Western program new engine for growth: Premier Li

China is betting on its western development program to lead a new round of economic growth as the government is mulling "differentiated" policies for the region that will feature huge spending on infrastructure, Premier Li Keqiang said on Monday.
"We will roll out more preferential policies tailored for the western region concerning infrastructure projects, to accelerate the construction and upgrading of rail and road networks," he said.
 Healthy economic development in the western region holds the key to the country's overall economic health.
Due to rising labor costs and a saturated market, the coastal areas are losing growth momentum. And experts believe the western region, which boasts a huge market and big pool of labor, is bound to become the country's new growth engine.

Some western cities have grown faster than their rich counterparts in the east.

In the first half of this year, three western cities Guiyang in Guizhou province, Xining in Qinghai province and Kunming in Yunnan province topped the national list in terms of year-on-year growth.

Source: China Daily

BOJ Governor Bond Buying is no risk for financial stability of Japan

In an article published today in the Wall Street Journal:

"Bank of Japan Governor Haruhiko Kuroda presented evidence Saturday that the central bank’s bond-buying effort is starting to produce results.

Increases in Japanese stock prices, long-term interest rates that have remained quite stable and low, improved employment conditions, and signs that business investment is picking up were among the signs Mr. Kuroda cited.

He also said that investors’ inflation expectations appear to be picking up.

Mr. Kuroda made the comments at the annual global banking summit in Jackson Hole, Wyo., hosted by the Federal Reserve Bank of Kansas City.

During the question and answer session, Mr. Kuroda defended the BOJ’s policy prescriptions as “completely justified” and said there was no evidence it was raising risks to the stability of the financial system. Japan’s financial system is “quite sound,” he said.

Japan’s problem has been continuous deflation, and the bond-buying program is designed to fix that, he said".

Alibaba's latest move Yu'ebao, its online-finance platform.

Yu'ebao, launched in mid-June is Alibaba's wildly popular online-finance platform that works through Alipay, Alibaba's third-party-payment arm, to deposit idle Alipay funds into a comparatively high-yielding money market fund.

Given Yu'ebao's current annual interest rate of 4.5 percent, its lack of a minimum deposit requirement, and the ability to transfer and withdraw funds easily without paying a commission,it  has made them China's biggest online investment service.

 The online platform that works through Alibaba's online finance arm Alipay (a Chinese version of Paypal) and partners with Tianjin-based Tianhong Asset Management Co. Ltd., had attracted 1 million users. A month after it was unveiled, in mid-July, it had 4 million users and more than 10 billion yuan ($1.6 billion) in deposits.

Yu'ebao's popularity has skyrocketed in large part, because of consumer confidence in its parent company, Alibaba, and its link to the company's online payment platform, Alipay, which claims close to 600 million active worldwide users (800 million registered accounts according to the company's website).
In announcing Alibaba's intention for Yu'ebao and Alibaba's foray into financial services to Chinese media, the company's founder and chairman, Jack Ma, said, "China's financial industry, especially the banking industry, only serves 20 percent of clients, and I see there are 80 percent of the clients (who) are not covered. Financial services should be about serving the layman, rather than playing inside your own circles and making money for yourself."
Hangzhou-based Alibaba, which runs Taobao, Tmall, and a host of other e-commerce sites, accounted for 70 percent of package deliveries in China last year, with sales reaching $163 billion, or 2 percent of China's GDP, according to statements released by Yahoo. The American tech giant currently owns a 24-percent stake in Alibaba.
In preparations for a possible public listing in the months to come, some financial analysts have estimated Alibaba's worth at more than $100 billion, rivaling Facebook's $104 billion valuation last year before its $16 billion IPO—the largest ever for a tech company, and the third largest of all time.
Analysts are able to justify the sky-high valuation because of the explosive growth in China's online retail sector. McKinsey's estimates the Chinese online retail economy, with Alibaba's operations as a core engine, will reach $420 billion to $650 billion by 2020, eclipsing the United States to become the world's largest market. China is currently the second largest market in the world, with online retail sales reaching $210 billion in 2012, and an annual growth rate of 120 percent since 2003.

