Year-ender: Major financial news of China

Beijing: Global index provider MSCI has raised the inclusion factor of A-shares three times within the year and MSCI’s move to further increase the weighting of Chinese A-shares in its equity indexes is expected to bring more funds into the mainland stock market.

MSCI raised the inclusion factor of all large-cap China A-shares in the MSCI indexes from 15 percent to 20 percent, and added mid-cap China A-shares into MSCI indexes with an inclusion factor of 20 percent, effective after market close on Nov 26, China Economic Net reported.

Upon completion, there will be 244 large-cap and 228 mid-cap China A-shares, representing a weight of 12.1 percent and 4.1 percent in the MSCI China and MSCI Emerging Markets Indexes, respectively.

The move followed a decision in March that MSCI would increase the inclusion factor of A-shares to 20 percent in a three-step process in May, August and November, each time upping the representation of Chinese large-cap stocks by 5 percentage points.

The new weighting increase in the widely tracked indexes will draw another $35 billion to $40 billion of funds to the A-share market, according to the China International Capital Corporation.

China issued 4 billion euros ($4.4 billion) in sovereign bonds in France, the nation’s largest foreign-currency-denominated bond offering ever on Nov 5.

The issuance is China’s first euro-denominated sovereign bond offering in 15 years and it is a significant move to support Paris in its effort to build itself into an international financial center.

The move also will encourage investment of more funds from Europe in Chinese government and corporate sectors, according to market participants.

China would lift foreign ownership limits on securities, fund management and futures companies by 2020, a year ahead of schedule, the office of financial stability and development committee under the State Council announced on July 20.

The China Securities Regulatory Commission later said that it would step up arrangements to implement the opening-up measures in the financial market.

The CSRC called the move an important step to deepen supply-side structural reform and expand opening-up in the financial market, which was in line with the demand of the sector and the capital market.

China further opens up insurance, banking sectors to foreign investors

The State Council announced the revision of regulations on foreign banks and insurers on Oct 15. China relaxed market access rules for foreign insurance companies, such as removing requirements that companies that apply to establish foreign-invested insurers in China have a track record in the business of over 30 years and have a representative office in the country longer than two years.

The government also liberalized requirements on stakeholders that plan to set up foreign-invested banks in China and requirements on foreign banks that plan branches in the country.

Other revisions include allowing foreign banks to simultaneously set up branches, as well as wholly foreign-owned banks — or branches and Sino-foreign joint venture banks — in China. Also allowed is expanding the business scope of foreign banks by lowering their branches’ threshold of fixed-term renminbi deposits to 500,000 yuan from 1 million (to $70,610 from $141,220) per deposit.

China’s science-technology innovation board, known as the STAR Market, shone on the first day of trading at the Shanghai Stock Exchange on July 22.

The first batch of 25 stocks listed on the newly-launched science and technology innovation board at the Shanghai Stock Exchange were hotly pursued by keen investors that day.

The prices of all 25 stocks more than doubled on July 22, with Anji Microelectronics Technology Co Ltd, a manufacturer of semiconductor materials, surging by more than 400 percent.

The sci-tech innovation board, which officially opened on June 13, has a registration system being piloted for the listing of companies, aiming to improve capabilities to service technology innovation enterprises, enhance market inclusiveness and strengthen market functions.

The country’s central bank announced on Aug 25 that starting from Oct 8, new mortgages will be priced based on the latest month’s loan prime rate, or LPR of the corresponding term, while certain basis points will be added.

New mortgage rates for first-home purchases should not be lower than the related LPRs, while those for second-time buyers should be at least 60 basis points higher than the LPRs, according to the People’s Bank of China.

This came after the central bank announced a plan to reform the LPR mechanism to better reflect market changes.

Under the revamped mechanism, the LPRs, released on the 20th day of every month, are based on rates of the central bank’s open market operations, especially medium-term lending facility rates. Banks are required to set rates for new loans using the new LPRs as the benchmark.

The one-year LPR came in at 4.15 percent on Nov 20, down from 4.2 percent a month earlier. The rate for above-five-year fixing stood at 4.8 percent, down from 4.85 percent a month earlier, according to the National Interbank Funding Center on Nov 20.

This is the fourth release of the reformed LPR since the interest rate mechanism was revamped in August this year.

China cut the loan prime rate, a newly reformed interest rate to guide banks’ loan price, on Nov 20 to lower corporate financing cost and stabilize economic growth amid rising headwinds.

A new edition of the fifth series of China’s currency the renminbi, or the yuan, was officially launched on Aug 30 with brighter colors and more sophisticated anti-counterfeiting features. The fifth series of renminbi was introduced in 1999.

China’s central bank, the People’s Bank of China, cut the reserve requirement ratio three times within the year to bolster the economy.

China’s central bank announced on Sept 6 it would cut the reserve requirement ratio for financial institutions by 50 basis points from Sept 16.

The People’s Bank of China also announced on May 6 it would cut the reserve requirement ratio, or RRR for small and medium commercial banks starting on May 15.

After the cut, the RRR for about 1,000 rural commercial banks that operate in counties will be 8 percent, down from the current level of 10 percent to 11.5 percent for small-sized banks, according to the central bank.

Lowering the banks’ reserves will inject about 280 billion yuan ($41.23 billion) for long-term usage. And the freed fund will be used for providing more loans to private, micro and small companies, the bank said in a statement.

That will further reduce funding cost for micro and small companies. It is also an implementation of the State Council’s pledge to set up a lower RRR policy framework for small and medium-sized banks, according to the statement.

On Jan 4, the PBOC decided to cut the reserve requirement ratio by 1 percentage point in a move to increase loan funding sources of small, micro, and private businesses.

The long-awaited Shanghai-London Stock Connect was finally launched in London early on June 17, offering more opportunities for British and Chinese financial institutions to buy into each others’ economic development.

The connect, a two-way depositary receipt mechanism that brings together two of the world’s largest capital markets, brings together one of the world’s largest domestic capital markets – the Shanghai Stock Exchange – with the world’s leading international market, the London Stock Exchange.

The Shanghai-London Stock Connect will allow global investors to benefit from China’s stable economic growth and ongoing reforms through London, while London Stock Exchange listed companies will be able to access Chinese investors directly through the stock connect.

It is the first time any foreign companies will be able to list in the Chinese mainland and the first time SSE-listed companies will be able to raise capital abroad through instruments fungible with their domestic shares.

Jin Liqun, president of the Asian Infrastructure Investment Bank, said he wants AIIB to become the bank that connects Asia to the world, as it marked a total of 100 approved memberships on July 13.

The AIIB Board of Governors approved on July 13 the applications of three African countries — Benin, Djibouti and Rwanda — at the bank’s annual meeting in Luxembourg. This would bring the total number of AIIB members to 100, including 70 whose memberships have been ratified by their parliaments.

“AIIB members collectively account for 78 percent of the world’s population and 63 percent of global GDP. With the backing of all of our members, we are building a lean, clean and green institution that can help to support their sustainable development,” Jin said.

Finance Minister Liu Kun said at the meeting on the same day that he hopes the AIIB will give play to its own advantage as a multilateral development bank to link its strategy with the development blueprints of its members, the Belt and Road Initiative and the Connecting Europe and Asia Strategy of the European Union.

Shares in Kweichow Moutai, a top Chinese distillery that produces top level baijiu spirits, traded at a new record high of 1,001 yuan ($145) on the Shanghai Stock Exchange on June 27.

It’s the first Chinese company to hit the 1,000-yuan milestone since the country overhauled its stock market in 2005.