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Western Luxury Brands Will Close More Stores in China

With discounts, price reductions, and store closings, 2015 may have been the most turbulent year for luxury goods in China. According to Fortune Character Research Institute, 78 percent of the US$91 billion that Chinese spent in 2015 was spent outside of China. As for Western brand names in China, last week Louis Vuitton announced closure of three stores in China. In 2015 alone, 83 percent of Western luxury brands closed some of their stores. In the past several years, Prada closed 16, Chanel 11, and Burberry three. Fortune Character Research Institute predicted that the trend to close stores will continue and will be more widespread. In 2016, over 95 percent of luxury brands are expected to close some stores. 

Source: The Paper, reprinted by Xinhua, November 25, 2015 
http://news.xinhuanet.com/fashion/2015-11/27/c_128472144.htm
Briefings | | |   Economy/Resources

China to Adopt U.S. Registration System for IPOs

On November 20, Xiao Gang, Chairman of the China Securities Regulatory Commission (CSRC), stated that the State Council will push for the implementation of a registration system similar to the one in the United States to be initiated as early as March 2016. 

Currently, after they pass the review of CSRC’s Public Offering Review Committee (PORC) and complete post-review procedures, the CSRC approves all Initial Public Offering (IPO) applications of companies wishing to list their equities on the stock exchanges. Xiao Gang stated that the current approval-based system has brought about inflated financials with understated risks, excessive fund raising during the IPOs, high issuance prices, and the corruption of security officials. 
According to Xiao Gang, the upcoming registration system will be similar to the U.S. SEC registration required for IPOs. CSRC will review whether the prospective issuer has provided full disclosure of its financials and risks. The issuer will determine that the IPO share prices are based on the market. The registration system will also provide a mechanism for companies to delist from the stock exchange if they wish. 
Source:  Finance (Jing Rong Wang), November 22, 2015 http://stock.jrj.com.cn/ipo/2015/11/22153420113134.shtml
Briefings | | |   Economy/Resources

People’s Daily – Campaign against Senior Corrupt Officials Intensifies

On November 12, 2015, People’s Daily published a commentary regarding Lv Xiwen, a senior official in the Beijing municipal government who was taken into custody for corruption investigation on November 11, 2015. The commentary stated that, with Lv’s arrest, the full coverage (“tigers,” or senior corrupt officials, have now been taken into custody in every one of the 31 jurisdictional regions) is not the end but the beginning for more investigations. 

The commentary stated that most of these tigers’ corrupt activities occurred while they were the top leaders of their departments. Therefore, three groups will continue to be the focus of investigations: those who, since the 18th National Congress of the Communist Party of China in November 2012, have not stopped their wrongdoing; those who the public has complained about the most; those who are currently in very important positions with a high potential for promotion. 
“Facts have proved that the Party’s Central Committee has not changed its commitment to the anti-corruption campaign. As long as there are facts to substantiate the charges of corruption, whoever it may involve, they will not escape punishment.” 
Source: People’s Daily reprinted by Xinhua, November 12, 2015 
http://news.xinhuanet.com/legal/2015-11/12/c_128420128.htm
Briefings | | |   Government/Politics

Xi Jinping on Protecting Investors in the Stock Market

On November 10, 2015, Chinese President Xi Jinping held the 11th meeting of the Communist Party leadership on financial and economic affairs, calling for stock markets to be better regulated so that investors are treated fairly. 

Xi pointed out that in promoting economic structural reforms, the effort should focus on key issues. He called for efforts to resolve excess capacity effectively, promote optimal industrial restructuring, reduce costs and help businesses stay competitive, resolve the real estate inventory, and promote a sustainable development of the real estate industry. 
On stock markets, Xi stated that efforts should be made to guard against and defuse financial risks and to accelerate the formation of stock markets that have a fully functional financing mechanism, a solid infrastructure, effective regulation of the stock markets, and full protection of the interests of investors. 

Source: Caixin, November 10, 2015 
http://www.caixin.com/2015-11-10/100872547.html

Briefings | | |   Economy/Resources

How Money Flees China

On November 4, 2015, Laohucaijing published a report on how money flees China. The article stated that, typically, the newly wealthy Chinese use seven different ways to transfer their assets from China overseas.

