China policy and markets round-up: Xi warns against ‘new cold war’, CSRC, CBIRC set 2021 goals, Allianz gets nod for fully owned insurance AMC
In this round-up, Chinese president Xi Jinping warns of international confrontations from a ‘new cold war’, regulators plan deeper capital market reforms and increased oversight of internet finance platforms, and European insurance giant Allianz receives approval for China’s first fully foreign-owned insurance asset management company.
A ‘new cold war’ will cause divisions and confrontations in the world, Chinese president Xi Jinping said at the World Economic Forum’s virtual annual meeting in Davos this week. His remark was widely interpreted as a warning to the US.
Xi also said that China will continue contributing to the fight against Covid-19 globally, open up the domestic market, and promote sustainable development and development in technology.
The People’s Bank of China will aim for its monetary policy to “keep a delicate balance between supporting economic recovery” and “at the same time preventing risk”, the central bank governor Yi Gang said at the 2021 Davos summit on Tuesday.
He added that the PBoC is monitoring risks such as a rise in China’s macro leverage ratio in 2020 and growing non-performing loans, as well as external risks.
Yi has suggested that Ant Group can get back on track with its delayed IPO if the relevant legal framework and processes are followed. “I’d say that you just follow the standard of legal instruction, you will have the result,” Yi reportedly said at the summit when responding in English to a question about Ant.
Separately, Ant, the fintech arm of Alibaba Group Holding, has submitted an outline of a restructuring plan to become a financial holding company under the PBoC’s supervision, the Wall Street Journal reported on Wednesday.
The US Treasury Department’s Office of Foreign Assets Control has issued a so-called ‘general licence’ which will allow US investments in a company “whose name closely matches, but does not exactly match, the name of a Communist Chinese military company” until May 27, an extension to the previous deadline of January 28.
The list of companies with alleged ties to the Chinese military comprises 44 names. An executive order by former US president Donald Trump, who officially stepped down earlier this month, prohibits any US transactions with the blacklisted companies from November 2021.
The general licence does not apply to investments in subsidiaries of the blacklisted firms, the Treasury Department said.
The China Securities Regulatory Commission (CSRC) held a meeting on Thursday and set its working goals for 2021.
It plans to further develop the exchange bond market, strengthen information disclosure requirements for pre-IPO companies, push forward the potential market-wide implementation of a registration-based system for equity fundraising, deepen the delisting reform, attract more medium-to-long term funds to the market, and increases cross-border auditing cooperation with overseas regulators. The CSRC also vowed to be vigilant about financial fraud and bond defaults.
The China Banking and Insurance Regulatory Commission (CBIRC) has also set targets for the year. One of its focuses for 2021 is to increase oversight of internet financing platforms and their cooperation with Chinese banks and insurers, as well as curb monopoly and unfair competition.
The banking and insurance regulator also plans to continue to rein in risks in the shadow banking sector and at small and medium-sized Chinese banks.
Profits at China’s industrial firms grew 20.1% year-on-year in December to Rmb707.1bn, up from a 15.5% growth the previous month, according to data from the National Bureau of Statistics (NBS).
The annual industrial profit growth was 4.1% for 2020, improving from a 3.3% yearly decline seen in 2019.
Revenues at Chinese state-owned enterprises (SOEs) increased 2.1% year-on-year to Rmb63.3tr in 2020, data from the Ministry of Finance showed.
Net profits dropped 5.6% to Rmb1.57tr at central government-owned enterprises, with a 5.5% decline in local SOE profits to Rmb904bn.
The PBoC has published the financial market data for 2020.
The size of China’s domestic bond market reached Rmb117tr by the end of December. The new issuance volume in 2020, Rmb57.3tr, was 26.5% higher than what was recorded the previous year. These included Rmb7tr of bonds from the central government and Rmb6.4tr from local governments, with Rmb9.3tr coming from financial bond issuance, Rmb12.2tr from corporate bonds, and Rmb2.3tr from securitization.
The bond trading volume onshore rose 16.5% to Rmb253tr last year, including Rmb232.8tr in the interbank bond market (CIBM). The average daily turnover in the exchange bond market surged 142.6% on an annual basis.
There were 3,911 new investors in the interbank market last year, including 136 foreign institutions. A total of 905 foreign investors participated in the CIBM.
Trading volume in the stock markets in Shanghai and Shenzhen topped Rmb206.83tr, recording a 62.3% annual growth. The SSE Composite Index and the SZSE Component Index rose 13.9% and 38.7%, respectively, last year.
Local governments in China sold Rmb4.55tr of new bonds in 2020, including Rmb950.6bn of general purpose bonds and Rmb3.6tr of special purpose bonds. Local governments also issued Rmb1.89tr for refinancing.
The amount of local government bonds outstanding at the end of last year was Rmb25.66tr. Together with Rmb20.89tr of on-budget central government bonds, China’s outstanding government debt reached Rmb46.55tr, with a government debt-to-GDP ratio of 45.8%.
The MoF said it plans to keep the country’s macro leverage ratio stable and the government bond issuance reasonable, and curb growth in hidden government debt.
There were 7,118 microlenders in China with Rmb888.8bn in loans outstanding at the end of 2020, said the PBoC. The amount of outstanding loans shrank Rmb20.3bn last year.
Latest data from the Asset Management Association of China showed that there were 132 asset management companies in the Mainland at the end of December, including 44 firms with foreign shareholders. The assets under management in the mutual fund industry grew 34.7% year-on-year in 2020 to a record Rmb19.89tr.
The CBIRC has revised the solvency management rules for insurance companies. The new regulation, effective from March 1, requires Chinese insurers to maintain a minimum core solvency adequacy ratio of 50%, a comprehensive solvency adequacy ratio of above 100%, and a solvency risk rating of at least ‘B’ in an A to D grading system, grade A being the highest.
Companies failing to reach any of the three benchmarks will be regarded as non-compliant with solvency requirements, and are subject to regulatory measures.
Allianz China Insurance Holding said it has received approval from the CBIRC for the preparatory establishment of the first wholly foreign-owned insurance asset management company in China. Allianz will locally build a professional investment management team for the Beijing-based entity, Allianz Insurance Asset Management Co, according to a Thursday press release.
The initial establishment of the new unit is a “critical strategic move” for Allianz to enter into the Chinese asset management industry, and “demonstrates the strong confidence and long-term commitment of the Allianz Group to the China market”, according to the release.
China will not set an annual GDP growth target for 2021 at the March parliamentary meeting, Reuters reported, citing three unnamed policy sources. The country had already scrapped a numeric target last year in the wake of the Covid-19 pandemic. Its economy grew 2.3% in 2020.
One of the sources said there will not be an explicit target “but in reality there will be a target”. Another said that internal discussions are continuing, and one of the country’s top policymakers, the National Development and Reform Commission, remains keen to have a growth target.
The Indian government has decided to make the ban on 59 Chinese apps permanent, local media reported this week.
The ban, applicable to video-sharing app TikTok and Tencent Holding’s WeChat, was first imposed last June. Companies were given a chance to respond to a list of questions demonstrating their compliance with the country’s privacy and security requirements, said the reports.
“The government is not satisfied with the response/explanation given by these companies,” a source quoted by Livemint said in a piece. “Hence, the ban for these 59 apps is permanent now.”
A Chinese Ministry of Commerce spokesperson said in a Thursday press conference that Beijing has asked India to clarify the reports, and that it opposes “any discriminatory and restrictive measures” against Chinese companies.