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China policy and markets round-up: IMF, Fed comment on Evergrande

China Evergrande_575px_adobe_15Oct21

This round-up focuses on views from the International Monetary Fund and the US Federal Reserve on the embattled Chinese developer

The Consumer Price Index (CPI) in China rose 0.7% year-on-year in September, down from 0.8% the previous month. The increase in Producer Price Index (PPI) was 10.7%, the highest since records began in 1996, versus August’s 9.5%.

The prolonged weakness in domestic demand resulted in the lower-than-expected September consumer inflation data, while the surging PPI reflects the impact from supply restrictions and increasing energy prices, economists at Barclays said in a note. They expect PPI inflation to stay above 10% in the fourth quarter due to rising electricity prices amid a power shortage.

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Outstanding total social financing (TSF) in China grew 10% year-on-year in September to Rmb308.05tr, according to the People’s Bank of China (PBoC). New TSF came at Rmb2.9tr, below the Rmb3.24tr forecast and August’s Rmb2.96tr.

New renminbi loan growth stood at Rmb1.66tr, better than Rmb1.22tr last month, but still short of the expectation of a Rmb1.9tr increase.

The 8.3% year-on-year growth in M2 supply beat forecast (8.1%), climbing by 0.1 percentage point from the previous month.

“The potentially faster-than-expected economic slowdown, driven by energy shortage and the contagion effect owing to a potential Evergrande default, will require further easing of monetary policy,” said economists at Citi. They expect another 50bp cut in banks’ reserve requirement ratio by the PBoC this year, with more targeted easing measures needed to help firms that are engaged in decarbonisation and to support small-and-medium sized enterprises.

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In September, foreign currency deposits in China dropped by $7bn to $992.7bn, with foreign currency loan balance declining by $1.6bn to $941.4bn.

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China’s exports and imports totalled Rmb28.33tr for the first three quarters of 2021, according to the General Administration of Customs. Exports jumped 22.7% year-on-year to Rmb15.55tr, while imports were up 22.6% from a year ago to Rmb12.78tr.

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The Ministry of Finance will issue Rmb6bn of renminbi bonds in Hong Kong on October 20. Some Rmb4.5bn of the notes will mature in 2023 and Rmb1.5bn in 2028.

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By the end of September, foreign institutions held Rmb3.84tr of bonds in China’s interbank market, equal to 3.5% of the outstanding amount, according to the central bank.

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The total assets in China’s financial leasing industry reached Rmb3.54tr by the end of 2020, 8.59% higher than a year ago, according to the China Banking Association. The sector’s total debt rose 9.35% to Rmb3.03tr.

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Ant Group has increased its registered capital to Rmb35bn from Rmb23.78bn, to meet regulatory requirements and business development needs, the company said. The move will “reserve more space” for its future development, Ant added.

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Tencent Holdings said it has “dealt with” 1,463 WeChat accounts between October 7 and 13, imposing measures including permanent shutdown of the accounts, or a ban on posting for seven, 15 and 30 days.

The move came after Beijing tightened regulations around financial-related content published by the so-called ‘self media’. These are independently operated social media accounts.

Separately, the Shanghai Securities Regulatory Bureau has asked securities companies it regulates to conduct self-examination of the use of self media by their employees. It said an analyst has been arrested for alleged fraud related to “improperly” using self media tools for business development.

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Tencent-backed food delivery company Meituan has lost an unfair competition lawsuit filed by a rival, Alibaba Group Holding’s Eleme. A court in Qingdao, Shandong, has ordered Meituan to pay Rmb1m to compensate Eleme for economic losses and expenses. Both parties said they will not appeal the decision.

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US-listed Futu Holdings dropped 12.4% on Thursday and UP Fintech Holding 21.1% after they were named in an analysis piece published on the website of state-owned People’s Daily as facing regulatory risks.

As China’s new Personal Information Protection Law kicks into effect on November 1, online brokers including Futu and UP Fintech, which provide cross-border investment services in stock markets such as Hong Kong and the US, have risks in data security and compliance, the article said.

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The IMF mentioned China Evergrande Group in its latest Global Financial Stability Report published on Tuesday.

Evergrande’s situation highlights the elevated vulnerabilities at Chinese entities due to “rising maturity mismatches and financial interconnectedness with banks”, the IMF said in the report. It added that Chinese policy makers have available tools to “contain and manage potential financial stress and lessen any adverse impact on the economy”. “But there are challenging trade-offs in terms of the extent of support to affected financial entities and sectors and the timing of the intervention,” the IMF added.

Separately, the US Federal Reserve also made comments about the Chinese developer.

“The big Chinese banks are not tremendously exposed, but you would worry it would affect global financial conditions through global confidence channels and that kind of thing,” Fed chairman Jay Powell was quoted as saying by Reuters.

Powell also reportedly said that China has “very high debt for an emerging economy”, and that its government put new strictures in place for highly leveraged companies. Powell’s remarks came when he was asked about Evergrande at a press conference after the Fed’s October policy meeting on Wednesday.

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Defaulted Chinese developer Fantasia Holdings Group Co has set up an internal team, led by executive director Ke Kasheng, to work on debt and asset restructuring, the company announced on its official WeChat account.

Fantasia also said separately in a filing in Hong Kong this week that two of its independent non-executive directors, Ho Man and Wong Pui Sze, have resigned. Both also served in the board’s audit committee, the remuneration committee and the nomination committee.

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Guangdong province said it plans to establish a ‘green channel’ for technology companies to list on the Shanghai’s Star board and the ChiNext board in Shenzhen.

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The Shanghai Stock Exchange resumed the process to review agriculture company Syngenta Group Co’s Star listing plan, having suspended its application after the expiration of the financial information included in the preliminary prospectus.

The company intends to raise Rmb65bn from the IPO. China International Capital Corp and BOC International (China) are the joint sponsors.

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UBS’s wholly owned subsidiary, UBS Qianhai Wealth Management Co, has received a fund distribution licence from the Shenzhen Securities Regulatory Bureau, according to an announcement.

It is the second fully foreign-owned company to obtain this licence, following Intesa Sanpaolo’s unit Qingdao Yicai Fund Distribution Co in 2019.

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Microsoft’s LinkedIn said that after seven years, it will shut down LinkedIn’s localised version in China later this year. It faces “a significantly more challenging operating environment and greater compliance requirements in China”, LinkedIn said in a Thursday blog post.

It plans to launch a standalone job application platform called InJobs, which will not have social feed or the ability to share posts or articles, in 2021.

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