China policy and markets round-up: PBoC unveils 2021 goals, Beijing extends SME support, Trump bans Alipay, WeChat Pay
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China policy and markets round-up: PBoC unveils 2021 goals, Beijing extends SME support, Trump bans Alipay, WeChat Pay

2021 firework_adobe_8Jan21

In this round-up, the central bank sets working goals for 2021, the Chinese government extends its policy to support small and micro-sized enterprises, and the US bans eight Mainland-based applications including the popular Alipay and WeChat Pay.

The December Caixin China general services Purchasing Managers’ Index (PMI) was 56.3. The reading, while lower than November’s 57.8, was still one of the highest over the past decade, said Caixin. 

“The fall is in line with the decline in the official non-manufacturing PMI for the services sector, released earlier, as sporadic Covid-19 outbreaks domestically forced some local governments to tighten social distancing requirements and stalled (or even reversed) the services sector recovery,” wrote Nomura in a research note. “The unfavourable base effects from high services PMI readings in previous months could be another factor for the December decline.”

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China’s December foreign exchange reserves were close to $3.217tr, showing a $38bn monthly increase, according to the State Administration of Foreign Exchange (Safe).

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The People’s Bank of China (PBoC) has set its working goals for 2021, which include making “prudent monetary policy more flexible and targeted”. It also plans to better monitor and regulate financial institutions and financial activities by internet platforms.

The central bank said it will increase the connectivity of bond market infrastructure, and improve the mechanism to deal with domestic defaults, with harsher punishment for fraudulent issuance of bonds.

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The forex regulator Safe has also set itself some targets for this year. Among them is a move to push forward private equity funds’ cross-border investment trials, reform the foreign debt registration and management system, and ease cross-border investment and financing rules.

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The PBoC and Safe decided to lower the “macro-prudential adjustment parameter” for Chinese corporations from 1.25 back to the pre-Covid-19 level of 1, following a similar adjustment for financial institutions in December. The move is expected to help China manage foreign debt risks, given it means that Chinese corporates and financial institutions can borrow 25% less foreign debt. 

The parameter, raised to 1.25 from 1 last March, is one of three factors in a formula used by the two regulators to calculate the maximum amount of outstanding foreign debt a Chinese issuer can have.

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China has extended its relief policy for inclusive financing for small and micro-sized enterprises (SMEs) to March 31, after current support measures expired at the end of 2020. Lenders have been told to extend repayments of SME loans due between January and March “if they should be extended”.

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The Ministry of Finance has revealed new benchmarks for the performance evaluation of Chinese commercial banks. 

Lenders used to be evaluated by their profitability, business growth, asset quality and solvency ratios. The new criteria will be based on their performance in four areas: their ability to serve the development goals of China and the real economy, the quality of their own development, their ability to control and prevent risks, and their operational efficiency.

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The China Banking and Insurance Regulatory Commission (CBIRC) published guidance to help mitigate risks at village and town banks. Chinese banking regulation requires the largest shareholder in these lenders to be a bigger bank, with a minimum 20% equity interest.

The bank parents are encouraged to inject capital into village and town banks and help dispose of their non-performing assets. Other measures proposed by the CBIRC include mergers and acquisitions among village and town lenders and the introduction of strategic investors.

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Foreign holdings in Chinese bonds through the China Central Depository & Clearing Co (CCDC) jumped 53.7% year-on-year in December to Rmb2.9tr.

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In December, 468 overseas institutional investors participated in the China interbank bond market (CIBM) through the CIBM Direct scheme, and 625 through Bond Connect, said the China Foreign Exchange Trading System (Cfets). These included 15 new investors, 13 of which entered through Bond Connect.

Net inflow in the CIBM was Rmb1.75bn last month. The monthly trading volume dropped 10% compared to November to Rmb784.8bn, according to Cfets.

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Standard Chartered expects Rmb1.3tr-Rmb1.5tr of foreign capital inflow into China’s bond market in 2021, and overseas holding of onshore bonds to rise to Rmb4.5tr-Rmb4.7tr from Rmb3.1tr at the end of November 2020, the bank said in a report.

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Six Chinese regulators, including the PBoC and Safe, published a 15-point regulation on cross-border renminbi business to support foreign trade and investment.

The new rules simplify the settlement process, optimise the management of cross-border RMB investment and financing, and facilitate the use of RMB settlement accounts for non-Chinese institutions. The regulations also allow domestic Chinese banks to open RMB settlement accounts for Hong Kong and Macau residents with a Rmb80,000 daily personal limit.

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The Shanghai municipal government plans for 10 state-owned companies to list on the Star market by 2022, as part of a new three-year plan for the reform of local state-owned enterprises (SOEs).

Shanghai said it will introduce strategic investors to listed SOEs with large government shareholdings. It also plans to focus the reform on innovative areas including integrated circuits, biopharmaceuticals, artificial intelligence and digital city.

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US President Donald Trump signed an executive order banning transactions with eight Chinese software applications on national security concerns. These include Alibaba’s Alipay, as well as messaging app Tencent QQ, QQ Wallet and WeChat Pay.

The apps can access personal electronic devices, including smartphones and computers, and collect “personal and proprietary information” of Americans. This would “permit China to track the locations of Federal employees and contractors, and build dossiers of personal information”, the order said.

A Chinese Ministry of Commerce (Mofcom) spokesperson said Trump’s order is “a deviation from the principle of fair competition” and violates international economic and trade rules. It not only damages the rights and interests of Chinese companies but also that of consumers including American users, as well as confidence of international investors in the business environment in the US, the Mofcom added.

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China Huarong Asset Management Company’s chairman Lai Xiaomin was sentenced to death by a Chinese court. Huarong is one of the country’s biggest state-owned bad-debt managers.

Lai Xiaomin was convicted by the Secondary Intermediate People’s Court of Tianjin of bribery, corruption and bigamy. The court sentence stated that Lai received or sought Rmb1.788bn in bribes between 2008 and 2018. 

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