Connect with us

Business

China faces growing concerns as capital outflow intensifies amid yuan pressures

China is grappling with a significant capital flight, driven by economic challenges and a weakening yuan. Authorities are concerned about its impact on financial stability and the struggle to reverse the trend.

Published

1 year ago

on

CHINA: China is currently experiencing a significant capital flight, causing concern among authorities as it places added pressure on the struggling yuan.

The currency is facing multiple challenges, with funds leaving its financial markets, global corporations seeking alternatives to China, and a resurgence in international travel negatively impacting the services trade.

The most recent official data illustrates this, revealing a capital outflow of US$49 billion last month, the largest since December 2015.

This capital exodus has been triggered by sluggish growth in the world’s second-largest economy and a widening interest rate gap with the United States, resulting in the yuan reaching a 16-year low.

The risk is that this currency weakness could further diminish the market’s attractiveness, potentially leading to an acceleration of outflows that could destabilise financial markets.

A similar situation occurred after the surprise currency devaluation in 2015 and during the trade tensions between China and the United States under the Trump administration.

During those times, Beijing had to implement capital controls and increase the funding cost of the yuan in Hong Kong to stabilise the situation.

While authorities have taken various measures to address the current weakness of the yuan, reversing the outflow trend appears challenging.

Natixis SA senior economist Gary Ng reportedly said, “Due to the divergence in monetary policies and the current macro environment, it is unlikely that China has reached the turning point with enough incentives to attract capital back.”

Out of the US$49 billion outflow in the capital and financial account last month, US$29 billion stemmed from securities investments, according to data from the State Administration of Foreign Exchange.

Although there has been some increase in inflows, a larger amount has exited, pushing the balance further into the red.

This capital flight coincides with Beijing’s risk of missing its economic growth target of approximately 5% for the year due to challenges in the property market and declining exports.

Foreign holdings hit a four-year low, record sell-off in Mainland shares, and a deepening direct Investment deficit

Foreign investors have reduced their holdings of Chinese sovereign bonds to a four-year low as of August, while they sold a record US$12 billion worth of mainland shares during the same month.

Additionally, direct investment registered a deficit of US$16.8 billion in August, the worst since early 2016, as Covid restrictions and a crackdown on the private sector discouraged investors.

The slow return of investment is attributed to China’s fragile recovery following the lifting of Covid restrictions and a decline in consumer confidence.

China has consistently faced a deficit in services trade as the number of mainlanders travelling abroad has outpaced the number of foreign visitors to the country.

This trend has been exacerbated by the delayed return of foreign tourists, even though China has fully lifted its Covid restrictions.

The deficit worsened last month due to increased outbound tourism during the summer holiday season.

The Chinese currency has depreciated by more than 5% this year, both onshore and offshore, marking the weakest performance in emerging Asia after the ringgit.

Nevertheless, capital outflows may slow to some extent as China’s economy demonstrates signs of stabilisation.

However, the rate trajectories in the United States and China will play a crucial role in determining the extent of this slowdown, according to Edmund Goh, the investment director of Asian fixed income at Abrdn plc.

Goh remarked, “A lot of the money that was bearish on China’s growth and the yuan have left China in the past 12 months, and we should start to see some stabilisation in capital outflows.”

Related Topics:
Continue Reading
Click to comment
Subscribe
Notify of
0 Comments
Newest
Oldest Most Voted
Inline Feedbacks
View all comments

Business

Taiwan’s FSC rejects CTBC Financial’s bid to acquire Shin Kong Financial, favoring Taishin’s merger plans

Taiwan’s Financial Supervisory Commission rejected CTBC Financial’s tender offer to acquire Shin Kong Financial, raising concerns about its plan, while Taishin Financial moves closer to a merger with Shin Kong. Both companies have scheduled shareholder meetings for 9 October.

Published

3 days ago

on

17 September 2024

By

On 16 September 2024, Taiwan’s Financial Supervisory Commission (FSC) rejected an application from CTBC Financial Holding Co. to launch a tender offer for Shin Kong Financial Holding Co., potentially clearing the path for Taishin Financial Holding Co. to proceed with its proposed merger with Shin Kong Financial.

Jean Chiu, vice chairperson of the FSC, stated at a press conference that CTBC Financial failed to provide a comprehensive implementation plan for the acquisition. CTBC had proposed acquiring between 10% and 51% of Shin Kong Financial’s shares initially, with plans to later fully integrate the company.

