汇丰银行-中国-宏观策略-中国内部市场：这次不一样-2019.2.11-26页.pdf

Disclosures&Disclaimer This report must be read with the disclosures and the analyst certifications in the Disclosure appendix,and with the Disclaimer,which forms part of it.Issuer of report:The Hongkong and Shanghai Banking Corporation Limited View HSBC Global Research at:https:/ HSBCChinaConference201915-17May,ShenzhenRegister now Policy easing this time targets mainly the private corporate sector rather than SOEs and the property market Combined with reforms aiming at levelling the playfield,the easing alleviates major constraints on private-sector business investment,benefiting more than 80%of urban workers It also re-allocates capital to more efficient sectors the key to deleveraging Beijing has already kick-started policy easing to offset the headwinds that are slowing Chinas economic growth.This is the fourth round of easing since the Global Financial Crisis.We believe it will work to make growth sustainable.Yet,one question clients keep asking is whether this will be a replay of the debt-fuelled rebound in property and construction that we saw in previous cycles,which not only were short lived but also worsened the debt problem.We believe this time is different.First,unlike previous rounds of easing,the monetary and fiscal stimulus now is targeting mainly the private corporate sector,not the highly leveraged property and state-owned enterprises(SOEs).The PBoC will continue to inject liquidity into the banking system.Although banks traditionally prefer to lend to SOEs and big projects,authorities this time are deploying a mix of regulatory carrots and sticks to guide banks loan allocation to private enterprises.We estimate that,if policymakers achieve their soft target,new loans to the private business sector could rise to RMB6.1trn in 2019(from RMB4.6trn).There are also credit enhancement tools and targeted liquidity assistance to incentivise banks to lend more.Second,although Beijing has given local governments more room to issue bonds to selectively finance infrastructure projects,corporate tax cuts are now the main focus of fiscal stimulus.After lowering personal income taxes last year,we expect Beijing to announce a package of VAT and social security tax cuts in the coming months,to total around RMB1.3trn(1.4%of 2019 GDP).Private corporations,which pay 59%of VAT(versus 22%for SOEs)stand to benefit,and more so if the 16%for manufacturing is lowered more meaningfully.Third,since the private corporate sector accounts for more than 80%of total urban employment and over 60%of GDP,the stimulus targeting this sector can benefit a much broader range of industries and the most consumers,creating a self-sustained recovery.Moreover,re-allocating credit to the more efficient private sector will likely reduce the credit intensity of GDP growth in the coming years.11 February 2019 Julia Wang Economist,Greater China The Hongkong and Shanghai Banking Corporation Limited .hk+852 3604 3663 Qu Hongbin Co-head Asian Econ Research,Chief China Economist The Hongkong and Shanghai Banking Corporation Limited .hk+852 2822 2025 Aakanksha Bhat Economist,Asia The Hongkong and Shanghai Banking Corporation Limited .hk+852 2822 4297 Jingyang Chen Economist The Hongkong and Shanghai Banking Corporation Limited .hk+852 2996 6558 Madhurima Nag Associate Bangalore China Inside Out ECONOMICS CHINA This time is different ECONOMICS CHINA 11 February 2019 2 In Chinas dual economy:The 70-30 split(29 May 2017),we argued that the best framework to analyse growth and deleveraging in China is the dual track economy framework.That is,China is one economy consisting of two parts:state owned enterprises(SOEs)and privately owned enterprises.The latter are much more productive and dynamic.As of end-2018,the private sector accounts for more than 90%of total exports,over 80%of urban employment,over 70%of patenting activity,and over 60%of GDP.Despite its dominant position in everyday economic life,the private sector does not,in fact,fare well in all areas.The financial system is one area where private enterprises are fairly marginalised.We estimate that the private sector accounts for 23%of all types of corporate borrowing as of end-Q2 2018.To make up for this structural lack of financing,the private sector taps private equity,various forms of shadow-banking,and stock pledging,as well as borrowing from each other.The more fragile nature of the financing means that the business cycle in the private sector is more boom and bust.The relative lack of stable financing support also means that the pace of innovation and upgrading,which requires the longer-term commitment of patient capital,is not as fast as it could be,even if it is already impressive by some accounts(see China innovation:Punching above its weight,10 October 2017).All about the private sector Beijing is deploying regulatory carrots and sticks to re-allocate credit to the private corporate sector This,plus tax cuts and structural reforms,should help remove