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Asia Macro Report

China cuts off its overseas investment schemes
Having suffered from steep depreciation of renminbi, China reached a decision to cut off its overseas investment schemes in an effort to prevent capital outflows. As a result, foreign asset managers in Shanghai’s free trade zone, such as BlackRock and Aberdeen Asset Management, have come to a major loss, since they were responsible of selling overseas investment products to wealthy Chinese clients. The two firms received licences last year; since then, they have been waiting for a confirmation of quotas, which however, has now become of no use.

By Janice Kim

 

South Korea’s Production Slumps
The South Korean governments growth target of 3.1 percent is starting to be questioned. The worse than expected export and production data is a worrying sign that slowing Chinese growth is making a negative impact on South Korea. The decline of -1.8 percent in production was much worse than the prediction of -1.0 percent. This downturn has specifically hit manufacturers of electronic parts, devices and machines. This data, when combined with fears about relations with North Korea and speculation that U.S. interest rates will, has led the won to depreciate.

By James Renton

 

Moody’s Warns of Potential Downgrading of China’s Sovereign Rating
China has a problem with rising debt levels and low levels of foreign exchange reserves. Moody’s has estimated the scale of china’s ‘explicit government debt’ to be at 41% of GDP, up 33% from 2012. Implicit debt lies in state-owned enterprises, local banks and local ‘government financing vehicles’. The agency feels that given the scale of reform needed to fix the imbalances in the economy, it is unlikely that the authorities will have the “capacity to implement reforms”. However, with most of China’s national debt held by local banks and other local investors, the downgrading may not have any significant impact. China’s leaders are currently attempting to move economic growth away from industry and exports and more towards domestic consumption and services. This serves well for those organisations looking to expand into the consumption sector of China.

By Aashish Ahuja

 

China passed sanctions against North Korea
China has not only passed but participated in the drafting of the latest sanctions against North Korea, supposedly the toughest in decades. The bans on exports of aviation fuel, luxury watches, snowmobiles, and jet skis are targeted towards the country’s elite - both its status symbols and the necessities for its nuclear programme. However, whether China will follow through in their implementation is yet to be seen. Loopholes such as the sale of coal and iron ore for “livelihood purposes”, for example, are already in place. Exports will only be banned if it can be proven that they are to be used for North Korea’s nuclear programme, which will be very difficult in practice. Apart from this, there has been plenty of civilian to civilian trade across the border, which has been resilient against sanctions in the past.

By Roberta Periquet

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