Is it really so utterly unthinkable that Hong Kong could ever be more than an ideological battleground between the United States and China? Long-time residents such as Bloomberg’s Matthew Brooker think so. Traders who have been driving Hong Kong Exchanges and Clearing (0388.hk) higher this week think so. The American Chamber of Commerce in Hong Kong is not quite sure, but would like to think so.
Why? Because the two countries have too much skin in the game? Is that really the best explanation that can be offered for why financial decoupling is unlikely? If so, it is weak thinking at best, complicit at worst.
The traders are easiest to forgive for not exercising their imaginations. Nevermind that HKEX is a tougher club to join than the Nasdaq for many reasons, as pointed out by the SCMP’s Enoch Yiu. These investors clearly believe a gaggle of Chinese tech IPOs are winging their way to Hong Kong, free of cyber-reviews, and that the mass migration of listed Chinese firms from New York is also imminent.
They are just following the best advice money can buy, of course. As an FT report notes, investment bankers are desperately trying to salvage lucrative IPO fees by repackaging their New York hopefuls for Hong Kong. This is despite the odds of success, as one source said: “If you want to do a deal this year, at best you’ll be delayed until 2022 and at worst you won’t be able to do it.”
Nevertheless, they deserve sympathy. None of these people could reasonably be expected to wonder whether HKEX might now be seen by American national-security hawks the same way a target moving into the open draws a bead from a Predator 30,000 feet above.
Continue reading Believe in Hong Kong, but watch the sky
Late last week, Xia Baolong told a gathering of Hong Kong’s elite that the city’s future leader had to prioritize fixing the housing market. He might have been motivated by an article that had appeared a few days before, making fun of the fact that the cost of a decent-sized flat here is what one could pay to live like an Italian duke. Or maybe he had been troubled by an analyst predicting average prices for Hong Kong homes are set to rise another 10%-20% this year.
It is not likely he was bothered by the impact on housing prices of “real and painful” talk of Hongkongers leaving the city, because Hong Kong’s current leader, Chief Executive Carrie Lam, shrugged off that news a few days later, pointing out that there would be plenty of reasons for new arrivals to be happy with the state of affairs here.
Lam might have been a bit miffed that Xia had not been reading between the lines of her interviews with local media earlier in the week. She had said that fixing the city’s property woes is her top priority for the last year of her current term. She also hinted at running for another five years, indicating that her Policy Address in October will be “visionary”.
Critics pounced to say that her past failures are an indication of the likelihood of future success on property policy. Yet what this might be overlooking is that substance could make up for Lam’s style shortcomings this time, now that she has a National Security Law to back her up.
Continue reading Hong Kong’s future lies in islands
Macau Chief Executive Ho Iat Seng has set tongues wagging with comments to local media concerning Henqin, the island in neighboring Zhuhai, suggesting the central government could be preparing to transfer control over all or part of it to the Macau Special Administrative Region.
Ho said in an interview at an event in Macau today that “there is good news” for the specific progress of the so-called Guangdong-Macau Intensive Cooperation Zone, the parameters of which have not yet been clearly defined. “It will be announced within this month or next month”, Ho said, when asked about the details, adding that “it’s not convenient to disclose the relevant information now, as this is a central government policy.”
The Guangdong-Macau Intensive Cooperation Zone concept was first announced around the time of Macau’s 20th anniversary celebrations in December 2019, presided over by President Xi Jinping. One idea floated by political observers since then is that Macau would use this framework to expand the administration of its University of Macau campus on Hengqin. The campus currently has a fence running around it and is accessed only via a tunnel from the Macau side. But other analysts see a joint administration of the entire island being more likely, as its border controls could easily be moved back from the current Hengqin crossing to two bridges connecting Hengqin to the rest of Zhuhai. These already have customs checkpoints, because Hengqin is a New Area, a kind of special economic zone.
Ho went a bit further in today’s press conference, again hinting at what lay in store for Macau in Hengqin. The whole country hopes that Macau will be stable, develop at an appropriate pace, and diversify its economy, he said. When a reporter asked if this meant Hengqin could help in this mission of diversification, he said: “That is the road the country has paved for us.”
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Hong Kong might be the obvious choice for Chinese tech IPOs after the central government tightened rules on overseas listings, but tough accounting and disclosure requirements still stand in the way, suggesting it could be months before the stock exchange (HKSE) starts to benefit, and even then, many aspiring companies might not make it. This is according to an analysis on SCMP written by its veteran capital-markets reporter, Enoch Yiu.
Companies that want to shift their listing from the US to Hong Kong may have to rework their accounts and application documents to comply with the tougher standards imposed by the Hong Kong bourse operator than US exchanges, accounting and legal sources said.
Some of the biggest differences include accounting principles and reporting standards, offshore ownership structures and classes of shares with variable voting rights. “Listing requirements in Hong Kong are stricter,” said Wang Hang, a partner at legal firm Baker McKenzie in Beijing. “The key is to evaluate whether the issuer can fulfil the listing conditions. That is to say, not all of these companies are capable of shifting [their choice of venue] to Hong Kong.”
