Japan and Eoro may not matter...USA may not matter...
China acts to halt stampede for savings bonds
12:49 a.m. Apr 02, 1998 Eastern
BEIJING, April 2 (Reuters) - Alarmed by a public stampede for this
year's treasury bond issue, China has ordered banks to slow their sales
of the first 125 billion yuan ($15 billion) tranche, state media
reported on Thursday.
Chinese citizens are pulling their savings out of bank accounts and
snapping up the bills to take advantage of higher returns.
Bank interest rates were lowered last week, widening the spread.
The banks, which underwrote 120 billion yuan of the 125 billion yuan
tranche, began sales on February 20 and had expected to complete the
issue eight months later by the end of October. But in just one month,
they sold roughly 80 percent of the paper through their nationwide
branch networks.
Authorities are now concerned about a sudden drain of liquidity from the
banking system.
More important, they fear that banks will be swamped by redemptions when
the three-year and five-year notes mature. The bills are non-tradeable
and pay all the interest plus principal upon maturity.
The China Economic Times said the Ministry of Finance had issued an
urgent edict requiring commercial banks to slow sales.
Financial organisations under the ministry that underwrote the balance
of the issue should halt sales altogether, according to the edict.
The four big state banks -- the Industrial and Commercial Bank of China,
Agricultural Bank of China, Bank of China and China Construction Bank --
plus a dozen or so smaller commercial banks had sold 98.53 billion yuan
of bonds by March 24, the newspaper said.
State media had earlier warned if sales continued their torrid pace the
issue would be entirely sold out by the end of April.
The issue includes 75 billion yuan in three-year debt with interest
fixed at 7.11 percent and 50 billion yuan of five-year debt paying an
interest of 7.86 percent.
The coupons are 0.9 percentage points above three-year bank deposits and
1.2 percentage points higher than five-year deposits.
China last week trimmed bank deposit rates by an average 0.16 percentage
point and lending rates by 0.6 percentage point as part of an effort to
stimulate the economy amid an export slowdown linked to the Asian
financial crisis.
The reduction only applied to short term rates of two years and below.
''The stronger-than-expected sales are related to expectations of an
interest rate cut by individuals and some banks,'' the newspaper quoted
an unnamed financial ministry official as saying.
''This is not necessarily a good thing.''
The newspaper said hot demand for bonds partly reflected a sluggish
stock market this year.
Faced with a sudden inflow of funds, the government would have trouble
finding suitable projects offering a reasonable rate of return, it said.
Chinese state media have reported the government planned to issue 264.4
billion yuan in state debt this year, compared with 248.6 billion yuan
in 1997.
China would spend more than 200 billion yuan to redeem state debt
maturing this year, officials have said.
The central government relies on treasury bills sold to individuals to
cover its budget deficits and cover redemptions of maturing bills. In
past years, the government has had to force banks to buy unsold treasury
bills.
($1.0 - 8.3 yuan)
-- Beijing Newsroom (86) 10-6532-1921; Fax (86) 10-6532-4978
-- Email: beijing.newsroom+reuters.com
Copyright 1998 Reuters Limited. |
