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China markets round-up: July trade surplus surprises, PBoC reviews monetary policy, most Covid-19 treasury bond proceeds allocated

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By Addison Gong, Rebecca Feng
07 Aug 2020

In this round up, China records a trade surplus in July that exceeds expectations by a large margin, the central bank reviews the monetary policy from the second quarter and sets a direction for the rest of the year, and the finance minister says more than half of the proceeds from China’s Rmb1tr Covid-19 themed ‘special treasury bonds’ are already in use.


China recorded a trade surplus of Rmb442.2bn ($63.6bn) in July, beating consensus forecast of Rmb286.75bn. Exports reached Rmb2.93tr after a 10.4% year-on-year increase, while imports grew 1.6% to Rmb1.24tr.

For the first seven months of 2020, exports to the US dipped 4.1% to Rmb1.56tr and imports by a milder 0.3% to Rmb475.5bn, compared to a year ago.

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The Caixin manufacturing Purchasing Managers’ Index (PMI) jumped from 51.2 in June to 52.8 last month — the highest level since February 2011. The Caixin services PMI, however, dropped from 58.4 — a near 10-year high — in June to 54.1. The trends of both PMI data are in line with the official manufacturing and services PMIs previously released by China.

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China can keep its economic growth in the third and fourth quarter of the year at about 6% and beat expectations from the International Monetary Fund and the World Bank, Zhu Guangyao, the former finance minister of China, reportedly said at a summit on Friday. The country’s GDP grew by 3.2% in the second quarter of 2020.

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The People’s Bank of China (PBoC) published the second quarter monetary policy report on Thursday.

The central bank clarified that the spread between the medium-term lending facility (MLF) rate and loan prime rate (LPR) should not be a set number and should adjust based on market conditions.

The LPR, China’s benchmark lending rate, is calculated by adding a spread to the same tenor MLF rate, which is the price the central bank charges when providing large commercial banks with liquidity.

In the same report, the PBoC also reviewed its work in handling the Baoshang Bank crisis. The central bank took over the regional bank in May last year. The PBoC said it had now authorised the liquidation of the bank.

“Baoshang Bank will be filed for bankruptcy and the original shareholders’ equity and unprotected creditors’ rights will be liquidated according to law,” the central bank said. It added that relevant personnel at Baoshang will be held accountable. The decision was made due to “severe insolvency” at the bank.

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Earlier this week, the central bank also said it will increase support for small and medium-sized Chinese banks to issue bonds to supplement their capital.

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The PBoC is scheduled to issue Rmb30bn of central bank bills in Hong Kong next Thursday, split between Rmb20bn three month bills and a Rmb10bn one year issue.

It conducted Rmb10bn of seven-day reverse repo operations at an interest rate of 2.2% on Friday morning.

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Foreign investors have increased their holding of onshore China bonds for the 20th consecutive month in July, data from the China Central Depository and Clearing showed. The volume they hold exceeded Rmb2.34tr by the end of July, recording a 6.74% rise compared to June. The increase was 38% year-on-year.

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Some Rmb510.5bn of the proceeds from the Rmb1tr Covid-19 ‘special treasury bonds’ has been allocated to 24,199 projects by July 29, according to Liu Kun, the Chinese finance minister. The money is mainly used for infrastructure construction or cover expenses related to fighting the pandemic.

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Chinese local governments had issued nearly Rmb2.27tr in new special purpose bonds by the end of July, reaching 60.4% of the annual quota, according to data from the Ministry of Finance. That leaves the issuers about Rmb1.48tr for the rest of 2020.

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The China Banking and Insurance Regulatory Commission (CBIRC) announced a three-year plan for the property insurance industry at the end of last month, with a total revenue target for the industry’s insurance premium to reach Rmb1.7tr by 2022.

In the ‘action plan’ released on Wednesday, the regulator said it will support qualified foreign financial institutions to invest in Chinese property insurance companies and reinsurers. It also encourages property insurers to take greater part in Belt and Road projects.

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The CBIRC approved a second local asset management company (AMC) in Hainan province. The AMC, whose Chinese name roughly translates to Hainan NWS Asset Management Co, is allowed to take part in the provincial non-performing loans business. Its top three shareholders are all Hong Kong based, led by NWS Holdings.

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The Ministry of Commerce said it will speed up the process of compiling the national negative list for cross-border trade in services. China currently has such a negative list only for the Shanghai Free Trade Zone.

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The Chinese central bank has recently set up a fintech unit. Chengfang Financial Technology Co was established in Beijing at the end of July with a registered capital of Rmb2.1bn. Three of the five institutions that initiated the company are fully owned by the PBoC, while the other two sit directly under it.

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HSBC plans to hire 2,000 to 3,000 wealth planners in China within the next four years, according to a Monday interim results presentation to investors and analysts by Noel Quinn, chief executive of the bank.


By Addison Gong, Rebecca Feng
07 Aug 2020