9/6/21-9/12/21 Weekly Reports: The Truth Of Economy In China

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1.Land Bonds and Treasury Bonds Both Broke the Table, the Increase to 2.96 Trillion in August

After a seasonal retreat in July, the new social financing gradually stabilized in August, driven by bond financing. The People’s Bank of China released data yesterday showing that the increase in social financing in August was 2.96 trillion yuan, of which corporate bonds net financing of 434.1 billion yuan, government bonds net financing of 973.8 billion yuan, an increase of 138.2 billion yuan, 791.8 billion yuan, respectively.

Nearly 3 trillion yuan of social financing increment, compared with 1.06 trillion yuan of social financing increment in July, to achieve a ringgit increase of nearly 2 trillion yuan, bond financing rebound pulling effect is obvious. The net financing of government bonds, including treasury bonds and local government bonds, hit a peak since this year.

Wen Bin, the chief researcher of China Minsheng Bank, said that direct financing contributed to the new social financing in August, new stock financing 147.8 billion yuan, a record high since this year; under the influence of the more abundant funds from the July cut, the overall bond yields are at a lower level, the demand for corporate bond issuance increased, new corporate bond financing 434.1 billion yuan in August, an increase of 68.2 billion yuan.

2.Taikang Online: Art Insurance Is Becoming Localized

Yang Hongbo, the head of art insurance of Taikang Online, recently introduced at the “Surprise of Life: Taikang Insurance Group’s 25th Anniversary Art Collection Exhibition” that previously, the main body of art insurance coverage was mainly foreign insurance companies, but with the development of the domestic art market, domestic insurance companies began to get involved in art insurance.

With the domestic art market development, domestic insurance companies began to get involved in art insurance. As insurance companies get involved in art collection and management, art insurance is becoming localized, specialized, and systematic, relying on their resources and professional advantages in the whole art industry chain. Take Taikang Online art insurance as an example; before underwriting, insurance companies will not only conduct risk surveys to identify potential risk factors, but also do “underwriting front,” that is, according to the customer’s insurance needs, develop operational standards and recommendations for risk protection, and develop matching insurance solutions, all to ensure that the possibility of artwork suffering from risk is reduced to The insurance program is designed to ensure that the risk to artwork is minimized. After underwriting, if the artwork is in danger, the insurance company will first seek the best repair solution together with the customer and bear the repair cost for it; if the damage is irreparable or completely lost, i.e., the artwork disappears from the material or its artistic value completely, the full amount will be paid out according to the agreed coverage.

Comment: Miles Guo said the art identification corruption a dragon to come

3.Blackstone Terminates Acquisition of SOHO China

On the afternoon of September 10, SOHO China announced that BlackRock had decided not to make an offer to acquire a stake in the company. “Given the current lack of progress in satisfying the conditions precedent, the parties agree that the conditions precedent cannot be satisfied on or before the final closing date, and the parties also agree that the final closing date will not be postponed.” SOHO China’s announcement said. SOHO China said that to release the Company from its continuing obligations under the Takeover Code and maintain an orderly stock market, the parties, in consultation with the executive officers, have decided and unanimously agreed not to make the Offer.

According to the announcement, the offer period of the previous offer has been terminated as of the date of this announcement. Previously, on June 16, SOHO China announced that BlackRock made a general offer to invest in SOHO China Limited to acquire a controlling interest in SOHO China. Upon completion of the transaction, SOHO China’s existing controlling shareholder will retain a 9% stake. In the first half of the year, SOHO China recorded a gross profit of RMB 659 million, down 17.52% year-on-year, and net profit of RMB 343 million, with a net profit attributable to the mother company of RMB 340 million, up 67.49% year-on-year.

On the debit side, as of the end of June this year, SOHO China’s net gearing ratio was approximately 43%, with an average borrowing cost of approximately 4.7%; cash and cash equivalents were approximately RMB 1.492 billion, up 276% year-over-year; total assets were RMB 71.109 billion and total liabilities were approximately RMB 33.246 billion. In the first half of this year, SOHO China’s finance costs were RMB 449 million, down 5.47% year-on-year. Of which RMB 449 million was interest on bank and other loans, foreign exchange loss of RMB 619,000, and bank charges of RMB 434,000.

In terms of bank loans, as of June 30, SOHO China’s total borrowings were about RMB 18.523 billion, of which about RMB 1.182 billion will mature within one year, about RMB 1.602 billion will mature in more than one year or less than two years, about RMB 5.442 billion will mature in more than two years or less than five years, and about RMB 10.297 billion will mature in more than five years.

