In the News: 5G Network Launches; UBS Star Board IPO; and Shanghai's P2P Crackdown

China is set to become the world's largest 5G market by 2025 with 460 million 5G users, according to the Global System for Mobile Communications Association, a global telecoms trade body. China had originally said it would launch 5G services in early 2020, but it has accelerated the roll-out amidst a slowing economy and the trade war with the U.S. In June, the Ministry of Industry and Information Technology added 5G services to the telecoms catalogue, the basis for the industry's licensing regime. 5G components were also added to China's "encouraged industries catalogue" in June, which encourages foreign investment in its listed sectors. Chinese companies including Xiaomi and Huawei have unveiled new mobile phone products in recent months with 5G capabilities. Huawei has been integral to China's 5G rollout as the main supplier of network equipment and has also been involved in developing 5G networks for other countries. The U.S. has blacklisted Huawei who it claims to be a national security threat, a charge Huawei denies. The U.S. also denied an application by China Mobile to provide international calls and other services for national security reasons in May. The U.S., South Korea, Australia and the UK all rolled out 5G services earlier this year.

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UBS becomes first foreign IPO sponsor on Star board

UBS has become the first foreign bank to sponsor an initial public offering (IPO) on China's new Science and Technology Innovation Board, or simply Star Market. The Swiss investment bank underwrote the IPO of Shanghai Haohai Biological, a biotech company and the the first company to be dual-listed in Hong Kong and the Star Market. The IPO was priced at $12.62 a share – the highest listing price on the Star market to date – and raised more than $192 million. The company started trading on the board on Oct. 30.

UBS was the sole underwriter of the IPO, oversubscribed by more than 2,400 times, through its majority-controlled securities company in China. The Swiss bank is also an investor in Haohai Biological in accordance with Star Market rules requiring underwriters invest in their own listings. The size of the investment was not disclosed. The Star board was launched in July in Shanghai and targets technology start-ups. It allows companies to be listed through registration without the need for formal application, which is required in Shanghai Stock Exchange's main board.

First announced in November 2018, the Star Market is China's version of the Nasdaq board, which has hosted the IPOs of some of the U.S.'s most successful technology startups. It offers companies a quicker listing process in contrast with an approval-based system for IPOs, which can take years to complete. To mitigate the risks of a less strict listing process, the regulators have put in rules requiring underwriters invest in the companies they sponsor and lock-in their capital for a fixed period of time. This requirement has been controversial and put off some banks from participating in the board as it has been seen as a potential conflict of interest, Financial Times reported. UBS is one of only a few foreign banks allowed to underwrite IPOs in China. It received approval to own a majority stake in its securities underwriting joint venture in China in November 2018, the first foreign bank to take majority control under new rules introduced in 2017.

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Shanghai cracks down on P2P lending

Shanghai is shutting down the operations of more than 40 peer-to-peer (P2P) lenders, Bloomberg reported. Shanghai's financial services bureau has told China's biggest lending platforms including Lufax and Dianrong.com to wind down their operations in the latest blow to the $85 billion industry, which has shrunk by half in 2019. Neither the city regulator nor the companies involved have responded to Bloomberg's requests for comment.

P2P lending involves the connecting of lenders and borrowers through online platforms. P2P has become a tool for retail investors to earn high interest on savings and has acted as an alternative source of financing for people unable to secure loans from banks. P2P companies cannot make loans themselves, but some are allegedly doing so. The report of Shanghai's crackdown came a day after the city's internet finance industry body denied reports of the city's P2P platforms being shut down.

The government has tightened regulation of the P2P industry in recent months amidst increased concerns over financial risk and social stability owing to a wave a defaults in the industry. In late 2017, the banking regulator introduced regulations requiring the registration of all P2P platforms aimed at preventing the pooling of investor funds or the provision of credit services. In August 2018, the authorities released a checklist of 108 queries that P2P lenders would be subjected to. Then in March, the authorities announced that they had frozen $1.5 billion in assets and arrested 62 people from 16 countries and regions as part of the country's global crackdown against illegal P2P lending platforms. According to the Financial Times, the head of Lufax said in October 2018 that most of China's P2P lenders would cease operations in a relatively short period of time.

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