Mortgage rates around China decline after LPR reduction, Beijing extends deadline for electric car tax exemptions

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A round-up of China’s top financial news stories for 23 June, 2023:

Speculation abounds over the impact of reductions to the benchmark loan prime rate (LPR) on narrowing interest rate margins, which have already sunk beneath the 1.8% threshold required by Chinese regulators vis-a-vis commercial banks. LPR declines have also driven decreases in mortgage rates around China.

China’s securities regulator launches reforms to raise the transparency of the Chinese bond market, while China’s peak body for institutional investors seeks to do similar for the interbank bond market.

Chinese companies rise in the ranks of global asset managers despite adverse international conditions, while Beijing announces the extension of preferential tax policies for clean energy vehicles.

After the net interest margin of the banking sector falls below 1.8% in the first quarter, what impact will the LPR rate cuts have? : Diyi Caijing 

“According to data from Wind, the net interest margin of the commercial banking sector in the first quarter of this year was 1.74%, falling beneath the 1.80% threshold required by the regulatory authorities for commercial banks.

“Both the one-year and five-year loan prime rates (LPRs) for June fell by 10 basis points. The LPR for 1-year loans came in at 3.55%, and the LPR for loans with a term of more than 5 years came in at 4.2%.

“After the central bank lowered its 7-day reverse repo rate, the standing lending facility rate, and the medium-term lending facility rate by 10 basis points on June 13 and 15, the LPR cuts arrived as expected.

“A research report from Shengang Securities Research points out that the net interest margin of banks will still be affected to a certain extent in the short term, but interest rate cuts will help the sustainable recovery of the macro-economy. The quality of bank assets is expected to find some relief.  

“Overall, the period of peak stress has passed, and the sharp downward pressure on net interest margins and asset quality is expected to ease. Economic recovery is the key to the banking sector achieving surplus returns.

“A research report from Minsheng Securities points out that the reduction of LPR quote will have only a limited impact on the net interest margins of banks, and the reduction of deposit rates can offset its impact to a certain extent. 

“Following the rate reduction, it is expected that regulators will follow up with an economic policy package to stabilise the economy, serving as a prelude to stabilisation of growth. Banks can look forward to seeing a turnaround in asset quality as the economy recovers.”

Banks around China reduce mortgage rates after loan prime rate reductionChina Securities Journal

“China’s loan prime rate (LPR) has fallen after remaining stationary for nine months. Mortgage rates in various places around China have also undergone corresponding adjustments. 

“As of 20 June, multiple banks in Beijing, Shenzhen, Suzhou and other cities have made haste to reduce commercial loan interest rates. The interest rate for first home loans in Suzhou has fallen to as low as 4%. Zhengzhou’s first-home loan rate is expected to further drop to 3.7%, after it previously fell to 3.8%.”

Bond registration reforms implemented! Credit disclosure strengthened with emphasis on solvency and tightening responsibilities of issuers and intermediaries: 21st Century Business Herald

“Guaranteed issuance prices, misappropriation of funds, ‘structured’ bond issuance and rebates, imperfect information disclosure…these are common problems for bond issuance that will soon be subject to stricter regulation and scrutiny.

“On the evening of 21 June, the China Securities Regulatory Commission issued the ‘Guidance Opinions on Deepening the Reform of the Bond Registration System’ (关于深化债券注册制改革的指导意见) and ‘Guidance Opinions on Improving the Quality of the Bond Business Practice of Intermediaries under the Registration System’ (关于注册制下提高中介机构债券业务执业质量的指导意见). 

“This is the first major release of new rules related to bond issuance since the comprehensive registration system launched in February of this year. The directives mark the full implementation of the reform of the bond issuance registration system.

“Information disclosure is at the core of the registration system, and it is also highlighted in the Guidance Opinions. Information disclosure must focus on solvency, as well as truthfulness, accuracy and completeness. The emphasis is on the disclosure of information that may affect the issuer’s solvency and have a significant impact on the decisions of investors.”

NAFMII: Further strengthen the issuance standards of the interbank bond marketDiyi Caijing

“On June 20, the China Interbank Market Dealers Association (NAFMII) issued a notice on matters related to further strengthening the regulation of operations on the interbank bond market.

“NAFMII has recently uncovered irregularities in the issuance of some bonds, including imprudent issue pricing, low-price underwriting in exchange for market share, and failure to follow market-based principles in confirming interest rate ranges. 

“In order to further improve the level of standardisation for bond issuance, strictly enforce market discipline, and prevent imprudent pricing and other behaviours, NAFMII, on the basis of the existing issuance system, further clarifies the operational norms for issuance on the inter-bank bond market, so as to strengthen the self-disciplinary management of issuance operations and drive the high-quality development of the domestic bond market.”

10 Chinese companies join the Global Asset Management 500Sina 

“Investment & Pensions Europe (IPE) recently released the ‘2023 Global Top 500 Asset Management’ list. 

“In 2022, the operations and revenue of the global asset management industry saw overall contraction. Chinese asset management institutions ran against the grain and performed well overall, with their scale and ranking greatly improving. The number of Chinese companies that have entered the global top 100 has risen from 8 to 10.

“Liam Kennedy, editor-in-chief of IPE, said of the list results: ‘We are very pleased that more Chinese asset management institutions have entered the selection this year, making the IPE Global Top 500 Asset Management report richer and more complete. Congratulations to those Chinese institutions that have improved in scale and ranking.'”

Deadline for clean energy vehicle tax cuts extended once againSina

“The Ministry of Finance, the State Administration of Taxation, and the Ministry of Industry and Information Technology have jointly issued an announcement confirming that the clean energy vehicle tax reduction policy will be extended until the end of 2027. 

“Since 1 September 2014, China has made the purchase of clean energy vehicles exempt from the vehicle purchase tax. This is the fourth time the policy has been extended.

“According to the announcement, clean energy vehicles with a purchase date of between 1 January 2024 and 31 December 2025 will be exempt from the vehicle purchase tax. The tax exemption for each clean energy passenger vehicle will be up to 30,000 yuan. 

“The vehicle purchase tax for clean energy vehicles between 1 January 2026 and 31 December 2027 will be halved, and the tax reduction for each clean energy passenger vehicle will run up to 15,000 yuan.”