China’s growth objectives clash with financial stability goal, IMF says

The IMF has warned that China’s rapid development of financial products for investors could pose grave risks. Above, the headquarters of People’s Bank of China in Beijing. (Reuters)
Updated 07 December 2017
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China’s growth objectives clash with financial stability goal, IMF says

BEIJING: China should prioritize financial stability above development goals, as pursuit of regional growth targets and helping firms avoid heavy job losses had led to a surge in debt, particularly at local government level, the International Monetary Fund said.
Noting a lack of coordination and inadequate systemic risk analysis in a report released on Wednesday, the IMF also recommended the formation of a financial stability sub-committee comprising the central bank and three financial regulatory agencies, and an increase in staff for the banking watchdog.
Since the IMF’s last assessment of the Chinese financial sector’s resilience to shocks and contagion in 2011, two concerns remain — credit growth remains high and the expansion of wealth management products (WMPs), said Ratna Sahay, deputy director of the IMF’s Monetary and Capital Markets Department.
“Risks are large,” Sahay told reporters during an online briefing. “Having said that, the authorities are really aware of risks and they are working proactively to contain these risks.”
The IMF report said that while China has been taking steps to address its debt risks, reining in excessive credit growth will require a de-emphasis on high GDP projections in national plans that have spurred local governments to set high growth targets.
But the near-term prioritization of social stability seems to depend on credit growth to sustain financing to firms even when they are non-viable, it said.
“The apparent primary goals of preventing large falls in local jobs and reaching regional growth targets have conflicted with other policy objectives such as financial stability,” the report said.
“Regulators should reinforce the primacy of financial stability over development objectives,” the fund said.
China’s credit-to-gross domestic product (GDP) ratio is very high by global standards and consistent with a high probability of financial distress, the IMF said, citing an estimate from the Bank for International Settlements.
The IMF specifically warned that the rapid development of financial products for investors could pose grave risks.
“We are also concerned that in a very innovative financial system such as China’s, new products can emerge very quickly and very rapidly become large and popular, and potentially a systemic risk,” said James Walsh, deputy division chief of the Monetary and Capital Markets Department.
“Better coordination among supervisors is therefore essential to make sure that these risks are contained, and that everyone understands what the risks to these products are,” he said.
The China Banking Regulatory Commission (CBRC) was well-positioned to manage emerging risks, the IMF said, while adding that there was room for improvement.
“CBRC should be able to take decisions independently, and its budgetary autonomy should be preserved,” said Alvaro Piris, deputy division chief of the IMF’s Monetary and Capital Markets Department.
“In terms of resources, the CBRC as with the other supervisory agencies under (PBOC) have been working with a headcount that hasn’t changed in 10 years, a period in which the Chinese financial sector has more than doubled in size,” Piris told reporters.
The report said Chinese banks, while meeting Basel requirements, should hold more liquid assets and gradually increase their capital to create buffers to absorb potential losses that can be expected during China’s economic transition as credit is tightened and assumed guarantees for investors are removed.
On its visits to China, the IMF conducted stress tests covering 33 banks with 171 trillion yuan ($26 trillion) in total assets and 20 trillion yuan in off-balance sheet WMPS. The IMF said the tests showed “widespread” and “large” under-capitalization among joint-stock and city commercial banks under a severely adverse scenario, which includes both domestic and external financial shocks.
Under the scenario, the nonperforming loans ratio for the 33 banks would jump to 9.1 percent from 1.5 percent. The capital shortfall for the 33 tested banks amounts to 2.5 percent of gross domestic product, the IMF said. It said in a footnote the PBOC did not give it access to all the supervision data needed for its stress tests, without elaborating.
The PBOC reacted swiftly to the report’s release, saying that while the report is objective and pertinent, the stress tests “do not reflect the whole picture.”
China has a relatively strong ability to fend off any financial risk, the central bank said in a statement on its website.


50 years after Concorde, US start-up eyes supersonic future

Boom Supersonic co-founder, Blake Scholl, poses for a photograph in front of an artists impression of his company's proposed design for an supersonic aircraft, dubbed Baby Boom, at the Farnborough Airshow, south west of London, on July 18, 2018. (AFP)
Updated 22 July 2018
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50 years after Concorde, US start-up eyes supersonic future

  • Boom Supersonic’s aircraft is expected by the company to fly for the first time next year
  • The Concorde was retired following an accident in 2000 in which a Concorde crashed shortly after takeoff from Paris, killing 113 people

WEYBRIDGE, United Kingdom: Luxury air travel faster than the speed of sound: A US start-up is aiming to revive commercial supersonic flight 50 years after the ill-fated Concorde first took to the skies.
Blake Scholl, the former Amazon staffer who co-founded Boom Supersonic, delivered the pledge this week in front of a fully-restored Concorde jet at the Brooklands aviation and motor museum in Weybridge, southwest of London.
Boom Supersonic’s backers include Richard Branson and Japan Airlines and other players are eyeing the same segment.
The company aims to manufacture a prototype jet next year but its plans have been met with skepticism in some quarters.
“The story of Concorde is the story of a journey started but not completed — and we want to pick up on it,” Scholl said.
The event coincided with the nearby Farnborough Airshow.
“Today... the world is more linked than it’s ever been before and the need for improved human connection has never been greater,” Scholl said.
“At Boom, we are inspired at what was accomplished half a century ago,” he added, speaking in front of a former British Airways Concorde that flew for the first time in 1969.

Boom Supersonic’s aircraft, dubbed Baby Boom, is expected by the company to fly for the first time next year.
“If we can’t continue where you left off, and build on that, then the shame is on us,” Scholl said, addressing himself to an audience that included retired Concorde staff.
“Our vision is to build a faster airplane that is accessible to more and more people, to anybody who flies.”
Boom Supersonic is making its debut at Farnborough and hopes to produce its new-generation jets in the mid-2020s or later, with the aim of slashing journey times by half.
The proposed aircraft has a maximum flying range of 8,334 kilometers (5,167 miles) at a speed of Mach 2.2 or 2,335 kilometers per hour.
If it takes off, it would be the first supersonic passenger aircraft since Concorde took its final flight in 2003.
The Concorde was retired following an accident in 2000 in which a Concorde crashed shortly after takeoff from Paris, killing 113 people.
Some analysts remain skeptical over the push back into supersonic.
“Supersonic is not what passengers or airlines want right now,” said Strategic Aero analyst Saj Ahmed, stressing that many travelers wanted cheap low-cost carriers instead.
Ahmed said supersonic jets were “very unattractive” because of high start-up development costs, considerations about noise pollution and high prices as well as limited capacity.

Independent air transport consultant John Strickland also noted supersonic travel was unproven commercially.
“Business traffic, on the face of it, is the most lucrative for airlines,” Strickland told AFP.
“But if there is an economic downturn or something happens where the market for business class traffic drains away, then you have nothing else left to do with that aircraft.
“I think it’s going to be some time before we see whether it can establish a large viable market... in the way that Concorde never managed to do.”
These concerns have not stopped interest from other players.
US aerospace giant Boeing had last month unveiled its “hypersonic” airliner concept, which it hopes will fly at Mach 5 — or five times the speed of sound — when it arrives on the scene in 20 to 30 years.
And in April, NASA inked a deal for US giant Lockheed Martin to develop a supersonic “X-plane.”