FinanceAsia Magazine

Issue: March 2014

China’s balancing act

Premier Li Keqiang promised China’s National People’s Congress in early March to speed up market-friendly reforms, tackle pollution and maintain a 7.5% economic growth rate all at the same time - quite an undertaking. The reforms will continue the deregulation of the economy and support private sector companies.

To be sure, Li gave himself some wriggle room in his first major public presentation of Chinese policy since the leadership unveiled its reform package last November. He dubbed the growth target flexible.

But even so, he will still need to perform a careful balancing act given the increasing pressure in the shadow banking system.

On the financial front alone China plans to overhaul fiscal policy, establish a deposit insurance scheme, further liberalise interest rates and move towards capital account convertibility.

As if to underscore the challenge that lies ahead, news broke just before his speech that China was set to suffer its first default in the publicly traded onshore bond market since 1997. Solar power company Shanghai Chaori Solar Energy Science & Technology said it might not be able to service its debt.

The fact that the government is allowing the default signals the political leadership’s greater willingness to embrace market discipline, warts and all. But this strategy carries its own risks – the Chaori bond has many retail investors who will complain, and bondholder recovery mechanisms in the event of insolvency are untested.

Bank of America Merrill Lynch called the potential default China’s Bear Stearns moment and said it could set off a chain reaction of panic among investors, which will slowly gather momentum.

Li may be looking to shore up the public’s confidence in his reform agenda by maintaining an ambitious growth target but stock market falls and the renminbi’s recent depreciation show investors are becoming worried.


About FinanceAsia Magazine

Established in 1996, FinanceAsia is the leading publisher of financial news in the Asia-Pacific region. Our combination of print and online products provide the latest news, analysis and insight into Asia’s financial markets.

Published monthly from our office in Hong Kong, FinanceAsia magazine provides our readers with the latest financial trends, interviews, features and investigative reports. The publication has a readership of key decision-makers at corporations, governments, investment and commercial banks, institutional investors, asset managers, brokers, traders and financial intermediaries.

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We look at the key data behind a topical theme in Asian finance, showcased with an array of graphs and tables.

A monthly opinion column from the FinanceAsia editorial team. We provide our thoughts on a topic making the headlines.

Deal of the Month
Our regular two-page spread with its signature artwork and in-depth analysis examines the equity, debt or M&A deal that we feel has had the biggest impact on the Asian capital markets that month.

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People on the Move
Here we summarise the key hires, fires and moves at the region’s banks, highlighting at least one major move each month.

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We examine the major primary markets deals of the month and comment on the quality of the debt or equity transaction and the secondary market performance.

The Arts of Finance
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