CHINA (PRC FIRMS): An Introduction to Banking & Finance
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Overview of 2021 Banking and Finance in China
2021 was the opening year of the 14th Five-Year Plan. In this year, facing the complex and severe international situation and the arduous task of domestic reform, development and stability, China's financial industry returned to serving the real economy, pushed forward supply-side structural reform of finance, and gradually expanded opening-up to a higher level.
In capital markets, major events such as the accounting fraud scandal involving Luckin Coffee and the planned delisting from NYSE of ride-hailing tech giant DiDi Global had an adverse effect on Chinese enterprises listing overseas. Chinese enterprises listing overseas need to comply with both Chinese laws and regulations and the financial audit requirements of US regulators, creating uncertainty which undermines investors’ confidence. In December 2021, the China Securities Regulatory Commission (CSRC) formulated the Provisions of the State Council on the Administration of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments), as well as Administrative Measures for the Filing of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments). According to the drafts, Chinese companies that seek to offer and list securities in overseas markets either directly or indirectly shall fulfil the filing procedure with the Chinese securities regulatory agency. The drafts also list circumstances under which an overseas offering and listing is prohibited, such as if the intended offering and listing is prohibited by Chinese laws and regulations or may constitute a threat to national security. The content of the consultation drafts is conducive to enhancing the compliance level of Chinese companies listing overseas and protecting the legitimate rights and interests of investors, demonstrating China's determination to expand the opening-up of the capital markets. For domestic listed companies, the Beijing Stock Exchange started trading in November 2021. As the primary platform serving innovation-oriented small and medium-sized enterprises (SMEs), the Beijing Stock Exchange is exploring the mechanism for stocks to be transferred between market boards on the Shanghai and Shenzhen stock exchanges. This mechanism will build up a full-cycle institutional arrangement for capital markets to serve the innovation and development of SMEs.
Since restrictions on the proportion of foreign shares in some financial institutions were cancelled in 2020, the first batch of wholly foreign-owned or foreign-controlled financial institutions have been approved to operate in China, such as BlackRock, the first wholly foreign-owned publicly offered fund management company in China, and two foreign-owned brokerages, DBS Securities (China) and Daiwa Securities (China) in 2021. Domestic financial institutions started to compete with foreign institutions in Chinese financial markets.
To achieve its carbon peak and neutrality targets, China accelerated its steps to improving the top-level design of green finance. The People’s Bank of China (PBOC) formulated and promulgated the first batch of green financial standards such as the Environmental Information Disclosure Guidelines for Financial Institutions, earmarked CNY200 billion to support clean and efficient utilisation of coal, and announced The Green Bond Endorsed Projects Catalogue (2021 Edition) jointly with CSRC and the National Development and Reform Commission, which facilitates financial institutions to promote the high-quality development of the real economy with green finance.
In response to the accelerating ageing of China’s population, the China Banking and Insurance Regulatory Commission approved preparations for the establishment of Guomin Pension & Insurance Company Limited (Guomin Pension) in September 2021. The promoters of Guomin Pension are mainly wealth management subsidiaries of commercial banks and state-owned investment companies, unlike most existing pension insurance product providers in the Chinese market, which are the subsidiaries of insurance companies. Guomin Pension will make full use of the advantages of its bank shareholders in customer resources and brand reputation to enrich the supply of pension insurance products in the future.
During the global COVID-19 pandemic, PBOC flexibly adjusted monetary policies to support the real economy, including but not limited to across-the-board RRR cuts, LPR downgrades, and extending two monetary policy instruments that directly serve the real economy. The various monetary policy instruments will create a climate for financial institutions to benefit the real economy and increase support for SMEs and key areas of manufacturing.
Amid continuing uncertainty over COVID-19, China’s economy has taken the lead in recovering from the pandemic, attracting global capital to pursue it. In 2022, China’s financial industry will continue to prioritise stability while pursuing progress.