Official data released on Monday showed a sharp increase in lending in China in January. Here are the facts:

• New loans reached RMB 2.9 trillion ($458 billion) last month – a record high
• This was a five-fold increase from December’s total lending of RMB 548 billion ($86 billion)
• The figures even exceeded lofty predictions of RMB 2 trillion for the month (according to a poll by Reuters)
• Lending rose to both companies and households: to companies, new debt was RMB 1.78 trillion (up 631.9% from December); to households this was RMB 591 billion (up 89.9% from December)
• Total Social Financing (TSF) slowed down to 11.3% growth from 12% in December

Whilst the surge in RMB loans would suggest a backtracking of deleveraging efforts, there was a consensus among analysts that the associated deceleration in TSF growth indicates that this is most likely due to a shift of shadow banking back onto company balance sheets. Most analysts have also stuck to their outlook that governmental crackdowns on debt exposure are ongoing and will take a greater impact in 2018:

Trivium highlighted that the total of new loans will always increase with a growing economy, and so “we should pretty much expect ‘record new loans’ every January. What matters more is the size of new loans in comparison to outstanding loans or broader credit.”

Mizuho noted that shadow-banking finance has greatly slowed, increasing only RMB 1.1 trillion last month – one-tenth of the rate seen in January of the previous year.

Capital Economics said that bond issuance, the “primary drag on credit growth last year,” may be reaching a plateau after bond yields fell slightly in the last quarter.

UBS believe the regulatory tightening will further decelerate TSF growth in 2018. The People’s Bank of China will likely use monetary policy, such as cutting the required rate of return, to proactively manage liquidity.

Moody’s foresee regulation spreading outside its initial remit of reining in certain segments of the shadow-banking sector. Michael Taylor, a Moody’s Managing Director and Chief Credit Officer for Asia Pacific, said, “The effect of intensified regulation is no longer limited to de-risking the financial sector, but is now beginning to impact the supply of credit to the real economy.”

By Nicholas Jiang

The early achievements in the financial services sector no longer provide any guarantee of longer-term career success, says a 16-year industry veteran. Some of the jobs in traditional financial industry are shrinking as more firms consolidate and reduce their portfolio management and research staff.

“Graduates who think financial industry is still about making fast money are in for a shock,” but I believe many front-office professionals will have to “reinvent themselves” in the near future. But actually, the industry doesn’t need people who think they can make a few good stock calls. We need people who can digest information and understand the broader context of finance construction,”

If you’ve been through, say, many years in research and many years in practice, you might now need to gain new skills that will focus your career in a different and more in-demand area. Financial industry is challenging at the moment, so you have to be flexible and opened minded about your career plans these days.

For Investment banks over the past five years, many positions in banking have been changed, for example, nearly 7,000 front office investment banking jobs have disappeared. The majority of these cuts have been in the fixed income currencies and commodities (FICC) divisions.

FICC revenues have been the big drag for investment banks over the past five years, but they were up by 9% year on year in 2016, and there were big gains in rates (26%) and credit (20%). Factor in that FICC teams’ revenues were up 37% in the second half and continued cuts seems a little harsh.

Longer term, layoffs have slowed compared to five years’ ago, but they haven’t stopped, even now – Deutsche Bank laid off 150 people in its fixed income division only yesterday. There’s one good reason why investment banks are reluctant to hire more in FICC – productivity.

Investment banks are continuing to squeeze their fixed income markets staff because, simply, they can now. Juniorisation means that banks can get away with paying relatively inexperienced staff less – and some believe trading is a young man’s game anyway. Meanwhile, automation means banks simply need fewer people and an uptick in revenues is unlikely to counter this trend. Then there’s capital costs – banks generally can’t afford to allocate more capital to their trading businesses.

