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China policy and markets round-up: Hainan free trade port in the making, Caixin services PMI expands, MoF plots Rmb100bn issuance

Hainan_Adobe_575px_5June20
By Addison Gong
05 Jun 2020

In this round-up, China says it will make the Hainan province a world-class “free trade port”, the May Caixin China general services purchasing managers index beat consensus by a large margin, and the central government will sell over Rmb100bn ($14bn) of treasury bonds next week.



The Caixin services PMI is back in expansion, rising to 55 in May from 44.4 the previous month. The market consensus was 47.3.

The Caixin China manufacturing PMI came in at 50.7 after a 1.3 point increase. The jump in both indexes led to a rise in the Caixin China composite output index — covering both manufacturing and service companies — to 54.5 in May from 47.6 in April.

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China unveiled plans this week to build the Hainan free trade port. This means the island province will start easing immigration requirements for tourists and professionals, and lower corporate and income taxes, among other things.

By 2035, Hainan will enjoy free flow of trade, investment, capital and people, before it is fully transformed into a “globally influential, high level” free trade port by the middle of the century.

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The assets of financial institutions in China totalled Rmb332.9tr by the end of the first quarter, 9.8% higher than a year ago, data from the People’s Bank of China (PBoC) showed. Insurance assets grew the fastest by 13.7% to Rmb21.7tr, followed by a 13.5% increase for securities firms to Rmb8.83tr, and 9.5% for banks to about Rmb302.4tr.

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During the first four months of 2020, domestic Chinese investors made overseas direct non-financial investments of Rmb235.1bn. This was in 3,084 companies from 155 countries and regions, according to the Ministry of Commerce. The amount was 0.7% higher year-on-year.

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The PBoC conducted Rmb220bn of reserve repo trades this week, including Rmb150bn on Friday with an interest rate of 2.2%.

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The central bank and seven other regulators and government bodies have jointly issued a 30-point guidance on financial services for small and micro sized enterprises.

Among other things, they set a target to increase net new financing from corporate bond issuance this year by Rmb1tr compared to 2019, and for financial institutions to issue at least Rmb300bn of bonds to support small and micro companies.

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The China Banking and Insurance Regulatory Commission said it supports foreign capital to participate in China’s financial market, and that eligible foreign financial institutions will be welcomed “as always” to invest in the country and expand their businesses onshore, according to a Q&A published on the regulator’s website.

It encouraged smaller banks to bring in investors in “a market-oriented manner”, including foreign capital and private enterprises. It also promoted the use of ordinary shares, preference shares, perpetual bonds and tier two bonds to supplement their capital.

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The China Securities Regulatory Commission (CSRC) said it will further strengthen the co-operation between the capital markets of the Mainland and Hong Kong, in areas including markets, institutions, and products. The regulator said it will “firmly support” the special administrative region to maintain its status as an international financial centre, as well as the stable development of its capital markets.

The CSRC stressed that China will deepen its capital markets reform, reiterating that financial frauds by listed companies will be severely punished.

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The Ministry of Finance (MoF) plans to sell Rmb102bn of treasury bonds on June 10. Of this, Rmb54bn will be raised as new five year notes, while the remaining Rmb48bn will be additional issuance on a 2.2% two year bond from February.

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Chinese local governments sold nearly Rmb1.04tr of new bonds in May, latest data from the MoF showed. This included Rmb998bn of special purpose bonds.

Local governments have used 93.9% of the Rmb2.29tr of early quota for special purpose bonds, which are earmarked for funding infrastructure projects. The MoF has given a Rmb1.836tr quota for refinancing this year.

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The National Development and Reform Commission held a seminar on Wednesday on offshore debt. People in academia, as well as representatives from securities houses, banks and onshore ratings agencies attended the seminar.

They said the amount of foreign currency borrowings from China is significantly lower than comparable economies. The country should optimise the maturity structure for further debt, according to an update on the regulator’s website.

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The CSRC has published official guidelines for companies listed on the National Equities Exchange and Quotations (NEEQ) market to transfer their listings to Shanghai Stock Exchange’s Star Market or Shenzhen’s ChiNext Board.

The regulator released the draft rules for NEEQ, nicknamed the New Third Board, in March, and took feedback until April 5.

Companies that belong to the New Third Board’s “selection tier” for at least a year could be considered for the migration process without another IPO, providing they meet the listing criteria on Star or ChiNext. Companies on the “selection tier” usually have a longer operating history with bigger market capitalisations, versus those on the “innovation tier” and “base tier” companies.

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Robert Lighthizer, the US trade representative, said he feels “very good” about the progress of the phase one US-China trade deal, according to Bloomberg. Lighthizer was reportedly speaking at a virtual event held by the Economic Club of New York on Thursday US time.

His remarks came after media reports that China ordered major state-owned agricultural firms to halt soybean imports, as well as other agricultural products. But according to Reuters, Chinese companies bought at least three cargoes of US soybeans on Monday.

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The Hong Kong Exchanges and Clearing said it will launch silver futures contracts settled in US dollars and offshore renminbi on June 8. 



By Addison Gong
05 Jun 2020