China Economic Scan - Your daily update on the Chinese economy.
In this edition: BoCom said it expects Chinese CPI to fall again in May, Merrill Lynch says Chinese banks' debt funding costs to rise, Chery Automobile raised 2.9bln yuan in growth capital from private equity investors, BNP Paribas lowers Chinese stocks to neutral - says buy India instead, Chinese stocks fall slightly.
Top 5 headlines
BoCom expects negative CPI growth in H1
- China's Consumer Price Index (CPI) is set to record the fourth consecutive month of decrease in May and to remain negative in the first half of this year, according to a Bank of Communications (BoCom) report released Monday.
- Food prices are expected to drop slightly in May with 1.5 percentage points of the decline due to the tail-raising factor, which was the main reason for the CPI decline in May, according to the report.
- Based on data from the Ministry of Agriculture and the Ministry of Commerce, the report said CPI growth would be between minus 1.8% and minus 1.2% with the median minus 1.5% in May, making it the fourth consecutive month of negative growth since February this year.
Chinese Banks’ Debt Financing Costs Will Rise, Merrill Says
- Chinese banks face higher costs for selling subordinated bonds as tighter capital regulations stifle demand for the securities following a surge in sales, according to Bank of America's Merrill Lynch.
- Chinese banks sold 103 billion yuan ($15 billion) of bonds in the first 5 months this year, more than the combined tally for 2007 and 2008, Merrill analysts Winnie Wu, Alistair Scarff and Michael Li said in a report dated yesterday. Lenders plan another 700 billion yuan of sales before 2012, they said.
- “The window for banks’ cheap debt financing is closing in the next three years,” the analysts wrote. “The supply-demand dynamics will drive up the cost of future sub-debt financing.”
Chery nets 2.9b yuan for growth
- Chery Automobile Co, China's biggest automaker, said yesterday that it has raised 2.9 billion yuan from local private-equity investors to boost its development and expansion plans.
- "The capital will be used in our clean energy program, heavy-duty program and a new sedan plant we are planning to build," said Jin Yibo, Chery's spokesman.
- The investors, all local funds, include Bohai Industrial Investment Fund Management, which is majority owned by Bank of China; Tianjin-based CDH Investments; China Huarong Asset Management Corp; and Shenzhen-based China Science & Merchants Venture Capital Management Co Ltd, according to Chery's statement.
China Stocks Lowered at BNP Paribas; Switch to India
- China stocks were downgraded at BNP Paribas, which said investors should instead buy more Indian equities because valuations, fund flows and liquidity in the South Asian nation have become more favorable.
- Chinese shares were cut to “neutral” from “overweight,” analysts led by Clive McDonnell said in a report today, keeping India “overweight.”
- The Bombay Stock Exchange Sensitive Index may extend its rally by another 11%, BNP said, advising customers to buy State Bank of India and sell Chinese peers including Industrial & Commercial Bank of China Ltd.
Hong Kong’s Stocks Decline as Shippers Tumble on China Warning
- Chinese stocks fell slightly on Thursday with the Hang Seng down -0.40% to 18,503, the Shanghai Composite down -0.41% to 2,767, but Shenzhen Component closed up 0.20% to 10,734, but the TAIEX shaved off -1.55% to 6,786.
- Hopson, a Hong Kong-based developer of real estate in China, plunged -7.9%. Esprit Holdings, a Hong Kong-based global clothing retailer, declined -4.6% on concern product demand will decline after a worse-than-expected report on the U.S. services sector.
- Sinotrans Shipping, the dry- bulk arm of China’s third-largest shipping group, tumbled -7.4%. Shipping stocks accounted for six of the 10 biggest falls on the 201-member Hang Seng Composite Index. Trade faces “unprecedented difficulties,” Vice Commerce Minister Zhong Shan said yesterday.
Financial Indicators:
| Metric | Value | Point change | % change |
| Hang Seng Index | 18,503 | -73.7 | -0.40% |
| Shanghai Composite | 2,767 | -11.35 | -0.41% |
| Shenzhen Component | 10,734 | 21.41 | 0.20% |
| TAIEX | 6,786 | -107.08 | -1.55% |
| CNY/USD | 6.8328 | 0.0022 | 0.03% |
Source: China Economic Scan
