China policy and markets round-up: Xiaomi, Cnooc added to US blacklists, Beijing launches grading system for consumer finance companies, insurance asset managers
In this round-up, the US adds Chinese technology giant Xiaomi Corp and oil major Cnooc to its blacklists, and Beijing announces measures to monitor consumer finance companies and insurance asset managers.
The US has put restrictions over more Chinese companies. The Department of Commerce said on Thursday it has added China National Offshore Oil Corp (Cnooc) to the entity list, and Skyrizon to the military end-user list.
On the same day, the Department of Defense (DoD) released the names of nine firms with alleged ties to the Chinese military. The list included electronics company Xiaomi Corp, Commercial Aircraft Corp of China and China National Aviation Holding Co.
An executive order by president Donald Trump — who has five more days in office before Joe Biden is sworn in as the new US president — bans US investment in firms on the DoD’s blacklist from November 2021.
China’s exports jumped 10.9% year-on-year in December, or 18.1% in dollar terms, showed data released on Thursday by the General Administration of Customs. December imports increased 6.5% compared to a year ago, with a trade surplus of Rmb516.81bn or $78.17bn.
For 2020, China recorded a 27.4% yearly increase in trade surplus to Rmb3.7tr. Exports rose 4% year-on-year to Rmb17.93tr with a mild decline of 0.7% in imports to Rmb14.23tr. The total trade volume, Rmb32.16tr, was 1.9% higher than what was seen in 2019.
The People’s Bank of China (PBoC) published the December credit and financial data this week.
Total social financing (TSF) increased by Rmb1.72tr last month, which was Rmb482.1bn lower compared to December 2019. The full year 2020 TSF growth totalled Rmb34.86tr — Rmb9.19tr more than what was recorded the previous year.
Outstanding TSF stood at Rmb284.83tr by the end of December 2020, posting a 13.3% annual rise, PBoC data showed. Economists at UBS expect China’s TSF credit growth to moderate from 13.3% to 10.8% in 2021, they wrote in a Wednesday note.
New renminbi loans hit Rmb12.6tr in December, taking the 2020 total to Rmb19.63tr, which was Rmb2.82tr more than what was seen in 2019. Growth in M2 money supply slowed to 10.1% year-on-year by the end of December, from 10.7% in November.
Outstanding inclusive loans to small-and-micro sized enterprises at the end of December 2020 rose over 30% year-on-year to exceed Rmb15tr, according to the banking and insurance regulator.
Car sales in China rose 6.4% year-on-year in December to 2.83m vehicles, according to the China Association of Automobile Manufacturers. Total sales volume last year, however, saw a 1.9% annual decline to 25.3m vehicles. There were 10.9% more new energy cars sold in 2020 compared to 2019.
The China Banking and Insurance Regulatory Commission (CBIRC) has launched a grading system for consumer finance companies. The firms will be evaluated in five areas: corporate governance and internal control which accounts for 28% of the final scoring, capital management (12%), risk management (35%), the quality of services (15%), and information technology management (10%).
Based on their scores, consumer finance companies will be divided into five grades, grade one being the safest with minimum regulatory oversight required. Grade four companies are those with “significant problems and risks” and will be closely monitored by the regulator, with at least one on-site inspection per year and other regulatory measures when necessary, such as stopping dividend payments. Grade five companies require rescue measures such as M&A, reorganisation or strategic investments. They are subject to government takeover and can be forced to exit the market.
The grading will be assigned before the end of April each year for the last January-December period, the CBIRC said.
The CBIRC also announced measures to regulate insurance asset managers with a similar grading system.
It plans to assess the companies in corporate governance and internal control, asset management ability, risk management, trade and operational support, and information disclosure. Insurance asset managers with a score above 85 will be classified as a type A company. Those with scores between 70 and 85 are class B while 60-70 are class C. The riskiest type D companies which score below 60 could have their existing business scope cut down or receive a ban in taking on new businesses.
A total of 171 institutions have been granted Qualified Domestic Institutional Investor (QDII) quotas worth a combined $125.72bn as of Tuesday, data released by the State Administration of Foreign Exchange showed. More specifically, banks received $16.37bn, securities companies $64.43bn, insurers $35.9bn, and trust firms $9.02bn.
Some 54 non-Chinese issuers had tapped the Panda bond market by the end of 2020 for Rmb265bn, data from the National Association of Financial Market Institutional Investors (Nafmii) showed. These included Rmb21bn of volume from foreign governments, Rmb13bn from international development agencies, and Rmb231bn from corporates. Nafmii regulates non-financial bonds in China’s interbank bond market.
Issuance volume increased 12.2% year-on-year in 2020 to Rmb52.55bn, according to the regulator.
Nafmii has banned defaulted issuer Yongcheng Coal and Electricity Group from selling bonds in the interbank market for one year, and its parent Henan Energy and Chemical Industry Group Co for seven months, according to a Thursday notice. State-owned Yongcheng Coal unexpectedly defaulted on a Rmb1bn bond last November, and has since failed to repay in full a handful of other domestic deals.
Yongcheng was criticised by Nafmii for “inaccurate and partial” information disclosure, and Henan Energy for behaviours including subscribing to its own bonds and bonds issued by its subsidiaries.
The regulator had previously issued a three month ban to both China Chengxin International Credit Rating and Xigema Certified Public Accountant for Yongcheng Coal-related violations. It also condemned Haitong Securities, two of its subsidiaries Haitong Asset Management and Haitong Futures, as well as Donghai Fund Management last week.
The Shanghai Stock Exchange (SSE) has publicly condemned defaulted Chinese issuer Brilliance Auto Group for bond-related violations. Brilliance Auto, also known as Huachen Automotive in China, allegedly failed to disclose information that would affect its debt repayment ability and bond prices. It also did not provide a timely warning over repayment risks or come up with risk-disposal plans. In a filing, Brilliance Auto promised it will rectify its problems.
The SSE has urged companies with outstanding bonds listed on the bourse to publish their 2020 report before April 30, according to a Wednesday announcement.
In a separate announcement, the SSE said it will continue its efforts in making the exchange bond market an important venue for companies to source medium-to-long term funding, and improve connectivity between the exchange and interbank bond markets.
The Securities Association of China (SAC), together with officials from the China Securities Regulatory Commission, held talks with 12 securities houses on Tuesday for waging a bidding war for the underwriting of bonds issued by China Railway Construction Investment Co and China National Nuclear Corporation Capital Holding Co.
The firms offered the issuers ultra-low underwriting fees, the SAC said in a Thursday announcement, adding that such behaviour is harmful to the bond market and must be prevented,.
The Supreme People's Court, China’s top court, has pledged more scrutiny on monopolies and unfair competition. The announcement came after Chinese anti-trust regulators launched an investigation into technology giant Alibaba Group Holding at the end of last year for alleged monopolistic practices.
Extensive work is needed in areas including data collection and consumer rights protection in the digital areas, the court said.
The PBoC penalised 417 institutions and their related personnel for anti-money laundering offences in 2020. The 733 penalties given by the central bank were worth Rmb628m, three times the amount recorded in 2019.