Category: Economy

China’s housing rescue is too small to end crisis, analysts say

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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China’s latest housing initiative is aimed at vacant properties, a major pain point in a crisis that’s dragged on for almost three years. But analysts say the package of measures is still too small to end the rout.

The decline in China’s sales of new homes accelerated in recent months, with households increasingly preferring to buy in the secondary market. That’s pushed up the stock of unsold homes and empty land to the highest level in years, discouraging new construction and threatening more defaults by developers — including large state-owned firms.

The support package announced Friday features a 300 billion yuan ($42 billion) facility from the People’s Bank of China that will fund bank loans for the state companies charged with buying up completed-but-unsold housing stock. Economists expressed concern both about the limited size of the measure relative to the stock of unsold housing, and the risk it won’t be fully implemented.

Officials said the central bank program can incentivize bank loans worth 500 billion yuan. That would only address a fraction of the value of vacant apartments in China, which economists estimate at multiple trillions of yuan.

The facility is “well short” of what’s necessary to ease financial strains among developers, said Rory Green, chief China economist at TS Lombard.

Also Read: China home prices fall at faster pace despite revival efforts

The program, which gives local governments the responsibility to turn the apartments into affordable housing, received high-profile backing from President Xi Jinping’s economy czar on Friday. Still, doubts remains as to whether banks will make full use of the facility. Commercial lenders’ involvement will “limit the speed and efficacy of fund deployment,” Green said.

A previous PBOC lending program for commercial banks aimed at rental housing projects saw a low level of take-up, with just 2% of the funds having been utilized. The new destocking initiative has already been trialled in eight cities, and worked best in areas with population inflows — a condition not met by all metropolises.

“Any game-changing housing easing measures (including those for housing destocking) would likely require significantly more funding than available thus far,” Goldman Sachs Group Inc. economists led by Lisheng Wang wrote in a note, citing earlier research that getting outstanding housing inventory back to 2018 levels would require 7.7 trillion yuan.

A program encouraging local governments to buy unused land from developers also faces challenges. Many regions are fiscally strained, and officials at a briefing on Friday warned that such efforts shouldn’t increase local government debt risks.

Regional authorities will be allowed to use some of their annual 3.9 trillion yuan bond borrowing quota for the new initiative — but much of that has already been earmarked for infrastructure projects.

It’s unclear if local governments will be willing to pay “anything close to what the developer paid,” for land, said Adam Wolfe, emerging markets economist at Absolute Strategy Research. “If developers have to recognize a loss on their land banks, then they might have to recognize some solvency problems, not just cash flow issues.”

Also Read: China averts moral hazard, for now, after Country Garden pays

To boost bank lending to developers to ensure they finish existing projects, officials are doubling down on a so-called “white list” effort that identifies developments meriting support. That plan, introduced in January, has seen approved lending reach more than 900 billion yuan, according to officials.

But the funds don’t seem to be reaching property companies, which raised less than 600 billion yuan in loans for construction projects in the first four months of the year, according to the country’s statistics bureau. That’s down 9% on a year earlier.

The white-list program is limited by the incentives of commercial banks, which worry about developer defaults impacting their bottom line. The same issue applies to new measures that allow banks to lower mortgage rates and down-payment requirements.

Lenders have already lowered mortgage rates to historic lows, and could be reluctant to make further cuts.

“The impact of this policy will be bounded by banks’ squeezed interest rate margins,” said Serena Zhou, senior China economist at Mizuho Securities Asia Ltd.

Households might also use lower rates to buy existing properties rather than newly built ones, as those prices have fallen further and delivery isn’t a concern. China’s existing-home sales overtook new homes by area for the first time on record last year, underscoring a fundamental shift in buying habits that means less cash for developers.

Cutting mortgage rates to stimulate sales may work in larger cities with more housing demand, but not in smaller ones where rates have already been cut to the bone, said Houze Song, an economist at the Paulson Institute, a US think thank.

