Beijing unleashes stock-boosting measures. Are Chinese banks on track to cut mortgage rates?

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A round-up of the top economic and financial headlines in the Chinese press as of 30 August, 2023.

Securities stamp duties halved starting from Monday, 30 brokerages cut commissions (Shichang Zixun)

On 27 August, the Ministry of Finance and the State Administration of Taxation announced that in order to spur the capital market and boost investor confidence, starting from 28 August 2023 the stamp duty on securities transactions would be halved. 

Looking at the historical data for A-shares performance after each stamp duty adjustment, this policy change causes sizeable movements.

The last adjustment to the securities stamp duty was made on 19 September, 2008. The A-share stamp duty was changed from bilateral collection to unilateral collection, while the tax rate was kept at 1‰. 

That day the Shanghai Composite Index saw its third biggest increase in history, with a single-day leap of 9.45%. 

In addition to the stamp duty reduction, at least 30 brokerages including China Merchants Securities and Founder Securities have announced the reduction of commission rates starting from tomorrow (August 28).

Halving of securities stamp duties sends strong, positive policy signals, stock prices rise (Xinhua News Agency

The latest reduction to the stamp duty on securities transactions fully reflects the central government’s firm attitude towards an active capital market and its determination to protect the stock market. It has released a clear and positive policy signal.

Previous reductions in the stamp duty for securities transactions have boosted the capital market, and this reduction in the tax rate has also significantly boosted market sentiment. 

As of the close of trading on 28 August, individual stocks had risen more and fallen less, and the turnover of the Shanghai and Shenzhen stock markets exceeded 1.1 trillion yuan. 

The Shanghai Composite Index closed at 3098.64 points, up 1.13%, while the Shenzhen Composite Index closed at 10233.15 points, up 1.01%, and the ChiNext Index closed at 2060.04 points, up 0.96%.

Official data indicates that in 2022, the revenue from China’s stamp duty on securities transactions was 275.9 billion yuan. In the first seven months of this year, the stamp duty revenue from securities transactions reached 128 billion yuan. 

He Daixin, director of the Financial Research Office of the Chinese Academy of Social Sciences, said that under current conditions of heavy fiscal pressure, the introduction of this policy sends a strong signal by of using a decrease in fiscal revenue in exchange for an increase in market vitality. 

Industry insiders point out that the meeting of the Politburo of the Central Committee of the Communist Party of China (CPC) held on 24 July clearly stated that “it is necessary to invigorate capital markets and boost the confidence of investors.” Its tone regarding capital markets has become more positive and the direction is clearer. 

After halving stamp duty, China Securities Regulatory Commission tightens IPOs, cuts margin deposits, restricts shareholding reductions  (Diyi Caijing

Given recent market conditions, the China Securities Regulatory Commission (CSRC) has made it clear that the scheduling of IPOs will be tightened to promote a dynamic balance between investment and financing.

After Beijing announced a halving of stamp duties, CSRC has announced three more beneficial measures, including tightening of IPO scheduling and refinancing, reductions to margins, and restrictions on some shareholding reductions.

Major shareholders in multiple companies terminate share reduction plans in advance (Shanghai Securities Journal

On the evening of 28 August, 13 listed companies including Zhongyuan Home Furnishing, Great Wisdom, and Jinpu Titanium Industry issued announcements stating that given the regulatory requirements released by the China Securities Regulatory Commission on 27 August and their own circumstances, the company’s major shareholders including controlling shareholders would terminate their shareholding reduction plans in advance.

Shanghai Securities News found that 6 of these companies did not satisfy the relevant regulations concerning dividends. In addition, multiple companies had failed to comply with at least two regulatory requirements.  

Large-scale industrial enterprises see profits drop 15.5% for January – July (CCTV)

According to data from the National Bureau of Statistics, from January to July, the total profits of industrial enterprises above designated size across China were 3.94398 trillion yuan, for a year-on-year decrease of 15.5%, which was 1.3 percentage points lower than the print for January to June (calculated on a comparable basis).

Out of industrial enterprises above designated size, state-owned holding companies achieved a total profit of 1.38059 trillion yuan, for a year-on-year decrease of 20.3%. Joint-stock enterprises achieved a total profit of 2.88356 trillion yuan, for a decrease of 16.6%. Private enterprises achieved a total profit of 1.02266 trillion yuan, for a decrease of 10.7%.

