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China policy and markets round-up: Beijing hones in on green finance, southbound Bond Connect to launch before year-end, BOC, ICBC name new presidents

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By Addison Gong
26 Feb 2021

In this round-up, the State Council calls for more efforts in the development of green finance in China, regulators plan to kick off southbound trading under Bond Connect by the end of 2021, and large state-owned Chinese banks unveil the latest reshuffle in top leadership.

China is actively considering joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, and has been in ‘unofficial contact’ with some of the 11 member countries, vice commerce minster Wang Shouwen said at a Thursday press briefing. President Xi Jinping first revealed Beijing’s intention to join the trade pact last November.

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The State Council has published guidelines to accelerate the development of a green and low-carbon economy in China.

The document has more than 20 goals, including one about developing green finance. More specifically, China has pledged to support more green credit and green direct financing, and develop unified green bond standards while bringing domestic standards more in line with the international market. It is also encouraging qualified green companies to list, and for financial institutions and their affiliates to fund with green deals in the international markets.

The country has vowed to promote climate-related financing and investment activities, and steadily push forward the two-way opening up of the green financial markets.

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Issuers in China raised Rmb4.3tr ($666.5bn) from new bonds in January, bringing the total outstanding size of the domestic bond market to Rmb117.8tr by the end of the month, latest data from the People’s Bank of China (PBoC) showed.

Corporates contributed the most to the volume by raising Rmb1.2tr, followed by Rmb1.1tr of negotiable certificates of deposit issued by banks and Rmb947.2bn of financial bond issuance.

The monthly trading volume was Rmb16.2tr in the interbank bond market, and Rmb2.1tr in the exchange market. The interbank daily trading volume dropped 5.4% year-on-year to Rmb809.5bn in January but increased 153% in its exchange counterpart. On a month-on-month basis however, the exchange market daily trading slowed 2.3%.

The daily trading volume jumped 32.5% in the stock market in Shanghai to Rmb484.3bn, and 34.3% in Shenzhen to Rmb609.3bn. The SSE Composite Index climbed 0.29% in January, while the SZSE Component Index performed better with a 2.43% gain.

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Local governments in China issued Rmb362.3bn of bonds in January, including Rmb149.6bn of special purpose bonds, according to the Ministry of Finance. All the notes were for refinancing.

Outstanding Chinese local government debt exceeded Rmb26tr by the end of January.

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The PBoC conducted Rmb10bn of seven-day reverse repo operations on both Tuesday and Wednesday, followed by bigger Rmb20bn injections on Thursday and Friday. The interest rate for the reverse repos was 2.2%.

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The central bank also conducted Rmb5bn of central bank bill swap operations to help increase liquidity in the perpetual bond market. The three month swaps have a coupon of 2.35%.

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The China Banking and Insurance Regulatory Commission has approved a wealth management joint venture between Schroder Investment Management and BoCom Wealth Management Co under a 51/49 split. This will be the third Sino-foreign wealth management JV in the Mainland.

The entity, called Schroder Bank of Communications Wealth Management Co, will be based in Shanghai. The JV partners have also jointly owned BoCom Schroder Fund Management Co since 2005.

Schroders “has long been committed to the Chinese market” and receiving regulatory permission for the new JV “marks another key milestone” in its growth in the region, the global investment manager said in a press release.

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The State Council’s State-owned Assets Supervision and Administration Commission (Sasac) said it will increase oversight of debt risks at local state-owned enterprises. It plans to establish a working mechanism together with the PBoC and the China Securities Regulatory Commission (CSRC) to monitor such risks. It will guide the local Sasacs to identify risky SOEs and better manage their debt profile and bond issuance.

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The Hong Kong Monetary Authority (HKMA) and the PBoC have established a working group for the southbound trading of the Bond Connect programme, with a target to launch it before the end of the year, said Paul Chan, financial secretary of the Hong Kong Special Administrative Region. 

Chan, speaking when delivering Hong Kong’s budget for the new financial year on Wednesday, also said the government plans to double the borrowing ceiling of its green bond programme to HK$200bn ($25.8bn), allowing for HK$175.5bn of green bond issuance within the next five years. Hong Kong also plans to print retail green bonds, the finance chief said. 

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China’s securities industry recorded a nearly 28% year-on-year growth in net profits to Rmb157.5bn in 2020, according to the Securities Association of China.

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Liu Jin, who is currently president of China Everbright Bank, is set to take the top job at Bank of China, onshore media Caixin reported. The move comes after former BOC president Wang Jiang became president of China Construction Bank last month.

Meanwhile, Industrial and Commercial Bank of China has appointed Liao Lin, its chief risk officer, as the new president, according to a Thursday stock exchange filing in Hong Kong. ICBC’s former president Gu Shu became chairman of Agricultural Bank of China earlier this year.

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Liu Chaoxi, who controls defaulted Chinese bond issuer Yihua Enterprise (Group) Co, has come under investigation by the CSRC for allegedly manipulating capital markets and failing to disclose information related to shareholding changes, the company’s Shanghai-listed subsidiary Yihua Lifestyle Technology said in a Tuesday filing.

Yihua Lifestyle’s director Liu Weihong is also under CSRC investigation for alleged market manipulation, the company said. Yihua Lifestyle also received a notice of a potential delisting from the Shanghai bourse on Monday, as its stock has been trading below Rmb1 for 20 consecutive trading days.

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The Digital Currency Institute of the People’s Bank of China and the Central Bank of the United Arab Emirates have joined the second phase of Project Inthanon-LionRock, a central bank digital currency project for cross-border payments initiated by the HKMA and the Bank of Thailand.  

The project is eventually expected to “alleviate the pain points in cross-border fund transfers, such as inefficiencies, high cost and complex regulatory compliance”, according to an announcement from the HKMA on Tuesday.

By Addison Gong
26 Feb 2021