1. Vanguard to the back
On Tuesday, Vanguard Group announced it had halted plans to apply for a mutual fund license in China.
Why that’s a bit of a surprise: Back in August, Vanguard pulled up stakes on its Hong Kong business and moved its Asia headquarters to Shanghai.
- At the time, the American financial behemoth said it wanted to shift its focus in Greater China from institutional clients to retail investors.
That strategy has hit a snag:
- “A person familiar with the Chinese fund industry suggested [Vanguard’s] practice of not paying third-parties commissions for reselling its funds was causing distribution issues.” (FT)
- “Vanguard executives have now decided that building a meaningful presence in China’s fund industry would take longer than they expected.” (WSJ)
But Vanguard has already figured out its next pivot:
- It will double down on its joint venture with Ant Group, helping consumers to build investment portfolios, partially in hopes of eventually accessing Ant’s broad user base to sell funds.
Get smart: Index funds – Vanguard’s specialty – are a relatively new concept in China, where consumers generally try to beat overall market trends rather than ride them.
Get smarter: The recent influx of foreign mutual funds has made Vanguard’s job that much harder.
2. Southbound bond connect coming mid-2021
On Monday, Eddie Yu, chief executive of the Hong Kong Monetary Authority, revealed the timeline for the southbound bond connect program (Securities Times).
- The program will be launched as early as mid-year.
Some context: The bond connect program is an investment channel that links mainland bond markets with those of Hong Kong. So far, the program has been a one-way street, with only the northbound (i.e. Hong Kong to mainland) connect in operation.
- The northbound connect was first launched in July 2017, but the southbound channel was left out of the discussion until recently (see December 3 China Markets Dispatch).
The southbound program won’t get crazy early on, Yu said (Securities Times):
- “In the early stage, [we] expect that the investment scope will be narrow and the number of participants will be small.”
- “There may be investment quotas.”
Get this: The bond connect is now a major channel for funneling foreign capital into the domestic bond market.
- In 2020, daily trading volume via the program was RMB 30 billion – 52% of total foreign inflows into the China interbank bond market (HKMA).
Get smart: Regulators are showing more willingness to loosen the valve on capital outflow now than a year ago. That said, the pace of capital account opening will remain gradual.
3. Fudge around and find out
The China Securities Regulatory Commission (CSRC) ain’t messing around.
The regulator is planning to lay the smackdown on a Shanghai-listed chemicals producer, Guangdong Rongtai Industry Co.
The reason: Guangdong Rongtai had been engaged in some serious disclosure fudgery (Caixin):
- “[The company] its chairman and some employees are facing penalties…for falsifying profits and information disclosure violations.”
Now the CSRC wants to use the recently revised Securities Law to make them pay:
- “The regulator is proposing a total fine of 3 million yuan on the company including a 2.5 million yuan penalty for disclosing false information in its annual reports, a violation that carries a maximum financial penalty of 10 million yuan.”
- “That compares with the maximum fine of 600,000 yuan the same offence would have incurred under the previous version of the law.”
Some context: Back in 2019, Beijing revised its outdated Securities Law, ramping up punishments for disclosing false information in a bid to improve China’s listed companies.
Get smart: Regulators know that rule-governed bourses and law-abiding listcos are key to the development and health of China’s financial system.
Get smarter: This is a harsh warning for companies to play by the rules or face consequences.
4. Xi calls Caribbean leaders
On Tuesday, Xi Jinping jumped on the phone with two of his friends in the Caribbean.
Why that’s interesting: Nine of the 14 countries that still recognize Taiwan are in Latin America and the Caribbean.
- China has been making a big push in the region under Xi.
Speaking with Prime Minister Keith Rowley of Trinidad and Tobago, Xi praised the islands past support (Xinhua 1):
- “This year marks the 50th anniversary of the restoration of the lawful seat of the People’s Republic of China in the United Nations.”
- “China will never forget the valuable support of Trinidad and Tobago.”
And talking to President Irfaan Ali of Guyana, Xi urged (Xinhua 2):
- ”[Guyana to play] a positive role…in promoting cooperation between China and Caribbean countries as a whole.”
That should be no problem:
- “Guyana-China friendship is strong and firm, Ali said, noting that Guyana firmly abides by the one-China principle.”
- “[Guyana] regards China as the most important cooperative partner in [our] national development.”
Get smart: Beijing wants to spread the word that a partnership with the mainland brings some serious benefits.
The bigger picture: Ultimately, the number of countries switching loyalties from Taipei to Beijing doesn’t really matter.
- China’s real problem is that most Taiwanese do not recognize Beijing as their rightful ruler.
5. A moveable Beijing
On Tuesday, Executive Vice Premier Han Zheng chaired a meeting of the Jing-Jin-Ji Development Leading Small Group.
Some context: Jing-Jin-Ji refers to Beijing, Tianjin, and Hebei. Xi Jinping wants to better integrate the three areas into one giant megalopolis. It’s one of a set of regional development strategies including:
- The Greater Bay Area
- The Yangtze River Delta
- The Chengdu-Chongqing “economic circle”
The meeting’s read-out was a familiar wishlist for the region:
- More integrated transportation infrastructure
- Improved management of airports and ports
- Better public services and environmental protection
Also on Han’s priority list – shrinking Beijing (Gov.cn):
- “It is necessary to promote a steady, orderly deconstruction of Beijing’s non-capital city functions”
More context: For the last few years, Xi has been quietly pushing efforts to relocate a number of businesses and government offices – and tens of thousands of staff – out of Beijing’s central districts.
Get smart: So far, it’s proven difficult to persuade officials, let alone businesses, to relocate to the ‘burbs.