What is the state of progress on adjustments to outstanding mortgage rates? Multiple banks respond (Shichang Zixun)

As of 28 August, one big state-owned bank and six joint-stock banks had officially released their semi-annual reports, all of whom except for China Merchants Bank have held interim performance meetings.

In addition to operating performance, the market is paying close attention to the signals sent by major banks on the adjustment of interest rates for outstanding mortgages. 

The central bank’s attitude towards rates on outstanding mortgages has changed from “support and encouragement” to “guidance”, yet there are few cases of commercial banks following through with implementation. 

Sheng Liurong, chief financial officer of China Construction Bank (CCB), said that since regulators have not issued specific guidance plans, banks are still maintaining active communication. It is difficult to make forecasts, but overall, pressure on the net interest margins of banks is set to decline. 

The policy orientation is to hope that commercial banks can maintain comparative stability in their net interest margins. CCB also hopes that certain measures can be adopted with regard to net interest margins, to at least cause the scope of decline to slow a little. 

According to data recently disclosed by the State Administration of Financial Supervision, the net interest margin of commercial banks in the second quarter of 2023 was 1.74%, which is basically the same as in the first quarter.

For two quarters, however, the readings have still fallen beneath the level of a full score for the net interest margins of banks (1.80%) as outlined in the “Implementation Measures for Prudential Assessment (2023 Edition)”.

Jiang Fei: More active fiscal policy is recommended to achieve full-year GDP target (Sina opinion

(Jiang Fei ( 蒋飞)i is chief macro-analyst at Great Wall Securities) 

This year’s government work report sets the annual economic growth target at around 5%, corresponding to a two-year average growth rate of around 4%. 

According to the National Bureau of Statistics, in the first half of this year, China’s GDP achieved a growth rate of 5.5%, which corresponds to a two-year average of just 4%.

It is worth noting that the GDP in the second quarter increased by 6.3% year-on-year, corresponding to a two-year average growth rate of only 3.4%, while quarter-on-quarter GDP also dropped significantly. It can be said that the economy has shown initial signs of slowing down.

On the whole, we believe that both the private sector and the government sector have room for further efforts to stimulate GDP growth. But in the short term, increasing government fiscal expenditures, stimulating land transactions and infrastructure investment may be a better way to achieve results. 

We believe fiscal policy will become more active before the end of the year. In addition to the Politburo meeting stating that “speeding up the issuance and use of local special bonds”, we cannot rule out increasing the size of the deficit and revitalizing the special debt quota.

Zhou Tianyong: Reforms to increase household incomes are the key to growth for the next decade (Sina Opinion

(Zhou Tianyong (周天勇) is professor of the National Economic Project Laboratory at the Dongbei University of Finance and Economics) 

Why is China’s aggregate domestic demand insufficient, what are the underlying reasons, and how can we increase the income of urban and rural households and improve the pattern of consumer demand? There are different opinions in China’s academic circles and different countermeasures.

Looking at economic growth from the demand side, the main problem is that household income as a share of GDP is too low, resulting in insufficient consumer demand.

Consequently, the overall policy direction is to use various system reforms to make the distorted value of household incomes and consumption as well as investment demand as a share of GDP closer to the standard values for most other countries. 

The goal of these reforms is to gradually increase the total disposable income of households as a share of GDP from 43.04% to 65% during the period from 2023 to 2037. 

Government education, healthcare and other welfare expenditures should increase from 5% of GDP to around 15% or 20%. 

Unswervingly implement the fiscal support plan for small and medium-sized businesses: Ministry of Finance (People’s Daily

A series of fiscal and tax policies to support the development of small and medium-sized enterprises have been in place for some time now.  

The Ministry of Finance recently issued the “Notice on Strengthening the Implementation of Fiscal and Tax Support Policies to Promote the High-quality Development of Small and Medium-sized Enterprises”, requiring all local governments to fully implement policies to provide a strong guarantee for driving the high-quality development of small and medium-sized enterprises.

On the foundation of conscientiously implementing inclusive tax and fee reduction policies, [local governments are required to] comprehensively implement targeted preferential tax and fee policies for small and micro enterprises, and shall not weaken the policies for any reason. They must also resolutely prevent the collection of excessive taxes and fees. 

All regions must promptly publish a list of government funds and administrative fees, and the collection of fees outside the list, expansion of the collection scope, and increase of collection requirements are prohibited.

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