Top News

       1.  The China Banking and Insurance Regulatory Commission (CBIRC) was formally established, forming new finance supervision landscape in China 

       On March 13th, the Central Committee of the CPC issued the Plan on Deepening Reform of Party and State Institutions, planning to combine the duties and responsi-bilities of the former China Banking Regulatory Commission and the China Insurance Regulatory Commission into the China Banking and Insurance Regulatory Commis-sion as a public institution that operates directly under the State Council. Former chairman of the China Banking Regulatory Commission, Guo Shuqing, acts as the chairman of the CBIRC, as well as the secretary of the party committee and the Vice President of the People’s Bank of China. On April 8th, the CBIRC was officially es-tablished. The 15-years old regulatory pattern of “One Bank and Three Commissions” was replaced by “One Bank and Two Commissions” to comprehensively strengthen supervision, optimize the allocation of supervision resources and prevent systematic financial risks. On December 17th, 36 Banking and Insurance Regulatory bureaus at provincial levels were officially set up. The three-level supervision system in China’s provinces, cities and counties was therefore formally formed.

       2. New regulations on asset management were carried out to regulate asset management business of all sorts

       On April 27th, the People's Bank of China, the China Banking and Insurance Regulatory Commission and the State Administration of Foreign Exchange jointly published the Guiding Opinions on Regulating Financial Asset Management Busi-ness of Financial Institutions (hereafter referred as the Guiding Opinions), encom-passing under a unified supervision framework nearly one hundred trillion RMB worth of various products from diversified institutions, including banks, trusts, secu-rities, funds, futures and insurances. On September 26th, the China Banking and In-surance Regulatory Commission issued the Measures for the Supervision and Ad-ministration of Financial Banking Business of Commercial Banks as supporting rules to implement the Guiding Opinions. The China Securities Regulatory Commission released the Measures for the Administrative Measures for Private Asset Manage-ment Business of Securities and Futures Operating Agencies on October 22th. On December 2nd, the China Banking and Insurance Regulatory Commission published the Administrative Measures for Commercial Banking Financial Subsidiaries as supporting rules of the Guiding Opinions. On December 26th, the application of the China Construction Bank and the Bank of China for financial subsidiaries was offi-cially approved by the China Banking and Insurance Regulatory Commission. The two banks, therefore, became the first to obtain such approval. 

       3. The “One Bank and Two commissions” jointly promote financial development and support private enterprises, carrying out the crucial spirits of President Xi’s speeches

       4. Responding to the major decisions and arrangements made by the Central Government, using multi-measures of banks, securities and insurances to open the financial industry wider to the outside world 

       Since 2018, in response to the decisions and arrangements of forming new pat-terns of opening up made during the 19th National Congress of the CPC, to carry out the spirits of President Xi’s speeches during the Boao Forum for Asia on accelerating the opening up measures and during the First China International Import Expo on continuing to expand the market access, the “One Bank and Two Commissions” have brought out over 35 policies on financial openness, expanding the market ac-cess and the scope of business of large foreign banks, and the insurance, security, fund and future industries, as well as opening wider to the world the financial market. On November 9th, the People's Bank of China and the CBIRC approved after deliberation the application of American Express’ joint venture in China for establishing bank card clearing agencies. It is the first foreign capital clearing institution in China. On November 25th, CBIRC authorized Allianz SE to establish the first foreign insurance holding company in China. On November 30th, the China Securities Regulatory Commission examined and approved UBS Securities Co. Limited to become the first foreign-owned securities companies.

