in finance, he founded GuavaPass in 2015, before setting up Jenfi in 2019, alongside Justin Louie. His endeavours in the start-up segment have seen him replicate the process every one to two years.

“I always thought it was a numbers game, but as I’ve built track-record, I’ve realised that it’s more important to focus on quality conversations and connections,” Liu said.

“From start to finish, Jenfi’s pre-Series B capital raise took six months. We had a shortlist of funds that we wanted to talk to from day one, and the fact that investors were already aware of us supported entry into real deal conversations,” he added.

To date, Liu’s firm has raised $40.2 million, which includes $15.2 million in equity, but he thinks it is unlikely that the Jenfi team will fundraise again, before 2024. While he shared that the firm had managed to shield from some of the market challenges during this recent round, unfortunately, this is not the case for the majority of other start-up peers.

Jenfi’s business enables digital native companies – including e-commerce or software-as-a-service (Saas) firms – to scale their ambitions by funding their growth and marketing expansion plans. So far, they have deployed $30 million across 600-plus companies.

“We’ve noticed in the last six months that the VC-backed companies we aim to support are in more challenging positions, in the sense that they have less of a cash runway. We’re hearing that it’s a lot harder for them to secure capital and that there are delays in their overall fundraising processes,” he explained.

Going for growth or pursuing profitability?

This perspective is shared by Lie, whose Southeast Asian VC firm has invested in early-stage technology companies since its foundation in 2014. Reports indicate that Monk’s Hill Ventures has raised at least $380 million across three funds and it has invested in over 40 fast-growing technology companies in Southeast Asia, including Singapore logistics company, NinjaVan; and Indonesian rural e-commerce start-up, Dagangan.

“In this market environment, we see that later-stage deals are taking longer to complete, which means that there is even more of an imperative to ensure as long a cash runway as possible,” she shared.

Before the current cycle, Lie saw deals close in as little as a couple of weeks to a month, but she cautions that this is not the norm. In this environment, she believes that start-ups need cash on balance sheet to support funding for at least 12-months of activity.

“Where our portfolio companies are concerned, the collapse of Silicon Valley Bank (SVB) made indirect impact by way of sentiment. The bank had always been a pioneer in terms of its product offerings and for its activity to be curtailed without anyone else stepping in to take on the whole business, this will alter the flow of capital throughout the entire ecosystem,” said Lie.

“There are fewer investors that are actively deploying compared to the past. For those that are, they want to take a bit more time to conduct due diligence and get to know prospective investments better. Fewer months of runway translates to weaker negotiation power,” she added.

A clear path to profitability is also imperative in this part of a cycle. With it, access to capital remains open; without it, Cento Ventures’ Levit believes that start-ups are exposed to very steep valuation discounts.

Southeast Asia’s top tech companies, Grab and GoTo, which listed in 2021 and 2022 respectively, have yet to show investors that they can stem the red ink. However, this factor is not unique to the region.

“This isn’t a Southeast Asia-specific problem; we see it happening globally, as well. For high-growth tech companies, the path to profitability is a long one,” said Niklas Amundsson, partner at the Hong Kong office of placement agent, Monument Group.

Levit’s perspective indicates that by going for growth, a start-up downplays its push for profitability. However, Purwana believes that both elements are of equal importance and can progress in tandem.

“Sometimes, people think that it’s a question of deciding on growth or profitability, but it shouldn’t be either-or. Ultimately, any company must work to ensure profitability – whether one year, five years or 10 years into existence. They have to be able to turn a profit eventually,” he shared.

Curiosity and caution

As investors seek exposure to start-ups that can sustain growth momentum and pursue profitability, they are keeping an eye on developments in the generative artificial intelligence (AI) space.

KPMG’s 1Q23 Venture Pulse report highlighted investor interest in AI as being relatively robust in Asia. In particular, the sector drew attention during the first quarter of 2023 on the back of the global buzz generated by ChatGPT.

“AI start-ups that can demonstrate potential at industrial scale or in terms of commercial application and adoption – especially in the areas of advanced manufacturing, transportation, energy management, health tech and process optimisation and productivity – will attract investment dollars,” said Irene Chu, partner and head of the New Economy and Life Sciences division at the Hong Kong base of KPMG China.

She underlined that in light of the current tech talent shortage across Asia, the use of AI to improve productivity is more relevant and encouraged, than ever. But with curiosity, comes caution.

“We are excited about the prospect of generative AI as a transformative technology, but we are also cautious around its capabilities and potential negative ramifications,” said Purwana.

East Ventures has been active in the AI space since August last year, when it invested in the seed round of Bahasa.ai, which aspires to build a natural language processing and understanding engine for the Indonesian language. Since ChatGPT has come onto the scene, it has not completed any new investments in the generative AI space, but the segment is one that remains closely watched.

