People's Bank of China (PBoC) and China Banking Regulatory Commission (CBRC) have been investigating and discussing with interested parties for advice in terms of China’s financial market opening, according to a source speaking to 21jingji.com. CBRC says that a plan for further open up China’s financial market is under discussion.
Chinese regulators have been encouraging private investment and promoting the public-private partnership. Local regulators recently issued new rules in this context, according to Chinese media. Regulators of Heilongjiang, Shandong, Hubei, Guizhou, Sha’anxi, and Xinjiang have rolled out PPP projects with investment volumes of more than 100 billion yuan respectively. China has deployed 144 PPP projects during the first nine months of this year, attracting a total investment of 183.65 billion yuan.
China Insurance Regulatory Commission (CIRC) has set the benchmark for China's Risk Oriented Solvency System (C-CROSS) in a draft regulation on the solvency of Chinese insurance companies. Core solvency ratio should be more than 50%. Detailed rules will be issued at the end of this year.
China’s cross-border capital flows will be stable in general, says State Administration of Foreign Exchange (SAFE), noting that this trend will not be influenced by the US Federal Reserve shrinking its balance sheet. The first three quarters of this year have seen a steady trend in China’s cross-border capital flows, with a general balance between the supply and demand of the foreign exchange, says SAFE.
“China has no problem to overcome the middle-income trap,” says Lou Jiwei, chair of China’s National Council for Social Security Fund and former Minister of Finance, during a discussion meeting of the 19th Party Congress. In 2015, Lou said that more than 50% of China’s population would be troubled by the middle-income trap and the country needed reforms. China has done “a lot” during the past two years, says Lou, explaining the reason of him changing the outlook for this issue.
Baidu Peng Huan Investment LLP, a subsidiary of Chinese Internet giant Baidu, has become the owner of a Chinese insurance company and completed its capital increase. Interested party from Baidu confirmed that this move had been approved by the regulator. The three major Chinese Internet companies have all tapped into the country’s insurance industry by now, says Chinese media.
Chinese regulators will become “stricter” in supervising the country’s finance industry, says Guo Shuqing, the chairman of the China Banking Regulatory Commission (CBRC), during a discussion meeting of the 19th Party Congress. Banks’ wealth management service and interbank business will be the main focus of regulators, says Guo. The tightened regulation will cover aspects including shadow banking and real estate bubbles, which will create limited influence on the real economy, says Guo.
The market share of foreign banks in China has shrunk during the past 5 years, according to China Banking Regulatory Commission (CBRC). Guo Shuqing, the chairman of CBRC says that this situation is unfavorable to market competition and structural optimization. China needs to further open up to foreign banks in terms of the shareholding structure and business scope, says Guo, adding that private investment should be introduced to the banking industry gradually.
According to the performance of China’s macro economy in September, the country’s GDP is projected to grow by 6.9%, says the State Council of China. The investment in infrastructure and real estate maintained steady growth in September, which indicates a stable momentum till the end of 2017, says the State Council. The decreasing growth of the private investment during the first nine months this year will be put to an end, with more supportive regulations being deployed, says the State Council.
China’s National Party Congress (NPC) says that China will continue to further open up its market. The country has been deploying new rules in this context. The total amount of the country’s import and export during the first nine months of 2017 recorded a y-o-y growth of 16.6%, according to Ministry of Commerce (MOC). China’s exports recorded an increase of 12.4% and imports 22.3%, reducing the trade surplus to 17.7%.
China has been cracking down on the irrational foreign investment and tightening on capital controls. During the first three quarters of 2017, Chinese investors’ new non-financial outbound direct investment towards 5,159 foreign enterprises of 154 countries recorded a total amount of USD 78.03 billion, marking a decline of 41.9% y-o-y. During the same period, the new foreign investment in projects relating to the Belt and Road Initiative amounted to USD 9.6 billion. This took a share of 12.3% of the total foreign investment from China.
New channels to use the renminbi in an international scope will be explored, according to a recent report by People's Bank of China (PBoC). The bank says that the renminbi will become a more widely used international currency, efficiently serving the real economy and simplify trades and investment. The PBoC will enhance the flexibility of the renminbi’s exchange rate preserve to stability in the international system.
China’s Ministry of Land and Resources has recently been conducting a study on the country’s housing inventory. The organization hopes to form a sharing system of housing information in China. Chinese media says that the system development will start at the end of this year.
Chinese regulators tightened the rules relating to the import of scrap copper, making the imports barely possible, said Chinese media. This move, which will take effect early next year is seen as China’s efforts to cut pollution from heavy industries. This also indicates that China’s refined copper import will boom, says Chinese analysts.
Shanghai Stock Exchange (SSE) has been China’s first comprehensive trading platform that covers markets ranging from stocks to derivatives. SSE ranks second in the world in terms of the funding amount of IPOs, according to World Federation of Exchanges (WFE). SSE’s market capitalization moreover is fourth in the world. SSE will be built into a sophisticated world-class bourse, says an officer from the SSE.
Regulators will start to issue new regulations to further relax barriers around private investments. After months of consecutive growth, the private investment rate of China dropped by 3% in August, according to China’s National Bureau of Statistics. In order to drive the vitality in private investments, the new regulations will loosen the market admission and lower the cost of private investment, encouraging the money to flow into the mixed-ownership reform of China’s state-owned enterprises (SOEs) and Public-Private Partnership (PPP).
In order to supervise the money flow of consumption loans and to prevent lending from being abused in the housing market, Chinese regulators have sought to tighten controls. Banks in Beijing for example require relevant documents when a customer applies for a consumption loan that exceeds 200,000 yuan. Chinese media says that some banks are asking their customers to provide relevant documents when they are applying for a loan that exceeds 10,000 yuan.
China Securities Regulatory Commission (CSRC) says it will crack down on the illegal reduction of shareholdings. Some of the major shareholders of listed companies will violate the law by reducing their shareholdings, says CSRC. This move looks to stabilize China’s financial markets in the run up to China’s 19th Party Congress, says Chinese analysts.
The direct cross-border exchange between the Chinese renminbi and Vietnamese dong has been rolled out through Chinese and Vietnam banks, according to China’s official media. This marks a new milestone in the internationalization of the renminbi. A branch of Agricultural Bank of China located in Móng Cái, a city that borders China has started to offer this service.
Chinese regulators have been supportive in the new energy automobile industry. This industry recorded a historical high sales volume of nearly 400,000 million vehicles in September. The related industries including finished automobile, automobile parts, and automotive battery are expected to grow as well predicts Chinese media.
China’s trading volume with the regions involved in Belt and Road Initiatives increased by 20% in the first three quarters of 2017, according to General Administration of Customs of China (GACC). This is 3.5% higher than the import and export growth during the same period. The structure and the quality of China’s import and export during the first three quarters of this year are constantly improving, says GACC.
China Insurance Regulatory Commission (CIRC) has accused Bohai Life Insurance of violating regulations, in regards to various transactions as well as shareholdings structuring. For the next six months, Bohai Life is required to cut off its connection with HNA Group and interested parties in terms of trading and financial support, according to CIRC’s announcement. HNA has been aggressive in expanding its business and conducted several major overseas acquisitions last year. Bohai Life must respond and report to CIRC by November 30 this year.
Shanghai’s minimum wage for 2017 is 2,300 yuan per month, ranking the highest in China. The country’s average minimum wage has raised significantly in 2017, says Chinese state-owned media. So far, at least 17 cities have reported an increase in their minimum wages, with minimum wages of Shanghai, Shenzhen, Tianjin, and Beijing exceeding 2,000 yuan per month. In 2016, 9 cities recorded an increase in their minimum wages.
Foreign insurance companies in China are required to modify their business in terms of corporate governance, according to a source close to Chinese regulators talking to cnstock.com. This move will the focus to 16 aspects including shareholding, business operation, administrative management, and information disclosure. Chinese regulators have been tightening the supervision of insurance industry since late last year.
China’s National Development and Reform Commission (NDRC) will continue to promote the reform of the corporate bond issuance regulation system, the regulator has said in a recent announcement. The industrial guidance function of corporate bonds will be reinforced. NDRC will also emphases on building the credit system in the bond market. The bond issuance in China has increased from 1987’s 10 billion yuan to 2016’s 700 billion yuan, says the NDRC.
China's Ministry of Finance (MOF) has said that it will issue a sovereign bond of US$2 billion in Hong Kong. The bond includes a 5-year tranche of US$1 billion and a 10-year tranche of US$1 billion. The release date is to be announced.
Risk management companies are forbidden to provide services to individuals in derivativea trading, says China Futures Association (CFA). Interested companies should conduct self-checks and report to CFA before October 15 this year. This move indicates regulators determination in controlling speculative risks, says Chinese analysts.
A “timely” long-term solution for China’s overheated real estate market is under discussion, according to the National Development and Reform Commission (NDRC). Chinese regulators have been effective in destocking its real estate inventories, says the NDRC. Over the past year, the country has reduced 100 million square metres of real estate inventories, most of which are located in third- and fourth-tier cities.
Hong Kong’s Securities and Futures Commission (SFC) will roll out a real-name registration scheme next year for the Shenzhen/Shanghai – HK Stock Connect. Currently, 6% of the trading volume on HKEx is via the Stock Connect, but this will likely increase in the future, says the SFC. The upcoming scheme will serve as a precaution against international market manipulation and fraud via the HKEx.
China’s GDP grew at an average annual rate of 7.2% during 2013 to 2016, 2.6% higher than the average annual growth rate of the world’s developing economies during the same period, according to the country’s National Bureau of Statistics. During the first half of this year, China’s GDP recorded an annualized growth of 6.9%. Chinese analysts predict that the country’s annual GDP growth for 2017 will be 6.8%.
China’s Purchasing Managers' Index (PMI) recorded 50.6 in September, the lowest it has been since January 2016. The figure, released by Markit and Caixin, is lower than the PMI of 54.4 recorded by China’s National Bureau of Statistics. However, both figures indicate flat growth in China’s employment in the service industry. A figure under 50 would represent a contraction.
As of September 30, China Securities Regulatory Commission (CSRC) received IPO applications from 405 companies, 328 of which were approved and 53 rejected. The pass rate has fallen to 80.99%, recording a nearly 10% decrease compared to the same period last year. China’s jammed IPO applications will be eliminated in about one year, say Chinese analysts.
The 4th China Smart City International Expo was held in Shenyang, Liaoning. Two national innovation centres on big data were launched in the city. Big data transactions will be rolled out in Shenyang by the end of this year.
China will continue reducing the leverage ratio of state-owned enterprises (SOEs) through reforms, according to an official from National Development and Reform Commission (NDRC) talking to Xinhua News Agency. NDRC will focus on reducing the leverage ratio of SOEs and set up different warming lines according to the characteristics of different industries.
China’s One Belt One Road (OBOR) Initiative contains promising opportunities such as huge funding demand in infrastructure projects, said Chen Siqing, Chairman of the Board at Bank of China. Due to the long life cycle and the large investment, many of the OBOR related projects have difficulties in funding, Chen added, noting that interested financial institutions should innovate in service and products and form a system of financial protection.
The total market value of China’s National Equities Exchange and Quotations (NEEQ), or the “New Third Board”, has reached 524.52 billion yuan in 2017, with 11,594 companies listed on NEEQ. More than 2,000 NEEQ-listed companies issued stocks in 2017 YTD and the amount of the stocks accounts for 97.985 billion yuan.
China’s Purchasing Managers' Index (PMI) for September increased to 52.4%, recording a growth of 0.7% compared to August, based on information from China’s National Bureau of Statistics. This marks the highest PMI since May 2015. The GDP growth of the third quarter of 2017 is predicted to be 6.8%, according to several Chinese analysts talking to yicai.com.
Cargo train services between Chengdu, capital of Southwest China's Sichuan province, and Czech capital Prague started service recently. This marks the seventh international cargo service from Chengdu, following Lodz, Nuremberg, Tilburg, Almaty, Minsk and Moscow. This train service cuts the delivery between the two destinations to 13 days, adding to the geographical advantage of Chengdu.
Interested parties of China’s government and major companies in China’s liquor industry have been promoting Chinese liquor “baijiu” go international. Baijiu brands plan to enter overseas market leveraging China’s One Belt One Road Initiative, said Chinese media. Baijiu’s production currently takes one-third of the world’s liquor production, while the sales volume accounts for less than 1%.
In order to support financial institutions in their financial inclusion efforts, the People's Bank of China will cut certain commercial banks’ reserve requirement ratio (RRR) by 50 basis points to 100 basis points next year. This move will benefit those qualified banks that lend to small to micro companies or agriculture-related businesses. Yet the central bank’s prudent monetary policy will be maintained in order to control risk and serve the country’s deleveraging scheme.
The sharing economy is estimated to maintain a 40% annual growth rate, accounting for 10% of China’s GDP by 2020. China will continue to boost the development of the digital economy. Regulators will respect the market discipline, said National Development and Reform Commission (NDRC), noting the importance of government’s guidance. The regulators will maintain a prudential supervision and decentralize some of its power to the market, according to the NDRC.
China Banking Regulatory Commission (CBRC) will regulate the activities of financial institutions lending to the Chinese local governments. This will serve to reduce the implicit debt. In order to control the risk of the real estate bubble, the CBRC will further tighten its supervision on cash loans. The regulator has also taken steps in controlling the risk from the shadow banking system.
China’s State Council has issued guidance on anti-money laundering, counter-terrorist financing, and anti-tax avoidance. The guidance highlights more than 20 measures needed to improve the legal environment and to help control the financial risks to China’s economy.
Hong Kong Monetary Authority (HKMA) will take a series of measures to support digital innovations in the banking industry. HKMA will roll out a payment system which enables banks and payment platforms to participate. The regulator will cooperate with the banks in simplifying ‘irrational’ regulations. HKMA will also support innovations in cross-region cooperation with fintechs.
China plans to set up a state-owned natural gas pipeline company. The first plan for this may be issued next year, according to an official from PetroChina. National Development and Reform Commission (NDRC) is discussing this issue with PetroChina and Sinopec, Chinese media have said.
China’s natural gas long-distance transportation system is now mainly run by PetroChina, Sinopec and CNOOC, with PetroChina taking up 70% of long-distance transportation and 90% of the underground gas storage.
Foreign capitals are welcomed to participate in mixed-ownership reforms of Chinese state-owned enterprises (SOEs), said Xiao Yaqing, the director of the State owned Assets Supervision and Administration Commission (SASAC), at a press conference today. China hopes that countries including the US can open up to Chinese capital, said Xiao, noting that Chinese central SOEs should be evaluated with proper, objective and comprehensive criteria.
The cross-border capital flow of mainland China has remained balanced in August, said the State Administration of Foreign Exchange (SAFE). Domestic entities’ foreign trades have also remained stable during the same period. The capital inflows through major channels including trading and investment increased. Regulations on foreign exchange are consistent, said SAFE, noting that legal overseas investments are encouraged.
The central state-owned enterprises (SOEs) of China’s steel and coal industries have exceeded their goals of reducing overcapacity, said the State owned Assets Supervision and Administration Commission (SASAC). During the first eight months of this year, central SOEs has reduced 1,614 tons of steel and 5,510 tons of coal. Last year, Chinese SOEs reduced 80% of the national production of steel and 73% of national production of coal.
The accumulated profit of the SOEs during the first eight months of this year increased by 17.3% y-o-y to 976.6 billion yuan.
Industrial and Commercial Bank of China, COFCO, CRRC, State Grid and three other central state-owned enterprises signed a cooperation framework agreement today on forming a supply chain alliance for funding. The alliance will serve to integrate resource in clients, market, channels, data, and technology. The alliance will promote the innovations in fintech including big data, Internet of things, and blockchain.
China plans to set up a general system of technology transfer and form an interconnected technology market by 2020, according to a recent plan by the country’s State Council. The plan focuses on technology innovations, noting that the country supports the technology transfer between different regions and countries. Technology transfer between defense and civil entities is also encouraged. The plan aims to form a sophisticated national scheme of technology transfer by 2025.
China’s first and biggest bitcoin trading platform, BTCChina, has stopped accepting renminbi and digital asset deposits today at 4:00 AM (UTC). The platform will completely shut down its exchange businesses at the end of this month. The service of withdrawing renminbi and digital assets will stop on October 31. Chinese regulators called for a halt to the rapidly developing initial coin offerings (ICOs) early this month, and hinted to close all the virtual currency trading platforms in the country.
Central state-owned China Unicom’s mixed-ownership reform plan is awaiting approval from China’s Securities Regulatory Commission (CSRC), explained China Unicom in a recent statement. China Unicom highlighted that this would be the last step in its reform strategy. The company is expected to get CSRC approval in about one month.
China plans to set up a centralized financial company to manage the 2 trillion yuan worth of funds held by the finance units of the country's state-owned enterprises (SOEs), according to a source familiar with the matter.
China hopes the US could give equal treatment to Chinese enterprises, and increase high-tech products’ export to China, said Chinese Premier Li Keqiang during his meeting with US Commerce Secretary Wilbur Ross on Sept 25 in Beijing. Based on the principles of mutual respect and win-win cooperation, China is aiming to expand commodity and service trade, and deal with disputes and divergences through dialogues, said Li.
The US welcomes China’s accelerating opening-up steps, and is glad to expand trade and investment cooperation with China, said Ross.
China’s economic growth for next year is estimated to reach 6.4%, according to a recent report from Asian Development Bank (ADB). This indicates a 2% increase compared to the prediction made by ADB in April this year.
The outlook for Asia’s economic growth is positive, said Yasuyuki Sawada, ADB’s Chief Economist. This is fueled by the recovery of global trades and the momentum of China’s economy, Sawada added.
ADB predicts that China’s economic growth for 2017 will reach 6.7%.
China Securities Regulatory Commission issued a modified regulation on M&A disclosures. The new regulation requires fewer items to be disclosed in the M&A applications to shorten the trade suspension period of involved listed companies. In order to avoid insider trading, the new regulation requires the companies to disclose the share reduction plan of large shareholders and some concert parties.
The number of unprocessed A-share IPO applications have been dropping significantly. As of Sep 15, there were only 497 pending A-share IPO applications compared to 780 applications the same period last year. According to Chinese media, over 300 A-share applications have been approved in the first nine months of 2017. It is expected that the Shanghai Stock Exchange will exceed Hong Kong Exchange to be the second largest stock exchange in terms of no. of new IPOs only behind the New York Stock Exchange.
According to Chinese media, asset under management (AUM) by Chinese securities companies continued to shrink in the third quarter due to China's recent efforts to clamp down on the shadow banking sector. As of Sep 10, the total AUM of asset management business of securities companies have declined to 17.67 trillion yuan from 18.1 trillion yuan in the second quarter of 2017. Chinese analysts said that the shadow banking business does not effectively bring more profits to Chinese securities companies.
Following the recent forms of China’s central state-owned enterprises, Guangdong Province is planning to have a wave of reforms among its state-owned enterprises (SOEs), explained Chinese media. They noted that Guangdong's 36 SOEs will be soon conducting M&As in the near future. The total asset of Guangdong’s SOEs is seven trillion yuan, said Chinese media. After the reforms, each enterprise on average will have an estimated asset of 800 billion yuan.
The rating agency, S&P Global Ratings, lowered China’s sovereign rating by one notch to A+ from AA- yesterday. China’s Ministry of Finance (MOF) called this “a wrong decision”. MOF said that S&P focused on issues such as China’s soaring debt, but ignore the characteristics of the country’s financial market and the financial support from the Chinese government. China will further open up and restructure the economy, said MOF, highlighting that the country will maintain proper money and credit growth.
China supports eligible enterprises to participate in the construction of overseas development zones, said Ning Jizhe, deputy director of China’s National Development and Reform Commission (NDRC). These zones will serve as major platforms for overseas investment. Meanwhile, China promotes the innovation and reform of the country’s domestic development zones. This will help to form a more compelling market to attract foreign investors.
Central state-owned power juggernaut State Grid Corporation of China is studying whether to acquire electricity distribution subsidiaries that will be sold by Brazil’s state-owned Centrais Elétricas Brasileiras by the end of this year, according to an executive at State Grid talking to Reuters. State Grid announced its plan of corporate governance reform early this month. This reform is scheduled to be completed by the end of this year.
China Insurance Regulatory Commission (CIRC) supports insurers to invest in community services for aged care. By the end of June, there were eight major insurers in China investing in 29 aged care communities, according to the CIRC. The estimated investment has reached 67.8 billion yuan. Some of the communities have already been put into operation.
China’s State Council extended the time to comply with the new regulation on cross-border e-commerce by one year. The transitional policy will be valid until the end of next year. China will continue to support the development of cross-border e-commerce, said the Chinese State Council. Chinese cities relating to the One Belt One Road Initiative are encouraged to construct cross-border e-commerce facilities.
China wishes to align its One Belt One Road Initiative to Singapore’s development strategies, said China's Premier Li Keqiang. This will improve the trading and investment between China and Singapore. Li welcomes more Singapore enterprises to invest in China and hope that Singapore can support Chinese enterprises participating in the Kuala Lumpur-Singapore High Speed Rail construction project. Singapore wishes to collaborate with China in improving the China – Singapore Free Trade Agreement, said Lee Hsien Loong, Prime Minister of Singapore.
The new regulation on life insurance will take effect this October. This regulation calls for the halting of universal life products. Experts see this as China Insurance Regulatory Commission’s (CIRC) strictest regulation. Some insurers have been trying to design new products that hope to circumnavigate the new regulations, said Chinese media. The CIRC has become notably stricter on approving newer insurance projects.
China has recently deregistered 24 payment platforms that violated relevant regulations. Licenses for running online payment platforms has become scarcer in China, explained Chinese media. An online payment license normally costs 600 million yuan, said a source talking to china.com.cn, noting that some licenses can cost more than 2 billion yuan.
Agricultural Bank of China (ABC) has been promoting its financial support for the mixed-ownership reform in China. There will be more reforms in energy and steel sector in the second half of this year according to the Chinese media. ABC has signed contracts with 43 clients in providing services in such reforms. The bank also offers integrated service solutions for 99 clients and provides 83.4 billion yuan in supporting the funding of 31 companies.
China’s Insurance Regulatory Commission (CIRC) issued a notice in April this year reaffirming its determination in regulating the insurance market. Currently insurance companies found 1,131 irregularities through self-examination, accounting for 98.2 billion yuan; the regulators discovered 2,300 problems in the insurance market, accounting for 1 billion yuan, according to the CIRC. There has not been any irrational overseas investment in China’s insurance market during the first half of 2017, said the CIRC.
China Banking Regulatory Commission (CBRC) recently issued a draft regulation on China Development Bank Corporation (CDB) clarifying the function of this policy bank. CDB plays a key role in China’s ambitious One Belt and One Road initiative. The bank enjoys the advantages as a policy bank but conducts commercial banking business. This differs CDB from the other two policy banks, the Export-Import Bank of China and Agricultural Development Bank of China.
Eight China central state-owned enterprises were selected as the next mixed-ownership pilot enterprises, according to Chinese media. In addition to COFCO Capital and China National Gold Group Gold Jewellery Co., Ltd, these list of companies might also include Huaneng Capital Services Corporation Ltd. and China National Salt Industry Corporation, reported Chinese media.
China’s State Council recently issued the guiding opinions on guiding Chinese private investment. The country will further open up in areas including infrastructure and public utility. Private investments are encouraged to participate in the PPP (public-private partnership) projects in such areas. Chinese analysts said that the money invested in these projects has been increasing, the first three quarters of 2017 has maintained a growth rate of 50%.
Hui Ka Yan, Chairman of the Board of China Evergrande Real Estate Group Limited, has become the new richest individual in China and the second richest person in Asia.
As one of the largest property developers in China, Evergrande Group’s stock price has been on the rise. The 58-year-old Hui recorded a new net worth of 39.1 billion according to the recent figures from Forbes.
China will set up a fund of over 100 billion yuan to support the mixed-ownership reform of Chinese central stated-owned enterprises (SOEs), said Chinese media. The fund is still waiting for the approval from China’s State Council.
The shareholders of this fund will include influential Chinese private enterprises with solid backgrounds in finance and real estate in addition to central SOEs and SOEs, said Chinese media. The fund has also drawn attention from Chinese internet juggernauts such as Alibaba, Baidu and Tencent.
The National Development and Reform Commission (NDRC) recently announced that China's would further ease restrictions on foreign investment admissions. The NDRC highlights that there will be favorable rules in areas including finance and new energy vehicles during the second half of 2017.
China has eliminated about 30% of the existing foreign investment admissions restrictions in July this year, said the NDRC. The foreign investment negative list, which has been used in China’s 11 free trade zones (FTZs) will be deployed nationwide. Foreign investors off this list will not be prohibited from entering China’s market.
China Banking Regulatory Commission (CBRC) issued a draft regulation on the supervision of China’s Development Bank (CDB), regulating the bank’s management and prudential supervision. CDB plays a key role in China’s ambitious One Belt and One Road initiative. This regulation serves to clarify the function of CDB forming a mechanism for areas including corporate governance, capital restraint, and risk management. The draft regulation is open for the public’s advice.
Central state-owned China Railway Corporation, the country’s national railway operator started its reform early in September, said Chinese media. The reform aims to separate state-owned enterprises from the government.
After the reform, the company’s 18 subsidiaries which used to serve as railways bureaus will be renamed by November this year and operated under new management from next year.
There will be no layoffs resulting from the reform, said Chinese media, noting that the reform will enhance the company’s commercial viability.
China’s overseas investment has turned to be more rational. According to the Chinese Ministry of Commerce (MOC) Chinese investors invested in 4789 overseas non-financial companies in 152 countries during the first eight months of 2017. Amounting to US $68.72 billion this represents a decline of 41.8% y-o-y of overseas Chinese investments. There were no new investments in overseas real estate, sports, and entertainment projects.
China’s Ministry of Commerce (MOC) is cooperating with interested departments in expanding renminbi settlement business in cross-border trades and overseas investment. This will help Chinese enterprises in dealing with exchange rate risks.
MOC will adhere to the mission of seeking stable development and serve to reduce the external risks for foreign trades.
Chinese state bodies have issued an implementation plan today promoting the production of ethanol. The plan states the country’s 2020 targets for nationwide ethanol gasoline use. Ethanol related Chinese concept stocks are expected to rise, say Chinese analysts.
China has been promoting ethanol gasoline since 2001, with 11 cities are now using ethanol, accounting for 20% of the country’s total volume of automotive fuel.
The announcement was issued by China’s National Development and Reform Commission (NDRC), the National Energy Administration, and the Ministry of Finance, along with some other interested departments.
Chinese regulators are shutting down virtual currency trading platforms, according to a source close to the regulators talking to cnstock.com. Regulators are talking with relevant platforms, says the source.
The rapid growth of virtual currency in China, such as Bitcoin, challenges the regulators in tackling money laundering and managing capital flows, says Sheng Songcheng, counsellor to the People's Bank of China (PBoC). PBoC will maintain its dominating position in the monetary market even when China develops into a cashless society in the future.
China Securities Regulatory Commission (CSRC) is to issue regulations on home rental Real Estate Investment Trusts (REITs). China has been promoting the housing rental market, and REITs are expected to be at the top of the priority list for Chinese regulators.
The funding of Asset-Backed Securitization (ABS) and REITs is suitable for the Chinese market, say Chinese analysts, noting that the two channels are expected to play a major role in the funding of home rental companies. This market in China is expected to be promising, say the analysts.
China Securities Regulatory Commission (CSRC) is to join the Organization for Economic Co-operation and Development (OECD) Corporate Governance Committee. The move will require CSRC to amend existing government regulations to comply with international conventions.
"With the approval of China’s State Council, CSRC is willing to accept the invitation of joining the Corporate Governance Committee of the OECD,” says Liu Shiyu, chairman of CSRC. China will become an active participator in implementing the G20 / OECD Corporate Governance Guidance, says Liu.
Chinese regulators issued a notice in early September defining initial coin offerings (ICOs) as an illegal form of fundraising. Since then, Chinese ICO platforms have been cleaning up their businesses. So far, several platforms have completely removed their ICO related services. 30 platforms are providing investors with services of refunding and repurchasing. Fifty platforms have issued notices of cleaning up their businesses.
The Shanghai and Shenzhen Stock Exchanges jointly issued draft guidelines on September 8 for securities companies on the risk management of stock-pledged repurchase transactions.
For a single transaction, the maximum proportion of the outstanding shares that can be pledged as collateral is set to be 50%, according to the guidance.
As of September 11, the Shanghai and Shenzhen exchanges have 122 listings with pledged collateral exceeding 50%. Companies with listings exceeding 50% will be effected by the new rules, according to Chinese analysts, who say that these companies might cope with the rules by setting up funds or loaning on credit.
Hong Kong will sign an agreement with mainland China which will let Hong Kong further benefit from the Belt Road initiative, according to Hong Kong Chief Executive Carrie Lam. The new agreement will cover the funding of infrastructure projects, promoting trade and investment, and sharing project information. This agreement is another major agreement following the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA) signed in 2003, says Lam. As a free trade agreement, CEPA allowed qualifying products, companies and residents of Hong Kong preferential access to the mainland Chinese market.
Mainland China will support Hong Kong to explore the green bonds market and green credit policy, says Ning Jizhe, deputy director of China’s National Development and Reform Commission (NDRC). As a mature capital market, Hong Kong can use its geographical advantage to develop into a central hub on the Maritime Silk Road. Through Hong Kong, mainland China will continue to internationalize the renminbi and seek new funding channels such as Public-Private Partnership (PPP), says the NDRC.
The first half of 2017 has seen the explosive growth of initial coin offerings (ICOs) in China. After China tightened its regulations on ICOs, the country is to shut down all Bitcoin trading platforms, says an unnamed government source talking to the Wall Street Journal. Hong Kong regulators recently also decided to improve ICO rules, saying that the existing Securities and Futures Ordinance (SFO) fails to supervise fintech sufficiently.
The National Development and Reform Commission (NDRC) said it would encourage steel enterprises to conduct cross-region M&As especially mixed-ownership reform, to improve an effective supply of steel and avoid major fluctuations in the market. China has been cutting the excess and backward capacity in the steel industry.
At the start of 2017, the Chinese government hoped to reduce 50 million tons of steel by yearend. Around 85% of that target had been already met by May this year according to the NDRC.
The public offering of fund has become a crucial part of China’s retirement pension system, said Li Chao, Vice Chairman of the China Securities Regulatory Commission (CSRC). During a recent speech, Li highlighted that it is an important for Chinese regulators to build a sufficient framework for the country’s pension scheme. Chinese pension funds have been faced with a financial sustainability crisis due to a rapidly aging population. Li said that the mutual fund sector should play a major role in supporting retirement schemes.
The applications for fund raising of over 80 public offering FOFs (fund of funds) in China have been accepted and are being processed, that’s according to China’s Securities Regulatory Commission (CIRC). Chinese media has reported that six FOFs recently got their approvals, with four being in Beijing and one in both Shanghai and Shenzhen.
Over the past several years China has been ramping up its mixed-ownership economy by diversifying the shareholding structure of its state-owned enterprises (SOEs). Today, trading in the shares of central state-owned China National Building Material Group (CNBM) and several of its listed affiliated companies were suspended. This indicates that CNBM is about to announce some major news which can possibly be related to reforms, said Chinese media.
Early this year, CNBM said it had been discussing plans to enhance the integration of its 15 listed companies.
Chinese industry insiders are calling for relaxed measures on stock index futures. Economic Information Daily, a Chinese official media organized by Xinhua News Agency, said today that policies for China’s stock index futures need some moderate relaxation.
Currently the market is somewhat stable and investors are slowly regaining confidence said Chinese media, indicating that now is a good time to reform the regulations and policies. China Securities Regulatory Commission is aware of this demand, CSRC Vice-Chairman Fang Xinghai said today.
China’s Ministry of Industry and Information Technology (MIIT), together with relevant regulators and institutions, will promote the development of AI by deploying regulations and policies, said Chinese media.
Smaller enterprises and start-ups will benefit from favorable financial and tax policies. Regulators will promote the development of AI innovations by setting up innovation bases. In order to cope with the possible legal and ethical issues, regulators will improve relevant legislations.
