GDP: GDP growth is expected to be 4.6 in the first quarter.
Since the first quarter, the challenges and difficulties faced by China’s economic growth have increased. Especially in March, the economy faced huge pressure from multiple outbreaks. However, overall economic data improved from January to February, with industrial production, investment, consumption, import and export growing faster than expected, laying the foundation for economic growth in the first quarter.
Since March, the epidemic has broken out in Jilin, Shanghai, Shenzhen and other places in my country. Strict control measures have been implemented in some areas. Production and life have been greatly affected, and the development of catering, consumption and other service industries has stagnated. Both the manufacturing and service PMIs in March were below the threshold, reflecting a decline in economic prosperity.
At the same time, fiscal and monetary policies have been strengthened, major projects in various regions have been launched faster, and a series of measures such as tax rebates, employment protection, and people's livelihood protection have been strengthened, which is expected to play a certain supporting role.
Overall, investment and exports were relatively good in the first quarter, but consumption was dragged down by the epidemic, and GDP is expected to grow by 4.6% year-on-year.
Industry: The year-on-year growth rate of industrial added value in March is expected to drop to around 5.7 from 12.8 last month.
The official manufacturing PMI in March fell by 0.7 percentage points from the previous month to 49.5, falling below the threshold for the first time since November last year and significantly weaker than seasonal. Caixin manufacturing fell to 48.1, the lowest level since March 2020.
Among high-frequency indicators, industry operating rates are different. Among them, due to the relaxation of policies such as Olympic production restrictions, as of the fourth week of March, the operating rate of 247 blast furnaces across the country was recorded at 78.2, roughly rising to the level of the same period last year; tire starting performance has improved. The average weekly operating rate of automobile semi-steel tires in March rose to 69.7 from 31.4 in the previous month, the highest level since May last year.
Overall, the operating rate in March was higher than that in February. However, due to the epidemic, some companies in some areas have temporarily reduced production and suspended production, affecting the normal production and operations of related upstream and downstream companies. It is expected that industrial added value will fall significantly in March.
Investment: The growth rate of fixed asset investment is expected to drop from 12.2 to around 8 in the first quarter.
Infrastructure investment. It is expected to rise from 8.1 to around 9. As the climate warms, the construction industry has improved, and the construction of major infrastructure projects in various places has accelerated. In March, the business activity index increased by 0.5 percentage points from the previous month to 58.1. In March, the rebar futures settlement price increased by 2.6 month-on-month, and the national cement price index increased by 1.8 month-on-month. However, in March, the domestic market excavator sales are expected to be 31,000 units, a year-on-year decrease of about 58%, and the heavy truck sales are 77,000 units, a year-on-year decrease of 67%, showing the drag on infrastructure construction caused by factors such as the epidemic.
Manufacturing investment. It is expected to drop from 20.9 to around 15. In March, the BCI Business Investment Outlook Index plummeted from 71.1 to 62.6, the lowest level since October 2020. In the central bank's first-quarter entrepreneur survey, the corporate profit index fell to 49.3, the lowest level since the second quarter of 2020. From January to February, the year-on-year growth rate of total profits of industrial enterprises fell back to 5. As both domestic and foreign demand decline, entrepreneurs' expectations decline, and the growth rate of manufacturing investment is expected to tend to decline.
Real estate development investment. It is expected to drop from 3.7 to around 1.0. In March, the land area of ??100 large and medium-sized cities decreased by 45.3% year-on-year, and the decline continued to expand. In March, the transaction area of ??commercial residential buildings in 30 large and medium-sized cities dropped by 47.3% year-on-year, and the decline also expanded compared with the previous month. In March last year, the transaction volume in the land market was still considerable, and the deferred payment of land purchase fees still supported real estate investment
From the perspective of leading indicators, the China Export Container Freight Index (CCFI) in March was higher than the previous month. The foreign trade container throughput of eight hub ports fell by 1.2 in mid-March. In March, new export orders fell by 1.8 percentage points to 47.2, the lowest level since November last year.
