Bonds Aug 03

China plan to rebuild flood-ravaged Yangtze basin

Authorities announce a bond-led scheme to create a ‘Yangtze River Economic Belt’ to support the resumption of work and production in an area hit by three months of historic flooding and the coronavirus

China plan to rebuild flood-ravaged Yangtze basin
The rise of the swollen Yangtze is seen around this historic building in the midst of the river near Chongqing. AFP photo. 

(ATF) Chinese authorities have announced a bond-led scheme to create a ‘Yangtze River Economic Belt.’ This will be an East-West project that connects a large number of China’s top finance, industrial and agricultural areas.

The initiative aims to support the resumption of work and production, and to help build an inland river economic belt with global influence. The area has been severely hit by three months of historic flooding, and the coronavirus.

At the same time the State Administration of Taxation has decided to further introduce 10 tax collection and management service measures to help achieve integrated and high-quality development of the Yangtze River Delta. In essence, the richer and less badly affected areas such as Shanghai and Zhejiang will increase their tax burden to help the shattered upstream economy. This new bond/tax index will also be filtering finances to rebuild the important industrial and agricultural areas upstream.

To support the rebuilding of the Yangtze economy Hankou Bank, together with China Asset Management and ChinaBond Financial Valuation Center, jointly compiled and released the "ChinaBond Yangtze River Economic Belt Urban Investment Bond Spread Factor Index".

Yangtze River Economic Belt bond index

The index will represent almost half of China’s total bond market and mainly combines the economic indicators of the Yangtze River Economic Zone provinces (GDP, fiscal revenue, government leverage) and the basic conditions of the provincial bond market (stock, proportion, bond liquidity, bond yields) of high-quality credit bonds, and will evaluate the macro financing environment of different provinces and cities. High-quality credit bonds in the provinces and cities under the initiative will be represented in the index. 

In 2019, 11 provinces and cities in the Yangtze River Economic Belt issued a total of 6,647 credit bonds (accounting for 48% of the total credit bond market), and the total issuance reached 5.53 trillion yuan (accounting for 37%). As of the end of 2019, the stock of credit bonds in the 11 provinces and cities in the Yangtze River Economic Belt totalled just over 9 trillion yuan (US$1.29 trillion), accounting for slightly over 35% of the total credit bond market.

After the index is released, Hankou Bank, China Asset Management, and ChinaBond Financial Valuation Center will continue to cooperate in the research and development of index-related products, and through extensive publicity and promotion, to enhance the understanding and participation of individual and institutional investors in related products, and to contribute to related projects and enterprises.

Sina Fund says Hankou Bank was established in December 1997 and is a city commercial bank headquartered in Wuhan. There are 181 branches of various types, which basically cover Hubei Province, with branches outside the province in Chongqing, and the establishment of two rural banks in Yangxin and Zhijiang. According to Hankou Bank, as of the end of 2019, the bank’s total on- and off-balance sheet assets were 514.2 billion yuan, with various deposit balances totalling just over 249 billion yuan, and various loan balances were close to 172 billion yuan. 

The 10 new tax measures specifically include: improving tax big data service capabilities, deepening the application of value-added tax via electronic invoices, implementing the "five-tax-in-one" comprehensive declaration, exploring and promoting tax declaration pre-filling services, simplifying the processing procedures for VAT collection and refund matters, speeding up the application of land value-added tax exemptions, promoting the facilitation of foreign exchange payment for the service trade, coordinating the development of tax risk management, promoting a unified standard and standardised tax policy implementation, and building a unified tax-enforcement system.

Record inflow in July

In other bond news, Bond Connect celebrated its third anniversary on July 3. The deputy governor of the People’s Bank of China (PBOC) and State Administration of Foreign Exchange Administrator Pan Gongsheng announced four new measures – fee reduction, trading hour extension, expansion of trading platforms and primary market service offering enhances – to further enhance the Bond Connect scheme.

Total monthly trading volume of Bond Connect in July was RMB 446.9 billion, with a new record high of RMB 75.5 billion net inflow.