State-owned banks invest in microchip fund, Lardy says China entering new era of consumption
A round-up of key economic and financial developments in China as of Friday 31 May, 2024
The central government has signalled efforts to further ensure complete regulation of all financial activity, as well as stepped up IPO requirements in order shore up confidence in the capital market.
All of the big six state-owned banks are taking major stakes in China’s latest integrated circuit fund, while the State Council has unveiled further plans to reduce carbon emissions.
Economist Nicholas Lardy says China is entering a new era where consumption will play a greater role in driving the economy. Chinese banks are part of this transition, reducing rates for consumer loans to under 3% in some cases.
The central bank’s credit loosening policies to bolster the property market are seeing further implementation, with nearly all of China’s tier-one cities reduce mortgage rates and down payment requirements.
China's Politburo commits to prevention of financial risk, regional development
President Xi Jinping convened a meeting of the Chinese politburo – the highest political body of the Communist Party, on 27 May.
The meeting discussed two key resolutions:
The Several Measures on Driving the Accelerated Rise of the Central Regions in a New Era (新时代推动中部地区加快崛起的若干政策措施).
The Trial Version of Risk Accountability Regulations for Preventing and Resolving Financial Risk (防范化解金融风险问责规定（试行）).
"The Risk Accountability Regulations are for further consolidating the responsibilities of relevant regulatory departments, financial institutions, industry regulators and regional party committees and governments in the financial sphere," the Politburo announced.
"[They] spur leading cadres at all levels to effectively implement the comprehensive strengthening of financial regulation, prevent and dissolve financial risk, and drive all missions for the high-quality development of finance."
NFRA demands that all forms of financial activity in China be regulated
On the same date that the Politburo convened, China's National Financial Regulatory Administration (NFRA) held a meeting of its standing committee to discuss measures in relation to the implementation of the "Trial Version of Risk Accountability Regulations for Preventing and Resolving Financial Risk" (防范化解金融风险问责规定（试行）).
NFRA called for "pushing for the lawful inclusion of all forms of financial activity under regulation," and "vigorously strengthening the establishment of the rule of law for financing, and accelerating the supplementation of regulatory shortcomings."
Big state-owned banks invest heavily in China's new chip fund
On 27 May, all six of China's big state-owned banks announced that they would make sizeable investments in China's National Integrated Circuit Industry Investment Fund Phase Three Share Limited Company (国家集成电路产业投资基金三期股份有限公司).
Bank of China (BOC), Industrial and Commercial Bank of China (ICBC), Agricultural Bank of China (ABC) and China Construction Bank (CCB) announced that they would each make investments of 21.4 billion yuan, conferring all of them with equity stakes of 6.25%.
Bank of Communications (BOCOM) said it planned to make an investment of 20 billion yuan, for 5.81% of equity, and Postal Savings Bank of China (PSBC) 8 billion yuan, for a 2.33% stake.
The Fund was established on 24 May with registered capital of 344 billion yuan.
Industry observers say the inclusion of multiple banks amongst the fund's 19 shareholders marks a major change compared to the Phase One and Phase Two funds established in China to invest in key semiconductor projects.
New listing requirements expected to "reshape China's IPO market"
Following the launch of new listing requirements on 30 April, 35 companies have withdrawn their applications for IPOs.
Zhou Li (周力), head of Shenzhen Daxiang Investment, told Securities Daily that some of these companies had disclosed financial data that fell short of new listing benchmarks, while others suffered from dividend-related issues.
Zhou said that Chinese regulators will seek to ensure that only enterprises with long-term value and growth potential can list on exchanges, in order to raise the quality of listed companies and expedite the healthy growth of the capital market.
"China is entering a new era where consumption plays a bigger role" – Nicholas Lardy
One of the West's leading experts on the Chinese economy expects consumption to make a greater contribution to growth in years to come.
Nicholas Lardy from the Peterson Institute told 21st Century Business Herald that "China is currently entering a new era where consumption will play a greater role in economic growth."
"Following the rise in China's per capita incomes, consumption is increasingly strengthening its role of driving economic growth.
"This is especially the case in the services sector, including health, education, culture and entertainment, where the momentum of growth is vigorous.
"These factors are jointly driving the structure of the Chinese economy to transition from dependence on investment to greater dependence on consumption and services."
Rates for consumer loans drop to less than 3%
Securities Daily reports that banks are making haste to cut rates for consumer loans at the prompting of central government authorities.
According to the report, multiple banks have reduced rates for certain consumer loans to less than 3%, including Bank of Beijing, Ping’an Bank and China Merchants Bank.
