10/4/21-10/10/21 Weekly Reports: The Truth Of Economy In China

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1.Retirement as Much as Possible” Normalized Delisting Mechanism Accelerates the Formation

On October 9 last year, the “State Council Opinions on Further Improving the Quality of Listed Companies” (from now on referred to as “Opinions”) was released and implemented, making precise arrangements for the sound exit mechanism of listed companies, with emphasis on strict delisting supervision and the broadening of diversified exit channels.

In the year since the release of the Opinions, substantial progress has been made in the reform of the delisting system, with a total of 31 companies exiting through various channels in 2020, a record high; from January to July this year, 96 companies have been subject to delisting risk warnings, and 24 companies have been delisted due to the new regulations.

In the next step, the SSE will continue to improve the standard delisting mechanism, do an excellent job in supervising and disposing of companies at risk of delisting, and further improve the relevant work mechanism. Furthermore, the Shenzhen Stock Exchange will perform its delisting duties by the law, tighten the fence of the delisting system, strictly enforce the new delisting rules, prevent the wind of illegal shell protection, and resolutely combat financial fraud and another malicious evasion of delisting behavior.

2.CCP Liquidity Is Expected to Be Tight

The Communist Party of China Central Bank announced on October 8 that to maintain a reasonable abundance of liquidity in the banking system, it conducted 10 billion yuan of reverse repurchases. Given that there were 340 billion yuan of reverse repo expiry on the same day, the central bank achieved a net repossession of 330 billion yuan, a one-year high in the size of the single-day net repossession.

Before the National Day, the central bank for many days to hundreds of billions of yuan reverse repo escort liquidity, the funding surface thus smoothes across the season. Industry insiders believe that, into the fourth quarter, the October liquidity gap appears to take into account the accelerated issuance of treasury bonds and local bonds, taxation month, the number of open market operations (OMO) expiration, and other factors funding surface is challenging to appear loose. The follow-up, structural monetary policy, and fiscal policy gradually implementing the force will promote easing credit, interest rates, and the probability of a cut is not significant.

Public data show that from October 8 to 15, the market faces 1.34 trillion yuan of funds due. Among them are the open market reverse repo maturity of 840 billion yuan and medium-term lending facilities (MLF) maturity of 500 billion yuan. The liquidity gap for the entire month of October may reach 216.28 billion yuan. After completely excluding the impact of the expiration of monetary policy tools, there is still a liquidity gap of 752.8 billion yuan. The interbank market was running smoothly on October 8. The DR007 weighted average rate fell to 2.1278%, below the policy rate; the Shanghai Interbank Offered Rate (Shibor) mainly was down, with the Shibor overnight down 11.5 basis points at 2.105%, indicating ample interbank funding.

3.Ping an Capital Management: Support to Huaxia Happiness’ Debt Restructuring Plan

As one of the major creditors of HHH, Ping An Capital Management, a subsidiary of Ping An of China, responded to Shanghai Securities News yesterday, saying, “We are supportive of the overall debt restructuring plan.” Ping An Capital Management said the company would actively cooperate with the government to ensure that the program is implemented smoothly under the principles of fairness, clarity, and transparency. “We hope that the enterprise will effectively play its main responsibility, continue to carry out self-help actively, strive to resume orderly operation, always adhere to the bottom line of the principle of not evading debt, and maximize the protection of the legitimate rights and interests of all creditors.”

Specifically for Huaxia Happiness’ risk exposure, according to Ping An of China’s 2021 semi-annual report, it has made impairment charges, valuation adjustments, and other equity adjustments to Huaxia Happiness’ related investment assets for 35.9 billion yuan in the first half of the year, and the relevant impairment charges have been completed by half. Among them, 21.5 billion yuan of impairment has been provided for debt-type risk, with a provisioning ratio of up to 60% and the highest remaining debt-type exposure accounting for only 40%, or about 14.5 billion yuan; 14.4 billion yuan of equity-type impairment has been provided for, with a provisioning ratio of up to 75% and the highest remaining equity-type exposure accounting for only 25%, or about 4.9 billion yuan.

4.Housing Debt Crisis Spreads, Foreign Outflows Hit Record High

Evergrande Group’s debt crisis is still spreading, leading to negative indicators in China’s debt and stock markets. And at the same time, international investment institutions are showing widespread concerns about China’s economic outlook. Before the November holiday is over, there is disheartening news from the Chinese debt market. The latest data from the International Institute of Finance (IIF) show that global emerging market securities issues attracted $29.8 billion in foreign capital in September, while China’s debt market saw an outflow of $8.1 billion, the highest in six months.

