China’s central bank unveiled a key interest rate reform on Saturday to help steer borrowing costs lower for companies and support a slowing economy that has been hurt by a trade war with the United States.
The People’s Bank of China (PBOC) said it will improve the mechanism used to establish the loan prime rate (LPR) from this month, in a move to further lower real interest rates for companies as part of broader market reforms.
Analysts say the move, which came after data that showed weaker than expected growth in July and followed a cabinet announcement on Friday, underscores the government’s attempts to use reforms to support a slowing economy.
“By reforming and improving the formation mechanism of LPR, we will be able to use market-based reform methods to help lower real lending rates,” the PBOC said in a statement published on its website.
The central bank will “deepen market-based interest rate reform, improve the efficiency of interest rate transmission, and lower financing costs of the real economy,” it said.
Chinese banks’ new LPR quotations will be based on rates of open market operations, and the national interbank funding center will be authorised to publish the rate from Aug. 20, the PBOC said. It added the rate will be published every month on the 20th, effective this month.
Banks must set rates on new loans by mainly referring to the LPR and use LPR as the benchmark for setting floating lending rates, the PBOC said, adding that banks will be barred from setting any implicit floor on lending rates in acoordinated way.
The central bank said five-year and longer tenors will be added to the existing one-year LPR, which will help banks set rates on long-term loans such as mortgages.
China will add eight small banks, including two foreign-funded banks, to the existing 10 nation-wide banks that will be allowed to submit LPR quotations, the central bank said.
The move followed pledges from China’s State Council on Friday that the country will rely on market-based reform measures to help lower real interest rates for companies.
The central bank said that it will strengthen its supervision on banks’ rate quotations and punish banks for irregularities that disrupt the market order.
The central bank will incorporate LPR application into its macro-prudential assessment (MPA) to urge banks to use LPR pricing.
This week’s data broadly showed China’s economy stumbled more sharply than expected at the start of the third quarter, as the intensifying trade war with the United States took a heavier toll on businesses and consumers.
Second-quarter economic growth slowed to a near 30-year low. Tang Jianwei, an economist at Bank of Communications in Shanghai, said the reform could be seen as a guided rate cut as PBOC can guide rates of its open market operations, which will be closely followed by the LPR.
“The tool (LPR quotation reform) equals to a guided rate cut, and is only pushed out by the PBOC at crucial moments,” said Dai Zhifeng, analyst with Zhongtai Securities Co.
The central bank has pledged to gradually unify two interest rate “tracks” – its market-based rates developed in recent years and its benchmark bank deposit and lending rates.
Analysts say the new LPR rate will be lower than the current level, but they are divided over the scope of reductions on borrowing costs for firms.
To free up funds for lending and to accommodate local government project financing, most analysts still expect the central bank will cut banks’ reserve requirement ratios (RRR) further in coming months, on top of six reductions since early 2018.
Sources have told Reuters that more aggressive action such as interest rate cuts are a last resort, as it could fuel a sharper build-up in debt.
In July, central bank head Yi Gang said China would keep its benchmark deposit rate for a relatively long time, but would phase out its benchmark lending rate in the push to unify the benchmark lending rate and market-based rates.
China’s banks currently price their loans based on the benchmark lending rate that has been kept unchanged since October 2015, hampering the central bank’s efforts to lower borrowing costs.
The PBOC launched the LPR in 2013 to reflect rates that banks charge their best clients. But the LPR has been reacting little to market demand and supply, with the one-year rate currently at 4.31%, versus benchmark one-year lending rate of 4.35%.
China’s short-term money market rates have been falling more quickly in recent months due to the central bank’s cash injections.
‘Disaster’ for Hong Kong if it loses status as financial center: China Citic Capital
If Hong Kong loses its status as one of Asia’s top financial centers, it would be disastrous for the Asian financial hub, said the founder and chief executive officer of Citic Capital.
There is “no lack of competition for financial centers,” said Zhang Yichen, who is also chairman at the investment firm — a Hong Kong-based alternative investment arm of the Chinese financial conglomerate Citic Group.
“I think if Hong Kong doesn’t shape up, you shouldn’t have a sense of entitlement (that) it has to be the financial center,” he said. If the territory should lose that status, it “spells disaster because that’s the only industry these days that’s competitive.”
Protests in Hong Kong erupted more than three months ago over a now-withdrawn extradition bill, which would have paved the way for suspects in Hong Kong to be sent to mainland China for trial. While the pro-democracy protests started out as relatively peaceful in June, they have since turned increasingly violent.
Hong Kong protestors on Sunday trampled on a Chinese flag, vandalized a subway station and set fire across a wide street, the Associated Press reported.
Formerly a British colony, Hong Kong returned to Chinese rule in 1997. It is one of China’s special administrative regions and is governed under the “one country, two systems” principle, which gives its citizens certain economic and legal freedoms not given in mainland China.
Zhang said the city has its advantages over other Chinese cities like Shanghai because of the “one country, two systems” policy.
Hong Kong’s legal system is similar to what is followed in a lot of countries around the world, which gives investors a certain level of comfort, he said. In addition to that, its proximity to the Chinese mainland is another plus point for investors, he added.
“From that perspective, I don’t believe Shanghai and other Chinese cities can actually replace Hong Kong,” he said. “If (Hong Kong) squanders that on its own, it’ll be a shame.”
However, the violence and chaos have crippled the city and disrupted daily life, and in turn, hurt businesses and dented investor sentiment.
