Home' Trinidad and Tobago Guardian : January 14th 2016 Contents JANUARY 14 • 2016 www.guardian.co.tt BUSINESS GUARDIAN
CHINA | BG21
China s central bank said on Mon-
day it will push forward a pilot
scheme on relending in a bid to sup-
port the country s farming sector
and small firms - the most vulnerable
part of the economy.
The scheme, which allows banks
to refinance high quality credit assets
rated by the central bank, was first
introduced in Guangdong and Shan-
dong provinces in 2014. The People s
Bank of China relent 4.97 billion
yuan (US$755.74 million) to 31 insti-
tutions from the start of the program
through to the end of 2015.
The central bank said it would
expand the relending scheme, which
has been expanded to 11 provinces
and cities to help lower borrowing
costs for the real economy.
The central bank had rated bank
loans made to 3,022 companies,
allowing banks to use their high-
quality credit assets to secure relend-
ing, it said without giving specific
The central bank has taken a raft
of policy measures, including cutting
interest rates and banks reserve
requirement ratios, in a bid to support
the world s second-biggest economy.
Further policy easing steps are widely
expected this year. Reuters
... premier says
needed to solve
China will use market solutions
to ease its overcapacity woes and will
not use investment stimulus to
expand demand, Premier Li Keqiang
said during a recent visit to northern
Shanxi province, according to state
"We will let the market play a
decisive role, we will let businesses
compete against each other and let
those unable to compete die out,"
the state-run Beijing News quoted
Li as saying.
"At the same time, we need to pri-
oritise new forms of economic devel-
Li said the country needed to
improve existing production facilities
because even during an enormous
steel glut last year, China had to
import certain high-quality steel
products including the tips of ball-
China needs to set ceilings on steel
and coal production volumes and
government officials should use
remote sensing equipment to check
companies, the premier also said,
according to the article which was
reposted on the State Council s web-
site. During his visit to Chongqing
earlier this month, President Xi Jin-
ping said China would focus on
reducing overcapacity and lowering
corporate costs. Reuters
Tumult in China triggered the
worst opening week for US stocks
in history, and this week investors
could get plenty more to worry
Profits are expected to drop at US companies.
Earnings for companies in the Standard and
Poor s 500 index are forecast to drop for the sec-
ond straight quarter, a rare occurrence outside
a recession. Despite a rebounding jobs market,
the US did not grow fast enough to boost profits,
and once surging developing economies that
helped lift foreign sales slowed dramatically.
All this would be worrisome enough at any
time, but investors are particularly jittery now.
US stocks are expensive by some measures, even
after slipping in 2015 and falling sharply in the
first week of the year. That leaves little room for
more disappointing news.
One widely respected gauge, the so-called
Shiller earnings ratio, is flashing warning signs.
Named after Nobel Prize winner Robert Shiller
of Yale, the ratio compares the price of stocks
to annual earnings averaged over 10 years. The
measure is now 25, much higher---meaning more
expensive---than the long-term average of 18.
"When expectations are as high as they are,
that s a problem," says Jack Ablin, chief investment
officer of BMO Private Bank.
Companies begin reporting their results for
the October-December quarter on Monday. Earn-
ings per share for the companies in S&P 500 is
expected to have dropped 5.5 per cent compared
to a year earlier, according to S&P Capital IQ,
a research firm. That follows a 1.4 per cent drop
in the July-September quarter. Revenues are fore-
cast to fall for a fourth quarter in row.
This wasn t supposed to happen.
A year ago the average view of financial analysts
who follow the stock market said earnings for
the October-December quarter would jump 12
per cent, and urged investors to buy according-
ly.Analysts on Wall Street are a notoriously bullish
bunch, but you can almost understand their
enthusiasm. Since the financial crisis, US com-
panies have managed to squeeze profits out of
a slow-growing domestic economy. They slashed
costs, often through massive layoffs, and restruc-
tured their businesses to operate faster and
They were also helped by surging sales abroad,
super-low borrowing rates thanks to Federal
Reserve policy, and a controversial maneuver:
Companies bought trillions of dollars of their
own shares to take them off the market. Investors
love the maneuver, because it spreads earnings
over fewer shares and boosts earnings per share.
But critics point out that the purchases can make
companies seem more successful than they actu-
The result of all this corporate scrambling,
shrewd or short-sighted, was a booming stock
market. The S&P 500 more than tripled from
its 12-year low in 2009 through its peak in May.
Even after last week s drop, its biggest since Sep-
tember 2011, the index is just 6.5 per cent below
The problem now is that it is difficult for Cor-
porate America to cut costs any more, and the
rest of the world is slowing and can t help out.
Japan, the world s third largest economy, barely
grew last year, Canada briefly dipped into reces-
sion and Brazil and Russia are struggling to escape
On Wednesday, the World Bank lowered its
forecast for global economic growth this year to
a feeble 2.9 per cent.
The good news is that some parts of the US
economy are doing well.
US households have cut debt and saved more
since the financial crisis. The housing market is
solid. And there are more jobs.
But after years of sub-par economic growth,
many economists are sceptical the US economy,
and corporate results, are about to take off.
"It s going to be harder and harder to produce
solid earnings, unless the global economy picks
up," says Peter Cardillo, chief market economist
at First Standard Financial.
Most worrisome is that China is slowing dra-
matically, though no one is sure how much
because the data is so unreliable. The official
statistics put the rate at nearly 7.0 per cent, a
third slower than five years ago. But experts
tracking electricity usage and other measures
say the rate may much worse, perhaps 4.0 per
cent or even lower.
China matters because it is the world s second
largest economy after the US. It accounts for a
just a fraction of US exports, but it s impact on
the economy is big because it is major buyer of
goods from Japan, Europe, and other big US
trading partners. About half the sales in the S&P
500 come from abroad.
Central bank to
scheme to support
economy It's not just about China
Company profits to drop---again
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