A warm welcome to the sample Caixin Insight newsletter, bringing you an inside view on the world's second biggest economy from Caixin Global Intelligence and our research partner CEBM Group. We'll be focusing on key events and trends that you need to know about every week, as well as occasional company profiles, and ad hoc deep dives. This weekly product is designed exclusively for selected institutions, investors, and entrepreneurs with exposure to China.  This sample was prepared in early May, 2019.

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Caixin Insight - April 10
 

In brief
 

A splurge of better-than-expected manufacturing and services data, alongside more signs of progress in U.S.-China trade negotiations, bolstered markets at the start of April. We'll look at this, the lightning rollout of China's latest attempt at a Nasdaq-style board, and a key step in China's financial opening up made on April 1 with the inclusion of China bonds in a benchmark Bloomberg index.

More on all these below.

Key moves

 

1.     Stocks surge on trade thaw hopes, manufacturing data

 

Details:

China stocks are red hot. The benchmark Shanghai Composite Index has risen 5% just in April, and over 30% since the start of 2019. The Shenzhen Component Index is up over 40% this year. Compare this to 2018, when A-shares were among the world's worst performing.


Comments:

  • We see three big things driving the bulls:
    • optimism over trade war negotiations
    • signs that a string of supportive measures unleashed since mid-2018 are starting to bolster the economy, as indicated by upbeat March PMI data
    • the expected effect of 2 trillion yuan in tax and fee cuts, which should be rolled out over the rest of the year
       
  • We're inclined to be cautious on the first two drivers. A single month's PMI data doesn't mean China's slumping industrial activity has really bottomed out. And while U.S.-China relations seem to be looking up, there's no sense putting much faith in this, after a rollercoaster few months. It's also unlikely a deal will really put to rest the issues driving bilateral tensions.
     
  • But the government is serious about increasing support for business. More targeted cuts to banks’ reserve requirement ratios, and faster IPOs for small and medium-sized businesses, are some of the latest measures mentioned in a Sunday policy document.
     
  • Two sectors we're watching where government policies could make or break this year are automobiles and pharma:
    • After car sales dropped for the first time in nearly three decades in 2018, and with subsidy support for new energy vehicles fading, manufacturers will be uncomfortably dependent on the effectiveness of new measures to spur consumption.
    • And a recently introduced bulk procurement mechanism for hospitals has hacked away at pharma companies' price negotiating power — much now depends on how further rollout is handled.

Send us an email at cgi@caixin.com if you'd like more analysis on likely trends in these sectors.

 

2.      China's Nasdaq on the fast track

 

Details:

Since Xi Jinping's surprise announcement last November that China will build a new registration-based high-tech board, the project has been moving lightning-fast.

  • The securities watchdog (CSRC) drew up the rules for the board on March 1
  • By March 29, the first three firms had got feedback, just 5 working days after applying

Compare this to a previous attempt at an innovation board, the ChiNext board in Shenzhen.

  • CSRC took over a year to draw up rules, and nearly 6 months to start vetting the first batch of candidate companies
  • Shenzen Stock Exchange took 20 days to give feedback to applicants

Comments:

This speed is not surprising given the high-level support the new Nasdaq-style board enjoys.

But a fast rollout on its own doesn't mean this board will work any better than its predecessors (see ChiNext, and, even more lacklustre, the NEEQ) — and there's also a danger it could mean policies aren't adequately thought through. Rules on IPO sponsoring, for instance, will likely have to see more changes. The point of the board is to convince high-quality, innovative companies to list domestically, rather than, for instance, in Hong Kong or on the actual Nasdaq. We'll have to wait until after the hype-period before we'dd be able to tell if it's worked. Here's a rundown of the board's key features.

 

3.     What else you shouldn't miss:

 

Yuan-denominated Chinese government and policy bank bonds were added to the Bloomberg Barclays Global Aggregate Bond Index on  April 1. Over the next 20 months this will bring increasing flows into China's bond market, and with it, more pressure on regulators to deal with key complaints  — like poor liquidity and few hedging mechanisms — although we're not expecting any big results fast
 

Personnel
Peng Chun is former chairman of the Bank of Communications. Photo: IC
 
  • Peng Chun (彭纯), former chairman of "Big Five" state-owned lender Bank of Communications Co. Ltd., is the new chair of China Investment Corp. (CIC), the world’s second-largest sovereign wealth fund. CIC’s former chair Ding Xuedong (丁学东) left in 2017. He's now the executive deputy secretary-general of the State Council.
     
    • Peng previously served as a vice president at CIC from 2010 to 2013.
       
  • CIC Executive Vice President Ju Weimin (居伟民) has also been promoted to president
Looking ahead

There's upcoming data releases about:
  • inflation on April 11
  • balance of trade and FDI on April 12
  • money supply and credit growth on April 15
After better-than-expected March PMI figures hinted at a mild rebound in China's manufacturing, this data dump should help make it clearer if the rebound is real or just a fluke. Credit growth data will be key — it's still by no means clear how much small and private businesses' financing woes are being eased.
 
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