“The new policies may stimulate property sale for a couple of months,” he added. “But I doubt it is sufficient to reverse the tide.”

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

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Chinese banks keep lending rate unchanged after People’s Bank of China hold

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Chinese banks left their benchmark lending rates unchanged following the central bank’s decision last week to hold a key rate on loans it offers to lenders.

The one-year loan prime rate was held at 3.45% on Monday as expected by economists surveyed by Bloomberg. The five-year rate, a reference for mortgages, was kept at 3.95%, according to the People’s Bank of China, in line with forecasts.

China’s economic recovery has been driven by strength in the industrial sector, but domestic demand has remained stubbornly weak as the property downturn persists. Credit posted a shock shrinkage in April for the first time ever in an alarming sign of battered corporate and household sentiment.

The People’s Bank of China last week rolled over the maturing medium-term lending facility, its one-year policy loan, but refrained from trimming the rate, signaling an intention to aid a nascent economic recovery without adding pressure on the yuan.

Some economists expect the PBOC to cut rates or inject more cash into the financial system by reducing the amount of reserves banks must keep in the coming months. That would help banks buy up new government bonds, as Beijing increases fiscal support for the economy.

China on Friday started selling the first batch of what will be 1 trillion yuan ($139 billion) special sovereign bonds, in a move to keep up infrastructure investment. Provincial governments are also accelerating the issuance of local notes.

Policymakers have unveiled more measures recently to stimulate domestic demand in a bid to address the imbalances in the economy, with aid for the property sector to reduce inventory a latest focus.

The authorities announced Friday they will establish a nationwide program to unleash 300 billion yuan in cheap funding to help state-owned companies buy unsold homes. In addition, they removed the floor on mortgage rates and lowered the minimum down payment for homebuyers.

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

GDP growth likely to be 6.7% in Q4; 7% in FY24: Ind-RA

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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India Ratings and Research expects the country’s GDP growth rate for the March quarter at 6.7% and around 6.9-7% for the 2023-24 fiscal, its principal economist Sunil Kumar Sinha said. The GDP numbers for the fourth quarter (January-March 2024) and the provisional estimates for the 2023-24 fiscal are scheduled to be released by the government on May 31.

The Indian economy grew 8.2% in the June quarter, 8.1% in the September quarter and 8.4% in the December quarter of 2023-24. “We are expecting the fourth quarter growth to be 6.7% and the overall GDP growth for FY24 to be around 6.9-7%,” Sinha told.

Also  Read: India’s economic growth must prioritise human development, says CEA Nageswaran

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Govt cuts T-Bill auction amount by 44% for May, June after tepid outcome of bond buybacks

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The government is trying various options to use its cash surplus to reduce debt and, thereby, lower its interest cost in the ongoing quarter. Not only has it announced a bond buyback programme after a gap of five years, but it has followed this up by slashing the quantum of T-Bill auctions. 

As per the revised T-Bill calendar, the government will now raise only ₹72,000 crore through T-Bills between May 20 and June 30, almost 44% less than the balance ₹1.32 lakh crore that it would have raised otherwise. The earlier plan was to raise ₹3.21 lakh crore for the April-June quarter via T-Bills. 

While the government funds its fiscal deficit through long-dated securities, it does short-term borrowings through T-Bills, mainly for cash management. 

The government’s decision to prune its T-Bill issuances comes on the back of its bond buyback programme, the results of which have probably not turned out to its satisfaction. 

As per the published results, in the first buyback, bids worth ₹10,512 crore were accepted by the RBI against a total buyback offer of ₹40,000 crore. In the second tranche, bids worth a mere ₹2,069 were accepted by the central bank against a buyback size of ₹60,000 crore. 

The government has now announced a third tranche of bond buybacks of ₹60,000 crore for May 22, after changing some of the securities on offer as some of the papers did not receive any bids. 

