SinoInsight 1
On May 26, Yin Jinbao, the chairman of Tianjin Rural Commercial Bank, was found to have committed suicide in his office. Anti-corruption officials had inspected the two banks where he previously worked at a month before his death.
On May 27, police officers from Anhui’s Lu’an City beat up a dozen teachers who were petitioning the government to pay their owed salary, an incident that incensed the local populace. In May, there were numerous other incidents across China of teachers demanding that the government pay their salary.
On June 1, the People’s Bank of China expanded the scope of what can be used as medium-term loan facility (MLF) to include collateral like corporate bonds.
OUR TAKE
The above phenomenon shows that China’s financial risks are reaching a critical point. The bank chairman’s suicide comes at a time when Beijing’s deleveraging campaign is intensifying, and indicates that investigators had very unearthed serious problems. While governments have fallen into arrears in paying teachers, the fact that teachers are out protesting in the streets for their wages suggest that the situation is dire. Meanwhile, the central bank is dropping its standards for what can be used as MLF likely as a means to overcome the liquidity problem posed by the wave of bond defaults this year.
Why is the property bubble still expanding given the present financial conditions in China? The reason: Rising property prices—> increased revenue from local government land sales and rising land mortgage loan quotas —> increased local government revenue and bonds issuance —> finance departments pay wages on time —> bank mortgage asset prices rise —> the rate of non-performing loans fall while loans quotas increase —> residents have more income to put into property.
SinoInsight 2
On June 1, China’s State Council removed Zhu Guangyao from the post of vice finance minister, and appointed Liao Min as his replacement.
OUR TAKE
Zhu’s sudden removal just before the third round of Sino-U.S. trade talks is unusual. He was part of the Chinese delegation that was involved in the first two rounds of trade discussions. Zhu also has a wealth of experience in international finance and economics having previously worked in departments that oversee those affairs at the finance ministry. While Zhu is 64 and technically overaged for a vice minister, his age shouldn’t be a factor given his participation in Sino-U.S. talks.
Liao Min, 50, participated in the second round of talks in Washington. He is also vice premier Liu He’s main assistant at the office of the Central Financial and Economic Affairs Commission.
China needs to make significant concessions to America to prevent a trade war. Part of the concessions would likely involve structural changes to China’s economy. Zhu Guangyao’s abrupt removal may have to do with Xi Jinping needing trusted officials to implement sensitive structural changes.
