China policy and markets round-up: Beijing finalises D-Sib rules, Caixin PMIs hit decade high, US bill to delist Chinese companies clears House
In this round-up, China unveils guidelines to assess its domestic systemically important banks, both the November Caixin China manufacturing and general services Purchasing Managers’ Indexes beat expectations, and the US House of Representatives waves through a bill that could delist Chinese companies from its stock exchanges.
China’s top financial regulators have published articles related to the implementation of the country’s 14th five-year plan.
Finance minister Liu Kun said policy and development financial institutions are forbidden from facilitating illegal financing activities of local governments, and that local governments are banned from taking on hidden debt through corporates.
Central bank governor Yi Gang said the country must not monetise its fiscal deficit, and a “fire wall” should be put in place between fiscal and central bank funds. Yi also said that oversight will be strengthened over systemically important financial institutions, financial holding companies and financial infrastructure.
Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission (CBIRC), called the real estate sector “the biggest gray rhino” when it comes to threats to China’s financial system. The head of China Securities Regulatory Commission (CSRC), Yi Huiman, encouraged more direct financing in the Chinese capital markets.
The November Caixin China manufacturing Purchasing Managers’ Index (PMI) jumped to 54.9, the highest since December 2010, from 53.6 the previous month.
The improvement, in line with the rise in China’s official PMIs released on Monday, “suggests the sequential momentum of China’s growth recovery, especially in the manufacturing sector, improved in November”, economists at Nomura wrote in a note.
Meanwhile, the Caixin China general services PMI came at 57.8. The reading was the second highest since May 2010, following June 2020’s 58.4.
For the first 10 months of 2020, China’s service imports and exports dropped 16.1% year-on-year to Rmb3.725tr ($569bn), data from the Ministry of Commerce showed.
The State Administration of Foreign Exchange (Safe) plans to grant $4.3bn of new quota under the outbound Qualified Domestic Institutional Investor (QDII) scheme to 23 institutions. These include fund management companies, securities companies, banks and their wealth management subsidiaries, and trust companies.
The latest round of investment limit takes the year’s total to $12.7bn. The forex regulator restarted assigning QDII quotas in September after a 1.5 year gap.
The total size of the asset management businesses from Chinese fund managers and their subsidiaries, as well as securities, futures and private fund management companies, reached Rmb56.17tr by the end of the third quarter, data from the Asset Management Association of China showed. The number stood at Rmb52.23tr at the end of last year.
The amount of assets held in trusts in China dropped for 11 consecutive quarters to Rmb20.86tr by the end of the third quarter of 2020, according to the China Trustee Association.
The People’s Bank of China (PBoC) and the CBIRC finalised guidelines to assess domestic systemically important banks (D-Sibs) on Thursday, having published draft rules last November.
The regulators will jointly grade Chinese banks based on their annual financial data from the previous accounting year, and release a list of D-Sibs annually. The PBoC and CBIRC have lowered the scoring requirement to 100 points from 300 in the draft rules for a bank to be added to a preliminary list of D-Sibs, but not necessarily the final list.
The list, once finalised, will be subject to approval from the State Council’s Financial Stability Board. The guidelines will take effect from January 1, 2021.
Foreign institutions held Rmb3.1tr of bonds in China’s interbank bond market (CIBM) at the end of November, posting a Rmb96.7bn monthly increase, latest PBoC data showed. Nearly 58% of those were Chinese government bonds, and 29% were bonds issued by policy banks.
Seventeen new offshore investors entered the interbank market in November, taking the total number of foreign accounts in CIBM to 893 at the end of last month, according to the China Foreign Exchange Trading System. Over half of those investors — 612 — accessed onshore bonds via Bond Connect, 467 chose CIBM Direct, and 186 accounts used both channels.
The CIBM trading volume by foreign investors totalled Rmb875.4bn in November, with an average daily turnover of Rmb39.8bn. Their monthly net purchases were Rmb122.86bn.
Separately, Bond Connect data showed that the November trading volume reached Rmb485bn from 5,895 tickets, with an average daily turnover of Rmb23.1bn. There were 2,307 registered Bond Connect investors at the end of last month.
