China Economy Grows at 11.5%, ICBC Earnings

123jump.com Staff
25 Oct, 2007
New York City

China reported third quarter economic growth of 11.5% surpassing earlier estimate of 10.5% by the most economists in the region. Rising trade surplus and strong investments in industrial facilities and real estate lifted the economic growth to peak level. China is likley to face more pressure to revalue its currency and raise interest rates. Separately ICBC, the largest bank in China reported 76% jump in earnings.

[R]9:00AM New York – ICBC earnings surges 76%. China’s third quarter economic growth increased to 11.5%.[/R]

Asian markets climbed higher, a familiar pattern of market rise supported by economic growth and rising exports.

China reported 11.5% economic growth in the third quarter prompting worries that interest rates may have to be revised, sooner than expected. China has raised interest rates for six times in the last eighteen months but rate increases have not curbed a sharp rise in asset prices in the real estate and stock markets.

Rising trade surplus, low interest rates on bank deposits, and currency controls have created asset price bubble in China. The structural problem of asset price spiral is not likely to be curbed by interest rate increases. This fuels pressures on Chinese currency to revalue against dollar and euro and other Asian currency.

Interest rates for one year deposit at 3.8% are substantially lower than inflation rate of above 6%. China reported sharp increase in trade surplus of 70% lifting the cash circulation in the economy.

ICBC, Industrial & Commercial Bank of China Ltd, reported 76% increase in earnings of 22.46 billion yuan or $3.1 billion.

ICBC, the largest bank in China and most valued bank in the world, serves 2.4 million corporate customers and 170 million individual customers with 17,000 branches.

The net loans issued in the quarter increased 11.4% to 3.94 trillion yuan. Net securities investment stood at RMB3,110,540 million, an increase of RMB249,742 million or 8.7% over 31 December 2006. Of the net securities investment, the face value of US sub-prime mortgage-backed securities held by the Bank was USD1,228 million (equivalent to RMB9,226 million), all of which were backed by first-lien loans and with a credit rating of AA or above (by Standard & Poor’s).

As of 30 September 2007, the fair value of such securities was RMB1,624 million lower than their amortized cost, of which RMB1,154 million was recorded in equity as fair value changes and RMB429 million was charged to the current period’s income.

The Group’s outstanding non-performing loans (“NPLs”) were RMB123,851 million in accordance with the 5-tier classifi cation standard, with an NPL ratio 3.06%, registering a decrease of RMB13,894 million and 0.73 percentage points when compared with 31 December 2006. The allowance to NPL was 88.12%, an increase of 17.56 percentage points over 31 December 2006.

The Group’s core capital adequacy ratio was 11.20% and capital adequacy ratio was 12.97%.


During the nine months ended 30 September 2007, the Group achieved net interest income of RMB159,705 million, an increase of 34.6% over the corresponding period of last year.

The net fee and commission income was RMB24,284 million and net profit after tax was RMB64,074 million, an increase of 104.7% and 66.0% over the corresponding period of last year respectively. RMB63,499 million of the profit after tax was attributable to equity holders of the Bank, an increase of 66.3% over corresponding period of last year. The cost-to-income ratio was 31.26%.

Net income per share increased to Rmb 0.07 from Rmb 0.04 or net income increased to Rmb 22.46 billion from Rmb 12.8 billion.

Thailand led the region with a rise of 3.2% followed by increases of 2.8% in Indonesia, 2.2% in Korea, 1.8% in Hong Kong, 1.6% in Singapore, 1.4% in India, Taiwan, and Malaysia.

[R]6:00AM New York, 7:00PM Tokyo - Subprime losses and strong yen lead Japan down 0.45%. Japan attracts real estate investments from international investors.[/R]

In Tokyo trading Nikkei 225 slipped 0.45% or 74.22 to 16,284.17, while the broader Topix Index lost 1% or 15.79 to 1,548.07.

Of the Nikkei 225 stocks 87 rose, 131 fell and 7 were unchanged. 19 stocks shed 2%. Daiichi Sankyo led decliners, falling 10.29%, after it suspended two studies on its anti-clotting drug. Exporters also fell on rising yen. Canon declined 2.62%, Komatsu slid 2.62% and Toyota Motor Corporation tumbled 1.49%.

In the first section of the Tokyo Stock Exchange 17.4 billion shares worth 2.5 trillion yen changed hands and 299 million shares valued at 7.9 billion yen were traded in the second section.

Financial stocks fell again on the worries that banks are likely to face more losses and the full extent of the ongoing correction in the U.S. housing market is still not over. Investors are only now realizing that the correction in the housing market may take more than two to three years.

U.S. brokerage firm Merrill Lynch &Co yesterday reported largest quarterly loss in its 93-year history. Subprime loans and exposure to leverages loans losses totaled $8.4 billion in the third quarter.

Separately, September existing U.S. home sales fell 8% to 8-year low to annual rate of 5.04 million.

Nomura Holdings plunged the most in four years after reporting today that U.S. mortgage investments weighed the company down to a net loss of 10.5 billion yen from net income of 43.5 billion yen a year before for the three months ended September 30th. Nomura reported a loss of $620 million after trading $1.8 billion of subprime mortgage securities. Revenues declined from 464.5 billion to 469.2 billion yen. Nomura shed 1.19% at the close to 1,833 yen.

Mizuho Financial Group fell 24,000 yen or 4% to 588,000 yen to a two year low after Asahi news reported that the company is likely to report a loss in the U.S. subprime securities and still meet its earlier earnings target. The news report did not cite any source which company later declined to comment on.

Consultancy firm Jones Lang LaSalle reported yesterday first half property investment in Japan jumped 16% to $30 billion. It also added that Japan accounted for almost 55% of the total transaction volume for the first six months of the year, and overall cross-border volume in Japan’s property market tripled to $15 billion, compared to the overall $28.2 billion of investments in the Asia Pacific region.

Jones Lang LaSalle head of research Jane Murray told a news conference yesterday that there was heightened competition in Japan’s real estate sector. Commented Murray: “We will see further increased competition from local investors, which means that cross-border investors are going to have to be more creative in their strategies and consider value-added and opportunistic plays.”

According to the consultancy firm, Tokyo’s cap rate, which a yield on property investments and the five- year swap rate, stood at 1.56%. However, the cap rates are negative for Paris, London, Frankfurt and New York.

Commercial land prices in Japan rose for the first time in 16 years, while prices in Tokyo were up 24%, in Nagoya increased 18%, and in Osaka soared 14%.

Of the Nikkei 225 index shares, Shiseido Company Limited led the gainers, with a rise of 4.83% followed by rises in Konami Corp of 4.15%, in Alps Electric Company Limited of 3.27%, in Tokyo Dome of 3.2% and Oki Electric Industries of 3.11%

Realty stocks advanced after Jones Lang LaSalle reported investments in the property sector grew 16% in the first half of the year. Heiwa Real Estate Company firmed 1% and Tokyo Dome climbed 3.2%.

Of the stocks in the Nikkei 225 index, Daiichi Sankyo led the declining stocks tumbling 10.29%, followed losses of 9.09% in Nippon Suisan, 8.96% in Yahoo Japan Corp, 6.70% in Sumco and 5.42% in UBE industries.

Daiichi Sankyo slumped heaviest since September 2005 after reporting in a statement that tests of the anti clotting effects of their prasugrel drug and Bristol-Myers Squibb Company’s Plavix were dropped. The drug is developed with Eli Lilly &Company. The company is currently seeking approval in the U.S. to sell the drug in the first quarter of 2009.

Yahoo Japan Corp also fell after reporting net income in the second quarter declined 4% to 13 billion yen compared to a year ago and 19.4% from the previous quarter. However, in the first half net sales rose 17.2% to 117.7 billion yen, while operating income surged 21.9% to 57.9 billion yen.

Nintendo, the maker of Wii Console games, reported today first half net profit to September 30th soared 132.4 billion from 54.3 billion yen a year earlier, boosted by increases in sales to 694.8 billion yen from 299 million yen a year ago. The company revised its annual profit outlook to 275 billion from 245 billion yen estimated in July of this year.