- China’s GDP Grows 6.7% as Expected
While concerns are growing over China’s growing debt and the risks to its financial system.
China‘s economy expanded at a steady 6.7% in the third quarter and looks set to hit Beijing’s full-year target, fueled by stronger government spending, record bank lending, and a red-hot property market that are adding to its growing pile of debt.
Wednesday’s data painted a picture of an economy that is slowly stabilizing but increasingly dependent on government spending and a housing boom for growth, as private investment and exports remain stubbornly weak.
Some economists believe Beijing has had to “double down” on stimulus this year to meet its official growth range of 6.5 to 7%, and say the government’s obsession with meeting hard targets may hurt both planned reforms and the long-term health of the world’s second-largest economy.
“So far this year they have clearly chosen to do everything they can to meet the growth targets, and now there is a little bit of an upward surprise from the housing market which actually will help them with GDP growth this year,” said Louis Kuijs, head Of Asia economics at Oxford Economics in Hong Kong.
“The question really is, is the leadership willing to move to somewhat lower growth targets in order to put growth on a more sustainable footing, or will it feel obliged to continue to hang on to those very high growth targets.”
The economy grew at the same clip in the third quarter year-on-year as in the first and second quarters, as analysts polled by Reuters had expected. Government infrastructure projects and the property boom have spurred prices and demand for raw materials and goods from cement and steel to furniture.
On a quarterly basis, it grew 1.8%, again in line with expectations but easing slightly from the previous period.
PROPERTY MARKET BIGGEST RISK FOR NOW
Economists believe the greatest near-term risk for China is a possible correction in the high-flying property market, which accounts for about 15% of GDP.
Real estate investment accelerated in September and home sales soared, highlighting persistent investor demand even as more cities tighten measures to curb prices.
Property investment growth ticked up to 7.8% in September on-year, and property sales surged 34%, though new construction starts fell 19.4%, suggesting sentiment among builders may be shifting as the government looks to cool the buying frenzy.
A wave of restrictions imposed on buyers in major cities since early October has resulted in a sharp drop in sales and authorities are stepping up pressure on speculators.
Shanghai said on Tuesday it had punished some property agencies for falsifying contracts and had launched probes into some developers suspected of raising prices without authorization.
Most economists do not expect house prices to collapse, arguing the market is supported by steady migration to bigger cities, but memories are still fresh of authorities’ heavy-handed attempt to cool surging stock markets last year, which triggered a crash and an unprecedented government rescue.
The property craze has also heightened concerns about China‘s growing debt and the risks to its financial system, as much of the record loan growth has been driven by mortgages.
China‘s debt has soared to 250% of GDP and the Bank for International Settlements (BIS) warned in September that a banking crisis was looming in the next three years.
“We think that the cooling measures in property market will weigh on China‘s economy over the coming quarters,” Commerzbank economist Zhou Hao in Hong Kong said in a note.
But statistics bureau spokesman Sheng Laiyun said “the impact (of property adjustment measures) on the economy will not be very big” in the short-term.
Oil Holds Near Highest Since 2018 With Global Markets Tightening
Oil held steady near the highest close since 2018, with the global energy crunch set to increase demand for crude as stockpiles fall from the U.S. to China.
Futures in London headed for a third weekly gain. Global onshore crude stocks sank by almost 21 million barrels last week, led by China, according to data analytics firm Kayrros, while U.S. inventories are near a three-year low. The surge in natural gas prices is expected to force some consumers to switch to oil, tightening the market further ahead of the northern hemisphere winter.
China on Friday sold oil to Hengli Petrochemical Co. and a unit of PetroChina Co. in the first auction of crude from its strategic reserves said traders with the knowledge of the matter. Grades sold included Oman, Upper Zakum and Forties.
Oil has rallied recently after a period of Covid-induced demand uncertainty, with some of the world’s largest traders and banks predicting prices may climb further amid the energy crisis. Global crude consumption could rise by an additional 370,000 barrels a day if natural gas costs stay high, according to the Organization of Petroleum Exporting Countries.
“Underpinning the latest bout of price strength is a tightening supply backdrop,” said Stephen Brennock, an analyst at PVM Oil Associates Ltd.
Various underlying oil market gauges are also pointing to a strengthening market. The key spread between Brent futures for December and a year later is near $7, the strongest since 2019. That’s a sign traders are positive about the market outlook.
At the same time, the premium options traders are paying for bearish put options is the smallest since January 2020, another indication that traders are less concerned about a pullback in prices.
Unlocking Investments into Africa’s Renewable Energy Market
The African Energy Guarantee Facility (AEGF) is launching a virtual roadshow of free webinars allowing a deeper understanding of risk issues for renewable energy projects on the continent, and conversations around risk mitigation solutions. The first webinar will take place on Thursday, 23 September from 14:30-16:00 hrs. EAT.
The session will be oriented on how to get more energy projects from the drawing board to the grid. While the energy demand in African economies is expected to nearly double by 2040, and although the potential for renewable energy is 1,000 times larger than the demand, only 2GW out of almost 180GW of this new renewable power were added on the African continent.
Clearly not good enough! To improve the situation within the next two decades, new solutions need to be implemented urgently. De-risking and promoting private sector investments will play a crucial part of it.
In this 90-min interactive session, AEGF partners: the European Investment Bank (EIB), KfW Development Bank, Munich Re and the African Trade Insurance Agency (ATI) will share their experience and provide valuable insights on how they were able to come together and design practical solutions for investors and financiers of green energy projects in Africa aligned with SDG7 objectives.
Across Africa, the complexity of renewable energy projects and their long tenors hold back crucial energy investment. Tailored to the specific needs and risk profiles of sustainable energy projects, AEGF will tackle the investment challenge by providing underwriting expertise and capacity tailored to market needs.
The AEGF will significantly boost private investment in sustainable energy projects, both expanding access to clean energy and contribute to achieving UN Sustainable Development Goals. The scheme supports new private sector investment in eligible renewable energy, energy efficiency and energy access projects in sub-Saharan Africa.
Shell Signs Agreement To Sell Permian Interest For $9.5B to ConocoPhillips
Shell Enterprises LLC, a subsidiary of Royal Dutch Shell plc, has reached an agreement for the sale of its Permian business to ConocoPhillips, a leading shales developer in the basin, for $9.5 billion in cash. The transaction will transfer all of Shell’s interest in the Permian to ConocoPhillips, subject to regulatory approvals.
“After reviewing multiple strategies and portfolio options for our Permian assets, this transaction with ConocoPhillips emerged as a very compelling value proposition,” said Wael Sawan, Upstream Director. “This decision once again reflects our focus on value over volumes as well as disciplined stewardship of capital. This transaction, made possible by the Permian team’s outstanding operational performance, provides excellent value to our shareholders through accelerating cash delivery and additional distributions.”
Shell’s Upstream business plays a critical role in the Powering Progress strategy through a more focused, competitive and resilient portfolio that provides the energy the world needs today whilst funding shareholder distributions as well as the energy transition.
The cash proceeds from this transaction will be used to fund $7 billion in additional shareholder distributions after closing, with the remainder used for further strengthening of the balance sheet. These distributions will be in addition to our shareholder distributions in the range of 20-30 percent of cash flow from operations. The effective date of the transaction is July 1, 2021 with closing expected in Q4 2021.
Shell has been providing energy to U.S. customers for more than 100 years and plans to remain an energy leader in the country for decades to come.
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