People's Bank of China (PBOC) joins monetary easing wave: cuts reserve requirement to spur growth

A woman walks past the headquarters of the People's Bank of China (PBOC), the central bank, in Beijing, in this file picture taken June 21, 2013. [Photo/Agencies]

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PBOC cuts bank reserve requirement to spur growth - CCTV News - CCTV.com English

China's banks' cash holding as reserves were at a lowered level, after the central bank cut the reserve requirement ratio, or RRR, which took effect on Thursday.

The PBOC cut the RRR on Wednesday by 50 basis points, which was the first industry-wide cut in more than 2 and a half years. After the cut, big banks' RRR was lowered to 19.5 percent. Meanwhile, the RRR was lowered by an additional 50 basis points for urban and rural commercial banks that lend to small and medium sized enterprises.

In line with investors' expectations, analysts say the move would help in injecting more liquidity and support economic growth.

"The cut in RRR on the one side helps the steady growth of the credit sector, supports economic growth and structural adjustment. At the same time, it's also helpful in lowering companies' financing costs, as banks will adjust their loan pricing because they have less debt stress," says Lian Ping, chief economist of Bank of Communication.

"The PMI contracted in the latest month, prices of bulk commodities dropped further globally, and the level of price increase was low. These gave us more space to cut the RRR and interest rates," says Zhu Baoliang, chief economist of State Information Center.

China cuts bank reserve requirement to spur growth

Night view of skyscrapers and high-rise buildings of Jianwai Soho and Yintai Centre in CBD in Beijing, China. [Photo/IC]

China's central bank made a system-wide cut to bank reserve requirements on Wednesday, the first time it has done so in over two years, to unleash a fresh flood of liquidity to fight off economic slowdown and looming deflation.

The announcement cuts reserve requirements - the amount of cash banks must hold back from lending - to 19.5 percent for big banks, a reduction of 50 basis points that would free up 600 billion yuan ($96 billion) or more held in reserve at Chinese banks - which could then inject 2-3 trillion yuan into the economy after accounting for the multiplying effect of loans.

"The central bank has tried to use short-term policy tools to inject more liquidity, but such tools were not enough, so it has to cut RRR," said Wen Bin, senior economist at Minsheng Bank in Beijing, adding that signs of increasing capital outflows and a sliding domestic currency were particularly worrying.

The reduction follows a surprise cut to guidance lending rates by the People's Bank of China (PBOC) in November, but that adjustment had negligible impact on spurring productive investment, so many had predicted the more dramatic move that the central bank has now delivered.

"Today's announcement isn't a surprise," wrote Mark Williams of Capital Economics in a research note reacting to the news.

"It is consistent with the more accommodative stance being taken since the benchmark interest rate cut."

Officials had previously said they would wait for fourth quarter data to be released before deciding on further easing measures, and that data gave little cause for comfort.

An official survey of China's mammoth factory sector, the purchasing managers index (PMI), showed it shrank unexpectedly for the first time in nearly 2-1/2 years in January, and other indicators have also been worrying, including signs of strengthening capital outflows and a weakening in China's service sector.

"The main reason was that the PMI was much lower than expected in January, so if there is no further policy reaction, it's very likely that China's Q1 GDP growth could fall below 7 percent," said Liu Li-gang, an economist at ANZ.

Policymakers had previously signalled that they were comfortable with slowing net growth in the name of economic restructuring away from capital-intensive manufacturing toward services, but if restructuring attempts set off an economy-wide slide, Beijing would find its options increasingly constrained.

External factors contributed to the timing of the decision, economists said, such as deflationary pressures from a recent collapse in energy prices and easing moves by other foreign central banks, though domestic issues were still more important.

"The recent wave of central bank easing may have played a role, but we think the above domestic factors are the main reasons behind the RRR cut today," wrote Zhu Haibin of J.P. Morgan, adding that the timing was not surprising, given rising systemic cash demand in the run-up to the week-long Chinese New Year holiday in mid February.

However, the weak impact of previous stimulus measures has some worried that liquidity tools are losing their effectiveness in China, given that the volume of debt required to produce a unit of GDP is steadily rising, given endemic industrial overcapacity and entrenched economic inefficiencies in the state sector.

The bank injected an estimated 644.5 billion yuan into the system through medium-term loan facilities in late 2014, without producing much in the way of stimulation, and swamping the system with money it cannot digest carries other risks.

Previous easing moves are already credited with setting off a massive leverage-fuelled rally in Chinese stock markets, which has become as much a cause for concern as celebration, as it highlights the risk that easing would simply reinflate asset bubbles in stocks, real estate and industrial housing that regulators have been trying to let the air out of for years.

China's economic growth slowed to 7.4 percent in 2014 - the weakest in 24 years - from 7.7 percent in 2013.

Analysts polled by Reuters in January expect economic growth to sag further this year to around 7 percent.

