Beginning with the second quarter of the year, China will be in the do-or-die battle of its economic transition, according to Hong Kong-based researchers.
The country's transition will undergo its most difficult stage, although it will probably maintain around 6 percent growth in GDP in the second half of the year, according to economists and financial analysts recently surveyed by China Daily.
According to the National Bureau of Statistics, the economy saw year-on-year growth of 6.7 percent in the second quarter, slightly above market expectations. The second quarter's growth rate was the same as in the previous quarter.
The growth was powered by retail sales, industrial output and new loans directed to fixed-asset investment.
But several things are at the center of concern, said Sun Mingchun, senior partner and chief economist of China Broad Capital Co Ltd, including an excess of industrial capacity, a large total social financing and a high leverage ratio, meaning a high level of debt.
Private investment was 15.9 trillion yuan ($2.39 trillion) in the first half of 2016. Its annualized growth rate fell from 3.9 percent in the first five months to 2.8 percent in the first half of the year, which means there was quite a dip in June alone.
Private companies are not seeing encouraging returns from their investments in most industries. And they probably still will not see a good profit in the next two to three years, Sun said.
By contrast, the State sector investment rose an impressive 23.5 percent in the first half of the year, concentrating mostly on infrastructure development in the less-developed areas.
But so much investment is still not as powerful a driver of growth as consumer spending, especially that on services, said Fielding Chen, Asia economist for Bloomberg Intelligence. If investment sees a further decline in the second half of the year, which he expects, the economy's growth engine will remain weak.
According to Cui Li, managing director and director of macroeconomic research at CCB International, the economy will be in its difficult period because it is facing an "unprecedented balancing risk", including "weaker-than-ever global demand, need for a sharper-than-expected capacity cut for the industry, and a round of bond defaults that weigh on investor sentiment."
Ding Shuang, head of China research at Standard Chartered Plc, said that although the hard landing scenario is less likely to happen, the mainland economic situation will remain complex, with questions about how to deal with its mounting debt and avoid the threat of capital outflow.
Ding expects that in the coming months of the year, China's fiscal policy will keep expanding while its monetary policy will be neutral. Cutting the reserve requirement ratio for banks may be the best way to enlarge the credit supply. But before the RRR is cut, the government may use reverse repos and lower interest rates on the medium-term lending facility.
Debt is a particularly ugly spot, the researchers said. As measured by Fitch Ratings Inc's Adjusted Measure of Total Social Financing, credit to companies, local governments and households rose as much as 15 percent in 2015 in the Chinese mainland, more than double its GDP growth.
International investors have a growing appetite for office buildings in China's key cities like Beijing and Shanghai due to bullish demand, a survey from international real estate service provider CBRE showed on Thursday.
About 35 percent of investors surveyed showed their interest in office buildings in the country's first tier cities this year, compared with 20 percent in 2015. A total of 25 percent showed their interest in the residential sector, 25 percent in the logistics sector and 12 percent in the retail sector.
"Though international investors have more competition from domestic ones, China remains one of the most popular investment destinations in the Asia-Pacific region, following Australia and Japan," said Gran Ji, executive director of capital markets for northern China at CBRE Group,
Meanwhile, with public awareness of environmental protection increasing and green building initiatives on a clear government agenda, the green building concept is increasingly gaining the spotlight in China's commercial building market.
In the 10 select cities CBRE observed, rental premiums of LEED-certified Grade A office space in most cities is in the range of 10-30 percent, compared to non LEED-certified samples. LEED-certified office projects enjoyed higher average rental performance and were in a better position in a weak downward market.
A number of companies listed in Shanghai and Shenzhen have been reducing their holdings since the beginning of May, according to disclosures to the bourses concerned.
Market observers said this paring of holdings may dent small investors' confidence and hurt prices of the stocks concerned.
In the first seven trading days this month, large shareholders sold 543 million shares worth 14.02 billion yuan ($2.13 billion) in various companies, according to the China Securities Journal.
This almost matched similar selling through all of May, which saw big shareholders' sales of 435 million shares worth 14.43 billion yuan.
Each large shareholder holds more than five percent in a company's stock.
According to the Journal, 45 companies, through 52 filings, disclosed large shareholders' plans to sell 1.216 billion shares worth 29.14 billion yuan or $4.43 billion.
They will sell these shares gradually in three months to a year as per regulations. A big shareholder is required to disclose any substantial paring of its holding and complete such sales within a given timeframe.
Since the beginning of May, big shareholders in nine companies listed in Shanghai and Shenzhen disclosed that they are going to sell all their holdings. Among them, three firms will see big shareholders selling shares worth more than 1 billion yuan within 12 months.
Many of the companies that are seeing selling by large shareholders are small- to medium-cap enterprises in emerging sectors such as biochemicals and high-tech.
For instance, Shanghai Hile Bio-Pharmaceutical Co Ltd, a drugmaker, has seen heavy selling in their counters.
On May 3, the first trading day of the month, shares in Hile Bio-Pharma closed at 42.97 yuan in Shanghai. But by June 1, they fell to 16.37 yuan. They closed at 15.22 yuan on Friday, marking a 65 percent decline since May 3.
Although the meltdown is attributable to the automatic price shrinkage due to the company's 13-for-10 stock split on May 4, the large shareholders' selling is also believed to be a major factor.
A research note from Ping An Securities said quite a number of companies in emerging sectors listed recently, suggesting that large shareholders may be exiting to secure their gains.
Citing filings, analysts attributed the selloff to big shareholders' desire to stay liquid.
