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The week in review: China combines QFII, RQFII schemes, industrial profits continue to grow, CSRC plans follow-on fast track

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By Addison Gong
28 Sep 2020

In this round-up, Beijing plans to further ease foreign access to the onshore capital markets, Chinese industrial firms post rising profits and the securities regulator plans to loosen the rules for equity follow-ons.

China will combine two of its main inbound investment channels, the Qualified Foreign Institutional Investor (QFII) scheme and a similar renminbi-denominated scheme (RQFII), from November 1.

The move was announced by China Securities Regulatory Commission (CSRC), the People’s Bank of China, and State Administration of Foreign Exchange (Safe) on Friday.  

The QFII and RQFII schemes cover foreign investments in the domestic bond and equity markets. The regulator has also expanded the assets available to offshore investors.For example, foreign investors will now be able to buy securities traded on the National Equities Exchange and Quotations market – an over-the-counter system – as well as financial and commodity futures.The new rules will also simplify the vetting process for overseas applicants.

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Chinese industrial profits grew for the fourth consecutive month in August, rising 19.1% year-on-year to Rmb612.8bn ($89.8bn), according to data released by the National Bureau of Statistics on Sunday.

During the first eight months of 2020, industrial firms in the country generated profit of Rmb3.72tr. That is 4.4% lower than a year ago.

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China’s current account surplus stood at Rmb780.4bn for the second quarter, according to Safe.

In the first half, the current account surplus was equivalent to 1.2% of GDP, the foreign exchange regulator said. That is above the 0.985% surplus the country recorded in 2019, according to World Bank data.

Meanwhile, the foreign exchange market recorded Rmb18.99tr of transactions in August.

The country’s outstanding external debt — across all currencies — totalled Rmb15.1tr by the end of June, Safe data showed. This included Rmb2.09tr of outstanding government debt and Rmb7.03tr of debt from Chinese banks.

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Foreign holdings of Chinese bonds and stocks have risen sharply over the last five years. Foreign investment reached $737.5bn by the end of the first half — 2.2 times the amount recorded at the end of 2015, according to forex regulator Safe. 

Between December 2015 and June 2020, foreign participation in domestic bonds rose to 2.4% of the total market from 1.6%. Foreign holdings in onshore stocks increased to 4.5% of the total A-share market capitalisation, from 1.5%.

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The CSRC plans to fast track the approval process for listed companies planning to raise money from equity transactions, including follow-ons.

Plans for such fundraisings – collectively referred to as equity ‘refinancing’ onshore – will be approved through a ‘fast channel’ if a company has received an A rating for the past two years for information disclosure, according to the regulator.

The information disclosure ranking, ranging between A and D, is assigned annually by China’s stock exchanges.

Companies penalised by the CSRC in the past three years will not qualify for speedy approvals, the regulator added.

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China is working around the clock to launch trial programmes for publicly offered infrastructure real estate investment trusts (Reits), a senior official at the CSRC said in a China Reits forum on Sunday.

According to the official, local authorities in some provinces and cities will submit information on qualififying infrastructure projects to the National Development and Reform Commission (NDRC) for selection soon. 

The CSRC and the NDRC published guidelines for public Reits earlier this year.

Xu Xianping, an advisor to the State Council and the former deputy director of the NDRC, also spoke at the forum. He said he expects the size of China’s Reit market to be between Rmb5tr and Rmb14tr.

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The China Banking and Insurance Regulatory Commission will revise the current rules governing insurance asset management companies, according to vice chairman Cao Yu.

The planned revisions include encouraging non-Chinese companies to set up insurance asset managers onshore and scrapping the 25% foreign ownership cap in these firms, Cao said at a wealth management forum in Shanghai.

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Speaking at the same forum, Lu Lei, the deputy director of Safe, said the forex regulator is looking to revise the Qualified Foreign Limited Partner (QFLP) and the Qualified Domestic Limited Partnership (QDLP) schemes to encourage private equity investments.

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The US has tightened restrictions on exports to Semiconductor Manufacturing International Corp (SMIC), the largest semiconductor manufacturer in China, according to Reuters. A letter from the Commerce Department seen by the wire said there is an “unacceptable risk” that equipment supplied to the company could be used for military purposes.

In a Sunday evening stock exchange filing in Hong Kong, SMIC said it has not received any official information on the sanction, and that it “provides services solely for civilian and commercial end-users and end-uses” with no relationship with the Chinese military.

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Some 3,500 US companies have sued the Trump administration in the last two weeks over tariffs imposed on more than $300bn of Chinese goods, Reuters reported.

The companies, including Tesla and Ford Motor, filed suits in the US Court of International Trade, challenging Trade Representative Robert Lighthizer and the Customs and Border Protection agency on what they called the “unlawful escalation” of the US-China trade war through the imposition of a third and fourth round of tariffs, according to the wire. 

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Hong Kong Exchanges and Clearing is considering including biotech stocks in the Stock Connect programme to help drive investment from onshore Chinese accounts, according to reports attributing chief executive Charles Li.

According to Li, 154 pharmaceuticals companies have listed in Hong Kong since 2018, including 20 pre-profits biotech firms.

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By the end of August, 317 Shenzhen-listed companies have reported combined revenues of Rmb2.22tr after a 2.66% year-on-year growth, according to the CSRC’s Shenzhen bureau. Their net profits, however, dropped 13.07% from a year ago to Rmb226.4bn.

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Chinese online travel agency Trip.com will obtain a third-party payment licence from the People’s Bank of China, after the central bank approved its 100% acquisition of Shanghai Oriental Information Technology Services Co.

Oriental Information, a state-owned company, has held the licence since 2012. 

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Alibaba’s Ant Group announced a collaboration with strategic partners including BNP Paribas to launch a blockchain-powered trade finance platform, according to a Friday announcement.

The platform, called Trusple, is designed to improve cross-border trade opportunities for small-and-medium enterprises, largely by removing hurdles to payment and documentation.

By Addison Gong
28 Sep 2020