the key bottlenecks for private business investment A private sector-led growth recovery will be more sustainable and less debt dependent Chart 1.The private sector share has increased across the economy Source:CEIC,HSBC 0102030405060Urban employmentIndustrial productionExportsFixed asset investmentPrivate sector share of economy,%1981-19901991-20002001-20102011-20152016-Now 3 ECONOMICS CHINA 11 February 2019 Chart 2.while its share of debt to GDP ratio has declined Source:BIS,CEIC,HSBC In sharp contrast to the private sector,Chinas state owned sector is concentrated and slower moving.Despite contributing less to economic growth,the state-owned sector enjoys relatively stable,cheap and a disproportionately large portion of financing from the banking system.It also has advantages such as concessions and subsidies that are not enjoyed by the private business sector.We have been arguing that the dual track economy is key to understanding Chinas economic challenges and opportunities.For example,this contradiction lies at the heart of Chinas rising debt to GDP ratio between 2012 and 2017 and provides a key to a beautiful de-leveraging solution deleveraging through SOE reforms while keeping overall macro policies stable to support the private sector,which should in turn support growth(see Deleveraging Chinas SOEs,14 August 2017).Nonetheless,the very different situations and divergent fortunes of the private and the SOE sectors has been exacerbated by the intensified financial de-leveraging of 2018.As regulations tightened,shadow-banking activity contracted and overall credit growth slowed to 9.8%at end-2018(from 13%at end-2017).Although data are still being released for 2018,some credit indicators and anecdotal evidence suggests that the private sectors credit conditions did tighten further in 2H 2018.We believe that growth headwinds increased as a result of this development.Credit easing targets at private sector Regulators are trying to turn this around.Since Q4 2018,a number of them,from the PBoC to the CBIRC and the State Council have been talking about increasing the allocation of credit to the private business sector.The CBRIC had floated a soft target of 125,aiming for private enterprises to account for one-third of new loans at large banks,two-thirds of new loans at small to medium-size banks,and no fewer than half of all new loans in three years.The PBoC has announced further measures to reward banks that lend more to the private sector with cheaper liquidity assistance.Following is a summary of recent policy announcements.Funding:The PBoC can making lending to private sector businesses a more explicit and frequent condition of liquidity provisions and cost of liquidity provisions.There have been targeted reserve requirement ratio(RRR)cuts before.This could be broadened to apply to more open market operations when appropriate.020406080100120140200620072008200920102011201220132014201520162017Q1-18 Q2-18%GDPHousehold debtSOE debtPrivate corporations debtGeneral government debt ECONOMICS CHINA 11 February 2019 4 Regulatory carrots:The regulator changed the regulatory definition of small and micro loans in late 2018,making it both more practical(as the previous threshold was too limiting)and a positive incentive for banks to try to meet the desired threshold.More can be done,for example,to reward more active risk-pricing and to reward banks that have made more useful lending to the private sector.There are also discussions about ways to change the incentive mechanisms,such as from lifelong responsibility previously a disincentive to lend to private businesses,to liability exemption on the basis of due diligence.Soft guidance on lending quota:In late 2018,the CBIRC floated a soft target for loans to the private sector that no fewer than one-third of the loans would be made to large banks and no fewer than two-thirds to small and medium-size banks,while no fewer than half of all new loans would be made within three years.That remains a soft target,but looks achievable given historical trends.Therefore,the regulator is likely to use a lot of moral suasion to achieve this goal.Credit enhancement:In late October,the PBoC announced that it will use its re-lending policies to support private sector access to credit,using credit risk mitigation tools.It will operate on the principles of selling credit risk mitigation tools and providing credit enhancement to competitive and promising private-sector businesses that encounter temporary issues with financing.The PBoC has provided RMB150bn in re-lending in June and announced plans to further provide another RMB150bn for this purpose.In December,the first credit enhancement tool was designed and sold on a corporate bond issued by a private-sector business.Although the scale is small at the moment,the potential market size can be large if these operational principles are feasible and,therefore,potentially helpful for private sector businesses that have become the unintended collateral