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China policy and markets round-up: CPI inflation slows, September import growth surprises, US mulls sanctions on Ant Group

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By Addison Gong
16 Oct 2020

In this round-up, China’s September inflation data disappoints, import volume beats expectations by a large margin, and Ant Group might be added to the trade blacklist by the US ahead of its jumbo IPO.

China’s consumer price index (CPI) grew 1.7% year-on-year in September, down from 2.4% the previous month, according to the National Bureau of Statistics. The growth was the slowest in 19 months, largely due to declining pork price inflation.

The producer price index (PPI) was down 2.1% last month, versus August’s 2% drop.

Economists at Barclays expect CPI inflation to continue its downward trend and moderate to around 1% in the last quarter, from 2.3% in the third quarter. Nomura forecasts CPI inflation to fall to about 1.3% in October and then close to zero at the year end, and for the PPI inflation to stay around negative 2% through the rest of 2020.

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The People’s Bank of China has published credit data for September.

Total social financing (TSF) climbed by Rmb3.48tr in September. Outstanding TSF rose to Rmb280.07tr by the end of last month, showing a 13.5% year-on-year growth versus August’s 13.3%.

New renminbi loans stood at Rmb1.9tr, up over 48% from the previous month. As a result, for the first nine months of 2020, new bank lending topped Rmb16.26tr, edging closer to full year 2019’s Rmb16.88tr.

Broad M2 money supply increased 10.9% from a year ago.

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The General Administration of Customs released September trade data on Tuesday. The country recorded a trade surplus of Rmb257.7bn last month, or $37bn. In dollar terms, exports jumped 9.9% and imports 13.2%. The growth in imports was well above consensus forecast of 0.4%.  

Barclays said the surge in imports was led by auto and agricultural goods.

Commonwealth Bank of Australia’s China economist, Kevin Xie, said the jump in semiconductor imports added to the import strength, as technology firms ramped up exports to China before the US restrictions on supplies to Huawei Technologies kicked into effect on September 15.

The country’s trade surplus with the US narrowed to $30.75bn last month from August’s $34.24bn.

Trade volume totalled Rmb23.12tr for the first three quarters of the year. Both exports and imports — Rmb12.71tr and Rmb10.41tr, respectively — reached historic highs for the period, according to the Ministry of Commerce.

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Car sales in China saw an annual increase of 12.8% in September to 2.565m, according to the China Association of Automobile Manufacturers (CAAM). There were 138,000 new energy cars sold last month, representing a 67.7% increase from a year ago.

Total sales for the first three quarters of 2020 slid 6.9% to 17.12m, CAAM data showed.

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Local governments in China sold Rmb720.5bn of bonds in September, taking volumes for the first nine months of the year to nearly Rmb5.68tr, according to the Ministry of Finance (MoF). These include Rmb4.305tr of new issues, as opposed to bonds sold to refinance or exchange old debt.

By the end of September, local governments had used 91% of the new issuance quota (Rmb4.73tr) for 2020.

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The International Monetary Fund (IMF) has upgraded its 2020 global growth forecast to negative 4.4% from its June projection of negative 4.9%.

“Except for China where output is expected to exceed 2019 levels this year, output in both advanced economies and emerging and developing economies are projected to stay below 2019 levels well into 2021,” Gita Gopinath, the IMF’s chief economist, said at the October 2020 World Economic Outlook press briefing on Tuesday.

In the outlook report published last week, the IMF said it expects China’s GDP growth to be at 1.9% this year and 8.2% in 2021. The country’s economy grew 6.1% in 2019.

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The merger of Guolian Securities and Sinolink Securities has been called off, the two firms said this week. The total assets of the combined entity would have exceeded Rmb100bn, making it one of the top 20 largest Chinese securities houses.

According to the filings, the firms are unable to agree on some core terms of the deal.

The planned acquisition, announced late September, involved an equity swap where Guolian will issue A-shares to all Sinolink shareholders. Guolian would also purchase a 7.82% stake in Sinolink from its controlling shareholder, Yongjin Group.