More on SCMP
The central government has unveiled a new masterplan (known as “opinions”) for Shanghai’s Pudong district, which places it on the same level as Shenzhen. The difference between the two, according to an analysis in Shenzhen Daily, is that Pudong is now more focused on “opening”, while Shenzhen is more focused on “reform”.
There are many practical differences between the two, of course, with the most obvious being that Pudong is just a district within Shanghai, whereas Shenzhen is a city of 22 million, serving the entire Greater Bay Area. But most eye-catching, according to the SCMP, is that Pudong has been tasked with experimenting with the full convertibility of the Renminbi.
The SZNews analysis goes out of its way to emphasize that the two cities are not competing, but part of a “double forward” strategy for China, like the famous chess move.
More on SCMP and SZNews
The US government is about to issue an unprecedented official warning toward American businesses operating in Hong Kong, according to a report in the Financial Times, quoting sources in the Biden administration. The warning is understood to be related to risks of data access under recently passed national security legislation as well as new anti-sanctions legislation, recently passed by the National People’s Congress, targeting companies that comply with US sanctions against Chinese companies and individuals.
The warning will, like a travel advisory, not require actual compliance, but it is understood to be the first of its kind issued by the US government against American companies operating in Hong Kong. It is also likely to be accompanied by a new list of sanctions against officials in Hong Kong.
More on FT
The Cyberspace Administration of China will implement new regulations that would require nearly all Chinese companies seeking to list overseas to undergo a data security review, confirming a Bloomberg report from last week that said the CAC was considering such a move. There will be a review and consultation period in which the CAC seeks feedback to its proposed rules, which cover companies that hold data on more than 1 million users. The CAC said it was concerned that such data and personal information could be “affected, controlled, and maliciously exploited by foreign governments,” it said in a statement.
The new rules will cover just about every company wanting to do an IPO in the US, analysts said, and regulators are also considering requiring Variable Interest Entities (VIEs) like Alibaba Group, which have already gone public, to seek approval for additional share offerings offshore, according to Bloomberg.
So far this year, 37 Chinese companies have listed in the US, surpassing last year’s count, and raised a combined $12.9 billion, according to Bloomberg.
Read more on Bloomberg
Read our analysis of what this means for Hong Kong.
China’s most pioneering special economic zone, the one that is now referred to as a PDZSCC, Shenzhen has broken what appears to be new international ground on consumer data-protection laws. As reported by the municipal government this week, a new set of regulations stipulates that:
- App-makers may not deny service to users who do not consent to “over-collection” of their personal information;
- Users may specifically refuse consent for data-driven behavioral profiling;
- Apps may not make personalized recommendations to children under the age of 14;
- Users may not be forced to submit to facial recognition;
There are also some key provisions related to app makers using “illegal means to obtain data from other market entities,” which is a bit unclear.
Fines can range from 50,000 yuan to 500,000 yuan in “standard” cases, whereas in “serious” cases, they can be as high as 5% of the app-maker’s previous year’s revenue.
More on SZRD
Macau’s integration with neighboring Hengqin New Area under the GBA masterplan appears to be picking up after a high-level meeting was held between Macau and Guangdong last week. Macau Chief Executive Ho Iat Seng spoke of several areas of practical focus between the two sides after meeting his counterpart, Guangdong Governor Ma Xingrui, according to local media.
Foremost of these was the joint development of an area on Hengqin, yet to be formally defined, called the Intensive Cooperation Zone. It is not yet clear how this zone-within-a-zone will be governed, but it is possible that Macau law might be extended to it. This would be groundbreaking if it happens, as no such plan has yet been proposed for either of Guangdong’s two other New Areas – in Guangzhou’s Nansha or Shenzhen’s Qianhai. (Read our backgrounders on all of Guangdong’s zones, as well as specifically Nansha and Qianhai.)
What makes Hengqin more important to Macau is that the SAR is running out of space for development. Its current 20-year masterplan (2020-2040) does include land reclaimed from the sea, but nearly all of it is earmarked for residential development. Hengqin, opposite the casinos on Cotai, is seen as a place to expand industries and business – with some space already set aside for non-gaming tourism, Chinese medicine, technology, and the MICE industry, among others.
Read more on Asia Gaming Brief.
Greater Bay Insight provides bespoke consulting services for anyone interested in a deeper dive into Hengqin. We have a detailed report showing all available land usage approvals, as well as an analysis of Hengqin as a potential investment destination. Contact us for more details.
A court in Shenzhen’s Nanshan district has set a precedent for disputes involving factoring contracts, the first apparently to be heard in a local court since China’s new Civil Law came into effect this year. The court judged that parties to a factoring contract cannot assign third-party insurance to the financing party, as this would violate the country’s laws governing the insurance industry by disadvantaging potential third-party claimants.
The dispute involved the owner of a trucking business who was sued by a financing company that had provided him with financing based on accounts receivables. Under such a (factoring) agreement, financing parties usually provide needed cashflow to businesses and then collect once their accounts receivables are settled, for an additional fee.
More details on SZNews