China supply chains: Hubei takes lead in appointing bank executives to boost financial support for key industries

trade tensions, aerospace, artificial intelligence, supply-chain chiefs, financial “de-risking” campaign

There’s a plan in motion, orchestrated by China’s central bank, to tighten up and improve supply chains across key industries in response to Beijing’s call to maintain economic stability ahead of a slowdown that may be inevitable in the coming months.

Executives at the Wuhan branch of the People’s Bank of China in the central province of Hubei – China’s eighth-largest provincial economy – recently kicked off the efforts to improve industrial chains plagued by the coronavirus pandemic and trade tensions with the United States.

In a statement on Tuesday, the branch said it had appointed executives from state-owned banks to tackle the initiative, dubbing them leading financial officers.

Eight industries are currently being prioritised, including automotive, aerospace, integrated circuits, crayfish farming and tea production. The list will be expanded later to include 18 other industries, including those specialising in textiles, big data, artificial intelligence and smart manufacturing equipment.

Jin Peng, vice-president of China Construction Bank’s Hubei branch, has already been appointed to oversee aerospace and integrated circuits, while Zhou Gang, vice-president of the Industrial and Commercial Bank of China’s Hubei branch, was put in charge of automotive and chemical industry chains, according to a separate circular jointly released last week by the province’s financial and industry regulators.

Under the new bank-led initiative, more comprehensive financial services are to be made available for core enterprises and small businesses in the designated sectors. Credit conditions of enterprises on the list should also be enhanced to facilitate loan approvals, and new fundraising channels may be available after government agencies obtain and review information concerning their transaction data, capital flows and logistics, according to the circular.

Given the coronavirus shocks and Washington’s decoupling push that ramped up last year, Beijing has prioritised industrial-chain stability, along with boosting economic growth, supporting the job market, luring more foreign investment and enhancing grass-root operations.

Provincial and city leaders have also been appointed as “supply-chain chiefs” to boost self-sufficiency and ensure adequate supplies of critical goods such as computer chips and grains.

But Hubei is the first province to single out banks as being responsible for helping support local industries, and it comes as the provincial economic growth rate remains low compared with pre-virus levels. Hubei’s gross domestic product (GDP) growth led the country with a 28.5 per cent rise to 2.28 trillion yuan (US$352.5 billion) in the first six months of this year. However, its GDP grew only 3.7 per cent relative to 2019 levels – an indicator that removes coronavirus distortions.

The increased financing support from the central bank and the state-dominated banking system is vital to economic recovery in the region, which is home to the country’s third-largest automaker, Dongfeng Motor, as well as the hi-tech base known as Optics Valley.

Hubei, where the coronavirus was first detected in late 2019, received considerable financial support after being ravaged by the pandemic last year. It was given 478.5 billion yuan worth of general-purpose payments transferred directly from the central coffers in 2020 – a year-on-year increase of 50.7 per cent – as it scrambled to contain the virus and help suffering businesses

New lending to the central province from all commercial banks also increased by 142.3 billion yuan last year from a year earlier, to 763 billion yuan.

However, like other provinces, Hubei has been affected by Beijing’s stimulus tapering and financial “de-risking” campaign. The province’s aggregated financing, which includes bank loans, bond issuances and equity financing, dropped to 474.6 billion yuan in the first half of this year, from 498.6 billion yuan a year earlier, according to central bank data released on Monday.

“This is a new measure, by making clear the responsibilities of top bank executives, to enhance the financing support for the real economy. The hit on Hubei was so big that it needs more time and efforts to recover,” said Liu Xuezhi, a senior researcher with the Bank of Communications, the country’s fifth-largest lender.

“Nationwide, macro policies should also ease as downward pressure looms,” he added.

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