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China policy and markets round-up: Premier defends 2021 growth target, exports surge in Jan-Feb, CSRC to tighten Star listing rules

Economic recovery_adobe_575px_18Jan21
By Addison Gong
12 Mar 2021

In this round-up, Chinese premier Li Keqiang defends Beijing’s ‘above 6%’ annual GDP growth target, China’s exports soar during the first two months of the year, and the securities regulator is reportedly planning to increase scrutiny on IPOs in Shanghai’s Star market.

The National People’s Congress approved the government’s 14th ‘five year plan’ for the 2020-2025 period on Thursday.

The plan, the draft of which was released at the end of last week, incorporates national development goals, but unlike previous years, China did not set a numeric target for GDP growth by 2025. The Chinese economy grew 2.3% last year, and the 2021 annual growth target was set at above 6% in the government work report delivered last Friday.

Climate-related targets were stated in the 2020-2025 document, including a reduction in energy intensity by 13.5% and carbon intensity by 18% by 2025. The country is also aiming for non-fossil fuels to account for about 20% of its total energy mix.

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Chinese premier Li Keqiang held a press conference after the NPC meeting concluded on Thursday afternoon.

Li defended the above 6% growth target, which has been viewed as conservative by the market. The number is “not low” as it translates to a Rmb6tr ($924bn) increase in GDP. “If [Rmb6tr] was the target at the beginning of the 13th five year period [of 2015 to 2020], it would require an at least 8% growth rate,” Li said. The current target leaves room for faster economic expansion, he said, adding that the goal is for the Chinese economy to develop stably and sustainably.

Li also said that there will not be a “sharp turn” in China’s policy making this year given the country did not adopt quantitative easing in 2020. He added that Beijing will aim to maintain the “consistency and sustainability” of its policies. 

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The Ministry of Finance plans to “effectively ease the difficulty and high cost of financing for micro and small businesses” and “effectively defuse the hidden debt risks of local governments” this year, it said in a report published last Saturday about fiscal policy implementation in 2020.

In a press conference last Friday, finance minister Liu Kun said China’s fiscal policy this year will be “proactive and more sustainable”. Beijing set a budget deficit target of 3.2% of GDP for 2021 at its annual parliamentary meeting, down from last year’s target of above 3.6%. The government also assigned Rmb3.65tr of bond issuance quota to local governments.

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The Ministry of Science and Technology said it is working on an action plan to promote the use of technological innovation in support of Beijing’s carbon neutral pledge, as well as a ‘roadmap’ for the development of carbon neutralization technology.

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China and the US will hold the first high level in-person meeting after Joe Biden took over as president, on March 18 in Alaska, the White House announced this week. The Chinese Ministry of Foreign Affairs confirmed the meeting.

Diplomats attending the meeting include Chinese foreign minister and state councillor Wang Yi, former foreign minister Yang Jiechi, who currently serves as director of the Central Foreign Affairs Commission, as well as US secretary of state Antony Blinken and Jake Sullivan, the national security adviser.

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China has approved a Rmb10bn currency swap with Sri Lanka, Reuters reported, citing a government spokesman in Colombo.

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Consumer price index (CPI) in China dropped 0.2% year-on-year in February, having dipped 0.3% the previous month, data from the National Bureau of Statistics showed. The producer price index (PPI) climbed 1.7% compared to a year ago, versus a modest 0.3% increase in January.

Bank of America Global Research expects CPI and PPI inflation to climb in the coming months. Inflation is unlikely to become a hurdle to policy shift this year, the economists wrote in a Thursday report.

Economists at Barclays said in a separate report that CPI inflation likely bottomed out in February, with expectations of a moderate rise in CPI going forward amid further recovery in services and consumption. PPI inflation is expected to “extend its uptrend” and likely peak at around 4% in the second quarter before easing gradually, they wrote.

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During the first two months of 2021, China’s exports surged 60.6% year-on-year in dollar terms, with a 22.2% increase in imports, according to the General Administration of Customs. The country recorded a trade surplus of $103.25bn for the period, versus a deficit of $7.21bn a year ago.

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The country’s foreign exchange reserves dropped $5.677bn in February to $3.205tr, according to the State Administration of Foreign Exchange.

