Aurelia Butler

As part of the package, the Ministry of Finance (MOF) plans to issue 1 trillion yuan of special sovereign debt primarily to stimulate consumption amid growing concerns about a stuttering post-COVID economic recovery, said the sources.Part of the MOF proceeds raised via special bonds, which are floated for a specific purpose, will be used to increase subsidies for the trade-in and renewal of consumer goods and for the upgrade of large-scale business equipment, said the two sources.The proceeds will also be used to provide a monthly allowance of about 800 yuan, or $114, per child to all households with two or more children, excluding the first child, the first source said.China also aims to raise another 1 trillion yuan via a separate special sovereign debt issuance and plans to use the proceeds to help local governments tackle their debt problems, the source added.Most of China’s fiscal stimulus still goes into investment, but returns are dwindling and the spending has saddled local governments with $13 trillion in debt. China’s household spending is less than 40% of GDP, some 20 percentage points below the global average.Some of the fiscal support measures could be unveiled as soon as this week, said the sources, who declined to be named as they were not authorised to speak to media.China’s State Council Information Office, which handles media queries on behalf of the government, and the MOF did not immediately respond to requests for comment.GROWTH TARGET IN FOCUSChinese leaders pledged on Thursday to push to hit the 2024 economic growth target of roughly 5% and stop declines in the housing market, state media reported, citing a Politburo meeting.The Politburo said the country would make good use of its ultra-long special sovereign bonds and local government special bonds to support government investment and necessary fiscal spending should be guaranteed.The planned fiscal expansion is the latest attempt by Chinese policymakers to revive an economy grappling with deflationary pressures and in danger of missing this year’s growth target due to a sharp property downturn and frail consumer confidence.It would also come after the central bank on Tuesday announced broader-than-expected monetary stimulus and property market support measures to restore confidence in the economy with key measures including liquidity injections and lower borrowing costs.The measures have lifted market sentiment, but mainly because they raised expectations authorities will follow soon with a fiscal package to complement the monetary and financial measures.Under the guidance of the top leadership, the MOF, along with several government bodies, has in recent weeks been working on fiscal stimulus measures to revive the economy, said the two sources.In addition to the special sovereign debt issuance to support consumption, Chinese authorities also plan to ramp up financial support for small and medium-sized enterprises in phases, such as employment subsidies and tax and fee relief, to reduce their operating costs, the second source said.”We expect more fiscal support for housing and social welfare spending in the next few months. In our view, it’s not a ‘whatever it takes’ moment, but it definitely shows that Beijing is taking deflation seriously and exploring all options,” Morgan Stanley economists led by Robin Xing said in a research note on Thursday.Bloomberg News reported on Thursday that China is also considering the injection up to 1 trillion yuan of capital into its biggest state banks to increase their capacity to support the struggling economy, primarily by issuing new special sovereign bonds. More

NEW YORK (Reuters) – The global financial architecture needs a permanent mechanism for restructuring sovereign debt, as measures currently in place have fallen short for creditors and borrowers alike, the head of the U.N. Trade and Development agency told Reuters.A raft of recent defaults from Zambia to Ethiopia have fuelled a debate about how to ensure that countries in distress can achieve a swift and smooth debt restructuring that would help them return to a path of growth and rising investment. “What has happened is that there are ad-hoc mechanisms put in place when the problem comes, (but) there is no permanent institution or system that is there all the time dealing with debt restructuring,” UNCTAD Secretary-General Rebeca Grynspan said on the sidelines of the U.N. General Assembly in New York.Talk of a sovereign debt restructuring mechanism is not new. The International Monetary Fund (IMF) spearheaded a push in the early 2000s but that did not gain traction, Grynspan said. “Maybe we can create new momentum to take this question seriously.”Efforts to reshape the global debt infrastructure have not been met with urgency, partly because the emerging markets sovereign bond market has of late been resilient.Yet two in five developing economies are at some level of debt distress. Debt-servicing costs are estimated to hit $400 billion this year and over 3 billion people live in countries that spend more on debt servicing than on education or health.Debt sustainability assessments should not only focus on the capacity to pay, but also the capacity to grow, Grynspan said.NO LEARNING CURVE Some advances have been made, especially in 2014 with the addition of collective action clauses (CACs) – making it much harder for holdout investors to push for bigger gains and prolong the debt rework – which have sharply cut the time a country remains in default.”It is important to maintain the collective clauses and see how they have worked and how we can improve them,” she said, but every case is a specific fix, and there is “no learning curve.””It will be important for the countries that have gone through the process to establish a dialog with all the countries that may face a debt restructuring,” she said, adding more rules of the game would increase overall transparency.The Common Framework, a 2020 initiative of the Group of 20 to streamline debt restructurings, created frustrations for creditors and borrowers. Only four countries have signed up for it.Grynspan said she was critical of the Common Framework, and pointed to the length of time it took to put together deals for Zambia and Ghana.”You have 40% of the developing countries in debt distress, and that happened because of systemic shocks which are more and more common. If it takes you three or four years for three countries, imagine if you have 10.” More

