Just today (10th), the first monetary policy tool to support the capital market finally landed.
The People's Bank of China announced today to create an initial swap facility of 500 billion yuan to support the development of the capital market.
According to the announcement, it was decided to create a "swap facility for securities, funds and insurance companies" to support eligible securities, funds and insurance companies to exchange high-grade liquid assets such as treasury bonds and central bank bills from the People's Bank of China with assets such as bonds, stock ETFs, and CSI 300 constituent stocks as collateral.
The announcement also pointed out that the scale of the first phase of operation is 500 billion yuan, and the scale of operation can be further expanded depending on the situation. From now on, qualified securities, funds and insurance companies will be accepted to declare.
Previously, at the press conference of the State Council New Office on September 24, Pan Gongsheng, governor of the People's Bank of China, made a forecast, saying that structural monetary policy tools would be created to support the capital market, and swap facilitation was one of them.
Pan Gongsheng revealed that the scale of the first phase of the planned swap facilitation operation is 500 billion yuan, and the scale can be expanded according to the situation in the future. As long as it is done well, "the first phase of 500 billion yuan, another 500 billion yuan, and even a third 500 billion yuan."
It took only two weeks from the launch to the launch of the interchange facilitation tool, and the response was very fast. Some analysts pointed out that such innovative tools involve multiple infrastructures, many transaction elements, high technical content, and high requirements for policy coordination and work efficiency in the short term.
How does it work? Who can participate?
Some reports quoted sources close to the central bank as saying that the swap facility period is not more than one year, and an extension can be applied for after expiration; The scope of collateral may be expanded in the future as appropriate. These operational flexibilities indicate that there is still a lot of room for manoeuvre in the future as a policy tool of interchangeable facilities.
In addition, the source said that the central bank will operate through specific primary dealers. According to the 2024 list of primary dealers for open market business released by the central bank, the primary dealers include all 6 large state-owned banks and all 12 national joint-stock commercial banks, 2 policy banks and 1 development financial institution, some urban commercial banks, rural commercial banks and foreign banks, two securities firms of CITIC Securities and CICC, and China Bond Credit Enhancement Investment Co., Ltd., which is responsible for the implementation of bond financing support tools for private enterprises.
Based on the above list, there is also speculation that the so-called "specific primary dealer" is likely to be the China Bond Credit Enhancement Company ("China Bond Enhancement").
Why "China Debt Increase"?
What kind of company is China Debt Increase? How is it different from the other Tier 1 dealers on the list?
According to the official website of China Debt Increase, the company was established in September 2009 under the guidance of the central bank, by the dealers association (holding 1% of the shares) and China National Petroleum Corporation, State Grid Yingda International Holding Group and other six institutions (all holding 16.50% of the shares), with a registered capital of 6 billion yuan. The main business scope includes corporate credit enhancement services, the creation and trading of credit products, asset management, investment consulting, etc.
In the past few years, in the process of squeezing out the real estate bubble, some real estate companies have faced a serious liquidity crisis, and China Debt has become an important "guarantor" for these real estate companies to issue bonds to increase liquidity. Some industry insiders pointed out that since the mid-2022 regulatory authorities instructed China Bond Increase Company to carry out "full unconditional and irrevocable joint and several liability guarantee" for the issuance of medium notes by real estate enterprises, relying on China Bond Increase Guarantee to issue bonds has become the main means of bond issuance for some private enterprises that have not exploded.
This is illustrated by a set of data released at the end of last year. As of the end of the third quarter of 2023, the balance of outstanding credit enhancement obligations borne by China Bond increased was 53.242 billion yuan, and a number of exemplary bond-issuing real estate companies such as Longfor, Country Garden, Xincheng, CIFI and Midea Real Estate all completed bond issuance with the help of China Bond Increase. Industry insiders said that under the continuous efforts of the "private enterprise bond financing support tool" (referred to as the "second arrow"), whether the full guarantee can be provided by China Debt seems to have become one of the indicators of judging high-quality private enterprises.
