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China's Market News: State-Owned Company's Bonds' Trading Halted to Solvency Issue

China's Market News: State-Owned Company's Bonds' Trading Halted to Solvency Issue

2016-04-12 16:35:00
Renee Mu, Currency Analyst

This daily digest focuses on market sentiment, new developments in China’s foreign exchange policy, changes in financial market regulations and Chinese-language economic coverage in order to keep DailyFX readers up-to-date on news typically covered only in Chinese-language sources.

- A Chinese stated-owned company saw trading halted in its bonds due to financial difficulties, the first time in Chinese market history.

- China’s rail freight transport declined -9.43% in Q1’16 while the volume of rail transport of passengers increased by +13.7%.

- The NRDC keeps domestic oil prices unchanged at $40/barrel for the sixth consecutive time.

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Hexun News: Chinese leading online media of financial news.

- China Railway Materials, a state-owned enterprise (SOE) and the nation’s largest railway materials distributor, requested on April 11 to suspend trading on its bonds due to ongoing financial difficulties. It’s the first SOE to halt trading for such a reason. The total volume of the bonds suspended is ¥16.8 billion yuan. In specific, 1 billion yuan bonds will mature on May 17 and another ¥1 billion yuan bonds will mature on June 20. During the suspension, the stated-owned company plans to restructure the bonds to try to avoid default.

China Railway Materials ranked #430 in Fortune Global 500 List in 2011. However, the company’s condition has become worse as the global transportation sector, as well as the broader Chinese economy, has slowed. In 2014, the company’s outlook was downgraded from stable to negative by Dagong Global Credit Rating, a Chinese credit rating agency approved by PBOC. Its Q3’15 financial report showed that the company’s net profit dropped -47.8% from a year earlier.

China Railway Materials’ difficulties are not unique – they are shared by many other firms in the manufacturing and energy sectors, which are facing shrinking demand and oversupply. On one hand, Chinese government issues policies to assist companies with growth potentials; on the other hand, ‘zombie’ firms are required to leave the market. For Chinese manufacturing firms, they have to pass the “survival of the fittest” test in order to continue to operate. How to solve the debt issue is one of the hardest questions they need to solve in the months ahead.

- China Railway Corp., the national railway operator, reported significant drop in rail freight traffic in Q1’16. The volume of rail freight transport declined -9.43% to 788 million tons. The rail freight transport volume has been shrinking over the past few years. For instance, over each quarter of 2015, the volume of rail freight transport dropped by -9.4%, by -10.8%, by -13.9% and by -13.4% respectively. On the contrary, the number of passengers transported by rail increased significantly. In the Q1’16, the number of passengers carried by railway increased by +13.7% to 668 million. These data, while inconsistent, indicate that the Chinese economy continues its evolution from a “secondary sector” economy (led by manufacturing) to a “tertiary sector” economy (led by services).

China Finance Information: a finance online media administrated by Xinhua Agency

- The National Development and Reform Commission (NDRC) announced on April 11 to keep domestic oil prices unchanged at $40/barrel for the sixth consecutive time in 2016. Oil prices in Chinese domestic market are not free floating. NDRC manages the oil prices by issuing a guidance price every ten workdays.

- In March, Foreign Direct Investment (FDI) in China increased by +7.8% to ¥82.3 billion yuan ($12.9 billion) from a year ago. FDI in the first quarter increased by +4.5% to ¥222.4 billion yuan ($35.4 billion). Western regions have the highest growth in attracting foreign investment; the Q1’16 FDI in these regions increased by +42.5% to ¥21.3 billion yuan ($3.9 billion).

Written by Renee Mu, DailyFX Research Team

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