Thus I've heard
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Inside the secret lab where Amazon is designing the future of reading

Chris Green holds an envelope. At least, it looks like an envelope. In reality, it's a piece of office copy paper that's been cut and folded into the shape of a Kindle Voyage, the latest in...
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Quartz

Quartz | Thus I've heard | Scoop.it
China’s latest banking overhaul is hugely risky and totally necessary

Just a quick run to the bank.(Reuters)
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WRITTEN BY

Gwynn Guilford
@sinoceros
OBSESSION

China's Transition
an hour ago
Just after Xi Jinping formally became China’s leader in 2013, he promised to introduce free-market reforms into the country’s stultified financial system. One move in particular was hailed as “the most important step” (registration required) in clearing the way for liberalization: government insurance for bank deposits.
At the moment, since neither the state nor the banks it controls guarantee China’s 112 trillion yuan ($18 trillion) in yuan deposits. If banks were to go bust, savers would get screwed. In fact, the People’s Republic is the only major Asian economy without deposit insurance.
Not for much longer. On Nov. 30, the People’s Bank of China published draft rules on a national insurance plan that will protect the majority of depositors’ bank savings, much like the US Federal Deposit Insurance Corporation. Though the PBoC declined to specify a launch date, analysts say the plan could be rolled out as soon as 2015.

But while in theory it’s good news for the little guy, some analysts say the deposit-insurance scheme comes with hidden risks that could cause major turmoil in China’s economy.
The dangerous psychology of bank runs

Modern banks use something called fractional reserve banking—essentially it means that rather than locking up every deposit in a vault, banks loan most of those funds out to borrowers. The catch, however, is that a bank cannot give all depositors their cash in full, especially if they all try to withdraw their funds at once.
The history of banking is full of ugly bank run stories. It happened a lot in the US during the Great Depression, as seen in this clip from It’s a Wonderful Life:

Government deposit insurance is specifically designed to prevent bank runs, by assuring panicky people in volatile periods that they don’t need to withdraw their funds, since the government will ultimately make sure they are made whole. (This doesn’t always work; see Northern Rock, 2008).
Something’s gotta give

It’s kind of amazing that China’s gone as long as it has without a major bank run. That’s largely thanks to the Chinese government’s hands-on omnipresence in the financial system.
The big thing those hands do is push deposit rates below market rates, in effect forcing savers to subsidize bank cheap loans, usually to state-backed companies. While this has stymied household consumption, the resulting investments have powered more than a decade of double-digit growth.

But that recipe is no longer cooking up the gravy. The third quarter’s 7.3% GDP growth was the weakest since 2009. Cracks in the system are beginning to show: Banks grant those cheap loans based mostly on the state’s investment priorities—things like new cities and gleaming subway lines—rather than economic merit. As a result, many companies struggle to make money, or even to make enough to make payments on their loans.
The easy money has swelled China’s debt to 251% of its GDP, and slowing growth means there is less money to pay off that debt. As a result, Chinese companies are taking out loans to pay old debt. Politics makes it so banks can’t easily cut off their state-owned brethren, no matter how lousy their cashflow is, so they keep handing over the money.
In short, there’s not enough cash to go around, and it’s getting harder and harder to create it.
Why deposit insurance comes first

Ultimately, Beijing knows that it needs to remove government restrictions on interest rates. Letting the market set the deposit rate is crucial to ending the country’s reckless lending spree; otherwise, loans will stay artificially cheap and debt will balloon all the more.
The catch is that letting rates float freely will almost inevitably result in rash of defaults and bank failures, especially among smaller financial institutions. Since the fear of bank failures could itself cause banks to fail, Beijing needs government-backed deposit insurance in place first, before it can tackle the really big stuff.
China already offers an implicit guarantee

Since government-owned banks dominate the Chinese financial sector, savers already assume their deposits are protected, as Quartz has reported in the past.
This isn’t naivety; Chinese savers know it’s wildly unlikely that Beijing would ever let its banks fail.

But when the guarantee is explicit and far-reaching, it’s easy to assume that every Chinese investment is backed by the government—no matter how dodgy.
Chinese savers in search of higher yields have fled traditional bank accounts for the shadow banking system, where investors can get at least twice the rate of return—and sometimes up to 20%—for lending to companies that are too risky or ill-connected to borrow from banks. Banks in turn securitize financial products as a way of meeting deposit regulations.
The insidious dangers of “too big to fail”

It’s now widely assumed the government guarantees a good deal of the $6.2 trillion in shadow finance, including China’s $1.7-trillion corporate bond market, which isn’t much cleaner. This means investors willingly fund total junk companies. If things go wrong, who cares? The government will probably make them whole.
This dynamic is making China’s economic decline all the sharper. By lending to bankrupt companies that create minimal value, China’s financial system prevents viable companies—ones that might actually grow—from competing. It creates zombies, in other words.
Ironically, while it is undoubtedly wasteful, this “too big to fail” assumption does keep China’s financial system stable, says Wei Yao, economist at Société Générale.
“The nearly universal implicit state guarantee is the most important factor in preventing any systemic financial crisis in China until today,” she writes, “and yet, is also the most detrimental factor to China’s economic efficiency.”
No more Mr. Nice Government

Deposit insurance will change that. By making the guarantee explicit, it should dissuade investors from counting on the government and state-owned banks to bail out wealth management products and trust products which are not included in deposit insurance, writes Richard Xu, analyst at Morgan Stanley, in a recent note.
The end result, unsurprisingly, is likely to be a dramatic decrease in investments to risky financial vehicles. Here’s an online survey by Sina Finance from earlier this year:

The new deposit insurer also will not guarantee any deposits over 500,000 yuan. As far as preventing bank runs goes, that’s not a huge deal; 99.6% of deposit accounts are less than 500,000 yuan, notes Xu.
However, thanks to the dramatic concentration of wealth in the Chinese economy, the remaining 0.4% of accounts holds nearly half of the total value of all Chinese bank deposits, estimates SocGen’s Yao. When China makes its guarantee explicit, those account holders may be feeling very vulnerable.
What will happen to $15 trillion in mystery money?

