7/19/21-7/25/21 Weekly Reports: The Truth Of Economy In China

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1.SSE Reported Disciplinary Actions in the First Half of 2021, Accounting for 24.34% of Violations

On July 23, SSE informed the disciplinary work in the first half of 2021. A total of 80 written warnings were issued, up 58% year-on-year, 122 verbal warnings were issued, up 31.18% year-on-year, and the average number of people involved in the cases was 2.6. In addition, a total of 74 listed companies were dealt with, up 37.04% year-on-year; 44 controlling shareholders or actual controllers were dealt with, up 29.41% year-on-year; 241 directors, supervisors, and senior managers were dealt with, up 32.42% year-on-year; and 4 intermediaries were dealt with, up 9 times.

2.Shanghai’s First Mortgage Interest Rate Increased to 5%, and Much Local Property Market Regulation and Control Policies Continue to Escalate

On July 24, the mortgage rates of commercial banks in Shanghai have been confirmed to be increased, as learned from Shanghai banks, agents, and home buyers. On July 23, the People’s Bank of China Shanghai headquarters held a meeting with banks in Shanghai to determine the mortgage rate increase. As a result, the first set of mortgage rates will be adjusted from the current 4.65% to 5%, and the second set of mortgage rates will be increased from 5.25% to 5.7%, effective from July 24.

Since this year, mortgage rates in other cities across the country have been in a rhythm of upward adjustment. The monitoring data of mortgage rates in 42 key cities across the country by Rong360 Big Data Research Institute shows that the overall mortgage rates nationwide began to stop falling and turn up in 2021. In the first five months of this year, mortgage rates in 30 cities rose compared to the end of 2020.

The concentrated increase in mortgage rates from June to early July has been the “fifth consecutive increase” this year. In addition, some hotspots have experienced multiple rounds of interest rate increases this year. For example, the data released by Kerry Real Estate Research shows that Hangzhou mortgage rates in May, June, and July have increased, the first and second suite interest rates in May increased by 20BP and 12BP respectively, the first and second suite in June increased by 20BP, and in July increased by 30BP one after another.

3.Property Market Regulation and Control Increased, House Donation Is Included in the Scope of Purchase Restrictions

Following the second-hand property price verification policy introduction not long ago, Shanghai’s real estate market regulation and control have been increased again. However, although yesterday, the reporter learned from the Shanghai Municipal Housing Administration, since July 24, 2021, the transfer of housing by way of gift, the donee should comply with the national and Shanghai housing purchase restriction policy, the housing for five years is still recorded in the number of housing units owned by the donor.

According to the new regulation, from July 24, 2021, the transfer of housing by way of gift, in the implementation of the housing purchase restriction policy, the housing is still recorded as the number of housing units owned by the donor within 5 years from the date of transfer registration; the donee should comply with the national and Shanghai housing purchase restriction policy.

4.CCP Central Bank Announces New Version of Short-Term Financing Management Measures for Securities Firms

The Central Bank of the Communist Party of China (CPC) has revised the Measures for the Administration of Short-term Financing Bonds of Securities Firms (hereinafter referred to as the Measures) and announced them on July 23, which will be implemented from September 1. There are 22 articles in the Measures, and the changes in content mainly lie in four aspects: firstly, the pre-issuance filing has been abolished, and the post-event management has been strengthened; secondly, the threshold for issuance of short-term financing securities by securities companies has been substantially revised, and a management framework with liquidity management as the core has been established; thirdly, the maximum term of short-term financing securities has been extended; and fourthly, the mandatory rating requirement for short-term financing securities issued by securities companies has been abolished.

Specifically, in terms of issuance procedures, securities companies qualified to issue short-term financing securities shall report to the People’s Bank the annual liquidity management plan and issuance plan before the first issuance each year, as well as report in advance of any significant changes in the issuance plan during the year, and no longer require pre-issuance approval.

In terms of issuance thresholds, it is clear that securities companies issuing short-term financing bonds must have strong liquidity management capabilities, sound liquidity risk management system; reasonable asset and liability structure, moderate maturity mismatch, counterparty concentration, bond pledge ratio, etc., risk control indicators in the past two years continue to meet regulatory requirements. The liquidity coverage ratio in the past six months continues to be higher than the industry average.

