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China policy and markets round-up: CBIRC chief warns against inflow risks, issuers move to exchange market for carbon neutrality bonds

bubble_adobe_575px_5Mar21
By Addison Gong
05 Mar 2021

In this round-up, smaller Chinese firms see the slowest growth in manufacturing and services activity since mid-2020, the head of the Chinese banking and insurance regulator is wary of bubbles bursting in foreign markets, and the onshore sale of the so-called ‘carbon neutrality bonds’ moves from the interbank market to the smaller exchange market.

Read our Two Sessions special round-up for the highlights from China's annual parliamentary meeting. 

The Caixin manufacturing Purchasing Managers’ Index (PMI) declined for the third consecutive month in February to 50.9. The February Caixin services PMI has also dropped for three straight months to 51.5.

The readings were the lowest since June and May last year, respectively. Caixin PMIs focus more on smaller companies, with the official PMIs weighted more towards larger firms.

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The People’s Bank of China conducted Rmb50bn ($7.7bn) of seven day reverse repo operations at 2.2% between Monday and Friday, versus Rmb80bn that matured this week.

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The Ministry of Commerce announced 22 measures to stabilise foreign investment in 2021.

It also plans to relax foreign strategic investment in listed Chinese companies, such as the maximum shareholding limit and the lock-up period.

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China’s banking industry provided Rmb2.2tr of new loans to the manufacturing sector in 2020, equal to the combined amount from the previous five years, said chairman of the China Banking and Insurance Regulatory Commission (CBIRC), Guo Shuqing, at a Tuesday press briefing.

New lending to private companies reached Rmb5.7tr last year. Meanwhile, Chinese banks have disposed Rmb3tr of non-performing loans.

Despite a slowdown in real estate loan growth last year, there are still bubbles in the property sector in China, Guo said, adding that the country must “proactively” manage the healthy development of this market.

Guo said he is “very worried” about bubbles bursting in foreign financial assets after many countries implemented “extremely loose monetary policies” in the wake of the Covid-19 pandemic, pushing financial markets in the opposite direction of the real economy. He also flagged the foreign capital inflow risk in China.

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Foreign investors increased their holding of onshore bonds for the 27th consecutive month in February, by Rmb95.7bn, data from the China Central Depository & Clearing Co (CCDC) showed. The outstanding amount they held reached Rmb3.15tr by the end of last month. In addition to the CCDC, the Shanghai Clearing House also clears and settles bond trades.

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A total of 471 foreign institutional investors participated in the China interbank bond market (CIBM) last month through the CIBM Direct scheme, and 641 accounts — including five new investors — through Bond Connect, according to the China Foreign Exchange Trading System (Cfets).

Foreign trading of onshore bonds slowed down in February, with volume dropping 41% compared to the previous month. The amount traded, Rmb671.8bn, accounted for 3% of the total trading volume in the CIBM, Cfets data showed.

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Chinese issuers have started selling ‘carbon neutrality bonds’ in the exchange bond market, after six issuers debuted these deals in the interbank market last month. Carbon neutrality bonds are a type of green bond with proceeds earmarked to finance green projects aimed at reducing carbon emissions, and support Beijing’s pledge for the country to reach peak carbon dioxide emissions before 2030 and become carbon neutral by 2060.

Since then, at least six issuers, mostly from the energy and transportation sectors, have sold such deals in the exchange market to raise Rmb13.5bn, public filings showed.

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The CBIRC has approved for China Cinda Asset Management Co to issue Rmb22bn in perpetual bonds to supplement its tier one capital, an update from the regulator showed.

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The CBIRC published the quarterly solvency risk ratings of 178 Chinese insurance companies for October-December 2020, assigning the highest grade ‘A’ to 100 firms. Three insurers received a ‘D’ rank that indicates high solvency risk, and six firmed failed the regulator’s evaluation.

The firms reported an average comprehensive solvency adequacy ratio of 246.3% by the end of the fourth quarter of 2020, according to the CBIRC. Their average core solvency adequacy ratio stood at 234.3%.

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The State Administration for Market Regulation penalised five ‘community group-buying’ platforms for “improper pricing behaviour”. The online platforms belong to Alibaba Group Holding, Didi Chuxing Technology, Meituan, Pinduoduo and Tencent Holdings. They were fined Rmb6.5m combined.

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In 2020, 232 companies listed in Shanghai’s Star market recorded a 15.6% yearly increase in their revenues to Rmb331.5bn, and a 60% growth in net profits to Rmb41.2bn, data compiled by onshore media showed.

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Chinese brokerage Zhongshan Securities Co was called out by the China Securities Regulatory Commission’s Shenzhen bureau for alleged violations, such as failures in conducting proper due diligence. The firm was told to rectify its problems. 

By Addison Gong
05 Mar 2021