Financial Services Focus Group Quarterly Update - Q2 2014

Published on 2014-06-23

The key words this year so far include Reform, Innovation and Stability. 2014 is proving to be another exciting year in financial services with several interesting developments along the long and rocky road to reform.

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By Rory Farquhar-Thomson, Head of Corporate & Institutional Banking, Intesa Sanpaolo S.p.A.

The key words this year so far include Reform, Innovation and Stability. 2014 is proving to be another exciting year in financial services with several interesting developments along the long and rocky road to reform. The industry is pleased to recognise that the government accepts the need to quicken the pace of economic reform this year as part of their efforts to arrest a slow-down in the world's second-largest economy.

The economy

As for the economy, compared with the official target of 7.5% growth, in April it was reported that GDP expanded by 7.4% - the main cause of the gentle slow-down being a decline in the growth of credit and hence investment.

Recently we have seen the introduction of some mildly stimulatory measures, including tax-cuts for small businesses, accelerated infrastructure and social housing investment and a small cut in the required reserve ratio (RRR) for rural financial institutions, allowing them to lend more in support of agriculture. The government seems relatively comfortable with the current picture as NDRC (China’s central planning ministry) reported that the economy is ‘stable and healthy’ and that they didn’t foresee the need to roll out stimulus measures. Inflation increased slightly to 2.4% in March 2014 however is forecast to remain comfortably below the target level of 3.5%. The labour market is also steady.

Market developments

In terms of new initiatives we have seen the confirmation by China's securities regulator of a faster pace for new share listings in 2014 as around 14 to 15 companies are expected to go public in the A-share market every month starting in June. Also in the stock market arena, we saw the new trial program for cross market stock investment following the announcement by CSRC and SFC of Hong Kong of a trial trading program which will allow two way cross market stock investment by qualified Mainland Chinese and Hong Kong investors. We are also expecting some details on VAT reform and will brief our membership accordingly once the details are announced.

Events

1. In January we hosted Dr Kerry Brown who spoke about the challenges that Shanghai faces and how the city creates cohesion amongst a rapidly growing and diverse population. Dr Brown also examined the role of the new Shanghai Free Trade Zone and the impact it will have on the internationalisation of the RMB and the development of financial services in the city.

2. The committee met over dinner on 4th March to discuss the 2014 events programme

3. On 26th March we joined up with Austcham on 26th March for a Financial Services Mixer held at the Mandarin Oriental

4. We attended the UKTI lunch with Gerry Grimstone on 31st March to share views on the development of the Shanghai pilot Free trade Zone and to discuss what role the UK can play in maximising benefits for UK PLC.

5. In April we arranged a visit to the Financial Arbitration Court of Shanghai Arbitration Commission to renew our friendship and seek an update on the recent developments.

6. We also received David Godfrey, Chief Executive of UK Export Finance and held a round table event at the Chamber offices. The UKEF provides trade finance and insurance solutions to support UK exporters when such solutions are unavailable from the private markets. Mr. Godfrey enjoyed exchanging views with Chamber members on potential market needs helping him and his team assess what role UKEF may have in China.

7. Shortly we are to hold an event to discuss Inheritance Tax. After providing an overview of the UK IHT regime to cover domicile (who needs to pay IHT), thresholds (at what wealth level does IHT become payable) and allowances, we will also look at strategies to mitigate IHT and pitfalls to be aware of.

8. And finally we are due to hold an economic update luncheon at the beginning of July where HSBC’s chief economist will give us his views on where China’s economy is heading over the next 12 months.

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