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Feb 27, 2019 08:47 AM
CX DAILY

CX Daily: Analysts Sound Alarm on China's Market Euphoria

Stock surge sparks comparisons to 2015’s bubble and crash

The combined trading volume on the Shanghai and Shenzhen stock exchanges exceeded 1 trillion yuan ($149.3 billion) Monday and Tuesday, each time more than doubling the average daily turnover on the two marketplaces this month.

The spike has most likely been driven by retail investors, though observers say levels of margin lending are well below 2015 levels as it has become harder to access cheap credit since then. Still, analysts and market observers have sounded the alarm about the dangers of a rally propelled by individual investors and big bets on bad stocks.

“We need to take a lesson from the 2015 market crash, in which the government’s cheer leading led investors to believe the stock market was going to go up forever,” said Shen Jianguang, chief economist of Mizuho Securities Asia Ltd. "After the bubble burst, not only did investors take heavy losses, but the market itself also missed out on opportunities to develop and reform to become more competitive.”

FINANCE & ECONOMICS

CBIRC

A bridge being built over the Yangtze River in Zhenjiang, Jiangsu province on Nov. 12. Photo: IC

Antidote /

A remedy for local government debt hangover

Chinese authorities are looking at ways to help local governments cope with the mountains of debt they’ve accumulated off the books over the years. That could be good news for cities that have previously racked up liabilities totaling hundreds of billions of yuan, or more than a dozen times their general fiscal revenue.

CBRIC will deal with all indebted cities under the “One City One Policy” principle, the agency told us. Support will be tailored to suit the conditions of each city with the aim of strengthening cities' ability to pay the money they owe and deal with their borrowing problems, he said.

Cleaning up /

China is cracking down on commercial bill arbitrage

China’s banking regulator is stepping up checks on arbitrage activity involving commercial bills after a January surge in bill financing, in an attempt to ensure that all funds are invested in the real economy and to reduce financing costs for businesses.

CBIRC will establish a complete system and impose strict penalties on banks and related persons engaged in empty arbitrage activities involving commercial bills, Wang Zhaoxing, the agency's vice chairman said.

Regional integration /

Greater Bay Area plan offers greater financial links

As part of the Greater Bay Area regional integration plan, monetary authorities in Hong Kong and Beijing are working on plans for pilot programs that will connect their wealth management and insurance markets, along with a series of other measures to boost investors’ access to both financial markets.

The programs, which are expected to kick off by 2022, will allow asset managers and insurers to sell their products in each other’s markets, according to Hong Kong’s Secretary for Financial Services and the Treasury James Lau. Analysts said the new programs will most likely be modeled on the stock connect programs that allow investors in Hong Kong and on the mainland to trade on each other’s exchanges.

The full story /

China hits deleveraging goals but work remains: regulator

China needs to continue reducing risks caused by excessive leverage in the system despite achieving the goals of its structural deleveraging campaign, Wang Zhaoxing, vice chairman of the China Banking and Insurance Regulatory Commission (CBRIC) said.

While illegal financial businesses, shadow banking and overheated real-estate financing have all been reined in, regulators now need to focus on bad loans, small and medium-sized financial institutions, shadow banking, real estate and local debt, he said.

Small business /

Big banks urged to lend to China’s credit-starved private sector

China’s banking authority has urged large state-owned lenders to increase lending to certain small companies by more than 30% this year, CBIRC said.

CBIRC said it wants banks to expand lending to companies with credit lines of less than 10 million yuan ($1.5 million). Loans to private companies have been on the rise. By the end of the fourth quarter of 2018, outstanding loans to businesses with credit lines of less than 10 million yuan totaled 9.4 trillion yuan, up 21.8% YOY, according to official data.

Quick hits /

$527 million seized, 16,200 arrested in loan shark crackdown

Corners of China's bond market without 10% price-change limits are going bananas (Bloomberg)

With 10-to-1 leverage, shadow banks fuel China's stock boom (Bloomberg)

China, Europe to lead effort to set green bonds standards

Chinese county suspends shale gas mining as locals complain of earthquakes

A stock that rides every China bubble returns stronger than ever (Bloomberg)

BUSINESS & TECH

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Photo: VCG

Tech stocks /

ZTE makes stunning comeback on market rally

What's happened to ZTE? Once crippled, Huawei's smaller Chinese rival is flying high on trade war and 5G optimism that's swept Chinese stocks over the past few weeks.

Bloomberg reports that the company was one of the 10 best performers on the MSCI China Index this year after soaring roughly a third over the past week, a trend some observers don't see ending anytime soon. Still, it's stoking fears of a bloated valuation relative to 2019 earnings amid a potential market bubble.

Technical difficulties /

Qinghai SOE made late payments amid default fears

A state-owned aluminum producer said it made last-minute payments on 20 million yuan ($3 million) of debt that were due Monday, averting a default that sparked fresh concerns over the financial health of China’s corporate sector.

Qinghai Provincial Investment Group Co. Ltd. said Tuesday morning in a statement that it made full repayments of principle and interest on the one-year private placement note totaling 21.4 million yuan to the Shanghai Clearing House by 7 p.m. Monday. The delayed payment, which was due at 5 p.m., was due to "technical reasons," the company said in the statement.

E-commerce /

Rural online retail grows

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Online retail sales across China’s rural areas grew 10.5% last year as a total of 238 impoverished counties — roughly a third of China’s poor counties by official count — were added to a government scheme to help sell their produce online last year, according to the Ministry of Commerce.

Turf war /

Tim Hortons joins Chinese coffee market battle

The Canadian coffee-and-doughnut chain Tim Hortons has arrived in China, opening its first Chinese shop Tuesday in People’s Square in Huangpu, Shanghai, with plans to focus on “everyday value” amid steaming competition and simmering diplomatic tensions.

The restaurant chain joins Dunkin’ Brands Group Inc., Coca-Cola Co.’s newly acquired Costa Coffee and local chains like Luckin Coffee, not to mention Starbucks, which is opening a store in China roughly every 15 hours. In comparison, Tim Hortons expects to open only 1,500 locations across China over the next 10 years, the Montreal Gazette reports.

Winning streak /

China’s Anta Sports posts record profits for 2018

Anta Sports Products Ltd. scored a record annual net profit for a fourth straight year, Reuters reports, as China's largest sportswear brand by sales capitalizes on the growing popularity of sports and athletic fashion.

Anta's net profit rose 33% in the year ended in December, the company said Tuesday, beating estimates, while revenue rose 44%. China's sportswear sales have boomed in the past few years and have remained resilient despite turbulence in the economy and capital markets.

Quick hits /

Editorial: How should we view the wave of internet industry layoffs?

What layoffs? Now JD.com says it will expand its workforce

Volkswagen joins forces with Didi to tap ride-hailing trend

Trump tweets trade and tech stocks soar

Beer drinkers set to be next losers from China's trade wars

Hong Kong media firm sells stake in news aggregator Particle for $448 million

U.S. firms more pessimistic on China due to trade war, slowdown

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