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China’s financial sector is picking up momentum, but weak rural financing is still stretching the nerves of policymakers. To solve the intractable problem, the country needs to loosen regulations, and at the same time hand out generous policy incentives.
China has relied on state-owned commercial banks and rural credit cooperatives as a source of funding for agriculture, farmers and rural businesses. But those financial institutions face many bottlenecks such as a lack of market sensitivity, rigid management, as well as weak risk-control policies. That is why they lack the capacity to provide the expected financial services.
China has made some progress in soothing the thirst for capital in rural areas. The Agricultural Bank of China (ABC) has recently gone through a shareholding reform, but its service capacity remains limited. The country has successfully established a multilevel rural financial system, including the ABC, rural credit cooperatives, rural banks, asset management firms, micro-credit companies and the Postal Savings Bank of China.
However, that is far from enough to meet the need for funds in the countryside. Data from the Ministry of Agriculture showed that Chinese farmers relied on bank loans to obtain 20.31 percent of their capital in 2010, up 6.45 percentage points from 2003. But underground banks remained their largest source of financing, contributing 52.91 percent to their funds. Moreover, there were not any financial institutions at all in 2,312 towns across the nation at the end of 2010.
Worse still, structural problems are threatening to undermine the government’s efforts to ease rural financing woes.
First, after listing its shares in Shanghai and Hong Kong, the ABC may have to focus on more profitable wholesale businesses, leaving agriculture and farmers in dire straits.
Second, a number of rural credit cooperatives have been transformed into rural commercial banks in recent years. The reorganization delivered a strong boost to the management prowess and the war chest of those financial institutions and helped them gain market share, but their support to agriculture and rural businesses may decrease as they increasingly commercialize their operations.
In December 2010, the Chongqing Rural Commercial Bank successfully debuted on the Hong Kong Stock Exchange. Since then, a large number of its domestic counterparts have applied to list on the domestic A-share market. Once that happens, the banks would face huge pressures from shareholders to reduce their less profitable rural businesses.
To tackle this problem China must strengthen efforts to increase the profits of rural banking. For instance, it would help if policymakers could allow more room for rural financial institutions to decide their own lending rates and service charges. Meanwhile, it is necessary to allow a favorable reserve requirement ratio and hand out tax waivers and subsidies to rural financial institutions.
In 2009, the country set a target of setting up 1,027 new rural banks by 2011. But the actual number established was only 726 at the end of last year. That means China still has a lot to do to loosen its financial regulations and should take more flexible measures to fulfill rural demands for funds.
11
Chinese companies were responsible for 11 initial public offerings (IPOs) overseas in the first quarter of 2012.
$475.71 million
Chinese companies raised $475.71 million in 10 IPOs at the main board of the Hong Kong Exchanges and Clearing Ltd. and raised$71.53 million via one IPO at the New York Stock Exchange.
$237.63 million
Of the 11 IPOs, three occurred in the energy and mineral sector, raising $237.63 million, and eight other sectors each saw one IPO.
THE MARKETS Bolstering Bargaining Power
China made progress in strengthening its new spot iron ore trading platform by signing up the mining giant Rio Tinto, Australia’s largest iron ore producer, as one of its members.
Rio Tinto’s participation marks a victory for the China Beijing International Mining Exchange (CBMX), which is trying to broaden its market participation. The electronic trading platform, which will officially start operation in May, is designed to strengthen China’s pricing power on iron ore.
The move came a day after Brazilian miner Vale signed a memorandum of understanding with CBMX to support the development of the platform, though Vale is yet to officially join the network.
The CBMX is widely seen as a rival to the Singapore-based globalORE trading exchange backed by Australia’s second largest iron ore producer BHP Billiton.
COSCO Falters
The China COSCO Holdings Co. Ltd. suffered 10.45 billion yuan ($1.66 billion) in net losses last year, compared with a net profit of 6.77 billion yuan ($1.07 billion) the year before, as the shipping giant received a heavy blow from waning demand and acute costs inflation.
COSCO operates the world’s largest bulk cargo fleet and is the world’s fifth largest container shipping firm. Its revenues in 2011 totaled 68.91 billion yuan ($10.94 billion), shrinking 14.5 percent from a year ago.
The company attributed the poor performance to the weakening global economy, which depressed demand for shipping.
“Another cause of the loss was rapidly rising fuel prices, which seriously inflated operating costs,” said Wei Jiafu, Chairman and CEO of COSCO. “Meanwhile, some of our overseas assets lost value due to appreciation of the renminbi.”
