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The week in review: China posts strong November PMIs, Stock Connect expanded, US to add SMIC, Cnooc to investment blacklist

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By Addison Gong
30 Nov 2020

In this round-up, the official manufacturing and services Purchasing Managers’ Indexes reach multi-year highs, the bourses in Hong Kong, Shanghai and Shenzhen add pre-revenue biotech companies listed in Hong Kong as well as Star market shares to the Stock Connect programme, and four more Chinese companies will be added to a US list of firms with alleged military ties.


China’s official manufacturing Purchasing Managers’ Index (PMI) came at 52.1 in November, the highest since October 2017, data from the National Bureau of Statistics showed on Monday. The November non-manufacturing PMI, or the services PMI, hit 56.4.

The October manufacturing and services PMI readings were 51.4 and 56.2, respectively.

The manufacturing PMI is in line with the improvement in high-frequency indicators such as the manufacturing operation rate which was led by the textile and auto sectors, and stronger regional export data, said economists at Barclays.

The services PMI has also improved for four consecutive months and reached its highest in 8.5 years, they wrote in a Monday morning note. “Given the services sector is a major driver of GDP growth, we think the better November services PMI, along with stronger manufacturing growth, support our above-consensus [fourth quarter] GDP growth forecast.”

Nomura economists expect China’s official manufacturing PMI to “remain solid” at around 51-52 in the coming months. The official non-manufacturing PMI, however, “may slide a bit on a high base”, they wrote on Monday.

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Senior officials at top Chinese financial regulators spoke at an annual event by the China Society for Finance and Banking.

Vice central bank governor Liu Guiping said China will allow foreign capital to “participate in depth” in the domestic asset management industry. The China Banking and Insurance Regulatory Commission’s vice chairman Cao Yu said the country must find a balance between strengthening regulatory oversight and supporting financial innovation, and that “fake innovations” must be prevented. Yan Qingmin, vice head of the China Securities Regulatory Commission (CSRC), said the delisting mechanism will be improved and fraudulent companies and those that have lost the ability to operate will be forced to exit the market.

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China contributed to over 30% of the global economic growth in 2019, said Chi Fulin, vice chairman of the China Society of Economic Reform. Chi expects the country’s contribution to remain between 25% and 30% in the next five to 10 years.

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China’s foreign portfolio investment stood at $700.6bn by the end of June, including $410.6bn of equity investment and $290bn in bonds, latest data from the State Administration of Foreign Exchange (Safe) showed.

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China plans to expand the Qualified Domestic Limited Partnership (QDLP) and Qualified Domestic Investment Enterprise (QDIE) trial programmes already in place in Beijing, Shanghai and Shenzhen to meet the global asset allocation needs of domestic investors, Safe said. It will also launch QDLP trials in Chongqing and the Hainan Free Trade Port.

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Some 12.17bn new bank accounts were opened in the third quarter of 2020 in China, data from the People’s Bank of China (PBoC) showed. The number represented a 2.52% quarter-on-quarter growth.

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The Chinese central bank injected Rmb200bn ($30.4bn) into the banking system via one-year medium-term lending facility (MLF) on Monday, keeping the rate stable at 2.95%. It plans to conduct another MLF operation on December 15 of an unspecified size.

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The stock exchanges in Hong Kong, Shanghai and Shenzhen have announced the expansion of the Stock Connect programme, in line with Hong Kong chief executive Carrie Lam’s initial comments last week.

The connect will now include eligible pre-revenue biotechnology companies listed in Hong Kong, and eligible A-shares listed on Shanghai’s Star market.

Star-listed shares that are constituent stocks of the SSE 180 Index and SSE 380 Index or have H-share counterparts will be eligible for Northbound trading under the Shanghai-Hong Kong Connect. Shares of Hong Kong-listed pre-revenue biotech companies that are included in the Hang Seng Composite Index, or have corresponding A-shares listed in Shanghai or Shenzhen, will become part of the Southbound trading. Also, the H-shares of Star-listed biotech companies will be included in Southbound trading.

In a Friday announcement, the Hong Kong Exchanges and Clearing said the expansion reflects “the ongoing commitment by the three exchanges to continue enhancing the mutual market access programme between the capital markets of Mainland China and Hong Kong, to help ensure their continued healthy development”.

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The National Development and Reform Commission is studying the possibility of setting up a Macau Stock Exchange in Hengqin, Zhuhai. Establishing the exchange will be beneficial to the special administrative region’s economic development as well as that of the Guangdong-Hong Kong-Macau Greater Bay Area, said the regulator.

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The US plans to add chipmaker Semiconductor Manufacturing International Corp and oil major Cnooc to a blacklist of companies with alleged ties to the Chinese military, Reuters reported, citing sources.

