Standard Chartered and HSBC were the first banks to offer yuan investment products after a landmark agreement between the Hong Kong Monetary Authority (HKMA) and the People’s Bank of China (PBOC) was signed on July 19. The deal signed by HKMA Chief Executive Norman Chan and PBOC Deputy Governor Hu Xiaolian allows Hong Kong financial institutions to open yuan bank accounts and allows individuals to transfer yuan to and from them. This further relaxation of yuan trade is a key step towards allowing Hong Kong-based fund houses to set up yuan investments, brokers to trade yuan bonds and shares for clients, insurance companies to launch yuan policies and companies to raise funds in yuan shares or bonds. Cross-border yuan settlement in the first half of this year reached CNY70.6 billion – nearly 20 times the CNY3.6 billion recorded in the second half of last year – and 75% of it was conducted in Hong Kong, the South China Morning Post reports.

The bad loan ratio at commercial banks in China dropped to 1.3% by the end of June, down 0.28 percentage points, the China Banking Regulatory Commission (CBRC) said. Bad loans shrank by CNY42.5 billion to CNY454.9 billion. The banks’ non-performing loan ratio is likely to rise as the pace of economic growth slows down, with the ratio staying below 10% until the end of 2012, ratings agency Standard & Poor’s said. Credit risks are rising but the industry has the strength to avoid them, backed by good operating profitability, strong liquidity and adequate capitalization, Standard & Poor’s added. Lending to local government financing vehicles accounts for 18% to 20% of total loans in the banking system. “It’s highly likely that some of these loans will turn bad over the next few years, given the questionable credit quality of many of the borrowers,” the ratings firm said.

China’s outbound direct investment (ODI) surged by 24% from a year earlier to USD55.18 billion during the first six months. The investment mainly went to sectors such as mining, commercial services, manufacturing, wholesale and retail. “The financial crisis has provided Chinese enterprises with a nice opportunity to expand and invest overseas, at a comparatively lower price,” Ministry of Commerce (MOFCOM) Spokesperson Yao Jian said. Despite the rapid growth of China’s ODI, Chinese investment abroad has been frequently blocked by other countries, especially the U.S. and India, during the past few months. The U.S. Congressional Steel Caucus wrote to Treasury Secretary Timothy Geithner in late June, urging the Obama administration to obstruct the proposal by Anshan Iron and Steel Group Corporation on its USD175 million investment in a U.S. rebar plant. The Indian government also blacklisted 25 Chinese telecommunications providers, banning Indian operators from Chinese purchases. “We don’t think it appropriate for them to politicize common commercial investment cases, which will hurt bilateral relations with China,” Yao Jian said. From January to June, China’s ODI in non-financial sectors picked up by 43.9% year-on-year to USD17.84 billion, 22.4% of which was finalized through mergers and acquisitions (M&As). The first-half ODI figure has surpassed that for the whole of 2009, which rose by 6.5% year-on-year to USD43.3 billion despite the financial crisis. During the first half, China’s ODI in the U.S. and the European Union increased by 360% and 107% year-on-year, while investment in ASEAN countries climbed by 126%, the China Daily reports.

Corning is to invest almost USD1 billion in China in the TV, automotive and life science markets. About USD800 million will go to the building of a new LCD glass substrate factory in Beijing for the booming domestic LCD market, which is set to surpass the U.S. to become the world’s No. 1 by 2012. The manufacturing plant will have the latest glass-melting and finishing capabilities. Production is expected to start in the first half of 2012. The company will also expand the Corning Shanghai Co automotive substrate facility with an investment of about USD125 million and build a new manufacturing and distribution facility for Corning Life Sciences in the Yangtze River Delta with a investment of about USD40 million. As a sponsor of the USA Pavilion, Corning also displayed future technologies for “intelligent house, healthy community and low carbon cities” during the World Expo.

Foreign trade growth will slow down quarter after quarter, with exports increasing 16.3% on an annual basis in the second half, and imports advancing 19.3%, according the latest forecast by the State Information Center (SIC) under the National Development and Reform Commission (NDRC). This contrasted with the expansion of 35.2% for exports and 52.7% for imports in the first half. China’s trade has recovered to the 2008 level prior to the outbreak of the global financial crisis. In the first half, China’s trade surplus fell 42.5% from a year earlier to USD55.3 billion. In March, China even reported a trade deficit after a strong jump in imports. The expected slower growth in exports has been attributed to a volatile economic recovery in the United States and the European Union, China’s largest export destinations. Other factors included the decision to scrap a value-added-tax rebate on 406 types of exports on July 15 and Europe’s continuing sovereign debt problem. The State Information Center’s export forecast was between the 24% growth estimate by UBS, the 22% growth forecast by Morgan Stanley and an 18% increase of Barclays Capital. Exports fell 16% last year under the weight of the global financial crisis.