A code can’t be underestimated“Quants”

As for the income changing of financial service, we can also through an example to see. Quants are it. While sales jobs in banks disappear and trading jobs are automated into mundanity, quants are the new thing. Banks are alert to the value of data, and quants are the alchemists who are supposed to turn their data into gold. – Barclays CEO Jes Staley typified the mood yesterday when he said Barclays is building a “new strategic data architecture,” and, “looking at using data in new and innovative ways.” Barclays needs quants. And so does every other bank out there.

When people refer to quants in investment banks, desk quants are usually what they have in mind. Desk quants work with banks’ traders to create statistical models to analyze trading book risks and identify opportunities to create complex derivatives to help clients. The desk quants create pricing models for these derivatives. They also create models that create strategies to direct trading decisions and that make traders more efficient. But desk quants in banks aren’t actually traders. And because of this, they’re not as well paid.

“Even though quants are crucial to a bank’s profitability, they’re considered to be more of a support function,” says Max Soslove, a senior head-hunter at GQR Global Markets. “Quants build the pricing models and algorithms that price derivatives, so they are revenue generating – but not as much as traders.” The director-level quant puts it more bluntly: “A trader can claim that he/she “made” X amount a year, and shall be compensated as such. As for quants? They are viewed by most people (traders, sales, senior management) as coders who are not completely useless.”.

If they want to keep hold of the best desk quants, banks may need to up their game. After all, they’re not the only ones chasing financially-literate quant talent: systematic macro hedge funds want it too. And systematic macro funds are willing to pay big money. “Some of the highest paid people I’ve ever seen are “quants” running systematic trading strategies in hedge funds,” says one headhunter. “Those funds will hire from banks. They tend to want juniors who’ve spent a few years working in something like front office starts at Goldman Sachs. – A PhD who’s had the edges knocked off.”

Hiring Routine

Market risk and compliance departments are seeing increased MBA hiring as banks seek greater security and control of risky investment classes,” said the report from TopMBA.com. The upheaval in the financial regulatory landscape has created more job opportunities in risk and compliance, but banks have also been hiring MBAs into financial control and technology positions, it suggests.

MBAs have been falling out of love with finance. Investment banks are recruiting fewer business school graduates, while MBAs themselves are instead looking to more stable career options in consulting.

Will you be shown the door or welcomed with open arms by financial services firms in the coming year? Yes, few financial services companies were overly bullish with recruitment at this moment, but for certain areas of investment banking – notably advisory functions – the landscape was much improved. Meanwhile, competition for talent from the buy-side ensured a steady stream of replacement hiring throughout the year.

We believe some finance professionals will be happy, others could find themselves on decidedly shakier ground.

Banking sector is still a great place to a start-up

Banking sector is a great place to start your career, at the same time for the banks; it also helps train people up for the demands of working for a start-up.

Banking sector needs great Excel and financial modelling skills and requires their people working in an unstructured and changeable environment, which they have the right energy and can hit the ground running.”

“In the bank, it’s a great training ground. At bank, you learn professionalism, attention to detail, operating under pressure. Things come at you thick and fast and you learn to prioritize and make the right decisions. These are great skills to have in a start-up.”

Nicholas Jiang is Managing Director of Transwell Group.

Copper prices are up, and so are prices for steel iron ore and a whole bunch of other commodities. Why? Yet again, it is China that is leading the way with its massive economy and gargantuan needs governing the markets. But as always, there is a question of how far and for how long. No one knows.

Copper has been at or near two-year highs, and rebar steel in China is at price levels unseen for four years. Nickel, zinc and aluminum are all at levels not seen for many months if not years.

China’s economy this year has been doing better than expected, and while it is slowing compared to a decade ago, and arguably unbalanced, manipulated and abnormal in many ways, it has clearly recovered in many ways from a couple of weak years. Underwriting that outlook is a meeting. The most important thing that will happen in China this year is the 19^th Communist Party Congress. This once-in-five-years event sets the leadership and policy directions and this time round more than usual, it is essential for the Communist Party to present a unified and stable face with economic prospects that are rosy. 