4.International Oil Prices Slumped Nearly 2% on Thursday After the Chinese Communist Party Released National Crude Oil Reserves to Curb Price Hikes

International oil prices came under pressure Thursday, Sept. 10, with the biggest one-day drop in half a month as the Chinese Communist Party unveiled a plan to release national oil reserves to ease upward pressure on raw material prices, while U.S. EIA crude inventories fell less than expected. In addition, risk appetite cooled, U.S. stocks fell, and U.S. bond yields moved higher, putting pressure on risk assets such as crude oil. However, the impact of Hurricane Ida, U.S. crude oil production fell sharply, limiting the scope for oil prices to fall. By the end of the U.S. session, U.S. WTI crude oil October futures closed down $1.29, or 1.86%, at $67.92/barrel, hitting a high of $69.87/barrel and falling as low as $67.55/barrel; Brent crude oil November futures closed down $1.33, or 1.83%, at $71.31/barrel, hitting a high of $73.17/barrel and falling as low as $70.86/barrel during the session. Down to $70.86/barrel.

The National Reserve Board said it would release crude oil reserves in phases through public auctions to help domestic refiners control costs. Giovanni Staunovo, a commodity analyst at UBS, said, “The additional supply from the reserves of large consuming countries reduces the need to import more oil in the short term, thus putting pressure on oil prices.”

5.Tencent, NetEase Share Prices Plunge After Being Interviewed

Shares of Tencent and NetEase plunged on Sept. 9, with huge shrinkage in market value. On Wednesday, the two online game companies were interviewed by Chinese Communist Party regulators, and investors fear that tighter control by Communist authorities will hit the industry’s long-term growth. So 9, Tencent’s shares fell 6.7 percent at one point and extended their losses at the end of the day to close down 8.5 percent, the biggest drop since July; NetEase’s Hong Kong-listed shares fell 7.7 percent at one point and closed 11 percent lower. Shares of Tencent and NetEase have shed 18 percent and 20 percent, respectively, in the past three months.

Bloomberg reported on Sept. 9 that the market value of gaming giants Tencent and NetEase evaporated by more than $60 billion. Citing sources familiar with the matter, the South China Morning Post reported on Thursday that officials from the Communist Party’s Ministry of Propaganda and Publishing Department disclosed the decision to suspend game approvals to executives from Tencent and NetEase when they interviewed them on Wednesday. The South China Morning Post also said it was unclear how long the suspension would last.

Bloomberg reported that the news accelerated a wave of stock sell-offs that began in the morning on Sept. 9, even though the suspension of approvals was not mentioned in official Chinese Communist Party media. Investors have become scared birds as the Communist government has launched a series of regulatory actions over the past 10 months targeting various industries, from e-commerce, online dating, and out-of-school tutoring to social media.

6.Solid Wood Furniture Prices or Continue to Rise

August domestic log prices fell back to a high level. Weekly index, the latest week of domestic log price index, closed at 1083.54 points. Imported log prices continue to be weak, closing at 1076.90 points. Follow-up, with the arrival of September, construction into the peak season, the timber industry is about to enter the golden period, the market demand for wood will further enlarge, the log market a new round of price increases or will begin.

Index monitoring results show that the solid wood furniture price index stalled in the second half of August, closing at 102.66 points, down 0.05 percentage points, the second downward since the second quarter, but still at a higher point. Since the epidemic outbreak, the rise in the form of a home office, office furniture demand increased, the late superimposed on the rising price of wood, resulting in its prices have always maintained an upward trend. In the off-season atmosphere, the second half of August aggravated, and upstream raw material prices stabilized under the environment. The office furniture price index fell back to a high level, closing at 113.03 points, down 1.55 percentage points, reaching the largest drop since the year. Breakdown, wooden desk price index fell to the top, down 3.20 percentage points; wooden office bookshelf price index fell 2.10 percentage points.

The civilian furniture price index is stable, closing at 101.06 points, up 0.25 percentage points. Among them, the living room, dining room with wooden furniture, and bedroom with wooden furniture price index performance rose, up 0.36 and 0.17 percentage points, respectively, pulling together, civilian furniture prices rose.

7.Evergrande’s Credit Rating Was Downgraded for the Second Time in a Row, Raising the Risk of Default

Evergrande Group suffered another heavy blow on Wednesday (Sept. 8), when its credit rating was downgraded for the second time in two days. The move adds to market concerns that the Chinese firm could default on its credit. Evergrande’s shares in the Hong Kong stock market slid more than 3 percent at their peak on Wednesday, falling to 3.46 Hong Kong dollars, below its IPO price of 3.5 Hong Kong dollars, but later recovered to close at 3.71 Hong Kong dollars. This year, Evergrande’s share price has fallen by more than 75 percent. Over the years, Evergrande, a star private company, has continued to merge and raise funds in pursuit of rapid development, incurring huge debts, with interest on debts alone now reaching more than US$300 billion.