Explaining the rationale for the government’s bond buyback plan, officials told CNBC-TV18 that the exercise reflects “proactive cash management by the government and RBI to save interest costs in the short run”.

“Any surplus cash earns a reverse repo rate of 3.35% which is lower than the current yield of about 7.2%. On a net basis, we save interest as the bonds will have to any case be redeemed in the current FY,” they said.

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

India’s economic growth must prioritise human development, says CEA Nageswaran

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Dr V Anantha Nageswaran, the Chief Economic Advisor (CEA) on Saturday, May 18, pointed out the importance of recognising and meeting the aspirations of a growing economy, stressing the need for a better standard of living for its citizens.

Speaking at the Standalone Session on ‘Co-Creating the Future Responsibly: The Role of Business’ during the CII Business Summit 2024, Dr Nageswaran, said, “As India grows from being the 5th largest economy, aspirations also rise along with milestones being crossed. It is important to recognise those aspirations and strive to meet them for a better standard of living.”

Also Read: Amitabh Kant predicts India to contribute 30% of global GDP growth by 2035-2040

He underscored the idea that economic growth should serve as a means to enhance human resource development, “Ultimately, economic growth is a means to an end and it’s important to achieve improvement in Human Resource development.”

Turning his focus to energy policy, Dr Nageswaran said the need for coherence and balance in policy formulation, particularly in the context of energy sources and mobility options.

He remarked, “Evolving an internally consistent and coherent policy and balance between conventional and alternative energy sources, between forms of mobility and between private and public options have to be done in a manner that energy security and transition can be pursued.”

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Ajay Piramal projects India as world’s 3rd largest economy by 2029, emphasises EV adoption and equitable growth

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Ajay Piramal, Chairman of the Piramal Group, said that by 2029, India will become the world’s third-largest economy, surpassing all but the United States and China. He said, “By 2047, we aim to be a $40 trillion economy, securing our position as the third-largest. Even by 2029, only the US and China will be ahead of us, marking significant progress for the country.”

At the Confederation of Indian Industry (CII) Annual Business Summit 2024 in New Delhi on Saturday, Piramal emphasised the importance of equitable development, and discussed the ‘aspirational districts’ initiative launched by Prime Minister Narendra Modi in 2017.

These districts, identified for their lagging development indicators, are crucial for achieving sustainable development goals (SDGs). “There are parts of India which, if developed, will significantly boost the country’s GDP and overall economic growth. The aspirational districts, identified in 2017, are key to this effort. We need to bring these areas up to par with the rest of the country to meet our SDG targets,” Piramal said.

He underscored the necessity of collaborative efforts, stating, “Achieving all the SDGs by 2030 requires a partnership between the government, civil societies, and NGOs. The task is too vast for any one entity to accomplish alone; collaboration is essential.”

Turning to the topic of technological disruption, Piramal highlighted the urgency of accelerating the adoption of electric vehicles (EVs) in India. He noted that two-wheelers and three-wheelers, which constitute about 75% of the country’s vehicle population, are crucial to this transition.

“We must expedite the shift to EVs, especially in the two-wheeler and three-wheeler segments, to sustain our growth and environmental goals,” he stated.

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Amitabh Kant predicts India to contribute 30% of global GDP growth by 2035-2040

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Former Niti Aayog CEO and India’s G20 Sherpa Amitabh Kant asserted that analysts’ projections align with India’s potential to account for 30% of global GDP growth between 2035 and 2040.

Speaking at the CII Business Summit 2024, “Analysts are right in saying that 30% of the global GDP growth will come from India between 2035-2040,” G20 Sherpa said.

Kant said India is on track to overtake Germany and Japan by 2027,  “Because India has carried a huge amount of structural reforms it has moved from fragile 5 to top 5 and has grown at about 8.4% in the last 3 quarters. By 2027, we will overtake Germany and Japan.”

