PBOC MIGHT END MONETARY 'CRISIS MODE'

China's historically high credit growth in the first half of this year has strongly supported economic recovery as the novel coronavirus epidemic has been almost controlled in the country, the central bank said on Friday. It added that monetary policy will be back to normal if the outlook remains optimistic.

Officials from the People's Bank of China, the central bank, said monetary policy will remain prudent and more flexible in the second half, providing an "appropriate" amount of money and aggregate financing, as the "crisis mode" may need to come to an end if economic indicators signal faster recovery.

In June, financial institutions offered 1.81 trillion yuan ($259 billion) of new loans, up from 1.48 trillion yuan in May, the PBOC reported on Friday. The broad money supply, or M2, maintained a year-on-year growth rate of 11.1 percent at the end of June, unchanged from May.

Aggregate financing−total financing to the real economy including government bonds−increased by 3.43 trillion yuan last month, compared with 3.19 trillion yuan in May, officials said.

In the first six months, China's total credit to support the real economy increased by 12.33 trillion yuan from the beginning of the year, the highest in history, which has strongly spurred the economy in coordination with the fiscal stimulus package, such as the issuance of special treasury bonds, said Ruan Jianhong, head of the PBOC's statistics and analysis department.

In the second quarter, the overall debt-to-GDP ratio, or the macro leverage level, appears to have continually risen from the first three months, as monetary policy was focusing on support for businesses and accelerated production resumption, said Ruan.

China's economy is projected to reverse the first quarter's contraction and gain more growth momentum in the April-to-June period, mainly driven by accelerated fixed-asset investment and a moderate rebound of consumer spending, according to Wang Xin, head of the PBOC's research bureau.

Guo Kai, deputy head of the PBOC Monetary Policy Department, said that as the economy is gradually recovering to a "normal" level, monetary policy should also shift to a normalized status to match the economic recovery speed.

Too much liquidity or a much lower interest rate level might lead to speculative activities and increase financial risks, Guo added.

The PBOC officials also confirmed that the rules on asset management products, which debuted in April 2018, will be postponed, probably by one more year. The rules were seen as the strictest measures ever issued by Chinese authorities to control shadow banking businesses.

Looking forward, the PBOC may squeeze in a cut in the required reserve ratio in the second half to alleviate a liquidity challenge during the issuance of special treasury bonds, according to Stephen Chiu, Asia FX and Rates Strategist, Bloomberg Intelligence. Also, it's unlikely to repeat monetary easing in large steps as happened in the first six months, he said.

"While this may be partly due to further recovery in the Chinese economy, the main reason could be the PBOC's increasing reliance on targeted monetary policy tools such as the re-lending and rediscount quotas," Chiu said.

This year, loan growth in China is expected to be dominated by corporate and inclusive finance loans, with consumer spending and credit being badly affected by the impact of the coronavirus on confidence and incomes, Fitch Ratings said recently.

The government called for large State banks to increase lending to micro and small enterprises by 40 percent in 2020. Policymakers are also looking to promote lending for "new infrastructure", such as 5G networks, as well as loans to urbanization initiatives.

The fast growth of credit may push up the leverage level in the financial system, given slower economic growth caused by the COVID pandemic, analysts said, but the rise in leverage may be temporary as financial regulators continue to put emphasis on containing financial-sector risks and boosting capitalization of more vulnerable banks.

"Wide-ranging loan forbearance and increased lending to State-owned corporations are likely to reduce transparency and further complicate the recognition of asset quality problems," said Elaine Xu, an associate director at Fitch Ratings (Beijing).

The authorities are likely to take measures to rein in systemic and financial leverage next year, assisted by stronger economic growth, but if the leverage continues to increase significantly, it may lead to some operating risks for commercial banks, Xu added.

RESPONSE LEVEL RAISED FOR YANGTZE FLOODING

China raised its emergency response level for flood control along the Yangtze River as days of torrential rain triggered flood warnings across the country, and water levels in the middle and lower reaches of the river have been rising.

At 2 pm Friday, Changjiang Water Resources Commission under the Ministry of Water Resources raised the emergency response level for flood control along the Yangtze River to the second highest following the incessant downpours.

It also upgraded the flood alert in Poyang Lake and nearby rivers from orange to red−the highest in the country's four-tier color-coded weather warning system.

Zhongzhouwei dike of Poyang county burst its banks and more than 8,000 people have been evacuated to safer areas, according to the Bureau of Emergency Management of Jiangxi province.

On Thursday, the water level at the dike reached 23.39 meters, 3.89 meters above the warning level, and in nearby Guxiandu town the level was 23.43 meters, 0.25 meter higher than the record in 1998, when the country suffered a catastrophic flood.