       5. China’s Central Bank resumed using the “counter-cyclical factor” to ease the pressure of RMB devaluation

       In May 2017, to moderately hedge the pro-periodic fluctuation of the market sentiments, core members of the foreign exchange market self-discipline mechanism have, based on the market-oriented principle, adjusted the quotation model of the central parity rate between RMB and USD— “closing price + exchange rate changes of a basket of currencies”— to a model of “closing price + exchange rate changes of a basket of currencies + counter-cyclical factor”. On January 2018, the cross-border capital flows and the supply and demand of foreign exchange in China saw a trend of stabilization. Quoting banks have neutralized the “counter-cyclical factor” according to their judgments on the economic fundamentals and market con-ditions. On August, the forex market witnessed some pro-periodic behaviors as the results of the strengthened USD Index and trade frictions, quoting banks of the central parity rate of RMB against USD resumed using the  counter-cyclical factor. Such move has effectively eased the pro-periodic behavior of the market and the pressure of RMB devaluation, stabilized the market expectation and reduced the conflicts between interest rate and exchange rate stability.

       On November 5th, the First China International Import Expo was hold in Shanghai. Chinese President Xi Jinping attended the Expo and delivered the keynote speech, announcing the establishment of the sicence and technology innovation board with a pilot registration system, to support the development of the Shanghai International Financial Center and the Science and Technology Innovation Center. During an interview, the spokesman of the China Securities Regulatory Commission pointed out that the establishment of the board is the response and implementation of the innovation-driven strategy and the strategy of invigorating China through the development of science and technology. It marked a major reform initiative to promote high-quality development and support the formation of Shanghai International Financial Center and the Science and Technology Innovation Center. China Securities Regulatory Commission and Shanghai Stock Exchange will accelerate the institutional and regulatory arrangements of the science and technology board according to related laws, regulations and policies, learning from international experience, perfecting the transparency of listed companies and balancing the extent and the progress of the pilot project.

       The Shanghai-London stock connect will allow the qualified listed companies in Shanghai and London to issue depository receipts and go public in each other’s market according to the laws and regulations of the other market. On October 12th, China Securities Regulatory Commission released the Trial Rules on Depositary Re-ceipt Business in the Shanghai-London Stock Connect Program, which has come into force since the day of promulgation. On November 2nd, the Shanghai Stock Ex-change officially published relevant business rules on the depositary receipt business in the Shanghai-London Stock Connect program, marching one step closer to the formation of the Shanghai-London Stock Connect. The Shanghai-London Stock Connect will bridge the two markets through the international conversion of deposi-tory receipts and underlying securities.

       By the end of 2018, over 60 countries and regions have used RMB as reserve currency, including European Central Bank, the central bank of France, Russia, Sin-gapore and other countries. Over 30 countries and regions, including Russia, Aus-tralia, Korea and Singapore, etc., have signed currency swap deals with China. Over 693 foreign institutions now hold RMB bonds. More than half of them are released by institutional investors from the United States, the U.K., Australia, Japan, Korea, Germany and France. Steady progress has been made in internationalizing the RMB.

       On November 27th, the Central Bank, CBIRC and CSRC jointly published the Regulatory Opinions on systemically important financial institution to further im-prove the supervision framework of the systemically important financial institutions in China. It is highly significant in safeguarding the baseline of systematic financial risks and guaranteeing the steady operation of the financial system. According to the regulatory opinions, apart from the five largest state-owned banks, China Develop-ment Bank and large joint-stock banks, non-financial institutions like securities trad-ers that have large scale of assets and wide range of impact, insurance companies, Ant Financial Services Group and so forth could also be listed as systemically im-portant financial institutions. The supervision framework of systemically important financial institutions was formally agreed on the 2010 G20 Summit to solve the problem of “too big to fail” that caused much attention during the 2008 financial crises.

       From December 19th to 21st, the central economic work conference was con-vened in Beijing. Chinese President, General Secretary of the Communist Party of China Central Committee and chairman of the Central Military Commission, Mr. Xi Jinping delivered an important speech. The conference pointed out that China will strengthen counter-cyclical adjustments in its macro policy, continue to implement the proactive fiscal policy and the prudent monetary policy, make pre-emptive ad-justments and fine-tune policies at the proper times, and ensure stable aggregate de-mand. Bolder and more effective measures must be taken to implement the proactive fiscal policy, with a larger scale of tax and fee cuts and a relatively substantial increase in the issuance of special-purpose local government bonds. China will keep the prudent monetary policy "neither too tight nor too loose" while maintaining market liquidity at a reasonably ample level and make direct financing more accessible and affordable for the private sector and small businesses.

