Tag: Business

In the latest sign that corporate debt levels in China pose a threat to the broader economy, Chinese regulators on Friday were forced to halt trading in bonds issued by Evergrande, the country’s second-largest property developer. Concerns that the company will be unable to continue making payments on its obligations prompted a huge sell-off by investors, overwhelming exchanges.

The rush to unload bonds issued by the company — some were selling for as little as 26% of their face value — came after a report from Bloomberg that said two major trust companies that have made large loans to Evergrande had demanded immediate repayment.

The crisis at Evergrande comes just days after another major Chinese firm, China Huarong Asset Management, released a long-delayed earnings report showing it had lost $15.9 billion last year and that its debt-to-equity ratio at one point totaled an eye-popping 1,333%.

State-owned financial firms engineered a bailout of Huarong late last month to avoid a collapse that could have been catastrophic for the economy. However, there has been no indication of a similar soft landing for Evergrande, which has been selling off assets in a rush to raise the cash needed to satisfy lenders.

The companies’ response

Huarong told investors last Sunday that it believes it will be able to continue paying its creditors, and that in the “near future” it will begin selling off non-core business units to raise additional cash and replenish its capital. The company had already sold off more than half of its non-financial subsidiaries.

Evergrande, earlier this week, was forced to warn investors in an earnings statement that the group “has risks of defaults on borrowings and cases of litigation outside of its normal course of business,” adding, “Shareholders and potential investors are advised to exercise caution when dealing in the securities of the group.”

Nevertheless, a company statement said, “The group will do its utmost to continue its operations and endeavor to deliver properties to customers as scheduled.”

Debt defaults rising

The problem of unsustainable debt is not limited to huge firms like Evergrande and Huarong. In both 2019 and 2020, Chinese firms defaulted on more than $20 billion in debt, and analysts believe that 2021 is on pace to set a new record.

“Debt, whether public or private, does seem to be an Achilles heel for China, and accounting practices and reporting are murky,” said Doug Barry, a spokesperson for the U.S.-China Business Council.

“The state-owned enterprises are huge, with some of them hugely inefficient. It’s a problem that has caught the attention of government regulators, an important first step in fixing it,” Barry said. “The private sector is important to China’s future growth and care must be taken to avoid clamping down too hard on it.”

Beijing cracking down

In one sense, the spate of defaults can be seen as good news, insofar as it signals that the Chinese government has recognized that past practices were unsustainable. For years, large money-losing Chinese companies have been kept afloat by waves of new loans, often issued with the government’s blessing.

For the past several years, regulators in China have been trying to crack down on these so-called “zombie” companies, which divert assets from profitable enterprises, creating a drag on the economy.

Beijing’s increasing willingness to let firms default and go out of business, while painful in the short term, could be laying the groundwork for a stronger economy in the future. However, weak transparency requirements for onshore debt issuance make the real depth of the debt problem hard to discern.

‘China has a serious zombie problem’

“The Chinese economy has been suffering from excessive non-financial corporate debt for a long time,” said Tianlei Huang, a research fellow at the Peterson Institute for International Economics. “As a result, China has a serious zombie problem. Across the country, there are probably tens of thousands zombie firms that are persistently making losses but kept alive only by continuous bank credit and government subsidies.”

According to the Bank for International Settlements, at the end of 2020, the total debt issued to non-financial corporations in China equaled 161% of the country’s GDP. That was significantly higher than the average for G-20 countries (102%) and even the average for emerging market economies (119%).

“Excessive non-financial corporate debt may pose a threat to the stability of the broader financial system,” said Huang, who corresponded with VOA by email.

Bankers getting nervous

Over the years, Chinese banks, sometimes with the encouragement of government officials, have issued hundreds of billions of dollars in loans to Chinese firms. As defaults increase, banks’ ability to absorb loan losses will deteriorate.

There are signs that bankers are getting nervous. In July, China Guangfa Bank moved to freeze some of Evergrande’s assets out of fear that the company would be unable to satisfy a loan set to come due next March.

Evergrande’s struggle is particularly worrisome to banks because of what it says about the real estate development sector more broadly. Loans to real estate ventures make up a large share of the loan portfolios of Chinese banks, so if Evergrande is unable to service its debts, that will call into question the quality of the other real estate-based assets on bank balance sheets.

Difficult balancing act

Until recently, there had been an implicit assumption among many lenders and investors that large distressed companies in China were considered “too big to fail” and would be bailed out by the government.