China’s Insurance Regulatory Commission (CIRC) recently issued a notice to Chinese insurers saying that cases and statistics relating to fraudulent transactions within the trade credit insurance sector shall be reported to CIRC by the 15th of this month. Information collected will contribute to finding effective measures to cope with the fraudulent transactions. Relevant cases have happened in sectors including short-term export credit insurance and domestic trade credit insurance.
China’s Insurance Regulatory Commission (CIRC) will further open up the Chinese insurance market. In terms of the existing foreign insurers in China, regulators will improve the supervisory environment for them and encourage them to develop their business in health, pension, and catastrophe insurance sectors.
China will also improve policies of foreign investment admissions to attract more excellent foreign insurance institutions.
HSBC Bank (China) became the first foreign bank to provide facial recognition payments in China. In addition to the existing dynamic verifiable code service, this new technology will help to improve the security of mobile payments. China’s leading mobile payment platform, Alipay, debuted its facial recognition payments service early this year. The service received a mixed reaction in terms of its necessity.
Chinese media said that the People's Bank of China (PBoC) recently issued a notice, requiring banks and payment institutions to stop the services for cryptocurrency token issuance and transactions platforms. The services include opening accounts, registration, trading, clearing, etc. Banks and payment institutions are also required to investigate existing accounts suspected of fundraising through tokens. Such accounts shall be monitored and reported to regulators.
China’s Banking Regulatory Commission (CBRC) has been recently tapped to become the financial supervisor for financial licensing entities such as leasing, factoring, and pawn companies, according to Chinese media.
After this possible reform, the supervisory mode will be similar to that of micro-credit and P2P online loans companies, said an officer from a local regulatory institution. CBRC will guide the supervision, along with the local Financial Service Offices in implementing the regulations. The task could be challenging for regulators as there are more than 20,000 relevant financial institutions within China.
China Securities Regulatory Commission (CSRC) recently said that some of China’s money market funds with a large amount of assets need to be supervised with special regulations to mitigate domestic systemic risk. “Everyone knows what I am referring to and there is no need to point it out,” said Li Chao, Vice Chairman of CSRC. Yu’e Bao (余额宝), managed by Tianhong Asset Management, is an investment product of Alibaba’s payment affiliate Ant Financial. It has become the world’s largest money market fund, with a total amount of 1.43 trillion yuan as of June 30 this year, surpassing China Merchants Bank’s deposit of 1.3 trillion yuan.
A recent report on China’s energy finance development shows that the country’s energy finance, especially the clean energy sector, will experience explosive growth during the 13th Five-Year Period (2016-2020). The report was published by Central University of Finance and Economics and revealed that the investment demand of China’s clean energy finance, including nuclear power sector will amount to about 3.1 trillion yuan. Solar energy on its own will need a total of 1 trillion yuan of investments by 2020.
The Leading Group for Implement Special Rectification Work on Internet Finance Risks recently issued a notice defining ICOs (initial coin offerings) as illegal fund raisings. New ICOs projects are prohibited to be issued, and finished projects will be judged case by case. ICOs platforms will suspend operations and report to local regulators, said an officer from a blockchain platform. According to the Leading Group’s draft list there are 60 existing ICOs companies within China.
China’s Securities Regulatory Commission (CSRC) recently said that there might be more reform plans in terms of bourses’ function and investors’ claim settlement. CSRC is giving up some of its supervisory power and more of its resources will be used to protect investors and clamp down on illegal activities. Chinese analysts said that the Shanghai and Shenzhen exchange would aim to have additional autonomy in rule making. Moreover, both exchanges will have greater authority to act upon unusual trading activities.
China has been promoting a mixed-ownership economy by diversifying the shareholding structure of its state-owned enterprises (SOEs). Following China Unicom’s recent announcement of its reform plans, national railway operator, China Railway Corporation (CR) yesterday said that it had invited several companies including Alibaba, Tencent and state-owned FAW Group to participate in its mixed-ownership reform. Highlighting that there has always been good cooperation between the two companies, SF Express also said it will be an active participator for CR’s reform. In the first half of this year, CR had a total net loss of 2.968 billion yuan and its debt increased to 4.77 trillion yuan.
The People's Bank of China (PBoC) yesterday announced that commercial banks are no longer allowed to issue new interbank negotiable certificates of deposit (NCDs) with a tenor longer than one year. The new regulation takes effect from today.
This move was seen as improving the debt ratio assessment of the banking industry and reducing interbank risk, say Chinese analysts, noting that the new regulation might put smaller players under new pressure. But a PBoC official said that the change in regulation would not have much impact on the interbank lending market according to their results from a simulation.
A source close to regulators said that China Banking Regulatory Commission (CBRC) might become the regulator for the country’s funding leasing business, according to the China Business Journal. Recent years have seen the rapid growth in China’s funding leasing market. This sector has been regulated by the Ministry of Commerce (MoC) and CBRC only has supervising responsibilities. This move complies with the Financial Stability Board’s requirements, said the source, highlighting that there have not been any officially issued documents. MoC and CBRC have not responded to the news yet.
In order to set up a unified national trust registration system, China’s Banking Regulatory Commission (CBRC) recently issued regulations on the process of trust registration, highlighting the registration shall be protected by law.
China Trust Registration Co., Ltd, which was established in late December last year, will be in charge of relevant registration procedures, and the registration is free of charge. The regulations will take effect from tomorrow, but relevant institutions can have three months to comply with it. This will help strengthen market discipline and transparency, and will reduce the risks in this industry, said Chinese analysts.
China’s State Council recently issued an interim regulation on private investment funds, listing several detailed prohibitions on private investment funds’ managers and custodians. The regulation, which is said to be the strictest so far, says that those with net assets less than 50% of their paid-in capital and those with debt over 50% of their net assets are not allowed to be a private investment fund’s managers, major shareholders or partners. Private investment funds are required to reveal sufficient information on investment risks to the investors and are prohibited to promise any minimum profits, according to the regulation.
The first half of this year has seen China’s explosive growth of initial coin offerings (ICOs), a crowdfunding product using cryptocurrency. But due to its high risks, Chinese media recently has been discussing whether ICOs should be supervised, and regulators are also having meetings on this issue.
Sources say that regulations might be issued at the end of this year and ICOs in Beijing might be regulated in advance, according to eeo.com.cn. National Internet Finance Association of China (NIFA) yesterday also warned the risks of ICOs, highlighting that some institutions have misled investors to raise funds through ICOs, being suspected of illegal fundraising.
Postal Savings Bank of China, which executed the largest IPO on the Hong Kong Stock Exchange in 2016, recently announced its upcoming Shanghai IPO plan. The initial IPO size will be 5.172 billion shares at par value of one yuan per share. According to the official announcement, the proceeds from the IPO will be support PSBC's capital base.
According to Chinese media, Chinese regulators are now considering letting the social security fund hold some state-owned assets that are not part of listed SOEs. It is expected that over a trillion yuan of state-owned assets will be shifted out from non-listed SOEs to the social security fund. Currently, the social security fund is running over 2.5 trillion yuan of pension funds with an annual return of 8.37%.
Following the growth of the bike sharing industry in China, large Chinese conglomerates are now eyeing the automobile sharing industry. According to Chinese media, Alibaba, BMW, HNA and Vanke are all investing in this new market. As of 2016, there were 360 million license holders but only 140 million cars in China. Currently, there are over 6300 car renting companies. While there is market potential in China, experts are questioning whether automobile sharing companies can easily break even due to a higher operating cost of such activities.
China’s State-owned Assets Supervision & Administration Commission (SASAC) yesterday, announced that world’s largest coal supplier, Shenhua Group had merged with power producing giant, China Guodian Corporation. The M&A of these two central state-owned enterprises has created a 1.8 trillion yuan energy supermajor, ranking the fourth among China’s largest energy enterprises. The M&A was seen positively with experts believe that the deal will reduce over-capacity and “influence the landscape of the industry”, said Chinese media. Sources from the power industry indicated that China’s National Nuclear may soon merge with China Nuclear E&C Group. Moreover, China Huaneng Group might merge with State Power Investment Corporation.
Mainland China users of Apple’s App Store and Apple Music can now pay through Tencent Holdings' mobile payment platform, WeChat Pay. The payment method is supported by iOS 10.3 or later versions. WeChat Pay and Alibaba’s Alipay have been dominating China’s cashless payment system. Apple’s App Store users have been growing rapidly since November last year when the App Store announced that it would accept Alipay transactions. Apple CFO Luca Maestri said early this month that users for the paid service of App Store and iTunes increased by 12% to 185 million during the past three months, highlighting the significant contribution from accepting more payment methods such as Alipay.
The first half of this year has seen an explosive growth of initial coin offerings (ICOs) in China. A crowdfunding product thought the use of cryptocurrency, ICOs have been the subject of much debate on whether they are illegal or not. According to Chinese media, the People's Bank of China (PBoC), China Securities Regulatory Commission (CSRC) and China Banking Regulatory Commission (CBRC) had a meeting on ICOs this month. Due to their high risk, ICOs are certain to be regulated in the long run, said a CSRC official. Chinese analysts said that some companies might move their ICO activities overseas if the regulations are too strict.
China’s Banking Regulatory Commission (CBRC) recently issued a guidance on online lenders stating that within the first five working days of every month, online lending platforms should disclose information to government. This includes the amount and volume of online loans that are 90 days or more past due.
This sets a clear standard for online lenders on assessing overdue loans. The guidance indicates that online lending business will be regulated with the same risk assessment standard of the banking industry highlights Chinese analysts. Online lending platforms will have six-months to comply with the new regulation.
Chinese IPO has been growing significantly since the second half of 2016. During the first half of this year, 308 companies raised 155.4 billion yuan from IPO activities with nearly 10% capital being paid to intermediaries such as investment banks. Chinese analysts said about 60% to 90% of IPO relevant fees were paid to investment banks for their underwriting services.
China currently has no regulations or standards for the allocation of intermediary fees resulting in a huge discrepancy among different institutions. China Merchants Securities received the highest underwriting fee of 157 million yuan from a single IPO project in late July becoming the biggest intermediary winner for the first half of 2017.
As a precaution against international market manipulation and fraud via the HKEx, China’s Securities Regulatory Commission (CSRC) has sought to implement a real-name registration scheme. With further integration planned between the HKEx and mainland market there are fears that international financial predators would be able to trade A shares and investment in products such as ETFs and futures directly under the Shenzhen/Shanghai – HK Stock Connect.
HKEx and regulators of mainland China and Hong Kong will meet soon to discuss relevant schemes including a legal entity identifier (LEI) system reported local Hong Kong media.
According to the National Development and Reform Commission (NDRC), China will focus on promoting and speeding up the mergers and acquisition (M&A) of steel enterprises in major regions within the country.
Officials China’s Iron and Steel Association hope that M&A activities within China's steel industry will push the sector’s debt ratio to under 60% in the next three to five years.
China's market will further open up to foreign investment by relaxing additional restrictions.
Accord to China’s State Council, banking, securities, and insurance industries will reduce the constraints on the proportion of foreign shares and lines of business, Areas including new energy vehicles, ship design, and international maritime transportation will also see the relaxation on foreign share ownership.
China Unicom, who recently announced its mixed-ownership reform, today started to set up an alliance among Chinese corporates to create an Internet of things (IoT) ecosystem. In addition to China Unicom, the alliance has 30 members including internet giants Baidu, Alibaba, and Tencent (BAT), Chinese mobile device companies ZTE, Huawei, and Ericsson, and state-owned China Aerospace Science & Industry Corporation. China Unicom said such business innovations will be one of the company's core strategies after the corporate reform.
As China starts to implement the Common Reporting Standard (CRS), Chinese high net worth individuals (HNWIs) are seeking new approaches to hide their private wealth. Overseas private trust companies, different from family offices have become popular vehicles for Chinese HNWIs. Private trust companies usually adopt a model where a special purpose vehicle, which has no beneficiary, acts as the shareholder of the trust companies. As a result, regulators are unable to find the information of the investors through tracking the beneficiaries. According to Chinese media, the current CRS in China does not either include property assets into the reporting scope. Therefore, some wealth managers tried to promote their property solutions to their clients.
In order to reduce the debt ratio of the central state-owned enterprises, China’s State Council recently proposed to set a strict debt ratio warning lines sector by sector. Chinese analysts predicted that the warning lines for coal as well as iron and steel industry would be relatively high.
Those enterprises with debt ratios exceeding the warning lines will have a higher weight in the debt ratio assessment during their annual performance assessment, said the State Council, highlighting that investment projects with possibilities to increase the debt ratio will be prohibited.
China's Ministry of Commerce (MOC) recently said that China would focus on the supervision of overseas investments’ authenticity. China has been encouraging rational overseas investments. The bogus and irrational investments will be strictly curbed, said MOC. The supervision for overseas investments will be reinforced and the filing system will be improved. The legislation overseas investment will also be promoted, according to MOC.
China has sped up the central state-owned enterprises’ mixed-ownership reform by diversifying their shareholding structure after this year’s “Two Sessions”. State owned Assets Supervision and Administration Commission of the State Council (SASAC) yesterday announced the reform plan for central state-owned China Poly Group Corporation, stating that two other central state-owned enterprises, Sinolight Corporation and China National Arts and Craft (Group) Corp., will be merged into China Poly, becoming China Poly’s wholly-owned subsidiaries. These two companies will no longer under SASAC’s direct supervision.
China’s Ministry of Commerce (MOC) yesterday expressed its strong discontent with the United States' move on Friday to initiate an investigation under Section 301 of Trade Act of 1974, saying that the US neglected the World Trade Organization's rules and conducted unilateral and trade protectionism acts. China will take appropriate measures to defend the country's lawful interests. The investigation was an act of “unilateral protectionism” and sent the wrong message to the world, said the MOC. Chinese analysts said that the US was unlikely to ease its pressure on China.
The State Council recently issued regulations on financing guarantee companies. The regulations highlighted that China would boost financing guarantee services for small and micro businesses. At the same time strict rules were established to supervise the industry. Upon the establishment of a financing guarantee company, the company must have registered capital of at least 20 million yuan. If a financing guarantee company plans to set up branches in different provinces, it must have a registered capital of no less than 1 billion yuan. Outstanding liabilities guaranteed by a company should not exceed 10 times of its net assets. The regulation will take effect on Oct 1, 2017.
China Securities Regulatory Commission (CSRC) has officially approved the ownership reform of China Unicom in its recent press release. When China Unicom announced the mixed-ownership reform last week, some market experts believed that the reform did not comply with the new refinancing regulation issued early this year. Under current refinancing regulation, listed companies should not issue more than 20% of its outstanding shares in its private placement program. However, China Unicom issued new shares equivalent to 36.67% of total shares. According to the CSRC, China Unicom's mixed-ownership reform is a blueprint to the SOE reform so the CSRC will treat it as a special case and give a green light to that.
China’s State Council recently issued a guidance, stating its restrictions on certain overseas investments. Domestic enterprises are prohibited to participate in overseas investments that contradict China’s policy of diplomacy, economic opening up and macro control.
Overseas investment in sports clubs, film and television studios, as well as real estate, hospitality, and entertainment industries, are restricted. Unapproved export of core technologies and products from military entities are prohibited. The guidance also prohibited overseas investments in industries such as gambling.
The National Development and Reform Commission (NDRC) recently released an article on the development and construction of the Xiong’an New Area of Hebei Province. Railways between Beijing and Xiong’an are under construction and will be put into operation in 2019. It will take about 30 mins to travel between these two cities, according to Chinese media.The demand for green investment in the Xiong'an New Area will amount to about 1 trillion yuan in the next five years, said Ma Jun, Chief Economist at the Peoples Bank of China (PBoC).
China’s National Development and Reform Commission (NDRC) decided to issue policies to promote private investment and improve business environment. NDRC will promote the innovation of public-private partnerships (PPP) to boost the overall liquidity of the assets. Investment-return (I&R) mechanism will also be enhanced to attract private investment.
In a press conference of China’s Insurance Regulatory Commission, Sinosure, a state-owned insurance company focused on trade insurance, and said that they would provide insurance support to Chinese corporates going abroad. The company will especially focus on ventures to One Belt One Road (OBOR) countries. As of the first half of 2017, Sinosure has provided insurance services for $ 3.1 trillion trade activities and helped 240 banks raise 2.8 trillion yuan for their exporting clients.
In a notice issued by NDRC, financial innovations were encouraged in the OBOR Initiative. Financial institutions such as policy banks and Silk Road Funds will play a larger role in providing funds to the projects. In addition, the NDRC encourages the collaboration of Chinese and overseas corporates through direct investment and M&A.
China has been promoting a mixed-ownership economy by diversifying the shareholding structure of state-owned enterprises (SOEs). In its transition towards a joint-stock company, central state-owned telecommunications operator, China Unicom, recently announced its plan of issuing shares to raise 78 billion yuan of capital. Private enterprises such as Baidu, Alibaba, and Tencent (BAT), together with central state-owned China Life Insurance Company and CRRC, will be its strategic investors. The 14 investors will subscribe 35.19% of China Unicom’s A Shares, with China Unicom itself holding 36.67%.
China’s State Council recently issued a circular on attracting foreign investments, stating that China's market will further open up and the restrictions on foreign investment admissions will be loosened. The circular highlighted industries including banking, insurance, and security.
The foreign investment negative list, which has been used in China’s 11 free trade zones (FTZs), will soon be deployed nationwide to form an open and transparent investment environment. In addition, preferential tax policies are provided if foreign investors’ profit coming from Chinese resident enterprise is invested directly in projects under the encouraged category, according to the circular.
China's State Council recently issued opinions on the expanding logistics enterprises’ financing channels, highlighting that eligible state-owned enterprises (SOEs), financial institutions, large logistics enterprise should set up investment funds to support logistics enterprises.Banking industry is encouraged to cooperate with logistic enterprises in terms of developing electronic systems. The opinions also said that financial institutions in banking are encouraged to develop the supply chain financial products and financing solutions to provide comprehensive financial services such as crediting rating and systematic risks managing.
US President Donald Trump recently signed a memorandum to direct US Trade Representative (USTR) Robert Lighthizer to examine China's intellectual property practices. Chinese media said that this may lead to the US imposing new tariffs on imports from China, and the US would possibly take actions under Section 301 of the Trade Act of 1974, which might impact on China's high-tech industries.
But the US will not “easily provoke a trade war" and Sino-US trade will not be affected in the short term, as relevant investigation and negotiations will take longer than six months to one year, according to Chinese analysts.
By the end of July, China’s commercial housing inventory decreased by 20.8% YoY, to 341.81 million square meters, according to National Bureau of Statistics of China. This was the lowest level recorded in the past 33 months, China’s commercial housing inventory is now back to 2012 levels.
The numbers indicate that China has almost achieved its target of destocking the unsold houses after 20 months of efforts. A nationwide moderately tightened financial policy will be deployed soon, especially in the country’s three or four tier cities state Chinese analysts.
In order to support One Belt, One Road (OBOR) initiative and other development strategies, the National Development and Reform Commission (NDRC) recently issued a notice stating that relevant departments should offer priority support to OBOR projects through the application and issuance of bonds.
As for major regional development projects such as Xiongan New Area, the NDRC said relevant departments should encourage the qualified issuance of corporate bonds and provide support in reducing the costs for issuing such bonds.
As of the end of June this year, the assets of Chinese money market funds (MMF) amounted to 5.11 trillion yuan. This represents an increase of 18.09% in value compared to the end of 2016. Chinese media said new regulations will be issued in order to supervise the rapidly growing money market funds.
A more strict regulatory will reduce the risk in this market, but consequently, the return from MMF will get hurt as well, according to Chinese analysts.
The Government of Macau SARG plans to build a smart city as part of its major 2020 plan. The Government will collaborate with Alibaba in relevant areas including constructing a cloud computing center.
Macau’s government is estimated to have already invested MOP$500 million in the territory’s technology sector for 2017. For the next two years, Macau will increase around MOP$200 million in its government budget per year focusing on the smart city plan.
China’s Banking Regulatory Commission (CBRC) recently issued a proposed regulation for institutions conducting corporates' debt/equity swaps. China Construction Bank (CCB) has already established itself as a debt/equity swap institution, with relevant asset of companies signed with this bank amounting to 544.20 billion yuan.
Industrial and Commercial Bank of China, Agricultural Bank of China, and Bank of China are preparing for such institutions with approvals. Chinese analysts said the total asset of companies signed with the five state-owned banks had exceeded one trillion yuan, noting that the outlook of Chinese corporates' debt/equity swap to be a positive move.
The People’s Bank of China (PBoC) recently released the 2017 China’s Regional Financial Operation Report, highlighting that the speculative investments in real estate market would be strictly curbed. Over the past four months banks issuing illegal loans to property developers or individuals have been punished by the PBoC with the highest fine being 16.7 million yuan.
In Q2 2017, the growth rate of China’s housing mortgage loans decelerated by the end of June. The trading volume of China’s real estate market may fall; housing prices may edge down but remain stable, according to PBoC.
In the light of curbing excess industrial capacity, National Development and Reform Commission (NDRC) and 16 relevant ministries announced that 33 construction projects in coal power industry from 10 provinces had been suspended; 61 projects of 20 provinces were postponed. Central state-owned enterprises including China Shenhua Energy Company Limited and China Coal Energy were involved.
The People’s Bank of China (PBoC) also called an end to the financial support towards outdated industrial capacity, according to its "2017 China’s Regional Financial Operation Report".
Looking to instill liquidity management in financial institutions, the People’s Bank of China (PBoC) said in a recent report that certain interbank deposits issued by banks with assets over 500 billion yuan should be assessed under the macro prudential assessment (MPA). The measure plans to start from the first quarter of 2018.
Chinese analysts said that this action would not make too much difference in the short term, but regulators’ attitudes have indicated that policies might be deployed to improve the Chinese supervision system.
People’s Government of Jiangsu Provincial has submitted an application to relevant departments in order to set up a national demonstration zone on sustainable development. In the light of the eco-friendly development, Jiangsu plans to set up this demonstration zone with cities including Xuzhou, Huai’an, Yancheng, Suqian, and Lianyungang. According to Jiangsu’s plan, by the end of 2020, each of the cities mentioned will have at least one industry park with eco-friendly factories.
People's Bank of China (PBoC) will issue regulations on the integration of financial institutions and industrial enterprises. State-owned Assets Supervision and Administration Commission (SASAC) also plans to issue special regulations towards central state-owned financial holdings. Relevant instructions and policies on aspects such as controlling risks and debt-to-equity swap are expected to be issued during the second half of 2017. Chinese central SOEs including China Merchants Group and Power Construction Corporation of China are carrying out deleverage solutions, which will hopefully take effect during the second half of 2017.
State Administration of Foreign Exchange (SAFE) recently released statistics showing that during the second quarter of 2017, the inflow of foreign direct investment on China's domestic financial institutions mounted to 23.30 billion yuan, outflow of 9.02 billion yuan and net inflow of 14.27 billion yuan. The outflow of China's domestic financial institutions’ direct overseas investment mounted to 17.99 billion yuan, inflow the 14.87 billion yuan, net outflow of 3.12 billion yuan.
The Supreme People's Court (SPC) issued a supreme guidance on August 9th to regulate misconducts and violations in finance industry especially fintech sector. The guidance points out that fraud fund raising activities or unauthorized fund raising activities in the name of financial innovation will be regarded as illegal. The guidance also states that it will implement a stringent disciplinary actions towards fintech crime. In addition, the SPC guidance also set requirement on key issues such as shadow banking and zombie companies.
For the full guidance, please go to http://www.court.gov.cn/zixun-xiangqing-55642.html
In a bid to further broaden the financing avenues of infrastructure projects from Chinese enterprises, the National Development and Reform Commission issued a new guidance that introduces new classes of enterprise bonds. The new classes of enterprise bonds are sector specific and the proceeds of the bonds can only be used for the projects within the specific sector. For example, enterprises issuing a health sector enterprise bond can only use the proceeds for health sector infrastructure projects. The principal and interest of the bond will be paid by the future cash flow generated from the infrastructure projects. The guidance also encourages third party guarantee as a credit enhancement mechanism.
China’s Banking Regulatory Commission (CBRC) recently issued a regulation on online loans from private commercial bank, noting that private commercial banks need to submit applications before operating online loans business. Private commercial banks are more likely to cooperate with traditional banks to provide syndicated loans, due to their limited capability of attracting deposits. Under this new regulation, this common collaboration may be restricted, because institutions without licenses issued by CBRC are unqualified to operate online loans business. Consequently, whether syndicated loans with participation of platforms such as JD Finance and VIPS are legal or not are still under discussion by Chinese authorities.
According to China’s National Development and Reform Commission (NDRC), the deleveraging process has so far achieved good results in terms of reducing the financial leverage of Chinese corporates. Zombie companies with weak financials are being disposed by the market itself. Since 2016, over 3000 bankruptcy applications have been received by courts. For the first five months in 2017, 3086 M&As with a total amount of 710.75 billion yuan from listed companies have been completed. NDRC states that it will make consistent efforts to reduce the overall debt level by encouraging financially weak companies to go into bankruptcy or to be acquired by companies with higher profitability.
Alipay and Wechat have been recently promoting their own payment platforms with a slogan of "promoting a cashless society". However, a state media started to criticize those payment companies for misusing "cashless" in their marketing activities. The Chinese media pointed out that cash will never disappear and will still play an important role in China. In addition, the media highlighted that it is illegal to reject cash payment for business transactions within China.
According to Chinese media, VISA is applying for a clearing license from People's Bank of China (PBoC), which marks first foreign participant to apply for a bank clearing license in China. The Chinese State Council opened the Chinese banking clearing market back in 2014, which has long been dominated by UnionPay. On June 6, 2017 PBoC issued a guidance that sets the eligibility and application procedures to companies that are interested in clearing business in China. According to Chinese analysts, foreign card issuers such as VISA will be allowed issue renminbi credit cards in China, which offers an alternative to Chinese retail customers.
Based on the data from the Chinese Ministry of Finance, the average debt ratio of Chinese SOEs stood at 65.6% as of the end of June 2017. According to Chinese media, the high debt ratio of Chinese SOEs is a major hurdle in deleveraging the overall market. Historically, Chinese financial institutions were some of the first entities to finance SOEs and evidentially have significant systemic risk exposure to the industry segment.
A government official at China’s State-owned Asset Supervision and Administration Commission (SASAC) said that it was adjusting the capital structure of SOEs through IPOs, private placement, ABS and debt-to-equity swap program. The actions hope to reduce the debt level of SOEs
In an interview with Chinese media, a spokesperson of China’s Banking Regulatory Commission highly commended the positive changes that fintech brings to the financial market. The official also at the same time highlighted the lack of proper regulation of the fintech industry and the rise to risks in the current financial system.
Decentralization and financial disintermediation emerging from fintech solutions has made it difficult for financial regulators to detect risks. The CBRC plans to keep up with the recent wave of fintech and studies into the cooperative models of fintech and traditional financial institutions. Moreover, the CBRC will maintain a balance between promoting fintech development and risk management.
State-owned investment company China Xiongan Construction Investment Group, set up in late July 2017 has recently propelled the stock price of 101 related A-share companies. The spike in interest is due to the company’s key position in getting financing for infrastructure projects in Xiong'an Special Economic Zone. In terms of sourcing financing, the company will apply multiple vehicles such as PPP and project funds.
An official circular from the People’s Bank of China (PBoC) was recently distributed to Chinese banks and third party payment platforms. The new document requires that all third party platforms connect with Wang'lian (网联), (a clearing company set up by PBoC). According to a government official at the Chinese State Council, Wang’lian will weaken the bargaining power of third-party payment platforms in China. The new model will allow banks to gain access to user data and even transaction data which was absent during the old regime.
China’s Insurance Regulatory Commission (CIRC) issued a circular on interbank deposits to Chinese insurance companies. In the new circular, insurance companies should now report monthly the amount of interbank deposits pledged for financing. According to Chinese analysts, the new ruling will better regulate the financing activities of Chinese insurance companies.
In a bid to clamp down money laundering activities and illegal cross border transactions, Hong Kong’s Monetary Authority (HKMA) issued a notice to Hong Kong banks. In the notice, banks are now required to report all ATM withdrawals from UnionPay cards issued in mainland China within the first half of 2017. It is the first time that HKMA has collected data on ATM withdrawals. Neighboring Macau likewise has also ramped up its efforts in reducing money laundering activities. The government recently announced that it would embed all ATMs with a face recognition technology and a KYC (know your client) capabilities.
In a recent press conference held by the China Insurance Regulatory Commission (CIRC) and China Taiping Insurance Company, CIRC recognized China Taiping's contributions to the Belt Road initiative.
According to Ruohan Zhang, a spokesperson for China Taiping, the company provided insurance products for Belt-Road participants and indirectly invested in the projects through their offshore investment arms. China Taiping also set up project funds and invested in project bonds with respect to the Belt Road initiative.
FAW Group Corporation and China South Industries Group Corporation, two leading Chinese state-owned automobile manufacturers, both announced the appointment of their new chairmen.
The chairman of FAW Group Corporation will switch with the chairman of China South Industries Group Corporation. While Chinese media regard it as a signal of a possible merger of the two companies, an official statement from the State-owned Asset Supervision and Administration told Chinese media that the exchange of the two chairmen does not mean that the two companies will be merged.
According to Chinese media, as China further relaxes the restrictions on foreign ownership in automobile joint ventures, improving Chinese local automobile companies via M&As will become more feasible.
An unofficial document from China Banking Regulatory Commission (CBRC) is being circulated among Chinese P2P companies and banks. The document requires Chinese P2P companies to only work with authorized banking institutions registered under CBRC when providing loans to borrowers.
Over the past two years, P2P platforms have been working with various financial institutions such as banks, consumer finance companies and some other financial services companies to provide loans to their customers. Chinese analysts believe that the new circular will have a large impact on non-banking institutions and is conducive to the success of the financial markets.
The Ministry of Finance (MOF) has issued guidance that allows provincial governments to issue municipal project bonds on a pilot basis. The underlying assets of the municipal project bonds will be the projects themselves. The proceeds from the projects should be used for interest and principal payments.
In a recent press conference, Xiaorong He, director of the Supreme People's Court's (SPC) reform division said that letting zombie companies go bankrupt is the perfect way to clear debt issues in the whole supply chain.
According to He, letting companies go bankrupt can fully solve systemic risk. In addition, He stated that the ease of letting a company go bankrupt reflects the maturity of an economy. SPC encouraged authorities to deal with financially weak companies through the bankruptcy process.
Just as when internet companies started disrupting financial industries, online platforms are now gradually taking market share from banks in fund distribution. For many years in China, East Money has been the largest online fund distributor. As of the end of June, 77.77% of mutual funds are available in East Money while 65.89% of all mutual funds are available in Ant Financial. Currently, Alipay has over 350 million monthly active users while East Money only has 15 million.
At a conference held by Ministry of Finance, vice minister Yaobin Shi said that some local governments treat PPP (public-private-partnership) projects as a financing tool, which increases their debt and gives rise to potential risks for local governments.
According to Shi, some local governments promised to buy back shares from private investors to facilitate PPP projects. In a bid to reduce the local governments' participation in the PPP projects, Shi reiterated that local governments should not contribute more than 10% of their budget to PPP projects.
According to Chinese media, to date 43 IPO applications from 26 securities companies have been rejected by the China Securities Regulatory Commission (CSRC). The total potential funds which could have been raised from the rejected IPOs stands at 14.4 billion yuan.
Chinese media estimate that securities companies lost around 864 million yuan in underwriting fees. Guangfa Securities had 21 IPOs approved and five rejected, making it the highest in both categories among all underwriters. China Securities has 42 IPOs pending with the CSRC – the most among its peers.
Sate Administration of Foreign Exchange (SAFE) recently issued 43 disciplinary notices to banks, companies and individuals. Nine banks, including Industrial Bank, Minsheng Bank and China Construction Bank, are on the list.
The major violations among the banks are the lack of proper due diligence and KYC (know your client) procedures when processing cross-border transactions for their clients. The main violations among companies concern fake trades with the intention of illegally moving money out of China.
