Emerging Markets Roundup: China


By Thomas Clouse

China has given its banks more freedom to determine their own interest rates by declaring in June that banks could offer lenders rates as low as 80% of the official rate and depositors up to 110% of the deposit rate.

In the same announcement, the country’s central bank cut interest rates for the first time since 2008, lowering the official one-year lending and deposit rates by 0.25 percentage points to 6.31% and 3.25% respectively.

The expanded freedom over interest rates will cut into the comfortable interest margins enjoyed by Chinese banks and intensify competition within the industry.

China’s economy expanded by only 7.6% in the second quarter of 2012, according to China’s National Bureau of Statistics, the lowest quarterly growth rate in more than three years. Flagging demand in Europe also dragged export growth to only 8%, down 18 percentage points from the first half of 2011. Retail sales continued to grow steadily, however, up 14.4%, cushioning the impact of weak export markets. Many economists had expected the Chinese economy to bottom out in the first quarter of the year, but these recent figures show further deceleration in the second quarter.

The US Securities and Exchange Commission (SEC) is having difficulty obtaining information from Chinese companies listed in the US for fraud investigations. Chinese regulations prohibit domestic auditors from providing financial reports to foreign entities, and thus accounting firms are reluctant to comply with SEC requests.