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China policy and markets round-up: Trade surplus rebounds, Wealth Management Connect details revealed, Beijing halts economic dialogue with Canberra

Shenzhen_adobe_575px_8Feb21
By Addison Gong
07 May 2021

In this round-up, China’s trade surplus jumps in the first four months of the year, regulators unveil details for implementing the cross-border Wealth Management Connect pilot scheme between the Mainland, Hong Kong and Macau, and Beijing decides to suspend all activity under the China-Australia Strategic Economic Dialogue.

China’s exports grew 22.2% year-on-year to Rmb1.71tr in April, or 32.3% in dollar terms to $263.92bn, according to data released by the Ministry of Commerce (Mofcom) on Friday. Imports rose to Rmb1.44tr or $221.07bn.

For the first four months combined, exports and imports totalled $1.79tr. The trade surplus was $157.91bn, which was 174% higher compared to a year ago.

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China’s trade in services deficit narrowed by Rmb197.05bn in the first quarter of 2021 compared to a year ago, to Rmb66.69bn, Mofcom data showed.

Trade in services totalled Rmb1.158tr for the first three months of the year. Exports of trade in services rose 22.8% compared to the same period in 2020 to Rmb545.75bn, while imports dropped 13.5% to Rmb612.44bn.

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The Caixin China services Purchasing Managers’ Index (PMI) jumped to 56.3 in April from 54.3 the previous month, latest data showed on Friday.

Released at the end of April, the latest Caixin manufacturing PMI also rebounded, to 51.9 from March’s 50.6. But while both Caixin PMIs continued to expand, China’s official manufacturing and non-manufacturing PMIs fell and missed forecasts last month. Unlike the official PMIs, Caixin focuses more on smaller, private firms.

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The local branches and bureaus of the People’s Bank of China, China Banking and Insurance Regulatory Commission and China Securities Regulatory Commission in Guangdong and Shenzhen have unveiled details regarding the Wealth Management Connect pilot programme, first officially announced in June 2020.

The programme is targeted at individual investors in the Guangdong-Hong Kong-Macau Greater Bay Area (GBA), and consists of northbound and southbound links.

The new rules, announced on Thursday, set a total investment limit of Rmb150bn for the Connect scheme. Residents of the nine mainland GBA cities, including Guangzhou and Shenzhen, must have a minimum of Rmb2m in net financial assets to participate in the southbound Connect, which will allow them to invest in eligible wealth management products (WMPs) sold by banks in Hong Kong and Macau. The minimum asset requirement drops to Rmb1m if the individuals have at least two years of investment experience.

Each individual faces an investment cap of Rmb1m. They must open a remittance account with a Mainland bank and an investment account in Hong Kong and Macau. Financial regulators in Hong Kong and Macau are yet to finalise rules on what WMPs are eligible for investment for southbound investors.

The rules also set requirements for Mainland banks eligible to participate in the programme. For example, they must be registered or must have set up branches in the nine GBA cities, and should have conducted renminbi settlement businesses for at least three years. The deadline for public feedback for the rules is May 21.

The Wealth Management Connect is “a significant breakthrough for the financial sector” and “another milestone” for the renminbi internationalisation, said Daniel Chan, HSBC’s head of Greater Bay Area, in a Friday note. The clarity provided in the latest statement from Mainland regulators is welcomed, he added.

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China said it will continue communicating and coordinating with the European Union to make sure the EU-China comprehensive agreement, which was secured at the end of last year, comes into effect, foreign ministry spokesperson Wang Wenbin said in a Thursday press conference.

Wang’s remarks came after reports that the EU has suspended efforts to promote the bilateral investment deal over human rights-related sanctions, quoting the EU’s trade commissioner, Valdis Dombrovskis.

He reportedly said at a news conference that the current relationship between Brussels and Beijing was “not conducive” to ratify the deal. Quoted by French news agency AFP, he said: “We have… for the moment suspended some efforts to raise political awareness on the part of the Commission because it is clear that in the current situation, with the EU sanctions against China and the Chinese counter-sanctions, including against members of the European Parliament, the environment is not conducive to the ratification of the agreement.”

An EU spokesperson said Dombrovskis’s comments were taken out of context.

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The National Development and Reform Commission (NDRC) has decided to “indefinitely suspend” all activity under the China-Australia Strategic Economic Dialogue based on the “current attitude” of the Australian government towards cooperation between the two countries.

“Recently, some Australian Commonwealth Government officials launched a series of measures to disrupt the normal exchanges and cooperation between China and Australia out of Cold War mindset and ideological discrimination,” the NDRC said in a short statement on Thursday on its website, without giving more details.

The relationship between the two countries has been rocky in recent years. Most recently last month, Australia called off two deals under the Belt and Road Initiative.

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US officials will engage with their Chinese counterparts “in the near term” to assess China’s implementation of the phase one trade deal between the two countries, US trade representative Katherine Tai reportedly said at a Financial Times online event.

“I'm very much looking forward to formally meeting my Chinese counterparts and assessing their performance and measuring what they have to say, pressing our interests and backing up a path forward,” Tai said.

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Hainan province saw the establishment of 419 foreign invested companies in the first quarter of 2021. Those investments came from 66 countries and regions. Foreign direct investment in Hainan jumped 433% to $555.8m.

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Fidelity Investments cut its valuation of Ant Group to $144bn by the end of February from $295bn last August, the Wall Street Journal reported this week, citing regulatory filings it has seen.

Ant Group, owned by Alibaba Group Holding, was forced to suspend its A+H listing last year. The financial technology giant is undergoing a government-mandated restructuring amid Beijing’s intensified crackdown on the fintech sector.

By Addison Gong
07 May 2021