Founder of Antler Capital

Stanley Tsai, CFA

Macroeconomics

<ul>
<li>The recent rollout of a tax-deferred individual pension scheme marks a pivotal moment in the country's preparation for seismic shifts in its demographics.</li>
<li>The transition towards Pillar 3 of the retirement system has important implications for global asset allocators' long-term China investment thesis.</li>
<li>It's still early days, but there are ways to participate in the growth of private pensions. We look at the scale of the opportunities available and the potential beneficiaries.</li>
</ul>


The recent rollout of a tax-deferred individual pension scheme marks a pivotal moment in the country's preparation for seismic shifts in its demographics.
The transition towards Pillar 3 of the retirement system has important implications for global asset allocators' long-term China investment thesis.
It's still early days, but there are ways to participate in the growth of private pensions. We look at the scale of the opportunities available and the potential beneficiaries.


China's Fledgling Pensions Market: Are You Positioned to Cash In?

<ul>
<li>China's loan prime rates have held steady for a fifth month, with 1Y and 5Y benchmarks at 3.65% and 4.30%, respectively.</li>
<li>We expect to see a 15bp cut to the 5Y LPR as early as Feb. 20, in view of extremely weak domestic demand.</li>
<li>Even that may not be enough. Infrastructure spending will have to carry the load, fueled by a surge in local government bond issuance.</li>
</ul>


China's loan prime rates have held steady for a fifth month, with 1Y and 5Y benchmarks at 3.65% and 4.30%, respectively.
We expect to see a 15bp cut to the 5Y LPR as early as Feb. 20, in view of extremely weak domestic demand.
Even that may not be enough. Infrastructure spending will have to carry the load, fueled by a surge in local government bond issuance.


China Macro: Loan Prime Rates Unchanged in Jan; Easing Bias Remains

Articles from Caixin Global, Caixin Global

Caixin Global

Articles from Caixin Global

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Cross Asset Strategy

<ul><li>In Depth: Chinese firms bending over backward to offer foldable phones</li><li>Shanghai says no plan to seal off entire city of 25 million</li><li>Chinese stocks get another drubbing as uncertainty overwhelms investors</li></ul>

In Depth: Chinese firms bending over backward to offer foldable phonesShanghai says no plan to seal off entire city of 25 millionChinese stocks get another drubbing as uncertainty overwhelms investors

CX Daily: Chinese Firms Bending Over Backward to Offer Foldable Phones

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

KraneShares CSI China Internet ETF / Event-Driven

<ul>
<li>China ADRs were sharply lower last week as the SEC started to name companies that were identified under the Holding Foreign Companies Accountable Act (HFCAA).</li>
<li>Then <a href="https://www.smartkarma.com/entities/didi-chuxing-inc" target="_blank" data-smartkarma-citation="entities:27467:1" rel="noopener">DiDi Global</a> dropped 44% on Friday following reports that the their proposals to prevent data/security leaks did not meet CAC's requirements and work on the HK listing was halted.</li>
<li>With 2024 not too far away, a lot of the U.S. listed companies will look at listing in Hong Kong in the near future. That will have its own implications.</li>
</ul>


China ADRs were sharply lower last week as the SEC started to name companies that were identified under the Holding Foreign Companies Accountable Act (HFCAA).
Then DiDi Global dropped 44% on Friday following reports that the their proposals to prevent data/security leaks did not meet CAC's requirements and work on the HK listing was halted.
With 2024 not too far away, a lot of the U.S. listed companies will look at listing in Hong Kong in the near future. That will have its own implications.


China ADRs & HFCAA: Pace of Homecoming Listings Should Pick Up & Implications

Monthly Newsletter | Jul 2021
The PBOC's decision to relax required reserve requirements was a bit of a surprise to us in terms of the cross-section of the banking system it covered. The move came on the heels of a set of TSF numbers that were weaker than what the headlines suggest. But we believe the impact of the RRR cut is somewhat limited and we shouldn't expect the central bank to loosen again any time soon.  
The RRR cut is only mildly positive in view of the expected uses of liquidity.  A significant portion of the ~CNY1tn released will likely be used to pay down medium-term lending facilities that will fall due in 2H21. The mini-peak in tax payment in July - along with the strong pipeline of local government bond issuance - will also put a damper on new financing and crowd out funding sources available to the private sector.
Headline TSF beat expectations thanks to strong loan growth. However, net of the contraction in off-balance sheet credit - of which trust loans to property developers are a substantial part - the growth in debt financing was just around 10% y/y. The underlying trend is more or less in line with the central bank's guidance for credit expansion to match nominal GDP growth (Exhibit 1).
Robust loan data were buoyed by a surge in bills financing. Renewed demand for short-term liquidity may be attributable to the impact of elevated factory gate prices on small and medium-sized companies. The growth in long-term corporate loans that will drive capital investments and productivity gains is much less pronounced. At the same time, mortgage loans saw a significant contraction y/y as regulators try to rein in the property market boom (Exhibit 2).
Overall, we believe the PBOC's rhetoric remains unchanged. In our view, Beijing will continue to push through deleveraging measures in the real estate market and ratchet up its efforts to tame commodities prices. On the other hand, more funding will be channeled to small businesses and the services sector. That should provide some support to the next leg of the recovery, as capital-intensive industries face progressively tighter funding conditions.
<table class="table table-striped">
<tbody>
<tr>
<td style="width: 373.003px;">Exhibit 1: Key Components of New TSF (CNY bn)</td>
<td style="width: 373.003px;">Exhibit 2: Key Components of New CNY Loans (CNY bn)</td>
</tr>
<tr>
<td style="width: 373.003px;">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/218/092/original/image_681652188101626125722784.png?1626125723" class="editor-image img-responsive" data-smartkarma-image-id="218092"></figure>
Note: Off b/s items include trust loans, entrusted loans and undiscounted bills; TSF shown excludes ABS and balancing items, which are yet to be available

