6/14/21-6/20/21 Weekly Reports: The Truth Of Economy In China

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1.The Dollar Index Soaring, RMB Records The Biggest Drop In 3 Months

On June 17, Yuan’s mid-point rate against the US Dollar hit 6.4298, a sharp depreciation of 220 basis points from the previous trading day, approaching the key threshold 6.43. On the same day, the onshore Renminbi had three successive declines against the US Dollar, with the drop once reaching 0.5%, the largest single-day drop since March. The offshore yuan exchange rate simultaneously shocked downward and fell off the key threshold 6.43. As of the closing at 16:30 yesterday, the onshore and offshore RMB to USD exchange rates were at 6.4277 and 6.4340 respectively. On June 16, the US Federal Reserve announced to leave the federal funds rate anchored between zero and 0.25%. The Fed dot plot of individual member expectations released the same day also pointed to two hikes by 2023. Federal Reserve Chairman Jerome Powell said at the press conference that the Fed’s policymakers have discussed tapering bond buying but gave no indication as to when to begin the process. The US Dollar surged the most in a year right after, to the two-month highest. As of yesterday’s press release, the Dollar index reached a high of 91.75, approaching the 92 threshold. Since June, the Dollar index has declined for consecutive 2 months before going back up for 1.82%.

The Dollar index is expected to go up down the road, we need to be vigilant about the risk of sustained depreciation of the Renminbi exchange rate in the future.

2.CSRC:Will Launch Carbon Emission Options

China Securities Regulatory Commission (CSRC) said on June 18 that the national pot carbon market will be launched at the end of June. Since its inception, Guangzhou Futures Exchanges (GFEX) has been actively doing research and demonstration work on the futures contracts of carbon emission rights futures contracts and its rules.

In order to coordinate the development of the spot carbon market, the CSRC will guide the GFEX to implement the strategic plan for the development of the Guangdong-Hong Kong-Macao Great Bay Area to accelerate the construction of the carbon futures market, and also guide the GFEX to carry out extensive research and demonstration to improve the design of contract rules and launch the carbon emission rights-related futures items at proper times.

Comment: We all fear for Hong Kong again once the Great Bay Area has anything to do with the carbon emissions.

3.The State Council To Distribute “Policy Red Envelope”

At the executive meeting of the State Council on June 18, the CCP decided to provide a one-time subsidy to the grain farmers due to a rapid increase in prices of agricultural materials this year. The Ministry of Finance of the Central Government allocated about 20 billion yuan of funds to the current grain farmers as a one-time payment of subsidies to stabilize farmers’ income. In order to prepare the farmers for the disasters, in the 500 grain-producing counties within 13 major grain-producing provinces nationwide this year, the rice and wheat planting has been fully insured within 500 grain-producing counties, which covers the direct physical costs of seeds, pesticides, fertilizers and the cost of the land and labor against the losses caused by natural disasters, pests and diseases; the corn planting has been insured for the income against the losses caused by price and yield fluctuations. The two types of insurance coverage cover up to 80% of the income of the corresponding planting item, insurance premium is determined on an affordability basis. Next year, the financial subsidies will be expanded to all the grain-producing counties in the main producing provinces and the financial subsidies for insurance premiums will be increased, among which the financial subsidies at provincial level cannot be less than 25%, and the subsidies from the central government to mid-West area and Northeast area will be 45%.

Comment: As of 2019, the CCP revealed that the number of rural households is about 900 million. If that were true and the 20 billion subsidies were distributed to the farmers, every farmer would get the subsidy worth of 22.22 yuan.

4.Pan Shiyi Sells SOHO China To Blackstone

On June 17, Blackstone Group offered to buy Soho China Ltd (0410.HK, “SOHO CHINA”) for US Dollar 3.05 billion. The U.S. private equity firm is looking to build its real estate portfolio in China. SOHO China said Wednesday night that Blackstone Group offered to buy 4.73 billion shares of the company for HK$5 per share, nearly 32 percent over the stock’s closing price of HK$3.80 per share on the previous trading day. SOHO China will continue to be listed on the Hong Kong Stock Exchange, and its current controlling shareholder will retain a 9% stake after the transaction is completed.

The day before, SOHO China issued a temporary suspension announcement for undisclosed reasons. At that time, market participants said that “The suspension may have something to do with the sale of assets again”. Before the suspension, SOHO China’s share price rose for several days to a new high in a year, closing at HK$3.8 per share, with a total market value of HK$19.758 billion (US$2.544 billion).

5.The Price Drop of Live Pigs Triggered Alert Level 3

One June 16, the Development and Reform Commission of the CCP (NDRC) issued an alert level 3 on the excessive decline in the price of live pigs. Due to the large quantity of live pigs released for slaughter, the increase of imported frozen meat, seasonal weak demand and other factors, the price of live pigs continued to fall. According to the monitoring data, from June 7 to June 11, the national average pig grain ratio is 5.88:1, entering the alert level 3 interval for price’s excessive decline set up by “Work Plan to Improve the Pork Reserve Regulation, Guarantee the Supply and Stabilize the Prize”.

Various monitoring data show that the prices of both live pigs and pork have declined rapidly. The data from Statistics Bureau data show that the national consumer prices in May rose 1.3% year-on-year, of which pork fell 23.8%. Also according to the monitoring data from the Information Center of the Ministry of Agriculture and Rural Affairs, as of June 15, the total national lean white pork ex-factory price index was 19.53 yuan/kg, below 20 yuan/kg for the first time since May 2019, down 55% from 43.35 yuan/kg in the same period of the previous year.

