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Chinese Banks Recruit Debt Collectors Amid Loan Woes

Several Chinese banks, including Sanxiang Bank, China Everbright Bank, and WeBank, are actively recruiting debt collection professionals in response to rising frequency of non-performing loans. This trend reflects attention being paid to financial risk in China’s banking sector.

Sanxiang Bank, a privately-owned bank in central China, announced on May 31 that it is seeking seven senior debt collection managers with at least five years of experience. Their responsibilities will include developing collection strategies, managing teams, and analyzing data to optimize collection efforts.

The move comes as Sanxiang Bank’s non-performing loan rate reached 1.75% in 2023, up 0.22 percentage points from 2022. More alarmingly, the bank’s overdue loan balance rose by 5.20 billion yuan to a new total of 13.41 billion yuan, with the overdue loan rate climbing to 3.61%, a 1.16 percentage point increase.

This trend is not isolated. China Everbright Bank and WeBank have also posted job openings for debt collectors. The surge in recruitment reflects the banking sector’s growing unease over loan quality. On May 15, the National Internet Finance Association of China issued guidelines for post-loan collection, advising financial institutions to strengthen their debt collection management and even suggesting the creation of specialized departments for this purpose.

Source: Central News Agency (Taiwan), June 4, 2024
https://www.cna.com.tw/news/acn/202406040295.aspx

Briefings | | |   Economy/Resources

To Pressure Taiwan, China Suspends Tariff Concessions on 134 Taiwanese Products

On May 31, the Customs Tariff Commission of China’s State Council announced the suspension of tariff concessions on the second batch of products listed under the “Cross-Strait Economic Cooperation Framework Agreement.” Starting from June 15, preferential tariff rates under the agreement will no longer apply to 134 lines of products exported from Taiwan to China. These include certain auto parts, textiles, and petrochemical products.

Scholars believe this move is part of Beijing’s continued efforts to exert economic pressure on Taiwan. At the same time, most of the affected products are those for which China has overcapacity, meaning that Beijing can afford to reduce Taiwanese imports of those products. The move could be detrimental to cross-strait relations and may accelerate Taiwan’s decoupling from China.

Source: VOA, June 1, 2024
https://www.voachinese.com/a/china-suspends-ecfa-tariff-concessions-on-another-134-items-for-taiwan-20240531/7637639.html

Briefings | | |   @CS Economy/Resources Geo-Strategic Trend

Chinese Manufacturing PMI Declined in May

The Chinese National Bureau of Statistics just released its May Manufacturing PMI (Purchasing Managers’ Index) numbers. The overall PMI declined to 49.5 percent, a month-over-month drop of 0.9 percentage point. The PMI’s new orders sub-index (49.6 percent) and the new export orders (48.3 percent) sub-index both fell back into contraction territory.

The employment sub-index was at 48.1 percent, indicating that employment in manufacturing companies continues to shrink. The purchase price sub-index for major raw materials climbed to an eight-month high, reflecting rising commodity costs. A fragile recovery persists in manufacturing (with the production sub-index at 50.8 percent), but rising trade protectionism will pose a major headwind in the coming months.

In May, the PMI of large enterprises was 50.7 percent. However, the PMI numbers for small and medium-sized enterprises were 49.4 percent and 46.7 percent respectively, down 1.3 and 3.6 percentage points from the previous month. Medium and small companies hired the majority of the Chinese workforce.

China’s manufacturing sector is under pressure. Beijing is currently facing rising trade tensions with the United States and the European Union — China’s two largest export markets. New trade barriers have been erected that will hinder sales of key products such as electric vehicles and parts.

