1. Foreign banks encouraged to underwrite local bonds
This is new.
The Ministry of Finance (MoF) is now encouraging provincial governments to give foreign banks more leeway to underwrite local government bonds.
- That’s according to a statement the ministry published on Monday.
Specifically, MoF will guide the provinces in revising the rules under which they assemble bond underwriting groups – to help boost foreign participation.
Some context: Foreign entities have not been totally shut out from the underwriting space (MoF).
- “Up to now, FubonHuayi Bank (Taiwan-funded) has joined the bond underwriting groups of the Ningbo and Chongqing municipal governments.”
- “Bank of East Asia (Hong Kong-funded) has joined the bond underwriting groups of the Tianjin and Guangdong governments.”
- “Deutsche Bank (German-funded) has joined the bond underwriting groups of the Qingdao municipal government.”
- “The participation of foreign banks…will help to broaden bond issuance channels, promote the diversification of local government bond investors, ensure the long-term sustainability of local government bond issuance, expand the opening of the government bond market, boost the internationalization of RMB, and improve the international influence of China’s bond market.”
Quite a laundry list.
Get smart: Authorities want to grow, improve, and professionalize the domestic bond market. Diversification of investors – and underwriters – is key to all of those.
2.2019 local tax revenues in the doldrums
There’s another reason financial policymakers are looking to boost the local government bond market (see previous entry).
- Local governments are strapped for cash.
2019 was the worst year for revenue growth in decades for some provinces (Caixin):
- “Shanghai municipality, East China’s Shandong province and the northeastern province of Liaoning all missed their revenue targets in 2019, the governments announced this week.”
- “They collected 0.8%, 0.6%, and 1.4% more revenue than the previous year respectively, despite setting targets for growth of 5%, 5% and 6.5% at the beginning of the year.”
- “[That represents the] slowest fiscal revenue growth rates Shanghai and Shandong have seen since the country’s tax system was overhauled in 1994.”
Oof – that stings.
And it’s got provincial authorities getting creative:
- “Some local governments have been scrambling to supplement their coffers with other revenue sources, such as selling state-owned assets and creaming off more profits from state-owned enterprises.”
The woes extend far beyond the three provinces mentioned above:
- “Altogether, Chinese local governments’ combined fiscal revenue rose 3% year-on-year in the first 11 months of 2019, down from 6.9% growth [in 2018].”
Get smart: A slowing economy combined with centrally-mandated tax cuts are taking a huge toll on provincial balance sheets.
Caixin:Local Governments Miss 2019 Revenue Targets
3. CBIRC coming in hot in 2020
On Monday, officials from the banking and insurance regulator (CBIRC) held a press conference to explain new guiding opinionsto improve performance in the banking and insurance sectors.
Some context: The new regs were published on January 3 – Monday’s presser was a follow up.
At the presser, Xiao Yuanqi, the CBIRC’s chief risk officer, said that the officials will continue to impose tight scrutiny over the financial system.
More context: We saw similar language last week in the readout from PBoC’s annual work conference (see yesterday’s Tip Sheet).
The CBIRC will also enhance its efforts to deal with troubled small- and medium-sized financial institutions – offering seven ways to get them cleaned up:
- Disposing of non-performing assets
- Direct capital injections and reorganization
- Acquisitions and mergers
- Establishing resolution funds
- Establishing bridge banks
- Introducing new investors
- Having them exit the market
What’s offthe table:Abailout from the regulator.
Get smart: It’s only the first full week of 2020, and CBIRC is coming in hot – acknowledging that challenges will continue to mount in the financial sector this year.
The big question: Can regulators continue to successfully firewall troubled institutions to keep contagion from spreading?
4.Hand in hand and side by side
On Monday, Xi Jinping rolled out the red carpet for President Taneti Mamau of Kiribati and Prime Minister Thongloun Sisoulith of Laos during their respective visits to Beijing.
What’s the occasion, you ask?
- Kiribati switched its recognition from Taipei to Beijing back in September (see September 20 Tip Sheet).
- Laos is a major Belt and Road partner, and Beijing is currently building a high-speed rail line linking China’s Yunnan province with Laos’ capital Vientiane.
Xi had warm, yet carefully curated, words for both leaders.
For Kiribati (The Guardian):
- “We welcome Kiribati back to the big family of China-Pacific island cooperation.”
- “Mr. President and the Kiribati government stand on the right side of history.”
For Laos (Xinhua):
- “China will continue to firmly support Lao efforts to safeguard its sovereignty and dignity.”
- Xi also called for the two nations to work “hand in hand and side by side” on issues of mutual interest.
The feelings were apparently mutual. Both Mamau and Sisoulith expressed their appreciation for China’s development assistance in recent months.
Get smart: The global narrative may have largely turned against China, but Beijing is still effectively wooing many smaller nations with its checkbook diplomacy.
Xinhua: Kiribati on right side of history by resuming diplomatic ties with China: Xi
Xinhua: Xi says China, Laos enjoy shared future
The Guardian:‘On right side of history’: Xi Jinping praises Kiribati for switch to China
5.MoST ramps up FYP research
This year,government departments will be busy drafting their 14th Five-Year Plans (FYP), which will guide their work from 2021-2025.
As part of the research and writing process for the science and technology (ST) FYP, last week the Ministry of Science and Technology (MoST) asked industry players for input.
The big question:Which technologies should receive the most government resources over the next five years?
Why that’s a big deal: The ST space is a critical battlefield in great power competition.
MoST is welcoming suggestions for technologies in several sectors, including:
But the government is not in the market for a smörgåsbord of innovative tech solutions. It wants a set meal:
- All technologies should service national strategies – including competitiveness in core technologies and national security.
Get smart: Forecasting which future technologies will be most important in a given sector is no easy task. This is one way for the government to get industry insight and know-how, while also offering various stakeholders a chance to lobby industry regulators.