Country Finance China Released August 2011 The Economist Intelligence Unit 750 Third Avenue New York NY 10017 USA Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For 60 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. The Economist Intelligence Unit delivers its information in four ways: through its digital portfolio, where the latest analysis is updated daily; through printed subscription products ranging from newsletters to annual reference works; through research reports; and by organising seminars and presentations. The firm is a member of The Economist Group. 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China 1 Contents 3 Regulatory/market assessment Currency spot market Futures and forward contracts 3 Regulatory/market watch Options 4 China at a glance Swaps 5 Fundamental indicators Exotics Bank loans 6 Banks and other financial institutions Time deposits Overview Certificates of deposit Bank regulators Treasury bills Regulatory watchlist Repurchase agreements Domestic banks Commercial paper Foreign banks Overdrafts Investment banks and brokerages Banker’s acceptances Development and postal banks Supplier credit Offshore banks Intercompany borrowing Insurance companies Discounting of trade bills Pension funds Mutual funds and asset-management firms 72 Medium- and long-term instruments/regulations Venture-capital and private-equity firms Overview Factoring firms Securities markets Financial leasing companies Portfolio investment Other institutions Trading, clearing and settlement Corporate governance 45 Corporate case study Listing procedures 46 Monetary and currency policies/regulations Recent initial public offerings Overview Underwritten offerings Base lending rates Rights offerings Monetary policy Private placements Currency GDRs/ADRs Loan inflows and repayment Alternative markets Repatriation and remittance of capital Bank loans Restrictions on trade-related payments Financial leasing 55 Short-term instruments/regulations Corporate bond issues Overview Private placement of notes Cash management Structured finance Payment-clearing systems Infrastructure financing Receivables management Trade financing and insurance Payables management 96 Key contacts Charts 5 Financial assets/GDP 5 Financial regulatory system 70 Deposits 5 Private-sector credit/GDP 8 Financial sector assets & liabilities 70 Indicative investment yields 5 Deposits/GDP 49 Base interest rates 76 Stockmarket indices 5 Financial risk 51 Month-end exchange rates 78 Equity holdings 5 Banking system openness 69 Indicative borrowing rates 88 Loans Country Finance 2011 www.eiu.com © The Economist Intelligence Unit Limited 2011 2 China Enquiries We welcome your comments and questions on Country Commerce. 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For editorial queries, please contact: To m E h rba r Tel: + 1 212 554-0629; Fax: + 1 212 586-0248 (New York) Managing editor, e-mail: [email protected] Country Commerce Regional editor for Belgium, Czech Republic, France, Germany, Hungary, Italy, Netherlands, Norway, Poland, Russia, Sweden, Switzerland, the United Kingdom Debarati Ghosh Tel: + 1 212 698-9752; Fax + 1 212 586-0248 (New York) Managing editor, e-mail: [email protected] Country Finance Regional editor for China, Hong Kong, India, Indonesia, Japan, Malaysia, Pakistan, Philippines, Singapore, South Korea, Taiwan, Thailand, Vietnam Veronica Lara Tel: + 1 212 698-9739; Fax: + 1 212 586-0248 (New York) e-mail: [email protected] Regional editor for Argentina, Brazil, Canada, Chile, Colombia, Costa Rica, Ecuador, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Panama, Peru, Spain, United States, Uruguay, Venezuela Andrew Salome Viteritti Tel: + 1 212 698-9722; Fax + 1 212 586-0248 (New York) e-mail: [email protected] Regional editor for Australia, Egypt, Greece, Iran, Israel, Kenya, New Zealand, Nigeria, Saudi Arabia, South Africa, Turkey For subscription queries, please contact: Sal Genna Tel: + 1 800 938-4685 (US and Canada only) or 1 212 698-9745; Fax: + 1 212 586-0248 (New York; Americas subscriptions) e-mail: [email protected] Amy Ha Tel: + 852 2802-7288 or 852 2585-3888; Fax: + 852 2802-7638 or 852 2802-7720 (Hong Kong; Asia subscriptions) e-mail: [email protected] Adriana Defillipi Tel: + 44 (0)20 7576 8181; Fax: + 44 (0)20 7576 8476 (UK and all other subscriptions) e-mail: [email protected] Country Finance 2011 www.eiu.com © The Economist Intelligence Unit Limited 2011 China 3 Regulatory/market assessment • The Chinese monetary agencies, including the People’s Bank of China (PBC—the central bank) and the China Banking Regulatory Commission (CBRC—the industry watchdog), were involved by mid-2011 in implementing a government decision to cool the economy by reining in excessive lending. This followed an aggressive extension of credit in the wake of the 2008 global financial crisis, aimed at keeping growth momentum high in China despite dramatic slowing in key export markets, especially in North America and Europe. 6 • Effective June 1st 2011, China introduced new rules ordering banks to keep an average daily loan-to-deposit ratio of 75%. Previously, they only had to document that this ratio was kept at specific dates. 7 • China’s top state-owned commercial banks moved aggressively to improve their capital base with bond and rights issues in 2010. The banks succeeded in raising their capital-adequacy ratios after expansive lending in the wake of the global financial crisis of 2008–09. 15 • Foreign banks increased their presence in China in 2010, reflecting an optimistic view of business in the country. They reported after-tax profits of Rmb7.79bn for all of 2010, up 20.8% from a year earlier, and posted a nonperforming loan ratio of 0.53% at end-2010, down from 0.85% a year earlier. 21 • Foreign activity in the investment banking business has heated up. For example, in June 2011 Morgan Stanley (US) launched Morgan Stanley Huaxin Securities, a brokerage joint venture with China Fortune Securities. This followed the opening in May 2011 of Huaying Securities, a joint venture between Royal Bank of Scotland (UK) and Guolian Securities. 24 • In August 2010 China issued detailed regulations about permitted investment by insurance companies. It set the maximum investment in both unsecured corporate bonds and shares and equity funds at 20% of the insurer’s total assets, respectively. 30 • Chinese venture capital investment has rebounded after a slow period caused by the global financial crisis; retail, biomedicine and clean technology are likely to be the largest targets of investment in 2011. The global financial crisis has brought about a decisive change in venture-capital financing patterns in China, as most of the funding is now denominated in the Chinese currency, reflecting weaker liquidity of the US dollar. 39 • Within less than a year, a booming offshore market in the renminbi had developed in Hong Kong as of end-July 2011. This is fuelled partly by speculators betting on a continued rise in the value of the Chinese currency. 63 • China allowed companies to enter into currency options agreements effective April 2011. A cautious attitude characterises the move, including rules requiring enterprises to document a need to hedge. Additionally, with effect from March 2011, China allowed banks and other financial institutions to carry out cross-currency swaps on behalf of their clients. 67, 68 Regulatory/market watch • New tougher rules on banks’ capital ratios based on Basel II and III will be introduced beginning in January 2012. As of end-July 2011, China is working on a list