Sector Report on China 25.10.2021

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Financial Authorities Declarations

  • Flash News!

-The Ministry of Commerce (MOC) and the State Taxation Administration (STA) jointly released a draft measure to implement a pilot property tax. The Standing Committee of the National People’s Congress (NPC) also authorize the State Council to pilot property tax reforms in certain regions.

-Huawei announced at the Euro-Asia Economic Forum a green energy project in Xi’an City capital of Shaanxi Province. The project amounting 10 Billion Yuan will be fund by the local branch of State Power Investment Corporation Limited (SPIC) and build by Huawei to accelerate photovoltaic construction and also promote green energy electricity trade.

  • The CSRC approved IPO and announced strict supervision of Futures Market !

The China Securities Regulatory Commission. (CSRC) approved IPO of Actions Technology Co., Ltd. and Qingdao Yunlu Advanced Materials Technology Co., Ltd. on Shanghai STAR market. .

Jiangsu Zeyu Intelligent Power Co., Ltd., Sichuan Discovery Dream Science & IPO on ChiNext market are also approved:Technology Co., Ltd., Ningbo Homelink Eco-iTech Co., Ltd., Guangzhou Huayan Precision Machinery Co., Ltd. and Guangdong Lifestrong Pharmacy Co., Ltd.

In addition, Yongan Futures Co., Ltd. and Zhejiang Liming Intelligent Manufacturing Co., Ltd.received approbation to be listed on A-share market.

The CSRC declared tighter supervision over domestic futures market to curb excessive speculation. “The China Securities Regulatory Commission will adopt zero tolerance towards irregularities, step up crackdown on manipulation and other behaviors against laws and regulations, so as to maintain a good market order.

  • Hong Kong launches new derivatives on Chinese equities!

Hong Kong Exchanges and Clearing Limited (HKEX) launch a new A-share derivatives contract called the MSCI China A50 Connect Index Futures.

The new futures contract is unique, as it is based on the MSCI China A50 Connect Index, a sector-balanced index that selects 50 names from among the largest stocks listed in Shanghai and Shenzhen available via Stock Connect, and targets at least two stocks from each sector” HKEX said in an online statement.

This new contract will provide to international investors effective risk management products to manage available A-Share portfolio. The HKEX also indicates that this news will strengthen the role of Hong Kong as a « gateway to China”.

HKEX Chief Executive Officer Nicolas Aguzin said: « This new product further strengthens Hong Kong’s role as the gateway to China for global investors and marks another great step forward in supporting the further internationalization of China’s capital markets. […] China connectivity is Hong Kong’s unique advantage, setting us apart from other international financial centers around the world. We look forward to continuing to develop Hong Kong’s leading position as Asia’s derivatives hub »

Central Bank Operations and declarations

Date Operations Maturity Amount Interest rate
October 18 Reverse Repo 7-days 10 Billion Yuan 2.2%
October 19 Reverse Repo 7-days 10 Billion Yuan 2.2%
October 21 Reverse Repo 7-days 100 Billion Yuan 2.2%
October 22 Reverse Repo 7-days 100 Billion Yuan 2.2%

 

The 1-year loan prime rate (LPR) stand unchanged at 3.85% like the 5-years LPR at 4.65% according to the National Interbank Funding Center (NIFC).

  • PBOC survey on Macroeconomic Heat.

The People’s Bank of China (PBOC) conducted the nationwide banker survey to create the Macroeconomic Heat Index (MHI). In Q3 the MHI stand at 38.6% down 7.3 pp from previous quarter. 71.8% of bankers respondents deemed as “normal” the current macroeconomic climate (-7.5 pp qoq), 25.5% gauge the situation as “relatively cool’’ (+11 pp qoq).  Expectations for the next quarter is 42.5% (+3.9 pp anticipated).

The Banking industry climate index stand at 70% (+0.4 pp qoq and +3.9 pp yoy).

  • PBOC and HK Monetary Authorities signed a MOU .

The People’s Bank of China (PBOC) and the Hong Kong Monetary Authority (HKMA) jointly declared the signature of a Memorandum of Understanding (MOU) on Fintech Innovation Supervision Cooperation in the Greater Bay Area (Guangdong Hong Kong Macao Area). “In the next step, the two sides will, under the cooperation framework, adhere to the principles of mutual trust, mutual understanding and mutual respect, provide efficient fintech innovation testing services, and inject new impetus into the high-quality financial development of the GBA” PBOC said.

  • PBOC and Real Estate sector: a lovely story of regulation.

The Property Market continue on its downward growth path as monitoring and regulation and prices becomes tighter to curb Housing speculation.

Regulators established a ‘’long term” mechanism in January 2021 to better rule the sector by restricting housings acquisitions by speculators (renters) to favor purchase by families in needs (youngers workers especially with or without children depending the pressure). Local Government and Cities Authorities implemented strict conditions to acquire Housing while Regulators monitor the real estate loans to buyers’ status and also property companies.

