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China market round-up: March Caixin manufacturing PMI back to expansion, Luckin Coffee admits to fake sales

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By Addison Gong, Rebecca Feng
03 Apr 2020

In this round-up, the Caixin manufacturing Purchasing Managers’ Index (PMI) rebounded to above 50 following a V-shaped recovery in official PMIs, and US-listed Luckin Coffee saw its share price plunge by 75% after admitting to fabricated sales.

Caixin manufacturing Purchasing Managers’ Index (PMI) rebounded to 50.1 in March from 40.3 the previous month, according to data from Wednesday.

Released earlier in the week, China’s official manufacturing, non-manufacturing and services PMIs were also back to expansionary readings from the historic lows in February. The official PMIs focus more on large state-owned enterprises, and Caixin PMIs on medium and small-sized firms.

The Caixin general services PMI, however, stayed in contraction and came in at 43, Friday data showed. The reading still beat consensus forecast of 39, rebounding from February’s 26.5.

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Luckin Coffee, a domestic rival to Starbucks in China, admitted to recording fabricated transactions of roughly Rmb2.2bn from the second quarter to the fourth quarter of 2019. The company went public on the Nasdaq last May, raising $645m.

In a statement published on Thursday Beijing time, Luckin blamed a senior executive and several employees for fabricating the sales.

The news triggered a 75% drop in the company’s share price on Thursday New York time, taking away more than $5bn from the company’s market value. 

Luckin reported net revenue of Rmb2.93bn for the nine months ending September 2019. The company said in the Thursday statement that its 2019 figures could no longer be relied upon.

The company came into the spotlight on January 31 when Muddy Waters Research, a US short seller, tweetedan unattributed report ─ apparently not written by Muddy Waters ─ about Luckin’s inflated sales. On February 3, Luckin called the report “flawed” and the evidence cited in it “unsubstantiated”.

Luckin Coffee has expanded rapidly since its founding in 2017. By December last year, it has opened 4,507 stores across China, according to its website, overtaking Starbucks, who had 4,292 stores in China by December.

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Total trading volume through Bond Connect amounted to Rmb478.2bn in March, a 67.7% increase from February’s Rmb285.2bn, according to a monthly report published on Tuesday.

The number of approved international investors also rose to 1,818 in March, adding 89 new investors from February.

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The State Administration of Foreign Exchange said that by March 31, it has granted close to $113.2bn of investment quotas for Qualified Foreign Institutional Investors (QFIIs), and Rmb712.4bn for the renminbi-denominated RQFIIs. Quotas approved for Qualified Domestic Institutional Investors (QDIIs) were nearly $104bn.

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The National Association of Financial Market Institutional Investors (Nafmii), regulator of China’s interbank market, plans to relax rules for short-term financing notes, Reuters reported, citing three anonymous sources.

It plans to allow more issuers to raise debt with maturities of under 12 months by lifting an existing restriction that requires companies’ outstanding liabilities to be less than 40% of their net assets, according to the wire.

It added that Nafmii will also increase the number of companies it considers to be in the top tier from the current 110 to about 300, allowing them to enjoy a more streamlined bond sale process.

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Initial public offerings and secondary listings on the Shanghai Stock Exchange and Shenzhen Stock Exchange surpassed $11bn in the first quarter, Financial Timesreported. The amount surpassed the combined fund raised on the New York Stock Exchange and Nasdaq, which totalled $10.5bn.

IPOs on the new Shanghai Star market brought companies Rmb26.2bn so far this year, Wind data shows.

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Bank of Jinzhou on Wednesday halted the trading of common shares and its offshore preference shares, both listed on the Stock Exchange of Hong Kong. It said in a filing that the trading suspension was in relation to a significant asset reorganisation of the bank, including a private placement of domestic shares.

The beleaguered Chinese lender released its 2019 results the day before, reporting a 9.2% rise year-on-year in operating income to Rmb23.25bn, together with a net loss of Rmb1.06bn for the whole year, smaller than 2018’s loss of Rmb4.54bn. In comparison, in 2017, it recorded a net profit of Rmb9.09bn.

Its non-performing loan ratio continued to climb, hitting 6.52% in 2019, from 4.99% the year before and 1.04% in 2017. The bank’s capital adequacy ratio (CAR), tier one CAR and core tier one CAR stood at 8.39%, 6.46% and 5.14%, respectively.

By Addison Gong, Rebecca Feng
03 Apr 2020