       To address capital flight and stabilize currency value, several emerging economies in Asia tightened their monetary policies and raised the interest rate. In the first three quarters, Indonesia and Philippines have raised their currency rates by 1.5 percentage points, while India and Malaysia raised by 0.5 and 0.25 percentage points. Thailand's central bank convened a meeting on its monetary policies in December and decided to raise its benchmark interest rates from 1.5% to 1.75%. It is the first increase of such in the past 8 years. At the same time, Indonesia, India and Philippines reduced their foregn reserves to ease the pressure of devaluation. The forex reserves of these countries respectively fell by $15 billion, $11.7 billion and $5.9 billion.

       On December 19th, AIIB approved the accession of Algeria, Ghana, Libya, Morocco, Serbia and Togo, thus raised its numbers of membership T to 93. There were only 57 member states who signed the agreement to join the AIIB before its establishment in January 2016. In 2017, 27 states and regions became AIIB members. Another three members joined the AIIB in May and June 2018. AIIB declared that it will continue to welcome new members. The steady expansion showcases the confidence the world has on AIIB.

       On December 24th, in accordance with the 2018 review released by the Hong Kong Stock Exchange, Hong Kong topped global rankings for IPO volumes, which has amounted to 277.8 billion HKD (about 35.58 billion USD), a record high since 2010. According to information released by the Hong Kong stock exchange, the IPO volumes of NYSE and Nasdaq reached 28.574 billion and 23.668 billion USD, ranking the second and the third. As Vietnam opens its domestic market to the outside world, it has defeated Singapore, for the first time, to become the country that has the largest IPO volumes in South-East Asia. The real estate agency Vinhomes has raised 1.35 billion USD, becoming the largest IPO in the Vietnam history and the second largest IPO in South-East Asia.

       On July 31st, the Bank of Japan decided to allow for greater flexibility in its monetary policy. It is carried out in a sustainable way through fine-tunes of policies to support large scale loose policy, including maintaining the short-term interest rates at -0.1%, controling the return rates of 10-year government bonds around 0% by purchasing long-term government bonds and allowing certain extent of fluctuations according to the economic trend and price level. On August 10th, the total asset of the Bank of Japan registered 549 trillion Yen, surpassing the nominal GDP of 2017 for the first time after the WWII. With the large scale monetary easing policies, huge amount of purchase of government bonds, the total asset of the central bank continues to increase, the Bank of Japan stated for several times that Japan’s economy are witnessing “moderate expansion”. The large scale monetary easing policies would continue as the goal of inflation has not yet been achieved, and will be obtained through controls of the yield curve and QQE measures.

       Chinese premier Li Keqiang attended the 7th China-Japan-Republic of Korea leaders' meeting and made official visit to Japan on May 8-11. During the visit, Premier Li stated that the stability and development of finance is crucial to facilitate investment and strengthen cooperation in services and trade. China has granted Japan a 200 billion RMB RQFII quota, supporting Japanese financial institutions to invest in Chinese capital market through RQFII. Meanwhile, China holds a positive attitude in establishing a RMB clearing bank in Tokyo. From October 25th to 27th, Japanese prime minister Shinzo Abe, after 7 years, paid an official visit to China. The two sides achieved consensus in safeguarding free trade, opposing to protectionism and accelerating the negotiation on the China-Japan-ROK Free Trade Area and the Regional Comprehensive Economic Partnership Agreement. China and Japan will establish currency swap and other international financial cooperation mechanisms to ultimately get rid of the dominance of the USD. As China and Japan share deeper financial collaboration, the AFCA has successfully hold the AFCA - Tokyo Financial Summit Forum in Tokyo on September 10th, which was themed as “Financial Innovation and Cooperation Along with the Development of Emerging Industry”, injecting much vigor to the bilateral financial cooperation. 