The Bureau of Statistics pointed out that international geopolitical conflicts have intensified recently, and some companies have reduced or canceled export orders. In addition, the impact of the epidemic on port cities such as Shanghai and Shenzhen is expected to slow export growth.
Taken together, exports in March are expected to be approximately US$255 billion, a year-on-year increase of approximately 5.9%.
Imports: In March, imports are expected to be US$235 billion, a year-on-year increase of about 2.7%.
In March, the import index fell by 1.7 percentage points to 46.9, the lowest level since October last year; in March, the average import container freight index (CICFI) fell by 1.
Import growth is still affected by two factors: on the one hand, commodity prices continue to rise due to supply and demand imbalances and geopolitical influences. In March, the RJ/CRB price index rose for the third consecutive month, reaching the highest level since 2014; on the other hand, domestic demand is relatively low. Infrastructure investment continues to play a supporting role, but overall consumption and real estate markets are weak.
Taken together, imports in March are expected to be around US$235 billion, a year-on-year increase of around 2.7%.
CPI: In March, CPI decreased by 0.1 month-on-month and increased by 1.3 year-on-year.
Food: Food prices were generally flat in March for two reasons: low pork prices and fresh vegetable and fruit prices. rise. The supply of pork is still sufficient, and meat prices overall continued to fall in March. Affected by the epidemic in some areas, supply shortages have caused vegetable prices to rise, offsetting pork prices. Among other foods, egg prices increased, dairy product prices fell, and aquatic product and food prices remained stable.
In terms of non-food, sudden epidemics in many places have led to further declines in social demand, and prices in service industries such as culture, entertainment, education, beauty salons, and hotel accommodation are expected to fall. However,
Energy prices have risen driven by rising international oil prices, and some durable consumer goods such as new energy vehicles have experienced price increases due to upstream price transmission. The epidemic and imported inflation caused non-food prices to rise and fall, and it is expected that the overall price will fall slightly month-on-month.
The CPI in March is expected to be 0.1% month-on-month and 1.3% year-on-year. Affected by the low base in the same period last year, the year-on-year growth rate was higher than the 0.9% in the previous month.
PPI: It is expected that the PPI in March will increase by 0.9% month-on-month and 8.1% year-on-year.
The PPI in March will continue to rise month-on-month due to the rise in international commodities, but the year-on-year growth rate will be affected by last year’s base. Somewhat lower.
Domestic prices have been subject to strong external transmission pressure. The price of refined oil has increased overall, and the price of coal has increased significantly. The prices of ferrous metals and non-ferrous metals rose slightly, downstream products saw mixed gains and losses, and the price of live pigs fell. The PMI factory price index recorded 56.7% in March, standing above the 50% line for the third consecutive month.
The PPI is expected to increase by 0.9% month-on-month in March, with the year-on-year growth rate falling back to 8.1%, lower than 8.8% last month.
Finance: It is expected that new RMB loans in March will be 2.6 trillion yuan, new social financing will be 3.3 trillion yuan, and M2 growth will rise to 9.3%
New credit. In terms of corporate loans, corporate production and operation activities generally slowed down in March, and corporate financing demand remains weak. In terms of residents' loans, residents' current willingness to buy houses is sluggish and they have a strong wait-and-see sentiment. Medium and long-term loans are expected to continue to grow less year-on-year; the frequent outbreaks of domestic epidemics have suppressed residents' consumption, and short-term loans have grown less. In terms of bill financing, the Financial Committee and the National Standing Committee have repeatedly mentioned the "moderate growth" of new loans, requiring commercial banks to increase credit lending to the real economy. The bill interest rate rose in March, reflecting that banks sell bills to free up loan lines. . New RMB loans are expected to be 2.6 trillion yuan in March.
