China’s official non-manufacturing purchasing managers’ index (PMI) dropped by 5.8 percentage points in August to 47.5 — below the 50 mark that separates growth from contraction. The services sector contracted for the first time since March 2020, as many Chinese cities tightened restrictions amid a surge in the number of cases related to the Covid-19 Delta variant.
The Caixin China services PMI also fell to the contraction zone for the first time since last May. The August reading came at 46.7, down from 54.9 the previous month.
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China will set up a new stock exchange in Beijing, based on the existing National Equities Exchange and Quotations (Neeq), also known as the New Third Board. The Neeq, launched in 2013, supports small and medium-sized enterprises (SMEs) in China.
Companies currently in the ‘innovation tier’ on the board, with a listing history of at least 12 months and that meet certain requirements will be qualified to debut on the new Beijing Stock Exchange. The New Third Board separates companies into selection, innovation and basic tiers, based on criteria such as market capitalisation, financial performance and corporate governance. Companies in the top selection tier can transfer their listings to Shenzhen’s ChiNext board or Shanghai’s Star market after one year.
The plan to establish a new bourse in Beijing to serve “innovation-oriented” SMEs was officially announced by Chinese president Xi Jinping last Thursday. A series of draft rules were published on Sunday.
Like the ChiNext and Star boards, the Beijing Stock Exchange will adopt a registration-based — instead of approval-based — equity financing system. The listing hopefuls must have an estimated market cap of at least Rmb200m. There are also different financial performance requirements for companies with a market cap of Rmb200m-Rmb400m, Rmb400m-Rmb800m, Rmb800m-Rmb1.5bn and Rmb1.5bn and above, in line with Neeq’s current listing requirements for the top selection tier companies.
There is no limit for price movements on a stock’s first day of trading. From the second day onwards, the price can only increase or decrease by a maximum of 30% daily. Delisted companies meeting certain requirements can continue to trade on Neeq’s innovation or basic tiers. The deadline for feedback for the new rules is September 22.
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China’s exports and imports of services increased 10.1% year-on-year in July to Rmb431.9bn. On a monthly basis, however, trade in services dropped 1.7%.
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China needs Rmb136tr of investments to meet its carbon neutrality goal by 2060, said Zhang Shaogang, vice chairman of the China Council for the Promotion of International Trade.
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Beijing revealed a plan for Macau and Guangdong to jointly develop the Hengqin district, or the Hengqin Guangdong-Macau In-depth Co-operation Zone. Hengqin, adjacent to parts of Macau, is an economic development zone established in 2009 in Zhuhai.
The plan, published on Sunday, is part of China’s initiative to develop the Greater Bay Area, and will “inject momentum” into the long-term development of Macau. Beijing wants to develop technology and high-end manufacturing industries in the co-operation zone. It has proposed tax benefits for both qualified companies and individuals.
In financial services, the government will work towards attracting more foreign capital to invest in tech and innovative businesses in Hengqin. It will lower the barrier for entry for Macau-based financial institutions to set up banks and insurance companies in the zone. It will also ease foreign debt management rules for locally based firms and promote the use of renminbi for cross-border settlements.
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The People’s Bank of China (PBoC) published its annual China financial stability report for 2021. The central bank revealed the results of its annual stress test on Chinese banks in the report. A total of 4,015 lenders were tested this year, versus 1,550 in 2020.
The 30 large and medium-sized Chinese banks under the test — those with assets over Rmb800bn — can collectively maintain a capital adequacy ratio (CAR) above the regulator minimum of 10.5%, under mild, medium and severe impact stress scenarios.
Different scenarios take into consideration different growth rate assumptions for key indicators such as GDP, consumer price index, retail sales, industrial production and fixed asset investments, and others such as short and long-term rates. The annual GDP growth, for example, in the PBoC’s mild impact stress scenario is 7.28% for 2021, 4.78% for 2022 and 4.08% for 2023.
Individually, however, nine, 13 and 16 out of the 30 lenders failed the stress test by end of 2022 under mild, medium and severe impact scenarios, respectively, with two, nine and 14 failing by 2023. The PBoC defines failing the test when common equity tier one, tier one CAR or total CAR ratios fall below 7.5%, 8.5% or 10.5%.
The non-performing loan ratio of the 30 banks would surge to 2.39% in 2021, 5.31% in 2022 and 4.29% in 2023, from 1.51% in December 2020, under the mild impact stress scenario.
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The China Securities Regulatory Commission (CSRC) will work towards better connectivity between the onshore and offshore capital markets, improve the Shanghai-London Stock Connect scheme, and improve regulations for overseas listed companies, vice CSRC chairman Fang Xinghai said at a conference.
The securities regulator encouraged Chinese firms to go public in Hong Kong. It plans to monitor and analyse cross-border investments, prevent risks from large inflow and outflow of capital, and “properly solve” problems in cross-border regulatory co-operation. Measures will be announced to help foreign investors participate more in the exchange bond market, and for the easier issuance of Panda bonds by foreign issuers, Fang added.
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The State Council’s State-owned Assets Supervision and Administration Commission said it wants central government-owned enterprises (central SOEs) to list quality assets or consolidate them into listed entities. It is also encouraging those that are strong at innovation to debut in Shanghai’s Star market.
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The Ministry of Finance plans to sell Rmb8bn of renminbi bonds in Hong Kong on September 23. It will sell two more deals worth Rmb6bn each later this year.
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The China Banking and Insurance Regulatory Commission plans to revise rules regulating Chinese insurance groups. It would require them to have a “concise, clear and penetrable” shareholding structure and strengthen their risk controls.
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For the first seven months of 2021, internet companies in China recorded a total revenue of Rmb886.9bn, showing a 26.3% year-on-year increase, data from the Ministry of Industry and Information Technology showed. Their combined operating profits jumped 28% from the same period in 2020 to Rmb84.3bn.
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Alibaba Group Holding said last week that it will invest Rmb100bn by 2025 to support Beijing’s common prosperity pledge — an initiative addressing inequality and aimed at eliminating absolute poverty in China.
Common prosperity is a concept first brought up by former Chinese president Mao Zedong some seven decades ago. Under president Xi, Beijing wants to make “solid progress” towards common prosperity by 2035. The goal is to “basically achieve” common prosperity by 2050.
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ByteDance is scaling back from financial services with plans to sell its securities-related businesses, reported the Shanghai Securities Journal. The report came after recent news suggesting that ByteDance is in discussions with financial institutions like Citic, Fosun Group and China International Capital Corp to sell Haitun Gupiao and Songshu Zhengquan — which translate to Dolphin Stocks and Squirrel Securities, respectively — with a combined valuation of Rmb500m-Rmb1bn.
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Five Chinese regulators held a meeting last week with 11 ride hailing platforms, including Didi Chuxing and Meituan Chuxing.
The companies were told to end ‘vicious competition’ and illegal operating practices, conduct self-examination and rectify any problems. They were also told to cut down the percentage taken from drivers’ fees and to better monitor security issues — including conducting background checks on the riders — and data security.
Separately, Bloomberg reported on Beijing’s plan for government-owned firms to invest in US-listed Didi Global, the operator of the Didi Chuxing app, to bring it under state control.
The scenarios being considered include for some Beijing-based companies like Shouqi Group to acquire a stake in Didi, or for them to take a so-called “golden share” that will give them veto power and a board seat, the report said, citing anonymous sources.
Shouqi is under state-owned Beijing Tourism Group. It operates Shouqi Yueche, one of the 11 platforms invited to the regulators’ meeting last week.