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China markets round-up: PBoC resumes seven-day repo, April industrial profits recover, regulators work on SSA Panda guidelines

Renminbi_RMB_PBoC_575px_Adobe_29May20
By Addison Gong, Rebecca Feng
29 May 2020

In this round-up, China’s central bank injects liquidity into the market through reverse repos over four consecutive days, industrial profit growth rebounds in April from recent lows, and officials will work on guidelines for Panda bonds from SSA issuers.

The People’s Bank of China (PBoC) injected liquidity through reverse repurchase agreements for four days in a row this week. Reverse repos are a tool by which the central bank can add or reduce money supply in the banking system.

The central bank injected Rmb10bn ($1.4bn) on Tuesday, leaving the interest rate unmoved at 2.2% despite market expectations of a lower rate.

The PBoC pumped in more liquidity as the week progressed. It injected Rmb120bn on Wednesday, Rmb240bn on Thursday and Rmb300bn on Friday. All reverse repurchase agreements have a seven-day tenor and a 2.2% interest rate.

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The PBoC conducted a Rmb5bn central bank bills swap on Tuesday. The three month bills have a coupon of 2.35% and a fee of 0.1%. Banks can swap their holdings of perpetual bonds for central bank bills that are much more liquid.

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The central bank will use monetary tools to guide broad M2 money supply and social financing higher than in 2019, according to the PBoC governor Yi Gang. Yi’s statement fell in line with what Chinese premier Li Keqiang said last week when he delivered the government work report at the National People's Congress.

Yi also said that small and micro-sized enterprises will be allowed to extend their loan repayment due this year to March 31, 2021. China will make sure to implement all the ‘opening up’ measures it announced in recent years, to attract more foreign-owned and private financial institutions to enter the onshore market, he added.

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The central bank said it has cut the reserve requirement ratio (RRR) 12 times since 2018, releasing Rmb8tr of liquidity in total. These included three cuts this year with Rmb1.75tr released.

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China’s industrial profits for April dropped by 4.3% year-on-year to Rmb478.1bn, according to data published by the National Bureau of Statistics (NBS). The margin of the decline recovered by 30.6 percentage points compared to March.

For the first four months of 2020, industrial profits stood at Rmb1.26tr, which is 27.4% lower than a year ago. The profits declined by 46% at state-owned enterprises, 28.8% at non-Mainland enterprises and 17.2% for private firms, NBS data showed.

“The continued contraction in industrial profits could weigh on manufacturing investment, employment and fiscal revenues, and we expect Beijing to step up policy stimulus measures to cope with the [Covid-19] shock,” wrote the global markets research team at Nomura in a Wednesday note.

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The total assets — both in renminbi and foreign currencies — of Chinese banking institutions reached Rmb301.9tr at the end of the first quarter, recording a 9.5% yearly growth, according to the China Banking and Insurance Regulatory Commission. Their total debt increased by 9.1% to Rmb276.5tr.

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Data from the Ministry of Finance showed that Chinese state-owned enterprises (SOEs) saw a 74.3% plunge in their net profits after tax between January and April 2020 to Rmb210.6bn.

Net profits dropped 59.5% to Rmb234.3bn for central government-owned companies. Local SOEs, on the other hand, suffered Rmb23.7bn of losses.

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The PBoC and other regulators issued 11 measures on reforming the financial market on Wednesday. The central bank said it would soon publish a set of guidelines for sovereigns and international development organisations to issue Panda bonds onshore.

The guidelines will lay out more detailed issuance rules on Panda bonds and enhance information disclosure requirements.

The PBoC governs Panda bonds sold by sovereigns, financial institutions and multilateral banks. The National Association of Financial Market Institutional Investors, a self-regulatory body supervised by the PBoC, oversees the Panda bonds issued by non-financial corporations.

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The PBoC, the National Development and Reform Commission and the China Securities Regulatory Commission are taking public feedback for an updated list of eligible projects for green bonds from Friday until June 12.

The new catalogue is set to replace the previous one published in 2015. China removed the inclusion of the “clean use of coal” from the list, and instead added projects that use clean energy to replace coal for winter heating in rural areas.

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Charles Li, chief executive of the Hong Kong Exchanges and Clearing (HKEX), reportedly suggested launching an IPO Connect trial programme in the Guangdong-Hong Kong-Macau Greater Bay Area (GBA), at a Chinese People's Political Consultative Conference meeting.

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China Development Bank pledged to provide Rmb360bn to support the development of the GBA, the policy bank said in a Monday statement.

GBA comprises Hong Kong SAR, Macau SAR and nine municipalities in Guangdong province. The area is designed to be the forefront of China’s reform efforts and lead the country’s innovation-driven developments.

CDB said that around Rmb110bn will be earmarked for boosting technology innovation and strategic industries. Of the total amount, roughly Rmb290bn will be distributed in the form of loans. The bank will also assist enterprises in the GBA to expand overseas and support the development of Chinese companies in Hong Kong.

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Alibaba Group Holding-backed MYbank — officially registered as Zhejiang E-Commerce Bank — became the first private bank onshore to win approval from the CBIRC to issue a perpetual bond.

The bank received the green light to sell as much as Rmb5bn of perpetual bonds to supplement its additional tier one capital.

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Four stocks listed on the Shenzhen Stock Exchange came close to the 30% foreign ownership limit this week. Centre Testing International Group, Hangzhou Tigermed, Midea Group and Suofeiya Home Collection have been put on the watchlist by the exchange since Wednesday when their overseas ownership reached 26%.

Chinese securities regulations forbid overseas holdings of an A-share company to exceed 30% of its total shares.

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The Shanghai Stock Exchange (SSE) approved Suzhou HYC Technology’s application to issue new shares on the Star market to buy rival Suzhou Olyto Automation Technology, according to a Monday filing. HYC was one of the first companies to list on the Star board.

The new fundraising application will now be turned to the CSRC for final registration.

HYC said that 70% of the acquisition will be funded by new shares issued to Olyto shareholders. The remainder will be paid in cash. The company is looking to raise no more than Rmb532m from the upcoming issuance, according to the filing with SSE.

The Suzhou-based company made the application in March. 

By Addison Gong, Rebecca Feng
29 May 2020