Also Read: India needs new capital market reforms, says Chief Economic Advisor

He said due to substantial structural reforms, India has progressed from being one of the “fragile five” economies to ranking among the top five globally, achieving an impressive growth rate of 8.4% over the last three quarters.

Kant also underscored analysts’ predictions that India would contribute 30% of global GDP growth between 2035 and 2040. To sustain this momentum, he urged Indian companies to adopt a global outlook and prioritise quality to penetrate international markets.

Former Niti Aayog CEO  stressed the importance of collaboration between the central government and state governments to foster growth. Kant advocated for the development of 12-13 “champion states” with annual growth rates of 10-11%.

Also Read: India must increase share in global manufacturing, says FM Nirmala Sitharaman at CII event

“Indian companies must start thinking globally to penetrate global markets for accelerated growth. They should also focus on quality. The government needs to work with the states as we need to look at building 12 -13 champion states growing at 10-11% per annum,” he noted.

He called on the Confederation of Indian Industry (CII) to facilitate this growth by easing business processes at the state level, asserting that robust state economies are essential for national prosperity.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

India, UK reaffirm FTA commitment at Strategic Dialogue

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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India and Britain have reaffirmed their commitment to conclude a mutually beneficial free trade agreement (FTA) at the annual UK-India Strategic Dialogue here, as the two sides reflected the “good progress” on the 2030 Roadmap since the last review.

Foreign Secretary Vinay Kwatra, who is on a visit to the UK, held discussions with his counterpart, Sir Philip Barton, Permanent Under-Secretary at the Foreign, Commonwealth and Development Office (FCDO) on Friday.

After their meeting, the FCDO said the two leaders reviewed the progress made on the UK-India 2030 Roadmap since the last strategic dialogue in January last year and looked ahead to the next phase of bilateral cooperation.

“The two reflected on good progress on the 2030 Roadmap since the last review, noting key areas where the UK and India have worked together to tackle some of the world’s biggest challenges,” the FCDO said in a statement.

“This included collaborating on the world’s first malaria vaccine, working closely on India’s successful G20 Presidency and increasing opportunities for students and entrepreneurs under the Migration and Mobility Partnership,” the statement said.

“Alongside celebrating the milestones since the last review, this year’s dialogue included the ongoing commitment to negotiate a mutually beneficial free trade agreement (FTA) and enhance defence cooperation,” it added.

Earlier, the High Commission of India in London said Kwatra also had a “fruitful meeting” with UK Minister of State for Defence Procurement James Cartlidge, during which they discussed ongoing India-UK defence capability cooperation initiatives and avenues for future collaboration.

“We are delighted to host Indian Foreign Secretary Kwatra in London to underline the UK’s commitment to deepening cooperation with India,” said Lord Tariq Ahmad, FCDO Minister for South Asia, after his meeting with the Foreign Secretary, which his office said covered the FTA, migration and the Commonwealth.

“I look forward to our relationship going from strength to strength, working together on trade, defence, climate, and health,” he added.

The 2030 Roadmap was clinched between India and the UK in 2021 and includes commitments to deepen cooperation on health, climate, trade, education, science and technology, and defence by 2030.

India and the UK have held 13 rounds of talks on the FTA. The 14th round started in January.

There are 26 chapters in the agreement, including goods, services, investments, and intellectual property rights.

The Indian industry is demanding greater access for its skilled professionals from sectors like IT and healthcare in the UK market, besides market access for several goods at nil customs duty.

On the other hand, the UK is seeking a significant cut in import duties on goods such as scotch whiskey, electric vehicles, lamb meat, chocolates, and certain confectionary items.

Britain is also looking for more opportunities for UK services in Indian markets in segments like telecommunications, legal and financial services (banking and insurance).

The bilateral trade between India and the UK increased to USD 20.36 billion in 2022-23 from USD 17.5 billion in 2021-22.