Zhang said the protests have not affected Citic Capital’s business since it invests mostly either in China or around the world. “Hong Kong is just a base for us where a lot of our senior colleagues live and work,” he added.
Citic Capital says on its website it manages more than $26 billion of capital. Last month, the firm said it raised $2.8 billion in its fourth China buyout fund and would look at China-focused investment opportunities in sectors such as consumer, health care and technology.
— Reuters and CNBC’s Grace Shao contributed to this report.
‘Game of Thrones’ ends run with best drama award, 59 total Emmy Awards
D. B. Weiss (C, speaking), David Benioff (3rd L) and cast and crew of ‘Game of Thrones’ accept the Outstanding Drama Series award onstage during the 71st Emmy Awards at Microsoft Theater on September 22, 2019 in Los Angeles, California.
Kevin Winter | Getty Images Entertainment | Getty Images
Despite mixed fan and critic reactions to the final season of “Game of Thrones,” the eight-season epic took home the top prize in the drama category at the Emmy Awards on Sunday.
Closing out the 71st annual television awards ceremony, David Benioff and D.B. Weiss thanked creator George R. R. Martin for entrusting his book series to the young producers more than a decade ago and praised the cast and crew for their work on the program.
Since 2011, HBO’s “Game of Thrones” has garnered 160 Emmy nominations and taken home 59 prizes for everything from acting and editing to special effects and sound mixing.
On Sunday, the program earned two Emmys, one for outstanding supporting actor, which went to Peter Dinklage for his portrayal of Tyrion Lannister, and one for outstanding drama.
Earlier in the month, “Game of Thrones” won 10 additional awards during the Creative Arts Emmy ceremony.
“Game of Thrones” final award tally falls short of the 67 Emmys that “Saturday Night Live” has accrued over its 44 seasons. “SNL” earned two statues on Sunday, one for outstanding variety sketch series and one for outstanding directing.
The final season was widely criticized by fans who felt the pacing and its treatment of previous character developments were not up to par. Still, the show continued to have record-breaking viewership.
Each episode, save for one, topped viewer counts from the season seven finale, which was the series high prior to season eight’s release.
Disclosure: Comcast is the parent company of NBCUniversal and CNBC.
Chinese theft of trade secrets is on the rise, US DOJ warns
As President Donald Trump puts pressure on Beijing to end unfair business practices, the Department of Justice has a warning for companies: Bolster your defenses.
“More cases are being opened that implicate trade secret theft” — and more of them point to China, said U.S. Deputy Assistant Attorney General Adam Hickey.
Since 2012, more than 80% of economic espionage cases brought by the department’s National Security Division have implicated China. The frequency of cases has been rising in recent years, according to Hickey.
“That may be because the victims are more attentive to what’s happening, which is a good thing,” Hickey told CNBC in Singapore on Saturday. “They may be more comfortable reporting to law enforcement, which is a good thing. They may be fed up, which is also a good thing.”
The Justice Department launched the “China Initiative” in November 2018 with the aim of countering Chinese national security threats. It does so by identifying and prosecuting trade-secret and intellectual property (IP) theft, hacking and economic espionage.
Hickey is unequivocal in his defense of the Justice Department’s motives.
“We expect other nations will want to become self-sufficient in critical technologies. That’s what we’d expect of a responsible government,” he said. “The issue isn’t that China has set out to do that. It’s that part of their industrial policy, part of the way they try to accomplish that, is state-sponsored theft or creating an environment that rewards or turns a blind eye to it.”
He pointed to evidence of such behavior allegedly linked to the “Made in China 2025” strategic plan. The Chinese government introduced the plan in 2015, designed to reduce dependence on imported technology in 10 priority industries including robotics, IT, aviation, railway transport and biopharma. “We’ve charged cases, I believe, in eight of those 10 sectors, IP theft cases,” Hickey said.
The justice department’s China Initiative also puts an emphasis on cybersecurity threats and telecommunication vulnerabilities.
Hickey declined to comment on Chinese telecommunication giant Huawei as it is currently the subject of two prosecutions in the United States.
However, he weighed in on the perceived threat to national security from telecom companies and supply chains more broadly. “It’s going to matter where that company is located and whether they can be leveraged to comply with an intelligence service without regard to the rule of law that has to be relevant,” he said.
Huawei CEO and founder, Ren Zhengfei, told CNBC in April that his company would “never install a back door” on its equipment — even if ordered by the Chinese government to do so. Ren said: “It would be impossible for us to provide customer information to any third party.”
Experts, however, have told CNBC that Huawei will have no choice but to comply with the Chinese government’s requests.
Hickey stressed the need to look not only at whether there is a so-called back door or an intentional vulnerability, but also at whether there’s intent and capability of a government to leverage that company.
“If you are looking for a smoking gun and you wait for it, you might end up with a gunshot,” Hickey warned.
Politics1 week ago
Andrew McCabe’s lawyers urge prosecutors not to keep pursuing charges
Politics1 week ago
Debate night split screen highlights the Democrats’ Trump challenge
Politics5 days ago
Corey Lewandowski, former Trump campaign manager, faces off against House Democrats
Politics5 days ago
Boris to recall Parliament if Supreme Court demands MPs return to Commons vows lawyer
Politics5 days ago
Lewandowski pumps life into Trump obstruction story
Politics4 days ago
2020ers race toward an electric car future. Trump has other ideas.
Latest News1 day ago
Yemen: UN welcomes Houthi vow to cease missile and drone attacks on Saudi Arabia | World News
Politics1 week ago
Andrew McCabe appeal to avoid criminal charges rejected