THE TEMASEK REVIEW

There has been a flurry of reports in the past few months reported in the global media but not in Singapore’s mainstream media of a possible bubble forming in China.

We may be seeing another bubble about to burst caused by China’s real estate and infrastructure growth propped up by massive borrowings from China’s local banks.

Singapore’s GLC bank and SWF have invested heavily in China’s finance/banking and real estate industries. Our ruling elite’s blind pursuit for GDP growth, so that they can have high bonuses and increased salaries, may have put the local citizens’ hard-earned money (in the form of taxes and bank deposits) at risk.

It is no wonder Singapore is ranked 6^th in public debt (https://www.cia.gov/library/publications/the-world-factbook/rankorder/2186rank.html) even though it was purported we have a very high GDP growth. We lost billions of dollars caused by poor judgment by the very people personally picked by the ruling elite.

The following reports, if to be believed, paints a worrying picture that we may not be able to recoup the billions we have invested in China should the property bubble burst.

Short History

Temasek to buy more assets in China
Posted online: 2006-09-05

Temasek Holdings Pte, the largest overseas shareholder in Chinese banks, plans to add to its more than S$8 billion ($5.1 billion) of investments in the country, reducing reliance on its home market of Singapore.

The state-owned company, which has shares in two of China’s four biggest banks, may buy property and other companies that can benefit from China’s expanding middle class, Frank Tang,head of Temasek’s investments in China, said in an interview.

China is at the forefront of Temasek’s efforts to boost returns by diversifying its $65 billion portfolio away from Singapore, where it’s the main shareholder in the city’s biggest bank, airline and telephone company. Temasek is betting China can reform its state-run banks and manage a soft-landing of its economy, which expanded 11.3% in the second quarter.

“We are very confident about the leadership of the government as well as the leadership of the banks to carry out the reform,” Tang, 39, said in the interview in Hong Kong. “We saw that they are both determined to do it and they are also capable of doing it. The will, in the end, gave us a huge amount of confidence.”

Temasek, founded in 1974 to nurture development of Singapore companies, has in the past four years invested in at least a dozen Chinese companies, buying 4.65% of Bank of China, the nation’s No. 2 lender, and 5.9% of China Construction Bank, the third biggest. Since 2005, it has spent more than S$7 billion on Chinese lenders, about 90% of its spending in the country.

That includes a 3.9% stake in China Minsheng Banking Corp., the nation’s biggest privately controlled lender.

Temasek isn’t alone US and European lenders, including Citigroup Inc., Bank of America Corp. and HSBC Holdings Plc, have spent more than $16 billion in the past two years buying into local banks.

“There is a good reason why global financial investors such as Temasek are flocking to buy Chinese banking assets, given China’s booming economy, high lending margins that are regulated by the state,” said Andy Xie, chief Asia economist with Morgan Stanley in Hong Kong.

“Still, the flip side is their bad loan problem and corruption, which is a rising risk.” Temasek’s unrealised gains from its banking investments have surged as bank shares have risen. It paid $2.47 billion for the 5.9% stake in China Construction, which is now worth $5.7 billion based on the closing share price on Sept. 1, according to Bloomberg calculations. The company paid $2 billion for 4.8% of Bank of China. The stake has since been diluted to 4.65% and is worth $4.9 billion.

“Banking is a good proxy of the economy,” said Eric Chen, North Asia president for Asia Financial Holdings Pte, a Temasek unit invested in banks. “You see the rise in the middle class and that means their wallets are going to grow. So, in 15 years, our investments are going to be worth a lot of money.”

Bank of China last week reported first-half profit rose 28% to a record 19.5 billion yuan ($2.5 billion), buoyed by rising demand for loans.

Still, the industry suffers from bad loans, a legacy of the Communist Party’s use of banks to prop up unprofitable state-owned enterprises, and corruption.

(My note: China’s currency imbalance is caused by its large saving (trade) surplus and an artificial low currency value caused by its risk-averse nature to lend its own currency which results in a currency mismatch with the global economy. Moreover, with its low currency value, it attracts money inflows but inhibits outflows)

Why a bubble may be forming?

Is China another real estate bubble?

By Chris Isidore, senior writerApril 15, 2010: 3:14 PM ET

NEW YORK (CNNMoney.com) — It may be the world’s last real estate bubble, one that is still inflating rapidly. And its end could become the “pop” heard ’round the world.

A growing number of economists are worried that a bubble in Chinese real estate has the potential to rattle the world economy that is still struggling to recover from the shock of 2008’s global meltdown.