By allowing a number of these firms to default on their obligations over the past few years, said Huang, “Beijing was attempting to signal to all credit market participants that ‘too big to fail’ no longer holds and that it intends to allow more ill-managed state firms to default on their bonds.”

The bailout of Huarong this summer shows that, at least in some cases, Beijing will still feel the need to step in.

“The approach the Chinese regulators are taking is to expose risks in bond defaults gradually and at the same time to avoid anything that may explode abruptly, threatening financial stability,” said Huang. “This means there will be fewer government bailouts going forward, but for companies viewed as systemically or strategically important, bailouts will probably continue.”

Source: Voice of America

BSP-registered foreign portfolio investments (FPIs)1 for June 2021 yielded net inflows of US$335 million resulting from the US$2.1 billion gross inflows and US$1.8 billion gross outflows for the month. This is lower than the net inflows of US$417 million recorded in May 2021.

The US$2.1 billion registered investments for June 2021 reflected a 44.4 percent (or by US$648 million) increase compared to the US$1.5 billion recorded in May 2021. About 91.0 percent of investments registered were in

PSE-listed securities (investments mainly in food, beverage and tobacco companies, property firms, banks, holding firms and retail companies) while the remaining 9.0 percent went to investments in Peso government securities. The United Kingdom, United States (US), Singapore, Luxembourg, and Norway were the top five (5) investor countries for the month with combined share to total at 74.2 percent.

Gross outflows for the month (US$1.8 billion) were higher by 70.1 percent (or by US$730 million) than the level recorded for May 2021 (US$1.0 billion). The US received 64.8 percent of total outflows.

Domestic developments during the month included investor reaction to: (i) the approval by the House of Representatives on the third and final reading of the Bayanihan to Arise as One Act which aims to provide financial aid to be given to all Filipinos amid the COVID-19 pandemic; (ii) positive data on foreign direct investments in the country; (iii) unemployment rate for April 2021; (iv) inflation rate for May 2021 which remained unchanged at 4.5 percent since March; (v) government’s decision to maintain quarantine restrictions in Metro Manila and some nearby provinces; (v) International Monetary Fund’s downgrading of the country’s growth outlook for this year; (vi) the BSP’s decision to maintain policy rates; and (vii) the progress in the nation’s inoculation program.

Year-on-year, registered investments rose by 106.6 percent from the US$1.0 billion recorded in June 2020. Gross outflows were higher than the outflows recorded a year ago (US$1.3 billion or by 41.2 percent). Furthermore, the US$335 million net inflows was a reversal compared to the US$235 million net outflows recorded for the same period a year ago.

Transactions for BSP-registered FPIs from 1 January to 30 June 2021 yielded net outflows of US$106 million, lower than the US$3.3 billion net outflows noted for the same period last year (1 January to 30 June 2020) amid the ongoing impact of the COVID-19 pandemic to the global economy and financial system. This has been accompanied by international and domestic developments such as the: (1) new US administration; (2) progress of vaccine rollout in the country; (3) continuing quarantine measures to contain the surge in COVID-19 infections; (4) the country’s inflation breaching the 2.0 to 4.0 percent target which is consistent with the outlook that such will persist during the first half of this year due to supply side pressures; and (5) the slowing down in the contraction of the country’s GDP which posted a decline of 4.2 percent year-on-year in Q1 2021 from a high of 17.0 percent in Q2 2020. GDP is expected to grow in the second quarter of the year with the support of key legislations, the CREATE and the FIST Acts.

Registration of inward foreign investments with the BSP is optional under the rules on foreign exchange transactions. It is required only if the investor or its representative will purchase foreign exchange from authorized agent banks and/or their subsidiary/affiliate foreign exchange corporations for repatriation of capital and remittance of earnings that accrue on the registered investment. Without such registration, the foreign investor can still repatriate capital and remit earnings on its investment but the foreign exchange will have to be sourced outside the banking system.

Source: BANGKO SENTRAL NG PILIPINAS

MANILA, PHILIPPINES (26 July 2021) — The Philippine government held successful biddings for civil works contracts for a combined 40.5 kilometers (km) of viaduct structures for the South Commuter Railway Project, a major flagship project the Asian Development Bank (ADB) is preparing for funding support for consideration by its Board of Directors in the fourth quarter of this year.

