China’s deflation spurs calls for rate cuts, Expanding consumption now Beijing’s chief mission for H2 2023

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A round-up of China’s top economic and financial headlines as of 11 August, 2023:

Investment bank China Renaissance says Chair and CEO Bao Fan cooperating with authorities (China Fund Report

China Renaissance has announced that the company has been apprised that Bao Fan is continuing to cooperate with the investigations of relevant Chinese authorities. The board reiterated that the current business and operations of the group remain normal.

Bao Fan is a leading figure of renown in China’s investment circles. He is renowned for participating in the merger of Didi and Kuaidi, Meituan and Dianping, 58.com and Ganji.com.

On the evening of 26 February, China Renaissance issued an announcement on the Hong Kong Stock Exchange stating that since 16 February, the company had attempted to contact and confirm Bao Fan’s situation. 

The board of directors has since been informed that Bao Fan is currently cooperating with the investigations of relevant Chinese authorities.

Ren Zeping says deflation means it’s time for interest rate cuts (Sina opinion

China’s CPI for July came in at -0.3% year-on-year, while the last print was 0%. PPI in July was -4.4% year-on-year, while the previous reading was -5.4%.

The negative growth of both CPI and PPI in July means that the real interest rate has risen and the financing costs of enterprises and residents have increased. According to the basic principles of economics, it is time to cut interest rates.

Since 24 July, a policy bottom has been hit and macro-policy has become more congenial. The second quarter [Politburo] meeting called for “increasing macro-policy regulation and focusing on expanding domestic demand” and “strengthening counter-cyclical adjustment and policy preparations.” The meeting also made reference for the first time to “invigourting the capital market and boosting investor confidence”, as well as “adjusting and optimizing real estate policies in a timely manner” to boost market expectations.

Recently, many government departments have made it clear that they will engage in efforts to stabilize growth, promote consumption, support the private economy, optimize real estate policies, and make arrangements for the new energy and digital economy. 

(Ren Zeping is the former deputy-chair of the Macro-Research Office of the State Council’s Development Research Centre.)

Central state-owned enterprises undergo major restructuring (Sohu

Since the start of the second half of the year, a number of central state-owned enterprises (SOEs) have announced mergers and acquisitions that are in the planning phase or already in progress. At the same time, there have been major adjustments to state-owned assets in Jiangsu, Beijing, Gansu and other places. 

According to data provided by Zhiben Consulting, in July 2023, mergers and acquisitions of state-controlled listed companies increased by 41% month-on-month.

Industry insiders believe that a new round of reform and upgrading of SOEs has started, and the reorganization and integration of SOEs will be the highlight. It is expected that mergers and acquisitions of the listed companies of central SOEs will become more active. This will especially be the case for mergers and acquisitions in strategic emerging industries, which are set to further increase.

Wave of new real estate policies since Politburo meeting – still no plans for adjustments to rates for outstanding mortgages  (Yicai

Since the Politburo meeting held on 24 July made new mention of real estate policies, the market has raised expectations for the adjustment of property market policies as stated by various departments. 

These include the adjustment of rates for outstanding mortgages and further reducing the down payment ratio and loan interest rate for the purchase of first homes.

After the Politburo meeting, especially after the Ministry of Housing and Urban-Rural Development clarified the policy direction and deployment, Beijing, Shanghai, Guangzhou, Shenzhen, Jilin, Anhui and other places have made positive statements, saying that they will support and satisfy the inelastic and renovation housing demand of residents. 

Key cities in Henan, Jiangsu, Jiangxi and other places have introduced more targeted new policies, and there are higher expectations for implementation.

Has property developer Country Garden defaulted on its dollar bonds? (China Fund Report)

On 8 August, market sources said that Country Garden had not yet been able to pay the coupons on the two US dollar bonds that were scheduled for 7 August.

The news caused Country Garden’s stock price to fall sharply that day, down 14.39% at the close of trading. In addition, affected by the news, the prices for many domestic bonds issued by Country Garden fell across the board, with many declining by more than 20%.

A source familiar with the matter told reporters that the above two bonds are not in substantial default and are still within the 30-day grace period. The source said that due to the continuous reduction of available funds, Country Garden has experienced periodic pressure on liquidity, but the real estate giant is actively optimizing its funding arrangements.

Central bank to strengthen counter-cyclical policy adjustments, implement stable monetary policy in vigourous, targeted way (Securities Journal

Zou Lan, director of the Monetary Policy Department of the People’s Bank of China (PBOC), said at a press conference that China has persisted with the implementation of a prudent monetary policy in recent years, with sufficient policy space and a wealth of policy tools. It has the confidence, conditions and ability to deal with various risks and challenges. 

In the next stage, PBOC will strengthen counter-cyclical adjustments and policy preparations, increase macro-control efforts, focus on expanding domestic demand, boost confidence, prevent risks, and implement a sound monetary policy accurately and vigorously.

Expansion of domestic demand becomes the key mission for second-half, measures to drive consumption on the way (Shanghai Securities Journal

The last Politburo meeting referred to the expansion of domestic demand as the top priority in the second half of the year, while emphasising “employing the basic role of consumption in stimulating economic growth, expanding consumption through increases in household income, driving effective supply through end demand, and implementing the strategy of expanding domestic demand which should be organically combined with the deepening of supply-side structural reforms.” 

With regard to the expansion of domestic demand, a senior official from the National Development and Reform Commission (NDRC) said that in the second half of the year policy documents for achieving recovery and expansion of consumption will be issued, and household income will be increased by vigorously promoting employment and other measures. 

Experts interviewed believe that the current expansion of domestic demand focuses on making up for shortcomings that restrict consumption. A series of policies to improve consumption capacity and optimize consumption supply in the next stage are expected to see accelerated implementation.

Market for data as factor of production welcomes new policies, public data authorisation becomes bright spot (CNStock.com

On 8 August, the Ministry of Industry and Information Technology (MIIT) released the “Response to Recommendation No. 0483 of the First Session of the 14th National People’s Congress”, calling for “supporting the high-quality development of data trading institutions in Beijing, Shanghai and other locations, and encouraging the participation of various market players.”

Since the start of this year, the market for data as a factor of production has received intensive support from local governments. From late July to early August, Beijing, Shanghai, Guangdong province, Jiangxi province and other regions successively issued policy documents to further deepen the reform and innovation of the market for data as a factor of production. 

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