Chinese mutual funds weather heavy losses, He Lifeng becomes new economics tsar, CSRC lifts margin ratios

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A round-up of the top economic and financial headlines in the Chinese press as of 31 October, 2023.

Mutual funds lose 204.5 billion yuan in first three quarters, pharmaceutical holdings increase, telecommunications abandoned (Diyi Caijing

Data from Wind indicates that publicly offered funds lost another 347.132 billion yuan in the third quarter after shedding nearly 220 billion yuan in the second quarter. 

As of the end of the third quarter of this year, the performance of publicly offered funds has turned from profits to losses, with cumulative losses exceeding 204.5 billion yuan.

Looking back on the third quarter, the market was generally weak, with major indexes fluctuating and falling. Due to the impacts of the market, it became more difficult to adjust positions and trade shares. Active equity products suffered serious losses, and less than 20% of them have made money during the year. 

From the perspective of adjustments to holdings, three entries out of the top ten largest holdings switched positions.

Food and beverage has once again become the sector with the largest priority allocation, while the pharmaceutical industry has received a substantial increase in support from mutual funds. 

At the same time, industries such as electronics and banking have also been favoured by institutional investors, while sectors affected by artificial intelligence such as telecommunications and power equipment have seen underweighting.

Ministry of Finance paves way for insurance funds to invest more in equity market (Securities Journal

According to an announcement made by the Ministry of Finance on 30 October, the ministry recently issued the “Notice on Guiding Long-term Steady Investment of Insurance Funds and Adjusting Relevant Indicators for Performance Evaluation of State-owned Commercial Insurance Companies” (关于引导保险资金长期稳健投资、调整国有商业保险公司绩效评价相关指标的通知). 

The Notice changes the method for assessing the business efficiency and performance of state-owned commercial insurance companies based on the return on net assets from assessment in the current year to assessment combining the 3-year cycle with the current year.

Industry insiders believe the implementation of a three-year long-term assessment of the return on net assets of state-owned commercial insurance companies will help reduce the impact of short-term assessments on investment by insurance funds. 

This will enhance the enthusiasm and stability of insurance fund equity investment, optimize the market structure, reduce market risk and volatility and promote the stable and healthy development of capital markets.

31 provinces release per capita disposable income figures for first three quarters, Shanghai and Beijing surpass 60,000 yuan (Diyi Caijing

The National Bureau of Statistics recently released data on the per capita disposable incomes in 31 provinces for the first three quarters. In eight provinces, per capita disposable income exceeded 30,000 yuan, while in Shanghai and Beijing it exceeded 60,000 yuan.

The eight provinces with per capita disposable income of more than 30,000 yuan were all situated in the east, and included Beijing Shanghai, Beijing, Zhejiang, Tianjin, Jiangsu, Guangdong, Fujian and Shandong.

China’s national per capita disposable income for the first three quarters was 29,398 yuan, for a nominal increase of 6.3% over the same period last year, and a real increase of 5.9%. 

The per capita disposable income of urban residents was 39,428 yuan, for a nominal increase of 5.2% and real growth of 4.7%. The per capita disposable income of rural residents was 15,705 yuan, for a nominal increase of 7.6%, and real growth of 7.3%.

CSRC raises margin ratio to 80% from 50% (Securities Journal

On 14 October, the China Securities Regulatory Commission (CSRC) adjusted and optimized the relevant systems for securities lending, raising the margin ratio for securities lending from no less than 50% to 80%. For private placements, the ratio was raised to 100%. 

The regulations will take effect from 30 October 2023.

A source from the brokerage sector said that the requirement is mainly to restrict securities lending and make counter-cyclical adjustments to the market. 

Some brokerage analysts estimate that after the implementation of the new regulations, the scale of securities lending in the entire market could be reduced by half. An industry source who did not want to be named said that the new regulations will have little impact on private equity incomes.

