LI, Tao @ Hong Kong

Hong Kong may introduce measures to slow growth in the city’s yuan deposits to help stem an exodus of local currency from the financial system, analysts have said.

The city’s policy makers may try “tapping the brake as the surge in deposits is bothering; everything is happening so fast,” Paul Schulte, global head of financial strategy at CCB International, the Hong Kong-based brokerage arm of China’s second-largest bank, told Bloomberg in an interview on May 18.

“If you don’t slow down the yuan conversion, the liquidity in Hong Kong will continue to dry up and that’s a problem for the banking system,” said Schulte.

Hong Kong’s yuan offshore business has been developing rapidly in recent years, with total yuan deposits reaching 451.4 billion yuan by the end of March, more than triple that of 149.3 billion yuan at the end of September 2010, according to data from the city’s de facto central bank, the Hong Kong Monetary Authority (HKMA).

The local currency loan-to-deposit ratio for Hong Kong banks rose to 81.7 percent for the same period, from 71 percent in early 2010, HKMA said.

Hong Kong banks are now facing “upward” pressure on lending and deposit rates as credit demand soaks up cash from the financial system, HKMA Chief Executive Norman Chan said earlier this week, adding that the authority may also ask some banks to set aside more reserves after borrowing surged and mortgage rates advanced.

Citing a recent strategy note from locally based brokerage CSLA, a Dow Jones Market Watch commentary on May 15 said city banks may face a liquidity shortage in terms of Hong Kong dollars, which in theory could push up lending costs.

“Longer term, there is also potential for a growing currency mismatch if banks keep taking in yuan deposits but can only lend in Hong Kong or US dollars,” said the comment.

The city’s government may lower the current yuan purchase quota of 20,000 yuan a day for individual investors to stem the expansion of yuan deposits, which now account for 8 percent of total funds placed with banks in the city, Schulte said.

Donna Kwok, Greater China economist from HSBC, said that she believes a faster pace of growth in yuan deposits would not necessarily translate directly into lower demand for the local currency as deposit holders could just as easily move out of other foreign currencies – such as the US dollar – into yuan as well.

“We think yuan deposits are actually growing at a pace in line with our expectations – for the purposes of cultivating balanced growth in the Chinese market,” Kwok told China Daily. “The issue is still whether yuan deposits are growing ‘fast enough’, as opposed to ‘too fast’.”

In late April, the yuan breezed past 6.50 per US dollar for the first time since 1993. Its continuous appreciation against the US dollar has drawn investors to favor the currency and yuan-denominated products.

However, since its debut on April 29, Li Ka-shing’s Hui Xian Real Estate Investment Trust has performed poorly. The city’s first yuan-denominated initial public offering closed at 4.60 yuan on Friday, meaning it has now slumped 12.3 percent compared with its IPO price of 5.24 yuan.

Bloomberg contributed to this story.

China Daily

(HK Edition 05/21/2011 page2)

http://www.chinadaily.com.cn/hkedition/2011-05/21/content_12552635.htm

Buildings in the Central district of Hong Kong. Data shows that office rents in Central increased another 8.6 percent quarter-on-quarter to average HK$120.6 per square foot a month in the first quarter. Mike Clarke / AFP

CBRE report highlights city’s scarcity of supply

Office rents in Hong Kong jumped 25 percent on average in the first quarter and HK$120.6 per square foot per montht in the prime Central district, according to a report by CB Richard Ellis (CBRE).

The report highlights the issue of insufficient supply as well as the need for the city to adopt a comprehensive master plan for the office market in order to keep its status as an global financial center.

Such an approach is needed to create locations or destinations, rather than just focusing on buildings outside the current Central area, Edward Farrelly, director of CBRE research for Hong Kong, Macao and Taiwan, told reporters at a media briefing on Tuesday, citing the importance of cost reduction to global organizations and the rise of competing locations within Asia.

Hong Kong has the most expensive rents in the world for top tier offices and has surpassed the levels in other international economic centers including New York, London and Tokyo, according to the real estate broker.

