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The week in review: China may lose A+ rating with S&P, HK warns of ‘tsunami-like’ economic impact, CSRC publishes new stock issuance rules

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By Addison Gong, Rebecca Feng
17 Feb 2020

In this round-up, China could face a downgrade to its sovereign rating, Hong Kong’s finance secretary expects a “tsunami-like” impact on the economy from the Covid-19 outbreak, and the Chinese securities regulator relaxed rules on stock issuance.

The latest data from the National Health Commission showed that confirmed Covid-19 cases in China totalled 70,548 by Sunday. Some 10,844 people have been discharged from hospitals.

The death toll across the country reached 1,770, with fatalities outside the Mainland reported in Hong Kong, Taiwan, France, Japan and the Philippines.

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S&P Global Ratings said it might downgrade China’s sovereign rating if the government uses excessive stimulus to boost domestic spending during the ongoing Covid-19, or the novel coronavirus, outbreak, Reuters reported last Friday. China is rated A+ by S&P.

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Some countries overreacted on the action they took amid the coronavirus spread that triggered “unnecessary panic”, China’s foreign minister Wang Yi said in an interview with Reuters in Berlin.

The US travel curbs on visitors to and from China “objectively” will “bring some difficulties” to the implementation of the phase one US-China trade deal agreed in January, he reportedly said.

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China’s ministry of finance assigned the second round of subsidies related to Covid-19 last Friday worth Rmb8bn ($1.15bn), of which Rmb3.5bn is for the Hubei province. According to the MoF, the subsidies from finance departments at both the central and local government levels had exceeded Rmb90bn by Friday.

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The Hong Kong government will set up a HK$25bn ($3.22bn) fund to help fight Covid-19, to be approved by the legislative council, chief executive Carrie Lam said in a Friday press conference.

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Finance secretary Paul Chan warned that Hong Kong is facing a “tsunami-like” impact on its economy from the Covid-19 outbreak which could be even worse than the 2003 Sars epidemic, he wrote in his latest blog post on Sunday.

The unemployment rate in the special administrative region (SAR) could worsen at a fast pace, and the government deficit could persist “for a while”, Chan said. He expects the budget deficit for the new 2020-2021 financial year could be the highest ever.

Hong Kong’s fiscal year ends on March 31. Chan is set to deliver the 2020-2021 budget on February 26.

The worst deficit recorded by the SAR government, since its establishment in 1997, was HK$63.3bn in 2001-2002.

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The Shanghai Stock Exchange said on Sunday that it has arranged new dates for over 70 listed companies to publish their 2019 annual results and 2020 first quarter results amid the coronavirus epidemic.

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Chinese insurers are prohibited from selling products that exclusively cover Covid-19, to protect customers because of the lack of pricing clarity, the vice chairman of the China Banking and Insurance Regulatory Commission (CBIRC), Liang Tao, said in a Saturday press conference.

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China reported a current account surplus of Rmb282bn for the fourth quarter of 2019, or $40.1bn in dollar terms, preliminary data from the State Administration of Foreign Exchange (Safe) showed on Friday. This is a drop compared to the $49.2bn seen in the previous quarter.

For full year 2019, China’s current account surplus stood at $177.5bn. Net inflow of foreign direct investment totalled Rmb406.5bn, or $59.1bn in dollar terms, according to Safe.

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China's macro leverage ratio in 2019 reached 245.5%, which was 6.1 percentage point higher than the year before, according to a Saturday report by the National Institution for Finance and Development (NIFD).

This is in contrast to 2017, which saw a milder 2.4 percentage point yearly increase in macro leverage ratio, the NIFD added. The ratio declined by 1.9 percentage point year-on-year in 2018.

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The China Securities Regulatory Commission (CSRC) published new rules regarding share issuance for companies listed on the main boards and the ChiNext board — a Nasdaq-styled board on the Shenzhen Stock Exchange for fast-growing and high tech firms — on Friday evening.

ChiNext companies no longer need to have a debt to asset ratio higher than 45% to sell shares to the public. If ChiNext companies want to sell shares through private placements, they no longer need to have been profitable for two consecutive years.

The CSRC also encouraged issuers to introduce strategic investors by shortening the lock-up period. Additionally, the issuance approval given by the CSRC will be valid for 12 months, double the previous six month validity.

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The CBIRC, CSRC, the People’s Bank of China, the municipal government of Shanghai and the State Administration of Foreign Exchange jointly rolled out 30 measures to promote Shanghai as an international financial centre and support the integration of the Yangtze River Delta Economic Zone. The zone encompasses Anhui province, Jiangsu province, Shanghai municipality and Zhejiang province.

Alongside a host of measures, the regulators vowed to push the renminbi internationalisation process and improve green finance policies.

Additionally, the regulators said they would encourage commercial banks to set up their wealth management arms in Shanghai and invest in infrastructure projects and private companies’ shares. It will also encourage insurers to invest in the technology and innovation sector.

The regulators will also start allowing foreign institutions to collaborate with large domestic commercial banks to set up joint venture wealth management firms in Shanghai on a trial basis.

Shanghai will be the first to eliminate the 51% foreign ownership ceiling on life insurers. Foreign institutions are also encouraged to set up majority held securities houses, fund management firms and pension funds in Shanghai.

The regulators plan to bring more foreign investors into the domestic bond market and further develop the renminbi FX derivatives market. Lastly, they will work to integrate Shanghai’s financial legal system with the international one and explore the possibility of giving foreign institutions the option to sign master agreements with either ISDA, the National Association of Financial Market Institutional Investors or the Securities Association of China.

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The coronavirus has hit China’s automobile industry hard, according to data from the China Association of Automobile Manufacturers.

In January, the country’s auto sales volume declined by 18% year-on-year. By mid-last week, only 59 out of 183 car manufacturers resumed work.

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China Evergrande Group, one of the country’s largest real estate developers, secured the sale of over 47,540 commercial properties worth Rmb58bn through its new online property sale network within three days, the company said in a web press conference on Sunday.

The data is based on a reservation system on Evergrande’s online platform — which was launched on February 13 and supports virtual reality apartment viewing — where a client can put down a deposit of Rmb5,000 to reserve a property. 

The China Real Estate Association earlier this month urged developers to move their property sales online to help contain the spread of the coronavirus.

Evergrande has also announced a 25% discount for all residential and commercial properties sold for the rest of the month, starting Monday, followed by a 23% discount in March.

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For the first time, e-commerce giant Alibaba Group Holding could see a year-on-year revenue decline for its core commerce segment, according to an earnings call held last Thursday, S&P said in a Friday note.

During the call, Alibaba discussed a potential revenue drop for the last quarter of the fiscal year ending in March. The company attributed the reason for the fall to disruptions to the supply and delivery of physical goods and the company’s initiatives to support its online merchants.

“We believe the hit from supply and logistics disruptions will be acute but temporary,” S&P wrote in the note. The rating agency expects the cost of Alibaba’s initiatives to support online merchants to be significant in the near term but it could strengthen Alibaba’s position in e-commerce in the longer term.

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On Sunday, Chinese Communist Party publication Qiushi published a speech delivered by president Xi Jinping on February 3. In the read-out, Xi said that he had given instructions on preventing the coronavirus on January 7.

However, it was not until January 21 that officials declared that the virus could spread among humans. The government closed down the city of Wuhan on January 23.


By Addison Gong, Rebecca Feng
17 Feb 2020