In recent years, raising debt and financing has become increasingly difficult due to tightening government policies on the real estate market, raising market concerns about Evergrande’s possible bankruptcy. Many analysts have warned that the bankruptcy of Evergrande would have a serious impact on the Chinese economy. The company employs 200,000 people directly and up to 3.8 million people associated with Evergrande, whose bankruptcy would cause massive job losses and hundreds of businesses to close down due to a break in funding. The international credit rating company Fitch downgraded Evergrande’s credit rating on Wednesday, adding to Evergrande’s woes. The long-term foreign-currency issuer default ratings of Evergrande Real Estate and its subsidiary Tianji Holdings Ltd. were downgraded to CCC from CCC+, which Fitch defines as a “very high” credit risk. Fitch also downgraded the senior unsecured ratings of Evergrande and Tianji and the senior unsecured notes guaranteed by Tianji issued by Evergrande’s indirect wholly-owned subsidiary, Kingmaker Limited, to C from CCC.

8. Many Places Issued House Prices “Limit down the Order”

In 2021, there will be new changes in the regulation and control policy in the second half of the property market. Recently, the Yangtze River Delta’s first “limit down order” landed. Jiangyin City Housing Authority issued a “notice on further promoting the healthy and stable development of the real estate market on several matters,” requiring the actual transaction price of commercial housing shall not be higher than the record price, strictly prohibit low price dumping, price war, and resolutely put an end to vicious competition, lowering the standard and quality, late delivery and other irregularities and illegal behavior.

According to the “Securities Daily” reporter incomplete statistics, so far, Yueyang, Huizhou, Tangshan, Guilin, Shenyang, and other cities have issued “limit down order” to prevent falling prices to give guidance. What signal does the introduction of the “limit down order” send? Liang Nan, an analyst at Zhuge’s data research center, said in an interview with the Securities Daily: “The stable operation of the real estate market is inseparable from the government’s regulation and control, and the introduction of the ‘limit down order’ highlights that market supervision tends to be comprehensive, and the regulation and control efforts have increased to two-way, and also reflects the current The real estate market has the characteristics of urban differentiation, ‘limit down order’ released the main tone of the real estate market is still ‘stable.'”

BOC International Securities research shows that the heat of new housing transactions fell slightly in July, the first and second-tier cities maintained high levels, and the third-tier cities continued to retreat. 52 cities new housing turnover of 27.167 million square meters, down 5.4% YoY, down 9.1% YoY. The growth rate of first-, second-and third-tier cities was -16.0%, 0.6% and -6.7%, respectively, while the year-on-year growth rate was 4.8%, 6.7% and -35.5%, respectively. Entering August, the volume of new housing transactions took a sharp turn for the worse in many places. Data show that the turnover of the Suzhou property market in August was at a record low. The volume of new residential transactions was only 764,500 square meters, a 29.3% drop from the previous month. Nanjing also saw a decline in the volume of new home transactions in August, down 34.4% from the previous month and 39.5% from last August.

9.Henan Jianye Rumors of Help-Seeking Letter

Sept. 10 – China’s Henan Jianye Group confirmed the authenticity of the Internet rumors of the government’s request for help letter on Thursday evening. It said that Jianye Group submitted a report to the government in August. So far, government departments have given several support policies such as accelerating tax refunds and tax deferment according to regulations, deferring payment of social insurance premiums, and speeding up the clearing of government arrears; the company did experience certain losses due to the epidemic and the disaster, but bank loans were not affected The company did experience certain losses due to the epidemic and disaster. Still, bank loans were not affected, and the company has sufficient funds on hand, so there is no pressure to repay debts in the short term.

Chinese local media 21st Century Business Herald quoted Wang Jun, president of Jianye Group, as saying in a media communication meeting on Thursday evening that the company had two US dollar debts to repay shortly, namely US$400 million due in November this year and US$500 million due in August next year and that Jianye was prepared to repay both debts with its own funds, of which the funding problem of the first debt had been solved.

Recently, a help letter titled “Report on Major Risks and Crisis of the Enterprise and Request for Help and Rescue” circulated on the Internet. In the report, Jianye Group said that hit by the double blow of flood and epidemic, many real estate projects of the enterprise in various regions of Henan stopped working and shutting down, shopping malls, hotels, and cultural tourism operations were difficult to maintain. In addition, some of the projects under construction were severely damaged, causing various economic losses of more than 5 billion RMB.

10. Sunac Terminates 21 Hotel Management Agreements with Wanda

On the evening of the 10th, Wanda Hotel Development announced that it received a notice from Sunac China on September 10th. According to the notice, Sunac China has informed Wanda Hotel Development that it will terminate the management agreement signed with Wanda Hotel Development about 21 hotels held by Sunac Group and managed by Wanda Hotel Development due to the impact of the Xin Guan epidemic and the adjustment of Sunac China’s business strategy. According to the announcement, these 21 hotels include 19 hotels in operation and 2 hotels under construction and have not yet started operation. Wanda Hotels said that the company and Sunac China are currently negotiating on the subsequent arrangements with termination and the potential compensation for Wanda Hotels.

By【G Translators – Financial Team】
Translator: Totoro

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