The People's Bank of China has conducted an investigation into the interbank accounts of Chinese banks between September 2016 and January 2017. The report, which was published in July, shows that 40 banks, including Bank of China, China Construction Bank and Agricultural Bank of China, violated the rules on interbank account management. PBoC issued disciplinary fines to those banks and instructed them to address PBoC’s concerns within three to six months. The banks have been suspended from interbank account related business until PBoC’s concerns have been addressed.
After one year of research and development, WeBank, Wanxiang Blockchain Labs and ENTVIR have jointly launched the first Chinese open-source blockchain platform called BCOS. Currently, Postal Savings Bank of China, China Merchants Bank, Everbright Bank and WeBank have launched their own services in custody, cross-border clearing and syndicated loans, based on blockchain technology.
The Securities Association of China has recently released its report on Chinese securities companies. The report points out that in 2016 net profits of all Chinese securities companies was at 123.4 billion yuan, down 49.57% from 2015. The brokerage business declined significantly while the investment banking business saw positive growth. In the overseas market, Chinese securities companies are also seeking opportunities. Twenty-one percent and 14% of total revenue came from overseas operations for Citic Securities and Haitong Securities, respectively.
During the first half of 2017, China's outbound direct investment was 331.1 billion yuan, 42.9% down from the same period in 2016, Keming Qian, a spokesperson at the Ministry of Commerce, has said in a press conference. However, trade activity grew significantly with Belt-Road countries. Trade activities with Asean countries, India and Russia increased by 21.9%, 30.4% and 33.1%, respectively. According to Qian, ‘unreasonable’ outbound investment has slowed in the first half of 2017.
In a China Banking Regulatory Commission (CBRC) meeting over the last weekend, Shuqing Guo, chairman of CBRC, said that in the second half of 2017 cutting overcapacity and deleveraging the market are still key focuses for the CBRC. Specifically, CBRC will strictly enforce regulations which restrict bank loans to property developers and local governments. According to Guo, CBRC will increase private ownership in the Chinese banking system in a gradual manner.
July saw a record number of mutual funds going into liquidation. Fourteen mutual funds went into liquidation in July and since the start of this year, 32 funds have been liquidated. Among the 14 liquidated funds, most of them had seen large redemptions in the first half of 2017, and the assets under management (AUM) for those funds became relatively small thereafter. As of end of June, there were 260 mutual funds with AUM of less than 50 million yuan.
China Insurance Regulatory Commission (CIRC) has issued new regulations on liability management for insurance companies. According to a spokesperson from CIRC, under the regulations the CIRC will estimate each insurance company's liability management capability. The companies with stronger liability management capabilities will be authorized to sell more innovative products and receive financial support from CIRC. Those with weaker capabilities will be restricted from making investments and issuing short-term insurance products. According to CIRC, the regulations aim to direct capital to the real economy instead of the financial sector.
As China speeds up deleveraging its financial markets, China Banking Regulatory Commission is conducting an examination of interbank loans. According to Chinese media, more disciplinary fine letters will be issued by CBRC to banks violating the rules of interbank loans. Chinese analysts suggest that China's efforts to deleverage the market by cleaning up the shadow banking sector have worked. Banks are cutting their shadow banking businesses and focusing on their core deposit and loan businesses.
The State Council issued an official notice on July 27 encouraging Chinese businesses to innovate. The notice points out that large corporations should take the lead in bringing more innovative solutions to the market. The notice also highlights that financial institutions have to support the real economy sector. Internet plus and Artificial Intelligence were also highlighted as key focuses for China's future economic development.
In an interview with state media, Gang Li, deputy director of China Securities Regulatory Commission (CSRC), said that some members of the media misinterpreted CSRC's statement on direct financing.
Li emphasized that ‘speeding up’ direct financing does not equate to ‘speeding up’ IPOs. But at the same time, CSRC is restricting refinancing and restricting shareholders from selling their stocks, in a bid to move financing to the IPO market. According to Li, the number of IPOs has stabilized and 10 IPOs will be approved each week on average.
Hongling Capital, the P2P platform with largest trading volume in China, announced that it will exit the P2P market within three years. In 2016 the company incurred a loss of 180 million yuan. Shiping Zhou, chairman of Hongling Capital explained that they are not specialized enough in the P2P business, and P2P will no longer be a business line because it is not profitable for them. The company's NPL ratio was only 3% in 2015 while Zhou said that in 2016 the company suffered a large loss from a single loan default.
Chinese investors have been eyeing investment opportunities in Southeast Asia, especially in the TMT sector. In Indonesia, there are fewer than 100 VCs while there are thousands of VCs in China. To Chinese VCs, Baidu, Tencent, Alibaba, JD.com and Didi are their major competitors in Southeast Asia as these technology companies are also aggressively looking for overseas partners in order to be more international.
According to Chinese media, Southeast Asia has recently seen an increasing number of technology talents with overseas education coming back to local markets and starting their own businesses, which makes Southeast Asia a market with large potential growth in the technology space.
Data from China Securities Depository and Clearing Corporation show that 3,253 out of around 3,300 A-share listed companies have pledged outstanding shares as collateral for borrowing. Securities firms estimate that over 50% of share pledging services are provided by securities companies. In the face of the increasing risks arising from share pledging services, securities companies reduced the average funds provided to companies applying for share pledging. For example, ChiNext companies are only able to get around 30% of the value of the collateral, down from 40%.
According to Chinese media, as an important tool to deleverage the financial markets, the debt-to-equity swap programme is likely to speed up in the second half of the year. Data from Ministry of Finance show that as of the end of June, SOE debt stood at 94 trillion yuan, up 11.4% from last June. In addition, SOE ABS and mixed ownership reforms are also likely to gain momentum in the second half of 2017.
Guangdong province has released its economic data for the first half year of 2017. In the first half of 2017, Guangdong province still remained the most productive province in China, with a GDP of 4.19 trillion yuan. Noticeably, it is the first time when both Shenzhen and Guangzhou surpassed Beijing and Shanghai, in terms of incremental GDP. Chinese analysts believe that the high GDP growth of the two cities is driven by increasing exports and increasing project investments with respect to the Guangdong Free Trade Zone.
China Securities Regulatory Commission has said at the Financial Work Meeting that it will speed up improving the infrastructure of China's capital markets, especially for direct financing. Currently, compared to bank loans, the volume of direct financing is still small. The Chinese media estimate that in the first half of 2017 A-share listed companies raised 1.3 trillion yuan through direct financing.
657 companies listed in ChiNext of the Shenzhen Stock Exchange have released their semi-annual profit results. According to Chinese media, the profit growth in H1 2017 slowed significantly compared to 2016 because there have been fewer M&As. The total volume of M&A activities by ChiNext companies grew from 40.4 billion yuan to 214.5 billion yuan from 2013 to 2015. It is expected that M&A activities will continue to slow down in the H2 2017 due to tighter supervision.
Since 2017 there have been more than 10 changes in senior executives at Chinese trust companies, from restructuring of duties, dismissal due to violations, and appointment by other companies. As China is striving to deleverage the financial markets and clamp down the shadow banking sector, trust companies are suffering as they constitute a large part of the shadow banking sector. As of the end of 2016, assets under management of Chinese trust companies amounted to 20.22 trillion yuan.
SOEs have started to speed up the deleveraging process as well as their debt-to-equity swap programmes, according to Chinese media. Currently, 12 central SOEs have signed debt-to-equity agreements with their counterparties, which includes banks and corporates.
High debt has long been a problem for China's SOEs. Since last October China has issued several notices to address the high levels of debt in China's non-financial institutions.
Although China Telecom has denied the participation of Baidu, Alibaba, Tencent and JD.com (BATJ) in their mixed ownership reforms, many Chinese media pundits still believe they will be included in the future. The big four Chinese technology companies have already started cooperating with China Unicom in mobile phone sim cards.
Sources told the Chinese media that the big four technology companies will make equity investments in China Unicom of a total value of up to US$11.8 billion.
Data from Wind show that among 24 steel companies listed in the A-share market, 21 of them recorded higher-than-expected profits. It is believed that the financial performance of the steel companies is attributed to the increasing price of steel. Market analysts believe that with China's continuous efforts to cut overcapacity, high steel prices will still be sustainable.
China Insurance Regulatory Commission (CIRC) has issued temporary regulations for credit insurance products. The regulations forbid certain activities, including selling insurance products where the underlying assets are privately sold bonds or public sold bonds rated below AA+. The regulations also forbid insurance companies from providing guarantees for unqualified P2P companies. For further details (in Chinese), please see: www.circ.gov.cn/web/site0/tab5168/info4076391.htm
The State Council has issued a circular on AI development, which demonstrates China's determination to develop its AI (Artificial Intelligence) capability. The circular requires that by 2030, China's AI technology capability has to be one of the top in the world and that core AI products should exceed one trillion yuan in total value. Since 2016, Chinese technology companies such as Baidu and Alibaba, have begun implementing AI labs.
Since April, when the People's Bank of China (PBoC) required third-party payment companies to deposit reserves, it has accumulated 84.1 billion yuan in reserves from third-party payment companies. Chinese media estimate that third-party payment companies will lose 300 million yuan in profit due to the large reserve requirements. Alibaba and Tencent, the two largest payment platform owners, will lose 40 million yuan and 29 million yuan, respectively, according to estimations in the Chinese media.
In a press conference held by the State Administration of Foreign Exchange (SAFE), Yingchun Wang, spokesperson for SAFE, echoed a recent statement from the National Development and Reform Commission and the Ministry of Commerce. SAFE will collaborate with other authorities to monitor 'unreasonable' outbound activities while still encouraging 'reasonable' M&As. Wang also said that China will continue to open its financial markets and push friendlier policies for overseas businesses in the future.
According to Chinese media, central SOEs (SOEs owned by the Central State Owned Assets Supervision and Administration Commission) will be divided into three types – industrial groups, investment companies and operational companies.
The operational companies will adopt a Temasek model (a fund management model developed by Singapore’s sovereign wealth fund) to maintain the assets of the companies, while the investment companies will be responsible for exploring new industries. The industrial groups will consolidate within strategically critical industries such as power and gas. The number of central SOEs will be reduced from 101 to less than 90.
The Ministry of Housing and Urban-Rural Development and other eight authorities jointly issued a circular on the rental apartment market. The circular requires 12 cities with large population inflows, including Guangzhou, Shenzhen and Nanjing, to develop the rental apartment market on a pilot basis. The circular encourages those cities to construct new apartments for rental use. In addition, banking institutions are required to provide financial support for the construction of rental apartments.
In a press conference of the National Development and Reform Commission (NDRC), Pengcheng Yan, a spokesperson for NDRC stated that it will continue to keep an eye on unreasonable outbound investment in real estate, hotels, movie cinemas, entertainment and football clubs. According to Yan, NDRC supports corporates with real expansion needs to do outbound acquisitions. It particularly supports projects under the Belt Road initiative. NDRC said it will keep an eye on non-manufacturing outbound M&As.
The Guangzhou government has issued new regulations for the city's housing market. The regulations state that the renters of an apartment will enjoy the same ownership benefits as the apartment owner. The children of renters will have the same right to go to nearby schools. Guangzhou becomes the first city in China to implement this reform. Chinese analysts believe that once more cities start to follow Guangzhou, the housing price will significantly drop while the house renting market will benefit greatly.
China's technology leader, Tencent, further expanded its footprint in financial market. Taiwan's Fubon Financial Holding Group announced on July 19 that it will partner with Tencent in selling their insurance products. A joint venture of the two groups will be set up in Shenzhen while a business licence is pending at the Chinese regulators. In 2013, Alibaba, Tencent and Ping'An Group jointly set up an internet insurance company, the first insuretech company in China.
In the financial work meeting last week, a new regulatory committee was set up under the state council. The new regulatory committee is called the Financial Stability Committee. As the name suggests, the committee will be responsible for the stability of China's financial markets and for improving the regulatory environment.
Chinese analysts believe that senior officials from People's Bank of China, China Securities Regulatory Commission, China Banking Regulatory Commission, China Insurance Regulatory Commission and Ministry of Finance will sit on the new committee. It is also believed by analysts that the new committee may be equally as important as the five existing regulatory bodies.
China's A-share market has been criticized for attracting a lot of companies but lacking a good house-cleaning system. Data from Wind show that since 2001 only 60 companies have been delisted from the A-share market. Shenzhen Century Plaza Hotel was the first and only stock delisted from A-share market in 2017. So few companies are delisted because unprofitable companies are still attractive as backdoor listing targets.
Amid a difficult banking environment, a Chinese bank called WeBank stood out in 2016 with a ten-fold growth in revenue. WeBank is an internet bank registered at the China Banking Regulatory Commission and backed by Tencent. The bank has no physical branch. Eighty percent of the bank’s revenue comes from online micro and small loans. Its main internet banking competitor, MyBank, set up by Alibaba, has a larger asset base and more outstanding loans.
China's trade activities have picked up in the first half of 2017. According to Songping Huang, spokesperson of General Administration of Customs, in H1 2017 China exported 7.21 trillion yuan worth of goods, up 15% from H1 2016, while imports totalled 5.93 trillion yuan, up 25.7% from the same period last year. Huang said that trade activities will continue to grow in the second half, despite some uncertainty in international trade.
Over the past few years, Yuebao has been the only money fund sold on Ant Financial's platform. Now the big four banks in China are all allowed to sell their own money market funds in Ant Financial, with an average annual return of 4.5%-4.9%, slightly higher than Yuebao. It is expected that the big four banks will challenge the leading position of Yuebao in the money market.
On Wednesday, July 12, Jiang Yang, vice chairman of the China Securities Regulatory Commission (CSRC) said that China will strengthen its supervision on the securities market as it aims to keep it fair, open, and impartial. Reforms will improve the capital market, making it more open to foreign investors to better serve the economy. “Chinese regulators will continue cracking down on violations of securities laws and regulations, including insider trading and market manipulation,” said Jiang.
Since the Bond Connect was launched, offshore investors have shown great interest in onshore bonds. New bonds issued by Agricultural Development Bank of China received ten times oversubscription while a number of other larger issuers also received at least two times oversubscription. The growing interest, as Chinese media explained, is attributed to the rising yields of renminbi bonds, which is in line with the increase in global yields.
Chinese state media under the People's Bank of China published an article on China's renminbi reform. The article expected that the future direction of the renminbi reform will be to widen the floating range of the currency, while at the same time the currency will remain at a relatively stable level. The article also said that the government should try their best to reduce their intervention in the FX market.
Chinese property developers have difficulties in getting financing in the onshore market. According to Chinese media, Sunac China Holdings Limited's 10-billion-yuan enterprise bonds were rejected by the Shanghai Stock Exchange. As of July 6, 13 property developers have been rejected by the China Securities Regulatory Commission. Some Chinese property developers turn to trust companies for financing, although the cost of financing is higher than bank loans and bonds.
China's Bay Area Economic Plan, focusing on the development of Guangdong, Hong Kong and Macau, has been submitted to the National Development and Reform Commission. The new Bay Area is expected to compete with Bay Areas in New York, San Francisco and Tokyo. According to government officials, the construction of the Bay Area is expected to be completed by 2020. By 2030, officials estimate that China’s Bay Area will become the most productive Bay Area in the world.
Since the National Internet Finance Association was launched, 24 P2P companies have joined the association as of July 10. Due to tighter regulation of China's P2P companies, the quality of existing companies has improved. Seventy percent of the 24 member companies have reported profits in 2016, while Hongling Capital and Dianrong, two leading P2P member companies, have recorded losses of 183 million yuan and 179 million yuan, respectively.
According to Chinese media, the China Banking Regulatory Commission has issued 744 disciplinary fine letters to commercial banks and asset management companies. Sources told Chinese media that regulators do not accept any type appeal process in relation to fines: once the letter is issued, those companies will have to pay the bill. Among all violations, misconduct in credit businesses are the most common.
China Securities Regulatory Commission (CSRC) issued amended regulations for Chinese securities companies on July 7. The new regulations update and address some issues that could add or deduct marks to the securities companies in terms of ratings. CSRC releases the annual review in mid-July every year. In 2016, over 60% of securities companies were downgraded by CSRC.
After years of expansion, Chinese commercial banks are now in a stage of restructuring. In the first half of 2017, Beijing saw 38 local branches shut by banks such as Bohai Bank, Shanghai Pudong Development Bank and Everbright Bank. According to Chinese analysts, these local branches do not adopt a sophisticated business model and are not profitable.
As China continues to tighten regulations, CSRC has intensively cracked-down on violations such as insider trading over the past few years. Since 2014, CSRC has initiated 99 insider trading investigations and submitted 83 cases to police, in relation to sums amounting to 80 billion yuan. As of May 2017, 25 asset managers received criminal convictions and 15 employees of securities companies were disqualified from the market.
China's mutual fund industry reached a milestone in the first half of 2017 when market size exceeded 10 trillion yuan. Money market funds now total 5.12 trillion yuan and account for half of the mutual fund market. Currently, Tianhong Asset Management, ICBC Credit Suisse and Efunds are the top three asset management companies in China in terms of AUM. Noticeably, Bank of China Investment Management has fallen out of the top ten.
Sources confirmed to Chinese media that the financial work meeting, held every five years, will commence in mid-July. The financial work meeting discusses possible significant reforms in the financial market. The market believes that the meeting this year will mainly focus on financial risk and regulatory frameworks. The much-discussed consolidation of PBoC, CSRC, CBRC and CIRC, is not likely to happen soon. Chinese analysts believe that the main obstacle to the consolidation is from the objection from current government officials whose responsibilities and power will be affected.
On Thursday, July 6, Liu Qibao, a member of the Political Bureau of the CPC Central Committee, called for the integration of culture in economic development. Liu urged China to seek deeper international cultural exchanges, showcasing Chinese culture as part of the Belt and Road initiative. According to Liu, cultural development is crucial to economic development and poverty alleviation.
According to an official statement on Wednesday, July 5, the Chinese government aims to ensure that both domestic and foreign companies registered in China have equal legal footing. Regulations and policies will be improved to further stimulate market vitality, and high-quality assets will be used to attract investments through public-private partnerships in order to create a fair legal environment. These improvements will make China more desirable for foreign investors.
Along with the shift in the Chinese market from a producer model to household consumption, the country’s outbound investments are also experiencing a shift from energy and commodities to brands and technology.
In 2014, China’s outbound merger and acquisition (M&A) activity in technology-related sectors, including relating to the internet and software, amounted to the same as traditional energy investments. In 2016, China’s outbound M&A in internet and software reached US$26.7 billion, while outbound M&A in energy dropped to just US$2.8 billion from US$30 billion in 2012.
China Securities Regulatory Commission (CSRC) has sped-up processing time for M&A activities for A-share companies. According to Chinese media, 24 M&A applications were approved in June, the most in 2017. This compares to 9 in January, 5 in February, 13 in March, 11 in April, and 10 in May. In a bid to crack-down on violations in M&A activities, CSRC issued new regulation for M&A activities last September.
As China begins to deleverage the financial market, Chinese banks have started to redeem their investment in funds of asset management companies. Specifically, ICBC-Credit Suisse has seen over 10 billion units of redemption in their two mutual funds from banks in the second quarter. According to a banker working at a Chinese bank, the main reason for the large redemption is that banks have to fulfill the liquidity requirement of PBoC. The other reason is that the domestic bond market performed poorly in the first half of 2017 and banks need to find other investment opportunities with higher return.
As China’s population continues to age there is a growing need for accelerating the development of commercial pension insurance. The Chinese State Council recently released a guideline to speed up the development of commercial pension insurance. It will not only become the largest source of increment in the insurance market, but will also form a strong foundation for stabilizing the domestic capital market.
Chinese President Xi Jinping encourages the development of an open world economy. Xi said the world economy still faces daunting challenges despite “further consolidation of growth momentum… in both developed and emerging economies,” as such, he noted that “the G20 needs to stay committed to open development, support the multilateral trading regime with the WTO at its heart, and enable trade and investment to continue to drive global economic growth.”
People's Bank of China issued a regulation on rating agencies in China’s Interbank Bond Market. The regulation requires that foreign rating agencies have to register at the PBoC provincial branch. Moreover, foreign rating agencies have to comply with PBoC regulations and be monitored by the PBoC. The regulation also sets up qualification requirement and specifies a list of violations. For the whole regulation, please go to (in Chinese):
Textile is one of the most important industries in China, accounting for 5% of all 30 sectors in the manufacturing industry. In the face of large volatility of the cotton yarn price, China Securities Regulatory Commission (CSRC) recently approved cotton yarn future trading in Zhengzhou’s Commodity Exchange. According to the CSRC, the cotton yarn future can help manufacturers hedge their exposure and help with price discovery. The official launch time will be announced soon.
China's SOE reform has entered the final stretch. In a recent meeting of the Chinese State Council, a deadline was proposed that SOE reform has to be mostly completed by the end of this year. According to Chinese media, 92% of central SOEs have started their reform while the number of provincial SOEs is 90%. Apart from the ownership structure, other key areas of the reform will tackle corporate structure and board of directors appointees.
The Ministry of Commerce of the People's Republic of China recently released a report on the development of retail industry (2016/2017). According to the report, by the end of 2016, there are 1.81 million of retailing units in China, this represents an increase by 5.2% compared to 2016.
According to Tencent, its superstar mobile phone game, King of Glory, has achieved a revenue of 6 billion yuan during the first quarter of 2017, with a monthly turnover of 3 billion yuan. The revenue of this unprecedentedly successful game was even higher than 3079 A-share listed companies. The game has over 200 million registered users and 50 million daily active users. Around 120 million users are still in primary school.
As of the end of June, Yuebao, China's largest money market fund sold on Ant Financial’s platform, has reached a size of 1.43 trillion yuan. The fund exceeded the size of personal deposits of China Merchants Bank, only slightly behind Bank of China. Yuebao is also the world largest money market fund. As of the end of 2017Q1, the fund has reached a market share of 12%.
China Insurance Regulatory Commission issued a regulation on China's insurance companies. The regulation allows insurance companies to participate in the Shenzhen-Hong Kong Stock Connect. The regulation also specifies the requirement of eligible companies and investable stocks. Chinese insurance companies could invest in Hong Kong stocks only through the QDII program, third party agencies or their offshore investment subsidiaries.
Trial operation of Northbound Trading on the Bond Connect commenced today. Agricultural Development Bank of China and China Development Bank will issue policies on bonds to foreign and domestic investors for the first time on 3 July and 4 July respectively. According to a Chinese Economist, Bond Connect is a new milestone for the opening up of China’s capital market to foreign countries. Deutsche Bank predicts that US$700 to US$800 billion of foreign capital will flow into onshore renminbi bond market in the next five years.
According to Chinese media, Citi will include China into its World Government Bond Index – Extended / WGBI-Extended from July. At the same time, Citi also announced to launch two bond index, Citi Chinese (Onshore CNY) Broad Bond Index and The Citi Chinese (Onshore CNY) Broad Bond Index - Interbank). The new indexes will enrich the coverage of Citi's bond index portfolio.
Chinese media learned from the State-owned Asset Supervision and Administration Commission that another M&A between two central SOEs has been completed. China High-Tech Group Corporation was acquired by China National Machinery Industry Corporation, a state-owned manufacturing group. As a result, the number of central SOEs decreased to 101.
China’s Hushen 300 index futures opened lower on Friday, June 30, with the contract for settlement in July down 0.37% to finish at 3,632 points. Similarly in August, September, and December contracts opened lower at 0.03%, 0.35%, and 0.43% respectively. The China Financial Futures Exchange (CFFEX) has set the base value for all the four contracts at 3,399 points.
According to the National Bureau of Statistics on Friday, June 30, China’s manufacturing sector has expanded for eleven straight months stretching back to May 2016. China’s purchasing managers’ index (PMI) came in with a reading of 51.7% recorded for June. A reading over 50% indicates expansion, while a reading below indicates contraction.
Foreign investors have high hopes for bond connect, a trading link for bonds between mainland China and Hong Kong. This program has the chance to increase overseas ownership of bonds in China where it is currently less than 2%. On Thursday, June 29 , Li Xiaojia, chief executive of Hong Kong Exchanges & Clearing (HKEx) remarked that bond connect is “technically ready” at the moment. James O’Sullvian, the head of securities services at Standard Chartered Bank in Hong Kong noted that the trading mechanism, known for its simplified application process and automated trading will satisfy international investors.
Guoqiang Ma, the chairman of China Baowu Steel Group Corporation, said in a forum that people generally have a misunderstanding of SOEs. According to Ma, from historical statistics, most technological innovations were introduced by SOEs. But Ma also committed that in terms of business models, POEs are more innovative and flexible than SOEs.
According to Chinese media, during the first half of 2017, the China Securities Regulatory Commission approved 224 IPOs with a pass rate of 84.8%. Thirty-seven companies have been rejected by CSRC. The rejection rate of NEEQ (National Equities Exchange and Quotations) is much higher than the overall rate. The tightened supervision by CSRC is regarded as the main reason for the higher rejection rate.
At the World Economic Forum in Dalian on Wednesday, June 28th, Premier Li Keqiang promised foreign companies easier market access and a level playing field. The country plans to enact reforms to allow greater participation of foreign capital and companies. Li said, “China’s reform has always run parallel with opening up. We invite foreign firms to come to China and participate in corporate reorganization to foster new growth engines.”
The first round of regulations aimed at protecting investors in the securities and futures market will be put into force on 1 July. The new regulation has positive and far reaching impact on development on China’s capital market. It also protects the right and interests of medium and small investors. The selling of products and services to new clients and higher risk products to old clients by securities and futures intermediates are now regulated. Under new regulations, investors of low risk tolerance can also invest in high-risk products after a confirmation process.
Since MSCI included Chinese A-shares into its emerging market index, the trading volume of CSOP FTSE China A50 ETF, the largest A-share ETF, has increased significantly. On June 27, the fund gained 1.5 billion yuan in subscriptions from long-only investors and some speculative investors. It is the first time where a large volume of international funds have entered into the A-share market since the MSCI inclusion.
Chinese premier Li Keqiang said in a recent speech that China encourages foreign companies to keep their profits in China and invest in China. On the other hand, Li said that foreign companies, if their profits are generated in China, can also freely remit them out without any restriction. Some sources have confirmed to Chinese media that cross border flows have started to become easier on the back of the country’s rising FX reserve.
China’s major industrial firms registered double-digit profit growth in May 2017, reporting 2.9 trillion yuan in profits, a 22.7% increase from the previous year. This profit growth came despite moderated prices of industrial goods. This has led researchers from China Merchants Securities to believe that the “tightened financial regulation will have limited impact on the real economy”. In the 2017 Summer Davos Summit, Premier Li Keqiang said that with the steady economic transition, China is capable of delivering the year’s major growth targets.
People's Bank of China announced on June 26 that it did not extend third party payment licenses to 9 companies. Currently, licenses from 20 third party payment companies have been revoked 2017. Chinese analysts believe that as the payment market becomes larger in China, Mainland financial regulators are redoubling their efforts in monitoring the market. Extension of third party payment licenses are also increasingly becoming difficult for companies.
According to Chinese media, banks and exchanges are ready for the Bond Connect system with reports stating that the scheme can be launched as early as July 3rd. The market expects favorable policies towards Hong Kong as Chinese President Xi Jinping visits territory on June 29.
China Central Depository & Clearing Co (CCDC) released a custodian regulation in addition to PBoC's regulation last week. The additional regulation specifies the roles and responsibilities of CCDC and Central Moneymarkets Unit (CMU).
For the whole regulation (in Chinese), please visit:
The National Audit Office released an auditing report of 20 central SOEs focusing on their activities over the past several years. The report pointed out that 18 central SOEs have exaggerated their profits by 200 billion yuan through the adjustment of their balance sheet. One of the most common violations is undisciplined procurement and sales. Five central SOEs are involved in manipulating their procurement and sales figures.
Henry Fernandez, CEO of MSCI told Chinese media that the MSCI has pitched to over 150 investment entities including pension funds, asset managers and other investment agencies. According to Henry, overseas investors recognized that the two stock connect schemes were more helpful than the QFII/RQFII programmes. On the other hand, overseas investors share concerns around the suspension of stocks and the current investment quota. Fernandez also said that MSCI is considering including an additional 195 mid-cap A-shares to its index in the future.
Investment in local provinces will likely speed up in 2017. Since the second quarter of 2017, a couple of provinces including Inner Mongolia, Guizhou and Sichuan have announced their investment plans in Q2 2017. Unlike previous years, the investment is mainly in new economy projects instead of infrastructure projects. Data from the National Bureau of Statistics also shows that for the first five months of the year, the investment growth in high tech sector is faster than other sectors.
On June 23, Zhang Shaochun, vice minister of finance, announced on his State Council report to the Standing Committee of the National People’s Congress (NPC) that China’s government debt risk is “largely controllable”. According to official data, in 2016, the combined debt of China was 27.3 trillion yuan, with a debt-to-GDP ratio at 36.7%. The central government has continued to hold its officials accountable for illegal financing activities, and “Fresh steps have been taken to better manage China’s local government debt, with strengthened supervision efforts… and risk prevention schemes,” Zhang said.
The bike sharing industry in China is reaching an infection point. Following the first bankruptcy in the bike sharing industry a first M&A is likely to be completed soon. According to Chinese media, the industry leader Mobike will complete its acquisition of UniBike in a few days. After the completion, Mobike will continue to focus on higher tier cities while UniBike will stay in the lower tier cities.
Xinghai Fang, vice chairman of China Securities Regulatory Commission recently said that the CSRC will speed up the opening of government bond futures market to commercial banks. A source told the Chinese media that new regulations will come out as early as this year. According to Chinese analysts, the futures market will significantly affect the pricing in the spot market and can also offer a hedging option to the participants.
Data from the Ministry of Human Resource and Social Security shows that for the first five months, the pension fund has seen an inflow of 1.57 trillion yuan and an outflow of 1.35 trillion yuan. Despite a net inflow in the pension fund balance, there is an imbalance among different provinces. According to the Ministry of Human Resource and Social Security, the balance in eastern provinces is much larger than western provinces. In northeast China, there is even a deficit in the pension fund account.
On Wednesday, the Chinese State Council declared its support for the development of the sharing economy. China will aid by improving tax and welfare policies and providing support for those self-employed in the sharing economy. Premier Li Keqiang announced that China is adapting to the latest technology to facilitate supply-side structural reform, which will reduce overcapacity and lower costs to generate sustainable long-term growth. Li also said that there would be no WeChat if the government interrupted the development of the technological innovation in the past.
As technology grows in importance, Chinese commercial banks have started to partner with leading technology companies. Currently, Huaxia Bank has partnered with Tencent, while ICBC has partnered with JD.com. ABC signed a partnership agreement with Baidu, and CCB partnered with Ant Financial.
The competitive landscape of China's financial industry has become more complicated as technology companies obtain financial licenses while at the same time collaborating with traditional financial players.
Baidu, Alibaba and Tencent have started to shake old labels by putting forward their new strategic positions. Instead of position itself as an e-commerce company, Alibaba emphasized that it is an infrastructure provider that empowers e-commerce companies. Tencent says internally that it is a technology company rather than a social media or entertainment company. Tencent has been investing a lot in AI technology, and Baidu says that it will become an AI company instead of a technology company. It becomes clear that Chinese technology leaders are upgrading themselves by heading towards high-end technology services.
A study from Chinese Enterprise-employee Matching Research shows that the average net profit margin of Chinese enterprises is 3.3% on average. The average net profit margin of POEs is 3.9%, higher than the number of SOEs (2.2%) and foreign owned enterprises (2.1%). Enterprise mangers say that there has been increased adoption of machines or automatic devices to replace human employees to save on labor costs. The study also finds that the numbers of employees in Guangdong and Hubei provinces have dropped, mostly labor intensive positions.
A People’s Bank of China (PBoC) survey reveals that domestic entrepreneur confidence is on the rise. The PBoC’s entrepreneur index rose for the fifth straight quarter despite the tightening of financial supervision from regulators. The index rose from 61.5 to 65.4 compared to the previous quarter. Similarly, bankers’ confidence in the Chinese economy increased from 64.9 to 67.8 from the first quarter of 2017.
