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China policy and markets round-up: Global Covid-19 cases on the rise, PBoC leaves rate unchanged after Fed’s cut, US curbs Chinese state media headcount

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By Addison Gong, Rebecca Feng
06 Mar 2020

In this round-up, Covid-19 infections have spread across the world at an alarming speed, the Chinese central bank did not follow its US counterpart to lower interest rates, and the media row between the two countries has deepened.


The number of confirmed novel coronavirus cases outside China surpassed the 10,000 mark on Tuesday, March 3, and had reached 14,768 by Thursday, according to the World Health Organization. Officially known as Covid-19, the virus has infected a total of 95,333 people across 86 countries, territories and areas globally, causing 3,282 deaths, the latest data from the WHO showed.

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The International Monetary Fund has lowered its 2020 growth outlook for China to below 5.6%, Kristalina Georgieva, managing director, said on Wednesday at a joint press conference of the IMF and World Bank. In January, IMF predicted growth to be 6%.

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The World Bank said on Tuesday that it was making available an initial package of up to $12bn in immediate support for developing countries impacted by the global outbreak of Covid-19. The financing was drawn from across International Bank for Reconstruction and Development, International Development Association and International Finance Corp.

“This financing is designed to help member countries take effective action to respond to and, where possible, lessen the tragic impacts posed by the [coronavirus],” the World Bank said in a press release.

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The Chinese government will subsidise domestic and foreign airlines for their China inbound and outbound international flights based on flight mileage and passenger capacity, the Civil Aviation Administration of China announced on Wednesday. The subsidies will be available between January 23 and June 30.

The measure is used to encourage airlines not to cancel their international flights and resume those already cancelled international flights.

Air China, China Eastern Airlines and China Southern Airlines will directly receive the subsidy from the Ministry of Finance. Other domestic regional airlines will receive their funding from local MoF branches. Foreign airlines will receive their subsidies from the Civil Aviation Administration of China.

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The Hong Kong Monetary Authority announced a 50bp downward adjustment in the base rate to 1.5% on Wednesday. The announcement came after the US Federal Reserve’s surprise move overnight to announce an emergency rate cut of 50bp to the Fed Funds Rate, the first emergency cut since the 2008 financial crisis.

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China’s central bank, however, did not follow suit. The People’s Bank of China did not conduct any open markets operations – the main tool for it to control the money supply and adjust interest rates – on Wednesday morning.

“The market is now expecting central banks across the world to further ease monetary policy, and more cuts from the PBoC are probably on the cards as the Chinese economy still suffers greatly from the lockdown,” Plenum, a political consulting firm, wrote in a Wednesday research note. “But any move from the Chinese central bank is unlikely to match the Fed’s and this morning the PBoC did nothing.”

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Policymakers at the PBoC, MoF and the China Banking and Insurance Regulatory Commission met on Tuesday to discuss further measures to boost the domestic economy. Following the meeting, the PBoC announced that it would not use the financial policies governing the property market as a short term stimulus to the Chinese economy. 

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Caixin’s services PMI dropped to a record low of 26.5 in February from 51.8 in January.

New businesses sub-index dropped to 22.7, new export orders sub-index to 30.1 and the employment sub-index to 48.5. All three sub-indices hit record lows since the Caixin services PMI was first established in 2005, Maggie Wei, a China economist at Goldman Sachs, wrote in a Wednesday note.

“We expect service activity to partially recover in March, but in absolute level, it might take longer for services activities to normalize than manufacturing activities,” Wei added.

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Foreign investors held Rmb1.95tr of Chinese onshore bonds by the end of February, a 29.03% year-on-year increase, according to a monthly report from China Central Depository and Clearing. This is the 15th consecutive month for foreign investors to increase their holding of renminbi bonds.

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Chinese local governments issued Rmb438bn of bonds in February, according an update from MoF. The notes had an average tenor of 17.5 years and will pay an interest rate of 3.34% on average.

Outstanding local government debt by the end of last month stood at Rmb22.53tr, including over Rmb22.34tr in bonds, the MoF said. The remainder are loans and other borrowings taken out before 2015, when local governments were given the greenlight to directly sell bonds. Before that, they raised money through local government financing vehicles.

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The China Securities Regulatory Commission (CSRC) has cut red tape for securities companies hoping to establish domestic branches, appoint executives, set up overseas branches and change their majority shareholders, the regulator announced on Wednesday.

All these activities needed to be pre-approved by the CRSC before. Under the new rules, foreign securities houses will only need to file relevant information to their local CSRC branches five days after they make the decisions.

In the past, there have been cases where foreign-owned securities houses appointed executives – directors, members of the board of supervisors and senior management – but failed to receive the approvals from the CSRC due to these executives’ academic and cultural backgrounds, local media Caixin reported.

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Four companies became the first batch of corporate bond issuers to successfully register their plans with the Shanghai and Shenzhen stock exchanges under the new Securities Law, which came into effect on March 1. Under the updated regulations, bonds issued in the exchange market are now based on a registration system, instead of the previously approval system.

The companies are Eternal Asia Supply Chain, Overseas Chinese Town Enterprises, Blue Sail Medical, and China Coal Energy, all of which were successfully registered on March 2.

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HNA Group Co announced last week that a Hainan government-led working group was put together to help solve its financial problems.

Moody’s said in a Friday note that the latest development will help enhance the asset recovery for creditors, but warned that the inclusion of the Hainan government in the working group “does not necessarily imply unconditional government support of HNA Group's debt”.

Given HNA’s complicated corporate structure, it is likely that creditors will receive differing treatment in the group's debt restructuring, with some potentially incurring credit losses, according to Moody’s analysts.

In a Wednesday note, Fitch said the unusual scale of HNA and its Rmb500bn debt — as of June 2019 — will complicate the task of its restructuring, adding that it remains to be seen what kind of impact the government's involvement will have on HNA’s negotiations with creditors.

“HNA Group is a private firm and we expect creditors to face losses of varying scale during the restructuring,” analysts wrote. “Nevertheless, the case may indicate the government's approach to issues associated with debt restructurings in China, including those of entities with implicit or explicit state support.”

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In response to China’s move to expel three Beijing-based Wall Street Journal reporters last month, the Trump administration announced a reduction in headcount of employees at four Chinese media outlets in the US.

Starting from March 13, the number of Chinese nationals allowed to work at the US offices of Xinhua News Agency, China Global Television Network (CGTN), China Radio International (CRI) and China Daily Distribution Corp will be reduced to — and capped at — a combined 100 people, according to the US Department of State.

The four entities, together with Hai Tian Development — the distributor of the People’s Daily — were referred to as “PRC propaganda outlets” by the US, all of which were designated as “foreign missions” of the Chinese government on February 18 under the Foreign Missions Act.

While the State Department officials said the headcount cap applies to all five entities, which currently collectively employ about 160 Chinese citizens, they later said there was “no action taken against Hai Tian at this time” in the Q&A session with reporters. Of the other four, CRI was assigned two quotas, China Daily nine, CGTN 30, and Xinhua 59.

“Our whole goal here is to signal to Beijing how seriously we take a lack of reciprocity and the intimidation and harassment of foreign journalists in China,” one of the officials told reporters. 


By Addison Gong, Rebecca Feng
06 Mar 2020