SHANGHAI: Ever since Chinese Premier, Li Keqiang, used the cryptic phrase “revitalize the stock” in an official policy statement in June, market watchers have pondered what policies it entails, Reuters reported on Wednesday. A central bank official has told Reuters that according to his personal understanding, the phrase refers to packaging loans into securities and sales of minority stakes in state firms. Such reforms would be aimed at cleaning up bank balance sheets and bolstering China’s welfare system, said the official, who heads a People’s Bank of China branch in a major city and is a member of the National People’s Congress, China’s parliament. China’s new leadership has pledged to wean the nation off its addiction to investment and credit-fuelled growth in favor of a more consumption-driven model. A range of reforms are expected to be announced at a Communist Party meeting likely to be held in October. Such re-balancing will require a more generous social safety net that can persuade Chinese households to save less and consume more, as well as cleaning up a banking system saddled with potential bad debts from China’s 2008-2009 stimulus spending spree. The official asked for anonymity because he is not authorized to speak to media about government policy. Branch presidents participate in official PBOC policy discussions, while the NPC votes to approve major policy initiatives. Li told China’s cabinet in June that China would “make good use of the flow and revitalize the stock,” a phrase that top leaders have since repeated many times. “If various levels of government can reduce their equity ownership partially, it will not only further advance state-owned enterprises reform, but also release some funding. That is ‘revitalizing the stock,’” the official said. Funds raised from stake sales could be used to shore up the national pension fund or finance more generous health-care benefits as part of Beijing’s efforts to spur consumption, he said. While the branch president’s comments indicate some official support for privatization, such proposals remain contentious. A World Bank report in February 2012 that recommended gradual sales of partial stakes drew criticism that such proposals undermined the socialist foundations of the economy. The official said he believed the other key reform signaled by Li was a proposal to allow banks to package some risky loans into securities that could be sold off, creating space on their balance sheet to support the economy with fresh credit. “This is also ‘revitalising the stock.’ And the commercial banks really need it,” he said, predicting that the non-performing loan ratio would rise as China’s economy slows. Analysts say the official ratio, which is below one per cent, clearly understates the scale of bad debt problems and they fear that banks will seek to avoid write-downs by keeping unviable borrowers on life support. The official said that state-backed asset management companies would likely be the main buyers of securitized bank assets. That could set the stage for a modified version of China’s last round of bank recapitalisation. China set up four such companies up in 1999 to take 1.4 trillion yuan ($230bn) off the books of the nation’s Big Four banks. The companies raised money to buy the bad debts by issuing 10-year bonds backed by China’s finance ministry. posted on August 08, 2013 at 12:00AM jtnng.blogspot/
Posted on: Wed, 07 Aug 2013 23:29:16 +0000
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