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China policy round-up: trade war troubles brew, Shanghai FTZ expands, Beijing gives Hong Kong an ultimatum

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By Rebecca Feng
09 Aug 2019

In this round-up, hostility between China and the US continued, the State Council unveiled rules on the Shanghai Free Trade Zone and Beijing said it would intervene if the Hong Kong government fails to calm down the recent unrest.

The trade war between the US and China got a bit more chaotic as Lawrence Summers, US treasury secretary from 1999 to 2001, published an article in the Washington Post on August 6 calling the US’s move of labelling China a currency manipulator “doing President Trump’s bidding”. Summers added that the move “has damaged [the current treasury secretary’s] credibility and that of his office”. 

In other news, the White House has hit a pause on its decision about granting licences to US companies to do business with Huawei, Bloomberg reported on Friday, citing people familiar with the matter. The move came after China said it would halt purchases of US agricultural products. 

Separately, US government agencies will be banned from buying equipment from five Chinese companies after the Donald Trump administration issued an interim rule on Thursday evening. The five companies are telecommunication equipment producers Huawei and ZTE,  securities camera manufacturers Hikvision and Dahua and radio producer Hytera.

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The State Council approved the new Lingang Free Trade Zone in Shanghai. The new area was expanded to 119.5 square kilometres, doubling the geographic size of the current Shanghai Free Trade Zone. 

Income tax for some high tech sectors such as integrated circuits and artificial intelligence will be levied at a reduced rate of 15% within the first five years of the companies’ establishment, state-owned media Xinhua reported on Tuesday.

According to the published rules, the government will also encourage the free flow of capital in and out of the FTZ. 

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Beijing gave Hong Kong an ultimatum on Wednesday. 

The Chinese government concluded that the unrest is aimed at overthrowing the Hong Kong government and that it bore the features of a “colour revolution,” according to a Wednesday Xinhua report

“If the situation in Hong Kong worsens to a turmoil that the Hong Kong SAR government cannot control, central authorities will not stand by,” the report said. “According to the Basic Law, the central government has ample ways and power to quickly settle any possible turmoil should it occur.”

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The China Banking and Insurance Regulatory Commission expanded the scope of eligible banks to participate in bond trading in the exchange market, according to a Tuesday announcement. Now policy banks, large state-owned banks, joint-stock commercial banks, city-level commercial banks, foreign banks in China, and onshore listed banks are allowed to trade in the exchange market. Rural commercial banks and county-level commercial banks are not yet included. 

However, onshore bankers responded that there is not much practical impact of the new regulation since the exchange market is too small for large Chinese banks. Further, large banks usually do not participate in secondary trading. 

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Two new companies started to trade on China’s Star board on Thursday, bringing the total number of listed firms on the board to 27. 

The two new companies are Amlogic Shanghai Co, a fabless manufacturing company, and Shanghai Friendess Electronic Technology Co, a manufacturer of laser-motion control systems.

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New Development Bank, a multilateral lender owned by Brazil, China, India, Russia and South Africa, said it would double its lending this year to $16bn and shift the currency of its loans away from the US dollar to local currencies, the Financial Times reported.

By Rebecca Feng
09 Aug 2019