It is worth noting that the requirement put forward in the consultation draft issued by the Central Bank in March this year is that the liquidity coverage ratio has been consistently higher than the industry average within the last year.

5.In Shandong, 610,000 tons of carbon emission allowances were loaned 30 million RMB

With 610,000 tons of carbon emission allowances as a pledge, Rizhao Bank issued a “green carbon loan” of 30 million RMB for Shandong Xuguo Energy Co. It is reported that this is the first carbon emission allowance pledge loan in Shandong Province. Rizhao Bank launched the exclusive credit product “Green Carbon Loan” on July 16, the day the national carbon emission trading market was officially launched. Ltd. is a supporting thermal power enterprise of Shandong Iron and Steel Group Rizhao Co. Rizhao Bank Lanshan Central Sub-branch, together with Rizhao Central Sub-branch of the People’s Bank of China, did a door-to-door service and formulated a service plan to support financing by pledging carbon emission allowances, and successfully applied for a “green carbon loan” of 30 million RMB for Hsuguo Energy.

6.Shengjing Bank’s Shareholding Structure May Change, Shenyang Deputy Mayor Says He Supports State Enterprises to Increase Their Shares

July 23 – The shareholding structure of Shengjing Bank, attracting market attention due to China Evergrande’s debt woes, is expected to change. Gao Wei, executive vice mayor of Shenyang, latest said he supports key state-owned enterprises owned by the city to gradually increase their holdings in Shengjing Bank under the guidance of industry regulators, “Shengjing Bank, as the government’s bank and our own bank, should strengthen the Party’s leadership across the board.”

Shengjing Bank issued a press release on Thursday evening saying that on that day, Gao Wei led the main responsible persons of the Municipal State-owned Assets Supervision and Administration Commission and the Municipal Finance Bureau to investigate Shengjing Bank and said that the Municipal Party Committee and the Municipal Government attached great importance to the reform and development of Shengjing Bank and that Shengjing Bank should “return to its origin, serve the local and real economy and accelerate the construction into a good bank.”

Shengjing Bank’s annual report shows that as of the end of 2020, Evergrande Group (Nanchang) Co., Ltd. held 36.4% of the shares, with Xu Jiayin as the actual controller. In addition, Shenyang state-owned assets – Shenyang Hengxin and Shenyang Industrial Investment and Development Group – each hold 5.45% of Shengjing Bank’s shares.

In June 2019, Shengjing Bank issued 3 billion domestic shares and H shares at RMB 6 per share; at that time, Evergrande Nanchang subscribed for 2.2 billion domestic shares, and its shareholding ratio is now 36.4% after the completion of the capital increase. Qiu Huofa, the current chairman of Shengjing Bank, was formerly the executive vice president of Evergrande Group.

In June, Caixin reported that the China Banking and Insurance Regulatory Commission investigated a more than 100 billion yuan transaction between Evergrande and Shengjing Bank.

7.The Smart Lock Industry Profit Space Continues to Narrow

In the first half of 2021, the smart lock product price index narrowly oscillating, the overall trend of a small increase in the index from January 98.14 points, the index closed at 98.57 points in June, a cumulative increase of 0.44% in the first half of 021, the average output value of mu, the product local support rate index fell first and then rose. Specifically, in the first quarter, the key words of the property market “control” trend, the property market “off-season”, the Spring Festival holiday and the epidemic and other factors, commodity housing transactions continue to fall, resulting in a reduction in market demand for intelligent lock products, the average output value of mu, product local support rate index The index closed at 179.91 points and 115.36 points, down 8.12% and 11.91% respectively; in the second quarter, with the holding of the Wenzhou Smart Lock Exhibition and the continued promotion of the “6-18” e-commerce shopping promotion, multiple favorable factors superimposed to help the development of smart lock enterprises, the second quarter smart lock Industry output value rapid recovery, promote the average mu output value index, product local support rate index rose sharply, the index closed at 212.29 points, 125.10 points, where the average mu output value index rose strongly, up 18.00%, far more than the level of the second half of last year, is the main reason for the first half of the competitiveness index trend, while the product local support rate index showed a recovery, up 8.44%. However, up 8.44%, compared with the second half of last year, there is still a certain gap.