The total Bond Connect trading volume reached Rmb4.365tr for the first 11 months.
The PBoC and the Hong Kong Monetary Authority are in talks with market participants to study the framework and the main features for southbound trading under the Bond Connect scheme, according to various onshore media reports.
The southbound Bond Connect will provide domestic investors access to the offshore bond market. The northbound trading was launched over three years ago.
The PBoC is looking to revise the trading rules for bonds in the interbank market. It is taking public feedback until December 14.
The key change is to remove the requirement for issuers and their lead underwriters to provide a list of initial bondholders and their investment amounts. The move will increase the “timeliness” and efficiency of trading, and “materially benefit the market players”, the central bank said.
The Hong Kong Exchanges and Clearing (HKEX) launched the Sustainable and Green Exchange (STAGE) this week. It is the first multi-asset sustainable investment product platform in Asia.
The platform features an online product repository consisting of 29 sustainable-themed products — including sustainability, green and transition bonds — from leading Asian corporations. The scope of the product repository will grow over time.
Issuers included on STAGE are required to provide additional voluntary disclosures on their sustainable investment products, such as use of proceeds reports and annual post issuance reports, said the HKEX. The new exchange will help meet the need for information about sustainable products and ESG data, HKEX’s head of markets Wilfred Yu said in a press release.
Ant Group is unlikely to get its IPO done before 2022, Bloomberg reported, citing regulatory officials familiar with the matter.
Ant is “still in the early stages of reviewing changes needed to appease regulators, who demand that its business comply with a slate of new and proposed guidelines in areas including lending to consumers”, the report said, adding that there is “so much work needed and some rules not yet spelled out”. Ant was forced to delay its landmark dual IPOs on Hong Kong and Shanghai’s Star Market last month.
The US House of Representatives passed the Holding Foreign Companies Accountable Act on Wednesday evening US time. The legislation, which already cleared the Senate in May, will ban foreign companies from listing their securities on American exchanges if they fail to comply with the US Public Accounting Oversight Board’s audits for three years in a row.
US president Donald Trump will need to sign it into law — which could result in the delisting of Chinese companies from the US stock market — or veto it.
UK-based index provider FTSE Russell published the results of the FTSE China Index series quarterly review on Tuesday, with the changes effective from December 21.
Aier Eye Hospital Group, BYD and Luzhou Laojiao will be added to the FTSE China A50 Index. China United Network Communications, Chongqing Zhifei Biological Products and Poly Developments and Holdings will be removed.
China International Capital Corp, JD.com, NetEase, Smoore International Holdings and Zijin Mining Group are the new additions to the FTSE China 50 Index. CGN Power, China Railway Group, China Unicom Hong Kong, CRRC and ZTE will be deleted.
Domestic ratings agency China Lianhe Credit Rating Co plans to list on an A-share mainboard, according to an update on the CSRC’s website. Citic Securities will help the company go through the pre-IPO tutorial process, a standard procedure for firms going public in the Mainland.
The National Association of Financial Market Institutional Investors (Nafmii) has launched a probe into Donghai Fund Management Co on suspicions it had allegedly facilitated illegal debt issuance, as well as for alleged market manipulation. Donghai Fund is 45% owned by Donghai Securities.
The regulator did not name specific issuers of the debt financing instruments. The investigation follows a recent high-profile default from Yongcheng Coal and Electricity Holding Group. Nafmii had previously announced investigations into the issuer Yongcheng Coal, Haitong Securities, three Chinese banks, as well as Xigema Certified Public Accountants and China Chengxin International Credit Rating.
China Development Bank’s Rmb42.5bn financial bonds — with tenors of one, three, five, seven and 10 years — became the first domestic renminbi bonds to be listed on the Singapore Exchange on Thursday.
The Guangdong provincial government plans to issue Rmb10bn of special purpose bonds to support small and medium-sized banks. The bonds will have a 10 year tenor with semi-annual coupons. The government plans to pay 20% of the principal each year starting 2026.
Industrial and Commercial Bank of China is set to welcome a new vice president, Zhang Weiwu, Caixin reported exclusively. The bank, the world’s largest, currently has four vice presidents, in addition to its president Gu Shu.