BUSINESS
CHINA DAILY | CHINADAILY.COM.CN/BUSINESSTuesday, July 30, 2019New shareholders to help Bank
of Jinzhou handle its NPL burden
By JIANG XUEQING
[email protected]China is restructuring Bank of
Jinzhou Co Ltd, a troubled city
commercial bank, by introducing
new investors to deal with its non-
performing loans, improve corpo-
rate governance, and prevent the
triggering of systemic risk.
The Hong Kong-listed bank
announced on Sunday that certain
shareholders of the bank trans-
ferred part of its domestic shares
held by them to ICBC Financial
Asset Investment Co Ltd, Cinda
Investment Co Ltd and China
Great Wall Asset Management Co
Ltd.
As of Sunday, the domestic
shares of the bank being trans-
ferred to ICBC Investment, a whol-
ly owned subsidiary of Industrial
and Commercial Bank of China Ltd
— the country’s largest commercial
lender, and Cinda Investment, a
subsidiary of China Cinda Asset
Management Co Ltd — one of the
country’s four largest State-owned
distressed asset managers, shall
represent 10.82 percent and 6.
percent of the total issued ordinary
shares of the bank, respectively,
said the announcement.
The number of shares outstand-
ing of the city commercial bank
headquartered in Jinzhou, Liaon-
ing province, is 7.78 billion.
China Great Wall AMC also
signed share transfer agreements
with certain transferors to acquire
part of the bank’s domestic shares,
according to a news release issued
by the asset manager on Sunday.
The reorganization of Bank of
Jinzhou is another landmark event
in the process of supply-side struc-
tural reform in the financial sector
following the takeover of the dis-
tressed Baoshang Bank Co Ltd by
the Chinese authorities, said Li
Shanshan, Xing Yanran and Lu Yil-
in, analysts at BOCI Research Ltd,
in a report on Monday.
“We think that the government
resorted to this approach for two
reasons. First, the fundamentals of
Bank of Jinzhou should be better
than Baoshang Bank. Second, its
share structure is much more
diversified with the largest share-
holder holding less than 5 percentof its shares, so the share transfer
will pave the way for the optimiza-
tion of its ownership structure and
corporate governance,” said the
analysts.
ICBC announced that it intends
to spend no more than 3 billion
yuan ($435 million), through ICBC
Investment, to purchase the shares
of Bank of Jinzhou.
“Based on the announcement of
ICBC and our estimate, the total
price of ICBC’s subsidiary to
acquire Bank of Jinzhou will be no
more than 3.6 yuan per share, cor-
responding to a price-to-book ratio
of about 0.5 in the first half of 2018,
similar to the average dynamic P/B
ratio of the small- and medium-
sized listed banks in Hong Kong,”
said the analysts.
The premium of the purchase
price compared with comparable
peers is reasonable considering the
transfer of real control, they added.
Bank of Jinzhou sparked market
concerns since its auditorsresigned in late May. Ernst & Young
Hua Ming LLP and EY said in a res-
ignation letter to the bank that
there are indicators that some
loans to the institutional clients
were not used in ways consistent
with the purpose stated in the cred-
it document, according to the bank,
which delayed its 2018 annual
results announcement to the end of
August. Its Hong Kong-listed
shares have been suspended from
trading since April 1.
As of the end of June 2018, its
nonperforming loan ratio
increased by 22 basis points from
the end of 2017 to 1.26 percent.
Meanwhile, the provision coverage
ratio fell by 26.54 percentage points
to 242.1 percent, according to the
bank’s 2018 interim report.
“The asset quality of Bank of
Jinzhou has gone sour. When deal-
ing with the troubled lender, the
top priority of regulators is to
defuse financial risks by introduc-
ing new shareholders who will
inject capital into the bank. Next,
the new shareholders must
strengthen corporate governance
of the bank and restructure the risk
management function,” said Wu
Qing, chief economist of China Ori-
ent Asset Management Co Ltd.
“China’s banking industry is fac-
ing a reshuffle. This is even more so
for small city commercial lenders
and small rural commercial len-
ders,” he said.
The measures to deal with
embattled banks will vary from one
to another. For banks that are rela-
tively large in terms of total assets
and fairly influential to the finan-
cial market, regulators are more
likely to take over the banks, just
like what they did with Baoshang
Bank. For banks whose problems
are not very serious, regulators
may prefer a restructuring. For
small banks that have little impact
on the financial market, regulators
may allow them to go bankrupt,
according to Wu.
“The restructuring of Bank of
Jinzhou will have much less mar-
ket impact than the government’s
takeover of Baoshang Bank. As the
market expectations are already
formed, the impact will be even less
if similar situations occur to more
commercial lenders,” he said.Steel industry urged to axe substandard facilities
By LIU ZHIHUA
[email protected]
China is to ramp up its efforts to
rein in unwanted steel output, espe-
cially that which is substandard and
polluting, in order to contain risks
from excess capacity and promote
high-quality development in the
steel industry, key industry officials
said during the China Iron and Steel
Association’s annual midyear con-
vention on Monday.
