The week in review: Chinese securities firms assigned annual ratings, PBoC tightens grip on listing of payment firms, Beijing cracks down on after-school tutoring sector
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The week in review: Chinese securities firms assigned annual ratings, PBoC tightens grip on listing of payment firms, Beijing cracks down on after-school tutoring sector

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In this round-up, onshore securities houses receive their 2021 annual rating, the central bank requires pre-reporting from non-bank payment firms to go public, and the private education industry in China faces tough new regulations.

The China Securities Regulatory Commission (CSRC) published the results of its annual review of Chinese securities houses for 2021 on Friday last week. Based on the ratings that they receive each year, securities firms are subject to different risk management requirements.

Fifteen of the 103 companies assessed received an AA rating, including GF Securities, Industrial Securities and Orient Securities which were upgraded from their respective BBB, A and A ratings last year. Haitong Securities, Sinolink Securities and Zhongtai Securities were dropped from AA to BBB, A, and A, respectively.

There are 35 A rated securities houses this year, 15 more than were seen in 2020. Credit Suisse Founder Securities, now officially known as Credit Suisse Securities (China), appeared in the A category for the first time.

No firm has been assigned the highest AAA or the lowest E ratings. Wangxin Securities is ranked behind all of its peers at D.

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For the first half of 2021, 139 securities companies in China reported total revenues of Rmb232.4bn ($36bn), with Rmb90.3bn in net profits, according to the Securities Association of China. Some 125 firms have been profit-making. The 139 players’ combined assets reached Rmb9.72tr at the end of June.

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Non-bank payment firms must file a report to the central bank if they have listing or follow-on plans, or if their controlling shareholders plan to conduct domestic or overseas IPOs, according to new rules announced by the People’s Bank of China (PBoC) last Friday.

The central bank also listed a number of other scenarios that require pre-reporting from a payment firm, including if its external investments exceed 5% of its net assets, or if it plans to establish overseas branches.

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Beijing published draft new rules on Saturday banning institutions from making profits from offering after-school tutoring on school curriculum. According to the rules, education companies teaching school curriculum must register as non-profit organisations. The registration of new institutions offering after-school tutoring on core school subjects will also not be allowed.

In addition, these firms will be banned from going public, and listed companies are forbidden from investing in tutoring institutions through financing in the equities market. The PBoC, China Banking and Insurance Regulatory Commission and CSRC have been put in charge of “cleaning up” firms with existing violations.

China has recently set up an office under the Ministry of Education to manage and supervise the after-school tutoring of students from kindergarten through high school.

Onshore newspaper 21st Century Business Herald reported last Friday that a notice on the new rules had already been circulated within the education system before the public announcement. The news led to a plunge in the prices of American Depositary Receipts of Chinese private education companies on Friday US time. TAL Education Group dropped nearly 71%, and Gaotu Techedu over 63%.

Following the official Saturday announcement, New Oriental Education & Technology Group’s Hong Kong-listed shares slid 37.5% on Monday morning. They were last seen at HK$18.88 ($2.43). The H-share opened at HK$50.8 last Friday.

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Tencent Holdings has been ordered by the State Administration for Market Regulation (SAMR) to give up its exclusive online music licencing rights. The move is supposed to “restore market order, lower the barrier for entry and allow all competitors to have an equal opportunity to access upstream copyright resources”, the antirust regulator said in a Saturday announcement. Tencent was also fined Rmb500,000.

The SAMR’s decision followed an investigation launched in January into Tencent’s acquisition of a 61.64% stake in China Music Corp in 2016. Tencent has since consolidated its music businesses into Tencent Music Entertainment Group. Tencent Music was listed in New York in 2018.

In a statement, Tencent said it will fully comply with the regulator’s requirements, and it will work with Tencent Music to come up with a rectification plan.

The company’s H-shares opened at HK$510 on Monday morning, down from the previous close of HK$531. The stock price was down 6.6% by the end of the morning session in Hong Kong.

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China Dive Co, Guangdong Rongtai Industry Co and Yihua Lifestyle Technology Co became the first in China to be punished under the new Securities Law for committing financial fraud, the CSRC announced last Friday. The new law, which went into effect in March 2020, incorporates harsher punishments for companies that commit violations in the securities market, as well as the relevant personnel at the companies.

Guangdong Rongtai Industry and its employees responsible for fraud have been fined a collective Rmb145m. China Dive Co and Yihua Lifestyle Technology received advance notices for penalties worth Rmb154m and Rmb398m, respectively.

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The CSRC revised rules on short-term bonds issued by securities companies, effective in September.

The updated regulation specified that the bonds must have tenors of one year or less, as opposed to the current 91 days. The requirement on the maximum ratio of short term debt issued by a securities firm remains at 60%. Eligible issuers of the sub-one year bonds must have a liquidity coverage ratio higher than the industry coverage over a six-month period, with risk control indicators within the regulatory minimum, according to the new rules. Securities companies were also given more specific information disclosure requirements for the short dated bonds. 

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Chinese banks recorded a foreign exchange settlement surplus of $189bn during the first half of 2021, according to Wang Chunying, deputy head of the State Administration of Foreign Exchange.

The onshore bond market has seen net inflows from foreign investors for 30 consecutive months, Wang said on Friday at a State Council press conference.

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The RMB Internationalization Index reached a historic high of 5.02 at the end of 2020, after a jump of over 54% year-on-year, according to a report published by Renmin University on Saturday.

 

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