Beijing to unleash savings pool
China is preparing to allow foreigners into its bond market and offshore hedge funds to raise money on the mainland, a historic step that would open up the world’s largest untapped pool of savings.
The financial liberalisation is part of a plan by Beijing to relax tight capital controls on individuals and eventually make the yuan fully convertible with other currencies.
A senior Chinese government official told The Australian Financial Review that opening up the so-called Panda bond market was a priority for the government.
The policy could create a new source of debt financing for Australian companies, which have mostly relied on investors in the US and Europe.
The changes would allow debt to be raised in yuan on the Chinese mainland. The money could be used to support the Chinese operations of the issuer or potentially be swapped into a foreign currency and taken elsewhere. Mining companies and the big banks would be able to diversify their funding sources and possibly borrow more cheaply.
ANZ’s chief China economist, Liu Li-Gang, said the changes were imminent. “This would allow those firms which have been in China for many years to tap into the bond market, which so far they have not been able to do,” he said.
China’s wealthy investors, who have investable assets worth an estimated $US4 trillion, have limited access to foreign investments because of currency controls. Individuals are restricted to exchanging the equivalent of $US50,000 a year.
AllianceBernstein’s director of Asia Pacific Fixed Income, Hayden Briscoe, said the opening up of the world’s fourth-biggest bond market could be as significant as Michael Milken’s development of the junk bond market in the US in the 1980s.
“Why wouldn’t BHP, Rio Tinto or an Aussie miner that is potentially going to be settling their transactions in yuan, raise money in that currency to support projects?” he said.
China has unveiled a series of capital market reforms since the National People’s Congress in March. The government widened the trading range for the yuan, gave the market more discretion in the setting of interest rates and allowed foreign investors greater access to stockmarkets.
“What we’re witnessing is quite a significant package of reforms directed at bringing more sophistication to the domestic market and allowing foreign investors more opportunities to invest into China,” said David Olsson, a partner at King & Woods Mallesons.
“This is all about moving China toward ultimate convertibility of the renminbi [or yuan].”
Opening the Chinese market to foreign hedge funds is seen as one of the next big reforms on Beijing’s agenda. A senior figure from China Investment Corporation, the nation’s sovereign wealth fund, said this would happen within 12 months.
Other sources believe it could happen by the end of this year.
The changes would allow foreign hedge funds to take money from Chinese investors on the mainland and invest it overseas. They would be licensed under the so-called Qualified Domestic Limited Partnerships.
Three or four of the largest global hedge funds would be licensed first, before allowing in other smaller players. As part of the changes, the hedge funds would be required to establish an office in Shanghai, which wants to become a global financial centre alongside Singapore, London, Hong Kong and New York.
China is gradually liberalising its capital account but recent weakness in the yuan has prompted concerns about the prospect for large capital outflows. To counter that, the government has eased the rules for foreign investors who want to put money in China by making it easier to obtain investment licences.
Late last month it took the first steps toward internationalising the country’s debt market. Foreign companies with a local investment licence can now buy bonds on the interbank market and can invest in bonds issued by small and medium-sized firms though private placements.
China’s banking system supports the majority of financing.
“The government would like to develop the bond market and encourage debt financing,” ANZ’s Mr Liu said.
China’s $US3.5 trillion bond market is the biggest in Asia outside Japan and is dominated by the government. The corporate bond market, which was valued at $US888 billion in June, about 11.5 per cent of China’s GDP, is underdeveloped.
In 2005 the government set up a pilot program to allow a small number of supra-national entities, including the Asian Development Bank, to issue Panda bonds on the domestic market. Some big name issuers, including General Electric, tried to take part in the scheme but were refused. A few investment banks, including DBS, have issued bonds on the domestic market in recent months via locally incorporated entities. But the regulatory burden is generally seen as too onerous and a deterrent for many companies.
Most foreign firms are waiting for the introduction of a more comprehensive Panda bond scheme, which would streamline regulations and allow foreign companies to raise funds by issuing yuan denominated bonds on the Shanghai stock exchange.
The new rule changes introduced last month have boosted speculation that such a scheme will come into play sooner rather than later.
“It will potentially open up very significant sources of capital used for corporate fund raising purposes both domestically and internationally,” said Mr Olsson.
“For banks and financial institutions it gives them access to more forms of capital to help them satisfy the new rules under Basel III.”
There has been some debate about whether a fully operational Panda bond market would adversely affect the fledgling offshore yuan bond market in Hong Kong, known as the dim sum market.
However, while the mainland market will be bigger and offer direct access to Chinese funds, the dim sum market is likely to be seen as more attractive in terms of transparency and efficiency for some years yet.
The global titanium dioxide industry in China era has been blowing
Titanium dioxide (TiO2), titanium dioxide, a non-toxic, opaque, the best whiteness and brightness, as is currently the world’s most outstanding performance of the white pigment, accounting for 80 percent of all white pigment usage. been widely used in paints, plastics, paper, printing ink, chemical fiber, rubber, ceramics, cosmetics, food and pharmaceutical industries, is the sales value of one of the largest of the three commodities in the world of inorganic chemical products, second only to ammonia and phosphate.
Among the more developed countries of the global industrial economy, the demand for titanium dioxide is often relatively large, such as the U.S. titanium dioxide per capita consumption of 4.1kg, the Western European countries also reached about the consumption per capita 3kg standards, the numbers in many countries is not up to. And China, a few years ago the per capita consumption of titanium dioxide is only 0.95kg, only 25 percent of U.S. per capita consumption of titanium dioxide and titanium dioxide products per capita consumption standards in some countries in Western Europe 32%; even with the Asia-Pacific countries words, China’s consumption level of titanium dioxide can only be considered lower-middle standard. It is worth mentioning that, if the Chinese population is 1.35 billion, with an annual per capita consumption of 3.6kg of titanium dioxide, it demand will reach 5.2 million tons of titanium dioxide pigment after China reach the world advanced level of. Presently, from this figures there is a gap of almost 4 million t.
From a global perspective, emerging markets compared with developed countries, per capita consumption of titanium dioxide appears to be a very large gap. We can anticipate the next emerging market demand for titanium dioxide will continue to grow.
Currently the world’s titanium reserves are mainly concentrated in Australia, South Africa, Brazil, the United States, India, China, Norway, Canada and other countries. Among them, Australia is most important. China’s resources are more difficult to mine, demanding annually large quantities import of titanium raw materials from Australia, Vietnam, India, Indonesia and other countries.
（source: China Securities Journal）