Driven by innovation and transition of the cities, China's "Bay Area" consisting of Guangdong, Hong Kong and Macau, is expected to compete with New York’s Bay Area, San Francisco’s Bay Area and Tokyo’s Bay Area. A source told Chinese media that China's Bay Area will focus on internet, cloud computation and AI and the potential market size will grow to trillions of yuan. Pony Ma, chairman and CEO of Tencent, believes that there is large potential in the Bay Area because there are already a number of innovative firms in the area.
During the sixth annual dialogue in Beijing hosted by the US Chamber of Commerce and China Centre for International Economic Exchanges, premier Li Keqiang encouraged US firms to invest in China to advance the development of bilateral ties. Both countries are anticipated to benefit from joint economic and trade cooperation.
The PBoC published an article on their website saying that digital currencies in China are not legal because they are not issued or authorized by the central bank. The government entity also says that only digital currencies issued by PBoC are regarded as legal currencies. In 2013, the central bank defined bitcoins as virtual goods, rather than currency.
The rapid increase of third-party electronic payments is responsible for improving China’s online consumer market. The growth is seen as favourable to the Chinese economy as it supports the country’s economic rebalancing and boosts consumption and employment. Though e-payments are projected to increase, the banking sector is predicted to not be greatly affected as retail business payments make up only a small portion of Chinese banks’ revenue.
China Eastern Airlines recently became the first central SOE to complete its mixed ownership reform. Eastern Air Logistics, originally owned by China Eastern Airlines, has been spun off with 45% shares owned by China Eastern Airlines, 25% owned by Lenovo, 10% owned by Global Logistic Properties, 5% owned by Deppon, 5% owned by Greenland and 10% owned by Eastern Airline's core employees. According to China Eastern Airlines, Lenovo, Global Logistic Properties and Deppon are strategic investors while Greenland is its financial investor. In addition, China Eastern Airlines intentionally chose to give up an absolute control over the Eastern Air Logistics, which has demonstrated the central SOE's determination to push ahead with reform policies.
Xiaochuan Zhou, Governor of People's Bank of China, stated in a speech in Shanghai that The Cross-Border Interbank Payment System (CIPS) will open an operation in Shanghai to better serve Renminbi internationalization and One Belt One Road. According to Zhou, the set up of CIPS in Shanghai will further support the city’s position as an international financial center. Zhou also said that Shanghai has the ambition to become a top international financial hub by 2020.
On June 18th, the world largest coal company Shenhua Group made an official asset restructuring announcement. According to the announcement, the company's stock will be suspended until early July. The market expects that a new conglomerate with around 2 trillion yuan worth of total assets will be formed in early July. The size of the new company will become larger than all previously merged SOEs including Baowu Group, China Minmetals Corporation, CRRC Corporation and China COSCO Shipping Corporation.
While People's Bank of China did not follow Federal Reserve System to raise the interest rate, SHIBOR, the benchmark interest rate in China, has continued to rise. Chinese commercial banks have been competing for capital by issuing interbank deposits. This has effected the three-month AAA rated interbank deposit rate which at one point exceeded 5%. According to Chinese traders, the rate hike from the Fed has worsened the market liquidity in the interbank market.
Yaqing Xiao, head of the State-owned Asset Supervision Administration Commission, stated in a speech that the main objective of the SOE reform was to strengthen the competitiveness of SOEs. Xiao believes that privatizing or getting rid of state ownership from the SOEs is completely incorrect. According to Xiao, central SOEs have achieved a profit of 312 billion yuan in 2017 Q1, 23.2% higher than 2016 Q1, which marked a record high compared to previous years.
According to Ministry of Commerce (MOC), the Foreign Direct Investment (FDI) in May was 54.67 billion yuan, 3.7% down from May 2016. It is the second consecutive month where FDI has shrunk. MOC spokesperson said organization will issue an official guideline on FDIs soon to provide a better business environment and to attract overseas investors.
A guideline on mutual funds investing into Hong Kong stocks through the Stock Connect has been issued to asset managers. The guideline requires mutual funds participating in the Stock Connect with a name tag of "Hong Kong stock" should invest at least 80% of non-cash assets in Hong Kong stocks. Those with less than 80% of non-cash investments in Hong Kong stocks should not include "Hong Kong Stock" in the mutual fund name. Asset managers have been keen on introducing funds investing in Hong Kong stocks as a result of the Stock Connect.
Salespeople of commercial banks have been struggling to make new sales over the past few months. As the liquidity becomes tighter, the interest rate of personal loans and corporate loans have also risen significantly. In addition, banks are also facing a shortage of reserves to lend out to corporates. A relationship manager of a commercial bank in China told Chinese media that a large proportion of relationship managers have seen lower compensation as a result of fewer new loans.
The share price of Meitu has dropped below its IPO price after its six month cornerstone investor lock-up period. According to Chinese media, Meitu's large shareholders planned to sell 66 million shares at its IPO price. Since its IPO, the Chinese technology company has experienced a bouts of stock price fluctuation.
Regulators of the Chinese exchange market are discussing the feasibility of adjusting the credit rating requirement for issuers. In April, China’s Central Depository & Clearing issued a guideline that forbids pledged assets from bonds rated below AAA or from issuers below AA.
The guideline puts pressure on credit rating agencies as issuers have been requesting higher rating. Issuers hope a higher rating will generate liquidity for their bonds. According to Chinese media, regulators of the exchange market are planning to establish a bi-credit rating mechanism where two credit rating agencies will issue two reports of the issuers independently. In addition, the exchange will also build up an internal rating system to review the credentials of issuers.
Industrial Securities announced that it would establish a special fund to compensate the loss for investors involve in Dandong Xintai Electric's fraud IPO. Industrial Securities will claim the loss from Dandong Xintai Electric. According to China’s Securities Regulatory Commission, the pre-reimbursement requirement has been in place for two years. Market experts believe that the pre-reimbursement requirement can reinforce the due diligence of future IPO underwriters and enhance the investor protection mechanism.
Shanghai Free Trade Zone announced that an onshore crude oil client has successfully opened an account in Haitong Futures Shanghai FTZ branch. It is the first client of China's crude oil futures, a move that signals crude oil futures will be officially launched in China soon. For offshore clients, they should still wait for official regulation to be issued by the China Futures Association. Currently, 138 futures companies have obtained qualifications for crude oil futures.
The annual report from the National Council for Social Security Fund shows that in 2016, the Social Security Fund achieved an investment return of 31.94 billion yuan or a rate of return of 1.73%. Since the fund was launched in 2000, it has grown at a CARG of 8.37% and the accumulated investment return as of 2016 was 822.7 billion yuan. Noticeably, overseas asset accounted for 6.66% of the whole portfolio.
In response to recent questions regarding the counter cyclical factor, state owned media reported that the additional factor is not manipulation of the FX market. Instead, the factor can help the FX rate better reflect the fundamentals of China's economy. According to Chinese media, the variables that make up the counter cyclical factor are not determined by the People's Bank of China but commercial banks. Therefore, the state media believes the factor will be a pure market decision.
National Development and Reform Commission (NDRC) and Ministry of Industry and Information Technology jointly issued a guideline that encourages the strategic partnership or consolidation in automobile sector in China. The guideline also encourage companies with strong technology capabilities to enter the new energy vehicle sector. According to NDRC, areas with serious pollution such as Beijing, Tianjin and Hebei, will be encouraged to invest in more new energy vehicles.
Securities Association of China recently issued a drafted guideline on enterprise bond underwriting towards securities companies. The new guideline adds two more requirements to the enterprise bond underwriters. According to Chinese media, eligible underwriters for enterprise bonds should be granted an A rate or above from Chinese regulators within past two years.
Moreover, non-A type securities companies(there are only 36 A-type securities companies) should be ranked top 20 in terms of enterprise bond underwrite volume. Chinese analysts believe the new guideline will benefit large securities companies due to the fact that small securities companies are kept outside of the enterprise bond market.
Ministry of Commerce is speeding up streamlining rules for overseas corporates applying for a business license in China. According to Ministry of Commerce, 6383 overseas invested corporates have been set up in 2017 Q1, 7.2% up from same period in 2016. A few provinces including Fujian, Jiangsu, Zhejiang and Hubei, have already allowed foreign participation in infrastructure PPP projects.
The Chinese State Council announced in last October a review program on fintech companies consisting of finding problematic fintech companies, providing them with advice and estimating the compliance of those companies. The review was supposed to be completed this June. However, according to Chinese media, the review is likely to be postponed to June 2018. Business licenses of companies that fail to comply with the required rules by then will be revoked. Experts believe that only a third of fintech companies can survive when the program is implemented.
As financial innovation continues to accelerate in China, new risks are brought about. In order to counter the new challenge of the financial industry, The People’s Bank of China and four other departments including the China Securities Regulatory Commission, China Banking Regulatory Commission, China Insurance Regulatory Commission and Standardization Administration issued a plan of constructing a standardization system for the industry from. From 2011 to 2015, over 96 regulation and guidelines have been issued. The plan requires that over 110 regulatory updates or new regulation or guidelines should be completed within the next five years. The standardization system will focus on financial product, infrastructure, statistics and risk monitoring/control.
For the first time over the past four years, a one year Chinese government bond has a higher yield to maturity (YTM) than a ten year government bond. On June 8, the one year YTM was 3.66% while the ten year YTM was 3.65%. It reflects a higher liquidity in a longer tenor bond market. In mid-May, the Chinese government bond market even saw a M-shaped yield curve.
Some A-share listed companies have been buying their own stocks to support their share price over the past few weeks, which has caught the attention of Chinese regulators. Shenzhen Stock Exchange has recently issued a regulation on all Shenzhen A-listed companies’ shareholders. The regulation requires that Shenzhen-listed companies should disclose detailed information of stock holding encouragement letter to employees. The regulation also lists some compulsory disclosures.
Charles Li, Chief Executive of HKEX, says that the southbound feature of the Bond Connect will not be launched in the next two years as Hong Kong’s bond market is not sophisticated enough. He also pointed out that at the beginning stages of the Bond Connect there would be some regulatory restrictions that serve as a buffer to Chinese regulators. According to Li, the southbound features of the Bond Connect will be launched depending on market conditions.
In a general meeting of the State Council, Premier Li Keqiang says that the one trillion yuan tax and expense should be cut in 2017. Apart from four tax cut plans amounting to 718 billion yuan put forward earlier this year, a few types of fees will also be waived. Banks and insurance companies will not be subjected to regulatory fees.
The National Finance Association of China is planning to build a monitoring system for online financing platforms due to the amount of platforms operating in the country. According to statistics from p2peye, 56% of P2P platforms in China have encountered problems such as fraud and financial closures. P2peye states that there are around 4950 p2p platforms operating in China. The system hopes to help lower risks and prevent investor losses.
Chinese customers are facing difficulties in getting housing mortgages. According to Chinese media, the mortgage interest rate has risen by 10%, as a result of the central government's efforts to control the housing price in China. Those who already applied mortgage loans will have to wait unless they accept an increase in their interest rates.
The Ministry of Finance issued a new circular on the tax benefits to small and micro enterprises. The circular defines that small and micro enterprises should have an annual revenue of no more than 500 thousand yuan. According to a previous circular, small and micro enterprises were defined to have no more than 300 thousand yuan in annual revenue.
Latest date from the State Administration of Foreign Exchange shows that as of May 26, 283 QFIIs have obtained US$92.7billion in investment quotas, US$1.96 billion more than April. Market participates anticipated that there will be investment opportunities in bluechip A-shares. According to Chinese media, seven A-listed companies such as Angang Steel Company, Midea Group, Zhang Jia Jie Tourism Group and Hefei Meyer Optoelectronic Technology have accommodated field research by overseas institutions in the first four trading days of June.
More Chinese property developers have become a common sight for land bids in Hong Kong indicating heated competition between Chinese and Hong Kong property developers. Over the past year, ten plots of land have been acquired by Chinese property developers worth around HK$60 billion. Chinese analysts believe that the main reason for the strong demand is the growing difficulty of purchasing land in mainland China.
Yang Jiang, vice chairman of China’s Securities Regulatory Commission (CSRC) states in a speech that CSRC is making efforts to streamline the M&A documentation procedure. Jiang says that 90% of the M&A applications of listed companies do not need the CSRC's approval. According to Jiang, in the future, the CSRC will continue to open up the capital markets to overseas financial institutions.
As MPA (Macro Prudential Assessment) is around the corner, banks are actively attracting deposits by offering high yield wealth management products to customers. The average wealth management yield has been increasing for the past few weeks and some wealth management products even offer over 7% yield. The high yield has even attracted institutional clients. For the first five days of June 2017, 67 listed companies have announced their purchase of wealth management products.
On June 4th, the world largest coal company Shenhua Group and GD Power Development, one of the top five power companies in China, jointly made an official restructuring announcement. The market expects that those two companies will merge into a conglomerate with around 1.8 trillion yuan worth of total assets. The size of the new company will become larger than all previously merged SOEs including Baowu Group, China Minmetals Corporation, CRRC Corporation and China COSCO Shipping Corporation.
A credit bond was issued with a yield of 9.3% last week, the third such bond that reported over 9% yield in 2017. Data from Wind shows that for the first five months of 2017, 471 credit bonds were issued with a yield over 6%. As a result of financial regulators' efforts to deleverage the financial market, the average interest rate of issuing a credit bond has become higher than the interbank interest. Chinese banks, therefore, increased the interest rate of deposit and wealth management products to retain deposits from customers.
The People's Bank of China announced the launch of a China-Brazil fund on May 30. The fund will serve to support China’s One-Belt-One-Road initiative and Go-global strategy. The China-Brazil fund is aimed at bolstering the strategic cooperation between China and Brazil.
Ministry of Finance and Ministry of Land and Resources have jointly issued a circular on land project bonds for local governments. The circular allows local governments to issue land bonds where proceeds would be used for land exploration. The land project bonds will be monitored and registered under Ministry of Land and Resources. Chinese analysts believe that the official land financing channel for local governments can release the financing burden of LGFVs.
Since May 25th, the CNH/USD has risen to 1500 bps within the past six trading days. Chinese media summarized seven possible theories for the sudden increase of CNH. Those reasons include US rate hike, Moody's downgrade, price divergence between mid-price and closing price, twisting the Renminbi depreciation trend, comforting the market emotion, releasing the pressure of US government and One Belt One Road initiative.
According to Chinese media, in the first five months of 2017, the China Securities Regulatory Commission (CSRC) have issued 55 penalty notices to listed companies, third-party agencies and retail investors. Reasons include insider trading, market manipulation and short term trading. Among all those being penalized, the largest disciplinary fine was 3.5 billion yuan.
Data from Hithink RoyalFlush information shows that the yield of AAA rated five year MTN has exceeded the interest rate of bank loan for the first time since 2008. Since 2017, 394 bond issuance with a total amount of 369.4 billion yuan have been cancelled. Currently, the yield of AAA rated five year MTN is 6.14% while the number a week ago was 4.72%. The yield for AA rated five year MTN is even higher at 7%. Chinese analysts believe that the tightened liquidity, increasing risk and stricter monitoring are the main reasons why large corporates or SOEs are considering bank loans again.
Following the partnership with Bailian, Alibaba acquired 18% of outstanding shares of Lianhua Supermarket on last Friday. According to Chinese media, Alibaba is developing its S2B model (supply chain to business) where small businesses rely on the company’s supply chain platform. It the recent move shows that Alibaba is attempting to integrate its internet, big data, logistics and payment capabilities
The A-share market has seen significant fluctuation over the past few weeks. Some large shareholders of A-share companies were alerted by stock exchanges to keep an eye on their pledging shares. These shareholders get finance by pledging their shares to financial institutions. Regulators have sent notices to those companies whose positions could be automatically offset due to poor performance of the secondary market.
China Securities Regulatory Commission issued a supplementary regulation on holdings reduction from large shareholders of A-share companies. The new regulation requires that block trade players need to comply with the securities law. The rule also sets a restriction for large shareholders instructs them to reduce their shares that are not from the IPO. The regulation also highlights that convertible bonds and equity swap should be subject to this regulation. For the full regulation, please go to:
China’s Banking Regulatory Commission issued a guideline on banks to encourage inclusive finance, which was introduced by United Nations in 2005. The guideline requires banks, especially state-owned banks, to set up inclusive finance departments to help SMEs companies from rural areas and agricultural companies. Specifically, large banks are required to set up an inclusive finance department by the end of 2017. As of the end of March, outstanding loans to SMEs totaled 27.8 trillion yuan, 14.4% up from the same period last year reveals CBRC data.
Since 2017, three Chinese securities companies including Huatai Securities, Orient Securities and Shenwan Hongyuan Securities have announced their private placements, with a maximum amount of 50 billion yuan. In 2016, total private placement was just 20.6 billion yuan. Chinese analysts explain that the issuers this year are much larger in terms of size than last year’s. However, Chinese analysts believe that it is possible that the private placements may be undersubscribed.
China's money multiplier reached 5.33 in April, the highest since 1997 while the M2 growth has slowed down. Analysts believe that the People’s Bank of China (PBoC) has tightened the money supply. However, the money creating capability of China's financial market especially in the shadow banking sector has gone up. The money multiplier has been considered as a leading economic indicator of an economy. Chinese analysts expect that the (PBoC) will continue to keep the M2 supply tight which will pose a liquidity challenge to banks.
In a bid to crack down on illegal activities such as money laundering and terrorism financing, the PBoC issued a guideline on account openings. The guideline states that financial institutions have the right to refuse account opening applications in certain circumstances. The guideline also specifies actions market participants should take when conducting KYC and AML investigations. The guideline will be applicable to all market participants including banks, asset management companies, insurance companies and other financial institutions.
State Administration of Foreign Exchange (SAFE) disclosed 10 cases of FX violations including both individuals and corporates on its website. Those violations include fake invoices, fraud accounting treatment and transferring the money through different personal accounts. SAFE has been liberating FX regulation on legal cross-border transactions while it has been closely overseeing the FX violations in the market.
China's Ministry of Finance issued a 74 page official report on the China-US relationship. Within the report there are four sections discussing the general principles and possible future opportunities in bilateral relations. The report points out that China will import more agricultural and energy products from US. In addition, China will not allow the renminbi to depreciate.
For the whole report, please go to:
Following Moody's downgrade of China, the market expects Chinese corporate to face challenges in issuing offshore debts. Among the US$1.42 trillion of offshore debt, only 15% of it went to the intercompany loan market. However, the Chinese Ministry of Finance believes that the debt problem in China will not be a systemic risk. This is due to the fact that 95% of the debt in China is onshore and that China still has a sizable FX reserve.
Since China’s Securities Regulatory Commission issued a guideline to restrict onshore refinancing in the A-share market in February, the size of private placements has shrank significantly in 2017. The average issuance size of private placements in 2016 was 150.7 billion yuan while in April 2017, the issuance size was just 48.6 billion yuan. In the secondary market, more companies have seen stock prices fall below its issue price of their private placements while those applying for private placements will have to offer a larger premium to make their market price.
National Development and Reform Commission announced the current achievement of SOE reform in its website. Twenty SOEs in two batches are now going through reforms. The reforms are mainly focused on the adjustment of corporate structure and inclusion of strategic partners. The third batch of SOEs will include more industries and will also include both central SOEs and provincial SOEs.
China's Ministry of Finance (MOF) held a press conference with regards to Moody's downgrade action. The spokesperson said that Moody's methodology was mistakenly based on the economic cycle and that it overestimates challenges China will face. In response to the debt level, the MOF points out that Moody's does not fully understand the regulatory environment in China as the existing budget law states clearly that governments have no obligations to pay back debt of SOEs and LGFVs. In addition, MOF believes that Moody's underestimates the impact of China's supply side reform.
Fund of Funds is likely to thrive in China as a result of tightened regulation on asset management business. The first FOF was born in 2006. The current AUM of FOF is less than 1.3 yuan trillion in China. As of May 15, 2,309 FOFs were issued in the market. China’s Securities Regulatory Commission first opened applications of mutual fund of funds last November.
CCFED The Third Construction & Engineering Co, a state-owned company, announced an adjustment of salaries for new fresh graduates entering the company. The amended salaries were 50% less than the employment offer initially presented to the graduates. Over 700 graduates have been affected by the salary adjustment but they are able to resign without disciplinary fine.
China Securities Regulatory Commission (CSRC) imposed a window guidance to securities companies currently under IPO review. According to Chinese media, the CSRC has requested a detailed explanation on their respective business models, the reliance on government subsidies/tax reduction, changes in account receivables and connected transactions.
Chinese internet companies listed on US market such as Weibo and JD.com have seen a strong performance in Q1 while the internet startups listed in A-share market have performed poorly. As a result, QDII funds investing in internet companies recorded positive return while the AUM of domestic funds investing in internet companies have fallen. Data from Choice shows that as of May 19, BOCOM CSI Overseas Chinese Internet fund grew 31.48% YTD in net asset value, the most among the same category. Among all stocks, Tencent, Alibaba, JD.com and Baidu are the most popular overseas listed stocks.
China’s Insurance Regulatory Commission (CIRC) has recently issued an official guidance on insurance companies. In the guidance, the CIRC allows insurance companies to invest in infrastructure projects through debt investments including loans and bonds. Credit enhancement arrangement can be waived for large projects registered under the Chinese State Council and with an AAA credit rating. Specifically, CIRC supports insurance companies to invest in the infrastructure projects under the One Belt One Road Initiative. A special fast pass will be provided to applicants investing in those projects to shorten the paperwork time.
According to Chinese media, Chinese property developers are now banned from issuing debt in offshore markets. But it is possible that the panda bond market could be reopened to investment grade developers in the future. Currently, Chinese property developers are moving to REIT products to raise funds. But the Chinese media believes that the regulation towards REITs will also be tightened.
As of May 19, nine mutual funds have been liquidated with a total amount of 3.673 billion yuan, which has exceeded the number of the whole year of 2016. Chinese analysts believe that the tightened regulation towards mutual funds affect the life cycle of conservative mutual fund products. According to Chinese media, market size is the main reason for liquidation and smaller funds are more likely to be liquidated. Since 2014, over 60 mutual funds have been liquidated.
Chinese state owned media Xinhuanet reported that during the One Belt One Road forum, over 270 agreements have been reached in five major categories and 76 sub-categories. Those five categories include regulation, infrastructure, trade, finance and livelihood.
The full list is available here in Chinese: http://news.xinhuanet.com/2017-05/16/c_1120976848.htm
During the One Belt One Road (OBOR) forum held in Beijing, 18 countries including China, UK and Russia have signed on a financing guideline of the OBOR projects issued by Ministry of Finance . It is the first official guideline on OBOR financing. The 27 countries have also complied with this guideline.
The official guideline is available here in Chinese:
According to Chinese media, for the past four months, China Securities Regulatory Commission (CSRC) have issued 45 disciplinary fine letters to Chinese companies. Main violations are regarding the information disclosure, insider trading and market manipulation several Chinese lawyers agree that the CSRC are is tightening its regulation in a bid to lift the cost of the violations.
The People's Bank of China (PBoC) recently set up a fintech committee to oversee the country’s fintech industry. In a press release, the PBoC highlighted the importance of fintech as a driving force of financial innovation. In the meantime, an exploration in regtech through big data, AI and cloud computation can also help identify and mitigate financial risks.
During the One Belt One Road (OBOR) forum held in Beijing, the PBoC signed a cooperation memo with IMF to better finance OBOR projects. PBoC also signed a cooperation memo with Czech National Bank with respect to information and knowledge sharing. In addition, the PBoC announced that it will provide 100 billion yuan of capital to the Silk Road Fund to support the OBOR initiative.
As a policy bank in China, the Export-Import Bank of China has been playing a key role in OBOR initiative. According to Hu Xiaolian, the chairman of the Export-Import Bank of China, the bank has financed 1207 OBOR projects over the past three years. Hu also said in the OBOR forum that the bank will continue to seek international cooperation in providing syndicated loans, trade finance and other financial services.
As China's key development strategy, the One Belt One Road (OBOR) initiative has been attracting a number of countries, which has created a large financing need. Yi Gang, vice governor of the People's Bank of China, says that China will explore possibly find ways to bolster the use of local currencies in the financing of OBOR projects. Currently, China has entered into currency swap contracts with 21 countries participating in OBOR. In addition, Yi also highlighted that a number of OBOR countries have shown strong interest in green financing.
China's State Council has recently issued a proposal on State-owned Asset Supervision and Administration Commission (SASAC) that cuts 43 regulatory issues. The proposal points out that SASAC should avoid much intervention in corporate restructuring and should not directly regulate the activities of SOEs that are shareholders of other companies. The proposal also specifies that SASAC should not intervene self-corporate governance of SOEs. In addition, SOEs at provincial level will be monitored by their group and provincial SASAC.
According to China Banking Association, One Belt One Road investments are not subjected to FX control. Recent FX controls are targeting to crack down FX speculation. The Export-Import Bank of China and Industrial and Commercial Bank of China also admitted that they are not restricted by the FX controls in funding of OBOR projects.
Charles Li, Chief Executive of Hong Kong Exchanges and Clearing Limited (HKEX), said in a seminar in Hong Kong that the Bond Connect Program will be officially announced in the next two weeks. Earlier, some media outlets had reported that the Bond Connect was planned to be launched in July.
Institutional investors are not interested in buying local government bonds due to fears of rising interest rates. Compared to government bonds and bond issued by China’s Development Bank, local government bonds are less attractive despite a higher yield along with higher risks. Currently, over 80% of local government bond investors are banks. To boost the liquidity of the local government bond market the Shanghai Stock Exchange encourages more securities companies to underwrite local government bonds.
Bitcoin price has been rising over the past few weeks. Chinese media have learnt from a source that regulators will issue an official regulation on bitcoin companies focusing on AML (anti money laundering) issues. Since January, Chinese regulators have been investigating Chinese bitcoin platforms. According to Chinese media, the biggest three bitcoin platforms are likely to receive disciplinary fines from Chinese regulators.
Since its announcement on the mixed ownership reform, China Unicom has been proactively pushing its reform program. Wang Xiaochu, chairman of China Unicom said in its shareholders meeting that the mixed ownership reform is difficult because a number of government departments are involved. According to Wang, China Unicom gained 20 million new clients from Tencent and 3 million from Alibaba.
As of April 30, A-share companies have all disclosed their annual report of 2016. In 2016, Bank of Communications (BOCOM) recorded a 17.62% growth in net asset, leading other state owned banks. However, BOCOM's return on equity was poorer than the other four Chinese state-owned banks and all eight Chinese joint stock commercial banks for four years straight. In addition, the cost to income ratio is the third largest among all 13 banks including state owned banks and joint stock commercial banks. Ironically, BOCOM's compensation package for management has been the most attractive among all state own banks for the past two years.
Data from Wind shows that 136 A-share listed property developers are holding 4.92 trillion yuan debt as of end of 2016, 25.93% up from 2015. Moreover, 32 of those 136 companies has a debt ratio of over 80%. The increasing use of debt is a result of declining financing cost of those property developers over the past few years.
Xiao Yaqing, head of State-owned Asset Supervision and Administration (SASAC) said in a press conference that it will support and encourage central SOEs to participate in One Belt One Road projects. Specifically, SASAC will provide regulatory support to SOEs. Currently there are 9112 offshore entities of central SOEs have been set up in 185 jurisdictions. Overseas investment from central SOEs accounted for over 70% of ODI from Chinese non-financial institutions.
Data from the People's Bank of China shows that the FX reserve increased by US$20.4 billion in April, compared to the figure in March. It is the third consecutive month where the FX reserve has increased. SAFE explains that the stabilized FX reserve is a result of steady cross border flow.
Data from the National Bureau of Statistics shows that both export and import growth has slowed down in April. The export increased by 8% while the import increased by 11.9% YOY. Chinese analysts say that the seasonal adjustment of US economy results in a lower export while the strict regulatory environment leads to a weaker import.
Chinese financial regulators, including the People's Bank of China (PBoC), China Banking Regulatory Commission (CBRC), China Securities Regulatory Commission (CSRC) and China Insurance Regulatory Commission (CIRC), have recently stated that they will pledge further support to the One Belt, One Road (OBOR) Initiative.
Specifically, the PBoC will boost renminbi as a dominant currency in the initiative while CBRC will lead and support Chinese banks to participate in the initiative. CSRC will encourage A-listed companies to gain refinancing through the A-share market to participate in OBOR projects, and the CIRC will provide support to the long-term investments of insurance companies.
The National Development and Reform Commission (NDRC) has issued guidance for PPP (Public-Private-Partnership) project bonds. The guidance allows qualified PPP project participants to issue project bonds.
The proceeds can be used for initiating infrastructure projects, managing projects, or paying back existing bank loans. The guidance also states that the cash flow from PPP projects should be used to pay back the project bond principal and interest first. This is the second time the NDRC has provided regulatory support for PPP projects: last December, the NDRC approved PPP securitization under official regulation.
China Insurance Regulatory Commission (CIRC) has issued official guidance that supports PPP projects. The guidance allows insurance companies to invest in PPP projects by providing financing for PPP project participants. The investment can be by way of equity investment, bond investment or a mixed investment.
In addition, CIRC is encouraging PPP projects under the One Belt, One Road Initiative, those in the Beijing-Tianjin-Hebei region, the Yangtze River Economic Belt, and the Xiong'an Economic Zone.
According to Chinese media, the bond connect between Hong Kong and Mainland China will proceed to be launched in several phases. The north-bound connect (Hong Kong investors buying Mainland bonds) will open earlier than south-bound (vice-versa) while institutional investors will enter earlier than retail investors. In addition, the OTC market will open earlier than the exchange market.
Wealth management products offered by banks experienced slower sales in April. Out of the top 10 banks that sell the most the wealth management products, only Minsheng Bank increased their sales from March to April. Others in the top ten saw as much as a 10% decrease in sales.
Behind the drop in sales is a tighter MPA (Macro Prudential Assessment) given by the People's Bank of China, which now considers off balance sheet assets in their assessment. Data from Wind show that back in April, 10,038 new wealth management products were issued, down from 11,823 in March.
As China starts to develop its financial markets, the performance of the LGFV (local government financing vehicles) bond market has become weaker in both the primary and secondary market.
According to Chinese media, the average yield of LGFV bonds increased by 100-200 bps since the end of 2016. Since mid-April, the average yield of a AA-rated LGFV bond reached an average yield of 7%. The higher cost has driven many issuers to postpone or cancel their bond issuances. Data from Wind show that in April, 154 bonds were cancelled or postponed, equivalent to a total of 140.6 billion yuan.
QDII funds increased their investment in US equities in 2017 Q1 from 10 billion yuan to 13.4 billion yuan. The US equities accounted for 21% of the position of all QDII funds, up from 18% in 2016 Q4. Technology sector is QDII's favourite among all industries in the US stock market. Alibaba, Apple and Alphabet are the top three stocks favored by QDII funds, with a total position of 993.9 million yuan, 573.6 million yuan and 184.4 million yuan respectively.
Since this April, China’s Securities Regulatory Commission (CSRC) has adjusted their working schedule, increasing the frequency of IPO application review from two times per week to three times per week. Although the CSRC goes through 13 to 15 applications on average per week, the approval rate has reached a historical low due to stricter requirements. Since the beginning of 2017, 18 IPO applications have been rejected by CSRC. The main reasons for rejections were the decline in profit, connected transactions, lack of independency, uncertainty in sustainable profitability and compliance.
A number of listed companies declared dividends in their 2016 annual report recently. ICBC declared most dividends of 83.5 billion yuan, followed by CCB, Shenhua Group, ABC and BOC. Since being listed in 2006, ICBC has paid a total of 646.5 billion yuan cash dividend. Sinopec Group is the most frequent dividend payer. Since it was listed in 2001, it has paid dividends for 30 times, with a total of 247 billion yuan.
In a meeting of the Political Bureau of the CPC Central Committee, President Xi Jinping highlighted the importance of stability in the financial markets. According to Chinese media, it is rare for financial risk to be a political concern in China. In addition, the committee pointed out the difficulty of mapping-out a sustainable long-term plan for the property market. It is expected that the capital and property markets will be under strict supervision by Chinese regulators.