So just looking at the politics alone, it was not a difficult call to predict a positive economic situation in China over 2017. but the impact has been greater than expected. The RMB has stabilized thanks to massive support from Beijing in the foreign exchange markets and controls on capital outflows that can only be described as draconian. China’s foreign exchange reserves have clawed back some room after many months of declines as well. The housing markets remain either bubbly or buoyant, depending upon your point of view, but efforts to tame apartment pricing in the major cities across China have proved futile. Driving it is speculation based on the belief that the Party will not let prices collapse and has the means to prevent them from doing so. And while that is absolutely true until the day when it is not, the chances of anything negatively unexpected happening in China’s real estate markets before the Congress are almost zero.

Policy is at the heart of it all. Underlying the surge in steel and iron ore prices is both the housing price surge and also determined efforts to cut back on total steel production capacity. Mills across Hebei province are being closed, which has helped to boost the pricing of steel from the mills that remain. Added to that are indications that the Party this time is serious about cutting air pollution across north China during the coming winter. That could well mean lower production of steel and other heavy industrial products for many months. The Chinese authorities are reported to have told steel and aluminum producers in 28 cities to slash output over winter to cut smog. In previous years, there was has been a marked reluctance on the part of local authorities to comply due to conflicting priorities, but Tangshan, a crucial steel product and pollution producing center, is expected to implement the cuts this time.

Meanwhile, China is on track to this year overtake the United States and become the world’s biggest oil importer. According to government statistics, China imported more oil during the first half of the year than the United States, averaging 8.55 million barrels per day (bpd) versus 8.12 million bpd for the U.S.

This trend has all sorts of implications for the global energy markets, and most particularly reflects a shift in the center of gravity in oil markets from the Western world to East Asia. The world’s biggest oil trader is now the Chinese state-owned Unipec. China is still the second-biggest oil consumer after the United States, but its growing dominance in the international oil markets, particularly through the Shanghai crude oil futures market, gives it a much larger role than ever before in setting prices for the commodity.

One factor underlying China’s surge in imports is its much-expanded refinery capacity. Domestic demand currently comes nowhere close to absorbing the extra production, so China is exporting gasoline and diesel at record levels, putting huge pressure on other refiners, including Singapore, Taiwan and Korea.

The trend is set to continue. China is expected to add more than 2.5 million bpd of refining capacity by 2020, according to the China Petroleum & Chemical Corp, or Sinopec, which is already Asia’s biggest refiner.

Japan used to be far and away the biggest refiner and market for petroleum products, but is now overshadowed by both China and India, and its capacity is being consolidated to take account of falling sales as its population declines and also increasing use of alternative sources of energy.

Nevertheless, there are changes coming. China’s own fuel demand is plateauing due to advances in the use of electric cars, and a slowing of economic growth. And after the 19^th Congress has been successfully concluded, there will be a new round of developments. But whether positive or negative for commodities markets, it is too early to say.

China has the world’s largest market for digital shopping, mobile payments, and Internet-enabled financial services. Close to 400 million people in China do most of their payments using their smartphones. China’s overall business in information technology is a market of well above USD $300 billion, and it is estimated that more than 700 million Chinese have access to Internet. So any law impacting the online space—cybersecurity included—will make ripples in the way China does business.

That’s why its new cybersecurity law—due to take effect in June —is particularly alarming. It is part of an ongoing government program to reinforce China’s cybersecurity, and arguably targets non-Chinese hackers. But it comes amidst continuous tensions between the U.S. and China, not just in terms of cybersecurity (each country has accused the other of hacking), but with trade, the economy, and, of course, the U.S. election, which will inevitably change how business is done between the two nations. The law appears to be counterproductive in several ways.

First, as the law sets forward, important network equipment and software will have to receive government certifications. This means that specific pieces of intellectual property or technical features will have to be divulged, which could easily be passed on to Chinese companies by the regulators behind cybersecurity. It shouldn’t be forgotten that the state in China has tremendous power and plays a critical role in economic plans. Government interference is much more prevalent than in Western nations. And under the veil of cybersecurity, regulators will have access to proprietary information that could benefit Chinese firms at the expense of foreign business.

