The week in review: CBIRC fines trio, central bank talks up LPR reform outcome, local government bond issuance slows
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The week in review: CBIRC fines trio, central bank talks up LPR reform outcome, local government bond issuance slows

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In this round-up, the Chinese banking and insurance regulator fines three commercial lenders, the People’s Bank of China reviews the implementation of its monetary policy in the first quarter, and the pace of local governments selling bonds moderates in April.

Local governments in China issued Rmb286.8bn ($40.5bn) of bonds in April, including Rmb50.9bn of new general purpose bonds and Rmb69.3bn of special purpose bonds, according to the Ministry of Finance.

Issuance in the first three months of the year totalled Rmb1.61tr. Including the bonds sold in April, local governments had printed nearly Rmb1.9tr of notes by the end of last month.

China recently assigned another Rmb1tr quota for local government bonds.

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The People’s Bank of China (PBoC) published a report on its first quarter monetary policies on Sunday.

The central bank admitted that the Chinese economy has faced an “unprecedented challenge” posed by the Covid-19 pandemic. China’s public budget revenue reached Rmb4.6tr in the first quarter, a 14.3% year-on-year decline. Tax revenue declined by 16.4% year-on-year and non-tax revenue edged up by 0.1%.

The PBoC also highlighted the initial positive results of the benchmark interest reform launched last August. In mid-April, 28.9% of new loans were issued at an interest rate lower than 0.9 times of the old benchmark lending rate — the one-year lending rate. This is three times as much as in July 2019, the month before the interest rate reform.

“The implicit minimum threshold for loan interest rate has been broken,” the central bank said in the report. “The pricing of loans has become much more market driven.”

The PBoC also vowed to further support private enterprises in bond and equity financing and enhance information disclosure standards for credit bonds.

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Bank of China, Bank of Communications and China Everbright Bank have been fined by the China Banking and Insurance Regulatory Commission (CBIRC) for under-reporting certain information, according to the regulator.

BOC was penalised Rmb2.7m for several alleged under-reporting situations, including the number of its wealth management products.

BoCom was fined Rmb2.6m and CEB Rmb1.6m.

BOC was also in the spotlight recently for its handling of a crude oil futures product, after the bank decided to settle trades at negative prices after the WTI crude oil price plunged to historic lows last month. The product is expected to have lost investors at least Rmb9bn, according to local media estimates.

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The CBIRC has launched an official investigation into China Citic Bank for an alleged breach of confidentiality.

Last week, Citic was accused by a client of disclosing information about his transactions to another institution without consent. The bank has apologised and said it has removed the head of the Shanghai Hongkou branch, where the leak allegedly happened.

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The China Securities Regulatory Commission (CSRC) updated laws governing fund custody management on Saturday. It is seeking public opinion on the new rules.

Under the new regulations, foreign banks’ local branches can apply for fund custody licences as long as they satisfy qualifications on asset size and business experience.

At the moment, foreign banks’ local branches cannot apply for a fund custody licence. Only local subsidiaries are qualified for the licence.

Standard Chartered Bank was the first foreign bank to obtain this license in China through Standard Chartered Bank (China) in October 2018.

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The CBIRC published a set of new regulations on trust plans by domestic trust companies.

The key changes include investments in non-standard debt assets including trust loans, bankers’ acceptance bills and beneficial interests. Previously, there was no hard limit on the percentage of trust companies’ asset that can be invested in these non-standard debt assets.

Chinese trust companies mainly engage in financing higher-risk borrowers. They also invest heavily in non-standard debt assets, an asset class that is forbidden for most other domestic financial institutions.

Under the new rules, trust companies cannot have more than 30% of their net assets invested in the non-standard debt assets of a single borrower. Further, their total investments in non-standard debt assets cannot exceed 50% of their total asset.  

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China has released draft rules on the online lending business of commercial banks.

Among other things, the CBIRC requires the credit limit for a single-borrower consumer loan not to exceed Rmb200,000, and the duration of the loan to be within one year. However, banks can decide the limits for personal loans taken for business production and operations.

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The US Department of Homeland Security shortened the visa duration of Chinese journalists working for Mainland news outlets in the US to 90 days, according to a document filed to the Federal Register last Friday. These visa holders can apply for an extension of stay.

The rules are intended to “achieve greater reciprocity” between the US and China, according to the document. The rule, which went into effect on May 8, does not apply to journalists holding the Hong Kong SAR or Macau SAR passports.

The US and China have been engaged in a tit-for-tat media war since March. The US limited the number of staff of five Chinese state-owned media outlets in the US in early March. Beijing retaliated by expelling US journalists from The New York Times, The Wall Street Journal and The Washington Post on March 18.

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