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China markets round-up: July TSF data disappoints, Chinese bank profits plummet, iQiyi reveals SEC investigation

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By Addison Gong
14 Aug 2020

In this round-up, total social financing (TSF) growth in July is below expectations due to a steep fall in new renminbi loans, the banking industry’s profit growth turns negative for the first half of 2020, and Baidu’s video unit iQiyi says it is under the scrutiny of the US securities regulator.


China’s TSF rose by Rmb1.69tr in July, compared to an increase of Rmb3.43tr in June, according to data from the People’s Bank of China (PBoC).

Last month, broad M2 money supply grew 10.7%, though the increase was 0.4 percentage points slower than the previous month. New renminbi loans slid by Rmb63.1bn from a year ago to Rmb992.7bn. The drop was sharper compared to June’s Rmb1.81tr.

“Bank loan and TSF growth has likely reached its peak, and the hurdle for the PBoC to turn towards easing again is very high,” wrote economists at Bank of America in a Wednesday note.

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Chinese banks saw a plunge in net profits to Rmb1tr for the first half of 2020, a decline of 9.4% year-on-year, according to the China Banking and Insurance Regulatory Commission (CBIRC). Earlier this year, China asked its finance industry to give up Rmb1.5tr ($211.8bn) in profits to support the real economy.

The drop in first half profits was at 12% year-on-year for the large state-owned banks and 8.5% for joint stock banks. They posted profit gains of 4.7% and 9.4%, respectively, for the first quarter of 2020. City commercial banks’ profits dipped 2.1% between January and June, versus a smaller 1.2% decline for the first three months.

The banking industry’s non-performing loan (NLP) ratio rose by 0.03 percentage points on a quarterly basis to 1.94% by the end of June.

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Chairman of the CBIRC, Guo Shuqing, warned against a resurgence in NPLs and said proactive measures must be taken ahead of time in order to curb the risk. Guo said in an interview, the transcript of which was published on the regulator’s website, that companies will be supported to issue more bonds, while banks and insurers are encouraged to participate more in the bond market.

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Foreign investment in industries excluding banking, securities and insurance rose by 0.5% year-on-year to Rmb535.7bn in the first seven months of 2020, according to the Ministry of Commerce. The figures refer to the amount actually invested, rather than that previously agreed.

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The ‘big four’ Chinese state-owned banks, together with Postal Savings Bank of China, said on Wednesday that they will start shifting the benchmark for interest calculation on outstanding floating-rate residential mortgages to loan prime rate (LPR) from August 25.

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The CBIRC has given approval to Shanghai Pudong Development Bank to set up a wealth management subsidiary in Shanghai, the lender said on Wednesday.

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Chinese regulators have set new rules to curb debt growth in the real estate sector, onshore media 21st Century Business Herald reported, citing market rumours.  

Property developers will be forbidden to take on more interest-bearing debt if they meet three criteria — if their current asset-to-debt ratio is over 70%, their net-debt-ratio exceeds 100%, and their unrestricted cash is less than one time their total short-term debt.

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Nasdaq-listed Chinese video company iQiyi disclosed an ongoing investigation by the US Securities and Exchange Commission (SEC) when releasing its second quarter results on Thursday.

The SEC is looking into its financial and operating records from January 1, 2018, as well as documents relating to allegations made by Wolfpack Research in a short report in April. The Baidu-owned company said it has also launched an internal review but is yet to report the findings.

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MSCI has completed its latest quarterly index review, and decided to add seven companies from the MSCI China A Onshore Index while removing two. The largest three additions by full company market capitalisation are Semiconductor Manufacturing International Corp, National Silicon Industry Group Co and China Zheshang Bank Co.

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China’s Sinopec remained in second place on the Fortune 500 list of companies in 2020, with State Grid Corp of China and China National Petroleum Corp in the third and fourth spots, respectively. A total of 124 companies from the Mainland and Hong Kong made it on the list, with Chinese developer Country Garden leading among its global real estate peers.

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Auditing reports published by over 20 provinces suggest that some funds raised from special purpose bonds have not been in use, according to the 21st Century Business Herald. The problem was found in Guangxi, Fujian and Guangdong. Other issues revealed by the auditing process included the use of special purpose bond proceeds to take out existing debt, which is forbidden.


By Addison Gong
14 Aug 2020