Chinese factories face headwinds in post-lockdown recovery

Chinese factories could struggle to keep up momentum as pent-up demand wanes and exports struggle. (AFP)
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Updated 09 July 2020

Chinese factories face headwinds in post-lockdown recovery

  • China’s passenger car retail sales fell 8 percent in June from a year earlier

BEIJING: Orders for infrastructure materials and equipment have helped industrial output recover faster in China than most places emerging from COVID-19 lockdowns, but further expansion will be hard to attain without stronger broad-based demand and exports.

Prices of copper and steel have surged and share prices for Chinese blue chips struck five-year highs, as state-funded infrastructure projects drove up production of cement, steel and non-ferrous metals.

Railway investment, for example, soared 11.4 percent in April-June from a year earlier versus a 21 percent drop in the first quarter.

Industries gained from pent-up demand for autos and electronics. The property sector, a pillar of growth, also showed signs of rebounding, with real estate investment expanding and sales quickening.

China’s factory-gate prices, still in deflation territory this year, may have turned positive on a monthly basis in June, said Yating Xu, senior economist at IHS Markit, in a sign of recovering demand for manufactured goods.

The optimism also led investment bank ING to forecast no more policy interest rate cuts from the central bank for the rest of the year. “We started to return to thin profit in May and became a bit better in June,” said an official at a state-owned steel mill in central China, declining to be named due to company policy.

“Our demand mainly comes from infrastructure so far this year, especially for steel rebar and medium plates,” he said. Steel rebars are mostly used in construction, and medium steel plates in ships and excavators.

Underpinned by robust infrastructure demand from China, the Baltic dry index, which tracks rates for ships ferrying dry bulk commodities and reflects rates for capesize, surged 257 percent in June from a low struck in May due to the freeze in global trade as a result of the lockdowns.

The rosy outlook stands in stark contrast to the dismal industrial landscapes of other economies still fighting COVID-19. Factory output plunged further in May from a year earlier in Japan, South Korea and the US. Euro zone manufacturing output fell by a record 28 percent in April.

The industrial recovery is expected to help China’s economy post a positive growth rate in the second quarter after contracting for the first time in decades due to COVID-19.

But analysts warn that factories could struggle to keep up momentum even as early as this quarter as pent-up demand wanes, exports struggle and heavy floods take their toll on industries and businesses in the Yangtze Delta.

The surge in demand for automobiles has been released and the auto market entered a traditional lull in June, said the China Passenger Car Association (CPCA) last week. China’s passenger car retail sales fell 8 percent in June from a year earlier.

In May auto sales rose for the first time after a two-year slump, fanning expectations of a strong V-shaped recovery in a pillar industry, supporting the broader economy. Auto deliveries to dealers also rose for the second straight month in May.

Exports, a sector that provides about 200 million urban jobs, are forecast to come under pressure in the third quarter, analysts say, as sales of COVID-19-related medical supplies slow and global demand stays soft.


HSBC, StanChart shares fall to 22-year lows

Updated 22 September 2020

HSBC, StanChart shares fall to 22-year lows

  • Falls follow reports on movements of allegedly illicit funds; shares fall amid wider selloff in stocks

LONDON: HSBC’s shares in Hong Kong and Standard Chartered’s in London fell on Monday to their lowest since at least 1998 after media reports that they and other banks, including Barclays and Deutsche Bank, moved large sums of allegedly illicit funds over nearly two decades despite red flags about the origins of the money.

BuzzFeed and other media articles were based on leaked suspicious activity reports (SARs) filed by banks and other financial firms with the US Department of Treasury’s Financial Crimes Enforcement Network (FinCen).

HSBC shares in London fell as much as 5 percent to 288 pence, their lowest intraday level since 2009, after the lender’s Hong Kong shares earlier touched a 25-year low. The stock has now nearly halved since the start of the year.

StanChart dropped as much as 4.6 percent in London to its lowest since 1998, against the backdrop of a broader sell-off in the market with the STOXX European banks index down 4.8 percent.

More than 2,100 SARs, which are in themselves not necessarily proof of wrongdoing, were obtained by BuzzFeed News and shared with the International Consortium of Investigative Journalists (ICIJ) and other media organizations.

In a statement to Reuters on Sunday, HSBC said “all of the information provided by the ICIJ is historical.” The bank said that as of 2012 it had embarked on a “multi-year journey to overhaul its ability to combat financial crime.”

StanChart said in a statement it took its “responsibility to fight financial crime extremely seriously and have invested substantially in our compliance programs.”

Barclays said it believes it has complied with “all its legal and regulatory obligations, including in relation to US sanctions.”

The most number of SARs in the cache related to Deutsche Bank, whose shares fell 5.2 percent on Monday. In a statement on Sunday, Deutsche Bank said the ICIJ had “reported on a number of historic issues.”

“We have devoted significant resources to strengthening our controls and we are very focused on meeting our responsibilities and obligations,” a spokesperson for the bank said.

London-headquartered HSBC and StanChart, among other global banks, have paid billions of dollars in fines in recent years for violating US sanctions on Iran and anti-money laundering rules.

The files contained information about more than $2 trillion worth of transactions between 1999 and 2017, which were flagged by internal compliance departments of financial institutions as suspicious. 

The ICIJ reported the leaked documents were a tiny fraction of the reports filed with FinCEN. HSBC and StanChart were among the five banks that appeared most often in the documents, the ICIJ reported.

“It confirms what we already knew — that there are huge numbers of SARs being filed with relatively low numbers of cases brought through to prosecution,” said Etelka Bogardi, a Hong Kong-based financial services regulatory partner at law firm Norton Rose Fulbright.