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

India-Iran Chabahar Port deal faces US sanctions threat and geopolitical challenges, say experts

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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India has recently signed a landmark 10-year agreement to operate the Chabahar Port in Iran, a strategic initiative aimed at enhancing trade routes and connectivity in the region.

However, this ambitious project faces significant geopolitical hurdles, primarily from the United States, which has warned that any business engagements with Iran could attract sanctions.

In response to the US warning, India’s Foreign Minister, S Jaishankar emphasised that the Chabahar Port deal will benefit the entire region. He urged stakeholders to view the initiative beyond narrow political lenses, highlighting its potential to foster trade and economic growth across Central and West Asia.

KC Singh, a former Indian envoy to Iran cautioned that dealings with Iran are fraught with complexities due to its geopolitical strategies and relationships with major powers like China and Russia. He highlighted that Iran often engages in intricate geopolitical games, leveraging its ties with various countries to its advantage.

Singh also underscored the logistical and bureaucratic challenges that India might face in optimising the use of the port, noting the necessity of establishing substantial infrastructure for storage and transport to fully capitalise on the port’s potential.

“Any agreement with Iran is not always straightforward,” Singh remarked. “You are drawn into a geopolitical game involving multiple players, including the Chinese who have vested interests in nearby ports like Gwadar.”

Former Indian Ambassador to the WTO Jayant Dasgupta echoed Singh’s concerns, pointing out the long-term nature of the project and the potential for significant obstacles, including US sanctions and financial constraints from the Iranian side. He also highlighted the strategic competition with China, which might attempt to undermine India’s foothold in Chabahar to protect its interests in Gwadar.

“This is just the beginning of a challenging journey,” Dasgupta noted. “The Chinese will likely try to impede India’s progress in Chabahar, ensuring that we do not gain a significant strategic advantage.”

On May 13, India and Iran formalised the 10-year contract, signed by Indian Ports Global Ltd and the Port & Maritime Organisation of Iran. The agreement was witnessed by India’s Ports, Shipping and Waterways Minister, Sarbananda Sonowal and Iran’s Minister of Roads and Urban Development, Mehrdad Bazrpash.

The Chabahar Port is strategically significant as it aims to connect India with Russia via Iran, creating an alternative trade route bypassing Pakistan’s Karachi and Gwadar ports. This initiative is expected to bolster India’s trade links with Central and West Asian countries, providing a vital corridor for economic activities.

Watch the accompanying video for the entire conversation.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

‘Banks are studying it’: DFS Secretary on RBI’s project financing draft guidelines

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Reserve Bank of India’s (RBI) draft guidelines on project financing are under review, and the Department of Financial Services (DFS) may send comments on it, said DFS Secretary Vivek Joshi on Friday, May 17.

Joshi was responding to queries at the ongoing CII Annual Business Summit 2024 in New Delhi.

“All banks are studying this, and they will provide their comments. If they request, we will also send our comments to the RBI,” he said.

The senior government official emphasised that the Department of Financial Services (DFS) is closely examining the draft. “We are studying it. Depending on the conclusions we reach, we will decide if we need to provide comments.”

The official also said feedback from banks is actively being gathered, and the Indian Banks’ Association (IBA) is also reviewing the draft. “Banks are still examining it. They are concerned that they may need to make additional provisions, which is causing some worry,” Joshi noted.

As the review continues, the DFS secretary assured that any necessary feedback will be provided accordingly.

The RBI has proposed tighter rules to govern lending to projects under implementation.

Under these draft regulations, lenders must allocate 5% of the total loan amount as general provisions for existing and new loans. The public has been given time until June 15 to respond to the proposals.

Non-banking financial companies, along with executives from the SBI, PNB and PFC, met with top officials in India’s Finance Ministry, according to a CNBC-TV18 report.

Their grouse: The latest guidelines from the Reserve Bank of India (RBI), which raise the cost of loans for infrastructure projects, will eat into the profit.

The executives, in a meeting with financial services Secretary Vivek Joshi, sought the government’s intervention.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow