In today’s talking points, the RBA cuts Australia’s interest rates, China is set to allow foreign ownership of domestic securities companies, China implements a new scheme to encourage consumers to buy locally-produced infant formula, and Baoshang Bank enters administration

RBA cuts interest rates to a historic low of 1 per cent

On Tuesday, the Reserve Bank cut interest rates by 0.25 per cent, to a low of 1 per cent. It marks the first back-to-back cut since 2012, responding to Australia’s rising unemployment and overall slowing economy.

In May, unemployment reached a high of 5.2%, with GDP growth at a low of 2 per cent. The cuts are aimed to reduce unemployment and move further towards Australia’s inflation goal of 2-3 per cent by increasing household spending.

Westpac, CBA, NAB and ANZ will pass on the cuts at different rates to their customers.

Source: ABC News


Foreign ownership of Chinese securities companies will be allowed in 2020, a year earlier than expected

In another move to open up China’s financial sector and promote globalisation, Chinese Premier Li Keqiang announced on Tuesday that China will allow majority foreign ownership of domestic securities companies by 2020.

This enforces China’s goal to attract overseas capital to its stock and bond markets to finance its expected current account deficit, and simultaneously allows more opportunities foreign companies to profit in the Chinese market.

JP Morgan, Nomura and UBS have already been approved by Chinese regulators to establish majority-owned brokerages in China.

Source: Financial Times


A new scheme for China’s infant formula market will diminish the foothold of Australian and NZ companies

The plan appears directly to push foreign competition out of the market and encourage Chinese consumers to buy locally made formula.

Australian and New Zealand baby formula firms have experienced significant growth in China ensuing the 2008 baby formula scandal.

Financial markets have already reacted to the news, with decreases in stock of A2Milk (2.9%), Bellamy’s (3.1%), Bubs (7%), and Wattle (2.4%). Almost $1 billion AUD of A2M stock was wiped within two days.

The key objective of the plan is to increase Chinese-produced formula from 47 to 60 percent of the market. After the fallout of the industry in 2008, it seems a vital plan to get Chinese infant formula production back on track and build consumer confidence in the product.

Source: Australian Financial Review


Baoshang Bank enters administration, citing “severe credit risk”

Chinese authorities have begun restricting the private Baoshang Bank. The interbank lending market has already suffered, raising concerns in a market of rising defaults and a slowing economy.

While this event has triggered liquidity tensions – particularly for small banks – the People’s Bank of China reacted with a 500 billion Yuan injection into the financial system in June.

Baoshang Bank is a private lender based in Inner-Mongolia with 291 branches at its peak. It recorded a profit of $600 million in 2017 and had assets of around $90 billion.

Adverse conditions in the Chinese economy translates to bad news for the Australian economy, with China remaining Australia’s largest trading partner.

Source: ABC News