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China policy round-up: Trump signs HK bill, MoF allocates local govt bond quotas early, State Council boosts fixed income investment

Hong Kong island adobe stock 230x150
By Rebecca Feng
29 Nov 2019

In this round-up, US president Donald Trump signed the Hong Kong Human Rights Act into law despite trade tension with China, the Ministry of Finance allocated Rmb1tr ($142.2bn) of special project bond quotas to local governments and the Chinese State Council has set its sights on financing infrastructure projects.

The Chinese MoF allocated the special project bond quotas for 2020 to local provinces on Wednesday, much ahead of the usual March schedule. That Rmb1tr that was divvied up is roughly 47% of the total Rmb2.15tr quota for 2019.

This is not the first time the MoF has put in place the annual bond quotas early. In 2018, the regulator also allocated the quota in January instead of March, allowing local governments to issue special project bonds in the first quarter of 2019 to support the economy.

Bond supply in the primary market will likely be strong next year, Becky Liu, head of China macro strategy at Standard Chartered, wrote in a Thursday note. Specifically, gross issuance of Chinese government bonds and local government bonds will likely rise above Rmb10tr for the first time.

“We expect state-owned enterprises and local government financing vehicles to continue to dominate credit supply, while net issuance by privately owned enterprises is likely to return to positive territory in 2020 from a negative Rmb103bn so far this year,” Liu added.


China and the US are “very close” to a phase one trade deal, state media Global Times reported on Monday, citing experts close to the government.

Following the positive headlines regarding trade talk progress, Liu He, Chinese vice premier, US trade representative Robert Lighthizer and treasury secretary Steven Mnuchin held a phone call on Tuesday morning to discuss their core concerns, state media Xinhua reported. The two sides agreed to keep in touch on the remaining issues. Yi Gang, the governor of the People’s Bank of China, was also on the call.

Trump indicated on Tuesday that the phase one deal was close to completion.

“We’re in the final throes of a very important deal,” he told reporters at the White House. “It’s going very well.”

However, things took a turn on Wednesday. Trump signed the Hong Kong Human Rights Act into law. The act requires the US government to impose sanctions against Chinese and Hong Kong officials responsible for human rights abuses in Hong Kong. Further, it demands the US Department of State to conduct an annual review to determine whether changes in the SAR’s political status can affect its special trade status with the US.

The bill was passed almost unanimously by both houses of Congress last week.

China reacted strongly to the development. The foreign ministry issued a strongly worded statement in Mandarin, criticising the US for meddling in China’s internal affairs, calling the decision a “naked act of hegemonism”.

“Hong Kong’s affairs are China’s internal affairs,” the statement read. “No other government or entity has the right to interfere. This bill will only help the Chinese people — Hong Kong people included — further realise the perilous intention and hegemonic act of the US. It will only help the Chinese people be more unified.”

Standard Chartered said in a Friday note that the new bill does not necessarily mean that Hong Kong will lose its special trading status.

“It would punish the city the US is trying to support and a market where many US firms and investors have an extensive presence,” according to the note. “The more likely scenario is that the annual review will become a recurring source of tensions between the US and China.”


The Chinese State Council released some policy guidelines to boost fixed asset investment on Wednesday.

The rules hope to unlock debt financing for infrastructure projects by reducing the minimum equity ratio that is required for a project. The equity ratio of ports and shipping projects will be reduced from 25% to 20%. For roads, railways, urban construction, logistics, environmental protection and social welfare projects, the ratio will be reduced by around five percentage points.

“In the old days, [the regulators] would’ve flooded the banks with cash to fuel an infrastructure binge,” Trivium, a consulting firm, wrote in a Thursday note. “The new approach involves tinkering with equity ratios and providing other marginal incentives to spend. The new approach is less effective in the short term, but more effective in the long term.”

By Rebecca Feng
29 Nov 2019