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China markets round-up: D-Sibs face higher capital requirements, foreign holding of interbank bonds drops, JD Digits to set up financial holdco

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By Addison Gong
09 Apr 2021

In this round-up, Beijing plans to beef up capital requirements for domestic systemically important banks, foreign investors reduce their investment in domestic Chinese bonds in March, and JD.com’s technology unit is reportedly planning to set up a financial holding company.

The People’s Bank of China (PBoC) and the China Banking and Insurance Regulatory Commission (CBIRC) published draft regulations at the end of last week, asking domestic systemically important banks (D-Sibs) to comply with additional capital requirements.

The regulators finalised the D-Sibs framework in December 2020. The framework assesses which banks qualify as D-Sibs and assigns them into five buckets, with those in bucket five being the most systemically important.

The new draft rules have given additional requirements on the banks’ common equity tier one ratios — of 0.25%, 0.5%, 0.75%, 1% and 1.5%, for D-Sibs in buckets one to five, respectively — over the current minimum regulatory requirement of 7.5%. The D-Sibs are also subject to additional leverage ratio requirements equal to 50% of their respective additional capital requirements.

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The CBIRC has approved the establishment of a new city commercial bank, Shanxi Bank, in the northern province of Shanxi, as a result of a merger of five local lenders. The five are Changzhi Bank, Datong Bank, Jincheng Bank, Jinzhong Bank and Yangquan Commercial Bank.

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China’s State Council has approved the long-rumoured merger of China National Chemical Corp and Sinochem Group Co, according to an update from the State-owned Assets Supervision and Administration Commission (Sasac) last week.

In a separate announcement, Sinochem said the two government-owned chemical giants will undertake a joint restructuring to form a new entity directly under the Sasac.

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US-based private equity firm Warburg Pincus has applied to set up an onshore securities joint venture, according to an update on the China Securities Regulatory Commission (CSRC) website.

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The CSRC has disclosed a batch of penalties handed out in recent months to Chinese securities houses and individual bankers for violations in the investment banking business.

These involve firms such as Citic Securities, China International Capital Corp (CICC), China Securities Co, Haitong Securities and Orient Securities, according to notices on the CSRC website this week. The deals in focus were mostly IPOs but also bond sales and M&As, for reasons including alleged insufficient internal controls, lax due diligence and improper information disclosure. Haitong and its bankers received a total of nine tickets, and Citic three.

The brokerages mostly received warning letters or had regulatory talks, and were told to take corrective measures. The punishments for individuals vary, but most of them received a three-month ban from taking part in certain businesses.

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The National Association of Financial Market Institutional Investors has launched an investigation into China Zheshang Bank for violations when it acted as a lead underwriter, including allegedly falsifying information in bond registration documents.

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The Sasac has issued a notice requiring local state-owned enterprises (SOEs) to keep the ratio of perpetual bonds that are classified as equity to their net assets within 40%, onshore newspaper 21st Century Business Herald reported.

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Local governments in China sold Rmb418.1bn ($63.85bn) of bonds in the first two months of the year, data from the Ministry of Finance showed. These included Rmb175.8bn of special purpose bonds and Rmb242.3bn of general purpose bonds. All the issuance was for refinancing.

Last month, Beijing assigned Rmb3.65tr of new special purpose bond quota at the annual parliamentary meeting.

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Foreign holding of bonds in China’s interbank market stood at Rmb3.56tr by the end of March, down from Rmb3.57tr in February, according to the PBoC.

The amount they held accounted for 3.4% of the size of the interbank market. Some Rmb3.04tr of those were bonds issued by the MoF and the Chinese policy banks.

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The PBoC issued a new notice requiring all lenders in China to clearly state the annualised interest rate on their loan products in marketing materials and loan contracts, instead of only using monthly or daily interest. The rule applies to a range of institutions including banks, auto finance companies, consumer finance companies, microloan firms and internet platforms.

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JD Digits Technology Holding Co, a subsidiary of Chinese e-commerce giant JD.com, plans to set up a financial holding company, Bloomberg reported, citing sources familiar with the matter. The holding unit will reportedly function as a separate entity from JD Digits’ technology business and will be regulated more like a bank.

The report came after JD Digits withdrew its application to list on Shanghai’s Star board last week. There had been months of speculation whether the planned listing would go ahead, after a recent shift in the company’s focus. In January, JD.com transferred its cloud and artificial intelligence business to JD Digits and formed a new fintech subsidiary, JD Technology.

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China Securities Co has joined CICC in working with China Telecom Corp in the pre-IPO education or ‘tutorial’ process, according to the CSRC Beijing bureau.

On Friday, China Telecom’s shareholders approved its plan to issue up to 12.1bn A-shares on the mainboard of the Shanghai Stock Exchange, the company said in a filing in Hong Kong.

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Bank of Communications and Industrial and Commercial Bank of China have received regulatory approval to issue up to Rmb41.5bn and Rmb100bn of perpetual capital bonds, respectively, according to public filings.

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The Shanghai Stock Exchange said it has launched on-the-ground supervision at certain corporate bond issuers, similar to its efforts in stepping up supervision of IPO sponsorship in the Star market. The move is expected to reduce risks in Shanghai’s exchange bond market, the bourse said.

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Underwriters of company bonds – corporate bonds issued in the exchange market – should set up internal limits on underwriting fees, the Securities Association of China suggested in a notice, aiming to help prevent underwriters from bidding for deals at low fees. The limits are expected to be set at a level that is “objective” and “fair”.

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The PBoC said it no longer requires issuers of bonds in the interbank market or their underwriters to provide to the National Interbank Funding Center a list of investors that bought the bonds in the primary market and the amount they invested.

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There were 133 fund management companies in China by the end of February, including 44 Sino-foreign joint ventures, latest data from the Asset Management Association of China showed. The size of China’s mutual fund market reached Rmb21.78tr by the end of February.

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Revenues at internet firms in China totalled Rmb199bn in January and February, up 29% annually, according to the Ministry of Industry and Information Technology. Their profits grew 17.3% year-on-year during the same period to Rmb15.2bn. 

By Addison Gong
09 Apr 2021