Soaring real estate prices in China’s coastal cities, with prices rising as much as 50% a year, have lifted some rents to levels comparable to Manhattan and driven a building boom of luxury apartments and office space many fear far outstrips demand. 

“China is clearly in an asset bubble. It’s almost like it didn’t learn its lesson,” said Nariman Behravesh, chief economist for IHS Global Insight.

That rapid growth in real estate has led to 10% annual economic growth in China. Among the world’s major economies, China is alone in surging at a blistering pace — a nearly 12% growth rate in the first quarter of 2010. And when the bubble bursts, naysayers warn, the results could be felt far outside China’s borders. 

Developed economies like Germany, Japan and the United States have become more dependent on China’s consumer spending and growing middle class. If that growth is wiped out by a bubble bursting there, a major driver in global economic growth will vanish.

“There are so many economies that are benefiting from rapid growth of exports to China,” said China expert John Makin, a visiting scholar at the American Enterprise Institute. “If that were to suddenly slow, that’s a big impact. If they handle it badly, it has the potential to even risk a global double dip recession. I don’t think that will happen, but China’s record in the area is not great.”

Fear of the unknown

Those worried about the bubble say if China’s real estate boom disappears, so will the economic growth that the world has been counting on.

“The problem is the housing they’re building is not the housing they need. They’re building luxury high rises the masses can’t afford,” said short seller Jim Chanos, the head of Kynikos Associates hedge fund and one of the most prominent bears about the future of the Chinese economy.

“When it pops, there’s clearly going to be knock-on effects we can’t see right now.”

While China’s government limits foreign banks from doing business there, a lack of transparency in the Chinese banking system has led to plenty of debate about the extent to which foreign banks are invested there. (My note: Thanks to our liberal China-Singapore trade agreement, our GLC banks have invested heavily in China since in the agreement, there are no restrictions imposed)

“I think the limits on their market access are actually helpful in this case, but [big western banks] will find ways around them,” said Simon Johnson, a professor at the Massachusetts Institute of Technology and a former chief economist for the International Monetary Fund. “Our banks, when they get into trouble, will have to be bailed out again, and that’ll be enormously costly.”

Bank of Japan’s Shirakawa Sees Chinese Bubble Risk

By Tatsuo Ito June 18, 2010, 5:33 AM EDT

June 18 (Bloomberg) — Bank of Japan Governor Masaaki Shirakawa told policy makers today that China’s strengthening recovery is spurring concern that the economy is in a bubble, a Cabinet Office official said.

Shiraakwa made the remarks to Cabinet members who gathered in Tokyo today to discuss the government’s economic assessment, Keisuke Tsumura, a parliamentary secretary at the Cabinet Office who was at the meeting, said at a press conference.

China, the fastest-growing major economy, has been driving the global recovery. Exports jumped the most in six years in May, property prices rose at a near-record pace and inflation jumped to the highest in 19 months, putting pressure on Chinese authorities to let the yuan rise and increase interest rates.

Japan has relied on demand from China, the country’s biggest overseas market, to fuel its own export-led rebound. Shipments abroad contributed the most to Japan’s 5 percent annualized expansion in the first quarter. China grew 11.9 percent in the period, the fastest pace in almost three years.

Shirakawa said policy makers in China are addressing the risk of overheating, according to Tsumura. The central bank governor spoke in response to a question by Chief Cabinet Secretary Yoshito Sengoku.

Hitoshi Iwabuchi, a Bank of Japan spokesman, declined to comment on the remarks relayed by Tsumura.

U.S. Pressure

U.S. Treasury Secretary Timothy F. Geithner said at a congressional hearing on June 10 that a more flexible yuan would allow China to pursue “a more effective, independent monetary policy, which is particularly important now, with China’s economy facing a risk of inflation in goods and in asset prices.”

The People’s Bank of China has refrained from raising interest rates this year, instead trying to tame lending by increasing banks’ reserve requirements on three occasions. Banks extended 639.4 billion yuan ($94 billion) of new loans in May, more than 600 billion yuan median estimate of economists.

The Shanghai Composite Index has lost 23 percent this year, the third-worst performer among 93 global indexes tracked by Bloomberg, on concern government measures to rein in housing prices and the European debt crisis will damp growth. The gauge dropped 1.8 percent today, the most in three weeks.

Chinese officials may introduce a trial real-estate tax after already tightening sales rules for developers, raising some down-payment requirements and restricting loans for multiple-home buyers, according to state media.