Data shows that Central rents increased another 8.6 percent quarter-on-quarter to average HK$120.6 per square foot in the first quarter, while rents in the district’s top-tier buildings increased a mild 2.6 percent due to already sky-high rents and greater rent differentials with competing districts.

“Even multinationals like finance and insurance companies no longer have to be at the prime central or CBD in Hong Kong, and they are also considering opportunities elsewhere,” said Farrelly.

The Hong Kong Grade A office market is anticipated to post further growth in anticipation of a sustained imbalance between supply and demand in the marketplace, Colliers Internationals said in a report released the same day, projecting the city’s office rents to increase another 25 percent over the next 12 months.

“A number of medium-sized tenants have been migrating to the adjacent business districts such as Wanchai and Causeway Bay, where rentals remain relatively low,” said the study.

According to another research report by Cushman & Wakefield provided to China Daily, more and more small-to-medium businesses have also been responding to rising occupancy costs in the core districts by relocating to secondary locations such as Hong Kong East and Kowloon East.

Not favoring the introduction of large swathes of new space onto the market in an uncontrolled fashion, CBRE believes a wider selection of available space would be appreciated as demand varies in regards to the type and quality of offices, as well as in terms of rental prices.

Besides location and the building itself, occupants will also consider the surrounding environment or even opportunity cost when looking for offices, said CBRE, advising the city to put all these issues on the agenda and provide incentives for alternative solutions to be sought in new office areas.

This approach will not result in a mass movement away from Central in the short term or a drop in rents, but a gradual change in the occupant base. It may lead larger organizations to look for more cost-effective locations in other parts of the city and lead to a certain convergence in rent levels, said CBRE.

China Daily

(HK Edition 05/18/2011 page2)

http://www.chinadaily.com.cn/hkedition/2011-05/18/content_12528706.htm

Stalls sit at the Victoria Park New Year flower market on the eve of Chinese New Year in February. GDP growth forecast for the full year has been revised to 5 to 6 percent in 2011, up 1 percentage point from the 4 to 5 percent estimated earlier. Jerome Favre / Bloomberg

GDP growth and inflation accelerate; Exports and food prices surge

The Hong Kong government has raised its forecast for both economic growth and inflation this year after the economy expanded 7.2 percent in the first quarter, the fastest pace in a year, and March inflation rose to 4.6 percent, the highest since August 2008.

Gross domestic product (GDP) growth forecast for the full year has been revised to 5 to 6 percent in 2011, up 1 percentage point from the 4 to 5 percent estimated earlier.

The 7.2-percent business expansion in the first quarter was more than any of the estimates in a survey of 17 economists by Bloomberg News, which was also higher than the 7.0 percent average growth for 2010 as a whole.

Government economist Helen Chan said the stronger-than-expected GDP growth in the first quarter was bolstered by larger-than-estimated exports and strong domestic demand.

“The mainland’s strong economy has also spurred production and export activities in the region,” Chan told reporters Friday.

Total exports surged by 16.8 percent in the first quarter of 2011 from a year earlier, and the city’s unemployment rate fell to a post-crisis low of 3.4 percent during the three months.

Donna Kwok, Greater China economist with HSBC said the size of the surprise quarterly figure underlined that the dynamo economy ran on a triple, not dual, engine.

“Mainland demand for ‘made in Hong Kong’ goods and services, easy money conditions and local shoppers boosted by forever improving job market conditions all fit in the picture,” said Kwok, adding that this would inevitably turn up the heat on inflation.

The government also raised its full-year forecast for underlying consumer price index (CPI) – the main gauge of inflation to 5.5 percent in 2011 from the 4.5 percent announced earlier, after the inflation rate climbed 3.7 percent in the quarter.

The pick-up in consumer prices was driven by rising commodity and food prices as well as higher housing rents, said the government, adding that the latter two factors accounted for more than 70 percent of the inflation rate in the quarter.

