No surprises from China's Communist Party...

China wraps up its biggest economic meeting this decade. Sovereign investor props up Chinese A-shares.

Jul 19, 2024

Our briefing on critical economic and financial developments in China as of Friday, 19 July, 2024:

The Communist Party’s Third Plenary Session - the biggest economic meeting since the start of this decade - appears to bring no policy surprises from China’s central government.
Chinese sovereign fund Central Huijin stocked up on ETFs in the second quarter, as regulators push to stabilise the A-share market.
A former top official from China Development Bank has gone on trial for bribery.
The Chinese central bank pumped in liquidity via the use of reverse repos during the Third Plenum.
First home-loan rates continue to fall, dropping to 3% in the Guangdong province city of Guangzhou.
China’s finance ministry launches treasury support operations to stabilise bond market, normalise yield curve.

The Communist Party's most important economic meeting since the start of the 2020's has offered no strange shocks or surprises in terms of policy settings, but simply maintained the themes of long-standing official rhetoric.

The 20th Central Committee of China's Communist Party held its Third Plenary Session from 15- 18 July, 2024.

Third plenary sessions - held once during the five-year terms of each Central Committee of the Communist Party, are considered key events for the setting of China's economic agenda.

This year’s Third Plenum was packed with the same bromides and boilerplate phrases that have filled policy announcements during Xi’s term in office, if not for decades prior.

Xi increasingly appears to be a dependable conservative, maintaining the same basic form of political economy that has prevailed for well over three decades in China, and first reached clear definition in the 1990’s during the tenure of Jiang Zemin and Zhu Rongji as leaders.

This sensibility involves rhetorical commitment to further reform and opening of the Chinese economy, along with the pivotal role of state-guided markets in driving development.

Key points from the official communique released by the Communist Party following this year’s Third Plenary Session include:

Further comprehensively deepening reform.
The development of China's socialist market economy.
The pursuit of high-quality development.
Modernisation that involves the "harmonious co-existence of man and nature."
The primacy of Communist Party leadership.

State-owned investment giant snatches up Chinese ETFs to prop up A-shares

China's sovereign investment giant Central Huijin stepped up its purchase of A-share ETFs in the second quarter, following a push from the state to stabilise the Chinese sharemarket.

Central Huijin subscribed for nearly 15 billion yuan in the shares of the Shanghai-Shenzhen 300 ETFs provided by fund managers Yifangda, Jiashi and Huaxia, according to their latest round of quarterly reports.

Yicai expects subsequent reports from other A-share ETFs to reveal further purchases in the second quarter by Central Huijin.

Former top official from China Development Bank goes on trial for corruption

On 18 July, the Jilin Middle People's Court commenced its trial of Wang Yongsheng (王用生), formerly the deputy-chief of China Development Bank, over accusations of corruption.

China Development Bank occupies a critical role in the Chinese financial system, given its status as one of the three big policy banks responsible for supplying credit to advance the strategic policy goals of the state.

Wang stands accused of accepting 23.51 million yuan in bribes during the period from 2010 to 2019, when he held the positions of president and party secretary of the Liaoning province branch of China Development Bank.

Chinese central bank pumps in liquidity via reverse repos during Third Plenum

The People's Bank of China (PBOC) - which is the Chinese central bank, injected large volumes of liquidity into the financial system during the Communist Party's historic Third Plenum meeting.

On 16 July, PBOC engaged in 676 billion yuan in reverse-repo operations, for net injections of 647 billion yuan via its overall open market operations.

Over the space of just two trading sessions, PBOC made net injections of 801 billion yuan, in what domestic commentators note marks a rare use of reverse repo operations for such copious liquidity injections.

Analysts say the move from PBOC is intended to maintain ample liquidity in the Chinese financial system during July, which is a peak month for tax payments, including the value-added tax, consumption tax, personal income tax and enterprise income tax.

PBOC is also in the process of changing its monetary policy practices, making greater recourse to short-term instruments such as the 7-day reverse repo and the recently introduced overnight reverse repo to influence interest rates, instead of its medium-term lending facility.

First-home loan rates in China drop to 3% in key cities

China has seen first home loan rates slide, following measures launched by the central bank to prop up the health of the country's ailing property market.

In the Guangdong province mega-city of Guangzhou, first-home loan rates at multiple banks have fallen twenty basis points to 3.2% from 3.4%, in the two months since the launch of credit loosening measures for the housing sector by the People’s Bank of China (PBOC).

According to a report from Beijing Business Today, one foreign invested bank in the Guangzhou area is currently offering first-home loan rates at a low of 3%.

The fall in home loan rates arrives just two months after the Chinese central bank introduced credit loosening measures for the property sector on 17 May, removing floors on home loan rates and reducing down payment ratios.

China's finance ministry launches treasury support operations

On 15 July, China's Ministry of Finance (MOF) announced that it would "undertake treasury market-making support operations, with goal of “providing stability to the Chinese bond market and supporting yield curve normalisation.”

In its "Notice on Arrangements in Relation to Undertaking Treasury Market-making Support in July 2024" (关于开展2024年7月份国债做市支持操作有关事项的通知), MOF said it would seek to increase the liquidity of Chinese treasuries on the secondary market, and improve the ability of the treasury yield curve to reflect market supply and demand relations.

Zhang Yiqun (张依群) from the Chinese Academy of Fiscal Sciences told Securities Daily that MOF had a distinct advantage when it came to direct market-making operations for treasuries, given its status as their original issuer.

"This can expedite the stability of the bond and capital markets," Zhang said.

"It can also accelerate the flow of funds on the bond market, and drive positive circular development."