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The Panda Bond is a Renminbi (RMB)-oriented bond issued by international institutions in the domestic market of China. A number of foreign government quasi-issuers and corporations have registered such Panda Bonds in inter-bank bond market between the interval from September 2005 to the beginning of 2019. The total value exceeded 120 billion RMB and the issuance volume was more than 70 billion RMB.

When a foreign institution would issue bonds in the currency of a country in domestic market of that country, these bonds are often named by symbols representing that country. RMB bonds issued outside of China are Panda Bonds, which are to be valuated by the currency of Chinese Yuan. Japan also has this type of yen-denominated bonds as the Samurai Bond, the same case can be seen in the US Yankee Bond and the Bulldog Bond in the UK. These bonds are valued according to their national currencies respectively.

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Subsequent to Panda Bonds issuance by Poland, Hungary, Philippines, UAE and so forth, Portugal, as a euro-zone country, also issued 3-year bonds worth of 2 billion RMB in China, which are indeed the Panda Bond. The value is approximately 260 million Euro with an annual coupon rate at 4.09% and a subscription of 3.156 times.

What about the future trend of the Panda Bond? The Panda Bond has seen a stable growth in recent couple years. The total issuance amounted to 95.6 billion RMB in 2018. By the end of 2018, 41 foreign issuers have registered the Panda Bond in the registrar. Speaking of bond transactions, the Bond Connect that has come into life for more than two years should not be ignored. The Panda Bond is quite popular on the Bond Connect platform. The Bond Connect also helps the Panda Bond to optimize investor structure.

The One Belt One Road (OBOR) progression has also benefited from the Panda Bond, especially during the current years when China opens its financial market. A number of OBOR countries and regions are gradually drawn to the Panda Bond with growing interests, which could substantiate the group of issuers and enlarge its financing capacity.

The Panda Bond can be one of the good options to utilize for a better allocation of assets for investors. Would you be interested to look at other good options? Then please stay tuned for our next update on other securities and bonds.

Global Connect Admin B.V. | Xuan Hao

On 11^th September, the Stock Exchange of Hong Kong (HKEX) proposed to London Stock Exchange (LSE) a merger of nearly 37 billion US dollars. If this merger becomes successful, the newly formed Eurasian giant is perceived to possibly bring about challenges to some highly competitive stock exchange houses in the US.

However, the offer presented by HKEX appeared to be a less attractive one to LSE due a previously announced bid on Refinitiv a few months ago. Once Refinitiv joins LSE, the deal volume will be much more than that of HKEX, which does not give any comfort for the merger proposal from HKEX.

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On 13^th September, LSE publicly announced its reply to HKEX on the proposal to merge, stating that HKEX is not a strategic target in their consideration. The risks and uncertainty behind joining HKEX are rather unpredictable.

Many tend to think that the unprecedented Brexit without a clear way out will impact London being one of the financial centers, theoretically, buying LSE sounds possible and feasible now. However, none of the matters relating to Brexit affected the evaluation and assessment of risks behind the proposal from HKEX.

LSE does have the intention to engage in the Asian market, but a partnership is coming into shape with the Shanghai Stock Exchange (SSE) by means of establishing mutual mechanism ‘Shanghai-London Connect’ on auditors conducting auditing works reciprocally. Due to this ongoing process of connecting with SSE, it is not of much urgency for LSE to seek another partner in Asia in the short time being, a refusal sounds not unpredictable.

On 14^th September, HKEX responded with some disappointment but insisted that they will not give up at the same time.

7 years ago, HKEX bought the London Metal Exchange, which is still running independently from Chinese management. Therefore, it is not surprising to see opinions in support of the independent management of LSE without much political risks if this merger would take place. In 2017, the German Stock Exchange (DBG) attempted to bid for LSE but the effort had also gone into vain. This could invite reasons that instability in political environment is not the only consideration in managing the business post-merger.

LSE has taken the Italian Stock Exchange in Milan into its group as early as in 2007. It would surely create a truly East-to-West giant if LSE merges with HKEX. As the refusal from LSE has been sent out, some have eyed on SSE. China is still a country with plenty of market opportunities, it is not strange to see more Western capitals flowing in and out this huge market via other more stable partners.

