1.Frequent Credit Downgrades to Small and Medium Banks
Since the beginning of this year, several small and medium banks have been downgraded in their credit ratings. Non-standard and non-credit assets, which account for an excessively high proportion, are becoming potential causes for the “devaluation” of the credit of small and medium-sized banks.
A rating report recently disclosed by China Chengxin lowered the rating outlook of Sichuan Tianfu Bank from the previous stable to negative while still maintaining the AA+ subject credit rating. It also warned that the bank’s credit rating in the next 12 to 18 months may drop. This year, five banks including Sichuan Tianfu Bank have been downgraded or their rating outlook has been downgraded to negative. Even large and medium-sized banks are also facing pressures associated with off-balance sheet asset quality. Ping An Bank’s annual report shows that in 2020 the bank will write off 31.576 billion yuan of non-credit non-performing assets, an increase of 30.682 billion yuan from the previous year.
2.10% June PPI Likely in Communist China
Communist China’s producer price index (PPI) reached 9% in May and is likely to rise to 10% in June, adding pressure on downstream consumers, senior official of China Banking and Insurance Regulatory Commission Yu Xuejun told a forum in Beijing on Thursday. According to him, the injection of currencies by foreign governments into the system is likely to create long-term inflationary pressures. “China is a cost-driven inflation, and the next step will have a direct impact on the production and operation of midstream and downstream enterprises. Now it is difficult for export companies in coastal areas to make money, and many dare not take orders.” Said Yu.
He also commented that the debt crisis of urban investment and large real estate companies in the past year or two will impact financial institutions, especially small and medium-sized ones. Yu pointed out that the debt accumulations of urban investment and real estate companies started in the period of 2014-2017. After 2017, as financial control was tightened, the debt pressure of those companies with large amounts of debt and poorly structured debt are under increasing pressure.
3.Over 95 Billion Yuan of Special Bonds for Small and Medium Banks
According to incomplete statistics from The Paper, governments in 10 provinces and autonomous regions including Guangdong, Shanxi, Zhejiang, Guangxi, Inner Mongolia, Sichuan, Jiangxi, Liaoning, Heilongjiang, and Fujian have announced plans to issue special bonds to help struggling small and medium-sized regional banks.
The total amount of such special bonds is currently 95.2 billion yuan. Shanxi, Heilongjiang, Guangxi, three provinces raising the highest amount, issued 15.3 billion yuan, 12.3 billion yuan, and 11.8 billion yuan of bonds respectively. A total of 100 small and medium-sized banking institutions have received the capital injection. The bonds have a term of 10 years.
The rural credit system consisting of rural commercial banks and rural credit cooperatives has received most capital injections, especially in Heilongjiang Province. 44 banks in Heilongjiang are included in special bond capital supplementation plans. All but Longjiang Bank, which is a city commercial bank, are rural financial institutions.
4.Warning about Globalegrow’s Bankruptcy Risk
On June 22, the first cross-border e-commerce company Global Top E-Commerce issued a risk warning stating whether its wholly-owned subsidiary Globalegrow will enter the bankruptcy liquidation process is still uncertain. If the court accepts the above-mentioned bankruptcy application, Globalegrow will enter the bankruptcy process, after which the company will lose its control and Globalegrow will no longer be included in the scope of the company’s consolidated statements.
On January 8, 2020, Industrial and Commercial Bank of China provided Globalegrow with a loan of RMB 21 million with a loan period of 12 months. Global Top E-Commerce Was one of the guarantors. However, Globalegrow failed to fulfill its repayment obligations。 The guarantor also failed to fulfill its guarantee obligations. Therefore, on June 4, Shenzhen Nanshan Sub-branch of Industrial and Commercial Bank of China filed for the bankruptcy and reorganization of Globalegrow. Established in 2007, Globalegrow E-Commerce Co., Ltd. is one of China’s largest cross-border B2C e-commerce company.
5.XPeng Received Approval for Hong Kong Public Listing
On June 23, XPeng (NYSE:XPEV) received the Hong Kong regulator’s approval for its plans for a public listing in Hong Kong, indicating XPeng will be dual-listed in the primary market. When the company was listed in New York last year, it did not have the two-year listing record required for its secondary listing in Hong Kong. According to the latest market reports, XPeng may raise up to $2 billion in Hong Kong this time.
Established in 2015, Xiaopeng has become one of the leading electric vehicle companies in Communist China. It has attracted middle-class consumers keen on technology in the Chinese market. Although XPeng’s revenue has been growing, it has not yet achieved profitability. The company’s total revenue in 2018, 2019, and 2020 was 9.706 million yuan, 2.321 billion yuan, 5.844 billion yuan, and 2.951 billion yuan respectively. Its net losses were 1.399 billion yuan, 3.692 billion yuan, and 2.732 billion yuan respectively.
6.Tianjin Government Pledges to Repay Debts
Top officials in Tianjin, a northern port in Communist China, pledged no new defaults by state-owned enterprises (SOEs) to restore market confidence after a number of debt crises involving government-backed companies. During a meeting with executives from more than 100 financial institutions, municipal officials said that no additional defaults by state companies in the city. Net bond financing by Tianjin-based state companies was a minus 82.4 billion yuan ($12.73 billion) in the first five months, indicating weak investor confidence.
Tianjin experienced a series of SOE defaults reported by city government-owned companies including Tewoo Group and Tianjin Real Estate Group. The outstanding debts of Tianjin’s SOEs totaled 150 billion yuan ($23 billion), 40 billion yuan of which is due in the second half this year. The city officials pledged to repay these debts through asset sales, special-purpose bond issuance and special loans from policy lenders.
7.Court Ordered Freezing of Danke Apartments’ Assets
Tianyancha App shows that the first ruling has been published on the dispute filed by Beijing Yaao Tiancheng Decoration Co., Ltd. against Ziwutong (Beijing) Asset Management Co., Ltd., the company affiliated with Beijing-based apartment rental platform Danke Apartment. The ruling ordered the freezing of Ziwutong’s assets worth 421,014.05 yuan.
Danke Apartment was listed on the U.S. stock market in January 2020, and its market value once reached $2.7 billion. It was delisted after only 445 days. Last October, Danke apartments failed to make payments for renovation projects in multiple cities such as Shanghai, Nanjing, Wuhan, Hangzhou, and Tianjin. The latest quarterly report for 2020 showed that Eggshell Apartments had a net loss of 1.2344 billion yuan, compared with a net loss of 816.2 million yuan in the same period last year. In June 2020, Gao Jing, the founder and CEO of Danke, was investigated by local authorities, and then the company replaced him with Cui Yan as the company’s CEO.
8.Pig Farmers Suffering Losses as Pig Prices Continue to Drop
The price of live pigs has plummeted. In the spot market, the average price of live pigs has dropped to 13.83 yuan/kg, a 20.38% drop from the price on June 1 and a sharp decline of 60.62% from the price on January 1. The price has plummeted more than 60% within six months. As a result, many pig farmers may be suffering substantial financial losses. At the same time, the cost of feed has increased, further exacerbating their losses.
It is said that one reason for the continuous decline in live pig prices is the increase in production and supply. In May, the national live pig inventory increased by 23.5% year-on-year. In addition, panic slaughtering by some pig farmers has created a stampede effect on the market, and the price of pigs has fallen even further. Industry experts recommend shifting pig farmers’ focus from capacity expansion to improving quality and efficiency of the production.
By【G Translators- Financial Team】