1. China continues to open up to foreign investors
On Saturday, Fang Xinghai, vice chairman of the China Securities and Regulatory Commission (CSRC), took the stage at the China International Finance Annual Forum 2021.
Fang’s reassuring message: China will continue to open up to foreign investors.
Specifically, he said China would:
- Expand the channels for foreign investors to participate in the domestic securities, futures, and commodities markets
- Make it easier for foreign investors to allocate RMB assets
- Promote the participation of foreign institutional investors in the exchange bond market
- Facilitate more foreign institutions to issue panda bonds
- Deepen interconnection with foreign capital markets
- Improve the domestic issuance and listing system for foreign entities
But Fang kept mum about the CSRC’s plan for Chinese stocks listed abroad, saying only that:
- “[The CSRC will] improve the regulatory system for companies listed overseas.”
He also threw his full support behind Hong Kong’s continued development as a financial hub, calling for:
- Launching A-share index futures in Hong Kong
- Supporting domestic and foreign companies looking to list there
Get smart: With domestic listings, including in Hong Kong, becoming more attractive to Chinese companies, the CSRC wants to ensure that foreign investors can still invest by making it easier for them to access Chinese capital markets.
2. A yuan-denominated future?
On Friday, the State Council published a notice outlining the next round of reforms in China’s 21 pilot free trade zones (FTZ).
Some context: Beijing has a long history of introducing key reforms in pilot zones and regions – and these FTZs are no exception.
There are lots of juicy tidbits in the document:
- But what really caught our eye were the efforts to better link international commodities markets with domestic ones via FTZs.
On that front, the notice calls to (Gov.cn):
- Expand cooperation between domestic futures markets and FTZs
- Improve regulation of bonded warehouses where imported commodities are inspected and stored before being used to fulfill futures contracts
- “Accelerate the introduction of overseas traders [and] build an international commodities futures market priced and settled in RMB.”
ICYMI: Beijing has been battling to bring down sky-high commodities prices for most of the year – but key drivers of upstream inflation are mostly beyond China’s borders and, therefore, regulators’ control.
- Over time, this move to boost the RMB’s role could change that.
Get smart: China is the biggest buyer of most major commodities – but global benchmark prices are still set in USD on international exchanges.
- That’s a big headache for Beijing.
Get smarter: Attracting global futures traders to domestic markets will be easier said than done.
3. Liu He’s loving message to private tech
On Monday, Chinese vice premier and economic czar Liu He delivered the opening remarks at the 2021 China International Digital Economy Expo via videolink.
Liu’s message: The digital economy is key to innovation (Xinhua):
- “[We] need to develop the digital economy with a strong sense of innovation and urgency.”
Liu also harped on the importance of cultivating tech talent to provide the imagination and ingenuity necessary to build an innovative economy.
The elephant in the room: Beijing’s relentless crackdown on the tech sector has made it a less attractive to China’s best and brightest.
But Liu signaled China would stay the course:
- He said the government will look to support the development of the tech industry by improving the legal environment, including by protecting fair competition and opposing monopolies.
Translation: “Improving the legal environment” is a euphemism for more – and more rigorously enforced – regulations.
But Liu stressed the Partystill has the back of private companies:
- “[Our] policy of supporting the development of the private economy has not changed…and will not change in the future!”
Get smart: Policymakers believe they’re doing the wider industry a favor by regulating the big guys.
- They hope it will create more breathing room for the little guys.
Our question: Will the little guys be able to carve out the space they need to survive?
4. Alright stop, cooperate and listen
We’re rolling the dice.
On Sunday, the Party Central Committee and the State Council released a plan to transform Zhuhai city’s Hengqin district into a cooperation zone between Guangdong province and Macau.
Some context: Hengqin is an island adjacent to both Zhuhai and Macau.
Under the new plan:
- Hengqin will be jointly administered by Guangdong and Macau and fall under the purview of the Greater Bay Area (GBA) Leading Small Group.
- Trade and investment policies in Hengqin will be liberalized to conform with Macau’s relatively free economic system.
- Qualified industries operating in Hengqin will enjoy a preferential enterprise income tax rate of 15%.
- Domestic and overseas “high-end talents” will also get income tax breaks.