As a leading electronic appliance maker, Gree has been generous in distributing cash dividends. The company announced its 10.8 billion-yuan cash dividend plan on April 26, on the back of a strong profit growth in 2016. From 2012 to 2015, Gree distributed a 25.6 billion-yuan cash dividend, the largest dividend among all A-share companies. In the air conditioner market Gree leads the market with a market share over 40% in China.
Data from the China Iron and Steel Association show that Chinese steel companies realized a profit of 23.3 billion yuan in Q1 2017, turning from a loss of 8.8 billion yuan in the same period last year. Noticeably, the net export of China's steel in Q1 2017 declined by 25% YOY. Chinese analysts say that the decrease is attributed to the growth of internal demand and protectionist measures in other countries. The reform also benefits international steel companies such as ArcelorMittal and Posco.
China’s Banking Regulatory Commission issued six guidance and regulations in the past month focusing on risk management. China’s Securities Regulatory Commission and China’s Insurance Regulatory Commission also issued relevant regulations on risk management. These actions are a clear indication that risk management has become the top priority for Chinese regulators in 2017.
China Securities Regulatory Commission (CSRC) recently accused Feng Xiaoshu, a former employee of the CSRC, for insider trading. Feng accumulated 248 million yuan in illegal benefits by secretly investing in listed companies. Chinese analysts believe that the flaws in the Chinese IPO scheme was the main reason for the corruption because the IPO review committee had the final say over the IPO application. Conflict of interest occurs if CSRC employees are rewarded by the IPO applicants.
China's largest bank Industrial and Commercial Bank of China (ICBC) clarified that it did not largely redeem their outsourced investment through third-party asset management companies (AMC). According to a spokesperson of ICBC, the bank has a strict internal risk management system. Chinese media reported earlier that Chinese commercial banks such as ICBC and CCB are increasingly redeeming their investment in asset management programmes in AMCs to meet their balance sheet regulatory requirements.
China Securities Regulatory Commission (CSRC) has issued new regulations for futures companies. The new regulations lift the minimum net asset requirement for futures companies to 30 million yuan and adjusts the allocation requirement of assets with different liquidity, recovery ratio and risks. In addition, the new regulations increase the minimum deposit of asset management divisions of futures companies. The new regulations will come into effect on October 1.
State Administration of Foreign Exchange (SAFE) announced on its website that it has entered into a cooperation memo with General Administration of Customs and State Administration of Taxation to exchange information. The three regulators will work together to crack down on violations such as smuggling, fake invoices and FX arbitrage. The three regulators are also able to share information with each other to better monitor the market.
As the largest asset management company in money market fund, Tianhong AMC has become the first asset management company to exceed 1 trillion yuan AUM in mutual funds as of the end of Q1, 40% up from year-end 2016. Their money market fund "Yuebao" under Alibaba's Alipay platform, achieved 1.14 trillion yuan AUM. According to Wind, the overall fund industry incurred a loss of 253 billion yuan in 2016 while Tianhong AMC's mutual funds still earned a 19 billion yuan for its clients.
China Insurance Regulatory Commission (CIRC) has issued new guidance on risk management for insurance companies. In a difficult business environment, some insurance companies pursued risky assets and expanded their balance sheets aggressively, which created a tension between the asset and liability sides of the business. CIRC will keep an eye on those companies expanding too aggressively and produce new rules to fill the regulatory gap.
China Banking Regulatory Commission (CBRC) recently issued guidance to provincial CBRC offices to list high-risk companies. The guidance highlighted the risks arising from corporates in Shandong and Liaoning province acting as guarantors for one another, which led to a number of defaults in related companies in Shandong province. The guidance also requires banks to investigate the relationship between the guarantor and the guarantee.
Value investors in China's A-share market have been benefiting from a tightened supervision of the equities market. Since Liu Shiyu, chairman of China Securities Regulatory Commission (CSRC) was appointed last year, blue-chip stocks with solid financial performance such as Kweichow Moutai have seen steady growth in their share price. However, it becomes difficult for short term traders to speculate. According to Chinese analysts, the gradual changing pattern of China's A-share market is attributed to chairman Liu's speeches that encourage investing in companies with real value.
As China’s Banking Regulatory Commission (CBRC) continues to tighten its regulation on the asset management industry, Chinese state owned banks have started to redeem their investment in asset management products including mutual funds, proprietary accounts and other asset management plans. ICBC, CCB, Industrial Bank and Citic Bank have redeemed most. According to Chinese media, CCB will redeem as much as 100 billion yuan worth of investments. Chinese analysts explained that the large redemption was due to the upcoming MPA (macro prudential assessment) by the PBOC.
Premier Li Keqiang stated in a meeting of the state council that China will further cut 380 billion yuan tax in 2017. According to Li, the VAT (value-added tax) reform will stay in place. Furthermore, SMEs will be able to waive their income tax. Startup companies as well as technology companies can further enjoy tax benefits.
CBRC is investigating the shareholders of Chinese joint stock commercial banks. According to Chinese media, shareholders with "leveraged" capital will be the main focus of the CBRC as it did not want short term investors in China's banking sector. For the past few years, China's insurance companies have been aggressively investing in Chinese banks, which makes the shareholder structure or even corporate structure of Chinese banks more complicated.
Chinese media reported that China Minsheng Bank Beijing branch's senior managers privately sold their wealth management products to their private banking clients. The contract value was around 3 billion yuan and the annual yield of those products was 8.4%. According to Chinese media, the proceeds were used for paying their existing liabilities. The incident has suggested problems in Minsheng Bank's internal risk management system. Currently, three senior managers of the bank have been under investigation.
Data from Wind shows that as of the end of April 18, 1510 A-share companies have announced their cash dividends plans. Market analysts stated that regulators' recent emphasize on cash dividends suggested that cash dividend could be included in one of the criteria for private placement or allotment. Analysts expect it possible inclusion will bring in more long term capital in China's A-share market.
State media under PBOC learned from a source that the work focus of PBOC, CSRC, CBRC and CIRC for the year 2017 will be controlling risk in the financial system. Employees working in the banking industry confirmed that some banks are under investigation by the regulators and those banks are adjusting their business coverage. One of the main issues that the regulators are trying to crack down is the arbitrage opportunities in the banking system especially in the interbank market.
Wang Yi, Minister of the Chinese Ministry of Foreign Affairs officially announced that the One Belt One Road summit will be held in Beijing on May 14-15. President Xi Jinping will attend the summit and host a roundtable session. Currently, leaders from 28 countries, including Russia and Spain, have confirmed their attendance.
Xiang Junbo, the former chairman of China’s Insurance Regulatory Commission (CIRC) was officially delisted from the list of CIRC management due to alleged violation of anti-corruption rules. The removal was confirmed by the state media Xinhuanet. The vice chairman Chen Wenhui will temporarily take charge of the CIRC.
China issued over 900 billion yuan of asset backed securities (ABS) products, 50% up from 2015, according to information disclosed by the People's Bank of China. ABS products under the Credit Asset Securitization Scheme (CASS) amounted to 390 billion yuan. As of the end of 2016, 14 Non-performing Asset Securitization (NPAS) products were issued with a total size of 15.6 billion yuan.
Liu Shiyu, chairman of China Securities Regulatory Commission (CSRC), has criticized A-share companies giving out large stock dividends in a meeting with representatives of listed companies. According to Liu, some companies gave out stock dividends as large as 300% to existing shareholders to drive down the share price and attract more investors.
The share price will then increase again and large shareholders can exit their positions and benefit from the rising share price. Liu said that CSRC will keep an eye on those companies and may impose disciplinary actions towards them.
Since the China Banking Regulatory Commission (CBRC) issued guidance to crack down on misconduct in the banking sector on April 7, it has frequently conducted market inspections – especially investigating employees working in banks or at regional banking regulators.
According to Chinese media, some banks' senior managers misused their power to hire their own relatives or lower the threshold of entry for them. Some officials working for banking regulators did not impose sufficient due diligence on banks with good relationships with those officials. Those involved in violating the law will be subject to disciplinary action.
The China Banking Regulatory Commission (CBRC) issued a circular on the transactions of banks' large shareholders. Under the circular, regulators will keep track of all equity transactions from large shareholders in both primary and secondary onshore and offshore markets.
In addition, equity transactions from related parties will also be closely monitored. The objective of the new circular is to regulate the shareholders' activities of stock trading so that the interests of retail investors can be well-protected.
A new securities law will add legal requirements suggested by the Standing Committee of National People's Congress to existing capital market legislation.
According to Chinese media, additional requirements on cash dividends of listed companies and restrictions on large shareholders' liquidation of their shares will be included in the new securities law. It will also empower the officials of CSRC to investigate companies where appropriate.
Although China Unicom has not yet disclosed its new share issuance programme, Chinese media have already reported that new shares, equalling 30 billion yuan, will account for 20% of the total outstanding shares.
Alibaba and China Telecom have committed to buying new shares from China Unicom, and State-owned Asset Supervision and Administration Commission (SASAC) has also committed to buying a comparatively larger portion. In addition, the employees of China Unicom are also allowed to subscribe to the new shares.
As Tianhong Asset Management Co disclosed its annual report, 39 asset management companies in China have released the results of their financial performance in 2016.
Tianhong Asset Management Co is still the largest AMC (Asset Management Company) in China with AUM (Assets Under Management) of 1.3 trillion yuan, while the most profitable AMC is ICBC Credit Suisse Asset Management Co, with a net profit of 1.64 billion yuan. Aegon-Industrial Fund Management Co had the largest net profit margin of 40.25%, followed by China AMC with a net profit margin of 35.52%.
The A-share market, including Shanghai and Shenzhen, priced 123 IPOs in Q1 raising 58.9 billion yuan as of the end of March, according to data from Wind. This is the most active first quarter by number of IPOs in the last six years.
According to Chinese media, GF Securities, Haitong Securities, China Securities, Citic Securities and CICC are the top five underwriters in Q1, accounting for a 39.4% market share. Guangfa securities earned the most underwriting fees totalling 465 million yuan. Citi Orient Securities earned 141 million yuan in underwriting fees, the most among all joint ventures.
China Banking Regulatory Commission (CBRC) has issued official guidance on risk management for commercial banks. The guidance highlights ten aspects of risk management, including credit risk, liquidity risk, bond investment, interbank business, wealth management and product distribution, real estate, local government debt, fintech, external risk, and other risk.
Since the appointment of CBRC chairman Guo Shuqing, China's banking watchdog has been active in monitoring the risk within the banking industry. It is expected that managing risk will be a key focus for the CBRC.
China's bluechip company Kweichow Moutai overtook Diageo to be the world largest liquor company on April 10. On that date the market cap of Kweichow Moutai was US$71.72 billion while the market cap of Diageo was US$71 billion, according to East Money Information.
Kweichow Moutai focus their business on the Chinese white wine, baijiu; Diageo is the British multinational responsible for a range of drinks and brands such as Smirnoff vodka, Guinness, Gordon’s gin, and others.
The market for baijiu has been booming on the back of the increasing price of baijiu. Baijiu companies have benefited from the growing profit margin.
Xiang Junbo, the current chairman of China Insurance Regulatory Commission (CIRC), is now under investigation due to alleged violation of anti-corruption rules, according to the Central Commission for Discipline Inspection (CCDI).
Xiang becomes the highest-ranking official in the financial industry to be caught up in the government’s crackdown on financial malfeasance and corruption. According to Chinese media, Zhou Mubing, the current president of Agricultural Bank of China (ABC), will be appointed chairman of CIRC.
Liu Shiyu, the chairman of China Securities Regulatory Commission (CSRC), has said in a conference that CSRC is keeping a close eye on the listed companies that have capabilities but never distribute cash dividends.
According to Liu, some large shareholders of listed companies boosted the stock price by allocating net profit to retained earnings, and then liquidated their holdings, which harms the interest of retail investors.
As of end of March, excluding recently listed companies since 2015, 31 A-share listed companies have not issued cash dividends. Shenyang Jinbei Automotive Company, the largest automobile manufacturing company in Liaoning province, has not issued dividends since 1993.
State-owned Assets Supervision and Administration Commission (SASAC) disclosed that 31 central SOEs have announced their long-term investment plan for the Xiong'an economic zone, including China Railway Group, China Unicom and the Metallurgical Corporation of China.
Most of the SOEs will participate in infrastructure projects in the new economic zone. Financial institutions such as China Construction Bank, China Merchants Group and State Development & Investment Corp also stated that they will provide financial support to the new economic zone in terms of direct investment and fund raising.
China Unicom, the state-owned Chinese telecommunications company announced that it will soon announce a significant change in their corporate structure. China Unicom is the only telecom company among the first batch of six SOEs to be restructured that include Eastern Airlines, China Southern Power Grid, Harbin Electric Corporation, China Nuclear Engineering Corporation, China State Shipbuilding Corporation and China Unicom. China Unicom is also the first A-share listed company that released a mixed-ownership reform program. According to Chinese media, China Unicom will engage private and state owned investors by issuing new A-shares.
Chinese A-share listed companies are selling properties to increase their profit. In 2016, over a hundred companies sold their properties with an amount over 2 billion yuan. In the meantime, 105 listed companies reported a net profit less than 10 million yuan. Shenzhen Hifuture Electric, a Shenzhen listed company, announced at the end of March that it sold 34 units of properties in 2016, amounting to 50 million yuan.
According to Chinese officials, the third economic zone "Xiong'an" will explore a new property development model. It is possible that a Singaporean model will be adopted in Xiong'an in a bid to attract more young talents to work for the new economic zone. In the zone, cheap flats will be rented to young people and startups. Currently, housing prices is one of the biggest hurdles for startup businesses.
Following the official launch of the third special economic zone in Xiong'an on April 1st, the Chinese State Development & Investment Corporation (SDIC) became the first company to invest in the new economic zone. SDIC is currently one of the largest private equity investment company among all state owned companies. According to Chinese media, SDIC has already set up a one billion yuan Beijing-Tianjin-Hebei investment fund to support the new economic zone.
A couple of Chinese stocks related to the Xiong'an new economic zone including A-share and H-share have benefited from the launch of the new economic zone. In the A-share market, over 64 stocks including the BBMG Corporation and China Fortune Land Development reached the 10% price increase limit. In the H-share market, on April 3rd, stock prices of BBMG Corporation increased 34.67% and China Suntien Green Energy Corporation increased by 12%. In the US market, China Auto Logistics's stock price rose by 90% during April 3rd the 4th trading period.
Chinese media have reported that ten bonds from seven issuers have defaulted in the first quarter of 2017. Except for Huasheng Jiangquan Group, the other six companies are regular defaulting issuers. Dongbei Special Steel was involved in 10 bond defaults so far. Data from Wind shows that in Q1 2016, 18 bonds with an amount of 12.7 billion yuan had defaulted. In addition, 100 bonds were announced to be postponed or cancelled as of March 17, 2017 much higher compared to previous years.
A NASDAQ-listed Chinese company called Wins Finance Holdings surprised the market in February, as its stock price peaked at 45-times that of the IPO stock price. According to Chinese media, the company was the best performing stock on the NASDAQ stock exchange. However, the stock price turned around quickly, dropping over 50% afterwards. The business specializes in financing services.
China's commodity and derivatives market has seen a breakthrough following the CSI 50 ETF option introduced by Shanghai Stock Exchange in 2015. The soybean meal (a soybean extract) option, introduced by Dalian Commodity Exchange, marks the first commodity option in China's financial market. According to Dalian Commodity Exchange, a corn option and a soybean option are in the pipeline. In April, a sugar option will be available on the Zhengzhou Commodity Exchange. Fang Xinghai, vice chairman of China Securities Regulatory Commission, said at the opening ceremony that China will consider to bring more new option products to the market.
Shanxi Free Trade Zone will be launched on April 1, according to Chinese media. As one of the third batches of seven free trade zones, it will rely on its geographical advantage to provide support and services to countries along the silk road. In addition, Shanxi Free Trade Zone will take the responsibility to lead the western provinces to develop their economies. Other free trade zones will have different strategies. For example, Liaoning Free Trade Zone will focus on the relationship with Japan and Korea.
The 2017 budget from the Chinese Ministry of Finance shows that the contribution rate of the mandatory pension fund for employees and employers rose by 5.5%. The size of the increase was the lowest in the past ten years. The contribution rate had risen around 10% consecutively over the past 11 years until 2016. The rate was only lifted by 6.5% in 2016. It is expected that the contribution rate will continue to slow down as the national pension fund starts to face future payment pressure.
As asset management companies and fund companies released their annual reports, Chinese media observed that structured funds have reported a significant loss in 2016. Structured funds have incurred a loss of 21.4 billion yuan, which accounted for 20% of the total loss in the Chinese funds industry. Wind data shows that over half of all funds that have released their reports have lost their net asset value. On the other hand, Money market funds, QDII funds and bond funds were the three best performing funds compared to all other fund categories.
According to Chinese media, the Chinese government’s supply side reform is aimed at managing the overcapacity of 50 million tons of steel and to eliminate “zombie companies”. In three to five years, the debt ratio of the whole steel industry should be lowered to less than 60%. One way to achieve this would be through M&A within steel industry. Hebei province, a steel intensive location, will cut down steel companies from 106 to 60 by 2020.
As Chinese financial regulators tighten their requirements on real estate purchases, some major property developers have expressed their pessimism towards housing prices. Local industry leader Vanke has already started to beef up its corporate reserves in event that the Chinese housing market faces a downturn. Local rival Evergrande announced that it would pay back its debts in advance. Since March of this year, 25 cities have implemented new rules to restrict speculators from buying real estate.
Data from MSCI shows that since 2017, MSCI China Index has risen by 14%, more than US and Japan, and the World index. According to Chinese media, it is the best performing quarter of Chinese stocks including A-share, H-share and US listed shares since 2006. Some global institutions such as Goldman Sachs and BlackRock are bullish towards Chinese stocks in statement issued earlier this year.
Chinese media observed that mutual funds following the “One Belt One Road” (OBOR) theme have seen a significant increase in net asset value. For example, the net asset value of Everbright OBOR fund increased by 31% since January 28. Wind OBOR index has increased by over 30% over the past 13 months. China West Construction Group, a leading construction company participating in OBOR, has seen 10% daily price increase limit in five out of past six trading days.
The State Administration of Foreign Exchange (SAFE) is closely monitoring forex transactions by Chinese commercial banks. An undisclosed large joint stock commercial bank faced disciplinary action by SAFE with a fine of 3.5 million yuan due to the bank's misconduct in FX transactions worth US$200 million. The branch has also been instructed to stop selling FX to its corporate clients for one year. According to Chinese media, SAFE included this case in a window guidance document that was distributed to major banks, warning Chinese banks against misconduct.
The People's Bank of China, Ministry of Industry and Information Technology, China Banking Regulatory Commission, China Securities Regulatory Commission and China Insurance Regulatory Commission jointly issued official guidance regarding financial support to manufacturing companies. The guidelines support high-tech manufacturing companies in becoming listed on the stock market and other support for financing. In addition, Chinese regulators are also encouraging financial innovation in terms of bond issuance and securitization for manufacturing companies.
Chinese media observed that 9 listed banks, including China Merchants Bank, Shanghai Pudong Development Bank, Industrial Bank, Citic Bank and Everbright Bank, have announced their refinancing plans, totalling 240 billion yuan. The refinancing tools include share allotment, convertible bonds and preferred stocks. Chinese analysts attribute the urgent need for refinancing to the strict capital adequacy ratio required by PBoC's MPA (Macro Prudential Assessment).
In the face of the upcoming MPA (Macro Prudential Assessment) of People's Bank of China (PBOC), some Chinese small and medium banks are experiencing a shortage of liquidity to meet the requirements of the MPA. Chinese large banks are unwilling to lend in the interbank market as they also need to maintain a certain level of reserves. Moreover, the open market operation by the PBOC has been paused. Chinese analysts expect that market liquidity will remain tight for the rest of this month and that PBOC is trying to shrink the liability of Chinese commercial banks.
Chinese media learned from source that an official guidance on Shanghai Free Trade Zone by the Chinese state council is in the pipeline. The new guideline includes a further relaxation on onshore IPO and bond issuance by overseas issuers. According to Chinese media, overseas corporates are able to be listed on the A-share market in both the main board and NEEQ (National Equities Exchange And Quotations), China's OTC market.
Huishan Dairy Corporation, a Hong Kong listed Chinese dairy company, shocked the market last Friday, with its share price plummeting 85%. It was discovered that the chairman of the company pledged his stocks and invested into the property market. The failure of the investment is expected to turn the debt into non-performing loans. The margins of the debtors with the company's stocks as collateral have been cut substantially, which has led to a stock price drop .The chairman admitted that the company has run out of its cash and it will soon officially announce this to strategic investors.
The SOE restructuring fund, a fund set up in 2016 focused on SOE reform, will invest 30 billion yuan in 2017. In addition, a SOE M&A fund, a sub-fund under the SOE restructuring fund will be set up with an initial amount of 50 billion yuan. The SOE restructuring fund recently invested 1.8 billion yuan in Air China and made its first A-share investment in Metallurgical Corporation Of China. Late last year the fund also acted as the cornerstone investor in China Securities’ US$1.1 billion Hong Kong IPO.
Blocking Chinese insurance purchases on its system last October, China’s UnionPay is now turning its attention to the property transactions. According to several reports, all property agencies are currently not allowed to accept payments from UnionPay bank cards issued in mainland China. The latest restriction on UnionPay payments is targeted to curb capital outflows from China. Market data shows that in 2016, mainland buyers accounted for 13.8% of new first hand property sales in Hong Kong.
The profitability and even more importantly continuous profitability of a Chinese company has been traditionally been considered as the most significant factoring in getting A-share IPO approval from the CSRC (China Securities Regulatory Commission). However, Chinese media observed that the number of IPO applications that were rejected by the CSRC were increasing based on a lack of compliance, poor accounting treatment and unclear information disclosure. Chinese analysts believe that the transformation suggests that China is willing to move towards an IPO registration system that considers both company profitability and compliant procedures.
Citic Securities released their annual report in 2016. Despite a 47.65% decrease in net profits, Citic Securities still lead the league table of securities companies with a net profit of 10.37 billion yuan. Data from Securities Association of China shows that since 2006, Citic securities has held the top rank on the league table. However, the net profit gap between Citic and the second securities company, Guotai Junan Securities, has narrowed down to 4.1 billion yuan in 2015 to 500 million yuan in 2016. Chinese analysts expect Guotai Junan to be Citic's strongest competitor once the firm is listed on Hong Kong stock exchange later on this month.
Shanghai appears all set to speed up its collaboration with London following the official launch of the Shanghai Clearing Center London office yesterday. Chinese media learned from a source that the Shanghai London stock connect is likely to see a breakthrough in 2017. The system has reportedly already passed all technical hurdles. London is the second largest offshore renminbi clearing center. Chinese experts expect that as a result of Brexit, the UK will have more freedom to engage in more bilateral trade agreements, which will aim to enhance the China- UK relationship.
As Tencent released its 2016 annual report, the company overtook Alibaba again to be the largest company in terms of market cap in emerging markets. The net profit of Tencent has risen by 47% YOY in 2016 Q4. The two Chinese technology leaders have been taking turns leading the emerging market stocks. Since March, Tencent has been sitting on top with its market cap increasing 18.7% YTD. Moreover, the stock price of Alibaba has increased by 19.7% over that same time period.
A venture capital investment fund from CreditEase, the parent company of Yirendai, the first US listed Chinese fintech company, has recently announced their investment in US fintech companies Trumid, WeConvene and WorldCover. The fund was established in February 2016 with an initial amount 6 billion yuan, including dual currencies of 3 billion yuan and US$500 million. The US dollar investment will focus on fintech companies at mid or early age development stages while the RMB investment will focus on more mature companies.
Data from Hithink RoyalFlush Information shows that as of March 21, 479 A-share listed companies have declared their cash dividends. Among all companies that have already released their 2016 annual report, 11 companies even declared a larger dividend than their net income and 22 companies with net loss have also declared dividend payouts. According to Chinese analysts, due to a restricted share redemption towards large shareholders, a cash dividend program seems to become the only way for large shareholders to get some cash out of their holdings. The tightened onshore financing regulation also adds to the growing appetite for cash dividends.
Data from Wind shows that as of March 20, 450 out of 1,400 bond investment funds have seen shrinking net asset values. One fund suffered the largest loss decreasing 3.53% YTD in its net asset value. While the bond market has been gradually recovering from the bond crisis at the end of 2016, the average return of those 1,400 bond investment funds was only 0.19% YTD, even smaller than the return of money market funds, which is averaging 0.71% YTD.
According to Chinese media, the first official guidance by Ministry of Commerce and National Development and Reform Commission on ODI (overseas direct investment) will be issued in 2017. The guidance will give specified rules on the investment reviewing process, capital flows, profit allocation and tax policy. The guidance will also list out both encouraged activities and banned activities. Currently, there are only two applicable regulations from Ministry of Commerce and the State Administration of Foreign Exchange on ODI activities. However, those two regulations have been criticized for being unable to cover all concerned areas and not being enforced.
With the slowdown or even decrease in the number of new physical bank branches, the demand of bank tellers have also been declining for the past few years. Data from China’s Banking Association shows that in 2016, ICBC, ABC and CCB cut 14,090, 10,843 and 30,007 tellers respectively. With respect to joint stock commercial banks, the reduction in tellers is less substantial. Citic Bank, for example, cut 2,494 tellers in 2016, which is the most among all joint stock commercial banks.
As the end of Q1 come close, market liquidity is starting to get tight again in China’s interbank market. Both small banks and large banks are struggling to find funds. Experts explained that the tightened liquidity is due to the upcoming MPA (Macro Prudential Assessment), maturing interbank deposits, local government bond issuance and US rate hike. According to Chinese media, some banking institutions had to pay a 10% overnight interest rate.
In 2016, the total amount of Overseas Direct Investment (ODI) from Chinese corporates has grown by 40%. Pan Gongsheng, minister of State Administration of Foreign Exchange (SAFE) said in a recent forum that cross-border M&A by Chinese corporates is generally beneficial. However, some irrational investment activities such as M&A deals involving unrelated companies have been noted by SAFE. Pan said that some companies with existing high debt ratio still use acquisition financing to make overseas M&A and some companies even go through ODIs to transfer their onshore assets out of China.
The Chinese lithium battery market is likely to see a boom in three years, that’s according to Chinese media who report that by 2020, Chinese lithium battery manufacturers will overtake Tesla and be the largest group in the world. The significant growth in the Chinese lithium battery industry is in line with the growth of the new energy vehicle industry within China. Strong support from the Chinese government towards new energy is also seen as supporting the rise of the Chinese lithium battery market.
Chinese media reported that 69 asset management companies have had Kweichow Moutai in their portfolios by the end of 2016. Efunds Asset Management owned 5.47 million shares in Kweichow Moutai with a total market cap of 1.83 billion yuan. Since the end of 2005, Kweichow Moutai has seen a 2851.39% growth in its share price. Benefiting from the rocketing share price, Efunds has gained an 8.5 billion yuan return from the most popular stock in China.
According to Chinese media, China has started its deleveraging programme aimed at several key industries including steel, coal, metals and real estate. Since early March, regulators, financial institutions and scholars have been working together to devise detailed rules and guidance for earmarked industries in hopes of reducing their debt. In 2017, regulators will decide the list of companies which will participate in the pilot programme. Financial tools such as securitization or debt-to-equity swaps will be applied in this program.
Chinese property developers have swept the Hong Kong market. For the past seven months, Chinese property developers have spent HK$48.1 billion in Hong Kong land bids, accounting for over half of new land sales. Noticeably, the HNA group was the most aggressive among all bidders. It acquired four key plots of land worth HK$27.2 billion in the last five months. Analysts believe it shows that property developers are looking to diversify their assets in hopes of a better return.
The work report from the NPC says that the target urban employment in 2017 will be 11 million people, 1 million more than the target in 2016. It is the first time in the last four years that China has lifted the target. In the past four years, the number of new employment had exceeded 13 million people. According to Yin Weimin, minister of the Chinese Ministry of Human Resources and Social Security, university graduates will be encouraged to take low level jobs, work SMEs and work in western part of China to cope with the structural unemployment problems in China.
According to Chinese media, an amended securities law will be submitted to Standing Committee of the National People's Congress in April to include more specified rules to restrict large stakeholders of listed companies from selling shares. The law will clear up requirements on how much shares stakeholders can sell, how long stakeholders should hold on stocks before selling them. The general principle is that the stock selling should not undermine the market order and harm investors' legal interest.
NPC has approved that the cap of local government debt will be increased to 18.8 trillion yuan in 2017, 1.63 trillion more than 2016. Since the budget law has been enforced in 2015, the cap has increased every year. Market data shows that the outstanding balance of local government debt has declined 4.3% as of the end of 2016, compared to 2015. The NPC will strictly monitor the debt level of the local government to make sure no one will exceed the debt cap.
Dalian Commodity Exchange and Zhengzhou Commodity Exchange have recently released the contract specifications of soybean and sugar options respectively without disclosing the official trading days. Currently, there is only one exchange traded option in China, which is CSI 50 ETF option. Market analysts believe that the introduction of those two option products will enrich the Chinese exchange traded option market on top of the OTC market.
According to Chinese media, an amended securities law will be submitted to the Standing Committee of the National People's Congress in April 2017 to include more specified rules on investor protection. Under the law, investors will be divided into two groups, ordinary investors and professional investors. Ordinary investors will enjoy a proprietary protection in terms of risk alert and information disclosure. In addition, if there is dispute between ordinary investors and securities companies, securities companies should prove their regulatory compliance without making misleading or fraud statement to investors.
China Securities Regulatory Commission issued a window guidance on the refinancing of the National Equities Exchange And Quotations “NEEQ” (the Chinese OTC market). The window guidance requires a one year lock up period on private placements and has agreed on a premium share price. Prior to the window guidance, there was no such requirement on the NEEQ. An undisclosed source said that the window guidance is aimed to close the door on arbitragers.
Following the NPC, the Chinese Ministry of Finance and State Administration of Tax stated that they would soon release a detailed plan on corporate tax and expense cuts. According to Chinese media, the planned tax cut will be 350 billion yuan and expense cut will be 200 billion yuan. Specifically, the VAT reform will further expand and there will be only three different tax rates applicable to different companies. The new plan will also provide extra benefits to SMEs. The taxable income threshold of companies that can enjoy half tax will be heightened from 300,000 to 500,000.
New regulations are being drafted to oversee the asset management market in a bid to crackdown on the shadow banking sector, as confirmed by the ‘one bank and three commissions’ (PBoC, CSRC, CBRC, and CIRC) at the National People’s Congress.
The new regulations will define the asset management business as an off-balance sheet business. Financial institutions will not be allowed to have asset management businesses within their balance sheets. In addition, proceeds from asset management products will be banned from being invested into other asset management products except for the cases of MOM (manager of managers), FOF (fund of funds) and some other exempted cases.
Under the new regulations, bank deposits and wealth management products are strictly defined as on-balance sheet activities, and should not be invested into any asset management products.
China's insurance market has seen increasing participation by offshore reinsurers. In order to ensure the credit risk and solvency of offshore reinsurers, China Insurance Regulatory Commission issued a circular effective on March 13.
The circular states that onshore insurance companies that share risks and income with offshore reinsurers are able to ask the offshore reinsurers to deposit a margin inside the onshore company. The deposit can either be cash or letter of credit from authorized banks.
G-bits Network Technology, a mobile game company listed on the Shanghai Stock Exchange in January 2017, for the first time temporarily overtook consistent frontrunner Kweichow Moutai as the most expensive stock in the A-share market, including Shanghai stock exchange and Shenzhen stock exchange on March 14.
G-bits is the first mobile games company listed on the mainboard of the A-share market not through backdoor listing. In its 2016 annual report, the company achieved a 235% growth in net income attributed to equity holders, up from 195% in 2015.
By market-close Kweichow Moutai was once again the most expensive stock in the A-share market.
Chinese media reported that the People's Bank of China (PBOC) have imposed a window guidance directed at state owned banks that reduces the new mortgage quota for each bank. Some bankers working in Chinese state owned banks have confirmed to the media that new mortgage loans have been shrinking for the past few months due to less demand and tighter controls over new mortgage loan applications. In addition to the reduced quota, banks should also regularly report their mortgage data to regulators.
