Tag Archives: reform

Shanghai as Shenzhen’s chief competitor?

SCMP has a long and winding report today comparing Shanghai and Shenzhen, posing the question of which will lead the country in the next stage of its growth, as both have been given new briefs recently to accelerate reforms. To our minds, such analysis misses a key point – that China is a big country. Two cities so far apart are likely to have very little overlap: Shanghai will drive the Yangtze River Delta (which still hasn’t come up with a sexier name like the Greater Bay Area), while Shenzhen will drive the Pearl River Delta.

The other major difference between the two is that Shenzhen has a better support team: Hong Kong to provide capital flows, Guangzhou to provide administrative drive, Dongguan to take overflowing high-tech manufacturing capacity, and the entire west bank to provide lebensraumfor the city’s expansion (see today’s high-speed railway story). Shanghai has cities like Nanjing, Ningbo, Hangzhou and Suzhou, for sure, but little of the integration work that has already gone into tying them together like has happened in the GBA. 

Shanghai has some way to catch up as an engine of growth for its own part of China without having to worry about competing with Shenzhen.

Moreover, whatever one might say about Shanghainese entrepreneurial spirit, it doesn’t have two things: Cantonese cultural ties with its neighbors, and, perhaps more importantly the bestowal of permission by Beijing to ramp up convertibility of the Renminbi (see our D-RMB story from yesterday).

Ask any Shenzhenrenabout competition from Shanghai and they will likely look at you incredulously. Guangzhou is the city they plan to stay ahead of, and Hong Kong is the city they plan to overtake. All in good time.

Coming up: Shenzhen’s new fintech trick

Yesterday the Shenzhen Evening News had a long article extolling the virtues of the Futian district as the city’s financial heart. The main thrust of the piece is preceded by accounts of what the political leadership has been up to recently, including that Party Secretary Wang Weizhong met on August 29 with Yi Gang, head of the central bank, in Shenzhen. They discussed what any two cadres with their fingers on the pulse of international finance would: Internationalization of the renminbi, digital currency research, green finance, etc. They decided to, first and foremost, continue to deepen financial reform and opening up, realize the high-quality development of Shenzhen’s financial industry, and fully promote the implementation of the major decision-making arrangements of the Party Central Committee.

Continue reading Coming up: Shenzhen’s new fintech trick

Zhuhai, Shenzhen launch new promos

On the eve of their 39th anniversary (officially) as China’s first special economic zones, both Shenzhen and Zhuhai have launched concerted efforts to portray themselves as “international” cities. These are noble efforts, and the slick videos they have produced are well worth watching.

Continue reading Zhuhai, Shenzhen launch new promos

Hang Seng jumps into new LPR-based lending market

Now that China has a benchmark interest rate, called the Loan Prime Rate (LPR), Guangdong banks and companies are wasting no time using it.

The LPR is set to be launched today and then published on the 20th day of every month. It will be set based on quotations submitted by 18 commercial banks. The central bank has added eight medium and small banks, including two foreign-funded banks, to the existing list of 10 nationwide banks that are allowed to submit quotations to the previous national one-year LPR.

Although Hong Kong’s lending behemoth, HSBC, was left off the list, its subsidiary, Hang Seng Bank, has already jumped into the fray and launched a tranche of loans to companies in Guangdong based on the LPR. Over 30% of the RMB150 million the bank is handing out will go to private enterprises, encompassing trade financing and revolving credits, according to the bank.

“The private sector is highly active in Guangdong and SMEs’ financing needs are strong,” said Qu Weiquan, head of commercial bank at Hang Seng Bank (China). “Thanks to the openness of Guangdong’s finance market, the financing solutions targeted at these companies have always had more flexibility and the market is more acceptable to the new LPRs.”

According to the state media, under the new system, banks will submit their prices in terms of basis points added to the interest rates on funding they receive from the central bank in the open market to form an LPR, which represents a shift away from the current practice of referring to the more expensive one-year benchmark lending rate.

The move, aimed at lowering borrowing costs for the economy, is considered as a milestone in reforms started four decades ago to loosen state control of the economy.

The banks’ lending interest rates will be linked to the interest rates on the PBOC’s lending to the banks through open-market operations, giving the central bank a way to still affect the cost of borrowing.

