Interest rate cut by People’s Bank of China

Interest rate cut by People’s Bank of China

On May 12th， China’s central bank， the People’s Bank of China announced the benchmark deposit and loan interest rates cut by 25 basis points. It also decided to lift up the upper bound of the floating band of deposit rates to 1.5 times the benchmark from the previous 1.3 times.

China’s benchmark interest rate cut and the increase of upper limit of the floating band of deposit rates would have positive effects to the Chinese economy， especially for supporting the private sector.

The People’s Bank of China faces kind of policy tradeoff between withstanding disinflation risk and the downward pressure of Renminbi.

In April， the central bank reduced the bank reserve/deposit ratio by one percentage point， but did not reduce the interest rate at the same time. The reason was not to affect the stability of the RMB exchange rate. Now that the RMB exchange rate has been stable and the CPI is historically low in recent years， the risk in destabilizing the RMB exchange rate is low. Hence， the impact of reducing the interest rate by a quarter percentage point on RMB is expected to be small.

The policy adjustment timing is important as the Chinese government does not wish GDP growth in the second quarter of 2015 to be any lower than seven percent. Meanwhile， the scale of reduction is moderate because the central bank is still cautious not to upset the exchange market.

Mao Lei， Assistant Professor at Warwick Business School， said the timing is earlier than his expectation， but there is nothing special about the rate cut itself， as the Chinese economy continues to slow down and manufacturing sector is still weak.

Mao highlighted that：” What is more interesting is that now the banks will have more space to determine the loan rate. With the upper bound of the loan rate increases， it should be viewed as an effort to make financing easier for the private sector， since the market efficient rate for small and risky firms in private sector should be high.”

Experts here tone positively on the expected effects of the new policy adjustments， and the Chinese central bank still possesses ammunition in its tool box.

The rate cut as well as the loan rate upper bound lifting would be good for domestic investment， consumption and hence economic growth. The effect of reduced interest rate will also help the housing market recovery to some extent.

The other policy tool of the People’s Bank of China will be a further reduction of the bank reserve-deposit ratio later in the year. And other policy instruments might include the acceleration of local investments， particularly for the high-speed train railway system.

HSBC’s Global Research Team said in a report： “The rate cut should help lower funding costs for the real economy. In light of the recent economic slowdown and rising disinflationary pressures， further policy easing including reserve ratio and rate cuts will still be warranted in the coming months.”

In the long run， the private sector is expected to get benefit from the increase of rate roof. The People’s Bank of China obviously can decrease deposit reserve ratio， which is likely to happen this year.

China’s smartphone market slows

Smartphone market in China fell for the first time in six years in the first quarter of this year， with the volume reaching 98.8 million units， a drop of 4.3 percent year-on-year， said a report released by market intelligence firm International Data Corporation （IDC） on May 11th.

“The main reason for the slowdown is the market saturation. How to attract more consumers is the top priority for future development，” said Kitty Fok， director of IDC China.

A build up of unsold stock is leading to a slowdown in the maturing Chinese mobile market， the firm said.

“China is often thought of as an emerging market but the reality is that the vast majority of phones sold in China today are smartphones， similar to other mature markets like the US， UK， Australia， and Japan，” said Kitty Fok， managing director at IDC China. “Just like these markets， convincing existing users as well as feature phone users to upgrade to new smartphones will now be the key to further growth in the Chinese market.”

“Another reason for the decline in overall sales is that customer loyalty isn’t what it used to be， and that is why we are seeing so many brands，” she added.

Statistics from IDC showed that domestic smartphone market saw intense competition in the past five quarters， as the top position witnessed frequent changes with Samsung， Lenovo， Xiaomi， Apple all occupying the spot alternatively.“Some brands experienced major slump in sales this quarter，” said Wang Jiping， chief research officer of IDC China.

US tech giant Apple overtook China’s Xiaomi in the first quarter to be the top smartphone provider in the country thanks to consumers’ preferences for the larger screens of the latest iPhone models， according to IDC. Apple now accounts for 14.7% of the market， compared with 13.7% for Xiaomi.

According to Wang， to compete with Apple’s iPhone 6 and iPhone 6 Plus， domestic makers are keen on improving their innovation abilities to stimulate consumption. In order to reduce the cost of distribution， some of them have developed new selling methods， such as online sales， physical stores， business to business to consumers （B2B2C）， and even crowdfunding.

