The week in review: China recovery on track, profit slump at banks eases, HK goes to WTO for ‘made in China’ dispute
In this round-up, the Purchasing Managers’ Index reading for October points to steady recovery momentum for the Chinese economy, profitability improves at the country’s largest state-owned lenders, and Hong Kong seeks help from the World Trade Organization to ban the US’s demand for its exports to be labelled ‘made in China’.
China’s official manufacturing Purchasing Managers’ Index (PMI) for October was 51.4, beating consensus forecast of 51. The September reading was 51.5.
Last month’s non-manufacturing PMI stood at 56.2, versus September’s 55.9.
Both readings suggest steady recovery momentum into the fourth quarter of 2020, wrote economists at Barclays in a Monday note. “With the [third quarter] growth in manufacturing industries already exceeding the pre-Covid levels, supported in part by strong exports, we think the October PMI print suggests momentum remained intact entering [the fourth quarter],” they said.
Economists at Nomura, however, cautioned the “unstable quality of PMI data”.
“Note the official manufacturing PMI for small and medium-sized enterprises fell to 49.4 and 50.6, respectively, in October from 50.1 and 50.7 in September,” they wrote on Monday.
The Caixin China manufacturing PMI released on Monday morning reached 53.6, its highest level since February 2011.
The State Council’s Financial Stability and Development Committee held a meeting at the end of last week, following the launch of the new ‘five year plan’ by the Fifth Plenum of the Chinese Communist Party’s 19th Central Committee.
The committee proposed to deepen reforms at Chinese commercial banks and support the healthy development of medium and small sized lenders. It plans to continue pushing forward the two-way opening up of the financial industry.
In capital markets, a market-wide registration system for equity financing and a delisting system will need to be put in place. The committee also intends to strengthen information disclosure and transparency, and reiterated China’s ‘zero tolerance’ stance on financial crimes.
China’s GDP per capita will reach $24,000 by 2033 and $41,000 by 2050, according to a report by the Institute of Economics of the Chinese Academy of Social Sciences. The number was $10,262 for 2019, according to World Bank data.
Foreign investors held Rmb2.75tr of Chinese stocks and Rmb2.98tr in domestic bonds by the end of September, latest data from the People’s Bank of China (PBoC) showed.
Outstanding loans by Chinese financial institutions grew 13% year-on-year to Rmb169.37tr by the end of the third quarter, said the PBoC. The increase, worth Rmb16.26tr, was Rmb2.63tr higher than what was recorded during the same period in 2019.
By the end of September, outstanding loans from Chinese microcredit companies stood at Rmb902bn.
China’s large state-owned banks saw their profit declines moderate in the third quarter as the country’s economic rebound continues.
Four of the ‘big five’ banks reported their financial results for the quarter ending September last Friday, with Bank of China posting a 1.6% year-on-year drop in net profits. Both Agricultural Bank of China and Industrial and Commercial Bank of China saw a decline of 4.6%, and Bank of Communications a higher 7%. The number stood at 4.14% for China Construction Bank, which released results last Thursday.
Profits had plunged 11.5%, 10.8%, 11.4%, 14.61% and 10.77% on an annual basis for the first half of 2020 for the five banks, respectively.
The China Securities Regulatory Commission (CSRC) has set goals based on the new five year plan released by the Fifth Plenum.
It plans to come up with measures to encourage more direct financing and long-term investment in the capital markets, as well as improve market infrastructure. It has pledged to curb risks in the capital markets and prevent systemic risk, and push for a better legal mechanism for capital market crimes.
The China Central Depository & Clearing Co (CCDC) has decided to give another 20% discount in service fees for onshore bond issuance, following a similar move in January, from November 1.
The discounts are expected to save Rmb500m for Chinese issuers — including local governments, policy and commercial banks and corporate issuers — this year, and Rmb660m in 2021, said the CCDC.
The Ministry of Finance, PBoC and the CSRC have asked Chinese banks and securities houses to apply before November 16 to be part of the government bond underwriting groups for 2021-2023. The underwriters are chosen every three years.
No more than 55 underwriters will be selected. For non-tradable China government ‘savings’ bonds, a maximum of 40 banks will be chosen.
The regulators have also revised the requirements for government bond underwriters. A new clause has been added to ban institutions that broke laws around anti-money laundering and anti-terrorist financing from becoming the underwriters.
The government of Hong Kong will launch proceedings at the World Trade Organization to challenge the US’s demand to label imports from the special administrative region as ‘made in China’, secretary for commerce Edward Yau told reporters last Friday.
“The US's unilateral and irresponsible attempt to weaken Hong Kong's status as a separate customs territory is highly inappropriate,” Yau reportedly said. “Such a move also confuses the market and undermines the rules-based multilateral trading system.”