Communist Party praises Chinese private enterprise for overseas takeovers
China says it wants to work with US on AI risk. Inflation prints continue to disappoint.
Our briefing on key economic and financial developments in China as of Friday, 12 July, 2024:
More than 100 Chinese A-share return to profitability in the first half of 2024.
Chinese central bank seeks to normalise yield curve via recourse to multiple policy tools, addition of new overnight repo operations.
Securities regulator seeks to stabilise Chinese stock market with the suspension of refinancing operations.
Communist Party lauds China’s private corporations for launching takeovers of foreign companies.
Inflation continues to disappoint - domestic analysts hope macroeconomic measures can boost price growth in second half.
Chinese central banker blames inadequate domestic demand for China’s lacklustre economic performance and weak financial data.
Renmin University economics professor says overcapacity accusations are a ploy to undermine China’s technological progress.
Communist Party calls for US to work with China on artificial intelligence risks - criticises efforts to stymie China’s indigenous technological development.
Premier Li Qiang meets with top economists and private entrepreneurs to discuss China’s economic conditions, highlighting efforts to achieve full-year growth targets and support for enterprise.
Over 100 Chinese A-shares swing back into profitability
Shanghai Securities Journal reports that over 100 of China's A-share companies have swung back into profitability in the first half of 2024.
More than 20 companies also expect first-half profits attributable to shareholders to exceed 100 million yuan.
"The turnaround in the performance of these companies is mainly attributable to factors including sector recovery and the warming up of market demand," the Journal reports.
Sectors that have seen especially marked reversals and profit improvements in the first half include automobiles, computing and industrial chemicals.
China's central bank makes recourse to multiple tools to normalise yield curve
Domestic analysts say the People's Bank of China (PBOC) - which is the Chinese central bank, is turning to the use of new tools in a bid to normalise the yield curve.
On 1 July, PBOC announced that it would soon commence borrowing Chinese treasuries from the primary dealers for its open market operations (OMO), and had already entered related formal agreements.
Domestic observers say the move is preparation for PBOC to sell off treasuries, for the purpose of influencing bond prices and longer-term interest rates.
PBOC has since announced the adoption of new short-term measures to sway rates.
On 8 July, PBOC said that it would immediately commence overnight repo or reverse repo operations based on prevailing conditions.
The move adds a new overnight reference rate to PBOC's existing array of 7-day, 14-day and 28-day reverse repo operations.
China's central bank chief Pan Gongsheng had previously made reference to "using the short-term OMO rates of the central bank as the main form of policy rate."
Financial data provider Wind points out that the move presages a narrowing of the interest rates corridor to 70 basis points, given the overnight repo and reverse repo rates are set at 20 basis points below and 50 basis points above the 7-day reverse repo rate respectively, which currently sits at 1.8%.
A note from Minsheng Research points out that the "deep significance of this is likely the central bank driving the normalisation of the yield curve."
China's securities regulator suspends refinancing operations
The China Securities Regulatory Commission (CSRC) announced on 11 July that it would temporarily suspend securities refinancing operations, with outstanding agreements to conclude before 30 September.
Domestic brokers said to state-owned media that the move was intended to "raise market fairness, improve the mood of investors, and spur the healthy development of the market."
"This adjustment clearly indicates the attitude of regulators when it comes to firmly maintaining the smooth operation of the market and protecting the rights and interests of investors," said Liu Jiawei (刘嘉玮), analyst from Dongxing Securities.
"It will help to invigorate investor confidence, and we expect that there will be a marked decline in equity market volatility in future."
Communist Party lauds acquisition of foreign companies by Chinese private enterprise
The People's Daily - the flagship newspaper of China's Communist Party, has praised the acquisition of foreign companies by Chinese private enterprise as part of efforts to expand into overseas markets.
An opinion piece published by The People's Daily entitled "Private Listed Companies Borrow Strength from Overseas Acquisitions to Accelerate Expansion Abroad" (民营上市公司借力海外并购加速“出海”) highlighted the predominant share of Chinese private enterprise when it comes to overseas acquisitions.
It cited data from Wind indicating that since the start of 2024, China had seen 13 major corporate restructurings involving overseas acquisitions, of which privately operated corporations accounted for a 77% share.
Song Xiangqing (宋向清), deputy head of the China Commercial Economics Association, said that the increasing frequency of overseas acquisitions by privately operated listed companies this year was driven by ambitions to expand into new markets, find new growth points, widen sales channels, increase market share and raise brand visibility.
