Driving the Day
1. Financial opening rolls on
Chinese policymakers continue to push hard on financial opening.
- The latest evidence came from a meeting of the Financial Stability and Development Committee (FSDC) on Friday.
Some context: This weekend’s meeting was all about making good on Xi Jinping’s promise for more financial opening at the G20 (See June 28 Tip Sheet).
On Saturday, following the meeting, the FSDC announced 11 measures that will allow foreign financial institutions to:
- Rate domestic bonds
- Establish and invest in wealth managementsubsidiaries of commercial banks
- Establish controlling stakes in wealthmanagement companies
- Invest in pension management companies
- Establish and participate in currency brokerage companies
- Increase ownership in life insurance companies from 51% to 100% as of 2020
- Own more than 25% of the total shares of insurance asset management companies
- See relaxed market access conditions for foreign-funded insurance companies
- Own 100% of securities companies, fund management companies, and futures companies by 2020
- Obtain Class-A primary underwriting licenses in the interbank bond market
- More easily invest in the interbank bond market
Get smart: China’s financial sector opening has been progressing for the past 15 months – and it shows no signs of slowing down.
Want to know more?
Bloomberg: China Opens Up Financial Sector to More Foreign Investment
2.FSDC conducts mid-year review
Friday’s FSDC meeting (see previous entry) had two other items on the agenda:
- Launching the new “Stay true to party’s founding mission” education campaign among financial regulators
- Conducting a mid-year financial work review
On the first point, the group’s chairman, Vice Premier Liu He, demanded loyalty and professionalism from officials. They were instructed to:
- Carry out the leadership’s financial instructions and policies without compromise
- Develop capabilities to address real problems in the financial system
In light of the liquidity risks associated with the Baoshang Bank brouhaha, the meeting reiterated the need to:
- “Resolve the liquidity risks of small and medium-sized financial institutions in a timely fashion and resolutely block the spread of risks.”
Get smart: All officials are trying to show their commitment to the new “founding mission” campaign. This strikes us as an inefficient use of time for financial regulators.
3. Foreign firms finally get a leg up in insurance
Speaking of financial opening (see Entry 1), Caixin has anin-depth read aboutdevelopments in the insurance industry.
The key takeaway: Tighter regulation and increased market access are combining to give foreign firms a long-awaited leg up.
Authorities have stopped granting new licenses:
- “In the absence of new licenses, equity transfers are one of the few remaining ways to break into China’s insurance business.”
- “Seven such share buys [have been approved] since the start of the year.”
Meanwhile, foreign firms have been acquiring equity in Chinese insurers:
- “One involved New York-listed Chubb Ltd., which by July 1 had amassed 26.54% of leading Chinese insurer Huatai Insurance Group Co. Ltd.”
- “[An]other involved U.S. insurance firm Starr Indemnity Liability Co. Inc.”
That said – rushing headlong into the market may not be advisable:
- “While welcoming these measures, industry executives are cautious, and remain realistic about the upfront investment needed.”
- “’The basic requirement of running an insurance business is to have sufficient capital. A new company must be prepared to wait for five to seven years before it sees a profit,’ said one senior insurance company executive.”
The bottom line: Financial opening is creating huge new opportunities for foreign firms – but they don’t come without risk.
4.China signals purchases of US ag products
On Sunday, Xinhua reported that some Chinese importers have applied for exemptions from retaliatory tariffs on US agricultural products.
Some context: In May, the Ministry of Finance set up a tariff exemption process for affected parties (see May 14 Tip Sheet).
The State Council Customs Tariff Commission is now reviewing applications for exemptions from severalcompanies.
Xinhua was at pains to point out that China is not softening its tariffs unilaterally. Instead it is in response to US softening:
- “The United States recentlyannounced a move to exempt 110 items of Chinese industrial imports from additional tariffs.”
- “[The US] expressed willingness to encourage U.S. businesses to continue providing supplies for Chinese enterprises [i.e. Huawei].”
Get smart: Chinese leaders know that tariffs imposed on US goods damage China’s economy. So they are happy to get rid of them if they have an excuse to do so.
Xinhua: Chinese enterprises seek new purchase of U.S. agricultural produce, tariff relief
USTR: Notice of Product Exclusions: China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation
5.Hong Kong unrest heats up
It’s been a doozy of a weekend for Hong Kong. Protestors have continued to throng the streets and passions are running high.
The latest developments:
- On Friday, a large cache of homemade explosives along with pro-independence materials were discovered and seized by police. Three men were taken into custody.
- On Sunday night, a group of protestors vandalized Beijing’s liaison office, pelting the building with eggs and graffitiing the exterior.
- In the early hours of Monday morning, a group of men in white T-shirts attacked protestors with batons at the Yuen Long metro station. At least 36 were injured.
Beijing has strongly condemned the attack on the liaison office and expressed continuing support for the embattled Hong Kong government.
An editorial in the People’s Daily read:
- “There is no excuse for violence and the bottom line of the rule of law is inviolable.”
Get smart: Until now, the central government has opted for a light touch in dealing with the protests. But the violent events of the weekend are coming perilously close to crossing Beijing’s bottom line.
SCMP: Three arrested over Hong Kong ’s ‘largest-ever’ bomb plot on eve of major anti-government protest
SCMP: Hong Kong gradually returns to normal after another night of violent extradition bill protests
SCMP: At least 36 injured as rod-wielding mob dressed in white rampages through Yuen Long MTR station, beating screaming protesters
People’s Daily: 中央权威不容挑战
6.China seeks to promote its view on Xinjiang
On Sunday, the State Council Information Office issued a white paper on historical issues in Xinjiang.
Listen up: The white paper points out that China is a unified multi-ethnic country and that all ethnic groups are family members of the Chinese nation.
There’s just one problem: Recently, “hostile forces” have tried to split China by deliberately distorting history!
The white paper aims to set the record straight:
- “Xinjiang has long been an inseparable part of Chinese territory.”
- “It has never been the so-called ‘East Turkistan.’”
The paper is at pains to point out that Islam is neither:
- an indigenous religion to China, nor
- the sole belief system of the Uyghur people.
But it also notes that Islam has a place in China:
- “Islam, which integrates with Chinese culture, has taken root in the fertile soils of China and developed soundly.”
And in case you didn’t know: Xinjiang is actually at its best period in history.
Get smart: TheChinese government is trying to be proactive in shaping the narrative on Xinjiang. But the truth is that they don’t have a good story to tell.
China Daily: China issues white paper on historical matters concerning Xinjiang
SCMP: Uygurs in Xinjiang didn’t choose to be Muslims, China says in white paper
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