The People's Bank of China. Photo: iStock.

The People’s Bank of China (PBoC), the central bank, conducted the fifth central bank bills swap (CBS) operation in 2020 on Tuesday to improve the liquidity of perpetual bonds issued by commercial banks.

The CBS, valued at 5 billion yuan (US$710 million), are open to primary dealers for bidding at a fixed rate of 0.1%, the PBoC said in a statement. The swap will be due on August 26, 2020.

To maintain liquidity in the banking system, the central bank Tuesday injected 10 billion yuan into the market through seven-day reverse repos at an interest rate of 2.2%.

The CBS scheme allows dealers to swap the perpetual bonds they hold for central bank bills, which will effectively boost market demand for perpetual bonds but have a neutral impact on liquidity in the banking system.

Perpetual bonds are fixed-income securities with no maturity date and are not redeemable but pay a steady stream of interests forever. 

Financing costs

Six official departments, including the China Banking and Insurance Regulatory Commission and the National Development and Reform Commission, have unveiled guidelines to reduce financing costs for enterprises, according to an official circular released on Monday. The guidelines will take effect on June 1.

The move aims to better facilitate the high-quality development of the real economy, while protecting companies’ rights to be informed, make their own choices and trade fairly, said the circular.

Under the new guidelines, banks should further cut fees and specify charges to lower the financial burden on enterprises. Practices such as forcing companies to deposit a part of their loans or make deposits as preconditions for credit, as well as bundle sales of financial products, will be strictly prohibited.

Banks were encouraged to carry out credit audits in advance to boost lending efficiency, according to the document. In an effort to keep companies’ borrowing costs at an appropriate level, they shall not raise credit enhancement requirements or hike loan rates unreasonably.

Long-term funds

A total of about 8 trillion yuan of long-term funds have been released into the financial markets since the PBoC lowered the reserve requirement ratios (RRR) by 12 times from 2018.

The average RRR for financial institutions stood at 9.4% on May 15, down 5.2 percentage points from the beginning of 2018, the PBoC said. Of all, four RRR cuts in 2018 released 3.65 trillion yuan, five RRR cuts in 2019 released 2.7 trillion yuan and three RRR cuts in the first five months of this year released 1.75 trillion yuan.

The RRR cuts have led to the contraction of the balance sheet of the PBoC, but this will not cause the tightening of money supply and is contrary to the balance sheet reduction of the central banks of the developed economies such as the US Federal Reserve to reduce bond holdings, the central bank said.

The contraction has a strong expansion effect and the main reason is that lowering the RRR means commercial banks will have less money locked up by the central bank and more money for free use, it said.

Company news

Meituan Dianping, a group buying website for food delivery services, said its operating loss expanded 31.6% to 1.72 billion yuan in the first three months of this year from a loss of 1.3 billion yuan in the same period of last year. Operating revenue fell 12.6% year on year to 16.75 billion yuan due to the Covid-19 epidemic.

The company said factors including the ongoing pandemic precautions, consumers’ lack of confidence in offline consumption activities and the risk of merchants’ closure would continue to have a potential impact on the business performance in the rest of this year.

The company’s operating loss from the new initiatives and other segments narrowed to 1.4 billion yuan for the period, primarily attributable to the decrease in its bike-sharing service-related costs as a result of the significant decrease in the depreciation of bikes, and the decrease in car-hailing driver-related costs and cost of goods sold from its B2B food distribution services.

Tuniu Corp, a Nasdaq-listed Chinese online travel agency, has received a notification letter from the Nasdaq listing qualification department that the company’s closing price for the past 30 consecutive trading days was below the Nasdaq’s minimum purchase price of US$1, which would trigger the delisting process.

Tuniu’s closing share price fell 3.26% to 76 US cents on May 22. This was the 35th consecutive trading day that Tuniu’s share price is below $1.

The company said the notification letter would not mean an immediate delisting of its shares from the market. Citing the Nasdaq rules, it said companies with stock prices below $1 for 30 consecutive trading days shall be deemed to have regained compliance as long as they reach $1 for 10 consecutive trading days within the following 180 calendar days.

The story was written by Yang Zhijie and Nadeem Xu and first published at