Global Connect Admin B.V. | Xuan Hao

Clean energy industry worldwide grows continuously. China is still in the leading position in investing in clean energy with one third of the global investments, albeit the drop of 39% recorded in the first half of 2019. This drop is caused by the gradual withdraw of government subsidies. However, as China cares about its energy generation and regeneration so much, the market of new energy is still boosting.

On 30^th June 2019, the National Development and Reform Commission published a revised version of the Catalogue of Encouraged Industries for Foreign Investments. Foreign investments in new energy installation and key equipment are much welcomed, so are new energy powered vehicles and engines. The Catalogue of Priority Industries for Foreign Investment in Central and Western China (2017 version) has been invalidated by this new 2019 Catalogue.

Photo by Jason Blackeye on Unsplash

Starting from the second half of 2019, the enforcement of the Renewable Energy Law of China has gained more priority. The Standing Committee of National People’s Congress has started to review the enforcement of the Renewable Energy Law in 6 provinces directly and in another 12 provinces indirectly by delegation to regional committees. The purpose of running a series of review is to check the progress on implementing policies attached to the Renewable Energy Law and locate any difficulties in enforcement.

The adjustments on the fees of utilizing the land for establishing new energy stations and cranes have been proposed to follow a unified standard from the National Tax Bureau and the Ministry of Finance. This is yet to be brought up in the upcoming meetings of the government along with other issues. A unified standard can help with high costs on establishing such new energy stations, because it is a common practice for the local governments to charge a fee from the development undertakers for using the premise for energy stations.

Furthermore, the 8^th Catalogue of Renewable Energy Subsidies is expected to be announced shortly. The trend is expected to progress towards more affordable new energies both for businesses and consumers.

Did you find this article informative or insightful? Stay tuned for our next update.

Global Connect Admin B.V. | Xuan Hao

In mid-August, the Chinese Ministry of Finance (MOF) and the China Securities Regulatory Commission (CSRC) publicized The Circular regarding Recognizing UK Accounting Firms Undertaking Shanghai-London Connect Auditing Operations relevant to the Chinese Depository Receipts, which illustrated which UK firms are able to apply for such undertakings and regulated relevant procedures as such.

Shanghai-London Connect related operations are referred in full as ‘the interrelated and interconnected auditing operations in Shanghai Stock Exchange and London Stock Exchange with relevance to the Chinese depository receipts undertaken by UK accounting firms.’

This new circular sets out conditions for UK accounting firms to be recognized by China to undertake operations related to Shanghai-London Connect scheme:

1. Being registered and established in the UK by law, having acquired licensed certification for performing audits, having maintained a good record of practices, being in a normal status of practice;
2. Having a well-found quality control system and a decent international reputation, as well as recognition in the market at a relatively higher level;
3. Having the capacity of performing auditing operations in UK with experiences in securities related auditing.

Image by Tumisu from Pixabay

UK accounting firms meeting these three criteria should prepare an online application for registration when applying for undertaking Shanghai-London Connect operations for the first time. Approved applications will be registered by the MOF and the CSRC in conjunction with publishing a name list of approved UK accounting firms. The online registration application channel is http://acc.mof.gov.cn.

Any feedback on the initial registration application will be given in five working days. In case of being requested to provided additional documents or modifications, UK accounting firms have also five working days to complete the requested matters. In case of approved applications, whereas firms have been recognised to perform Shanghai-London Connect related operations, UK firms are asked to submit updated information in five working days after the change if any alteration in the registration file has taken place. The same application form is to be used for information update.

Needless to say, all materials prepared by UK accounting firms for such a registration should be checked by their authenticity, correctness and completeness. Incomplete information for registration or materials not meeting the requirements set will be subject to a request on completion or correction from the MOF and the CSRC. A deadline will be attached to such a request. Missing this deadline will result in unregistered status.

The MOF and the CSRC will ask firms that are not following the set procedures or are submitting false and fake materials to make corrections within a defined period of time. Failure to appropriately follow the adherence request before the time given elapsed will result in disqualification of the approved undertakings circulated to the public, firms with pending application to be registered and approved will be rendered a refusal on application and be listed in a special observation list. New regulations bring in new possible consequences in each scenario, which can be worthy of attentions for accounting firms.