A research note from Chang Xin Asset Management said recent paring of holdings had a limited impact on the A-share market so far, given the small size of sales relative to the whole market. But small investors holding shares in these stocks may feel the pinch due to falls in prices.
Zhang Shaofen, 56, a Shanghai-based small investor, said it is understandable if big shareholders like institutional investors reduce their holdings to boost their liquidity. But, if individuals such as company founders or senior executives, or their family members, are behind such sales, it could mean they are cashing out or eager to get rid of the company's shares for some reason.
"Usually, individual large shareholders have close knowledge of a company's profitability, operations and financial situation. If such individuals sell shares in bulk deals, small investors may interpret the move as a sign of erosion of confidence in the company's future."
But brokerages said block deals do not necessarily mean big shareholders are giving up on the company or that they are cashing out or exiting for good.
A research note from Guangfa Securities said some block deals could well be in anticipation of possible mergers and acquisitions. M&A activity usually stands a better chance of success when the equity structure is clear and simple.
Ping An Insurance Group yesterday reported a nearly 40 percent jump in net profit last year on stellar life insurance sales and investment returns.
Ping An, Asia's second-largest insurance company by market value, said its net profit rose 38 percent to 54.2 billion yuan ($8.3 billion) in 2015, the highest since 2003.
Strong life insurance sales and a surge of investment returns partly from the bullish Chinese stock market in the first half of last year helped drive up the profits.
The company reported that premiums for life insurance rose 20 percent to 299.8 billion yuan, and the gross investment returns jumped 80.1 percent to 114.75 billion yuan last year.
Timothy Chan, the group's chief investment officer, told reporters yesterday that he expected more uncertainties this year and would seek more investment opportunities in blue-chip stocks, preferred stocks and fixed assets, especially logistic infrastructure in first and second-tier cities.
Guotai Junan Securities said in a note that Ping An's investment returns this year is likely to fall but its core insurance business remains in good shape.
The life insurance sector has benefited from greater focus on offering protection type of policies than capital-consuming investment-related ones.
The property and casualty sector has also outperformed industrial average in managing costs, the note said.
Analysts also said the group's more than 10 Internet financing branches spanning wealth management, e-commerce, health care consulting, and home sales will bring more revenue as well as clients.
China vows to further open up domestic markets to foreign investors with fewer restrictions as the country's economic reform goes deeper.
"We have largely slashed restrictions to market access to the Chinese market to further lure foreign investment," said Lian Weiliang, deputy head of the National Development and Reform Commission, at a news briefing on Wednesday.
He added that restrictions over the proportion of foreign equity have also been further eased in the foreign-invested projects, especially in the service and manufacturing sectors.
"It's very important to set up a new system for an open economy and create a business environment that is more legalized and more international", he said. "And the country's efforts have paid off."
China's foreign investment has bucked the trend of the cooling global economy to increase 9.2 percent during January-August, among which investment in the service sector surged 20.1 percent from a year earlier.
In March, the country halved the number of industries that used to be off-limits to foreign investors, another big step toward a more favorable business environment amid reforms.
Lian said the country has been gradually shifting to the "negative list" approach to better regulate market access and encourage foreign investment.
The negative list, which identifies sectors and businesses that are off-limits for investment and allows investment in all other sectors, was first announced in September 2013 in the Shanghai Free Trade Zone and then extended to the other three FTZs in Guangdong, Tianjin and Fujian a year later.
Retail investors check share prices at a brokerage in Qingdao, Shandong province, on Aug 18. The benchmark Shanghai Composite Index plunged by 6.15 percent to close at 3,748.16 points.
Share prices plunged on Tuesday as jittery investors resorted to huge sell-offs on concerns that the government has halted its plan to buy equities to stabilize the market.
The benchmark Shanghai Composite Index sank by 6.15 percent, or 245.5 points, to close at 3,748.16. It was the biggest loss in three weeks since an 8.5 percent dip on July 27.
State-owned enterprises, which are expected to undergo major ownership reforms, led the decline with more than 1,600 stocks on both the Shanghai and Shenzhen bourses tumbling by the 10 percent daily limit.
The market slump came after the country's securities regulator said on Friday that the State-owned margin lender China Securities Finance Corp will not step into the market unless there are abnormal market fluctuations.
The regulator's announcement has been widely interpreted as a signal that the government is ending its direct intervention and letting the market mechanism play a bigger role after the benchmark rebounded by about 15 percent from a bottom on July 8.
But Tuesday's decline underscored that investors' sentiment remained fragile as a slowing economy and the depreciation of the yuan continued to weigh on the market.
Jiang Chao, an analyst with Haitong Securities Co, said that the monetary authorities appear to be in a dilemma over the easing policies and the monetary uncertainty may continue to destabilize the market.
"There is need to inject more liquidity as the depreciation of the yuan is likely to trigger capital outflows. But the market rescue efforts have led to a surge in the broad monetary supply which created a policy dilemma," he said in a research note.
The recovery of the country's home prices has also dimmed investors' expectation for further monetary easing, some analysts said.
Li Daxiao, chief economist at Yingda Securities Co, urged investors not to overreact to Tuesday's decline, but warned about the risk of excess valuations of companies in the military industry.
Share prices of listed military-related companies have ballooned substantially ahead of the country's military parade commemorating the end of World War II and on expectations of major reforms.
The average valuation of the industry has been ranked the top among all industries with the price-to-earnings ratio of most companies exceeding 100 times, according to estimates.
"There is a big risk of the bubble bursting in military-related stocks, which is even worse than the startup board," Li said.
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