Tightening measures initiated by the government to cool the property price last year appeared to have had little effect as home prices rose by another 9 percent in the first quarter.

By March 2011, apartment prices in Hong Kong had surpassed the historic peak in 1997 by around 3 percent, fueling concerns of the potential risk of a property bubble.

“Inflationary pressures are coming from all fronts,” said Irina Fan, senior economist at Hang Seng Bank.

Such pressures “won’t be eased soon,” and with buoyant economic growth and booming job market, inflation will remain at high levels, perhaps going beyond 6 percent in some months this year, Fan told China Daily.

Imputing import inflation to the dollar peg, as well as rising rentals and labor cost, Kevin Lai, a senior economist at Daiwa Institute Research, said prices could “accelerate in the coming months and could cross over the 5 percent mark as soon as this month.”

The government is helpless in fighting inflation, he asserted. “The government can do nothing without the tools of foreign exchange rate and interest rate due to the dollar peg,” said Lai.

However, Matt Robinson, senior economist from Moody’s Analytics, said outlook for the city remained favorable as it enjoyed the benefits of close ties with the mainland, and the some 5 percent year-on-year growth in coming quarters would be impressive for a developed economy already well into a self-sustaining expansion.

“Emerging inflation poses some threat to the outlook, but the government’s apparent willingness to introduce measures to temper consumer and asset price pressures suggest the expansion will be sustained,” Robinson said.

China Daily

(HK Edition 05/14/2011 page2)

http://www.chinadaily.com.cn/hkedition/2011-05/14/content_12509679.htm

Clients visit the vault in a secured area inside the HSBC building in Hong Kong. The lender will cut jobs and close offices, seeking to lower costs by about a tenth to invest in faster-expanding economies and prepare for stricter capital rules. Paul Hilton / Bloomberg

Job cuts and office closures planned

HSBC Holdings Plc, Europe’s biggest bank by market value, set targets to save costs of $2.5-3.5 billion within the next two years in a bid to reach a cost efficiency ratio target of 48-52 percent by 2013.

The lender will cut jobs and close offices, seeking to lower costs by about a tenth to invest in faster-expanding economies and prepare for stricter capital rules.

It may also exit unprofitable units among its 87 national subsidiaries, cut head office jobs and conduct a strategic review of its US cards business, the bank said on Tuesday.

During a conference call, Chief Executive Officer Stuart Gulliver said HSBC “clearly has a cost problem”.

“The (cost-saving) program is not about shrinking the business but about creating capacity to re-invest in growth markets and to provide a buffer against regulatory and inflationary headwinds,” said Gulliver.

The cost-saving initiatives came after HSBC’s lackluster performance in the first quarter, during which the lender posted a pre-tax profit of $4.9 billion, down 14 percent from $5.7 billion a year ago.

HSBC blames the profit dip on rising costs, which, as a proportion of income, surged to 60.9 percent from 49.6 percent in the same period last year.

Ye Lian, a banking analyst at China Merchants Securities (HK), said Tuesday’s announcement was a “positive message” and was likely to “regain the confidence of the investors”.

“It is not just a response to the lender’s disappointing performance,” said Ye. “The new management team also tries to set tones for future operation through this way.”

Gulliver, 51, who replaced Michael Geoghegan in January after a boardroom power struggle, said the bank would continue to invest in markets with strategic relevance and high actual or potential returns and either turn around or dispose of other businesses.

By 2050, the bank estimates, 19 of the world’s largest 30 economies will be from what are currently termed emerging markets, among which the mainland will exceed the US economy in terms of gross domestic product (GDP), followed by a number of others including India, Brazil, Mexico and Turkey.

“Our strategy is to concentrate on commercial and wholesale banking in globally connected markets, and we will also focus on wealth management in 18 of the most relevant economies and limit retail banking to those markets where we can achieve profitable scale,” said Gulliver.

However, Li Shanshan, a Beijing-based analyst from Bocom International Holdings told China Daily HSBC’s schemed rapid expansion in the emerging markets would lead to a surge of operating costs in the short term.

