6/7/2021-6/13/2021 Weekly Reports: The Truth Of Economy In China

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1.Guo Shuqing Calls Out: Rectify Illegal Public Issuance of Securities; Prevent The Risk of Financial Derivatives

Guo Shuqing said at the 13th Lujiazui Forum on June 10 that risk prevention is the eternal theme of financial work and should not be slackened for a moment. He said that, for the time being, we need to focus on five aspects: first, actively respond to the rebound of non-performing assets; second, closely guard against the resurgence of shadow banking; third, resolutely rectify all kinds of illegal public offering of securities; fourth, effectively prevent the risk of financial derivatives investment; fifth, always be on the alert for a variety of changing patterns of “Ponzi scheme.”

On the rectification of all kinds of an illegal public offering of securities, he pointed out that there are still many financial markets called “private placement,” in fact, “public offering” of various products. Past cases of illegal fund-raising, many of which essentially belong to the illegal public offering of securities. The number of people involved in the investment of these products exceeded the limit of 200 people, and the issue was actually directed at unspecified investors, causing serious damage to the market, society, and the people. Once found, “fake private placement, real public offering” should be severely punished according to law. According to fraudulent issuance, financial fraud, or false disclosure of the issuer and other related parties held legally responsible.

On the prevention of financial derivatives investment risk, Guo said that in the case of financial derivatives in the early risk, there are many individual investors involved in the investment. From mature financial markets, those involved in financial derivatives investment are mainly institutional investors and not suitable for individual investment and financial management.

2.The Central Bank of The CCP Conducted a 10 Billion Yuan Reverse Repurchase for The Third Consecutive Week

The People’s Bank of China (PBOC) announced on June 11 that it conducted 10 billion yuan of reverse repo operations by interest rate bidding today to maintain a reasonable abundance of liquidity in the banking system. The term is 7 days, and the winning rate is 2.2%. Given today’s 10 billion yuan reverse repo expiration, the People’s Bank to achieve zero input zero repos. On June 10, the Shanghai Interbank Offered Rate (Shibor) was down 29.6 basis points to 1.892% overnight and 12.5 basis points to 2.146% for the 7-day Shibor. Depository institutions’ pledged repo DR007 fell to 2.1193%, below the policy rate level. SSE 1-day Treasury reverse repo rate (GC001) fell to 1.955%

3.Yi Gang: Grasp The Rhythm of Policy Strength to Promote the Development of Green Finance

On the 10th Lujiazui Forum, central bank governor Yi Gang said he would continue to deepen interest rate market reform and release the potential of interest rate reform for loan market offers. Under the premise of keeping the total amount moderate, monetary and credit policies will mainly emphasize two major structural aspects.

The first is to promote the development of green finance solidly. Yi said that the CPC central bank actively uses structural monetary policy and other tools to take multiple measures to help the green transformation of the economy and achieve the carbon peak and carbon-neutral goals and guide financial institutions to prevent climate change risks.

Second, it insists on developing inclusive finance. Yi Gang introduced the CPC central bank to guide banks to increase support for first loans and credit loans on the premise of commercial sustainability. Banks and enterprises are encouraged to strengthen loan risk prevention by the principle of commercial sustainability. In-depth implementation of the project to improve the financial service of small and medium-sized enterprises, strengthen the use of financial technology tools, and promote the borrow-and-repay model. Yi Gang concluded that demographic changes will also impact both the supply and demand sides of the economy and that the growth model of using capital and labor inputs to drive the economy is unsustainable under the trend of an aging population.

Comment: Easy Green Finance is a new idea of Ponzi scheme

4.Bank of Nanjing Successfully Issued The First Phase of Green Bonds in 2021 with A Subscription Multiple of 3.47

On June 10, the Bank of Nanjing successfully issued the first issue of green financial bonds in 2021 with a total size of 4-billion-yuan, AAA main and debt ratings, maturity of 3 years, and a coupon rate of 3.28%. Bank of Nanjing said the issue received wide attention from the market, with a subscription multiple of 3.47.

In April 2017, the Bank of Nanjing successfully issued 5 billion yuan of green financial bonds for the first time. All the funds raised were used to support green industry projects involving water, photovoltaic, new energy vehicles, environmental governance, and other projects. It is reported that after the successful issuance of RMB 4 billion green financial bonds, the Bank of Nanjing will also issue carbon-neutral bonds with a scale of RMB 1 billion shortly.

5.May New Social Financing up to 1.92 Trillion Yuan

The Central Bank of Communist China released data on May 10 showing that the scale of new social financing in May reached 1.92 trillion yuan (bout $295 billion), despite a drop in the high base compared with the same period of the previous year, but to achieve a ringgit increase of 0.07 trillion yuan, also 208.1 billion yuan more than the same period in 2019. The data showed that entrusted loans, trust loans, and undiscounted bankers’ acceptances were down in May. A combined decrease of 285.5 billion yuan was more than the same period a year earlier. The new local government debt limit was issued later this year than last year. The net financing of government bonds in May was 466.1 billion yuan less than a year earlier, which also had a downward effect on the increase in social financing scale.