Add social financing. In terms of direct financing, net government bond financing increased by approximately 200 billion year-on-year, while corporate bond net financing decreased by approximately 180 billion year-on-year. In terms of off-balance sheet financing, in the context of insufficient demand from the real economy, corporate invoicing demand is weak. Under the pressure of quarter-end assessments, banks may discount off-balance sheet undiscounted bank acceptance bills and transfer them onto the balance sheet, significantly reducing the increment of off-balance sheet financing. It is expected that the scale of new social financing in March will be approximately 3.3 trillion yuan.
M2 growth rate. The central bank once again renewed the MLF at an excess amount in March, and judging from the reverse repurchase situation, the monetary policy still protects the liquidity of the inter-bank market, the overall market expectations are optimistic, and the funding level is stable.
Supported by the falling base, the year-on-year growth rate of M2 balance is expected to rise to 9.3%.
The RMB exchange rate is expected to fluctuate in the range of 6.33 to 6.40 in April
Looking forward to April, the RMB exchange rate is expected to fluctuate in both directions, with an overall slight depreciation, and the fluctuation range is between 6.33 and 6.40. .
First, against the background that the Federal Reserve is about to raise interest rates and reduce its balance sheet, my country’s monetary and fiscal policies insist on “taking us first”. The yield spread between China and the United States’ 1-year treasury bonds has dropped from the previous level. 280bp narrowed to around 40bp. As the Libor U.S. dollar interest rate rises, the implied interest rate of domestic U.S. dollar/renminbi swaps also rises significantly. As the interest rate gap between China and the United States narrows, the RMB will face certain depreciation pressure against the US dollar.
Second, external risks have eased, Russia-Ukraine crisis negotiations have made progress, and the demand for safe havens in the U.S. dollar has fallen, which has buffered the depreciation of the RMB against the U.S. dollar to a certain extent. However, the euro rebounded against the backdrop of previous sharp depreciation, putting pressure on the RMB CFETS index.
Third, Sino-US relations are disturbed by the Russia-Ukraine crisis and there are still many uncertainties. On March 19, the heads of state of China and the United States had a video call to exchange their views on key issues, which played a certain communication role. Subsequently, the United States exempted 352 items of Chinese goods from tariffs. However, due to the huge differences on the Russia-Ukraine issue, the future of Sino-US relations is still full of uncertainty, which will also become an important factor in increasing the fluctuation of the RMB exchange rate.
Foreign Reserves: Foreign exchange reserves are expected to decrease by US$30 billion month-on-month to US$3.1838 billion at the end of March
In March, the US dollar index rose by 1.71%. Among the major non-US dollar currencies, the Japanese yen and the euro , the pound depreciated against the US dollar by 5.84%, 1.36%, and 2.08% respectively; the bond yields of major countries increased and prices fell. Taking into account the impact of exchange rate conversion and asset price changes, the scale of foreign exchange reserves declined.
In March, my country’s new export orders PMI index fell by 1.8 percentage points from the previous month to 47.2%, and the supporting role of exports in foreign exchange reserves will weaken; in the context of the Russia-Ukraine conflict and the Federal Reserve’s interest rate hikes, internal and external liquidity has brought Due to negative feedback pressure, the net outflow of northbound funds in March was 45.1 billion yuan.
(Team members: Wang Jingwen, Ying Xiwen, Sun Ying)
This article is derived from relevant questions and answers from MinBank Research: Related questions and answers: What is off-balance sheet financing?
Thanks for the invitation. The term "off-balance sheet financing" is often used in statistical reports of financial data, but in fact, off-balance sheet financing is not exclusive to financial institutions. As "Fortune" magazine said: "It is extremely rare among the world's top 500 companies that do not use off-balance sheet financing." Off-balance sheet financing is a highly concealed financing method with asymmetric investment and financing information. In view of the imperfection of the current regulatory system and the loopholes in current accounting standards, off-balance sheet financing provides a "sideline" for companies with strong financing needs. The opportunity has filled the funding gap that cannot be filled by corporate on-balance sheet financing, and has become a "treasure pot" that financiers are flocking to.