However, the FSC raised concerns over CTBC’s lack of detailed provisions on how it would manage various potential outcomes, particularly if it failed to secure full control of Shin Kong.

Additionally, the FSC highlighted gaps in CTBC’s understanding of the financial health of Shin Kong’s life insurance subsidiary, as well as a lack of firm commitments regarding raising the capital size of this subsidiary.

This uncertainty, combined with the method of payment proposed by CTBC—using a mix of cash and its own stock—raised concerns that the tender offer could negatively affect shareholders due to potential fluctuations in CTBC’s stock price during the transaction process.

CTBC’s proposal, announced on 20 August, included an offer of NT$4.09 (US$0.13) per share in cash and an exchange of 0.3132 CTBC shares for each Shin Kong share, amounting to NT$14.55 (US$0.46) per share. This bid was labeled by Taishin Financial as a hostile takeover attempt, as Shin Kong Financial’s board had not approved the offer.

In response, Taishin Financial, which has been vying for Shin Kong through a merger, revised its stock swap offer on 11 September.

The new offer included 0.672 Taishin shares plus 0.175 preferred shares for each Shin Kong share, translating to NT$14.18 per share—closer to CTBC’s offer. Taishin had earlier disclosed on 22 August its original plan to offer 0.6022 shares of its stock per Shin Kong share, which amounted to NT$11.32 (US$0.36).

Chiu emphasized that tender offers based on stock payments are rare in Taiwan, with only six cases since the 2002 revision of tender offer regulations.

She referenced Fubon Financial Holding’s acquisition of Jih Sun Financial in 2023, where cash was used instead of shares, to highlight how tender offers have traditionally been handled in the local market.

Chiu concluded by stating that although Taiwan’s financial market operates on free-market principles, takeovers should avoid disrupting market order and respect corporate stability.

Taishin Financial and Shin Kong Financial are set to hold a special general meeting on 9 October to secure shareholder approval for their merger plan, which will then require the FSC’s endorsement.

Continue Reading

Business

Times Bookstores to close after nearly four decades in Singapore

Times Bookstores will cease operations in Singapore after nearly four decades, with its final outlet at Cold Storage Jelita closing on 22 September 2024. The closure is seen as being attributed to high rents, low sales, and rising operational costs, reflecting challenges faced by physical bookstores in Singapore.

Published

4 days ago

on

16 September 2024

By

Times Bookstores will end its operations in Singapore after nearly 40 years, as its last remaining outlet at Cold Storage Jelita on Holland Road is set to close on 22 September 2024.

In a farewell statement posted on Instagram on 16 September, the English book retailer, established in 1978, invited customers to visit the store one final time. “Our happily ever after has finally come,” the post read. “It is with both a heavy heart and a sense of fulfilment that we announce the closure of Times Bookstores.”

The closure of Times Bookstores has been anticipated for several years. The company, owned by regional consumer group Fraser and Neave Limited, closed its branches in Plaza Singapura and Waterway Point in February 2024.

The shutdowns triggered a discussion in Singapore’s literary community about how to better support bookstores.

Struggles Facing Book Retailers

Times Bookstores has been affected by increasing rent, low sales, and rising operational costs. The Covid-19 pandemic exacerbated its challenges, with the business quietly closing outlets at Marina Square and Paragon in 2021.

A key warning came in 2019 when the retailer closed its 8,000 sq ft Centrepoint branch, once one of Singapore’s largest bookstores.

These closures reflect a broader struggle for physical bookstores in Singapore. Rising rent, higher goods and services taxes (GST), and increasing printing costs have driven book prices up, making it difficult for traditional retailers to compete.

Popular bookstore also shut its Marine Parade outlet on 18 June 2023, citing similar reasons, while Books Kinokuniya closed its JEM branch on 9 May 2022 due to slow sales and rental costs.

Future of Singapore’s Bookstores

Following the closure of Times, few large bookstore chains remain in Singapore. Books Kinokuniya, the largest bookstore in Singapore, continues to operate its flagship store at Takashimaya Shopping Centre.

According to a spokesperson from Toshin Development Singapore, cited by the Straits Times, Kinokuniya remains a key tenant, though no specific renewal dates were disclosed. The spokesperson added that Kinokuniya continues to engage with the landlord regularly to appeal to patrons and remain in trend.

Although Times Bookstores will no longer have physical stores in Singapore, its book distribution business, which supplies books from international and local publishers to other retailers, continues to operate.

Continue Reading

Trending