1 Beijing taps ‘national team’ to boost market confidence
State financial support
Oct. 10
The PRC National Administration of Financial Regulation issued a notice regarding financial support for “restoring and expanding consumption” (關於金融支持恢復和擴大消費的通知) to local regulatory bureaus and various financial institutions.
The notice listed financial support covering 19 items in seven areas, including:
- Increased support for key areas (manufacturing, technological innovation, private enterprises, small and micro enterprises, and transportation and logistics).
- Support the expansion of automobile consumption.
- Increase financial support for new forms of consumption (digital consumption and green consumption) and service consumption.
- Lower the cost of consumer finance.
- Strengthen insurance protection services.
- Effectively protect the legitimate rights and interests of consumers.
Oct. 11
1. The PRC State Council issued an opinion on “promoting the high-quality development of inclusive financing” (關於推動普惠金融高品質發展的實施意見).
The opinion proposed the following measures:
- Optimize inclusive financial products and services to support small and micro enterprises and rural revitalization.
- Deepen financial supply-side reform, build a multi-level inclusive financial system, and promote the development of digital inclusive financing.
- Prevent financial risks, strengthen the form of small and medium-sized banks, and crack down on illegal financial activities.
- Improve financial literacy and the rule of law, protect the rights and interests of financial consumers, and establish a credit information-sharing mechanism.
2. State-owned Central Huijin Investment Ltd. said in a filing to the Shanghai stock exchange that it raised its stakes in China’s “Big Four” lenders. Huijin also noted that it would continue the purchases over the next six months, but did not say to what extent.
Details of the purchase include:
- Bought 24.9 million shares in Bank of China, increasing Huijin’s holding to 64.03 percent from 64.02 percent.
- Bought 37.3 million shares in Agricultural Bank of China, increasing Huijin’s holding to 40.04 percent from 40.03 percent.
- Bought 18.4 million shares in China Construction Bank, increasing Huijin’s holding to 57.12 percent from 57.11 percent.
- Bought 27.6 million shares in Industrial and Commercial Bank of China, increasing Huijin’s holding to 34.72 percent from 34.71 percent.
Oct. 12
China’s A-share market opened higher in the morning of Oct. 12 in the wake of Huijin’s purchase of “Big Four” bank shares, the PRC’s recent financial policies, and apparent signs of improvement in Sino-U.S. relations.
China’s blue-chip CSI300 rose 1 percent by the midday recess to 3,100 points. Meanwhile, bank shares were up 1.7 percent, insurers gained 3.2 percent, new energy companies and automobile firms added 2.5 percent and 3.9 percent respectively, and Hong Kong-listed tech giants were up 1.6 percent. Over 3,300 stocks saw gains in the Shenzhen and Shanghai stock markets, with a turnover of 831.3 billion yuan.
The Hang Seng Index also climbed 1.9 percent, with China Construction Bank stocks rising nearly 5 percent, Bank of China stocks up 3.3 percent, and Industrial and Commercial Bank of China shares up 4.3 percent.
Oct. 13
Bloomberg News reported that PRC financial regulators, including the China Securities Regulatory Commission, recently submitted a preliminary plan to the regime’s top leadership about forming a state-backed stabilization fund to boost confidence in China’s $9.5 trillion stock market, citing people familiar with the matter.
The plan was formed after at least two rounds of consultation with industry participants over several months. One of the people familiar with the matter said that the plan calls for the stabilization fund to have access to total capital in the hundreds of billions of yuan, although implementation details are not yet finalized and there is still a chance that the proposal will be canceled.
Backdrop
Oct. 6
Data from the PRC Ministry of Culture and Tourism showed that travelers in China made 826 million domestic trips over the eight-day (one day longer than in previous years) Mid-Autumn and National Day holiday, an increase of 4.1 percent (on a comparable caliber) as compared to pre-pandemic 2019 levels. Meanwhile, domestic tourism revenue was up 1.5 percent (on a comparable caliber) from 2019 to 753.43 billion yuan.
Both figures were lower than what state media had reported the ministry as predicting, or 896 million trips and 782.5 billion yuan in domestic tourism revenue. The figures also suggest that actual consumption per domestic traveler was lower than before the pandemic.