What is off-balance sheet financing?
The "sheet" in off-balance sheet financing refers to the balance sheet, so off-balance sheet financing is actually financing outside the balance sheet records. That is to say, this financing behavior will not cause an increase in the assets side of the balance sheet, nor will it cause an increase in the liabilities and owner's equity side. Broadly speaking, all financing activities that are not included in the balance sheet and have a significant impact on the company's operating results, financial status and cash flow are off-balance sheet financing.
Why do companies choose off-balance sheet financing?
For enterprises, the main motivations for off-balance sheet financing include the following aspects:
1. Optimizing the financial status of enterprises
Through off-balance sheet financing, enterprises Even transferring on-balance sheet financing to off-balance sheet will optimize the financial situation of the company, significantly improve the quality of the balance sheet, and make it more attractive to potential investors.
2. Expand corporate operating results
The funds raised by off-balance sheet financing and the assets formed are not directly reflected in the balance sheet, but the expenses incurred and the operating results obtained The results are reflected in the profit and loss statement, expanding the company's operating results.
3. Avoid borrowing restrictions
In order to protect their own rights and interests, corporate creditors often impose various restrictions on the company by adding debt, such as stipulating that a certain debt-to-equity ratio must not be exceeded. In order to expand financial leverage within the above restrictions, companies will seek financing methods outside the balance sheet to meet their own funding needs while avoiding borrowing restrictions.
4. Avoid losses in book value
The assets purchased by the company are recorded on the balance sheet and depreciated on a regular basis. Generally speaking, the market value of used assets declines. Much faster than the decline in book value. If a company replaces equipment before the asset is fully depreciated, any excess of the equipment's book value over its resale price must be recorded as a reduction in revenue in the fiscal year of the transaction, a situation most financial executives would not like. affect the current year's income. This is where off-balance sheet financing comes into play because the assets are not listed on the balance sheet; they are treated as expenses. Especially for those assets with relatively high value that depreciate quickly, operating leases using off-balance sheet financing are a good solution.
What are the specific ways to achieve off-balance sheet financing?
1. Direct financing
Financing in the form of special borrowings that do not transfer asset ownership. For example, business activities such as operating leasing, consignment sales, and processing of supplied materials do not involve the transfer and flow of asset ownership, and do not need to be reflected in the financial statements in accounting. However, the right to use the assets has indeed been transferred to the financing enterprise, which can meet the needs of enterprises to expand their business scale. , alleviate the need for insufficient funds.
Operating lease is a classic direct off-balance sheet financing method. According to the different economic essences reflected, leases are divided into two categories: operating leases and financing leases. Current accounting standards only require the balance sheet to reflect the assets and liabilities of financing leases. According to Article 6 of "Accounting Standards for Business Enterprises No. 21", if one or more of the following criteria are met, it should be recognized as a financing lease. Otherwise, it is an operating lease:
(1) At the expiration of the lease term, the ownership of the leased asset is transferred to the lessee.
(2) The lessee has the option to purchase the leased asset, and the purchased purchase price is expected to be much lower than the fair value of the leased asset when the option is exercised. Therefore, the lessee can reasonably determine the leasehold value on the lease commencement date. This option will be exercised.
(3) Even if the ownership of the asset does not transfer, the lease period accounts for the majority of the useful life of the leased asset.
(4) The present value of the lessee’s minimum lease payment on the lease commencement date is almost equivalent to the fair value of the leased asset on the lease commencement date; the lessor’s present value of the minimum lease receipts on the lease commencement date is, Almost equivalent to the fair value of the leased asset at the lease inception date.
(5) The leased assets are of special nature and can only be used by the lessee if no major modifications are made.