Source: The Chinese National Bureau of Statistics, May 31, 2024
https://www.stats.gov.cn/sj/zxfb/202405/t20240530_1956234.html

Briefings | | |   Economy/Resources

Global Times: Beijing Announces Strict Rules Regulating How Stock Holdings May be Reduced

Global Times recently reported that the China Securities Regulatory Commission issued “Interim Measures” for managing “Share Reductions by Shareholders of Listed Companies.” The purpose of the new rules is to strictly regulate the holding reduction behavior of major shareholders and to effectively prevent “detours” to holdings reductions. The Shanghai and Shenzhen stock exchanges released detailed sets of guidelines at the same time. {Editor’s note: These new restrictions by Beijing, which prevent stockholders from selling their shares under certain circumstances, may be motivated by a belief that these measures will help to prop up China’s stock market and economy.}

The new rules clarified the various circumstances under which shareholding reduction is prohibited. Controllers and controlling shareholders of listed companies are not allowed to reduce shareholdings through centralized bidding transactions or large-scale transactions when the shares are broken (i.e. when the stock price falls below the issue price on issuing day), netted (when the stock price falls below net asset value per share), or when dividends are not up to standard. Controllers, controlling shareholders, and persons acting in concert are not allowed to reduce their holdings within the corresponding period if the listed company is involved in violations of any laws or regulations. Disclosure obligations now include 15-trading-day-ahead disclosure requirement. Shareholding reduction plans should include the number and sources of shares to be reduced as well as the time range, price range, method, and reasons for the reduction, etc. The new rules also include restrictions on the reduction process as well as on major shareholder identity management. The China Securities Regulatory Commission also attempted to plug loopholes where shareholder reduction could happen following a refinancing or a company split-up (a divorce).

China’s benchmark CSI 300 index has lost more than a third of its value since 2020 and is now entering its fourth year of decline.

Source: Global Times, May 27, 2024
https://m.huanqiu.com/article/4Hxnqo39nyY

Briefings | | |   Economy/Resources Government/Politics

Wei Jingsheng: China’s Real Estate Problem Caused by System Issues of Planned Economy

Chinese dissident Wei Jingsheng shared his view on the causes of the current problems facing China’s real estate market.

In his view, the real estate crisis stems mainly from two factors. The first factor is that the government encouraged rapid, large-scale development, pursuing big GDP figures. The second, more alarming factor is China’s semi-market-economy system. Instead of embracing a full market economy, China uses government directives (rather than the economic data) to guide market activities. This is, in essence, a “planned economy” system.

Xi Jinping’s advisors have come up with two approaches to saving China’s economy, attempting to alleviate excess production capacity. The first approach is to shift the crisis outward, which means exporting surplus production capacity to the world. The U.S. is currently leading the resistance against this first approach. The second approach is to transfer the crisis onto the Chinese people – asking them to spend money on new houses or to replace/upgrade electric appliances.

Source: Radio Free Asia, May 24, 2024
https://www.rfa.org/mandarin/pinglun/weijingsheng/wjs-05242024075707.html

Briefings | | |   Economy/Resources Government/Politics

Chinese EV Executives’ Worries

In the first quarter of this year, the year-on-year growth rate of BYD’s electric vehicle (EV) exports exceeded 150 percent, reaching over 97,000 units. Some 15,700 vehicles were shipped to Brazil during the first quarter, accounting for 16 percent of total exports. There was also a surge of exports to Mexico, which may be attributed to concern over possible upcoming Mexican tariffs or sanctions following the possible election of Trump as U.S. President.

China’s accelerating EV exports triggered a bidding war on cargo shipping costs. The Shanghai Containerized Freight Index showed that, from late January to late April, the cost of shipping from China to the South American destinations, including Mexico and Brazil, rose by 55.8 percent. These rising shipping costs reflect the increased demand for shipping along those routes.

In contrast, during the same period, the freight index for shipments from China to Europe decreased by 31 percent. Possible factors contributing to the lower demand for shipping from China to Europe include the European Commission’s investigation into accusations of unfair subsidies in China’s EV industry as well as EU tariffs starting as early as July.

An executive from a major Chinese electric vehicle manufacturer stated that “We are not worried about the new tariffs the U.S. might impose on Chinese electric vehicles because we do not sell directly to the U.S. However, we are concerned about the signals [U.S. tariffs] sends to other countries, especially to U.S. allies.”

