A round up of China’s top financial news stories as of Friday, 7 July, 2023:
Big state-owned banks have denied providing 25-year loans to local government financial vehicles (LGFV), as concerns persist over China’s regional debt risk.
A leading analyst anticipates further monetary loosening measures in tandem with fiscal stimulus from Beijing, after the latest PMI print for June disappointed.
The Chinese central bank is also expected to continue to make use of the structural monetary policy tools that serve as a form of window guidance for channelling funds to key sectors.
China’s securities regulator says it will cultivate a cohort of investors for the REIT sector. The first half of 2023 saw 173 A-share IPOs that raised over 200 billion yuan, with a heavy focus on the tech sector.
After recently emerging as the world’s biggest car exporter, China’s cumulative clean vehicle production has crossed the 20 million units threshold.
Big state-owned banks deny providing 25-year loans to local government financing vehicles with four-year interest exemptions (21st Century Business Herald)
“Rumours have recently circulated on the market that in recent months, a number of big state-owned banks have started to provide more 25-year loans to local government financing vehicles that satisfy requirements. Most of the current corporate loans are 10-year loans. Some loans have interest or principal payments waived for the first four years, although interest will accrue subsequently.
“21st Century Business Herald has learned from multiple sources close to the big banks that these rumours are untrue. At present, there have been no statements about the extension of the new loan period for local government financing vehicles to 25 years, or the temporary exemption of principal or interest for four years.”
“With regard to local debt risk, the Central Economic Work Conference held at the end of last year called for effectively preventing and resolving major economic and financial risks. It is necessary to prevent and resolve the risk of local government debt, resolutely curb increases and resolve outstanding balances.
“This year’s government work report proposes effectively preventing and defusing major economic and financial risks. This includes preventing and resolving local government debt risks, optimizing the debt maturity structure, reducing the interest burden, curbing increases and resolving outstanding balances.”
Wen Bin: Local government bonds have yet to reach peak issuance (Sina)
“This year, a number of local governments have come under increasing pressure to repay their debts, which has aroused market concerns. A senior official from the Ministry of Finance said that the current distribution of local government debt is uneven, and some local government debt risks are relatively high.
“The Ministry of Finance has urged relevant localities to effectively undertake their chief responsibilities, resolve government debt risks, and firmly hold the bottom line of no systemic risk.
“Recently, Hunan, Guangxi, Fujian and other regions have issued documents requiring strict control of local debt risks. Specific measures include restricting local government financing vehicles, conducting performance evaluations, and conducting special audits.”
“As of the end of June, the remaining quota of new general bonds was 285.6 billion yuan, and the quota approved in advance has been fully issued. The quota of new special bonds was 1,599.2 billion yuan, and the quota approved in advance was 18 billion yuan.”
Wen Bin is chief economist with China Minsheng Bank.
Jiang Fei: PMI rebounds slightly, policy combo is on the way – June PMI Comments (Sina)
“Compared with May, the PMI in June did not improve significantly, indicating that the current level of economic health in China remains weak, and the foundation for recovery and development still needs to be consolidated.
“A recent State Council meeting stressed the need to ‘maximize the comprehensive effect of policies.’ We believe that the possibility of monetary easing in the second half of the year still exists, and in terms of fiscal policy, the launch of special bonds and policy financial instruments is also more likely. For subsequent policy orientation, we should pay focused attention to follow-up meetings of the State Council and the Politburo.”
Jiang Fei is chief macro-analyst at Great Wall Securities.
Monetary Policy rides the momentum of economic stabilisation, structural tools become more prominent (Shanghai Securities Journal)
“In the past month, the market has witnessed several ‘big moves’ by monetary policy to stabilize the economy. Firstly, price tools were used, with multiple reductions to policy interest rates.
“Secondly, structured tools came into play, with reloans to support the rural sector and small business, and an increase in re-discount quota by 200 billion yuan.
