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: January 28, 2013 NO. 5 JANUARY 31, 2013
MARKET WATCH NO. 5, 2013
Share

OPINION

A Market-Based Change

China's central bank has taken a step toward further improving the way it controls monetary supply.

The People's Bank of China (PBC) usually manages banking-system liquidity with traditional methods deriving from its administrative power, such as adjusting credit quota and reserve requirement ratio (RRR) of commercial banks. However, in line with the times, the PBC is heading toward a change that gradually steers itself away from the administrative power in its macro-control efforts.

On January 18, the PBC said it would immediately begin using short-term liquidity operations (SLO) to inject or withdraw cash from the banking system when needed. SLO would supplement its current twice-a-week open market operations when the liquidity in the banking system suffers from temporary fluctuation.

In 2013, the central bank will continue using the dynamically differentiated RRR system, which requires different banks to set aside different levels of deposits with the central bank according to each bank's capital adequacy ratio and risk-control requirement, according to an insider at the PBC quoted by domestic media.

These moves mark a transition before the realization of totally market-based adjustment and are in accordance with the market-based reforms of the central bank.

The Central Economic Work Conference held in December 2012 pledged that China's total social financing aggregate, a broad measure of liquidity in the economy, will be expanded. It is predicted that the newly added bank loans will total 9 trillion yuan ($1.45 trillion) and total social financing aggregate will amount to 19 trillion yuan ($3.06 trillion) this year.

Both the SLO and the dynamically differentiated RRR system are a big step forward compared with the traditional policy weapons such as RRR and credit control. The PBC's emphasis on market-based instruments indicates that in the future, the central bank is more likely to choose more flexible instruments over the previous administration-driven ones.

SLO and RRR are quantitative instruments and SLO is a replacement of the latter. They differ in that the SLO is more flexible, more frequently used and more accurate in control. On the other hand, the effect of RRR is closely related to the amount of deposits in a country. Taking the current 94 trillion yuan ($15.12 trillion) bank deposit for instance, every 0.5 percent RRR adjustment will add or subtract 470 billion yuan ($75.58 billion) liquidity to the market, causing turbulence to inter-bank capital.

The dynamically differentiated RRR system is a replacement of the credit quota control. Compared with heavy-handed credit control orders, the dynamically differentiated RRR system will give commercial banks a more stable market expectation to help them avoid chaos caused by unexpected credit control orders.

Traditionally, Chinese commercial banks are apt to grant more loans at the beginning of a year and experience a credit crunch at the end of the year due to the credit cap. From now on, the dynamically differentiated RRR system will ease the seasonal fluctuation of bank loans.

The central bank's latest efforts in getting rid of administrative instruments are in line with China's market-oriented reform. However, it should be noted that the Chinese economy is less sensitive to interest rate moves given that reforms in the real economy haven't been carried out. On par with the central bank's market-based practices in macro-control, reforms in other fields should be carried out in time to follow the trend. n

This is an edited excerpt of a report by Anbound, a Beijing-based research company, published on the website of Caijing Magazine

THE MARKETS

Power Giant

China Huaneng Group, the country's leading power provider, remained the world's second largest producer in terms of installed capacity at the end of 2012.

The group had a total installed capacity of 135.08 million kilowatts (kw) from all domestic and overseas power plants it controlled or owned at the end of 2012, up 7.7 percent, said Cao Peixi, President of Huaneng.

In 2012, Huaneng produced 608.7 billion kwh of electricity. Its full-year business revenue rose 3.5 percent year on year to 277.7 billion yuan ($44.08 billion).

Huaneng has focused on clean energy development, with the installed capacity of wind power and hydropower reaching 28.3 million kw at the end of 2012, or nearly 20 percent of the total installed capacity.

Eyeing China

Auto manufacturer Volvo Car Group expects the Chinese and U.S. markets to support a turnaround in its global sales in 2013 after reporting its first loss in three years.

Volvo's global retail sales declined 6.1 percent year on year to 421,900 units in 2012, dragged down by a 10-percent decrease in the European market.

Hakan Samuelsson, President and CEO of Volvo, said the United States, its largest market, and China, its second largest overseas buyer, will help raise its shrinking global sales. The company expects to sell 7-8 percent more vehicles in China and 5 percent more in the United States in 2013.

Volvo was first sold to Ford Motor Co. in 1999 and then to Chinese automaker Geely Automobile for $1.8 billion in 2010. Li Shufu, Geely's chairman of the board, said the company has achieved sound results in the Chinese market after two years of adjustment and integration. The company has forecast sales of 200,000 units in the Chinese market by 2020.

NUMBERS

15.5 mln

The total sales of passenger vehicles in China in 2012, up 7.07 percent

6.49 mln

The number of passenger vehicles sold by Chinese brands in 2012, up 6.1 percent and accounting for 41.85 percent of the total sales

7.08 mln

The number of vehicles sold by the country's top 10 carmakers in 2012, or 65.91 percent of total car sales

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