Fiscal policy comes steps up with trillion yuan bond issue, cuts to reserve ratio requirements expected to heat up in fourth quarter (Securities Journal

The central government will issue an additional 1 trillion yuan in treasury bonds in the fourth quarter. The national fiscal deficit will increase from 3.88 trillion yuan to 4.88 trillion yuan, and the deficit rate is expected to increase from 3% to around 3.8%.

“The additional issuance of 1 trillion yuan in national debt sends the signal of active fiscal efforts,” said Ming Ming (明明), chief economist at CITIC Securities.

According to Ming Ming, additional funds from the issuance of national debt will be mainly used for post-disaster reconstruction, flood control and other projects, which are highly related to infrastructure and will have a positive impact on GDP in the fourth quarter. 

“The countercyclical adjustment process should be dominated by fiscal policy and coordinated by monetary policy,” said Liu Yuanchun (刘元春), president of the Shanghai University of Finance and Economics.

Liu said that monetary policy should create a favorable financial environment for fiscal expenditures, debt issuance, and the rapid advancement of key projects.

Since the start of this year, the central bank has stepped up efforts to implement prudent monetary policies and comprehensively used a variety of monetary policy tools to maintain rational and sufficient liquidity. 

The required reserve ratio for financial institutions has been reduced twice to release long-term liquidity. PBOC has guided financial institutions in keeping the total amount of credit growth at a moderate level and a stable pace.

As of the end of September, the broad money supply increased by 10.3% year-on-year and total social financing increased by 9.0% year-on-year, which strongly supported economic recovery while maintaining price stability.

“In the context of preventing capital arbitrage, it is expected that the focus of monetary policy will transition to ‘easing credit’ and continue to strengthen medium- and long-term loans to enterprises and residents, thereby enhancing its driving role in the real economy,” said Li Chao (李超), chief economist at Zheshang Securities.

Li expects RRR cuts, interest rate cuts, and policy tools with “quasi-fiscal” attributes to continue to come into play.

Fiscal operations hold steady (Economic Daily

The Ministry of Finance recently released data indicating that in the first three quarters, the national general public budget revenue was 16.6713 trillion yuan, for a year-on-year (YoY) increase of 8.9%. 

Expenditures were 19.7897 trillion yuan, for a YoY increase of 3.9%. Overall, fiscal operations were stable in the first three quarters, and proactive fiscal policies intensified to improve efficiency and promote the continued recovery of the economy.

Tax revenue was 13.9105 trillion yuan, for a YoY increase of 11.9%; non-tax revenue was 2.7608 trillion yuan, a YoY decrease of 4.1%. 

Looking at the central and local governments, the central general public budget revenue was 7.5886 trillion yuan, for a YoY increase of 8.5%, while the local general public budget revenue at the same level was 9.0827 trillion yuan, for a YoY increase of 9.1%.

In response to the tight balance for some local fiscal operations, the central government has increased transfer payments to support the smooth local government fiscal operations, especially at the grassroots level. 

This year, the central government has arranged transfer payments to local governments of 10.06 trillion yuan, for an increase of 7.9%. 

As of the end of August, the central government had allocated 9.55 trillion yuan in transfer payments to local governments, providing a strong financial guarantee to support the smooth operation of local finances.

He Lifeng becomes China’s new economic czar (Beijing News

According to a report from the Xinhua News Agency, He Lifeng (何立峰), member of the Political Bureau of the CPC Central Committee and director of the Central Finance Office, met with French Presidential Foreign Affairs Advisor Bernard Bonn in Beijing on the afternoon of the 29th. 

The news report indicates that He Lifeng has recently been appointed director of the Central Finance Office.

According to information on the Chinese government website, He Lifeng was born in February 1955 and is from Xingning, Guangdong province. He commenced work in August 1973 and joined the Communist Party of China in June 1981. He is a graduate of the Department of Finance and Finance at Xiamen University with a postgraduate degree in finance and a Ph.D. in economics.

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