This is a big deal for Macau’s development:
- In recent years, Macau’s growth has been sorely constrained by its miniscule size.
- Hengqin is three times Macau’s size, giving the city the room (and administrative leeway) to expand.
Get smart: This move is all about diversifying Macau’s economy away from tourism and gambling – which account for 72% of its GDP.
Get smarter: Hengqin will also be a new laboratory for GBA integration.
- A successful blending of Macau and mainland administration could serve as a blueprint to develop more, highly liberalized cooperation zones.
5. Doin’ the Didi shakedown
On Friday, Bloomberg reported that the Beijing municipal government had proposed to take a stake in Chinese ride-sharing giant Didi.
The deets (Bloomberg):
- “Under the preliminary proposal, Shouqi Group…and other firms based in the capital would acquire a stake in Didi.”
- “It’s unclear how large a stake the city is eyeing and whether its proposal will be approved by senior government officials.”
- “The city’s proposal could entail taking a sizeable slice of Didi or a nominal stake accompanied by a golden share and board seat, [sources] said. The latter model would [give] the state entity veto-rights over important decisions.”
Didi has denied the story, calling it ‘fake news.’
Some context: Shouqi Group is controlled by Beijing Tourism Group, which is wholly owned by the Beijing municipal government.
- Shouqi Group also owns ride hailing service Shouqi Yueche, a small competitor of Didi’s.
Get smart: Fake news or no, it’s hard to tell how much of this rumored stake takeover is local opportunism vs. a concerted push for broader state oversight of China’s tech platforms.
- Shouqi Group is likely one of the many public- and private-backed companies looking to take advantage of Didi’s recent misfortune.
Get smarter: That said, there’s no denying there’s a trend here.
- We’ll likely see more government-affiliated bodies taking stakes in tech firms in the near future.
6. And David Attenborough wept
On Thursday, US climate envoy John Kerry wrapped up his trip to China.
ICYMI: During his stay in Tianjin, Kerry met a veritable who’s who of top Chinese officials, including:
- Executive Vice Premier Han Zheng
- Beijing’s highest-ranking diplomat Yang Jiechi
- Foreign Minister Wang Yi
- Climate Envoy Xie Zhenhua
On Friday, the Ministry of Ecology and Environment (MEE) published a rather chirpy readout about Kerry’s trip:
- “China and the United States fully exchanged views on the urgency of the severity of global climate change [and] the cooperation arrangements for climate change dialogue.”
It said that more joint climate effort would be forthcoming:
- “The two sides agreed to continue dialogue and consultation, continue to take action on climate change, promote practical cooperation, [and] jointly promote the multilateral process.”
Get smart: Such positive readouts following a visit are par for the course.
- It’s still doubtful if these pleasant sentiments will translate into concrete action.
Get smarter: Cooperation is still on the table, but China’s position remains unchanged – namely that full cooperation hinges on rebuilding trust between China and the US.
- Beijing believes it’s on the US to repair that trust.
7. It’s extremely difficult being green
On Friday, Premier Li Keqiang had a mouthful to say about the environment.
Some context: He delivered two back-to-back keynote addresses (from the same, video-linked desk) to:
- The 7th World Conservation Congress
- The 2021 Taiyuan Energy Low-Carbon Development Forum
The gist: Li touted China’s commitment to and progress on environmental protection, and encouraged more international cooperation to address climate change.
That’s not all: Li had some specific asks, calling for countries to:
- Elevate the ratio of non-fossil fuels in primary energy consumption
- Enhance the protection of oceans, forests, grasslands, and wetlands
- Strengthen the restoration of endangered wildlife conservation areas to increase biodiversity
- Promote green finance, green technology, the circular economy, and industrial upgrades
- Refrain from pursuing heavy pollution and high emissions projects to boost post-pandemic recovery
The tune is set: China has been actively advocating environmental protection since Xi Jinping came to power in 2012.
- Having the second highest ranking official in China deliver these keynote addresses further demonstrates Beijing’s public resolve to change environmental practices.
Get smart: Beijing’s ambition to reach net-zero is clear.
- But what government agencies and the business community alike are waiting for is an actionable and coherent roadmap to achieve Beijing’s monumental climate goals.