China’s Fulsome Plenum Pleas
Chinese stocks tried to move into the positive column on reform momentum from the central committee plenum, with the 60-point agenda now to advance to December‘s economic work conference for party leaders for possible near-term implementation. Future phasing out of the one-child policy grabbed headlines and reflected the cost burden of old age support with limited official pension schemes already in difficulty. The household registration system will be modernized to hasten urbanization and access to social services and utilities to be more market- priced. Private capital and ownership will be increased in big state-owned enterprises and infrastructure projects, and dividends will be raised 10 percent by end-decade. The declaration vowed faster commercial exchange rate determination and convertibility as several Chinese brokers introduced ETFs in the US for direct participation in “A” shares. Local governments will proceed with pilot bond issuance and formal deposit insurance is under consideration as ICBC was added to the Financial Stability Board’s list of the world’s systemically critical institutions. Its Q3 profit was up only 7.5 percent on a reported one percent NPL ratio as smaller banks and distressed asset arm Cinda launched Hong Kong IPOs to mixed success. October lending figures were at this year’s low with the regulator insisting on caution toward industrial borrowers with overcapacity and new guidelines for wealth management product exposure. Premier Li urged provinces to curb debt vehicles as Moody’s calculated the amount outstanding at almost RMB 10 trillion, while the national auditor conducts its own updated tally. Although land revenue rose 50 percent through September on an annual basis the rater concluded that just half the universe can meet principal and interest payments without rollovers. Over-leveraged property firms are likewise the main corporate default concern according to S&P as net debt/equity is above 200 percent. Exports and the trade surplus rebounded last month as food-driven inflation topped 3 percent. GDP growth may again be stoked from a 55 percent fixed-investment contribution to 7.5 percent but officials have signaled likely slowing into 2014 which may alter Plenum priorities.
At the opposite stock market performance end Indonesia with a 20 percent loss acknowledged the lack of an imminent turnaround in coal sales to the mainland and its overall terms of trade with another benchmark interest rate hike. The Q3 current account deficit was $8.5 billion and GDP growth dropped to 5 percent as consumers were pinched by higher fuel expenses. Foreign investors still hold 30 percent of local bonds but have trimmed positions as the rupiah retraces the 10000 to the dollar zone on dual US central bank tapering and presidential succession worries. The early front-runners are well-known business and military figures from the establishment but late entry from the popular governor of the Jakarta area or an independent is widely speculated. With the traditional market demanding higher sovereign yields sukuk resort is set for fuller Islamic-style group preference.
