1. Financial regulatory scrutiny stays intense
Regulators are keeping up their efforts to root out malfeasance in the financial sector – doling out huge fines on a monthly basis.
Yicai reports on the latest:
- “Regulators in China have charged financial firms with 138 violations of rules and fined them CNY127 million (USD18 million) since the beginning of this month.”
And it’s not just smaller, private banks – the big SOE banks are in the crosshairs too:
- “Two branches of the Bank of China, one of the country’s largest state-owned lenders, accounted for almost half of the fines.”
The idea is to hold individual institutions accountable, down to the branch level:
- “The bank’s Jilin province branch was fined CNY29 million for…invalid internal controls, providing fake data to regulators and other criminal offences.”
- “Its Jilin city branch was fined CNY22.5 million.”
It also helps that individuals are being held personally responsible:
- “The branches’ managers and deputy managers were either banned for life from working in the banking sector or were suspended for three years.”
Get smart: The “financial regulatory storm” rages on.
Yicai:China Fines Financial Sector Offenders USD18 Million This Month
2.Government focuses onbusiness environment
China has released draft implementing rules for the upcoming Foreign Investment Law.
Some context: China’s new Foreign Investment Law, approved in March, comes into effect on January 1, 2020.
Foreign companies like what they see.
Just take it from European Union Chamber of Commerce in China President Joerg Wuttke (CNBC):
- “It is surprisingly accommodating to all concerns … we have.”
That’s not all.
The government is also going all out to improve the business environment more generally.
On Wednesday, the State Council released new regulations for optimizing the business environment.
Some context: Tip Sheet readers saw these coming. They were approved two weeks ago (see October 9 Tip Sheet).
The new regs say that:
- All businesses should have equal access to factors of production.
- Government policies should treat all businesses equally.
- The government will step up IPR protection and introduce harsher penalties for IPR infringement.
- Administrative procedures will be made simpler and more transparent.
Get smart: The new regs don’t actually list new rules. Rather, they pull all business environment-related rules into one handy doc.
Our complaint: The regs are light on penalties should officials fail to follow the rules.
CNBC:EU Chamber says China’s new foreign investment law is ‘surprisingly accommodating’
Bloomberg:China’s New Investment Law a Positive Step, Foreign Firms Say
3. Zhong Shan wants to up China’s trade game
This just in: China’s foreign trade is suffering from the trade war with the US.
Yesterday, Minister ofCommerce Zhong Shan gave a report to the national legislature on the matter.
According to Zhong, foreign trade is critical to job security:
- Trade is directly and indirectly responsible for 180 million jobs, over 20% of China’s total.
In addition to the trade war, Zhong identified several other factors that are negatively impacting on China’s trade:
- China’s rapidly losing its comparative advantage on costs.
- The country is still stuck in the lower and middle part of the value chain.
- The service trade deficit is still huge.
- Europe and the US still call the shots in making international economic and trading rules.
Zhong’s plan to address these issues:
- Increase the proportion of trade with FTA partner countries, emerging markets, and neighboring countries
- Increase imports by lowering transaction costs
- Create more service sector openings in FTZs
- Get RECP, the China-Japan-Korea FTA, and the China-EU investment agreement over the line ASAP
Get smart: The trade war is finally staring to bite and officials are getting nervous.
What to watch: The central government should release a high-level document to improve trade soon.
4.State Council looks to stabilize trade
Zhong Shan is not the only official talking about trade.
Wednesday’s State Council executive meeting was all about stabilizing foreign trade.
The meeting acknowledged that it’s been a crazy year:
- “This year, all localities and relevant departments have actively responded to changes in the external environment.”
- “[We] are facing a new situation and new challenges.”
To respond, the government is taking a four-pronged approach. It’s looking to:
- Issue more supportive policies on export tax rebates, trade financing and credit insurance
- Improve the functioning of free trade zones and comprehensive bonded zones
- Expand cross-border e-commerce
- Increase imports of needed goods, particularly agricultural products, daily consumer goods, equipment, components, and parts
Get smart: Although the fourth point calls for increased imports, the more pressing goal is to shore up China’s export sector.
Gov.cn:李克强主持召开国务院常务会议 听取国务院第六次大督查情况汇报 要求着力破除政策落实堵点等
Gov.cn:China to enhance efforts to keep foreign trade, investment stable
5.State Council takes cautious steps towards opening capital account
As part of its efforts to improve trade, Wednesday’s State Council meeting also promised to lift restrictions on some capital account transactions.
Here’s what the meeting promised:
- “Procedures for receipts and payments of related funds will be simplified for micro and small cross-border e-commerce companies.”
- “The reporting process in foreign exchange businesses for trade in goods will be improved.”
- “Enterprises will make their own decisions on whether to set up verification accounts.”
- “Registration for the list of foreign exchange receipts and payments for trade will be facilitated for enterprises and their subsidiaries.”
- “Project contractors will be allowed to put their overseas funds under unified management.”
- “Limits on the number of foreign currency accounts under capital accounts will be removed, to facilitate foreign exchange settlement under capital accounts.”
Our take: These are all small steps, but do show that the direction of travel is toward greater openness on the capital account.
But…don’t get too excited. The meeting was also quick to point out:
- “At the same time, [we must] pay attention to preventing risks from the flow of cross-border capital, and preserve financial stability.”
Get smart: Chinese leaders are nowhere near close to feeling comfortable with a completely open capital account. We will see continued opening, but it will be gradual and controlled.
Gov.cn:China to further facilitate cross-border trade, investment