The list will also feature China Construction Technology Co and China International Engineering Consulting Corp, which will take the total number of firms affected to 35, added the report.

US investors will be banned from buying securities in the blacklisted companies by a recent executive order by president Donald Trump.

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China’s shadow banking sector has shrunk by Rmb20tr from its peak, Liu Fushou, the CBIRC’s legal head, said last Friday.

Liu added that the country had eliminated all peer-to-peer (P2P) lending platforms by the middle of November. Liu previously said at an early November State Council briefing that the number of these platforms had plunged to just three from 5,000 at the peak, and that the number of people using P2P platforms and the amount borrowed had dropped for 28 consecutive months.

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The Shanghai Stock Exchange (SSE) and Shenzhen Stock Exchange (SZSE) released rules for ‘selection tier’ companies on China’s over-the-counter National Equities Exchange and Quotations (NEEQ) — or the New Third Board — to transfer their listings to Shanghai’s Star market or the ChiNext board in Shenzhen. Companies that belong to the New Third Board’s ‘selection tier’ typically have longer operating histories compared to those in the ‘innovation tier’ and ‘base tier’.

The public feedback period for the new rules runs through December 11.

Among other things, those eligible to move to Star or ChiNext boards must be listed as a ‘selection tier’ company for at least one year, have more than 1,000 shareholders, and at least 10m in trading volume over 60 business days before making any filings to move from NEEQ to the other two boards. The approval of the transfer of listings will take two months. The controlling shareholders are faced with a 12-month lock-up period on their stocks.

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The SZSE published guidelines on the issuance of five innovative types of corporate bonds, streamlining the requirements on issuers, use of proceeds, information disclosure and documentation.

The guidelines, aimed at improving information disclosure and protect the rights of investors of the bonds, cover green corporate bonds, extendable bonds, special bonds for poverty alleviation, special bonds for bailout or rescue, and short-term bonds.

The stock exchange in Shanghai released similar guidelines for an additional type of bonds, special bonds for innovation and entrepreneurship.

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The CSRC held a meeting last week with 17 regulators and ministries on improving the quality of listed companies.

The parties agreed to work on improving listed firms’ corporate governance, and to further crack down on any illegal activities. They also said they will coordinate and balance the financing and investment in onshore capital markets, and attract medium and long-term funds to the market.

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By the end of 2019, there were 298 domestically-listed companies in Shenzhen with total assets of Rmb27.83tr, according to a report by the Shenzhen Research and Association of Corporate Governance.

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The State Council has told the State Administration for Market Regulation to look into the possibility of introducing corporate dormancy to domestic companies that fail to publish their annual financial reports, according to a government announcement.

The announcement is based on feedback collected by the State Council in October in more than two dozen Chinese provinces.

The PBoC and the CBIRC were asked by Shanghai-based companies to relax the bank account opening requirements for small and micro-sized enterprises.

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Huishang Bank disclosed the progress made around its acquisition and takeover of beleaguered Baoshang Bank’s asset and liabilities in a Friday evening stock exchange filing in Hong Kong. China has set up Mengshang Bank to succeed Baoshang in Inner Mongolia, while its business outside of Inner Mongolia was transferred to Huishang.

According to the filing, both the net book value of assets and the total liabilities of Baoshang taken over by Huishang stood at Rmb98.4bn. The asset valuation was Rmb65.3bn, and the business value Rmb15.3bn.

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The CSRC said it has launched an investigation into Yongcheng Coal and Electricity Group Co, a Chinese bond issuer that unexpectedly defaulted on a Rmb1bn short-term bond this month, as well as accounting firm Xigema Certified Public Accountants.

The CSRC investigation follows another one from the National Association of Financial Market Institutional Investors (Nafmii), which said last week it has handed over evidence of alleged illegal activities relating to the issuer to China’s securities regulatory departments.

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Luckin Coffee’s co-founder and former chairman Lu Zhengyao has been fined Rmb300,000 by the Chinese securities regulator, according to updates on the CSRC website.

Of the fine, Rmb200,000 is related to information disclosure violations at Chinese ride-hailing company UCar, which Lu controls. The other Rmb100,000 concerns related party transactions between Luckin, UCar and Beijing Qwom Digital Technology. The CSRC also fined UCar Rmb500,000 and Beijing Qwom Rmb300,000.

Separately, a stock exchange filing in Hong Kong showed that holders of three dollar bonds by auto rental firm Car Inc — also co-founded by Lu — have given consent to changing the definitions of “permitted holders”, “change of control” and “rating decline” in the bond documents to facilitate a proposal from MBK Partners to take the company private.


By Addison Gong
30 Nov 2020