driving the day
1. Data dump – credit
On Friday the central bank (PBoC) dropped monthly credit data for June.
The headline: It wasn’t a particularly healthy credit print.
- Total credit grew 12.8% y/y – up from 12.5% in May and the highest pace of growth since February 2018.
- Traditional RMB-denominated bank lending grew 13.3% y/y – the same rate as in May and up only slightly from 13.1% in April.
- Outstanding corporate bonds grew by 21.5% y/y – up from 20.4% in May and the highest print since December 2016.
- Outstanding local government bonds grew by 17.2% y/y – down a touch from 17.1% in May, but otherwise the highest print since July 2019.
- Bankers’ acceptances contracted by 1.3% y/y – well up from the 10.3% contraction in May and the strongest print since May 2018.
Our take: From March to May, the swift increases in overall credit growth came on the back of commensurate increases in bank loan growth – as the PBoC leaned on banks to get money to small businesses.
- Now, though, corporate and local government bond issuance is driving credit growth – which doesn’t really help SMEs.
Go deeper: To see more of our analysis of the credit data, sign up for our newdaily note – China Markets Dispatch.
2. Regulators talk capital crimes and punishments
The Financial Stability and Development Committee (FSDC) wants you to know they have “zero tolerance” for shenanigans in China’s capital markets.
The committee met Saturday and unveiled a new working group, comprisedof severalregulatory agencies, to combat the rising number of capital market fraud cases.
In particular, the meeting pledged to prioritize the rights and interests of smaller shareholders, i.e. the sorts of investors whorush to withdraw funds when they get spooked.
This isn’t coming out of the blue:
- We saw several cases like this with floundering trust companies last month.
Some background:The FSDC is a part of the State Council and is chaired by Vice Premier Liu He, China’s economic czar. In other words, this announcement is coming from the grown-ups’ table.
The big picture:Liu and company want to crack down on fraud, but also want to make sure smaller investors don’t withdraw their moneyen masse. This new working group is aimed at restoring investor trust.
Get smart:As COVID-19 and other disasters continue to batter the real economy, there will be more incentive for financial institutions to cut corners and make “creative” use of capital investments.
3. Xi gets anti-diluvian
2020’s been a tough year for China.
When it rains, it pours.
On Sunday, Xi Jinping gave instructions to local officials on responding to the massive seasonal floods that have surged across China, leaving at least 141 dead or missing and causing upwards of RMB 82 billion in economic losses.
- In response to the mounting crisis, China elevated its flood response alert to the second highest level on Sunday.
Xi told local authorities to stop lollygagging (Xinhua):
- “The country’s flood control, emergency response and water resource authorities should strengthen coordination and allocate the rescue personnel and supplies in a more scientific way.”
Xi also emphasized that economic concerns were paramount:
- “Local authorities should…carefully plan the reconstruction to restore production and help people return to their normal life as soon as possible, Xi said.”
- “Serious efforts must be made to assist the flood-affected poor residents so that they will not fall back into poverty because of the disasters.”
Get smart: Xi has promised to eradicate poverty by the end of 2020. Massive flooding endangers achieving that goal.
Get smarter: China has agrowing pile of economic headaches. (We know it’s a mixed metaphor.Sometimes we just crazy like that!)
Gov.cn:China raises flood alert to second highest level
Xinhua:Xi Focus: Xi stresses braving challenges in fighting floods to ensure safety of people’s lives, property
SCMP:Sleepless nights on China’s dykes as floods hit 34 million people
4. Han Zheng reviews fiscal policy
On Friday, Executive Vice Premier Han Zheng paid a visit to the Ministry of Finance (MoF) to talk fiscal priorities.
Some context: Han and the MoF had a similar chat in January to work out priorities for the year. But those plans need updating in light of the COVID-inducedrecession.
Han’s big message?
We need to support the economy (Xinhua):
- “The Ministry of Finance [said] that financial and taxation authorities should strengthen coordination and forge policy synergy to provide strong support for steady economic performance and overall social stability.”
In particular, Han wants money to get directly to those that need it (Gov.cn):
- “[We must] do a good job of getting funds to cities and counties to directly benefit enterprises and people.”
- “We must adhere to a results-oriented approach, and evaluate the efficacy of our policies by how they directly affect grassroots governments, market entities, and the people.”
But Han also stressed that officials need to keep in mind the big picture:
- “[We must] defuse hidden local government debt risks.”
Get smart: A lot of local governments are struggling financially. It is critical that the central government get funds to those governments if it wants them to support the economy.
5. State Council clarifies spending responsibilities for natural resource management
This morning the State Council released guidelines for splitting fiscal responsibilities between the central and local governments for the management of natural resources.
Some context: The guidelines are part of the ongoing fiscal reforms initiated in early 2018 that seek to better rationalize spending between central and local governments.
More context: We’ve already seen similar guidelines for:
- Public services (see February 9, 2018 Tip Sheet)
- Healthcare (see August 14 2018 Tips Sheet)
- Science and technology (see June 3, 2019 Tip Sheet )
- Education (see June 4, 2019 Tip Sheet )
- Transportation (see July 11 2019 Tip Sheet)
- Foreign affairs
- Environmental protection (see June 15 Tip Sheet).
The guidelines cover responsibilities for:
- Surveying and monitoring natural resources
- Property rights management
- Natural resources security
- National territorial spatial planning and control over utilization of national land
- Ecological protection and restoration
- Disaster prevention and mitigation in the natural resources field
- Natural resources-related policy making and implementation inspections
As an overall principle, the central government will take on most of the responsibilities.
- Local governments will only be responsible for those localized tasks which fall completely in their jurisdiction.
Get smart: With the publication of this guideline, the central government is close to finishing the work of aligning central and local fiscal responsibilities for 2020.
6. COVID-19 situation stabilizes across the country
As China’s domestic COVID-19 situation is starting to stabilize, national attention is turning elsewhere.
This morning, the National Health Commission (NHC) released the latest nationwide COVID-19 numbers.
On Sunday (NHC):
- China reported eight new confirmed COVID-19 cases and six new asymptomatic cases – all imported from abroad.
- Beijing reported zero new confirmed, asymptomatic, or suspected cases.
What that means: Beijing – and China – have not had a single domestically-infected COVID-19 case in a week.
In other news: Hubei – once the epicentre of the epidemic, now virus free – has made huge strides in economic recovery. As of yesterday (Hubei Gov):
- The resumption rate for the province’s large industrial, construction, wholesale, retail, hotel, restaurants, and service companies clocked in at 98.7%.
Get smart: From Hubei to Beijing, Chinese leaders have learned how to snub out an outbreak quickly and get businesses back up and running. Now they just need Chinese shoppers to spend.