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China policy and markets round-up: Sino-US trade talks ‘constructive’, securities houses get annual ratings, Shenzhen bourse ready for WVR companies

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By Addison Gong, Rebecca Feng
28 Aug 2020

In this round-up, senior trade officials from China and the US hold ‘constructive’ talks, the securities regulator publishes the latest ratings for Mainland brokerages, and the Shenzhen exchange hopes to attract listings from companies with weighted voting rights (WVR).


The delayed teleconference call to review the phase one trade deal between the US and China finally took place on Tuesday morning Beijing time. The call was held between China’s vice premier Liu He, US trade representative Robert Lighthizer and treasury secretary Steven Mnuchin.

In a State Council statement, China said the two countries held “a constructive conversation” and have agreed to “create the conditions and the atmosphere” for the further implementation of the phase one deal.

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China’s industrial profits grew 19.6% year-on-year in July, marking the third consecutive month of growth, according to data published by the National Bureau of Statistics on Thursday. Industrial firms recorded Rmb589.5bn of profits last month.

July’s growth was faster than June’s 11.5% jump and May’s 6% increase. However, Chinese industrial firms recorded an 8.1% year-on-year decline in profits for the first seven months this year. Among the companies, state-owned and private enterprises saw their profits drop by 23.5% and 5.3%, respectively.

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Chinese state-owned enterprises (SOEs) recorded Rmb33tr in total revenues for the first seven months of 2020 — 3.5% lower than a year ago, according to the Ministry of Finance (MoF). The pace of the decrease recovered by 1.4 percentage points compared to the January-to-June period, MoF data showed.

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The Chinese Securities Regulatory Commission (CSRC) has finished the annual rating of onshore securities houses.

The CSRC rates each firm from AAA at the top to E at the bottom. Those with a higher rating receive regulatory perks, including easier obtaining of licences and less frequent regulatory checks.

The securities regulator granted 15 companies an AA rating, the highest rating given this year. Last year, 10 companies were granted the AA rating. Another 32 companies were given an A rating. Together, AA and A rated securities houses accounted for 47.86% of the total firms rated.

Nomura Orient International Securities and JP Morgan Securities, both new names to the rating system, were rated triple-B.

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China is “sincere” in its efforts to solve the accounting dispute with the US, said Fang Xinghai, CSRC’s vice-chairman, in a Bloomberg interview this week.

Fang said the CSRC had made a proposal to the Public Company Accounting Oversight Board that would allow US regulators to pick any SOE for a joint accounting inspection. But sensitive information related to national security matters will be removed from the audit papers, he added.

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The local authorities in Shenzhen passed new regulations on Wednesday to attract technology firms to the city and its stock exchange. It will now allow companies with weighted voting rights (WVR) structures to register in Shenzhen and go public on the Shenzhen Stock Exchange.

China’s other main bourse, the Shanghai Stock Exchange, has already welcomed WVR companies to list on its Star board, with UCloud Technology Co breaking new ground with its IPO earlier this year.

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The China Banking and Insurance Regulatory Commission has approved for US fund manager BlackRock, Singapore’s Temasek Holdings and China Construction Bank to set up a wealth management joint venture (JV) in Shanghai.

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JP Morgan Asset Management is making progress in taking full control of its China joint venture mutual fund, according to a Tuesday evening statement on the Shanghai United Assets and Equity Exchange.

The US bank will have to pay Rmb7bn to buy the remaining 49% shares in China International Fund Management, the JV, from Shanghai International Trust Co. After the purchase, China International Fund Management will become the first wholly foreign-owned mutual fund in China.

Just last month, JPM took full control of its China futures JV, which became the first fully foreign-owned futures company in the Mainland.

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US asset manager Vanguard is moving its Asia headquarters to Shanghai from Hong Kong, local media outlet Caixin reported, later confirmed by the company. Vanguard will also close its operations in Hong Kong and Japan. The process will take between six months to two years.