Global Connect Admin B.V. | Xuan Hao

On 25^th July, The Dutch and Japanese Trade Federation (DUJAT) organized an event at Okura Hotel in Amsterdam Zuid. Thanks to this opportunity, Global Connect Admin B.V. was able to share some basic insights with all member companies and guests regarding cultural differences, especially regarding Japan, Germany and the Netherlands.

Culturally, Japan and Germany are considered rather masculine as a society and the Netherlands rather feminine. From culture-derived behaviours, Japan is considered reactive, Germany as linear-active and the Netherlands is also rather linear-active. What do these words meaning? Please read further herein.

Photo by Ruthie on Unsplash

This article is not to give any definite conclusion on any of the cultural differences between countries. In correspondence to the short presentation in the delightful event, this serves as an introductory hint to some tools and perspectives of looking at cultures and the differences therein.

The first tool is the Hofstede model on cultural dimensions: Power Distance, Individualism, Masculinity, Uncertainty Avoidance, Long-Term Orientation, Indulgence. It is worthy of mentioning to pinpoint the term of power distance as the inequalities being accepted by an organization and people involved on top of a simple existence of inequalities. An interesting definition on masculinity must be distinguished from the traditional sense of having muscles and being strong. This is term is used to depict a society being masculine or feminine. Being Masculine means that a society appreciates competition and ambition and being feminine implies that work and life should be balanced for personal well-being and happiness. (This model can be found at https://www.hofstede-insights.com/)

The second tool is the Lewis Model which shows the general characteristics of behaviours based on cultural profiles per country. Three general categories are described for cultures found in around 65 countries among company executives. This model makes use of a triangle of which the three corners represents linear-active, reactive, and multi-active. (More on this model at https://www.crossculture.com/the-lewis-model-dimensions-of-behaviour/)

However, it is very likely that an individual or a firm does not show consistence with the culture prescribed or behaviours defined based on nationalities. This may occur due to reasons of international background of a person or a firm, the family background or the event-induced changes. It is likely to see difference in behaviours from the same country spread over within the triangle, meaning no culture is purely linear-active, reactive or multi-active. Variance is also obvious across generations within a country, for instance, younger generation in Japan tend to pay less attention on competition and ambition compared with the older generation.

What are the possible actions to take when confronted with blurred questions arising out of culture differences? The first action that we, Global Connect Admin, will do to clients coming from an unknown background is to get to know each other. Start talking is the best way to familiarize with one another. If any culture related model is used, it is recommended to look for similarities or distinctions between the client and the known cultures.

The next step is to build trust. This step can be short or long depending on the acceptance of trust from both sides. It is equally important to take the other perspective into consideration and to inform the other side about the position that one is taking. Because trust should be mutually built. A key point to cut into the trust building process is to ascertain what are the specific purposes of each move or decision. This is useful in both scenarios: to ascertain own purposes for a clear strategy in negotiation or communication with clients and to ascertain the other’s purposes at each stage through the course of matter to speak to the other’s perspective. This process could require much more patience and explanations than usual.

Some practical ways have already been tried out by many firms, such as having an employee or a specialized consultant on board for the case. This might be useful in some cases and not helping in other cases. The reason behind is the variance in between individuals and firms from the same country.

The models mentioned in the beginning should be taken as a reference to learn a general hint of what could be expected when people from that region are clients. What needs more finesse of the person dealing with cultural differences is the sharpness in noticing how similar or different this individual or firm is to or from the general impression learned before.

In Global Connect Admin B.V., we value not only cultural differences but also individual variances. You can expect professional services from us regarding financial management from bookkeeping to consolidations, from due diligence to compliance. In between emails and services, you can also expect that we take your cultural characteristics and your individual preference very seriously.

Global Connect Admin B.V. | Xuan Hao

To prevent economic bubbles, China has been regulating and controlling its financial market in a relatively stringent manner. Nevertheless, The Finance Commission of the State Council of China promulgated 11 measures on 20^th July this year to substantively push the openness of the Chinese financial market to a new level.

