In November, the Chinese market was extremely unstable.
These news points to the same signal: the indispensable link of internal circulation is to promote the balanced development of finance, real estate and real economy.
In the next five years or even longer, the top management will resolutely curb the trend of real estate financialization and the trend of capital from real to virtual.
However, at the same time, a credit storm originating from the real economy and sweeping Chinas bond market has also accelerated its fermentation in the near future.
Last week, Yongcheng Coal, a state-owned enterprise in Henan Province, defaulted on its corporate bonds without warning. Whats more, Yongcheng Coal transferred its core assets at will before it broke the contract. A momentum of making up its mind not to repay the debts triggered a huge market shock. The belief of state-owned enterprises collapsed and the heart was cooled.
The central capital market has never been as important as it is today. Increasing the proportion of direct financing, as a long-term strategic task, has been repeatedly mentioned by the senior management in different occasions. As the main force of direct financing of the real economy and an important symbol of Chinas economic modernization, the bond market shows its original color at this time.
Pile by pile, are staggering risk events, the market is restless. With the deepening of economic adjustment, the more we have to learn to adapt to the emergence of more beyond expectations.
Smooth internal circulation is not easy. However, at present, China is still stable.
In this credit storm, we will also see three major signs of adjustment in Chinas economy.
The first big signal is to open the normal state-owned enterprise default.
Before Yongmei, Ziguang, a joint venture partner of Qinghua department and BMW Brilliance, also burst into thunder one after another.
On Monday, the Tsinghua departments purple light was also revealed by the media that the 1.3 billion private equity bonds issued in 2017 had actually defaulted, and the plan of paying back 100 million first, leaving 1.2 billion to be extended for half a year was aborted.
On Friday, brilliance group announced bankruptcy reorganization. Subsequently, China Securities Regulatory Commission announced special inspection on brilliance automobile group and related intermediary agencies.
The core assets are transferred to the subsidiary company free of charge, and the debt is not paid back.
To do business, we should have capital, we should pay back the borrowed money, we should bear the risk of investment, and we should pay the price for doing bad things. These four sentences should not be an exception to state-owned enterprises.
The bitter fruit of this wave of state-owned enterprises default was swallowed after the wave of blindly increasing leverage and getting rich four years ago.
Ziguang, brilliance, Yongmei The thunder of state-owned enterprises is not over.
Also in this storm, the bond markets structured issuance issued the first penalty. The association of interbank market dealers announced that Jinggong group had directly or indirectly subscribed for its own bonds in the process of issuing, thus disrupting the market order.
However, these state-owned enterprises in breach of contract have not received any punishment at present. Instead, the financial intermediary institutions have fallen into a bad situation. Instead, they have become the financial supply side reform.
There is still a long way to go for the bond market to integrate with the international capital market.
So far, the most direct impact is caused by the rising financing cost of enterprises and the decline of local credibility.
On November 19, the 10-year Treasury bond spread between China and the United States reached an all-time high, reaching 250 basis points at one time.
Chinas 10-year Treasury yields rose for seven consecutive days, reaching around 3.35 percent.
On November 20, the yield of one-year onshore treasury bonds reached a two-year high.
The risk sentiment of the credit bond market has been transferred to the interest rate bond market. In addition, the institutional funds are not sufficient at the end of the year, so they can only redeem the liquidity from the national debt market, and the prices of national debt have fallen.
Credit risk is pricing again. The whole bond market is experiencing a sell-off tide. The bond prices of coal enterprises and some AAA state-owned enterprises have fallen sharply. Some have to cancel their bond issuance. Bond funds also show some fear of redemption. Due to the credit differentiation of enterprises, the financing cost of state-owned enterprises with weak qualifications is increasing in the short term.
In Chinas political and business environment, these vicious default events undoubtedly affect the credibility of some local governments, and the weak qualification state-owned enterprises in the region suffer. Including last week in the Qinghai model market rumors, Yunnan city investment bonds suffered a sell-off.
The neighboring provinces of Henan are also afraid of being implicated.
For example, Shanxi. The leaders of Shanxi province came out in time to say that there is no problem with the bonds that the provincial state-owned enterprises need to pay in the near future. The idea of not paying debts has never flashed in my mind. It is natural and proper to borrow money to repay money. This is the gene of Shanxi Merchants. Beautiful words have a little effect on calming market sentiment.
For example, Hunan. There is a document on the Internet, a certain economic and Technological Development Zone is half threatening and half praying that an enterprise within its jurisdiction can not breach the contract. Because of the overall stability of the whole region.
In the future, the regional differentiation will be reflected in the accelerated stratification of credit. The richer the head area is, the easier it is to finance and develop faster. The reason is very simple: money begets money. And where credit is not good, how to borrow capital to develop will become a problem.
The market shock caused by the default has also attracted the attention of the senior management.
According to Peng, the State Council has issued instructions requiring relevant departments to assess the risk situation in the credit market to ensure the stability of the financial market, without spillover effects or cross market or systemic financial risks.
Lou Jiwei, former Minister of the Ministry of finance, gave a briefing on two points of view, which attracted the attention of the market
First, the debt cycle and business cycle dislocation, we should firmly reduce leverage to prevent debt collapse.
As of the third quarter of 2020, Chinas macro leverage ratio was 270.1%, an increase of 24.7 percentage points over the end of 2019. This round of debt is mainly driven by enterprises, especially private enterprises. The leverage ratio of the enterprise sector is 164.0%, that of the residential sector is 61.4%, and that of the government sector is 44.7%, which is 12.7%, 5.6% and 6.4% higher than that at the end of 2019.
How happy and crazy it is to leverage, how difficult it will be to deleverage later. In order to deal with the epidemic situation and loose credit, we should also start to enter the stage of risk prevention. The intensity of the round of deleveraging in 2018 should not appear, but controlling leverage is necessary.
Second, it is time to study the orderly exit of loose monetary policy.
The International Monetary Fund has warned that the global economic recovery may be weakening. In contrast, as the only major economy in the world to achieve positive growth this year, the regulatory authorities are optimistic about the future economic expectations.
LPR has not decreased for seven months. Some people even think that the central bank may raise interest rates. However, it is inevitable that the central bank will withdraw from easing.
Zhou Chengjun, director of the Financial Research Institute of the central bank, also said recently that generally speaking, China does not have much space to cut interest rates because the current market interest rate level is lower than the natural interest rate equilibrium level. This will lead to a certain degree of distortion, lead to the allocation of resources to some inefficient areas, and will produce a certain degree of moral hazard.
Even in this credit storm, the central banks position seems to be intact.
When the real economy borrows money, it should also be prepared to not cut interest rates as soon as possible.
On the one hand, China should prevent the debt from getting out of control, and on the other hand, it should prevent inflation caused by easing. This is not a small task.
Of course, the high-level strategic layout has become more and more clear, and security has been placed in a more prominent position as a prerequisite for development. Naturally, there will also be forward-looking countermeasures to deal with the changes in domestic and international situations.
With the deepening adjustment of economic layout, the new development pattern of Chinas dual cycle will accelerate to form. This is the foundation of Chinas response to all changes in the situation.
Source: Zhigu trend editor in charge: Chen Hequn_ NB12679