Are we looking as a debt crisis in China?

China’s local government debt—what is the problem?

SUBMITTED BY LOUIS KUIJS ON WED, 2010-03-24 23:49

China’s massive stimulus spending has raised widespread concerns about local government finances. Local governments have ramped up infrastructure spending since late 2008, while they are also under pressure to spend more on health, education, and social security, for which they are in large part responsible. With monetary conditions likely to become tighter this year and land revenues possibly slowing down or even declining, local government finances may become strained.
At the heart of the concerns are local government investment platforms. These are state-owned-enterprise (SOE)-type entities set up to finance infrastructure construction and urban development—sometimes also called Urban Development and Construction Companies. Set up in part to circumvent rules prohibiting local governments from borrowing, their investment activities are mainly financed by land sale revenue and bank financing, often using as collateral land requisitioned from local residents.

The amount of new lending to such platforms in 2009 has been very large, but this is not a new phenomenon. The China Banking Regulatory Commission (CBRC) recently estimated that their bank debt increased by RMB 1.3 trillion in 2009 to RMB 5-6 trillion at end 2009, with estimated additional committed lines of RMB 3 trillion. The possible total of RMB 9 trillion is equal to 27 percent of GDP, while some other estimates of the total liability are even higher. But a large portion of this debt was accumulated before 2009 and so far no systemic problems have occurred as a result of it.

Problems would emerge if the infrastructure projects do not generate enough growth and revenues to pay the operating and interest costs and repay the loans. While the obligations are technically a liability of the platforms, they can become a liability of the local government in the case of an explicit or implicit guarantee from the local government or via subsidies to cover operating costs of projects that are otherwise not financially sustainable. To date, some local governments have at times gotten into financial problems. But infrastructure construction in China has by and large created additional economic growth and the loans were repaid using higher future tax and land transaction revenues.

Looking ahead, if things go well, this could continue to be the case. But, after the large increase in investment and debt in 2009, it is important to reduce the flow of new activity. In the medium term, the major risks lie in low(er) growth and volatile land sale revenues. New challenges are higher relocation fees for resettled people and the possibility that some of the second generation of infrastructure that is now being emphasized—sewage systems, environmental projects, public housing—may not boost economic growth and revenues as much as roads and ports have done in the past.

Such financial problems would affect future local government investment spending and could lead to a rise in non-performing loans (NPLs). Local government fiscal activity is broadly divided in 2 parts. Local government general budget spending is largely current spending, financed by local current revenues and central government transfers and refunds. The spending on infrastructure and urban development is extra-budgetary, financed by land sale revenue and other non-current revenue, notably bank loans. Since 2007, land sales and related expenditures are reported in local governments’ funds budgets, but they are not consolidated with the general budget of local governments. Thus, lower extra-budgetary revenues—because of policy tightening or a correction in the property sector—would mostly affect infrastructure construction and urban development.

Localities that have relied heavily on land revenues and that have accumulated a lot of debt may face liquidity problems and could default on their debts, leading to NPLs for the banks. While this is a problem for all banks, it is probably particularly a problem for smaller, local level banks and credit cooperatives. These are likely to have weaker risk management, may be more susceptible to political pressure, and tend to have fewer low risk loans in their portfolios. For the large, nation-wide banks, NPLs are likely to be less of a problem, as their portfolios tend to be better balanced and their lending to infrastructure has tended to go to larger projects with support from the central authorities.

The authorities in Beijing are aware of the problems and have taken some measures to contain new local government lending and mitigate the risks. The People’s Bank of China (PBC) and the CBRC have both warned of potential problems and called on banks to strengthen risk assessment of lending to local government projects. PBC governor Zhou warned in January that “if [this] is handled poorly it could result in local government financing platforms being unable to repay their debts, creating bad assets for banks and other problems. ” Liu Mingkang, China’s chief bank regulator, asked banks to “fully assess and effectively guard against risks from local government financing platforms.” Some individual banks subsequently announced increased vigilance towards this type of lending. News reports also indicate that the central government is preparing new rules on local government guarantees, with suggestions that letters of guarantee or comfort will not be valid anymore.

Given China’s healthy growth prospects, with an appropriate policy response these problems are unlikely to be large enough to cause systemic fiscal or banking sector stress. The scale of the debt of the local government investment platforms and the possible problems created by it in the coming years will depend on economic growth and on the effectiveness of the government’s measures to contain new local borrowing. If large portions of the debt end up being taken over by the government, that will add significantly to the official government debt. China’s fiscal position appears to be sound enough, though, to take that on, especially when compared to the fiscal position of most other major economies. Also, as a surplus country China has more room in deciding how to deal with such problems, since the government debt is largely held domestically.  