The submission and opening of bids on 14–15 July 2021, which included contracts for elevated stations and a 22-hectare train depot, attracted a record 34 bids from a total of 23 local and international engineering and construction firms. ADB provided advisory services on the bidding process under its Infrastructure Preparation and Innovation Facility.

“We congratulate the Department of Transportation and the Philippine National Railways (PNR) on the successful bidding turnout, which reflects robust local and global interest and confidence in the Philippines’ Build, Build, Build infrastructure development program and for a strong post-pandemic economic recovery,” said ADB Philippines Country Director Kelly Bird.

The South Commuter Railway Project, also called PNR-Calamba, is a key component of the 147-km North–South Commuter Railway (NSCR) system that will reshape the country’s mass transportation network. It will cut travel time from the Clark International Airport in Pampanga province north of Metro Manila to Calamba City in the south from more than 4 hours to just 1.5 hours. The entire railway system is expected to carry up to 1 million passengers daily.

The project is included in ADB’s country operations business plan for the Philippines. It links to another ADB-funded railway, the Malolos–Clark Railway Project approved by ADB in May 2019, a modern, elevated railway line that will connect northern provinces to Metro Manila. It will feature the country’s first airport express train, with the railway connecting to Clark International Airport. Five civil works contracts worth $2.5 billion under the project were awarded in 2020 and are now under implementation.

“We are pleased to partner with the Philippine government in this transformative project that will have substantial multiplier effects on the economy and regional development,” Mr. Bird said.

ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 68 members—49 from the region.

Source: Asian Development Bank

BANGKOK– Thailand’s auto producers churned out 134,245 vehicles in Jun, up 87.22 percent from a low comparative base last year, the Federation of Thai Industries (FTI) said today.

On a monthly basis, however, auto production fell 4.23 percent from May, because of a shortage in certain auto parts, according to the FTI.

In the first half of the year, the country’s auto production totaled 844,601 units, an increase of 39.34 percent from the same period last year.

Auto sales on the domestic market rose 15.07 percent from one year earlier to 61,758 units last month.

Thailand is a regional auto production and export base. It exported 83,022 finished vehicles in Jun, up 65.88 percent from one year earlier, according to the FTI data.

The FTI raised its forecast for Thailand’s auto production to a maximum of 1.6 million units this year, up from its previous forecast of 1.5 million units. It also expected this year’s auto exports to reach up to 850,000 units, up from 750,000 units.

Source: NAM NEWS NETWORK

Thailand’s super rich may ultimately have to pay more in taxes to address the $45 billion in government borrowing during the coronavirus pandemic, World Bank economists said Thursday, as the country struggles to roll out vaccines to flatten the curve of its worst COVID-19 outbreak.

The kingdom, one of Asia’s least equal societies, is home to 52 billionaires, according to the Shanghai-based Hurun Rich List, the most in Southeast Asia, and outstripping Italy, Japan and Singapore.

Many have multiplied their fortunes during the pandemic — including Dhanin Chearavanont, Thailand’s richest man, with net worth of $18.1 billion on the 2021 Forbes list.

Conversely, millions of Thais have become unemployed — including an uncounted army of informal workers from tuk-tuk drivers to street vendors — while household debt has surged to 90% of gross domestic product.

Yet tax rates remain relatively low, including a 20% corporate tax — only Singapore and Brunei have a lower rate in Southeast Asia — while capital gains on asset sales go untaxed in Thailand.

With millions stricken by debt and the risk of new coronavirus variants compounding a stuttering vaccine rollout, the World Bank warned the government may be forced to go back to the banks for more cash to feed into the economy.

To plug the record borrowing authorities could turn to “high net worth individuals” once the course for recovery is set, said Kim Edwards, a World Bank senior economist, adding that some “generous deductions” could be reformed.

“Personal income tax collection is quite a way short of what it could be… tax compliance and potentially increasing top tax rate, increasing capital gains and property taxes,” could also be ways to eat into the deficit, he added, during a virtual press conference on the release of the bank’s semiannual report on the country’s economy.

Neighboring Malaysia has a 24% corporate tax rate, while the Philippines goes up to 30%.

“It is less clear why these tax reforms should not work in Thailand,” Birgit Hansl, the bank’s country manager for Thailand, told reporters.

Thailand’s business clans are deeply dependent on politics and make regular public donations to the monarchy often televised in great ceremony led by King Maha Vajiralongkorn, by many estimates the world’s richest monarch, with a private fortune valued at between $30 billion and $70 billion.