To use a Hong Kong underground exchange for the transfer, the mainland Chinese client first visits Hong Kong and opens a bank account. Then he visits a currency exchange that provides him an account in mainland China. Once this mainland China account receives yuan, the bank account in Hong Kong receives the equivalent in foreign exchange. 
Another method is for the mainland Chinese client first to deposit yuan in a Chinese underground bank which then provides a foreign exchange check drawn on a Hong Kong bank. The client will then visit Hong Kong to cash the check. 
Another method involves local currency exchange agents in China. They secure enough people who will use their residence cards to exchange up to $50,000 per residence card and then remit the foreign exchange directly overseas. Some people just carry foreign exchange in cash when travelling overseas. One of the State-owned commercial banks, Construction Bank, now offers a service that allows clients to borrow foreign exchanges against the yuan deposit at the Construction Bank as collateral. For Chinese tourists, many use credit cards or debit cards to “purchase” high dollar items in a designated store overseas, and then immediate ask for refund. The store will then pay the refund in cash rather than to the card used for the purchase. Import and export trading companies often engage in such money laundering as a side business. 
Source: Laohucaijin, November 4, 2015 
http://www.laohucaijing.com/news/111117/
Briefings | | |   Economy/Resources

China’s Financial Institutions Are Being Investigated for Corruption

State media Huanqiu reported that Zhang Yun, president of the Agricultural Bank of China has been taken into custody because of inquiries into corruption. The Agricultural Bank of China is one of the four State-owned commercial banks. The other three banks are the Industrial and Commercial Bank of China, the China Construction Bank, and the Bank of China. 

According to Huanqiu, those in senior management at the four State-owned commercial banks are worried because the number of whistleblowers inside the banks is surging. Following what happened at the Agricultural Bank of China, there will be more “disappearances” in other financial institutions. However, it is certain that those who “disappear” will not be able to flee China. 
Huanqiu also reported that those in mid to high level management in China’s financial institutions have been warned that they cannot resign, retire, or leave China. 
Starting in late October, the CCP’s Central Commission for Discipline Inspection (CCDI) sent inspection teams to conduct investigations into corruption at the China Banking Regulatory Commission, the China Securities Regulatory Commission, the People’s Bank of China, the China Insurance Regulatory Commission, the four State-owned commercial banks, and major insurance companies. A total of 31 financial institutions were to be investigated. 
Source: Huanqiu, November 2, 2015 
http://china.huanqiu.com/article/2015-11/7893276.html
Briefings | | |   Government/Politics

Study Times: China Should Join the TPP at the Appropriate Time

On October 26, 2015, Study Times, a Communist Party publication close to Chinese President Xi Jinping, stated in a commentary that China should join the Trans-Pacific Partnership (TPP) at the appropriate time. 

The Study Times commentary rebutted the conspiracy theory which is based on the belief that the TPP is a means that the United States uses to isolate and contain China with the intent to drive China out of the Asia-Pacific economic and trade circle. The commentary expressed that the TPP rules are consistent with the direction of China’s reform in terms of establishing fair, open, and transparent market rules; streamlining administrative procedures and increasing public services; and enforcing environmental regulations and accountability. “China should pay close attention to the TPP and, as the domestic reforms move forward, it should join the TPP at the appropriate time and minimize the price to pay to join in.” 
Source: Study Times, October 26, 2015 
http://www.studytimes.cn/shtml/xxsb/20151026/15726.shtml
Briefings | | |   Economy/Resources

China’s Deflationary Spiral Is Worrisome

Yu Yongding, Senior Fellow at China’s Academy of Social Sciences stated that, based on the decreases in the Producer Price Index, China is now in the middle of domestic deflation and that the continued negative growth of PPI is worrisome. Yu made these remarks at a forum held on October 27, 2015. According to Yu, overcapacity is the primary cause of deflation. "On the one hand, we try to reduce overcapacity, which results in decreased effective demand. [On the other hand], the decline in effective demand in turn leads to an increase in excess capacity, forming a vicious cycle." If China cannot reduce overcapacity faster than the rate of the effective decrease in demand, then China’s economy will decline further into an economic recession. Yu Yongding stated, “This is the most serious challenge we currently face."   

Source: China Business News, October 27, 2015 
http://www.yicai.com/news/2015/10/4703058.html
Briefings | | |   Economy/Resources