(Agencies) - China Daily/Asia News Network

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Backgrounder: Decoding China's reserve requirement ratio (RRR)
BEIJING, Feb. 5 (Xinhua) -- China's stock markets rallied after the central bank lowered the reserve requirement ratio (RRR) on Thursday for the first time in over two years, underscoring the powerful sway of this unique monetary policy tool.  Full story

China cuts reserve ratio by 50 basis points
BEIJING, Feb. 4 (Xinhua) -- China's central bank on Wednesday decided to lower the reserve requirement ratio (RRR), the minimum level of reserves banks must hold, by 50 basis points from Feb. 5.  Full story 

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Climing over the Great Firewall

As the Chinese government further restricts online communication, virtual private networks are trying to overcome the barriers.

There are alternatives to the blocked services, but let's just admit that the features on the censored sites are still the most appealing and user-friendly.

IT began with Line and KakaoTalk, foreign instant messaging apps, around July last year.

Instagram was next, during the height of the pro-democracy protests in Hong Kong in September.

I remember reaching out for my mobile phone one day after I woke up, checking my Instagram feed as part of my morning ritual, but for some reason, it just would not load smoothly.

Last month, the default mail app in my phone, which is synced to my Gmail account, also stopped working.

These bans imposed by China restricted communication even further as sites such as Facebook, Twitter, Google and Youtube have long been inaccessible in mainland. The censorship is put in place to control what the people see online.

Frustrated, a fellow foreign journalist commented: “The Chinese government has been actively advocating connectivity, but the ban is causing the total opposite.”

To overcome the inconveniences, foreigners residing in China and some Chinese nationals rely mainly on virtual private networks (VPNs) to access the blocked sites and apps.

With a fee, VPNs help users bypass restrictions and censorship on their mobile phones and computers by connecting them to servers outside China.

The act of using VPNs is cheekily known as “fan qiang” or “climbing over the wall” as the censorship is referred to as the Great Firewall, after the Great Wall of China.

Of course, there are alternatives to the blocked services, but let’s just admit that the features on the censored sites are still the most appealing and user-friendly.

Communicating with the world outside China is also easier with the common platforms of Gmail and Facebook, but unfortunately, accessing them within the borders of China is difficult.

Lately, the grip on the Internet was tightened with the Chinese authorities clamping down on VPN services. Users reported interruptions and failures to connect to VPNs.

Responding to the interrupted services, an official from the Industry and Information Technology Ministry (MIIT) said in a press conference this week that the move is essential for the healthy development of the Internet in China.

MIIT director of telecom development Wen Ku said the ministry has to employ new methods to “maintain cyber security and steady operation” with the rapid development of the Internet.

He reminded foreign sites to abide by Chinese laws if they want to operate in the country.

“Certain negative content should be regulated according to the Chinese law,” he said.

To a question on whether blocking VPNs would affect the vitality of the Internet, Wen said the development of Internet services in China is concrete proof of the effective policies, citing Chinese e-commerce giant Alibaba as an example of success stories.

But as the Chinese saying goes, “As the virtue rises one foot, the vice rises ten feet.”

While the Chinese authorities upgraded the Great Firewall, VPN providers such as StrongVPN and Astrill vowed to overcome the disruption.

“Notice to StrongVPN users, we are currently working diligently to find a resolution with certain servers not working in China,” StrongVPN posted on its website.

It also enticed possible customers to subscribe to its services to “protect your online security, personal privacy and help promote Internet freedom”.

Astrill said the increased censorship is “just a way for China to say ‘we don’t want you here’”.

It told its users, “We know how access to unrestricted Internet is important for you and we are doing our best.”

The tug-of-war continues.

Source: Check-in China by Tho Xin Yin

The views expressed are entirely the writer’s own.

Reponsible housing developers' traits and qualiies expected

Traits of a responsible housing developer

KNOCK, knock! Any “good” housing developers out there?

I am reluctant to use the words “good developers” as the words are not in my vocabulary. However, there are responsible ones and more are joining this category.

The qualities of a responsible developer are to be emulated, if you can find them.

The housing industry has come a long way since the advent of large-scale housing development in the late 50s and early 60s. The players in those times were bona fide entrepreneurs. Most probably, conscience ruled and pride in workmanship, timely delivery of quality and affordable houses were their hallmarks.

The present delivery system of “sell-then-build” through progressive payments is fraught with risks for the unsuspecting house buyers. These second generation housing developers, “good” or bad, are used to the lucrative profits from the housing industry. This is so because the post-independence period has been a period of high population and economic growth. Hence, the demand for housing is ever increasing. In a sellers’ market, the buyers are always at a disadvantage. When greed is inversely proportionate to conscience among industry players, the situation can get very bad indeed.

We often hear of developers lamenting about the shortage of workers (legal or illegal, skill or inexperienced), shortage of building materials, complying with new laws or regulations that made it hard for them to complete their projects on time. At the same time, we also hear of projects making multi-million ringgit in profits for the developers and we do not see or hear news of housing developers retiring or quitting the business entirely.

This would mean that the housing development is still a lucrative business. In fact, more rookie developers are joining the arena because the sell-then-build system allows them to make money from people’s money.

