1. Even more Baoshang fallout
The hits just keep on coming as regulators continue to try and address liquidity shortages in the interbank market.
The latest: On Wednesday, China’s big securities brokers announced that they had received regulatory approval to issue financial bonds in the interbank market for the first time.
Some context: These big brokers are key lenders in the interbank market. If they can’t get enough liquidity, then they can’t help finance small banks and smaller brokers within the system.
More context: Authorities had already increased the big brokers’ ability to raise short-term debt by raising their quotas for commercial paper issuance (see June 25Tip Sheet).
Even more context: Brokers typically issue financial bonds on the exchange. The much bigger interbank bond market is typically reserved for policy banks, commercial banks, and insurance companies.
Why it matters: Financial bonds carry a maturity of 3-5 years – as opposed to the 90 days that commercial paper carries. So authorities are allowing the brokers to undertake more robust, long-term capital raising.
Our take: That means regulators don’t think additional short-term liquidity is going to be enough to deal with the current interbank issues – it’s a longer-term problem.
21st Century Biz: 头部券商喜提银行间市场金融债发行资格 非银机构流动性进一步激活
2.China looks to Europe for backup ahead of G20
The foreign ministry has been trying to drum up support from Europe in the run up to the G20.
According to the SCMP, Chinese diplomats have been canvassing the G20’s European members – Britain, France, Germany, Italy, and the European Union – to feel out what the reaction would be if US-China trade talks were to break down.
According to a diplomatic source, the goal is to keep US President Trump from walking away:
- “Chinese diplomats were very eager to engage officials in Europe ahead of the summit.”
- “They gave an impression that China and Europe could somehow work together to keep Trump at the table.”
Some context: The US and China have agreed to restart trade talks, but it still looks very touch and go.
Get smart: European countries are frustrated with Trump. But they are even more frustrated with Chinese trade practices.
3. The State Council wants to do more for small businesses
At this week’s executive meeting, held yesterday, the State Council returned to one of its favorite topics – supporting small businesses.
Top of the agenda is interest rate reform:
- “Market-oriented interest rate reform will be deepened to improve commercial banks’ Loan Prime Rate mechanism and better harness LPR’s role in shaping the real interest rate.”
Banks will also be asked to cut fees:
- “Banks will be urged to reduce lending surcharges to lower financing costs for micro and small businesses.”
The government also wants to develop more direct financing for small businesses:
- “Small and medium enterprises will be supported in bond and note financing.”
- “Financial institutions are expected to significantly increase their financial bonds issued for micro and small businesses this year toward the target of no less than 180 billion yuan.”
Get smart: The above measures look a lot more like state-directed lending than “market-oriented” reforms. Just saying.
4.State Council promotes IP-backed financing
Wednesday’s State Council meeting also promoted a new type of financing meant to help small companies.
- “The meeting also called for expanding the use of intellectual property pledge financing [IPPF], to widen financing channels for private, micro, small, start-up and innovation businesses and ease their financing difficulties.”
- “Banks will be guided to formulate separate lending plans and evaluation mechanisms for intellectual property pledge loans.”
Oversight of IPPF will be less stringent than for normal lending:
- “The nonperforming loan (NPL) ratio of such lending that is no more than 3 percentage points above the overall NPL ratio will not be considered a minus factor in government oversight or performance evaluation.”
Our thought: We wouldn’t be surprised to see banks take advantage of the new rules and start repackaging normal loans as IPPF.
Get smart: IPPF is relatively new in China. The government has been promoting it more and more in the past two years.
5.Central government increases scholarships for vocational education
Wednesday’s State Council meeting also decided on new measures to increase enrollment in vocational education.
Specifically, from this year:
- National scholarships for vocational colleges will increase from 5,000 to 15,000.
- The standard subsidy for students receiving tuition support will be raised from RMB 3,000 to RMB 3,300.
- A new national scholarship for secondary vocational education will be established; it will be awarded to 20,000 students, each of whom will receive RMB 6,000 per year.
Get smart: China’s economy is evolving quickly; as it does so, demandfor higher-skilled labor isincreasing.
: 李克强主持召开国务院常务会议 确定进一步降低小微企业融资实际利率的措施等