China 2030: Building a Modern, Harmonious, and Creative High-Income Society

Posted Sun, 03/25/2012 by Mootstreet
26
vote

In February, the World Bank published the report "China 2030: Building a Modern, Harmonious, and Creative High-Income Society". The report represents the collaboration by China’s Ministry of Finance (MOF), the Development Research Center of the State Council (DRC), and the World Bank. The research team looks into the problems faced by China and the actions China should take to change the growth strategy and to avoid the "middle income trap". The report was recommended by different investment professionals including Andrew Look of Look's Asset Management and Cheah Cheng Hye of Value Partners.

The report lists out the actions China should take, which include the following:

1) Implement structural reforms to strengthen the foundations for a market-based economy.

2) Accelerate the pace of innovation and create an open innovation system.

3) Seize the opportunity to “go green”.

4) Expand opportunities and promote social security for all.

5) Strengthen the fiscal system.

6) Seek mutually beneficial relations with the world.

Please check out the link below for the full 73-page report:
http://www.worldbank.org/en/news/2012/02/27/china-2030-executive-summary

Mainland Developers Buying Land in Hong Kong

Posted Sat, 03/24/2012 by Mootstreet
39
vote

Two mainland developers purchased residential sites in Ap Lei Chau and Sai Kung. The 32,830-square-foot Ap Lei Chau site went to China Overseas Holdings for HK$2.54 billion, or HK$11,044 per buildable square foot. A private firm owned by Agile Property vice chairman Chan Cheuk-yin bagged the 81,968 sq ft Sai Kung plot for HK$700 million, which translates to a price of HK$21,350 per buildable square foot - a record for a New Territories site.

Mainland firms outbidding local firms for the land auctions may not be a coincident. As the property market in the PRC is slowing down, developers are more cautious in replenishing land reserve in mainland. That means developers need to deploy their excess cash in other areas to achieve meaningful return for their money. Investing in Hong Kong seems like the choice for some of the firms.

Primary housing in Hong Kong attracts more and more wealthy people from the PRC in recent years. Maybe mainland developers is able to attract more purchasers from the PRC, so they are willing to pay more than local firms to acquire sites in Hong Kong? Possibly. The intensified competition for land means that prices for the properties built in those site will not be cheap as they are targeted to wealthy PRC buyers.

US Job Market Continues to Improve

Posted Fri, 03/09/2012 by Mootstreet
60
vote

Employers added 227,000 jobs in February, the Labor Department reported Friday. While that's a pinch slower than in January, hiring was still better than economists had expected.


Source: Bureau of Labor Statistics

The professional and business had the most number of jobs gained, adding 82,000 jobs last month. These types of jobs tend to have the most value added to the economy.

Moreover, revisions are made to the originally reported number in January and December showing employers added 61,000 more jobs than previously published.

Three straight months of job growth over 200,000 is considered a strong sign for the recovery going forward, which is encouraging and shows that the recovery of the US economy is sustainable.

Even though unemployment remained stable at 8.3%, it means that more people being to look for jobs amid the improving job market, adding to the base of the labour force.

China lowers growth target to 7.5pc

Posted Mon, 03/05/2012 by Mootstreet
82
vote

China opened its annual parliamentary session on Monday, cutting the projected economic growth to 7.5 percent and vowing to "make progress while maintaining stability" in 2012. The lower growth target aims to make economic development more sustainable and efficient, so as to achieve higher-level, higher-quality development over a longer period of time.

This is the first time China has lowered its annual economic growth target after setting it around 8 percent since 2005. It means the high growth rate of high single digit to low double digit growth China has seen in the past few years is gone.

The easiest way to control how quickly the economy grow is to control the amount of lending by banks. Since the Chinese Government owns the largest banks in China, the banks will control lending to achieve the goal set by the government. Therefore, it is expected the growth rate of the major Chinese banks will be slower in the coming years. On the other hand, they can now make higher quality loans to reduce the non-performing loan ratio.

In the past few years, the major Chinese banks have seen their assets increasing at a faster rate than shareholders' equity, which means their leverage ratio has been increasing. When the lenders control lending growth rate, it helps them to have a lower gearing ratio and keep a healthier balance sheet.

Thoughts on the Greek Debt Crisis

Posted Fri, 02/24/2012 by Mootstreet
108
vote

Last week, Greece passed the debt restructure agreement in exchange for more loan from the EU, which draws the plan to reduce the sovereign debt level to 120% of GDP by 2020. But does it really work?

To be able to repay debt, Greece needs to have fiscal surplus. With the various austerity packages agreed in the past two years, the EU has been focusing on cutting the expenses, including pay cuts for government employees and spending cuts on health and defense. However, the Greece economy needs to be improved substantially to generate enough tax revenues to pay off its debt, which is a difficult mission as Greece has been running at a fiscal deficit for the past 10 years, even when the economy was booming. With the austerity packages, Greece drove itself in the deepest recession in a long time (the unemployment rate rose from a low of 7.4% in May 2008 to 19.2% currently). With more people than ever out of a job, Greece's tax revenue will fall substantially before it gets better.

With the restructure plan, Greece can bring the debt level down by having haircut on existing debt, but they cannot actually pay off debt if the economy does not improve. It is very difficult to imagine Greece can pay off existing debt without asking for a lot more first, which means it is very likely for the EU to provide further loan to Greece. Existing debt holders may need to have further haircuts to bring the total debt level down.