Source: Beijing Review

Marc Faber thoughts about the Indian Economy

 "I am not very optimistic about India on the macroeconomic front, and it

has to do with the government policies. The economic policies of the

government are by and large a disaster; the government could have done

more. The government in India, through its incredible bureaucracy, has

retarded economic growth in the last 20-30 years by at least 3% per

annum in real terms. It’s a miracle that the Indian economy has

performed well, considering the quality of its government".

China's regulators trimming overcapacity in Industries

Trimming Overcapacity.

BBMG Corp. is a large cement producer listed on China's stock market. Two of its subsidiaries are being eliminated because the Ministry of Industry and Information Technology (MIIT) has deemed their capacity excessive.
According to its 2013 semi-annual report, BBMG now has a cement production capacity of 45 million tons, while each of the two subsidies to be shut down only has 100,000 tons of production capacity.
 The eliminated capacity only accounts for a small proportion of the corporation's total capacity, therefore the performance of the corporation will not be affected,the company said on a statement.

Industries such as cement, steel, electrolytic aluminum, ferroalloy, copper smelting, chemical fiber and papermaking are among those required to cut surplus capacity. Altogether 527 enterprises in the cement industry are on the list. Alcohol, gourmet powder, citric acid and lead-acid battery were previously not key sectors of excess capacity but have now been included on the list.

China has been shutting down companies in overcapacity for a decade. When the plan began in 2003, only three industries were targeted steel, cement and electrolytic aluminum. Today the list is five times longer.

Although the Chinese Government has made several attempts to tackle the problem of overcapacity in the past, it had little success, said Wang. This time might be some different because the new term of government is keen on advancing economic reforms and tolerating slower economic growth

Wang a  researcher with CITIC Securities Co. Ltd. said "Among all the problems the Chinese economy is facing, overcapacity is at the top," "In some industries the problem has been quite serious, causing low prices and reducing the profits of enterprises,"

Take the cement industry for example. It has been a key sector in the government's past efforts to eliminate overcapacity. But production has not slowed. In 2009 capacity stood at 800 million tons, but at the end of 2012 the figure rose to 2.9 billion tons, with 75 percent actually being used. Owing to the overcapacity and intensified competition among companies in excess capacity, the 25 listed cement companies, including BBMG, are suffering profit declines. Some of them even partially suspended production because of huge losses.

Is China having Capital Outflows?

According to the Wall Street Journal, "The flow of funds out of Asia  anticipating higher U.S. interest rates has not yet hammered China as badly as some of its neighbors. That’s largely because China imposes broad controls on capital, limiting foreign investments in stocks, bonds and property as well as the money Chinese investors can send overseas".But those controls are not watertight, and recent data suggests that capital is leaving the country. In July, China’s banking system had a second straight month of foreign-exchange outflows, with net foreign currency sales totaling 24.5 billion yuan ($4 billion). That means banks were net sellers of dollars, an indication of money leaving the country.

"The expectation of higher rates in the U.S makes it less attractive to hold funds in foreign currencies, including the yuan, changing the dynamics of currency hedging for companies and investors. If China’s exporters decide to keep their earnings in dollars rather than convert them into yuan, that reduces banks’ foreign-exchange purchases".
  "China’s currency, which trades within a narrow band set by the central bank, has yet to be shaken by these outflows. The country runs a trade surplus, which means it is not reliant on foreign funding to pay for its imports. That puts it in a stronger position than India or Indonesia, whose currencies have been pushed significantly lower in recent weeks.

  China also suffers if its more vulnerable neighbors in Asia hit a speed bump, as that hurts an increasingly important market. China exported $135 billion to Southeast Asia in the first seven months of the year, compared with $200 billion to the U.S. and $188 billion to the European Union".