It has become a ‘riskless venture’ where profits are guaranteed, and in the worst scenario, the government will mop up the abandoned housing project, befitting the adage: Profit Privatised, Losses Nationalised’

Enough of the bad ones, we at HBA do keep our ears opened for the qualities of responsible developers to be emulated. In the first place, how do buyers judge if their developers have been responsible? The construction industry is a unique field. It is one of a few professions where no formal education is required.

There is no formal award giving ceremony by buyers to tell the world their developers have been ‘good’ and responsible.

There are also some other things the responsible developers do that prove they have a passion for their profession. Here are some of the traits practised by responsible developers.

Attention to environment and existing neighbourhood

Responsible developers do not just depend on their buyers to pass the word around about their reputation. No new project is an island. There are existing neighbouring projects, trees etc. A responsible developer ensures the existing neighbourhood is not disturbed by their new development.

If there are complaints, such as cracks, a landslide and floods that the new construction is causing to the existing neighbours, they are quickly attended to. They also ensure that the existing roads are kept clean regularly from construction activities.

Amenities, facilitiesand infrastructure

Developers who provide adequate amenities and facilities like playgrounds, schools, markets, community halls and even police booths are not only fulfilling the obligations imposed by the local council but also their social responsibilities to society. These developers are commendable as good corporate citizens. It enhances their image too. There are also developers who invest and build infrastructure first prior to selling their houses.

Takes pride in quality and timely rectification

Whether low-cost or high-cost houses, chasing the developer to rectify shocking defects, bad workmanship is a nightmare to buyers who lose out while waiting for repair works.

Responsible developers do their own quality checks before handing over their products. Caring developers do practise the following before handing over their products:

• Adopt quality checks at all stages of construction, test and commissioned utility supplies;
• Clear and clean individual units and construction site of debris;
• Ensuring the Certificate of Compliance and Completion (CCC) is obtained with the handover of units;
• Retain a team of competent workers to do rectification promptly if there are complaints on defects.
• Keeping sufficient stock of products like floor tiles of the same quality and make.
Some developers even extend the mandatory defects liability period of 24 months. We have also heard of developers providing alternative lodgings for their buyers while waiting for defects to be corrected.

Timely delivery

Time is the essence of the contract of sale and purchase. Houses should be delivered within the time stipulated in the sale and purchase agreement ie within 24 months for ‘land and building’ and 36 months for ‘building intended for subdivision’. If, for whatever reason, there are delays, compensation should be paid immediately to buyers without second thoughts or finding devious ways to ‘short-change’ the buyers.

Responsible developers keep their buyers informed of delays and tell them of the next expected delivery date. Some buyers even told us of the extras they have received at delivery time, which surely endear them to the developers. These are some of the ‘welcome packs’ that they have received: useful gifts like a key box; warranties from paint companies, auto-gates, pest control, electrical appliances; certificates of treatment for termites / pest control; a certified copy of the CCC issued by the architect and certified copy of the building plans and plans that relate to electrical wiring and water piping so as to facilitate future renovation.

Interest charged

One clause in the sales contract states that the buyer is responsible for late payment interest. It is a common complaint by buyers that their developers would charge interest for late payment even though it is the fault of the end-financier or their lawyers doing the legal documentation. Responsible developers assist in ensuring that the documentations are in order and the buyer is not burdened with any late payment interest.

Joint Management Body (in stratified projects)

Responsible developers assist their buyers to form committees and be prepared for the formation of the management corporation. These developers realise that the projects they have developed will eventually pass to the owners to maintain and manage.

Encouraging community living

Developers who encourage forming of resident/ owners association are a welcome lot. Some even go to the extent of contributing monies for the formulation of buyers representative group for a meaningful channel to voice grievances. Some even provide meeting facilities and allocate a multipurpose room for the elected representative group.

Good communication

The line of communication should always be open between buyers and their developers:
• Keeping buyers informed of the ongoing projects and their products;
• Developers not to appear having shun away from their responsibility;
• Treating the buyers with respect as buyers can serve as their marketing tool. Show respect and you will gain respect;
• Transparency and accountability on monies collected;
• Providing regular accounting reports and budgets;
• Voicing of any grievances rather than through the media, which will bring adverse effect to the detriment of both parties.

Build first then sell

There is no step that can be more pronounced than for housing developers to adopt the absolute ‘built first then sell’ so that potential buyers can see for themselves the finished product before buying. We believe that in this way, most of the present day ailments afflicting the housing industry can be avoided and the housing industry will be a lot more orderly.

In the interim period, responsible developers have embarked on the Built then Sell (BTS) 10:90 concept where the buyers pays 10% and the balance of 90% to be paid upon completion of the house. They are already big names among developers that find the BTS 10:90 concept workable and feasible and are targeting to achieve the Government aspiration of making BTS 10:90

There are responsible developers whose names are synonymous with quality and trust. They are able to win over buyer’s confidence. Today, they have created their own brand names. No wonder some developers do not advertise, yet all their units are sold out even before the official launch.

By Chang Kim Loong AMN who is the secretary-general of the National House Buyers Association.


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