The note states that after 14 months of holding rates steady, the Fed has cut rates by 50 basis points. This move follows similar actions by the European Central Bank (ECB) and other G10 central banks.HSBC explains that while inflation remains high, it is on a downward trajectory, and the labor market is showing signs of cooling, which allows for looser monetary policy.However, the bank points out that despite this current easing phase, uncertainties remain.Global economic conditions, political developments, and volatile markets could influence future Fed decisions.One key factor will be the outcome of the upcoming U.S. presidential elections in 2026, which may impact fiscal and monetary policies.”Many of the potential post-election policy changes, which the candidates have opined on and may hope to implement, could alter the FOMC’s view on the neutral rate and/or how restrictive policy needs to be,” writes the bank.In their analysis, HSBC presents two potential scenarios. One involves fiscal tightening and further rate cuts, while the other sees supply-side shocks, such as tariffs and immigration policy changes, potentially leading to rate hikes.They believe the latter scenario could force the Fed to raise rates, whether or not Jerome Powell remains Fed Chair beyond his term, which ends in May 2026.”Of course, it is also possible that the Fed is already back to raising rates by 2026: not as a consequence of political choices, but quite simply because the economy has rebounded more strongly than expected in response to the monetary easing cycle that is now underway,” states the bank.However, they also acknowledge that “if it appears that the Fed is behind the curve and a US hard landing occurs in 2025, the Fed would likely still be lowering rates in 2026.” More

Most mortgages have terms of five years or less, compared with the 30-year term that is the norm in the United States.It is common practice to switch lenders in search of improved interest rates but without changing the amount or repayment schedule – a so-called straight switch.From Nov. 21, borrowers will no longer need to prove their income meets the Minimum Qualifying Rate when seeking a straight switch.The change will increase lender options for borrowers who have to renew at interest rates higher than those prevalent during the lower interest rate environment of recent years. More

Yellen, in excerpts of remarks to be delivered at a Treasury markets conference in New York, said reforms instituted after the 2007-2009 financial crisis have helped the system weather turbulence including the pandemic and more recent regional bank difficulties.”Work to build and maintain a resilient financial system is never over. We’ll never be able to just declare victory,” Yellen said in the remarks to the conference hosted by the Federal Reserve Bank of New York.”A resilient financial system is critical to a strong economy. And strengthening it requires insisting on thoughtful regulation, including in the face of challenges from those who advocate to roll back policies and regulations,” she added.Yellen said that when she took office in January 2021, she worked to rebuild the government’s focus on financial stability to ensure a system that could serve households and businesses and support prosperity.This included a focus on safe and sound financial institutions, financial market utilities, central clearing counterparties and protections for investors and consumers.This framework helped enable Treasury to take steps to protect the banking system from contagion in the spring of 2023 after the failure of Silicon Valley Bank and Signature Bank (OTC:SBNY), Yellen said.”At home, there were some who strongly opposed the Dodd-Frank Act, arguing that its regulation would hold back innovation and economic growth,” Yellen said, referring to the 2010 financial reform law. “I and many others have insisted on the opposite. Appropriate regulation is critical to supporting a resilient financial system that serves as an engine for innovation and growth.”Warnings that Dodd Frank would leave the U.S. banking sector uncompetitive failed to be realized while higher-quality capital required by the law allowed banks to extend credit to households and businesses that needed it during the pandemic, Yellen said. More

Speaking during a campaign event on Sept. 24, Trump threatened to slap 100% tariffs on every car coming into the US from Mexico, adding that he would reward US-based manufacturers with research and development tax credits. Earlier this week, the former president also said he would hit agricultural equipment maker John Deere (NYSE:DE) with a 200% levy on its imports into the US should the firm go ahead with plans to shift production to Mexico.Trump has previously vowed to impose a blanket tariff of 10% to 20% on almost all US imports, including a 60% import tax on items coming in from China.Trump has argued that such moves would help lift US manufacturing activity. Recent polling suggests that a majority of likely voters back the proposal and believe Trump would be a better steward for the economy than his Democratic rival Kamala Harris, Reuters reported.But economists have warned that the tariffs could refuel waning inflationary pressures.In a note to clients on Thursday, the Wolfe Research analysts said that, despite the potential downsides posed by the stance, tariffs have “increasingly become the answer to every question for the Trump campaign.””He has doubled down on his main tariff proposals and pointed to them as his solution for boosting domestic manufacturing, lowering the US deficit, subsidizing childcare costs, stopping de-dollarization, and deterring wars,” they wrote.Meanwhile, Harris also laid out more details of her economic agenda this week in an 82-page booklet. Among the proposals, the vice president, who has called Trump’s tariffs plans a “sales tax” on American households, offered to provide tax incentives to domestic businesses to keep their operations in the US.The Biden administration, however, has recently instituted its own tariffs and hiked import duties on certain Chinese goods. Harris has not explicitly said if she would extend these policies, but her campaign’s website says she “will not tolerate unfair trade practices from China or any competitor that undermines American workers.”When analyzing the two economic plans, the Wolfe Research analysts noted the “fundamental asymmetry of the 2025 policy outlook.” In their projections, Republicans are likely to gain control of the US Congress, which would make it easier for Trump to pass his proposals and harder for Harris to carry out hers.”This is clearest on tariffs, where Trump plans to rely on existing presidential authorities,” the Wolfe analysts said. “So incremental signals on how serious Trump is about tariffs are meaningful for markets, but investors probably won’t need to worry about the details of Harris’ tax plans.”(Reuters contributed reporting.) More