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New renminbi loans reached Rmb1.36tr in February, down from a record Rmb3.58tr seen in January, latest data from the People’s Bank of China (PBoC) showed. New total social financing (TSF) hit Rmb1.71tr, the highest on record for the month of February and Rmb839.2bn more than what was recorded a year ago.

New loans and TSF were both significantly above consensus forecasts of Rmb910bn and Rmb950bn, respectively, noted economists at UBS. However, they still expect credit growth to slow later in 2021.

“We continue to see adjusted TSF growth cooling to 10.8% at end 2021 in light of tighter liquidity and regulatory measures,” they wrote in a Wednesday note. “In particular, softer new issuance of government bonds and new bank loans, and continued decline of shadow credit may be the key drivers of credit growth slowdown.”

M2 money supply growth came at 10.1% year-on-year last month, versus 9.4% in January and 8.8% a year ago.

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The PBoC conducted Rmb50bn of seven-day reverse repo operations this week at the same rate of 2.2%, fully hedging the Rmb50bn that matured this week.

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The China Securities Regulatory Commission (CSRC) may introduce tighter rules for IPOs in Shanghai’s Star market as early as next month, Bloomberg reported, citing anonymous sources. The revised regulations will focus more on IPO candidates’ technology credentials and financial health.

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The Supreme People’s Court said in its 2021 work report that it will severely punish market manipulation in the securities and futures market and insider trading. It also pledged a ‘zero tolerance’ stance on capital market crimes and debt evasion.

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Small and micro-sized enterprises that are innovative or green will receive special financing support, said vice central bank governor Chen Yulu.

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The PBoC is taking feedback for revised rules on short-term commercial paper (SCP) issued by Chinese securities companies. The new regulations require the combined outstanding amount of SCP and other short-term debt from a securities firm to not exceed 60% of its net capital.

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The Shenzhen Stock Exchange published new rules on trading of bonds on Wednesday, following unusual price surges of over 100% in two of China Development Bank’s bonds.

The new rules require a 30 minute trading suspension in central government, local government and policy bank bonds, if their prices rise or drop by over 10% compared to the previous close. A price swing of more than 20% will result in a trading halt until 2:57pm Beijing time that day. The price movement limits are higher at 20% and 30%, respectively, for other bonds.

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China Chengxin International Credit Rating rated seven out of the 23 issuers that defaulted for the first time in 2020, the most among onshore rating agencies, according to the National Association of Financial Market Institutional Investors. Lianhe Credit Rating and Dagong Global Credit Rating accounted for rating five and four first-time defaulters last year, respectively.

The interbank regulator imposed self-disciplinary punishments on 12 bond issuers, six underwriters, two credit rating agencies, one accounting firm and one fund management company over the course of 2020, it said in an announcement.

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Some 21.7m new investors entered the Chinese securities market between January 2020 and February 2021, according to data from the China Securities Depository and Clearing Corp.

By the end of February, the total number of investors grew to 181.5m. About 99.77% of those were retail accounts, and 0.23% institutional investors.

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The financial regulators in the Jiangsu province have approved for two local asset management companies, Jiangsu Asset Management Co and Suzhou Asset Management Co, to start non-performing loan business on a trial basis.

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Standard Chartered is planning to add 900 staff in the Guangdong-Hong Kong-Macao Greater Bay Area (GBA) before 2023, taking the total in the region to 2,500, the bank’s chief executive for GBA Anthony Lin reportedly said during a media briefing this week. A Guangdong-based centre, where StanChart plans to invest $40m, will house 1,600 of the staff.

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ANZ will cut 850 jobs — mostly in technology and back-end operations — in Chengdu, where its Mainland service centre is based, over an 18-month period, and shift the functions offshore, the Sydney Morning Herald reported. The move, part of a global restructuring, is expected to reduce ANZ’s headcount onshore by about half, leaving about 100 operations staff and 700 bankers.

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Passenger car sales in China soared 372% year-on-year in February to 1.177m vehicles, and that for new energy car jumped 640% to 100,000 vehicles, according to the China Passenger Car Association. On a monthly basis, however, sales dropped 45.5% and 39.5%, respectively.

In a report this week, S&P Global Ratings expects an annual increase of 40%-50% in new energy car sales in China in 2021 and 2022.

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The size of China’s bank wealth management market has grown to Rmb25.86tr by the end of 2020 after a 6.9% yearly increase, according to an official report this week.

By Addison Gong
12 Mar 2021