#CNflow 2016.01.04-08

Last Updated: 8th 12:00 HKT


Xiao Gang

EQUITIES – Following suspension of the circuit breaker, what are the remaining problems facing Xiao Gang? The wechat politics account of Beijing News takes a look at Xiao Gang and the circuit breaker policy, in an article circulated by Chinese media this morning, adorned with a slightly sad face of the CSRC chief. Xiao Gang first touted the circuit breaker policy following the Everbright Securities trading error incident in 2013 which caused sudden volatility in the stockmarket, and since then has promoted the circuit breaker policy. In one speech Xiao Gang also called for the CSRC to have legislative powers similar to that of overseas securities regulators. Despite that not occurring, the circuit breaker policy still became a reality. In April Xiao Gang wrote an article in the People’s Daily titled ‘Promoting the steady development of the financial derivatives market’, which emphasised the ‘double-edge sword’ nature of derivatives, ensuring risk control and the ability of regulators to supervise the products. Two months following the publication, the markets suffered unusual extreme volatility, which even warranted involvement by the Ministry of Public Security. Industry insiders warned of the conflicts arising from blindly copying new systems from more mature overseas markets, such as the circuit breaker and T+1 settlement. The circuit breaker system is not the only problem facing Xiao Gang. Other problems include reform of the IPO system which is a test for Xiao Gang and the CSRC. Many of Xiao Gang’s subordinates and fellow officials have lost their positions in the anti-corruption campaign. How will Xiao Gang handle the loss of personnel and rebuild the CSRC ? // As this update is being written, news circulates on Twitter that Xiao Gang has ‘resigned’, no surprise having read this article. The article is slightly unusual in that it suddenly made a senior official ‘the face’ of the financial crisis, whilst questioning his judgement throughout. “熔断”暂停 肖钢还面临啥难题. http://stock.sohu.com/20160108/n433858134.shtml

EQUITIES – People’s Daily: SSE suspends new circuit breaker rules. Yesterday evening the Shanghai Stock Exchange announced that “in order to safeguard stable market operations, and with the approval of the CSRC, to suspend the ‘index circuit breaker’ rule effective January 8th”. // The article acknowledges the ‘magnetic effect’ of the circuit breaker was increasing market volatility, but naturally does not question the regulators incompetency, other than to admit “Our country has no experience in this new circuit breaker system, and it takes time to build up this experience and adjust accordingly”. So basically a trial and error approach. 1月8日起暂停实施指数熔断. http://finance.people.com.cn/n1/2016/0107/c1004-28026891.html

CREDIT – Chinese banks withdrawing from lease finance business. On December 15th Industrial Bank circulated an internal memo warning branches of the credit, legal and operation risks of lease financing, ordering all branches to suspend new business with ‘normal’ lease financing companies (not inc. those lease finance companies approved formally by the CBRC). Another commercial bank in December also instructed its branches not to enter deals with privately owned lease companies, with any current deals and credit lines to be closed off. Central SOE lease company credit lines are to be amalgamated with that SOE group’s credit line. Bank insiders reveal so far 5 banks have taken such measures.// The concerns stem from the e-Zubao fraud, which was first reported in English on Twitter by chiecon back in October, before an official investigation was launched. Whereas banks were previously only concerned with the payment ability of the end borrower, focus has now shifted to the lease companies acting as the go-between. This seems a step backwards for the government, whom are keen to develop new fundraising channels for corporates. 银行收紧融资租赁业务 风险酝酿敞口呈现. http://www.21jingji.com/2016/1-7/2NMDAzNzNfMTM4NjI2NQ.html


viral twitter pic by @PatrickMcGee_



FUNDS – Yuebao returns at record lows, AUM breaks 1 trillion yuan. Returns on the mutual fund arm of Alipay reach new lows, falling below 2.7% for the first time.

Despite the lower returns, Yuebao’s AUM has increased, reaching Rmb1.0742tn by YE2015, the first domestic fund to exceed 1 trillion yuan in assets. Yuebao had 260 million customers by year end, an increase of 42% on 2014. // Successive cuts to policy interest rates have seen low returns on WMPs now spreading to money market funds. 余额宝收益率跌破2.7% 创新低. http://finance.ifeng.com/a/20160106/14151545_0.shtml #CNtrend

EQUITIES – Minsheng Securities penalised by the regulators. CSRC found corporate governance issues with the broker, and requested a full ‘rectify and reform’ report be delivered to the regulator by the end of June, detailing changes to corporate governance at all levels. In the meantime, the broker must suspend the opening of new accounts, and onboarding new clients. 民生证券半年内禁开新户 被指内部管理存在问题. http://money.163.com/16/0107/07/BCN7KVLR00253B0H.html

EQUITIES – Hengtai Securities: Circuit breaker only adds to market panic. The broker’s chief analyst Li Xiaojun points out the anticipation of further falls following implementation of the circuit breaker. Furthermore, the lack of stable capital flows and supporting government policy causes investors to panic even more. If anything the circuit breaker is having the opposite effect, which harms investors, leaving no other option than to exit the market. Investors place their faith in a system that works and in regulators overseeing a stable market. // Chinese media criticising this new disastrous policy of linking trade halts to falls in the CSI300 index, which saw trading halted again today, within the first half an hour. 恒泰证券:熔断加速了市场恐慌 http://money.163.com/16/0107/11/BCNO1VUA00254TFQ.html

PROPERTY – A clampdown on real estate adverts promising a ‘hukou’ (local residence permit) or a school place for buyers of new property. // In Shenzhen, a clever real estate advert on the subway plays on this theme: “Instead of travelling 200 miles home this year, I only need to travel 2”. 卖房禁止以送户口为名打广告 http://www.ahwang.cn/china/20160106/1486215.shtml

HONG KONG – Number of companies being dissolved in Hong Kong hits record high. According to research by Webb-Site.com, 121,963 companies were dissolved in Hong Kong in 2015, an increase of 111% on 2014.