China Securities Regulatory Commission (CSRC) and Securities and Futures Commission of Hong Kong (HKSFC) recently announced their successful crackdown on a case relating to market manipulation. The violators manipulated the A-share stock price of Zhejiang China Commodities City Group and obtained an illegal profit of 41.8 million yuan. It is the first cross border market manipulation case since the Shanghai-Hong Kong stock connect was launched in 2014.
Chinese technology leaders such as Baidu, Alibaba and Tencent (BAT) are aggressively investing into US technology startups. Data from CBI Insights shows that BAT as well as JD.com have invested US$5.6 billion into US startups over the past two years. Startups involved come from wide range of technology sectors such as VR (virtual reality), fintech, mobile applications and social media. Over 75% of the deals took place in the US state of California.
Xiao Yaqing, head of China’s State-owned Asset Supervision Administration Commission (SASAC), said in a press conference that 2017 will see mixed ownership reform will expanding towards more SOEs, but it does not mean that every SOE will participate in the reform plan. According to Xiao, whether the SOEs will not participate in the reform or not depends on the conditions such as the business nature of the SOEs. An official document from SASAC shows that in 2016, the mixed ownership reform penetration rate was over 92% among all central SOE subsidiaries.
Zhou Xiaochuan, governor of People's Bank of China (PBOC), said in a press conference that the PBOC, CSRC, CBRC, CIRC and SAFE have already reached an initial agreement on some key issues facing the asset management industry. Zhou summarized some main problems and challenges faced by the industry including too many arbitrage opportunities in China, inefficient cooperation between different regulators and the shadow-banking sector. Zhou however, wasn’t able to reveal more details on upcoming asset management regulations.
According to Zhou Xiaochuan, the long-term trend to open the RMB bond market to overseas investors and issuers will not change. However, China will not intentionally pursue the inclusion of RMB bonds into overseas bond index. Instead, China will open the market in a steady pace. In addition to Zhou's answer, Pan Gongsheng, the minister of SAFE said that the openness would be in two aspects, the panda bond market and the China interbank bond market. Pan also said that China would build a friendlier environment for overseas investors and issuers in terms of accounting principles, law, tax and credit rating.
Government officials from the Shanghai government revealed that the Shanghai free trade zone would further relax restrictions on overseas auditing firms and rating agencies in 2017. Regulators are also drafting guidelines to relax rules on overseas banks, securities companies, asset management companies, futures companies and insurance companies. In 2016, overseas corporates and institutions based in Shanghai achieved a profit growth of 16%. Around a third a Shanghai’s government tax income came from overseas companies. A spokesperson of Shanghai government said that once the official regulation comes out, they would implement it as soon as possible.
Guo Shuqing, the new chairman of China’s Banking Regulatory Commission (CBRC) said in a press conference that Chinese banks are now actively participating in the debt to equity swap activities. Currently, the size of signed contract of debt to equity swap is around 430 billion yuan and over 40 billion yuan has been implemented. Latest data from CBRC shows that at the end of 2016 Q4, the NPL ratio of Chinese commercial banks was 1.74%, 0.02% down from 2016 Q3.
The Chinese government’s proposed IPO registration system was not mentioned in this year’s NPC work report indicating that the regulation of the IPO registration system will be postponed for the second straight year since the idea was floated around. According to Chinese media, China’s Securities Regulatory Commission will maintain the old IPO scheme and keep a close eye on the profitability of IPO applicants.
Wang Yi, Minister of Ministry of Foreign Affairs said in a press conference of NPC that the China-US relationship will be more positive going forward. In particular he highlighted, President Xi Jinping and President Donald Trump’s call last month where both parties reached a consensus on the "One China" principle. According to Wang, the common interest between China and US is larger than the disputes, so it will be beneficial for the two countries to work together. It is the 38th year since the People’s Republic of China established a formal relationship with US.
Wang Yi said in a press conference of NPC that although One Belt One Road is a concept raised by China, the benefit from the initiative will be shared by several other participants. Wang said that in the face of protectionism, the One Belt One Road offers a great opportunity for the world to work together and helps establish an economic rebalance. According to Wang, the One Belt One Road Summit which is scheduled for May 2017 has already attracted over 20 country heads and over 1200 guests over the world.
According to Wang Yi, the biggest issue of China and South Korea is the THAAD missile system. China urges South Korea and the US to stop this project as it threatens China's security. The project also undermines the relationship between China and Korea. On a lighter note, Wang encourages more Korean youth to come to China and learn about the country.
Xiao Jie, minister of the Chinese Ministry of Finance said in a press conference that personal tax reform was still being discussed by officials. According to Xiao, tax on some types of income, such as basic salary, will be calculated and reported once a year. In addition, tax benefits will also be granted to those who gave birth to a second child. The MOF is still considering adjusting tax allowance depending on average level of consumption.
SOEs in China are preparing to make debt to equity swaps in an effort to reduce onerous debt. According to Wang Zhaoxing, vice chairman of China’s Banking Regulatory Commission, applications for debt to equity swaps have been sent to the state council. It is expected that the debt to equity swap programme will start as early as the first half of 2017. Wang said that state owned banks have submitted their applications to set up a legal entity to handle debt to equity swap procedures.
The work report of the National People's Congress said that China will stick to its renminbi reform and keep the currency stable. Chinese analysts say this signals that China will prevent the renminbi from depreciating too much. It is expected that China will boost renminbi internationalization once the value of the currency becomes stable. In addition, China will also make efforts to control the fluctuation of the exchange rate to within a certain range.
Yi Gang, vice governor of the People's Bank of China, said in an interview with Chinese media, that the PBOC will defend the bottom line of financial risks and that it will not let institutions that create risks also benefit from the risks. According to Yi, the PBOC will keep a close eye on the possible systemic risks and would not let it happen. Yi said that the asset bubble issue has always been a key item for him.
He Lifeng, director of the National Development and Reform Commission, said at the NPC (National People's Congress) that the One Belt One Road initiative has got responses from over 100 countries since it was launched. Currently, over 50 contracts with foreign governments and over 70 contracts with international organizations have been signed. For the past three years, investment under One Belt One Road initiative has exceeded $50 billion, according to He.
The timing surrounding the implementation of China’s property tax will be one of the topics not addressed during China’s NPC. Fu Ying, the spokesperson of the NPC said that the draft regulation on property tax will not be included in the agenda this year. Many Chinese analysts see the property tax as an effective and feasible way to control property prices within China. Yet, not everyone is happy about the proposed property tax as some stakeholders' interest may be hurt from the new regulation.
Fang Shangpu, vice minister of SAFE (State Administration of Foreign Exchange) published an article on Chinese media, stating that the restriction on the FX purchase requirement will be gradually relaxed. In terms of the cross-border capital flow, SAFE will set up a negative list consisting of forbidden activities. According to Fang, the main principle will be to prevent speculation on the FX market.
The new CBRC (China Banking regulatory Commission) Guo Shuqing, made his first press conference yesterday. In his statement Guo said he would crack down on the shadow banking sector in China. Guo said firmly in the press conference that CBRC will better regulate the banking environment and monitor misconducts. Guo has been regarded by Chinese analysts as a "real reformer" due to his work as chairman of CSRC (China Securities Regulatory Commission). During that time he pushed forward with weekly reforms.
In a bid to deal with the government’s cap on private placements, which is 20% of outstanding shares, Chinese companies are considering to pay a stock dividend to increase outstanding shares. Since the new refinancing regulation came out, over 20 A-share listed companies announced their stock dividend plans, most of which are at least 60% stock dividends. As of Feb 27, around 40 listed companies announced that they would modify or pause their refinancing plans. Chinese analysts said that the stock dividends may benefit mostly small-sized companies.
Li Pumin, the spokesperson of the National Development and Reform Commission, said in a press conference that in 2017, the investment on fixed assets from 32 provinces will amount to 65 trillion yuan, up from 60.65 trillion yuan in 2016. According to Li, the investment will proceed in an orderly way to avoid repeat construction and oversupply. As of 2016, China has built 22,000 kilometers of high-speed railway and 130,000 kilometers of expressway the most amount compared to other countries in the world.
According to Chinese media, China’s Securities Regulatory Commission (CSRC) will start to include face-to-face interviews in their IPO review process for some applicants. Falsifying financial reports will be one of the key elements the CSRC will keep an eye on. CSRC will also closely monitor the due diligence carried out by the underwriters of those applicants such as securities companies. In addition, the CSRC for the first time will go to rural areas in China to review IPO applying companies. In 2016, CSRC issued a regulation stating that it will support companies from rural areas in their IPO journey.
In an interview with Chinese media after a press conference, Liu Shiyu, the chairman of the CSRC said firmly that the PBOC, together with the CSRC, CBRC (China Banking Regulatory Commission) and CIRC (China Insurance Regulatory Commission) was drafting a regulation on asset management business within China. The main objective of the upcoming new regulation is to control the risk in China's financial system. Data from Chinese media shows that the AUM (assets under management) of asset management units run by securities companies, banks, insurance companies, mutual fund houses, private fund houses, trust and futures companies was 116.98 trillion yuan as of the end of 2016. Among all, AUM of banks was the highest compared to other types of companies.
Senior officials working at Ministry of Human Resources and Social Security said in a press conference that the Ministry had already chosen the asset managers of the pension fund, but that did not mean that the fund would go to A-share market soon. According to Ministry of Human Resources and Social Security, the A-share market is only one of the feasible investment choices of the pension fund. In addition, when the pension fund will invest into A-share market it will depend on market conditions.
Since SF express was successfully backdoor listed on February 23, the stock price has been rising for the past five consecutive trading days. During the first four days, the stock price reached the 10% price ceiling. The chairman of SF, Wang Wei, became the third richest man in China, overtaking Pony Ma, the chairman of Tencent. Currently, SF express is also the largest company in terms of market cap listed on Shenzhen stock exchange.
Following Didi and Uber's subsidy competition, China's share bicycle platforms such as ofo and Mobike started a new round of fundraising competition. On March 1st, ofo completed a series D fund raising US$450 million from a group of investors including DST and Didi. Its competitor Mobike also finished its series D fund raising from Singaporean Temasek. Currently, share bicycle platforms in China have become one of the most popular transportation for Chinese citizens due to their low costs (1 yuan/hour). Analysts from China Securities expect that this market will have a large potential to grow as it successfully addresses people's transportation needs.
Offshore fundraising activities by Chinese corporates has exceeded onshore fundraising for the first time in 2017. According to Dealogic, Chinese corporates have issued US$26.1 billion offshore bonds compared to US$21 billion in onshore fundraising, since the start of 2017. Banks and property developers are the two most active issuers. For example, ICBC, BoC and CCB overseas branches have all issued US dollar and euro bonds in February 2017.
Local media reports in China have claimed that MNCs are facing difficulties remitting profits out of China, however, on interviewing General Motors and some overseas pharmaceutical firms, they denied facing any such difficulties. According to Pan Gongsheng, minister of State Administration of Foreign Exchange, any real trade activities under current accounts will be approved, but any transactions under capital accounts will need to go through stricter approval processes.
According to Chinese media, in 2016 Chinese courts received 5665 bankruptcy filings, up 53.8% from 2015. The increase in bankruptcy cases is attributed to the government's supply side reform policies. Provincial governments and city governments have already stopped subsidizing so-called "zombie companies" and banks have also halted lending to those companies, leading to an increase in bankruptcy filings.
On February 26, 2017, Mr. Liu Shiyu, the president of CSRC (China Securities and Regulatory Commission) announced that their primary objective was to regulate the market in accordance with laws and in order to protect small/medium sized investors. In regards to IPO regulations, Mr. Liu pointed out that market condition is stable enough to increase IPO issuances. Liu also mentioned that the quality of IPOs issued versus the quantity of IPOs is more important.
As a part of China's military reform, the CMC (Central Military Commission) confirmed specific measures of improving the private sectors' participation into the military equipment industry. According to Chinese professionals, by introducing competition to the military industry, the capability of weapon research and the productivity of military manufacturing can be improved significantly. Three segments are most likely to benefit from this reform this includes satellites, aircrafts, and shipbuilding.
Last week, the CIRC (China Insurance Regulatory Commission) announced regulatory action on Qian Hai Insurance for violating regulations and to Evergrande Insurance, for its speculating activities. The chairman of Qianhai Insurance will be expelled from his position. Evergrande Insurance will face one year of restrictions on stock investment, and also be forced to adjust down its proportion ceiling on equity investment to 20%.
In a CBRC (China Banking Regulatory Commission) meeting on Feb 23, Guoshu Qing was officially promoted to be the chairman of the organization. Despite an industry experience of only 15 years, Guo used to work for major financial regulators in China. For example, Guo used to be the vice governor of the PBOC (People's Bank of China), Minister of SAFE (State Administration of Foreign Exchange), chairman of CSRC (China Securities Regulatory Commission) and chairman of China Construction Bank. Guo is known as an advocator of financial reform in China and Chinese officials familiar with Guo all expressed their confidence in the 60 year old new chairman.
In the face of increasing risk regarding China's P2P market, the CBRC issued a guidance on assets on P2P platforms. The guidance requires custodian banks of P2P platforms to run two different accounts. One account will handle asset from clients of P2P platforms and the other account will handle P2P platforms' own capital. The custodian bank has the obligation to monitor those two accounts in case that the platforms may misuse the deposits from their clients. Currently, 32 commercial banks have offered custody service for 180 P2P platforms.
In an effort to attract more participants in China's interbank bond market (CIBM), China Foreign Exchange Trading System announced in its official website that a series of fees were waived for market participants. Starting from 22nd of Feb, qualified non-financial institutional investors are not subject to bond account maintenance fee, trading fee and settlement fee. Trading fees and settlement fees are also waived for qualified market makers.
Xiao Yaqing, director of China’s State-owned Asset Supervision and Administration Commission (SASAC), said in a speech in Beijing that the SOE reform would speed up in 2017. He highlighted that more types of investors would be allowed to be stakeholders in SOE companies. According to SASAC, the capital will be reallocated to the operating activities of the SOE rather than investment activities. In addition, SOE capital from new investors should not be used for other purposes such as investing in real estate and acquiring non-related companies.
According to Chinese media, Chinese securities company Guotai Junan and its Hong Kong branch has recently helped China's social security fund invest in both A-shares and H-shares. Since the beginning of 2017, the H-share market has risen by 10%, outperforming all other stock markets globally. Chinese analysts believe that Chinese insurance companies are main driver behind the surge of interest in the H-share market.
Since the Chinese new year, A-shares related to One Belt One Road (OBOR) initiative have outperformed other sectors. According to Choice, the OBOR sector has seen a 5% increase since the market reopened a few weeks ago. Xinjiang Tianshan Cement, for example, has seen a 87% price increase February 2017 YTD. Chinese analysts explained that the growth represents investors' expectation that some new reform will emerge from the upcoming March meeting of the NPC & CPPCC (National People's Congress & Chinese People's Political Consultative Conference).
Another central SOE named COFCO (China National Cereals, Oils and Foodstuffs Corporation) was reported to participate in the mixed ownership SOE reform. According to China’s SASAC (State owned Asset Supervision and Administration Commission), the SOE reform scheme will be applied to 18 subsidiaries of COFCO. The restructuring is scheduled to be completed by the end of 2018. In 2016, COFCO cleaned out 36 "zombie" subsidiaries that were generating low profits for the group.
The Chinese Ministry of Finance (MOF) recently issued a guidance to encourage local governments with robust cash flows to issue bonds. The MOF also plans to expand the investor base of local government bonds from only financial institutions to non-financial institutions and retail investors. As of the end of 2016, the local government bond market was the third largest bond market in China, only behind the central government bond and policy bank bond markets. China Bond Rating, a domestic rating agency, estimated that the local government bond market will grow to over 6 trillion yuan in 2017.
Chinese media reported that the PBOC (People’s Bank of China) is drafting a guidance on the asset management business of financial institutions. The drafted guidance defines the asset management business as off-balance sheet businesses. In other words, the wealth management products sold by banks are not considered as asset management business and they should be under the liability of the balance sheet. The guidance also requires that asset managers are not allowed to invest in other asset management products. FOF (funds of fund) and MOM (managers of managers) are exceptions to this rule.
A senior banker at a Chinese state owned bank has said in a recent interview with the The Asset that cross border capital flow is not being tightened in China. Instead, the situation differs from province to province. Some areas relying on the manufacturing industry may see a relaxing of regulations on cross border capital flow. According to the banker, cross border activities under current accounts will likely be approved by Chinese authorities.
Currently, overseas investors are allowed to set up onshore wholly owned non-life insurance companies, but can only hold up to a 49% stake in life insurance companies. According to Chinese media, China is considering fully opening the door to life insurance companies for overseas investors. Back in January, the state council made an announcement on its website, stating that China will further liberalize the market by introducing more overseas investors.
According to the Chinese media, Ruihua Certified Public Accountants, the biggest accounting firm in China, was punished by regulators due to a lack of due dilligence and has now been banned from taking on new securities-related business. It is the fifth time that the firm has been penalized by regulators since last year. In January, the Chinese firm already received a penalty from the CSRC (China Securities Regulatory Commission) due to an issue relating to fraud in its audit report.
China’s Securities Regulatory Commission (CSRC) has recently issued an official regulation on refinancing activities by listed companies. The new regulation requires that the amount of new shares through private placement should not exceed 20% of outstanding shares. Listed companies are not allowed to issue new shares within the first 18 months since the company’s last shares issuance. Those companies are instead allowed to issue convertible bonds and preferred stocks. In addition, listed companies applying for refinancing should not have a large amount of financial assets to be allocated for trading purposes.
Chinese media reported that the Chinese pension fund start flowing capital towards mandated asset managers this week. It is likely that the first round investment would be towards equity assets on the stock market. Financial institutions in charge of the pension fund have mandated several asset managers including 14 fund companies, six insurance companies and one securities company. Noticeably, ICBC Credit Suisse Asset Management and Harvest Fund are qualified asset managers invested by Credit Suisse and Deutsche Bank.
In 2016, 14 cities have reported a fiscal income over 100 billion yuan. Shanghai and Beijing are still the leaders with 640.6 and 508.1 billion yuan income respectively. Noticeably, Hangzhou overtook Guangzhou and Wuhan to be the seventh highest earning city thanks in large to the e-commerce market. According to the Hangzhou government, the IT industry has already contributed to 24.3% of the city's GDP in 2016.
In 2016, the state council announced seven new free trade zones (FTZ) including Sichuan, Hubei, Chongqing, Henan, Shanxi, Liaoning and Zhejiang. The Henan government announced in their website that the Henan Free Trade Zone will be officially launched by the end of February. According to Chinese media, the seven new FTZs are likely to officially to launch on a same day in February.
The Chinese State Council has recently released a guidance which looks into the possibility of imposing a property tax in China. According to Chinese media, the government has already started to draft the guidance on property taxes. The new tax will be aimed at clamping down on the speculative investments in the property market.
Chinese property developers are queuing up to issue offshore US dollar bonds in the face of increasing refinancing needs. In January, Chinese property developers issued a total of 3.8 billion USD, 80% of which were callable bonds. In the onshore bond market, due to a tighter window guidance by National Development and Reform Commission, only one property issuer has successfully issued an onshore bond in February. The issuance size in January decreased by 97% compared to the same month in 2016.
According to the Chinese Ministry of Finance (MOF), the country's foreign direct investment (FDI) in January declined by 9.2% due to the "Chinese New Year effect." However, MOF is still optimistic towards FDI in the long term. A large GDP base and consumption market will be the driving force to attract foreign investors. In addition, further reforms also add to the competitiveness of the Chinese market.
According to Chinese media, China’s Securities Regulatory Commission (CSRC) plans to issue a new regulation on refinancing. The potential restriction may limit companies to one refinancing exercise a year. In addition, the refinancing amount will also be restricted within a certain level of the companies' market cap. The growing domestic refinancing market shows that some Chinese companies' intent to arbitrage from an interest rate gap between cheap refinancing rates and a high lending rate.
Chinese media has observed that large stakeholders of A-share companies have been reducing their positions in listed companies. Data from Choice shows that since last December, large stakeholders from 108 listed A-share companies have sold their shares for 278 times, with a total of 32 billion yuan involved. Chinese analysts believe that the frequent liquidation by large stakeholders is not beneficial to the stock market and retail investors. According to Chinese media, industrial experts are calling for a tighter regulation on the stakeholders' looking to redeem their shares.
As a national strategy, the Chinese One Belt One Road Strategy is expected to gain momentum in 2017. The initiative has been frequently raised during central government's meetings and in May 2017, a One Belt One Road summit will be held in Beijing. Data from the Chinese Ministry of Finance shows that the total investment into countries along the economic policy path have amounted to US$14.53 billion for the whole year of 2016.
According to Chinese media, the pilot NPAS (Non-performing Asset Securitization) program is expanding to large joint stock commercial banks and some urban commercial banks. The underlying assets will include personal loans and corporate loans. In 2016, six banks issued 14 NPAS products with a total of 15.61 billion yuan.
China’s Insurance Regulatory Commission (CIRC) says that it will keep a close eye on the "unfriendly investors" that may treat insurance products as a cheap funding source. The CIRC will be cautious in giving new licenses to those who wish to set up insurance companies in China. The business model, equity ownership and the profitability will be main criteria. A negative list will also be in place to keep unqualified potential investors away.
In 2016, only four provinces including Tibet, Shanghai, Guangdong and Tianjin have achieved double digit growth in fiscal income, notching up 17.4%, 16.1%, 10.9% and 10% respectively. The overall growth rate of fiscal income has declined from 9% two years ago to 4.2% in 2016, due to the VAT (value-added tax) reform. Guangdong province still leads the league table with an annual fiscal income of 1.04 trillion yuan, followed by Jiangsu province with 812.1 billion yuan.
The Asset Management Association of China has recently published a regulation on PE products. Under the regulation, PE products are no longer allowed to invest in residency real estate projects in 16 major cities such as Beijing, Shanghai, Guangzhou and Shenzhen. The regulation is aimed to cool down the property market in those selected cities in China.
Chinese media received an official document from the Ministry of Environmental Protection, stating that the government was asking steel and aluminum companies to cut production to deal with severe smog problems in China. The potential target provinces include Beijing, Hebei, Tianjin, Shandong, Shanxi and Henan. The implementation date of the project was not disclosed but it is expected that the project, once effective will be the toughest and strictest ruling on environmental protection.
In response to the current FX control on Chinese citizens, the administrator of the State Administration of Foreign Exchange (SAFE) Pan Gongsheng stated that it wasn’t imposed to prevent further capital outflows. Instead, it is an enhancement of AML (Anti Money Laundering) processes required by G20 to increase the transparency of transactions. Pan also says that China will not go back to the old capital control scheme and that the Chinese financial market will allow more foreign investors in 2017.
The Chinese Ministry of Finance released a 2016 Q4 report on PPP (Public-Private Partnership) projects. As of the end of 2016, 11,260 PPP projects have been registered, with a total planned investment amount of 13.5 trillion yuan. Currently 1,351 projects have been signed, with a total of 2.2 trillion yuan already invested. According to Chinese media, the PPP market in 2016 was overheated because some companies saw PPP projects as a fund raising exercise. In 2017 the market will become more rationale as the regulation will look to address the concerns in the industry.
Data from the China Securities Regulatory Commission (CSRC) shows that in January 2017, Chinese private equity (PE) companies have seen a 740 billion yuan AUM (Asset Under Management) increase. This makes the total AUM of the PE industry in China at around 11 trillion yuan, exceeding the size of domestic the mutual funds industry.
A phone call was made between China's president Xi Jinping and US president Donald Trump on Feb 10. Xi said in the call that it is of great necessity to strengthen the collaboration between China and the US. President Trump in return said that he would respect the One China policy.
China’s Securities Regulatory Commission (CSRC) held a meeting on Feb 10 on regulatory issues on the country’s capital market. Chairman Liu Shiyu gave a speech stating that the CSRC will speed up the IPO review process and allow more companies to tap into Chinese A-share market. In this way, the mispricing of "shell" companies can be corrected.
Two major bitcoin trading platforms, huobi.com and OKCoin made key announcements on their websites. The two companies both stopped providing bitcoin redemption services. Moreover, customers are not allowed to cash out their positions. According to the two companies, their AML systems will be upgraded and within this upgrading period, the redemption service will not be available.
The People's Bank of China (PBOC) talked to 9 Beijing-based bitcoin companies on February 8th, informing them about their existing risks and suggested specified solutions on how to resolve these issues. The PBOC has warned those bitcoins that they should not provide financing services, be involved in any money laundering issues or violate FX/tax regulations. Any violation can be subjected to the disqualification of their business license.
A-share listed companies have been quite active in acquiring unrelated companies in recent year. This has pushed up the valuation of the acquire companies far from its fair price. In a bid to make the valuation more reasonable, China Securities Regulatory Commission (CSRC) requires a more comprehensive information disclosure in the M&A application. For example, the acquirer is required to disclose the rationality and methodology of their valuation in their future M&A applications. In addition, companies have to justify if their real financial performance is much different from their predicted number.
Chinese media has observed that for the past three months, government authorities such as China’s State Council and CSRC have issued several official documents to support Chinese corporates going IPO. Particularly, agricultural companies and emerging industries such as new energy are named by CSRC and China’s State Council as the most supported industries. In addition, corporates in rural areas with financing needs are also encouraged to list. According to Chinese analysts, the support from the Chinese government shows its determination to cope with the financing difficulties faced by SMEs in China.
The People's Bank of China (PBOC) has recently announced the FX reserve data for January 2017. As of the end of January, the FX reserve number dropped below US$3 trillion, to US$2.998 trillion. Analysts attribute the decline to an increasing demand of FX due to a renewed FX purchase quota, a large number of outbound travelling and mature foreign debt. Financialnews.com, the PBOC wholly-owned media, said that 2 trillion FX reserve is enough to sustain China.
The People's Bank of China (PBOC) has increased the interest rates of SLF(short-term lending facilities) and MLF(medium-term lending facilities) around the Chinese New Year period. These were regarded as an indirect approach to raise the interest rate level. There is no speculation on whether the PBOC would raise the real interest rate in the short term. However, state-owned media do not believe there will be a rate hike in the short term because economic fundamentals are still weak in the face of slower investment growth and high financing cost. State-owned media considers the rise in SLF and MLF a measure of PBOC to deleverage and decrease the risk of the money market.
In the People’s Bank of China disclosure of FX reserves in January 2017, Chinese media observed that the PBOC has not increased its gold holdings for the past three months, which is the longest period since 2015. Market data shows that the PBOC has been accumulating its gold holding since 2014. Some analysts believe that the Trump presidency could further move PBOC from USD to gold in event of worsening relationship between US and China.
According to Chinese media, the People's Bank of China (PBOC) issued a window-guidance on some banks to reduce their credit limit to their clients. Some banks can only provide timely consumption loans to individuals while it may take more than one month to apply for a corporate loan. Many Chinese analysts expect that new renminbi loans in January will reach a historical high. As a result, the PBOC is cautious about the overall leverage in the banking system as well as the financial sector.
Chinese commercial banks are likely to increase the mortgage interest on retail customers. Moreover, the property market has seen a cooldown during the Chinese New Year, signaling a potential drop in the property price. Many Chinese analysts believe that there will be a huge pressure on the housing prices within China in 2017.
Data from the National Energy Administration shows that at the end of 2016 China was the largest solar power country. However, the electricity generated from solar energy only accounted for around 1% China’s total power. By 2030, China aims to increase the usage of non-fuel energy to 20%. China has consistently committed to the global new energy industry. China is also the largest wind power producer in the world.
Berun group, an Inner-Mongolia based coal company has defaulted on its 800 million yuan short-term notes. Prior to this, the company had already defaulted on its 1.1 billion yuan notes. The Berun Group still has over 10 billion yuan outstanding debt or liability. However, its operating cash flow in Q3 2016 result was only 416 million yuan. Chinese rating agency China Chengxin International has already downgraded the company to a C rating.
Data from China’s Central Depository & Clearing shows that as of end of January 2017, Chinese government bonds held by foreign institutions has declined by 1.9 billion yuan to 421.7 billion yuan from December 2016. It was the first time since 2015 October that the figure had decreased from the previous month. At the same time, the corporate bonds held by foreign institutions have also seen a drop in January 2017.
Despite the government's strong support towards the new energy sector in China, the industry is still experiencing an over capacity issues. The supply of solar panels and the wind farms are far more than the market demand. For example, in Gansu province, 54% of the wind farms were not in use in 2016. The main reason is that the growth rate of market demand for the electricity is comparatively slow due to a lower production. Moreover, the power network is not yet mature enough to handle large volumes of electricity.
The Chinese New Year is not only a festival for families to get together. Chinese customers also tend to spend a lot on the festival especially when it comes to movies and traveling. According to Chinese media, the box office during the first six days of Chinese new year was 2.924 billion yuan while the travelling revenue during the Chinese New Year period was 423.3 billion yuan. Chinese analysts explained that the surging entertainment consumption is a reflection that there is still attractive potential in China’s consumption market.
Chinese corporates have been quite busy making overseas acquisitions during the Chinese New Year period. Dalian Wanda's US subsidiary AMC acquired Nordic, the largest movie group in North Europe for US$930 million. Currently, Wanda owns 1470 movie theaters and is getting close to its 20% target global market share. Ant Financial acquired MoneyGram, a well-known money transfer company for US$880 million. Fosunfarma a subsidiary of Fosun group also acquired European company called Breas for US$90 million.
Data from Wind shows that in 2016, 767 A-share listed companies have purchased wealth management products totaling 726.8 billion yuan, 39% up from 2016. The increasing need of wealth management products shows that A-share listed companies still own a lot of idle cash. Among all wealth management products, bank wealth management products are still the most favorable, accounting for 72% of all wealth management products sold in China. China Shenhua Energy Company and Xinhu Zhongbao are the top 2 companies investing into wealth management products. Both companies have invested over 20 billion yuan into various wealth solutions.
On January 27, 2016 The State Council of China announced a ban on cross-province financing and transfer services on securities and stock equity of private placement in the regional equity markets. According to Chinese media, cross-province services cause problems because there are supervision gaps in regards to regulations. As of the end of 2016, every province within China has already set up a regional equity market except for Yunnan province, The State Council also announced that it would stop private placement bonds in every regional equity market.
On 26 January, 2016 China’s SAFE (State of Administration of Foreign Exchange) announced new policies for the nation’s FX management. The measures include broadening the range of settlement on domestic and foreign exchange loans.
According to Chinese media, the total amount of local debt issued in 2016 was 6.04 trillion renminbi, this includes the replacement debt of 4.87 trillion renminbi. According to the official data, the total amount of local debt that was needed to be replaced was 14.2 trillion renminbi in 2014, since the replacement debt being issued in year 2015 and 2016 was 8.08 trillion in total, which means that 6.3 trillion local debts are waiting for replacement. According to professionals in China, the overall risk of local debt is now limited, but the potential large impact to some local governments still exists.
Chinese provincial governments have recently disclosed their annual performance in 2016. Guangdong, Jiangsu and Shandong are the leading provinces with a GDP of 7.95, 7.61 and 6.7 trillion yuan respectively. Zhejiang and Henan are the fourth and fifth, with a GDP between 4 to 5 trillion yuan. In terms of GDP growth, Tibet, Chongqing and Guizhou are the top three provinces with a growth rate of 11.5%, 10.7% and 10.5% respectively.
The Chinese Ministry of Finance has disclosed the overall financial performance of state-owned enterprises (SOE). Last year, SOEs have reach a total profit of 2.31 trillion yuan, 1.7% up from 2015. Construction, transportation and real estate are the top three industries contributing to the profit increase. Noticeably in 2016, the total debt increased more than total assets, meaning that the leverage among SOEs was also lifted over the past year.
The People's Bank of China posted a statement on its official Weibo account saying that it still supports justifiable cross-border capital flow and that those justifiable transactions will not be subjected to a maximum quota. State Administration of Foreign Exchange also stated in its official website that any transactions based on real trade will be allowed and will not be restricted. Corporates can still purchase FX using their real invoices as proof.
Data from Choice shows that among 26 listed securities companies, 14 have seen an over 50% decline in net profit. The whole securities industry in China has seen a 55% decline in net profit, compared with 2015 data. In terms of revenue, only two companies have reached revenues of 20 billion yuan.