As the campaign to cut overcapac-
ity deepens and the industry’s prof-
itability increases, the risks of illegal
new capacity also start to grow,
reflected by the phenomenon that
some steel companies play tricks to
build new capacity, and the produc-
tion of substandard steel reoccurs,
said Wang Wei, head of the raw
material department of the Ministry
of Industry and Information Tech-
nology.
China’s steel industry has
achieved the upper goals two years
ahead of schedule for cutting over-
capacity set by the 13th Five-Year
Plan (2016-20), reducing 150 million
metric tons of crude steel capacity,
and has removed 140 million tons of
substandard steel capacity, accord-
ing to Wang.
To crack down on such behavior,
an inspection panel, co-organized
by the ministry and the National
Development and Reform Com-
mission, will soon start their
inspection tour during the third
quarter, he said.
“Substandard steel production
and violations of related rules and
laws when conducting capacity
replacement projects will be the
focus of the panel’s inspection, andthey will serve as warnings” to any-
one who attempts to increase new
capacity illegally, he said.
More work will be done to make it
easier for people to report new
capacity that violates laws and regu-
lations to the regulators, according
to him.
Wang also said the authorities
plan to seek suggestions from indus-
try associations to revise and
enhance regulations regarding
capacity replacement projects. Cur-
rent regulations ask steel compa-
nies to shut down a larger number
of existing capacity before building
any new ones.
He Wenbo, executive vice-chair-
man of the CISA, said that to
maintain the progress in cutting
overcapacity, it is important to
improve the layout of steel capaci-
ty on a national level, instead ofjust within a province, a city, or
even a county.
He suggested measures to
encourage competent steel compa-
nies to conduct mergers and acqui-
sitions across cities, provinces and
even regions, in order to efficiently
cut capacity and enhance the
national steel capacity layout.
He also suggested that it is impor-
tant to evaluate the actual results of
capacity replacement projects, to
ensure removed old capacity out-
strips new capacity, saying that con-
struction of new capacity must be
strictly regulated.
In the fast half of 2019, China pro-
duced 492 million tons of crude
steel and 587 million tons of steel
products, with year-on-year increas-
es of 9.9 percent and 11.4 percent
respectively, figures from the CISA
showed.Employees work at a steel plant in Laiwu, Shandong province.ZHOU
CHANGZHENG / FOR CHINA DAILYSTAR boosts overall outlook for investors
Analyst: Tech board will see rebound of
risk appetite and lift A-share valuations
By SHI JING in Shanghai
[email protected]
The fever seen in the STAR Mar-
ket during its debut last week start-
ed to cool down on Monday with the
return of daily price change limits.
According to the trading rules set
by the China Securities Regulatory
Commission and the Shanghai
Stock Exchange, no price change
limits were set for the new tech
board during its first trading week
which started on July 22. Starting
from Monday, the daily price change
limit was 20 percent, which is still
higher than the 10 percent limit of
the A-share market’s other boards.
Based on the new trading rules,
Beijing Worldia Diamond Tools saw
its price increase touch the 20 per-
cent ceiling on Monday to close at
88.68 yuan ($12.9) per share. All the
other 24 companies saw price gains
on Monday.
Trading remained active on the
new board on Monday. The turn-
over rates of stock transactions for
Beijing-based Traffic Control Tech-
nology, Beijing Piesat InformationTechnology and Suzhou Harmon-
tronics Automation Technology all
approached 50 percent on Monday.
Only two companies — China Rail-
way Signal and Communication
Corp Ltd and Shanghai-based
Advanced Micro-Fabrication Equip-
ment — had a turnover rate of less
than 20 percent.
The first batch of 25 companies
listed on the new tech board saw
their prices surge by more than 140
percent after the first trading week.
Shanghai-based integrated circuit
maker Anji Microelectronics even
reported a 400 percent jump — the
highest on the board — on the first
trading day.
But analysts from China Securi-ties said that as the price change
limit comes into effect, investment
in the STAR Market will become
more rational and the turnover rate
will further contract. The perform-
ance of companies will differ greatly
based on their business, operations
and market recognition.
According to Huatai Securities,
the launch of the STAR Market will
eventually nurture a complete val-
uation system for technology com-
panies. In the long run, the
investment eco-system of A-share
technology companies will be
improved.
Analysts from GF Securities wrote
in a note that the STAR Market did
not draw significant liquidity fromthe other boards during its first
week of trading. On the contrary, the
impressive trading results on the
new board boosted the trading vol-
ume of the overall market.
Looking forward, the price fluctu-
ations of STAR Market listed com-
panies will start to contract. Their
performance will be polarized in the
next weeks, according to the note.