1. Allow foreign institutions to rate all classes of bonds in the Inter-Bank Bond Market and in the Exchange Bond Market while performing their credit rating operations in China.
2. Encourage overseas financial institutions to participate in establishment of and investment in shares of financial subsidiaries of commercial banks.
3. Allow overseas assets management institution to set up foreign-controlled financial companies with Chinese banks or subsidiaries of insurance companies.
4. Allow overseas financial institutions to invest in establishment and shareholding of pension management companies.
5. Support establishment of currency brokerage companies wholly funded by foreign capitals or shareholding of such companies by foreign capitals.
6. The restriction of 51% on share weight of foreign capitals in personal insurance is to be lifted for 100% share weight with an earlier deadline of 2020 for a shorter transition period, instead of the original 2021.
7. Revoke the rule of 75% minimum shareholding by domestic insurance companies altogether in insurance assets management companies and allow overseas investors to hold shares exceeding 25% as such.
8. Loosen the entry conditions on foreign insurance companies and remove the requirement on 30 years of operations.
9. Bring forward the deadline of 2021 to 2020 regarding the removal of the weighted shareholding by foreign capitals in securities companies, fund management companies and futures companies.
10. Allow foreign institutions to obtain the license of class A lead underwriter for inter-bank bond market.
11. Facilitate further to serve overseas institutional investors to invest in inter-bank bond market.

Photo by Sharon McCutcheon on Unsplash

The Central Bank also remarked that, international credit rating institutions undertaking more rating operations in China helps to meet the diversified needs of international investors in the Chinese market and promote improvement of Chinese rating industry. Both points are considered to be aiding to the healthy status of the Chinese financial market.  At the statutory level, more investigations on the overseas mother companies of foreign banks have been incorporated into relevant procedures, which are expected to be publicized in the market shortly. Chinese entity economy (businesses undertaking real commercial activities other than primarily financing and/or investing) has issues as difficult financing and expensive financing, which can be partially eased by allowing foreign banks to engage in class A lead underwriting operations. Meanwhile, the global economy can also see more developments contributed by such measures.

The Central Bank and the State Administration of Foreign Currency drafted a Notice Regarding Issues on Further Facilitation of Overseas Institutional Investors Investing in Inter-Bank Bond Market, which has been circulated to the public for societal comments and suggestions since this May. Implementation is expected to be made public shortly. This Notice will solve issues of permitting transfers of bonds by overseas institutional investors, transfer of capitals and repetitive registrations, which will further ease the entry of market and investments as such by overseas investors.

What is upcoming is that the People’s Bank of China will work hand in hand with the China Securities Regulatory Commission on further openness of the financial market. Some known key topics include driving forward the openness in the rating sector, enlarging the scope of operations of foreign rating institutions, and allowing more qualified foreign rating institutions to operate fully within their scopes on all classes in the bond market.

Global Connect Admin B.V. | Xuan Hao

“Had a very good telephone conversation with president Xi of China. We will be having an extended meeting next week at the G-20 in Japan.”, said Trump.

The ‘trade war’ between the U.S. and China started from last year initiated by Trump, aiming at reducing the U.S. massive trade deficit of 539 billion U.S.D. between the two giants. An additional 25% tariffs were imposed by the U.S. on goods of 34 billion dollars imported from China. Since the ‘trade war’ the two world’s largest economic entities have hit each other with punitive tariffs covering more than 360 billion dollars. The export from the U.S. to China has reduced by 23 billion dollars while the other way has reduced 18 billion dollars.

Photo by Tom Fisk from Pexels

On 18^th June, Trump and Xi had a detailed telephone talk preparing to attend the G20 summit in Osaka and end the year-long ‘trade war’. On the other side, China’s Foreign Ministry said 2 days prior to the G20 summit that a meeting between Trump and Xi was looked forward to, helping build trust and resolve outstanding issues.

Days after the meeting, the China’s Commerce Ministry declared that U.S.-China’s trade issues are resolvable, and China will definitely be able to find solutions to the problems. On 9^th July, the U.S. removed the 25% custom duties on 110 types of goods imported from China, including but not limited to a variety of electronic components and medical equipment. This is suspected to indicate the cool-down of the ‘trade war’.

Nevertheless, the U.S. seems to change its target to the E.U. In July, the Trump administration proposed additional tariffs on 4 billion dollars of goods from the E.U., including not exclusively cherries, whiskey and coiled copper. In the meantime, the EU declared that “it is set to apply import duties on U.S. imports starting from July” targeting jeans, motorcycles, bourbon and so forth. “It is a measured and proportionate response to the unilateral and illegal decision taken by the U.S. to impose tariffs on the European steel and aluminum”, said Maroš Šefčovič, vice-president of the European Commission.

Global Connect Admin | Yichuan Qiu