The People's Bank of China (PBOC) announced on Tuesday that it would implement a MLF (Medium-term Lending Facility) with an interest rate of 3.1%. The rate was 10 bps higher than last time, a signal that the PBOC is trying to tighten the market liquidity. Chinese analysts also consider it as an indirect measure of raising the market interest rate.
For the past eight trading days, the southbound activity of the Shanghai and Shenzhen Stock Connect has seen a 13.6 billion HKD inflow. Chinese media attributed the large volume to a strong interest from Chinese insurance companies and mutual funds. Noticeably, Chinese investors prefer Hong Kong blue chips stocks. Among all the H-shares, China Construction Bank was the most favorable stock, notching up a 1.12 billion HKD net inflow through the stock connect.
China's Ministry of Finance has disclosed the annual fiscal income of year 2016. The total fiscal income increased to 15.96 trillion yuan, achieving a year-on-year growth rate of 4.5%. The growth was the lowest since 1988 due to decreasing tax income resulting from the VAT (value-added tax) reform. Moreover, the Chinese government expenditure reached 18.78 billion yuan or 6.4% up from 2015.
According to Chinese media, several Chinese securities companies are thinking about introducing real-time data platforms of UK stocks with the London exchange. Back in 2015, authorities studied the feasibility of the Shanghai-London Stock Connect. One securities company even invited the London Exchange to hold a forum to introduce the UK stock market to Chinese investors. As Shenzhen and Shanghai Hong Kong Stock Connect was officially launched, more real time prices of international stocks are available on Chinese stock market mobile phone applications.
Zhang Xiaojun, spokesperson of the China Securities Regulatory Commission (CSRC), stated in a press conference that the CSRC would tighten the refinancing threshold for listed companies. According to Chinese media, since 2016 Q4, private placement has slowed down. The average duration of a private placement increased from 81 days to 130 days.
The People's Bank of China (PBOC) has recently issued a new guidance on cross-border financing. In the new guidance, the leverage ratio of cross-border financing has been lifted from 1x to 2x for Chinese onshore corporates. In other words, with a same amount of net asset, a corporate is able to double the funds raised in offshore markets. Foreign corporates and institutions are also eligible to the new guidance. The new guidance is expected to bring more liquidity to the Chinese financial system.
Following new FX regulation issued in early January, the People’s Bank of China (PBOC) further restricted FX regulation towards banks. According to Chinese media, the PBOC told banks to maintain a positive FX position, meaning that the capital outflow should not exceed capital inflow through banks. However, this has only happened in Beijing and Shanghai. The PBOC has refused to comment on the issue.
Didi, the leading ride-hailing company in China is facing setbacks in China due to fewer subsidies. In tier one and tier two cities, taxi fare has become higher when using the Didi app. The potential decline on the company’s users creates pressure on Didi's profitability. In the latest fundraising, investors including Apple and China Life invested $7.3 billion in Didi. But whether the investors can cash out Didi with a good return depends on the financial performance of Didi.
Data from Wind shows that since 2016, the total capital raised through IPOs was 184.5 billion yuan, while the amount raised from refinancing was over 2 trillion yuan. Among all refinancing tools, 781 listed companies chose to raise funds through private placements, with a total amount of 1.73 trillion yuan coming from the exercise. The booming refinancing market in China was largely due to the historic slow IPO review process.
As one of the most problematic provinces in China, Liaoning has been facing a significant slowdown in economic growth. Recently, officials in Liaoning province admitted that the economic data during 2011 to 2014 was fake. It is a good signal that problematic provinces have started to admit their faulty statistics, but question still remains on how to drive provincial growth in the next couple of years.
Data from the Chinese National Bureau of Statistics reveals that the fourth quarter in 2016 has seen a rebound in Chinese GDP growth, reaching 6.8%. It is the first time since 2014 Q2 that the GDP growth has achieved such a level. The economic growth from service sector is up 8.3% last quarter, which contributed most to the unexpected Q4 GDP growth increase. The real property sector also contributed 6.5% of the total GDP. However, the total coal production declined by 9.4% compared to last year.
The State Council of China issued a new guidance on overseas investors. The new guidance lowers the entry level of overseas financial institutions including banks, securities houses, rating agencies and insurance companies. In addition, the Chinese government will also provide support to overseas investors interested in the country’s high tech industry. Non-Chinese tech startups will enjoy the same benefit as Chinese startups. Overseas investors are also allowed to tap the A-share market (mainboard, SME board and National Equities and Exchange Quotations), interbank bond market (corporate bond, convertible bond) and other financing tools.
Chinese banks normally distribute annual bonus to employees ahead of Chinese New Year. According to Chinese media, one employee at Ping An Bank, one of the largest joint stock commercial bank in China, received only 1.5 yuan as their bonus while some employees didn’t even get a bonus. Aside from Ping An Bank, many other non-state-owned commercial banks also made a same decision not to give out Chinese New Year bonuses. The declining profit of Chinese banks is one of the reasons for the bonus suspension.
According to ChinaVenture Group, in 2016, there were 4010 M&A activities completed by A-share listed companies, 23% down from 2015. The total amount decreased by 26% to US$253.2 billion. Even the internet industry, which is the most active sector in onshore Chinese M&A, saw the total number of announced M&A deals decreased by 20.3% to 797 in 2016. The slowdown was largely due to the CSRC's (China Securities Regulatory Commission) tighter regulation on M&A activities.
SASAC (State-owned Asset Supervision and Administration Commission) has recently issued a new regulation on SOE investments. Under the new scheme, a negative list system will be designed to regulate SOEs' investment activities. An onshore negative investment list and an outbound negative investment list will be set up separately. Investments not included in the list will be open to all SOEs.
The People's Bank of China has disclosed data on RMB assets held by overseas entities for the month of December. Overseas individuals or institutional investors have increased their holdings of onshore bonds by 17.9 billion yuan while they decreased their investment in stocks by 60.1 billion yuan. Noticeably, onshore bonds held by overseas investors have increased by 26.3%, from 674.6 billion yuan to 852.6 billion yuan from January to December 2016.
According to China Merchants Securities, since 2002, it is typical to see the SHCOMP index (Shanghai Stock Exchange Composite Index) increase around Chinese New Year. Findings shows that probability that the SHCOMP index will increase during the last five trading days ahead of Chinese New Year is 93.3% while the probability of an increase during the five trading days after Chinese new year is 80%. Analysts attribute the increase in market liquidity, disposable income from retail investors, and change in risk preference around the Chinese new year period.
Chinese retail investors are questioning the speed in which the CSRC (China Securities Regulatory Commission) approves IPOs. This week alone there were a record 15 new companies listed on the Chinese A-share market. People are worried that the new IPOs will bring pressure on stock prices and the secondary market. In a survey done by Chinese media, over 90% of the respondents think there is an unhealthy rapid increase of IPOs in China.
Dongbei Special Steel Group has defaulted again. This time the state-owned steel company missed a payment on its 1.4 billion yuan medium term notes. Since its first default on March 2016, the Dongbei Special Steel Group has defaulted on ten bonds worth 7.17 billion yuan.
According to Chinese media, the CBRC (China Banking Regulatory Commission) is planning to draft a guidance on debt-to-equity swap. Under the new guidance, banks are required to sell assets to counterparties other than their subsidiaries or related companies. Although some banks already transfer those assets off balance sheet, the actual buyers are still their own subsidiaries, meaning that their risk is not truly diversified.
The People's Bank of China has recently issued a new regulation on third-party payment platforms such as Alipay and Wechat pay. The new regulation requires those platforms to deposit at least 50% of their advances from customers into their custodian bank. Moreover, deposits cannot be used for investments purposes. The new regulation aims to restrict the platforms from relying too much on interest rate differential.
China's state council issued a new guidance on the internet and telecommunication industry. The official document points out that it will allow private companies to enter the telecommunication industry in China, which is currently dominated by China Mobile, China Unicom and China Telecom. It is expected that a more competitive telecommunication market can further boost the development of the internet industry in China.
Jiang Yang, vice chairman of China’s Securities Regulatory Commission, states that the organization will force those unqualified listed companies to exit the A-share market to maintain the overall quality of the market. It is common practice in China that unprofitable listed companies avoid being delisted by selling assets to companies that are interested in backdoor listing. Since the CSRC issued a regulation on the delisting procedure in 2014, only two companies were officially excluded from the A-share market.
The Chinese bond market saw a significant price drop last December where bond prices on average decreased by more than 4%. The total bond issue in December was 761.5 billion yuan, 648.4 billion down compared to November 2016. Funds, insurance companies and rural credit cooperatives reduced their stakes in government bonds while urban commercial banks, rural commercial banks and overseas institutions increased their stakes. Noticeably, overseas institutions have been accumulating their holdings in bonds on the CIBM (China Interbank Bond Market) for consecutive three months with a total of 60 billion yuan, despite the overall bond price decline in the CIBM.
New IPOs always bring in a sense of excitement for Chinese A-share investors. In 2016, new listed shares have seen on average a 430% return in their first trading month. However, the CSRC (China Securities Regulatory Commission) has started to speed up reviewing the new IPOs in year 2017. The increase of IPOs, according to Chinese analysts, could lower the rate of return of those new listed A-shares. The relaxed IPO approval process is seen as a way to deleverage the financial market.
Chinese media has reported that the National Council for Social Security Fund has opened applications for Chinese financial institutions (FIs) to manage the country’s fund. The council will base their FI selection how firms approach equity, bond, cash and quantitative investing. It is expected that the pension fund will invest in A-share market soon after the Chinese new year.
Since the A-share crisis in August 2015, the index futures market has been restricted in China. The index futures market was considered as a driving factor of the collapse of the A-share. Chinese analysts believe that it is not likely that the index futures market will be relaxed in the near future.
China Securities Regulatory Commission (CSRC) reviewed the ratings of Chinese securities companies annually. According to Chinese media, companies with a B rating (B,BB,or BBB) accounted for around 50% of total securities companies in 2016.The rating given to Chinese securities companies is based on the CSRC's assessment on the profitability, compliance, risk management and whether they violated any regulations. In 2016, among the total 95 rated companies, 36 are A-rated (A or AA) and 51 are B-rated (B,BB,or BBB) .
China’s SOE restructuring fund (中国国有企业结构调整基金) that focuses on state-owned enterprise restructuring made its first investment into Chinese SOE called Metallurgical Corporation Of China. The investment was 96 million yuan through private placement and it would be used for the corporate restructuring and cutting over capacity. On September 26 last year, the SOE restructuring fund was set up in Beijing. Ten central SOEs invested 350 billion yuan in this fund.
The Asset Management Association of China has recently released a new regulation on new joint ventures. The new regulation requires that overseas asset management businesses should be independent from their domestic activities. Different types of assets should be in different custodian accounts to avoid conflict of interest. With regards to the corporate structure, the private equity house should point out whether it has onshore subsidiaries, branches or related businesses.
22 securities companies have disclosed their financial performance in 2016. Citic Securities leads the table with 7.5 billion yuan net profit, followed by Guotai Junan Securities and Guangfa Securities with 7.4 billion yuan and 6.2 billion yuan respectively. However, Chinese securities houses have seen significant drop in profitability in 2016. Half of those 22 securities that released their data reported a 50% decline in their net profit.
The China Banking Regulatory Commission (CBRC) has disclosed the latest data on Chinese banks. The average NPL ratio increased to 1.81% and the average coverage ratio decreased to 175.5% in December. The NPL ratio was the highest over the past seven years. In a meeting held by CBRC on January 10, risk management once again was cited as the main focus in 2017.
Following China National Petroleum Corporation and China Railway Corporation's announcement on their plans on SOE reform, China Southern Airlines disclosed its plan to introduce strategic investors into its organization. Investors will include leading technology companies.
NDRC (National Development and Reform Commission) stated that it would speed up their efforts regarding sector overcapacity in 2017. The NDRC aims to increase the industries scheduled for production reduction. The targeted supply cut in 2017 is planned to be twice as much seen in 2016. New industries to be targeted by the NDRC are cement, glass, electrolytic aluminum and ship making.
2016 was not a good year for private equity products. According to Chinese media, private equity products invested in equities reported an average loss of 6.72%. Less than 25% of those equity-invested private equity products have reported a positive return. However, over 90% of private equity products invested in bonds has seen a net profit.
Tencent's Wechat officially launched a new in-built function called "mini program", which is regarded as tool that could render a number of mobile phone applications redundant. Users can easily get access to popular Chinese applications such as Didi, Ctrip and Meituan without installing those applications manually. Instead, people can find those applications through their search engine in Wechat and open them inside Wechat. It is expected that the new function is aimed to enhance the O2O and payment ecology of Wechat.
According to Chinese media, from 2006 to 2016, the CSRC (China Securities Regulatory Commission) reviewed 2230 IPO applications, 1842 of which were approved. CICC, Citic Securities and China Galaxy Securities led the league table of total fundraising with 335 billion, 273 billion and 142 billion yuan respectively. In terms of IPO deals, Guosen Securities, Ping'An Securities and Guangfa Securities are the top three with 199, 162 and 130 projects respectively.
Since 2016, the CSRC (China Securities Regulatory Commission) has been overseeing the China's capital market extremely closely. For the whole year of 2016, the CSRC has issued 218 punishment letters, 21% up from 2015. Those punishments include violations of insider trading, market manipulation and insufficient information disclosure. It is likely that this trend will continue in 2017. In the first week of 2017, CSRC again punished four listed companies involved in insider trading.
Just days after China Railway Corporation announced its reform plans, another state-owned company, China Railway Corporation announced that it would undergo a restructuring exercise. The plan states that the company will adopt a modern corporate structure to enhance its efficiency. Seven industries including power, oil, gas, steel, aviation, telecommunication and defense were cited as industries that would be reformed in 2017. Currently, two out of the seven industries have shown interest in the reform scheme.
China has expanded its pilot value-added tax reform across the country over the past year. In 2017, the Chinese MOF (Ministry of Finance) will further enhance the regional tax scheme and include more taxable activities in the tax reform. MOF will also speed up the legislation on government budgets, debt, expenditure, PPP projects, asset valuation and accounting.
Shell companies in the A-share market have been favored by a lot of institutional investors for their speculative or backdoor listing purposes. Chinese analysts believe that shell companies have distorted valuation of the A-share market. This is one of the main obstacles for China when it comes to introducing a IPO registration system. Overvalued shell companies are not able to exit the A-share market because there are always buyers looking to acquire them. When acquired some Chinese companies don’t even have a sound plan in managing their shell company purchases.
The CSRC (China Securities Regulatory Commission) has recently announced that Kee Ever Bright Decorative Technology failed its M&A application due to the lack of justification of its expected net profit. In 2016, 24 M&A applications from listed companies have been turned down. It is expected that a stricter review of M&A applications will continue in 2017 to ensure market stability.
The NDRC (National Development and Reform Commission) issued a development plan for five provinces including Henan, Hebei, Shanxi, Anhui and Shandong. The plan aims to promote the economy within China’s inland provinces. In the plan, NDRC states that Zhengzhou will be the economic center in China and the nearby cities will be satellite cities.
Sun Jiwen, a spokesperson for China’s Ministry of Commerce said in a conference that China has faced a historical number of trade conflicts. Half of those conflicts involve China's steel industry. According to Sun, in 2017 China and Australia will lower the tax trade barriers between each other according to China-Australia’s recent free trade agreement. The involved products include steel products, silk products, meat and seafood.
Compensation reform has been considered an essential part of China’s SOE reform. The reform was introduced in 2015 and focused on three components; base salary, incentives and bonus based on duration of employment. On December 29th, SASAC (State-owned Asset Supervision Administration Commission) disclosed annual compensation of 111 senior managers within several SOEs. The average pay of those managers is 500,000 renminbi to 700,000 renminbi. Two senior managers from China Merchants Group lead the table with 1.2 million renminbi in annual compensation.
China Insurance Regulatory Commission (CIRC) issued a new official guidance towards insurance companies. Under the new guidance, insurance companies are not allowed to issue speculative products to retail investors. The guidance is seen as an attempt to curb aggressive investments from insurance companies.
Following yesterday's report on China's increased capital controls, Chinese media further disclosed that citizens who move capital out of China from different accounts could face a 30% penalty on the amount they transfer out. Those who violate the rules will be by SAFE (State Administration of Foreign Exchange) and will not be able to enjoy a US$50,000 exchange quota for 2 years. In addition, violators may even face an AML (Anti Money Laundering) investigation from the government.
The People's Bank of China has recently released a new regulation on foreign exchange for Chinese citizens. Under the regulation, Chinese citizens should now have to fill in an application form when applying for foreign currencies. In addition, investment in real property, securities and investment-link insurance are prohibited. Aside for those prohibited activities, people can still purchase as much as US$50,000 per year.
During China’s annual Central Economic Work Conference, which discusses SOE reform plans, the country’s railway industry for the first time was officially included onto the list industries scheduled for future reform. According to Chinese media, the China Railway Corporation will participate in a debt to equity swap. Chinese analysts expect that the Chinese railway industry will benefit from the reform process.
According to Chinese media, the northbound link of the Shenzhen-Hong Kong stock connect has seen a net inflow of 7.318 billion yuan for the past month. Northbound stocks has been more attractive than the southbound stocks for the past month. Gree, Midea and Wuliangye are the three most popular stocks on Shenzhen stock exchange with a total inflow of 3.64 billion yuan, 1.53 billion yuan and 1.01 billion yuan respectively over the past month.
On December 29, CIRC (China Insurance Regulatory Commission) released exposure draft on shareholding management methods of insurance companies. The new draft adjusted the shareholding proportion limit of a single shareholder in one insurance company from 51% to 33%. The CIRC also set many other restrictions for insurance companies’ shareholders in this draft. According to Chinese media, a number of insurance companies did not focus on their core competencies such as “to hedge against the risk of a contingent or uncertain loss.” Capital from the insurance companies still hold a significant share in the A-share market in 2016 with stakes in at least 668 listed companies’ consisting of 71.2 billion shares.
On December 29, the PBOC (People’s Bank of China) announced that it was planning to add 11 new currencies into the currency basket of the renminbi exchange rate index in CFETS (China Foreign Exchange Trade System) starting January 1 2017. Currencies include the South African rand, the South Korean won, the United Arab Emirates dirhams, Saudi riyal, Hungarian forint, the Polish zloty, Swedish krona, Norwegian krone, Danish krone, the Turkish lira and the Mexican peso. After this adjustment, the total number of CFETS basket currencies will increase from 13 to 24, and the weight of US dollar will decrease from 0.2640 to 0.2240.
As of December 29, the CSRC (China Securities Regulatory Commission) approved 45 IPO plans this month representing the largest monthly IPO approval amount in 2016. Moreover, 5 IPO plans have been rejected in December. In order to increase transparency, the CSRC also disclosed articles to explain why certain companies did not obtain approval. According to Chinese media’s there are nine major problems of why these enterprises were rejected. This includes significant dependency on affiliate company, disputes on patented technology, questions on the company’s capability of sustained profitability, compliance etc.
According to Chinese media, the total outsourcing capital scale of China’s large banks is predicted to continue grow in the next year. In an effort to bolster their anti-risk capability. Banks such as ICBC (Industrial and Commercial Bank of China), CCB (China Construction Bank), CMB (China Merchants Bank) will be looking to increase their outsourcing. In 2016, ICBC and CMB’s total scale of outsourcing capital was at 150 billion renminbi and 100 billion renminbi respectively.
Recently, the PBOC (People’s Bank of China) announced that financial institution’ OBS (off-balance sheet) activities will be involved into MPA (macro-prudential assessment) starting the first trimester of 2017. According to Chinese media, banks’ OBS activities grew significantly in recent years. The enhancement of OBS supervision aims to support the real economy in the long run.
On December 28 the PBOC denounced news that the renminbi would further weaken to 7 renminbi against US dollar via’s Weibo channel. The PBOC mentioned that till December 28, the on-shore renminbi exchange rate against USD was holding steady around 6.9500 to 6.9666. The mispricing was initially shown on local finance platform and then was being reposted by a number of Chinese domestic finance websites.
On December 28, the CSSC (China State Shipbuilding Corporation), Agricultural Bank of China, Bank of China, China Construction Bank, China Everbright Bank, and Industrial Bank signed agreement to set up a 30 billion RMB fund to support the country’s cruise industry. The duration of this fund will be seven years with a three-year extension period.
On December 26, the NDRC (China’s National Development and Reform Commission) announced that it was planning to promote asset securitization on infrastructure PPP (Public-Private-Partnership) projects in each province. According to Chinese media, asset securitization such as shares being converted into cash will increase the liquidity of these PPP projects. They predict that local governments, which have good public credit and plenty of financial resources, will look to promote PPP projects in future.
Recently Mr. Zhou Liujun, director of foreign investment and economic cooperation department of Ministry of Commerce said in an interview with Chinese media that the next step for promoting and regulating Chinese enterprises’ overseas investment was to effectively disclose new policies. Mr.Zhou mentioned that the goal for the new legislation was to screen out enterprises with reasonable qualities and help them expand business abroad in a stable and healthy way.
According to Chinese media, the non-tradable shares held by c-suite executives of 61 A-share listed companies will have permission to be traded this week. The total market value of non-tradable shares held by company executives in the first three months of 2017 will be around 200 billion renminbi per month. The allowance of non-tradable shares brings further market concern that investors may reduce the holdings significantly if executives start selling their held stakes.
Recently, Guohai Securities admitted that the company used fake signatures when conducting bond trading for around 16.5 billion renminbi worth of bonds. Guohai Securities used an off-balance-sheet leverage method when trading bonds with 22 financial institutions, which is a grey area that is not specifically regulated by the government. In December, these leveraged bonds decreased materially, and now the 22 financial institutions initially involved are asking Guohai to take responsibility for the loss. The CSRC (China Securities Reguatory Commission) has settled the dispute in order to sustain the integrity of the domestic bond market. According to Chinese media, this incident is result of an incomplete market maker system in China. The next step for China's regulators will be to disclose relevant policies to regulate this system.
On December 23, the NDRC (National Development and Reform Commission) disclosed its 13rd Five Year Plan on Renewable Energy. The new investment on China’s renewable energy which includes water, wind, solar, biomass, geothermal and ocean energy will cost around 2.5 trillion renminbi. According to the plan, new investments on solar energy will be 1 trillion renminbi, and new investments on hydro and wind power will be 500 billion and 700 billion renminbi respectively.
On December 21, CNPC (China National Petroleum Corporation) approved its reform plans on introducing private shareholders and marketization within the company. The chairman of CNPC said that the company has already introduced private shareholders via a restructuring reform, joint-venture and cooperation in certain levels. CNPC’s next step will involve refining its structures on equity and corporate governance.
According to Chinese media, the central government announced in a conference yesterday that it was aiming to prevent asset bubbles. It was the fourth time that representatives of the central government mentioned that they were looking to conduct measures on restraining asset bubbles this year. Moreover, Chinese media has already reported that asset bubbles do exist within the stock market, banking and real estate industry. As well as an overvalued renminbi and local government debt, the excessive price of asset is one of the major issues that the government needs to face in 2017.
According to Chinese media, as of 21 December, only 19 listed companies disclosed back-door listing plans in year 2016 compared to 48 recorded last year. The dramatic decrease is the result of changes in China’s policy environment. In September 2016, the CSRC (China Securities Regulatory Commission) announced new regulations on reform plans to curb the speculation of listed companies.
On December 21 the PBOC (People’s Bank of China) executed a 210 billion renminbi reverse repo aiming to reduce the pressure on market liquidity. According to Chinese media, the liquidity squeeze of the last several months was the result of fluctuations in the FX market. The stronger US dollar resulted in increased capital outflows and therefore the PBOC used a large proportion of fund outstanding in order to maintain a stable renminbi.
On the 19th of December, after 20 months suspension from HKEX, Chinese real estate developer Kaisa Group (1638.HK) admitted that the company concealed around 30 billion in renminbi liabilities. The Kaisa Group nonetheless highlighted that the behavior conducted by its former staff and was not authorized by the current management.
The State Council of China recently released a 13th Five Year Plan on National Strategy. According to the plan, industries including banking, insurance and securities firms will be more accessible to foreigners. The plan also mentioned further encouragement on foreign investment in advanced manufacturing high energy conservation and environment protection. In addition to east China, foreign investment on mid-west and northeast China will also be encouraged. The plan also highlighted to further support Hong Kong as a hub for off-shore RMB services and international asset management.
On the 19th of December the CASS (Chinese Academy of Social Sciences) disclosed its suggestions on the future of China’s economy in 2017. Suggestions include reducing the tax burdens on enterprises. According to Chinese media, the private sector in China bears a heavy tax level. For instance, the comprehensive tax on Chinese manufacturing companies is 35% higher than American companies in the same industry. As a result of avoiding heavy tax payment domestically, a number of private sector companies are keen to invest into overseas markets next year.
According to Chinese media, SAFE（State Administration of Foreign Exchange）will conduct research on long-term reform measures regarding cross-border transactions, including cross-border asset transference, the improvment management on domestic foreign exchange loans and the standards of overseas institutions that are issuing bonds domestically. SAFE also says that these measures will aim to improve the balance of international payments, as well as to maintain the stability of the foreign exchange market.
On the 18th of December, Chinese real estate company Vanke signed a termination agreement with the Shenzhen Metro on its restructuring plan. According to Vanke’s recent disclosure, its stakeholders were unable to reach a consensus on a specific plan for the transaction. Moreover, Vanke was unable to disclose information in a timely accordance with the CSRC’s (China Securities Regulatory Commission) new regulation on major assets restructuring.
On the 19th of December, the CSRC (China Securities Regulatory Commission) announced new regulations on managing the security and futures market. The new regulations highlighted special protections to general investors. Moreover they specified that different investors should be classified according to the unified standards and requirements. New regulations also mentioned that products of securities and futures should be graded appropriately. According to Chinese media, this new regulation aims to protect small and medium sized investors. The new regulations will come into effect on 1st July 2017.
The recent sluggish bond market in China has resulted in volatility to the bonds of Chinese securities companies. According to Chinese media, some Chinese securities companies such as China Dragon Securities and Sealand Securities have defaulted on their bond transactions. Both securities companies in question have denied their defaults. The US rate hike is also considered as a key reason for the price drop in China's bond market.
CBRC (China Banking Regulatory Commission) recently issued a drafted guidance on the collateral management of commercial banks. The guidance provided detailed requirements on the collateral collected by commercial banks in terms of valuation, pressure test and classification. The guidance is aimed to enhance the risk management capability of commercial banks.
According to Chinese media, NDRC (National Development and Reform Commission) stated that they will punish a Sino-US joint venture automobile company at the end of this year, the company has been accused of attempting to monopolize the market by abusing the bargaining power they have with their suppliers. The NDRC has not disclosed the name of the company in question. Most recently the NDRC has punished Audi and Chrysler for monopolistic activities regarding their own respective suppliers.
As one of the top four cities in China, Shenzhen is looking to set up funds totaling 500 billion yuan (72.4 billion USD) to participate in China’s ongoing SOE reform. Funds will invest in Shenzhen SOEs and will own significant stakes in those SOEs. Currently, 75% of Shenzhen SOEs have seen private investors owning their stakes, as a result of Shenzhen government's effort in attracting strategic partners and investors.
Following CSRC's (China Securities Regulatory Commission) criticism on aggressive insurance companies, the CIRC (China Insurance Regulatory Commission) also stated in a meeting that they would penalize insurance companies involved in hostile takeovers. According to Xiang Junbo, chairman of the CIRC, the licenses of those insurance companies could even be revoked if they still refuse to follow CIRC's window guidance. The reiteration is to prevent insurance companies from abusing their capital and aggressively buying stocks from the secondary market.
According to Chinese media, CIRC will issue a new regulation to restrict insurance companies aggressive investment in the capital markets. The new regulation lowers the maximum proportion of mid-term and long-term insurance products to total products sold to customers by insurance companies. The new regulation also lifts the minimum coverage to premium ratio from 120% to 160%. The new regulation is expected to be effective in April 2017.
PBOC (People's Bank of China) has recently held a conference call with various government departments. During the call, PBOC vice governor Pan Gongsheng stated that since PBOC started to closely monitor fintech activities, the overall risk of fintech industry has been well controlled. PBOC instructed government entities to continue overseeing fintech companies in a bid to crack down on violations and avoid high level of risk during the next phase of China’s development.
PBOC has approved NAFMII's (National Association of Financial Market Institutional Investors) drafted regulation that allows non-financial institutions to issue ABNs (Asset Backed Notes). Under the regulation, issuers should employ SPV (Special Purpose Vehicles) during an ABN issuance. NAFMII will monitor the SPV. The regulation is expected to enhance the liquidity of non-financial institutions. International Far Eastern Leasing issued the first ABN under the new scheme in early June.
According to Chinese media, the National People's Congress did not include a modified securities law in their agenda during their last meeting this year. This in turn means that the Standing Committee of the National People's Congress will not discuss new development on the country’s IPO registration system. The new system was devised to speed up the IPO process by curbing unnecessary manual reviews in IPO applications.
PBOC (People's Bank of China) announced that the Agricultural Bank of China’s Dubai branch will be the mandated renminbi clearing bank in UAE. The announcement was based on a joint-memo earlier released between the PBOC and the central bank of UAE. According to Swift, the UAE is the most active country adopting renminbi in Middle East.
PBOC approved seven new currencies to directly exchange with the renminbi in China’s Interbank FX market. Those currencies include Hungarian Forint, Polski Złoty, Danske Kroner, Mexican Peso, Turkish Lira, Norwegian Krone and Swedish Krona. All qualified participants in China interbank FX market will now be allowed to quote and trade all currency products including spot, futures and swaps with respect to the seven new currencies.
Jiang Yang, vice chairman of the CSRC (China Securities Regulatory Commission) stated in a speech that the CSRC will continue to support domestic M&A as a way to consolidate the industries within China. Since this December, the CSRC has approved eight M&A deals unconditionally and 4 conditionally. Of all the 249 M&A applications in 2016, 91.16% have been approved by CSRC. The approval rate is still considerably high despite CSRC's new M&A regulation issued in September this year, which is quoted as the "historically strictest M&A regulation" by Chinese media.
Sinosteel Corporation, a Chinese SOE, signed an agreement on a debt restructuring program with a group of banks including Bank of China, Bank of Communication, China Development Bank, Agriculture Bank of China, The Export–Import Bank of China and Shanghai Pudong Development Bank. Sinosteel has recently faced temporarily financial distress and it plans to restructure their debt through convertible bonds and debt to equity swaps. Currently 44 financial institutions are participating in the country’s debt restructuring program.
On December 8th the Shanghai notes exchange was officially launched. The notes exchange will act as an integrated platform offering trading, settlement, custody and information service to investors. The new notes exchange will enhance the transparency and efficiency of China's notes market as well as the financial market.
Jiangsu Rutong Petro-Machinery Co, Tibet Aim Pharm and Tibet Gaozheng Explosive Co are some of the new companies now listed on China’s A-share market. The Chinese stock market now has more than 3000 companies. This represents a new milestone for the A-share market, which only had 1000 companies, listed in 2000. As of December 8th, the total fund raising through the A-share market YTD was 1.54 trillion yuan, close to the number for the whole year of 2015.
The merger of Baoshan Iron & Steel and Wuhan Iron And Steel Company has been officially approved by CSRC (China Securities Regulatory Commission). In addition, the MOF (Ministry of Finance) says that it has concluded its anti-trust investigation of the two companies. Following the merger, the combined company will have a production capability of 60 million ton steel per year, making it the largest steel company in China and second largest in the world. But due to the number of steel producers in China, the market share of the combined company is only 7.5% of the overall steel market in China.
The People’s Bank of China (PBOC) announced that at the end of November, the country’s FX reserve had declined to US$3.05 trillion a drop of US$69.1 billion compared to October. This was also the largest decrease since January. China is now facing both depreciating renminbi and capital outflow, which creating challenges for China's future monetary policies.