From the mid- to long-term per-
spective, the STAR Market will
result in the rebound of investors’
risk appetite, said Chu Zhipeng, an
analyst of the secondary market
research at Shanghai-based finan-
cial service provider Noah Holdings
Ltd. This will in turn elevate the val-
uation of the main board of theA-share market.
The corresponding pickup in the
ChiNext in Shenzhen trading house
will be more evident, said Chu. Such
a conclusion is based on the strong-
er performance of the SME Board
three months after the ChiNext was
launched in 2009.
“The innovations that the new
tech board has ushered in concern-
ing issuing, trading, delisting infor-
mation disclosure will be an
important example to refer to when
China carries out its capital market
reform. If the registration-based
IPO mechanism can be applied to
the other existing boards, the valua-
tion of A-share market will be fur-
ther boosted,” he said.The asset quality of
Bank of Jinzhou has
gone sour. When
dealing with the
troubled lender, the
top priority of
regulators is to
defuse financial
risks by introducing
new shareholders
who will inject
capital into the bank.
Next, the new
shareholders must
strengthen corporate
governance of the
bank and restructure
the risk management
function.”
Wu Qing, chief economist of
China Orient Asset Manage-
ment Co LtdKey growth role for new economy
By ZHOU LANXU
[email protected]
New economy sectors are set to be
a strong anchor of China’s growth, as
the expansion momentum of these
sectors dictated by technological
advances and changes in lifestyle is
unlikely to be impeded by external
uncertainties, analysts said on Mon-
day.
They commented after the Nation-
al Bureau of Statistics released figures
on Sunday showing that the output of
new industries and new forms and
models of business grew by 12.2 per-
cent year-on-year in nominal terms
last year, 2.5 percentage points higher
than nominal GDP growth.
These new economy sectors fos-
tered by technological applications
and advances — such as advanced
manufacturing, new energy, internet
plus and high-tech services — con-
tributed 16.1 percent to China’s GDP
last year, up from 15.8 percent in 2017,
according to the NBS.
The growth momentum of the
new growth drivers has extended
into this year, despite the overall eas-
ing in growth amid prolonged trade
tensions.
NBS data showed that the revenue
of the high-tech services sector grew
by 12.3 percent in the five months, 2.
percentage points higher than the
whole services sector. Profits of strate-
gic emerging industries in the first half
of the year, meanwhile, rose by 2.3 per-
cent and also outperformed the whole
industrial sector’s performance.
“Robust expansion of the new
economy sectors is indeed a strong
anchor for the Chinese economy,”
said Liu Chunsheng, an associate
professor at the Beijing-based Cen-
tral University of Finance and Eco-
nomics.
As people’s lifestyles are reshaped
by new business models and as tech-
nological advances deepen, new
business models are expected to keep
springing up and injecting new
growth momentum, despite external
uncertainties, according to Liu.
“Players in China’s highly competi-
tive internet sector are continuously
bringing up new business ideas,
while the country has favorable mar-
ket conditions for testing those
ideas,” Liu said.
For instance, the development of
the sharing economy is dependent on
the vast domestic market, strong
infrastructure network and high pop-
ulation density in China, Liu said.
To deal with downside pressure,
policymakers should also consider
offering more support to revitalize
traditional industries, especially pri-
vately owned manufacturing sectors,
as the scale of new economy sectors
is still limited at present, Liu added.
In the first six months, the profits
of China’s major industrial firms
declined by 2.4 percent year-on-year,
versus 2.3 percent in the January-
May period, mainly attributable to
the shrinking profits of the auto, oil
processing and steel industries, the
NBS said on Saturday.
Wang Yi, head of China Economics
with Credit Suisse, said that the ris-
ing prices of raw materials, such ascrude oil and iron ore, have pushed
up costs, while additional tariffs and
uncertainties caused by trade ten-
sions also dampened profit growth.
Looking into the second half,
external uncertainties may continue
weighing on industrial profits, but
the tax and fee cuts starting from
April will offset part of the negative
effects, Wang said.
Monetary policy may lend further
support by cutting the reserve
requirement ratio of financial insti-
tutions and directing more credit
resources into small- and medium-
sized enterprises, according to Wang.
Besides facilitating the financing
of small businesses, policies to boost
infrastructure investment, which
will in turn spur demand for indus-
trial products, are also expected to be
rolled out, said Zhang Wenhui, a
researcher with the Industrial Econ-
omy Institute at the China Center for
Information Industry Development.
“In addition, more provincial and
municipal governments are expected
to set out plans to improve industrial
profits,” Zhang said, citing that local
governments had stepped up efforts
to improve business environment
and clear arrears owed to SMEs in
the first half.
As policy support takes effect and
eases the burden of costs and expens-
es faced by industrial firms, growth
in industrial production and profit
may stabilize in the second half,
Zhang said.Zhang Xiaodan contributed to this
story.Technicians assemble products at a medical equipment facility in Qian’an, Hebei province.XINHUA