Nonetheless, reforms may be indispensable to mitigate such risks in the future. Overall, China ‘s model for infrastructure financing has served the country well. But, reform of the intergovernmental fiscal system is needed to increase and diversify the revenue base of local governments, making it rely less on land sale revenues. And, local fiscal activity needs to become more transparent. It would be good to include land sale revenues and the infrastructure and urban development activity in local government budgets.

Is there a Debt Binge?

CHINESE DEBT BINGE IS FUELLING A DANGEROUS PROPERTY BUBBLE – SMH OPED 16 JUNE 2010

Published on: June 16, 2010

Kevin Rudd may privately badmouth China, but his economic strategy is heavily dependent on continued strong Chinese growth. His earlier return to surplus depends on the new mining tax delivering massive new tax revenues. His new tax also obliges the Commonwealth to reimburse 40 per cent of unrecovered losses if a project fails. So were Chinese growth to slow, not only would mining tax revenues decline but, in a double whammy to the budget bottom line, if projects were to fail the Commonwealth would be called on to pick up its share of losses.

So how sound is the government’s assumption that the China boom will continue for many years?

China’s extraordinary growth and development is awe inspiring. But it is capable of making the same mistakes of excessive spending and borrowing as any other country.

As the historian Niall Ferguson recently observed, blow-outs in public debt are always and everywhere ”consequences of political weakness …Excessive expenditure and insufficient taxation, failures to make decisions about unsustainable fiscal policies are political, they are not the results of profound economic weakness.”

Working out the true level of government debt in China is very difficult. Nobody believes the official figures of about 20 per cent of GDP. But how much higher is it?

Victor Shih, of Northwestern University in Illinois, is the leading analyst of government debt in China and he has pointed to the way in which local governments have established their own local investment companies largely for the purpose of borrowing funds from Chinese banks to develop and invest in real estate. (My Note: This is what our PAP controlled Town Council is doing also.)

He has estimated that when you take into account the massive indebtedness of the local investment companies, government-related debt in China would, by next year, be close to RMB 40 trillion ($7 trillion) or 96 per cent of GDP and 4.6 times government revenue.

Shih’s estimate would place China among the countries with the highest debt to GDP ratio, although it should be noted that China’s debt (like that of Japan) is almost entirely funded from its own domestic sources.

And those domestic sources are the prudent households of China who have been depositing their savings in banks at deliberately depressed official interest rates. By lending at low, indeed negative real, interest rates the thrifty households of China have been subsidising what is all-too-often speculative and wasteful investment by government-owned companies. (My note: Isn’t this what is happening in Singapore also?)

Another China economist, Michael Pettis, points out that this effective financial subsidy by households to the banks and their customers amounts to at least 5 per cent of GDP a year and possibly up to twice that.

This raw deal for depositors is helping to fuel the property bubble. When Chinese banks are offering depositors a guaranteed loss after inflation of 1 to 2 per cent a year, is it any wonder that Chinese families are jumping into the property boom in the belief that residential property is a “hard asset” that holds value – unlike cash, which certainly does not. One property analyst was very candid when asked why there were so many apparently unoccupied flats in Beijing as there were no lights on at night: “The flats are occupied. Cash is living there.”

HSBC recently calculated that the total value of China’s residential property market was now 3.27 times GDP, which is nearly twice the peak reached before the subprime crisis in the US and approaching the levels in Japan during its 1980s property bubble.

Asset bubbles are like a Ponzi scheme – everything is fine until the cash dries up and asset prices stop rising. Like it or not we are exposed to the Chinese property bubble. The iron ore China buys from Australia is turned into steel, and most of that goes into building apartments and infrastructure. Our bauxite and alumina exports are turned into aluminium, of which about 40 per cent goes into construction in China.

So at the same time as we congratulate ourselves on escaping from the consequences of the property bust in the United States, the resources boom that underpinned our strong economic performance is itself based on another debt-fuelled property boom in China.

The Chinese government is acutely aware of the risks of the local government debt binge and consequent property bubble creating what the leading economist Fan Gang recently described as “an internal ‘Greek crisis’ “. And apart from the threat to bank balance sheets, rapid inflation in property values prices young families out of the housing market.

