CHINA BULLETIN: Bank Loan Growth Hits Record Low

 In this week’s issue bank lending sags, the holiday box office roars, and Huawei gets an unwanted call in France. On a scale of 1 to 100, we give the last two weeks a 60 for offshore-listed China stocks.

Doug Young, Editor in Chief

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MACRO

Bank Loan Growth Hits Record Low

The government has released very little economic data these past two weeks, partly due to the weeklong Lunar New Year holiday that just ended, but also due to a tradition that says no bad news is allowed during this festive period. But one piece of data that squeaked through showed that bank loan growth fell to just 10.4% in January.

The expansion marked the smallest increase since the central bank began releasing data in 2003, and shows that new lending is still anemic despite repeated government calls for banks to extend more credit. The problem, of course, is that banks like their money, and don’t really want to lend it to the many struggling borrowers out there who might never repay their debts.

MSCI Boots Chinese Companies, Gives More Weight to India

Meantime, an interesting indicator of the times came from outside China, in this case in the latest adjustments to the MSCI Global Standard index that tracks emerging-market stocks. The latest adjustment saw China’s weighting in the index drop to 25.4% from 26.6% a year earlier. India picked up most of that slack as its weighting in the index rose to an all-time high of 18.2%.

The closing of the gap between India and China has happened relatively quickly, as the latter’s weighting was five times the former’s as recently as August 2020. MSCI also booted 66 companies from its MSCI China Index in its latest quarterly review, including developers Gemdale and Greentown China, as well as China Southern Airlines and Ping An Healthcare.

No Stimulus is Good Stimulus for China Stocks

When it comes to boosting offshore-listed Chinese stocks, it seems no news is better than the steady stream of new stimulus measures China likes to keep announcing. The Hang Seng China Enterprises Index started the Year of the Dragon with a 6.5% rise over the last two weeks, while the iShares MSCI China ETF and Hang Seng Index rose 7.6% and 5.2%, respectively.

That’s not to say that Beijing has been completely mum on the markets. Reports that President Xi Jinping was set to be briefed on the stock market situation sparked a big rally just before the holiday, and the sacking of the head of the securities regulator around the same time added to hopes that Beijing would do more to support embattled stocks.

Industry

Box Office Roars Over Lunar New Year

We’ll start our industry news roundup with the requisite look at data from the Lunar New Year holiday period, in this case zooming in on China’s beleaguered box office. The Year of the Dragon has breathed some new life into Chinese cinemas, which recorded more than 7 billion yuan, or nearly $1 billion, in ticket sales in the first five days of the holiday period.

By comparison, the China box office took in just 5.8 billion yuan for the entire seven-day holiday period in 2019, the last year before the pandemic. The strong performance parallels other data that show Chinese traveled in record numbers during the latest holiday period, which has really been the first normal Lunar New Year for many since the pandemic.

Car Sales Contract Month-on-Month in January

While festive holiday activity boomed last week, the same wasn’t true for China’s car sales, which returned to their contracting ways in January. The latest industry data showed Chinese car dealers sold 2.04 million passenger vehicles last month, down 13.9% from December. NEV sales fell by an even sharper 29.5% over the same period, as both figures dropped for the first time since August.

Despite the month-on-month declines, passenger car sales actually rose 57.4% year-on-year in January, while NEV sales more than doubled. But much of that was due to timing, since the slow Lunar New Year holiday fell in January last year, but was in February this year. We’ll probably need to wait for data combining January and February sales to get a better picture of what’s happening.

Banks Step Up Lending to ‘White-Listed’ Properties

In an interesting development for the struggling property sector, banks have begun lending aggressively to unfinished real estate projects that have been handpicked by local authorities for priority to receive such funds. Chinese banks extended 17.9 billion yuan in loans to 83 such projects, according to a recent CCTV report, which didn’t give a timeframe.

Those 83 projects are among 3,218 that local authorities have recommended to receive such funds, the report said. This approach looks like it could actually have some impact due to its very targeted nature. But it could also provide new headaches, since such recommendations seem to include an implied government guarantee to help recoup any loans that aren’t repaid.

Company

Anti-China Legislator Goes After Shein IPO

While U.S.-China tensions were largely out of the spotlight during the holiday, they did make an appearance in the latest political ploy from Marco Rubio, an outspoken U.S. senator who is a notable China hawk. Rubio urged the U.S securities regulator to block a planned IPO by Shein unless the fast fashion sensation is more forthcoming about its China risk.

Rubio made his concerns known in a letter to Gary Gensler, chairman of the Securities and Exchange Commission, saying Shein’s seeking of permission for the listing from Beijing shows it is not being forthcoming in confidential IPO documents it has reportedly already filed. Shein is officially based in Singapore, but still sources most of its clothing from a vast China network.

Huawei Gets Unwanted Call in France

Huawei is coming under the microscope again, this time at its French operations. The telecoms giant said its offices in France were searched by local authorities as part of a preliminary investigation into potential financial wrongdoing. Authorities confirmed the action, but didn’t provide more details into what they were investigating.

Huawei said it is cooperating with the investigation, and noted that it has been compliant with all French laws during its 20 years in the country. A number of Chinese smartphone makers have come under the investigation for tax evasion in India lately, but such financial probes have been relatively rare so far in Western countries.

BYD Heads for Mexico

In a move that many might have predicted, leading new energy vehicle (NEV) maker BYD is heading for south of the U.S. border, with plans to set up a production facility in Mexico. The company has already launched a feasibility study, and is currently negotiating terms that would include the facility’s actual location, a representative told Japan’s Nikkei news agency.

This particular news comes as Mexico officially overtook China to become the largest U.S. trading partner last year, reflecting recent moves by many U.S. companies to lower their reliance on China. With its relatively low labor costs and close U.S. proximity, Mexico is quickly emerging as one of the biggest winners in the ongoing wave of U.S.-China “de-risking.”

AND FROM THE PAGES OF BAMBOO WORKS