In reality, lessees often find ways (sometimes at the expense of giving up some benefits) to conclude special lease terms with lessors to avoid the thresholds for financial leases in the above accounting standards, for example: The term is stipulated to be slightly shorter than the number of years specified in the standard, so that although the risks and benefits related to the ownership of the leased assets have been basically transferred to the lessee from economic substance considerations, that is, it is actually a finance lease agreement, the lessee can still It is treated as an operating lease to achieve the purpose of off-balance sheet financing.
2. Indirect financing
This is a financing method in which another enterprise replaces the liabilities of the enterprise. The most common is to establish an affiliate or subsidiary and invest in the affiliate or subsidiary, or to replace the liabilities of the parent company with the liabilities of the affiliate or subsidiary.
Joint ventures are also very common. Specifically, if a company holds a considerable amount of ownership interests in other companies, but does not reach the level of controlling shares, the latter is called an unconsolidated company. Since the company does not control the unconsolidated company, it only needs to treat long-term investments as An asset is recognized without having to reflect the liabilities of the unconsolidated enterprise on the balance sheet. Enterprises arrange investment structures and engage in off-balance sheet business in unconsolidated enterprises, avoiding the problem of statement consolidation, thereby achieving off-balance sheet financing.
There is also a popular form called special purpose entity (SPV), that is, a company serves as a sponsor to establish a new company. The latter is called a special purpose entity, and its business activities are basically to serve carried out in the interests of the promoters. Generally speaking, if a company can control the financial interests of another entity (usually referring to holding more than 50% of the other entity's voting rights), then the entity should be included in the company's consolidation scope. For SPVs, the relevant accounting regulations are relatively Specially, as long as a third party independent of the sponsor owns more than 3% of the equity capital of the SPV, it becomes the nominal owner of the SPV. Even if the sponsoring company invests the remaining 97% of equity capital, it can still apply off-balance sheet treatment to the SPV. Although the company and the SPV do not consolidate their statements, there are usually control agreements or other special arrangements between them. Usually, the debt of an SPV is quite high and the owner's equity is as low as possible. The sponsor bears all the risks even though it only has a small or even no ownership interest in it.
The key to judging whether the SPV means constitutes off-balance sheet financing is whether the enterprise continues to be involved in the assets after transferring the assets to the SPV through an agreement. In accounting terms, the right to continue to maintain the risks and benefits associated with an asset is called "continuing involvement." If a company transfers assets to an SPV through an agreement but continues to be involved in the assets, then this SPV method is considered off-balance sheet financing. For example, Enron sold some junk assets to an SPV company, raised a sum of funds, and continued to be involved in the assets. Enron does not hold a controlling interest in the SPV, so it does not consolidate its statements, and the financing obtained through the SPV is not reflected in Enron's statements. However, due to the issue of continued involvement, the risk of junk assets actually remained with Enron. Enron made extensive use of this method to hide its junk assets, making its seemingly good-looking statements actually very fragile. As a result, the explosion of junk assets had an impact on Enron's own statements, followed by a series of chain reactions. This incident directly led to changes in US accounting standards.
3. Transfer of liabilities
Transfer of liabilities means that an enterprise transfers liabilities from on-balance sheet to off-balance sheet. This transfer can be achieved through discounting notes receivable, selling accounts receivable with recourse, signing post-sale repurchase agreements, and asset securitization.
(1) The expression of bills receivable refers to the enterprise financing funds from the bank with undue bills receivable, and the bank pays the balance to the enterprise after deducting the discount interest for a certain period from the amount of the bills receivable. Financing behavior is in the nature of a mortgage loan on accounts receivable, which is essentially a loan using notes receivable as collateral.
(2) Selling accounts receivable with recourse means that an enterprise sells accounts receivable to a third party (such as financial institutions, investment companies) to raise funds, and at the same time gives the buyer the right to receivables. The right of recourse against the seller when the receivables are not paid. Therefore, in essence, the sale of accounts receivable with recourse is actually a loan collateralized by the accounts receivable, which is similar in nature to the discount of accounts receivable. , not really for sale.
