Nicolas Véron

Financial Statements: Next steps for the Basel Committee on Banking Supervision

In today's session, I hosted Neil Esho, Secretary-General of the Basel Committee, and Isabelle Vaillant, self-described as "Ms Single Rulebook" at the European Banking Authority.

PIIE Tracker: Share of China’s top companies in the private sector continued to steadily decline in 2023

The Peterson Institute just published this latest iteration of our half-yearly tracker co-authored with Tianlei Huang. 

The share of China’s private sector among the country’s 100 largest listed companies, measured by aggregate market capitalization in the half-yearly PIIE tracker, continued to decline through 2023. It dropped from 38.1 percent in mid-2023 to 36.8 percent at the end of 2023, extending a nonstop slide since its mid-2021 peak of 55.4 percent. The private sector is defined restrictively as firms with less than 10 percent state ownership. Meanwhile, the share of the state sector, including both mixed-ownership enterprises (MOEs), in which the state owns between 10 and 50 percent, and majority-owned state-owned enterprises (SOEs), continued to advance in 2023, rising from less than 60 percent a year ago to more than 63 percent at the end of 2023.

This PIIE tracker, based on the methodology defined in our 2022 Working Paper, is an indication of market sentiment, not of real economic performance, and of relative shares not absolute levels of market value. The continuous retreat of the private sector among the largest listed companies aligns with a wealth of anecdotal evidence that the Chinese leadership’s 2023 rhetorical pivot in favor of private sector development, against prior emphasis on taming the “disorderly expansion of capital,” is not yet viewed by private sector participants as more than just lip service. The tracker suggests stock investors feel the same way.

The main driver of the slide in relative share is the continuous decrease in aggregate value of the private-sector listed companies among the top 100, which declined to less than US$2 trillion at end-2023 from its mid-2021 peak of US$4.7 trillion. By contrast, the aggregate market value of SOEs has been disconcertingly stable in recent years. Notably in the end-2023 ranking, Pinduoduo, the private-sector parent of online shopping platform Temu, gained prominence by becoming the fifth-largest listed Chinese company by market value for the first time. Despite their commercial success, private-sector battery giants BYD and CATL lost relative prominence in comparison with previous rankings. Private-sector internet giant Tencent keeps its longstanding top slot. The highest-valued SOE remains distiller Kweichow Moutai, followed by Industrial and Commercial Bank of China, as has been the case continuously since 2020.

Authors’ note: Earlier versions of the tracker in this series misidentified Yili Group and Jiangsu Yanghe Brewery as nonpublic enterprises in some years whereas the companies should have been coded as mixed-ownership enterprises. The impact on the chart is immaterial. This version of the chart and replication data file have been updated.

Financial Statements: Lessons from the 2023 collapse of Credit Suisse

In today's session, I hosted Eva Hüpkes in her capacity as member of the Swiss expert group that delivered its report in August 2023, and leading bank equity analyst Jérôme Legras. 

Cash keeps accumulating at Euroclear Bank as a result of sanctions on Russia

The Peterson Institute today published this abridged version of my earlier Bruegel blog post in its PIIE Charts series. 

Shortly after Russia’s full-scale invasion of Ukraine in late February of 2022, a number of governments, including the United States, all of the European Union, Japan, and others, immobilized the Bank of Russia’s reserve assets under their jurisdiction, meaning the assets remain property of the Bank of Russia, but the latter cannot move them from where they are held. Thanks to gradually increased transparency, the European Union has emerged publicly as the dominant player in that coordinated action. Most of the immobilized assets are held at Euroclear , the Brussels-based international central securities depository.

In the hushed world of central bank reserve management, no such information is usually disclosed, but the amount at hand is just too large to stay hidden: the balance sheet of Euroclear Bank, the relevant subsidiary of the Euroclear Group, has grown more than fivefold since early 2022 from its prior stable level. Euroclear does not publish the amount of securities the Bank of Russia holds there, but it must account for the cash balance in quarterly disclosures of its own total assets.

Euroclear’s contractual arrangements specify that cash held there is non-remunerated, to discourage clients from using it as a “safe house” for their spare money. When securities come to maturity or pay dividends or coupons, investors usually take the cash away or reinvest it into other securities during the same day, so that no amount is recorded on the Euroclear balance sheet. Because the immobilizing sanctions prevent the Bank of Russia from doing that, its cash keeps accumulating at Euroclear without yielding any interest to the Bank of Russia, on a scale that now reaches more than half of all its immobilized reserve assets in the G7, the European Union, and Australia, estimated at around €265 billion.

Because the Bank of Russia’s cash deposit at Euroclear is unambiguously noninterest-bearing, there is a solid argument that the interest income that Euroclear makes on it, in the high single-digit billions of euros annually at current rates, belongs to Euroclear and not to the Bank of Russia. That income could thus be appropriated by the European Union for Ukraine’s benefit, without expropriating the Bank of Russia and thus staying in line with the European Union’s commitment to the international rule of law. The European Union plans to provide €50 billion of financial assistance to Ukraine over the period 2024–27, an amount it may have to further ramp up depending on developments on the Ukrainian frontlines and in the US Congress. The income from the immobilized assets would not cover the full aid package, but it would still help.