In the News: Coronavirus Import Measures; Stock Connect Enhancement; and Cross-Border Financing
March 23, 2020 | BY
Vincent ChowChina steps up measures to contain imported COVID-19 cases; HKEX launches master SPSA service for fund managers; and SAFE eases foreign borrowing regulations for high-tech startups.
China ramps up quarantine measures for incoming travelers
China is ramping up its COVID-19 control measures for travelers entering the country with the vast majority of new cases in the country now imported from overseas. Major cities including Beijing, Shanghai and Guangzhou have issued their own quarantine requirements for incoming travelers in recent days. According to data compiled by Johns Hopkins University, the number of deaths from COVID-19 globally doubled in a week to surpass 10,000 on Mar. 20, with two-thirds of all cases now outside mainland China.
In Beijing, some inbound flights are being redirected to nearby cities where passengers will then enter the capital city by bus, China's aviation authority announced on Mar. 19. Incoming travelers into Beijing are now required to be quarantined for 14 days in designated hotels, which must be paid for by the travelers themselves. In Shanghai, any Chinese or foreign travelers who have been in countries severely hit by the pandemic in the last 14 days, including the U.S. and the U.K., will either be quarantined at home or in a designated facility upon arrival in Shanghai.
The different quarantine requirements in different cities around China is causing confusion among incoming travelers, CNBC reports. Carlo D'Andrea, Shanghai-based vice president of the EU Chamber of Commerce in China, said in a statement that quarantine measures for incoming travelers is "(un)transparent and uncoordinated and results in uncertainty for returning executives and business travel of other specialized personnel that may be needed for projects in China…" CNBC reports that China's State Council has established a "foreign trade and investment coordination mechanism" to help foreign businesses with their work resumption efforts. According to the Ministry of Commerce, more than 70% of 6,900 key foreign-invested businesses in China have resumed work as of Mar. 17.
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HKEX to launch master SPSA service for fund managers
Hong Kong Exchanges and Clearing Limited (HKEX) will allow pre-trade checking of China A-shares for northbound trading at the fund manager level rather than at the individual fund level. The HKEX announced on Mar. 18 that it will launch the new Master Special Segregated Account (Master SPSA) service for fund managers in Stock Connect, the stock exchange's mutual market access program with the Mainland exchanges, in the first half of 2020.
According to the announcement, the move is subject to approval from Hong Kong's Securities and Futures Commission as well as the response from the markets. The Master SPSA service will be optional and is designed to enhance the efficiency of pre-trade checking of northbound sell orders and average pricing execution at the fund manager level, the HKEX said.
Under Stock Connect, China A-shares must be pre-trade checked before they can be sold. The current SPSA service, set up in 2015, removes the need for institutional investors to transfer their shares to executing brokers prior to a sale. Master SPSA enhances this existing system by allowing pre-trade checking to be conducted at an aggregate level rather than the individual while maintaining the same post-trade settlement process at the individual SPSA level. HKEX is also working on a post-trade platform built on distributed ledger technology (the basis for blockchain) to help reduce risk and increase transparency in the settlement process, which could be implemented by the end of the year, a source familiar with the matter said in Dec. 2019.
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SAFE expands cross-border financing pilot program
China's foreign exchange regulator will expand a pilot program that makes it easier for high-tech start-ups to borrow money from overseas. The State Administration of Foreign Exchange (SAFE) announced on Mar. 19 that it will expand its "foreign debt facilitation pilot" to the Shanghai free trade pilot zone, the Hubei free trade pilot zone and the Wuhan Donghu Hi-tech Development Zone, and Guangzhou and Shenzhen in the Greater Bay Area.
SAFE launched the pilot program in 2018 in Beijing's Zhongguancun National Innovation Demonstration Park technology hub, which allows micro, small and medium-sized enterprises (MSME's) that meet certain conditions to borrow money from overseas within a certain amount. The latest announcement also enhances the scope of the pilot program in Beijing, with SAFE adding that it will continue to monitor cross-border capital flows and prevent systemic financial risks.
In 2016, SAFE and the People's Bank of China (PBOC) established a "Full Process Cross-border Financing Macroprudential Administrative Policy Framework", which laid out plans to support greater cross-border financing by relaxing approval requirements for acquiring foreign debt. On Mar. 11, SAFE and the PBOC increased the cross-border finance macroprudential adjustment parameter from 1 to 1.25, in effect raising the ceiling for cross-border financial risk weighting and facilitating greater cross-border financing by domestic companies. In the latest announcement, SAFE said that it will also expand foreign exchange services in the future.
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