1. Data dump – credit
China’s central bank released credit data for November late yesterday.
- Net new total social financing (TSF) hit RMB 2.13 trillion last month, higher than the forecasted RMB 2.08 trillion.
- Net new bank loans was RMB 1.43 trillion in November, slightly missing the average forecast of RMB 1.45 trillion.
Credit growth is flatlining as policymakers seek to normalize monetary policy:
- Growth in the outstanding value of TSF slowed slightly to 13.6% y/y in November from 13.7% in October.
- The outstanding value of bank loans was up 12.6% y/y last month, down from 12.8% in October and this year’s peak of 13.0% in July.
The central bank’s exit from its loose monetary policy stance is being complicated by bond market ructions.
- The recent spate of SOE bond defaults has led to a slew of delayed issuances.
- Net new bond financing at non-financial enterprises was just RMB 86.2 billion last month, down from RMB 252.2 billion in October and the weakest for 26 months.
Go deeper: For more in-depth analysis of the numbers, check out our Trivium Markets service.
2. PBoC governor signals support for green bonds
People’s Bank of China (PBoC) Governor Yi Gang discussed efforts to support the growing green bonds sector in virtual remarks to a financial forum on Wednesday.
Why it matters: Yi says it’s a crucial component in China’s drive to peak carbon emissions by 2030 and achieve carbon neutrality by 2060.
Some context: In 2019, China issued USD 55.8 billion worth of green bonds at home and abroad. That’s a 33% increase from 2018.
- China also leads the world in green bond issuance, accounting for 21.5% of the USD 259 billion global total.
Yi says the PBoC will support green bonds by:
- Updating the Green Bond Endorsed Project Catalog to remove projects that produce or heavily consume fossil fuels, and to include more climate-friendly projects and better align with international standards
- Evaluating bank performance based on support for green finance
- Encouraging more innovation in green finance products
More context: There are noticeable discrepancies between Chinese and international green bond guidelines, both in terms of project scope and how funds can be used.
Get smart: Updating green bond guidelines is right in line with efforts to open up China’s bond market.
- Aligning domestic green bond guidelines with international standards will attract investors previously worried that their money wouldn’t be spent “greenly” enough.
3. Xi urges Macron to be independent
On Wednesday, Xi Jinping called French President Emmanuel Macron with a not-so-subtle exhortation to resist falling into the American orbit.
Xi said that relations between China and France were founded on a basis of (Xinhua 2):
- “Independence, mutual understanding, foresight, mutual benefit and win-win outcomes.”
- He also committed to pushing forward France-China ties “no matter how the international situation changes” (CGTN).
Some context: Chinese leaders are worried that the incoming Biden administration will immediately resume friendly and cooperative ties with Europe – which could lead to the development of a transatlantic anti-China bloc.
More context: Chinese Foreign Minister Wang Yi has also been calling up his European counterparts to emphasize the value of foreign policy independence (see November 24 Tip Sheet).
Xi and Macron committed to cooperation across a range of key bilateral and multilateral issues, including:
- Biological science and space exploration
- Customs inspection
- Management of African swine fever
- Introducing products with geographical indications into one another’s markets
- Distribution of COVID-19 vaccines
- Tackling climate change
Get smart: Beijing largely failed to capitalize on Washington’s retreat from the world stage during the Trump administration. “Wolf warrior” diplomacy has only served to make European leaders more mistrustful of China.
4. This time, it’s personal (insurance reform)
On Wednesday, Premier Li Keqiang presided over the State Council’s weekly executive meeting.
Top of the agenda: Improving the quality and coverage of personal insurance.
Some context: In China, the category of “personal insurance” includes both life and health insurance.
The meeting readout identified problems plaguing the personal insurance industry (Gov.cn 2):
- “Problems such as insufficient supply of insurance products and low insurance benefits still exist.”
The State Council’s suggestions for improvement:
- Optimizing supply and quality of personal insurance products
- Stepping up development of commercial medical insurance
- Developing more types of critical illness insurance and bringing them into line with existing health insurance products
- Standardizing regulations covering commercial endowment insurance
- Gradually opening the personal insurance market to foreign players
Li was also quick to stress that the sector’s development would be subject to ongoing derisking efforts:
- “Risk prevention and control must be enhanced on an ongoing basis to prevent speculative use of insurance funds.”
Get smart: China’s life and health insurance industries remain woefully underdeveloped. That means that both sectors should experience strong growth for years to come.
5. Pollution control hole gets long awaited patch
Wednesday’s State Council executive meeting didn’t just focus on insurance (see above entry).
Also on the agenda: A long-awaited set of Regulations on the Management of Pollution Discharge Permits.
Some context: Pollution discharge permits let companies purchase licenses to discharge wastewater and other pollutants.
- A provisional pollution discharge permit system was set up in 2016.
- These regulations were drafted and circulated in November 2018, but have been stalled since then.
It’s a big deal: Some 2.5 million enterprises are registered as pollutant emitters, and around 340,000 discharge permits have been issued under the system (NBD).
The new regulations patch a glaring hole in the existing discharge permit system by giving the system “teeth” – including high fines and shutdowns for violators.
The regulations also:
- Lay out a classification system for enterprises based on what they’re emitting
- Adopt standardized permit approval procedures
- Mandate set up of an environmental monitoring system, pollution accounting and records, and public disclosure of pollution levels
- Improve mechanisms for responding during and after pollution problems
Get smart: Xi Jinping’s has made improving environmental protection a key plank of his policy agenda. That’s putting pressure on policymakers to make progress on issues like pollution discharge permits.
6. Chinese vaccine approved in UAE
On Wednesday, the United Arab Emirates (UAE) Ministry of Health and Prevention “officially registered” a COVID-19 vaccine developed by China’s Sinopharm.
Some context: UAE is one of ten countries where Sinopharm has phase III clinical trials of its two COVID-19 vaccines underway.
According to the UAE health ministry, preliminary data shows the vaccine:
- Is 86% effective
- Has a 99% seroconversion rate
- Is 100% effective in preventing moderate and severe COVID-19 symptoms
- Has no serious safety concerns
More context: Some 31,000 volunteers from 125 countries have received the vaccine in UAE since September.
- Sinopharm’s vaccines have been authorized for emergency use in China since July, and nearly a million people have received them (see November 20 Tip Sheet).
But it’s too early to celebrate:
- Both Sinopharm and Chinese health officials remained silent after the UAE announcement on Wednesday.
- Sinopharm declined requests to confirm or comment on the UAE phase III trials from both Caixin and the New York Times.
- Some scientists say the UAE disclosure lacked important details.
- It’s not entirely clear what UAE’s “official registration” of the vaccine means in practical terms.
The bottom line: This is still a major boost to China in its race to develop an effective and scalable COVID-19 vaccine.