1.Central Bank Governor Expects 2021 Inflation Below 2%
Communist China’s central bank Governor Yi Gang said at the Lujiazui Forum that consumer inflation in 2021 is expected to stay below 2%, lower than the government’s official target of about 3%. Yi also predicted that the country’s GDP growth rate will be close to the potential growth rate. According to Yi, the interest rate is kept at an appropriate level, which is still relatively low compared with rates in other emerging and developing economies.
He acknowledged the short-term global inflation this year but there are disagreements on whether inflation will continue in the long run. The aging population in the country will lead to an increase in personal savings of residents and a decrease in the propensity to consume, which will help curb inflation. The transition toward green energy may increase price pressures.
2.Crypto Related Keywords Censored in Communist China
On June 9, it appeared keywords associated with crypto exchanges such as Binance, Huobi, and OKEx were being censored by search engines and service providers such as Baidu, 360, and Weibo. For example, the Weibo page displayed: “according to relevant laws, regulations and policies, the search results are not displayed” when one of these keywords was entered.
Such censorships of crypto related keywords came after Communist China launched a crackdown on crypto mining and trading in May. Many media outlets have reported that crypto mining and trading activities have been suspended or are being further investigated in several regions such as Inner Mongolia, Xinjiang, and Sichuan, pending follow-up policies.
Recently, BitMart, Matcha, Huobi and many other crypto currency trading platforms have announced suspending Chinese mainland users’ contract transactions. In addition, several crypto mining operators and related companies such as BitDeer and Mars Cloud Mine have started blocking access to anyone using a mainland Chinese IP address.
3.Real Estate Companies’ Foreign Financing Shrank Sharply
The scale of foreign financing by Communist China’s real estate companies has shrunk sharply, further increasing the pressure of default. According to data from the Beike Research Institute, in the first five months of this year, the scale of foreign financing by real estate companies was about 151.1 billion yuan, a year-on-year decrease of about 29% from last year and 47.4% from 2019. Real estimate companies’ domestic financing in May was also on a smaller scale.
Data from China Index Academy indicate that in January 2021 the total amount of overseas debt issuance by real estate companies reached 79.65 billion yuan. However, the amount was less than 15 billion yuan in March and April and remained low in May. Pan Hao, a senior analyst at the Beike Research Institute, pointed out that the pressure on small and medium-sized real estate companies has intensified. “Enterprises with high debt ratios and poor profitability are affected to a greater extent. Companies with low turnover rates and sales collection rates will likely have insufficient liquidity and experience greater pressure,” said a real estate analyst.
4.Two Cash-Hungry Chinese Online Grocers Filed for U.S. IPO
Dingdong Maicai submitted its prospectus to the SEC on June 9 with a plan to list on the New York Stock Exchange. Tencent-backed Missfresh Ltd. also submitted its prospectus on the same day and plans to list on the Nasdaq. Both are eyeing more funds from the U.S. capital market.
Because of the CCP virus pandemic, online grocery companies have grown in scale significantly in 2020. The prospectus shows that from 2018 to 2020, the operating income of Missfresh was 3.547 billion yuan, 6.01 billion yuan, and 6.13 billion yuan respectively. However, it suffered losses in all three years (2.232 billion yuan in 2018, 2.909 billion yuan in 2019, and 1.649 billion yuan in 2020). Dingdong Maicai has been plagued by similar problems of high cost of rent, marketing, and other expenses. From 2019 to 2020, despite an increase in Dingdong’s operating income from 3.88 billion yuan to 11.34 billion yuan, its net losses went up from 1.873 billion yuan to 3.177 billion yuan.
5.Two Major Shanghai Airports to Merge Through Asset Restructuring
On June 9, Shanghai International Airport Cp., Ltd. (hereinafter referred to as “Shanghai Airport”) announced its plan to purchase 100% of the shares of Shanghai Hongqiao International Airport Co., Ltd. held by the controlling state-owned shareholder Shanghai Airport Authority, 100% equity of its logistics company, and related assets of the fourth runway of Shanghai Pudong International Airport. At the same time, it plans to raise supporting funds through non-public offering of shares.
Since 2003, Shanghai Pudong International Airport has been operated by Shanghai Airport. Shanghai Hongqiao International Airport has been owned by Shanghai Airport’s major shareholder Shanghai Airport Authority. Since January 29 this year, the market value of Shanghai Airport has fallen more than 40% from more than 150 billion yuan to about 94 billion yuan. This asset restructuring announcement has become a popular search on Weibo and attracted many comments from netizens. Many netizens expressed their concern that the merger of two airports with huge losses will unlikely lead to a profitable outcome.
6.Eighth Increase in Domestic Refined Oil Prices is Expected
As international crude oil prices have climbed higher, it is forecasted that on June 11, Communist China’s domestic prices of refined oil products will go through an upward adjustment for the eighth time this year. Given the adjustment window of 10 working days, it is currently the 7th working day in the adjustment window. The upward adjustment is very likely to take place. It is estimated that by June 11 the domestic prices of refined oil products will be increased by about 160 yuan/ton. In 2021, there have been ten rounds of price adjustments on domestic refined oil, with seven upward adjustments, one downward adjustment, and two strandings. The cumulative adjustment thus far in 2021 is 1,005 yuan/ton for gasoline and 970 yuan/ton for diesel.
7.Price of Potash Fertilizer Continues to Rise
Recently, the price of potash fertilizer has continued to rise. The latest data from Baiinfo.com shows that the price of Russian muriate of potash (MOP) 62% has increased by about 500 yuan/ton in the past month, now exceeding 3,000 yuan/ton. According to data from 100ppi.com, the price of potassium chloride products (a high-quality agricultural product) of Qinghai Salt Lake Potash Co., Ltd. on June 9 was 2,400 yuan/ton, up from 2,210 yuan/ton in early April.
As the global economy recovers and the prices of agricultural products rise, farmers’ willingness to grow grain is increasing, leading to higher demand for fertilizers and further pushing up their prices. It is predicted that the domestic potash market prices continue to rise sharply, but the supply is mostly in the hands of large-volume traders who are reluctant to sell. Therefore, the circulating supply is insufficient, forcing downstream factories to accept higher-priced raw materials.
8.Ten Billion Yuan Reverse Repo by Communist China’s Central Bank
The People’s Bank of China launched a seven-day reverse repo operation of 10 billion yuan (about $1.56 billion) on June 9 to maintain reasonably sufficient liquidity in the banking system. The interest rate was set at 2.2 percent. On the same day, 10-billion-yuan worth of reverse repo matured, leading to zero injection into the market. So far, reverse repurchase operations on a similar scale has been extended for 72 days.
By【G Translators- Financial Team】