The China Securities Regulatory Commission (CSRC) at the end of last month launched an investigation into potential information disclosure violation regarding the transaction and insider trading. 

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The US Department of State has submitted a proposal for the Trump administration to add Ant Group to the so-called entity list, a trade blacklist, Reuters reported on Thursday. It was not immediately clear when the matter will be reviewed by the relevant government agencies, the wire added.

Ant reportedly issued a statement saying it is not aware of any related discussions at the US government, and that its businesses are largely in China.

When asked about the Reuters report at a Thursday press briefing, Zhao Lijian, spokesperson for the Chinese foreign ministry, urged the US to provide an open, fair and non-discriminatory business environment for foreign companies. China will take necessary measures to protect the rights and interests of Chinese firms, he added.

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The CSRC is steadily pushing forward with the market-wide implementation of a registration-based IPO system; it has set up a framework with information disclosure at its core, its chairman Yi Huiman told the Chinese parliament on Thursday.

The move will cover China’s two mainboards as well as the over-the-counter market, National Equities Exchange and Quotations, where an approval-based system is still in place. Shanghai Stock Exchange’s Star market has already adopted the registration system, while Shenzhen’s ChiNext board is doing so on a trial basis.

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The securities regulator “highly values” cross-border M&A transactions involving listed Chinese companies, and is working with relevant government bodies to revise regulations on foreign strategic investment in onshore listed firms, said a senior CSRC official at a Monday press conference held by the State Council.

There have been 392 cross-border M&A transactions with a total volume of Rmb466bn since 2018, he said. The biggest shareholders of more than 100 Chinese companies listed in Shanghai and Shenzhen are foreign strategic investors, he added.

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China will support mergers and restructurings between state owned and private companies if such transactions can boost the firms’ competitiveness, a senior official at the State-owned Assets Supervision and Administration Commission said at the same State Council press conference.

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The PBoC has published a report on inclusive financing in China in 2019. Loans to small and micro-sized enterprises under inclusive finance grew fast while interest rate declined, according to the central bank.

Total outstanding volume of inclusive loans to small businesses surged 23.1% on an annual basis to Rmb11.59tr by the end of 2019. The number of companies receiving the loans increased by 5.65m or 26.4%, the PBoC said.

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The PBoC has told Chinese banks to extend payments on inclusive loans to small businesses. For loans given between June 1 and December 31, lenders should allow companies to delay interest payments or principal repayments, based on their applications, to no later than March 31, 2021.

The PBoC and the Ministry of Finance use special tools to give banks an incentive equal to 1% of the principal amount extended.

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China Orient Asset Management Co, Everbright Securities, Yingda International Trust and Zhongrong International Trust have registered with the National Association of Financial Market Institutional Investors (Nafmii) as trustees in the interbank bond market.

So far, 67 institutions have registered as trustees. They span banks, securities companies, trust firms, financial asset management companies and law firms, according to an update from the regulator.

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Nafmii has given examples of how investor protection-related clauses should be worded in a bond prospectus. The regulator provided standardised languages to be used in prospectuses for bondholder meetings, definition of defaults, how to deal with defaults and dispute resolution.

The document containing the examples can help prospectuses to be more detailed, standardised and more practical, said the regulator.

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Banks and insurers will not be required to seek regulatory approval to set up branches or appoint senior managers in eight Mainland cities — including Guangzhou — in the Guangdong province, part of the Guangdong-Hong Kong-Macao Greater Bay Area, the China Banking and Insurance Regulatory Commission’s Guangdong bureau has said. Instead, they only need to register with the regulator afterwards.

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The CSRC and the Autoridade Monetária de Macau, the special administration’s monetary authority, signed a memorandum of co-operation on Thursday. This will strengthen their cross-border regulatory co-operation in the securities markets in the Mainland and Macau, and help the development of Macau’s financial industry, in particular its bond market, the regulators said.

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Defaulted Chinese issuer and property developer Tahoe Group said it expects a net loss between Rmb1.65bn and Rmb2.23bn for the first three quarters of 2020. The company recorded a net profit of Rmb2.12bn for the same period last year.

By Addison Gong
16 Oct 2020