China policy and markets round-up: CPI inflation drops to decade low, Beijing vows better Sino-Italian financial co-operation, regulator drafts rules to rein in internet monopolies
In this round-up, October headline Consumer Price Index (CPI) inflation hits a 11-year low, the Chinese and Italian finance ministers promise to work on the two-way opening up of the countries’ financial markets, and the top market watchdog readies anti-monopoly rules for the internet sector.
China’s CPI rose 0.5% year-on-year in October, down from a 1.7% increase in September, data from the National Bureau of Statistics showed on Tuesday. That was the slowest growth in 11 years.
The Producer Price Index, or PPI, dropped 2.1% compared to a year ago, unchanged from what was recorded in September.
The decline in CPI inflation does not mean China is experiencing deflation given the drop was mainly driven by pork prices, economists at Nomura said in a note. According to them, CPI inflation excluding pork was actually stable at 0.7% year-on-year between August and October after bottoming out at 0.4% in July, despite negative PPI inflation which was driven by lower global oil prices.
Nomura expects headline CPI inflation to drop further towards zero in the next few months.
The broad M2 measure of money supply grew 10.5% year-on-year in October, down slightly from September’s 10.9% growth, according to data from the People’s Bank of China (PBoC).
Outstanding renminbi loans increased 12.8% last month. New renminbi loans stood at Rmb689.8bn by the end of October, significantly lower than the Rmb1.9tr a month ago.
Outstanding total social financing (TSF) jumped 13.7% on an annual basis to Rmb281.3tr. New TSF from October was Rmb1.42tr, down from Rmb3.48tr in the previous month.
Economists at Barclays expect China’s credit growth to stabilise at a high level in November and December, before moderating in the first quarter of 2021.
Chinese finance minister Liu Kun held a videoconference with his Italian counterpart Roberto Gualtieri on Wednesday.
They agreed to work on the bilateral opening up of the two countries’ financial markets and improve co-operation in areas including financial technology and green finance. China said it welcomes more qualified Italian financial institutions and companies to invest and start businesses in the Mainland, in areas like private equity and securities investment fund management. They are also encouraged to issue Panda bonds.
Beijing also encourages Italian banks and financial market infrastructure providers to participate in the Cross-border Interbank Payments System (CIPS). The countries will continue to work together to fund projects under the Belt and Road Initiative, and will encourage Chinese and Italian financial institutions to sign green investment principles under Belt and Road.
The State Administration for Market Regulation (Samr) launched draft anti-monopoly rules targeted at internet platforms on Tuesday, causing a plunge in the share prices of Chinese technology giants Alibaba Group, Tencent Holdings and Meituan-Dianping.
Among other things, the rules defined what constitutes market dominance as well as monopolistic behaviour, including unfair prices, below-cost sales, restricted transactions and tie-in sales. In particular, forcing merchants to choose one internet platform over another is considered an abuse of a platform’s dominant position, Samr said.
The rules will protect fair market competition and safeguard the interest of consumers, the regulator said. The public has until November 30 to provide feedback to the draft regulations.
China’s banking institutions recorded total assets — in all currencies — of Rmb315.2tr by the end of the third quarter, after an annual increase of 10.5%, said the China Banking and Insurance Regulatory Commission (CBIRC). The net profits at the commercial banks declined 8.3% year-on-year to Rmb1.5tr.
Total car sales in China increased 12.5% year-on-year to reach 257.3m vehicles in October, according to the China Association of Automobile Manufacturers. These included 160,000 new energy vehicles, after a 104.5% annual growth.
China’s central bank sold two renminbi bills in Hong Kong on Thursday. The Rmb10bn three month bill was priced at 2.85%, and the Rmb15bn one year bill at 2.9%.
Global institutional investors including banks, central banks, funds and supranationals in Asia, Europe and the Americas collectively bid Rmb68.5bn for the deal, said the PBoC.
The Ministry of Finance wants local government bond issuance to become more market-oriented, and for bond pricing to properly reflect the difference between regions and the projects funded, it said in Wednesday notice.
It asked local government issuers to improve information disclosure. Local governments are required to submit their bond issuing plan for the next quarter to the MoF before the 20th of March, June, September and December each year.
Among other things, the MoF also specified that new general purpose bonds and refinancing bonds should have a maximum tenor of 10 years, while bonds longer than 10 years should not exceed 30% of the total issuance size. Special purpose bonds, on the other hand, should have a maturity that matches the projects they fund.
The board of directors of GF Securities approved a plan to reorganise its investment banking operations. This includes setting up a new investment banking business committee that will oversee six departments and relevant businesses.
The move came just four months after GF was hit by a six-month ban in IPO sponsorship by the Chinese securities regulator for its role on a series of fundraisings for Kangmei Pharmaceutical Co, which committed financial fraud. GF’s bond underwriting business was also suspended, for one year.
Ningbo-based Yongxing Securities officially started business on Monday, making it the first new domestic securities house in China in a decade. Yongxing has a registered capital of Rmb2bn, and took over the securities business of CEFC Shanghai Securities, a subsidiary of the bankrupted CEFC Shanghai International Group.
The China Securities Regulatory Commission (CSRC) said it will reform or restructure listed Chinese companies that are considered risky, or push them to delist from stock exchanges, as part of a broader plan to strengthen its oversight on listed companies’ corporate governance.
The Shanghai Stock Exchange said it will support more ‘hard technology’ companies hoping to list in the Star market. It sees the Nasdaq-style board having a “demonstration effect” for sectors including integrated circuit, biopharmaceutical and high-end equipment manufacturing.
The Hong Kong Exchanges and Clearing is working on broadening the investment scope of the Stock Connect programme, its outgoing chief executive Charles Li said in a Thursday article he wrote, putting the emphasis on including secondary-listed Hong Kong stocks and pre-revenue biotech companies that “meet certain conditions” in the Southbound Connect.
MSCI has completed its November 2020 semi-annual review of its equity indices. It plans to add 58 stocks to the MSCI China A Onshore Indexes and delete 23, with Yihai Kerry Arawana, Great Wall Motor and Montage Technology as the three largest additions.
MSCI also made changes to other China-related indices including MSCI China A Onshore Small Cap Index, MSCI China All Shares Index and MSCI China All Shares Small Cap Index.
The CBIRC is revising current regulations covering Chinese insurance companies setting up branch offices.
Under the revised rules, insurers that wish to open offices in provinces or municipalities they are not based in must set up a provincial-level branch first. They are also required to have a comprehensive solvency ratio above 150% for the last financial year as well as for two consecutive quarters before they apply to set up the provincial branch, as well as a core solvency ratio of at least 75%, the CBIRC said.