Already the Chinese government has announced it will reform real estate taxes, and most believe this will result in a new annual property tax.

Li Daokui, a member of the central bank’s monetary policy committee, has also called for an increase in the interest rates paid on bank deposits. This would better reward Chinese households for their thrift and reduce the flow of cheap money to property development. As part of this credit tightening policy, the China Banking Regulatory Commission has increased the capital and provisioning requirements for Chinese banks, with a director, Liao Min, saying: “We are ready to take the punch bowl away.”

Hopefully a combination of fiscal discipline and solid, if somewhat slower, growth will resolve China’s debt and property bubble without any damaging economic shocks – either there or here.

Ignoring all the warning signs

China top investment destination for S’pore companies

Wed, May 19, 2010 AsiaOne

Singapore companies continue to see ample opportunities for investment in China in the midst of an upswing in its property market, said The Minister of Trade and Industry Mr Lim Hng Kiang in parliament yesterday. (My note: It is not mentioned who the Singapore companies are, but it is widely known most are GLCs such as Keppel Land, Singapore Technologies Engineering, and CapitaLand)

In answer to a question by Mdm Ho Geok Choo, MP for the West Coast GRC, he said that China continues to be the top investment destination for Singapore companies and they continue to see “attractive long-term prospects” there.

Singapore companies have invested a cumulative $55.5 billion in China as at end-2009, and they are “exploring opportunities in less developed areas such as in Western and Central China”.

He also advised companies to make informed investment decisions based on their own analysis, but he added the current property upswing is concentrated in the residential sector, and had limited impact on office and industrial rentals.

Below is Mr Lim Hng Kiang’s reply in full.

Mdm Ho Geok Choo: To ask the Minister for Trade and Industry in view of China’s red-hot property market (a) how have Singapore’s investments in China held up; (b) what is our long-term investment plan; (c) what advice can the Ministry give to Singapore businesses who plan to enter China’s property market; and (d) whether there has been any cases of Singapore businesses affected by the sudden upswing.

Mr Lim Hng Kiang: China is the top investment destination for Singapore companies which have invested a cumulative US$40 billion as at end-2009.  Singapore companies continue to see investment opportunities in China to ride on its buoyant economy and attractive long-term prospects.  Their investments in China are well-diversified across many sectors, from manufacturing and retail to logistics, infrastructure development and real estate.  As China looks to develop its inland regions, Singapore companies are also exploring opportunities in less developed areas such as in Western and Central China

Companies investing in China, or in any other regions, should take a long-term view of their investments; study the Chinese economy and markets to understand the medium to long-term trends.  We expect companies to carry out due diligence and feasibility studies, as well as conduct their own company risk assessment and management. Similar to investing in other markets, companies should expect cyclical upswings and downturns when they invest in China.  Companies which make informed, risk-adjusted investment decisions would find that they are better able to cope with shifting trends such as the current upswing in the Chinese property market.

The current upswing in property prices is mainly concentrated in the residential property segment.  Although there has been some spillover to the commercial and industrial property segments, office and industrial rentals appear not to have risen excessively.

Continued Investments despite the signs

BOC, Temasek join hands

By Zhang Dingmin and Luo Jun (China Daily)
Updated: 2010-03-16 09:02

BEIJING: Bank of China Ltd (BOC) and Temasek Holdings Pte may invest as much as 20 billion yuan ($2.9 billion) to build a rural-banking business in China, said two people with knowledge of the matter. (My note: Temasek owns 4.8% of Bank in China as at 2005)

The companies are in talks about setting up as many as 400 rural banks, the people said, declining to be identified because the discussions are private. Bank of China, the country’s third-largest lender by market value, would own a controlling stake in the joint venture, they said.

Bank of China, which pulled out of rural banking in the late 1990s, is returning to a market that’s attracted HSBC Holdings Plc and Citigroup Inc as the government pushes to improve the living conditions of China’s 700 million rural dwellers. The majority of the 118 countryside lenders set up since 2006 had become profitable by June 30, according to the China Banking Regulatory Commission.

Zhang Jianping, a spokesman for Bank of China, said the Chinese lender is in talks with Temasek to expand into rural-banking services. He declined to comment on the size of the investment. A Temasek spokesman declined to comment.

Temasek, Singapore’s $123 billion investment company, would own more than 20 percent of the venture, the people said. Setting up a rural bank in China requires approval from the banking regulator.

Temasek bought a 4.8 percent stake in Bank of China in August 2005 and has provided the company with expertise in lending to small- and medium-sized businesses.

