1. Banking regulator touts progress in SME lending
We’ve got some good news for folks worried about China’s banking system (CBIRC):
- “The quality and efficiency of banking and insurance services to the real economy have been improved.”
That’s according to a Monday press conference held by vice chairmen of the banking and insurance commission (CBIRC), Huang Hong and Zhu Shumin.
Zhu went on to argue that the government’s efforts to push more loans to SMEs are working:
- “By the end of September, the loan balance of small and micro enterprises of the five large [SOE] banks was RMB 2.52 trillion – an increase of RMB 814.8 billion or 47.9% over the end of 2018.”
That is indeed progress. But it hasn’t exactly lit a fire under the private sector – total outstanding loans for all banks in China stand at RMB 150 trillion.
The underwhelming math:
- That means SME loans by the Big Five represent just 1.7% of overall outstanding loans.
- If we’re generous and assume that the non-SOE banks increased SME lending by a similar amount, then SME loans might total about 4% of outstanding loans.
Get smart: It’s going to take a lot more than a measly few hundred billion RMB to address the structural challenges that keepChina’s private companies from getting financing.
2.Financial regulators still focused on de-risking
While Zhu Shumin focused on progress with lending to SMEs (see previous entry), Huang Hong was bragging about officials’ accomplishments in financial de-risking (Xinhua):
- “Steady progress was made in preventing and resolving major financial risks.”
- “In the past two and a half years, the growth rate of banking assets has been reduced from 15% to 8%, and the scale of shadow banking has been greatly reduced.”
- “In the first three quarters, we disposed of RMB 1.4 trillion yuan of non-performing loans, a y/y increase of RMB 176.5 billion.”
And Huang was clear that there is more scrutiny to come:
- “We will take appropriate and effective measures to deal with high-risk institutions in a safe manner and effectively safeguard the overall situation of financial stability.”
The bottom line: Financial officials are still focused on de-risking – not stimulating.
3. China’s island(s) in the sun
On Monday, the 3rd China-Pacific Island Countries Development and Cooperation Forum kicked off in the Samoan capital of Apia.
A bit of background: The first China-Pacific forum was held in 2006 in Fiji and the second in Guangzhou in 2013. They were attended by then-Premier Wen Jiabao and then-Vice Premier Wang Yang, respectively.
This year’s lucky island getaway winner: Vice Premier Hu Chunhua.
Hu read a letter of congratulations from Xi Jinping which pledged to:
- Deepen strategic coordination
- Cooperate on Belt and Road projects
- Share development experiences
Get smart: There are three good reasons for China to care about Pacific islands.
- Flipping Taiwan’s remaining allies
- Spreading the gospel of BRI
- Paving the way for Chinese military bases in a strategic part of the world
Xinhua:China, Pacific island countries hold 3rd economic development and cooperation forum
Gov.cn:Address of Wang Yang at the 2nd China-Pacific Island Countries Economic Development and Cooperation Forum and the Opening Ceremony of 2013 China International Show on Green Innovative Products Technologies (Full Text)
Gov.cn:China, Pacific island countries discuss cooperation at forum meeting
4. Auto sector opening moves forward
Big news on the auto front.
The SCMP scoops that South Korean car manufacturer Hyundai will take full ownership of one of its mainland operations:
- “Sichuan Hyundai, which makes large vehicles like buses and heavy trucks, intends to attain full ownership in its China operation, buying all shares held by its Chinese joint-venture partner.”
Some context: Formed in 2012, Sichuan Hyundai is a 50-50 joint venture between Hyundai and the Sichuan Nanjun Automobile Group. Its produces commercial vehicles and its capacityis expected to reach 700,000 vehicles per year by 2020.
The timeline: The acquisition is expected to be completedby the end of this year or early 2020.
Why that’s a big deal: Last year, China promised to lift foreign ownership restrictions on commercial vehicle manufacturing by 2020.
Get smart: After having long resisted calls to allow majority foreign ownership in the sector, the government is now opening the sector. This move is the latest sign that officials are intent on making good on their promises to further open the economy.
5.Negotiators work to finalize mini trade deal
It’s time for your daily trade war update!
(Look, we don’t like it any more than you do)
On Monday, deputies from China and the US sat down to hash out the details of the mini trade deal agreed in principleon October 11.
US President Donald Trump, speaking to reporters Monday, made some typically Trumpish statements:
- “The deal with China’s coming along very well.”
- “They want to make a deal.”
- “They sort of have to make a deal … because their supply chain is going down the tubes.”
Up next: Vice Premier Liu He will speak with US Trade Representative Robert Lighthizer and US Treasury Secretary Steve Mnuchin on Friday to review progress.
Our take: The mini deal looks likely to be signed in November. But we’re unimpressed (see October 14 Tip Sheet).
What really matters: A long-term, comprehensive deal looks highly unlikely.