In the news: Dairy Farm buys PRC supermarket stake, HK-SH connect issues more rules and instant-messaging apps face restrictions

Dairy Farm buys US$925 million stake in Yonghui Superstores

Dairy Farm, owned by Jardine Matheson (which operates Wellcome, Hong Kong's largest supermarket chain, and beauty chain Mannings), has agreed to buy a 19.9% stake in Yonghui Superstores for Rmb5.7 billion (US$925 million). This is its first foray into China's supermarket business – an industry foreign retailers have struggled to penetrate. Dairy Farm operates the 7-Eleven stores in Hong Kong, Macau, Singapore and Guangdong province as well as several Mannings stores in the mainland. Yonghui is a Shanghai-listed supermarket operator based in Fuzhou with a national network of 288 stores. The deal is still subject to Yonghui shareholder and regulatory approval, which is expected to take at least six months.

Source:
FinanceAsia

China is a promising yet tough market to crack. Many foreign retail companies have tried to expand in China on their own but have failed. UK retailer Tesco has tried for almost ten years, but gave up last year when it finally settled on a 20% joint venture agreement signed with state-owned China Resources Enterprises. Best Buy also struggled a few years ago. This is only the latest deal in Asia's supermarket sector, which has been highly active over the past twelve months.

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Investors face HK-SH connect restrictions

Traders using the Hong Kong-Shanghai connect to access the mainland's US$3.6 trillion stock market are subject to certain rules set by the mainland. They must transfer the securities to a broker before 7:30am in order to sell Shanghai-listed shares – a rule more restrictive than the T+2 settlement system used in Hong Kong and other major stock markets, which allows traders to sell before transferring the securities. Hong Kong and Chinese authorities are getting pressed by investors to provide more clarity on trading rules before the link opens on October 13, which will give foreigners direct access to the world's largest emerging stock market for the first time.

Source:
Bloomberg

The main goal of the connect is to open up China's markets and boost Hong Kong's status as a global financial hub. Analysts have agreed that it is impossible for China to relax all its restrictions at once and that it is making gradual steps. Also, linking up two very different markets is a challenge in itself and regulators have said some solutions will inevitably constrain the market. The two exchanges have agreed to allow Rmb23.5 billion (US$3.8 billion) of daily cross-border trading. However, policy makers have yet to clarify whether foreign investors in Chinese stocks will be subject to a tax on capital gains, which remains one of the biggest concerns.

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Mobile messaging censorship tightened

China has placed restrictions on instant-messaging services for the first time. The new rules, which were announced by the State Internet Information Office, ban bloggers from publishing political news without first receiving permission and require users to register with their real names as well as sign an agreement to abide by “the law, the socialist system, the nation's interests, citizens' rights, public order, social morals and authenticity of information”.

Sources:
Financial Times
Xinhua

Some have said the lack of legal specifics gave the authorities wider powers to interpret the regulations as they saw fit, and that the new rules are a move to threaten and warn more than to actually supervise and control. Looking out for who will be punished first will clarify who the intended target was. The government has also recently blocked several foreign chat apps such as Japan's Line and Korea's Kakaotalk, claiming that they were being used by terrorists to exchange information. WeChat's operator Tencent's shares fell after the new regulations were issued.

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