Caixin
Dec 18, 2020 09:33 AM
CX DAILY

CX Daily: How Ethylene Glycol Led to the Yongcheng Coal Default

A worker holds a bottle of ethylene glycol made in a factory in Guizhou.
A worker holds a bottle of ethylene glycol made in a factory in Guizhou.

Defaults /

In Depth: How ethylene glycol led to the Yongcheng Coal default

The surprise default that threw China’s corporate bond market into turmoil last month can be traced to massive, unprofitable investments a decade ago in ethylene glycol, a toxic but useful industrial chemical that Chinese factories consume in vast quantities.

The business case seemed sound in 2010 for the state-owned coal mining operations of central China’s Henan province to diversify into the product, which can use coal as a raw material. But the leader of Henan Energy and Chemical Industry Group. Co. Ltd. who initiated the investments was later convicted of corruption and imprisoned.

Then the economics of the business changed amid fluctuations in energy prices; competition intensified; and Henan Energy’s ethylene glycol business racked up huge losses year after year. That’s what ultimately dragged Henan Energy’s Yongcheng Coal and Electricity Holding Group Co. Ltd. into default. Yongcheng Coal was the most profitable unit of Henan Energy, the largest state-owned company by assets in Henan province.

Opinion: Conflicts of interest in China’s rating industry should be eliminated

FINANCE & ECONOMY

FOREIGN

Economists see more positives in China’s relations with the U.S. in 2021.

Economy /

What’s in store for China’s economy in 2021

After a roller coaster 2020 during which the Chinese economy shrank for the first time in decades amid the Covid-19 pandemic, analysts with overseas investment banks are bullish on the country’s prospects for 2021.

Most expect a vigorous rebound in economic growth, driven by a continued recovery in domestic consumption, stronger global demand that will boost exports, and a ratcheting down of tensions with the U.S. after Joe Biden takes over as president.

They also see the government rolling back some of the easing policies implemented in 2020 to cushion the economy from the impact of the coronavirus, lowering the size of the fiscal deficit as a proportion of GDP, and tightening monetary policy, although the majority of economists say there’s unlikely to be a hike in interest rates.

China eyes economic goals for next year as debt levels soar

Property /

Charts of the Day: China’s developers should expect fewer sales in 2021

China’s real estate developers are expected to sell fewer square meters of property next year, analysts said, as the industry faces a tougher financing environment with regulators maintaining a tight grip on the industry.

Property sales by area are expected to slip between 2.3% and 3.8% in 2021 to between 1.65 billion and 1.68 billion square meters, according to Huang Yu, an official at China Index Academy Ltd., a property research firm. “By floor space, property sales are expected to hit a record high this year but may decline next year,” Huang said in a speech to a meeting in the southern metropolis of Shenzhen last week.

In the first 11 months of the year, property sales rose 1.3% year-on-year to 1.5 billion square meters, according to data (link in Chinese) from the National Bureau of Statistics (NBS). The previous full-year record was in 2018, when total floor space sold hit 1.7 billion square meters.

IPOs /

Mainland company listings to make up 98% of money raised in Hong Kong this year

About 98% of the total HK$397.3 billion ($51.2 billion) raised from IPOs and secondary listings on the Hong Kong Stock Exchange this year is expected to come from Chinese mainland companies, up from 74% in 2019, according to a report that Deloitte China released Wednesday.

In total, Hong Kong will probably host 145 new listings in 2020, with mainland companies making up 74%, an increase from the previous year when they made 60%, Deloitte estimated. With less than two weeks in 2020 to go, the five largest listings in the city this year are all expected to be made by mainland businesses, collectively raising HK$123 billion.

Digital asset /

Hong Kong greenlights first virtual asset exchange

Hong Kong’s securities regulator granted the first business licenses for digital asset trading as the city moves to bring crypto trading under regulatory oversight.

BC Technology Group’s OSL Digital Securities Ltd. (OSL) unit obtained a securities trading license and a license to provide automated trading services from the Hong Kong Securities and Futures Commission (SFC), according to a company statement.

OSL said it was the first virtual asset platform to be licensed by the SFC after the Hong Kong regulator tightened its regulation of such businesses. SFC wasn’t available for comment.

Quick hits /

China streamlines financing backed by movable assets

Year in Review: China’s economy gets back on track, but faces long road ahead

BUSINESS & TECH

TEXTILES

A worker examines machinery on July 1 at a textile plant in Huaian, East China’s Jiangsu province.

Textiles /

In Depth: China’s pandemic-driven textile export boom probably won’t last

After years of textile manufacturing moving away from China as costs cut into slim profit margins, export orders are booming this year amid the Covid-19 pandemic.

China’s largest home textile manufacturer Sunvim Group Co. Ltd. has been picking up orders that coronavirus-hit workforces in India and Pakistan have been unable to fulfill. Similar busy scenes are playing out in textile factories across the country’s southern manufacturing belt. As the global supply chain is disrupted by outbreaks and the measures to contain them across South and Southeast Asia, factories in China are experiencing a windfall of orders.

However industry analysts and businesses say this is just a flash in the pan as the long-term factors underlying the industry’s exodus — a shortage of workers and high labor and rent costs — mean the future remains bleak for low-end manufacturing for export.

Chipmakers /

Boardroom shakeup hits chipmaker SMIC’s shares

Shares of leading microchip-maker SMIC sagged early Thursday, bringing their losses this week to 10%, on reports of a top executive’s departure coupled with the company’s removal from several major global indexes.

Semiconductor Manufacturing International Corp. has been in near-nonstop headlines for much of the past year, leading its shares to nearly triple between January and July on expectation it would receive strong government support as China tried to rapidly build up its high-tech chip sector in the face of U.S. sanctions. But the shares have given back most of those gains in the last five months as the U.S. has targeted more sanctions directly at the company.

In the latest development, local media reported this week the company’s co-CEO and executive director Liang Mong Song had resigned, prompting a suspension in SMIC’s Hong Kong-traded shares Wednesday. It issued a statement on the matter later that day, and its shares resumed trading.

Chipmaker Renesas extends China reach with joint research lab for electric vehicles

Steel /

China mulls tighter controls on steel mill ‘capacity swaps’ to fight overcapacity

China is considering tighter controls over steel ‘capacity swaps’ — including further reducing production quotas — to prevent newly built mills impeding the country’s long-running battle against overcapacity.

The Ministry of Industry and Information Technology (MIIT) issued a draft plan Wednesday aiming to further control new capacity in the bloated steel industry.

This followed a notice by the ministry in January that suspended capacity swaps and urged local governments to investigate existing projects.

Fraud /

Luckin Coffee to pay $180 million to settle U.S. securities fraud case

Disgraced Chinese coffee shop startup Luckin Inc. agreed to pay $180 million to settle fraud charges from the U.S. Securities and Exchange Commission (SEC), the regulator said Wednesday in a statement.

The company, which once pledged to disrupt China’s coffee market, deliberately fabricated more than $300 million in sales between at least April 2019 and January this year, an SEC investigation found.

Employees concealed the fraud by creating a fake operations database and tampering with bank records, and the company lied to investors about revenue, expenses and net losses, the SEC said.

Quick hits /

What you should know about Chang’e 5’s return to earth

Sweden can go ahead with 5G auction that bans Huawei Gear, court rules

China’s home-grown Boeing challenger moves toward commercial launch

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