       On April 10th, the Bank of Japan said that Japan and Hong Kong will connect their financial systems to immediately settle transactions involving assets denominated in their respective currencies, which will be a great achievement by the international central banks. Under this scheme, the Bank of Japan and the Hong Kong Monetary Authority will facilitate real-time settlement between Japanese government bonds (JGBs) and Hong Kong dollars. The Japanese financial institutions will be able to procure Hong Kong dollars with JGBs as collateral through the central bank network. The system will also give Hong Kong financial institutions a platform to invest short-term excess funds. Once the new system kicks in, the Japanese banks doing business in Hong Kong will be able to procure Hong Kong dollars without having to pay the cost of exchanging yen for the greenback. The two central banks will begin work on the new system soon, and aim to complete it by spring of 2021.

       Asian shares dropped in 2018 and many countries showed the worst performance in stock market since financial crisis, as a result of the rate hikes by the U.S., the surging global trade conflicts, and the slower growth in the region. Among the major stock indexes, only the Indian stock market kept the up-trend, ranking the second in the global market with its cumulative rise of 5.14% throughout the year, while Brazil and New Zealand ranked the first and second in the global stock market with a rise of 11.86% and 4.48% respectively. Some of the Asian shares dropped sharply, with the Seoul Composite Index of South Korea having dropped by 17.3% through the year, the sharpest fall after the financial crisis. The Nikkei225 of Japan has dropped 12%, calling an end to the longest stretch of gains in Heisei Period. 

       In recent years, the Indian government has released many policies that are conducive to attracting foreign direct investment (FDI), so as to facilitate foreign investment and promote the related business operation in India. Thanks to the stable economic fundamentals, relatively well-developed commercial laws and regulations, and the rise of emerging industries, India’s FDI was the highest ever with a total amount of $37.76 billion this calendar year, according to data from Dealogic, a global capital markets data provider. The biggest transaction of the year was Walmart’s $16 billion buyout of Flipkart, a local e-commerce company. In the foreseeable future, the technology-driven consumer retail and financial services spaces are expected to see substantial mergers and acquisitions. 

       On September 21st, the National Assembly of South Korea passed the Law on Setting Up and Operating Internet-only Banks, which was officially enacted on October 16th. The Law will be implemented since January 17th, 2019. With the aim to create a loose policy environment for the Internet-only banks to develop, the Law will increase the percentage of the share held by industrial capital in the Internet banks from 10% as required by the former Banking Law to 34%, and ease the policy of “industry-banks separation” in the country. Meanwhile, in order to prevent the Internet-only banks from becoming private vaults for large enterprises, mutual investment-restricted enterprise and groups with assets of more than 10 trillion won are excluded from the exemption list for “industry-banks separation”. At the same time, after evaluating the competitiveness of the banking industry, the Korean financial authorities believe that it is necessary to promote healthy competition in the industry, and have carried out researches and prepared to issue new Internet banking licenses.

       On November 20th, the establishment ceremony of Asian Financial Think Tank and its first annual conference were held in Guangzhou. Over 60 economists and 300 representative from 19 countries and regions in Asia, America, Europe and Africa attended the conference. At the conference, the Think Tank released its first annual report, Financial Report in Asia (2018) and the Financial Development Report in Guangdong-Hong Kong- Macao Greater Bay Area (2018). Asian Financial Think Tank, a branch of Asian Financial Cooperation Association, consists of chief economists and directors of research department from 80 financial institutions in 27 countries, with 47 domestic experts and 33 foreign experts. The Think Tank is positioned as “market-orientation, international vision, problems-orientation, deep observation and intelligent solutions”, and will provide weekly insight by chief economists, monthly Q&A by experts, the annual report by the Think Tank as well as other bilingual products. The Think Tank will also hold quarterly forums, annual conferences and other high-end financial forums, so as to represent Asian voice in the international financial stage.