Source: PBOC, Our analysis
</td>
<td style="width: 373.003px;">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/218/087/original/image_2669466651626120112187.png?1626120112" class="editor-image img-responsive" data-smartkarma-image-id="218087"></figure>




Source: PBOC, Our analysis
</td>
</tr>
</tbody>
</table>
Related Insights
<ul>
<li>
<a href="https://www.smartkarma.com/insights/china-macro-ppi-and-cpi-have-reached-inflection-points" target="_blank" data-smartkarma-citation="insights:54261" rel="noopener">China Macro: PPI and CPI Have Reached Inflection Points</a> </li>
<li>
<a href="https://www.smartkarma.com/insights/pork-price-rebound-what-it-means-for-china-s-inflation" target="_blank" data-smartkarma-citation="insights:54187" rel="noopener">Pork Price Rebound: What It Means for China's Inflation</a> </li>
<li>
<a href="https://www.smartkarma.com/insights/china-macro-profits-flowing-gently-down-the-stream" target="_blank" data-smartkarma-citation="insights:53726" rel="noopener">China Macro: Profits Flowing Gently Down the Stream</a> </li>
<li>
<a href="https://www.smartkarma.com/insights/china-macro-operation-twist-the-deposit-version" target="_blank" data-smartkarma-citation="insights:53435" rel="noopener">China Macro: Operation Twist | The Deposit Version</a> </li>
<li>
<a href="https://www.smartkarma.com/insights/china-financials-silver-linings-playbook" target="_blank" data-smartkarma-citation="insights:53013" rel="noopener">China Financials: Silver Linings Playbook</a> </li>
</ul>

Monthly Newsletter | Jul 2021
The PBOC's decision to relax required reserve requirements was a bit of a surprise to us in terms of the cross-section of the banking system it covered. The move came on the heels of a set of TSF numbers that were weaker than what the headlines suggest. But we believe the impact of the RRR cut is somewhat limited and we shouldn't expect the central bank to loosen again any time soon.  
The RRR cut is only mildly positive in view of the expected uses of liquidity.  A significant portion of the ~CNY1tn released will likely be used to pay down medium-term lending facilities that will fall due in 2H21. The mini-peak in tax payment in July - along with the strong pipeline of local government bond issuance - will also put a damper on new financing and crowd out funding sources available to the private sector.
Headline TSF beat expectations thanks to strong loan growth. However, net of the contraction in off-balance sheet credit - of which trust loans to property developers are a substantial part - the growth in debt financing was just around 10% y/y. The underlying trend is more or less in line with the central bank's guidance for credit expansion to match nominal GDP growth (Exhibit 1).
Robust loan data were buoyed by a surge in bills financing. Renewed demand for short-term liquidity may be attributable to the impact of elevated factory gate prices on small and medium-sized companies. The growth in long-term corporate loans that will drive capital investments and productivity gains is much less pronounced. At the same time, mortgage loans saw a significant contraction y/y as regulators try to rein in the property market boom (Exhibit 2).
Overall, we believe the PBOC's rhetoric remains unchanged. In our view, Beijing will continue to push through deleveraging measures in the real estate market and ratchet up its efforts to tame commodities prices. On the other hand, more funding will be channeled to small businesses and the services sector. That should provide some support to the next leg of the recovery, as capital-intensive industries face progressively tighter funding conditions.



Exhibit 1: Key Components of New TSF (CNY bn)
Exhibit 2: Key Components of New CNY Loans (CNY bn)




Note: Off b/s items include trust loans, entrusted loans and undiscounted bills; TSF shown excludes ABS and balancing items, which are yet to be available

Source: PBOC, Our analysis







Source: PBOC, Our analysis




Related Insights


China Macro: PPI and CPI Have Reached Inflection Points 

Pork Price Rebound: What It Means for China's Inflation 

China Macro: Profits Flowing Gently Down the Stream 

China Macro: Operation Twist | The Deposit Version 

China Financials: Silver Linings Playbook 


Glut and Famine: Jul '21 | Don't Expect a Bazooka from the PBOC

China

Shenzhen Composite Index is an actual market-cap weighted index (no free float factor) that tracks the stock performance of all the A-share and B-share lists on Shenzhen Stock Exchange. The index was developed on April 3, 1991 with a base price of 100. 

Shenzhen Stock Exchange Composite Index (SZCOMP INDEX)

Shenzhen Stock Exchange Composite Index (SZCOMP INDEX)

China's Fledgling Pensions Market: Are You Positioned to Cash In?

China's aging population has captured investors' attention of late. What opportunities will shifting demographics bring to the fledgling private...

Stanley Tsai, CFA

China Macro: Loan Prime Rates Unchanged in Jan; Easing Bias Remains

China's LPRs have held steady, but we believe a cut to the mortgage benchmark is imminent. A recovery in home prices may prove elusive. Debt-fueled...

Stanley Tsai, CFA

CX Daily: Chinese Firms Bending Over Backward to Offer Foldable Phones

In Depth: Chinese firms bending over backward to offer foldable phones. Shanghai says no plan to seal off entire city of 25 million

Caixin Global

China ADRs & HFCAA: Pace of Homecoming Listings Should Pick Up & Implications

The SEC naming 5 companies under the HFCAA put China ADRs under pressure last week. The news that the CAC had nixed DIDI's HK listing plans added...

Brian Freitas

Glut and Famine: Jul '21 | Don't Expect a Bazooka from the PBOC

The RRR cut was a bit of a surprise, but its impact is limited. The PBOC’s rhetoric is unchanged and the June aggregate financing data continue to...

Stanley Tsai, CFA