What could be expected from reduced Chinese banks’ reserve requirements?

Thursday, 23 February 2012

What could be expected from reduced Chinese banks’ reserve requirements?

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Liquidity shortage in China will be reduced by cutting banks’ reserve requirements. Authority’s decision announced in November, 2011 will come into effect on Friday, February 24, Reuters reported on February 20. The same day Bloomberg noticed that the proportion of cash Chinese banks must set aside will drop half a percentage point and more capital will be available for loans. This announcement was made by the central bank on its website on the 18th of February. The amount of additional capital, according to Australia & New Zealand Banking Group’s estimation, may reach 400 billion yuan ($64 billion). Economy stimulation policies define further stakeholders’ actions, so what could be expected?

According to the Statistical Communiqué of the People's Republic of China on the 2011 National Economic and Social Development published by National Bureau of Statistics of China on February 22, 2012 [1] , the completed investment in fixed assets (excluding rural households) of the country in 2011 was 30,193.3 billion yuan, up by 23.8 percent over the previous year. Detailed information about fixed assets investment and its growth by sector is available in table 1. [1]

Table 1: Fixed Assets Investment (Excluding Rural Households)
and Its Growth by Sector in 2011

Unit: 100 million yuan

Sector

Investment

Increase over 2010 (%)

Total

301933

23.8

Agriculture, Forestry, Animal Husbandry and Fishing

6792

25.0

Mining

11810

21.4

　Of Which: Mining and Washing of Coal

4897

25.9

　　　　　Extraction of Petroleum and Natural Gas

3057

12.5

Manufacturing

102594

31.8

　Of Which: Processing of Food from Agricultural Products

5229

44.1

　　　　　Manufacture of Foods

2386

23.1

　　　　　Textile Industry

3669

30.9

　　　　　Manufacture of Textiles, Garments, Shoes and Hats

2267

43.0

　　　　　Processing of Petroleum, Coking, Processing Nuclear Fuel

2234

10.1

　　　　　Manufacture of Raw Chemical Materials and Chemical Products

8899

26.4

　　　　　Manufacture of Non-Metallic Mineral Products

10448

31.8

　　　　　Smelting and Pressing of Ferrous Metals

3860

14.6

　　　　　Smelting and Pressing of Non-Ferrous Metals

3861

36.4

　　　　　Manufacture of Metal Products

5045

23.1

　　　　　Manufacture of General Machinery

7702

30.6

　　　　　Manufacture of Special Purpose Machinery

5893

39.2

　　　　　Manufacture of Transport Equipment

8406

27.2

　　　　　Manufacture of Electric Machinery and Equipment

7851

44.6

　　　　　Manufacture of Communication Equipment, Computers and Other Electronic Equipment

5266

34.2

Production and Supply of Electricity, Gas and Water

14607

3.8

　Of Which: Production and Supply of Electric Power and Heat Power

11557

1.8

Construction

3253

42.9

Transport, Storage and Post

27260

1.8

Information Transmission, Computer Services and

Software

2161

0.4

Wholesale and Retail Trade

7322

40.1

Lodging and Catering Services

3916

34.3

Banking

628

42.0

Real Estate^[12]

75685

29.7

Leasing and Business Services

3374

40.3

Scientific Research, Technical Service and Geologic

Prospecting

1650

39.4

Water Conservancy, Environment and Public Facilities

Management

24537

14.2

Services to Households and Other Services

1217

52.9

Education

3882

13.7

Health, Social Security and Social Welfare

2331

28.1

Culture, Sports and Entertainment

3148

21.3

Public Management and Social Organization

5766

18.1

The actually utilized foreign capital increased by 9.7 percent and amounted 116.0 billion US dollars in 2011. The value of direct investment in non-financial sectors and the growth rates in 2011 is provided in table 2.[1]

Table 2: Total Value of Foreign Direct Investment in Non-financial Sectors and the Growth Rates in 2011
Sector	Enterprises	Increase over 2010 (%)	Actually Utilized Value (100 million USD)	Increase over 2010 (%)