A spokesperson at the US firm told Caixin that its “future focus in Asia is on the Chinese mainland”. Some of the 50 employees in Vanguard’s Hong Kong office will be terminated and others transferred to Shanghai.

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The proceeds from China’s Rmb1tr Covid-19-themed ‘special treasury bonds’ have been allocated to local governments and will be assigned to specific projects, a senior MoF official said at a Wednesday press conference held by the State Council. The Rmb1tr issuance was 2.54 times subscribed by investors, he added.

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China will allow part of the funds raised from the special treasury bonds to be used to help rebuild infrastructure destroyed by recent flooding in some regions, according to minutes of the weekly State Council meeting chaired by Chinese premier Li Keqiang.

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The risks in loans to small and micro enterprises in China are under control, a senior official at the CBIRC said at a Tuesday State Council briefing.

The outstanding non-performing loan (NPL) amounts at these smaller companies rose by 9.25% compared to the beginning of 2020, with an NPL ratio of 2.99%. He reckons the NPLs will increase next year, but the CBIRC and the banking institutions have the ability and the tools to meet the challenge.

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At least four provinces — Guizhou, Inner Mongolia, Heilongjiang and Hunan — have set up funds to help local government financing platforms and local state-owned firms manage their debts, local media 21st Century Business Herald reported on Thursday, citing sources. These funds will offer bridge loans to help firms with their liquidity difficulties.

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A local court in Hebei province has approved a restructuring plan by Kangde Xin Composite Material Group Co. Kangde Xin admitted to inflating its profits between 2015 and 2018, and has defaulted on domestic and dollar bonds. Its former chairman Zhong Yu was arrested.

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The first batch of 18 stocks that were listed on the ChiNext, a Nasdaq-style board on the Shenzhen Stock Exchange, under the new registration-based system introduced in Aprilstarted trading on Monday.

The reform includes adopting a similar registration-based system as Star and allowing pre-profit start-ups to list. The daily price movement limit was also lifted to 20% from 10%.

By Monday’s close, the 18 companies saw their share prices jump 212% on average from their IPO price. The shares of Contec Medical Systems, a Heibei-based medical device maker, soared 2,932% in the middle of the day before ending the day 1,061% higher.

By Friday lunch break, the ChiNext index had posted a 2.3% gain this week.   

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TikTok officially filed a complaint in federal court on Monday US time, challenging an executive order by president Donald Trump to ban the short-video app in the US. 

“We do not take suing the government lightly, however we feel we have no choice but to take action to protect our rights, and the rights of our community and employees,” TikTok said in a statement.

TikTok’s chief executive Kevin Meyer reportedly decided to quit this week. Meyer is also chief operating officer at TikTok’s parent company ByteDance, having joind in June from Disney. Meanwhile, retail behemoth Walmart announced it will team up with Microsoft to bid for TikTok’s US operations. TikTok is reportedly looking at a $20bn-$30bn value for the transaction.

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Some US politicians have got an “anti-all-things-China syndrome”, which is why they are seeking to crush Chinese companies such as TikTok, WeChat and Huawei Technologies, said Zhao Lijian, a spokesperson at the Chinese foreign ministry. He was commenting on TikTok’s lawsuit against the US government at a Monday press conference.

“China supports relevant companies in taking up legal weapons to safeguard their legitimate rights and interests, and will continue to take all necessary measures to resolutely safeguard the legal rights and interests of Chinese companies,” Zhao added.

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The big four Chinese banks — Agricultural Bank of China, Bank of China, China Construction Bank and Industrial and Commercial Bank of China — are hiring more fresh graduates than last year, Bloomberg reported.

The banks are also starting their autumn campus recruitment season three months earlier than in the past. ICBC is planning to hire 18,000 graduates while CCB and BOC are planning to take in 16,000 and 10,000 graduates each.

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Chinese state-owned lender Bank of Communications has set up a fintech arm. The subsidiary, called Bocom Financial Technology Co, was launched in Shanghai on Tuesday with a registered capital of Rmb600m.


By Addison Gong, Rebecca Feng
28 Aug 2020