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China policy and markets round-up: Fiscal revenue returns to growth, Sweden bans Huawei, S&P expands to exchange bond market

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By Addison Gong
23 Oct 2020

In this round-up, China’s fiscal revenue growth turns positive in the third quarter, Sweden becomes the latest to ban Huawei Technologies from its 5G plan, and S&P Global Ratings’ onshore unit secures a licence to rate domestic bonds in the exchange market.

China’s GDP will likely grow around 2% in 2020, Yi Gang, governor of the People’s Bank of China (PBoC), said at the G30’s annual International Banking Seminar held last Sunday.

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China’s fiscal revenues returned to growth in the July to September quarter, rising 4.7% year-on-year, data from the Ministry of Finance showed. The number plunged 14.3% between January and March, followed by a 7.4% drop the following quarter.

For the first nine months, fiscal revenues totalled Rmb14.1tr, down 6.4% from the same period in 2019.

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The PBoC kept the benchmark lending rate, the loan prime rate (LPR), unchanged for the sixth consecutive month in October. One year LPR remained at 3.85% and the five year and above rate at 4.65%.

Economists at UOB expect both rates to be kept steady going into 2021.

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Revenues at central government-owned enterprises saw a 4.3% growth year-on-year in September, the biggest monthly growth so far in 2020, according to the State Council’s State-owned Assets Supervision and Administration Commission (Sasac).

The robust September data took third quarter revenues to Rmb7.8tr with a 1.5% annual increase. Net profits stood at Rmb474.8bn for the quarter, which is 34.5% higher than a year ago.

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China saw Rmb5.7tr of domestic bond volumes in September, including Rmb750.4bn of treasury bonds and Rmb720.5bn by local governments, according to the PBoC.

The average daily turnover in the stock market in Shanghai was Rmb283.1bn last month, and in Shenzhen it was Rmb489bn. The volumes represented a month-on-month drop of 38.3% and 18.8%, respectively.

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Chinese banks recorded a foreign exchange settlement surplus of Rmb26.9bn in September, or $4bn in dollar terms, said the State Administration of Foreign Exchange (Safe).

For the first nine month of the year, forex surplus reached Rmb535.7bn, with Rmb10.25tr of forex settlements and Rmb9.71tr of forex sales.

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Foreign holding of onshore bonds and stock jumped 47% during the first three quarters of 2020 to $132.1bn, the Safe’s deputy administrator and spokesperson Wang Chunying said in a Friday press briefing.

Wang also said the forex regulator is looking at reforming the Qualified Foreign Limited Partners (QFLP) pilot programme to provider foreign investors with easier access to China's domestic private equity market.

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Huawei Technologies and ZTE Corp have been banned from participating in Sweden’s 5G networks, the Swedish Post and Telecom Authority said on Tuesday. Companies taking part in next month’s spectrum auction must not use products supplied by the Chinese telecom groups in new installations, and existing products must be phased out before 2025, it said.

The country’s head of security services has reportedly called China “one of the biggest threats to Sweden”.

Huawei reportedly said in a statement that it was “surprised and disappointed” by the “unfair and unacceptable” decision. The Chinese foreign ministry urged Sweden to “correct the wrong decision” in case of any negative impact on China-Sweden trade relations and on Swedish companies operating in the Mainland.

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Huawei released its latest smartphone on Tuesday evening. At the product launch event, Yu Chengdong, chief executive of Huawei’s consumer business group, admitted that the company is going through a “very difficult time” as it was hit by three US sanctions, but said it will continue developing new technologies.

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The US has labelled six more Chinese media outlets as ‘foreign missions’, secretary of state Mike Pompeo said on Wednesday.

This has taken the total number of Chinese news organisations recognised as Beijing’s propaganda outlets to 15. China said it “strongly opposes and condemns” the US’s decision.

Under the Foreign Missions Act, a foreign mission is “substantially owned or effectively controlled” by a foreign government. The new additions to the list are Beijing Review, Economic Daily, Jiefang Daily, Social Sciences in China Press, Xinmin Evening News, and Yicai Global.

“Our goal is to protect the freedom of press in the United States, and ensure the American people know whether their news is coming from the free press or from a malign foreign government,” the US State Department said in an announcement. “Transparency isn’t threatening to those who value truth.”

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S&P Global (China) Ratings has secured a licence from the China Securities Regulatory Commission (CSRC) to rate bonds and asset-backed securities issued in the country’s exchange market, a first for a wholly foreign-owned credit rating agency in China.

S&P China already holds a licence issued by the PBoC and the National Association of Financial Market Institutional Investors to rate domestic Chinese bonds — including financial bonds, corporate bonds, Panda bonds and structured products — in the interbank market.

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China’s forex regulator Safe said at an industry forum that it plans to assign $20bn-$30bn of quota in each quarter under the outbound investment scheme, Qualified Domestic Institutional Investor (QDII), onshore media Caixin reported. The annual quota will be kept within $10bn, said the report.

Safe last month granted fresh QDII quotas for the first time in nearly one and a half years, giving $3.36bn to 18 institutions.

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Beijing city will implement 100 measures to open up its financial sector, a government official said at a financial forum this week. The measures will take place in areas including foreign market access, cross-border financing and investment, international wealth management, green finance, financial technology, and digital currency.

Separately, qualified technology companies based in the Zhongguancun National Innovation Demonstration Zone in Beijing will be given $5m of foreign debt quota. The current $5m quota will be doubled for non-financial companies in the Haidian Park of the national zone, a senior official at Safe said at the same forum.

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Details of the Wealth Management Connect, a cross-border investment scheme for retail investors in the Guangdong-Hong Kong-Macao Greater Bay Area (GBA), could be finalised before Hong Kong’s policy address at the end of November, chief executive Carrie Lam told reporters.

The Hong Kong Monetary Authority has set a Rmb150bn one-way quota for the connect scheme. Each resident in GBA will be allowed to invest in no more than Rmb1m of investment products under the scheme, according to a Bloomberg report this week.

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Beijing Financial Holdings Group will become the largest shareholder in China Securities Co (CSC), a top securities house in China, having received CSRC approval this week. It is set to take over the 35.11% shares held by the Beijing State-owned Capital Operation and Management Center, CSC’s largest shareholder.

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The PBoC has fined six branches of three Chinese state-owned banks a combined Rmb42bn for infringement of customers’ personal information, showed a notice from the central bank. Four of them are branches of China Construction Bank, with the remaining two of Agricultural Bank of China and Bank of China, respectively.

By Addison Gong
23 Oct 2020