China loosens home purchase restrictions, local governments tackle hidden debt

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A round-up of China’s top economic and financial headlines for 26 – 30 June:

Cities around China have loosened restrictions on housing purchases in a bid to bolster the lacklustre property market. Profits for large-scale industrial enterprises in China have plunged over 18% for the January to May period, while the value of the country’s leading unicorn companies has seen a rise of 3.4% to approach two trillion yuan. 

Hong Kong’s bourse says that mainland investors will soon be able to use the renminbi to purchase foreign shares. China’s securities regulator flags intensification of “zero tolerance” for malfeasance, launching investigations into over 70 listed companies this year. 

Local governments around China have launched efforts to resolve their hidden debt problems, while the Ministry of Finance says local debt levels remain within the limits set by the National People’s Congress for 2023. 

Nearly 20 cities in China relax home purchase restrictions, further loosening expected (National Business Daily

“Multiple regions around China have recently adjusted and relaxed home purchase restriction policies. 

“According to data from the China Index Research Institute, since 2023, more than 100 local governments have issued more than 300 new real estate regulation policies. Nearly 20 cities, including Jinan, Changsha, and Xiamen, have relaxed their purchase restriction policies, and some hot second-tier cities such as Hangzhou issuing policy optimization for purchase restrictions on multiple occasions. 

“The number of cities that have loosened restrictions on lending and sales has also increased. At present, the pressure for adjustment of the real estate market in many places is increasing, facing the challenges of the slow recovery of market confidence and low transaction activity.

“Chen Wenjing, director of market research at the China Index Research Institute, believes that in the second half of the year, more cities may gradually loosen restrictive policies to spur the market to stabilize and recover, in particular second-tier, third-tier and fourth-tier cities.”

Profits of industrial enterprises above designated size drop 18.8% for January – May (National Bureau of Statistics

“From January to May, the total profits of industrial enterprises above designated size across the country was 2.66889 trillion yuan, for a year-on-year decrease of 18.8%. The rate of decline was 1.8 percentage points lower than that for January to April.

“State-owned holding enterprises saw a total profit of 962.51 billion yuan, for a year-on-year decrease of 17.7%, while joint-stock enterprises realized a total profit of 1.95781 billion yuan, for a decrease of 20.4%. Foreign, Hong Kong, Taiwan and Macau-invested enterprises saw total profits of 626.75 billion yuan, for a decline of 13.6%. Private enterprises saw total profits of 683.78 billion yuan, for a decline of 21.3%.”

Total valuation of China’s top 500 “invisible” unicorns approaches 2 trillion yuan for YoY rise of 3.4% (CCTV

“The 2023 list of China’s Top 500 Invisible Unicorns was recently released in Suzhou. Invisible unicorns refer to companies with a valuation of more than 200 million yuan and less than 1 billion US dollars, established for around 5 years, and possessing original, disruptive technologies and business models that are difficult to replicate.

“In 2023, the total valuation of China’s top 500 invisible unicorns was nearly 2 trillion yuan, for a year-on-year increase of 3.4%.”

Hong Kong Stock Exchange: mainland investors will be able to use the renminbi to purchase stocks of foreign companies (Cailian She

“The Hong Kong Stock Exchange launched the “Hong Kong dollar-Renminbi dual counter model” last Monday (June 19), providing investors with more trading options and companies with a channel to utilize Hong Kong’s offshore renminbi capital pool.

“HKEX’s Joint Chief Operating Officer and Head of Equity Securities, Yao Jiaren, was a guest and discussed how the launch of the “Hong Kong dollar-renminbi Dual Counter Model” will help shore up HKEX’s status as the world’s leading offshore renminbi center and drive the process of renminbi internationalization.

“Yao Jiaren said that the market has responded positively to the dual-counter model, and HKEX has been busy handling a large number of applications from issuers and market makers. Eligible stocks of foreign companies mainly listed in Hong Kong have recently obtained approval for inclusion in Hong Kong Stock Connect. In the future, mainland investors will be able to use the renminbi to directly buy and sell the stocks of these foreign companies.”

Regulatory “zero tolerance” intensifies – over 70 listed companies investigated this year (Securities Times)

“On June 26, Founder Electric (002196) announced that the company had received a notice issued by the China Securities Regulatory Commission (CSRC) for the filing of a case against it. Due to suspected violations of information disclosure requirements, on June 9 CSRC decided to file a case against the company.

“At present, under conditions of “zero tolerance”, the intensity of supervision is constantly escalating. 

“On the same day, Qicai Chemical (300758) also announced that because the company violated regulations relating to inaccurate performance forecasts and untimely information disclosure, it had recently received warning notices from the Liaoning Securities Regulatory Bureau.

“Official data indicates that since the beginning of this year, more than 70 listed companies or their responsible persons have been placed under investigation. Experts believe that increasingly stringent regulation is conducive to maintaining the order of the capital market, protecting the interests of investors, and promoting the sound development of the capital market.”

Multiple local governments launch trials for resolution of hidden debt (21st Century Business Herald

“Since the start of this year, multiple local governments have called for the launch of trials to resolve hidden debt.

“At the start of the year, the budget report of Guizhou Province called for seeking policy support for trials to reduce debt risk in high-risk cities and counties. This would involve replacing hidden debt by issuing government bonds, optimising the local debt structure, and reducing debt costs.

“The budget report of Qinghai Province proposes actively striving to launch trials for county-level debts, revitalizing capital assets through multiple channels and means, focusing on resolving ‘non-standard’ debt risks, and making every effort to complete annual hidden debt resolution targets.

“Local government debt mainly includes statutory government debt and hidden or implicit debt. Statutory government debt refers to the debt that the government is responsible for repaying. Because it is included in the budget, it is also called explicit debt. Hidden debt refers to debt outside statutory government debt limits that local governments directly repay with fiscal funds, or for which they illegally provide guarantees.”

Ministry of Finance: local government debt balance of 3.75579 billion yuan is controlled within limits (Ministry of Finance)

“As of the end of May 2023, the balance of local government debt across China was 3.75579 trillion yuan, which remains within the limits approved by the National People’s Congress.

“This included general debt of 1.49103 trillion yuan and special debt of 2.2647.6 trillion yuan. Government bonds totalled 3.73956 trillion yuan, and outstanding non-bond government debt was 162.3 billion yuan

“Following deliberation and approval at the first meeting of the 14th National People’s Congress, the national local government debt limit in 2023 was set at 4.216743 trillion yuan, of which the general debt limit is 1.6548922 trillion yuan, and the special debt limit is 2.5618508 trillion yuan.

“As of the end of May 2023, the remaining average term of local government bonds was 8.8 years, including 6.3 years for general bonds and 10.4 years for special bonds. The average interest rate was 3.36%, including 3.35% for general bonds and 3.36% for special bonds.

China remains Africa’s largest trading partner for 14th consecutive year (People’s Daily

“On June 29, the General Administration of Customs released the first ever China-Africa Trade Index during the third China-Africa Economic and Trade Expo

“2000 is the base period for the index with a value of 100 points. The index rises to 990.55 points by 2022, showing a rapid and positive development trend.

“During the same period, China’s import and export value to Africa climbed from less than 100 billion yuan to 1.88 trillion yuan, for a more than 20-fold cumulative increase and an average annual growth rate of 17.7%. 

“China has been Africa’s largest trading partner for 14 consecutive years. In the first five months of this year, China-Africa trade continued its good momentum with an import and export value of 822.32 billion yuan, for a year-on-year increase of 16.4%.”