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The week in review: AIIB to extend loans to China, MoF provides more financial relief, Huishang Bank announces Baoshang takeover

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By Addison Gong, Rebecca Feng
10 Feb 2020

In this round-up, Beijing-headquartered Asian Infrastructure Investment Bank is ready to provide loans to help China combat the deadly outbreak of the novel coronavirus, the Ministry of Finance has rolled out more easing measures amid the epidemic, and Huishang Bank has finally confirmed it is taking over Baoshang Bank.

The number of new people confirmed to have the novel coronavirus in mainland China outside of Hubei province — the centre of the outbreak — has dropped for seven consecutive days, data from the National Health Commission showed. As of February 9, new cases stood at 444, versus 890 on February 3.

The total confirmed cases have shot up to 35,982 across the Mainland, with 3,281 people discharged from hospitals and 908 deaths recorded.

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The Asian Infrastructure Investment Bank (AIIB) said it “stands ready” to support China through public health infrastructure loans, subject to approval of its board of directors. Jin Liqun, president of Beijing-headquartered AIIB, said in a Monday press release that the supranational will also work with the Chinese government to “identify effective public health infrastructure investments that will prevent the rapid spread of future outbreaks”.

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Large Chinese technology companies including Alibaba Group Holding, Baidu, Tencent Holdings and Meituan Dianping are extending their work-from-home arrangements, as confirmed coronavirus cases in China continue to rise.

Baidu and Meituan told their employees not to return to the office until February 17, with Tencent employees now set to return on February 24 instead of the originally planned 17th. Alibaba also pushed back the scheduled reopening of its offices on February 10 to a later date, according to reports from onshore media outlets.

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US secretary of state Mike Pompeo wrote on Twitter on Saturday morning US time that an additional $100m of existing funds will be used to support China in combating the coronavirus outbreak.

“This commitment — along with the hundreds of millions generously donated by the American private sector — demonstrates strong [US] leadership in response to the outbreak,” Pompeo said. “Together we can have a profound impact.”

The announcement came after a phone call between US president Donald Trump and his Chinese counterpart Xi Jinping on Friday morning Beijing time.

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Despite feeling the pressure of the rapid spread of the new disease in the country, China said it has the confidence to meet all its fiscal targets in 2020, state media Xinhua reported last Friday, citing Yu Weiping, vice finance minister.

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China’s foreign currency reserves reached $3.1tr in January, a $7.6bn increase from the end of December, according to data from the State Administration of Foreign Exchange.

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The People’s Bank of China (PBoC) injected another Rmb900bn through reverse repo transactions into the interbank market on Monday morning. The reverse repo has a Rmb700bn 2.40% seven-day portion and a Rmb200bn 14-day 2.55% tranche.

Since the end of the Chinese New Year holiday, the central bank has released Rmb2.6tr into the market.

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China’s Ministry of Finance (MoF), Ministry of Industry and Information Technology, National Audit Office, National Development and Reform Commission (NDRC) and the PBoC jointly announced further measures to help domestic companies tackle the coronavirus outbreak and ensure they have enough funding support.

Firstly, the PBoC will offer Rmb300bn of special purpose re-lending facilities to policy banks, national level commercial banks and selected local banks, and encourage them to extend credit to companies fighting the coronavirus.

The banks receiving the re-lending facilities include the three policy banks — Agricultural Development Bank of China, China Development Bank and the Export-Import Bank of China — and the six largest state-owned commercial banks. These are Agricultural Bank of China, Bank of China, Bank of Communications, China Construction Bank, Industrial and Commercial Bank of China and Postal Savings Bank of China.

The central government has also told the local governments of 10 regions in the country to choose no more than three local banks to receive the re-lending facilities.

The first batch of special purpose re-lending funding will be given out on Monday.

The money will be given to banks at an interest rate of 250bp below the previous month’s one year loan prime rate (LPR). When financial institutions extend loans to corporations using the re-lending funds, they can charge no more than 100bp below the most recent one year LPR. One year LPR stands at 4.15%. The next LPR adjustment is set to take place on February 20.

Finally, the central government will share 50% of the interest burden of borrowers for a year, further reducing their funding costs. The MoF will ensure that the actual funding cost for companies is lower than 1.6%, according to a separate statement

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The MoF introduced more preferential tax policies for corporations fighting against the ongoing epidemic.

Manufacturers of medical supplies can deduct the cost of purchasing new equipment for the purpose of expanding production from their annual taxable income. Further, for those enterprises influenced heavily by the outbreak, their 2020 tax losses can be carried forward for future tax relief for up to eight years, three years more than existing five-year limit.

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The NDRC published a notice on Saturday regarding corporate bonds during the coronavirus epidemic.

It will support companies using the bond proceeds for medical services and infrastructure construction relating to the prevention and control of the outbreak, as well as scientific research projects and the manufacture of medical products. The NDRC said it will also allow the funds to be used to repay or replace earlier loans relating to the outbreak.  

The regulator is also encouraging the issuance of credit enhancement collective bonds from small and micro-sized enterprises, allowing up to 40% of the proceeds to be used to replenish working capital. Enterprises that were heavily impacted by the epidemic but have good quality assets will be able to use the proceeds to repay principal and interest payment due this year, the NDRC added.

In addition, companies with approvals to issue their bonds between February and June will get an automatic extension to June 30.

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East Money Choice, a data provider in China, showed that the total turnover in the A-share market during the first trading week after Chinese New Year — between February 3 and 7 — was Rmb4.14tr. The onshore equities market tanked on the first day of trading, but bounced back later.

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Anhui-based Huishang Bank has confirmed the takeover of beleaguered Baoshang Bank, which has been under the control of the PBoC and the Insurance Regulatory Commission since last May.

Huishang will acquire all the assets from Baoshang’s Beijing, Chengdu, Ningbo and Shenzhen branches and assets outside the Inner Mongolia Autonomous Region — where Baoshang is based — in the net value of Rmb91.2bn (book value Rmb140.9bn), together with the four branches’ businesses worth Rmb15.3bn, according to a Hong Kong Stock Exchange filing last week.

It also plans to make a one-off capital contribution of no more than Rmb3.6bn in a new provincial-level financial institution in Inner Mongolia. The newly-established bank, whose name is yet to be approved by Chinese regulators, will have a proposed registered capital of Rmb20bn. Fifteen percent of its equity interest will be held by Huishang, with 50.16% ultimately held by the Inner Mongolia provincial government. CCB Financial Asset Investment Co, a subsidiary of China Construction Bank Corp, will hold about 5%.

The announcement gave more clarity to Huishang’s January filing outlining its intention to invest in a new provincial-level commercial bank and acquire part of the assets and liabilities of an undisclosed banking institution.

Huishang also plans to issue up to Rmb20bn of tier two capital bonds, to “ensure that its capital adequacy level is significantly higher than the regulatory level”, it said in its filing.

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Hu Hao, former vice governor and an executive director of ICBC, has resigned, according to an exchange filing last Friday. Hu first joined ICBC in 1984.

By Addison Gong, Rebecca Feng
10 Feb 2020