Note that the Housing Prices decrease in September except in Tier-One cities. The regulation measures are then highlighting first signs of a reduction of prices pressure. The willingness of the PBOC is still maintaining the Real Estate in a ‘’normal growth path” leading to clearly monitor all aspects of the property bubble by limiting speculation at all costs.

Then, Evergrande case is a best example … Despite the warning declaration and the gradually implementation of tighter rules leading to a prices stabilization or decrease, Evergrande fails to manage its activities in accordance with this changing property climate. Whatever the downgrade of its credit graduation and the current debate on its failure , Evergrande was still in a difficult situation and will probably be strongly sanctioned by PBOC or others in the future.

Real Estate Market September 2021 Units
New home prices in Tier 1 Cities* +0.3% mom
Resold Houses prices in Tier 1 Cities* -0.4%
New home prices in Tier 2 Cities +0% mom
New home prices in Tier 3 Cities -0.2% mom
Property Investment 11.26 Trillion Yuan
— Growth +8.8% ytd
— Growth from 2019 +14.9% over two years
*Beijing. Shanghai. Shenzhen and Guangzhou

 

To conclude, the Ministry of Commerce (MOC) and the the State Taxation Administration (STA) jointly released a draft measure to implement a pilot property tax  to better control the Real Estate sector.

The Standing Committee of the National People’s Congress (NPC) also authorize the State Council to pilot property tax reforms in certain regions.

  • State Administration Foreign Exchange data
Q1-Q2-Q3 2021 Units
Net Forex Settlement surplus +180 Billion USD
— Bank FX purchases 1.86 Trillion USD
— Bank FX Sales 1.68 Trillion USD

 

Government Declarations

  • WTO review of China Trade Policy !

The Ministry of Commerce (MOC) indicated that the World Trade Organization (WTO) will start the 8th review of Chinese trade policy.

The review would last three days until Friday and will be attended by Minister of Commerce WANG Wentao and Vice Minister of Commerce WANG Shouwen in Beijing via video link, and China’s Ambassador to the WTO LI Chenggang in Geneva” the MOC said.

The MOC declared that China is the second world largest importer for 11 consecutive years.  In January-September period, China importations of goods stood at 2 trillion USD up 32.6% yoy. This amount represents 12% of the world total and contribute to 15% of world importation increase.

In addition, the MOC issued a plan for FDI use under the 14th Plan period expecting 1 Trillion Yuan of FDI in China in 2021.

The country will continue to boost high-level opening-up to attract global high-quality resources” the MOC said.

  • Coal Production issue …

The National Mine Safety Administration declared that coal production capacity will be accelerated to ensure supply of energy during the winter. “Currently, some 153 coal mines have qualified for the administration’s list for emergency supply, and are expected to increase production capacity by 220 million tonnes per year” according to the official.The Administration plans that 55 Million tonnes of coal will be produced by these mines from now to 2021 end. The National Development and Reform Commission (NDRC) indicates that the daily coal production exceeded 11.6 Million tonnes on October 18 the highest point of 2021.

The NDRC also plan to intervein to maintain coal prices stable or to bring back to a supportable level to ensure and secure the energy/electricity output.

The recent coal price hike has completely deviated from the fundamentals of supply and demand, and prices are still showing further irrational rises […] When the prices of important commodities and services rise significantly or are likely to rise significantly, relative authorities may take intervention measures like limiting profit margins, stipulating price limits, and implementing a price increase filing system” as NDRC declared.

September 2021
Raw coal output 330 Million Tonnes
— Growth -0.9% yoy
— Growth from 2019 -1.8% over 2 years
Coal Imports 32.88 Million Tonnes
— Growth +76% yoy

 

Data Published

Jan-Sept 2021 Units
Non-Financial FDI 859.5 Billion Yuan
— Growth +19.6% yoy
Non-Financial ODI 522.76 Billion Yuan
— Growth -5.2% yoy
FAI 39.78 Trillion Yuan
— Growth +7.3% yoy
— Growth from 2019 +7.7% over 2 years
Fiscal revenue 16.4 Trillion Yuan
— Growth +16.3% yoy
Tax Revenue 14.07 Trillion Yuan
— Growth +18.4% yoy
VAT Revenue 5.01 Trillion Yuan
— Growth +17.4% yoy
Fiscal spendings 17.93 Trillion Yuan
— Growth +2.3% yoy
Spendings on education +5.2% yoy
Spendings on medical health/care +2.3% yoy

 

Sources : Ministry of Finance, People’s Bank of China and the State Administration of Foreign Exchange, National Bureau of Statistics, Ministry of Commerce, Ministry of Finance, General Administration of Customs, State-owned Assets Supervision and Administration Commission

 

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