In the news: China's Fifth Plenum begins, the IMF hints at including the RMB and MOFCOM loosens restrictions on Western Digital-Hitachi
October 28, 2015 | BY
Katherine Jo &clp articles &This week Chinese leaders met to approve the next Five-Year Plan, officials were told by the IMF that the RMB is likely to join the reserve currencies basket and the merger control regulator allowed Western Digital and Hitachi to combine research and manufacturing
China's Fifth Plenum maps out economy
The top 300 leaders of the Chinese Communist Party are meeting for four days this week to approve an economic blueprint for the next Five Year Plan (2016-2020). Steering the nation onto a different growth path – away from exports and more toward consumption and innovation – and scaling back the role of the state lie at the top of the agenda. President Xi Jinping's “One Belt, One Road” plan for infrastructure projects is also a big focus. While China has pledged to give the markets a more decisive role, the importance of state-owned enterprises (SOEs) will by no means diminish. There will be some private investment opportunities in the smaller, less influential SOEs, but the giants in key sectors such as telecom, banking, energy and construction will continue to dominate and consolidate as they help spearhead President Xi's growth policies. We have already seen this in the merger of the two largest train makers CSR and China CNR last year, as well as the more recent union of network carriers China Mobile, China Telecom and China Unicom. But, as with the plenums every year, the question is whether these reforms can be implemented effectively. After all, the fourth meeting vowed to give market forces greater sway but with the massive intervention seen during the stock and currency turmoil over the past few months, it is painfully clear that the authorities are maintaining an iron grip for now.
IMF says it is likely to include RMB in reserves basket
International Monetary Fund (IMF) representatives have told China that the yuan is likely to join its basket of reserve currencies soon, according to Chinese officials. The IMF board is preparing to vote on the composition of its Special Drawing Rights basket, which currently consists of the US dollar, British pound, the euro and the Japanese yen. The agency rejected the Chinese currency in 2010 for failing to meet the test of being “freely usable”. At least $1 trillion of global reserves will convert into Chinese assets if the yuan joins the SDR basket, according to Standard Chartered and AXA. The IMF has made it clear that it will include the yuan, known officially as the RMB, only if it meets the technical criteria of being a free currency. Continued state intervention in FX markets has proved it is not. The RMB is too important in global trade to ignore, and gaining official status would help China's ambitions of challenging the dollar's dominance. It now comes down to whether China will give up the reins and let the market rule. If the RMB does get included, keep an eye out for new regulations.
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MOFCOM loosens conditions on WD-Hitachi deal
China's Ministry of Commerce (MOFCOM) has loosened restrictions on Western Digital's acquisition of Hitachi Global Storage Technologies, following the US disk-drive maker's announcement it would sell a stake to state-owned Tsinghua Unigroup for $3.78 billion. Conditions (or remedies) imposed on WD and Hitachi's merger in 2012 required the two to continue to run as separate entities, preventing WD from realizing cost savings from combined operations. MOFCOM is now allowing them to combine manufacturing and research, which will reportedly save WD $400 million a year. Media have jumped to say this move is to benefit state interests, but WD has said its deal with Tsinghua was not a factor in MOFCOM's decision, and that the easing came from renewing its request for integration. MOFCOM has, in fact, put out clearer procedures for reviewing and amending conditions. It repealed Google's 2013 conditions on licensing Motorola Mobility patents earlier this year. Although this was due to a change in market circumstances as the latter was purchased by Lenovo, it shows MOFCOM is willing to negotiate both before and after making decisions – practitioners should note that communication with MOFCOM is improving.
China's Fifth Plenum maps out economy
The top 300 leaders of the Chinese Communist Party are meeting for four days this week to approve an economic blueprint for the next Five Year Plan (2016-2020). Steering the nation onto a different growth path – away from exports and more toward consumption and innovation – and scaling back the role of the state lie at the top of the agenda. President Xi Jinping's “One Belt, One Road” plan for infrastructure projects is also a big focus. While China has pledged to give the markets a more decisive role, the importance of state-owned enterprises (SOEs) will by no means diminish. There will be some private investment opportunities in the smaller, less influential SOEs, but the giants in key sectors such as telecom, banking, energy and construction will continue to dominate and consolidate as they help spearhead President Xi's growth policies. We have already seen this in the merger of the two largest train makers CSR and China CNR last year, as well as the more recent union of network carriers China Mobile, China Telecom and China Unicom. But, as with the plenums every year, the question is whether these reforms can be implemented effectively. After all, the fourth meeting vowed to give market forces greater sway but with the massive intervention seen during the stock and currency turmoil over the past few months, it is painfully clear that the authorities are maintaining an iron grip for now.
IMF says it is likely to include RMB in reserves basket
International Monetary Fund (IMF) representatives have told China that the yuan is likely to join its basket of reserve currencies soon, according to Chinese officials. The IMF board is preparing to vote on the composition of its Special Drawing Rights basket, which currently consists of the US dollar, British pound, the euro and the Japanese yen. The agency rejected the Chinese currency in 2010 for failing to meet the test of being “freely usable”. At least $1 trillion of global reserves will convert into Chinese assets if the yuan joins the SDR basket, according to Standard Chartered and AXA. The IMF has made it clear that it will include the yuan, known officially as the RMB, only if it meets the technical criteria of being a free currency. Continued state intervention in FX markets has proved it is not. The RMB is too important in global trade to ignore, and gaining official status would help China's ambitions of challenging the dollar's dominance. It now comes down to whether China will give up the reins and let the market rule. If the RMB does get included, keep an eye out for new regulations.
More from CLP:
State Administration of Foreign Exchange, Implementing Rules for the Measures for the Administration of the Handling of the Settlement and Sale of Foreign Exchange by Banks
Capital accounts unlocked
SAFE clears the way for round-trip investors
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MOFCOM loosens conditions on WD-Hitachi deal
China's Ministry of Commerce (MOFCOM) has loosened restrictions on Western Digital's acquisition of Hitachi Global Storage Technologies, following the US disk-drive maker's announcement it would sell a stake to state-owned Tsinghua Unigroup for $3.78 billion. Conditions (or remedies) imposed on WD and Hitachi's merger in 2012 required the two to continue to run as separate entities, preventing WD from realizing cost savings from combined operations. MOFCOM is now allowing them to combine manufacturing and research, which will reportedly save WD $400 million a year. Media have jumped to say this move is to benefit state interests, but WD has said its deal with Tsinghua was not a factor in MOFCOM's decision, and that the easing came from renewing its request for integration. MOFCOM has, in fact, put out clearer procedures for reviewing and amending conditions. It repealed
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