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China policy and markets round-up: January consumer inflation dips, new bank loans hit record amount, Beijing sets sights on banks' green performance, reputational risk management

Chinese lanterns_575px_adobe_19Feb21
By Addison Gong
19 Feb 2021

In this round-up, consumer inflation in China disappoints in January, lenders extend a record amount of new renminbi loans last month, and the banking and insurance regulator asks financial institutions to step up their reputational risk management.

China’s Consumer Price Index (CPI) declined 0.3% year-on-year in January, while the Producer Price Index (PPI) rose 0.3%.

The dip in consumer inflation was mainly due to a high base of comparison, as the Chinese New Year fell in January last year but in February this year, according to the National Bureau of Statistics.

The weaker-than-expected CPI inflation in January does not suggest any disinflation risks, and Beijing is expected to maintain its policy stance, wrote economists at Nomura in a note last week. They expect CPI inflation to remain stable in February at around negative 0.3%, and the PPI inflation to rise to slightly above 1%. Ho Woei Chen, an economist at UOB, expects CPI to rise more strongly in the second half, bringing the annual CPI inflation to 2.6% in 2021 compared to 2.5% last year.

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New renminbi loans hit Rmb3.58tr ($553bn) in January, the highest on record and Rmb225.2bn higher than what was seen a year ago, according to data from the People’s Bank of China (PBoC). M2 money supply saw a 9.4% annual increase, slowing down from a 10.1% growth in December 2020.

Total social financing (TSF) reached Rmb5.17tr last month, beating consensus forecast of Rmb4.6tr. Outstanding TSF grew 13% year-on-year to Rmb289.74tr.

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The PBoC resumed open market operations on Thursday, the first trading day after a week-long Chinese New Year holiday in the Mainland.

It injected Rmb200bn of one year medium-term lending facility (MLF) loans, and Rmb20bn through seven-day reverse repos. The rates were unchanged from previous operations at 2.95% and 2.2%, respectively.

About Rmb200bn of MLF expired on the same day. Around Rmb280bn of seven-day repos became due on Thursday, with another Rmb100bn due on Friday.

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The PBoC issued two central bank bills in Hong Kong on Friday. The Rmb10bn three month bill was sold at 2.7%, and the Rmb15bn one year bill at 2.74%. Investors including banks, central banks, funds and international financial institutions across Asia, Europe and the Americas collectively put in Rmb76bn of bids, said the PBoC. 

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Some 2.42% of global payments by value were denominated in renminbi in January, up from 1.88% in December 2020, according to Swift. The currency remained the fifth most actively used in global payments, following the dollar (38.3%), euro (36.6%), sterling (6.8%) and yen (3.5%).

The value of renminbi-denominated payments was up 21.34% last month compared to December 2020, despite a decrease of 5.86% in all currencies.

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Outstanding non-performing loans (NPLs) at Chinese commercial banks dropped by Rmb133.6bn in the fourth quarter of 2020 to Rmb2.7tr, according to the China Banking and Insurance Regulatory Commission (CBIRC). Their NPL ratio stood at 1.84% at the end of December.

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The total assets of Shanghai’s banking industry rose 16.4% year-on-year in 2020 to Rmb19.2tr, according to CBIRC data. Insurance assets totalled Rmb883.2bn after a 12.3% annual increase.

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The PBoC will finalise rules for evaluating banks’ performance in green financing — including green loans and bonds — this year, a senior central bank official said at a State Council press briefing last week.

The central bank took public feedback last July for the draft regulations, which will see lenders assigned a quarterly grading based on metrics such as the share of green finance of their total business and the yearly growth. Banks will also be assessed on their performance in implementing central and local governments’ local green finance policies and their own green finance strategic development plans.

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The CBIRC on Thursday published guidelines for financial institutions to manage their reputational risk. Banks, insurers and trust firms are subject to regulatory measures and punishments, if they overlook the management of such risks or fail to put in place an efficient internal reputational risk management mechanism. They will also be penalized if the risk events lead to significant market volatility, losses at the institutions or industries, or systemic risks, the regulator said.

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China’s auto sales jumped 29.5% year-on-year in January to 2.5m vehicles, according to the China Association of Automobile Manufacturers (CAAM). Compared to December 2020 however, sales slid 11.6%.

On an annual basis, sales of passenger vehicles improved 26.8%, with new energy car sales soaring 238.5%, CAAM data showed.

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China reduced its holding of US Treasury bonds by $1.5bn in December to $1.0615tr, latest data from the US Department of the Treasury showed. Chinese holding of Treasuries hit a four-year low of $1.054tr last October, before rising by $9bn in November.

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The China Securities Regulatory Commission (CSRC) told Citic Securities to rectify problems in its asset management, investment banking, and private fund custody services businesses, according to an update on the regulator’s website last week.

These include alleged failure to disclose fully and accurately information relating to companies’ cash transactions in certain IPOs that Citic sponsored, the CSRC said. The brokerage was told to strengthen internal controls, and submit a rectification plan by late February.

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Credit Suisse is looking to take full control of its onshore securities joint venture, Credit Suisse Founder Securities, “as soon as realistically possible”, its chief financial officer David Mathers said in a Reuters interview. Credit Suisse currently holds 51% in the JV.  

“We are looking at what other license applications we can make in China to expand our onshore private banking interests,” Mathers reportedly said, adding that the bank is “also very interested” in its activities not just in China, but in other markets across Asia Pacific as well.

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HNA Group has received court approval for a reorganisation. Ten affiliates under its key subsidiary Hainan Airlines Holding Co, including seven airline companies, will be restructured, according to a stock exchange filing in Shanghai.

The court-ordered reorganisation will cover over 60 HNA group companies, whose debt account for about 60% of HNA’s debt, onshore media Yicai reported. The first creditor meeting is set to be held on April 12.

By Addison Gong
19 Feb 2021