SinoInsight 1
China CITIC Bank stopped offering mortgage loans of over 2 million yuan (about $315,00) in Beijing, according to mainland Chinese news reports on Feb. 28.
OUR TAKE
1. CITIC Bank’s decision will result in a contraction of capital in circulation, and is an important financial signal. Since the middle of 2017, the Xi Jinping administration has been stepping up regulation of financial services and introducing deleveraging reforms.
2. Neither the central bank nor the China Banking Regulatory was involved in CITIC Bank’s decision. This suggests that CITIC Bank is not optimistic about future property prices in Beijing.
3. More than half the loans in China are mortgage loans, and property is most commonly put up as collateral. If property value drops, the value of all assets in China could also be affected, resulting in an increased debt-to-asset ratio for banks and a higher probability of default losses drastically rising. This phenomenon would ultimately result in a vicious cycle where property value and asset prices keep spiraling down.
SinoInsight 2
On Feb. 27, mainland investors sold a net 3.1 billion yuan ($489 million) of Hong Kong shares via the Shenzhen-Hong Kong and Shanghai-Hong Kong stock connects. This was the biggest outflow of shares since December 2016. The following day, mainland investors sold another billion yuan worth of shares.
Among the most heavily traded stocks were those of Tencent Holdings, China Shenhua Energy, and the four Chinese state banks.
OUR TAKE
1. This is the first instance of substantial mainland Chinese capital leaving Hong Kong since the Lunar New Year, and during a period where the Hong Kong economy isn’t experiencing major problems.
2. We believe that Chinese investors are perhaps seeking more liquidity due to a credit crunch on the mainland. Also, investors could be reacting to the government takeover of Anbang Group and the prosecution of Wu Xiaohui.
SinoInsight 3
Listed among the delegates attending the annual National People’s Congress meeting is one Ma Xiaohong. The Chinese characters of this Ma Xiaohong are identical to the Liaoning businesswoman Ma Xiaohong.
The Liaoning Ma Xiaohong is the legal person of Hongxiang Industrial Development Co. Ltd. Ma was arrested in September 2016 for supplying North Korea with material for its nuclear program. Additionally, Ma is listed among the 452 Liaoning People’s Congress delegates who were expelled from the legislature in 2016 for vote buying.
OUR TAKE
1. It is unclear if the Ma Xiaohong attending the Two Sessions in March is Liaoning’s Ma Xiaohong or another individual with the same name. If this Ma is indeed the one who was arrested and expelled, then this development is worthy of scrutiny.
2. The Chinese Communist Party supported North Korea’s nuclear program, and the Jiang Zemin faction previously dominated the Chinese regime. And the central authorities almost certainly backed Ma Xiaohong’s smuggling of material to Pyongyang.
If Ma escaped punishment and remains a delegate to the Chinese legislature, then this means that the Xi administration either has reservations about denuclearizing North Korea, or the Jiang faction still has substantial influence and is fiercely resisting Xi.