Tax increases for the rich in an economy dominated by monopolies are among the calls of pro-democracy protesters, whose rallies are again simmering as the economy tanks and sinks into a public health crisis.

Stunted recovery

In its “Thailand Economic Monitor – the Road to Recovery,” the bank said Thailand’s economy could grow by 2.2% this year if it is able to swiftly batter back the virus that has killed 2,938 since April and led to 343,352 infections as the alpha and delta variants rip across the country.

Authorities have virtually locked down Bangkok and several other provinces, warning of a looming crisis at hospitals where ICU beds are now in short supply.

However, about 3.4 million people, or just 4.8%, of the nearly 70 million population, have been fully vaccinated, according to Thai health authorities.

If the virus continues to spread, the World Bank said the country’s growth could be reduced to a measly 1.2% this year, well below regional projections.

The country is trying to lure back vaccinated visitors, starting with the islands of Phuket and Samui, which reopened on Thursday as the country looks to resuscitate a key sector that accounted for around a fifth of GDP before the pandemic.

Thailand recorded 40 million tourist arrivals in 2019, but the expected number in 2021 has been lowered sharply from a previous forecast of 4 million to 5 million to just 600,000, the bank said.

The arch-royalist government of Prime Minister Prayuth Chan-ocha has pumped $45 billion into the economy to provide relief to the unemployed and stir spending with $15 billion about to be dispersed in coming weeks.

The report praised the government’s massive stimulus, which began in April of last year.

It forecast that a strong rebound in global demand will likely bring an export boom to Thailand, giving the government the ability to borrow further should it need to.

However, the latest outbreak has thrown a cloud over the recovery.

Vaccines are seen as the only way out of the pandemic, but the biggest risk is that vaccine progress “is not as fast as we hoped for,” Hansl said.

Source: Voice of America

China’s exports grew at a much faster pace than expected in June as solid global demand led by easing lockdown measures and vaccination drives worldwide eclipsed virus outbreaks and port delays.

Imports growth also beat expectations, though the pace eased from May, with the values boosted by high raw material prices, customs data showed Tuesday.

Because of Beijing’s efforts in containing the pandemic earlier than its trading partners, the world’s biggest exporter has managed a solid economic revival from the coronavirus-induced slump in the first few months of 2020.

Exports in dollar terms rose 32.2% in June from a year earlier, compared with 27.9% growth in May. The analysts polled by Reuters had forecasted a 23.1% increase.

“Exports surprised on the upside in June, shrugging off the impact of the temporary Shenzhen port closure and other supply chain bottlenecks,” said Louis Kuijs, head of Asia economics at Oxford Economics.

China’s trade performance has seen some pressure in recent months, mainly because of a global semiconductor shortage, logistics bottlenecks, higher raw material and freight costs.

All the same, the global easing of COVID-19 lockdown measures and vaccination drives appeared to underpin a strong increase in worldwide demand for Chinese goods.

The strong shipment numbers last month underlined some solid factory surveys overseas. A measure of U.S. factory activity climbed to a record high in June, while Euro zone business growth accelerated at its fastest pace in 15 years.

The data also showed imports increased 36.7% year-on-year last month, beating a 30.0% forecast but slowing from a 51.1% gain in May, which was the highest growth rate in a decade.

China’s customs administration spokesperson Li Kuiwen said the country’s trade may slow in the second half of 2021, mainly reflecting the statistical impact of the high growth rate last year.

Li, speaking at a news conference in Beijing earlier in the day, also said that imported inflation risks were manageable, but China’s trade still faces uncertainties because of the global pandemic.

“But overall we think China’s foreign trade in the second half still has hopes of achieving relatively fast growth,” he said.

China posted a trade surplus of $51.53 billion for last month, compared with the poll’s forecast for a $44.2 billion surplus and the $45.54 billion surplus in May.

China’s trade surplus with the United States swelled to $32.58 billion in June, Reuters calculations based on customs data showed, up from the May figure of $31.78 billion.

Top officials from China and the United States started exchanges in June to address mutual concerns, while the Biden administration is conducting a review of trade policy between the world’s two biggest economies, ahead of the end of their Phase 1 deal at the end of 2021.

Beijing has started to purchase corn from the United States in June, while it still falls well behind its pledge in Phase 1 deal to buy more agriculture products from the United States.

Source: Voice of America