“The signalling from the policy side is still strong. The recently held second-quarter regular meeting of the Monetary Policy Committee of the People’s Bank of China said that it is necessary to overcome difficulties, take advantage of conditions, increase the intensity of macro-policy regulation, and re-emphasize inter-cyclical adjustments.
“Judging from recent monetary policy operations and policy signals, experts believe that monetary policy will continue to exert efforts to ‘stabilize growth,’ and at the same time several changes may occur.
“Structural monetary policy tools could continue to receive emphasis and become the main policy focal point for the next stage.
“Increased focus on the exchange rate may further open the exchange rate control toolbox. Under the influence of factors such as the difference in monetary policies between China and the United States, the use of price policies such as interest rate cuts may tend towards prudence.”
China’s production of new energy vehicles exceeds 20 million demonstrating the power of innovation (People’s Daily)
“On July 3, as another electric car slowly rolled off the production line of GAC Ai’an, the cumulative production of new energy vehicles in China exceeded 20 million.
“In September 2020, the cumulative production of new energy vehicles in China exceeded 5 million, and in February 2022 it exceeded 10 million. Since then it has taken only 1 year and 5 months to achieve the second 10 million.
“Fu Bingfeng, executive vice president and secretary-general of the China Automobile Industry Association, said that China’s production of 20 million new energy vehicles marks its entry into a new stage of globalised high-quality development at scale on the foundation of industrialization and marketization. [The auto sector] is becoming an important part of a modern industrial system supported by the real economy.”
China Securities Regulatory Commission: Actively cultivate professional REITs investment groups (China Securities Journal)
“Zhou Xiaozhou, Director of the Bond Department of the China Securities Regulatory Commission, said that positive progress has been made in the allocation of REITs by FOF funds and increasing the incentives for market makers to classify, evaluate, and make assessments.
“He also said that greater effort should be made to promote the participation of long-term institutional investors such as social security funds, pension funds, and enterprise annuities, and actively cultivate professional REITs investor groups.”
A-share IPOs raised more than 200 billion in first half of 2023 (Caijing)
“In the first half of this year, a total of 173 companies conducted IPOs, raising more than 200 billion yuan via public listings. The total IPO fundraising scale of the Science and Technology Innovation Board and the Growth Enterprise Market accounted for more than 70% of this amount.
“Compared with 171 IPOs and 311.920 billion yuan raised in the same period last year, the number of IPO companies remained balanced in year-on-year, terms while funds raised decreased by around 33%.
“In terms of sectors, the electronics, electric power equipment, machinery equipment and related industries raised the most funds. Industry insiders said that this indicates that China’s economic structure is accelerating its transformation towards technological innovation, a green economy and consumption upgrades.
“Since the implementation of the comprehensive registration system, the efficiency of the listing review of enterprises has significantly improved by means of the optimization of the registration process.”
Big state-owned banks reduce USD deposit rate from 4.5-5% to 2.8% (Securities Journal)
“Several big state-owned banks have recently reduced their interest rates for US dollar deposits, with a large-scale cut to 2.8% from 4.5%~5% previously.
“This is another major move by domestic banks to adjust deposit product interest rates after lowering the renminbi deposit interest rate in June.
“Since the beginning of this year, domestic commercial banks have successively reduced the interest rates for renminbi fixed deposits on several occasions.
“At present, it is rare to see a rate of more than 3% for the deposit products of mainstream commercial banks such as large state-owned banks and joint-stock banks.
“By contrast, with the Federal Reserve’s continuous interest rate hike cycle, overseas US dollar interest rates remain high, and the US dollar deposit interest rates of various banks have remained at a high level since the start of this year.
“Prior to this adjustment, the annualized interest rate of some two-year and three-year U.S. dollar deposit products was above 4%, and the interest rate of such products in some foreign-funded banks and small and medium-sized banks even reached above 5%. This is undoubtedly very attractive to bank customers.”
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