The type of businesses most at risk will be those with special hardware and systems for network management. But it could even include data from and for ATMs. New generation ATMs have a much higher level of connectivity with mobile integration and face recognition. This makes them more vulnerable to hacking and means confidential devices and information will have to be used for protection. And under this law, that creates a big entry place for government snooping.

This law is also counterproductive because companies gathering data in so-called “critical areas” will have to store that data inside China. At this stage, the definition of “critical” is worryingly broad. Complying with this requirement will force international firms to make expensive investments to build duplicate facilities within China. This is in total contradiction with the free flow of data, expected to swell in 2020 after the introduction of 5G.

International companies will have to weigh this risk against the opportunity to do business in China. China has had a long reputation for ‘copying’ without getting insider access, and this law could only open the ease to which China’s business sector can review competition. For international companies there is no easy way forward as the choice is black or white. Either foreign companies will comply, knowing China has a way to peek into what previously was private, or they will chose to stand by principles of privacy at the risk of being excluded from the Chinese market. Despite the challenging dilemma, companies are likely to comply and give in to China’s demands. The market is too huge and far too ripe for future growth, especially when compared to more stagnant outlooks in Europe and the U.S.

In addition to creating barriers for international business in China, this kind of legislative move goes completely against innovation. It could well be considered to be part of what is called “indigenous innovation” in China. This consists in favoring Chinese firms by establishing non-tariff barriers, such as specific standards or regulations on products, in order to prevent non-Chinese firms the access to China’s large and dynamic market. And the impact would be wide-ranging, from consumer electronics to products such as equipment to produce renewable energy, including windmills and solar panels.

Innovation involves a complex process, but it requires a society to be as open as possible and to allow vibrant exchanges between people. While cybersecurity is important, this law will wrap around the free market as it grips security. Within China, entrepreneurs are, by and large, not bothered by their government’s management of the Internet, called the “great firewall”. However, this new law is a new step to tighten the government’s grip on the Internet. Furthermore, far from favoring China’s champions in this very dynamic area, such as Huawei, Lenovo, or Tencent, this law will handicap them in the long term. Maybe the hope is that these companies themselves will fight to alter the law and mitigate the negative implications for China’s Internet landscape.

U.S. companies have already began to strongly lobby against the law, as well as China’s position that the Internet must be managed by authorities. But despite the efforts of any company, Chinese or other, the cybersecurity law is just a piece in a larger ongoing political puzzle that companies will have to deal with. Trump’s stance on trade and is equally, if not more, alarming for business. In the end, agility will be key for companies to succeed in the tense political environment.

The retail markets of China are changing lightning fast with digital continuing to surge. But it is not curtains for bricks and mortar

The luxury American lingerie brand Victoria’s Secret has just opened its first store in China, a huge and impossibly opulent monument to the continuing viability of non-mobile consumerism. It is also a reminder of the growing power of China’s Middle Class, the fast-changing tastes of Chinese consumers and the need to keep mistresses happy even during times of a slowing economy.

The VS store in central Shanghai faces onto several retail locations that have closed in recent months, including a massive and once-prosperous department store, killed by the consumer shift to digital purchasing. It is pink and enticing in its subliminal message that there are certain items which people prefer to see and touch in person before they buy.

But it also doesn’t change the fact that traditional retail in China, as in much of the world, is in the midst of cataclysmic changes. The shopping mall construction spree across the country over the past 20 years has suddenly ground to a halt, and owners and operators are frantically trying to find new uses in multi-level emporia for space that used to be used to sell clothes, household wares, and the full spectrum of products which Chinese people increasingly prefer to buy with a swift click on the screen of their ever-present mobile phone.