So when the PBoC launches its deposit insurance scheme, some $9 trillion in deposits and $6 trillion in shadow banking investments will suddenly stop being guaranteed by the government. Add that up and you get nearly $15 trillion—nearly twice what China produces in a year.
That money represents an enormous pool of liquidity that is needed to keep China’s financial system churning. What will happen to those funds once it’s fully understood they’re no longer safe from default?
Some of the funds are controlled by state-owned companies, which makes makes them somewhat less volatile. Then again, as the rise of shadow finance shows, the system is constantly on the brink of running out of cash. If reshuffled incentives and risk calculations cause enormous amounts of money to slosh around the economy, China’s financial system could easily fall out of whack. That’s why SocGen’s Yao calls deposit insurance China’s “most critical and yet riskiest reform.”
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四张图看清土改带来的投资机会-华尔街见闻

四张图看清土改带来的投资机会-华尔街见闻 | Thus I've heard | Scoop.it
深改小组七次会议今日审议了土改相关意见稿。土改的步伐越走越近,投资者该如何提前布局呢?从中国农业变革逻辑,到深化改革如何利用土改解决“三农”问题,再到产权登记、土地市场和户籍改革等土改配套设施,来自申万的四张图让你看清土改蕴藏的投资机会。
。华尔街见闻——中国最专业的金融资讯平台;直播外汇、期货、黄金、债券、证券等金融领域的实时新闻。华人投资者可以在这里获得最快速、最精准、最深入的全球财经资讯和市场行情。
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The Chinese government is clearly freaked out.

China’s surprise rate cut shows how freaked out the government is by the slowdown

China's rate cuts won't stop the bleeding.(Reuters/Reinhard Krause)
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WRITTEN BY

Gwynn Guilford
@sinoceros
OBSESSION

China's Transition
November 21, 2014
Earlier today, the People’s Bank of China slashed the benchmark lending rate by 40 basis points, to 5.6%, and pushed down the 12-month deposit rate 25 basis points, to 2.75%.
Few analysts expected this. The PBoC—which, unlike many central banks, is very much controlled by the central government—generally cuts rates only as a last resort to boost growth.
The government has been rigorously using less broad-based ways of lowering borrowing costs (e.g. cutting reserve requirement ratios at small banks, and re-lending to certain sectors).

The fact that the government finally cut rates suggests that these more “targeted” measures haven’t succeeded in easing funding costs for Chinese firms. The push that came to shove might have been the grim October data, which showed industrial output, investment, exports, and retail sales all slowing fast. Those data suggest it will be much harder to get anywhere close to the government’s 2014 target of 7.5% GDP growth, given that the economy grew only 7.3% in the third quarter, its slowest pace in more than five years.
But wait. Isn’t the Chinese economy supposed to be losing steam? Yes. The Chinese government has acknowledged many times that in order to introduce the market-based reforms needed to sustain long-term growth and stop piling on more corporate debt, it has to start ceding its control over China’s financial sector. Things like, for instance, setting the bank deposit rate artificially low, which generally punishes savers to benefit state-owned enterprises (SOEs).
But clearly, the economy’s not supposed to be decelerating as fast as it is.
Tellingly, it’s been more than two years since the central bank last cut rates, when the economic picture darkened abruptly in mid-2012, the critical year that the Hu Jintao administration was to hand over power to Xi Jinping. The all-out push to boost growth that followed made 2013 boom, but also freighted corporate balance sheets with dangerous levels of debt. But this could only last so long; things started looking ugly again in 2014.
Up until now, attempts to buoy the economy have mainly focused on helping out small non-state companies, says Mark Williams, chief economist at Capital Economics, in a note. Often ineligible for state-run bank loans, small firms have mostly been paying steep rates for shadow financing.
Since the benchmark rate cut affects official loans given out by mostly state-run banks, today’s cut will mainly benefit SOEs, hinting that the authorities “apparently feel larger firms are now in need of support too,” writes Williams. In addition, lowering the amount banks charge for capital makes them less likely to lend. Though that should in theory be offset by the lowering of the deposit rate, savers have been shunting their money into higher-yielding wealth management products, making deposits increasingly scarce.
On top of all that, the amount of investment it takes to produce a single unit of GDP growth has ballooned in recent years. That means it might take a lot more easy money than a rate cut will provide to keep the economy growing above the 7.0% mark.
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深改小组第七次会议:推进农村土地改革 坚持三条底线-华尔街见闻

深改小组第七次会议:推进农村土地改革 坚持三条底线-华尔街见闻 | Thus I've heard | Scoop.it
习近平今日主持深改小组会议审议了《关于农村土地征收、集体经营性建设用地入市、宅基地制度改革试点工作的意见》。会议指出,坚持土地公有制性质不改变、耕地红线不突破、农民利益不受损三条底线,在试点基础上有序推进。
。华尔街见闻——中国最专业的金融资讯平台;直播外汇、期货、黄金、债券、证券等金融领域的实时新闻。华人投资者可以在这里获得最快速、最精准、最深入的全球财经资讯和市场行情。
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