HONG KONG (Reuters) – As China steps up efforts to stabilise its economy with fresh stimulus, the country’s top banks would need to be capitalised at the earliest to help them boost lending to revive faltering growth and manage asset quality strains, analysts said.Chinese banks’ profitability, which has already been under pressure due to the economic slowdown and the property sector crisis, is set to take another hit by a further reduction in mortgage rates announced on Tuesday. While the top banks are likely to lower their deposit rates to cushion the impact on their margins, analysts say they would need fresh capital injection to offset growing asset quality woes and, potentially, bail out the smaller peers.China’s big state-owned banks are generally tapped to rescue the struggling small and mid-sized lenders, many of whom reel from lower capital buffers, poor asset quality, and fewer sources of raising fresh capital. China’s four biggest banks, including Agricultural Bank of China (OTC:ACGBF) and Bank of China, needed 738 billion yuan ($105 billion) of total loss-absorption capacity (TLAC) capital as of end-June, as per S&P Global Ratings.Bloomberg News reported on Thursday China was considering injecting up to 1 trillion yuan ($142.39 billion) of capital into its biggest state banks to increase their capacity to support the struggling economy.The funding will mainly come from the issuance of special sovereign bonds, it said, in what would be the first time that authorities have capitalised the Chinese banks since the global financial crisis. “It (capital injection size) depends on what condition the regulators want the banking system to reach. If sticking to the bottom line of preventing systematic financial risks, the work could be focused on small and medium banks, because big banks for now have sufficient capital,” said Xiaoxi Zhang, China finance analyst at Gavekal Dragonomics.”If regulators are looking to digest the bad loans accumulated in recent years in the banking system, much more capital injection will be needed to reset the balance sheets of the banks.”Top Chinese lenders have been struggling with their falling net interest margins (NIM), shrinking profits, and rising bad loans amid slowing growth in the world’s second-largest economy and a protracted property sector crisis. Four of China’s five largest lenders reported lower second-quarter profit after responding to a government nudge to lower lending rates to stimulate extremely weak loan demand from households and businesses.The People’s Bank of China (PBOC) and the National Financial Regulatory Administration (NFRA), the country’s banking sector regulator, did not immediately respond to a Reuters request for comment.PROFITABILITY PRESSUREIn Tuesday’s broad policy stimulus measures unveiled by Beijing, it also announced a 50-basis-point reduction on average interest rates for existing mortgages and a cut in the minimum downpayment requirement.While most analysts expect the banks to lower their deposit interest rates to cushion the impact on their profitability, the lenders are still expected to take a hit on their net interest margins, which has already dropped to the lowest on record.The net impact of the rate cuts on NIM will be around 3 basis points for 2025, according to JPMorgan research note.The central bank said on Tuesday that the impact of the “rate adjustment plan” on banks’ income will be neutral, while NIMs of banks will remain largely stable due to cut in banks’ borrowing costs and the repricing of deposit rates.China would lower the reserve requirement ratio and implement “forceful” interest rate cuts, according to an official readout of a monthly meeting of top Communist Party officials, the politburo, released on Thursday. “The policy combo is positive to the banking sector in the near term … and we estimate the net impact of (the) rate cut is only less than 3% on earnings,” JPMorgan analysts wrote in a research note on Wednesday.However, investors could book profits on some state bank shares now and revisit them when more clarity emerges on capital infusion, it said, as “there may be concerns on rising national service risk and questions on medium-term profitability.”The outstanding value of individual mortgages stood at 37.79 billion yuan ($5.31 billion) at the end of June, down 2.1% year-on-year, according to the central bank data. That accounted for about 15% of banks’ total loan books, the data showed.”Authorities will prioritize riskier institutions for capital injections and balance sheet cleanup,” said Ming Tan, director at S&P Global Ratings, adding regulators are expected to encourage the stronger banks to absorb weaker players.($1 = 7.0246 Chinese yuan renminbi) More

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