Poyang Lake in Jiangxi province, the largest freshwater lake in China and a major river basin of the Yangtze River, is historically a region of significant floods.

As the rainy season continues, southern parts of China have suffered long-lasting, wide-ranging rains. Some areas had only brief relief from sustained rainfall, according to the National Meteorological Center.

Affected by the heavy rain, water levels in many stations in middle and lower reaches of the Yangtze River have been rising rapidly, according to the commission.

"The water levels at the Qilishan observation station in Dongting Lake and Poyang Lake's entrance have exceeded the warning levels," said a notice released by the commission on Friday.

It estimated that water levels at some stations along the Yangtze River will continue to increase by 0.5 to 1.0 meter in the next few days.

HUNT NABS 589 FUGITIVE SUSPECTS IN 3 MONTHS

China brought back 589 fugitives from overseas in the past three months as intensified efforts were made to hunt down those suspected of taking bribes and engaging in wrongdoing in State-owned enterprises and the financial industry, the country's leading anti-graft watchdog said on Friday.

This year's global anti-corruption manhunt operation, code-named "Sky Net 2020", was launched in April. As of June 30, it had returned 589 people suspected of duty-related crimes, according to information posted online by the Central Commission for Discipline Inspection of the Communist Party of China and the National Supervisory Commission.

Of those, 152 were Party members and government officials, the commissions said.

In June, for example, Hai Tao, 60, a fugitive bribery suspect who worked for the now-defunct Ministry of Railways and was also listed on an Interpol Red Notice, returned to China to turn himself in after fleeing overseas seven years ago.

Hai's surrender was a sign of an important achievement in the country's continued manhunt for duty-related crime suspects as years of operations have greatly impeded fugitives, said Song Wei, director of the clean governance research center at the University of Science and Technology Beijing.

Meanwhile, fugitives suspected of offering bribes to officials were also major targets of this year's campaign, the commissions said.

On May 18, Qian Jianfen, former legal representative of Wuxi Ronghai investment consulting company in Jiangsu province, who had fled abroad in July 2019, returned and turned herself in. She was accused of bribing justice department officials from May 2013 to November 2014, after those officials offered "help" for her company in a bankruptcy case.

A month after Qian's return, Zhang Jihua, former legal representative of Shuanghua Pharmaceutical in Shandong province, who fled overseas after allegations of giving bribes to officials of State-owned enterprises, also came back and surrendered.

The return of two former executives of the companies "not only shows our country's determination and strength in fighting crimes of giving bribes, but also contributes to investigating and collecting evidence on those accepting the bribes," said Zhang Lei, a professor at the Center of Criminal Law with Beijing Normal University.

In late April, Hu Yipin, a fugitive suspected of loan fraud, was repatriated from Vietnam to China. A month later, Qiang Tao and Li Jiandong, two fugitives suspected of stealing large amounts of company property, were brought back from Myanmar after being arrested there.

All three had been listed on an Interpol Red Notice in March after they fled China. Before their escape, Hu had been the head of a bank subbranch in Wenzhou, Zhejiang province, and the other two worked for a State-owned railway.

Strengthening enforcement in finance and State-owned enterprise sectors helps ensure the healthy development of industries and safeguards financial security, according to the Central Anti-corruption Coordination Group's office for repatriating fugitives.

AT 'WARTIME SPEED', CHINA NOW LEADS IN VACCINE RACE

China is forging ahead in the race to develop a vaccine to help control the COVID-19 pandemic, with Sinovac Biotech's experimental vaccine set to become the country's second and the world's third to enter final stage testing later this month, Reuters reported.

It has brought the state and private sectors together in a quest to combat a disease that has infected more than 11,874,000 people worldwide and killed more than 545,000 of them.

Meanwhile, many other countries, including the United States, are coordinating closely with the private sector to try to win the vaccine development race, and China faces many challenges.

In China, an entity, for example, completed two vaccine plants at what it called the "wartime speed" of a couple of months, while some researchers of state-owned enterprises and the military have volunteered to take experimental shots.

The People's Liberation Army's medical research unit, which has been a driving force in China's efforts to fight infectious diseases, is also working with private firms including CanSino to develop vaccines.

Challenging the West's traditional dominance of the industry, China is behind eight of the 19 vaccine candidates in human trials, with Sinovac's experimental shot and one jointly developed by CanSino and the military among the front-runners.

"It's a tried and true strategy," said Paul Offit, director of the Vaccine Education Center at the Children's Hospital of Philadelphia, about inactivated vaccine technology.