Shanghai government announced that it successfully issued a 3 billion yuan offshore bond in the Shanghai free trade zone, with an interest of 2.85%. As a result, the Shanghai FTZ becomes the third largest bond market in China besides the China interbank bond market and the exchange market. While it is an offshore bond where the capital is all from the offshore market, issuers and investors should follow domestic regulations and settlement procedures.
National Council for Social Security Fund announced 21 mandate asset managers for its pension fund. Those firms include, ICBC, Credit Suisse Asset Management, Taikang Asset Management, Guangfa Fund Management and other AMCs and insurance companies. Many of those also appeared in the list of mandated asset managers for the government’s social security fund. Last week, the council also appointed ICBC, Bank of China, Bank of Communication and China Merchants Bank as the custodian banks of the pension fund.
According to Chinese media, as of December 4th, only 49 out of 178 PE funds invested in NEEQ (National Equities Exchange and Quotation) have reported a net profit. While the most profitable PE fund in NEEQ gained a yield of 214.6% YTD, 26 funds lost its value by more than 20%. Chinese analysts attribute the underperformance of those PE funds to the bearish NEEQ and its lower valuation.
As of November 28th, 19 provinces disclosed their expected salary growth. On average, the growth is slowing down by different levels. Chinese government officials explained that the decline in growth was due to slower GDP growth. The provinces experiencing financial difficulties such as Liaoning and Heilongjiang province have not yet disclosed the data, largely due to their financial conditions.
CIRC (China Insurance Regulatory Commission) recently announced that it forbids Qian Hai Life Insurance from issuing new investment link products for the next three months. In September this year, CIRC issued a new regulation, which regulates the insurance premium and settlement interest rate of those investment link products. The new round of oversight by the CIRC is likely to ease the price competition between Chinese insurance companies and enhance their liability management capabilities.
State media published an article suggesting the next stage of China's financial reform. In a bid to further open the capital market, the media suggested additional quotas in QDII, QFII, and RQFII program. It also encourages more Chinese companies to be listed on the Hong Kong stock exchange and set up offices in Hong Kong.
Chinese media reported the first day performance of Shenzhen/Hong Kong Stock Connect. For the northbound link, Gree, Midea and Hangzhou Hikvision Digital Technology have seen largest trading volume, with a total of 372, 232, 208 million yuan respectively. For the southbound link, BYD, Chinasoft International and Goldwind Technology led the league with a total of 130, 73.7, 32.8 million yuan respectively. Noticeably, those popular stocks in the southbound link are mostly A-H shares indicating that there is a large gap between the price onshore and offshore stock exchanges.
CSRC (China Securities Regulatory Commission) issued a drafted regulation on AMC (asset management companies), which aims to regulate all AMCs including fund companies and subsidiaries of securities companies. Under the new regulation, each AMC should submit an annual qualification check report to the CSRC on April 30th. The report should include all details that can prove the company's qualification.
Liu Shiyu, chairman of CSRC criticized aggressive asset managers in a public speech last week. Recently, the Chinese A-share market has seen a lot of aggressive asset managers especially in insurance companies which bought significant amount of shares of listed companies. Those insurance companies involved in hostile takeover activities have a lot of excess capital and would like to gain controlling power of some listed companies. According to Liu, those aggressive takeovers did harm the Chinese financial market and pose a threat to China's current regulatory framework.
According to Charles Li, CEO of Hkex, it is expected that ETF products will be available soon in the stock connect between mainland China and Hong Kong. It offers a new approach for Chinese investors to invest in overseas companies that are not listed in Hong Kong stock exchange through those ETFs. According to Shenzhen Stock Exchange, it is now already ready for the ETF option products.
Data from SAFE (State Administration of Foreign Exchange) shows that as of end of June, China outbound securities investment have amounted to US$312 billion. Equity investment accounted for US$186.7 billion while the rest went to bond investments. The top three jurisdictions favored by Chinese investors were the US, Hong Kong and the Cayman Islands receiving US$116.6 billion, US$72.4 billion and US$20.3 billion respectively.
The Ministry of Finance issued two regulations on December 1st, stating that local governments should have a stable repayment source for their bonds. Although the principal of those bonds can be paid back through refinancing, MOF for the first time now prohibits local governments from issuing new bonds to pay back their interest payments. The regulations also requires that the amount of debt for each province should not exceed the maximum amount granted by the State Council.
According to Chinese media, the Ministry of Finance is considering to legislate value-added-tax at an appropriate time. Currently, VAT reform is just on a pilot basis with four different tax rates applicable for different industries. MOF is also looking to simplify tax categories and bring more tax benefits to Chinese corporates.
Shanghai Ministry of Finance issued an official regulation on bond issue in the Shanghai FTZ signaling that the first local government bond to be issued by the Shanghai government in Shanghai FTZ will soon happen on a pilot basis. The Shanghai government will be the issuer and the Shanghai ministry of finance will arrange the issue. Foreign investors will be allowed to subscribe in the Shanghai government bond.
Chinese media reported that the CSRC (China Securities Regulatory Commission) and Ministry of Public Security will start a new round of market review in a bid to crack down stock manipulation and insider trading. Some A-share listed companies have taken advantage of asymmetric information to manipulate its stock price with securities companies. It is the second time that the CSRC is undergoing a market review. The first instance was to deal with IPO fraud issues and information disclosure.
Since telecommunications company China Unicom disclosed that it will be included in the SOE reform, its stock price has gone up by over 60%. The market reacted positively also due to its new partnership with Baidu, Tencent and Alibaba. The market expects China’s internet leaders may have a strategic stake in this state-owned telecommunications company.
The Chinese SAFE (State Administration of Foreign Exchange) reiterated on social media that it still supports foreign direct investment despite a depreciating RMB. But ODI should be real trade instead of speculative investment or even purely transferring capital outside of China. And SAFE will continue to crack down the fake trade.
Chinese media reported that ICBC, BOC, BOCOM and CMB have been mandated as the custodian banks of pension funds into A-share market. The MOF (ministry of finance) is also in the process of working out detailed accounting rules of the funds. It is expected that mandated asset management companies or securities companies will be also announced in the next few days.
Following the listings of securities companies such as Orient Securities and Everbright Securities, China Securities is likely to become the fourth Chinese securities company to IPO on the Hkex. China Securities submitted their IPO application to the Hkex in late September and it is expected to be listed in early December. According to the prospectus, China Securities plans to raise at most 1.06 billion USD with cornerstone investors expected to purchase over 60% of the stocks.
In a bid to better manage the risks emerging from China’s derivatives market, the China Banking Regulatory Commission (CBRC) issued a drafted regulation on counterparty risk of derivatives products to commercial banks. In the new regulation, CBRC requires commercial banks to adopt an appropriate equation provided by CBRC to calculate the risk exposure of derivative products. It also provides some other equations in estimating the risks.
CBRC has recently issued an official guidance to Chinese banks requiring Chinese banks to employ independent legal advisors to oversee bank risks. The legal advisors will be responsible for legal issues of the banks and should not be affected by other departments. The new guidance is expected to enhance the overall legal system within the banking sector.
The (People’s Bank of China) PBOC Shanghai Branch issued a new circular on FT account in Shanghai. Under the new circular, all Shanghai technology companies including startups are allowed to open a FT account. Foreign individuals employed by local or international technology companies in Shanghai are also allowed to open a personal free trade account in Shanghai and enjoy cross-border financial services. The new circular also allows MNCs to adopt a cross-border RMB cash pool in the FTZ to provide services such as cash pooling and centralized payment to its subsidiaries.
SASAC (State-owned Assets Supervision and Administration Commission) will hold a meeting with SOEs and make a schedule for the next phase of SOE reform. NDRC recently announced seven SOEs will participate in the reform programme representing the strategic sectors including power, oil, gas, railway, airline, telecommunication and defense. Participating SOEs will start allow private ownership in their shareholder structure. SOEs participants include China Eastern Airline, China Unicom, China Southern Power Grid, Harbin Electric, China Nuclear Engineering and China CSSC. The most noticeable company in this round of SOE reform will be China Unicom given its size and strategic importance in the telecommunications market. The government hopes this will become a blueprint further SOE reform.
Yin Weimin, Minister of Ministry of Human Resources and Social Security, said in a public speech on November 18th that a specific plan on increasing the retirement age will soon be released. According to Yin, the drafted plan will finalized towards the end of 2016. However, the retirement age will not be increased directly to the target age. Instead, according to the Ministry of Human Resources and Social Security, the retirement age will be increased a few times before it reaches the suitable age target.
According to Chinese media, China is speeding up drafting its guideline for personal tax reform. The new guideline will come out by the end of 2017. The key reform will be a broader recognition of tax deductible items. The education expense and the first mortgage interest expense is expected to be deducted from personal taxes Currently, under China's tax regime, different activities apply to different tax rates. The goal of the tax reform is to ease the burden on low-income citizens.
According to Chinese media, the Shanghai free trade zone registered around 1330 new foreign companies in the first half of 2016. More than 50% of all foreign companies that chose to set up operations in Shanghai sought the Shanghai FTZ. New foreign companies accounted for over 20% of all new companies, up from 5% three years ago. The attractiveness of the Shanghai FTZ is largely due to its continued regulatory liberalization. For example, the FTZ negative list has been gradually been shortened from 190 items in 2014 to 122 in 2015.
China’s Securities Regulatory Commission (CSRC) has recently disclosed its first punishment on a Chinese participant in Shanghai/Hong Kong Stock Connect. The firm in question was accused of manipulating stock prices and trading volumes, by using their two stock accounts in mainland China and Hong Kong. Through the manipulation, they gained an illegal profit of 300 million yuan. The CSRC reiterated that it would keep a close eye on the stock market and spare no efforts in cracking down on illegal activities.
As the launch of the Shenzhen/Hong Kong Stock Connect draws close, the Shenzhen stock market is ready to see more institutional and retail investment. Chinese media reports that, Vanke, China Merchants Shekou Industrial Zone, Shenzhen Overseas Chinese Town, Yango Group, and HuBei Fuxing Science and Technology are some of the top stock picks for financial institutions. According to the Shenzhen Stock Exchange, the net profit growth of Shenzhen listed companies that are available in the Shenzhen/Hong Kong Stock Connect is 16.1% on average in Q3, compared to 1.7% growth in the overall A-share market.
According to Chinese media, for the first ten months in 2016, Fujian province has seen over $10 billion ODI (outward direct investment), 1.3 times compared to last year. The Fujian FTZ, however, has seen 14.5 times growth in ODI during the same period. The majority of projects invested by Fujian enterprises were in Hong Kong, Indonesia, Singapore, Australia and Cayman Islands. Bilateral capacity agreement accounted for over 40% of the total amount of investment.
China' bond market has recently seen an increase in 10-year government bond yield. Currently, the yield has exceeded 2.9% and analysts expect it to exceed 3% by the end of this year. The increase in government yield is a reflection of tightening money supply within China. In the face of a difficult economic environment, PBOC (People's Bank of China) is now using more MLF (medium-term lending facilities) and less reverse-repurchase agreement to maintain the liquidity level in the money market.
Xuan Changneng, assistant chairman of CSRC (China Securities Regulatory Commission) stated in a public forum that currently, around 30 Chinese internet companies have been listed in A-share market, with a total market cap of 610 billion yuan. In 2015, the CSRC approved 44 M&A transactions involving internet companies total deal value at around 130 billion yuan. According to Xuan, given higher risks and a lack of tangible assets among Chinese internet startups, a comprehensive and multilayer IPO capital market can serve the purpose of funding those new comers.
According to Chinese media, CCB (China Construction Bank), SASAC (State-owned Asset Supervision and Administration Commission) of Shandong Province and Shangdong Energy Group have signed an agreement to execute a debt-to-equity swap. The amount of the swap is around 21 billion yuan. Currently, CCB has been involved in many debt-to-equity swap projects, with a total amount around 95 billion yuan. According to CCB, they have talked to more than 50 companies regarding debt-to-equity swap deals.
The asset management association of China has recently released a report of Chinese fund investors in 2015. The report reveals that 68.5% of the investors saw capital gains from their investment in financial assets and 68.2% of the investors made profits from their fund investment. Noticeably, 75% of the investors say that they are looking at foreign market and they will consider overseas exposure.
As a result of the depreciation of the renminbi and the upcoming Shenzhen-Hong Kong Stock Connect, fund companies have recently launched several new QDII funds to cater the increasing demand from retail investors. As of November 16th, 15 new QDII funds have been introduced, raising a total of 648 million yuan. Currently, there are 120 QDII funds in the market. According to the CSRC, there are at least 11 pending applications of new QDII funds from 8 fund companies.
Chinese technology company LeEco is currently facing a shortage in its cash flow. Recently it announced that more than 10 investors are guaranteed to invest US$600 million in its electronic car product line. The new investment has released pressure on LeEco's finances to a large extent. Noticeably, the major investors are LeEco's CEO Jia Yueting's classmates.
State GDP data from China reveals that around one third of local provinces did not reach their GDP target in accordance with the country’s thirteenth five-year plan. Tibet, Chongqing and Guizhou lead the GDP growth league, growing at 10.7%, 10.7% and 10.5% respectively. Liaoning province is the only province that has seen a negative growth rate in first three quarters, shrinking by 2.2%.
Chinese media has reported that the CSRC (China Securities Regulatory Commission) is speeding up its review process of IPO applications. The second half of 2016 saw 131 companies approved by the CSRC while only 70 companies were approved in the first half. However, it doesn’t mean all companies are able to get listed in A-share market. Some may retrieve their applications in the queuing process and some applications may have been even halted by CSRC due to disclosure issues.
In a bid to attract more bilateral investment and trade from Canada, CFETS (China Foreign Exchange Trade System) now allows the direct exchange of Renminbi to Canadian dollar in the interbank FX market. Market makers will take the role to provide the quoting service and liquidity to the market. The exchange rate of Renminbi and Canadian dollar will be based on the reference rate of the US dollar against Renminbi and US dollar against Canadian dollar.
State council stated in an official regulation that it would no longer bail out local government if they fail to fulfill their debt obligations. Under the new regulation, local government will be responsible for paying their own debt and once the interest expense exceeds 10% of the fiscal expenditure, those local government will be forced to restructure their budgets. The new regulation will hopefully allow local governments to be aware of their own financial condition before issuing bonds.
Chinese media reported that the free trade zones in Sichuan, Zhejiang and Hubei province have submitted their plans to the Ministry of Commerce. Seven new provinces will be participating in the third batch of FTZs. Zhejiang FTZ will focus on free trade of commodities; Hubei will focus on economic belt along Yangtze River; Henan will build an international logistics center. According to the MOC, the seven new FTZs will take their regional advantages into consideration and participate in national strategies such as One Belt one Road.
CSRC (China Securities Regulatory Commission) and the Chinese MOF (Ministry of Finance) have recently issued a guidance on futures investors protection fund, a pool of fund contributed by both the futures exchange and securities houses to compensate investors in the event of a securities house default. The new guidance lowers the contribution rate of both futures exchange and securities houses to ease their contribution burden. In addition, under the new guidance the more higher the securities house's credit rating is, the lower the rate of contribution. According to Zhang Xiaojun, the spokesperson of the CSRC, the adjustment in the new guidance can lower the operating cost and trading cost of securities houses.
Looking to enhance the security of IT systems in financial industry, CSRC has recently issued a guideline of IT auditing for the securities and futures industry, similar to Code of Ethics & Standards of Professional Conduct in CFA (Chartered Financial Analyst) program. The guideline specifies and regulates more than 3000 auditing activities. The new guideline is applicable to seven categories of market participants including securities companies, stock exchange, futures exchange, futures companies, securities settlement & clearing institutions and fund companies.
CBRC (China Banking Regulatory Commission) recently disclosed financial data of China's banking sector in Q3 2016. The debt level of state-own commercial banks and private commercial banks has increased by 8% and 14.8% YOY respectively. Moreover, net income has risen by 2.83% YOY while both the ROE and the ROA have decreased. Compared to last quarter, the NPL (non-performing loan) ratio has increased slightly by 0.01% to 1.76% and the provision coverage ratio has declined by 0.44% to 175.52%.
On its eighth ever "Singles' Day" event, Alibaba broke trading volume records yet again. In the first 52 seconds the event the trading volume on Alibaba’s system passed 1 billion yuan ($147 million). The first hour of the festival saw trading volume reach 35.3 billion yuan ($5.2 bililon), equivalent to the total volume of the Singles Day festival in 2013. Mobile payments accounted for more than 85% of total sales moreover, 195 jurisdictions were involved in the annual festival.
According to Chinese media, the Shenzhen Hong Kong Stock Connect is ready and the official launch date will be the 21st of November. On November 12th, the trading system will be tested again. Starting from November 11th, the securities companies participating in the program will gradually put their trading system online.
Xiaomi, one of the largest Chinese mobile phone manufacturers, is becoming more influential in the Chinese mobile phone market. Chinese media has stated that at least 20 A-share listed companies are the major suppliers or partners of Xiaomi. Those include Midea, Andon Health, Shenzhen Everwin Precision Technology and Shenzhen O-film Tech. Xiaomi currently targeting to enter high-end market. Whether the company’s strategy will work or not will have a significant impact on those A-share companies.
Data from China’s SAFE (State Administration of Foreign Exchange) shows that at the end of the Q3 2016, net FDI (foreign direct investment) from foreign financial institutions is negative $2.315 billion, meaning that foreign investors withdrew their investment in China more than the amount they invested. On the other hand, the number of net ODI (outward direct investment) in Q3 2016 is $1.679 billion, showing a strong willingness from Chinese corporates in outbound M&A activity. The capital outflow from China is likely a result of a depreciating RMB.
CFETS (China Foreign Exchange Trade System) disclosed data of bond issues in October 2016. CCB (China Construction Bank) leads the table with a total of 48 bond deals, followed by SPDB (Shanghai Pudong Development Bank) and Industrial Bank, with 40 and 34 bond issues respectively. The most active securities firm is China Merchants Securities with a total of seven bond issues followed by China Securities and TF Securities. JP Morgan, Citi and Morgan Stanley are the only three foreign players that underwrote Chinese bonds in October 2016.
As RMB continues to depreciate, more fund companies announced that their QDII (qualified domestic institutional investors) mutual funds are no longer available for investors to purchase. According to Chinese media, currently, over 60% of the QDII funds are not available for purchase at all or not available for large amount purchases. The reason behind this is the lack of FX quota these fund companies can provide to their clients. As of the 7th of November 2016, around 80% of the QFII funds have seen a positive return.
Data from Hithink RoyalFlush Information Network shows that since the beginning of 2015, 549 A-share listed companies have disclosed plans on their employees' stock ownership program. Data reveals that 325 companies have already implemented their programs. Noticeably, 108 of the 325 companies have seen their stock price fall after employees bought company shares. Market analysts expect that those employees will not sell their stocks in a short term as a large proportion of them are the core employees of those companies and essentially support the stock price.
Data from Hithink RoyalFlush Information Network shows that as of the end of Q3, total debt of 136 A-share listed property developers was 4.52 trillion yuan, 20% up from same period last year. The data shows that 15 companies have reported over 100 billion yuan in debt. In order to reduce cash flow pressure, several property developers have started to pledge their stocks in return of cash. Vanke tops the debt league with a total debt ratio of 81%.
As the most important festival for Chinese internet users, the "double eleven" festival introduced by Alibaba not only attracts online vendors but also some fund companies. Some Chinese fund companies have launched special programs where customers can enjoy a lower fee when purchasing mutual funds in their websites. Currently, many of the fund companies have already offered a 60% discount on the subscription fees of those mutual funds. Discounts could increase to 90% during the actual festival. Some companies even waived the fees for their customers.
According to information provider Wind, since June 2016, 54 M&A applications from A-share listed companies have been halted. Nine companies were rejected by the CSRC (China Securities Regulatory Commission) due to violations of regulations such as information disclosure. The remaining 45 companies withdrew their M&A applications due to internal reasons and being unable comply with CSRC regulations.
LeEco, a Chinese technology company that has seen rapid growth in past few years is facing cash flows issues. According to Jia Yueting, CEO of LeEco, the company was expanding too fast and now the core business of the firm is unable to generate positive cash flow. The stock price has decreased by more than 13% since November 2nd. It is expected that LeEco will have to cut employees or prolong the cash consideration cycle in order to enhance its cash flow.
On November 7th, Shenzhen Stock Exchange made two key announcements on its website. One focused on the importance of participating securities houses in being system ready by November 20th. Moreover, IT system of the Shenzhen Stock exchange will be ready on November 14th. As of 6th of November, 144 Hong Kong companies and 125 mainland companies have tested the trading system.
CSRC (China Securities Regulatory Commission) disclosed that for the first nine months of 2016, Chinese IPO applications from 73 companies were either rejected or withdrawn. In the Q3 2016, 56 IPO applications were either rejected or withdrawn. The main reasons for the rejections or withdraws include worsening financial performance, missing the deadline for IPO documents and strategic adjustments in their IPO plans. CSRC stated in the announcement that it will regularly report IPO issues to the public to enhance transparency going forward.
Chinese media has received information from SAFE (State Administration of Foreign Exchange) that it has set up a special path for corporates planning to list in Hong Kong. CMS(China Merchants Securities) and PSBC (Postal Saving Bank of China) were able to attract cornerstone investors through this special path when they made their HK exchange debut several months ago. Under this procedure it takes less time and effort for cornerstone investors to purchase foreign exchange to be used in the purchasing in overseas stocks. The treasurers in both PSBC and CMS admitted that they did benefit from the SAFE ruling.
According to Chinese media, CIRC (China Insurance Regulatory Commission) has required all insurance companies to self-check their investment tangible assets and required them to report to the CIRC by November 15th. Market analysts predict that the self-check is to do restrict the insurance companies to speculate on property markets with premiums. Experts predict that going forward, insurance companies will not be allowed to invest in the property market through trust companies or SAMP (Structured Asset Management Plans).
The Shenzhen Stock Exchange has approved 24 securities companies to participate in the southbound link of the Shenzhen/Hong Kong Stock Connect. Those include Guosen Securities, Essence Securities, Bohai Securities and CICC. The stock connect is anticipated to be launched by the end of this year.
According to UBS’ Q3 interim report the HKSFC (Securities & Futures Commission of Hong Kong) is investigating the equity business of UBS. If HKSFC takes action, UBS will be forbidden to conduct financial advisory activities for a period of time. Chinese media has reported that many of the mainland companies UBS has sponsored with their IPOs have seen worse financial conditions after IPO. Market analysts attribute this to UBS’ part in the manipulation of financial data to boost the success of the IPO listing.
According to Chinese media, CICC will announce its acquisition of China Investment Securities in a few days. If the acquisition is successful, this will shift the domestic landscape of Chinese securities companies. The total asset of the new company will amount to 186 billion yuan. Chinese analysts believe that the potential acquisition will pave the way for CICC to IPO on the A-share market.
For the past month, Laiyifen, a Shanghai food company, has surprised every A-share investor by being the best performing stock on Shanghai Stock Exchange. Since its IPO in October 12th, the stock price has been growing for 17 consecutive days. Out of the 17 days it’s been listed, the stock has reached the 10% daily growth 14 times. The market cap of this company has now exceeded 17.4 billion yuan and the stock price has risen 6 times compared to its initial IPO price.
Alibaba disclosed its second quarter financial report yesterday. The revenue and net income of the company grew 55% and 41% respectively YOY. For the first time since its IPO, Alibaba did not include any GMV (Gross Merchandise Volume) data. Chinese media believes that it may reflect Alibaba's ambition to transition from relying heavily on e-commerce platform to building a digital ecosystem. Noticeably, revenue from its cloud computing unit has increased historically by 130%. This could be a new growing space for Alibaba.
The interim result of CNPC in Q3 (China National Petroleum Corporation) shows that the subsidy it received from the government has doubled its net income. In total the CNPC received a 3.6 billion yuan in subsidies followed by BOE Technology, SAIC and Midea with 1.8 billion, 1.1 billion and 1.04 billion yuan respectively. According to Chinese data provider Choice, 2752 A-share companies have received subsidies in the first three quarters of 2016.
China's interbank market saw 15 CDS (Credit Default Swap) transactions from ten financial institutions including ICBC, ABC and CCB on October 31st. The transactions totaled approximately 300 million yuan in value and involved industries from the gas, oil, power and telecommunication sectors. In addition, NAFMII (National Association of Financial Market Institutional Investors) approved 14 financial institutions to be the dealers of CRM (Credit Risk Mitigation).
According to Chinese media, the Hengqin free trade zone located in Zhuhai has recently signed a memo with the AMAC (Asset Management Association of China) in Beijing. The memo focuses on the regulation of private equity industry in the Hengqin FTZ with the aim of boosting the PE industry within the zone. The cooperation offers a platform to share information and enhance the communication.
CSRC (China Securities Regulatory Commission) and HKSFC (Securities & Futures Commission of Hong Kong) held a seminar on the regulatory issues in Shanghai. According to attendees, the issue of AML (Anti Money Laundering) was raised in the seminar. It is expected that an official guideline on AML will be issued soon as a result of these concerns. In addition, the subsidiaries of Chinese securities companies located in Hong Kong may face stricter oversight from regulators.
According to Chinese media, Citi, Merrill Lynch, Morgan Stanley and Citic Securities have started to work on the Lufax’s Hong Kong IPO. The company is expected to submit its IPO application Q1 2017. During the recent interim result presentation of Ping An Insurance (Group) Company, Lufax’s CEO Yao Bo mentioned that Lufax will spin off from the Ping An group and be listed by the end of 2017.
SSE(Shanghai Stock Exchange) and the SZSE(Shenzhen Stock Exchange) has recently issued a new regulation on corporate bonds. The new regulation lifts the threshold of profitability and asset size. The new rules are expected to cool the property market down by restricting Chinese property developers from issuing bonds to purchase land. Out of all the A-share listed companies, only around half of them meet the requirement of the new regulation.
Chinese mutual funds have reduced their stake significantly in Chinese banks during the Q3 of 2016. The top 5 stocks that have been redeemed by mutual funds include banks such as Everbright Bank, Bank of China, Industrial and Commercial Bank of China, Agricultrual Bank of China and China Construction Bank. Mutual funds are wary of the decreasing net profits of Chinese banks due to the slowdown in the Chinese economy.
SASAC (State-owned Assets Supervision and Administration Commission) recently announced that it has approved the merger of Baosteel and Wuhan Iron and Steel. The new company will now be called Baowu Iron and Steel. Mr. Ma Guoqiang will be the chairman of the new company. Mr Ma was the chairman of Wuhan Iron and Steel before the new company was established.
CSRC (China Securities Regulatory Commission) has recently announced on its website that two Chinese innovative startups have successfully issued their corporate bonds and they will soon be available to trade in SSE. Those two companies are Infovision Optoelectronics and Suzhou Derpin Medical Science and Technology with their coupon rate of 3.88% and 8% respectively. The total size of the two bonds is 55 million yuan and the proceeds will be used for R&D. It is the first batch of Chinese innovative startups to tap the bond market.
As of October 28, several Chinese privately owned commercial banks have disclosed their interim results for Q3 2016. Industrial Bank, Minsheng Bank, SPDB (Shanghai Pudong Development Bank) and CMB (China Merchants Bank) are the top 4 banks in terms of AUM, with 5.82, 5.64, 5.56 and 5.56 trillion yuan respectively. In terms of net profit, CMB is still the most profitable institution followed by Industrial Bank.
Another Chinese SOE is going through bankruptcy proceedings. Zhejiang Communication Investment Group the ninth largest shipping company in China announced that it could not fulfill its obligation to pay back its loans. As of July 2016, the total assets of the company were 5.1 billion yuan while the total liability was 8.4 billion yuan. There is no official plan on the disposal of the company’s assets.
As of 27th of October 2016, 1351 A-share companies have disclosed their Q3 interim results. Compared to the first half, the portfolios of the state-owned investment companies otherwise known in China as the "national team" have not changed much. The “national team” currently holds key stakes in eight financial institutions including Bank of China and Industrial Bank. These financial stakes are equal to 200 billion yuan in value. In contrast, QFIIs have sought to invest in manufacturing companies with solid profit growth. These include companies such as Lanzhou Greatwall Electrical and Henan Pinggao Electric. Currently, Hangzhou Hikvision Digital Technology is the stock favored by most QFIIs. UBS, Morgan Stanley, JP Morgan and Singapore government have stakes in the company holding a total of 244 million shares.
PBOC (People's Bank of China) recently released data on Q3 2016 provincial financing and found that Guangdong overtook Jiangsu to be the top province conducting fundraising activities, raising 1.63 trillion yuan. Jiangsu and Beijing are the second and third, raising 1.44 trillion yuan and 985 billion yuan respectively. The provinces of Tibet, Qinghai and Ningxia saw the least amount of financing activities, with only 70.3 billion yuan, 40.8 billion yuan and 39.2 billion yuan respectively.
The Chinese Ministry of Human Resources and Social Security is expected to arrange a meeting with representatives to discuss the joint management of provincial pension funds alongside a government national agency called the national council of social security fund. Provinces involved include Guangdong and Shandong. In a guidance issued by state council in August 2015, a Chinese provisional pension fund can invest at most 30% of their AUM (asset under management) into the domestic equity market. Chinese media has estimated that the actual number of pension funds in the equity market may be smaller due to the conservative investment nature of some provinces.
The SASAC (state-owned assets supervision and administration commission) recently held a meeting discussing the issues of monitoring overseas state-owned assets. The objective is to avoid the miscalculation of state-owned assets during the government’s nationwide restructuring reform. If left unattended SOEs yet to be restructured may be mispriced. According to SASAC, overseas state-owned assets are estimated to be worth over 12 trillion yuan.
Since the Shenzhen Hong Kong stock connect was approved in August, the Shanghai/Hong Kong stock connect has been quite active. In the months following the announcement more southbound inflow has entered into the Hong Kong stock exchange. In October, the daily inflow in both northbound and southbound was equally active recording nearly 4 billion yuan in trading volumes. Chinese analysts expect that once the Shenzhen/Hong Kong stock connect is officially launched, the demand in those two markets will reach an equilibrium due to a fully mutual openness of the two markets.
The Shanghai FTZ is likely to see its first bond issuance in late November. The Shanghai government will issue a 3 billion yuan government bond with a tenor of three years. According to Chinese media, the proceeds will be used to pay back existing debt. Foreign investors including sovereign and quasi-sovereign entities are allowed and encouraged to invest in this deal.
Yesterday the, NDRC (National Development and Reform Commission) arranged a meeting with 22 coal companies including Shenhua Group and China National Coal Group. The meeting addressed the overcapacity issues within the coal industry. The NDRC urged those approved qualitied coal producers to resume production in the face of increasing coal prices.
Ma Jun, the chief economist at the PBOC (People's Bank of China) said in a public speech that the GDP growth in 2016 will likely be 6.7%. Moreover, the stated that the possible interest rate hike by the US Fed has a limited effect on the RMB exchange rate. The continuous inflow from foreign investors into China's bond market is also cited for stabilizing the RMB exchange rate. He also said the CPI in 2017 will be larger than 2016 and the PPI will turn positive.
Two recent Chinese overseas M&A deals have been slowed down or even been temporarily halted due to tighter regulatory supervision in the target’s home country. Those two deals are FGC's acquisition of Germany-based Aixron, and Chemchina's acquisition of Swiss-based Syngenta. Chinese media attributed the slowdown to protectionism in those countries. Overall, M&A activities from Chinese companies have slowed down during the Q2 and Q3 of 2016, with an acquisition amount less than US$50 billion in each quarter.
According to Chinese media, the CSRC (China Securities Regulatory Commission) has recently arranged a meeting with a group of securities companies to discuss the feasibility of using stocks as collateral. At the moment mutual funds investing into bonds and ETFs are not allowed to be used as collateral assets. In addition, stocks where 50% of its market value is already pledged cannot be used again as collateral in raising funds. As an innovation in the market, financing with securities as collateral has seen a popularity in the A-share market last year. According to Wind, there were 7,604 of these transactions since 2014.
Despite the central government's ambition to boost the economy of the northeastern part of China, the declining population is cited as the biggest challenge to the area’s economic recovery. For the past 20 years issues such as a low fertility rate, aging society and labor force outflow have made it difficult for the three provinces of Jilin, Heilongjiang and Shenyang to maintain its GDP growth.