Editor-in-Chief of Arts/Conpleader
The “policy base” is now clear, and the “economic base” is relatively long, and markets will focus on reform efforts and policy failures. We have different judgments from the market: while Governments have a stable economy and markets, they will also strengthen the medium- and long-term market-based system-building, with institutional dividends worthy of expectations.
Investment elements
The core logic of this shift is to enhance “confidence”. This shift in financial policy focuses on two areas: first, “confidence” for upgrading the private economy; and secondly, “confidence” for upgrading capital markets. The “confidence” increase in the private economy is concentrated on two main points: improving the financing environment for private enterprises; and reducing tax revenues. Enhancing “confidence” in capital markets has been concentrated in two areas: short-term market stability and strengthening of medium- and long-term market systems in capital markets. In order to build confidence in the future, reforms are expected to grow and deepen; the direction is marketization. This round of “policies” is very clear (for details, see how “the policy base” is passed on to “the market bottom” in our report three weeks ago.
Total policy is “poor stimulus”. This shift in policy is premised on the need to guard against systemic risks. It is therefore sustainable, but it will not be stimulated; the future objective of the real estate policy is also to keep markets. In this context, the Bank will continue to laugh currency, but the currency of the bandwidth will not lend itself to leniency. Our model is “time-for-space”, with long periods of economic and credit contraction, but at a slower pace.
Future configuration: increasingly weak economies + more reforms. As long as there is no strong stimulus, the economic downturn is a trend and policies and markets need to be accepted, but the reforms introduced are increasingly aimed at increasing market confidence. In the words of the capital markets, the EPS declines and the policy is not changed in the short term; however, the policy is expected to be stable and even upgraded PE; and it allows for a common exchange of time and release of institutional dividends.
Investment proposals: release with a good institutional dividend. The “policy base” is now clear, and the “economic base” is relatively long, and markets will focus on reform efforts and policy failures. We have different judgments from the market: while Governments have a stable economy and markets, they will also strengthen the medium- and long-term market-based system-building, with institutional dividends worthy of expectations.
The core logic of “policy base” is to enhance confidence
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Policies and modalities to enhance private-sector economic confidence: comprehensive support from national + financial institutions
1.1 Establishment of a National Finance Guarantee Fund, with government and commercial banks sharing risk
Guarantees are an instrument of permanency, and this National Financing Guarantee Fund is established as a further deepening of the risk-sharing mechanism between the Government and commercial banks, targeting small and three farmers. The first national credit guarantee in our country, the China Economic Technology Investment Guarantee Company (CEP), which was established in November 93, was subsequently renewed in the 15-17 years for the top-level design and accompanying documentation on financing guarantees, culminating in the formal establishment of a market-sensitive national financing guarantee fund in July 2018. The National Finance Guarantee Fund is a further deepening of the risk-sharing mechanisms of Governments and commercial banks in the previous document and a quasi-public fund, not for profit purposes.
Modalities for the operation of the National Finance Guarantee Fund. Reguess operations are dominated by appropriate equity investment operations. In principle, a preferential reguarantee rate is applied for financing secured operations that are included in the scope of cooperation, based on 20 per cent of the original secured amount. On this basis, risk-compensation incentives are duly granted to cooperating agencies with good risk control, low-paying and large-scale operations; and risk-reduction compensation is appropriately adjusted for cooperating agencies with poor risk control, overstatement and small operations. To promote the progressive development of local policy-guarantee institutions through cooperation and guidance, and to rehabilitate risk preferences of financial institutions such as banks, in order to ease the financial pressures of small and medium-sized enterprises.
1.2 Leading the establishment of a support instrument for entrepreneurship bonds - credit risk mitigation tools (CRM)
Credit risk mitigation tools are preceded by policy guidance, but market promotion has been slow. The first attempt in the domestic market was the issuance in 2010 by the China Interbank Market Dealers Association of Guidelines for Pilot Operations of Interbank Credit Risk Mitigation Tools, which introduced two products: credit risk mitigation contracts (CRMA) and credit risk mitigation certificates (CRMW). Subsequently, in 2016, IATA introduced a revised version of the Pilot Operational Rules for Credit Risk Mitigation Tools for Interbank Markets and introduced new products for credit default swaps (CDS) and credit linkage instruments (CLN). However, at the beginning of the CRM roll-out, the domestic credit environment was relatively stable, the size and volume of bond defaults were low, and the CRM market had been slower. By the end of 2017, only 10 CRMW products were issued.
In October, the Central Bank reintroduced the credit risk mitigation tool, and CRMW issued a roll-out. On 22 October, the Central Bank issued a circular that led to the establishment of a private enterprise bond financing support tool to support private enterprise bond financing in a market-based manner, while raising the level of 100 billion refinancing to support it.
1.3 Updating and refinancing lines
This recapitalization line is adjusted to the core change point: it is mainly in conjunction with guiding the establishment of entrepreneurship finance support instruments to achieve targeted credit placement. Refinancing discounting tools can be divided into two main categories, namely, liquidity re-financing and discounting, which provide short-term liquidity support, and re-prioritization, such as cashiers, pockets, poverty alleviation, etc. that provide targeted credit support. From 2012 onwards, the Bank has repeatedly reinvested its lending and repaying lines to achieve targeted support for funding. This reprioritization, in conjunction with the entrepreneurship financing support tool, focuses more on increasing the targeting of currency, allowing for a more accurate integration with entrepreneurship by separating entrepreneurship transactions from their risk transactions.
1.4 The policy of “One Five” increases private enterprise lending support.
The “one to five” policy was initially intended to force commercial banks to increase the incentive for entrepreneurship loans, with high indicators to be effective. On 7 November, the President of the Board of Governors, Guoqiang, stated that preliminary consideration was given to lending to private enterprises to achieve the goal of “125”: In the case of new corporate-type loans, large banks are not less than one third of private enterprise loans and small and medium-sized banks are less than 2