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The week in renminbi: trade negotiation to resume next week, MUFG and Mizuho set to underwrite onshore, China’s IP growth slows in August

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By Rebecca Feng
30 Sep 2019

In this round-up, the US and China set a date for the next round of negotiation in Washington DC, MUFG and Mizuho receive approval to underwrite onshore Chinese bonds and China’s industrial profits growth edges down in August.

Trade negotiations between the US and China are set to resume in Washington DC after the Chinese Golden Week holiday, which ends on October 7. Chinese vice-premier Liu He will lead the delegation, according to a Sunday report by state-owned Xinhua news.

CNBC, the US television channel, said the negotiations would take place on October 10 and 11, citing people familiar with the matter.

The news comes as US president Donald Trump continues putting pressure on China. Bloomberg reported last Friday that Trump was considering delisting Chinese companies from US stock exchanges and placing caps on the number of Mainland companies included in stock indexes managed by US firms.

However, the US Treasury denied this, announcing on Saturday that the administration was not thinking about “blocking Chinese companies from listing shares on US stock exchanges at this time”. 

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The National Association of Financial Market Institutional Investors (Nafmii), regulator of the Chinese interbank bond market, has given the green light to MUFG and Mizuho Bank to underwrite bonds issued by non-financial companies onshore, according to a Friday notice.

They join JP Morgan and Citigroup as holders of the underwriting licence. They will be able to join the syndicate teams for domestic deals.

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China’s industrial profits contracted in August. Year-on-year profit growth of industrial companies declined from 2.6% in July to a negative 2.0% in August, according to data published by the National Bureau of Statistics last Friday.

Most sectors suffered slower profit growth, although profits in the car manufacturing sector rebounded by 34.7% year-on-year in August, compared with a year-on-year contraction of 7.9% in July.

The rebound was largely due to a low base in the same period last year, Maggie Wei, a China economist at Goldman Sachs, wrote in a Friday note.

Profits at state-owned enterprises shrank by 8.6% and those at foreign enterprises by 5.8% for the first eight months, from 12.6% and 1.9% growth in 2018. Chinese private enterprises’ profit growth dipped from 11.9% in 2018 to 6.5% in 2019 in the same period.

“Going forward, downside pressure to activity growth remains, as higher tariffs [have] started to drag on export and overall activity growth,” Wei added. “This would continue to weigh on industrial profit growth. […] We see risks tilted towards smaller-than-expected policy easing and slower-than-expected activity growth in the rest of 2019.”

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Hong Kong SAR has had another violent weekend. Protesters marched on the city’s main streets without official permission on Sunday, setting a metro station entrance on fire. Police used a water cannon, rubber bullets and tear gas to control the crowds. 

Protesters are set to take over the streets again on October 1, the 70th anniversary of the founding of the People’s Republic of China.

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September’s Purchasing Managers’ Index (PMI) reached 49.8%, a 0.3 percentage point increase from August, the National Bureau of Statistics announced on Monday morning.

Large enterprises' PMI has increased by 0.4 percentage points to 50.8%. Medium-sized and small enterprises' PMIs have rebounded to 48.6% and 48.8%, respectively, from 48.2% and 48.6% in August. 

The new orders sub-index has rebounded by 0.8 percentage points to 50.5% in September, the first increase for five months.

The non-manufacturing PMI has edged down to 53.7% from last month’s 53.8%.

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The Financial Stability and Development Committee under the State Council held its eighth meeting on Friday.

It discussed matters including establishing more ways for commercial banks, especially medium and small-sized ones, to replenish capital and encouraging offshore financial institutions to enter the onshore market.

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Bank of Jinzhou, a troubled bank previously bailed out by state-owned firms, announced on Friday that it was planning to issue domestic shares through a private placement. 

According to the plan, the bank will issue no more than 6.2bn new domestic shares, representing roughly 79.7% of the total existing issued share capital before the new issuance and 59.3% of enlarged shares after the issuance.

The targeted investors will be domestic investors only. Proceeds will be used to “replenish the core tier one capital” of the bank. 

In separate news, Industrial and Commercial Bank of China issued Rmb70bn ($9.8bn) of preferred shares through a private placement last week, according to a Friday statement from the bank.
By Rebecca Feng
30 Sep 2019