In the first half of 2020, the ODM order share index rose first and then fell. In the first and second quarter of this year, the index closed at 73.44 points, 67.70 points, the index as a whole to continue the lower level of the second half of last year, analysis, foreign chip shortages, and price increases has affected the delivery cycle of the replacement of domestic chips, smart industry, there is a “lack of core” problem, resulting in smart lock production costs ushered in a price increase peak ODM manufacturers are affected to a certain extent, resulting in the first half of the ODM order index after a small upward dip again.

8.348.83 Billion Yuan of Outbound Non-Financial Direct Investment from Communist China in the First Half of the Year

In the first half of the year, Communist China’s outbound investment cooperation was 348.83 billion yuan for non-financial direct investment, down 3.7% year-on-year (equivalent to 53.9 billion U.S. dollars, up 4.7%). The first half of Communist China’s outbound investment cooperation has the following characteristics: First, investment in countries along the “Belt and Road” increased by 8.6%, accounting for 2 percentage points of the national share of foreign investment to 17.8%. Second, investment in the information technology industry, scientific research services, transportation industry increased by 26.8%, 74.2%, 98.7%, respectively. Third, foreign contracting projects completed a turnover of 439.76 billion yuan, an increase of 3.2%. Fourth, the number of newly signed contracts of more than 50 million U.S. dollars 404 projects increased 6%. Fourth, win-win cooperation is fully manifested. As of the first half of the year, the accumulated investment in overseas economic and trade cooperation zones is 47 billion U.S. dollars, paying taxes and fees to the host country of about 6 billion U.S. dollars. Affected by the CCP virus epidemic, international investment exchanges decreased, and Communist China’s outbound non-financial direct investment in the first half of the year fell by 3.7%.

9.Chinese Education Stocks Tumble as Regulation Escalates Again, Other Chinese Stocks Also Fall

 U.S.-listed Chinese education stocks plunged on Friday, with New Oriental and Gao Tou crashing about 60 percent at the open and Good Future falling more than 55 percent. Since hitting a record high in mid-February, New Oriental has plunged about 87 percent, and Good Future has fallen more than 90 percent; High Way hit a record high in January this year, but now it has fallen more than 97 percent, with its share price just a fraction of the original. In addition, China’s regulation of the education and training industry has escalated again. Three sources told Reuters on Friday that China has issued a letter demanding that education institutions be banned from “capitalizing” on their operations and that existing institutions be registered as nonprofit. In contrast, no new subject-based out-of-school training institutions will be approved.

The collapse of education stocks also dampened the sentiment of other Chinese stocks, with Internet giants and platform companies under continued regulatory pressure “taking the fall,” with Baidu, Jindo, Alibaba, and Jingdong down between 4.4-6.6%. In comparison, Shell and Beili Beili fell more than 22% and 14%, respectively. Drip also plunged more than 16% after Bloomberg News reported that Chinese regulators were considering stiff penalties for Drip after its initial public offering (IPO) last month. On China’s investor community Snowball, an investor commented under the topic of the plunge in Chinese education stocks, “Don’t play against the national policy,” which was echoed by many investors.

10.CCP Will Guide Pension Funds and Other Long-Term Funds to Enter the Carbon Market Investment Market

Fan Yifei, deputy governor of the People’s Bank of China, pointed out that, from domestic and international practice, the construction of the carbon market should consider the following aspects.

First, to form an effective carbon price, carbon trading should be carried out in strict compliance with the laws of the market. Financial institutions should gradually participate in carbon market transactions. The primary market for carbon quotas is an auction-type market where the government can support the transformation of high-carbon industries and regions with auction quota revenues. Second, capping the total amount is a prerequisite for forming an effective carbon price. Third, deal with the relationship between the incentive signal of the auction slot and the potential growth inflation. Fourth, improve the construction of market support.

Talking about the future development direction of China’s green finance, Fan Yifei said that it is necessary to realize multiple measures of policy measures and mechanism construction and cultivate ESG investors. To enrich the field of ESG investment application, guide long-term funds with certain social attributes, such as pension funds, insurance, and social security, to enter the ESG investment market and include them in the assessment system, and enrich the source of funds in the green bond market. In addition, we should improve the green financial standard system, promote the alignment with international standards, improve the information disclosure requirements, strengthen the market discipline mechanism, strengthen the market ecological construction, and play a good bridge for intermediaries.

By【G Translators – Financial Team】
Translator: Totoro

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