The number of newly incorporated companies fell by 17% verse 2014, the lowest level since 2009. This meant for 2015, there was an overall net increase in Hong Kong companies of 17,246, the lowest net increase since 2003.

Hong Kong is feeling the effects of China’s economic slowdown, with retail sales down year on year by 40% in the last golden week holiday, according to figures from the Hong Kong Retail Management Association. // This story and variations of it are frequent in Chinese media, clearly some satisfaction taken by the Chinese propaganda department, and plays well with mainlanders tired of being looked down upon in Hong Kong. 香港企业倒闭数创纪录新高. http://www.huaxia.com/tslj/lasq/2016/01/4685619.html #CNtrend

BANKING – Chinese bankers bonuses cut as profits wane. Increase in bad loans and falling profits sees bankers pay and bonuses cut. Pressure particularly acute for senior level executives, of the 38 whom left their post last year, 13 were with one of the big five banks, whilst 18 were from smaller commercial banks. One bank insider revealed that the biggest pressure came from souring corporate loans, which meant some bankers business experienced a tenfold increase in bad loans. // The comment that some are seeing bad loans increase tenfold seems at odds with the official bad loan statistics being released by the banks, which even this article suggests are ‘far from the worst case scenario’. 利润遭侵蚀 银行行长薪酬大减. http://cq.people.com.cn/GB/365644/367006/?Num=7616891 #CNtrend

Any comments and suggestions welcome on the new format. If you wish to copy this content, please have the courtesy to cite the website.


A trial for those stories that whilst do not warrant full translations, yet need more than a fleeting glimpse on twitter…

TECH – Over half of China’s science and technology R&D funding is spent on non research activities. Local media reports indicate 60% of funding has been wasted over the past few years on meetings and business trips etc. The problem is a lack of transparency in department finances which results in funds diverted under someone else’s name, issuing fake invoices and other corrupt activities. More senior academics have the power to process their own expenses. As more government funds are poured into R&D to boost the nations innovation and climb up the value chain, more funds are being wasted. // On the other hand, poking into the finances of academics seems a useful way of ensuring they toe the line on government policy and thinking. 万亿科研经费60%用于开会出差. http://w.huanqiu.com/r/MV8wXzgzMjYxMDFfMTMxOV8xNDUyMDQ3NzYw

EQUITIES – Shanghai stock exchange issues new detailed rules on IPO subscriptions. Key takeaway, investors no longer need to pay up front for all the shares they apply for. Based on final allocated amount. 新股网上网下发行实施细则问答. http://www.sse.com.cn/aboutus/hotandd/ssenews/c/c_20160104_4031927.shtml http://news.163.com/16/0105/20/BCJHPS39000146BE_2.html

PROPERTY – Sunac chairman Sun Hongbin says Baoneng cannot control Vanke, has no power on the board. Baoneng already owns 24% of Vanke shares. Over 30% triggers takeover bid. Vanke H-shares resume trading today. 孙宏斌:宝能不可能控制万科. http://finance.eastmoney.com/news/1670,20160106582422044.html http://news.stockstar.com/SS2016010500002223.shtml http://finance.ifeng.com/a/20160105/14150650_0.shtml

INFRASTRUCTURE – Hong Kong high speed rail connection with Shenzhen three years behind schedule, and over budget by nearly 20 billion yuan. //Recently a series of articles in Chinese media criticising the construction problems on a track just 26km in length. 香港高铁拖3年超支近200亿元. http://mt.sohu.com/20160105/n433555465.shtml

TECH – Sichuan airlines suspends cooperation with travel website Qunar. Follows similar action taken by eight other airlines, such as Air China, China Eastern, Chongqing Airlines and Tianjin Airlines. 四川航空:暂停与去哪儿网合作. http://tech.ifeng.com/a/20160105/41534649_0.shtml http://finance.qq.com/a/20160106/011472.htm

TRADE – China becomes Israel’s second largest trading partner, and second largest investor, behind the US. // Related China-Israel trade/investment initiatives seen over past year at local government level. 中国成以色列第二大投资国. http://finance.sina.com.cn/roll/2016-01-06/doc-ifxncyar6395791.shtml

EQUITIES – Chinese media reports no ‘national team’ intervention in yesterday’s stockmarket, counters claims in overseas media. 专家称未发现国家队建仓踪迹. http://m.10jqka.com.cn/20160105/c586933635.shtml

FUNDS – Despite the stockmarket volatility in 2015, China’s public fund assets reach new high of 8.4 trillion yuan, a leap of 85% year on year. 2015公募总规模8.4万亿创新高. http://finance.ifeng.com/a/20160106/14151567_0.shtml

One comment

  1. […] FUNDS – Rumours Beijing has suspended private equity fund registrations: Registrations including the following words are prohibited, investment, assets, capital, holding company, fund, wealth management, lease finance. Similar measures have been taken in Chengdu and Tianjin, amongst other places. One industry insider believes these measures are temporary, awaiting the release of new regulations. 传北京全面收紧私募注册登记 (see last week’s #CNflow on fund AUM) […]

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