1. China mulls scrapping QFII quotas
Foreign investors get excited.
On Thursday, spokesperson for the foreign exchange regulator (SAFE) Wang Chunying said that China is considering scrapping the quotas for its Qualified Foreign Institutional Investor (QFII) and Renminbi Qualified Foreign Institutional Investor (RQFII) schemes.
Some context (Yicai):
- “The dollar-based QFII program grants licensed overseas investors access to China’s yuan-based capital market, mainly stocks and bonds.”
- “The RQFII scheme allows foreign investors to use offshore yuan deposits to invest in the Chinese mainland.”
But…scrapping the quotas is less than meets the eye (Reuters):
- “Current QFII quotas have not been used up.”
- “The cross-border Connect scheme linking Hong Kong and mainland bourses has become a more popular channel than QFII for many foreign investors seeking access to China’s capital markets, thanks to its absence of an aggregate quota, and relative convenience in moving money in and out of China.”
2.Big platform ditches P2P lending
Financial regulators continue to put the squeeze on P2P lenders. That’s leading many platforms to close up shop.
The latest example: Yesterday, Ping An-backed Lufax said it’s scaling back its P2P business (SCMP):
- “We are making three cuts in line with regulators’ requirements.”
- “Existing P2P products and customers will not be affected.”
Some context: Last year, regulators said that lenders needed to make “three cuts” – to their number of platforms, outstanding lending scale, and people affected by the industry.
Apparently, Lufax is doing a bit more than just “scaling back” (Reuters):
- “[Lufax] plans to exit its once-core peer-to-peer lending (P2P) business, three sources with direct knowledge of the matter told Reuters.”
Why that’s a big deal: Lufax used to be the largest P2P lender in the world.
The tightening is already having a big impact. As of May:
- There are 57% fewer P2P platforms than there were at the beginning of 2018.
- P2P lending is down 27% compared to the beginning of 2018.
Get smart: Very few P2P platforms can meet the new, tougher regulatory requirements.
Getsmarter: More and more Chinese P2P lenders are eyeing Southeast Asia as a new market.
Reuters: Exclusive: Ping An-backed Lufax to ditch P2P lending on regulatory woes – sources
SCMP: Chinese fintech giant Lufax cuts P2P lending to meet regulatory requirements, may restart IPO plans after restructuring segment
3. Xi tells local legislators to obey the Party
On Thursday, Xi sent instructions to local legislators.
Some context: On Thursday, the National People’s Congress held a symposium in Beijing to commemorate the 40th anniversary of the establishment of standing committees at local people’s congresses.
Xi told local legislators that he wants them to do more:
- “Xi Jinping pointed out that the new circumstances and new duties have created higher requirements for legislative work.”
- “Local people’s congresses…[must] better contribute to economic and social development and reform tasks.”
Xi was at pains to stress who the legislators ultimately work for:
- “[Local legislatures] must consciously follow the leadership of Party committees at the same level.”
Get smart: Under Xi, the legislature is playing a bigger role in law enforcement and government supervision. At the same time, he has also sought to turn the legislature into an extension of the Partyand limit its independence.
CPC People: 习近平对地方人大及其常委会工作作出重要指示
4.Vice Premier urges hukou reforms
On Thursday, Vice Premier Han Zheng attended a national conference to discuss household registration (hukou) reforms (Xinhua).
- “Efforts should be made to grant urban household registration to rural migrants who work in cities.”
- “Allow people to migrate from rural areas to cities in an orderly fashion.”
- “The urban residential permit system should be fully implemented.”
- “Ensure that migrants have equal access to basic public services.”
The big goal: Han reiterated the government’s promise to grant urban hukous to 100 million rural migrants.
Some context: More than 90 million rural migrants have been granted urban hukous since the State Council introduced hukou reforms in 2014.
Get smart: The authorities will continue to ease hukou restrictions on lower-tier cities. But hukous for top-tier cities will continue to be tightly controlled.
5.State Council wants professional drug inspectors
Yesterday, the general office of the State Council released new measures that will increase oversight of the pharmaceutical industry.
The aim: To establish an army of professional and specialized drug inspectors.
Some context: China has drug inspectors, but not many. And for many it’s only a part-time job.
How the new system will work: The National Medical Products Administration (NMPA) will certify inspectors to ensure that they are capable of checking compliance and spotting risks at pharmaceutical, medical device, and cosmetics companies.
Both the central NMPA and its provincial branches will have inspectors:
- Central government inspectors will be in charge of on-site inspections of RD, clinical trials, and non-clinical trials.
- Provincial inspectors will be in charge of on-site production inspections.
This will take a few years (Gov.cn):
- “The NMPA and its provincial branches will set up the mechanism framework by 2020.”
- “The personnel force will be ready in the next three to five years.”
Get smart: Drug safety and quality are top priorities for the government. That’s because numerous scandals have exposed systemic corruption and negligence, undermining trust in the government.
Gov.cn: Professional drug-inspection teams to be established
6.Beijing rethinks Hong Kong strategy
Beijing is not happy with the massive protests that have rocked Hong Kong over the past month.
That’s prompting a rethink of Hong Kong policy (SCMP):
- “The Central Coordination Group for Hong Kong and Macau Affairs, led by Vice-Premier Han Zheng – has been collecting and consolidating reports and proposals from its frontline officers and now must formulate some options for discussion by the leadership.”
Chinese leaders are reportedly pretty miffed with Carrie Lam’s administration, which has put Beijing in a very tough spot. A government source remarked:
- “The central leadership wasn’t alerted until the situation went out of control”
- “There will surely be a revamp and overhaul of the system afterwards.”
For now, Beijing will remain relatively hands off:
- “Sources say at this stage Beijing still believes the crisis is best left for the Hong Kong government to handle and it should not get directly involved.”
Military force is not an option:
- “[Mainland officials] are firm about not considering the use of the People’s Liberation Army as an option.”
Get smart: It’s unclear how this all plays out. If Beijing takes a tougher line, it could cause a backlash. But giving Hong Kong more autonomy could embolden protestors.