The big winner in the market has been Alibaba with its subsidiaries TaoBao and Tmall which dominate the mobile consumer space. The iResearch Consulting Group recently reported that Alibaba’s business-to-consumer (B2C) marketplace Tmall had a massive 56.6 percent share of retail ecommerce sales in 2016. Ranking second was JD.com with a 24.7 percent share, followed by a long, long margin by electronics retailer Suning with 4.3 percent.

JD.com has taken a slightly different approach from Alibaba’s Tmall by managing its own inventory and shipping to consumers, while Tmall is simply the connecting point for sellers and buyers. But even then, the model has done well, and while clearly in second place, JD in the third quarter of 2016 reported net revenue of more than $9 billion, a year-over-year increase of 38 percent.

And how about Amazon? The biggest player by far in the Western world has struggled mightily to repeat its success in the US and European markets in China, but with little or no success and Amazon’s China operation managed to do just 0.8 percent of China’s online retail business during last year. Is it protectionist barriers, or that Amazon doesn’t understand how the Chinese consumer markets operate? It’s an open question, but the result either way is already pretty clear.

China is now the world’s largest digital retail market and is poised this year to overtake the United States to become number one in total retail sales revenues. And the gap between the two markets from there on in, as China’s middle class grows, is expected  to get even wider pretty fast.

China’s total online retail sales in 2016 is estimated to have topped $680 billion, accounting for about 20 percent of total retail sales in the country. The research firm Forrester said in a report recently that it expects China to become the first market to reach $1 trillion in online retail sales in 2020 with online’s portion of the total rising to 24 per cent by 2021.

Over the past few years China’s e-commerce market has been growing at an annual rate of more than 30 percent, a rate that is expected to slow somewhat to around 20 percent annual growth by 2020.

Despite the arrival of the Victoria’s Secret store, foreign retailers in China have had a tough time of it generally in recent years. The massive box retail outlets, led by France’s Carrefour, the US giant Walmart and Germany’s Metro set a standard starting in the 1990s, creating a massive market presence due to a lack of Chinese competition, superior expertise and the inbuilt preference for many Chinese consumers to buy foreign-branded goods where possible. But times have changed and these operators are under pressure. The trend now is one of store closures rather than store openings. The British retail brand, Marks & Spencer tried valiantly in the China market in the past decade, but has announced it will close all its China stores.

The rise of online retail is not the only problem these stores face. China is a fiercely competitive market with razor-thin margins and the Chinese approach to doing business time and again is to accept losses to gain market share and kill competition. Coming from a different environment with decision-makers far away, many of the large foreign firms simply cannot keep up. Then there are different requirements with regard to customer service and the fatal assumption that what works in London will work in Shanghai.

Boutique retail is doing well, and in one corner of the market, helping to mop up empty shop fronts are the coffee bars. with Starbucks and Costa and a bunch of other often local players are fighting for a share of the exploding interest in coffee and western snacks amongst the young, urban, educated middle class individuals who are China’s future. Sales of cheese, something western consultants and marketers 20 years ago said the Chinese consumer would never accept, are booming. And in electronics, the major Chinese brands including Huawei and Xiaomi are in the midst of a huge push to expand their retail outlet presence, to repeat the obvious success globally of the Apple Store concept.

Meanwhile, the champ of online retail sales is not signaling the end to offline either. Alibaba has recently announced that it has formed a strategic partnership with Bailian Group, the largest retailer in China by raw store numbers with 4,700 outlets including supermarkets and convenience stores in 200 cities around China. Alibaba can leverage its online positioning and the raw power of its big data resources to find a way to benefit from bricks-and-mortar retail as well. And Bailian is not Alibaba’s only move in the offline retail area – it has invested in other companies including Suning,

And beyond the major cities are tens of thousands of smaller villages and towns served by tiny general stores, but they are now behind roped into the new intermixed formula of online and offline in a way that will allow for a renaissance of many smaller stores, with new ways to connect to customers, inform them of specials, and generally create a sense of localized connectivity.

It’s a brave new world, but the shape of retail’s future in China gets clearer by the day, and the bottom line is that it’s going to do fine. Just with different channels and different players from the past.