China plans to set up a total of 1,027 rural banks, 106 loan companies and 161 rural credit co-operatives in the three years ending 2011.

Temasek to invest in AgBank

Jun 14, 2010

SINGAPORE/HONG KONG – SINGAPORE’S state investment fund Temasek plans to invest up to US$300 million (S$420.3 million) in the Agricultural Bank of China, ahead of its roughly US$20 billion IPO, a source with direct knowledge of the matter said on Saturday.

Temasek’s commitment to China’s third largest bank is a positive step for the offering, though it is less than the US$1 billion that AgBank’s underwriters are hoping to get from Middle East and Asian sovereign wealth fund cornerstone investors.

So-called cornerstone investors are a key layer of financial backing for an IPO. AgBank’s Shanghai-Hong Kong listing will be the world’s largest ever IPO if it exceeds US$21.9 billion. Temasek declined to comment. AgBank could not immediately be reached. The source was not authorised to speak on the record about the deal. Reuters earlier reported that Temasek, and sovereign funds from Kuwait and Qatar were expected to sign on to AgBank’s offering.

The Beijing-based bank, founded in 1951 by Mao Zedong as the rural unit of the central bank, is still known as a customer base spread across China’s far-flung parts, though it does a have a major presence of most of the country’s major cities.

AgBank today boasts nearly 24,000 branches and employs more than 441,000 people, eclipsing Industrial and Commercial Bank of China and China Construction Bank, the world’s two biggest banks by market value. If AgBank raises more than the US$23 billion it hopes, it will be the world’s largest ever IPO, beating out ICBC’s US$21.9 billion dual listing in 2006.

AgBank is China’s third largest bank, with US$1.4 trillion in assets. It also has 320 million customers, a base larger than the population of the United States. The Beijing-based company is run by Xiang Junbo, 53, a scriptwriter and war hero, who previously served at top posts in China’s central bank and National Audit Office. The sources say the IPO is expected to price on July 7, with a debut the following Thursday or Friday. – REUTERS

DBS considering yuan bond float

By Zhou Yan (China Daily)
Updated: 2010-02-04 10:39

SHANGHAI: Singapore-based DBS Group Holdings Ltd said yesterday that it has started preparatory work for issuing yuan-denominated bonds in China and would communicate with regulators and investors in due time.

“Yuan bonds are new products and we’re actively considering whether to launch them this year,” said Melvin Teo, director and chief executive officer (designate) of DBS Bank (China) Ltd in Shanghai.

DBS is also actively looking for sources of funding in China, and will take a close look at the progress of yuan bonds, said Koh Boon Hwee, chairman of DBS Group.

Overseas banks are eyeing the yuan-denominated bond market in the country to quench their capital thirst and support the aggressive business expansion plans.

Japanese lender Bank of Tokyo-Mitsubishi UFJ (China) has already got approval from the China Banking Regulatory Commission to launch yuan bonds in the inter-bank bond market. The proposal, however, still needs to be approved by the People’s Bank of China, the central bank.

Other overseas banks like HSBC, Bank of East Asia, and Standard Chartered are also in the process of seeking licenses for yuan bonds in China, according to China Business News reports.

The Shanghai municipal government said recently it would encourage all locally incorporated banks to issue yuan-denominated bonds.

DBS China’s customer base in China has grown nearly fourfold in the last three years, and doubled its workforce to over 1,000. The lender currently has eight branches and seven sub-branches in China in Shanghai, Beijing, Shenzhen, and Guangzhou.

“We plan to expand our branch strength in the country over the next five years,” said Piyush Gupta, CEO of DBS Group, adding that the lender would increase its investments in China at an appropriate time.

DBS also has no plans to issue credit cards in China this year and would instead focus on corporate banking, said Gupta.

The largest lender in Southeast Asia set up its new China headquarters in Shanghai’s Lujiazui financial district yesterday.

MAS’ Unexpected Currency re-evaluation boosted the Yuan

Yuan Forwards Gain on Speculation China Will Follow Singapore Policy Shift

April 14 (Bloomberg) — Timothy Condon, chief economist for Asia at ING Financial Markets, talks about the prospect of China allowing the yuan to appreciate and the decision by the Monetary Authority of Singapore to revalue its currency. Speaking with Bloomberg’s Mark Barton from Singapore, Condon also discusses Chinese property prices and economic growth. (Source: Bloomberg)

Yuan forwards strengthened for the first time in four days after Singapore unexpectedly revalued its currency, spurring speculation the move will prompt China to allow appreciation. Government bonds rose.

