CHINA
Emerging from COVID-19 with flying colours? – A recap of China themes in 2020
W
hile being first to be hit with COVID-19, China’s economy has turned out to be an outlier amid the pandemic induced global recession: it experienced a strong rebound after a rather gloomy 1Q20, took a more restrained and orthodox approach to monetary and fiscal policies, and called for a “dual-circulation” strategy to compensate lagging overseas markets with domestic demand. In the meantime, millionaire and billionaire wealth in China has been booming. Such signs bode well for the onshore private banking and wealth management industry which has continued to mature and catch up with international trends — on the back of the gradual opening-up of the country’s financial markets and invigorated by competition from players at home and abroad. 2020 has witnessed milestones for the industry and will set the tone for the next decade — in terms of domestic transformation and global connection.
China is opening up to foreign investment, but tightens rules at home China has long pledged to facilitate access to its financial markets for foreign investors — who remain underinvested in China, compared to the US, Europe or Japan. Over the last year, Chinese regulators implemented the decision to remove quotas for the QFII (qualified foreign institutional investor) /RQFII (RMB qualified foreign institutional investor) investment schemes, and later effectively combined the two programmes and streamlined their application process. Starting from October 2020, foreign institutional investors can easily participate in China’s trillion-dollar domestic bond markets, as the country’s central bank simplified and made rules consistent across the interbank bond market, the exchange bond market, and the Bond 6
Connect programme. The continuous growth in the trading volume for the Northbound Bond Connect scheme has spawned optimism for a corresponding southbound scheme in the near future, according to Eddie Yue of the Hong Kong Monetary Authority. But 2020 also had its fair share of regulatory sternness. The beginning of the year saw record AML fines from the PBoC for two major Chinese banks and a securities broker. To curb systemic risks, the PBoC issued guidelines that target expanding financial groups and tech giants that are wading into finance. The regulators are gearing up for a stricter grip on the country’s shadow banking sector — for which they devised a clearer definition, as shadow credit made a comeback in 1H20 with the number of notorious wealth management products (WMPs) on the rise again. Chinese wealth manager Jupai argued that the government’s deleveraging strategy is far from over, which means the country’s wealth management industry will have to transform and adapt to the new norm. Echoing this view, Noah Holdings believed current regulatory developments will force more Chinese investors away from private markets. Both wealth managers’ earnings reports in 2020 showed higher flows in public securities products.
The rush for Chinese assets goes on — not without caution The thrill around Chinese assets — following a year of remarkable performances for China’s FX, equities and fixed income markets — is certainly to extend into 2021. Credit Suisse’s equity strategist maintained in July that it is still too early to call for the A-share bullrun, and further backing this thesis is China’s “dual circulation” strategy, which is believed to keep the rally going. Coming on the back of warming investor sentiment towards Chinese government bonds (CGBs), FTSE Russell announced it will include
