China growth beats forecasts in face of US trade row, financial risk

About 20 percent of China’s exports have been ferried to the US for the past decade, according to Moody’s Investors Services. (AFP)
Updated 17 April 2018
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China growth beats forecasts in face of US trade row, financial risk

  • Fears of a China-US trade war have been simmering in recent weeks, with Washington and Beijing exchanging threats of tit-for-tat levies on hundreds of billions of dollars’ worth of goods
  • For the past decade, about 20 percent of China’s exports have been ferried to the US, according to Moody’s Investors Services

BEIJING: China’s economy grew more than expected in the first quarter as it withstood headwinds from Beijing’s fight against financial risk and pollution, and trade tensions with the US.
While acknowledging the potential negative impact of a US trade war officials on Tuesday warned the country faced greater downside risk at home, citing the need for reforms.
The world’s number two economy expanded 6.8 percent in January-March, better than the 6.7 percent tipped in an AFP survey of economists and the same as the previous three months.
It is also much better than the annual rate of around 6.5 percent targeted by the government.
Growth remained resilient even as Beijing kicked its war on smog into a high gear during the winter months by cutting production for many steel smelters, mills and factories.
“The national economy maintained the momentum of steady and sound development,” said Xing Zhihong, a spokesman for the National Statistics Bureau. “The economic performance continued to improve and the economy was off to a good start.”
Fears of a China-US trade war have been simmering in recent weeks, with Washington and Beijing exchanging threats of tit-for-tat levies on hundreds of billions of dollars’ worth of goods.
US President Donald Trump has issued the warnings as part of his “America First” protectionist agenda that has focused on what he calls unfair practices by China that are killing American jobs.
Last week his Chinese counterpart Xi Jinping sounded a conciliatory note, promising to reduce tariffs on cars and open up the economy further.
For the past decade, about 20 percent of China’s exports have been ferried to the US, according to Moody’s Investors Services, which forecasts a material macroeconomic impact if Trump makes good on his threats with the consequences vibrating beyond China’s end exporters and deep into the economy.
While a tariffs spat with Trump has yet to make a significant impact, Commerzbank economist Hao Zhou warned “the overall growth is still under pressure.”
“The trade tensions are likely to persist over the foreseeable future, clouding the trade and growth outlook.”
Xing at the statistics bureau acknowledged the cloud of “international economic uncertainties” but said “China-US trade frictions do not pose a problem for China’s economy.”
Instead, he pointed to domestic risks to growth.
“The problems of unbalanced and inadequate development in China are acute and the tasks for reform and development are daunting,” he said.
After years of breakneck growth driven by exports and debt-fueled investment, authorities are increasingly worried about a possible credit crisis and are stepping up their battle against financial risk.
And the forecast-beating growth will give policymakers room to push through measures to battle those hazards and also address pollution.
Last week, the central bank released data showing total financing grew at 10.5 percent in March, the slowest pace on record, according to China-focused economist Andrew Polk.
“We think a further (economic) slowdown is on the cards before the end of the year,” said Julian Evans-Pritchard of Capital Economics, pointing to the drags “from tighter fiscal policy and slower credit creation” that will weigh on activity.
But China is counting on its 1.4 billion consumers to pick up the slack.
Retail sales grew 9.8 percent in the first quarter on-year, beating forecasts of 9.7 percent in a Bloomberg News survey.
Output at China’s factories and workshops expanded 6.8 percent for the first quarter, matching the expansion seen during the same period last year, but below the 6.9 percent forecast by Bloomberg News. Industrial production grew six percent in March.


