China's Debt Alarmingly at 210% of GDP
China's efforts to diversify the financial system has led to a large credit buildup, and nation's total debt is now around 210% of gross domestic product, much higher than other emerging markets, Goldman Sachs warns in a research report. The report highlighted the diminishing links between credit and GDP growth and the brisk expansion of the shadow banking sector as the 2 biggest concerns caused by a high level of debt. The report also said lending to local government financing vehicles and to overcapacity industries are the highest risk areas.
China Steps Up Crackdown on Excess Capacity
China will cut the excess capacity in 19 industries including cement, steel, aluminum and copper smelting. The Ministry of Industry and Information Technology said last week revealed a list detailing inefficient capacity from over 1,400 companies to be eliminated by the end of 2013, including 92 million tons of annual steel capacity and 7 million tons of annual cement capacity. Goldman Sachs said China's expansion of cement and steel capacity had peaked in 2012, and although overcapacity will persist for the next few years, industry leaders should benefit from the ongoing closure of marginal capacity. Goldman Sachs predicted that capacity control would result in restocking and rebounding demand in Q4 2013 and therefore higher cement and steel prices.
China Ramps Up Rail Construction Budget
The State Council, China's cabinet, now targets 690 billion yuan in rail spending for 2013 (up 6% from 2012's budget), and plans to raise the rail spending target to 3.3 trillion yuan from 2.8 trillion yuan for the 2011-2015 period, Bloomberg reported. Premier Li Keqiang said last week the government would give greater support to small businesses, exporters and rail construction. He encouraged social capital to take part in rail investment.
LNG Plants to Face Higher Feedstock Costs
PetroChina Co (NYSE: PTR, HKG: 0857, SHA: 601857) has proposed setting city-gate ceiling prices for gas supply to liquefied natural gas (LNG) processing plants, meaning feedstock costs for LNG plants will rise substantially, C1 Energy reported. C1 Energy has forecast a 0.8 to 1 yuan/cubic meter hike for gas price to LNG plants, and UBS feared it would be hard for LNG plants to pass on the extra costs.
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