The PBOC said the goal of the move is to make the national LPRs a more market-oriented mechanism so as to lower borrowing costs in the real economy.

Some analysts believe the new LPR regime could favor big state-owned borrowers while delivering few benefits to SMEs as looming growth headwinds and financial risks have been making banks more risk averse.

Still, few banks will be able to turn their nose up at the PBOC. Economists from Nomura were quoted by Caixin Global as saying banks may need to do some “national service” by lowering their average loan rates, but they may try to make up for their lower profits by increasing the price of riskier loans to the private sector and SMEs.

Economists at China Merchants Securities also think that if the implicit floor on lending rates is eliminated, the borrowing costs of big companies will probably decline substantially. But more policies will be needed to lower the borrowing costs of SMEs, which are relatively high risk and have little bargaining power.

Qianhai takes another bold step in forex reform

The hits keep coming from Qianhai, the special economic zone in Shenzhen that appears to be the spearhead of the next stage of major reform for the country.

The Shenzhen Foreign Exchange Bureau has issued detailed implementation guidelines for pilot reforms of foreign exchange in the zone, located in the Shekou district. These put forward a batch of initial trial policies that include allowing the use of forex earnings in domestic equity investment, a type of cross-border financing for local enterprises.

Continue reading Qianhai takes another bold step in forex reform

Shenzhen takes the lead from HK?

Guangdong leads the country: In the first half, the province’s GDP broke the RMB5 trillion mark, ahead of Jiangsu (RMB4.86 billion) and Shandong (RMB4.18 billion).

Shenzhen leads Guangdong: Its economy is not only the province largest, RMB1.213 trillion over six months, but the fastest-growing, up 7.4% YoY.

Who leads the Greater Bay Area?

Continue reading Shenzhen takes the lead from HK?

Financial opening accelerated

Foreign shareholding limitations are being scrapped in securities, asset management and futures firms by next year, a year ahead of schedule, according to the Financial Stability and Development Commission.

Only those who haven’t been paying enough attention, or who don’t subscribe to insightful newsletters, should be surprised by the announcement of 11 reform measures pledging to allow foreign capital access to more sectors including bond markets, insurance, asset management and pension funds. 

Continue reading Financial opening accelerated

Hukou reforms under way

Here is an interesting follow-up to yesterday’s announcement of reforms to China’s hukou system. The central government announced changes to lift household registration restrictions for people who live and work in some second- and third-tier cities. The easing policy has, in fact, been signaled since October 216 when the State Council released a proposal to allow 100 million migrant workers with countryside hukou to settle in smaller cities. In February this year, the National Development and Reform Commission suggested eliminate household restrictions for farmers-turned-urban workers in all cities except the few mega-cities.

In the GBA, Zhuhai, Huizhou, Jiangmen and Zhaoqing have been gradually relaxing their hukou policies to attract more skilled workers. The new policy means these cities will no long require yearly minimum social security contributions and can fully open their doors, according to the 21st Century Business Herald.

Major cities such as Dongguan and Foshan with populations above the 5 million level and mega cities such Guangzhou and Shenzhen with population well over 10 million will also have space to further ease their restrictions, apparently. Currently Guangzhou extends its hukou to bachelor-degree holders under 40 while Shenzhen entices all fresh college graduates. The two cities in 2018 attracted 406,000 and 498,300, respectively, new permanent residents.

In 2018, for the four consecutive year, more than million people, or 1.77 million to be precise were given permanent residency status in Guangdong province, topping the charts in China. This showed Guangdong’s reliance on the inflow of talent is greater than the other Chinese provinces. How to keep these skilled workers and turn them into the province’s permanent assets will be a priority for the development of the Greater Bay as a whole.

Zhou Zhonggao, deputy director of the Research Institute of Talent Development at the Guangdong Academy of Social Sciences, said that the State Council’s latest announcement will help rio the system of obstacles for more efficient labor allocation. The new policy will also help increase the population volume in the smaller cities surrounding the major urban cluster, further strengthen the capability of population aggregation and improve the overall competitiveness. This, coupled with the supporting policies for industrial developments as well as public services, will positively affect the GBA’s comprehensive competitiveness.

Read more here (in Chinese).

Caixin Global explains the hukou system and its social impact here.