China Railway’s Debt Reaches New High

The debt of State-run China Railway Corporation reached 300 billion yuan ($44.68 billion) in 2018, far exceeding the planned 240 billion yuan in 2018, an increase of 25 percent.

The report added that national railway investment in 2019 is expected to exceed 800 billion yuan, a record high. According to the NDRC, China plans to start construction of 26 railway projects and another 19 reserve projects this year.

The total amount of railway bonds issued in 2018 was 240 billion yuan, accounting for about 30% of the annual railway investment, according to report. The national railway fixed asset investment stood at 802.8 billion yuan in 2018, higher than the 732 billion yuan planned, Shanghai Securities News said on Friday, citing sources. It was the fourth consecutive year since 2015 in which fixed asset investment breached 800 billion yuan.

The report said that aside from railway construction investment, the NDRC has approved a series of projects such as urban rail and airport construction with total investment of more than 1.2 trillion yuan since the fourth quarter of 2018. Moreover, local governments are accelerating the pace of investment in infrastructure construction, and their funds are also partly derived from bonds.

HKEx To Rule Volatility Control Scheme

Hong Kong Exchanges and Clearing Limited (HKEX) is set to roll out its Volatility Control Mechanism (VCM) – a measure designed to protect market integrity by preventing extreme price volatility arising from major trading errors and other unusual incidents – in its securities market on Monday, 22 August 2016.

Many international exchanges have a mechanism to control extreme price volatility.  In the case of HKEX’s VCM, a simple and light-touch model was chosen after extensive consultation with market participants, with a view towards protecting investors while minimising trading interruptions.

How HKEX’s VCM for its securities market works

  • Only applied at the individual security level to Hang Seng Index (HSI) and Hang Seng China Enterprise Index (HSCEI, or H-shares Index) constituents (currently 81 securities)
  • An attempt to trade a security covered by the VCM at a price more than 10 per cent away from its last traded price 5 minutes ago will trigger a cooling-off period of 5 minutes where trading of the security can continue but within a band
  • Maximum of one trigger per security in each of the two (morning and afternoon) trading sessions
  • Cooling-off period does not apply in the opening and closing auctions (9:00 to 9:30 am and 4:00 to 4:08 – 4:10 pm*), the first 15 minutes of the morning and afternoon trading sessions (9:30 to 9:45 am and 1:00 to 1:15 pm) and the last 15 minutes of the afternoon session (3:45 to 4:00 pm) to allow free price discovery

“The cooling-off period in the VCM mechanism alerts the market, provides a short time window allowing market participants to reassess their strategies and positions, and helps re-establish an orderly market at times when there is abrupt and drastic price movement for the security concerned,” said Roger Lee, HKEX’s Head of Markets.

“The VCM is not intended to limit the ups and downs of stock prices due to fundamentals, and it should not be mistakenly seen as a trading halt mechanism or confused with the daily price limits that some markets use to keep a stock’s trading within a specific price range,” Mr Lee said.  “In cases of price movement driven by fundamentals, there is a 5-minute cooling-off period under the VCM after which trading can continue for the rest of the session without further intervention.

“Our light-touch approach is also evidenced by back-test statistics for the past 10 years, which show triggers would have been very infrequent if we’d had a VCM.  Given that the VCM is designed to safeguard the market from extreme price volatility arising from major trading incidents, market participants should not expect it to take effect very often and should continue to exercise due care and remain cautious in their trading.”

The VCM is scheduled to be rolled out in HKEX’s derivatives market in the fourth quarter of this year.  It will apply only to the spot month and next calendar month contracts in the HSI, Mini-HSI, H-shares Index (HHI) and Mini-HHI futures markets (a total of eight contracts).

Hong Kong from above