China’s Top Financial Headlines for the Week of 11 – 16 June 2023

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This week the Chinese central bank launched across-the-board cuts of the policy rates for its open market operations (OMO) instruments, after financial data for May proved to be lacklustre. This included cuts to the rates for 7-day reverse repos, medium-term lending facilities (MLF) and standing-lending facilities (SLF). 

Nationwide joint-stock banks followed the lead of the big state-owned banks in reducing deposit rates, with the two groups accounting for over 70% of China’s banking sector assets. 

MLF interest rate cut lands with 10bps reduction (下调10个基点!MLF降息“靴子落地”): Shanghai Securities Journal 

“The medium-term lending facility (MLF) rate cut has officially landed! The People’s Bank of China (PBOC) announced on 15 June that in order to maintain reasonable and sufficient liquidity in the banking system, it had launched an MLF operation of 237 billion yuan and a 7-day reverse repo operation of 2 billion yuan. 

“The MLF interest rate was cut by 10 basis points to 2.65%, and the 7-day reverse repo rate stood at 1.90%.

“Looking back, since the MLF interest rate fell by 10 basis points in August last year, the one-year MLF interest rate has not been changed for nine consecutive months. Since the start of this year, MLF has maintained a moderate monthly net delivery volume. Data from Choice indicates that 200 billion yuan of MLF and 2 billion yuan of 7-day reverse repurchase expired on the same date.”

7-day reverse repo rate drops 10 basis points, MLF rate and LPR are expected to follow suit (7天期逆回购利率下降10个基点 MLF利率、LPR有望跟随下调): National Business Daily 

“On 13 June, the People’s Bank of China (PBOC) launched a 2 billion yuan 7-day reverse repo operation through interest rate bidding to maintain reasonable and sufficient liquidity in the banking system. 

“Given that 2 billion yuan in reverse repos expired on the same date, the central bank’s open market operations resulted in zero withdrawals and zero injections. The reverse repo rate fell by 10 basis points from 2% to 1.9%. 

“It has been 10 months since the last adjustment (August 15, 2022). This downward adjustment is undoubtedly a strong reflection of the need to ‘strengthen counter-cyclical adjustment’ as stated by Yi Gang, central bank governor during a recent visit to Shanghai to investigate financial support for the real economy and the promotion of high-quality development. 

“According to analysts, the policy rate cut will effectively boost market confidence and further strengthen macroeconomic recovery in the second half of the year.”

Central bank cuts interest rate for standing lending facility by 10 basis points (央行下调常备借贷便利利率10个基点): CCTV 

“On 13 June, the official website of the People’s Bank of China (PBOC) updated the Standing Lending Facility (SLF) interest rate table. 

“The overnight rate was reduced by 10 basis points to 2.75%, the 7-day rate was reduced by 10 basis points to 2.9%, and the one-month rate was reduced by 10 basis points to 3.25%.

“The SLF is a tool for the central bank to provide liquidity to financial institutions. It can be initiated by financial institutions, and financial institutions can apply for the SLF on the basis of their own liquidity needs.”

Major commercial banks complete a new round of deposit rate cuts- why? Experts provide their takes. (主要商业银行完成新一轮存款利率下调,什么原因?专家解读): Beijing Daily

“On 12 June, 12 joint-stock banks including China Merchants Bank and Shanghai Pudong Development Bank successively announced the reduction of their renminbi deposit interest rates. 

“The move arrives following the announcement of renminbi deposit rate reductions by the big six state-owned banks on Thursday last week. China’s leading commercial banks have all recently completed a new round of deposit rate reductions. 

“The total assets of the six big state-owned banks and 12 national joint-stock banks account for around 70% of China’s commercial banks. The cuts to their deposit rates herald the start of a new round of deposit rate adjustments in China. So why are they cutting deposit rates? Will deposit interest rates continue to fall in the future? 

“Experts point out that since last year, banks have reduced deposit rates twice, both times under the guidance of the market interest rate pricing self-discipline mechanism, first led by large state-owned banks and then followed by other banks. 

“In recent years, interest rates in the lending market have continued to decrease, resulting in the narrowing of bank interest rate spreads. This and other factors including a continuous increase in bank deposits have jointly driven the current round of interest rate adjustments.”

Foreign capital casts a “vote of confidence” in China as the no. 1 investment destination (外资纷纷投出“信心票” 中国始终是头号投资目的地): Shanghai Securities Daily

“Foreign-invested financial institutions and senior executives of multinational companies have recently voiced their optimism about the prospects for China’s economic development. 

“For example, General Atlantic, an American private equity firm known for its large bets on ByteDance and fast fashion retailer Xiyin, has publicly stated that: ‘China has always been the number one investment destination.’

“Gabriel Caillaux, co-president of the firm, said China was the ‘most attractive’ place to invest, especially for faster-growing companies.

“A slew of executives from numerous multinational corporations have recently visited China. For example, when Tesla CEO Musk visited China several days ago, he expressed his confidence in the Chinese market and said he hoped to continue to deepen cooperation with Shanghai in various fields to better serve the Chinese market and the global market.”

Financial data in May continued the slowdown in April (5月金融数据延续4月份的放缓势头): Sohu 

“According to the data released by the People’s Bank of China (PBOC) on 13 June, renminbi loans increased by 1.36 trillion yuan in May, a year-on-year decrease of 541.8 billion yuan. At the end of May, the balance of broad money (M2) was 282.05 trillion yuan, a year-on-year increase of 11.6%.

“In May, the increase in total social financing was 1.56 trillion yuan, 331.2 billion yuan more than the previous month, and 1.31 trillion yuan less than the same period last year.

“Analysts predict that with intensifying policy measures, financial data in June is expected to strengthen. On 13 June, PBOC reduced the interest rate for its 7-day reverse repo operations by 10 basis points to 1.9% and lowered the interest rate of the Standing Lending Facility (SLM) by 10 basis points for each maturity on the evening of the same day. The SLF rate is the upper limit of the interest rate corridor in the policy rate system.”

Chairman of the China Securities Regulatory Commission calls for formulation of a package of policy measures around research in key areas (证监会主席:围绕重点领域研究制定一揽子政策措施): Securities Times

“On June 13, Yi Huiman, party secretary and chair of the China Securities Regulatory Commission (CSRC), delivered a special party lecture in his capacity as a party member and cadre of the securities regulatory system. 

“The CSRC system must thoroughly study and implement Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era and the spirit of the 20th National Congress of the Communist Party of China; closely focus on the centre of Chinese-style modernization, actively integrate into the overall conditions of high-quality development, and endeavour to align the general laws of the capital market with China’s specific reality.

“[It must] integrate with outstanding traditional Chinese culture, and unswervingly follow the path of developing a modern capital market with Chinese characteristics. It is necessary to strengthen top-level design, clarify overall thinking, important principles, and the task objectives of building a modern capital market with Chinese characteristics.”

The demographic dividend hasn’t disappeared,- a new talent dividend is taking shape: China’s Ministry of Human Resources (人社部:人口红利没有消失,新的人才红利正在形成): Xinhua

“A senior official from the Ministry of Human Resources and Social Security said that strengthening vocational skills training is an important means of improving the structure of the labour force and enhancing the quality of human resources. 

“It is necessary to deepen structural reform of the supply side for human resources, increase investment in human capital across all of society, and build a workforce of skilled and innovative knowledge workers.

“At present and in the future, China’s basic national conditions of being a developing country with a large population base will not change. As of the end of 2022, China’s total working-age population was around 880 million. The labour force participation rate is relatively high by global standards, and labour resources are still abundant.”