       In the year of 2018, the U.S. Federal Reserve raised the interest rates by 25 basis points in March, June, September, and December separately, with a cumulative rate increase of 100 basis points. On December 19th, the Fed announced its fourth rate hike in the year and lifted the target range for the federal funds rate by another quarter point from 2.25% to 2.5%. Since December 2015, the Fed has raised rates for nine times and started to shrink its balance sheet, gradually ending its ultra-loose monetary policy made after financial crisis. However, on December 3rd, the yield rate of the 3-year and 5-year treasury showed inversion for the first time in 11 years, and the yield rate of the 5-year and 3-year treasury fell to minus 0.7, falling below zero for the first time since 2007. Such a phenomenon may herald an end to the tight monetary environment by the Fed.

       The European economy has been challenged by multiple risks caused by various factors including the global trade conflict, the turbulence in the emerging markets, Brexit, and the fiscal problem in Italy. The economy of both the EU and the euro area kept slowing down, while the German economy shrank in the third quarter, the first quarter-on-quarter decline since the first quarter of 2015. On December 13th, the ECB held a governing council meeting in Frankfurt and announced to keep the key interest rates for the euro area unchanged, and end the bond-buying program after many years at the end of December. ECB will reinvest the principal payments from maturing securities purchased to maintain the market liquidity and sufficient monetary easing. In order to stimulate the economic recovery in the euro zone and lift the low inflation rate, ECB implemented the program to purchase government and corporate bonds in March 2015, and the total amount of asset purchases over the years has been about 2.6 trillion euros.

       On June 23rd, in the meeting of finance ministers in the Eurozone, the EU and Greek representatives reached an agreement that Greece’s sovereign debt crisis has ended. In 2010, the sovereign debt crisis broke out in Greece in the aftermath of the 2008 financial crisis. In the past eight years, the IMF, EU and ECD loaned Greece a total of 289 billion euros in three tranches. The Eurogroup confirmed that Greece had fulfilled its promise to carry out a series of reform and tight fiscal policy and agreed to loan an added 15 billion euros to Greece and offer a 10-year deferral on interest payments, providing buffering space for the country to recover its economic growth and return to the international financial market.

       The digital currency market ushered in explosive development in 2017, with the highest price of Bitcoin reaching 2005.56 dollars, increasing by 1371% through the year. However, as the social awareness of digital currency increased and the market gradually became rational, the price of encrypted digital currencies such as Bitcoin fell sharply in 2018, with an annual decline of nearly 80%. On November 25th, the price of Bitcoin fell to 3500 dollars, and the market value of global cryptocurrency plunged to $120 billion from its peak market size of $850 billion, a decline of over 85%. With the tightening of regulations and the difficulty in promoting cryptocurrency payment, the downward trend of digital currencies may continue, imposing impact to the related IT vendors.

       Due to the U.S. Federal Reserve’s interest rate hikes and the strengthening of the U.S. dollar, the dollar debt in emerging markets has intensified in 2018. In addition, as some emerging economies have excessive currency, high inflation and high foreign debt ratios, the emerging economies have witnessed frequent outbreak of currency crisis in the past year. Through the year of 2018, the Argentine peso depreciated by over 50% against the US dollar, the Turkish lira depreciated by more than 28%, the Russian ruble depreciated by about 18%, the Brazilian real depreciated by over 14%, the South African rand depreciated by about 14%, the Chilean peso depreciated by more than 11%, the Indian rupee depreciated over 8%, and the Indonesian rupiah depreciated more than 6%.

       After the international financial crisis of 2008, the European banking industry has been struggling due to the influence by the low and even negative interest rates in the European market, thus big banks hope to join hands to combat the sinking net profit and heavy losses caused by their failure to implement restructuring or to dispose of the non-performing assets. In past 10 years, the number of banks and lending institutions in Europe have reduced from 8,570 to 6,648. Since 2018, European banks have been actively involved in mergers and acquisitions. Standard Chartered Bank and Barclays Bank proposed for mergers, so did Societe Generale and Unicredit. Germany’s two largest banks, Deutsche Bank and Commerzbank, have planned to merge, after Deutsche Bank has acquired Deutsche Postbank. The integration of European banks helps to channel resources to technology upgrading and digital transformation which demand a large amount of capital investment. The mergers will enhance the competitiveness of the European banking industry and promote the integration of European financial markets and that of financial regulations.

