Xinhua Finance Ltd. (TSE Mothers: 9399 and OTC: XHFNY) and the Milken Institute today jointly released the Chinese Banking Strength Indicator (BSI) and the Chinese Adjusted-Trade and Finance Indicator (ATF indicator), the latest in an eight-part series of Xinhua Finance/Milken Institute China Economic Indicators. The BSI is a gauge of the financial strength of Chinese banks and the ATF Indicator examines the cross-border flow of goods and capital. Both issues are key points of China′s WTO commitments. The indicator series provides investors and financial professionals insight into China′s financial markets.
"These two new indicators represent another significant initiative by Xinhua Finance and Milken Institute to enhance the transparency of China′s markets," said Dan Connell, COO of Xinhua Finance. "We are proud to have taken the lead in assessing the progress in China′s integration with the world economy in the five years since its WTO accession. The empirical results of our methodologies will be of great interest to individuals and organizations that are focused on China."
Chinese Banking Strength Indicator (BSI): This indicator measures the financial strength of Chinese banks, benchmarked to fifteen top international banks. The methodology is based on CAMELS, a well-established rating system for bank examinations worldwide and has a benchmark value of five. The indicator enables investors to observe if banking reforms in China are improving the financial strength of Chinese banks. Fifty Chinese banks, comprising 72 percent of Chinese bank assets, were included in the calculation of the BSI value for December 2005. The BSI will be updated on a semiannual basis.
The combined assets of the "Big Four" Chinese commercial banks―the Industrial and Commercial Bank of China, the Bank of China, the China Construction Bank, and the Agricultural Bank of China―represent over 50 percent of China′s banking industry assets. They collectively score below the benchmark value 5, indicating an aggregate financial performance below that of the benchmarked international banks. However, the 2005 indicator score of these four banks exceeded that of Chinese banks system-wide.
Chinese Adjusted-Trade and Finance (ATF) Indicator: This indicator provides a measure for assessing China′s progress in establishing balanced cross-border movement in goods and capital. A country′s trade flow is traditionally measured by the ratio of exports plus imports to GDP. Similar measures have been developed for its capital accounts to gauge financial flows. However, the measure does not capture the extent to which imbalances occur in the trade and capital accounts. The ATF Indicator adjusts the more traditional measure to capture the degree of these imbalances; the greater the imbalance, the lower the score.
The ATF Indicator, as a measure of imbalance-adjusted trade flow, demonstrates the extent to which imbalances are being contained through appropriate government policies to promote stable and continued economic growth.
China′s ATF indicator score has experienced a fourfold increase over the past quarter century, from 15.2 in 1982 to 61 in 2005, and has trended upward since December 2001, from 48 to 62.5 in less than five years. This indicates the degree by which China′s capital and current account activities have been increasing rapidly relative to the size of the economy, while imbalances have also been rising since the 1980s.
Glenn Yago, director of capital markets at the Milken Institute noted that the indicators are useful and efficient new tools for investors to track the rapid growth within China′s markets.
"Quantitative assessments of markets are never easy," he said, "particularly in an economy such as China′s, which is undergoing such dynamic change. However, we are dedicated to building a body of research that works to clarify these complexities and provides metrics that are useful to the finance community."
Xinhua Finance, China's leading financial information and media service provider, and the Milken Institute, one of the world′s leading economic think tanks, agreed in April 2006 to create a set of eight new economic indicators tracking China′s markets. The indicators apply Xinhua Finance′s extensive local data-gathering capabilities and the Milken Institute′s expertise and established methodologies for capital-market research.
The launch of the BSI and ATF indicator follows last November′s launch of three other economic indicators: the Renminbi Pressure Indicator (RPI), Chinese Initial Public Offering (IPO) Indicator, and Market-Adjusted Debt (MAD) Indicator.