China's Credit Cycle Has Turned

Top article at iFeng Finance for Friday morning.

iFeng: 国君固收:中国国广义信贷与财政周期正转向紧缩
Financial shrinking a wave is not even, the financial tightening of the impact of the attack, the regulation of the years do not be taken lightly. May 3, the Ministry of Finance, Development and Reform Commission, the Ministry of Justice, the central bank, the China Banking Regulatory Commission and the Securities and Futures Commission and other six ministries jointly issued "on the further regulation of local government debt financing notice" (financial [2017] 50), the Ministry of Finance At the same time a reporter asked. No. 50 on the impact of local financing as much as "three sets of benefits", "four improper" on the impact of the banking system, which once again shows the policy layer from top to bottom to prevent financial and financial risks attach great importance to indicate that in addition to financial institutions Full-scale leverage and shadow bank scales, the financial sector is also opening a round of anti-risk regulatory remediation storm, marking China's broad credit and fiscal cycle is from a comprehensive liberal to tightening, and under strong supervision, short-term contraction is likely to decline more sharp.

No. 50 key focus on the rectification of the rectification of local remedies, clean up local financing platform and PPP projects disguised covert financing and other acts, although most of the provisions in the 43, 16, No. 4, 88, etc., but also made, but also Some measures and requirements are new, mainly including four major aspects:

1) to prohibit local government breach of warranty, to carry out local financing guarantee clean up rectification. (2) in July 17, 17 years ago to clean up the rectification in place; (3) overdue departments, city and county governments, municipal governments, government departments, government departments, government departments, government departments, The responsibility of the responsible person shall be investigated according to law.

2) to strengthen the platform company financing management, to accelerate the transformation of market-oriented state-owned enterprises. (1) The local government shall not enter the platform with public welfare assets and reserve land, and shall not promise to use the government funds to intervene in the normal operation of the financial institutions as the platform company's debt repayment income; (2) (3) A financial institution may not require or accept a letter of guarantee, a letter of promise, a letter of comfort, etc. from the local government and its subordinate departments, etc. (3) The financial institution shall not require or accept the local government and its affiliated departments to provide a guarantee letter, promised letter, comfort letter, etc. Any form of guarantee.

3) for the first time to standardize local PPP financing. (2) shall not in any way to the social capital side commitment to repurchase the principal amount of investment, commitment to investment principal loss, commitment to the lowest (1) not to borrow funds to invest in various types of investment funds, is strictly prohibited local use of PPP, (3) No additional terms may be added to any equity investment method, such as a limited partnership fund.

4) re-emphasize the regulation of local government financing. (2) not in any form, such as documents, minutes of meetings, leadership instructions, etc., to require or determine the enterprise for the local government disguised debts; (3) shall not be any unit (1) shall not be in any form of the State Council approved the issuance of local debt financing; And individuals in any way to provide security, shall not be committed to any unit and individual financing commitment to debt service.

50 to strengthen the financial risk supervision, to clarify the local government and financing platform, city investment platform and the boundaries of the main body of PPP, to avoid the local government or a large number of hidden financial risks brought about by rising, we believe that the year Local financing and urban investment risk valuation have a profound impact:

No. 50 marked the end of the generalized fiscal easing cycle that lasted nearly two years, and local quasi-finance, financing and investment were tightened. 15 years in the steady growth and financial liberal environment, all kinds of quasi-financial instruments emerge in an endless stream, creating a very relaxed generalized financial financing environment. The local government borrows the shadow bank, the PPP, the government industry fund, the project income debt to carry out all kinds of bright stock, the disguised financing and the violation guarantee, etc. In 2016 only the city investment debt, the special construction debt, the industry fund and the PPP related financing Up to 6.5 trillion. No. 50 marked the quasi-fiscal wind from the loose to tighten, the local cast investment platform, PPP and other implicit guarantees facing stripping, disguised limited debt. As the local government is the most important driving force for infrastructure investment, financing contraction will lead to increased risk of local investment and economic slowdown, pressure on the size of loans and social finance, debt pressure surge.