Source: China Times, May 19, 2024
https://www.chinatimes.com/realtimenews/20240519001718-260408?chdtv

Briefings | | |   Economy/Resources

Chinese Author: Foxconn’s Departure Greatly Impacts Henan Province

An article posted on Chinese social media portal QQ warned that Foxconn’s departure from China has caused big economic damage to Zhengzhou and Henan, its hosting city and province. Foxconn is headquartered in Taiwan.

Located in Zhengzhou, Henan Province, Foxconn is a major Original Equipment Manufacturer (OEM) for Apple phones. It is Henan’s largest export enterprise. Foxconn has been cutting back on production and exports since 2023. In 2023, Henan province’s phone export decreased by 14.5 percent to 57.61 million units. In the first quarter of 2024, it dropped to only 6.64 million, from the 16.88 million in the same period a year ago.

Foxconn is the backbone of Henan’s economy. In 2023, the import and export volume at the Zhengzhou economic zone, where Foxconn is located, was 407.3 billion yuan (US$ 56.13 billion), accounting for 74 percent of Zhengzhou’s imports and exports and 50.3 percent of Henan’s imports and exports. In the first quarter of this year, Foxconn’s imports and exports decreased by 44.1 percent, dragging down Henan’s foreign trade growth by 23.5 percent.

Since Foxconn came to Zhengzhou in 2010, over 200 upstream and downstream supporting enterprises have followed suit and settled in Henan. Henan’s electronic industry quickly scaled up, and the overall scale of Zhengzhou’s electronic industry grew 25 times. Take Zhengzhou Airport Economic Zone as an example. The GDP of Zhengzhou Airport Economic Zone was only 20.6 billion yuan in 2010. It reached 117.2 billion yuan by 2021. At its peak, Foxconn contributed up to 25% to Zhengzhou’s GDP.

Undoubtedly, Foxconn’s departure will have a major economic impact on Henan. A logic solution is to bring in alternative industries, such as the booming electric vehicle (EV). However, can the EV industry replace everything? With common sense, people know that, no matter how large the EV industry becomes or how promising its future is, it absolutely cannot replace the real estate industry and the mobile phone industry simultaneously.

Source: QQ, May 20, 2024
https://new.qq.com/rain/a/20240520A03Y7H00

Briefings | | |   Economy/Resources Geo-Strategic Trend

China’s Metro Systems Mired in Debt Despite Increasing Revenue and Government Subsidies

An analysis of 2023 financial reports from 29 Chinese cities’ metro companies revealed that all surveyed companies operated at a loss after government subsidies were deducted. The combined debt of these metro firms reached a staggering 4.3 trillion yuan (US$613 billion). Over the past four years, debt levels have risen annually across Chinese metro systems.

Media reports indicate that, while most metro operators saw revenue increases in 2023, many experienced profit declines despite rising government subsidies. In terms of revenue, Shenzhen Metro remained the nationwide leader, earning 25.15 billion yuan (US$3.59 billion) in 2023 – up 1.18 billion yuan (US$168 million) from the prior year. After subtracting 730 million yuan (US$104 million) in government subsidies, however, Shenzhen Metro posted a 180 million yuan (US$25.6 million) net loss.

Beijing Metro was among the most profitable in China, with a 2.4 billion yuan (US$342 million) net profit in 2023. However, it received a massive 25.34 billion yuan (US$3.61 billion) in government subsidies. After Beijing and Shenzhen, the Chinese metro companies with the highest net profits were those of Chengdu, Tianjin, Changchun, Qingdao, Ningbo, Nanjing, and Fuzhou. Of the 29 firms analyzed, 25 saw rising revenues but 17 suffered declining profits. Excluding subsidies, all posted a loss.

Fundamental drivers of ballooning metro debt include poor management, corruption scandals, and local officials pursuing “vanity projects” to boost their political credentials, leading to excessive subway construction and debt accumulation. These issues stem from systemic factors within China.

Source: Radio Free Asia, May 27, 2024
https://www.rfa.org/mandarin/yataibaodao/jingmao/ql-05272024000605.html

Briefings | | |   Economy/Resources