In the news: Business groups call for Cybersecurity Law revision, the State Council approves the Shenzhen-Hong Kong Stock Connect and the IMF warns China of debt and structural issues
August 16, 2016 | BY
Katherine JoThis week foreign organizations asked Premier Li to amend data rules, Hong Kong and Shenzhen officials geared up for the link's launch this year and China was urged to reduce its excessive credit reliance
An alliance of international business coalitions have called on China to revise the new Cybersecurity Law and insurance regulations, warning they represent a protectionist threat to growth that isolates China from the global digital economy. The move came in the form of a letter to Premier Li Keqiang signed by the U.S. Chamber of Commerce, BusinessEurope and Japan's Keidanren, as well as industry groups representing the financial services, technology and manufacturing industries and national lobbies including those from Australia, Mexico and Switzerland. Their concerns focus on provisions that force foreign companies to store data in China, assist law enforcement investigations and subject IT products to security reviews. While the second draft of the Cybersecurity Law makes certain improvements, it remains relatively vague, still leaving companies and lawyers wondering what the “security assessments” for data transfers entail and how broadly “critical information infrastructure” will be interpreted. Many groups have been lobbying for clarification—and relaxation—but they are unlikely to succeed in persuading the government to diminish any room for discretion when it comes to safeguarding information and national network security. In our latest article on foreign investors' regulatory obligations for working with big data and hosting servers in China, one lawyer said that “there is no trend indicating that [national and cybersecurity reviews/requirements] will be lifted anytime soon,” while another noted “it's still a very tough market for MNCs.”
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Securities regulators in the Chinese mainland and Hong Kong are working closely with Shenzhen Stock Exchange and Hong Kong Exchanges and Clearing Ltd. for the launch of the Shenzhen-Hong Kong Stock Connect program. A spokesman of the China Securities Regulatory Commission (CSRC) said it will ready this year, and the agency has set up a special working group to lead and prepare for the stocks trading on the link.* A-shares climbed to a seven-month high after details of the link's imminent launch. Talk of the promised link has surfaced many times in recent months, and stocks have dutifully surged in response. But this time, market participants are speculating the launch will happen soon. A connect will boost valuations in the mainland city, where the benchmark Shenzhen Composite Index has risen more than 3% in the current quarter to trim its decline for the year to 12%.
*Same day update: The PRC State Council has approved the connect.
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The International Monetary Fund (IMF) has urged China to reduce its reliance on credit-fueled investment and asked it to deal with rising debt and other issues of imbalance while they are still manageable. The IMF, which said China is relying excessively on credit to reach “unsustainably high growth targets,” sets out to-dos including tackling corporate debt, reforming bloated state-owned enterprises and strengthening the financial system to decrease distorting effects on economic performance. It also cited growing risks of disorderly corporate defaults, protracted lower growth and a “hard landing” in regions suffering from industrial overcapacity if China fails to overhaul its economy quickly enough. This comes at a crucial time for China, with the renminbi set to enter the IMF's reserves in October. The nations' credit growth moderated dramatically in July, with an accompanying slowdown in industrial output and fixed asset investment. This shows that the IMF may have a point, and that China should ease back on using credit growth to fuel economic expansion.
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