6.The Interest Rate of The Time Deposit May Drop

Brokerage China – Recently, several banks sent notices to their branches to authorize the change of the interest rate of the time deposit. The context is that the market interest rate pricing self-regulatory mechanism (“SFRM”) issued a notice to banks to adjust the preferential interest rate quotation for RMB deposits from “base rate x increase ratio” in the past to ” base rates + basis points”. The banks were asked to communicate the change in the quotation method to their branches within the network and to make prudent quotations.

The self-regulatory mechanism sets different base point caps for different types of banks. With the change of the quotation method, the interest rate for deposits with a term less than one year increased, the rate for one-year term remained unchanged, and the rate of most the deposit products over a year term had to be lowered. For example, as per central bank’s benchmark interest rate,  the demand deposit rate of Bank A is 0.35% with the maximum upward floating 20% which is capped at 0.525%; according to the new quotation method, the upward floating basis point is up to 20 basis points, and the ceiling rate of demand deposit will be increased to 0.55%. The one-year deposit rate previously floated up to 50%, after adjustment, the upward floating can be up to 75 basis points, which is unchanged; but the deposit rate for more than one year is also 75 basis points above the prime rate, which is lower compared with the previous rate.

Comment: The interest rate of time deposit fell; however, the mortgage rates went up and there is more support of introduction of property tax. Think, think again!

7.Suning.com Co., Ltd.’s Total Liabilities Reached 157 Billion

On the night of June 15, Suning.com Co., Ltd. made two announcements. The first is that the shareholders of Suning Electric Group were forced to reduce holding of 10 million shares on June 11 and may reduce holding of 384 million shares in the future as some stock pledge repurchase transactions triggered the commencement of relevant provisions of the agreement; the second is the company’s founder Zhang Jindong’s 5.8% of the company’s shares are frozen by court.

According to the latest data, the current portion of non-current liabilities of Suning.com Co., Ltd. due in a year is 20.9 billion yuan, while its cash on hand in bank is only 23.43 billion yuan, if added to the annual interest payable, Suning.com Co., Ltd. is now likely to become insolvent. Besides, the continuous decline in its share prices, also increasingly pressured Suning.com Co., Ltd. on financing. Since this year, Suning’s share price has continued to fall and fell by 27% in the past 6 months which makes financing uncertain. For example, this March when they were in talk with Shenzhen State Capital on the transfer at the price of 6.92 yuan /share, however, the current share price has fallen to 5.59 yuan/share.

8.The CCP’s Soybeans Purchase from USA Increased 1.29 Times YoY

The USDA weekly export sales report showed that total U.S. export sales of soybeans to the CCP China increased 1.29 times year-over-year, and 1.34 times year-over-year a week before. As of June 10, 2021, U.S. soybean export shipments to China (mainland region) for 2020/21 (which began Sept. 1) were 35.02 million tons, up from 12.8 million tons a year earlier.

The U.S. shipped 4500 tons of soybeans to China that week, compared with 6600 tons of soybeans to China the previous week. The amount of 2020/21 U.S. soybeans sold but not shipped to China so far is 691,000 tons, down from 692,000 tons a week ago and down from 2.806 million tons a year ago. Total U.S. soybean sales to China (incl. soybeans already loaded onboard the vessel and not yet loaded) so far in 2020/21 are at 35.71 million tons, up 128.9% year-over-year, compared to 133.7% year-over-year last week and 138.9% year-over-year two weeks ago. China cancelled 43,000 tons of new U.S. soybean purchases in the past week with new soybean purchases accumulated to 3.049 million tons.

9.The Price of Canola Oil Continues to Move Higher

Since April 2020, the price of domestic canola oil continues to move higher. According to the monitoring data from the Team of Oil Market Analysis and Early Warning, the Ministry of Agriculture and Rural Affairs, the monthly average price of ex-factory grade four canola oil in Hubei continued to be on upswing from 7,420 yuan per ton in April 2020 to 11,321 yuan per ton in May 2021, an accumulated increase of 52.6%.

According to monitoring, from April 2020 to May 2021, Shandong four-grade soybean oil ex-factory monthly average price went up from 5648 yuan per ton to 9472 yuan, a cumulative increase of 67.7%; The CIF price of Tianjin palm oil went up from 5099 yuan per ton to 9120 yuan per ton, a cumulative increase of 78.9%. The price trend correlation coefficient of Canola oil and soybean oil, palm oil price is 96.4%, 94.2% respectively which are highly correlated.

10.Sudden Chip Robbery in Hong Kong Estimated HK$5 Million 

A gang of robbers swept away more than HK$5 million ($650,000) worth of electronic parts from an industrial building in northern Hong Kong on Wednesday. The police are now conducting a manhunt across the city. The worker was attacked in an elevator at around 3 p.m. as he was moving boxes of goods to a unit on the eighth floor of the East Asia Industrial Building on Ho Tin Street in Tuen Mun.

Three suspects with two trolleys followed him into the elevator, according to the police, “He was beaten inside the elevator and pushed out of the elevator on the seventh floor.” The robbers did not use any weapons during the hijacking. The 14 boxes of electronic parts worth more than HK$5 million were stolen.

By【G Translators- Financial Team】
Translator: Opal

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