The Monetary Authority of Singapore said today it will undertake a de facto one-off revaluation of its currency, anticipating a pickup in inflation. President Barack Obama said the U.S. considers China’s currency to be “undervalued.” A government report tomorrow may show China’s economy expanded 11.7 percent in the first quarter, the fastest pace in almost three years, according to a Bloomberg News survey.

“The market is probably speculating China will follow Singapore in letting the currency rise,” said Liu Xin, an analyst at the Hong Kong branch of Bank of Communications Ltd., China’s fifth-biggest lender. “I don’t think China will revalue the yuan in one step. It’s more likely to be a gradual appreciation.”

Twelve-month non-deliverable forwards climbed 0.2 percent to 6.6240 per dollar as of 5:50 p.m. in Hong Kong, reflecting bets the currency will strengthen 3 percent from the spot rate of 6.8257, according to data compiled by Bloomberg.

“It’s my estimation that the renminbi is undervalued and that China’s own decision in previous years to begin to move towards a more market-oriented approach is the right one,” Obama said yesterday in Washington. Currencies should “roughly” track the market so that no country has an advantage in trade, he said.

‘Piling up Greenbacks’

China has pegged its currency at about 6.83 against the dollar since July 2008, purchasing the greenback and selling the yuan to mop up foreign-exchange inflows and keep the exchange rate from appreciating.

The nation puts the dollars into Treasuries, making China the biggest creditor to the U.S. with holdings of $889 billion as of January. China’s foreign-exchange reserves, the world’s largest, rose to a record $2.45 trillion last month, official figures show.

China should stop “piling up greenbacks” in order to create a more balanced economy, Yu Yongding, a former adviser to the nation’s central bank, wrote in a commentary published today in the China Daily newspaper, the Xinhua News Agency reported.

CPI Outlook, Bonds

Government bonds with maturities of less than three years gained on speculation inflation slowed last month, while a drop in banks’ lending signaled there may be more cash available to invest in debt.

Consumer prices may have climbed 2.6 percent from a year earlier, according to the median estimate of 26 economists surveyed by Bloomberg News. Prices rose 2.7 percent in February, the fastest pace in 16 months. The statistics bureau is due to release the figure tomorrow.

“Bond yields retreated as market rumors indicated the inflation rate for March may fall below most people’s estimates to around 2.4 percent,” said Xie Xin, a fixed-income trader with Industrial Bank Co. Ltd. in Shanghai. “Banks’ lending is good for bolstering demand for bonds.”

The yield on the 2.23 percent note due in March 2013 dropped one basis point to 2.41 percent, and the price of the security gained 0.03 per 100 yuan face amount to 99.50, according to the National Interbank Funding Center data. A basis point is 0.01 percentage point.

China’s banks extended a less-than-estimated 510.7 billion yuan ($74.8 billion) of new loans last month, compared with 700 billion yuan in February and the median forecast of 709 billion yuan in a Bloomberg survey. The government aims to cut new lending by 22 percent to 7.5 trillion yuan this year.

The finance ministry sold 28 billion yuan of 20-year bonds today at a yield of 3.96 percent, two basis points less than forecast by traders and analysts. The sale drew bids for 1.9 times the amount on offer, compared with an averaged 1.7 for government-debt sales this year.

Is the revaluation an ingenious way to increase GDP or to hide potential losses?

Singapore revalues currency 

Singapore: Wed, 14 Apr 2010

Singapore revalued its currency on Wednesday, a move that propelled its dollar to a 20-month high and lifted Asian currencies by reinforcing market expectations China could soon unshackle its yuan.

Singapore’s central bank said the economy has fully recovered from its worst ever recession but inflationary pressures were likely to pick up, and so moved the currency band up and switched to a policy of its modest and gradual appreciation.

Other Asian currencies, such as the Malaysian ringgit, also rose after the decision, reflecting market speculation that Beijing could also let its yuan currency strengthen to deal with the threat of inflation.

‘China has been expected to allow a yuan revaluation.Today’s Singapore step reignited the prospect among investors,’ said Kim Jae-eun, economist at Hyundai Securities. ‘Singapore’s step may be used as an excuse for other countries such as the US to press China more on a currency appreciation.’    

Beijing has effectively frozen the yuan in mid-2008 to help its exporters weather the global crisis and speculation is rife it will let it off the leash soon with the Chinese economy operating at full throttle again and price pressures building up.