Four of the Chinese candidates in human trials are inactivated vaccines, including Sinovac's and two vaccines from China National Biotec Group, or CNBG, a unit of state-owned China National Pharmaceutical Group, or Sinopharm.

Phase III trials:

There are only two experimental COVID-19 vaccines in final Phase III trials−one from Sinopharm and another from AstraZeneca and the University of Oxford. Sinovac's is set to become the third later this month.

To speed up the process, Sinopharm and Sinovac combined Phase I and Phase II trials for their vaccine candidates.

For CanSino's experimental vaccine, the PLA research institute played an important role, with the two working on a method using an adenovirus−a similar approach to AstraZeneca's.

The PLA has its own approval process for "military specifically-needed drugs" and approved the military use of the candidate developed by its research unit and CanSino last month.

Chen Wei, the PLA's lead scientist who has been the face of its vaccine development effort, was among the first to take the experimental COVID-19 shot developed by her team, as well as its potential SARS treatment years before, according to state media.

China has challenges, though, as the epidemic has petered out in the country, hampering efforts to conduct large trials.

SHANGHAI INTRODUCES AI INVESTMENT CONSORTIUM

Shanghai unveiled on Friday an artificial intelligence-themed investment consortium on the sidelines of the World AI Conference 2020, giving its AI ambitions a further leg up.

Dubbed the Shanghai AI Reception Hall, the AI complex encompassing players from the academic, investment, technology and industrial circles, will provide a one-stop solution to enrich Shanghai's AI development.

Under the auspices of the Shanghai AI Industrial Investment Fund, the initiative is set to organize an expert committee to provide insights, an entrepreneur bloc of CEOs and chief technology representatives, a training program for startups, as well as an investment club connecting fledging AI companies with capital.

Chen Mingbo, deputy secretary-general of the Shanghai municipal government, said in its bid to become an AI hub, the city has accumulated advantages in technology, industries, applications and a talent ecosystem.

"For the next stage, Shanghai will continue to pull strengths to develop six key industrial clusters, including autonomous driving, robots and smart chips, optimize industrial outlay throughout the city, and foster 20 leading enterprises to help the city join the global AI league by 2025," he said.

Xu Li, co-founder and CEO of AI company SenseTime, emphasized that with the advancement of AI, the technology should not only address major problems but also a list of long-tail issues. That is why an open system of algorithms is vital.

During one sub-forum on Friday, Xu announced the upgrade of the company's indigenous Open MMLab, an open source AI algorithm system, to cover over 100 algorithms and 600 pre-trained models so that more industries can jump on the AI bandwagon.

Shanghai's AI ambition does not stop at the technology level. On Friday, the city also released Action Proposals on Collaborative Implementation of the Consensus Principles of AI Governance, aiming to provide guidelines on using AI in a responsible manner.

FTZS FURTHER OPENING-UP, REFORM EFFORTS

China has implemented 260 reform measures that were tested and used at the various pilot free trade zones over the last six years, an indication of the nation's renewed commitment to deepen reform and expand opening-up to shore up economic growth, government officials said on Friday.

The comments came after the State Council decided to implement the sixth batch of measures tested at the pilot FTZs, including the China (Shanghai) Pilot Free Trade Zone, across the rest of the country earlier this week.

The new measures, spread over 37 items, will effectively cut companies' operating costs, boost government's work efficiency and innovation ability, encourage the financial sector to better serve the real economy and conduct in-depth differentiated exploration based on each FTZ's strategic positioning and industrial foundation, said Tang Wenhong, director-general of the department of pilot free trade zone and free trade port at the Ministry of Commerce.

To be replicated nationwide are measures in 31 articles, covering areas like investment management, trade facilitation, financial openness and innovation, operational and post-operational oversight and human resources. The rest six items will be introduced in the country's pilot FTZs and Customs-supervised bonded sites.

To reform investment management, green channels will be set up for approvals to electricity projects, registration of real estate will be made more convenient, and small-scale value-added tax declaration will be assisted by smart technologies.

China's 18 pilot FTZs attracted 60.25 billion yuan ($8.6 billion) of foreign direct investment, accounting for 17 percent of the country's total in the first five months of this year, with less than four-thousandths of the nation's land area, according to the ministry data.

Tang said the government will continue to offer pilot FTZs greater reform autonomy, explore how to set up and improve the authorization mechanism of pilot FTZs and support their institutional innovation efforts and dismantle institutional barriers that restrict industrial upgrade.

THOUGHT FOR THE DAY

Life is a great big canvas, and you should throw all the paint you can on it. - Danny Kaye