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China policy and markets round-up: Beijing regulates wealth management market, Goldman and ICBC announce partnership

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By Addison Gong
28 May 2021

In this round-up, China’s banking and insurance regulator sets rules on the sale of wealth management products, and Goldman Sachs is finding fresh opportunities in the Mainland through a tie-up with its largest lender.

Profit growth at China’s industrial firms slowed to 57% year-on-year in April, from 92.3% the previous month, data from the National Bureau of Statistics showed.

But after adjusting for base effects, industrial profit growth compared to the same period in 2019 actually accelerated to 50.2% last month, from 25.2% in March, according to a note from Nomura.

“We expect year-on-year industrial profit growth to normalize into the low double digits in coming months, as favourable base effects may subside further and surging commodity prices may have a more visible, negative impact on downstream sectors,” Nomura’s economists wrote. “We believe Beijing will stick to its ‘no sharp policy shift’ commitment when [normalising] its policies.”

Total industrial profits for the first four months of 2021 was nearly Rmb2.6tr ($407bn), which was 106% higher than a year ago and 49.6% more than the same period in 2019, according to the NBS.

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On Wednesday, Chinese vice premier Han Zheng chaired the first meeting of the leading group on carbon neutrality. The meeting said that "targeted and operable" policies and measures are needed on a range of issues related to China’s carbon goals, including improving the country’s energy mix and promoting green and low-carbon technologies.

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China should better incentivise green finance, and use carbon footprint as a key indicator in the evaluation of green projects, financial institutions’ green performance and the level of policy support, said Ma Jun, chairman of the China Green Finance Committee, at a summit on carbon neutrality this week.

He also recommended the establishment of a re-lending mechanism to extend a few hundred billion renminbi of support each year to low carbon projects. Low risk green assets should be accepted as collateral by the central bank when lending to commercial banks, added Ma.

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The China Banking and Insurance Regulatory Commission (CBIRC) released temporary rules on the sale of wealth management products (WMPs), which will be effective from June 27.

Compared to draft regulations released at the end of last year, the finalised rules extended its coverage beyond just the wealth management subsidiaries of Chinese commercial banks to other wealth management companies approved by the CBIRC. This includes foreign-controlled wealth management joint ventures.

Banks and wealth management companies can sell their own WMPs or WMPs from others, but the new CBIRC rules did not mention internet platforms as eligible to sell WMPs. The CBIRC has given firms a six month transition period to comply with the requirements.

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Goldman Sachs and Industrial and Commercial Bank of China announced on Tuesday that they have received CBIRC approval to establish a wealth management joint venture in China.

Goldman Sachs Asset Management and ICBC’s wealth management arm will hold 51% and 49%, respectively, in the entity.

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The People’s Bank of China (PBoC) conducted a Rmb5bn central bank bill swap operation on Thursday. The bill swaps have a three month tenor.

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The government of the Hong Kong Special Administrative Region announced that it intends to increase the borrowing limit of its bond programme to HK$300bn from the current HK$200bn. The borrowing ceiling of the government green bond programme will be lifted to HK$200bn from HK$100bn. It served notices to the Legislative Council on Wednesday, with a view to move the resolutions in the LegCo on June 16, according to an official announcement.

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Central bank governor Yi Gang held a meeting with the foreign bank representatives of the China Banking Association on Monday. They discussed the business development of foreign banks in China and recommendations made by the representatives, according to a one-line announcement on the PBoC’s website.

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A total of 73 foreign central banks, international financial institutions and sovereign wealth funds have participated in China’s interbank bond market by the end of April, according to the PBoC Shanghai bureau.

The list of institutional investors in the interbank market grew to 649 as of last month, latest PBoC data showed. These included commercial banks, insurers, securities companies, fund management companies and other asset management firms.

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In April, local governments in China sold Rmb775.8bn of bonds, including Rmb339.9bn of new issues and Rmb435.9bn for refinancing, according to the Ministry of Finance. Outstanding local government debt stood at Rmb26.6tr by the end of the month.

By Addison Gong
28 May 2021