Category: China & HK

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China outlines plan to loosen capital controls – FT.com

China’s capital controls have served it well. It was little harmed by the Asian financial crisis of 1997-98 and has been largely insulated from the global tumult of the past four years. That resilience in the face of external trouble has emboldened conservatives in Beijing who support the status quo.

But there are also problems in maintaining such rigid capital controls. Chinese savers have few investment outlets for their money and plough it into the property market instead. Perhaps most important from a political standpoint, plans to transform the renminbi into a rival to the dollar have run into difficulty – foreign companies do not want a currency that cannot be invested in its country of origin.

“Internationalisation of the renminbi is now a clear mandate, so resistance for capital account liberalisation has been diminishing,” said Liu Li-gang, an economist with ANZ. “The wind has shifted.”

China’s top leaders have given a series of signals in recent months that they want capital account reforms to get into gear.

via China outlines plan to loosen capital controls – FT.com.

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China Bystander: The middle-income trap | 中國外人

The arc of China’s development is not that different from the rapid industrialization phase of countries such as South Korea, Japan or even, much earlier, western Europe and the U.S., even if the magnitude of China’s arc is on an unprecedented scale. The country’s well of cheap labor, transferred from farm to factory, is starting to run low. Demographics, too, are working against growth. The value of foreign-developed technologies diminish as they age. Most of all, the economy needs to move up the value chain if it is to clear the barrier at which so many developing economies fall, that point where per capita income reaches at $10,000-12,000 a year. Vault it, and a nation becomes a middle income country on the road to being a rich one. Fail, and the country ends up stuck on a plateau of disappointed expectation.

….It is the politics that is the quagmire. There are clear implications for the Party in adopting market reforms. No country has done so successfully and remained a one party state.

….Reining in the power of the SOEs provides a particular challenge to the reformers. SOEs, like the military, are a source of power, money and influence for the princelings, the descendants of Mao’s original revolutionary leaders, an elite collective dynasty of some 400 families who hold extensive sway over the Party, army and the economy.

via China Bystander | 中國外人.

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China Bystander: World Bank report | 中國外人

The World Bank report offers [China’s reformers] a strategic description of the way forward rather than policy prescription. Its six strategic directions for China’s future are:

  • Completing the transition to a market economy;
  • Accelerating the pace of open innovation;
  • Going “green” to transform environmental stresses into green growth as a driver for development;
  • Expanding opportunities and services such as health, education and access to jobs for all people;
  • Modernizing and strengthening its domestic fiscal system;
  • Seeking mutually beneficial relations with the world by connecting China’s structural reforms to the changing international economy.

via China Bystander | 中國外人.

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China’s soft landing

The Hang Seng Index is approaching its target of 22,000. Expect retracement to test the new support level at 20,000. Respect would confirm a strong primary up-trend.

Hang Seng Index

* Target calculation: 20000 + ( 20000 – 18000 ) = 22000

A monthly chart of the Shanghai Composite Index reflects China’s soft landing over the last two years. The gentle down-trend is likely to continue, with the current rally testing the descending trendline around 2850.

Shanghai Composite Index

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Treating China as an enemy – Telegraph Blogs

Ambrose Evans-Pritchard: China remains poor, with a per capita income of just $7,000. It faces the classic “middle income trap” in a few years time when the low-hanging fruit of catch-up growth is exhausted. The country will soon have to make the switch from copying technology to cutting-edge invention, the challenge that has defeated so many economies over the years and made a mockery of so many extrapolation curves.

As the World Bank warns in its latest report (out Monday), China risks coming down to earth with a thud unless it breaks the state stranglehold on investment.

My own guess is that China will go through a nasty little hangover as it purges toxins from the great credit boom of the last five years, before settling down to more pedestrian growth rates. It will be a big economic power, but not so vast it upturns the whole global system. It risks becoming old before it is rich.

via Treating China as an enemy – Telegraph Blogs.

Comment:~ The main threat from China is not military but economic. It has the potential to destabilize the global economy through its aggressive currency/trade policies. If the major players are able to resolve this, we are likely to see a scale-back of current tensions.

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New Push for Reform in China – WSJ.com

An exclusive preview of an economic report on China, prepared by the World Bank and government insiders considered to have the ear of the nation’s leaders, offers a surprising prescription: China could face an economic crisis unless it implements deep reforms, including scaling back its vast state-owned enterprises and making them operate more like commercial firms.

……The report warns that China’s growth is in danger of decelerating rapidly and without much warning. That is what has occurred with other highflying developing countries, such as Brazil and Mexico, once they reached a certain income level, a phenomenon that economists call the “middle-income trap.” A sharp slowdown could deepen problems in the Chinese banking sector and elsewhere, the report warns, and could prompt a crisis, according to those involved with the project.

via New Push for Reform in China – WSJ.com.

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China & Hong Kong

The Shanghai Composite Index broke out of its descending trend channel, indicating that a bottom is forming. 63-Day Twiggs Momentum, however, remains a long way below zero, indicating weakness. Look for a retracement to test support at 2150.

Shanghai Composite Index


Hong Kong’s Hang Seng Index displays a strong up-trend since breaking resistance at 20,000. Expect retracement to test the new support level, but buying pressure, best illustrated by the strong rise on (medium-term) 21-day Twiggs Money Flow, is likely to prevail.

Hang Seng Index

* Target calculation: 20000 + ( 20000 – 18000 ) = 22000

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Hong Kong & China

Hong Kong’s Hang Seng index broke through resistance at 20000 to signal a primary up-trend but is likely to first retrace to test the new support level. 63-Day Twiggs Momentum crossed above zero to strengthen the bull signal — and respect of the rising trendline would confirm the new up-trend.

Hang Seng Index

* Target calculation: 20000 + ( 20000 – 18000 ) = 22000

The Shanghai Composite index broke out of its descending trend channel, indicating that the down-trend has weakened and a bottom is forming. A sharp rise on 13-week Twiggs Money Flow indicates medium-term buying pressure.  Expect resistance around the previous peak of 2500.

Shanghai Composite Index

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China & Hong Kong

Shanghai Composite Index is testing resistance at 2300 but there is no clear breakout from the trend channel to indicate a trend change. Respect would signal a down-swing to test the lower trend channel around 2000*.

Shanghai Composite Index

* Target calculation: 2150 – ( 2300 – 2150 ) = 2000

Hong Kong’s Hang Seng Index followed through above 20000 to confirm the breakout signaling the start of a new up-trend. Target for the initial advance is 22500*.

Hang Seng Index

* Target calculation: 20000 + ( 20000 – 17500 ) = 22500

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