Chinese banks may not be taking the beating that their foreign counterparts have suffered due to the US credit crisis, but their share prices have recently been falling.

Although Chinese lenders have nowhere near the same amount of risk exposure to toxic bonds, they are suffering as a result of the slump in the nation’s property sector.

Workers clean a bank sign

Shares of China Merchants Bank slumped more than 27% over the past month, while Industrial and Commercial Bank of China also dropped 7% during the same period.

David Cui, head of China equity research & strategy of Merrill Lynch, said: ‘We strongly urge investors to avoid the financial and property sectors.’

Properties prices in various major cities are casting a shadow over the performance of China’s banking sector. The less than rosy outlook for the Chinese economy, which could be dragged down by the decline in exports to the United States and Europe, is also increasing concerns.

So far, bank profitability has been largely locked in by the spread between the lending and deposit rates. The latest reduction in interest rates should make little difference to banks’ earnings, because both the lending and deposit rates were reduced by the same amount.

However, few economists expected the cut of 27 basis points in the lending rate to encourage many more people to borrow at a time when business environment deteriorated.

For more on this click HERE.
Source: China Daily

Boost to real estate sales.

China’s Ministry of Finance (MOF) has announced a series of measures to boost the country’s ailing real estate market amid global financial turmoil, sources reported.

Effective from Nov. 1, 2008, the contract tax will be reduced to 1% on purchase of the first housing property with a floor space of no more than 90 square meters. Meanwhile, the stamp tax on property purchase and the value-added tax of land on property sales would be lifted, according to the MOF.

Local-level authorities are also allowed to launch new policies to encourage housing consumption, said the MOF, adding that it will expedite the construction of affordable houses and innovation of old houses, as well as to increase the urban subsidized housing to the low-income families.

On the same day, the central bank announced that the floor for interest rates would be cut to 70% of the PBOC’s benchmark rate and the down payment for an initial purchase of housing for self use would be lowered to 20% from 30%.

Meanwhile, PBOC reduced the interest rates on mortgages by 27percentage points for first-time home buyers.

The new adjustments are effective from today.
Source: China Knowledge

Frances Yung Ming-fong

Citic Pacific (which is, among other things, a major property developer) found its shares plunge more than 55% in Hong Kong after the company warned of a huge potential loss from unauthorized currency bets.

Shares of the Hong Kong arm of China International Trust and Investment Corp, the mainland’s biggest state-owned investment company  — which had been suspended from trading on Monday — fell to HK$6.52 (US$0.84), shrinking its market capitalization to HK$14.3 billion (US$1.84 billion), less than the amount it says it stands to lose.

Meanwhile, Citic Pacific demoted Frances Yung Ming-fong, director, group finance and daughter of Chairman Larry Yung Chi-kin, and cut her salary for her involvement in the currency bets amid questions about her job title.
Source: South China Morning Post subscription

Poster for property

China has become the main engine of the world economy, accounting for one-third of global GDP growth in the first half of this year. Will it keep humming?

Compared with many other emerging economies, notably Brazil and Russia, which have recently suffered big capital outflows, China has so far largely shrugged off the global credit crunch. But there are signs that China’s economy is sputtering.

More generally, China’s banks should be better insulated from the global credit crunch than Western banks because the country’s system is funded through deposits rather than capital markets. Chinese banks’ loans amount to only 65% of their deposits, compared with far higher ratios in America and Western Europe.

A fall in house prices will in any case hurt Chinese consumers much less than their American counterparts because Chinese households are not up to their necks in debt. Total household debt amounts to only 13 percent of GDP, against 100 percent in America.

Chinese consumer spending actually strengthened this summer, with retail sales rising by 17% in real terms in the year to August. The main impact of the property downturn will be to depress construction.

Much more of this balanced article HERE.
Source: The Economist

This is probably not the founder of Blackstone but the Internet was down and I had a plane to catch and he seems a pleasant cove.

Private equity firm Blackstone Group has canceled a property deal with VXL Capital, for the $160 million acquisition of a commercial building in Shanghai.

Blackstone was originally planning to buy four buildings in Shanghai, for up to $1 billion, but has ditched the acquisition of a 90% stake in Changshou Commercial Plaza.

The report said that the seller, Hong Kong-based VXL Capital, and the American equity firm could not agree on the price, reported to be around $160m. VXL apparently bought the entire property in March 2006 for $86 million.

It is also not clear whether Blackstone will agree to buy the Skymall Shopping Centre in Shanghai from Chinese developer Super Ocean Group.

The global financial crisis and national forecasts that Chinese property prices will slide may have added to Blackstone’s withdrawal.
Source: Biz Update