Gulf companies challenged by debt and rising interest rates

Updated 22 April 2018
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Gulf companies challenged by debt and rising interest rates

  • Debt restructurings on the rise, but below crisis levels
  • Central Bank of the UAE has raised interest rates four times since last March

There has been an uptick in recent months in heavily-borrowed companies in the Gulf seeking to restructure their debts with lenders. Although the pressure on companies is not comparable to levels witnessed in the region following the 2008 global financial crisis, rising interest rates will eventually begin to have a greater impact, say experts.
Speaking exclusively to Arab news, Matthew Wilde, a partner at consultancy PwC in Dubai, said: “We do expect that interest rate increases will gradually start to impact companies over the next 12 months, but to date the impact of hedging and the runoff of older fixed rate deals has meant the impact is fairly muted so far.”
The Central Bank of the UAE has raised interest rates four times since the start of last year, in line with action taken by the US Federal Reserve. The Fed has signalled that it will raise interest rates at least twice more before the end of the year.
Wilde added that there had been a little more pressure on company balance sheets of late, although “this shouldn’t be overplayed”.
Nevertheless, just last week, Stanford Marine Group — majority owned by a fund managed by private equity firm Abraaj Group — was reported by the New York Times to be in talks with banks to restructure a $325 million Islamic loan. The newspaper cited a Reuters report that relied on “banking sources”.
The Dubai-based oil and gas services firm, which has struggled as a result of the downturn in the hydrocarbons market since 2014, has reportedly asked banks to consider extending the maturity of its debt and restructuring repayments, after it breached certain loan covenants.
A fund managed by Abraaj owns 51 percent of Stanford Marine, with the remaining stake held by Abu Dhabi-based investment firm Waha Capital. Abraaj declined to comment.

 

Dubai-based theme parks operator DXB Entertainments struck a deal last month with creditors to restructure 4.2 billion dirhams ($1.1 billion) of borrowings, with visitor numbers to attractions such as Legoland Dubai and Bollywood Parks Dubai struggling to meet visitor targets.
Earlier this month, Reuters reported that Sharjah-based Gulf General Investment Company was in talks with banks to restructure loan and credit facilities after defaulting on a payment linked to 2.1 billion dirhams of debt at the end of last year.
Dubai International Capital, according to a Bloomberg report from December, has restructured its debt for the second time, reaching an agreement with banks to roll over a loan of about $1 billion. At the height of the emirate’s boom years, DIC amassed assets worth about $13 billion, including the owner of London’s Madame Tussauds waxworks museum, as well as stakes in Sony and Daimler. The firm was later forced to sell most of these assets and reschedule $2.5 billion of debt after the global financial crisis.
Wilde told Arab News: “We have seen an increasing number of listed companies restructuring or planning to restructure their capital recently — including using tools such as capital reductions and raising capital by using quasi equity instruments such as perpetual bonds.”
This has happened across the region and PwC expected this to accelerate a little as companies “respond to legislative pressures and become more familiar with the options available to fix their problems,” said Wilde.
He added that the trend was being driven by oil prices remaining below historical highs, soft economic conditions, and continued caution in the UAE’s banking sector.
On the debt restructuring side, Wilde said there had been a “reasonably steady flow of cases of debts being restructured”.
However, the volume of firms seeking to renegotiate debt remains small compared to the level of restructurings witnessed in the aftermath of Dubai’s debt crisis.
Several big name firms in the emirate were caught out by the onset of the global financial crisis, which saw the emirate’s booming economy and real estate market go into reverse.
State-owned conglomerate Dubai World, whose companies included real-estate firm Nakheel and ports operator DP World, stunned global markets in November 2009 when it asked creditors for a six-month standstill on its obligations. Dubai World restructured around $25 billion of debt in 2011, followed by a $15 billion restructuring deal in 2015.
“We would not expect it to become (comparable to 2008-9) so barring some form of sharp external impetus such as global political instability or a protectionist trade war,” said Wilde.
Nor did he see the introduction of VAT as particularly driving this trend, but rather as just one more factor impacting some already strained sectors (e.g. some sub sectors of retail) “which were already pressured by other macro factors.”

FACTOID

Four

The number of interest rate rises in the UAE since March 2017.