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The week in review: July PMI misses forecast, US turns up the heat on Chinese IPOs, foreign FIs expand in China

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In this round-up, China’s official manufacturing Purchasing Managers’ Index (PMI) fails to meet expectation in July, the US puts additional information disclosure requirements in place for Chinese IPO hopefuls, and foreign financial institutions continue expanding in the Mainland.

China’s official manufacturing PMI fell to 50.4 in July from 50.9 the previous month, missing consensus forecast of 50.8. The National Bureau of Statistics cited extreme weather conditions in certain areas, including the flooding in Henan province, as one of the reasons for the slowdown in expansion in manufacturing activity. Non-manufacturing PMI came at 53.3.

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Last Friday, the US Securities and Exchange Commission’s chair, Gary Gensler, said Chinese IPO candidates operating under a Variable Interest Entities (VIE) structure must “prominently and clearly disclose” issues — and the risk — related to the VIE structure. In addition, all Chinese companies must disclose risks of their US IPO applications being denied or rescinded, and potential delisting risks. Gensler said he also asked SEC staff to “engage in targeted additional reviews of filings for companies with significant China-based operations”.

The China Securities Regulatory Commission (CSRC) on Sunday responded to the new information disclosure requirements. The regulatory authorities in the two countries should strengthen their communication and find “proper solutions” to the supervision of US-listed Chinese stocks, and “create a good policy expectation and institutional environment for the market”, the CSRC said.

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China’s Ministry of Industry and Information Technology held a meeting with 25 Chinese technology companies on Friday last week, requiring the firms to conduct self-examination in areas including data security and consumer rights protection. Alibaba Group Holding, Baidu, ByteDance, Didi, Huawei, Meituan, NetEase, JD.com, Kuaishou and Pinduoduo were among those called in.

Twelve leading tech companies were also told by the Internet Society of China last Wednesday to strengthen management of the export of important data.

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The People’s Bank of China (PBoC) said it will push for the launch of financial instruments supporting carbon dioxide emission reduction to provide capital at a low cost to qualified financial institutions which, in turn, can provide cheap financing to the related industries. The central bank will also continue its work in carbon-related information disclosure and green finance evaluation.

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Foreign investors held Rmb3.76tr ($568bn) worth of onshore stocks by the end of June, alongside Rmb3.84tr of domestic bonds, according to data from the PBoC.

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The China Banking and Insurance Regulatory Commission (CBIRC) has put the focus of its work in the second half of the year on a number of areas. These include disposing of risky institutions, curbing the rise of non-performing assets and a resurgence in high risk shadow banking activities, preventing the illegal inflow of funds to the property market, and regulating financial businesses at internet platforms.

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Chinese banks disposed of Rmb1.2tr of non-performing assets during the first half of 2021, the CBRIC said. These included Rmb1.1tr of non-performing loans, about Rmb49.6bn more than what was seen a year ago.

Real estate loans in China grew at 9.8% by the end of June, the slowest pace in eight years, CBIRC data showed.

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The CBIRC said last Saturday that it has decided to ban Chinese trust companies from setting up non-financial subsidiaries in China. Existing non-financial subsidiaries are not allowed to make new investments in Mainland or overseas companies. The new rules became effective from July 21.

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Chinese regulators have issued window guidance to certain banks and consumer finance companies, asking them to keep the interest rates on personal loans within 24%, onshore media including 21 Jingji reported.

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Shanghai plans to further regulate its microloan companies, proposing new rules that require the lenders to have at least Rmb200m in registered capital, with a financial leverage ceiling of five times.

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Sumitomo Mitsui Financial Group and SMBC Nikko Securities jointly applied to the CSRC to set up an onshore securities company last week, according to a press release.

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Goldman Sachs’ China securities unit, Goldman Sachs Gao Hua Securities, has won approval from the CSRC to start an alternative investment business onshore. The licence is obtained through an acquisition of Beijing Gaohua Shengze Investment Management Co and will be limited to conducting direct investment on the Star and ChiNext boards.

The move opens the door for Goldman to sponsor deals in the two markets. Sponsors are required to invest — via their alternative investment subsidiaries — in their Star board IPOs, and certain ChiNext listings.

Goldman, which owns 51% of Goldman Sachs Gao Hua, is in the process of obtaining full control of the securities joint venture.

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Citibank (China) Co has won final approval from the CSRC to launch securities investment fund custody services in the Mainland, making it the first major global custodian allowed to operate an onshore Chinese fund custody business, the bank said in a Friday announcement.

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The CBIRC has approved the establishment of Allianz Insurance Asset Management Co, the first wholly foreign-owned insurance asset management company in China, Allianz (China) Insurance Holding Co announced last Friday.

The company will be headquartered in Beijing, with a registered capital of Rmb100m. The CBIRC gave the Allianz unit approval to begin work on its preparatory establishment in January.

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Didi Global denied a Wall Street Journal report last week that it is considering going private to “placate authorities in China” and compensate investor losses since its US listing. The information in the report is “not true” and the company is “fully cooperating with the relevant government authorities” for a cybersecurity review, Didi said in a statement on Weibo last Thursday.

The WSJ report gave Didi’s shares a boost to close at $9.86 on Thursday, up from the previous close of $8.86. The company ended Friday trading at $10.31, versus the listing price of $14.

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The Securities Association of China plans to revise Chinese securities firms’ sponsorship rules. One of the key changes proposed is related to due diligence. The regulator listed seven scenarios at an issuer that require a review by its IPO sponsors, including differences in accounting methods of the company versus industry peers.

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The CSRC Shenzhen bureau has asked securities companies it supervises to conduct self-examination on their sponsorship businesses before August 31, in areas including due diligence and internal control. It will also launch on-site inspections in September and October. 

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