PPP, industry funds and other quasi-financial disguised financing is limited, the credit and social financial leveraging significantly cooling, weakening the role of infrastructure. In the 43th document to limit the financing platform to borrow, some local governments began through the PPP and government industry funds to Ming shares of real debt and mezzanine financing in disguise financing, to some extent bypassed the strict control, the donor financial institutions also think that these Enterprises and local governments are closely linked, with implicit government guarantees, leading to the rapid accumulation of general government debt. 50, we believe that this disguised financing channel will be tightened, once the cost of capital rose sharply, many projects IRR fear is difficult to meet the requirements of local, corporate and financial institutions are facing the table and the potential negative risk The

City investment debt credit spreads face further risk, but relative to the risk of industrial debt premium is higher. Since December 2006, the credit spreads of the City Investment and State Bonds have been extended from about 30Bp to above 110bp, despite a record high of 16 years, but only about 30% of the total score compared with the history. Credit contraction, the government implied security subsided, credit spreads are still further expansion of space. From the city investment and industrial debt relative credit spreads, the current 3Y, 5Y, AA city debt and industrial debt relative spread from the 16th quarter of the fourth quarter of the -40bp and -85bp (then the city vote into the country) soared to 180bp and 150bp, has been adjusted to a record high, in the absence of city investment breach of contract, the same period, the rating of the city has been relatively debt relative to industrial debt has a certain price advantage, relative spread up space is limited.

Tightening policy of multi-faceted, city investment debt level issue interest rate jumps will continue. Since April, the central bank, the finance, the banking supervision, the CSRC and the CIRC have escalated the supervision of the financial and financial risks. The generalized credit and the generalized finance have tightened tightly. The local guarantee has been cleared and the government has just broken the rescue and rescue. Institutions or the bond market financing is facing a comprehensive tightening. 17 years from January to April the city's investment bonds 427.53 billion, net financing only -712.3 million, compared with the same period in 2016 fell 564.3 billion and 723 billion, the lowest level in history; not only the issue of shrinkage, a tender interest rate also jumped , By the card will be pledged bonds to raise the rating to AAA level, AA + and below the rating of the bonds will not be the impact of storage, the new city investment liquidity premium sharply higher, some banks also tighten the city investment platform lending Size, market demand in the cold, the first issue of interest rates jump will become the norm.

Because of their poor hematopoietic ability, city investment debt in the tightening cycle more vulnerable to "Davis double play." In the tightening environment in 2011 and 2013, when the central bank and policy levels were tightening the local financing platform and shadow bank financing, while the real estate market cooling, land assets and transfer income fell sharply, local financial decline, leading to the city Investment companies face a double decline in net assets and operating income risk, especially in the central and western regions may be particularly evident, continuous financing capacity deterioration, until the arrival of a new round of loose period to be alleviated. Therefore, we are worried that if the current round of shadow banks, financial risk regulation tightening, local finance, financing, infrastructure decline risk will be a substantial warming, the city of debt follow-up adjustment space is still large.

Policy wind direction is the key to determining the risk of city investment debt. According to the situation over the years, for the local financing platform and the city investment debt policy understanding, to grasp the general direction and not only tangled in the text, the system will usually speak very strict, but the actual implementation of the " Risk "and" defuse stock risk "swing, and the policy itself, especially the refinancing policy will be based on different periods of the environment and a substantial adjustment. Grasp the policy direction and the main contradiction, is to understand the city investment debt risk and opportunity key.

The best strategy of the bond market is still waiting. Yesterday, the stock of debt and goods fell again, although the economy and investment appear vindicated signs, but the bond market is still difficult to short-term short-term, with the Federal Reserve in June to raise interest rates, brokerage clean-up assets pool business, Redemption, half-year end of the MPA assessment and financial constraints struck, the negative factors affecting the market continues. We also believe that the desperate back is hope that the future will usher in a more flexible, more secure margin of the bond market, but now, the best strategy of the bond market is still recuperate, waiting for the winter in the past.

No comments:

Post a Comment