Meanwhile, China’s stock market saw foreign inflows of about $1.4 billion in September, a new low since March. Another Chinese property company, Huayin Holdings Group, which features luxury residential development, recently broke the news that it failed to pay its $206 million notes due Oct. 4. According to the New York Times, this company, also based in Shenzhen, is controlled by the niece of former Chinese Vice President Zeng Qinghong. While it was once thought that companies like Evergrande were too big to fail and that the Chinese government would likely sell bailouts, the New York Times argues that the Chinese government is now restricting bank borrowing to real estate companies, which is equivalent to letting companies like Evergrande and Hanazen find their own money to fill the void.

The reaction of foreign investors to the debt crisis of Chinese real estate companies like Evergrande was evident as early as September. According to the Wall Street Journal, news of Evergrande’s possible debt default hit the U.S. market in mid-September, the week of Sept. 20, and the sell-off of Evergrande bonds even reached other large developers. For example, the price of Yuzhou Property’s bonds due in 2024 with a coupon rate of 8.5% fell about 10% to 75% of face value. The wave of impact even rippled through the benchmark 10-year U.S. Treasury yield, which fell 5 percent in a week.

5.The State Council: Trading Electricity Price up to and down Floating Range to 20% to Correct the Local “One-Size-Fits-All” Shutdown or “Campaign-Style” Carbon Reduction to Promote Coal Power All into the Power Market

October 8, Premier Li Keqiang presided over the State Council executive meeting to further deploy a good supply of electricity and coal this winter and next spring. The panel pointed out that since this year, the international market energy prices rose sharply, domestic electricity, coal supply, and demand continued to be tight, a variety of factors led to the recent emergence of some places to pull the plug on electricity, to the regular economic operation and the impact of residents’ lives. Therefore, relevant parties by the Party Central Committee, the State Council deployment, to take a series of measures to strengthen energy supply security.

The meeting called for the strict implementation of local management responsibilities around the orderly management of electricity to correct the “one-size-fits-all” shutdown of production restrictions or “sporting” carbon reduction against inaction, disorderly action. Central coal-producing provinces and key coal enterprises to implement the task of increasing production and supply as required. The central power generation enterprises should ensure that their thermal power units should be issued as much as possible.

6.Meituan Was Fined 3.44 Billion Yuan for Violating the Anti-Monopoly Law of Communist China

Chinese food delivery giant Meituan was fined more than $533 million on Friday for monopolistic practices, the latest in a year-long campaign of regulatory oversight and consolidation of the country’s tech giants by Beijing. China’s top market regulator, the State Administration of Market Supervision and Administration, said Friday it found Meituan violated anti-monopoly laws by effectively forcing merchants to sell goods only on its platform. Such behavior is known as “two-for-one” in China. In China’s highly competitive retail industry, such exclusive arrangements force many small businesses to take sides.

The General Administration of Market Regulation (GAMR) fined Meituan 3.44 billion yuan ($533.6 million) and ordered it to fully refund exclusive partnership deposits totaling 1.29 billion yuan to merchants, including restaurants and supermarkets sell food and other food products through its platform. In addition, Meituan will need to rectify its operations and submit a compliance report to the Market Supervision Administration over the next three years, the market regulator said. Meituan issued a statement saying that it accepts the penalty in good faith and will stop “choosing one over the other” in the future. The report said Meituan would take this as a warning.

7.CCP Talks About “Re-Linking” the U.S. and China’s Economy

In response to claims that China and the United States are re-engaging on trade issues and economic “re-linking,” Chinese Foreign Ministry spokesman Zhao Lijian said at a regular press conference on the 8th that the artificial promotion of industrial “transfer” and “decoupling “The U.S. and China need to cooperate, not decouple, to dialogue, not confrontation.

A reporter asked a question, and it was reported that U.S. Trade Representative Dyche would soon hold talks with Vice Premier Liu He. She is expected to emphasize China’s shortcomings in implementing the U.S.-China economic and trade agreement with Trump. What is the Foreign Ministry’s comment on the efforts of the U.S. and China to re-engage on trade issues? Dage also mentioned the “re-linking” of the U.S. and Chinese economies. What are the Foreign Ministry’s understanding and view of the “re-connection”?

Zhao Lijian said that the essence of China-US economic and trade relations is mutual benefit and win-win, and there is no winner in a trade war. Some issues arising in the financial and business ties between the two countries should be adequately resolved in the spirit of mutual respect and equal consultation. I hope the U.S. side work with the Chinese side to promote the healthy and stable development of China-US economic and trade relations.

He pointed out that the formation and development of the global industrial chain supply chain result from the joint action of the laws of the market and the choice of enterprises. Artificial promotion of industrial “transfer,” “decoupling,” contrary to economic laws and objective reality, not only can not solve the problems they face but also seriously damage the stability and security of the global industrial chain supply chain. Therefore, China and the United States to cooperate, not to decouple, to dialogue, not confrontation. This is the strong voice of all China and the United States sectors, including the business community. The U.S. side should seriously listen to these voices and do more things conducive to the healthy and stable development of China-U.S. economic and trade relations.

