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Saturday, 1 November 2008
Crisis to hit China hard
A Global recession will have a huge impact on China’s economy while currency volatility is expected to add further pressure on the country’s banks, a top executive at Bank of China (BOC) said on Saturday.
SHANGHAI - A Global recession will have a huge impact on China’s economy while currency volatility is expected to add further pressure on the country’s banks, a top executive at Bank of China (BOC) said on Saturday.
‘Next year, the global economy is very likely to enter recession and the world’s biggest economies, including the United States, Europe and Japan, are very likely to post negative growth and that will have a huge impact on China’, Executive Vice President Zhu Min told a financial conference in Shanghai.
‘The impact of the crisis on China has just started to appear as China has already seen a sharp slowdown in industrial profit growth and fiscal income’, he said.
‘The financial crisis will technically precede economic and political turmoil by eight to 12 months’, he added.
China’s banks have enjoyed robust profits for years as country boomed but earnings growth is now slowing as the economy cools from the impact of the global financial crisis.
Although China’s banks have manageable holdings of subprime-mortgage-related debt, they are exposed to huge foreign currency trading risk from turbulent financial markets.
‘The uncertainties in the world’s currency markets have exposed the Chinese banking sector to higher foreign asset risk’, Mr Zhu said.
Bank of China , the country’s flagship foreign exchange lender, said on Wednesday profit growth slowed to 12 per cent during the third quarter, from 43 per cent in the first half.
The lender had US$6.2 billion worth of debt issued by troubled US mortgage companies Freddie Mac and Fannie Mae by the end of September, and was carrying US$3.3 billion of subprime-related securities.
Mr Zhu said several factors will hurt the banking sector’s bottom line such as the possible deterioration of banks’ asset quality as economic growth slows, and shrinking interest margins due to the global trend of interest rate cuts.
He expects the industry to face tougher regulations and supervision of derivative products in future.
Bank of China’s focus on trade finance loans means rapidly slowing world demand for Chinese goods will put additional pressure on the lender’s loan growth and asset quality, Deutsche Bank said in a recent report.
China’s economy grew 11.9 per cent in 2007, but that rate slowed to 9.9 per cent in the first three quarters of this year.
China’s manufacturing sector contracted sharply in October, an official monthly survey showed on Saturday, providing more evidence the global financial crisis was taking a toll on the once roaring Chinese economy.
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Crisis to hit China hard
Reuters
1 November 2008
SHANGHAI - A Global recession will have a huge impact on China’s economy while currency volatility is expected to add further pressure on the country’s banks, a top executive at Bank of China (BOC) said on Saturday.
‘Next year, the global economy is very likely to enter recession and the world’s biggest economies, including the United States, Europe and Japan, are very likely to post negative growth and that will have a huge impact on China’, Executive Vice President Zhu Min told a financial conference in Shanghai.
‘The impact of the crisis on China has just started to appear as China has already seen a sharp slowdown in industrial profit growth and fiscal income’, he said.
‘The financial crisis will technically precede economic and political turmoil by eight to 12 months’, he added.
China’s banks have enjoyed robust profits for years as country boomed but earnings growth is now slowing as the economy cools from the impact of the global financial crisis.
Although China’s banks have manageable holdings of subprime-mortgage-related debt, they are exposed to huge foreign currency trading risk from turbulent financial markets.
‘The uncertainties in the world’s currency markets have exposed the Chinese banking sector to higher foreign asset risk’, Mr Zhu said.
Bank of China , the country’s flagship foreign exchange lender, said on Wednesday profit growth slowed to 12 per cent during the third quarter, from 43 per cent in the first half.
The lender had US$6.2 billion worth of debt issued by troubled US mortgage companies Freddie Mac and Fannie Mae by the end of September, and was carrying US$3.3 billion of subprime-related securities.
Mr Zhu said several factors will hurt the banking sector’s bottom line such as the possible deterioration of banks’ asset quality as economic growth slows, and shrinking interest margins due to the global trend of interest rate cuts.
He expects the industry to face tougher regulations and supervision of derivative products in future.
Bank of China’s focus on trade finance loans means rapidly slowing world demand for Chinese goods will put additional pressure on the lender’s loan growth and asset quality, Deutsche Bank said in a recent report.
China’s economy grew 11.9 per cent in 2007, but that rate slowed to 9.9 per cent in the first three quarters of this year.
China’s manufacturing sector contracted sharply in October, an official monthly survey showed on Saturday, providing more evidence the global financial crisis was taking a toll on the once roaring Chinese economy.
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