HSBC shares slid HK$1.15 or 1.37 percent to close at HK$82.85 on its Hong Kong trading Wednesday, compared with the 0.19 percent drop of the city’s benchmark Hang Seng Index.

On Tuesday, the lender, which is listed in five bourses worldwide, also said it aimed to get return on equity into a 12-15 percent target range by 2013, from 9.5 percent last year and about 5 percent in 2008 and 2009.

China Daily

(HK Edition 05/12/2011 page2)

http://www.chinadaily.com.cn/hkedition/2011-05/12/content_12493241.htm

The city’s Purchasing Manager’s Index (PMI) fell to a seven-month low of 52.9 in April due to slower output and new orders growth and high imported inflation, an HSBC survey showed Thursday.

The index tracks changes in private sector business conditions. A reading above 50 indicates expansion, while that below 50 signals contraction.

Though Hong Kong’s business activity expanded for the 22nd month in succession, the April PMI, down 2 points from 54.9 a month earlier, was the slowest since August 2010, representing a modest improvement in operating conditions within the Hong Kong private sector, said the report.

The PMI is based on five sub-indices, including output, new orders, employment, suppliers’ delivery times and stocks of goods purchased.

The latest data marked notable decrease in output and new orders. Both dropped to 53.4 in April from the respective 56.4 and 56.0 a month earlier. New business from the mainland sub-index edged down to 54.3 from 54.8 in March.

Backlogs of work, which expanded again for the ninth straight month, printed 53.3 in April, lower than March’s 55.3 but still above long-run trend level of 51.4, as survey respondents highlighted their inability to increase output sufficiently to satisfy all new work orders received in April, according to the report.

“Moderating signs in Hong Kong’s private sector have emerged and stand consistent with the more sustainable level of expansion developing on the mainland,” said HSBC Hong Kong Chief Executive Mark McCombe.

The official HSBC China Manufacturing PMI released on April 29 showed mainland’s manufacturing sector also expanded at a modest rate, standing at 51.8 in April, unchanged from March but lagging on the long-run series average of 52.3.

“Hong Kong’s private sector driven economy is slowing in line with the mainland’s more moderated pace of manufacturing sector growth as domestic demand also starts to normalize after well over a year of sizzling growth momentum,” said Donna Kwok, Greater China economist at HSBC.

“The mainland’s inflationary bud has yet to be nipped so the central government will likely tighten for a while longer, which means the mainland support for Hong Kong private businesses will continue to be restrained through the second quarter,” said Kwok.

The mainland’s inflation is expected to fall slightly in the second half this year, but it will be tough to keep the full-year rise in consumer prices below the government’s 4 percent ceiling, Xu Lianzhong, a director at the National Development and Reform Commission, said in late April, after inflation had surged 5.4 percent in the year to March.

Driven by increases in the cost of food and rents, Hong Kong’s inflation hit its highest level since August 2008 in March, rising 4.6 percent year-on-year compared with 3.7 percent in February, according to data from the Census and Statistics Department posted on April 21.

Kwok said a cooling but still firm pace of business expansion was arguably the best outcome, as inflationary pressures were still building at home and it would help to bring Hong Kong’s domestic demand growth engine towards a more normalized and sustainable pace of expansion.

Paul Tang, chief economist with Bank of East Asia, said the city’s remarkable economic achievements in earlier months might also result in a temporary “inferior” performance by comparison.

“The temporary cooling down won’t last long and Hong Kong’s fast growing economic momentum is likely to remain,” Tang told China Daily.

The city’s gross domestic product (GDP) went up 6.8 percent in real terms in 2010 year-on-year, according to official figures. GDP growth is expected to ease to around 4 to 5 percent in 2011 as exports are expected to slow, Financial Secretary John Tsang said in February.

China Daily

(HK Edition 05/06/2011 page2)

http://www.chinadaily.com.cn/hkedition/2011-05/06/content_12454530.htm