Looking ahead, Wei expected the container shipping market to recover in the latter half of 2012 as European debt woes moderate.
China has relied on state-owned commercial banks and rural credit cooperatives as a source of funding for agriculture, farmers and rural businesses. But those financial institutions face many bottlenecks such as a lack of market sensitivity, rigid management, as well as weak risk-control policies. That is why they lack the capacity to provide the expected financial services.
China has made some progress in soothing the thirst for capital in rural areas. The Agricultural Bank of China (ABC) has recently gone through a shareholding reform, but its service capacity remains limited. The country has successfully established a multilevel rural financial system, including the ABC, rural credit cooperatives, rural banks, asset management firms, micro-credit companies and the Postal Savings Bank of China.
However, that is far from enough to meet the need for funds in the countryside. Data from the Ministry of Agriculture showed that Chinese farmers relied on bank loans to obtain 20.31 percent of their capital in 2010, up 6.45 percentage points from 2003. But underground banks remained their largest source of financing, contributing 52.91 percent to their funds. Moreover, there were not any financial institutions at all in 2,312 towns across the nation at the end of 2010.
Worse still, structural problems are threatening to undermine the government’s efforts to ease rural financing woes.
First, after listing its shares in Shanghai and Hong Kong, the ABC may have to focus on more profitable wholesale businesses, leaving agriculture and farmers in dire straits.
Second, a number of rural credit cooperatives have been transformed into rural commercial banks in recent years. The reorganization delivered a strong boost to the management prowess and the war chest of those financial institutions and helped them gain market share, but their support to agriculture and rural businesses may decrease as they increasingly commercialize their operations.
In December 2010, the Chongqing Rural Commercial Bank successfully debuted on the Hong Kong Stock Exchange. Since then, a large number of its domestic counterparts have applied to list on the domestic A-share market. Once that happens, the banks would face huge pressures from shareholders to reduce their less profitable rural businesses.
To tackle this problem China must strengthen efforts to increase the profits of rural banking. For instance, it would help if policymakers could allow more room for rural financial institutions to decide their own lending rates and service charges. Meanwhile, it is necessary to allow a favorable reserve requirement ratio and hand out tax waivers and subsidies to rural financial institutions.
In 2009, the country set a target of setting up 1,027 new rural banks by 2011. But the actual number established was only 726 at the end of last year. That means China still has a lot to do to loosen its financial regulations and should take more flexible measures to fulfill rural demands for funds.
11
Chinese companies were responsible for 11 initial public offerings (IPOs) overseas in the first quarter of 2012.
$475.71 million
Chinese companies raised $475.71 million in 10 IPOs at the main board of the Hong Kong Exchanges and Clearing Ltd. and raised$71.53 million via one IPO at the New York Stock Exchange.
$237.63 million
Of the 11 IPOs, three occurred in the energy and mineral sector, raising $237.63 million, and eight other sectors each saw one IPO.
THE MARKETS Bolstering Bargaining Power
China made progress in strengthening its new spot iron ore trading platform by signing up the mining giant Rio Tinto, Australia’s largest iron ore producer, as one of its members.
Rio Tinto’s participation marks a victory for the China Beijing International Mining Exchange (CBMX), which is trying to broaden its market participation. The electronic trading platform, which will officially start operation in May, is designed to strengthen China’s pricing power on iron ore.
The move came a day after Brazilian miner Vale signed a memorandum of understanding with CBMX to support the development of the platform, though Vale is yet to officially join the network.
The CBMX is widely seen as a rival to the Singapore-based globalORE trading exchange backed by Australia’s second largest iron ore producer BHP Billiton.
COSCO Falters
The China COSCO Holdings Co. Ltd. suffered 10.45 billion yuan ($1.66 billion) in net losses last year, compared with a net profit of 6.77 billion yuan ($1.07 billion) the year before, as the shipping giant received a heavy blow from waning demand and acute costs inflation.
COSCO operates the world’s largest bulk cargo fleet and is the world’s fifth largest container shipping firm. Its revenues in 2011 totaled 68.91 billion yuan ($10.94 billion), shrinking 14.5 percent from a year ago.
The company attributed the poor performance to the weakening global economy, which depressed demand for shipping.
“Another cause of the loss was rapidly rising fuel prices, which seriously inflated operating costs,” said Wei Jiafu, Chairman and CEO of COSCO. “Meanwhile, some of our overseas assets lost value due to appreciation of the renminbi.”
Looking ahead, Wei expected the container shipping market to recover in the latter half of 2012 as European debt woes moderate.