Oct. 11
1. Bloomberg reported that the benchmark CSI 300 Index has fallen more than 5 percent this year, while the financial sub-gauge was down 1.5 percent for a third consecutive year of losses.
Bloomberg added that “previous measures to support growth and the housing market failed to boost investor sentiment.”
2. Mainland media reported that the run on Cangzhou Bank, which started on Oct. 8, had not stopped. In what appeared to be a move to assuage its depositors that it had sufficient funds to meet demand, Cangzhou Bank branches were seen piling large stacks of cash in their withdrawal rooms.
Our take
1. The “Golden Week” domestic travel data indicates that people are not consuming as much as before the pandemic. Weak consumption, coupled with falling real estate sales, Country Garden’s default warning, and the rising probability of China Evergrande’s liquidation, suggests that the CCP authorities’ economic rescue measures that were proposed in July have had a limited effect in stimulating the economy and boosting consumer and business confidence.
The pessimistic data has likely prompted Beijing to introduce even more measures and stimulus, including financial support to “restore and expand consumption” as well as tapping the “national team” (i.e. an ad-hoc task force of large state-affiliated institutions that intervene to prop up the stock market) in Central Huijin Investment to raise its stake in China’s “Big Four” banks. The CCP authorities are likely hoping that the latest stimulus and measures can stabilize the economic situation and restore some confidence to the markets and consumers.
2. Huijin’s purchase of stock in the “Big Four” banks appears to be financial hedging to stabilize the markets over the short term. However, such “national team” action will likely be very limited in its impact and will not help much over the long term given the PRC’s weak economic fundamentals and worsening domestic and external crises.
Previously, Huijin prominently dipped into the A-shares market at least six times in what appears to be “national team” efforts to steady the markets. The last time was after the stock market crash in July 2015 when Huijin bought up to 39.5 billion yuan worth of exchange-traded funds in the secondary market. In comparison, Huijin spent only about 477.5 million yuan (based on closing prices on Oct. 13) to purchase very small stakes (0.01 percent) in the “Big Four” lenders, a symbolic move that is likely meant to boost market confidence.
Huijin holds stakes in about 156 A-share companies with a total market value of 2.08 trillion yuan as of the first half of 2023, according to publicly available information. The bulk of Huijin’s holdings are in financial stocks, including 1.82 trillion yuan worth of banking stakes and 152.49 billion yuan worth of non-bank financial stocks. Meanwhile, the “Big Four” banks issued a total of 351.487 billion yuan in cash dividends in 2022, or nearly a fifth of total cash dividends issued by all listed companies.
Huijin’s symbolic purchase of stocks in the “Big Four” banks, as well as its statement of interest in buying more of those stocks over the next six months, suggests that the CCP authorities are hoping that its taking the lead in making stock purchases could attract more funds to the markets. If the effect of Huijin’s symbolic purchase is not obvious, it could step in again later to buy more stocks to drive up confidence.
Huijin’s symbolic purchase could also suggest that the “national team” either believes that its very modest raising of stakes in the “Big Four” lenders is enough to restore confidence, or it actually lacks liquidity to make more ambitious purchases. If it is the latter reason, then the CCP authorities will struggle to prop up the markets and will instead merely extend the period for investors who are looking to cash out while they are still ahead or are trying to minimize losses.
3. Huijin’s share purchase could also be an attempt by the CCP authorities to create opportunities for banks to supplement their capital and expand credit before there is a concentration of defaults by real estate companies and financial institutions. China’s leading property developers and shadow banks currently have huge liabilities (as of the end of June 2023, Evergrande’s total liabilities were 2.39 trillion yuan, Country Garden at 1.36 trillion yuan, Sunac at 1 trillion yuan, and Zhongzhi Group at 3.72 trillion yuan), and are likely to run into serious trouble as the Chinese economy continues to deteriorate.
According to People’s Bank of China data, banking institutions in China had total assets of 406.25 trillion yuan and total liabilities of 373.63 trillion yuan at the end of the second quarter of 2023. In the event of defaults that cause 1 percent of all bank loans to become non-performing, banks will be set back by about 3.74 trillion yuan, or more than the 2.3 trillion yuan of cumulative net profits generated by all commercial banks in the country in 2022.
