A nine-measure package broadened the government’s economic stimulus plan to embrace REITs, PEs and other vehicles.
By Li Qing, Wen Xiu and Zhang Yuzhe, Caijing 9 December 2008
China’s economic stimulus initiative is roaring ahead with a new set of policy measures designed to encourage financing for economic development.
The initiative, which already includes a plan to spend 4 trillion yuan through 2010 and interest rate cuts by the central bank, was expanded to the financial sector when the State Council, the Chinese cabinet, released a nine-step plan December 3.
The so-called “nine financial measures” package includes new credit mechanisms for small- to medium-sized enterprises (SMEs), a broader channel for issuing bonds, real estate investment trust funds (REITs), private equity (PE) funds, stock market stability steps, and foreign exchange adjustments. The government’s goal is to support the financial sector in ways that bolster the real economy.
The measures represent innovative moves by the State Council but are still in framework form. Exactly how the steps will be implemented – with effective risk controls – will be up to regulators and market players.
Stock investors welcomed the news, which was released mid-week after the Shanghai and Shenzhen markets closed. Shares in banking, energy and real estate companies soared December 4 to lead the Shanghai Composite Index, which finished 4 percent higher than the previous trading day. The index continued climbing over the next two days.
A key encouragement for investors was the policy decision to lift a ban on commercial bank lending to the private sector for mergers and acquisitions. The decision represented a breakthrough for Chinese financial regulation.
Future M&A loans from banks are expected to help companies that have found it difficult to raise money on the stock market in recent months. Such lending “will meet urgent needs for capital,” said a senior executive at a state-owned bank, who added that the new initiative apparently supports Beijing’s agenda for corporate restructuring as well.
SME financing is expected to ease through new credit agency support, such as capital infusions and risk compensation programs. In addition, the nine measures include the State Council’s first official policies for REITs and PE funds.
A source said the State Council approved a draft plan for allowing REITs. Implementation guidelines would be released later by the central bank and China Securities Regulatory Commission (CSRC).
A source close to the Ministry of Construction said policymakers so far unanimously support REITs. “Policymakers think REITs can broaden financing channels for property developers by easing their dependence on bank loans,” the source said. “If all goes well, REITs will be introduced late this year or early next year.”
Policymakers may have settled questions about REIT oversight by dividing the responsibilities between CSRC and the China Banking Regulatory Commission (CBRC).
A CSRC source, who refused to be named, said the agency has officially discussed with the central bank its support for trading REITs on the stock market. But a CBRC source said his agency thinks the most practical system – at least for now -- would involve allowing only interbank trading of REITs, since institutional investors are considered better than stock investors at controlling risks.
To test their theories, CSRC and CBRC are expected to launch pilot projects soon that would provide a basis for future regulation of REITs.
A more complex section of the nine financial measures package involves PEs.
This is the first official State Council document encouraging PE development. Until now, Beijing officially encouraged industrial investment funds, not PE funds. The change, although seemingly minor, may indicate a fundamental shift in Beijing’s view of private equity.
For several years, PE has been in a policymaking gray area. Official documents issued by the government’s top planning agency, the National Development and Reform Commission (NDRC), describe industrial investment funds in broad terms to include PE funds. This has led to debates over how PE funds now tapped as financing vehicles for local governments might be used as market instruments.
A core question is market access. Cao Wenlian, deputy director of NDRC’s Finance and Fiscal Department, said his agency has taken the lead in a search for answers.
“Whether the private equity industry should have a minimum requirement for market access is still under discussion,” said Cao. He thinks NDRC should collaborate with regulators at CBRC and the China Insurance Regulatory Commission to resolve market access issues.
1 comment:
China Ramps up Financial Sector Stimuli
A nine-measure package broadened the government’s economic stimulus plan to embrace REITs, PEs and other vehicles.
By Li Qing, Wen Xiu and Zhang Yuzhe, Caijing
9 December 2008
China’s economic stimulus initiative is roaring ahead with a new set of policy measures designed to encourage financing for economic development.
The initiative, which already includes a plan to spend 4 trillion yuan through 2010 and interest rate cuts by the central bank, was expanded to the financial sector when the State Council, the Chinese cabinet, released a nine-step plan December 3.
The so-called “nine financial measures” package includes new credit mechanisms for small- to medium-sized enterprises (SMEs), a broader channel for issuing bonds, real estate investment trust funds (REITs), private equity (PE) funds, stock market stability steps, and foreign exchange adjustments. The government’s goal is to support the financial sector in ways that bolster the real economy.
The measures represent innovative moves by the State Council but are still in framework form. Exactly how the steps will be implemented – with effective risk controls – will be up to regulators and market players.
Stock investors welcomed the news, which was released mid-week after the Shanghai and Shenzhen markets closed. Shares in banking, energy and real estate companies soared December 4 to lead the Shanghai Composite Index, which finished 4 percent higher than the previous trading day. The index continued climbing over the next two days.
A key encouragement for investors was the policy decision to lift a ban on commercial bank lending to the private sector for mergers and acquisitions. The decision represented a breakthrough for Chinese financial regulation.
Future M&A loans from banks are expected to help companies that have found it difficult to raise money on the stock market in recent months. Such lending “will meet urgent needs for capital,” said a senior executive at a state-owned bank, who added that the new initiative apparently supports Beijing’s agenda for corporate restructuring as well.
SME financing is expected to ease through new credit agency support, such as capital infusions and risk compensation programs. In addition, the nine measures include the State Council’s first official policies for REITs and PE funds.
A source said the State Council approved a draft plan for allowing REITs. Implementation guidelines would be released later by the central bank and China Securities Regulatory Commission (CSRC).
A source close to the Ministry of Construction said policymakers so far unanimously support REITs. “Policymakers think REITs can broaden financing channels for property developers by easing their dependence on bank loans,” the source said. “If all goes well, REITs will be introduced late this year or early next year.”
Policymakers may have settled questions about REIT oversight by dividing the responsibilities between CSRC and the China Banking Regulatory Commission (CBRC).
A CSRC source, who refused to be named, said the agency has officially discussed with the central bank its support for trading REITs on the stock market. But a CBRC source said his agency thinks the most practical system – at least for now -- would involve allowing only interbank trading of REITs, since institutional investors are considered better than stock investors at controlling risks.
To test their theories, CSRC and CBRC are expected to launch pilot projects soon that would provide a basis for future regulation of REITs.
A more complex section of the nine financial measures package involves PEs.
This is the first official State Council document encouraging PE development. Until now, Beijing officially encouraged industrial investment funds, not PE funds. The change, although seemingly minor, may indicate a fundamental shift in Beijing’s view of private equity.
For several years, PE has been in a policymaking gray area. Official documents issued by the government’s top planning agency, the National Development and Reform Commission (NDRC), describe industrial investment funds in broad terms to include PE funds. This has led to debates over how PE funds now tapped as financing vehicles for local governments might be used as market instruments.
A core question is market access. Cao Wenlian, deputy director of NDRC’s Finance and Fiscal Department, said his agency has taken the lead in a search for answers.
“Whether the private equity industry should have a minimum requirement for market access is still under discussion,” said Cao. He thinks NDRC should collaborate with regulators at CBRC and the China Insurance Regulatory Commission to resolve market access issues.
Post a Comment