Copying and distributing are prohibited without permission of the publisher.

Watermark

China policy and markets round-up: Nafmii tightens bond regulations, Yongcheng Coal investigation broadens, Chinese holding of UST hits three-year low

yuan_renminbi_adobe_575px_20May2020
By Addison Gong
20 Nov 2020

In this round-up, the interbank bond market regulator announces stricter rules for domestic bond issuance, the investigation into firms linked to a defaulted state-owned issuer widens, and China reduces its holding of US Treasury bonds for four straight months.


China’s fiscal revenue dropped 5.5% year-on-year for the first 10 months of 2020 to Rmb15.85tr, latest data from the Ministry of Finance (MoF) showed.

*

Foreign investment in China totalled Rmb81.9bn in October, up 18.3% annually, or $11.8bn in dollar terms. This is the amount actually invested, rather than previously agreed on.

*

China’s non-financial outbound investment (ODI) dropped 3.2% year-on-year to Rmb602bn between the January to October period, according to the Ministry of Commerce.

*

The People’s Bank of China (PBoC) injected Rmb800bn of one-year medium-term lending facility (MLF) loans into the banking system on Monday, keeping the rate steady at 2.95%. It was the central bank’s largest single MLF operation so far in 2020.

*

The one year loan prime rate (LPR) for November was left unchanged at 3.85%, and the five year and above LPR at 4.65%, the PBoC said on Friday morning. The benchmark lending rate was kept steady for the seventh consecutive month.

*

For the first three quarters of 2020, 135 Chinese securities houses reported revenues of Rmb342.4bn with Rmb132.7bn in net profits, according to the Securities Association of China. Their total assets stood at Rmb8.57tr by the end of September.

*

The National Association of Financial Market Institutional Investors (Nafmii), a regulator in China’s interbank bond market, tightened rules on domestic bond issuance to help debt financing become more standardised.

These include banning issuers or their related entities from buying their own bonds directly or indirectly. The requirement is in line with a draft regulation earlier this year from the China Securities Regulatory Commission on bonds issued in the exchange market.

Other changes include bookbuilding for new bonds to finish no later than 8pm on a scheduled day, or for the extended bookbuilding to be no later than 11am the next day.

*

Nafmii said it is investigating more firms relating to Yongcheng Coal and Electricity Holding Group, a state-owned issuer that defaulted on a domestic bond last week.

Having already launched investigations into the issuer and Haitong Securities, the regulator said on Thursday that China Everbright Bank, Industrial Bank and Zhongyuan Bank, as well as Xigema Certified Public Accountants and credit rating agency China Chengxin International Credit Rating, are suspected of allegedly violating rules in the interbank bond market.

*

The National Development and Reform Commission (NDRC) plans to increase regulatory oversight on the ‘enterprise bonds’ that it regulates to curb default risks, said spokesperson Meng Wei. The NDRC will also work closely with other regulators in areas including information disclosure to better protect investors’ interest. 

*

There were 1.12m new investors in the A-share market in October, taking the total number of investors to 174.6m, according to data from the China Securities Depository and Clearing Corp. The increase last month was 41% higher than a year ago, but 27% less than what was recorded in September.

*

The timing of Ant Group’s IPO will depend on how the Chinese government restructures its regulatory framework “in terms of financial technology and also depends on how the company reacts to the changing regulatory requirements”, Fang Xinghai, vice chairman at the CSRC, said on Tuesday at the Bloomberg New Economy Forum.

*

China reduced its holding of US Treasury bonds for the fourth consecutive month in September, cutting its exposure from $1.068tr the previous month to $1.0617tr, the lowest level in over three and a half years.

*

Chinese local governments issued Rmb442.9bn of bonds in October, including Rmb159bn of general purpose bonds and Rmb283.9bn of special purpose bonds, according to the MoF. Some Rmb253bn of the issuance was for refinancing.

The bonds have an average tenor of 13.5 years and pay a coupon of 3.67% on average.

For the first 10 months combined, local government bond issuance hit Rmb6.12tr. Outstanding government bond volume in China stood at Rmb25.8tr by the end of October.

*

Earlier this year, China encouraged its local governments to use special purpose bond issuance to support small and medium sized regional banks. The MoF said this week that it has assigned Rmb200bn of quotas for such bonds, in order to help mitigate risks at smaller lenders.

*

In the next 12 months, 62% of top international institutional investors and large corporates intend to increase their China portfolio allocations by 24.5% on average, according to a survey of 935 accounts by HSBC Qianhai Securities.

*

The MoF plans to sell Rmb5bn of government bonds in Hong Kong next Wednesday, said an announcement by the Hong Kong Monetary Authority.

The issuance is made up of a Rmb3.5m tap of an existing Rmb7.5bn 2.1% 2022 bond, as well as a Rmb1.5bn tap of the government’s outstanding Rmb2.5bn 2.2% 2025 note.

*

The Shenzhen Stock Exchange set up an accounting advisory committee on Thursday, in a bid to increase the quality of financial information disclosure and help the bourse to review applications for stock listings and securities issuance.

*

The US Securities and Exchange Commission intends to propose new regulations by the end of the year that would lead to the delisting of companies from its stock exchanges if they don’t comply with US auditing rules, Bloomberg reported, citing people familiar with the matter.

In response to the report, Chinese foreign ministry spokesperson Zhao Lijian said on Wednesday that China has never tried to stop auditors from submitting work papers — documents which track the workflow of audits — of foreign-listed Chinese companies to overseas regulators, and that “open dialogue and cooperation” between the two countries would be the right way to solve the dispute.

*

Muddy Waters Research called Nasdaq-listed YY Live, a video-based social media platform, “a multibillion-dollar fraud”, alleging that around 84% of YY’s reported consolidated revenue was fraudulent. Its short report on Wednesday was published just a couple of days after Baidu’s announcement to acquire YY for $3.6bn in an all-cash deal.

A year-long investigation revealed that YY’s component businesses are “a fraction of the size it reports”, and that its reported user metrics, revenues, and cash balances are allegedly “predominantly fraudulent”, Muddy Waters said. “Our conclusions apply not only to the legacy YY Live business, but also to Bigo, YY’s online dating business, and really everything these people have touched,” the short seller added.

YY retaliated by saying in a Thursday statement that “Muddy Waters’ report shows its lack of a basic understanding of the live streaming industry in China”.

The report contains “numerous errors, unsubstantiated statements, and misleading conclusions and interpretations” of information relating to YY, the statement said. YY added that it is “open to cash verification and diligence to be conducted by competent third-party advisers”.


By Addison Gong
20 Nov 2020