Song also highlighted the benefits of overseas acquisitions to the international competitiveness of Chinese private enterprise.
"It raises their status and influence on the global market, strengthening their own core competitiveness internationally by amassing more resources and advantages."
Chinese inflation continues to disappoint
China's official consumer price index (CPI) came in slightly below market expectations in June, with a YoY rise of 0.2% alongside a month-on-month decline of 0.2% .
Food prices posted an on-month decline of 0.6%, alongside a YoY fall of 2.1%, despite the firming up of pork prices.
Wen Bin (温彬), chief economist with China Minsheng Bank, expects Chinese price levels to warm up in the second half, on the back of the continued effects of macro-economic policy adjustments and the expansion of effective demand.
Central banker pins blame for China’s economic weakness on inadequate demand
Sheng Songcheng (盛松成), a former director with the People's Bank of China (PBOC), has highlighted inadequate domestic demand as the chief cause behind China's ongoing rounds of weak financial data since the second quarter of 2024.
"The foundations for China's economic recovery still need stabilising," Sheng wrote in an online opinion piece published on Weibo.
"As an advance economic indicator, financial data has markedly declined since April of this year.
"Financial data is also a reflection of economic performance, and with monetary policy continually maintaining a supportive stance, the chief reason for the trend of weakening financial data at present is insufficient effective demand.
"Endogenous economic growth drivers still await improvement."
US wants to thwart China's technological progress with overcapacity accusations: Chinese economics professor
A leading Chinese economics professor says the US and EU want to block China's technological progress with repeated accusations of industrial overcapacity.
In an interview with 21st Century Business Herald, Wang Jinbin (王晋斌), deputy-head of the faculty of economics at China's prestigious Renmin University, said that accusations of Chinese industrial overcapacity are "completely unfounded."
"These phrases are old tricks re-used by the US and EU to bar China's technological progress.”
Wang stressed the adverse implications of US and EU tariffs on Chinese EVs for efforts by global policymakers to drive green development.
"[This] harms the green development rights of rights of both China and the world,” he said.
"Looking at things from a global perspective, at present high-quality capacity in new energy industries isn't excessive, but is in fact inadequate."
Wang also highlighted the adverse effects of further protectionist measures from leading economies.
"There are no winners in a trade war, including various forms of trade frictions such as tariff barriers," he said.
"From the perspective of consumer welfare, it can only lead to a lose-lose ending."
Communist Party calls for China and US to join forces in dealing with AI risk, says trade barriers undermine these efforts
The People's Daily - the flagship newspaper of the Communist Party in China - has called for China and the US to cooperate on the regulation of artificial intelligence, while rebuking American for attempting to stymie Chinese development.
An opinion piece entitled "Global Regulation of Artificial Intelligence Cries for Sino-US Cooperation" (人工智能全球治理呼唤中美合作) highlighted China's willingness to cooperate with the US on international efforts to safeguard AI innovation.
"With regard to cooperation with the US on AI, China's goodwill and sincerity has been consistent from start to finish, and the gateway to dialogue and cooperation has always been open."
The opinion piece by Zhang Siyuan (章思远) also directed criticism at the US for measures that could stymie the development of China's indigenous AI sector.
"The US harbours doubts about undertaking AI exchange and cooperation with the China, and is even more concerned about China's potential technological progress.
"Whether by restricting investment in China's advanced industries including AI; elevating restrictions on the export of advanced AI microchips to China, or restricting the use by Chinese companies of US cloud computers for training AI models, the US is still attempting to place barriers around its most advanced AI models.
"This will not only fail to impede China's scientific and technological progress, it will also rupture international industrial chains and weaken the ability of humanity to deal with risk."
Premier Li Qiang meets with economic experts and entrepreneurs - key takeaways
Premier Li Qiang convened a meeting with economic experts and entrepreneurs on the afternoon of 9 July, to hear opinions on prevailing economic conditions and the next round of economic work.
Key takeaways from the meeting include:
China's efforts to drive high quality growth and accelerate the development of "new quality productive forces" since the start of the year.
The expansion of macroeconomic adjustments and further implementation of current macroeconomic policies.
Efforts to achieve "continual structural upgrades."
The need to focus on achieving the full-year economic growth targets for this year.
Li Qiang wanting to "stabilise the confidence" of entrepreneurs.
A focus on innovative development, and endeavouring to drive private entrepreneurs "towards strength and excellence."