China’s first quarter GDP plunged by 6.8% year-on-year, the National Bureau of Statistics (NBS) said on Friday morning. This is the first quarterly GDP contraction since the country started tracking the number in 1992.
China’s GDP grew by 10% in 2003 during the SARS epidemic and 9.4% in 2009, the year following the global financial crisis, NBS data shows.
Industrial production, retail sales and fixed assets investment also declined by 8.4%, 19% and 16.1% year-on-year in the first quarter.
“I expect a strong recovery in [the second quarter of 2020],” Lynda Zhou, a portfolio manager at Fidelity International, wrote in a Friday note. “Going forward we will continue to see structural improvements in GDP composition, with consumption taking a much bigger part, while trades will be relatively less important.”
However, Ting Lu, chief China economist at Nomura, disagreed.
In a Friday note, Lu said that a quick recovery was unlikely. He expects year-on-year real GDP growth to remain negative at minus 0.5% in the second quarter.
*
In dollar terms, China’s March exports and imports declined by 6.6% and 0.9%, respectively, according to data published by the General Administration of Customs on Tuesday. The data represents a rebound from a 17.2% decline in exports and a 4% decline in imports in the first two months of the year.
Exports to the US and the European Union went down by 20.8% and 24.2% year-on-year, respectively. But exports to Asean countries increased by 7.7% in March, bouncing back after a decline of 5.2% in January and February.
*
The People’s Bank of China (PBoC) trimmed the one year medium-term lending facility (MLF) rate by 20bp to 2.95% from 3.15% on Wednesday morning. The new rate is the lowest since the launch of the liquidity tool in 2014. The central bank also injected Rmb100bn ($14.1bn) into the market.
The move paves the way for a similar cut in the benchmark loan prime rate (LPR) for April. China announces the LPR rate on the 20th of each month. The one year LPR stood at 4.05% for March and the five year rate at 4.75%, unmoved from the February levels. There was a 10bp reduction in one year LPR in February.
*
The Asian Infrastructure Investment Bank (AIIB) said it will double its Covid-19 crisis recovery facility to $10bn due to high demand, according to a Friday press release. Beijing-headquartered AIIB earlier this month made available $5bn for emergency relief.
*
China has extended Rmb880bn in loan principal repayments and interest payments to help small and medium enterprises (SMEs) overcome the financial woes from Covid-19, according to the Ministry of Industry and Information Technology.
About 84% of the SMEs were back to work by Wednesday. As of Tuesday, production at 99% of the large industrial firms had resumed, according to the ministry.
*
Due to the impact of the Covid-19 pandemic, the Chinese aviation industry has suffered a loss of Rmb39.8bn in the first quarter of 2020, according to the Civil Aviation Administration of China. This includes Rmb33.6bn of losses from airline companies alone, data released on Wednesday showed.
During the same period, air passenger traffic declined by 53.9%.
*
The average property price in the primary market across 70 Chinese cities increased by 0.2% month-over-month in March and 5.2% year-on-year, according to data published by the NBS on Thursday. Property price appreciation slowed in tier one and three cities but quickened in tier two cities.
*
Despite the impact from the Covid-19 pandemic on foreign companies operating in China, there has not been — and there won’t be — large scale exit of foreign capital from the country, a spokesperson for the Ministry of Commerce said on Thursday.
He cited a report by the American Chamber of Commerce in South China, in which 75% of the companies interviewed said they will not change their investment plans in the country, regardless of the pandemic’s impact.
*
The China Banking and Insurance Regulatory Commission issued draft rules for the country’s trusts on Tuesday.
For the first time, the regulator removed the requirement that foreign companies must have at least $1bn in total assets by the end of the previous fiscal year to invest in Chinese trust companies.
*
The China Securities Regulatory Commission received an application this week from Citibank (China) for a fund custodian licence, according to the regulator’s website. HSBC Bank (China) had applied last Friday, the website showed.
Standard Chartered Bank (China) was the first foreign bank to be granted the licence in October 2018, four months after its application.
*
The State Council gave China’s capital markets an impetus last week by discussing better market infrastructure and investor protection in the stock market.
The regulators said the bond market’s development must be quicker for it to be bigger and more diversified in product types. The areas of improvement include information disclosure for corporate bonds and the mechanism to deal with defaults. They also said the credit rating industry will be more regulated.
China also promised to further open up its financial industry, relaxing limitations on foreign institutions’ access to the domestic market.
*
China will not tolerate fraudulent behaviour by listed companies, the Financial Stability and Development Committee of the State Council said on Wednesday.
Business operations must be lawful and honest to meet the most basic forms of market discipline, the committee said. It pointed to some listed companies’ recent involvement in financial fraud and other foul behaviour, and said regulatory bodies need to ensure better investor protection.
*
The provincial government of Gansu has approved a rescue plan for local lender Bank of Gansu, according to onshore media Caixin. There will be “a massive capital injection” through new share issuance to existing shareholders, including the provincial government. The PBoC will offer special loans to help fund the bailout, sources reportedly said.
Hong Kong-listed Bank of Gansu saw its share price crash by nearly 50% to HK$0.65 at the end of March, after it reported an 85% decline in net profit for 2019 and impairment losses of Rmb4.31bn, compared to 2018’s Rmb1.96bn.
*
Peking University Founder Group said it will not make coupon payments or principal repayments for any of its 24 outstanding bonds during its restructuring, according to a Shanghai Clearing House filing on Tuesday. The reorganisation process started on February 19. Some of its offshore subsidiaries – the special purpose vehicles that were the issuers of the company’s dollar bonds – also said in stock exchange filings that they will not be paying the next coupons.
Founder is planning to hold a meeting with creditors on April 30.
*
China’s consumer price index inflation slowed to 4.3% in March from 5.2% in February. Producer price index deflation widened to 1.5% in March from 0.4% in February, according to data published by the NBS last Friday.
*
New renminbi loans surged to Rmb2.85tr last month, three times more than the Rmb906bn in February, the PBoC announced on Friday last week. Outstanding renminbi loans also grew by 12.7% year-on-year in March, well beyond market expectations. Total social financing surged by 11.6% year-on-year in March to hit Rmb5.15tr.
“March data demonstrated the government has been quietly loosening policy more than what it may appear by looking at the magnitude of rate and reserve requirement ratio cuts,” Yu Song, chief China economist at Beijing Gao Hua Securities, wrote in a note last week.
*
The PBoC also said that new bank loans in China grew by Rmb7.1tr for the first three months of 2020 — the biggest jump for any quarter. There was also more medium to long-term lending to the manufacturing industry, with outstanding loan volume growing by 16.7% by the end of March – the fastest year-on-year increase since April 2011, according to the central bank.