The week in review: US fires delisting warning to Chinese companies, Treasury sanctions Hong Kong leader, TikTok threatens to sue Trump administration
In this round-up, the US once again threatens to delist Chinese companies from American stock exchanges, the Treasury department imposes sanctions on 11 government officials in Hong Kong, including the chief executive of the special administrative region, and TikTok suggests it could to go court to fight a recent executive order by president Donald Trump.
The US Treasury has imposed sanctions on 11 government officials in Hong Kong for “undermining Hong Kong’s autonomy and restricting the freedom of expression or assembly of the citizens”. They included Carrie Lam, chief executive of the special administrative region (SAR), and Luo Huining, director of the Hong Kong Liaison Office. The sanctions will see all their property in the US seized and their financial assets frozen.
The SAR government said in a Saturday statement that the “so-called sanctions” are “shameless and despicable”, representing the US’s “blatant and barbaric interference in the internal affairs” of China. The statement claimed that the US is “using Hong Kong as a pawn in its ploy to create troubles in [the] China-US relationship, out of [the] self-serving interests of some US politicians”.
Lam said in a Saturday post on Facebook that she intends to cancel her US visa, which is valid until 2026. Luo said he does not have any assets in the US, suggesting he could send $100 to US president Donald Trump to be frozen.
TikTok has threatened to take legal action after US president Donald Trump signed an executive order last week requesting companies to stop doing business with its parent ByteDance. The order was signed on August 6, with a 45-day grace period before it comes into effect.
The Chinese video-sharing app said it is “shocked” by the executive order, “which was issued without any due process”.
“We will pursue all remedies available to us in order to ensure that the rule of law is not discarded and that our company and our users are treated fairly – if not by the [Trump administration], then by the US courts,” TikTok said in a Friday announcement.
The US must abandon its “Cold War mindset” and start talking to China to solve disputes, said Yang Jiechi, the former Chinese foreign minister and currently the director of the Office of Foreign Affairs. In an article published on the Foreign Ministry’s website on Friday, he also called for the US to stop bullying Chinese companies and give them a fair, open, and non-discriminatory environment for operation and investment.
China’s July Consumer Price Index (CPI) rose by 2.7% in July, edging up from a 2.5% increase in June, according to data released by the National Bureau of Statistics on Monday morning. The rise was mostly driven by food inflation, which saw a 13.2% year-on-year jump, 2.1 percentage points more from the 11.1% climb in June.
The Producer Price Index (PPI) deflation eased in July. PPI edged down to minus 2.4% from a minus 3.0% year-on-year figure in June.
“Since both CPI and PPI inflation readings are quite close to market consensus at 2.6% and minus 2.5%, respectively, we expect limited impact on markets and policymaking,” Ting Lu, chief economist at Nomura, wrote in a Monday note.
China’s foreign exchange reserves increased for the fourth consecutive month in July. The country’s reserves hit $3.154tr, the highest level in nearly two and a half years, according to data released by the State Administration of Foreign Exchange (Safe). There was a 1.4% growth year-on-year compared to June.
China recorded a current account surplus of $119.6bn for the second quarter, having posted a $33.7bn deficit for first three months of the year.
According to Safe data, foreign direct investment reached $65.9bn in the first half of the year and outbound direct investment hit $47.2bn. Net inflows of investment in the onshore securities market exceeded $60bn.
Central bank governor Yi Gang said in an interview that China will continue to implement its phase one trade deal with the US, including allowing American Express, MasterCard and Fitch Ratings enter the Chinese market.
Yi also promised the implementation of the “opening up” measures the country announced in recent years, including removing the foreign ownership restrictions in securities, fund management, futures and life insurance companies, as well as scrapping the investment limits for the Qualified Foreign Institutional Investor and the Renminbi Qualified Foreign Institutional Investor schemes.
In the US, the President’s Working Group on Financial Markets (PWG) released a report titled “Protecting Investors from Significant Risks from Chinese Companies” last week. The PWG, chaired by US Treasury secretary Steven Mnuchin, made five recommendations to the US Securities and Exchange Commission, including one that will essentially force Chinese companies to delist from US exchanges unless their audit papers can be reviewed by the US regulators.
“The PWG examined the risks to investors posed by the Chinese government’s failure to allow access,” Mnuchin said in a statement, adding that the recommendations will “increase investor protection and level the playing field for all companies listed on [US] exchanges”.
In a Q&A published on its website, the China Securities Regulatory Commission (CSRC) said that China has maintained contact with US regulators, drawing particular attention to communication between the country’s regulators since 2019, including on joint inspection of accounting firms.
The CSRC said that Chinese has never tried to stop auditors from submitting work papers ─ documents which track the workflow of audits ─ of foreign-listed Chinese companies to offshore regulators. The regulator said that “dialogue” is “the only way for a win-win situation” between the two countries.
The National Association of Financial Market Institutional Investors (Nafmii) published a set of self-regulatory rules on the interbank bond market on Friday.
According to the statement, Nafmii has taken disciplinary action against more than 830 people or institutions since its founding. In the updated rules, Nafmii established separate disciplinary standards for different types of rule violations, improved transparency standards for publishing results of investigations and made the punishments more severe for serious rule violation cases.
The CSRC published the official rules for public real estate investment trusts (Reits) on Friday. The regulator had been soliciting public opinions on the rules from April 30 to May 30. So far, China does not have any publicly traded Reits.
The regulator made some key changes to the draft rules. Among them, the securities regulator deleted the requirement that more than 80% of the fund must be invested in a “single” infrastructure asset-backed securities product, which in turns owns the infrastructure assets. It also broadened the scope of eligible institutional investors to include pension funds and annuity funds. Meanwhile, it increased the portion that is open to retail investor subscriptions in Reit listings.
That said, China’s pilot Reits market will still only be open to infrastructure projects, keeping real estate developers who are best suited to list Reits out of the industry.
Many foreign investors are expanding their investments in China despite the Covid-19 pandemic, according to Zhong Shan, China’s Minister of Commerce. He said there were 320 projects with at least $100m in foreign investment during the first half of 2020.
The CSRC said it has investigated 165 new cases in the securities and futures market between January and June this year. It has handed out penalties in 98 cases, and forfeited or fined companies and individuals a total of Rmb3.84m.
Citic Group, a state-owned conglomerate, is reportedly aiming to cut Rmb10bn of administrative expenses in 2020, Reuters reported, citing an internal company document. Employees at Citic also claimed that their salaries have fallen significantly since the beginning of this year.
Citic Bank, part of the group, said in a Friday afternoon statement that the bank will offer salaries based on market conditions and the overall performance of the bank. The bank has not made any arrangements to conduct a blanket wage cut for all employees.
Cai Jianchun was appointed as the deputy party secretary and president of the Shanghai Stock Exchange, according to a Friday press release by the bourse.Cai was previously a director in the department of listed company supervision at the CSRC.