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The week in review: Beijing vows to reduce financial crime, Shenzhen eyes more foreign capital, StanChart applies for securities licence

Shanghai_skyline_575px_Adobe_24Apr2020
By Addison Gong
12 Oct 2020

In this round-up, China wants to improve the quality of domestic listed firms to cut down financial crime, Shenzhen opens the door for increased foreign inflows for the next five years, and Standard Chartered applies to the securities regulator to set up a securities firm onshore.

The State Council has issued a notice on improving the quality of listed companies in China. It reiterated a “zero tolerance” stance on crime in the capital markets, and said that related laws and regulations will be revised to introduce harsher punishments on illegal and unlawful activities such as financial fraud, the violation of information disclosure requirements, market manipulation and insider trading.

China also plans to attract more long-term investors to the markets, and more qualified foreign investors will be allowed to become strategic investors in domestic listed firms, the State Council said on Friday.

Regulations will be improved on equity fundraising from listed companies including follow-ons — collectively referred to as equity ‘refinancing’ onshore — as well as major asset restructurings, mergers and spin-offs. Regulators will also work on improving the delisting mechanism, making it easier for firms to actively delist or exit the market through other means including bankruptcy reorganisation.

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China has announced a five-year plan for the city of Shenzhen, relaxing foreign access in areas including technology. It will also encourage qualified foreign financial institutions to set up securities and fund management companies in the city, as well as apply for payment services licences.

In capital markets, Shenzhen will push forward pilot programmes for the domestic listings of innovative companies and the issuance of Chinese Depositary Receipts. Companies based in the city are also being encouraged to list in a non-Chinese stock exchange.

That is not all for Shenzen. The central bank’s digital currency trial will be carried out in the city. Trials will also be launched regarding real estate investment trusts in the infrastructure sector (infrastructure Reits).

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The PBoC has cut the requirement for financial institutions’ foreign exchange risk reserves for forex forwards trading to zero from 20%, starting Monday.

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China will adopt “normal monetary policy” for as long as possible, said PBoC governor Yi Gang in an article he wrote in a magazine published by the central bank.

Yi also said any signs of serious financial risks will be dealt with immediately and decisively, ensuring they do not become national or systematic risks. Shareholders of financial institutions must be the first to bear losses when financial risks occur, and insolvent institutions will be forced to exit the market to maintain discipline, Yi added.

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The China Banking and Insurance Regulatory Commission (CBIRC) has relaxed rules on insurance asset management products. More asset classes have become eligible for investment, including over-the-counter traded stocks.

Insurance asset managers no longer need to seek regulatory approval for each new batch of products they launch. Instead, they will go through a registration process.

The CBIRC wants fund managers to strengthen their information disclosure, requiring them to disclose semi-annually, as well as for major events.

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The China Securities Regulatory Commission (CSRC) has accepted an application from Standard Chartered to establish a securities company in the Mainland, according to an update on the regulator’s website last Saturday.

“China is a strategically important market to Standard Chartered”, the bank said in a statement. “We have always been active in its capital markets and are looking to further develop our onshore business through acquiring new licenses.” 

StanChart joins a queue of 17 Chinese securities firms whose applications were yet to be approved by the CSRC by September 30, according to the regulator.

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The foreign holding of Chinese bonds in the interbank market reached Rmb2.94tr — or 3% of the market — by the end of September, after a monthly increase of Rmb137.46bn, according to data from the People’s Bank of China (PBoC).

Some 57% of the bonds they held were central government bonds, and 29% were issued by the policy banks, said the central bank.

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The CSRC has set up a preparatory team for the establishment of a new futures exchange in Guangzhou, part of an effort to develop the financial markets in the Guangdong-Hong Kong-Macao Greater Bay Area (GBA).

The regulator called Guangzhou Futures Exchange’s establishment “a major reform” for China’s futures market, and that it will support the real economy, the construction of the GBA and the country’s Belt and Road initiative.

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The securities regulator has waved through the first major asset restructuring on the Shenzhen Stock Exchange’s ChiNext board, by Truking Technology.

ChiNext-listed Truking plans to use a mix of share and convertible bond issuance to fund an acquisition of Germany’s Romaco, a supplier of packaging and processing equipment.

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US senator Marco Rubio told Reuters on Friday that the US government “should take a serious look at the options available to delay Ant Group’s IPO”.

“It’s outrageous that Wall Street is rewarding the Chinese Communist Party’s blatant crackdown on Hong Kong’s freedom and autonomy by orchestrating Ant Group’s IPO on the Hong Kong and Shanghai stock exchanges,” Rubio said in a statement to the wire.

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The Trump administration is reportedly considering imposing restrictions on Chinese technology giants Ant Group and Tencent Holdings operating in the US on national security concerns.

Chinese foreign ministry spokesperson Hua Chunying said it was a “typical government coercion” by the US, calling it “modern piracy” when asked about the report at a Friday press conference.

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Alibaba Group and Ant Group have signed a strategic co-operation agreement with the Shanghai government. The parties plan to work together on areas including digital new infrastructure, financial technologies and cross-border businesses.

The two companies also signed a similar agreement with China Merchants Group, and aim to work together with the state-owned firm in industrial internet, financial services, integrated logistics, and emerging industries. 

By Addison Gong
12 Oct 2020