       In May and June, the EU Council and a special committee of the European Parliament reviewed and approved the the proposals by the European Commissions to require the specific non-EU financial institutions in the region to set up intermediate parenting undertakings (IPU) and submitted the relevant proposals to the European Parliament. At present, more than 10 financial institutions from China, the U.S., Japan and other countries meet the EU’s requirements to set up IPU. Once the proposals are implemented, these financial institutions will have to adjust the shareholding structures and management structures of their branches in EU and even the entire Europe. The IPUs of these financial institutions in EU may also face higher supplementary requirements on capital and liquidity. Although the final plan of EU’s IPU policy has not yet been determined, the overall framework is basically clear and the policy will be released soon and will have a profound impact on the development of the global banking industry and its pattern. The regulatory authorities and financial institutions in the U.S., Japan and China have taken due consideration of the policy and began to carry out active responses.

       On November 1st, Theresa May, Prime Minister of the UK, reached a preliminary agreement with EU on post-Brexit financial services, which will give British financial service providers the same market access to the European market as long as the financial supervision in the UK keeps in line with the EU. At the same time, a British government source said that the UK and EU negotiators have reached a preliminary agreement on future cooperation in the financial service industry and data exchange. The deal on financial services means that the financial industry, which is a pillar industry in the UK, will not be severely affected by the Brexit.

       According to the latest data from Zaobao Singapore the 2018 total world debt registered nearly 250 trillion USD, a record high. The Wall Street Journal stated that, in accordance with Citigroup’s analysis on the data of the Institute of International Finance, the number stated above is three times as many as 2 decades ago. The biggest debtor nations are the United States, China, the Eurozone and Japan, accounting for over 2/3 of the global household debt, 3/4 of the enterprise debt and nearly 4/5 of the government debt. Different from the credit boom of the private sector before the financial crises, recent years saw the huge increase of government debt; and governments borrow heavily to deal with the hard time after the crises. Currently, central banks are pulling themselves out from the monetary easing policies. Pressure from debt would thus become a big challenge.

       In September 2013, Chinese President Xi Jinping initially proposed to build the Silk Road Economic Belt during his visit to Kazakhstan. In October of the same year, he proposed the idea of building a 21st Century Maritime Silk Road during his visit to Indonesia. The Belt and Road Initiative is a scheme China advocated for promoting the common development of mankind. In 2018, the fifth year after President Xi proposed the Belt and Road Initiative, over 60 countries and international organizations signed Belt and Road cooperation agreement with China, contributing to the nearly 170 documents signed in the five years. Five years on, Chinese banks have been involved in over 2,600 Belt and Road projects, offering a total of 200 billion US dollars of loans to fields such as transportation infrastructure, energy resources and equipment exports. The financial service system for Belt and Road cooperation has been continuously improved, as China advocated and promoted the establishment of the AIIB, Silk Road Fund, and AFCA, providing solid financing base for the Belt and Road construction, and unveiling new prospects for international financial cooperation. Under the support of all parties, the spirit of the Belt and Road Initiative has been written into the documents of major international mechanisms such as the United Nations, China-Africa Cooperation Forum, Shanghai Cooperation Organization and Asia-Europe Meeting. A large number of landmark projects such as China-Pakistan Economic Corridor, China-Laos Railway, China-Thailand Railway, Hungary-Serbia Railway, and Jakarta-Bandung High-speed Rail have been steadily advanced. Many developed countries have taken the initiative to carry out tripartite cooperation with China, and an international commercial dispute settlement mechanism for Belt and Road has been established.