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Chona Economic Review: Daily News update

1. Government planning crackdown to cull China’s P2P industry

China’s troubled peer-to-peer (P2P) industry could be on the verge of collapse, say industry leaders, as new regulatory restrictions are set to cut the numbers of operating firms from the thousands to as few as 50 in the next year.

Online lending has exploded in China in recent years, with firms taking advantage of an under-regulated environment and millions of Chinese citizens eager to find routes to credit. The industry is now worth about $120 billion, says the Financial Times.

A string of defaults sparked by a government crackdown earlier this year shook confidence in the market, with many investors taking to the streets to protest and some creditors running off with funds.

China’s financial regulators plan to cull the number of licensed firms to a few dozen that meet a list of strict criteria. Executives from some of China’s largest P2P platforms think that this process could come in the next 12 months.

“The licensing is pretty much a prolonged process designed to flush out P2Ps,” said Roger Ying, founder of Pandai.


2. China’s bond market threatens financial stability, says IMF

Volatile swings in bond trading could stir up larger knock-on effects for China’s economy, according to the International Monetary Fund.

The lending body’s 2018 Global Financial Stability Report said that China’s $12 trillion bond market – the third-largest in the world – is heavily driven by repos (repurchase agreements), in which financial institutions offer securities in exchange for short-term cash.

In 2017, repo borrowing was 15 times the average trading volume in China’s bond market, much higher than in other economies, reports the Wall Street Journal. This high exposure to credit-fuelled trading raises the possibility, however, that sharp drops in interest rates could quickly sap the market of liquidity.

“This procyclical link between bond trading and financial conditions represents a significant vulnerability in China’s financial markets,” said Henry Hoyle, finance analyst at the IMF.


3. China’s inflation accelerates in September

Consumer price levels rose at a faster rate in September than the previous month, according to official data.

China’s CPI rose 2.5% year-on-year, matching average market forecasts. This is two percentage points faster than in August, making September the fourth straight month of acceleration.

Producer prices increased 3.6% y/y, slowing from 4.1% the previous month.

Agricultural events including swine flu outbreaks and extreme flooding have pushed up consumer prices in recent months, as well as efforts by Beijing to boost spending. The government’s inflation target for the year is 3%.


4. No sign of letting up for China’s tumbling stock markets

Chinese equities got off to another rocky start this week, the country’s main index slipping a further 1.5% on Monday despite reassuring noises from state financial bodies and regulators.

The Shanghai Composite slumped to its lowest close since November 2014 and stands at roughly half of the highs of 2015, reports Bloomberg.

Consumer goods were among the hardest hit, as weak sales data of cars and online appliances reached investors.

Liu Shiyu, chairman of the China Securities Regulatory Commission, said publicly that the government is intent on completing capital market reforms and policies of opening-up. He detailed that insurers are being urged to invest more in listed companies and help facilitate firms borrow by issuing stock.


5. Beijing turning to private sector for infrastructure financing

The private sector could be about to play a larger role in funding state-run infrastructure projects, the government has suggested, as the economy struggles to balance boosting investment without adding to the debt burden.

The State Council announced on its website that 1,222 infrastructure projects totaling $363 billion were being funded by private sources, Caixin reports. It added that private companies have agreed to aid in financing eight new airports worth a combined $7.2 billion.

Growth in infrastructure spending saw a dramatic drop in recent months compared with last year, stoking fears of a widespread economic slowdown. Year-on-year spending growth slowed to just 4.2% from January to August, official data shows.

Other stories:

China’s smartphone market continues decline in September [TechNode]

Smartphone shipments dropped 11.5% year-on-year last month, according to official data, exacerbating a gloomy period for the world’s largest market.

Video game companies lower expectations for end to new license freeze [Financial Times]

China’s video game developers are bracing for a chilly few months financially, as Beijing is expected to extend its freeze on approving new releases until next year.

Yuan unlikely to break 7-dollar mark this year, poll shows [Bloomberg]

The danger of the renminbi slipping past the 7/dollar threshold this year is still low, according to a survey of analysts.

Chinese Communist Party expels former Huarong chief over suspected graft [Reuters]

The Chinese Communist Party has expelled the former head of China Huarong Asset Management Co Ltd, Lai Xiaomin, over suspected corruption.

Chinese biotech firm prepares IPO despite negative market sentiment [WSJ]

Chinese cancer drug maker Innovent Biologics Inc is planning to go ahead with its initial public offering in Hong Kong despite the current bear market and the poor performance of several similar firms launching market debuts in recent months.

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