damage of financial de-leveraging.In HSBC China MCI(18 January 2019),we calculated how much the private sector might benefit from loan re-allocation.Suppose that overall loans grow 13.5%in 2019,the same as in 2018.This means an additional RMB18.4trn in loans.If the private sectors share stays at 25%of outstanding,the sectors loans outstanding will grow by RMB4.6trn over the year.If the regulators reach their soft target(one-third of new loans),the private sectors loans outstanding will grow by RMB6.1trn over the year.This suggests a meaningful improvement of around RMB1.5trn in additional loans.The improvement could be larger if there is a pick-up in overall loan growth as a result of further easing of monetary conditions.Chart 3.Bank lending still favours SOEs Chart 4.The private sector accounts for less than 10%of corporate bond issuance Source:CEIC,HSBC Source:Wind,CEIC,HSBC 051015202530354045 2010 2011 2012 2013 2014 2015 2016 2017 2018E 2019FLending to SOEsLending to private businesses%of total bank loans010203040506070809010020142015201620172018SOEPrivate businesses%of gross corporate bond issuance 5 ECONOMICS CHINA 11 February 2019 As of 2018,issuers from the private sector account for only 8%of gross issuance in the corporate bond space.Further regulatory support,via the above-mentioned credit enhancement tools,should help to increase issuance in 2019.That said,the scale of the credit enhancement tools is still small at this stage compared with bank lending.Tax cut to play a bigger role Another policy to support the private sector is tax cut.There is already an emerging consensus in Beijing that fiscal policy should play a bigger role in supporting economic growth in 2019.In our recently published report Chinas tax cut,we argued that there is enough fiscal room for Beijing to implement a meaningful tax cut,and a possible VAT rate cut can bring a total tax savings of 0.9-1.6%of 2019 GDP.Moreover,Beijing has also pledged to reduce social security taxes(see China in 2019:Five key macro themes,22 November 2018).But a remaining question here is how the cake will be divided between SOEs and private-sector businesses.Who stands to benefit more from the upcoming tax cut?To answer this question,we need to first take a look at the current tax landscape.According to the Ministry of Industry and Information Technology,the private corporate sector now contributes 50%of tax revenue1.Looking specifically at VAT,private businesses made up around 59%of total VAT payment,while state-owned and state-controlled enterprises contributed only 22%in the same period(Chart 5),according to the State Administration of Tax(SAT)2.While the stark difference in contribution rates certainly reflects higher value-add from the private sector,it is also partly attributable to private businesses concentration in the manufacturing sector(see Chart 8),which pays the highest VAT rate of 16%,while SOEs dominate in service sectors that are mostly subject to 10%VAT rate.The latest data show that private manufacturing businesses pay five times as much VAT as industrial SOEs do.Moreover,previous tax reforms have increased the tax burden on private firms.Data from SAT show that the total amount of taxes paid by SOEs fell by 0.3%in 2016 and increased by 4.4%in 2017,following the switch from business tax to VAT in May 2016,but the private sectors tax burden grew by 5.7%in 2016 and 15.9%in 2017(Chart 6).Also,these figures do not include 1 According to the Ministry of Industry and Information Technology,the scale and influence of Chinas private economy can be summarised by the figure 56789,which demonstrates that the private sector contributes 50%of total government tax revenue,60%of GDP,70%of industrial upgrades and innovation,80%of total employment,and 90%of the total number of enterprises.Note that the private economy here refers to non-SOE part of the economy.2 The data comes from 2017 Private Investment and Development of the Private Economy Data Analysis Report published by Da Cheng Research Institute(大成研究院)and Social Sciences Academic Press(社会科学文献出版社).Chart 5.Corporate tax payment in 2017 Chart 6.Y-o-y change in corporate tax payment Source:State Administration of Tax,HSBC Source:State Administration of Tax,HSBC 020406080100Value add taxCorporate income taxOthersState-owned and state-controlled enterprisesPrivate enterprises%-505101520Jan-Dec2016Jan-Mar2017Jan-Jun2017Jan-Sep2017Jan-Nov2017Private businessesSOEsy-o-y%ECONOMICS CHINA 11 February 2019 6 payments for five social security taxes including employee pensions,and health care and housing levies.Private businesses are also the top contributor of social security tax.Given that private sector firms employ over 80%of urban workers,while SOEs employ merely 15%of them,and since these taxes are based on the number of workers a firm employs,social security tax payments make the total tax burden on private corporates well above that on SOEs.To ensure continued profitability,many small private firms have been