The Chinese smartphone maker―Xiaomi， has said it is focusing on expanding abroad. In April， India’s Ratan Tata， the chairman emeritus of the Tata conglomerate， bought a stake in Xiaomi- a move seen as part of the smartphone maker’s bid to increase its presence in the world’s third largest market.

IDC expects flat growth in Chinese market this year， adding that as the country’s growth slows， Chinese manufacturers will focus on expanding in global markets such as India and South East Asia.

Chinese firm sends 6，400 employees on French holiday

Tiens Group -- a Chinese conglomerate treated more than 6，000 employees to French vacation. They were given the VIP treatment on an all expenses paid trip to France to celebrate the company’s 20th birthday.

During their four-day trip in France， the tour group-- the largest to visit the country -- was given a private tour of the Louvre museum and a private shopping session at luxury department store Galeries Lafayette， reported French news agency Agence France-Presse.

After two days in Paris， the group headed down to the southern resort town of Nice on May 8th where they also broke a Guinness World Record for forming the largest human sentence.

All staff members lined up on the waterfront， Promenade des Anglais， to spell out the phrase “Tiens’ dream is nice in the C？te d’Azur” that was visible from above.

According to local media， the company booked 4，760 rooms in 79 hotels between Cannes and Monaco， and 146 tour buses.

“We have mobilized public services as well as tourism professionals， hotels， restaurants， shops and designer brands，”Christian Mantel， head of the French tourism development agency told AFP.

It’s estimated that the group will spend $15 million during their visit added Mantel， and France is seen to reap up to$20 million in total economic benefits.

Chinese tourists， who are known to be the world’s biggest holiday spenders， are said to spend an average of $7，200 when they go overseas.

It’s not the first time a Chinese company has arranged for massive tours overseas. Last year， a group of 7，000 made a trip to the U.S. to celebrate the 35th anniversary of Sino-U.S. diplomatic ties.

Tiens Group operates in a diverse range of business interests， including biotechnology， tourism and trade.

Tim Cook becomes popular in China

On May 11th， Apple CEO Tim Cook published his first post on Weibo―China’s version of Twitter by his iPhone 6.

“Hello China！ Happy to be back in Beijing， announcing innovative new environmental programs，” he wrote in both English and Chinese.

Tim Cook’s new environmental program aims to protect one million acres of forest in China.

Just three hours later， his Weibo had 301，628 followers， and the numbers were continuing to climb rapidly.

His first post refers to Apple’s announcement that it’s working with the World Wildlife fund to protect as much as one million acres of forest in China. The forests provide fiber for pulp， paper and wood products.

This move is part of an initiative by the company to have zero impact on the world’s trees， and to power all of its operations using only renewable energy.

Apple said that over 85% of its global operations using renewable energy， and the Sichuan Province solar project will bring Apple even closer to its commitment to reach 100%.

The solar installations in Sichuan， a partnership with SunPower Corp and a number of Chinese companies would generate enough energy to power 61，000 homes. That would be more than enough to supply all Apple’s offices and stores in China.

The pension deficit over three hundred billion

According to recently released 2015 national social insurance fund budget， excluding financial subsidies， pension insurance “deficit” in 2015 will be more than three hundred billion yuan.

It is learned that in order to fill the gap of pension subsidies， easing the financial pressure， the transfer of stateowned capital to social security funds work has entered the implementation stage.

Experts suggest that some central enterprises which have relatively stable income can be firstly selected to take part of their property to the social security fund. And social security fund continues to get profit through annual dividend.

According to national social insurance fund budget in 2015， excluding financial subsidies， the fund is running into deficit， and compared to the implementation of the budget in previous years， the“deficit” is more and more.

Taking example of basic old-age insurance for enterprise employees， excluding financial subsidies， the “deficit” is 302.487 billion yuan after subtraction between the current insurance premium income and expenditure. This number is significantly bigger than 156.3 billion yuan in 2014. In 2013， excluding financial subsidies， “deficit”is only 95.9 billion yuan. In 2012， this indicator is also positive： premium income was 1502.7 billion yuan， the annual expenditure was 1394.8 billion yuan， and the subtraction between the two was 107.9 billion yuan.