The week in review: China’s August PMI down, BlackRock gets mutual fund nod, TikTok sale uncertain after rule change
In this round-up, China’s official Purchasing Managers’ Index (PMI) for August misses expectations by a small margin, BlackRock becomes the first global asset manager to enter the mutual fund industry onshore, and the sale of TikTok’s US operations faces new challenges as Beijing tightens technology export controls.
China’s August PMI inched down from solid growth in July, showed data published by the National Bureau of Statistics on Monday morning.
Manufacturing PMI edged down month-over-month by 0.1 percentage point to 51 in August. The decline was mainly driven by falls in the production and raw materials sub-indices. The two sub-indices dropped from 54 and 47.9 in July to 53.5 and 47.3 in August, respectively. Meanwhile, new export orders sub-index rebounded for the fourth consecutive month to 52. The employment sub-index also improved to 49.4 in August from 49.3 in July.
“The slight moderation in August’s official manufacturing PMI supports our view that pent-up demand may have lost some steam,” Ting Lu, chief China economist at Nomura, wrote in a Monday note.
Non-manufacturing PMI edged up by one percentage point in August to 55.2.
China’s “big four” state-owned banks posted large profit declines for the first half this year, according to their interim results released on Sunday.
Industrial and Commercial Bank of China (ICBC), the largest bank in the world by assets, recorded an 11.4% profit drop. Agricultural Bank of China (ABC), Bank of China and China Construction Bank (CCB) also posted a 10.38%, 11.51% and 10.74% profit decline, respectively.
The impairment losses on assets of the four banks jumped as the Chinese State Council asked banks to give up Rmb1.5tr this year in profits to provide low-cost funding to small businesses impacted by the pandemic and defer their payment deadlines. Bank of China saw a 97.46% surge in impairment losses, the highest of the four. ICBC was the lowest with a 26.5% jump.
Their announcements came as the banking sector reported a 9.4% plunge in profits to Rmb1tr for the first six months. The banking and insurance regulator said the fact that Chinese banks were asked to give up profits to support the real economy, and have accelerated the disposal of non-performing assets, caused the fall.
The China Banking and Insurance Regulatory Commission (CBIRC) published a three-year action plan to promote the health of the country’s banks and insurers last Friday.
The regulator vowed to keep exploring ways to integrate and deepen the role of the Chinese Communist Party in the internal management of these two types of financial institutions. It also said it will tighten regulations around related transactions, take a closer look at the qualifications of these institutions’ shareholders and work on perfecting the long-term incentive mechanisms for employees.
ABC and CCB have been penalised by the CBIRC. The regulator took actions on ABC for risk management and internal control issues, and on CCB because of its wealth management business.
The China Securities Regulatory Commission (CSRC) has given BlackRock approval to set up a wholly-owned mutual fund business in China, a first for a foreign asset manager. The unit will be based in Shanghai with a registered capital of Rmb300m.
The regulator received applications from BlackRock and Neuberger Berman on April 1, the day when China officially relaxed foreign ownership restrictions on fund managers and securities companies. Fidelity International has also applied for a wholly-owned mutual fund licence. All three firms have been operating in China in the private fund sector.
BlackRock recently also won a licence for a wealth management joint venture with Singapore’s Temasek Holdings and China Construction Bank in Shanghai.
The CSRC published a set of rules on the sale of securities investment funds last Friday. The new rules clarified the boundary between the sale of funds and other services provided by fund companies. It also regulated the collaboration between funds and relevant internet platforms and imposed stricter entry and exit requirements for the industry.
The Shenzhen Stock Exchange said it will put listed companies into four different tiers based on their riskiness and the level of regulatory oversight they require.
The bourse will pay extra attention to listed firms that fall under what it reckons are “highly risky” and the next most risky tiers, in areas including information disclosure and mergers and acquisitions.
The CSRC has approved two Shenzhen-listed exchange-traded funds (ETFs) that will each invest 90% or more of their net asset value in a Hong Kong-listed ETF approved by the Securities and Futures Commission (SFC).
Correspondingly, the Hong Kong SFC has also approved two Hong Kong-listed ETFs to each invest 90% or more of their net asset value in a CSRC-authorised ETF listed in Shenzhen. Both approvals were given on Friday.
The connect scheme, dubbed as “ETF Connect”, has been long in the making and delayed multiple times due to technical issues.
Tianjin Real Estate Trust, a wholly-owned subsidiary of Tianjin Real Estate, defaulted on a Rmb215.8m bond due Wednesday, according to a notice published by the Shanghai Stock Exchange. The parent company is a property developer backed by the local government of Tianjin.
It was the issuer’s first default on a public bond. Bondholders sought to exercise the sell option of the bond and the issuer failed to repay the Rmb200m principal and Rmb15.8m of interest.
The US Department of Defense added 11 companies that operate directly or indirectly in the US to a list of “Communist Chinese military companies” last Friday. The original 20-name list was published in June.
China National Chemical Corp, Sinochem Group, China State Construction Group and China Three Gorges Corp are among those added last week.
On Friday evening, the Ministry of Commerce and the Ministry of Science and Technology jointly updated the list of technologies subject to export controls for the first time in over a decade.
China made changes to a total of 53 tech items, including removing nine that were previously banned or controlled for exports and adding 23. Companies must seek government approvals for the export of technologies that are on the restricted list.
An analysis published by state-media Xinhua suggested that the new rules could impact the ongoing sale of TikTok’s US businesses, as artificial intelligence related technologies are now subject to export controls.ByteDance, parent company of TikTok, said in a public social media post on Sunday that it will “strictly abide by” the regulations when dealing with technology export-related business.