Singapore lifted its inflation projection to between 2.5 and 3.5 percent for 2010, and its 2010 GDP forecast to 7-9 percent.

The policy decision came as the economy expanded a much bigger-than-expected 32.1 percent on a seasonally adjusted annualised basis in the first quarter, the highest since records began in 1975.

‘MAS focus is shifting its attention to inflation now, hence today’s aggressive move…Given (China) is also facing some inflationary pressure, it should move the currency to address that,’ said Perry Kojodjojo, HSBC currency strategist.  

He said Singapore’s move increased expectations central banks will need to hike rates earlier, making the carry trade more attractive, resulting in more inflows and causing currencies to appreciate.

Singapore’s central bank only sets policy twice a year and so risked being behind the curve if it had not tightened now. It manages the Singapore dollar in a secret trade-weighted band against a basket of currencies, instead of setting interest rates. It re-centreed this band to the prevailing exchange rate level, which was in the upper half of the band.

Economists said this meant the currency had been revalued by between 1.2 and 1.4 percent, with some predicting the currency could reach 1.36 within months, near a record around 1.345

The Singapore dollar strengthened to 1.3784 against the U.S. dollar by 0527 GMT, up about 1 percent from before the policy decision. It has has gained about 1.9 percent so far this year, still less than most emerging Asian market currencies. – Reuters

Sources:

http://www.financialexpress.com/printer/news/176468/

http://money.cnn.com/2010/04/15/news/economy/china_bubble/index.htm

http://www.businessweek.com/news/2010-06-18/bank-of-japan-s-shirakawa-sees-chinese-bubble-risk-update1-.html

http://blogs.worldbank.org/eastasiapacific/china-s-local-government-debt-what-is-the-problem

http://www.malcolmturnbull.com.au/latest-news/chinese-debt-binge-is-fuelling-a-dangerous-property-bubble-smh-oped-16-june-2010/

http://www.asiaone.com/Business/News/Story/A1Story20100519-217106.html

http://www.chinadaily.com.cn/bizchina/2010-03/16/content_9595301.htm

http://www.chinadaily.com.cn/business/2010-02/04/content_9427415.htm

http://www.bloomberg.com/news/2010-04-14/yuan-forwards-gain-on-speculation-china-will-follow-singapore-policy-shift.html

http://www.tradearabia.com/news/INTBIZ_178101.html

 

 

Two weeks after massive flooding in Singapore caused millions of dollars of losses, Prime Minister Lee Hsien Loong finally broke his “noble” silence on the matter which has dented public confidence in the government.

Despite a public outcry over the incompetency of the PAP government to prevent the frequent floods, PM Lee remained nonchalant about the inconveniences the frequent flooding have caused to ordinary Singaporeans and even appeared to chide Singaporeans for having overly high expectations.

In a speech made yesterday at Lower Seletar Reservoir, PM Lee tried to exonerate the PAP from any blame by coming up with a lame excuse that it is very “costly” to keep Singapore “flood-free.”

He pronounced that given Singapore’s “tropical climate”, any attempt to “wipe out” flooding in Singapore would require plenty of money and land without providing any concrete evidence or statistics to substantiate his claims.

“I don’t think it is possible in Singapore to expect the place to be completely free of floods, as heavy downpours are very much part of the climate for an ‘island in the tropics,” he was quoted as saying in the Straits Times.

For some inexplicable reasons, the spates of flash floods which submerged various parts of Singapore in recent weeks did not occur in nearby Johor Bahru, whose drains are more choked than ours.

PUB has attributed the flooding at Orchard Road on 16 June on a choked drain, but another flood took place a week later after the drains were cleared, raising doubts if there are other reasons behind the flooding.

The PAP has refused to accept responsibility and admit their mistakes so far and continued to find all sorts of excuses to cover up their incompetence.

PM Lee’s assertion that it is “impossible” for Singapore to be completely flood-free is off the tangent as no Singaporean is expecting that.

What most Singaporeans are concerned about is the alarmingly increase in the frequency of flash floods and the inability of the PAP to tackle the problem.

During a flooding at Bukit Timah in November last year, PAP minister for Environment Mr Yaacob Ibrahim described the flooding as a “freak event which occurred once in fifty years.”

Barely a year has passed and we have experienced so many episodes of flooding so far. Is such an outcome acceptable when we have the highest paid government in the world?

With no political opposition whatsoever in Singapore to check on the PAP, it is little wonder that PM Lee can still be so relaxed and smug after such a major screw-up.

 

 

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