The move arrives after the Chinese central bank and the Ministry of Finance jointly issued the "Notice on Effectively Performing Key Work for Reducing Costs in 2024" (关于做好2024年降成本重点工作的通知) on 23 May, which called for driving reductions in lending rates.
Nearly all of China's first-tier cities cut mortgage rates and down payments
On 28 May, Guangzhou and Shenzhen – the two leading cities in the economic powerhouse of Guangdong province, reduced both down payments and interest rates for home loans.
With the exception of Beijing, all of China's first-tier cities have implemented these dual reductions, in the wake of the central bank's unveiling on 17 May of measures to loosen lending conditions for the property sector.
Minimum first-home loan rates currently sit at 3.40% in Guangzhou, and 3.50% in Shenzhen and Shanghai. 19 Chinese municipalities have reduced home loan rates, with the lowest levels currently sitting at 3.15% for first-home loans and 3.55% for second-home loans.
The China Index Research Academy frets that the move may have undermined the effectiveness of the benchmark loan prime rates (LPRs), given that in many places home loan rates have fallen beneath these thresholds.
IMF raises China's GDP forecast to 5%, points to room for looser monetary policy
On 29 May, the International Monetary Fund (IMF) announced that it had raised China's 2024 GDP forecast to 5% for this year and 4.5% for the following year, for increases of 0.4 percentage points on both counts.
IMF deputy managing director Gita Gopinath said recent macro-economic policy in China had focused on supporting domestic demand and easing downturn risk.
She highlighted room for further loosening of monetary policy given that Chinese inflation is beneath potential, as well as the possibility of increasing exchange rate flexibility to reduce deflationary risk and help absorb external shocks.
Growth in fixed asset investment hailed by National Bureau of Statistics
Manufacturing investment for January - April rose 9.7% in YoY terms, while infrastructure investment rose 6%, beating overall investment growth by 5.5 percentage points and 1.8 percentage points respectively.
"Overall, amidst relevant policies to actively expand effective investment, national fixed asset investment has maintained steady growth," said Liu Aihua (刘爱华), NBS chief economist.
The "Implementation Plan for Driving Equipment Upgrades in the Industrial Sphere" (推动工业领域设备更新实施方案) released by the Ministry of Industry and Information Technology (MIIT) calls for increasing investment in industrial equipment by at least 25% by 2027 compared in 2023.
Pricewaterhouse Coopers fired by state-owned companies due to Evergrande involvement
At least ten listed companies in China have severed ties with multinational accounting firm PricewaterhouseCoopers, due to its involvement with disgraced property giant Evergrande.
These companies include China Merchants Bank, China Railway Group, Mindray Medical and Shanghai Silicon Industry.
PwC served as Evergrande's auditor for 14 years, from 2009 to January 2023.
A Hong Kong court ordered the liquidation of Evergrande in Janaury of this year, after the property company filed for bankruptcy in August 2023.
In March of this year, the China Securities Regulatory Commission (CSRC) completed an investigation into Evergrande over legal breaches in relation to bond disclosures.
The investigation found that Evergrande inflated revenues by 564.1 billion yuan in its 2019 and 2020 annual reports, and inflated profits by 92 billion yuan.
These false figures were then included in documentation for the issuance of 20.8 billion yuan in bonds.
Large-scale industrial companies return to profit growth, SOEs see profits rise 3.8%
Figures released by the National Bureau of Statistics on 27 May indicate that national industrial enterprises above designated size saw profits increase by 4.0% YoY in April, as compared to a decline of 3.5% in March.
China's national state-owned enterprises and state-owned share-controlled enterprises saw profits rise 3.8% YoY in the period from January to April to hit 1.3813.2 trillion yuan, according to figures from the Ministry of Finance.
Revenues stood at 26.19236 trillion yuan for an increase of 3.2%, while payable taxes and fees were 2.03769 trillion yuan, for a rise of 0.9%.
As of the end of April, the asset-liability ratio for these state-owned enterprises was 64.9%, for a rise of 0.1 percentage points.
State Council launches new carbon campaign, will cancel purchase restrictions on clean cars
On 29 May, China's State Council issued the "2024 - 2025 Energy and Carbon Reduction Action Plan" (2024—2025年节能降碳行动方案), with the goal of further advancing emissions reduction efforts.
The plan sets the goal of non-fossil fuel power generation in China reaching around 39% of the total mix by the end of 2025.
The plan also calls for accelerating the removal of old and obsolete vehicles, the inclusion of energy consumption requirements in assessment benchmarks, and gradually cancelling purchase restrictions for clean cars.