After a significant decrease in RMB deposits in April, the indicator achieved growth in May. Data show that RMB deposits increased by 2.56 trillion yuan in May, increasing 252.1-billion-yuan year-on-year. Among them, fiscal deposits increased by RMB 925.7 billion, and deposits from non-bank financial institutions increased by RMB 783 billion.

6.BlackRock Approved to Conduct Public Funds in Communist China

On June 11, Communist China Securities Regulatory Commission (CPSC) has issued a business license to BlackRock Fund Management Co., Ltd. and approved BlackRock to conduct business activities as a public fund management company (FMC). This means that BlackRock became the first foreign-owned public fund. According to the official website, BlackRock was established in 1988, formerly known as BlackRock Financial Management, a subsidiary of the BlackRock Group. After three decades of organic growth and outward expansion, BlackRock has become one of the world’s largest asset management institutions. As of the first quarter of this year, data show that the world’s largest asset management company, BlackRock scale reached $9 trillion, a new record. As the world’s largest asset manager, BlackRock has taken many actions in communist China in recent years.

7.The Pandemic in Guangdong Threatens to Disrupt International Trade

The Financial Times reported yesterday that since the end of May, the Guangdong government had implemented strict measures to prevent and control the epidemic. As a result, the handling capacity of the Shenzhen Yantian International Container Terminal has been significantly reduced. The terminal suspended export operations for nearly a week last month after positive cases were detected among its workers. The number of vessels calling at the terminal has also plummeted as authorities implement measures to prevent and control the outbreak.

The reported slowdown at the terminal has added to a backlog of cargo at the nearby ports of Nansha and Shekou, underscoring how vulnerable the global shipping industry is to the outbreak in China. Official data this week showed that the value of Communist China’s total exports (in dollar terms) rose 27.9 percent in May compared with a low base a year earlier. But the figure missed previous expectations of 32.1 percent, and analysts also said the slower pace of ports due to the current outbreak could weaken future trade performance. “We expect trade and production data to be impacted in June.” Peng Ai Yao, chief economist for Greater China at the Netherlands International Group (ING), said, “This could push up the overall price of electronics and affect the price of Chinese exports and ultimately the price of U.S. and European imports.”

8.May PPI Hits Highest Increase in 13 Years

The CCP’s statistics bureau announced Wednesday that the producer price index (PPI) jumped 9.0% year-on-year in May, up from 6.8% in April and the fastest year-on-year increase since the PPI rose 9.1% September 2008. Soaring prices for crude oil, iron ore, and metals pushed up industrial prices last month and pushed Communist China’s imports to their fastest increase in more than 10 years, the statistics bureau said. Industrial inflationary pressures are likely to continue and pose an additional risk to growth, Citigroup economists said in a report, adding: There is no quick fix for this round of commodity-led inflation.

9.DIDI Submits IPO Prospectus

June 11, the parent company of global mobile travel platform DDT filed a prospectus for its U.S. IPO on the U.S. stock exchange after the bell on Thursday, planning to land on the Nasdaq or New York Stock Exchange under the code “DIDI.” Goldman Sachs, Morgan Stanley, JP Morgan Chase, and China Renaissance are serving as underwriters. Wall Street expects DIDI to land in the U.S. market in July, and the valuation may exceed $70 billion. As for the use of the fundraising, Drip disclosed in the prospectus that it plans to use about 30% of the fundraising to expand its business in international markets outside of Communist China; about 30% of the fundraising to enhance its technology capabilities, including shared mobility, electric vehicles, and autonomous driving; about 20% to launch new products and expand existing product categories to improve the user experience continuously, and the remaining portion may be used for working capital The remainder may be used for working capital needs and potential strategic investments.

10.CCP’s $7 Trillion Cash Management Products Face New Rules

Reuters, June 11 the CCP Central Bank and the China Banking Regulatory Commission (CBRC) issued a notice on matters related to the management of cash management wealth management products on Friday, requiring that the leverage level of each cash management product shall not exceed 120%, except in the case of huge redemptions, etc. If the product adopts the amortized cost method for accounting, it shall adopt the risk control means of shadow pricing.

There are two main adjustments to the new rules: first, the transition period deadline is set at the end of 2022; second, the ratio of each cash management product’s investment in bank deposits and interbank certificates of deposit of the same commercial bank with AAA main credit rating to the product’s net asset value is adjusted from “not more than 10% in total” to “not more than 20% in total”. “The total shall not exceed 20%”.

A person from a large state-owned bank’s wealth management subsidiary told Reuters that under the new rules, the advantages of cash management products over money funds would change, and “yields will certainly gradually move downward, closer to money funds. Assets that may not be invested include stocks; convertible bonds, exchangeable bonds; floating rate bonds with time deposit rates as the prime rate, except those that have entered the last interest rate adjustment period; bonds with credit ratings below AA+, asset-backed securities, and other financial instruments.

By【G Translators – Financial Team】
Translator: Totoro

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