A report at the time also showed:
As the first professional bond credit enhancement institution in mainland China, China Bond Enhancement provides credit enhancement support to private real estate enterprises planning to issue bonds, mainly including the following three modes: first, after the local guarantee credit enhancement agency or local state-owned enterprises provide counter-guarantees, China Debt Enhancement provides guarantee credit enhancement for private real estate enterprises planning to issue bonds; Second, after the private real estate enterprises that intend to issue bonds provide sufficient collateral such as real estate, land, and equity, China Debt will provide them with guarantee and credit enhancement; The third is for China Bond Enhancement and relevant financial institutions to create credit risk mitigation certificates (CRMW) for private real estate enterprises that intend to issue bonds.
In terms of credit enhancement, if the exchange issues corporate bonds, some financial institutions will issue CRMW and credit default swaps (CDS) to provide credit enhancement; If it is a bond issued in the interbank market, it is generally guaranteed by China Bond Increase.
In addition, it has also been reported that "since its establishment, China Bond has become a major guarantee institution in China's bond market, with a high reputation and influence, and while providing guarantee services, it requires a certain amount of collateral from the issuer to issue a guarantee letter." ”
It can be seen that if, as speculated, the swap facilitation operation is carried out through the increase of Chinese debt, the central bank may give more priority to "risk prevention" while implementing a package of incremental policies.
At the same time, CICC and CITIC Securities are also on the list of primary dealers in the central bank's open market business, causing speculation. At present, most of the primary dealers of the central bank are banks, and with the introduction of more tools, more brokerages may be added to the list of primary dealers.
"According to the central bank's announcement, this newly launched tool has greater operational flexibility. In the future, this tool can gradually increase the scope of reporting institutions and appropriately increase the scope of collateral to better maintain the stable operation of the market. Xu Chi, chief strategy analyst of Zhongtai Securities, said.
Don't engage in "flood irrigation"
"Risk prevention" is still an important consideration
While various central departments continue to play a policy "combination punch", some policy trends and specific measures also confirm the importance that the senior level attaches to "risk prevention".
The research report of Huatai Securities' fixed income research team on September 27 compared the central bank swap facility and the Federal Reserve's TSLF. According to the report, the swap facility was launched in the form of "swap for bonds", and from international experience, the Fed launched a similar TSLF (Term Securities Lending Facility) during the subprime mortgage crisis, which played an important role in the rapid stabilization of financial markets.
In 2019, the People's Bank of China (PBOC) also launched the Central Bank Bill Swap (CBS tool), which allows primary dealers to exchange bank perpetual bonds from the central bank for central bank bills, which has improved the liquidity of commercial banks' perpetual bonds and played a good role in helping banks issue perpetual bonds to replenish capital.
Similar to CBS instruments, securities, funds, and insurance company swap facilities do not increase the size of the base currency. The reason for this is that the swap facility of securities, funds, and insurance companies adopts the method of "exchanging bonds for coupons", which does not directly provide funds to non-bank institutions, so it will not put in base money, nor is it quantitative easing.
It is worth noting that the central bank's announcement specifically emphasized that the funds obtained through the use of swap facilities can only be used to invest in the stock market.
The study also pointed out that the central bank's tools borrowed from the most prudent swap instruments with the least impact on the base currency. The relending quota is also conducive to strengthening the central bank's control over liquidity, which generally indicates that the central bank is still cautious about the inclusion of more volatile equity assets on the balance sheet, and the probability of changing the liquidity control framework is low because it supports the stock market.
There is no doubt that the swap facility is a powerful backing tool that helps stabilize stock market sentiment. As for economic growth and the profit drive of listed companies, it is still difficult to completely rely on monetary policy to solve, and it is expected that the follow-up fiscal policy, the previously announced package of incremental policies and the reform measures proposed by the Third Plenary Session of the 20th Central Committee will form a synergy.
The central government is undoubtedly aware of this. Just two days later, on the 12th, the Ministry of Finance will introduce "increasing the counter-cyclical adjustment of fiscal policy and promoting high-quality economic development", which is worth looking forward to.
Source丨"Trend Capture" WeChat public account
Author丨Lin Sanshui