China markets round-up: PBoC lowers benchmark lending rate, delayed January credit data beats consensus, overseas holding of Chinese bonds rise despite virus
In this round-up, the central bank announced an expected cut to the loan prime rate (LPR), the publishing of monthly credit data for January came later but better than expected and offshore investors have increased their exposure to domestic Chinese bonds since Lunar New Year.
China’s Covid-19 cases totalled 75,465 as of Thursday, the latest data from the National Health Commission showed. The death toll stood at 2,236. The number of new cases confirmed outside of Hubei province has reversed a downward trend, rising to 258 on Thursday after a 16-day drop to just 45 on Wednesday.
Japan has reported the highest number of infections — 728 — outside of mainland China, along with three deaths. Some 634 of those were passengers on Diamond Princess, a cruise ship under quarantine near Yokohama. There was a sharp rise of 52 confirmed cases in South Korea between 4pm on Thursday and 9am on Friday, taking the total number to 156 across the country.
The People’s Bank of China (PBoC) cut the LPR rate on Thursday morning. The one year and five-year LPRs were cut by 10bp and 5bp to 4.05% and 4.75% respectively.
The move was widely expected since the central bank already cut the medium-lending facility rate, the benchmark rate that the LPR is pegged to, by 10bp on Monday.
Property prices in a selection of 70 cities in China increased by 0.4% month-on-month and 6.2% year-on-year in January, according to data published by the National Bureau of Statistics (NBS) on Monday.
“Property price appreciation was faster in tier-one cities and unchanged in tier two and three cities,” Maggie Wei, a China economist at Goldman Sachs, wrote in a Monday note.
The volume of property deals remained low in top tier cities due to many sales offices being closed amid the spread of the coronavirus.
The number of investors in the domestic stock market has exceeded 160m by the end of January, data from the China Securities Depository and Clearing Corp showed.
Overseas institutions have been increasing their holdings of onshore Chinese bonds since Chinese New Year, with net purchases of about Rmb43bn ($6.13bn), according to the China Foreign Exchange Trading System.
The latest data from the Ministry of Finance showed Chinese local governments issued Rmb785bn of bonds in January. These included Rmb70bn of general purpose bonds and nearly Rmb715bn of special purpose bonds.
The China Banking and Insurance Regulatory Commission (CBIRC) published data on the country’s banking and insurance industries in 2019 on Monday.
By the end of last year, banks had total assets of Rmb290tr, an 8.1% increase year-on-year. Among them, large commercial banks recorded held Rmb116.8tr, accounting for 40.3% of the entire industry. Joint-stock commercial banks booked Rmb51.8tr.
The amount of non-performing loans (NPLs) reached an outstanding amount of Rmb2.41tr by the end of the fourth quarter, a Rmb46.3bn increase from the previous quarter. The NPL ratio for all commercial banks reached 1.86%, the same level as the last quarter.
Commercial banks, excluding foreign banks’ onshore branches, saw their core tier-one capital adequacy ratio (CAR) increase by 0.08 percentage points in the fourth quarter to 10.92%. Their tier-one CAR and overall CAR reached 11.95% and 14.64%, respectively.
Chinese insurance companies recorded Rmb20.6tr in total assets in 2019, a 12.2% increase from the beginning of the year.
Nomura revised its base case scenario of China’s economic growth in the first quarter to 3%, but added there are major risks it will fall below that level. Previously, the investment bank estimated 3.8% for first quarter growth.
“Too much damage has already been done and initial policy stimulus will not be very effective,” Rob Subbaraman, the chief economist, wrote in a Monday note.
New total social financing (TSF) increased by Rmb5.07tr in January, according to monthly credit data published by the PBoC on Thursday. The new aggregate financing data exceeded market expectations and was the largest print since the central bank started publishing the data in 2017.
The increase in the TSF data was made possible by the higher local government bonds issuance and a larger amount of bank loans at the beginning of this year, analysts noted.
Total outstanding aggregate financing increased by 10.7% year-on-year to Rmb256.36tr, maintaining the same growth rate in December. Meanwhile, the total outstanding amount of renminbi bank loans to the real economy reached Rmb155.06tr, an 12.2% year-on-year increase, slightly down from 12.5% in December.
Analysts expect the February data to be extremely weak. That will force action by the government: China set a 2020 GDP growth target of 6% in December.
“Over the past week, the top leadership in the government has given strong signals on the determination to reach the original economic targets,” Yu Song, chief China economist at Beijing Gao Hua Securities, wrote in a Thursday note. “As a result, we expect the government to take forceful loosening measures from now to generate a rebound in activity growth big enough to broadly hit the annual targets.”
The central bank delayed the publishing of the January’s credit data this year. Normally, the PBoC publishes the monthly credit data between 10th and 15th of the following month.
Russell Investments, a US-based investment manager, completed the registration of a wholly-owned private fund management subsidiary in Shanghai with the Asset Administration Affiliation of China. The registered capital of the new subsidiary is $3m.
Bank of China has received approval from the China Securities Regulatory Commission (CSRC) to issue offshore preference shares, from which it could raise up to Rmb20bn. The bank is allowed to sell the notes in batches with at least a three-month interval between two issuance. Each of the issuance will be at least Rmb50bn in size.
The provincial government of Hainan is planning to take over the conglomerate HNA Group and sell its airline assets to China’s biggest carriers – Air China, China Southern Airlines and China Eastern Airlines, Bloomberg reported, citing people familiar with the plans.
However, the airline rebutted the rumour through state-owned Securities Times hours later. A senior official of HNA told the state media outlet that the rumour is not “accurate” and he is not aware of the plan.
Bondholders have agreed to tender more than half of the three dollar bonds by Qinghai Provincial Investment Group Co. The notes will be bought by Guozhen International Trade Consulting Co. The offer expired on Monday.
The tender price was $36.75 for each $100 of the $300m 6.4% 2021 notes, the same for a $250m 7.875% paper also due in 2021, and $41.19 for its $300m 7.25% 2020 bond that matures on February 22. The tendered amount for the three bonds were $207.86m, $83.25m and $168.331m.
Investors protested against the steep haircut. On a call arranged by dealer manager China International Capital Corp, a bondholder heavily criticised the fact that the purchaser of the notes, Guozhen, is a subsidiary of Qinghai State-owned Assets Investment and Management Co and therefore a related party — instead of an independent party — of Qinghai Provincial, given both companies are owned by the local government.
Bondholders then sent a letter addressed to different regulators including the National Development and Reform Commission, demanding the cancellation or an extension of deadline of the offer. They also published the letter on Hong Kong Economic Journal on Friday last week.
Hang Seng Indexes Company earlier this week launched two China-related indexes. The Hang Seng China High Dividend Yield Index aims to reflect the overall performance of Hong Kong-listed, high-dividend-yield mainland China securities. The Hang Seng SCHK China Technology Index, on the other hand, tracks the performance of Mainland technology companies listed in Hong Kong and eligible for southbound trading under the Stock Connect.