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The week in review: China stresses debt management, corporate governance at banks, Stock Connect to include Star shares next month, Guangzhou Futures Exchange approved

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By Addison Gong
25 Jan 2021

In this round-up, Beijing plans to increase oversight of debt management and corporate governance at Chinese lenders, Hong Kong is ready to include Star-listed A-shares into the Stock Connect, and the securities regulator gives the nod to set up a new futures exchange in Guangzhou.


Chinese banks recorded a foreign exchange settlement surplus of $158.7bn in 2020, shows data from the State Administration of Foreign Exchange (Safe). The amount was Rmb1.078tr in renminbi terms.

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The total assets of the Chinese banking industry grew 10.1% year-on-year in 2020 to reach Rmb319.7tr, with a 10.2% rise in total debt to Rmb293.1tr, data from the China Banking and Insurance Regulatory Commission (CBIRC) showed.

Banks disposed Rmb3.02tr of non-performing assets last year, with Rmb3.5tr still outstanding. Their non-performing loan (NPL) ratio dropped 0.06 percentage points to 1.92% by the end of 2020, compared to the start of the year.

Insurance companies in China reported Rmb23.3tr in assets last year, showing a 13.3% annual growth, according to the CBIRC.

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The CBIRC has drafted debt management guidelines for commercial banks, requiring lenders to use relative ratios and internal quotas to manage debt risks.

Banks have also been told to diversify their debt, make sure their liabilities match their assets — such as the tenor, currency, interest rate and foreign exchange rate — and keep the cost of funding reasonable. The regulator requires lenders to submit an annual report on internal debt management before the end of March every year.

The regulator is taking feedback on the rules until February 22.

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The CBIRC has published an analysis on corporate governance at Chinese banks and insurers. The regulator evaluated 1,792 institutions in 2020. Close to 11.7% of them were given a ‘D’ ranking, meaning they have ‘relatively weak’ corporate governance. Some 10.2% of the firms fell in the lowest ‘E’ category.

The regulator plans to increase oversight of corporate governance at banks and insurers in 2021. It is working on the release of regulations including corporate governance guidelines and the management of related transactions, as well as a crackdown on violations by shareholders of the institutions.

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The People’s Bank of China (PBoC) has published rules for customer reserves management at non-bank payment institutions.

Firms are required to set up reserve accounts at commercial banks that have at least Rmb100bn of total assets, starting March 1. Separate accounts are needed for cross-border renminbi payments and foreign currency exchange.

The central bank also requires non-bank payment institutions to pick one clearing agency responsible for monitoring the deposit, use and transfer of customer reserves.

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China’s recent antitrust measures for non-bank payment institutions are not targeted at the private sector or one particular company, a senior CBIRC official said at a State Council briefing last Friday.

The increased scrutiny will not hinder the normal business development of the related firms, he said, adding that Chinese banks and insurers will be encouraged to cooperate with internet platforms — including those like Ant Group which have had talks with financial regulators — as long as such cooperation complies with relevant laws and regulations.

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Outstanding loans to privately-owned enterprises climbed 14% last year, reaching Rmb50tr, said the same CBIRC official.

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Also speaking at the Friday State Council briefing, Wang Chunying, deputy head and spokesperson of the Safe, said that foreign holding in Chinese bonds increased by $186.1bn last year to $512.2bn.

About 93% of the bonds are treasury bonds or those issued by Chinese banks, and foreign central banks accounted for just over half — 51% — of the investments. Both holding and trading volumes by foreign institutions made up about 3% of the total onshore bond market, Wang said.

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Safe’s Wang also said that the foreign exchange regulator will expand the Qualified Domestic Limited Partnership and Qualified Foreign Limited Partnership programmes in 2021. Safe plans to include more regions in China, in particular the mid-western region, to the pilot programme facilitating forex receipts and payments in trade.

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Eligible A-shares listed on the Shanghai’s Star market will be included in the Stock Connect programme linking the markets of the Mainland and Hong Kong from February 1, said the Hong Kong Exchanges and Clearing (HKEX).

The announcement followed a move last November from the HKEX and the bourses in Shanghai and Shenzhen to expand Stock Connect to include eligible pre-revenue biotechnology companies listed in Hong Kong, and eligible A-shares listed on the Star market.

As previously agreed, 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. Their corresponding H-shares will be included in Southbound trading.

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The China Securities Regulatory Commission (CSRC) approved the establishment of the Guangzhou Futures Exchange, according to an announcement last Friday.

The securities regulator had previously set up a preparatory team to set up the exchange. The State Council gave the nod late last year.

The futures exchange will serve China’s real economy and green development, and is significant to the development of onshore capital markets, the construction of the Guangdong-Hong Kong-Macao Greater Bay Area as well as the country’s Belt and Road initiative, the CSRC said.

The Guangzhou Futures Exchange will need to complete business registration before it officially starts operations, but this is unlikely to be completed within a couple of months, onshore media reported, citing people close to the exchange. Carbon emissions futures and electricity futures are among the possible products to be considered, said the reports.

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The Guangdong government said in a meeting at the end of last week that it will work with the regulators in the Hong Kong and Macau special administrative regions to establish green finance standards and develop green finance products. It is aiming for the Greater Bay Area to lead China’s efforts in reaching its carbon neutral goal.


By Addison Gong
25 Jan 2021