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Mar 30, 2019 05:29 AM
CX DAILY

CX Daily: Local Governments Are Turning to Emergency Measures to Deal With Debt

Souring debt in China’s ‘lemon capital’ warns of looming local fiscal crisis

Two county-level governments in the heart of China’s lemon-growing country are leading a nascent wave of local governments turning to emergency measures to deal with buckets of souring debt.

Such local governments lack major tax revenues usually seen in the West, and instead rely heavily on land sales to fill their coffers. Yet a campaign to cool the nation’s overheated property markets has severely hurt demand for new homes, in turn reducing land sales. As that traditional revenue source dries up, many governments are finding themselves increasingly unable to service their debt.

Both Anyue county, known as the country’s “lemon capital,” and Yanjiang district in Ziyang, a small city in the Southwest China’s Sichuan province famous for its lemon groves, took emergency fiscal restructuring measures last year in an attempt to return to financial health after their debt conditions worsened.

At the end of February, local government outstanding debt on the books had reached 19.1 trillion yuan ($2.8 trillion), equal to more than a fifth of China’s 2018 GDP, official data showed. This doesn't account for what's off-the-books. Many believe that Anyue and Yanjiang are only the tip of the iceberg and that China’s other small local governments may be sitting on a ticking time bomb of unsustainable debt. Check out our deep dive.

FINANCE & ECONOMICS 

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Photo: VCG

Bankruptcy /

China moves closer to overhaul of bankruptcy law

China’s legislature will begin setting up the team responsible for drafting amendments to China's existing bankruptcy law in June, Zhong Zhenzhen, deputy director of the legislative affairs office of the NPC's Financial Economic Committee, said Thursday.

It’s the first sign that the NPC is taking substantial steps to change the existing law from 2007. Critics say the law does not do enough to promote the use of the bankruptcy mechanism, a problem that has grown more urgent as China’s 2020 deadline for tackling its horde of unprofitable “zombie” state-owned companies moves closer.

Cost of living /

Hong Kong is tied for the world’s most expensive city

Hong Kong has climbed three spots from last year to tie with Singapore and Paris as the most expensive city in the world, according to a 2019 ranking by The Economist Intelligence Unit, which compared more than 400 individual prices across 160 products and services.

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Ten cities in China made the list, which ranked 133 cities around the world. Shanghai and Shenzhen tied for 25th, and Dalian in Northeast China’s Liaoning province came in 45th. Beijing, which ranked 49th, has been China’s fourth-most expensive city for three straight years. The ranking did not consider the cost of buying a home, which makes up a huge share of Chinese people’s cost of living. That may explain why Beijing ranked relatively low.

Dividends /

To collect more state sector profit, China has just a few likely options

China wants to collect more profits this year from certain state-owned financial institutions — most likely the country’s sovereign wealth fund and perhaps even the central bank, experts told us.

Beijing is seeking larger dividends from certain centrally administered financial institutions to offset losses from the tax and fee cuts that it is implementing this year to ease the financial burden on businesses, Premier Li Keqiang said Thursday at the Boao Forum for Asia. Multiple sources have told us that the financial institutions Li mentioned most likely refer to China Investment Corp. or possibly the PBOC.

Credit crunch /

Loose credit won’t help smaller companies get loans, expert says

Turning on the credit tap will not make it easier for smaller companies to get loans because liquidity tends to flow into financial markets, stocks and bonds instead, Zhu Min, head of Tsinghua University’s National Institute of Financial Research, said at this week’s Boao Forum for Asia.

Instead, the reason why financial institutions are reluctant to lend to small and micro enterprises is that lenders don’t have enough information about these smaller companies to be able to effectively judge their creditworthiness, among other risks, he said. He suggested following Germany's example of providing liquidity to smaller community banks that are more familiar with the small companies in their areas.

Quick hits /

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Beijing plans to draft supporting rules for foreign investment law this year

Movers and Shakers: National retirement fund head retires

Hainan must learn from Hong Kong, Singapore in its modernization, experts say

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BUSINESS & TECH

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A giant Rubik’s Cube stands on London’s South Bank to mark the launch of a new Huawei smartphone on Oct. 25. Photo: VCG

Huawei /

Huawei-affiliated watchdog says company's risks don't come from state interference

A Thursday report from a U.K.-based Huawei-affiliated watchdog said further issues have been identified in Huawei’s engineering processes that pose additional risks to the country’s telecom networks.

The 2019 annual report compiled by the Huawei Cyber Security Evaluation Centre — an organization jointly established by Huawei Technologies and the U.K.’s National Cyber Security Centre (NCSC) — concluded it is able to provide only “limited assurance that the long-term security risks can be managed in the Huawei equipment currently deployed in the U.K.” It also stated that the “NCSC does not believe that the defects identified are a result of Chinese state interference,” but rather “poor software engineering and cyber security processes.”

More Huawei /

Huawei sales hit record $100 billion despite year of setbacks

Huawei's sales revenue hit a record 721.2 billion yuan ($107.1 billion) in 2018, up 19.5% YOY, according to its annual performance report released Friday, despite bans and suspicion in several major markets around the world. Net profit climbed 25.1% to 59.3 billion yuan.

Growth was mainly driven by strong performance in the company’s consumer business, which contributed 348.9 billion yuan in revenue, up an impressive 45.1% from 2017. This made the segment Huawei’s top revenue source for the first time in history. In 2018, Huawei shipped 206 million smartphone units, the company said.

5G /

5G licenses are likely coming to China this year

China will issue 5G wireless communications licenses by year-end, Miao Wei, China's Minister of Industry and Information Technology, said Thursday at the Boao Forum for Asia, the Shanghai Securities News reported.

He added that actual timing for the launch of 5G networks will depend on maturation of the necessary technology, most notably 5G handsets.

State sector /

More state enterprises set for mixed-ownership reforms

Regulators will soon name a new group of SOEs to to take part in the government’s reform push to expand private investment in state sectors, dubbed “mixed-ownership reform,” Xiao Yaqing, director of the State-owned Asset Supervision and Administration Commission (SASAC), said Wednesday during the annual Boao Forum for Asia.

China has advanced mixed-ownership reform since 2013, aiming to bring private-sector investment and management into state-backed companies to shake up stodgy sectors. Three groups of 50 state companies have since been selected to test the reforms, and dozens of them, including China Unicom and China Railway Corp., have unveiled plans to invite private investors.

Quick look /

The three semiconductor firms applying to the new high-tech board

Of the nine companies whose applications to list on the coming high-tech board the Shanghai Stock Exchange accepted earlier this month, three are in the semiconductor sector. While they are all relative unknowns with larger rivals, each covers one aspect of the industry — manufacturing, design and infrared imaging.

Based in East China’s Jiangsu province, HeJian Technology (SuZhou) Co. Ltd. specializes in 8-inch and 12-inch wafer fabrication. The second, Amlogic, Inc., has operations in both the U.S. and China and specializes in the design and sale of chips. Lastly, Yantai Raytron Technology Co. Ltd., does R&D in infrared imaging and micro-electromechanical sensor technology.

Quick hits /

News aggregator finds friend in Alibaba

Why do Chinese tech firms restructure so often?

Policies mandating uniform storefronts raise concerns over property rights

Mainland stocks end Friday on high note

Geely, Daimler to jointly build Smart cars in China

Chinese cannabis-related stocks plunge after speculative surge

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