8.Oil Prices Increased for the 13th Time in a Year

On the 9th, a new round of domestic oil price adjustment window will open. Many agencies expect domestic oil prices to increase in this price adjustment cycle, which will be the 13th increase this year. According to Liu Bingjuan, a refined oil analyst at Lonzhong Information, maintenance delays during the epidemic and years of underinvestment have made it difficult for some OPEC members to increase production, and supply is expected to remain tight. The world’s largest independent oil trader, Vito expects global oil demand to climb an additional 500,000 barrels per day this winter as energy shortages are represented by natural gas drive demand for other fuels. Goldman Sachs also said that if this year’s Northern Hemisphere winter proves colder than usual, oil prices could soar to $90 a barrel. In addition, tightening global natural gas supplies and continued price increases are making natural gas less affordable for power generation and boosting the mood in the crude oil market.

As of October 7, the integrated rate of change of crude oil was 6.76%, which corresponds to an increase of 270 yuan/ton, as measured by Lonzhong Information. Zhuo Chuang information calculations, as of the close of October 7, the domestic 9th working day reference crude oil rate of change of 7.15%, is expected to increase by 315 yuan/ton of gasoline and diesel. China Daily expects that the retail price of refined oil will be raised by 310 yuan/mt at 24:00 on October 9. According to the current estimate, for private cars, it will cost 11.2 yuan more to fill up a tank of gasoline after the price adjustment according to the available tank capacity of 50L.

Since this year, domestic refined oil prices have been adjusted for eighteen rounds, showing a pattern of “twelve up, three down, and three on hold,” with a total increase of 1355 yuan/ton for gasoline and 1305 yuan/ton for diesel. In the 12 oil price increases in 2021, the maximum increase was 275 yuan and 265 yuan per ton for gasoline and diesel, respectively, at 24:00 on February 18. If the retail price limit of refined oil products can be about 315 yuan/ton range to cash, it will set a new record for the most significant increase in the year.

9.The Golden Ninth and Silver Tenth Is Overshadowed; the Real Estate Trend Has Gone

The traditional “golden nine silver ten” sales season of the property market is overshadowed this year. During the National Day, the sellers of houses made every effort to engage in promotions, and the buyers of homes were in no hurry to compare the three, and the volume of transactions fell sharply.

In previous years, at the same time, “open that sold out,” the high rate of demolition no longer exists. Being in Wuhan, Hubei, Miss Yang, in the past “Eleven” Golden Week, the mood is somewhat depressed. “I ‘May Day’ just bought a house in Wuhan, the price is 16,500/㎡. But the National Day property launched a discount activity; the price dropped to 15000 / ㎡ or even lower. The same house type than people spends more than ten.” Ms. Zhou, who is in Suzhou, Jiangsu Province, also feels the same: “I bought the house at the end of last year for 24000/㎡, and now it’s down to 21000/㎡, and I’m still paying off the loan for one more year than others.” Home prices are low; promotions continue, the atmosphere of the property market looks great. But from the data, the “National Day” holiday real estate market continues the low-temperature trend in September.

In Wuhan, for example, according to the CREIS data, the total turnover of commercial, residential properties in Wuhan during the “National Day” period was 88,200 square meters, down 55% compared with the same period last year, and the market enthusiasm dropped significantly. As for the performance of new housing sales, Beijing has a massive number of new products opening around the National Day, including many of the first concentrated land supply projects. The range of choices was extensive, and the promotions launched by merchants were also influential. As a result, the number of people looking at houses is very active, but under the mentality of “buying up but not buying down,” only a few make a bid.

10. Listing a Day Trip: The SSE Terminated 100 Billion Lenovo IPO

The SSE announced that on October 8, Lenovo Group Limited and the sponsor China International Capital Corporation Limited submitted to the SSE respectively an “Application for Withdrawal of Application Documents for Public Issuance of Depositary Receipts and Listing on the Science and Technology Venture Board” and “Application for Withdrawal of Application Documents for Public Issuance of Depositary Receipts and Listing on the Science and Technology Venture Board of Lenovo Group Limited,” applying for withdrawal of the application for listing on the Science and Technology Venture Board The SSE decided to terminate the application for the public offering of depositary receipts and to list on the board. In addition, the SSE chose to complete the review of the company’s application for the public offering of depositary receipts and listing on the board. It is worth mentioning that Lenovo Group just applied for listing on the board on September 30, but it was terminated after a holiday of only one working day, which can be said to be a one-day trip to the board. The prospectus filing shows that the sponsor of Lenovo Group is CICC and the co-lead underwriters are Goldman Sachs Securities and CITIC Securities.

By【G Translators – Financial Team】
Translator: Totoro

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