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China markets round-up: August economic data shows strong rebound, Beijing tightens grip on micro lenders, interbank bond trading hours extended

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By Addison Gong, Rebecca Feng
18 Sep 2020

In this round-up, the recovery of the Chinese economy picks up pace, the country’s micro loan companies face stricter regulations, and the trading hours of bonds in the interbank market have been extended to draw more international demand.


China’s August industrial production grew 5.6% year-on-year, according to data released by the National Bureau of Statistics on Tuesday. The growth exceeded market expectations and was faster than the 4.8% year-on-year increase in July.

August retail sales recorded a 0.5% year-on-year growth in August, a jump from the negative 1.1% in July. This is the first time retail sales saw a positive yearly growth since the beginning of the pandemic, beating market expectations.

In the first eight months of 2020, property investment reached Rmb8.8tr, a 4.6% jump compared to a year ago.

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China’s non-financial outbound direct investment (ODI) dropped 2.6% for the first eight months of the year to Rmb480.5bn, or $68.5bn in dollar terms, according to the Ministry of Commerce (Mofcom).

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The Mofcom, National Bureau of Statistics and the State Administration of Foreign Exchange jointly published a report on ODI for 2019.

Outbound investment flows totalled $136.9bn last year, the second highest globally despite a 4.3% year-on-year drop, according to the report. By the end of 2019, investments by China covered 188 countries and regions, with over 80% of the outstanding ODIs concentrated in the services industry. Chinese investments in Belt and Road countries increased 4.5% compared to 2018.

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The People’s Bank of China (PBoC) said in a Tuesday report that its benchmark rate reform has seen important results. By August, more than 92% of outstanding floating rate loans had completed the conversion from using the old benchmark rate to the new benchmark rate — the loan prime rate.

The central bank scrapped the old reference rate — one year lending rate — in August 2019.

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The renminbi remained the fifth most active currency for global payments by value in August, according to a monthly report by Swift. Some 1.91% of payments globally were denominated in renminbi last month, up from July’s 1.86%. The value of renminbi-denominated payments dropped 8.33% compared to July, versus a decrease of 10.3% in all currencies.

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The total assets of the Chinese financial industry stood at Rmb340.43tr at the end of the second quarter of 2020, after a 10% rise year-on-year, according to the PBoC. The industry’s total debt increased 9.9% to Rmb310.01tr.

The asset and debt growths were 9.7% and 9.5%, respectively, for Chinese banks, 12.7% and 12.8% for insurers, and 14.8% and 17.8% for the securities industry.

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The big four Chinese banks have become increasingly competitive relative to their global peers, a senior official at the China Banking and Insurance Regulatory Commission (CBIRC) said.

The big four lenders saw an average cost-income ratio of 27% by the end of 2019, less than half of what was seen at banks in developed countries, he said. Their average return-on-assets, return-on-equity and core capital adequacy ratios — at 1%, 12.5% and 12.4% respectively — are also comparable to large US and European lenders. Their provision coverage ratio of 225% is much higher than international banks, the official said.

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China has announced new regulations regarding micro loan companies. Micro lenders have been asked to keep their debt levels under control, according to the CBIRC.  

Outstanding loans from banks, shareholders and other non-standard sources of funding must be less than the micro lenders’ net assets, while outstanding bonds, asset-backed securities and other securities issued should not exceed four times their net assets.

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Chinese banks and insurance companies must provide consistent financial services when facing emergency events, the CBIRC said. These include natural disasters, accidental disasters, public health emergencies and social security incidents.

Banks and insurers are being asked to provide emergency financial services and flexible support to borrowers that are affected by these events.

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Zhou Wenjie, deputy director of the CBIRC’s Shanghai bureau, has been placed under investigation for graft, according to a Monday statement from the Central Commission for Discipline Inspection. Zhou is being investigated for alleged “serious violation of discipline and law”, the statement reads.

Zhou joined the Shanghai bureau of CBIRC in 2003 and was promoted to deputy bureau director in 2016. He had previous stints at the People’s Bank of China (PBoC) Shanghai branch.

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The Ministry of Finance will auction Rmb5bn of dim sum bonds in Hong Kong on Monday. The deal will be split between a Rmb3.5bn two year tranche, and a Rmb1.5bn five year portion.

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The trading hours of bonds in the interbank market will be extended to 8pm Beijing time from 5pm, effective Monday next week. The is expected to help both foreign and domestic investors trade interbank bonds, according to the China Central Depository & Clearing Co, the Shanghai Clearing House and the National Interbank Funding Center, which jointly announced the extension.

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One of the most indebted Chinese property developers, China Evergrande Group, announced an early redemption of $1.565bn of dollar bonds through its own resources. The move is to reduce its debt and lower financing costs, Evergrande said in a Thursday stock exchange filing in Hong Kong.

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China has picked 12 real estate developers for trial of new debt management requirements, including China Evergrande, China Vanke Co, Country Garden and Sunac China Holdings, according to onshore media reports.

The new requirements, referred to as “the three red lines” onshore, will forbid the developers from taking on more interest-bearing debt 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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Anbang Insurance Group has applied to China’s insurance regulator for dissolution and liquidation, the company said on Monday.

Anbang was taken over by the country’s regulators in February 2018. The founder and former chairman of the company was sentenced to prison.

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A court in Xi’an city has issued a consumption restriction order to HNA Group’s chairman Chen Feng. Chen, who co-founded HNA in 1993, is barred from all non-essential spending, as well as other activities such as taking business class flights, staying at five-star hotels, playing golf or buying new properties. The order came as the court found HNA in non-compliance with a ruling in a contract dispute case.

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The government of Shenzhen plans to reward foreign-funded companies registered in the city, based on the amount of foreign capital they draw in this year.

Separately, the municipal government announced 30 measures to stabilise foreign trade and investments, including simpler border control procedures for imported goods.


By Addison Gong, Rebecca Feng
18 Sep 2020