Total	27712	1.1	1160.1	9.7
Of which: Agriculture, Forestry, Animal Husbandry and Fishing	865	-6.9	20.1	5.1
Manufacturing	11114	0.6	521.0	5.1
Production and Supply of Electricity, Gas and Water	214	1.9	21.2	-0.3
Transport, Storage, Post and Telecommunication Services	413	4.3	31.9	42.2
Information Transmission, Computer Services and Software	993	-5.1	27.0	8.5
Wholesales & Retail Trade	7259	7.0	84.2	27.7
Real Estate	466	-32.4	268.8	12.1
Leasing and Business Services	3518	2.9	83.8	17.6
Services to Households and Other Services	212	-2.3	18.8	-8.2

The other important aspect is China’s international trade. According to the statistical data imports comprised 1.743,5 billion yuan, exports amounted 1.898,6 billion yuan. The main trade regions and growth rates in 2011 are provided in table 3. [1]

Table 3: Imports and Exports by Major Countries and Regions and the Growth Rates in 2011 Unit: 100 million USD
Country or region	Exports	Increase over 2010 (%)	Imports	Increase over 2010 (%)

European Union	3560	14.4	2112	25.4
United States	3245	14.5	1222	19.6
Hong Kong, China	2680	22.8	155	26.4
ASEAN	1701	23.1	1928	24.6
Japan	1483	22.5	1946	10.1
Republic of Korea	829	20.6	1627	17.6
India	505	23.5	234	12.1
Russia	389	31.4	403	55.6
Taiwan, China	351	18.3	1249	7.9

More information about the main export and import commodities is available in the table 4 and table 5 [1]

Table 4: Main Export Commodities in Volume and Value and the Growth Rates in 2011
Item	Unit	Volume	Increase over 2010(%)	Value (100 million USD)	Increase over 2010 (%)

Coal	10000 tons	1466	-23.0	27	20.6
Rolled steel	10000 tons	4888	14.9	513	39.2
Textile yarns and textile articles	----	—	—	947	22.9
Clothes and clothing accessories	----	—	—	1532	18.3
Footwear	----	—	—	417	17.1
Furniture	----	—	—	379	15.0
Automatic data processing machines and components	10000 sets	183427	10.1	1763	7.5
Handheld mobiles and car telephones	10000 sets	87509	15.5	628	34.3
Containers	10000 units	324	29.6	114	57.7
Liquid crystal display panels	10000 units	244141	8.5	295	11.5
Motor vehicles (including a complete set of spare sets)	10000 sets	82	52.2	99	60.5

Table 5: Main Import Commodities in Volume and Value and the Growth Rates in 2011
Item	Volume (10000 tons)	Increase over 2010 (%)	Value (100 million USD)	Increase over 2010 (%)

Cereals and cereal flour	545	-4.6	20	33.8
Soybean	5264	-3.9	298	18.9
Edible vegetable oil	657	-4.4	77	28.0
Iron ore	68608	10.9	1124	40.9
Aluminum oxide	188	-56.4	8	-48.1
Coal	18240	10.8	209	23.6
Crude oil	25378	6.0	1967	45.3
Petroleum products refined	4060	10.1	327	45.5
Plastics in primary forms	2304	-3.7	472	8.3
Paper pulp	1445	27.1	119	35.3
Rolled steel	1558	-5.2	216	7.3
Copper and copper alloys	407	-5.1	368	12.0

So, it is likely that the message about the reduced Chinese banks’ reserve requirements will stimulate trade; however, the additionally released capital of 400 billion yuan ($64 billion) comprises only 1.3 percentage of total investment in fixed assets in 2011. Additionally, according to the above information, China’s trade surplus amounts 155,1 billion yuan in 2011 and presents 0.5 percentage of total investment in fixed assets. Moreover, isn’t the shortage of liquidity a sign of financial risk?

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Asta Pravilonytė

Every manager can call him or herself a good strategist if he or she only works within an environment that is favourable; however, it is only in times of stress that one truly learns what one's capabilities are!

Every manager can call him or herself a good strategist if he or she only works within an environment that is favourable; however, it is only in times of stress that one truly learns what one's capabilities are!

Thursday, 23 February 2012

What could be expected from reduced Chinese banks’ reserve requirements?

Thursday, 23 February 2012

What could be expected from reduced Chinese banks’ reserve requirements?

Thursday, 23 February 2012