In the News: US Threatens New Tariffs; Huawei's Sales Growth Slows; and New Regulations on Financial Holding Companies

China has introduced reforms to improve market entry conditions and IP protection for foreign investors since the trade war began in 2018. Earlier this year, a new Foreign Investment Law was promulgated prohibiting forced technology transfers in addition to amendments to the Trademark Law which targets bad faith trademark registration and counterfeiting. In June, the National Development and Reform Commission and the Ministry of Commerce (MOFCOM) jointly issued two shortened "negative lists" and an expanded "encouraged catalogue" relaxing foreign investment curbs in several sectors. However, the new tariffs could accelerate China's rollout of its "Unreliable Entity List", says Bill Bishop, an expert China commentator and author of the influential daily newsletter Sinocism. American companies could also face licensing problems and increased inspections, he writes.

More from CLP: China Woos Global CEOs; China's New Foreign Investment Law: Implications for the Future of FIEs; Revised Trademark Law Targets Bad Faith Registration and Infringements; Legislation roundup: National and FTZ negative lists, and encouraged foreign investment catalogue

Huawei sees revenue growth in H1 but slowing sales set to continue

Chinese telecom giant Huawei reported a 23% growth in H1 revenue from the same period last year to $58.3 billion last week. However revenue growth slowed in the June quarter to 13%, down from the previous quarter's 39%, according to Bloomberg. These numbers are the first reported indicators of Huawei's financial health since the Chinese telecoms giant was placed on the U.S. Entity List in May.

Huawei's Chairman Liang Hua warned of difficulties ahead as the company continues to feel the effects of U.S. sanctions, with overseas smartphone sales at 80% of their pre-blacklisting level. U.S. technology suppliers are now effectively banned from working with Huawei which has restricted the Chinese company's access to crucial parts for its products.

In a move widely seen as retaliation against US sanctions of Huawei, MOFCOM announced on May 31 that China will release its own "Unreliable Entity List" consisting of foreign entities which refuse to sell products to Chinese companies and subjecting them to market access sanctions. MOFCOM officials cited the Anti-Monopoly Law, the Foreign Trade Law and the National Security Law as bases for the list. The new Foreign Investment Law, set to come into effect next year, also provides that China may take "corresponding measures" against countries which take prohibitive or restrictive measures against China with respect to investment (Article 40).

More from CLP: PRC Anti-Monopoly Law; PRC Foreign Investment Law; The Entity List: America's Trade War Weapon; Is China's 'Unreliable List' A Serious Threat to Foreign Companies?

Chinese financial holding companies to face regulations for the first time

Chinese financial holding companies are set to face regulations for the first time according to draft rules issued by the People's Bank of China (PBOC) on Jul. 26, including strict capital requirements and a ban on non-financial business activities. In a statement, China's central bank highlighted the accumulation of risk in the past few years as a result of "blind business expansion" in the financial holding sector, necessitating the new rules to reduce cross-sector systemic risks.

Financial holding companies are usually established by large non-financial conglomerates which offer financial services such as insurance and asset management. Examples include Ant Financial, which originated from Alipay, and Suning Holdings Group – both of which were targeted by the PBOC last year for supervision. The new regulations, to be finalized after a feedback period this month, will only apply to financial holding conglomerates above a certain asset threshold. Companies with more than one type of financial business must apply for a license within six months of the rules taking effect and have more than $724.5 million (Rmb5 billion) in registered capital.

Since last year, Beijing has been working towards better regulating the 60 or so financial holding companies in China to shore up the economy amidst slowing growth and a taxing trade war with the United States. A guidance document jointly issued last November by the PBOC, the China Banking and Insurance Regulatory Commission and the China Securities Regulatory Commission laid out plans to better regulate "systematically important financial institutions" including financial holding companies which met the definition of being systematically important (Section Seven).

More from CLP: People's Bank of China, China Banking and Insurance Regulatory Commission and China Securities Regulatory Commission, Guiding Opinions on Improving the Regulation of Systemically Important Financial Institutions