Levit views the space as the “next wave” – an area of tech that every company will need to consider moving forwards: “I have a feeling we will have to fight long and hard against the false dichotomy around AI-based versus non-AI-based businesses, similar to what we first saw with mobile phones; the offline to online transition; and B2B and B2C. The narrative will be stronger than substance in the short-term, but substance will be stronger than narrative in the long-run.”

To unlock its full potential, the region’s tech industry will need to find a new route to innovation, Purwana suggested.

While some view Southeast Asia as a pioneer in the tech space, he feels that “Southeast Asia will have to grow beyond being a ‘copycat market’ for tech, which is a significant gap to address”.

However, he shared that it is reassuring to look at China.

“In the early days of its developing tech sector, China turned to the US for inspiration and duplication. But today, this is no longer the case, especially in fintech sector. In this arena, China is probably more advanced than the US,” Purwana added.

Perhaps one of the best illustrations of this point, is China’s success in leapfrogging the use of credit and debit cards to drive a digital payments revolution, via digital wallets and QR codes. Alibaba (through Alipay) and Tencent (through WeChat Pay) are two of the first-movers to gain status in one of the world’s largest and truly digital economies.

Hong Kong’s offer of the missing puzzle piece

The prospects for Southeast Asia’s start-up scene remain bullish. However, the money being deployed into VC funds largely comes from high-net-worth individuals (HNWIs) and family offices. Asia’s deepest pockets – the institutional investor community – have yet to dip their toes in the start-up scene in a meaningful way, Amundsson noted.

For him, the vital, missing component is: the exit. Many of the region’s top tech companies prefer a US versus domestic listing, as the region lacks an obvious, successful IPO route for up-and-coming technology companies. However, Amundsson does see some opportunity in Hong Kong, which he considers to be further ahead of its Southeast Asian peers in this regard, and continues to advance the development of an attractive and liquid capital market.

On March 31st, new listing rules for specialist technology companies came into play in the special administrative region (SAR). The Chapter 18C regime extends to start-ups active in new economy industries such as AI, alternative energy and agritech. While this is set to attract more listings from outside the China region, analysts expect this only to materialise in the next three to five years.

“I am excited about the new 18C regime launched in Hong Kong because it covers sectors that are going to be transformative, with the potential to solve some of the most challenging problems we face, around climate change, food security and clean energy. Despite the slowdown in IPO activity globally, the new regime offers an attractive platform for those innovative Southeast Asian start-ups that aspire to solve these global issues,” Chu said.

However, while the market capitalisation threshold remains high, it might be some time before these companies list. It also remains to be seen whether Hong Kong’s bourse provides a realistic and viable route for Southeast Asia’s start-up community.

As Asean focusses on finding its next epicentre of growth, the region’s technology sector offers perhaps the greatest opportunity for investors, as it continues to navigate short-term challenges like the collapse of SVB and works to address concerns around the development of next-generation AI.

Reviewing the region’s potential, Lie concluded, “Most of emerging Southeast Asia is moving away from manufacturing towards the service industries, and this is where we’re going to see the adoption of technology that really drives growt

Commentary: Amid S billion money laundering probe, a look at how dirty money is washed through online gambling

Commentary: Amid S$1 billion money laundering probe, a look at how dirty money is washed through online gambling

By: Marcus Ching

On: August 28, 2023

In: South-East Asia

MIXERS AND TUMBLERS

To make matters worse, the rise of “mixers” and “tumblers” – terms used to describe paid service platforms that exist to obfuscate the source of cryptocurrencies – add a layer of complexity when attempting to trace the origins of funds.

Think of “mixers” and “tumblers” as washing machines for dirty money. Put in dirty money, run a washing cycle, and out comes clean money. One prominent example of what “mixers” and “tumblers” could be is an online gambling website.

There are two common modus operandi adopted by money launderers.

First, criminals in Country A gather cryptocurrencies through online scams, extortions, and malware. For example, criminals use victims’ credit cards to buy bitcoins without going through banks’ two-factor authentication safety measure. The criminals then use the illicit cryptocurrencies to purchase credits from an online gambling platform.

Criminals in Country A play a few rounds online to create legitimate-looking gambling records, then withdraw the credits and convert them into cash in Country B. This method meets with little to no pushback from online gambling sites with weak anti-money laundering (AML) compliance and supervision.

In the second more complex method, criminals operate in close coordination. This entails criminals selecting an online gambling platform, for example online poker, that accepts multiple players.

Criminals in Country A play against their affiliates in Country B and lose deliberately. Country B affiliates then withdraw the winnings and convert them into cash. To succeed, criminals must avoid detection by both the online platform’s AML and anti-fraud systems, as well as other non-affiliated players in the game.

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First payment

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MIXERS AND TUMBLERS