China's central bank intervenes in treasury market
Second-home loan rates below 4%, PBOC frets over China's lacklustre demand
Our round-up of critical economic and financial developments in China as of Tuesday, 2 July 2024:
The People’s Bank of China (PBOC) plans to borrow Chinese treasuries from primary dealers, as part of measures to intervene in the bond market.
Interest rates for both first and second home loans have fallen beneath 4%.
Smaller banks in China have been culled due to concerns about regional financial risk.
The China Securities Regulatory Commission (CSRC) has flagged another round of capital market reforms.
Insufficient demand remains a key concern for the Chinese central bank, with analysts expecting reserve ratio and benchmark rate cuts in Q3 2024.
China’s state-owned media compares US democracy to a reality TV show following Biden-Trump presidential debate.
The official Chinese PMI reading holds steady in June, edging lower for large-scale enterprises but higher for small and medium-sized companies.
Chinese central bank signals intervention in treasury market as long-term yields sag
The People's Bank China (PBOC) has flagged plans to intervene in the Chinese bond market, after yields on 10-year treasuries fell to their lowest levels in over two years.
On 1 July, PBOC announced via its official website that it would "undertake treasury borrowing operations with certain primary dealers order to maintain the stable operation of the bond market."
On 28 June, the yields for 50-year, 30-year and 10-year Chinese treasuries stood at 2.47%, 2.4282% and 2.2058% respectively, below the levels of 2.5% - 3% desired by PBOC.
PBOC previously stated that it was highly concerned about shifts and potential risk in the bond market, and that when necessary it would sell off low-risk bonds including treasuries.
Market observers speculated that PBOC would engage in borrowing to increase its holdings of treasuries, in order to prepare for the sale of treasuries via open market operations.
Ming Ming (明明), chief economist with CITIC Securities, said that yields for 10-year Chinese treasuries had approached historical lows, and that their sale by PBOC would help to stabilise long-term interest rates and forestall interest rate risk.
Wang Qing (王青), chief macro-economist analyst with Golden Credit Ratings, said PBOC was borrowing treasuries from primary dealers in order to sell them off subsequently, which would put pressure on treasury prices and boost their yields.
Second home loan rates drop below 4% across 100 Chinese cities
Cities around China have reduced the interest rates for second home loans to beneath the 4% threshold, as part of efforts to drive the recovery of the country's faltering housing market.
Data from the Beike Research Institute (贝壳研究院) indicates that as of May the average first home loan rate across 100 cities surveyed stood at 3.45%, for a decline of 12 basis points compared to the previous month.
The average interest rate for second home loans was 3.90%, for a decline of 26 basis points, bringing the print beneath the 4% threshold.
The declines arrived after the Chinese central bank removed floors on mortgage rates and reduced home deposit requirements in May, as part of efforts to boost China’s flagging real estate market.
Yu Xiaofen (虞晓芬), head of the China Housing and Real Estate Research Institute at Zhejiang Industrial University, said that following the adjustments deposit ratios had fallen to historic lows.
"The vigour of policy is very large, directly reducing the threshold for home purchases," You said. "This is of benefit to expanding the demand for home purchases."
Securities regulator flags a raft of reforms for China's capital market
The China Securities Regulatory Commission (CSRC) recently announced that it has undertaken specialised surveys and research into the comprehensive deepening of capital market reforms, according to a report from state-owned media published on 28 June.
CSRC chair Wu Qing (吴清) said the regulator was currently undertaking a comprehensive assessment of capital market reforms already under implementation, including the share registration system.
According to Wu, these assessments will serve as "the foundation for seizing research and planning for a raft of measures to further comprehensively deepen capital market reforms."
"CSRC will vigorously drive high-level marketisation reforms, further raise the inclusiveness and targetedness of capital markets with regard to new industries, new businesses and new technologies, and accelerate the implementation of the 'eight provisions of the STAR market'," Wu said.
Chinese regulators culls smaller banks due to risk concerns
Small and medium-sized banks in China have recently undergone a wave of mergers and restructurings as part of efforts to stymie systemic risk.
A report from Securities Journal said that the overall trend of "volume reduction" of smaller-scale banks has continued since 2018, with Chinese regulators still pursuing efforts to mitigate risk.
As of the end of 2018, China was host to 4034 small and medium-sized financial institutions, including municipal commercial banks and rural village financial institutions.
This number fell to 3920 by the end of 2023, with the number of rural financial institutions in China falling from 3900 to 3792 over the same period.
In 2023 alone, a total of 64 small and medium-sized banks made an exit from China's financial sector, including nine village county banks, 49 rural credit unions, seven rural village mutual assistance societies and one rural village commercial bank.
Regulators said they are still in the process of "healing the sick and preventing future illness."
Domestic observers said that a wave of mergers and restructurings will help to shore up the sustainability and development potential of small and medium-sized financial institutions that cater to China's rural communities.
They expect future measures to include the expansion of capital supplementation channels, differentiated regulation and the optimisation of senior executive teams.
Chinese central bank continues to fret over insufficient demand, monetary policy loosening anticipated in Q3 2024
The Monetary Policy Committee (MPC) of the People's Bank of China (PBOC) convened its regular meeting for the second quarter of 2024 on 25 June.
The meeting continued the tone of the MPC's last gathering in the first quarter, stating that while "economic operation continues to rebound towards a positive position," China still faced the challenges of “insufficient effective demand and weak public expectations."
PBOC also reiterated the need to "expand the intensity of the implementation of monetary policy measures that have already been released, and maintain consistency between total social financing and the money supply with targets for economic growth and prices."
With regard to the property sector, the meeting stressed the need to "drive the implementation of financial policy measures that have already been issued, and spur the stable and healthy development of the real estate market."
21st Century Business Herald opined that the "three big mountains" currently faced by the Chinese economy are inflation levels, demand for lending and the real estate market.
For this reason, domestic observers expect macro-economic policy to likely remain loose in the second half of 2024, and the pace of monetary policy loosening to accelerate.
"In the third quarter, we expect the window for reserve ratio reductions and interest rate cuts to once again open," said Wang Qing (王青), chief macro-analyst at Golden Credit Rating.
China's state-owned media compares US democracy to reality TV show following Trump-Biden presidential debate
China's state-owned media has weighed in on the latest presidential debate between Donald Trump and Joe Biden, declaring it to be symptomatic of "US-style reality TV democracy."
An opinion piece published by China's Xinhua News Agency entitled "Biden and Trump Play Out the Reality TV Show of US-style Democracy" (拜登和特朗普上演“美式民主”真人秀) highlighted the recriminatory nature of the televised debate, along with the panicked response of America's media class.
"This debate without victors once gain exposed the chaos and divisiveness of US-style democracy before the eyes of the world," the article opined.
"We can expect that as the election date in November fast approaches, the mutual recrimination between Biden and Trump, the Democrats and the Republicans, will inevitably become more frequent and intense.
"The reality TV show of US-style democracy could welcome even more unimaginable episodes."
China's official PMI for June holds steady, smaller enterprises see improvement
China's Purchasing Managers' Index (PMI) reading for June was 49.5, on par with the print for last month, according to figures released by the National Bureau of Statistics (NBS) on 30 June.
The PMI for large-scale enterprises was 50.1, for a decline of 0.6 points compared to the previous month.
The PMIs for medium enterprises and small-scale enterprises were 49.8 and 47.4 respectively, for gains of 0.4 and 0.7 compared to the previous month.