(3) After-sales repurchase means that the seller signs a contract with the buyer while selling the goods, stipulating that the goods will be repurchased in accordance with the terms of the contract in the future. After-sales repurchase is essentially a kind of mortgage loan, and the seller In the form of selling products, the buyer obtains the pledge right of the seller's assets in the form of ownership. In other words, after-sales repurchases are fake sales and real financing, but they are not disclosed on the balance sheet, thus achieving off-balance sheet financing.
(4) Asset securitization refers to converting assets that lack liquidity but can generate predictable and stable cash flows into assets that can be sold and circulated in the financial market through certain structural arrangements. securities process. The method of operation is usually that the financier transfers the ownership of an asset to a financial institution, and the financial institution then uses the future income of the asset as a guarantee to finance investors by issuing bonds in the bond market. Although asset securitization is a financing activity in economic essence, from a legal perspective, it is only the transfer of a certain asset, so it is not required to be reflected on the balance sheet. Of course, the process of asset securitization is very cumbersome and involves a large number of legal, foreign exchange management, accounting and other issues.
Assets that are securitized typically include: residential mortgages, credit cards, auto loans, accounts receivable, lease receivables, etc.
4. Innovative financial instruments
Or called derivative financial instruments. In recent years, there has been an explosion of innovative financial instruments. These financial instruments mainly include: futures contracts, options contracts, forward contracts, swap contracts, etc. Due to changes in the environment, intensified competition and the need to control risks, the momentum of innovation in financial instruments has not diminished and will continue. However, the formulation of accounting standards has not caught up with the pace of financial instrument innovation. According to current accounting standards, most of the financial assets and financial liabilities generated by the use of innovative financial instruments cannot be reflected in the financial statements, but are only disclosed in the notes to the statements. .
Off-balance sheet financing should be used appropriately and rationally
According to current accounting standards, it is feasible for enterprises to carry out off-balance sheet financing. Off-balance sheet financing will promote the financial status and operating activities of enterprises. It has a certain impact. If an enterprise knows how to use off-balance sheet financing techniques rationally, it can promote the development of the enterprise and bring benefits. However, as an active and flexible financing channel, off-balance sheet financing may also have the risk of deceiving the public and threatening the interests of corporate owners and creditors. The "Enron incident" in the United States is a typical case.
Therefore, regulatory agencies are likely to consider that off-balance sheet financing conceals important financial information of enterprises and may mislead information out of considerations of maintaining the fairness of the national market economy and protecting the interests of investors. Users thus require accounting standards-setting organizations to revise accounting standards and confirm that they must be based on the accounting principle that economic substance is more important than legal form, handle a transaction according to its economic substance, reduce off-balance sheet financing items, and include them in assets and liabilities as much as possible surface. In addition, assets and liabilities caused by off-balance sheet financing are not listed in the balance sheet, which may seriously affect the decision-making of relevant stakeholders and lead to unnecessary losses. Therefore, according to the principle of full disclosure, the agreed obligations and liabilities arising from these financing activities are Contingent liabilities should be described in the notes to the statements. Strict financial statement disclosure will largely reduce the impact of off-balance sheet financing on the authenticity and completeness of statement information, and will be beneficial to the use of statements by different stakeholders of the enterprise.
The enterprise itself must actively and carefully explore the pros and cons of off-balance sheet financing, and use scientific analysis methods and reasonable decision-making procedures to appropriately use off-balance sheet financing to better serve the long-term development of the enterprise. . At the same time, we must pay attention to the role of laws and regulations, reasonably standardize the accounting treatment of off-balance sheet financing, adhere to the principle of prudence, try to improve the transparency of corporate information disclosure through on-balance sheet internalization, and maintain the steady development of the market.
Hope this helps.