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China market round-up: IMF boosts China’s growth forecast, banking sector assets climb, regulator toughens stands on dual diligence in corporate bond underwriting

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By Addison Gong, Rebecca Feng
24 Jan 2020

In this round-up, the International Monetary Fund revised its forecast on Chinese economic growth upwards to 6% in 2020, Chinese banking institutions recorded more assets but also more liabilities last year and the Securities Association of China updated its guidelines on due diligence for corporate bond underwriters.

The International Monetary Fund (IMF) is projecting a 6% growth for China in 2020, it said in the January World Economic Outlook published this week. That was a 0.2 percentage point upgrade compared to its forecast in October 2019, thanks to the easing of the US-China trade war.

The IMF expects global growth to rise to 3.3% in 2020 — which is 0.1 percentage point lower than its previous forecast — from an estimated 2.9% in 2019. But its 2021 growth projection was reduced to 3.4% from 3.6%.

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China remained the second largest recipient of foreign direct investment (FDI) in 2019, with flows of $140bn, following the US at $251bn, according to a report by the United Nations Conference on Trade and Development published on Monday US time. 

Data from China’s Ministry of Commerce showed that the FDI the country attracted in 2019 grew 5.8% year-on-year to Rmb941.52bn, or by 2.4% to $138.14bn in dollar terms. 

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Moody’s lowered its Aa2 rating on the government of Hong Kong to Aa3 on Monday evening, four months after changing the city’s credit outlook to negative from stable.

“The absence of tangible plans to address either the political or economic and social concerns of the Hong Kong population that have come to the fore in the past nine months may reflect weaker inherent institutional capacity than Moody's had previously assessed,” it said in the note. “It may also point to more significant constraints on the autonomy of the Special Administrative Region's (SAR) institutions than previously thought.”

Hong Kong said it is “deeply disappointed” by the downgrade, and strongly disagrees with the agency’s assessment of the current situation, according to a statement on the government website in the early hours of Tuesday local time.

The agency also downgraded by one notch the ratings of Hong Kong Mortgage Corp, MTR Corp, Kowloon-Canton Railway Corp, Hongkong and Shanghai Banking Corp and Hang Seng Bank. The firms were rated on par with the government at Aa2.

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As the unrest in Hong Kong continues, the city’s unemployment rate rose to 3.3% between October and December 2019, from 3.2% in the September to November period, according to provisional figures published by the government on Monday.

Unemployment remains high in sectors relating to consumption and tourism, namely retail, accommodation and food services. At 5.2% from the sectors combined, the unemployment rate hit a three-year high, according to the government.

The lowest unemployment recorded in more than two decades came between February and April last year, when it hit 2.8%.

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The People’s Bank of China (PBoC) injected Rmb30bn of liquidity into the interbank market via 14-day reverse repo at an interest rate of 2.65% on Wednesday, the seventh consecutive day it has done so, following Rmb100bn on Tuesday, Rmb250bn on Monday and Rmb200bn last Sunday.

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On Thursday, the central bank extended Rmb240.5bn through its targeted medium-term lending facility (TMLF), the same day that Rmb257.5bn worth of loans became due. The PBoC kept the rate on the one-year TMLF loans unchanged at 3.15%.

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Total assets in the Chinese banking sector reached Rmb282.5tr in 2019, after an 8.1% increase from the previous year, according to data published by the China Banking and Insurance Regulatory Commission (CBIRC) on Wednesday. Their liabilities grew at the same time, by 7.6% to Rmb258.2tr.

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The latest data from the PBoC suggest that the renminbi loan balance of Chinese financial institutions by end of 2019 stood at Rmb153.1tr, which was 12.3% higher than a year ago.

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The National Association of Financial Market Institutional Investors and the Securities Association of China (SAC) have jointly published their 2019 evaluation of Chinese credit ratings agencies. Out of nine agencies, CSCI Pengyuan Credit Rating Co was ranked number one in the exchange markets and China Chengxin International Credit Rating Co in the interbank market. 

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SAC has also published its revised guidelines for due diligence in corporate bond underwriting. The updated requirements include better due diligence on the issuer’s key subsidiaries. It also asked the underwriters to better look into the companies’ debt servicing abilities.

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BOCI Securities is one step closer to completing its planned Shanghai Stock Exchanged IPO, having received an official approval document from the China Securities Regulatory Commission (CSRC) on Thursday, according to an announcement made by the regulator.

The IPO plan, which was made public in December 2018, was greenlighted by the CSRC in November last year. A successful debut of BOCI will take the number of A-share listed Chinese securities houses to 44.

BOCI plans to issue 833m shares from the IPO, with Guotai Junan Securities as the IPO sponsor.

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Inner Mongolia-based Baoshang Bank will be taken over by local Chinese governments and a group of state-owned firms, Reuters reported on Tuesday, citing a central bank official with direct knowledge of the matter.

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XTX Markets, a London-based electronic trading firm and a large spot foreign exchange (FX) market maker globally, became the first offshore non-bank market maker in China’s interbank foreign currency pair market on Tuesday. Bank of China will be providing XTX with prime brokerage services, making it the first prime broker in the interbank FX market.

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Singapore-based Dymon Asia Capital has become the first overseas investor to have completed centralized clearing of RMB interest rate swaps, according to the Shanghai Clearing House on Thursday.

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Shanghai Jifu Information Technology Service Co has teamed up with the likes of including JIC Technology Investment and Chinastone Capital Management to bid for digital wholesale banking licence in Singapore, according to the Business Times of Singapore. Also eyeing a licence is Chinese property developer Greenland group, which partnered up with MinIPO, among others.

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Tencent’s founder and chief executive officer Ma Huateng sold $260m of Tencent’s shares last week, local media Caixin reported, citing a filing with the Hong Kong Stock Exchange (HKEX). After the sale, Ma’s holdings at Tencent dropped to 8.53% from 8.58%.

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CSC Financial, or China Securities, a Chinese investment bank and brokerage established by Citic Securities, has changed its largest shareholder from Beijing State-owned Capital Operation and Management Center, a wealth fund owned by Beijing government, to Beijing Financial Holdings Group. The latter is also a state-owned investment firm, according to a stock exchange filing on Monday evening.

CSC will transfer 35.11% of its total shares to the new shareholder. After the transfer, Beijing Financial Holdings Group will be the largest shareholder of CSC.

By Addison Gong, Rebecca Feng
24 Jan 2020