e-magazine
The Hot Zone
China's newly announced air defense identification zone over the East China Sea aims to shore up national security
Current Issue
· Table of Contents
· Editor's Desk
· Previous Issues
· Subscribe to Mag
Subscribe Now >>
Expert's View
World
Nation
Business
Finance
Market Watch
Legal-Ease
North American Report
Forum
Government Documents
Expat's Eye
Health
Science/Technology
Lifestyle
Books
Movies
Backgrounders
Special
Photo Gallery
Blogs
Reader's Service
Learning with
'Beijing Review'
E-mail us
RSS Feeds
PDF Edition
Web-magazine
Reader's Letters
Make Beijing Review your homepage
Hot Links

cheap eyeglasses
Market Avenue
eBeijing

Business
Print Edition> Business
UPDATED: July 15, 2013 NO. 29 JULY 18, 2013
Market Watch No. 29, 2013
Share

OPINION

What Does 'Likonomics' Mean for the Capital Market?

In June, it seemed that the Chinese capital market had suddenly spun out of control. The overnight Shanghai Interbank Offered Rate (SHIBOR) shot up from 4 percent to over 30 percent, which caused a panic in the capital market. On June 24, A-shares plummeted, and rumors of a "cash crunch" spread far and wide.

Under such circumstances, the capital market predicted the People's Bank of China might plan to change its money supply model of "taking from me whatever you want" and force financial institutions to deleverage. Barclays Capital first coined the word "Likonomics" after Chinese Premier Li Keqiang to describe a series of new policies adopted by the government led by Li. According to Barclays, Likonomics has three key pillars: no stimulus, deleveraging and structural reform.

It is believed that Likonomics could redefine China's monetary policies. But such a new policy mix has not yet been fully understood by the capital market and it will take some time before China's capital market grasps the essence of Likonomics and reaches a new balance following an adjustment period.

What is Likonomics? What are the key features? Likonomics is an array of policies adopted by the new term of government to strategically restructure the economy and enhance the quality and efficiency of economic growth. In the financial field, these policies are designed to redistribute capital resources, serve the real economy, and at the same time maintain stability in the financial sector.

The "cash crunch" in June actually created anticipation of a reform in interest rates. When large banks and other financial institutions realize that a market-oriented reform of the interest rate is upcoming, more financial resources will be invested in efficient assets and more attention will be paid to risk management.

Likonomics makes two monetary policy objectives. First is to control the supply of money. China's money supply has soared for years, far higher than the country's GDP growth. Now that the economy grows steadily and consumer prices are stable, the government has decided to control the liquidity.

The second focus will be laid on interest rate liberalization. Premier Li has reiterated the necessity of interest rate reform at executive meetings of the State Council. That is to say, the market, to a large extent, will exert a significant influence on capital prices. Guided by monetary policies and market price mechanisms, capital resources will flow to more efficient industries and enterprises.

In this way, the so-called "new balance" that the capital market has to reach can also be explained. Since the era of "cheap money" has come to an end, projects that need long-term funds, like infrastructure construction, will face greater pressure to repay loans. For industries harassed by severe overcapacity, a new round of acquisitions and reorganization can be expected because Likonomics prohibits all forms of credit extension and direct financing.

In the next few years, as the capital market gradually adapts itself to the "new balance" recommended by the Likonomics, listed companies of all sectors will be revalued.

This is an edited excerpt of an article by Xiang Zheng, a financial commentator, published in Economic Information Daily

THE MARKETS

Bond Futures

The China Securities Regulatory Commission announced on July 5 that China will resume the issuance of treasury bond futures after 18 years of suspension.

The trading is expected to start in about two months.

The bond futures mark the second product in China's financial futures portfolio, following index futures.

The move to resume treasury bonds came amid China's deepening of market-oriented interest rate reforms, which have generated strong demand for hedging interest rate risks.

"In the long run, it will help the Chinese financial market become more liquid and more efficient," Leo Melamed, Chairman Emeritus of the Chicago Mercantile Exchange (CME), said on the sidelines of the fifth China International Assets Management Conference on July 7.

VC Market Warms

China's venture capital (VC) market continued to improve from last year's retreat, with the number of deals signed growing in the second quarter.

Eighty-nine VC deals were disclosed during the April-June period, which was 20.3 percent more than the previous quarter, data provider ChinaVenture said in a report on July 8.

The amount of money involved in these deals, however, declined slightly to $492 million from the first quarter. "The falling volume suggests investors remain cautious about their picks," said Feng Po, an analyst at ChinaVenture.

Internet companies accounted for the biggest share of VC deals made in the second quarter, with 21 investments disclosed, according to ChinaVenture.

Telecommunications topped in terms of investment volume. The industry saw VC deals worth $137 million reached in the April-June period.

NUMBERS

$40.34 bln

Total transaction value of mergers and acquisitions (M&As) in the Chinese market in the first half (H1) of 2013

359

Number of M&As among domestic companies in H1

$17.34 bln

Transaction value of M&As in the sector of energy and mineral resources in H1

Email us at: yushujun@bjreview.com



 
Top Story
-Protecting Ocean Rights
-Partners in Defense
-Fighting HIV+'s Stigma
-HIV: Privacy VS. Protection
-Setting the Tone
Most Popular
 
About BEIJINGREVIEW | About beijingreview.com | Rss Feeds | Contact us | Advertising | Subscribe & Service | Make Beijing Review your homepage
Copyright Beijing Review All right reserved